Shandong Airlines Co., Ltd. Summary of Annual Report 2009 1 Shandong Airlines Co., Ltd. Summary of Annual Report 2009 §1. Important Notice 1.1 Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of Shandong Airlines Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The summary of Annual Report 2009 is abstracted from the Annual Report; and full text of the Annual Report is published on Internet website http://www.cninfo.com.cn in the mean time. The investors are suggested to read the full text of semi-annual report to get more details. 1.2 Director Mr.Wang Mingyuan was absent from the Board meeting and authorized Director Mr.Feng Gang to vote on his behalf. 1.3 Reanda Certified Public Accountants issued the standard unqualified Auditors’ Report for the Company. 1.4 Chairman of the Board Mr. Zhang Xingfu, General Manager Mr. Zeng Guoqiang, and Chief Accountant Mr. Xu Guojian of the Company hereby confirm that the Financial Report of the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock Shanhang B Stock code 200152 Listed stock exchange Shenzhen Stock Exchange Registered address Yaoqiang International Airport, Jinan, Shandong Post code of registered address 250107 Office address SDA Building, No. 5746, Er Huan East Road, Jinan, Shandong Post code of office address 250014 Internet web site of the Company http://www.shandongair.com.cn E-mail zqb@shandongair.com.cn 2.2 Contact person and method Secretary of the Board of Directors Authorized Representative in Charge of Securities Affairs Name Dong Qiantang Fan Peng Contact address 12/F, SDA Building, No. 5746, Er Huan East Road, Jinan, Shandong 19/F, SDA Building, No. 5746, Er Huan East Road, Jinan, Shandong Telephone 0531-85698229 0531-85698678 Fax 0531-85698679 0531-85698679Shandong Airlines Co., Ltd. Summary of Annual Report 2009 2 E-mail dongqt@shandongair.com.cn fanp@shandongair.com.cn §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB 2009 2008 Increase/decrease in this year compared with that of last year (%) 2007 Operating income 5,366,113,363.68 5,049,391,116.47 6.27% 4,630,130,538.19 Total profit 403,361,305.82 108,260,827.56 272.58% 98,768,111.17 Net profit attributable to shareholders of the listed company 302,282,325.68 80,981,442.68 273.27% 68,171,958.24 Net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses 203,597,306.19 92,440,296.87 120.25% 53,689,781.57 Net cash flow arising from operating activities 1,317,347,150.42 1,059,833,106.56 24.30% 734,571,420.98 At the end of 2009 At the end of 2008 Increase/decrease at the end of this year compared with that at the end of last year (%) At the end of 2007 Total assets 8,096,403,730.75 7,844,104,901.47 3.22% 7,082,444,002.92 Owners’ equity attributable to shareholders of the listed company 852,294,621.98 550,012,296.30 54.96% 469,030,853.62 Share capital 400,000,000.00 400,000,000.00 0.00% 400,000,000.00 3.2 Major financial indexes Unit: RMB 2009 2008 Increase/decrease this year compared with that last year (%) 2007 Basic earnings per share (RMB/Share) 0.76 0.20 280.00% 0.17 Diluted earnings per share (RMB/Share) 0.76 0.20 280.00% 0.17 Basic earnings per share after deducting 0.51 0.23 121.74% 0.13Shandong Airlines Co., Ltd. Summary of Annual Report 2009 3 non-recurring gains and losses (RMB/Share) Weighted average return on equity (%) 43.11% 15.89% 27.22% 15.67% Weighted average return on equity after deducting non-recurring gains and losses (%) 29.04% 18.14% 10.90% 12.34% Net cash flow arising from operating activities per share (RMB/Share) 3.29 2.65 24.15% 1.84 At the end of 2009 At the end of 2008 Increase/decrease at the end of this year compared with that at the end of last year (%) At the end of 2007 Net asset per share attributable to shareholders of listed company (RMB/Share) 2.13 1.38 54.35% 1.17 Items of non-recurring gains and losses √Applicable □Inapplicable Unit: RMB Items of non-recurring gains and losses Amount Notes (If applicable) Gains and losses from the disposal of non-current asset 2,758,500.92 Losses caused by the disposal of fixed assets, transferring of contract of construction in progress, and bankruptcy of CAPT Driving School. Governmental subsidy calculated into current gains and losses, while closely related with the business of the Company, excluding the fixed-amount or fixed-proportion governmental subsidy according to the unified national standard 135,213,761.47 Due to the returns of Construction Fund of Civil Aviation and subsidiaries for flight courses Losses/gains from changes of fair values occurred in holding transaction financial assets and transaction financial liabilities, and investment income obtaining from the disposal of transaction financial assets and transaction financial liabilities and financial assets available for sales, excluded effective hedging business relevant with normal operations of the Company -10,020,739.69 Changes in delivery income of interest rate swaps and fair values. Other non-operating income and expenditure except for the aforementioned items 3,628,053.31 Influenced amount of income tax -32,894,894.00 Influenced amount of minority shareholders’ equity 337.48 Total 98,685,019.49 -Shandong Airlines Co., Ltd. Summary of Annual Report 2009 4 3.3 Differences between CAS and IAS □Applicable √Inapplicable §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share capital Unit: Share Before the change Increase/Decrease of this time (+, -) After the change Amount Proportion New shares issued Bonus shares Capitalizati on of public reserve Others Subtotal Amount Proportion I. Unlisted shares 260,000,000 65.00% 260,000,000 65.00% 1. Sponsor’s shares 168,780,100 42.20% 168,780,100 42.20% Including: State-owned shares 168,581,100 42.15% 168,581,100 42.15% Domestic legal person’s shares 199,000 0.05% 199,000 0.05% Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or other 91,219,900 22.80% 91,219,900 22.80% II. Listed shares 140,000,000 35.00% 140,000,000 35.00% 1. RMB ordinary shares 2. Domestically listed foreign shares 140,000,000 35.00% 140,000,000 35.00% 3. Overseas listed foreign shares 4. Other III. Total shares 400,000,000 100.00% 400,000,000 100.00% 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Unit: Share Total shareholders at the end of report 20,162 Particulars about shares held by the top ten shareholders Full name of Shareholders Nature of shareholders Proportion Shares held Non-circulating shares Number of share pledged/ frozen SHANDONG AVIATION GROUP State-owned legal person 42.00% 168,004,000 168,004,000 0 AIR CHINA LIMITED State-owned 22.80% 91,200,000 91,200,000 0Shandong Airlines Co., Ltd. Summary of Annual Report 2009 5 legal person CHEN TIAN MING Foreign natural person 0.44% 1,769,072 0 0 CHEN CHUN PENG Foreign natural person 0.36% 1,430,000 0 0 CHEN JING JIAN Foreign natural person 0.33% 1,304,200 0 0 WU HAO YUAN Foreign natural person 0.27% 1,062,700 0 0 LIU LI YA Foreign natural person 0.23% 904,217 0 0 JOHN POSS Foreign natural person 0.18% 700,000 0 0 DENG HONG WEI Foreign natural person 0.16% 650,609 0 0 FENG WU CHU Foreign natural person 0.16% 631,700 0 0 Particulars about shares held by the top ten shareholders of circulation share Full name of the shareholders Circulating shares held Type of shares CHEN TIAN MING 1,769,072 Domestically listed foreign share CHEN CHUN PENG 1,430,000 Domestically listed foreign share CHEN JING JIAN 1,304,200 Domestically listed foreign share WU HAO YUAN 1,062,700 Domestically listed foreign share LIU LI YA 904,217 Domestically listed foreign share JOHN POSS 700,000 Domestically listed foreign share DENG HONG WEI 650,609 Domestically listed foreign share FENG WU CHU 631,700 Domestically listed foreign share XU ZHAO HUAN 623,400 Domestically listed foreign share CHEN ZI XIANG 610,700 Domestically listed foreign share Explanation on associated relationship or accordant action among the aforesaid shareholders 1. Shandong Aviation Group is the first largest shareholder of the Company, who holds the shares of the Company on behalf of the State with unlisted shares. 2. Air China Limited is the second largest shareholder of the Company, who holds the shares of the Company on behalf of the State with unlisted shares; Air China is the first largest shareholder of SDA and the actual controller of the Company. 3. Among the above the top ten shareholders, Air China, shareholders of state-owned legal person’s share, is the first largest shareholder of the SDA, and there exists no associated relationship between SDA and Air China and the other shareholders, and they don’t belong to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies with the other shareholders. The Company is not aware of their associated relationship among the other shareholders of circulation share, whether belongs to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for controlling shareholder and actual controllerShandong Airlines Co., Ltd. Summary of Annual Report 2009 6 Actual controller of the Company: Air China Limited. Place: 9F/Sky Mansion, No.28 Buliding Tianzhu Road, Block A of Tianzhu Airport Industrial Zone, Shunyi District, Beijing. Legal Representative: Kong Dong Registered capital: RMB 12.251 billion Business scope: It was engaged in the domestic and overseas transportation business such as periodic and aperiodic aviation passenger, cargo, letter and baggage; domestic and overseas official flight business; aeroplane management business; repairing of aerostat; business agent among air companies; ground service and air courier services related with the main operations (excluding letter and articles with the nature of letters); tax-free commodities in airplane. Main shareholders: China National Aviation Group Co., Ltd., which accounted for 40.4% in total shares; Cathay Pacific Airways Ltd., which accounted for 18.1% in total shares. 4. 3. 3 Property right and controlling relationships between the actual controller of the Company and the Company is as follows: 100% 40.4% 49.406% 22.8% 42% §5. Particulars about Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives and their remunerations Air China Limited Shandong Aviation Group Shandong Airlines Co., Ltd. China National Aviation Group Co., Ltd. State-owned Assets Supervision & Administration Commission of State CouncilShandong Airlines Co., Ltd. Summary of Annual Report 2009 7 Name Title Sex Birthday Begin date of office term End date of office term Shares held at year-begi n Shares held at year -end Reason for change Total remunera tion drawn from the Company in the report period (RMB’00 00)(befor e tax) Drawing remuner ation from sharehol ders’ units or other related units or not Zhang Xingfu Chairman Male Apr. 1955 June 26, 2009 June 25, 2010 0 0 0.00 Yes Feng Gang Vice Chairman Male Sep. 1963 June 26, 2009 June 25, 2010 0 0 0.00 Yes Zeng Guoqiang Director, General Manger Male Oct. 1953 June 26, 2009 June 25, 2010 0 0 65.65 No Su Zhongmin Director, Standing Deputy General Manager Male March 1954 June 26, 2009 June 25, 2010 0 0 56.41 No Xiao Feng Director Deputy General Manager, Chief Accountant Male Oct. 1968 June 26, 2009 March 24, 2010 0 0 46.83 No Wang Mingyuan Director Male Sep. 1965 June 26, 2009 June 25, 2010 0 0 0.00 Yes Kou Zunxian Director Male Aug. 1955 June 26, 2009 June 25, 2010 0 0 0.00 Yes Wang Jieming Director Fem ale June 1958 June 26, 2009 June 25, 2010 0 0 0.00 Yes Wei Jincai Independent Director Male Feb. 1950 June 26, 2009 June 25, 2010 0 0 5.90 No Li Chun Independent Director Male March 1957 June 26, 2009 June 25, 2010 0 0 2.98 No Qu Wenzhou Independent Director Male June 1972 June 26, 2009 June 25, 2010 0 0 2.98 No Wang Fuzhu Chairman of the Supervisory Committee Male June 1953 June 26, 2009 June 25, 2010 0 0 0.00 Yes Xue Ruitao Supervisor Male March 1961 June 26, 2009 June 25, 2010 0 0 0.00 Yes Zhang Kai Supervisor Male May 1965 June 26, 2009 June 25, 2010 0 0 0.00 YesShandong Airlines Co., Ltd. Summary of Annual Report 2009 8 Miao Liubin Employee Supervisor, GM of Flight Department Male Feb. 1971 June 26, 2009 June 25, 2010 0 0 30.79 No Zhou Qiaoyan Employee Supervisor, Deputy Head of Cabin Service Department Fem ale Jan. 1975 June 26, 2009 June 25, 2010 0 0 19.27 No Yu Haitian Deputy General Manager Male Sep. 1969 June 26, 2009 June 25, 2010 0 0 54.82 No Song Yuxia Deputy General Manager Fem ale Jan. 1956 June 26, 2009 June 25, 2010 0 0 56.97 No Li Qing’en Deputy General Manager Male Aug. 1955 June 26, 2009 June 25, 2010 0 0 53.70 No Qiu Feng Deputy General Manager Male Jan. 1967 June 26, 2009 June 25, 2010 0 0 33.28 No Zhang Qingshe Chief Pilot Male Oct. 1958 June 26, 2009 June 25, 2010 0 0 54.85 No Xiong Jianbo General Engineer Male Jan. 1965 Dec. 1, 2009 June 25, 2010 0 0 31.50 No Dong Qiantang Secretary of the Board Male Jan. 1962 June 26, 2009 June 25, 2010 0 0 23.21 No Total - - - - - 0 0 - 539.14 - Stocks option of the directors, supervisors and senior executives bestowed in the report period □Applicable √Inapplicable 5.2 Presences at the meetings of the Board by the directors Name of the directors Positions Due Presence (times) Presence in person (times) Attending the meeting in way of communicat ion (times) Entrusted presence Absence (times) Whether attending the meeting in person in successive two times or notShandong Airlines Co., Ltd. Summary of Annual Report 2009 9 Zhang Xingfu Chairman 8 3 4 0 1 No Feng Gang Vice Chairman 8 2 5 0 1 No Zeng Guoqiang Director, General Manger 8 3 5 0 0 No Su Zhongmin Director, Standing Deputy General Manager 8 3 5 0 0 No Xiao Feng Director, Deputy General Manager, Chief Accountant 8 3 5 0 0 No Wang Mingyuan Director 8 2 5 1 0 No Kou Zunxian Director 8 3 5 0 0 No Wang Jieming Director 8 2 4 2 0 No Wei Jincai Independent Director 4 1 3 0 0 No Li Chun Independent Director 4 1 3 0 0 No Qu Wenzhou Independent Director 4 1 3 0 0 No Explanations on not attending the meeting of the Board in person in successive two times Meetings of the Board held during the year (times) 8 Of which: site meetings (times) 3 Meetings held in way of communication (times) 5 Meetings held in way of both site and communication (times) 0 §6. Report of the Board of Directors 6.1 Discussion and analysis by the management team Confronted with severe impact posed by international financial crisis, the Company thoroughly applied the Scientific Development Thought and implemented Crisis-Passing strategy actively under the right leadership of Shandong Provincial Party Committee, Shandong Provincial Government, and Civil Aviation Administration of China. The Company scientifically and practically adapted itself to the changing environment to turn crisis into opportunities; made coordinated arrangement for works involving reform, innovation and development; achieved the stable development of safe production; realized historic breakthrough in profit; had prominent improvement in service, positive change in overall management levels, a harmonious and stable staff; and successfully realized safe flights for 15 years. 1. Safety: The Company kept zero human error-caused flying accident for two consecutive years and zero record of ground accident. The safety management level and safety control ability were reinforced further and the general security trend remained steady. 2. Transportation index: In 2009, the Company totally had 151,000 hours for safety flights and 87,000 sorties, respectively 18.5% and 13.9% up compared to those of the same period of last year; overall transportation amounting to 971 million ton*kilometer was accomplished by the Company, 21.3% up compared to those of the same period of last year; and totally 7,817,000 passengers wereShandong Airlines Co., Ltd. Summary of Annual Report 2009 10 safely conveyed, 19.2% up compared to those of the same period of last year. 3. Benefit: In 2009, the operating income realized by the Company totaled RMB 5.302 billion,6.34 % up compared to that of the same period of the last year; total profit amounted to RMB403 million , increasing by RMB295 million compared to that of the same period of last year; ratio of debts to assets was reduces to below 90%. The Company received some promotions in its capabilities of profit-making, development and debts repayment. 4. Service: The punctuality rate for the scheduled flight in the whole year of 2009 was 83.4%, ranking second among the national civil aviation; only 0.82 time complaints were received from every 10,000 passengers, 0.48 time/10,000 passenger down compared to that of the same period of last year; the satisfaction rate from passengers was 89.82%, 0.62 percentage points up compared to that of the same period of last year; and the dilapidation error rate for baggage was 0.0238%, 0.0044% down compared to that of the same period of the last year. As the flight service partner for the Eleventh National Games, the Company successfully finished the service and assurance task during the session and was thus rewarded as “Advanced Collective for Preparing the Eleventh National Games” and “Award for Special Contributions for the Eleventh National Games” by Provincial Party Committee of Shandong, Shandong Provincial Government, and Organization Committee for National Games. 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Main operations classified according to industries Classified according to industries or products Income from operations Cost of operations Gross profit ratio (%) Increase/decre ase in income from operations over the last year (%) Increase/decre ase in cost of operations over the last year (%) Increase/decrea se in gross profit ratio over the last year (%) Aviation transportation industry 527,436.24 408,589.56 22.53% 6.49% -0.38% 5.34% Logistics transportation services 701.53 191.04 72.77% 16.52% 45.48% -5.42% Hotel and food services 2,298.41 1,917.90 16.56% 1.98% 22.83% -14.17% Main operations classified according to products Aviation transportation industry 527,436.24 408,589.56 22.53% 6.49% -0.38% 5.34% Logistics transportation services 701.53 191.04 72.77% 16.52% 45.48% -5.42% Hotel and food services 2,298.41 1,917.90 16.56% 1.98% 22.83% -14.17% 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Areas Income from operations Increase/decrease in income from operations over last year (%) Domestic 515,990.34 7.39%Shandong Airlines Co., Ltd. Summary of Annual Report 2009 11 International 14,445.83 -18.33% 6.4 Items measured by adopting fair value √Applicable □Inapplicable Unit: RMB Item Amount at period-begin Gains/losses from changes of fair value in the report period Changes of accumulative fair value reckoned in equities Devaluation withdrawn in the report period Amount at report-end Financial assets Of which: 1. Financial assets measured by fair value, and its changes are reckoned in current gains/losses 23,460,812.11 -12,118,965.63 11,341,846.48 Including: Derivative financial asset 2. Financial assets available for sales Subtotal of financial assets 23,460,812.11 -12,118,965.63 11,341,846.48 Financial liabilities Investment property Productive biological assets Others Total 23,460,812.11 -12,118,965.63 11,341,846.48 6.5 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.6 Application of the proceeds not raised through shares offering □Applicable √Inapplicable 6.7 Explanation of the Board of Directors on changes to the accounting policy and accounting estimates, or reasons of modification of material accounting errors and the influences √Applicable □Inapplicable With the changes on recent market condition and pilot mobility, the Company re-examined the beneficial years in accordance with the service years and resignations of the pilots. The 2010 First Extraordinary Meeting of the 4th Board of the Company examined and approved the Proposal on Changes to Accounting Estimation of Shandong Airlines Co., Ltd., which decided to adopt new accounting estimations since Oct. 1, 2009, and change the amortization periods of training expense on pilots from 20 years to 10 year. Thus, the changes of accounting estimation made the current net profit decrease amounting to RMB 24,159,590.99. The influences on net profit of 2009 by the aforementioned as follows: (Unit: RMB)Shandong Airlines Co., Ltd. Summary of Annual Report 2009 12 2009 Adjustment Item Amount Changes of the amortization periods of Operating cost 32,212,787.99 training expense on pilots Income tax expense -8,053,197.00 Total 24,159,590.99 6.8 Explanation of the Board of Directors on the “Qualified Opinion” made by the CPAs □Applicable √Inapplicable 6.9 The preplan of the profit distribution and capitalization of capital public reserve of the Board of Directors Audited by Reanda Certified Public Accountants, the Company realized net profit RMB300.8534 million in 2009. The undistributed profits of the beginning of the year was 33,9647 million,And the profit available for distribution of parent company till Dec. 31, 2009 was RMB334.8181 million. In order to return the shareholder’s supports for many years, and meanwhile, consider the long-term development of the Company, the Board plans to submit the 2009 profit distribution plan to the shareholders’ general meeting, as follows: 1. Withdrawal of current statutory surplus reserve amounts to RMB30.0853 million. 2. Plans to distribute cash bonus amounting to RMB80 million, taking the total shares 400,000,000 of the Company ended as Dec. 31, 2009 as the base, the cash bonus for each 10 share is RMB2(Tax included). Particulars about the cash bonus of the Company in previous three years Unit: RMB Year for bonus distribution Amount of cash bonus (tax included) Net profit attributable to shareholders of listed company in consolidated statement of bonus year Ratio of net profit attributable to shareholders of listed company in consolidated statement Distributable profit during the year 2008 0.00 80,981,442.68 0.00% 36,471,405.69 2007 0.00 68,171,958.24 0.00% 0.00 2006 0.00 10,025,635.45 0.00% 0.00 The proportion of accumulative cash bonus during recent three years in latest annual average net profit (%) 0.00% The Company didn’t put forward cash profit distribution preplan though the Company achieved the profit in the report period □Applicable √Inapplicable §7. Significant Events 7.1 Purchase of assets □Applicable √InapplicableShandong Airlines Co., Ltd. Summary of Annual Report 2009 13 7.2 Sales of assets □Applicable √Inapplicable Influences on the business continuity and stability of management of the Company by the matters 7.1 and 7.2 concerned 7.3 Significant guarantees □Applicable √Inapplicable 7.4 Significant related transaction 7.4.1 Related transaction connected to routine operations √Applicable □Inapplicable Unit: RMB’0000 Sell products and supply labor force to the related parties Purchase products and accept labor force from related parties Related parties Transaction amount Proportion in the amount of the same transaction Transaction amount Proportion in the amount of the same transaction Taikoo (Shandong) Aircraft Engineering Co., Ltd 0.00 0.00% 8,334.70 22.19% Shandong Aviation Group 0.00 0.00% 1,129.46 23.70% Qingdao Feisheng International Aero Technical Training Co., Ltd. 0.00 0.00% 409.74 4.64% Shandong International Aero Training Co., Ltd. 0.00 0.00% 792.79 8.98% Shandong Xiangyu Aero Technical Services Co., Ltd. 0.00 0.00% 1,935.00 5.15% Air China Limited 1,020.00 79.01% 0.00 0.00% Total 1,020.00 79.01% 12,601.69 64.66% Of which: In the report period, the related transaction amount the listed companies sold products or supplied labor forced for the controlling shareholders and its subsidiaries was RMB 652.63 million. 7.4.2 Related current credits and liabilities □Applicable √Inapplicable 7.4.3 Occupation and its progress of paying off on non-operational funds by largest shareholder and its affiliated enterprises □Applicable √Inapplicable 7.5 Entrusted assets management □Applicable √Inapplicable 7.6 Implementation of commitments □Applicable √Inapplicable Commitments made by the listed company and its directors, supervisors, senior executives, the shareholders with holding above 5% shares and its actual controller in the report period or lasting until the report period.Shandong Airlines Co., Ltd. Summary of Annual Report 2009 14 □Applicable √Inapplicable 7.7 Significant lawsuit and arbitrations □ Applicable √Inapplicable 7.8 Other significant events and analysis on their influences and solutions 7.8.1 Particulars about securities investment □Applicable √Inapplicable 7.8.2 Equity of other listed companies held □Applicable √Inapplicable 7.8.3 Equities of companies to be listed and unlisted financial enterprises held □Applicable √Inapplicable 7.8.4 Particulars about the purchases and sales on equities of other listed company □Applicable √Inapplicable 7.8.5 Other consolidated incomes Unit: RMB Items Amount occurred in the report period Amount occurred in last report period 1. Gains/losses from financial assets available for sales Less: Income tax influences from financial assets available for sales Net amount reckoned into other consolidated income in previous period but transferred into gains/losses in current period Subtotal 2. Shares in the other consolidated income of the investee calculated based on equity method Less: Income tax influences of shares in the other consolidated income of the investee calculated based on equity method Net amount reckoned into other consolidated income in previous period but transferred into gains/losses in current period Subtotal 3. Gains/losses from cash flow hedge instrument Less: Income tax influences from cash flow hedge Net amount reckoned into other consolidated income in previous period but transferred into gains/losses in current period Adjusted amount transferred to initial confirmed amount of the arbitraged itemsShandong Airlines Co., Ltd. Summary of Annual Report 2009 15 Subtotal 4. Differences from translating foreign currency financial statements Less: Net amount of disposing overseas business transferred to current gains/losses Subtotal 5. Others Less: Income tax influences by others reckoned into other consolidated income Net amount reckoned into other consolidated income in previous period but transferred into gains/losses in current period Subtotal Total 0.00 0.00 §8. Report of the Supervisory Committee √Applicable □Inapplicable (I) Particulars about the work of Supervisory Committee In 2009, the Supervisory Committee exerted the duties authorized by Company Law of the P.R.C. and the Articles of Association of the Company according to laws with assiduity and responsibility, actively implemented supervision functions on the Company’s operating decision-making, financial status, the responsibility and behaviors of directors and senior managers in the period and tried to safeguard the rights and interests of the shareholders. The Supervisory Committee had hold four meetings of the Supervisory Committee and attended all Shareholders’ General Meetings and meetings of the Board in 2009. In the report period, the Supervisory Committee totally held the following meetings: 1. On Mar. 27th of 2009, the 9th Meeting of the 3rd Supervisory Committee was held in the conference room of SDA Building. The meeting examined and approved the following proposals: (1) The 2008 Annual Report and Summary of Shandong Airlines Co., Ltd; (2) The 2008 Working Report of Shandong Airlines Co., Ltd.; (3) Proposal on Accounting Treatment of Errors Correction of Interest Rate Swap. The public notice of the resolutions was published on China Securities Journal, Securities Times and Hong Kong Wen Wei Po dated Mar. 31st of 2009. 2. On April 28th of 2009, the 10th Meeting of the 3rd Supervisory Committee was held in the conference room of SDA Building. The meeting examined and approved the Proposal on Election of Changing Term of Supervisory Committee of Shandong Airlines Co., Ltd. The public notice of the resolutions was published on China Securities Journal, Securities Times and Hong Kong Wen Wei Po dated April 30th of 2009. 3. On June 26th of 2009, the 1st Meeting of the 4th Supervisory Committee was held in the conference room of SDA Building. The meeting examined and approved Proposal on Election of Chairman of Supervisory Committee of Shandong Airlines Co., Ltd. The public notice of the resolutions was published on China Securities Journal, Securities Times and Hong Kong Wen Wei Po dated June 27th of 2009. 4. On Aug. 21st of 2009, the Meeting of the Supervisory Committee was held in the conference room of SDA Building. The meeting examined and approved the 2009 Semi-annual Report and its Summary of Shandong Airlines Co., Ltd.Shandong Airlines Co., Ltd. Summary of Annual Report 2009 16 (II) Independent Opinions of the Supervisory Committee on relevant events in 2009 The Supervisory Committee conducted serious inspection and supervision on such conditions as the Company’s finance, implementing resolutions of Shareholders’ General Meeting, operating decision-making, operation according to laws, operating behaviors of directors, managers and senior executives and related transactions, etc; and believed that the operation management of the Company was in accordance with the relevant laws and regulations and the Articles of Association of the Company. 1. Operation according to laws In the report period, the Company conducted regulated operation complying with Company Law, Securities Law, Articles of Association of the Company, and Rules for Shares Listed with Shenzhen Stock Exchange and other national relevant laws and regulations. It implemented effective internal control system inside the Company. Following the regulations and laws and being honest with faith and diligence, directors and senior executives of the Company carefully implemented every resolutions approved in Shareholders’ General Meeting with a view to protect the shareholders’ interests. There was no behaviors found that directors or senior executives broke the laws, regulations, or Articles of Association or harmed the interests of the Company in their office terms. 2. Finance management of the Company The Supervisory Committee carefully examined the financing situation of the Company. In the opinion of the Supervisory Committee, 2009 Financial Report of the Company reflected the financial situation and operation results of the Company truthfully and fairly. The accounting vouchers, books and statements, and other accounting materials were genuine and standard. 3. Related transaction The related transactions of the Company are done in accordance with the market principle, so they are of equality and reasonable price, and also maintain the interests of shareholders’ equity and the listed companies. §9. Financial Report 9.1 Auditor’s opinions Audited or not Yes Auditor’s opinions Standard unqualified auditor’s opinions Ref. No. of auditor’s report Reanda SZi No.[2010]1141 Title of auditor’s report Auditor’s Report Receiver of auditor’s report Shareholders of Shanhang Airlines Co., Ltd. Introduction paragraph We have audited the accompanying financial statements of Shandong Airlines Co., Ltd. (“the Company”), including balance sheet and consolidated balance sheet of 31 December 2009, and profit statement and consolidated profit statement, and cash flow statement and consolidated cash flow statement, and statement on changes of owners’ equity and consolidated statement on changes of owners’ equity for the year ended, and notes to the financial statements for the year ended. Responsibilities paragraph of the management on the financial statements The Company's management is responsible for the preparation and fair presentation of the financial statements in accordance with the Enterprises Accounting Standards and Enterprises Accounting System. The responsibility includes: (1) designing, performing and maintaining internal control related to the preparation and fair presentation of the financial statements, which are free from material misstatements whether due to frauds orShandong Airlines Co., Ltd. Summary of Annual Report 2009 17 errors; (2) choosing and applying right accounting policies; (3) making reasonable accounting estimates. Responsibilities paragraph of the CPA Our responsibility is to express an audit opinion on these financial statements based on our audit. We performed our audit in accordance with Chinese Certified Public Accountants Auditing Standards. Those standards require us to comply with professional ethics, and to plan and perform our audit so as to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures of the financial statements. The selective audit procedures depend on auditor’s judgment, including the evaluation of the risk of material misstatement of the consolidated financial statements due to frauds or errors. When evaluating risk, we consider internal control related to financial statements, in order to design auditing procedures, but not for the purpose of expressing an opinion on the internal control’s effectiveness. An audit also includes assessing the appropriateness of the accounting policies adopted and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that we have obtained sufficient and appropriate audit evidences to provide a basis for our audit opinion. Paragraph of auditor’s opinions In our opinion, the Company’s financial statements have been prepared in accordance with the Enterprises Accounting Standards and Enterprises Accounting System, and they fairly present, in all material respects, the financial position of the Company as of December 31, 2009, and its operation results and cash flows for the year ended. Non-standard opinions Name of audit institution Reanda Certified Public Accountants Address of audit institution Room 2008 on 20/F, East District of No.1 Building, No.100, Xili Street, Balizhuang, Chaoyang District, Beijing Date of auditor’s report March 24, 2010 Name of the Certified Accountants Lin Wanqiang/Yang Yunhui 9.2 Financial statement 9.2.1 Balance Sheet Prepared by Shandong Airlines Co., Ltd. December 31, 2009 Unit: RMB Balance at Items period-end Balance at year-begin Consolidation Parent Company Consolidation Parent Company Current assets: Monetary funds 194,065,742.69 179,813,989.83 71,872,933.88 57,648,117.02 Settlement provisions Capital lent Transaction finance asset 11,341,846.48 11,341,846.48 23,460,812.11 23,460,812.11 Notes receivable Accounts receivable 142,545,895.96 140,731,572.47 126,118,032.09 125,105,495.35 Accounts paid in advance 22,504,262.48 22,370,882.70 29,124,244.97 28,986,600.63 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivableShandong Airlines Co., Ltd. Summary of Annual Report 2009 18 Interest receivable Dividend receivable 1,617,642.00 1,617,642.00 Other receivables 160,552,013.99 160,483,475.47 144,978,136.24 145,198,107.29 Purchase restituted finance asset Inventories 65,267,781.10 65,267,781.10 74,347,529.57 74,347,529.57 Non-current asset due within one year Other current assets Total current assets 597,895,184.70 581,627,190.05 469,901,688.86 454,746,661.97 Non-current assets: Granted loans and advances Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity investment 88,352,100.00 112,165,305.97 88,352,100.00 112,165,305.97 Investment property Fixed assets 6,631,600,764.96 6,619,089,545.44 5,684,074,945.46 5,670,839,727.85 Construction in progress 422,277,445.58 422,277,445.58 1,277,744,153.32 1,277,744,153.32 Engineering material Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets 47,895,073.21 33,013,562.26 46,945,074.17 32,028,907.27 Expense on Research and Development Goodwill Long-term expenses to be apportioned 216,546,250.96 216,370,254.46 208,312,781.55 208,312,781.55 Deferred income tax asset 91,836,911.34 91,812,136.84 68,774,158.11 68,767,156.73 Other non-current asset Total non-current asset 7,498,508,546.05 7,494,728,250.55 7,374,203,212.61 7,369,858,032.69 Total assets 8,096,403,730.75 8,076,355,440.60 7,844,104,901.47 7,824,604,694.66 Current liabilities: Short-term loans 739,819,020.88 739,819,020.88 1,006,887,514.55 1,006,887,514.55 Loan from central bank Absorbing deposit and interbank deposit Capital borrowed Transaction financial liabilities Notes payable 182,124,331.32 182,124,331.32 10,000,000.00 10,000,000.00 Accounts payable 812,032,950.07 810,639,584.15 875,319,060.11 873,297,361.73Shandong Airlines Co., Ltd. Summary of Annual Report 2009 19 Accounts received in advance 117,956,240.43 117,467,352.04 87,735,493.54 86,115,566.69 Selling financial asset of repurchase Commission charge and commission payable Wage payable 135,033,537.40 135,018,545.42 91,119,967.07 91,114,079.09 Taxes payable 177,564,425.49 177,319,512.46 111,337,241.37 111,270,281.82 Interest payable 4,001,134.66 4,001,134.66 9,634,990.00 9,634,990.00 Dividend payable 11,940.00 11,940.00 11,940.00 11,940.00 Other accounts payable 124,930,463.59 124,872,192.44 161,736,748.70 161,909,084.49 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Non-current liabilities due within 1 year 535,108,457.71 535,108,457.71 615,589,677.22 615,589,677.22 Other current liabilities Total current liabilities 2,828,582,501.55 2,826,382,071.08 2,969,372,632.56 2,965,830,495.59 Non-current liabilities: Long-term loans 3,402,752,588.39 3,402,752,588.39 3,159,333,277.39 3,159,333,277.39 Bonds payable Long-term account payable 968,968,451.94 968,968,451.94 1,114,459,905.38 1,114,459,905.38 Special accounts payable Projected liabilities Deferred income tax liabilities 2,835,461.62 2,835,461.62 19,816,576.46 19,816,576.46 Other non-current liabilities 27,718,573.00 27,718,573.00 18,319,557.83 18,319,557.83 Total non-current liabilities 4,402,275,074.95 4,402,275,074.95 4,311,929,317.06 4,311,929,317.06 Total liabilities 7,230,857,576.50 7,228,657,146.03 7,281,301,949.62 7,277,759,812.65 Owner’s equity (or shareholders’ equity): Paid-in capital (or share capital) 400,000,000.00 400,000,000.00 400,000,000.00 400,000,000.00 Capital public reserve 84,050,162.84 84,050,162.84 84,050,162.84 84,050,162.84 Less: Inventory shares Reasonable reserve Surplus public reserve 59,576,069.03 58,915,364.50 29,490,727.77 28,830,023.24 Provision of general risk Retained profit 308,668,390.11 304,732,767.23 36,471,405.69 33,964,695.93 Balance difference of foreign currency translation Total owner’s equity attributable to parent company 852,294,621.98 847,698,294.57 550,012,296.30 546,844,882.01 Minority interests 13,251,532.27 0.00 12,790,655.55 Total owner’s equity 865,546,154.25 847,698,294.57 562,802,951.85 546,844,882.01Shandong Airlines Co., Ltd. Summary of Annual Report 2009 20 Total liabilities and owner’s equity 8,096,403,730.75 8,076,355,440.60 7,844,104,901.47 7,824,604,694.66 9.2.2 Profit Statement Prepared by Shandong Airlines Co., Ltd. January-December, 2009 Unit: RMB Amount in this period Amount in last period Items Consolidation Parent Company Consolidation Parent Company I. Total operating income 5,366,113,363.68 5,362,673,481.18 5,049,391,116.47 5,043,370,423.20 Including: Operating income 5,366,113,363.68 5,362,673,481.18 5,049,391,116.47 5,043,370,423.20 Interest income Insurance gained Commission charge and commission income II. Total operating cost 5,095,949,275.87 5,094,605,991.37 4,965,513,678.71 4,962,342,309.78 Including: Operating cost 4,110,033,275.19 4,111,698,242.88 4,156,123,366.72 4,154,810,196.93 Interest expense Commission charge and commission expense Cash surrender value Net amount of expense of compensation Net amount of withdrawal of insurance contract reserve Bonus expense of guarantee slip Reinsurance expense Operating tax and extras 158,797,763.77 158,446,999.40 132,823,862.65 132,521,572.99 Sales expenses 346,387,720.51 346,387,720.51 236,554,096.88 236,554,096.88 Administration expenses 228,619,847.42 225,696,583.77 187,022,654.78 185,216,685.46 Financial expenses 251,871,219.83 252,180,082.66 253,541,156.57 253,847,227.41 Losses of devaluation of asset 239,449.15 196,362.15 -551,458.89 -607,469.89 Add: Changing income of fair value(Loss is listed with “-”) -12,118,965.63 -12,118,965.63 -19,293,822.87 -19,293,822.87 Investment income (Loss is listed with “-”) 3,715,867.94 3,715,867.94 11,175,753.02 11,632,849.93 Including: Investment income on affiliated company and joint venture Exchange income (Loss is listed with “-”) III. Operating profit (Loss is listed with “-”) 261,760,990.12 259,664,392.12 75,759,367.91 73,367,140.48 Add: Non-operating income 155,122,260.87 155,122,260.87 43,893,809.88 43,886,369.82 Less: Non-operating expense 13,521,945.17 13,520,445.27 11,392,350.23 11,392,350.23 Including: Disposal loss of non-current asset 13,495,868.42 13,494,368.52 10,915,236.47 10,915,236.47Shandong Airlines Co., Ltd. Summary of Annual Report 2009 21 IV. Total Profit (Loss is listed with “-”) 403,361,305.82 401,266,207.72 108,260,827.56 105,861,160.07 Less: Income tax 100,618,103.42 100,412,795.16 26,622,215.36 26,309,550.14 V. Net profit (Net loss is listed with “-”) 302,743,202.40 300,853,412.56 81,638,612.20 79,551,609.93 Net profit attributable to owner’s equity of parent company 302,282,325.68 300,853,412.56 80,981,442.68 79,551,609.93 Minority shareholders’ gains and losses 460,876.72 0.00 657,169.52 0.00 VI. Earnings per share i. Basic earnings per share 0.76 0.20 ii. Diluted earnings per share 0.76 0.20 VII. Other consolidated income VIII. Total consolidated income 302,743,202.40 300,853,412.56 81,638,612.20 79,551,609.93 Total consolidated income attributable to owners of parent company 302,282,325.68 300,853,412.56 80,981,442.68 79,551,609.93 Total consolidated income attributable to minority shareholders 460,876.72 0.00 657,169.52 0.00 9.2.3 Cash Flow Statement Prepared by Shandong Airlines Co., Ltd. January-December, 2009 Unit: RMB Amount in this period Amount in last period Items Consolidation Parent Company Consolidation Parent Company I. Cash flows arising from operating activities: Cash received from selling commodities and providing labor services 5,372,538,176.19 5,371,074,050.51 5,142,461,900.44 5,136,425,151.76 Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital borrowed from other financial institution Cash received from original insurance contract fee Net cash received from reinsurance business Insured savings and net increase of investment Net increase of disposal of transaction financial asset Cash received from interest, commission charge and commissionShandong Airlines Co., Ltd. Summary of Annual Report 2009 22 Net increase of capital borrowed Net increase of returned business capital Write-back of tax received Other cash received concerning operating activities 144,094,051.53 143,549,876.83 79,525,658.45 79,162,652.85 Subtotal of cash inflow arising from operating activities 5,516,632,227.72 5,514,623,927.34 5,221,987,558.89 5,215,587,804.61 Cash paid for purchasing commodities and receiving labor service 3,288,589,954.21 3,290,761,891.91 3,362,644,381.56 3,362,102,687.66 Net increase of customer loans and advances Net increase of deposits in central bank and interbank Cash paid for original insurance contract compensation Cash paid for interest, commission charge and commission Cash paid for bonus of guarantee slip Cash paid to/for staff and workers 614,147,622.35 612,051,079.62 543,461,203.22 542,037,899.11 Taxes paid 199,428,230.46 198,501,653.16 176,555,377.04 174,869,903.11 Other cash paid concerning operating activities 97,119,270.28 96,311,963.23 79,493,490.51 79,146,006.44 Subtotal of cash outflow arising from operating activities 4,199,285,077.30 4,197,626,587.92 4,162,154,452.33 4,158,156,496.32 Net cash flows arising from operating activities 1,317,347,150.42 1,316,997,339.42 1,059,833,106.56 1,057,431,308.29 II. Cash flows arising from investing activities: Cash received from recovering investment Cash received from investment income 2,098,225.94 2,098,225.94 11,211,668.70 11,211,668.70 Net cash received from disposal of fixed, intangible and other long-term assets 327,572,914.09 327,572,914.09 23,995.00 19,095.00 Net cash received from disposal of subsidiaries and other units 912,019.23 912,019.23 Other cash received concerning investing activities Subtotal of cash inflow from investing activities 329,671,140.03 329,671,140.03 12,147,682.93 12,142,782.93 Cash paid for purchasing fixed, intangible and other long-term assets 1,002,204,067.04 1,001,881,192.04 1,298,080,393.22 1,297,866,611.22 Cash paid for investment Net increase of mortgaged loansShandong Airlines Co., Ltd. Summary of Annual Report 2009 23 Net cash received from subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow from investing activities 1,002,204,067.04 1,001,881,192.04 1,298,080,393.22 1,297,866,611.22 Net cash flows arising from investing activities -672,532,927.01 -672,210,052.01 -1,285,932,710.29 -1,285,723,828.29 III. Cash flows arising from financing activities Cash received from absorbing investment Including: Cash received from absorbing minority shareholders’ investment by subsidiaries Cash received from loans 2,228,373,619.53 2,228,373,619.53 2,578,478,035.95 2,578,478,035.95 Cash received from issuing bonds Other cash received concerning financing activities Subtotal of cash inflow from financing activities 2,228,373,619.53 2,228,373,619.53 2,578,478,035.95 2,578,478,035.95 Cash paid for settling debts 2,345,081,757.10 2,345,081,757.10 1,812,750,241.19 1,812,750,241.19 Cash paid for dividend and profit distributing or interest paying 195,890,585.87 195,890,585.87 262,317,177.48 262,317,177.48 Including: Dividend and profit of minority shareholder paid by subsidiaries Other cash paid concerning financing activities 327,783,543.29 327,783,543.29 273,796,099.64 273,796,099.64 Subtotal of cash outflow from financing activities 2,868,755,886.26 2,868,755,886.26 2,348,863,518.31 2,348,863,518.31 Net cash flows arising from financing activities -640,382,266.73 -640,382,266.73 229,614,517.64 229,614,517.64 IV. Influence on cash due to fluctuation in exchange rate -35,585.75 -35,585.75 -709,703.85 -706,709.41 V. Net increase of cash and cash equivalents 4,396,370.93 4,369,434.93 2,805,210.06 615,288.23 Add: Balance of cash and cash equivalents at the period -begin 44,937,058.88 30,712,242.02 42,131,848.82 30,096,953.79 VI. Balance of cash and cash equivalents at the period -end 49,333,429.81 35,081,676.95 44,937,058.88 30,712,242.02Shandong Airlines Co., Ltd. Summary of Annual Report 2009 24 9.2.4 Statement on Changes of Owners’ Equity Prepared by Shandong Airlines Co., Ltd. 2009 Unit: RMB Amount in this report period Amount in last year Owners’ equity attributable to the parent company Owners’ equity attributable to the parent company Items Paid-up capital (Share capital) Capital reserve s Less: Treasur y Stock Reason able reserve Surplus reserve s Genera l risk provisi on Retaine d profit Others Minorit y’s equity Total owners’ equity Paid-up capital (Share capital) Capital reserve s Less: Treasur y Stock Reason able reserve Surplus reserve s Genera l risk provisi on Retaine d profit Others Minorit y’s equity Total owners’ equity I. Balance at the end of the last year 400,00 0,000.0 0 84,050, 162.84 29,490, 727.77 36,471, 405.69 12,790, 655.55 562,80 2,951.8 5 400,00 0,000.0 0 84,050, 162.84 24,919, 586.71 -39,938 ,895.93 12,133, 486.03 481,16 4,339.6 5 Add: Changes of accounting policy Error correction of the last period Others II. Balance at the beginning of this year 400,00 0,000.0 0 84,050, 162.84 29,490, 727.77 36,471, 405.69 12,790, 655.55 562,80 2,951.8 5 400,00 0,000.0 0 84,050, 162.84 24,919, 586.71 -39,938 ,895.93 12,133, 486.03 481,16 4,339.6 5 III. Increase/ Decrease in this year (Decrease is listed with “-”) 30,085, 341.26 272,19 6,984.4 2 460,87 6.72 302,74 3,202.4 0 4,571,1 41.06 76,410, 301.62 657,16 9.52 81,638, 612.20 (I) Net profit 302,28 2,325.6 8 460,87 6.72 302,74 3,202.4 0 80,981, 442.68 657,16 9.52 81,638, 612.20Shandong Airlines Co., Ltd. Summary of Annual Report 2009 25 (II) Other consolidated income Subtotal of (I) and (II) 302,28 2,325.6 8 460,87 6.72 302,74 3,202.4 0 80,981, 442.68 657,16 9.52 81,638, 612.20 (III) Owners’ devoted and decreased capital 1. Owners’ devoted capital 2. Amount calculated into owners’ equity paid in shares 3. Others (IV) Profit distribution 30,085, 341.26 -30,085 ,341.26 4,571,1 41.06 -4,571, 141.06 1. Withdrawal of surplus reserves 30,085, 341.26 -30,085 ,341.26 4,571,1 41.06 -4,571, 141.06 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders) 4. Others (V) Carrying forward internal owners’ equity 1. Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital)Shandong Airlines Co., Ltd. Summary of Annual Report 2009 26 3. Remedying loss with surplus reserve 4. Others (VI) Reasonable reserve 1. Withdrawal in the report period 2. Usage in the report period IV. Balance at the end of the report period 400,00 0,000.0 0 84,050, 162.84 59,576, 069.03 308,66 8,390.1 1 13,251, 532.27 865,54 6,154.2 5 400,00 0,000.0 0 84,050, 162.84 29,490, 727.77 36,471, 405.69 12,790, 655.55 562,80 2,951.8 5 9.2.5 Statement on Changes of Owners’ Equity of Parent Company Prepared by Shandong Airlines Co., Ltd. 2009 Unit: RMB Amount in this report period Amount in last year Paid-up capital (Share capital) Capital reserves Less: Treasury Stock Reasonab le reserve Surplus reserves General risk provision Retained profit Total owners’ equity Paid-up capital (Share capital) Capital reserves Less: Treasury Stock Reasonab le reserve Surplus reserves General risk provision Retained profit Total owners’ equity I. Balance at the end of the last year 400,000,0 00.00 84,050,16 2.84 28,830,02 3.24 33,964,69 5.93 546,844,8 82.01 400,000,0 00.00 84,050,16 2.84 24,442,94 8.14 -41,199,8 38.89 467,293,2 72.09 Add: Changes of accounting policy Error correction of the last period OthersShandong Airlines Co., Ltd. Summary of Annual Report 2009 27 II. Balance at the beginning of this year 400,000,0 00.00 84,050,16 2.84 28,830,02 3.24 33,964,69 5.93 546,844,8 82.01 400,000,0 00.00 84,050,16 2.84 24,442,94 8.14 -41,199,8 38.89 467,293,2 72.09 III. Increase/ Decrease in this year (Decrease is listed with “-”) 30,085,34 1.26 270,768,0 71.30 300,853,4 12.56 4,387,075 .10 75,164,53 4.82 79,551,60 9.92 (I) Net profit 300,853,4 12.56 300,853,4 12.56 79,551,60 9.92 79,551,60 9.92 (II) Other consolidated income Subtotal of (I) and (II) 300,853,4 12.56 300,853,4 12.56 79,551,60 9.92 79,551,60 9.92 (III) Owners’ devoted and decreased capital 1. Owners’ devoted capital 2. Amount calculated into owners’ equity paid in shares 3. Others (IV) Profit distribution 30,085,34 1.26 -30,085,3 41.26 4,387,075 .10 -4,387,07 5.10 1. Withdrawal of surplus reserves 30,085,34 1.26 -30,085,3 41.26 4,387,075 .10 -4,387,07 5.10 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders) 4. OthersShandong Airlines Co., Ltd. Summary of Annual Report 2009 28 (V) Carrying forward internal owners’ equity 1. Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital) 3. Remedying loss with profit surplus 4. Others (VI) Reasonable reserve 1. Withdrawal in the report period 2. Usage in the report period IV. Balance at the end of the report period 400,000,0 00.00 84,050,16 2.84 58,915,36 4.50 304,732,7 67.23 847,698,2 94.57 400,000,0 00.00 84,050,16 2.84 28,830,02 3.24 33,964,69 5.93 546,844,8 82.01Shandong Airlines Co., Ltd. Summary of Annual Report 2009 29 9.3 Explanation on changes of accounting policy, accounting estimation and settlement method compared with the latest annual report √Applicable □Inapplicable With the changes on recent market condition and pilot mobility, the Company re-examined the beneficial years in accordance with the service years and resignations of the pilots. The 2010 First Extraordinary Meeting of the 4th Board of the Company examined and approved the Proposal on Changes to Accounting Estimation of Shandong Airlines Co., Ltd., which decided to adopt new accounting estimations since Oct. 1, 2009, and change the amortization periods of training expense on pilots from 20 years to 10 year. Thus, the changes of accounting estimation made the current net profit decrease amounting to RMB 24,159,590.99. 9.4 Contents, correction amount, reason and its influence of significant accounting errors □Applicable √Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report □Applicable √Inapplicable