China Airlines, Ltd. and Subsidiaries
Consolidated Financial Statements for theYears Ended December 31, 2015 and 2014 andIndependent Auditors’ Report

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordancewith the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports andConsolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2015 are
all the same as the companies required to be included in the consolidated financial statements of parent
and subsidiary companies as provided in International Financial Reporting Standard 10 “Consolidated
Financial Statements.”

Relevant information that should be disclosed in the consolidated financial

statements of affiliates has all been disclosed in the consolidated financial statements of parent andsubsidiary companies.

Hence, we have not prepared a separate set of consolidated financial statementsof affiliates.

Very truly yours,
CHINA AIRLINES, LTD.
By

March 25, 2016

-1-

INDEPENDENT AUDITORS’ REPORTThe Board of Directors and the Stockholders
China Airlines, Ltd.
We have audited the accompanying balance sheets of China Airlines, Ltd. and subsidiaries as ofDecember 31, 2015 and 2014, and the related consolidated statements of comprehensive income,changes in equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the Regulations Governing Auditing and Attestationof Financial Statements by Certified Public Accountants and auditing standards generally acceptedin the Republic of China. Those rules and standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of China Airlines, Ltd. and subsidiaries as ofDecember 31, 2015 and 2014 and their financial performance and their cash flows for the years
then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by
Securities Issuers, the International Financial Reporting Standards, International AccountingStandards, Interpretation as well as related guidance translated by Accounting Research andDevelopment Foundation endorsed by the Financial Supervisory Commission of the Republic ofChina.
As Note 3 described, the Company and subsidiaries retrospectively applied the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013
version of the International Financial Reporting Standards (IFRS), International AccountingStandards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the
FSC starting January 1, 2015. Therefore, all items affected by the amendments in prior financial
statements were adjusted.

-2-

We have audited the parent company only financial statements of China Airlines, Ltd. as ofDecember 31, 2015 and 2014 and for the year ended December 31, 2015 and 2014 on which wehave issued a modified unqualified opinion.

March 25, 2016

Notice to Readers
The accompanying consolidated financial statements are intended only to present the consolidated
financial position, financial performance and cash flows in accordance with accounting principles
and practices generally accepted in the Republic of China and not those of any other jurisdictions.
The standards, procedures and practices to audit such consolidated financial statements are thosegenerally applied in the Republic of China.
For the convenience of readers, the independent auditors’ report and the accompanying
consolidated financial statements have been translated into English from the original Chineseversion prepared and used in the Republic of China. If there is any conflict between the English
version and the original Chinese version or any difference in the interpretation of the two versions,the Chinese-language independent auditors’ report and consolidated financial statements shallprevail.

-3-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars)

2015
Amount%$ 23,491,085
542,326
52,58211-$ 20,468,151
235,81442,8509-7,610,677
3,874
1,032,622
9,849
8,300,398
670,455
3,928,747

31
42

9,460,468
6,615
817,8418,714
7,226,063
2,643,974

4
1
3
1

45,642,615

21

40,910,490

18

19,0801,710
11,216
223,9112,877,777
129,628,866
2,076,182
1,009,678
7,188,415
33,246,859

1
58
1
1
3
15

28,881
727
469,3172,806,823
142,655,066
2,076,461
670,9978,524,043
30,931,222

1
62
1
4
14

176,283,694

79

188,163,537

82$ 221,926,309

100$ 229,074,027

100$

173,289
9,995
313,689
1,229,575
493,754
12,296,548
75,64520,186
13,112,086
4,944,106
30,092,112
1,457,957
4,001,510

1
5
6
2
14
1
2

$

68,220,452

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 19 and 32)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 32)
Derivative financial assets for hedging - current (Notes 4, 5, 9 and 32)
Receivables:
Notes and accounts, net (Notes 4, 5, 11 and 32)
Notes and accounts - related parties (Notes 32 and 33)
Other receivables
Current tax assets (Notes 4 and 29)
Inventories, net (Notes 4 and 12)
Noncurrent assets held for sale (Notes 4, 5 and 13)
Other assets - current (Notes 6 and 19)
Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets - noncurrent, net of current portion (Notes 4, 8 and 32)
Financial assets at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 32)
Derivative financial assets for hedging - noncurrent (Notes 4, 5, 9 and 32)
Financial assets carried at cost - noncurrent, net of current portion (Notes 10 and 32)
Investments accounted for by the equity method (Notes 4 and 15)
Property, plant and equipment (Notes 4, 5, 16 and 34)
Investment properties (Notes 4 and 17)
Other intangible assets (Notes 4 and 18)
Deferred income tax asset (Notes 4, 5 and 29)
Other assets - noncurrent (Notes 19, 22, 32, 34 and 35)
Total noncurrent assets
TOTAL

2014 (Audit after Adjusted)
Amount%LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Note 20)
Short-term bills payable (Note 20)
Derivative financial liabilities for hedging - current (Notes 4, 5, 9 and 32)
Notes and accounts payable (Note 32)
Notes and accounts payable - related parties (Notes 32 and 33)
Other payable (Notes 23 and 28)
Current tax liabilities (Notes 4 and 29)
Provisions - current (Notes 4, 5 and 25)
Deferred revenue - current (Notes 4, 5 and 24)
Bonds payable and put option of convertible bonds - current portion (Notes 4, 21, 27 and 32)
Loans and debts - current portion (Notes 20, 32 and 34)
Capital lease obligations - current portion (Notes 4, 22, 32 and 34)
Other current liabilities (Notes 28 and 32)

4,361,628
2,088,113
2,460,000
411,804
435,384
11,096,311
75,9406,744
11,163,756
8,585,000
14,218,482
2,758,433
3,696,400

2
1
1
5
5
4
6
1
2

31

61,357,995

27

11,291
10,900,000
57,691,505
6,167,295
340,681
5,197,147
1,863,929
10,553,574
423,892

5
26
3
2
1
5
-

5,150
18,323,836
73,192,954
4,297,036
423,589
7,100,289
1,805,315
10,192,908
1,388,943

8
32
2
3
1
4
1

Total noncurrent liabilities

93,149,314

42

116,730,020

51

Total liabilities

161,369,766

73

178,088,015

78

54,708,901
798,41525-

52,491,666
1,992,415

23
1

2,872,235(66,283)(43,372)1-(3,870,736)(1,905,698)(43,372)

(2)
(1)
-

58,269,896

26

48,664,275

21

2,286,647

1

2,321,737

1

60,556,543

27

50,986,012

22$ 221,926,309

100$ 229,074,027

100

Total current liabilities
NONCURRENT LIABILITIES
Derivative financial liabilities for hedging - noncurrent (Notes 4, 5, 9 and 32)
Bonds payable - noncurrent (Notes 4, 21, 27 and 32)
Loans and debts - noncurrent (Notes 20, 32 and 34)
Provisions - noncurrent (Notes 4, 5 and 25)
Deferred tax liabilities (Notes 4 and 29)
Capital lease obligations - noncurrent (Notes 4, 22, 32 and 34)
Deferred revenue - noncurrent (Notes 4, 5 and 24)
Accrued pension costs (Notes 4, 5 and 26)
Other noncurrent liabilities (Notes 28 and 32)

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 21 and 27)
Capital stock
Capital surplus
Retained earnings (accumulated deficit)
Unappropriated retained earnings (accumulated deficit)
Other equity
Treasury shares
Total equity attributable to owners of the Company
NON-CONTROLLING INTERESTS (Note 27)
Total equity
TOTAL

The accompanying notes are an integral part of the consolidated financial statements.

-4-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars, Except Earning (Loss) Per Share)

2015
Amount%2014(Audit after Adjusted)
Amount%$ 145,056,217

100$ 150,581,742

100

COSTS (Notes 4, 9, 12, 26, 28 and 33)

124,787,843

86

136,950,372

91

GROSS PROFIT

20,268,374

14

13,631,370

9

OPERATING EXPENSES (Notes 4, 26 and 28)

12,139,177

8

11,112,623

7

OPERATING PROFIT

8,129,197

6

2,518,747

2

3,231,179(2,957,838)(1,783,793)

2
(2)
(1)

1,094,416(1,740,965)(2,019,124)

1
(1)
(2)

516,140-

509,352-(994,312)(1)(2,156,321)(2)

PRETAX PROFIT

7,134,885

5

362,426-

INCOME TAX EXPENSE (Notes 4, 5 and 29)

1,208,675

1

959,914

1

NET INCOME (LOSS)

5,926,210

4(597,488)(1)(676,833)-

75,168-(4,428)-(16,544)-

115,062(566,199)-(21,027)
37,597(Continued)

REVENUES (Notes 4, 28 and 33)

NONOPERATING INCOME AND LOSS
Other income (Notes 4, 10 and 28)
Other gains and losses (Notes 9, 13, 16 and 28)
Finance cost (Notes 9, 28 and 34)
Share of the profit of associates and joint ventures(Note 15)
Total nonoperating income and loss

OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans (Note 26)
Share of the other comprehensive income ofassociates and joint ventures accounted forusing the equity method
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 29)

-5-

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars, Except Earning (Loss) Per Share)

2015
AmountItems that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 27)
Unrealized gain (loss) on available-for-salefinancial assets (Notes 4 and 27)
Cash flow hedges (Notes 4 and 27)
Share of the other comprehensive income ofassociates and joint ventures accounted forusing the equity method (Notes 4 and 27)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 29)$

NET INCOME (LOSS) ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests

TOTAL COMPREHENSIVE INCOME (LOSS)ATTRIBUTABLE TO:
Owner of the Company
Non-controlling interests

EARNING (LOSS) PER SHARE (NEW TAIWANDOLLARS; Note 30)
Basic
Diluted%

119,945-

1

17,467(2,537,524)

(1)

765

-

954

-

(374,281)
1,835,959

1

414,483(1,984,675)(1)

1,269,760

1(1,947,078)(1)$

7,195,970

5$(2,544,566)(2)$

5,763,714
162,496

4-$(749,073)
151,585-$

5,926,210

4$(597,488)-$

7,072,042
123,9285-$(2,693,811)
149,245(2)-$

7,195,970

5$(2,544,566)(2)

Other comprehensive income (loss) for the year,
net of income tax
TOTAL COMPREHENSIVE INCOME (LOSS) FOR
THE YEAR

2014(Audit after Adjusted)
Amount
%67,515-(6,393)
2,148,353

$
$

1.06
1.06

The accompanying notes are an integral part of the consolidated financial statements.

-6-

$

$
$

(0.14)(0.14)(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars)

Equity Attributable to Owners of the Company
Other Equity
Retained Earnings

BALANCE AT JANUARY 1, 2014

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deficit)$ 52,000,000

$

$

$

3,926,293$ (7,409,299)

Effect of retrospective application and retrospective restatement

1,924,015

321,891

Exchange
Differences on
Translating
Foreign
Operations
$

1,843

Unrealized Gain
(Loss) on
Available-for-saleFinancial Assets$(11,486)

Treasury Shares
Held by
Subsidiaries

Cash Flow
Hedges$

96,579$Total(43,372)$ 50,806,464

Non-controlling
Interests

Total Equity$

2,083,896$ 52,890,360

-

-

-

-

(8,444)

-

-

-

-

(8,444)(7,468)(15,912)52,000,000

1,924,015

321,891

3,926,293(7,417,743)

1,843(11,486)

96,579(43,372)

50,798,020

2,076,428

52,874,448--(321,891)-(3,926,293)

321,891
3,926,293

-

-

-

-

-

-

-

491,666

68,400

-

-

-

-

-

-

-

560,066-

560,066

Net income (loss) for the year ended December 31, 2014

-

-

-

-

(749,073)

-

-

-

-

(749,073)

151,585(597,488)

Other comprehensive income (loss) for the year ended December 31, 2014,
net of income tax

-

-

-

-

47,89698,00915,501(2,106,144)-(1,944,738)(2,340)(1,947,078)

Total comprehensive income (loss) for the year ended December 31, 2014

-

-

-

-

(701,177)

98,00915,501(2,106,144)-(2,693,811)

149,245(2,544,566)

Issue of common shares for cash

-

-

-

-

-

-

-

-

-

-

200,000

200,000

Cash dividend from subsidiaries paid to non-controlling interest

-

-

-

-

-

-

-

-

-

-

(103,936)(103,936)

52,491,666

1,992,415--(3,870,736)

99,8524,015(2,009,565)(43,372)

48,664,275

2,321,737

50,986,012

Compensation of deficit
Capital surplus-(1,511,953)--

1,511,953

-

-

-

-

-

-

-

Change in capital surplus from investments in associates and joint ventures
accounted for by using equity method

-

64

-

-

-

-

-

-

-

64

-

64

2,217,235

317,889

-

-

-

-

-

-

-

2,535,124-

2,535,124Difference between cost of the acquisition of subsidiaries and net value

-

-

-

-

(1,609)

-

-

-

-

(1,609)(1,965)(3,574)

Net income for the year ended December 31, 2015

-

-

-

-

5,763,714

-

-

-

-

5,763,714

162,496

5,926,210

Other comprehensive income (loss) for the year ended December 31, 2015,
net of income tax

-

-

-

-

(531,087)

58,107(2,260)1,783,568-

1,308,328(38,568)

1,269,760

Total comprehensive income (loss) for the year ended December 31, 2015

-

-

-

-

5,232,627

58,107(2,260)1,783,568-

7,072,042

123,928

7,195,970

Cash dividend from subsidiaries paid to non-controlling interest

-

-

-

-

-

-

-

-

-

-

(157,053)(157,053)(43,372)$ 58,269,896

2,286,647$ 60,556,543

BALANCE AT JANUARY 1, 2014 AS RESTATED
Compensation of 2013 deficit
Legal reserve
Special reserve
Convertible bonds converted to ordinary shares

BALANCE AT DECEMBER 31, 2014

Convertible bonds converted to ordinary shares

BALANCE AT DECEMBER 31, 2015

$ 54,708,901$

798,415

$

-

$

-

$

2,872,235

The accompanying notes are an integral part of the consolidated financial statements.

-7-$

157,959

$

1,755

$

(225,997)$$

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax
Adjustments to reconcile to net cash generated from (used in)operating activities:
Depreciation expenses
Amortization expenses
Bad-debt expense
Net gain on fair value change of financial assets and liabilities held
for trading
Interest income
Dividend income
Share of profit of associates and joint ventures
Gain on disposal of property, plant and equipment
Net gain on disposal of available-for-sale financial assets
Impairment loss recognized on available-for-sale financial assets
Impairment loss recognized on property, plant, equipment andnoncurrent assets held for sale
Loss on inventories and property, plant and equipment
Net loss on foreign currency exchange
Finance costs
Recognition of provisions
Amortization of unrealized gain on sale-leaseback
Amortization of deferred credits
Changes in operating assets and liabilities(Increase) decrease in financial assets held for trading
Decrease (increase) in notes and accounts receivable
Decrease (increase) in accounts receivable - related parties
Increase in other receivables
Increase in inventories
Increase in other current assets
Increase (decrease) in notes and accounts payable(Decrease) increase in accounts payable - related parties
Increase (decrease) in other payables
Increase in deferred revenue
Decrease in provisions
Increase in other current liabilities
Decrease in accrued pension liabilities(Decrease) increase in other liabilities
Cash generated from operations
Interest received
Dividend received
Interest paid
Income tax paid
Net cash generated from operating activities

-8-

$

2015

2014 (Audit
after Adjusted)

7,134,885$

362,426

17,261,774
70,04049,45817,460,725
55,42230,021(150,871)(466,923)(1,884,052)(516,140)(13,155)
3,408(78,742)(441,968)(29,522)(509,352)(52,340)(6,557)-2,468,372
389,274
487,075
1,783,793
2,079,169(14,512)-521,473
436,9122,019,124
1,530,536(14,512)(2,862)(157,350)
1,634,673
136,073(205,127)(1,248,012)(1,252,816)
840,863(12,707)569,765
2,006,907(237,716)
512,938(296,385)(14,555)
30,958,146
487,0092,382,066(1,797,212)(239,316)

55,802(1,513,216)(114,621)(200,822)(412,261)(342,329)(443,447)
119,499(1,755,706)
2,208,926(579,081)
9,333(162,154)
59,112
18,209,819
454,403411,683(2,061,008)(106,302)

31,790,693

16,908,595(Continued)

CHINA AIRLINES, LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars)

2015
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of available-for-sale financial assets
Proceeds on share redemption of financial assets measured at cost
Payments to acquire financial assets for hedging
Acquisition of associates
Payment for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayment for equipment
Refund in prepayment for aircrafts
Increase in computer software cost
(Increase) decrease in restricted assets
Net cash used in investing activities$

245,242(13,096)(64,091)(6,711,363)
20,914(915,853)
780,503(13,472,830)
10,186,049(408,721)(88,332)2014 (Audit
after Adjusted)$

96,862
4,616(9,920,198)
82,451(498,599)
330,518(12,337,340)(230,392)
129,169(10,441,578)(22,342,913)

CASH FLOWS FROM FINANCING ACTIVITIES(Decrease) increase in short-term loans(Decrease) increase in short-term bills payable
Repayments of bonds payable
Proceeds of long-term debts
Repayments of long-term debts and capital lease obligations
Proceeds of guarantee deposits received
Refund of guarantee deposits received
Issuance of ordinary shares to non-controlling interest
Cash dividend paid to non-controlling interest
Acquisition of subsidiaries shares(4,190,523)(2,078,113)(8,585,000)
16,626,343(19,601,536)
124,621(121,159)(157,053)(3,574)

4,213,633
2,088,138(4,780,000)
39,440,000(34,284,523)
146,335(183,913)
200,000(103,936)-

Net cash (used in) generated from financing activities(17,985,994)

6,735,734

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES(340,187)

159,086

NET INCREASE IN CASH AND CASH EQUIVALENTS

3,022,934

1,460,502

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR

20,468,151

19,007,649

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

$ 23,491,085$ 20,468,151

The accompanying notes are an integral part of the consolidated financial statements.

-9-(Concluded)

CHINA AIRLINES, LTD. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION
China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks have been listed on the Taiwan
Stock Exchange since February 26, 1993. The Company primarily provides air transport services forpassengers and cargo. Its other operations include (a) mail services; (b) ground services and routine
aircraft maintenance; (c) major maintenance of flight equipment; (d) communications and data processing
services to other airlines; (e) sale of aircraft parts, equipment and entire aircraft; and (f) lease of aircraft.
The major stockholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of December 31, 2015 and 2014, CADF and
NDF held 43.63% and 45.48% of the Company’s shares.

2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statement were approved by the board of directors and authorized for issue on
March 25, 2016.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS
a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports
by Securities Issuers and the 2013 version of the International Financial Reporting Standards (IFRS),International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS(SIC) endorsed by the FSC
Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014, stipulated that theGroup should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)
endorsed by the FSC and the related amendments to the Regulations Governing the Preparation of
Financial Reports by Securities Issuers starting January 1, 2015.
Except for the following, the initial application of the above 2013 version of IFRSs is not expected tohave any material impact on the Group’s accounting policies:
1) IFRS 12 “Disclosure of Interests in Other Entities”
IFRS 12 is a new disclosure standard that applies to entities with interests in subsidiaries, joint
arrangements, associates and/or unconsolidated structured entities. The disclosure requirements in
IFRS 12 are more extensive than those required in the current standards.
2) IFRS 13 “Fair Value Measurement”
IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,establishes a framework for measuring fair value, and requires disclosures about fair value
measurements. The disclosure requirements in IFRS 13 are more extensive than those required in
the current standards. For example, quantitative and qualitative disclosures based on thethree-level fair value hierarchy currently required for financial instruments only will be extended by
IFRS 13 to cover all assets and liabilities within its scope.

- 10 -

The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015.
3) Amendments to IAS 1 “Presentation of Items of Other Comprehensive Income”
The amendments to IAS 1 requires the grouping of items of other comprehensive income (OCI) into
those that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified
subsequently to profit or loss. Income taxes on OCI items are grouped on the same basis. Under
the current IAS 1, there are no such requirements.
The Company will apply the above amendments starting in 2015. Items not expected to bereclassified to profit or loss are remeasurements of the defined benefit plans and share of thedefined benefit plans of associates and joint ventures accounted for using the equity method.
Items expected to be reclassified to profit or loss are the exchange differences on translating foreign
operations, unrealized gains (losses) on available-for-sale financial assets, cash flow hedges, andshare of the other comprehensive income (except the share of the remeasurements of the defined
benefit plans) of associates and joint ventures accounted for using the equity method.
4) Revision to IAS 19 “Employee Benefits”
Revised IAS 19 requires the immediate recognition of all changes in defined benefit obligations andin the fair value of plan assets in the period these changes occur, thus eliminating the “corridor
approach” permitted under the current IAS 19. In addition, all past service costs are recognized
immediately in the period of plan amendment. The revision requires all remeasurements of thedefined benefit plans to be recognized immediately in other comprehensive income so that the net
pension asset or liability will reflect the full value of the plan deficit or surplus.
Furthermore, the interest cost and expected return on plan assets used in the current IAS 19 are
replaced with net interest on the net defined liability or asset, which is calculated by applying thediscount rate to the net defined benefit liability or asset.
The anticipated impact of the initial application of the revised IAS 19 is detailed as follows:

Impact on Assets, Liabilities andEquityCarrying
AmountAdjustments
Arising from
InitialApplication

Adjusted
Carrying
AmountJanuary 1, 2014
Deferred tax assets
Accrued pension liabilities$ 9,127,014$ 10,410,907

$
$

3,259
19,172$ 9,130,273$ 10,430,079

Accumulated deficit
Non-controlling interests$ (7,409,299)
2,083,896$(8,444)(7,468)$ (7,417,743)
2,076,428$(15,912)

Total effect on equity
December 31, 2014
Deferred tax assets
Accrued pension liabilities$ 8,521,770$ 10,179,539

$
$

2,273
13,369$ 8,524,043$ 10,192,908

Accumulated deficit
Non-controlling interests$ (3,864,876)
2,326,973$(5,860)(5,236)$ (3,870,736)
2,321,737$(11,096)

Total effect on equity- 11 -

Impact on Total Comprehensive
IncomeAdjustments
Arising from
InitialApplication

Carrying
AmountOperating cost
Operating expense
Income tax expense$ 136,954,265
11,113,447
959,113

Total effect on net profit for the year
Items not being reclassified to profit orloss:
Remeasurements of the defined benefit
plans
Income taxes relating to items that will
not be reclassified$(3,893)
(824)
801

$

(3,916)

Adjusted
Carrying
Amount$ 136,950,372
11,112,623
959,91474,083

1,085

75,168(20,842)(185)(21,027)

Impact on other comprehensive income
for the year (net of income tax)$

900

b. New IFRSs in issue but not yet endorsed by the FSC
The Group have not applied the following IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”) issued
by the International Accounting Standards Board (IASB) but not yet endorsed by the FSC.
On March 10, 2016, the FSC announced the scope of IFRSs to be endorsed and will take effect fromJanuary 1, 2017. The scope includes all IFRSs that were issued by the IASB before January 1, 2016and have effective dates on or before January 1, 2017, which means the scope excludes those that are
not yet effective as of January 1, 2017 such as IFRS 9 “Financial Instruments” and IFRS 15 “Revenue
from Contracts with Customers” and those with undetermined effective date. In addition, the FSC
announced that the Group should apply IFRS 15 starting January 1, 2018. As of the date theconsolidated financial statements were authorized for issue, the FSC has not announced the effective
dates of other new, amended and revised standards and interpretations.

New, Amended or Revised Standards and Interpretations
Annual Improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2011-2013 Cycle
Annual Improvements to IFRSs 2012-2014 Cycle
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”
Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities:
Applying the Consolidation Exception”
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in
Joint Operations”
IFRS 14 “Regulatory Deferral Accounts”
IFRS 15 “Revenue from Contracts with Customers”
IFRS 16 “Leases”

Effective Date
Announced by IASB (Note 1)
July 1, 2014 (Note 2)
July 1, 2014
January 1, 2016 (Note 3)
January 1, 2018
January 1, 2018
To be determined by IASB
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2018
January 1, 2019
(Continued)- 12 -

New, Amended or Revised Standards and Interpretations
Amendment to IAS 1 “Disclosure Initiative”
Amendment to IAS 7 “Disclosure Initiative”
Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable
Methods of Depreciation and Amortization”
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants”
Amendment to IAS 19 “Defined Benefit Plans: Employee
Contributions”
Amendment to IAS 27 “Equity Method in Separate Financial
Statements”
Amendment to IAS 36 “Impairment of Assets: Recoverable Amount
Disclosures for Non-financial Assets”
Amendment to IAS 39 “Novation of Derivatives and Continuation of
Hedge Accounting”
IFRIC 21 “Levies”

Effective Date
Announced by IASB (Note 1)
January 1, 2016
January 1, 2017
January 1, 2017
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014
(Concluded)Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on
or after the respective effective dates.
Note 2: The amendment to IFRS 2 applies to share-based payment transactions for which the grant
date is on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations forwhich the acquisition date is on or after July 1, 2014; the amendment to IFRS 13 is effective
immediately; the remaining amendments are effective for annual periods beginning on or after
July 1, 2014.
Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that
occur in annual periods beginning on or after January 1, 2016; the remaining amendments are
effective for annual periods beginning on or after January 1, 2016.
The initial application of the above New IFRSs, whenever applied, would not have any material impact
on the Group’s accounting policies, except for the following:1) IFRS 9 “Financial Instruments”
Recognition and measurement of financial assets
With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.
For the Group’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement are
as follows:a) For debt instruments, if they are held within a business model whose objective is to collect thecontractual cash flows, the financial assets are measured at amortized cost and are assessed for
impairment continuously with impairment loss recognized in profit or loss, if any. Interest
revenue is recognized in profit or loss by using the effective interest method;- 13 -

b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financial
assets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss by using the effective
interest method, and other gain or loss shall be recognized in other comprehensive income,
except for impairment gains or losses and foreign exchange gains and losses. When the debt
instruments are derecognized or reclassified, the cumulative gain or loss previously recognizedin other comprehensive income is reclassified from equity to profit or loss.
Except for above, all other financial assets are measured at fair value through profit or loss.
However, the Group may make an irrevocable election to present subsequent changes in the fairvalue of an equity investment (that is not held for trading) in other comprehensive income, with
only dividend income generally recognized in profit or loss. No subsequent impairment
assessment is required, and the cumulative gain or loss previously recognized in othercomprehensive income cannot be reclassified from equity to profit or loss.
The impairment of financial assets
IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit
Losses Model”. The credit loss allowance is required for financial assets measured at amortized
cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arisingfrom IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments andfinancial guarantee contracts. A loss allowance for the 12-month expected credit losses is required
for a financial asset if its credit risk has not increased significantly since initial recognition. A loss
allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has
increased significantly since initial recognition and is not low. However, a loss allowance for fulllifetime expected credit losses is required for trade receivables that do not constitute a financing
transaction.
For purchased or originated credit-impaired financial assets, the Group takes into account the
expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.
Subsequently, any changes in expected losses are recognized as a loss allowance with acorresponding gain or loss recognized in profit or loss.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging
derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between thehedging instrument and the hedged item.
2) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”
In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to thedisclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose inevery reporting period the recoverable amount of an asset or each cash-generating unit. The
amendment clarifies that such disclosure of recoverable amounts is required only when an
impairment loss has been recognized or reversed during the period. Furthermore, the Group isrequired to disclose the discount rate used in measurements of the recoverable amount based on fairvalue less costs of disposal measured using a present value technique.

- 14 -

3) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.
Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for
all leases on the consolidated balance sheets except for low-value and short-term leases. The
Group may elect to apply the accounting method similar to the accounting for operating lease under
IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive
income, the Group should present the depreciation expense charged on the right-of-use asset
separately from interest expense accrued on the lease liability; interest is computed by using
effective interest method. On the consolidated statements of cash flows, cash payments for the
principal portion of the lease liability are classified within financing activities; cash payments forinterest portion are classified within.
The application of IFRS 16 is not expected to have a material impact on the accounting of theGroup as lessor.
When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively
to each prior reporting period presented or retrospectively with the cumulative effect of the initial
application of this Standard recognized at the date of initial application.
4) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”
The amendment clarifies that the difference between the carrying amount of the debt instrument
measured at fair value and its tax base gives rise to a temporary difference, even though there are
unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying
amount of the debt instrument by sale or by holding it and collecting contractual cash flows.
In addition, in determining whether to recognize a deferred tax asset, the Group should assess adeductible temporary difference in combination with all of its other deductible temporary
differences, unless the tax law restricts the utilization of losses to deduction against income of a
specific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendment also stipulates
that, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Group’s assets for more than their carrying amount if there issufficient evidence that it is probable that the Group will achieve this, and that the estimate for
future taxable profit should exclude tax deductions resulting from the reversal of deductible
temporary differences.
Except for the above impact, as of the date the consolidated financial statements were authorized for
issue, the Group is continuously assessing the possible impact that the application of other standards
and interpretations will have on the Group’s financial position and financial performance, and will
disclose the relevant impact when the assessment is completed.

4. SIGNIFICANT ACCOUNTING POLICIESStatement of Compliance
The consolidated financial statements have been prepared in accordance with the Regulations Governing
the Preparation of Financial Reports by Securities Issuers, and IFRS endorsed by Financial Commission
Supervisory.

- 15 -

Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis except for financial
instruments that are measured at fair values.
The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value
measurement inputs are observable and the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for theasset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); andc. Level 3 inputs are unobservable inputs for the asset or liability.
Current and Noncurrent Assets and Liabilities
Current assets include assets held primarily for the purpose of trading, assets expected to be realized withintwelve months after the reporting period, and cash and cash equivalents unless the asset is restricted frombeing exchanged or used to settle a liability for at least twelve months after the reporting period. All otherassets such as property, plant and equipment, investment properties, intangible assets and other assets thatare not classified as current are classified as noncurrent.
Current liabilities include liabilities held primarily for the purpose of trading, liabilities due to be settled
within twelve months after the reporting period. Terms of a liability that could, at the option of thecounterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entities
controlled by the Company (i.e. its subsidiaries, including special purpose entities).
When necessary, adjustments are made to the financial statements of subsidiaries, subsidiaries’ accounting
policies are consistent with the Company.
All intra-group transactions, balances, income and expenses are written of in consolidation financial
statement.
Total comprehensive income of subsidiaries is attributed to the owners of the Company and to thenon-controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control
over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s
interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in thesubsidiaries. Any difference between the amount by which the non-controlling interests are adjusted andthe fair value of the consideration paid or received is recognized directly in equity and attributed to theowners of the Company.
Foreign Currencies
In preparing the consolidated financial statement of the Group, transactions in currencies other than theentity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at thedates of the transactions. At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured athistorical cost in a foreign currency are not retranslated. Non-monetary items measured at fair value that- 16 -

are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value
was determined.
Exchange differences on monetary items arising from settlement or translation are recognized in profit orloss in the period in which they arise except for:a. Exchange differences on foreign currency borrowings relating to assets under construction for future
productive use, which are included in the cost of those assets when they are regarded as an adjustment
to interest costs on those foreign currency borrowings;
b. Exchange differences on transactions entered into in order to hedge certain foreign currency risks; andExchange differences arising on the retranslation of non-monetary items are included in profit or loss forthe period except for exchange differences arising from the retranslation of non-monetary items in respectof which gains and losses are recognized directly in other comprehensive income, in which case, theexchange differences are also recognized directly in other comprehensive income.
For the purposes of presenting consolidated financial statement, the assets and liabilities of the Group’s
foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of eachreporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising are recognized in other comprehensive income (attributed to the owners of theCompany and non-controlling interests as appropriate).
On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect ofthat operation attributable to the owners of the Company are reclassified to profit or loss.
Cash Equivalents
Cash equivalents, consisting of commercial paper of time deposits, are highly liquid financial instrumentswith maturities of three months or less when acquired and with carrying amounts that approximate their fairvalues.
Inventories
Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sale and are stated at the lower of cost or net realizable value. The costs ofinventories sold or consumed are determined using the weighted-average method.
Noncurrent Assets Held for Sale
Non-current assets are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the non-current asset is available for immediate sale in its present condition.
To meet the criteria for the sale being highly probable, the appropriate level of management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one
year from the date of classification.
Non-current assets classified as held for sale are measured at the lower of their previous carrying amountand fair value less costs to sell. Recognition of depreciation of those assets would cease.
Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor
an interest in a joint venture. Joint venture is a joint arrangement whereby the Group and other parties thathave joint control of the arrangement have rights to the net assets of the arrangement.

- 17 -

The Group uses the equity method to account for its investments in associates and joint ventures.
Under the equity method, investments in an associate and a joint venture are initially recognized at cost andadjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of
the associate and joint venture. The Group also recognizes the changes in the Group’s share of equity of
associates and joint venture attributable to the Group.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets
and liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which isincluded within the carrying amount of the investment and is not amortized. Any excess of the Group’s
share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after
reassessment, is recognized immediately in profit or loss.
When the Group subscribes for additional new shares of the associate and joint venture at a percentage
different from its existing ownership percentage, the resulting carrying amount of the investment differsfrom the amount of the Group’s proportionate interest in the associate and joint venture. The Group
records such a difference as an adjustment to investments with the corresponding amount charged or
credited to capital surplus - changes in the Group’s share of equity of associates and joint ventures. If theGroup’s ownership interest is reduced due to the additional subscription of the new shares of associate andjoint venture, the proportionate amount of the gains or losses previously recognized in other comprehensive
income in relation to that associate and joint venture is reclassified to profit or loss on the same basis as
would be required if the investee had directly disposed of the related assets or liabilities. When theadjustment should be debited to capital surplus, but the capital surplus recognized from investments
accounted for by the equity method is insufficient, the shortage is debited to retained earnings.
When the Group’s share of losses of an associate and a joint venture equals or exceeds its interest in thatassociate and joint venture (which includes any carrying amount of the investment accounted for by theequity method and long-term interests that, in substance, form part of the Group’s net investment in theassociate and joint venture), the Group discontinues recognizing its share of further losses. Additional
losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, orconstructive obligations, or made payments on behalf of that associate and joint venture.
The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset
by comparing its recoverable amount with its carrying amount. Any impairment loss recognized isdeducted from the carrying amount of the investment. Any reversal of that impairment loss is recognized
to the extent that the recoverable amount of the investment subsequently increases.
The Group discontinues the use of the equity method from the date on which its investment ceases to be an
associate and a joint venture. Any retained investment is measured at fair value at that date and the fairvalue is regarded as its fair value on initial recognition as a financial asset. The difference between theprevious carrying amount of the associate and the joint venture attributable to the retained interest and its
fair value is included in the determination of the gain or loss on disposal of the associate and the joint
venture. The Group accounts for all amounts previously recognized in other comprehensive income inrelation to that associate and the joint venture on the same basis as would be required if that associate had
directly disposed of the related assets or liabilities. If an investment in an associate becomes aninvestment in a joint venture or an investment in a joint venture becomes an investment in an associate, theGroup continues to apply the equity method and does not remeasure the retained interest.
Property, Plant and Equipment
Property, plant and equipment are tangible items that are held for use in the production or supply of goods
or services, for rental to others, or for administrative purposes; and are expected to be used more than one
period. The cost of an item of property, plant and equipment shall be recognized as assets if, and only if itis probable that future economic benefits associated with the item will flow to the entity; and the cost of theitem can be measured reliably. Property, plant and equipment are stated at cost, less recognizedaccumulated depreciation and recognized accumulated impairment loss.
- 18 -

Freehold land is not depreciated.
Depreciation is recognized using the straight-line method. Each significant part is depreciated separately.
The estimated useful lives, residual values and depreciation method are reviewed at the end of eachreporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. Assets are depreciated over the shorter of the lease term and their useful lives using thestraight-line method.
Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in profit or loss.
Investment Properties
Investment properties are properties held to earn rentals or for capital appreciation. Investment properties
also include land held for a currently undetermined future use.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initialrecognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss.
Depreciation is recognized using the straight-line method. The estimated useful life residual value arereviewed at the end of each reporting period.
Any gain or loss arising on derecognition of the property is calculated as the difference between the net
disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period inwhich the property is derecognized.
Intangible Assets
Intangible assets with finite useful lives that are acquired separately are initially measured at cost andsubsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. The residual value of an intangible asset with a finite
useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset before theend of its economic life.
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which theasset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable andconsistent basis; otherwise Corporate assets are allocated to the smallest group of cash-generating units on areasonable and consistent allocation basis.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.

- 19 -

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the Company use the estimated cash flows to be discounted by future pre-tax discount rate, the discount rate
reflects current market time value of money and the specific risks to the asset that the estimated future cash
flows have not yet adjusted to the market.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.
When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amountthat would have been determined had no impairment loss been recognized for the asset or cash-generating
unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
Financial Instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual
provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deducted fromthe fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.
a. Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis. All regular way purchases or sales of financial assets means buy or sell financial assets in the
period made by regulation or market convention.
1) Measurement category
Financial assets are classified into the following specified categories: Financial assets at fair value
through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans andreceivables. The classification of financial assets is depending on their nature and purpose of theoriginal recognition. Financial assets are classified into the following categories: Financial
assets at fair value through profit or loss and available-for-sale financial assets.
a) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss are stated at fair value, with any gains orlosses arising on remeasurement recognized in profit or loss. The net gain or loss recognizedin profit or loss incorporates any dividend or interest earned on the financial asset. Fair value
is determined in the manner described in Note 32.
b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity investments orfinancial assets at fair value through profit or loss.

- 20 -

Changes in the carrying amount of available-for-sale financial assets are recognized in othercomprehensive income and will be reclassified to profit or loss when the investment is disposedof or is determined to be impaired.
Dividends on available-for-sale equity instruments are recognized in profit or loss when the
Company’s right to receive the dividends is established.
Available-for-sale equity investments that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured and derivatives that are linked to and must be
settled by delivery of such unquoted equity investments are measured at cost less any identified
impairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assets
can be reliably measured, the financial assets are remeasured at fair value. The difference
between carrying amount and fair value is recognized in profit or loss or other comprehensive
income on financial assets.
c) Loans and receivables
Loans and receivables (including trade receivables, cash and cash equivalent, debt investmentswith no active market, and other receivables are measured at amortized cost using the effective
interest method, less any impairment, except for short-term receivables when the effect of
discounting is immaterial.
2) Impairment of financial assets
Financial assets, other than those at fair value through profit or loss and available-for-sale financial
assets, are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset, the estimated future cash
flows of the investment have been affected.
For financial assets carried at amortized cost, such as trade receivables and other receivables, assets
are assessed for impairment on a collective basis even if they were assessed not to be impaired
individually. Objective evidence of impairment for a portfolio of receivables could include theGroup’s past experience of collecting payments, an increase in the number of delayed payments inthe portfolio past the average credit period of 60 days, as well as observable changes in national or
local economic conditions that correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the financial asset’s original effective interest rate.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the investment at the date the impairment is reversed
does not exceed what the amortized cost would have been had the impairment not been recognized.
For available-for-sale equity investments, a significant or prolonged decline in the fair value of the
security below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include the followings:a) Significant financial difficulty of the issuer or counterparty;b) Breach of contract, such as a default or delinquency in interest or principal payments;- 21 -

c) It becoming probable that the borrower will enter bankruptcy or financial re-organization; ord) The disappearance of an active market for that financial asset because of financial difficulties.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the period.
In respect of available-for-sale equity securities, impairment loss previously recognized in profit orloss are not reversed through profit or loss. Any increase in fair value subsequent to an
impairment loss is recognized in other comprehensive income. In respect of available-for-saledebt securities, impairment loss are subsequently reversed through profit or loss if an increase in thefair value of the investment can be objectively related to an event occurring after the recognition of
the impairment loss.
For financial assets that are carried at cost, the amount of the impairment loss is measured as thedifference between the asset’s carrying amount and the present value of the estimated future cash
flows discounted at the current market rate of return for a similar financial asset. Such impairment
loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all
financial assets with the exception of trade receivables and other receivables, where the carrying
amount is reduced through the use of an allowance account. When a trade receivable and otherreceivables are considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the allowance account.
Changes in the carrying amount of the allowance account are recognized in profit or loss except foruncollectible trade receivables and other receivables that are written off against the allowanceaccount.
3) Derecognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.
b. Equity instruments
Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
An equity instrument is residual interest in any contract after the Group’s assets minus all liabilities.
Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue
costs.
Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity.
No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of theCompany’s own equity instruments.

- 22 -

c. Financial liabilities
1) Subsequent measurement
Except for derivative financial instruments, all the financial liabilities are measured at amortizedcost using the effective interest method.
2) Derecognition of financial liabilities
The Group derecognizes financial liabilities only when the obligation is discharged, canceled or
expired. The difference between the carrying amount of the financial liability derecognized andthe consideration paid, including any non-cash assets transferred or liabilities assumed, isrecognized in profit or loss.
d. Convertible bonds
The component parts of compound instruments (convertible bonds) issued by the Company areclassified separately as financial liabilities and equity in accordance with the substance of thecontractual arrangements and the definitions of a financial liability and an equity instrument.
On initial recognition, the fair value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible instruments. This amount is recorded as a liability on anamortized cost basis using the effective interest method until extinguished upon conversion or the
instrument’s maturity date. Any embedded derivative liability is measured at fair value.
The conversion option classified as equity is determined by deducting the amount of the liability
component from the fair value of the compound instrument as a whole. This is recognized andincluded in equity, net of income tax effects, and is not subsequently remeasured. In addition, theconversion option classified as equity will remain in equity until the conversion option is exercised, inwhich case, the balance recognized in equity will be transferred to capital surplus - share premium.
When the conversion option remains unexercised at maturity, the balance recognized in equity will betransferred to capital surplus - share premium.
Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity
components in proportion to the allocation of the gross proceeds. Transaction costs relating to theequity component are recognized directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability component.
e. Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest
rate, foreign exchange rate and fuel price risks, including foreign exchange forward contracts, interest
rate swaps, currency options and fuel swaps.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into andare subsequently remeasured to their fair value at the end of each reporting period. The resulting gainor loss is recognized in profit or loss immediately unless the derivative is designated and effective as ahedging instrument, in which event the timing of the recognition in profit or loss depends on the natureof the hedge relationship. When the fair value of derivative financial instruments is positive, thederivative is recognized as a financial asset; when the fair value of derivative financial instruments isnegative, the derivative is recognized as a financial liability.

- 23 -

Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rates, exchange rates,
fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging transactions
are defined as cash flow hedge. When entering into hedging transactions, the Company has prepared
official documents that describe the hedging relationship between hedging instruments and items been
hedged, objective of risk management, hedging strategy, and the way to evaluate the effectiveness of thehedging instrument.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion isrecognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in thesame period when the hedged item affects profit or loss. If a hedge of a forecast transaction subsequently
results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses
that were recognized in other comprehensive income are removed from equity and are included in the initialcost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued prospectively when the Group revokes the designated hedging
relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it nolonger meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument thathas been previously recognized in other comprehensive income from the period when the hedge was
effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is
no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit orloss.
Provisions
The Group recognizes provisions when the Group has a present obligation (legal or constructive) arisingfrom past events (legal or constructive obligation), payment for the obligation is probable, and theexpenditure for settling the obligation can be estimated reliably.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present
obligation, taking into account the risks and uncertainties surrounding the obligation as of the balance sheet
date. When a provision is measured using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows.
Aircraft lease contracts
When the aircraft lease contracts expire and will be returned to lessor, should assess if existing obligations
exist and required to recognize as provision when signing of the lease contract.
Revenue Recognition
a. Rendering of services
Passenger fares and cargo revenue are recognized when transport service is provided. The value of
unused passenger tickets is recognized as “advance ticket - sales”.
b. Dividend and interest income
Dividend income from investments is recognized when the shareholder’s right to receive payment has
been established provided that it is probable that the economic benefits will flow to the Group and theamount of income can be measured reliably.
- 24 -

Interest income from a financial asset is recognized when it is probable that the economic benefits willflow to the Group and the amount of income can be measured reliably. Interest income is accrued on atime basis, by reference to the principal outstanding and at the effective interest rate applicable.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.
a. Financial lease
The Group as lessee
Assets held under finance leases are initially recognized as assets of the Company at the lower of theirfair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding liability to the lessee is included in the balance sheets as a finance lease obligation.
Minimum lease payments are apportioned between finance expenses and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financeexpenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying
assets, in which case they are capitalized in accordance with the Company’s general policy on
borrowing costs. Contingent rents are recognized as expenses in the periods in which they are
incurred.
b. Sale and leaseback
Sale and leaseback transaction if met the condition that all the risks and rewards of ownership of theleased asset is essentially transfer to the lessee, the sale and leaseback type is finance lease; If part ofthe significant risks and rewards of the leased asset ownership remain with the lessor (the buyer), thesale and leaseback type is operating lease.
1) Financial lease
This transaction does not actually dispose of the assets, the accounting treatment deemedtransaction did not occur, and use the book value of the asset before sale continuing recognition of
the asset.
2) Operating lease
If the selling price is equal to the fair value, the transaction gain or loss should be recognized
immediately. If selling price is above fair value, the difference between the fair value and thebook value of the gain or loss should be recognized immediately; only the part of selling price
above fair value shall be deferred and amortized over the period of the lease.
c. Operating lease1) The Group as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease unless another systematic basis is representative of the time pattern of the lessee’s
benefit from the use of the leased asset.

- 25 -

2) The Group as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rents arising under operating leases arerecognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives arerecognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of thetime pattern in which economic benefits from the leased asset are consumed.
Employee Benefits
a. Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related service.
b. Retirement benefits
Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit
retirement benefit plans are determined using the projected unit credit method. Service cost (including
current service cost, past service cost, and net interest on the net defined benefit liability (asset) arerecognized as employee benefits expense in the period they occur. Remeasurement, comprisingactuarial gains and losses, and the return on plan assets (excluding interest), is recognized in othercomprehensive income in the period in which they occur. Remeasurement recognized in othercomprehensive income is reflected immediately in retained earnings and will not be reclassified to
profit or loss.
Net defined benefit liability represents the actual deficit in the Group’s defined benefit plan.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets(assets are substantially ready for their intended use or sale through a fairly long period) are added to thecost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which
they are incurred.
Frequent Flyer Program
The Company has a “Dynasty Flyer Program” through which program members can convert accumulated
mileage to a cabin upgrade, free tickets and other member reward.
A portion of passenger revenue attributable to the rewards for the frequent flyer program is deferred. The
entity should recognize this deferred revenue as revenue only when the entity has fulfilled its obligations on
the granting of rewards or when the period for converting the mileage to rewards has expired.

- 26 -

Share-based Payment Arrangements
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments
at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on astraight-line basis over the vesting period, based on the Group’s estimate of equity instrument that will
eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value
determined at the grant date of the equity-settled share-based payments is recognized as an expense in fullat the grant date when the share options granted vest immediately.
Taxation
Income tax expense represents the sum of the current tax and deferred tax.
a. Current tax
The current tax liabilities are based on current taxable profit. Since part of the income and expenses
are taxable or deductible in other periods, or in accordance with the relevant tax laws are taxable ordeductible, current taxable profit differs from net profit reported in the consolidated statements ofcomprehensive income.
The Group’s current tax liabilities are calculated by the tax rate has been legislative or substantial
legislative at the balance sheet date.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided foras income tax in the year the stockholders approve the retention of these earnings.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
b. Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities in the consolidated financial statements and the corresponding tax bases used in thecomputation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment
and technology, research and development expenditures, and personnel training expenditures to theextent that it is probable that taxable profits will be available against which those deductible temporary
differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control thereversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that there will be
sufficient taxable profits against which to utilize the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all orpart of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at theend of each reporting period and recognized to the to the extent that it has become probable that futuretaxable profit will allow the deferred tax asset to be recovered.

- 27 -

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period inwhich the liability is settled or the asset realized, based on tax rates (and tax laws) that have beenenacted or substantively enacted by the end of the reporting period. The measurement of deferred tax
liabilities and assets reflects the tax consequences that would follow from the manner in which theGroup expects, at the end of the reporting period, to recover or settle the carrying amount of its assets
and liabilities.
c. Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current and deferred
tax are also recognized in other comprehensive income or directly in equity respectively.
Maintenance and Overhaul Costs
Routine maintenance costs are recognized in profit or loss in the period in which they are incurred.
The overhaul costs of the owned or leased aircraft that meet the criteria for fixed asset capitalization andengines as replacement parts for aircraft and engines are capitalized, and amortized over the expectedannual overhaul cycle using straight-line depreciation method.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
In the application of the Group’s accounting policies shown on Note 4, management is required to makejudgments, estimates and assumptions about the carrying amounts of assets and liabilities that are notreadily apparent from other sources. The estimates and associated assumptions are based on historicalexperience and other factors that are considered relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of thereporting period that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below.
Income Taxes
The Group is subject to income taxes in numerous jurisdictions. Where the final tax payable differs fromthe amounts that were initially recognized, these differences will affect the income tax and deferred tax
provisions in the period in which the differences are determined. Deferred tax assets are recognized for
deductible temporary differences to the extent that it is probable that taxable profits will be available
against which the deductible temporary differences can be used. When evaluating the realizability of thedeferred tax asset, management uses significant accounting judgments and estimates, including expected
future revenue growth and profit margins, income tax exemption periods, the use of tax credits, tax
planning and certain assumptions. Changes in the industry environment and regulations will result in amaterial adjustment of the deferred tax asset.

- 28 -

Estimated Impairment of Trade Receivables
The Group assesses the receivables portfolios monthly for impairment. Impairment evidences may
include observable changes in debtors’ solvency and national or local economic conditions that correlatewith default on receivable settlement. Management’s analysis of expected cash flows is based on pastexperience of loss on assets with similar credit risk characteristics. The Group periodically reviews themethods of determining, and assumptions on, the expected amount and timing of cash flows to reduce thedifference between the estimated and the actual losses.
Fair Value of Derivatives and Other Financial Instruments
The Group’s management uses its judgment in selecting an appropriate valuation technique for financial
instruments with no quoted market prices in an active market. Valuation techniques commonly used bymarket practitioners are applied. For derivative financial instruments, assumptions are based on quoted
market rates adjusted for specific features of the instruments. Other financial instruments are valued using
a discounted cash flow analysis based on assumptions supported, where possible, by observable market
prices or rates. The chosen valuation techniques and assumptions used are possible effecting in
determining the fair value of financial instruments.
Depreciation of Property, Plant and Equipment - Flight Equipment
Flight equipment are depreciated on a straight-line basis at rates that can be used to write down their cost to
their estimated residual values at the end of their useful lives. The estimates of the useful lives andresidual values of the flight equipment are made by the Group on the basis of past experience and fleet
operation performance in the industry.
Defined Benefit Obligations
The present value of defined benefit obligations at the end of the reporting period are calculated using
actuarial assumptions. Those assumptions, which are based on management’s judgment and estimates,
comprise the discount rate and expected return on plan assets. Changes in actuarial assumptions may havea material impact on the amount of defined benefit obligations.
Maintenance Reserve for Operating Lease Aircraft
Maintenance reserve is based on the requirement under lease contracts to reflect maintenance costs that may
arise on lease expiry. Estimation of this reserve is based on the past maintenance experience on the sameor similar type of aircraft; incurred overhaul costs; and historical operating performance data. Changes injudgment or estimations may have a material impact on the amount of maintenance reserve.
Frequent Flyer Program
As stated in Note 4, Frequent Flyer Program a portion of passenger revenue attributable to the awarding of
frequent flyer benefits is deferred until the awards are given out. The deferment of the revenue isestimated on the basis of historical trends of breakage and redemption, which is then used to project the
expected claiming of these benefits. Changes in fair value per mileage or redemption rate may have amaterial impact on deferred revenue.
Impairment of Flight Equipment
The impairment of flight equipment was based on the recoverable amount of those assets, which is thehigher of fair value less costs to sell or value-in-use of those assets. Any changes in the market price or
future cash flows will affect the recoverable amount of those assets and may lead to recognition of
additional or reversal of impairment losses.

- 29 -

6. CASH AND CASH EQUIVALENTS
December 31
2015
Cash on hand and revolving fund
Checking accounts and demand deposits
Cash equivalentTime deposits with original maturities less than three months
Repurchase agreements collateralized by bonds

$

2014

478,223
6,070,236$

385,684
8,730,325

16,163,452
779,174

10,187,695
1,164,447$ 23,491,085$ 20,468,151

The market rate intervals of cash in bank and cash equivalent at the end of the reporting period were as
follows:
December 31

Bank balanceTime deposits with original maturities less than three months
Repurchase agreements collateralized by bonds

2015

2014

0%-1.5%
0.27%-7.25%
0.42%-0.51%

0%-2%
0.85%-4.8%
0.55%-0.65%

The amount of time deposits with original maturities more than three months for the years ended December
31, 2015 and 2014 were $1,653,927 thousand and $1,145,720 thousand, respectively, and the market rateintervals were 0.295%-4.1% and 0.2%-4.8%, which were recognized as other current assets. (Refer toNote 19).

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
December 31
2015

2014

Financial assets held for trading - current
Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts
Non-derivative financial assets
Beneficial certificates$

63,818$46,812478,508

189,002$ 542,326$ 235,814$$

Financial assets held for trading - non current
Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts- 30 -

1,710-

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge
accounting were as follows:

Maturity Date

Notional Amount(In Thousands)

NTD/USD

2016.01.08-2017.01.26

NTD3,276,316/USD99,600

NTD/USD

2015.01.02-2015.06.16

NTD1,247,678/USD40,300

Currency
December 31, 2015
Buy forward contracts
December 31, 2014
Buy forward contracts

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 31
2015

2014

Carrying
Value

% of
Ownership

Carrying
Value

% of
Ownership$ 19,080-$ 28,881-

Non-current
Domestic listed company
Trans Asia Airways

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
December 31
2015

2014

Derivative financial assets under hedge accounting
Interest rate swaps
Foreign exchange forward contracts
Currency options
Fuel options

Current
Non-current$

51,06012,403335$

727
32,285
10,565$63,798$43,577$52,582
11,216$42,850727$

63,798$43,577$

12,702
12,660299,618

$

5,150
3,028
2,456,972$

324,980$ 2,465,150(Continued)

Derivative financial liabilities under hedge accounting
Interest rate swaps
Currency options
Fuel options- 31 -

December 31
2015
Current
Non-current

2014

$

313,689
11,291$ 2,460,000
5,150

$

324,980$ 2,465,150(Concluded)

The fair value of each derivative contract is determined using quotes from financial institutions.
a. Interest rate swaps
The Group entered into interest rate swap contracts to mitigate the risk of changes in interest rates on
the cash flow exposure related to the outstanding floating rate debt. All swapped fixed interest rate
swap out the floating rate interest rate swap contracts are designated as cash flow hedges. The
outstanding interest rate swap contracts at the end of the reporting period were as follows:

Notional Amount(In Thousands)

Maturity Date

Range ofInterest Rates
Paid

Range of Interest Rates
Received2016.11.28-2017.06.22

1.01%-1.14%

3M TAIBOR rate

2015.05.24-2017.06.22

0.9%-1.14%

6165 Page 3M CP Rate

December 31, 2015
NT$3,000,000
December 31, 2014
NT$4,500,000

The interest rate swaps settle on a quarterly basis. The Company will settle the difference between the
fixed and floating interest rates on a net basis.
b. Currency options
The Group entered into currency option to minimize the risk of changes in foreign currency rate on the
cash flow exposure related to fuel payments, which will be paid in U.S. dollars.
The outstanding currency options at the end of the reporting period were as follows:

Currency

Maturity Date

Notional Amount(In Thousands)

JPY/USD
JPY/USD

2016.01.08-2016.12.09
2016.01.08-2016.12.09

JPY3,446,570/USD28,400
JPY3,364,604/USD28,400

JPY/USD
JPY/USD

2015.01.08-2015.05.15
2015.01.08-2015.05.15

JPY2,044,410/USD17,900
JPY1,973,570/USD17,900

December 31, 2015
Buy USD call option
Sell USD put option
December 31, 2014
Buy USD call option
Sell USD put option- 32 -

c. Fuel options
The Group used fuel options to minimize the risk of changes in fuel price related to operating cost.
The outstanding fuel options at the end of the reporting period were as follows:
Notional Amount(In Thousands)

Currency

Maturity Date

USD
USD

2016.01.05-2016.12.07
2016.01.05-2016.12.07

NTD335NTD299,618

USD
USD

2015.03.31-2015.11.30
2015.03.31-2015.11.30

NTD10,565
NTD2,456,972

December 31, 2015
Buy fuel call option
Sell fuel put option
December 31, 2014
Buy fuel call option
Sell fuel put option

Based on the Taiwan Stock Exchanges regulation for the public companies monthly declaration on the
trading of derivative financial instruments, the contractual amounts are shown at the absolute values offair value because fuel swap contracts only have notional amounts.
d. Foreign exchange forward
The Group entered into foreign exchange forward to minimize the risk of changes in foreign currency
rate on the cash flow exposure related to fuel payments and aircraft payments, which will be paid in
U.S. dollars.
The outstanding foreign exchange forward contracts at the end of the reporting period were as follows:

Currency

Maturity Date

Notional Amount(In Thousands)

NTD/USD

2016.01.18-2017.05.23

NTD1,076,882/USD32,920

December 31, 2015
Buy forward contracts

Gains and losses of hedging instruments reclassified from equity to profit or loss were included in thefollowing line items in the consolidated statements of comprehensive income:For the Year Ended December 31
2015
2014
Increase in operating cost
Increase in finance cost
Other foreign exchange gain

- 33 -$ (2,582,480)(7,151)
34,786$(418,329)(7,428)28,333$ (2,554,845)$(397,424)

10. FINANCIAL ASSETS CARRIED AT COST
December 31
2015
% of
Ownership

Carrying
Value

% of
Ownership

52,70456,0231415$ 297,946
56,02314
15

75,791

6

75,9196

21,995
11,0005,925
223,4385
11
6

22,031
11,0005,925
468,844

5
11
6

473

473

-

$ 223,911$ 469,317$ 223,911$ 469,317

Carrying
Value
Unlisted common stocks
Everest Investment Holdings Ltd. (AH)
Jardine Aviation Service
Taikoo (Xiamen) Landing Gear Service
Co., Ltd.
Taikoo Spirt Aerospace Systems (Jin
Jiang) Composite Co., Ltd.
Chung Hwa Express Co.
Regal International Advertising$

Unlisted preferred stocks
Everest Investment Holdings Ltd. (AH)

Classified according to financial asset
measurement categories
Available-for-sale financial assets

2014

-

The Group and the Asian airlines had set up Abacus International Holdings (AH company) which owned
Abacus distributions systems company. Due to adjusting strategy and adjustment, AH company disposedof shares of Abacus distribution system company. The board of AH company resolved to return the gain
on disposal to shareholders by cash dividends and share redemption and which is approved. The Group
received cash dividends of $1,660,687 thousand and share redemption of $245,242 thousand. AH
company changes its name to Everest Investment Holdings Ltd. after the disposal of their subsidiary.
Titan V.C. Corp. liquidated and returned its shares in June 27, 2014 and the Group has received the refundof $4,616 thousand and recognized disposal gain of $2,550 thousand recognized as gain on sale ofavailable-for-sale financial asset.
Above unlisted stock investments held by the Group were evaluated by cost after deducting impairment
losses because the range of reasonable fair value estimates were significant and unable to be reasonably
evaluated, the management considered its fair value unable to evaluate.

11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE
December 31
2015
Notes receivable$

344,4792014$

291,420

Accounts receivable
Accounts receivable
Less: Allowance for impairment loss

- 34 -

7,376,125(109,927)
7,266,198

9,235,179(66,131)9,169,048$ 7,610,677$ 9,460,468

The average credit period was 7 to 55 days. In determining the recoverability of a accounts receivable, theCompany considered any change in the credit quality of the accounts receivable since the date credit was
initially granted to the end of the reporting period, allowance for impairment loss were based on estimatedirrecoverable amounts determined by reference to past default experience of the counterparties and ananalysis of their current financial position.
Movement in the allowance for impairment loss recognized on notes receivable and trade receivables wereas follow:
For the Year Ended December 31
2015
2014
Beginning balance
Impairment loss recognized on receivables
Amounts written off during current period
Amounts recovered during current period
Exchange influence$

66,13149,458(5,292)(370)$

57,86230,021(21,387)
(272)
(93)

Ending balance$ 109,927$

66,131

12. INVENTORIES
December 31

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services
Others2015

2014$ 7,648,352
507,603
143,489954$ 6,521,950
454,601
248,348
1,164$ 8,300,398$ 7,226,063

The cost of inventories recognized as operating costs due to write-downs of inventories was $151,688
thousand and $159,682 thousand.

13. NON-CURRENT ASSETS HELD FOR SALE
December 31
2015
Aircraft held for sale

$ 670,455

2014
$

-

To enhance the competitiveness, the Company plans to introduce new aircrafts and retire old aircrafts ontimely schedule. On August 13, 2015, the board of directors resolved to sell two 747-400 aircrafts and one
A340-300 aircraft. These aircrafts as non-current assets held for sale, and difference between the original
book value and the expected sale price was recognized as impairment loss of 1,899,372 thousand.
However the actual amount of loss should be identified by actual sale price. Above measurement of fairvalue is Level 3 measure which referred to the second-hand market and the conditions of aircrafts.

- 35 -

14. SUBSIDIARIES
Subsidiary included in the consolidated financial statements:

Investor Company
China Airlines, Ltd.

Investee Company

Main Businesses and Products

Cal-Dynasty International
Cal-Asia Investment
Hwa Hsia
Yestrip
Cal Park
Cal Hotel Co., Ltd.
Abacus Distribution System(Taiwan)Mandarin Airlines

Cal-Dynasty
International
Taiwan Airport Services
Hwa Hsia

Taiwan Air Cargo Terminal(Note)
Dynasty Holidays
Taoyuan International Airport
Services
Taiwan Airport Services
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd. (Note)
Taiwan Aircraft Maintenance
And Engineering Co., Ltd.
Dynasty Properties Co., Ltd.
Dynasty Hotel of Hawaii, Inc.
Taiwan Airport Service (Samoa)
Hwa Shin Building Safeguard

Proportion of
Ownership
December 31
2015
2014

A holding company, real estate and hotel
services
General investment
Cleaning of aircraft and maintenance ofmachine and equipment
Travel business
Real estate lease and international trade
Hotel business
Sale and maintenance of hardware andsoftware
Air transportation and maintenance of
aircraft
Air cargo and storage

100

100

100
100

100
100

100
100
100
94

100
100
100
94

94

94

59

59

Travel businessAirport services

51
49

51
49

Airport services
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Air transportation
Aircraft maintenance

47
25
100
100
90
100

47
25
100
100
90
-

Real estate management

100

100

Hotel businessAirport supporting service and investment
Building security and maintenanceservices

100
100
100

100
100
100

Note: Proportion of ownership is considering by the Group view.
Considering the Group developing strategy, Mandarin Airlines had bought 146,388 shares of Taiwan
Airport Services by $3,574 thousand since September 2015.
To provide new generation of aircraft’s repairing services, expand aircrafts maintenance market, andimprove the Group’s maintenance quality, the board of directors had reached an agreement to established“Taiwan Aircraft Maintenance And Engineering Co., Ltd.” on August 12, 2014.
Taiwan Aircraft Maintenance And Engineering Co., Ltd, and had completed registration on January 16,
2015.
In order to provide the customers with diversified options, the board of directors has reached an agreement
to establish a Low Cost Carrier, named Tigerair Taiwan Co., Ltd., with Tiger Airways Singapore Pte. Ltd.
in the form of joint venture. The capital stock of Tigerair Taiwan Co., Ltd. is $2,000,000 thousand, whichcontains $1,600,000 thousand (80%) from the Company and $200,000 thousand (10%) from Mandarin
Airlines Co., Ltd. respectively. Tigerair Taiwan Co., Ltd. was established on April 21, 2014 and launched
operations on September 26, 2014.
The financial information of the above companies had been accounted into consolidated financial statement
since their registration date.

- 36 -

The Company’s holdings of the issued share capital of Taoyuan International Airport Service, Taiwan
Airport Service and Global Sky Express did not each exceed 50%, but since the Company had control overthese investees, they were listed as subsidiaries. The financial information of the subsidiaries above on2015 and 2014 has been reported into the correspondent period as investees after auditing.
The Group’s holding of the issued share capital of China Pacific Catering Services and China Pacific
Laundry Services exceeded 50%, yet the Group did not have controlling power over the investees.
Related information please refer to Note 15,b.

15. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31

Investments in associates
Investments in jointly controlled entities

2015

2014

$ 2,010,774
867,003$ 1,896,814
910,009$ 2,877,777$ 2,806,823

a. The amount of investment in associates were as follows:
December 31
2015

2014

Unlisted companies
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Airport Air Cargo Terminal (Xiamen)
Airport Air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.
Prepaid long-term investment - Science Park Logistics$

490,824
244,903
263,091
185,226
494,665
226,066
41,908
1,946,683
64,091$ 2,010,774$

450,111232,105
259,605
189,019
509,411
222,974
33,5891,896,814-$ 1,896,814

On December 18, 2015 the board of Science Park Logistics (SPL) approved the issuance of common
stock for cash and with the date of right issues granted on was December 25, 2015. The board ofCompany has reached an agreement to purchase $64,091 thousand which had been remitted to SPL by
December 31, 2015. SPL completed the registration of this subscription on January 22, 2016.
At the end of the reporting period, the proportion of ownership and voting rights of associates held by
the Group were as follows:
Proportion of Ownership andVoting Rights
December 31
2015
2014

Name of Associate
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics

20%
36%
25%
28%

- 37 -

20%
36%
25%
28%
(Continued)

Proportion of Ownership andVoting Rights
December 31
2015
2014

Name of Associate
Arport air Cargo Terminal (Xiamen)
Arport air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

28%
28%
35%

28%
28%
35%
(Concluded)

The investment income of associates recognized accounted for using equity method were as follows:
2015
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
Arport air Cargo Terminal (Xiamen)
Arport air Cargo Service (Xiamen)
Eastern United International Logistics (Holdings) Ltd.

$

2014

46,24758,084
93,375
16,37318,44922,362
6,759$ 261,649$

35,66449,086
100,716
23,42634,36519,7444,361$ 267,362

Other comprehensive income of associates accounted for using the equity method in 2015 and 2014 are$15,085 thousands and $23,133 thousand, respectively.
The financial statements used as basis of the amounts of and related information on the investments
accounted for by the equity method and the share of profit or loss and other comprehensive income ofthose investments for the years ended December 31, 2015 and 2014 had all been independently audited,
except those of Eastern United International Logistics (Holding) Ltd. However, the management
determined that there would have been no significant adjustments had this investee’s financial
statements been independently audited.
b. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services- 38 -

2015

2014$ 705,134
161,869$ 743,817
166,192$ 867,003$ 910,009

At the end of the reporting period, the proportion of ownership and voting rights in jointly controlled
entities held by the Group were as follows:
Proportion of Ownership andVoting Rights
December 31
2015
2014
China Pacific Catering Services
China Pacific Laundry Services

51%
55%

51%
55%

The Group entered into a joint venture agreement with the Taikoo Group to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both sides have
major motion veto on the board, and therefore the Group does not have its control power.
Details of investment income attributable to investment in jointly controlled entitles were as follows:
For the Year Ended December 31
2015
2014
China Pacific Catering Services
China Pacific Laundry Services$ 231,012
23,479$ 212,571
29,419$ 254,491$ 241,990

Other comprehensive income of associates accounted for using the equity method in 2015 and 2014 are$(1,943) thousand and $(16,045) thousand, respectively.
The investments accounted for using the equity method and the share of profit or loss and othercomprehensive income of those investments was based on the jointly controlled entities’ financial
statement audited by the auditor for the same years.
Service, major business offices and country of company registered of above can be referred to Tables 5
and 6 (names, locations, and related information of investees on which the Company exercises
significant influence and investment in Mainland China).

16. PROPERTY, PLANT AND EQUIPMENT
December 31
2015

2014

Cost
Freehold land
Buildings
Flight equipment
Equipment under finance lease
Machinery equipment
Office equipment
Leased assets
Leasehold improvements
Construction in progress$

976,427
13,140,158
229,849,035
28,087,404
9,930,186
1,044,598
129,372
3,928,846
134,888$ 287,220,914- 39 -$

953,614
13,085,921
232,035,450
33,985,116
9,553,310
1,009,989
131,786
3,912,736
89,425$ 294,757,347(Continued)

December 31
2015

2014

Accumulated depreciation and impairment loss
Buildings
Flight equipment
Equipment under finance lease
Machinery equipment
Office equipment
Leased assets
Leasehold improvements$

Net value

Freehold Land

Buildings

FlightEquipment

5,355,804
128,953,990
14,201,904
6,598,390
839,931
113,276
1,528,753$

4,794,850
121,645,204
16,998,403
6,182,237
750,551
115,489
1,615,547$ 157,592,048$ 152,102,281$ 129,628,866$ 142,655,066(Concluded)

Equipment
under Finance
Lease

OthersTotal

Cost
Balance at January 1,
2014
Additions
Disposals
Reclassification
Net exchange difference
Balance at December 31,
2014$

938,392(17,336)
32,558$13,078,656
29,289(308)(77,318)
55,602$ 222,573,614
7,640,577(3,522,099)
5,343,358-$

38,691,367
1,232,885(1,009,302)(4,929,834)-$

13,501,350
1,017,447(439,103)
612,7194,833$ 288,783,379
9,920,198(4,988,148)
948,925
92,993$

953,614$

13,085,921$ 232,035,450$

33,985,116$

14,697,246$ 294,757,347

$

-

$

(4,298,391)(551,789)
307
77,588(22,565)$ (108,380,142)(13,670,202)
3,064,001(2,658,861)-$ (18,198,277)(2,461,728)
999,5112,662,091-$(8,244,501)(776,727)
436,566(75,343)(3,819)$ (139,121,311)(17,460,446)
4,500,385
5,475(26,384)$-$(4,794,850)$ (121,645,204)$ (16,998,403)$(8,663,824)$ (152,102,281)$

953,614
22,813$13,085,921
45,404(31,102)590
39,345$ 232,035,450
5,640,527(3,085,768)(4,741,174)-$

33,985,116
394,939(550,429)(5,742,222)-$

14,697,246
630,493(330,385)
165,938
4,598$ 294,757,347
6,711,363(3,997,684)(10,316,868)
66,756$

976,427$

13,140,158$ 229,849,035$

28,087,404$

15,167,890$ 287,220,914

$

-

$

(4,794,850)(562,749)
18,015(55)(16,165)$ (121,645,204)(13,852,657)
2,878,909(569,000)
4,233,962-$ (16,998,403)(2,104,460)
550,430
4,350,529-$(8,663,824)(741,629)
325,893
2,250(3,040)$ (152,102,281)(17,261,495)
3,773,247(569,000)
8,586,686(19,205)$-$(5,355,804)$ (128,953,990)$ (14,201,904)$(9,080,350)$ (157,592,048)

Accumulated depreciationand impairment
Balance at January 1,
2014
Depreciation expense
Disposals
Reclassification
Net exchange difference
Balance at December 31,
2014
Cost
Balance at January 1,
2015
Additions
Disposals
Reclassification
Net exchange difference
Balance at December 31,
2015\Accumulated
depreciationand impairment
Balance at January 1,
2015
Depreciation expense
Disposals
Impairment loss
Reclassification
Net exchange difference
Balance at December 31,
2015- 40 -

Property, plant and equipments were depreciated on a straight-line basis over the estimated useful life of theasset:
Building
Main buildings
Others
Machinery equipments
Electro-mechanical equipment
Others
Office equipments
Leasehold improvements
Building improvements
OthersAssets leased to others
Flying equipments and equipment under finance lease
Airframe
Aircraft cabin
EngineHeavy maintenance on aircraft
Engine overhauls
Landing gear overhauls
Repairable spare parts
Leased aircraft improvements

45-55 years
10-25 years
25 years
3-13 years
3-15 years
5 years
3-5 years
3-5 years
15-25 years
7-13 years
10-20 years
6-8 years
3-10 years
7-10 years
7-15 years
5-12 years

Taking changes in fleet composition, current and forecast market value and other technical factors into
consideration, the Group recognized aircraft equipments impairment loss of $569,000 thousand in 2015.
Refer to Note 34 for the carrying amounts of property, plant and equipment pledged by the Group.
Based on the particularity of risk in aviation industry, all of our assets such as aircraft, real estate, movable
property are adequately insured to diversify the potential risk related to operation.

17. INVESTMENT PROPERTIES
December 31

Carrying amount
Investment properties

2015

2014

$ 2,076,182$ 2,076,461

The investment properties held by the Group were a land located in Nankan and buildings in Taipei, whichwere all leased to others. The buildings were depreciated on a straight-line basis over 55 years.
The fair value of the investment properties held by the Group is $2,348,759 thousand on December 31,
2015 and 2014.
The fair value valuation was performed by the independent qualified professional valuers and the future
income evaluated by management based on market transactions.
All of the Group’s investment properties were held under freehold interest.

- 41 -

Cost

Accumulated
Impairment
andDepreciation

Net Value

Balance on January 1, 2014
Additions$ 2,082,390-$(5,650)(279)$ 2,076,740(279)

Balance on December 31, 2014

$ 2,082,390$(5,929)$ 2,076,461

Balance on January 1, 2015
Additions$ 2,082,390-$(5,929)(279)$ 2,076,461(279)

Balance on December 31, 2015

$ 2,082,390$(6,208)$ 2,076,182

Computer
Software Cost

Accumulated
Amortization

Net Value

Balance at January 1, 2014
Additions
Amortization expense
Reclassification$

977,458
230,392
6,615$(488,046)(55,422)-$489,412230,392(55,422)6,615

Balance at December 31, 2014

$ 1,214,465$(543,468)$

670,997

Balance at January 1, 2015
Additions
Amortization expense$ 1,214,465
408,721-$(543,468)(70,040)$

670,997408,721(70,040)

Balance at December 31, 2015

$ 1,623,186$(613,508)$ 1,009,678

18. OTHER INTANGIBLE ASSETS

The above other intangible assets were depreciated on a straight-line basis over 2-12 years.

19. OTHER ASSETS
December 31
2015

2014

Current
Other financial assets
Temporary payments
Prepayments
Restricted assets
Others- 42 -$

1,653,927
632,661
1,146,659
500
495,000$

1,145,720
200,545861,811904
434,994$

3,928,747$

2,643,974(Continued)

December 31
2015

2014

$ 28,714,476
2,522,891
1,489,112
504,924
14,144
1,312$ 27,585,802
1,550,942
1,328,227
449,262
14,2652,724$ 33,246,859$ 30,931,222(Concluded)

Noncurrent
Prepayments for aircraft
Prepayments - long-term
Refundable deposits
Restricted assets
Other financial assets
OthersThe prepayments for aircraft was the prepaid deposit, capitalized interest, etc. that the Company enteredinto a contract to purchase A350-900 and 777-300ER aircraft. As for the instruction of the contracts,
please refer to Note 35.

20. BORROWINGSa. Short-term loans
December 31
2015

2014

Bank loans - unsecured$

173,289$ 4,361,628

Interest rates

1.25%-1.8636%

1.18%-1.30%

b. Short-term and bills payable
December 31
2015
Commercial paper
Less: Unamortized discount on bills payable

Annual discount rate

2014

$

10,0005$ 2,090,000
1,887

$

9,995

$ 2,088,113

1.3%

1.108%-1.238%

c. Long-term debts
December 31

Unsecured bank loans
Secured bank loans
Commercial paper
Proceeds from issue
Less: Unamortized discountLess: Current portion- 43 -

2015

2014$ 31,231,342
25,342,804$ 30,553,456
32,413,444

31,275,000
65,52987,783,617
30,092,112

24,505,000
60,46487,411,436
14,218,482$ 57,691,505$ 73,192,954

Secured bank loans were secured by freehold land, building, machinery equipment and flightequipment, please refer to Note 34.
Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannuallyor in lump sum upon maturity. Related information is summarized as follows:
Currency
New Taiwan
Dollars

U.S. Dollars

Japanese Yen$$

Original currency
December 31, 2015
December 31, 2014

$ 52,533,784
54,477,262

122,827
267,90244,448Translated in New Taiwan dollars
December 31, 2015
December 31, 2014

52,533,784
54,477,262

4,040,362
8,477,870

11,768Interest rates
December 31, 2015
December 31, 2014

1.1432%2.613%
1.277%2.2074%

0.4067%-4.39%-

0.2311%-4.39%

1.975%

2004.12.162029.02.04
2002.4.112029.02.04

2004.06.282017.09.21
2003.07.222020.02.26-

Periods
December 31, 2015
December 31, 20142013.09.012016.08.01

The Company has note issuance facilities obtained from certain financial institutions. The NIFs, withvarious maturities until February 2021, were used by the Group to guarantee commercial papers issued.
As of December 31, 2015 and 2014, the commercial papers were issued at discount rates
1.2407%-1.5833% and 1.3895%-2.086%, respectively.

21. BONDS PAYABLE
December 31
2015
Secured corporate bond first-time issued in 2010
Secured corporate bond first-time issued in 2011
Unsecured corporate bond first-time issued in 2012
Unsecured corporate bond first-time issued in 2013
Convertible bond - fifth time
Less: Current portion and put option of convertible bonds$

2,400,000
10,900,000
2,544,106
15,844,106
4,944,106$ 10,900,000- 44 -

2014$

1,440,000
4,200,000
5,345,000
10,900,000
5,023,836
26,908,836
8,585,000$ 18,323,836

Related issuance conditions were as follows:
Category

PeriodFive-year secured domestic bonds - issued at par in January
2010

2010.1.25-2015.1.25

Five-year secured domestic bonds - issued at par in February
2010; repayable in February 2013, February 2014 andFebruary 2015; indicator rate plus 1.5% interest p.a.,payable quarterly
Five-year secured domestic bonds - issued at par in February
2010; repayable in February 2013, February 2014 andFebruary 2015; indicator rate plus 1.5% interest p.a.,payable quarterly
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in May
2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in January2012; repayable in January 2015; 2% interest p.a.,payable semiannually
Five-year private unsecured bonds - issued at par in January
2013; repayable in January 2017 and 2018; 1.6% interestp.a., payable annually
Seven-year private unsecured bonds - issued at par in
January 2013; repayable in January 2019 and 2020;
1.85% interest p.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum upon maturity;
1.8245% discount rate p.a.

2010.2.1-2015.2.1

2010.2.8-2015.2.8

2011.5.20-2016.5.20

2011.5.20-2016.5.20

2011.5.20-2016.5.20

2011.5.20-2016.5.20

2012.1.10-2015.1.10

2013.1.17-2018.1.17

2013.1.17-2020.1.17

2013.12.26-2018.12.26

Conditions

Rate (%)

Principal repayable in January andFebruary 2013, 2014 and 2015;
indicator rate plus 1.5% interest p.a.,payable quarterly
Principal repayable in January andFebruary 2013, 2014 and 2015;
indicator rate plus 1.5% interest p.a.,payable quarterly
Principal repayable in January andFebruary 2013, 2014 and 2015;
indicator rate plus 1.5% interest p.a.,payable quarterly
Principal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in May of 2014,2015 and 2016; indicator rate;
payable annuallyPrincipal repayable in January 2015;
indicator rate; payable semi-annually

Indicator rateplus 1.50

Principal repayable in January of 2017and 2018; indicator rate; payableannually
Principal repayable in January of 2019and 2020; indicator rate; payableannually
Unless bonds are converted to capitalstock or redeemed, principal
repayable one time in December
2018; 1.8245% discount rate p.a

1.60

Indicator rateplus 1.50

Indicator rateplus 1.50

1.35

1.35

1.35

1.35

2.00

1.85

-

The above indicator rate is the 90 days’ commercial paper rates of Taiwan’s secondary market.
In January 2012, the Group made a first issue of 2012 private unsecured bonds with aggregate face value of$5,785,000 thousand. The investors included: Taoyuan International Airport Services, Mandarin
Airlines and Abacus Distribution Systems (Taiwan) which are affiliates held $440,000 thousand of its facevalue in aggregate and the unsecured bonds would be written off in the consolidation financial report.
Private unsecured bonds were all expired and paid off in January 2015.
The Company issue the fifth issue of unsecured convertible bonds, and the issuance conditions were as
follows:
a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. The holders can request the Company to repurchase their bonds at 100.75% face value on the third
anniversary of the offering date. Because the holders can exercise selling rights, the Company
reclassified the bonds payable to “current portion of bonds payable”.
c. The Company may redeem the bonds at face value between March 26, 2014 and November 16, 2018
under certain conditions.
d. Between January 26, 2014 and December 16, 2018 (except for the period between the ex-dividend date
and the date of dividend declaration on record), holders may convert the bonds to the Company’scommon shares. The initial conversion price was set at NT$12.24, subject to adjustment if there iscapital injection by cash, stock dividend distribution, and the proportion of cash dividend per share in- 45 -

market price exceed 1.5%. As of December 31, 2015, there was no adjustment to the conversion
price, but corporate bonds with a face value of $3,315,700 thousand had been converted to 270,890
thousand of common shares.
The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - option. The effective interest rate of the liability
component was 1.8245% per annum on initial recognition.
Proceeds from issuance
Equity component$ 6,000,000(518,621)

Liability component at the date of issuance$ 5,481,379

22. LEASING
a. Sale-leaseback-finance lease
December 31
2015

2014

Within one year
Later than one year and no later than five years$ 1,428,467
5,079,133$ 2,727,933
6,945,200

Present value of minimum lease payments$ 6,507,600$ 9,673,133

Interest rates

1.1828%1.5667%

1.287%-1.667%

Minimum lease payments

The Group had leased engines, A330-300, A340-300 and B747-400 in total of 5 aircrafts undersale-leaseback finance sapre leases as of December 31, 2015. The lease terms started from June 2006
to April 2019. During the lease term, the Group retained all risks and rewards attached to aircraft andengines, and enjoyed the same substantive right prior to the transaction. Interest rate underlying all
obligation under finance leases were floated. Therefore, the minimum lease payments undersale-leaseback aircraft contracts are not inclusive of interest expense.
b. Finance leaseTaiwan Air Cargo Terminal Co. (TACT) entered into a terminal construction contract. Please refer toNote 35 for the terms of contract.
December 31
2015

2014

Minimum lease payments - cargo terminal
Within one year
Beyond one year and within five years
Beyond five years$

37,697
117,433
155,130(7,626)$

31,786
158,5313,729
194,046(8,457)

Present value of minimum lease payments$

147,504$

185,589

Interest rate

1.15%-1.67%

Less: Financial cost

- 46 -

1.29%-1.67%(Continued)

December 31
2015

2014

Present value of minimum lease payments - cargo terminal
Within one year
Beyond one year and within five years
Beyond five years

Discount rate
Total amount of present value of minimum lease payments
Current
Noncurrent$

29,490118,014-$30,500
153,491
1,598$

147,504$

185,589

4.96%

5.04%

$ 1,457,957
5,197,147$ 2,758,433
7,100,289$ 6,655,104$ 9,858,722(Concluded)c. Operating lease arrangements (include sale-leaseback-operating lease)
China Airlines, Ltd., Mandarin Airlines, Tigerair Taiwan and Taiwan Air Cargo Terminal rented
planes, hangars and etc. under various operating lease contracts expiring on various dates until
September 2027. The Group does not have a bargain purchase option to acquire the leased planes andhangar at the expiration of the lease periods.
The rental rates stated in the aircraft lease agreements some are fixed and some are floated. If theagreed-upon rental rate is floating and will be revised monthly or semiannually, subleasing is notallowed for all the lease arrangements. As of December 31, 2015, the Group has rented elevenA330-300 planes, eight B737-800 planes, eight 777-300ER planes, eight ERJ 190 planes and six
A320-200 planes under operating contracts which the lease terms range from 8 to 12 years, with anextension option.
As of December 31, 2015 and 2014, the refundable deposits paid by the Group under operating lease
contracts were $952,520 thousand and $606,156 thousand, respectively. Part of the refundable
deposits is secured by credit guarantees, and outstanding credit guarantee as of December 31 2015 and2014 were $1,304,259 thousand and $528,196 thousand.
The future minimum lease payments for the noncancelable operating lease commitments were as follows:
December 31
2015
Up to 1 year
Over 1 year to 5 years
Over 5 years$

8,896,478
33,344,415
32,325,852$ 74,566,745

2014$

5,928,038
20,993,092
18,782,575$ 45,703,705

The lease payments recognized in profit or loss for the current period were as follows:
For the Year Ended December 31
2015
2014
Minimum lease payment$ 7,896,856- 47 -$ 4,609,857

23. OTHER PAYABLES
December 31
2015
Fuel cost
Ground service expense
Repair expense
Interest expense
Short-term employee benefits
Terminal surcharges
Commission expense
Others$2014

2,038,041
1,890,418
916,442
262,601
3,310,173
781,621450,492
2,646,760$ 12,296,548$

3,785,144
1,406,034
845,514349,544
1,322,847
738,526
607,366
2,041,336$ 11,096,311

24. DEFERRED REVENUE
December 31
2015Frequent flyer program
Advance ticket sales

$

2014

2,610,667
12,365,348$

2,501,231
10,467,840$ 14,976,015$ 12,969,071

13,112,086
1,863,929

11,163,756
1,805,315$ 14,976,015$ 12,969,071

Current
Noncurrent

25. PROVISIONS
December 31
2015

2014

Operating lease-aircraft$ 6,187,481$ 4,303,780

Current
Non-current$$

20,186
6,167,295$ 6,187,481

6,744
4,297,036$ 4,303,780
Aircraft Lease
Contract

Balance at January 1, 2014
Additional provisions recognized
Usage
Effect of exchange rate changes$ 3,302,484
1,530,536(579,080)
49,840

Balance at December 31, 2014

$ 4,303,780(Continued)- 48 -

Aircraft Lease
Contract
Balance at January 1, 2015
Additional provisions recognized
Usage
Effect of exchange rate changes$ 4,303,780
2,079,169(237,716)
42,248

Balance at December 31, 2015

$ 6,187,481(Concluded)

The Company and Mandarin Airlines leased flight equipments under operating lease agreements. Under
the contracts, when the lease expire to return the lessor, the flight equipment have to be repaired according
to the expected using years, flight hours, flight cycle and the engine revolution times. The Group hadexisting obligation to recognize provision when signing the lease or during the lease term. Tigerair
Taiwan Co., Ltd. also leased flight equipments under operating lease agreements, in accordance to thecontract, Tigerair had to pay the maintenance reverse accounted for using the flying hours.

26. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The Group adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed
defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’
individual pension accounts at 6% of monthly salaries and wages.
Employees in U.S. and Japan of China Airlines Co., Ltd. and subsidiaries are members of U.S. andJapan government retirement benefit plans. Subsidiaries should appropriate specific portion to
retirement benefit plans. The obligation to the government retirement benefit plans of China Airlines
Co., Ltd. and subsidiaries is appropriating specific portion amount.
b. Defined benefit plans
The defined benefit plan adopted by the Company and in accordance with the Labor Standards Law isoperated by the government. Pension benefits are calculated on the basis of the length of service andaverage monthly salaries of the six months before retirement. The Company and subsidiary contributeamounts equal to 6%-9.5% of total monthly salaries and wages to a pension fund administered by thepension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in thecommittee’s name. Before the end of each year, the Group assesses the balance in the pension fund.
If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees
who conform to retirement requirements in the next year, the Group is required to fund the difference in
one appropriation that should be made before the end of March of the next year. The pension fund ismanaged by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right toinfluence the investment policy and strategy.
The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans
were as follows:
December 31
2015

2014

Present value of funded defined benefit obligation
Fair value of plan assets$ 14,436,208(3,882,634)$ 14,073,849(3,880,941)

Deficit (net defined benefit liability)$ 10,553,574$ 10,192,908- 49 -

Movements in net defined benefit liability (asset) were as follows:
Present Valueof the Defined
BenefitObligation

Fair Value ofthe Plan Assets

Net Defined
BenefitLiability (Asset)

Balance at January 1, 2014
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial (gain) loss - changes indemographic assumptions
Actuarial (gain) loss - changes in financial
assumptions
Actuarial (gain) loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
OthersBalance at December 31, 2014
Service cost
Current service cost
Net interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets (excluding amounts
included in net interest)
Actuarial (gain) loss - changes indemographic assumptions
Actuarial (gain) loss - changes in financial
assumptions
Actuarial (gain) loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
Others$ 14,902,893$ (4,472,814)$ 10,430,079

448,725
266,373715,098(77,111)(77,111)448,725
189,262
637,987-(26,525)(26,525)---

337,889-

337,889(386,532)(48,643)(1,337,583)(157,916)
14,073,849(26,525)(642,074)
1,337,583(3,880,941)(386,532)(75,168)(642,074)(157,916)
10,192,908

400,144
243,257
643,401(67,747)(67,747)

400,144
175,510575,654-(40,100)(40,100)

15,335-

15,335

189,433-

189,433

512,165
716,933(874,179)(123,796)(40,100)(768,025)
874,179-

512,165
676,833(768,025)(123,796)

Balance at December 31, 2015

$ 14,436,208$ (3,882,634)$ 10,553,574

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to thefollowing risks:
1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the
mandated management. However, in accordance with relevant regulations, the return generated byplan assets should not be below the interest rate for a 2-year time deposit with local banks.

- 50 -

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on theplan’s debt investments.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the
future salaries of plan participants. As such, an increase in the salary of the plan participants will
increase the present value of the defined benefit obligation.
The actuarial valuations of the present value of the defined benefit obligation were carried out by
qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations wereas follows:
December 31

Discount rate(s)Expected rate(s) of salary increase

2015

2014

1.250%-2.000%
1.000%-2.250%

1.625-2.730%
1.500-3.500%

If possible reasonable change in each of the significant actuarial assumptions will occur and all otherassumptions will remain constant, the present value of the defined benefit obligation would increase(decrease) as follows:
December 31,
2015
Discount rate(s)0.5% increase
0.5% decrease
Expected rate(s) of salary increase
0.5% increase
0.5% decrease$ (659,696)
715,139(688,912)
646,851

The sensitivity analysis presented above may not be representative of the actual change in the present
value of the defined benefit obligation as it is unlikely that the change in assumptions would occur inisolation of one another as some of the assumptions may be correlated.
December 31
2015

2014

The expected contributions to the plan for the next year

$ 757,933$ 629,653

The average duration of the defined benefit obligation

7-13 years

7-14 years

27. EQUITY
a. Share capital
Common shares
December 31

Numbers of shares authorized (in thousands)
Amount of shares authorized
Amount of shares issued- 51 -

2015

2014

6,000,000$ 60,000,000$ 54,708,901

6,000,000$ 60,000,000$ 52,491,666

The Company issued the 5th domestic unsecured convertible bonds and the amount of $2,713,900
thousand convertible bonds holders apply for conversion, and the capital shares exchanged were$221,724 thousand and entitled to change registration after issuing new shares.
The Company’s board of directors had resolved to the issuance of new ordinary shares for cash on
March 27, 2015 and expected to issue 700,000 thousand stock. This share subscription is alreadyregistered to the authority, but the stock market and the charge of Company’s stock price is notfavorable for the subscription, and therefore to consider the overall interests of the Company, theCompany decide to terminate these project.
b. Capital surplus
December 31
2015
Issuance of stock in excess of par value and conversion premium
Employee stock options expired
Long-term investment
Gain on sale of treasury shares held by subsidiaries
Bonds payable equity component

2014

$

552,470
11,7471,019
1,156
232,023$ 1,511,953
11,747955
1,156
466,604$

798,415$ 1,992,415

The capital surplus from shares issued in excess of par (including additional paid-in capital fromissuance of common shares and treasury stock transactions) and donations may be used to offset
deficits; in addition, when the Company has no deficit, such capital surplus may be distributed as cash
dividends or transferred to capital (but limited to a certain percentage of the Group’s paid-in capital on
yearly basis).
The capital surplus arising from long-term investments and employee stock options may not be used fornothing but to offset deficits. The capital surplus arising from stock option for employees andconvertible bonds, can not be used.
c. Appropriation of earnings and dividend policy
The Company’s Articles of Incorporation provide that the following should be appropriated fromannual net income (less any deficit): (a) 10% as legal reserve, and (b) special reserve equivalent to a
debit balance of any stockholders’ equity account. From the remainder, the Company should also
appropriate at least 3% as bonus to employees. Of the final remainder, at least 50% should be
distributed to stockholders as cash or stock dividends (cash dividend should not be less than 30% of thetotal dividends). In determining the amount of cash dividends to be distributed, the board of directors
should take into account future cash requirements of the Company, primarily cash requirements for
future aircraft acquisitions. Distribution of earnings generated in prior years should also meet theforegoing guidelines.
In accordance with the amendments to the Company Act in May 2015, the recipients of dividends andbonuses are limited to shareholders and do not include employees. The consequential amendments to
the Company’s Articles of Incorporation had been proposed by the Company’s board of directors andare subject to the resolution of the shareholders in their meeting to be held on June 24, 2016. For
information about the accrual basis of the employees’ compensation and remuneration to directors andsupervisors and the actual appropriations, please refer to Note 28.

- 52 -

Appropriation of earnings in 2013
On June 18, 2014, the stockholders resolved to offset the accumulated deficit in 2013. The deficit,
included a net loss of $1,274,046 thousand, other retained earning of $45,381 thousand, the beginning
unappropriated deficits of $6,089,872 thousand, and reversed the special reserve of $3,926,293
thousand by corporate charter. Therefore, the remaining amount of accumulated deficit before
compensation was $3,483,006 thousand. The Company offset the accumulated deficit against legal
reserve of $321,891 thousand. No bonus to employees was appropriated for 2013 because of a net loss
in that year.
Under the Company Law, legal reserve should be appropriated until it equals the Company’s paid-in
capital. This reserve may be used to offset a deficit. If the Company has no deficit and the legal
reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or
distributed in cash.
Appropriation of earnings in 2014
On June 26, 2015, the stockholders resolved to offset the accumulated deficit in 2014. The deficit,
included a net loss of $751,232 thousand, other retained earning of $47,471 thousand, theunappropriated deficits of $3,161,115 thousand, the remaining amount of accumulated deficit was$3,864,876 thousand. The Company offset the accumulated deficit against legal reserve of $1,511,953
thousand. No bonus to employees was appropriated for 2014 because of a net loss in that year.
The appropriations of earnings for 2015 had been proposed by the Company’s board of directors on
March 25, 2016. The appropriations and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$

287,224
76,4862,508,526

Dividends Per
Share (NT$)$ 0.458522382

The appropriations of earnings for 2015 are subject to the resolution of the shareholders’ meeting to beheld on June 24, 2016.
Except for non-ROC resident stockholders, all stockholders receiving the unappropriated earnings
generated on and after January 1, 1998 are allowed a tax credit equal to their proportionate share of theincome tax paid by the Company.
d. Others equity items
The movement of other equity items is as follows:

Balance on January 1, 2014
Exchange differences arising ontranslating the foreign
operations

Exchange
Unrealized
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
AssetsCash Flow
Hedge

$

$

1,843

118,083- 53 -$(11,486)-

96,579-Total$

86,936

118,083(Continued)

Unrealized gain (loss) on
available-for-sale financial
assetsCash flow hedge on changes infair value of hedging
instruments
Cumulative (gain)/loss arisingon changes in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax

Exchange
Unrealized
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
AssetsCash Flow
Hedge

$

$

-

$

17,356

-

Total

$

17,356--(2,934,947)(2,934,947)--

397,424

397,424(20,074)954(2,809)431,379954
408,496

Balance on December 31, 2014$

99,852$4,015$ (2,009,565)$ (1,905,698)

Balance on January 1, 2015
Exchange differences arising ontranslating the foreign
operations
Unrealized gain (loss) on
available-for-sale financial
assetsCash flow hedge on changes infair value of hedging
instruments
Cumulative (gain)/loss arisingon changes in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax$

99,852$4,015$ (2,009,565)$ (1,905,698)

67,413--67,413-(3,025)-(3,025)--(405,674)(405,674)--

2,555,302

2,555,302(9,306)765-(366,060)

765(375,366)

Balance on December 31, 2015$

157,959

$

1,755

$

(225,997)$(66,283)(Concluded)e. Non-controlling interest
For the Year Ended December 31
2015
2014
Beginning balance
Net income attributable to non-controlling interest
Foreign exchange difference
Unrealized gain or loss on financial instrument
Cash flow hedge- 54 -$ 2,321,737
162,496102(3,368)(1,275)$ 2,076,428
151,5851,862
111(Continued)

For the Year Ended December 31
2015
2014
Actuarial gains and losses on defined benefit plan
Effect on income tax
Issue of common shares by subsidiaries
Acquisition of non-controlling interests in subsidiaries
Dividends paid by subsidiaries$(42,305)
8,278(1,965)(157,053)

Ending balance$ 2,286,647$(12,384)
8,071
200,000(103,936)$ 2,321,737(Concluded)

f. Treasury shares
Treasury shares are the Company’s shares held by its subsidiaries as of December 31, 2015 and 2014
were as follows:(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Stock

Reduction
Duringthe Year(Note)

Number of
Shares,Endof YearYear ended December 31, 2015
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

2,889

-

2,889

2,889

-

2,889

Year ended December 31, 2014
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 24,895
9,770$ 24,895
9,770$ 34,665$ 34,665$ 30,082
11,805$ 30,082
11,805$ 41,887$ 41,887

December 31, 2015
Mandarin Airlines
Hwa Hsia

2,075
814

December 31, 2014
Mandarin Airlines
Hwa Hsia

2,075
814

Above subsidiaries acquisition of the Company’s stock in previous years was due to the investment
planning.

- 55 -

The shares of the Company held by its subsidiaries were treated as treasury stock. The subsidiaries
can exercise stockholders’ right on these treasury stocks, except for the right to subscribe for theCompany’s new shares and voting right.

28. NET INCOME
a. Revenue
For the Year Ended December 31
2015
2014
Passenger
Cargo
Others$ 94,962,055
40,292,840
9,801,322$ 97,137,071
43,629,974
9,814,697$ 145,056,217$ 150,581,742

b. Other income
For the Year Ended December 31
2015
2014
Interest income
Subsidy income
Dividend income
Others$466,923
184,5121,884,052
695,692$ 3,231,179$

441,968
194,671
29,522428,255$ 1,094,416

c. Other gains and losses
For the Year Ended December 31
2015
2014
Gain on disposal property, plant and equipment
Net gain arising on financial assets classified as held for trading
Gain on disposal of available-for-sale financial assets
Litigation settlement
Gain or loss on foreign exchange, net
Impairment loss on assets held for saleImpairment loss on property, plant and equipment
Others$13,155150,871
244,045(1,899,372)(569,000)(897,537)$ (2,957,838)$

52,34078,742
6,557(1,212,121)(44,366)(622,117)$ (1,740,965)

The Company along with worldwide leading carriers was named as defendants in the civil class action
by global air freight forwarders alleging the 2000-2006 fuel surcharges levied on the shipments to andfrom the United States in violation of US Antitrust Laws. The board of directors reached theresolution for settlement of US$90,000 thousand in three installments starting from 2014 on annual
basis, and US$50,000 thousand of which was recognized as operating cost in the financial report for theyear of 2013. For consistency, the Company reclassified the said operating cost to non-operating loss
and the remaining balances recognized as non-operating loss of 2014 as well.

- 56 -

d. Financial cost
For the Year Ended December 31
2015
2014
Interest expense
Bonds payable
Bank loan
Interest on obligations under financial lease
Loss arising on derivatives as designated hedging instruments
in cash flow hedge accounting relationship reclassified fromequity to profit or loss$

292,242
1,343,420
140,912$539,913
1,299,199
172,584

7,219

7,428

$ 1,783,793$ 2,019,124

Information of interest capitalization was as follows:
For the Year Ended December 31
2015
2014
Capitalization interest
Capitalization rate

$ 344,835
1.74%-1.80%$ 211,409
1.77%-1.82%

e. Depreciation and amortization expense
For the Year Ended December 31
2015
2014
Property, plant, equipment
Investment property
Intangible asset
Depreciation and amortization expense

An analysis of depreciation by function
Operating cost
Operating expense

An analysis of amortization by function
Operating cost
Operating expense$ 17,261,495
279
70,040$ 17,460,446
279
55,422$ 17,331,814$ 17,516,147$ 16,507,474
754,300$ 16,671,783
788,942$ 17,261,774$ 17,460,725$

810
69,230$981
54,441$

70,040$55,422f. Employment benefit expense
For the Year Ended December 31
2015
2014
Post-employment benefit
Defined contribution plan
Defined benefit plan

- 57 -$

375,888575,654$

332,011
637,987$

951,542$969,998(Continued)

For the Year Ended December 31
2015
2014
Other employee benefits
Salary expenses
Personnel service expenses

An analysis of employee benefit expense by function
Operating cost
Operating expense$ 18,509,223
4,806,080$ 14,970,181
3,401,097$ 23,315,303$ 18,371,278$ 19,701,524
4,565,321$ 15,560,500
3,780,776$ 24,266,845$ 19,341,276(Concluded)

The existing Articles of Incorporation of the Company stipulate to distribute bonus to employees at therates 3% of net income. No bonus to employees was estimated for 2014 because of a net loss in thatyear.
To be in compliance with the Company Act as amended in May 2015, the proposed amended Articles
of Incorporation of the Company stipulate to distribute employees’ compensation at the rates no lessthan 3% of net profit before income tax and employees’ compensation in November 2015. For theyear ended December 31, 2015, the employees’ compensation is $1,810,196 thousand of the base net
profit. The employees’ compensation in cash for the year ended December 31, 2015 have been
approved by the Company’s board of directors on January 15, 2016 and are subject to the resolution of
the amendments to the Company’s Articles of Incorporation for adoption by the shareholders in their
meeting to be held on June 24, 2016, and in addition thereto a report of such distribution shall be
submitted to the shareholders’ meeting.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date the annual consolidated financial statements are authorized for issue areadjusted in the year the bonus and remuneration were recognized. If there is a change in the proposed
amounts after the annual consolidated financial statements were authorized for issue, the differences arerecorded as a change in accounting estimate.
Information on the employees’ compensation and remuneration to directors and supervisors resolved by
the Company’s board of directors in 2016 and bonus to employees, directors and supervisors resolvedby the shareholders’ meeting in 2015 and 2014 are available on the Market Observation Post System
website of the Taiwan Stock Exchange.

29. INCOME TAX
a. Income tax expense recognized in profit or loss
The major components of tax expense (benefit) were as follows:
For the Year Ended December 31
2015
2014
Current tax
Current year
Prior year adjustment
Deferred tax
Current year$

209,186
1,985$

997,504

Income tax expense recognized in profit or loss
- 58 -$ 1,208,675

182,336(8,283)785,861$

959,914

A reconciliation of accounting profit and income tax expense were as follows:
For the Year Ended December 31
2015
2014
Profit before tax$ 7,134,885$

362,426

Income tax expense calculated at the statutory rate (17%)
Effect on different tax of subsidiaries govern by other region
Effect on adjustment to income tax
Undeductible expenses in determining taxable income
Temporary differences
Tax-exempt income
Additional income tax under the Alternative Minimum Tax Act
Loss carryforwards - current used
Loss carryforwards - generated
Oversea income tax expense
Deferred tax
Temporary differences
Unrecognized loss carryforwards, investment tax credits andtemporary difference
Adjustments for prior years’ tax$ 1,212,930
20,960$61,612
3,851

Income tax expense recognized in profit or loss

$ 1,208,675

16,798517,465(67,063)
1(1,648,737)
108,570
57,37889,66094,788(100,580)(57,359)
39,75050,614

944,522775,663

43,866
1,985

10,198(8,283)$

959,914b. Income tax recognized in other comprehensive income
2015

2014

Deferred tax
Recognized in other comprehensive income
Translation of foreign operations
Unrealized gain on available-for-sale financial assets
Hedging instruments fair value revaluation for cash flow
hedging
Actuarial gain or loss on defined benefit plan$

Total income tax recognized in other comprehensive income(9,061)-$ (14,087)(2,809)(365,220)115,062

431,379(21,027)$ (259,219)$ 393,456

c. Deferred tax assets and liabilities
For the year ended December 31, 2015

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$ 1,735,354
432,196
726,728
150,185
1,080,038
4,399,542$(50,813)20,753
310,761
24,465
180,419(1,560,854)$

105,270(365,243)
-

$

(386)
-

$ 8,524,043$ (1,075,269)$(259,973)

$

(386)

Exchange
Difference

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plan
Dynasty flyer program
Maintenance reserve
Allowance for reduction of inventory
OthersLoss carryforward$ 1,789,811
452,949
1,037,489
174,650
894,828
2,838,688$ 7,188,415(Continued)- 59 -

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$108,903
126,488
9,792
178,406$(106,369)(1,480)20,968$(9,792)
9,038

$

4,727

$

423,589$(86,881)

$

(754)

$

4,727

Exchange
Difference

EndingBalance

Deferred tax liabilities
Temporary differences
Unrealized foreign exchange gain
Depreciation difference from fixed assets
Defined benefits plan
Others$2,534
125,008
213,139$

340,681(Concluded)
For the year ended December 31, 2014

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive
Income$ 1,765,145
448,617
1,062,237
566,127
114,947
329,460
532,626
4,311,114$(15,611)(16,421)(1,062,237)
160,601(114,947)(179,275)
132,530
88,428$(14,180)
415,175
-

$

(293)
-

$ 1,735,354
432,196
726,728
150,185
1,080,038
4,399,542$ 9,130,273$ (1,006,932)$

400,995$(293)$ 8,524,043$

241,995
127,862
3,720
255,243$(133,092)(1,374)(775)(85,830)

$

6,847
692

$

8,301

$

108,903
126,488
9,792
178,406$

628,820$(221,071)

$

7,539

$

8,301

$

423,589

Exchange
Difference

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plan
Dynasty flyer program
Depreciation of significant
Maintenance reserve
Depreciation of major spare part
Allowance for reduction of inventory
OthersLoss carryforward

Deferred tax liabilities
Temporary differences
Unrealized foreign exchange gain
Depreciation difference from fixed assets
Defined benefits plan
Others

Deductible temporary differences, unused loss carryforwards and unused investment credits for which
no deferred tax assets have been recognized in the balance sheets.
December 31
2015
Loss carryforwards
2018
2019
2020
2021
2022
2023
2024
2025

$

4,500,000
95,68280,080125,538
127,797
233,703
638,502$ 5,801,302- 60 -

2014$

57,044
4,952,493
105,874
80,080125,568
248,077
34,048-$ 5,603,184(Continued)

December 31
2015

2014

Investment tax credits
Automated equipment

$

-

$

24,691

Difference in depreciation

$

6,743

$

25,940(Concluded)d. Unused tax loss carryforwards as of December 31, 2015 were as follows:
UnusedAmountExpiry Year
China Airlines, Ltd.
2019
2021
2022

$ 17,674,629
2,899,496
598,471$ 21,172,596

Mandarin Airline Co., Ltd.
2023$

51,097$

199,654586,602$786,256$

95,68145,156
9,617$

150,454$

34,923
115,951
102,248
34,04833,775$

320,945$

18,124

Tigerair Taiwan Co., Ltd.
2024
2025

Cal Hotel Co., Ltd.
2020
2021
2022

Taiwan Air Cargo Terminal Limited
2021
2022
2023
2024
2025

Taiwan Aircraft Maintenance And Engineering Co., Ltd.
2025

- 61 -

e. Integrated income tax
December 31

Imputation credits accounts

2015

2014

$ 539,835$ 385,435

Expected creditable tax ratio on December 31, 2015 was 18.79%.
Since the Group had accumulated deficit as of December 31, 2014, there was no expected creditable tax
ratio.
Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputationcredits allocated to ROC resident shareholders of the Company was calculated based on the creditableratio as of the date of dividend distribution.
f. Income tax assessment
The income tax returns of the Company and its subsidiaries through 2013, except those of Taiwan Air
Cargo Terminal Limited (TACT), have been examined by the tax authorities.
The income tax return of TACT for 2001 was assessed by the tax authorities with an additional income
tax payable amounting to $129,350 thousand for the excessive distribution of the imputation credit
account (“ICA”) to TACT’s shareholder and a fine equivalent to one fold of the excessive distribution.
TACT disagreed with the assessment and appealed to reinvestigation, administrative appeal andadministrative proceedings but was ruled denying by tax authority, and the TACT took an appeal. The
ruling by the Supreme Administrative Court had agreed to only waive the fine. The tax authority
disagreed with the Court’s decision on the waived fine and filed a Retrial on December 29, 2010. In
the meantime, TACT also filed a Retrial on January 12, 2011 for the additional tax liability of $129,350
thousand. The Supreme Administrative Court dismissed both parties’ appeals on December 8, 2011.
As the tax authority still insisted to impose one fold of the amount of the excessive distribution of ICA,TACT therefore filed an administrative appeal to the Ministry of Finance on December 21, 2012. The
collection authority then revised the fine to 80% of the amount of the excessive distribution of ICA, but
TACT disagreed the decision and filed an administrative appeal to the Ministry of Finance and the fine
was revised to 60% of the amount of the excessive distribution of ICA on May 20, 2014. But TACT
still disagreed with the decision and filed an administrative proceeding on November 20, 2014.
During the hearing of the administrative proceeding, the tax authority proposed to reduce the fine to
50% of the amount of the excessive distribution of ICA based on a tax regulation No. 10304027120
issued by the Ministry of Finance on November 3, 2014.
As of December 31, 2015, the Court has not reached any decisions on this administrative proceeding,and thus the company has set aside a provision for additional tax payable and related fine in the amountof $168,155 thousand.

30. EARNING (LOSS) PER SHARE
The numerators and denominators used in calculating loss per share were as follows:
For the Year Ended December 31
2015
2014
Basic earnings (loss) per share
Diluted earnings (loss) per share$$- 62 -

1.06
1.00$ (0.14)$ (0.14)

For the Year Ended December 31
2015
2014
Earnings (loss) used in the computation of basic earnings per share
Effect of potentially dilutive ordinary shares:
Interest on convertible bonds (after tax)

$ 5,763,714

Earnings (loss) used in the computation of diluted earnings per share$ 5,811,430$(749,073)

47,716$(749,073)

For the Year Ended December 31
2015
2014
Weighted average number of ordinary shares in computation of basic
earnings per share
Effect of potentially dilutive ordinary shares:
Convertible bonds
Employees’ compensation or bonus issue to employees
Weighted average number of ordinary shares used in thecomputation of diluted earnings (loss) per share

5,432,728

5,199,401

255,186
150,850-

5,838,764

5,199,401

If the Group offered to settle compensation or bonuses paid to employees in cash or shares, the Groupassumed the entire amount of the compensation or bonus would be settled in shares and the resulting
potential shares were included in the weighted average number of shares outstanding used in thecomputation of diluted earnings per share, if the effect is dilutive. Such dilutive effect of the potential
shares was included in the computation of diluted earnings per share until the number of shares to be
distributed to employees is resolved in the following year.

31. CAPITAL MANAGEMENTThe Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximizing the return to stakeholders through the optimization of the debt and equity
balance. The capital structure of the Group consists of net debt (borrowings offset by cash and cash
equivalents) and equity of the Group comprising issued capital, reserves, retained earnings, other equity andnon-controlling interests.
To support its operating activities and purchase of aircraft, the Group needs to maintain sufficient capital.
Therefore, the goal of capital management is to ensure financial resources and operating plan is able tosupport the future working capital, capital expenditures, debt repayment and dividend expenses and otherneeds.

- 63 -

32. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
1) Financial instruments not evaluated at fair value
Except as detailed in the following table, the management considers the carrying amounts offinancial assets and financial liabilities recognized in the financial statements as approximating theirfair values.
December 31
2015
Carrying
Amount$ 15,844,106
87,783,617

2014
Fair Value

Carrying
AmountFair Value$ 16,459,680
87,944,264$ 26,908,836
87,411,436$ 27,431,520
87,530,338

Financial liabilities
Bonds payable
Loans and debt

Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying values are their fair values. As of December 31, 2015 and 2014, the fair values oflong-term debts and private bonds with fixed interest rates are estimated at the present value of
expected cash flows discounted at rates of 0.433% and 0.436%, respectively, prevailing in themarket for long-term debts (Level 2). Fair values of bond payable trading in OTC and based onquoted market prices (Level 1).
2) Fair value measurements recognized in the balance sheets
The following table provides an analysis of financial instruments that are measured subsequent toinitial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fairvalue is observable:a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;b) Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. derived from prices); andc) Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
December 31, 2015
Level 1
Financial assets at FVTPL
Derivative instrument
Beneficial certificates

Level 2

Level 3

Total$

478,508$

65,528-$-$65,528478,508$

478,508$

65,528$-$544,036(Continued)- 64 -

Level 1

Level 2

Level 3

Total

Available-for-sale financial
assetsSecurities listed indomestic$

19,080

$

-

$

-

$

19,080Derivative financial assets
for hedging

$

-

$

51,060$12,738$63,798Derivative financial
liabilities for hedging

$

-

$

12,702$

312,278$

324,980(Concluded)

December 31, 2014
Level 1
Financial assets at FVTPL
Derivative instrument
Beneficial certificates

Level 2

Level 3

Total$

189,002$46,812-$-$

46,812
189,002$

189,002$46,812$-$

235,814

Available-for-sale financial
assetsSecurities listed indomestic$

28,881

$

-

$

-

$

28,881

Derivative financial assets
for hedging

$

-

$

727

$

42,850$43,577

Derivative financial
liabilities for hedging

$

-

$

5,150

$ 2,460,000$ 2,465,150

There were no transfers between Levels 1 and 2 in the current periods.
d) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value
measurement
Financial Instruments
Derivatives - foreign currency
forward contracts andinterest rate swaps

Valuation Techniques and Inputs
Discounted cash flow.
Future cash flows are estimated based on observable forward
exchange rates at the end of the reporting period andcontract forward rates, discounted at a rate that reflects thecredit risk of various counterparties.

e) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value
measurement
The fair values of foreign exchanges and fuel options are determined using option pricing
models where the significant unobservable inputs are implied fluctuation. An increase in theimplied fluctuation used in isolation would result in an decrease in the fair value of foreignexchanges and fuel options.

- 65 -

Because some financial instruments and non financial instruments can not show their fair value,
the total fair value showed by these disclosure are not total value of the Group.
b. Categories of financial instruments
December 31
2015

2014

Financial assets
Financial assets at FVTPL
Available-for-sale financial assets (Note 3)
Derivative financial assets for hedging
Loans and receivables (Note 1)$

544,036
242,991
63,79835,862,163$

235,814498,198
43,57733,677,439$ 36,712,988$ 34,455,028$$

Financial liabilities
Derivative financial liabilities for hedging
Financial liabilities at amortized cost (Note 2)

324,980
125,241,381$ 125,566,361

2,465,150
144,488,117$ 146,953,267

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash
and cash equivalents, notes and accounts receivables, accounts receivable - related parties,
other receivables, refundable deposits, other financial asset and other restricted financial asset.
Note 2: The balances included financial liabilities measured at amortized cost, which compriseshort-term loans, short-term notes payable, notes and accounts payables, accounts payable related parties, other payable, bonds payable and long-term loans, capital lease obligation, partof other current liabilities, part of other noncurrent liability and guarantee deposit.
Note 3: Including the financial assets measured at cost.
c. Financial risk management objectives and policies
The Group has risk management and hedging strategies to respond to changes in the economic andfinancial environment and in the fuel market. To reduce the financial risks from changes in interest,
exchange rates and in fuel prices, the Group has its operating costs stay within a specified range byusing appropriate financial hedging instruments and hedging percentages in accordance with the“Processing Program of Derivative Financial Instrument Transactions” approved by the Groupstockholders to reduce the impact of market price changes on earnings. These risks include market
risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
In addition, the Group has a risk management committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging percentage. This
committee informs the Group of global economic and financial conditions, controls the entire financial
risk resulting from changes in the financial environment and fuel prices, and develops the strategy andresponse to avoid financial risk with the assistance of financial risk experts to effect risk management.
1) Market risk
The Group is primarily exposed to the financial risks of changes in foreign currency exchange rates
and interest rates. The Group entered into derivative financial instruments to manage its exposure
to foreign currency risk and interest rate risk.

- 66 -

The Group enters into forward contracts, foreign currency option contracts, and interest swap
contracts with fair values that are highly negatively correlated to the fair values of hedged items andevaluates the hedging effectiveness of these instruments periodically.
a) Foreign currency risk
The Group enters into foreign currency option contracts to hedge against the risks on change in
related exchange rates, enters into forward contracts to hedge against the risks on changes inforeign-currency assets, liabilities and commitments in the related exchange rates.
Sensitivity analysis
The Group was mainly exposed to the U.S. dollar.
The following details the Group’s sensitivity to increase and decrease in New Taiwan dollars(the functional currency) against the relevant foreign currencies. U.S. dollars increase/decrease one dollar against New Taiwan dollars used when reporting foreign currency riskinternally to key management personnel and represents management’s assessment of thereasonably possible change in foreign exchange rates. The sensitivity analysis included only
outstanding foreign currency denominated monetary items and foreign currency forward
contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting
period for U.S. dollars increase/decrease one dollar against New Taiwan dollars change in
foreign currency rates.
When New Taiwan dollars increase one dollar against U.S. dollars and all other variables were
held constant, there would be an decrease in pre-tax profit in 2015 $157,849 thousand anddecrease in pre-tax profit in 2014 $174,778 thousand, respectively.
b) Interest rate risk
The Group enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.
The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rateborrowings, and using interest rate swap contracts and forward interest rate contracts.
The carrying amount of the Group’s financial assets and financial liabilities with exposure tointerest rates at the end of the reporting period were as follows.
December 31
Fair value interest rate risk
Financial liabilities
Cash flow interest rate risk
Financial liabilities

2015

2014

$ 16,723,881$ 33,026,655

93,742,231

97,591,031

Sensitivity analysis
The sensitivity analyses below were determined based on the Group’s exposure to interest rates
for both derivatives and non-derivative instruments at the end of the reporting period. For
floating rate liabilities, the analysis was prepared assuming the amount of the liability
outstanding at the end of the reporting period was outstanding for the whole year. A 100 basis
point increase or decrease was used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.

- 67 -

Had interest rates been 100 basis points higher and had all other variables been held constant,
the Group’s pretax profit for the year ended December 31, 2015 would have decreased by$685,000 thousand.
Had interest rates increased 100 basis point and had all other variables been held constant, theGroup’s pretax profit for the year ended December 31, 2014 would have decreased by $687,100
thousand.
c) Other price risk
The Group was exposed to fuel price risk on its purchase of aviation fuel. The Group enters
into fuel swaps contract to hedge against adverse risks on fuel price changes.
Sensitivity analysis
The sensitivity analyses below were determined based on the exposure to fuel price risks at theend of the reporting period.
For the Year Ended December 31
2015
2014
Other
Other
CompreComprehensive
hensive
Pre-tax Profit
IncomePre-tax Profit
IncomeIncrease
Increase
Increase
Increase(Decrease)(Decrease)(Decrease)(Decrease)
Fuel price increase 5%
Fuel price decrease 5%$

10,084(10,188)$ (29,805)(110,077)$

31,646(32,545)$ 316,498(134,513)

2) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting
in financial loss to the Group. The Group’s credit risk, primarily comes from accounts receivable
generated from operating activities and bank deposits generated from investing activities, fixed
investment income and other financial instruments, operation related credit risk and financial credit
risk are managed separately.
Operation - related credit risk
The Group has established procedures to management operations related credit risk to maintain thequality of accounts receivable.
To assess individual customers, the Group consider into the financial condition of the customers,
the credit rating agency rating, the Group’s internal credit rating, transaction history and current
economic conditions and many other factors that may affect the repayment. Sometimes, the Group
uses certain credit enhancement tools to reduce the credit risk of specific customers.
Since the customers of the industry is dispersed and non-related, the credit risk concentration is notcritical aviation.
Financial credit risk
Credit risk on bank deposits, investments income and other financial instruments are measured andmonitor by the Group’s finance department. The Group’s trading partners and other parties were
well-performing banks and financial institutions, corporations, and government agencies, the risk ofCounterparties fail to discharge an obligation is low, therefore there is no significant credit risk.
- 68 -

3) Liquidity risk
The objective of the Group’s management of liquidity is to maintain cash and cash equivalents are
sufficient for operating purpose, marketable securities with high liquidity and sufficient Loan
Commitments and ensure the Group has adequate financial flexibility.
Liquidity and interest risk rate tables
The following table shows the remaining contractual maturity analysis of the Group’s financial
liabilities with agreed-upon repayment periods, which were based on the date the Group may berequired to pay the first repayment and financial liabilities is evaluated based on undiscounted cash
flows, including cash flows of interest and principal.
Bank loans with a repayment on demand clause were included in the second column of the tablebelow regardless of whether or not the banks would choose to exercise early their rights to
repayment. The maturity dates for other nonderivative financial liabilities were based on theagreed-upon repayment dates. The Group’s liquidity analysis for its derivative financial
instruments is also shown in the following table. The table was based on the undiscounted
contractual net cash inflows and outflows on derivative instruments that settle on a net basis, andthe undiscounted gross cash inflows and outflows on those derivatives that require gross settlement.
When the amount payable or receivable is not fixed, the amount disclosed has been determined byreference to the projected interest rates as illustrated by yield curves at the end of the reporting
period.
December 31, 2015
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.29341-3 Months

3 Months to
1 Year$$364,897

1,101,266

1-2 Years$

1,548,611

2-5 Years$

3,647,955

5+ Years

$

-

1.325

6,987,461

22,453,633

33,930,613

20,588,242

2,225,669

4.374

175,109475,464

463,574

413,789

97,664

1.3798114,455-

205,861
4,944,106

4,664-

10,900,000-

7,641,922$ 29,180,330$ 35,947,462$ 35,549,986

1-3 Months

3 Months to
1 Year

1-2 Years

2-5 Years

$

$

$

$

2,323,333

December 31, 2014
The Weighted
Average
Effective
Interest Rate(%)
Finance leaseliabilities
Floating interest rate
liabilities
Fixed interest rate
liabilities
Derivative
instruments
Bonds payable

1.4315

533,6432,226,077$

1,665,836$

5,437,893

5+ Years$

3,729

1.4627

3,377,496

10,224,542

27,603,968

41,817,988

2,160,706

4.374

152,969

462,498

633,285

818,070

120,197

1.37182,504
6,785,000

21,879-394
1,800,000

405
15,923,836-$ 10,851,612$ 12,934,996$ 31,703,483$ 63,998,192- 69 -$

2,284,632

Loan commitments
December 31

Unused bank loan limit (unsecured)

2015

2014

$ 22,172,000$ 18,202,000

33. RELATED-PARTY TRANSACTIONS
Details of transactions between the Group and its related parties are disclosed below:
a. Operating transactions
Sales of Goods
For the Year Ended
December 31
2015
2014
Associates
Jointly controlled entities
Major stockholder

$
$
$

2,321
13,95034,835

$
$
$

4,608
16,55828,605Purchases of Goods
For the Year Ended
December 31
2015
2014
$ 581,173$ 1,531,649$
78,374$ 587,239$ 1,439,844$
60,913

The amount of accounts receivable - related parties at reporting dates were as follows:
December 31
2015
Associates
Jointly controlled entities
Major stockholder

2014

$

182
599
3,093

$

240
1,749
4,626

$

3,874

$

6,615

The amount of accounts payable - related parties at reporting dates were as follows:
December 31
2015
Associates
Jointly controlled entities
Major stockholder$

98,245388,371
7,138$ 493,754

2014$

65,192
365,493
4,699$ 435,384

The outstanding accounts payable from related parties are unsecured and will be paid in cash, the termsof making collections and payables is from 30 days to 60 days; accounts receivable from related parties
does not gather any deposit, and no expense was recognized for allowance for impairment loss.
b. Lease of properties (operating lease)
Under an operating lease agreement, the Company rented flight training machines and flight simulatorsfrom China Aviation Development Foundation to train pilots, the Company paid the rental on usage
hours. In 2015 and 2014, the Company had paid rentals of about $78,374 thousand and $60,913
thousand, respectively.

- 70 -

c. Endorsements and guarantees
December 31
2015

2014

Authorized
AmountActualAmount Used

Authorized
AmountActualAmount Used

$ 3,400,000
1,080,000
236,629
180,000
937,895$ 2,739,000
486,815
236,629
6,343
447,399$ 3,400,000
1,080,000
279,497
180,000
902,278$ 2,905,000
582,671
279,497
12,686-The Company
Cal Park
Taiwan Air Cargo Terminal
Freighter Prince Ltd.
Cal Hotel
Tigerair Taiwan

d. Compensation of key management personnel
For the Year Ended December 31
2015
2014
Short-term employee benefits
Post-employment benefits$

45,813
3,865$

39,282
2,595$

49,678$41,877

The remuneration of directors and key executives was determined by the remuneration committee
having regard to the performance of individuals and market trends.

34. PLEDGED ASSETS
The following assets had been pledged or mortgaged as collaterals for long-term bank loans, leaseobligations and business transactions:
December 31

Property, plant and equipment
Restricted assets - noncurrent
Pledged certificate deposits
US treasury bill

2015

2014

$ 90,642,565$ 104,255,700

268,790236,634

170,669
279,497$ 91,147,989$ 104,705,866

The above US treasury bill had been pledged as collaterals for Freighter Prince Ltd., which classified as
restricted assets - noncurrent.

35. COMMITMENTS AND CONTINGENT LIABILITIESAs of December 31, 2015, the Group had commitments and contingent liabilities (except for thosementioned in other notes) as follows:a. In January 2008, the Company entered into a contract to buy fourteen A350-900 planes from Airbus,
with the option to buy six more A350-900 planes, with aggregate purchase prices of US$3,933,235
thousand and US$1,802,645 thousand, respectively. Excepted delivery slots of aircraft from 2016 to2018.
- 71 -

Prepayments for aircraft purchases were as follows:
December 31
2015

2014

US$ 685,231
thousand

US$ 449,216
thousandb. In December 2012, the Company entered into a contract to buy six 777-300ER planes from the Boeing
Company, with the option to buy six more 777-300ER planes, at aggregate purchase prices of
US$2,067,261 thousand and US$2,213,015 thousand, respectively. Expected delivery slots of aircrafts
are from 2015 to 2016. The board of the Company has resolved to transfer the purchase right of theconfirm orders for six aircrafts to the aircraft leasing Group (SKYHIGH XXXVII Leasing Company
Limited) then leasing the aircrafts back. As of December 31 2015, the Company had received 4aircrafts and the refund of prepayments from leasing Company.
Prepayments for aircraft purchase were as follows:
December 31
2015

2014

US$ 197,912
thousand

US$ 418,325
thousandc. For the future development of Company business, the Company entered into one 737-800 aircraft lease
contract and letter of intention about six 737-800 aircrafts. The expected delivery slot will be fromMarch 2016.
d. Tigerair Taiwan entered into the four A320-200 aircrafts lease contract with 10 years term on July,
November and December 2015 respectively. One of aircraft had been delivered in January 2016.
The expected delivery of other three aircrafts will be in June 2016, January 2017 and December 2017,
respectively.
e. Taiwan Air Cargo Terminal Co. (TACT) signed a terminal construction contract with the Civil
Aeronautics Administrations (CAA) on January 14, 2000. The chartered operation period (COP) is 20
years from the date of transfer of the chartered operation rights from CAA to TACT. The terminal
expansion and improvements and the equipment installation and upgrade in the Taiwan Taoyuan
International Airport cargo terminal and Kaohsiung cargo terminal were expected to be completed in
the first 10 years of the COP. This construction project was approved by TACT’s board in 2003.
The total estimated expense of the construction project was $8,490,000 thousand. Designation ofproject was from 2004 and the construction began in 2008. TACT filed application for a 10-year
extension of the COP for the cargo terminals in Taiwan Taoyuan International Airport and KaohsiungInternational Airport, and got the approvals from Taoyuan Airport Corporation and CAA in July 2013
and July 2015, respectively.
The original total expenditure of the previous main construction project was $8,490,000 thousand.
However, TACT filed an arbitration for the total amount of expenditure in 2012 to revised the total
amount to $6,840,000 thousand.

- 72 -

As of December 31, 2015, TACT had signed the following construction contracts with non-relatedparties:

Client NameContract Title

CECI Engineering
Consultant, Inc., Taiwan
Siemens Taiwan

Cargo Terminal Expansion Construction Consultant
Contract
Cargo Terminal Expansion Construction First-Stageand Second-Stage Storage and Transport Facilities
Contract
Paint steel columns and roof renewal works Contract

Chen-Jia Construction Co.

Contract
Amount (VAT
Included)$552,285
1,892,400

86,380

As of December 2015, the cumulated consultant service expense and construction equipment had
amounted to $412,904 thousand (VAT included) and $4,120,716 thousand (VAT included),
respectively. Upon completion of the projects, the amounts of $410,041 thousand (VAT included) and$4,067,453 thousand (VAT included) were reclassified to property, plant, and equipment. The
remaining cumulative payments were recognized under construction in progress.
Assets acquired from cargo terminal improvements, equipment acquisition and subsequent equipment
acquisition and replacement will be transferred to the government without any compensation when thechartered operating license expires.
f. TACT should pay royalties to CAA during the chartered operation period. The calculation is based on
annual sales (including operating revenue and nonoperating revenue but excluding the rental revenue
from specific district), and CAA has the option to adjust the royalty rates every 3 years starting from thedate of transfer of the chartered operation right on the basis of actual revenue and expenditure. The
royalty rates are based on CAA letter order No. 1000021973 and have remained the same as those in theoriginal contract signed in April 2012; these rates were listed as follows:
Annual Operating AmountRoyalty Rate

Below 2 billion
Above 2 billion but below 4 billion
Above 4 billion but below 6 billion
Above 6 billion but below 8 billion
Above 8 billion but below 10 billion
Above 10 billion but below 12 billion
Above 12 billion

6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%

g. CAL Park Co., Ltd. (“CAL Park”) signed “Taiwan Taoyuan International Airport Aviation Operation
Center (including Airport Hotel) Construction Operating Contract” with the CAA on September 20,
2006. However, on November 1, 2010, the Taoyuan Airport Corporation took over the CAA’s rights
on this contract from the CAA. The contract is effective 50 years (consisting of the development stage
and operating period) from the contract date. Three years before contract expiry date, CAL Park has
the first option to renew the contract once with a 20-year extension.
CAL Park’s business scope includes providing business and other operating space related to civil airtransport, hotels, aviation service and related industries adhered to the base and essential services law
and approved by the Taoyuan Airport Corporation.

- 73 -CAL Park should pay land rentals on the date of the registration of surface rights. The rates for thedevelopment stage differ from those for the operation period. It should follow Article No. 2 of the“Regulations for Favorable Rentals Regarding Public Land Lease and Superficies in Infrastructure
Projects,” which states that rental calculation in the development stage should include the land value
added tax plus the necessary maintenance fee; in the operation period, rentals are 60% of the amountbased on the National Building Land Rental Standard plus land value tax, value-added tax and thenecessary maintenance fee.
CAL Park should pay construction and operation security deposits of $100,000 thousand (using a
refundable certificate deposit recognized under deposits-in). If CAL Park complies with the contract
terms within three months amount after the initial operation date, half of the security deposits will be
refunded interest free, and the remaining amount will be refunded within three months after the end of
the operating period and the completion of asset transfer. In 2015, CAL Park received refunded
security deposits of $50,000 thousand with no interest.
In the 50 years beginning from the initial operation date of CAL Park to the end of the construction
period, CAL Park should pay royalties based on the operating revenue estimated in the financial plan of
its investment executing proposal. If the sales and business tax declared and filed by a business entity
for a single year exceeds 10% of the operating revenue as estimated in the financial plan in its
investment execution proposal, CAL Park should pay additional an royalties at 10% of this excess.
CAL Park should submit the asset transfer plan within five years before the expiry date of the charteredoperation period, begin the negotiation of the asset transfer contract, and complete the assignation nolater than three years before the expiry day of chartered period. If CAA decides not to keep thebuilding and equipment on the base, CAL Park Co., Ltd. should remove all related building andequipment within three months after the expiry date.
h. The Company has been named as a defendant, together with other airline members of the Association ofAsia Pacific Airlines, in a civil class action filed with the US Northern District Court of California bysome passengers, who alleged that there was an antitrust violation. The Company has properly joined
the defendants’ Joint Defense Group. The litigation is at the pretrial stage, and no evidence supporting
the plaintiffs’ allegation has been raised so far.
i.

The Company has reached a settlement with class plaintiffs of “Air Cargo Antitrust Class Action” by
US$9,000 thousand. One of plaintiffs - DHL Global Forwarding (DHL) et al. has opted out from classplaintiffs. In early 2015, DHL has filed civil lawsuit against the Company. The Company alreadyappointed lawyer to duly react.

36. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIESThe following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:
December 31, 2015
Foreign
Currencies

Exchange Rate

Carrying
AmountFinancial assets
Monetary items
USD
EUR
HKD

$

- 74 -

371,091
16,153
230,469

32.8947
35.97124.2445$ 12,206,940
569,778
978,224(Continued)

Foreign
Currencies
JPY
CNY

$

Carrying
AmountExchange Rate

1,769,067
2,105,839

6.2731
5.0659

153,815
8,353
87,413
4,632,721
150,973

32.8947
35.97124.2445
6.2731
5.0659$483,136
10,667,121

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

5,059,699
299,732
371,024
1,265,198764,813(Concluded)

December 31, 2014
Foreign
Currencies

Carrying
AmountExchange Rate

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

$

211,064
18,179317,548
1,579,625
2,122,011

31.5433
38.12444.07420.26485.0739407,629
4,959
77,0494,683,138
155,965

31.5433
38.12444.07420.26485.0739$6,657,656
693,065
1,293,753
418,274
10,766,934

Financial assets
Monetary items
USD
EUR
HKD
JPY
CNY

12,882,711
190,246
313,9131,240,089
791,414

For the years ended December 31, 2015 and 2014, net foreign exchange gains (losses) were $244,045
thousand and $(44,366) thousand, respectively. It is impractical to disclose net foreign exchange gains(losses) by each significant foreign currency due to the variety of the foreign currency transactions andfunctional currencies of the group entities.

37. ADDITIONAL DISCLOSURESa. Following are the additional disclosures required by the Securities and Futures Bureau for the Company
and its investees:
1) Financing provided:

None2) Endorsement/guarantee provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)- 75 -

4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%of the paid-in capital: None
5) Acquisition of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None
6) Disposal of individual real estates at cost or prices of at least NT$100 million or 20% of the paid-in
capital: None
7) Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 3 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 4 (attached).
9) Names, locations, and related information of investees on which the Company exercises significant
influence: Table 5 (attached).
10) Derivative financial transactions (Notes 7 and 9)
b. Investment in Mainland China: Table 6 (attached)c. Business relationship and important transactions between China Airlines, Ltd. and its subsidiaries:
Table 7 (attached)

38. SEGMENT INFORMATION
a. Segment information
The Company mainly engages in air transportation services for passengers, cargo and others. The
major revenue-generating asset is the aircraft fleet, which is jointly used for passenger and cargoservices. Thus, the Company’s sole reportable segment is the flight segment. For operating segment
reporting in the consolidated financial statements, the reportable segment of the Company and its
consolidated subsidiaries comprises the flight and the non-flight business departments.
Air
Transportation

For the Year Ended December 31, 2015
Adjustment andOthersWrite-off

Operating revenue$ 144,223,961$

7,526,765$(6,694,509)

Operation profit and losses
Interest revenue
Investment income accounted forby the equity method
Revenue
Financial cost
Expense$$843,152$

21,291

7,264,754$ 145,056,217$

8,129,197
466,923
516,140
3,038,744(1,783,793)(3,232,326)

Profit before income tax
Identifiable assets
Investment accounted for by theequity method
AssetsTotal$$ 122,602,185$

9,671,914$(53)

7,134,885$ 132,274,046
2,877,777
86,774,486

Total assets$ 221,926,309- 76 -

Air
Transportation

For the Year Ended December 31, 2014
Adjustment andOthersWrite-off

Operating revenue$ 148,630,115$

7,221,423$(5,269,796)

Operation profit and losses
Interest revenue
Investment income accounted forby the equity method
Revenue
Financial cost
Expense$$770,129$36,5001,712,118

Total$ 150,581,742$

2,518,747
441,968
509,352
884,877(2,019,124)(1,973,394)

Profit before income tax$

Identifiable assets
Investment accounted for by theequity method
Assets$ 134,911,503$

9,841,365$(21,345)

362,426$ 144,731,523
2,806,823
81,535,681

Total assets$ 229,074,027

b. Geographical segment
The geographical segment information of the Company and its subsidiaries in 2015 and 2014 are listed
below:For the Year Ended December 31, 2015

Operating revenue
Operation profit
and losses
Interest revenue
Investment income
accounted for by
the equity
methodRevenue
Interest expense
ExpenseAmerica

Northeast Asia

Southeast Asia

EuropeAustralia$

43,255,614$

26,519,512$

31,150,308$

12,529,410$

4,318,055$

20,470,330$

2,439,067$

1,321,000$(827,756 )$

69,964$

229,823$

2,141,393

Domestic

Adjustment andEliminations

Consolidation$

13,507,497$(6,694,509 )$ 145,056,217$

2,734,416$

21,290China

8,129,197
466,923

516,140
3,038,744(1,783,793 )(3,232,326 )Profit before
income tax
Identifiable assets
Investment
accounted for by
the equity
methodAssets$$$1,459,834$

11,477$

145,471

$

5,229

$

4,354

$

14,091$ 130,633,643

$

(53 )

7,134,885$ 132,274,046

2,877,777
86,774,486

Total assets$ 221,926,309

For the Year Ended December 31, 2014

Operating revenue
Operation profit
and losses
Interest revenue
Investment income
accounted for by
the equity
methodRevenue
Interest expense
ExpenseAmerica

Northeast Asia

Southeast Asia

EuropeAustralia$

46,252,779$

25,391,216$

33,151,817$

14,136,428$

3,848,389$

20,162,643$(3,526,128 )$3,156,399$(1,766,713 )$(2,036,200 )

$

1,239

$

3,562,263

Domestic

Adjustment andEliminations

Consolidation$

13,062,260$(5,423,790 )$ 150,581,742$

3,026,716$

101,171

China

2,518,747
441,968

509,352
884,877(2,019,124 )(1,973,394 )Profit before
income tax
Identifiable assets
Investment
accounted for by
the equity
methodAssets$$$

1,777,721$

111,276$

207,083$

19,771

$

7,341

$

17,100$ 142,612,576$(21,345 )362,426$ 144,731,523

2,806,823
81,535,681

Total assets$ 229,074,027- 77 -TABLE 1

CHINA AIRLINES, LTD. AND SUBSIDIARIESENDORSEMENT/GUARANTEE PROVIDEDFOR THE YEAR ENDED DECEMBER 31, 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Counter-party
Endorsement/
Guarantee
Provider

No.

0

Name

China Airlines
Cal Park(the “Company”) Taiwan Air Cargo Terminal
Freighter Prince Ltd.
Cal Hotel
Tigerair Taiwan Ltd.

Nature of Relationship100% subsidiary
54% subsidiary
100% subsidiary
100% subsidiary
90% subsidiary by direct
and indirect holdings

Limit on EachCounter-party’s
Maximum
Endorsement/
Balance for the Ending Balance
Guarantee
PeriodAmount(Note 1)

$ 11,653,979
11,653,979
11,653,979
11,653,979
11,653,979$ 3,400,000
1,080,000
290,530
180,000
937,895$ 3,400,000
1,080,000
236,629
180,000
937,895

ActualBorrowingAmount$ 2,739,000
486,815
236,629
6,343
447,399

Ratio ofAccumulated
Value ofAmount ofCollaterals
Collateral toProperty, Plant Net Equity ofor Equipment
the Latest
Financial
Statement (%)$

Note 1:

Based on the Company’s guidelines, the maximum amount of guarantee to an individual counter-party is up to 20% of the Company’s stockholders’ equity.

Note 2:

Based on the Company’s guidelines, the allowable aggregate amount of collateral guarantee is up to 50% of the Company’s stockholders’ equity.

- 78 -

236,629
-

5.83
1.85
0.41
0.31
1.61

Maximum
Collateral/
Guarantee
Amounts
Allowable(Note 2)

$ 29,134,948
29,134,948
29,134,948
29,134,948
29,134,948

Endorsement/ Endorsement/ Endorsement/
Guarantee
Guarantee
Guarantee
Given by Parent
Given byGiven on Behalf
on Behalf of
Subsidiaries on of Companies in
Subsidiaries Behalf of Parent Mainland China

Y
Y
Y
Y
Y

N
N
N
N
N

N
N
N
N
N

TABLE 2

CHINA AIRLINES, LTD. AND SUBSIDIARIES
MARKETABLE SECURITIES HELDDECEMBER 31, 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Relationship with
the Holding
Company

December 31, 2015
Percentage ofOwnership

Market Valueor Net Asset
Value

52,704473
11,00056,023
5,925

13.59
11.00
15.00
6.22

$ 233,454
16,74934,525742

Note 1
Note 1-

6,625,675.80

100,029-

100,029-

Available-for-sale financial asset - current

2,074,628

24,895-24,895-

Financial assets at fair value through profit orloss - current
Financial assets at fair value through profit orloss - current
Financial assets at fair value through profit orloss - current

5,245,429

59,709-59,709-1,000,000

33,303-33,303-1,000,000

33,303-33,264--75,792
21,9955.83
5.45

17,60819,930Note 2
Note 2

265,726

3,311

-

3,311

-

748,755

10,001-

10,001-

4,637,003

57,392-

57,392-

5,523,758

56,331-

56,331-

Holding Company Name

Marketable Securities Type and Issuer/Name

China Airlines (the “Company”)

Stock
Everest Investment Holdings Ltd. - common stockEverest Investment Holdings Ltd. - preferred stock
Chung Hua Express Co.
Jardine Air Terminal Services
Regal International Advertising-

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

1,359,368
135,937
1,100,000
12,000,000
592,500

Beneficial certificates
FSITC Taiwan Money Market Fund-

Financial assets at fair value through profit orloss - current

Mandarin Airlines

Cal-Asia Investment

Abacus Distribution Systems(Taiwan)

Stock
China Airlines

Parent company

Financial Statement AccountBeneficial certificatesFuh Hwa Money Market Fund-

Barclays America Bonds Fund-

Deutsche America Bonds Fund

-

Stock
Taikoo (Xiamen) Landing Gear Services
Taikoo Spirit Aerospace Systems (Jinjiang) Composite-

Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

Beneficial certificates
Mirae Asset Solomon Money Market Fund-

Taishin 1699 Money Market Fund-

Mega Diamond Money Market Fund-

Franklin Templeton Sinoam Money Market Fund-

Financial assets at fair value through profit orloss - current
Financial assets at fair value through profit orloss - current
Financial assets at fair value through profit orloss - current
Financial assets at fair value through profit orloss - current

Shares/Units

Carrying Value

$

Note

(Continued)- 79 -

Holding Company Name

Taiwan Airport Services

Hwa Hsia

Hwa SinMarketable Securities Type and Issuer/Name

Relationship with
the Holding
Company

Allianz Taiwan Money Market Fund-FSITC Taiwan Money Market Fund

-

Stock
TransAsia Airways

-

Stock
China Airlines

Parent company

December 31, 2015
Financial Statement AccountShares/Units

Financial assets at fair value through profit orloss - current
Financial assets at fair value through profit orloss - current

6,156,063

Available-for-sale financial asset - noncurrent

Percentage ofCarrying Value
Ownership$

76,149-2,798,747

42,2532,287,786

Available-for-sale financial asset - current

Market Valueor Net Asset
Value
$

Note

76,149--42,253-19,0800.40

19,080-814,152

9,770

-

9,770

-

Beneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit orloss - current

349,523

4,668

-

4,668

-

Beneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit orloss - current

157,070

2,098

-

2,098

-

Note 1: The subsidiary’s net asset value was $233,454 thousand, which included common stock and preferred stock as of and for the year ended December 31, 2015.
Note 2: The Company does not issue stocks because it is a limited company.
(Concluded)- 80 -TABLE 3

CHINA AIRLINES, LTD. AND SUBSIDIARIESTOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFOR THE YEAR ENDED DECEMBER 31, 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd.
(“China Airlines”)

Related Party

Taiwan Air Cargo Terminal
Hua Hsia
Mandarin Airlines
Mandarin Airlines
China Pacific Catering Services
Cal Park
Taiwan Airport Services
Taoyuan International Airport Service
Global Sky Express
Kaohsiung Catering Services
China Aircraft Services
Cal Hotel
Tigerair Taiwan Co., Ltd.

Nature of Relationship

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee
Subsidiary
Subsidiary

Purchase/
Sale
Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Sale$

Amount% toTotal

383,750
320,239(3,023,799)
284,135
1,431,831
217,210400,777
1,110,362(126,973)
224,895
210,328
172,293(217,581)

0.33
0.28
2.27
0.25
1.24
0.19
0.35
0.96
0.10
0.19
0.18
0.15
0.16

- 81 -

Note/Account Payable or
Receivable% toPayment Terms Ending Balance
Total

Abnormal Transaction
Payment Terms
30 days
2 months
2 months
2 months
60 days
2 months
40 days
40 days
15 days
60 days
30 days
1 month
1 monthUnit Price
$

-

-

$

(34,245)(77,938)
515,588(254,134)(370,608)(90,504)(68,006)(309,627)
4,343(45,445)(34,982)(16,846)
5,850

2.14
4.88
6.24
15.90
23.19
5.66
4.25
19.37
0.05
2.84
2.19
1.05
0.07

Note

-

TABLE 4

CHINA AIRLINES, LTD. AND SUBSIDIARIESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALDECEMBER 31, 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Overdue
Company Name

Related Party

Nature of RelationshipEnding Balance

Turnover Rate

$ 515,588

6.29

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

254,134

China Pacific Catering Services

China Airlines

Parent company

Taoyuan International Airport Service

China Airlines

Parent company

Note:

AmountAllowance for
Bad Debts--$ 326,977

1.01

-

-

219,556-

370,608

3.98

-

-

253,723-

309,627

3.64

-

-

308,227-

Transaction with subsidiaries have been written off in consolidated financial report.

- 82 -$

Action Taken

Amounts Received
in Subsequent
Period$-TABLE 5

CHINA AIRLINES, LTD. AND SUBSIDIARIESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEFOR THE YEAR ENDED DECEMBER 31, 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company

China Airlines, Ltd.

Investee Company

Cal Park
Mandarin Airlines
Taiwan Air Cargo Terminal
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport
Services
Cal-Asia Investment

Location

Taoyuan, Taiwan
Taipei, Taiwan
Taoyuan, Taiwan
Los Angeles, U.S.A.
Taoyuan, Taiwan
Taoyuan, Taiwan

Territory of the British Virgin
Islands
Abacus Distribution System (Taiwan) Taipei, Taiwan
China Aircraft Service
Hong Kong International Airport
Asian Compressor Technology
Taoyuan, Taiwan
Services
Taiwan Airport Services
Taipei, Taiwan
Kaohsiung Catering Services
Kaohsiung, Taiwan
Cal Hotel Co., Ltd
Taoyuan, Taiwan
Science Park Logistics
Tainan, Taiwan
China Pacific Laundry Services
Taoyuan, Taiwan

Investment Amount
December 31, December 31,
2015
2014

Balance as of December 31, 2015
Percentage ofSharesCarrying Value
Ownership

Net Income(Loss) of theInvesteeReal estate lease and international trade
Air transportation and maintenance of aircraft
Air cargo and storage
A holding company, real estate and hotel services
In-flight catering
Airport services$

1,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000$

150,000,000
188,154,025
135,000,000
2,614,500
43,911,000
34,300,000

100.0093.99
54.00
100.00
51.00
49.00

$

General investment

US$

7,172

US$

47,016

7,172,346

100.00

Sale and maintenance of hardware and software
Airport services
Research, manufacture and maintenance of enginesHK$

52,20058,00077,322

HK$

52,20058,00077,322

13,021,042
28,400,000
7,732,000

12,289140,240
465,000
150,654
137,500

12,289140,240
465,000
150,654
137,500

50,000Main Business and Product1,500,000
2,042,368
1,350,000
US$ 26,145
439,110147,000$

1,510,824
1,367,156
1,260,095
1,239,445
705,134
722,143

Investment
Income (Loss)

Note

14,112 $107,290(90,472)
30,414452,964
306,871

14,112120,013(48,856)
30,414
231,012150,367

Note 1
Note 2-604,029

25,252

25,252

-

93.93
20.00
24.50

438,101
490,824
263,091

183,712231,236
381,122

172,571
46,247
93,375-

20,626,644
14,329,759
46,500,000
13,293,000
13,750,000

47.35
35.78
100.0028.48
55.00

262,493244,903
313,875
249,317
161,869

138,861
162,335
65,69857,491
42,68965,75358,08465,69816,373
23,479Note 5-50,00050,000100.0089,85821,211

21,211

Note 1

26,265
20,400
2,500
US$
1
US$
1
1,600,000-

1,600,000
408
250,000
1,000
1,000
160,000,000
6,000,000

100.0051.00
25.00
100.00100.0080.00
100.0029,15228,5447,647
33
33
977,323
41,731

4,276
4,146
7,685
(575,132)(18,269)

4,276
2,114
1,922
(460,106)(18,269)-

200,000-

20,000,000
146,388

10.00
0.34

122,165
1,857(575,132)
138,861(57,513)
14

Note 4

Hwa Hsia

Taoyuan, Taiwan

Yestrip
Dynasty Holidays
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Tigerair Taiwan Co., Ltd.
Taiwan Aircraft Maintenance andEngineering Co., Ltd.

Taipei, Taiwan
Tokyo, Japan
Taipei, Taiwan
Cayman Islands
Cayman Islands
Taipei, Taiwan

Airport services
In-flight catering
Hotel business
Storage and customs of services
Cleaning and leasing of the towel of airlines, hotels,
restaurants and health clubs
Cleaning of aircraft and maintenance of machine andequipment
Travel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Air transportation and maintenance of aircraft

Mandarin Airlines

Tigerair Taiwan Co., Ltd.
Taiwan Airport Services

Taipei, Taiwan
Taipei, Taiwan

Air transportation and maintenance of aircraft
Airport Services

Cal-Asia Investment

Eastern United International Logistics Hong Kong

Forwarding and storage of air cargo

HK$

3,329

HK$

3,329

1,050,000

35.00

41,908

7,295

6,759

-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

5,877

US$

5,877

-

100.00386,806

20,91020,910Note 3

Hwa Hsia

Hwa Shin Building Safeguard

Taoyuan, Taiwan

Building security and maintenance services

10,0001,000,000

100.0021,210

7,179

7,179

-

26,265
20,400
2,500
US$
1
US$
1
1,600,000
60,000
JPY

JPY

200,000
3,574

10,000Note 1:Adopted the treasury stock method in recognizing investment income or loss.

Note 2:

Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.

Note 3:

The Company does not issue stocks because it is a limited company.

Note 4:

Have acquired noncontrolling interests of Taiwan Airport Services from September 2015.

Note 5:On December 18, 2015 the board of Science Park Logistics (SPL) approved the issuance of common stock for cash and with the date of right issues granted on was December 25, 2015. The board of Company has reached an agreement to purchase $64,091 thousand which had been remitted
to SPL by December 31, 2015. SPL completed the registration of this subscription on January 22, 2016.

- 83 -TABLE 6

CHINA AIRLINES, LTD. AND SUBSIDIARIESINVESTMENTS IN MAINLAND CHINAFOR THE YEAR ENDED DECEMBER 31, 2015
(In Thousands of New Taiwan Dollars/Renminibi/U.S. Dollars, Unless Stated Otherwise)

China Airlines

Investee Company Name

Main Business andProduct

Accumulated
Outflow of
Total Amount
Investment Investmentof Paid-in
Typefrom Taiwan as
Capitalof January 1,
2015

Investment Flow

Outflow

Inflow

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Forwarding and storage $ 1,137,183
of air cargo(RMB 224,480)

Indirect(Note 1)$
137,697 $(US$4,186)

Airport Air Cargo Service(Xiamen) Co., Ltd.

Forwarding and storage
70,922of air cargo(RMB 14,000)

Indirect(Note 1)64,046
1,947)-(US$

Taikoo (Xiamen) Landing
Gear Services

Landing gear
1,213,487
maintenance services (US$ 36,890)

Indirect(Note 1)70,7572,151)-(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material-

Shanghai Eastern Aircraft
MaintenanceAircraft line
maintenance

Shanghai Eastern UnitedInternational

383,651
11,663)

Indirect(Note 1)

(US$

20,921
636)

-

(US$

101,974
3,100)

Indirect(Note 2)

(US$

8,158
248)

-

(US$

Forwarding of air cargo
and ocean freight(US$32,8951,000)

Indirect(Note 3)

5,658
172)

-

(US$

Accumulated Investment in
Mainland China as ofDecember 31, 2015

Investment Amounts
Authorized by Investment
Commission, MOEA

Limit on Investment$307,237 (US$9,340)$535,534 (Note 5)$36,333,926 (Note 6)

Accumulated
Outflow ofInvestment
from Taiwan asof December 31,
2015

$

-

Net Income(Loss) of
the Investee% Ownershipof Direct orIndirect
Investment$
137,697 $
67,936(US$
4,186) (RMB 13,218)

14.00

64,046
83,9301,947) (RMB 16,330)

14.00

(US$

70,7572,151)

5.83(US$

20,921
636)

5.45

(US$

8,158
248)

8.00

(US$

5,658
172)

17.15

(US$

-

-

-

-

-

Investment
Gain (Loss)

Accumulated
Carrying Value
Inwardas ofRemittance ofDecember 31, Earnings as of2015
December 31,
2015

$
(RMB

9,511 $
248,044 $
1,851) (RMB 48,964) (US$(RMB

11,700112,9102,286) (RMB 22,289)

59,671
1,814)(Note 4)75,790(RMB 14,961)(RMB

21,996
4,342)

(US$

8,158
248)

(US$

5,658
172)

(Continued)- 84 -

Taiwan Airport Services

Investee Company

Accumulated
Outward
Remittance forMain Businesses andMethod ofPaid-in Capital
Investment
Products
Investment
from Taiwan asof January 1,
2015

Airport Air Cargo Terminal(Xiamen) Co., Ltd.

Forwarding and storage $ 1,137,183
of air cargo(RMB 224,480)

Indirect(Note 7)$135,132 $(US$4,108)

Airport Air Cargo Service(Xiamen) Co., Ltd.

Forwarding and storage
70,922of air cargo(RMB 14,000)

Indirect(Note 7)

(US$

63,3881,927)

Remittance of Funds

OutwardAccumulated
Outward
Remittance forInvestment
from Taiwan asof December 31,
2015

Inward

-

$

-

-

$
135,132 $
67,936(US$
4,108) (RMB 13,218)

14.00

63,38883,9301,927) (RMB 16,330)

14.00

(US$

Accumulated Outward
Remittance for Investment in
Mainland China as of December 31, 2015

Investment Amounts Authorized by
Investment Commission, MOEA

Upper Limit on the Amount of
Investment Stipulated by
Investment Commission, MOEA

$195,559 (US$5,945)$195,559 (US$5,945)$405,659 (Note 6)

Net Income(Loss) of theInvestee% Ownershipof Direct orIndirect
Investment

Investment
Income (Loss)

Carrying
Amount as ofDecember 31,
2015

Accumulated
Repatriation of
Investment
Income as ofDecember 31,
2015

$
(RMB

8,938 $
246,621 $
1,851) (RMB 48,683) (US$67,632
2,056)(RMB

10,662
113,156
2,286) (RMB 22,337) (US$13,980425)

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in Mainland China.
Note 2: The Company invested in China Aircraft Services, which in turn, invested in a company located in Mainland China.
Note 3: Cal-Asia Investment invested in Eastern United International Logistics (Holdings), which in turn, invested in a company located in Mainland China.
Note 4: The inward remittance of earnings in 2015 amounted to US$1,814,300.
Note 5: The amount comprised US$14,518,757, RMB4,200,000 and NT$36,666,667.
Note 6: The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjudgment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 7: Taiwan Airport Services invested in Taiwan Airport Services (Samoa), which in return, invested in a company located in Mainland China.
Note 8: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the year-end rates of refer for the reporting period.
(Concluded)- 85 -