China Airlines, Ltd.
Financial Statements for theYears Ended December 31, 2015 and 2014 andIndependent Auditors’ ReportINDEPENDENT AUDITORS’ REPORTThe Board of Directors and the Stockholders
China Airlines, Ltd.
We have audited the accompanying balance sheets of China Airlines, Ltd. (the “Company”) as ofDecember 31, 2015 and 2014 and the related statements of comprehensive income, changes inequity and cash flows for the years then ended. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the Rules Governing the Auditing and Attestation of
Financial Statements by Certified Public Accountants and auditing standards generally accepted in
the Republic of China. Those rules and standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the 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 financial statements referred to above present fairly, in allmaterial respects, the financial position of the Company as of December 31, 2015 and 2014 and its
financial performance and its cash flows for the years then ended, in conformity with theRegulations Governing the Preparation of Financial Reports by Securities Issuers, or otherregulations.
As Note 3 described, the Company retrospectively applied the amendments to the Regulations
Governing the Preparation of Financial Report by Securities issuers starting January 1, 2015.
Therefore, all items affected by the amendments in prior financial statements were adjusted.

March 25, 2016
Notice to Readers
The accompanying financial statements are intended only to present the 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 financial statements are those generally appliedin the Republic of China.
For the convenience of readers, the independent auditors’ report and the accompanying financial
statements have been translated into English from the original Chinese version prepared and usedin 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 financial statements shall prevail.
-1-

CHINA AIRLINES, LTD.
BALANCE SHEETSDECEMBER 31, 2015 AND 2014
(In Thousands of New Taiwan Dollars)%$ 18,507,429
163,847
45,7449-$ 15,828,488
46,81242,8507-7,207,984
546,141
762,9887,124
8,203,921
670,455
1,788,406

4
4
1

8,900,395
496,872
551,185
4,171
7,096,376
1,510,384

4
1
3
1

37,904,039

18

34,477,533

16

1,710
11,216
126,125
11,007,620
118,446,472
2,047,448
990,3076,690,802
31,917,111

5
57
1
1
3
15

727
371,367
11,069,312
131,178,428
2,047,448
649,614
8,055,966
30,049,215

5
60
1
4
14

171,238,811

82

183,422,077

84$ 209,142,850

100$ 217,899,610

100$

301,9121,000,050
1,347,675
10,722,052
10,572
11,951,128
4,944,106
29,683,086
1,428,467
3,336,477

1
5
6
2
14
1
2

$

64,725,525

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4, 6, 17 and 30)
Financial assets at fair value through profit or loss - current (Notes 4, 5, 7 and 30)
Derivative financial assets for hedging - current (Notes 4, 5, 8 and 30)
Receivables:
Notes and accounts, net (Notes 4, 5, 10 and 30)
Notes and accounts - related parties (Notes 30 and 31)
Other receivables
Current tax assets (Notes 4 and 27)
Inventories, net (Notes 4 and 11)
Noncurrent assets held for sale (Notes 4, 5 and 12)
Other current assets (Notes 6 and 17)
Total current assets
NONCURRENT ASSETS
Financial assets at fair value through profit or loss - noncurrent (Notes 4, 5, 7 and 30)
Derivative financial assets for hedging - noncurrent (Notes 4, 5, 8 and 30)
Financial assets carried at cost - noncurrent (Notes 9 and 30)
Investments accounted for by the equity method (Notes 4 and 13)
Property, plant and equipment (Notes 4, 5, 14 and 32)
Investment properties (Notes 4 and 15)
Other intangible assets (Notes 4 and 16)
Deferred tax assets (Notes 4, 5 and 27)
Other noncurrent assets (Notes 17, 20, 30, 32 and 33)
Total noncurrent assets
TOTAL

2014 (Audited after
Adjustment)
Amount%2015
AmountLIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loans (Note 18)
Short-term bills payable (Note 18)
Derivative financial liabilities for hedging - current (Notes 4, 5, 8 and 30)
Notes and accounts payable (Note 30)
Notes and accounts payable - related parties (Notes 30 and 31)
Other payables (Notes 21 and 26)
Current tax liabilities (Notes 4 and 27)
Deferred revenue - current (Notes 4, 5 and 22)
Bonds payable and put option of convertible bonds - current (Notes 4, 19, 25, 30 and 31)
Loans and debts - current (Notes 18, 30 and 32)
Capital lease obligations - current (Notes 4, 20, 30 and 32)
Other current liabilities (Notes 26 and 30)

4,160,000
1,998,138
2,460,000
120,773
1,441,966
9,608,518
10,487,504
9,025,000
13,858,278
2,727,933
3,191,736

2
1
1
1
4
5
4
6
1
2

31

59,079,846

27

11,291
10,900,000
53,849,371
5,033,257
172,451
5,079,133
1,863,929
8,965,529
272,468

5
26
2
3
1
4
-

5,150
18,323,836
69,517,097
3,416,601
239,590
6,945,200
1,805,315
8,670,569
1,232,131

8
32
2
3
1
4
1

Total noncurrent liabilities

86,147,429

41

110,155,489

51

Total liabilities

150,872,954

72

169,235,335

78

54,708,901
798,41526
152,491,666
1,992,415

24
1

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

(2)
(1)
-

58,269,896

28

48,664,275

22$ 209,142,850

100$ 217,899,610

100

Total current liabilities
NONCURRENT LIABILITIES
Derivative financial liabilities for hedging - noncurrent (Notes 4, 5, 8 and 30)
Bonds payable - noncurrent (Notes 4, 19, 25, 30 and 31)
Loans and debts - noncurrent (Notes 18, 30 and 32)
Provisions - noncurrent (Notes 4, 5 and 23)
Deferred tax liabilities (Notes 4 and 27)
Capital lease obligations - noncurrent (Notes 4, 20, 30 and 32)
Deferred revenue - noncurrent (Notes 4, 5 and 22)
Net defined benefit liabilities - noncurrent (Notes 4, 5 and 24)
Other noncurrent liabilities (Notes 26 and 30)

EQUITY (Notes 19 and 25)
Capital stock
Capital surplus
Retained earnings (accumulated deficit)
Unappropriated retained earnings (accumulated deficit)
Other equity
Treasury shares
Total equity
TOTAL

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

-2-

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

2015
Amount%2014 (Audited after
Adjustment)
Amount%$ 133,441,725

100$ 139,726,168

100

COSTS (Notes 4, 8, 11, 24, 26 and 31)

115,817,924

87

128,808,994

92

GROSS PROFIT

17,623,801

13

10,917,174

8

OPERATING EXPENSES (Notes 4, 24 and 26)

9,738,704

7

9,046,983

7

OPERATING PROFIT

7,885,097

6

1,870,191

1

2,949,765(2,900,099)(1,711,983)

2
(2)
(1)

918,621(1,713,999)(1,965,294)

1
(1)
(2)

615,042-939,906

1(1,047,275)(1)(1,820,766)(1)

PRETAX PROFIT

6,837,822

5

49,425-

INCOME TAX EXPENSE (Notes 4, 5 and 27)

1,074,108

1

798,498

1

NET INCOME (LOSS)

5,763,714

4(749,073)(1)(541,691)-

99,640-(81,484)-(34,805)-

92,088-(16,939)(Continued)

REVENUES (Notes 4, 26 and 31)

NONOPERATING LOSS
Other income (Notes 9 and 26)
Other losses (Notes 8, 12, 14 and 26)
Finance cost (Notes 8, 26 and 32)
Share of the profit of associates and joint ventures(Note 13)
Total nonoperating loss

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans (Notes 4
and 24)
Share of the other comprehensive loss of
associates and joint ventures accounted forusing the equity method
Income tax relating to items that will not bereclassified subsequently to profit or loss
(Note 27)

-3-

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

2015
AmountItems that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign
operations (Notes 4 and 25)
Unrealized gain on available-for-sale financial
assets (Notes 4 and 25)
Cash flow hedges (Notes 4 and 25)
Share of the other comprehensive income (loss) of
associates and joint ventures accounted forusing the equity method (Notes 4 and 25)
Income tax relating to items that may bereclassified subsequently to profit or loss
(Note 27)$

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

EARINGS (LOSS) PER SHARE (New Taiwan dollars;Note 28)
Basic
Diluted$%67,886-

109,512-2,153,292

1

16,523(2,537,523)(2)(6,397)-

10,358-(375,366)-

408,4961

1,308,328

1(1,944,738)(1)

7,072,042

5(2,693,811)

(2)

$
$

1.06
1.00

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

-4-2014 (Audited after
Adjustment)
Amount
%

$

$

$
$

(0.14)(0.14)(Concluded)

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

Retained Earnings

Exchange
Differences on
Translating
Foreign
Operations

Other Equity
Unrealized
Gain (Loss) on
Available-forsale Financial
AssetsCash Flow
HedgesTreasury
Shares Held by
Subsidiaries

Total Equity

$

$

$

$

(43,372)$ 50,806,464

Share Capital

Capital Surplus

Legal Reserve

Special Reserve

UnappropriatedEarnings(Accumulated
Deficit)$ 52,000,000$ 1,924,015$

321,891$ 3,926,293$ (7,409,299)

Effect of retrospective application and retrospective
adjustment

-

-

-

-

(8,444)

-

-

-

-

(8,444)BALANCE AT JANUARY 1, 2014 AS RESTATED

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--(321,891)-(3,926,293)

321,891
3,926,293

-

-

-

-

-

Convertible bonds converted to ordinary shares

491,666

68,400

-

-

-

-

-

-

-

560,066

Net loss for the year ended December 31, 2014

-

-

-

-

(749,073)

-

-

-

-

(749,073)

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

-

-

-

-

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

Total comprehensive loss for the year ended December 31,
2014

-

-

-

-

(701,177)

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

BALANCE AT DECEMBER 31, 2014

52,491,666

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

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

48,664,275

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

2,217,235

317,889

-

-

-

-

-

-

-

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

-

-

-

-

(1,609)

-

-

-

-

(1,609)Net income for the year ended December 31, 2015

-

-

-

-

5,763,714

-

-

-

-

5,763,714

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

-

-

-

-

(531,087)

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

1,308,328

Total comprehensive income for the year ended
December 31, 2015

-

-

-

-

5,232,627

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

7,072,042-$ 2,872,235(43,372)$ 58,269,896

BALANCE AT JANUARY 1, 2014

Compensation of 2013 the deficit
Legal reserve
Special reserve

Convertible bonds converted to ordinary shares

BALANCE AT DECEMBER 31, 2015

$ 54,708,901$

798,415$-$

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

-5-

$

1,843

157,959$(11,486)

1,755$

96,579(225,997)$

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

CASH FLOWS FROM OPERATING ACTIVITIESPretax profit
Adjustments to reconcile pretax profit to net cash generated fromoperating activities:
Debt expenses
Depreciation expenses
Amortization expenses
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
Loss on disposal of investments accounted for by the equity method
Gain on disposal of property, plant and equipment
Loss on inventories and property, plant and equipment
Impairment loss recognized on property, plant and equipment andnoncurrent assets held for sale
Gain on disposal of available-for-sales financial assets
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
Decrease in financial assets held for trading
Decrease (increase) in notes and accounts receivable
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 (decrease) in other current liabilities
Decrease in accrued pension liabilities
Cash generated from operations
Interest received
Dividend received
Interest paid
Income tax paid
Net cash generated from operating activities

-6-

$

2015

2014 (Audited
after
Adjustment)

6,837,822$

49,42546,50016,266,952
60,04430,00016,588,695
47,013(150,714)(367,360)(1,883,826)(615,042)(13,137)
388,738(77,668)(353,002)(24,847)(939,906)30(52,277)
519,5662,468,372
427,715
1,711,983
1,620,216(14,512)-(4,007)396,270
1,965,294
1,217,163(14,512)(2,862)

31,9691,619,067(49,269)(232,794)(1,281,193)(319,672)
864,228(94,291)
436,951
1,522,238(3,560)360,431(246,731)
29,391,125
388,351
2,663,110(1,725,744)(51,742)

51,311(1,458,009)(40,654)(54,773)(410,481)(395,654)(521,369)
132,912(1,954,792)
1,993,718(392,240)(73,057)(109,146)
16,112,141
362,969
636,545(2,007,095)(77,267)

30,665,100

15,027,293(Continued)

CHINA AIRLINES, LTD.
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 of the sale of available-for-sale financial assets
Proceeds of share redemption of financial assets measured at cost
Acquisition of derivative financial assets for hedging
Acquisition of investments accounted for by the equity method
Payments for property, plant and equipment
Proceeds of the disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in prepayments for equipment
Refund in prepayment for aircraft
Increase in computer software costs
Decrease in restricted assets
Proceeds of share redemption of subsidiaries
Net cash used in investing activities$

245,242(13,096)(124,091)(6,175,287)
18,700(423,231)
644,532(13,382,155)
10,186,049(400,737)
53,543-2014 (Audited
after
Adjustment)$

92,969(1,600,000)(7,882,013)
75,665(312,254)
318,803(12,191,393)(216,948)
232,457
763,606(9,370,531)(20,719,108)

CASH FLOWS FROM FINANCING ACTIVITIES(Decrease) increase 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(4,160,000)(1,998,138)(9,025,000)
16,020,000(19,181,883)
71,540(68,653)

4,160,000
1,998,138(4,780,000)
38,950,000(33,904,669)
101,888(102,502)

Net cash generated from (used in) financing activities(18,342,134)

6,422,855

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE
OF CASH HELD IN FOREIGN CURRENCIES(273,494)

126,631

NET INCREASE IN CASH AND CASH EQUIVALENTS

2,678,941

857,671

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR

15,828,488

14,970,817

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

$ 18,507,429$ 15,828,488

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

-7-(Concluded)

CHINA AIRLINES, LTD.
NOTES TO 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, respectively. As of December 31, 2015 and2014, the Company had 12,437 and 11,319 employees, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS
The financial statements 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 Interpretationsof IAS (SIC) endorsed by the FSC.
Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014 stipulated that theCompany should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)
endorsed by the Financial Supervisory Commission (FSC) and the related amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers starting January 1,
2015.
Except for the following, the future initial application of the above 2013 version of IFRSs is notexpected to have any material impact on the Company’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.
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.
-8-

The fair value measurements under IFRS 13 will be applied from January 1, 2015.
3) Amendments to IAS 1 “Presentation of Items of Other Comprehensive Income”
The amendments to IAS 1 requires the Companying 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 apply the above amendments starting in 2015. Items not expected to be reclassified
to profit or loss are remeasurements of the defined benefit plans and share of the defined benefit
plans of associates and joint ventures accounted for using the equity method. Items expected to bereclassified to profit or loss are the exchange differences on translating foreign operations,
unrealized gains (losses) on available-for-sale financial assets, cash flow hedges, and share of theother 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:

Carrying
AmountAdjustments
Arising from
InitialApplication

Adjusted
Carrying
AmountImpact on assets, liabilities and equity
January 1, 2014
Investments accounted for by the equity
method$9,828,118$(8,444)$9,819,674

Total effect on assets$

9,828,118$(8,444)$9,819,674

Retained earnings$(3,161,115)$(8,444)$(3,169,559)

Total effect on equity$(3,161,115)$(8,444)$(3,169,559)(Continued)-9-

CarryingAmountAdjustments
Arising from
InitialApplication

Adjusted
Carrying
AmountDecember 31, 2014
Investment accounted for by equity
method$ 11,075,172$(5,860)$ 11,069,312

Total effect on assets$ 11,075,172$(5,860)$ 11,069,312

Retained earnings$(3,864,876)$(5,860)$(3,870,736)

Total effect on equity$(3,864,876)$(5,860)$(3,870,736)$ 128,808,748
9,046,866

$

246
117

$ 128,808,994
9,046,983(2,460)(62)(939,906)
798,498

Impact on total comprehensive income forthe year ended December 31, 2014
Operating cost
Operating expense
Share of the profit of associates and joint
ventures
Income tax expense(937,446)
798,560

Total increase amount on net profit for theyear
Items that will not be reclassified to profit
or loss:
Remeasurements of defined benefit
plan
Share of the other comprehensive
income of associates and joint
ventures accounted by equity method
Income tax relating to items that will
not be reclassified
Total increase (after tax) amount ofcomprehensive income for the year$

(2,159)$363

99,640(34,929)

124(34,805)(16,877)(62)(16,939)

99,277$425(Concluded)b. New IFRSs in issue but not yet endorsed by the FSC
The Company 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 Company should apply IFRS 15 starting January 1, 2018. As of the date thefinancial statements were authorized for issue, the FSC has not announced the effective dates of othernew, amended and revised standards and interpretations.
- 10 -

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”
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)
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, 2017
January 1, 2019
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

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.

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The initial application of the above New IFRSs, whenever applied, would not have any material impact
on the Company’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 Company’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;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 Company 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 atamortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets
arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments
and financial guarantee contracts. A loss allowance for the 12-month expected credit losses isrequired 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 allowancefor full lifetime expected credit losses is required for trade receivables that do not constitute a
financing transaction.
For purchased or originated credit-impaired financial assets, the Company 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.

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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 Company 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.
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 Company is a lessee, it shall recognize right-of-use assets and lease liabilities
for all leases on the balance sheets except for low-value and short-term leases. The Company 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 statements of comprehensive income, the Company
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 statements of cash flows, cash payments for the principal portion of the lease liability areclassified within financing activities; cash payments for interest portion are classified within
operating activities.
The application of IFRS 16 is not expected to have a material impact on the accounting of theCompany as lessor.
When IFRS 16 becomes effective, the Company may elect to apply this Standard either
retrospectively to each prior reporting period presented or retrospectively with the cumulative effectof 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 Company 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 Company 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 Company’s assets for more than their carrying amount if- 13 -

there is sufficient evidence that it is probable that the Company will achieve this, and that theestimate 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 financial statements were authorized for issue, theCompany is continuously assessing the possible impact that the application of other standards andinterpretations will have on the Company’s financial position and financial performance, and will
disclose the relevant impact when the assessment is completed.

4. SIGNIFICANT ACCOUNTING POLICIESStatement of Compliance
The financial statements have been prepared in accordance with the Regulations Governing the Preparationof Financial Reports by Securities Issuers, or other regulations.
Basis of Preparation
The fair value measurements are company 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.
When preparing its parent company only financial statements, the Company used equity method to accountfor its investment in subsidiaries, associates and joint ventures. In order for the amounts of the net profit
for the year, other comprehensive income for the year and total equity in the parent company only financial
statements to be the same with the amounts attributable to the owner of the Company in its consolidated
financial statements, adjustments arising from the differences in accounting treatment between parent
company only basis and consolidated basis were made to investments accounted for by equity method,share of profit or loss of subsidiaries, associates and joint ventures, share of other comprehensive income ofsubsidiaries, associates and joint ventures and related equity items, as appropriate, in the parent company
only financial statements.
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.

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Foreign Currencies
In preparing the financial statements of the Company entity, 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 at historical cost in a foreign
currency are not retranslated. Non-monetary items measured at fair value that 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.
Exchange 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 financial statements, the assets and liabilities of the Company’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.
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 and 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 Helds 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.
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Investments Accounted for by the Equity Method
Investments in subsidiaries, associates and jointly controlled entities are accounted for by the equity method
a. Investment in subsidiaries
Subsidiaries (including special purpose entities) are the entities controlled by the Company.
Under the equity method, the investment is initially recognized at cost and the carrying amount isincreased or decreased to recognize the Company’s share of the profit or loss and other comprehensive
income of the subsidiary after the date of acquisition. Besides, the Company also recognizes theCompany’s share of the change in other equity of the subsidiary.
Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s lossof control over the subsidiaries are accounted for as equity transactions. Any difference between the
carrying amounts of the investment and the fair value of the consideration paid or received isrecognized directly in equity.
When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary(which includes any carrying amount of the investment in subsidiary accounted for by the equity
method and long-term interests that, in substance, form part of the Company’s net investment in thesubsidiary), the Company continues recognizing its share of further losses.
The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired isrecognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net
identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss.
When the Company ceases to have control over a subsidiary, any retained investment is measured atfair value at that date and the difference between the previous carrying amount of the subsidiary
attributable to the retained interest and its fair value is included in the determination of the gain or loss.
Furthermore, the Company accounts for all amounts previously recognized in other comprehensive
income in relation to that subsidiary on the same basis as would be required if the Company had
directly disposed of the related assets or liabilities.
Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits andlosses from upstream with a subsidiary and side stream transactions between subsidiaries arerecognized in the Company’s financial statements only to the extent of interests in the subsidiary thatare not related to the Company.
b. Investments in associates and joint ventures
An associate is an entity over which the Company has significant influence and that is neither asubsidiary nor an interest in a joint venture. Joint venture is a joint arrangement whereby theCompany and other parties that have joint control of the arrangement have rights to the net assets of thearrangement.
The Company uses the equity method to account for its investments in associates and joint ventures.
Under the equity method, an investment in an associate and jointly controlled entity is initiallyrecognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss andother comprehensive income of the associate and jointly ventures. The Company also recognizes thechanges in the Company’s share of equity of associates and jointly ventures attributable to theCompany.

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When the Company subscribes for additional new shares of the associate and joint ventures at apercentage different from its existing ownership percentage, the resulting carrying amount of theinvestment differs from the amount of the Company’s proportionate interest in the associate and joint
ventures. The Company records such a difference as an adjustment to investments with thecorresponding amount charged or credited to capital surplus. If the Company’s ownership interest is
reduced due to the additional subscription of the new shares of associate and jointly controlled entity,
the proportionate amount of the gains or losses previously recognized in other comprehensive income inrelation to that associate and joint ventures 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 the adjustment
should be debited to capital surplus, but the capital surplus recognized from investments accounted forby the equity method is insufficient, the shortage is debited to retained earnings.
When the Company’s share of losses of an associate and joint ventures equals or exceeds its interest inthat associate and joint ventures which includes any carrying amount of the investment accounted forby the equity method and long-term interests that, in substance, form part of the Company’s net
investment in the associate and joint ventures entity, the Company discontinues recognizing its share offurther losses. Additional losses and liabilities are recognized only to the extent that the Company has
incurred legal obligations, or constructive obligations, or made payments on behalf of that associate andjoint ventures.
Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable
assets and liabilities of an associate and joint ventures recognized at the date of acquisition isrecognized as goodwill, which is included within the carrying amount of the investment and is notamortized. Any excess of the Company’s share of the net fair value of the identifiable assets andliabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.
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
forms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized to the extent that the recoverable amount of the investment subsequently increases.
The Company discontinues the use of the equity method from the date on which it ceases to havesignificant influence and joint control. Any retained investment is measured at fair value at that date
and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference
between the previous carrying amount of the associate and the jointly controlled entity 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 jointly controlled entity. The Company accounts for all amounts previously
recognized in other comprehensive income in relation to that associate and the jointly controlled entity
on the same basis as would be required if that associate had directly disposed of the related assets or
liabilities.
When the Company transacts with its associate and joint ventures, profits and losses resulting from thetransactions with the associate are recognized in the Company’ financial statements only to the extent
of interests in the associate and the jointly controlled entity that are not related to the Company.
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 subsequentaccumulated depreciation and subsequent accumulated impairment loss.
Freehold land is not depreciated.

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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.
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 Company expects to dispose of the intangible asset before
the end of its economic life.
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assets havesuffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimatedin order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable
amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit towhich the asset belongs. Corporate assets are allocated to the individual cash-generating units on areasonable and consistent basis; otherwise Corporate assets are allocated to the smallest Company of
cash-generating units on a reasonable 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.
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, thediscount rate reflects current market time value of money and the specific risks to the asset that theestimated 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.
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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 Company becomes a party to thecontractual 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 30.
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.
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.

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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 theCompany’s past experience of collecting payments, an increase in the number of delayed paymentsin the portfolio past the average credit period of 60 days, as well as observable changes in nationalor 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;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.
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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 Company 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 Company are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of afinancial liability and an equity instrument.
An equity instrument is residual interest in any contract after the Company’s assets minus all liabilities.
Equity instruments issued by the Company 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.
c. Financial liabilities
1) Subsequent measurement
Except for derivative financial instruments, all the financial liabilities are measured at amortizedcost using the effective interest method.

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2) Derecognition of financial liabilities
The Company 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 Company 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.
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.

- 22 -

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 Company 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 Company recognizes provisions when the Company has a present obligation (legal or constructive)
arising from 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 Company andthe amount of income can be measured reliably.
Interest income from a financial asset is recognized when it is probable that the economic benefits willflow to the Company and the amount of income can be measured reliably. Interest income is accrued
on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

- 23 -

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 Company 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 Company 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.
2) The Company 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.

- 24 -

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 Company’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 expenditureon 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.
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.

- 25 -

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 Company’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 income statement.
The Company’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 financial statements and the corresponding tax bases used in the computation 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 carryforward and unused tax credits for purchases of machinery, equipment and technology, research anddevelopment expenditures, and personnel training expenditures to the extent that it is probable thattaxable 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 Company is able to control
the reversal of the temporary difference and it is probable that the temporary difference will not reversein 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.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period
in which 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 theCompany expects, at the end of the reporting period, to recover or settle the carrying amount of its
assets and liabilities.

- 26 -

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 Company’s accounting policies, management is required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience andother 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 Company is subject to income taxes in numerous jurisdictions. Where the final tax payable differsfrom the 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 recognizedfor 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.
Estimated Impairment of Trade Receivables
The Company 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 Company 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.

- 27 -

Fair Value of Derivatives and Other Financial Instruments
The Company’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 Company 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 thesame or similar type of aircraft; incurred overhaul costs; and historical operating performance data.
Changes in judgment 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.

- 28 -

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

$

2014

68,883
4,385,543$

76,126
7,686,416

14,053,003-

7,716,060
349,886$ 18,507,429$ 15,828,488

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

0.13%-1.7%
0.48%-7.25%-

0%-1.75%
0.39%-4%
0.59%-0.8%

As of December 31, 2015 and 2014, time deposits with original maturities more than 3 months of $0
thousand and $507,357 thousand (market interest rates of 4%) were classified as other current assets(Note 17).

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$100,029

46,812-$ 163,847$

46,812$$-Financial assets held for trading - noncurrent
Derivative financial instruments (not under hedge accounting)Foreign exchange forward contracts- 29 -

1,710

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

Currency

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

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

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
December 31
2015

2014

Derivative financial assets under hedge accounting
Cash flow hedges
Interest rate swaps
Foreign exchange forwards contracts
Currency options
Fuel options

Current
Noncurrent$

44,222
12,403335$

727
32,285
10,565$56,960$43,577$45,744
11,216$42,850727$

56,960$43,577$

12,702
12,660287,841

$

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

313,203$ 2,465,150$

301,912
11,291$ 2,460,000
5,150

$

313,203$ 2,465,150

Derivative financial liabilities under hedge accounting
Cash flow hedges
Interest rate swaps
Currency options
Fuel options

Current
Noncurrent

The fair value of each derivative contract is determined using quotes from financial institutions.
a. Interest rate swaps
The Company 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.
- 30 -

The outstanding interest rate swap contracts at the end of the reporting period were as follows:

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

Notional Amount(In Thousands)
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 Company entered into currency options 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

2016.01.8-2016.12.09
2016.01.8-2016.12.09

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

JPY2,044,450/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 optionc. Fuel options
The Company 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:

Currency

Maturity Date

Notional Amount(In Thousands)

December 31, 2015
Buy fuel call options
Sell fuel put options

USD
USD

2016.01.31-2016.07.31
2016.01.31-2016.07.31

NTD335
NTD287,841

USD
USD

2015.3.31-2015.11.30
2015.3.31-2015.11.30

NTD10,565
NTD2,456,972

December 31, 2014
Buy fuel call options
Sell fuel put options- 31 -

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 options contracts only have notional amounts.
d. Foreign exchange forward
The Company 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:
Notional Amount(In Thousands)

Currency

Maturity Date

NTD/USD

2016.01.22-2017.05.23

December 31, 2015
Buy forward contracts

NTD822,368/USD25,000

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

$ (2,581,321)(7,151)
31,857$(418,329)(7,428)28,333$ (2,556,615)$(397,424)

9. FINANCIAL ASSETS CARRIED AT COST
December 31
2015
2014
Carrying% ofCarrying% ofAmountOwnership
AmountOwnership
Unlisted common stocks
Everest Investment Holdings Ltd.
(AH)
Jardine Air Terminal Services
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$

52,70456,023
11,0005,925
125,652

14
15
11
6

$ 297,946
56,023
11,0005,925
370,894

14
15
11
6

473

-

473

-

$ 126,125$ 371,367$ 126,125$ 371,367- 32 -

The Company and the Asian airlines had set up Abacus International Holdings (AH company) which
owned Abacus distributions systems company. Due to strategy and adjustment, AH company disposed ofshares 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 Company
received cash dividends of $1,660,687 thousand and share redemption $245,242 thousand. AH company
changes its name to Everest Investment Holdings Ltd. after the disposal of their subsidiary.
The unlisted common stock held by the Company, are measured at cost less impairment losses at reporting
date. Because a reasonable estimate of the fair value range is significant and cannot be reasonably
assessed various estimates of probability, the Company’s management believes its fair value cannot be
reliably measured.

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE
December 31
2015
Notes receivable

$

2014

343,647$

290,535

Accounts receivable
Accounts receivable
Less: Allowance for impairment loss

6,964,125(99,788)6,864,337

8,664,953(55,093)8,609,860$ 7,207,984$ 8,900,395

The average credit period was 7 to 45 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
estimated irrecoverable amounts determined by reference to past default experience of the counterparties
and an analysis of their current financial position.
Movements in the allowance for impairment loss recognized on notes receivable and accounts receivables
were as follow:
For the Year Ended December 31
2015
2014
Balance at January 1
Impairment loss of accounts receivable
Less: Amounts written off as uncollectible$ 55,093
46,500(1,805)$ 45,604
30,000(20,511)

Balance at December 31$ 99,788$ 55,093

11. INVENTORIES
December 31

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services- 33 -

2015

2014$ 7,552,829
507,603
143,489$ 6,393,427
454,601
248,348$ 8,203,921$ 7,096,376

The cost of inventories recognized as operating costs due to write-downs of inventories was $151,688
thousand and $159,682 thousand in 2015 and 2014, respectively.

12. NON-CURRENT ASSETS HELD FOR SALE
December 31
2015
Aircraft held for sale2014

$ 670,455$-

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 andone A340-300 aircraft. These aircrafts as non-current assets held for sale, and difference between theoriginal 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.

13. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31
2015
Investments in subsidiaries
Investments in associates
Investments in jointly controlled entities

$

2014

8,892,482
1,248,135
867,003$ 11,007,620$

9,028,463
1,130,840
910,009$ 11,069,312

a. Investment in subsidiaries
December 31
2015

2014

$ 1,510,824
1,367,156
1,239,445
1,260,095
977,323
722,143
604,029
438,101
313,875
262,493
89,85841,731
29,15228,544
7,647
33
33$ 1,496,712
1,278,362
1,160,402
1,312,843
1,440,708
665,045577,230
435,744
248,177
267,237
81,261
31,82625,5277,325
32
32$ 8,892,482$ 9,028,463

Unlisted companies
Cal Park
Mandarin Airlines
Cal-Dynasty International
Taiwan Air Cargo Terminal
Tigerair Taiwan Co., Ltd.
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
Cal Hotel
Taiwan Airport Services
Hwa Hsia
Taiwan Aircraft Maintenance And Engineering Co., Ltd.
Yestrip
Dynasty Holidays
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.

- 34 -

At the end of the reporting period, the proportion of ownership and voting rights in subsidiaries held by
the Company were as follows:
December 31

Tigerair Taiwan Co., Ltd.
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Cal Hotel
Hwa Hsia
Taiwan Aircraft Maintenance And Engineering Co., Ltd.
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.

2015

2014

80%
54%
100%
94%
100%
49%
100%
94%
47%
100%
100%
100%
51%
100%
25%
100%
100%

80%
54%
100%
94%
100%
49%
100%
94%
47%
100%
100%
51%
100%
25%
100%
100%

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
over these investees, they were listed as subsidiaries.
The subsidiaries, Freighter Princess Ltd., and Freighter Prince Ltd., were established for leasing of theCompany’s aircraft. On its balance sheets, the Company recognized the fixed assets and liabilities
related to the leased aircraft as a leasing transaction.
To provide a new generation of aircraft repair services, expand repair market as well as enhance theCompany’s aircraft repair capability, the board of directors has reached an agreement to establish the“Taiwan Aircraft Maintenance And Engineering Co., Ltd.” on August 12, 2014.
The capital stock of Taiwan Aircraft Maintenance And Engineering Co., Ltd. is $1.35 billion and its
establishment was completed on January 16, 2015.
To provide the customers with more diverse options, the board of directors has reached an agreement toestablish 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,which includes $1,600,000 thousand (80%) from the Company and $200,000 thousand (10%) from
Mandarin Airlines Co., Ltd. Tigerair Taiwan Co., Ltd. was established on April 21, 2014 and started
operating on September 26, 2014.
The disposal proceeds of Yangtze River Express of $763,606 thousand was remitted back to theCompany as deducted capital by CAL-Asia Investment.
The share of profit or loss of subsidiaries recognized under equity method was as follows:

The share of profit or loss

- 35 -

20152014$ 146,472$ 489,024

b. Investments in associates
December 31
2015

2014

Unlisted companies
China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics$

Prepayment of long-term investment - Science Park Logistics

490,824
244,903
263,091
185,226
1,184,044
64,091$ 1,248,135$

450,111232,105
259,605
189,019
1,130,840-$ 1,130,840

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.
As the end of the reporting period, the proportion of ownership and voting rights in associates held by
the Company were as follows:
December 31

China Aircraft Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics

2015

2014

20%
36%
25%
28%

20%
36%
25%
28%

The share of profit or loss of associates recognized under equity method were as follows:
2015
China Aircraft Services
Asian Compressor Technology Services
Kaohsiung Catering Services
Science Park Logistics

$

2014

46,247
93,37558,084
16,373$ 214,079$

35,664
100,716
49,08623,426$ 208,892

c. Investments in jointly controlled entities
The investments in jointly controlled entities were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services- 36 -

2015

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

At the end of the reporting period, the percentage of ownership and voting rights in jointly controlled
entities held by the Company were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services

2015

2014

51%
55%

51%
55%

The Company signed a joint venture agreement with the Taikoo Company to invest in China Pacific
Catering Services and China Pacific Laundry Services. According to the agreement, both sides on theboard have major motion veto, therefore the Company does not have its control power.
The share of profit or loss of jointly ventures recognized under equity method were as follows:
December 31

China Pacific Catering Services
China Pacific Laundry Services

2015

2014

$ 231,012
23,479$ 212,571
29,419$ 254,491$ 241,990

The investments in subsidiaries, associates and joint ventures accounted for by the equity method andthe share of profit or loss and other comprehensive income of those investments for the years ended
December 31, 2015 and 2014 was based on the subsidiaries, associates and joint ventures’ financial
statements 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).

14. PROPERTY, PLANT AND EQUIPMENT
December 31
2015

2014

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

193,013
7,323,803
228,454,181
27,481,679
4,180,095
699,420
1,000,947
11,575$ 269,344,713- 37 -$

193,013
7,314,028
230,661,285
33,379,391
4,173,873
680,573
1,006,556
68,870$ 277,477,589(Continued)

December 31
2015

2014

Accumulated depreciation
Buildings
Flight equipment
Equipment under finance lease
Machinery equipment
Office equipment
Leasehold improvements$

Net value

Freehold Land

Buildings

FlightEquipment

3,449,160
128,886,336
13,715,235
3,432,009
580,340
835,161$3,289,776
121,708,296
16,542,230
3,289,402
516,328
953,129$ 150,898,241$ 146,299,161$ 118,446,472$ 131,178,428(Concluded)

Equipment
under Finance
Lease

OthersTotal

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

210,350(17,337)-$

7,368,106
23,308(68)(77,318)$ 222,507,866
6,331,741(3,521,679)
5,343,357$

38,078,519
1,232,885(1,002,179)(4,929,834)$

5,881,309
294,079(322,718)
77,202$ 274,046,150
7,882,013(4,863,981)
413,407$

193,013$

7,314,028$ 230,661,285$

33,379,391$

5,929,872$ 277,477,589

$

-

$

(3,181,061)(186,370)
67
77,588$ (108,498,875)(13,614,141)
2,989,664(2,584,944)$ (17,767,630)(2,431,002)
1,000,201
2,656,201$(4,652,571)(357,182)
322,282(71,388)$ (134,100,137)(16,588,695)
4,312,214
77,457$-$(3,289,776)$ (121,708,296)$ (16,542,230)$(4,758,859)$ (146,299,161)$

193,013-$

7,314,028
37,830(28,645)590$ 230,661,285
5,632,381(3,083,547)(4,755,938)$

33,379,391
394,939(550,429)(5,742,222)$

5,929,872
110,137(210,516)
62,544$ 277,477,589
6,175,287(3,873,137)(10,435,026)$

193,013$

7,323,803$ 228,454,181$

27,481,679$

5,892,037$ 269,344,713

$

-

$

(3,289,776)(176,506)
17,144(22)$ (121,708,296)(13,719,690)
2,876,688(569,000)
4,233,962$ (16,542,230)(2,073,963)
550,429
4,350,529$(4,758,859)(296,793)
208,223(81)$ (146,299,161)(16,266,952)
3,652,484(569,000)
8,584,388$-$(3,449,160)$ (128,886,336)$ (13,715,235)$(4,847,510)$ (150,898,241)

Accumulated depreciationand impairment
Balance at January 1,
2014
Depreciation expense
Disposals
Reclassification
Balance at December 31,
2014
Cost
Balance at January 1,
2015
Additions
Disposals
Reclassification
Balance at December 31,
2015
Accumulated depreciationand impairment
Balance at January 1,
2015
Depreciation expense
Disposals
Impairment losses
Reclassification
Balance at December 31,
2015- 38 -

The above items of property, plant and equipment were depreciated on a straight-line basis over theestimated useful life of the asset:
Building
Main buildings
Others
Machinery and equipment
Electro-mechanical equipment
Others
Office equipment
Leasehold improvements
Building improvements
OthersFlight equipment and equipment under finance lease
Airframe
Aircraft cabin
EngineHeavy maintenance on aircraft
Engine overhauls
Landing gear overhauls
Repairable spare parts
Improvement of aircrafts

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

Tacking changes in fleet composition, current and forecast market value and other technical factors in tocondition, the Company recognized a part of aircraft equipments impairment loss of $569,000 thousand in2015.
Refer to Note 33 for the carrying amounts of property, plant and equipment pledged by the Company.
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.

15. INVESTMENT PROPERTIES
December 31

Carrying amount
Investment properties

2015

2014

$ 2,047,448$ 2,047,448

The investment properties (land) held by the Company was located in Nankan, which was leased to others.
The fair value of the investment properties held by the Company were both $2,316,300 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 Company’s investment properties were held under freehold interest.

- 39 -

16. OTHER INTANGIBLE ASSETS
Computer
Software Cost

Accumulated
Amortization

Net Value

Balance at January 1, 2014
Additions
Amortization expense
Reclassification$

895,755
216,948
6,615$(422,691)(47,013)-$473,064
216,948(47,013)6,615

Balance at December 31, 2014

$ 1,119,318$(469,704)$

649,614

Balance at January 1, 2015
Additions
Amortization expense$ 1,119,318
400,737-$(469,704)(60,044)$649,614400,737(60,044)

Balance at December 31, 2015

$ 1,520,055$(529,748)$

990,307

The above items of other intangible assets were amortized on a straight-line basis on 2-10 years.

17. OTHER ASSETS
December 31
2015

2014

Current
Temporary payments
Prepayments
Other financial assets
Others$527,289874,452
386,665$

197,348
608,980
507,357
196,699$

1,788,406$

1,510,384

Noncurrent
Prepayments for aircraft
Prepayments - long-term
Refundable deposits
Restricted assets
Other financial assets$ 28,714,476
2,392,347
559,510
236,634
14,144$ 27,585,802
1,388,920
780,731
279,497
14,265$ 31,917,111$ 30,049,215

The 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 33.

- 40 -

18. BORROWINGSa. Short-term loans
December 31
2015
Bank loans - unsecured

$

2014
-

$ 4,160,000

The range of interest rate on bank loans was 1.18%-1.30% on December 31, 2014.
b. Short-term bills payable
December 31
2015
Commercial paper
Less: Unamortized discount on bills payable

Annually discount rate

2014

$

-

$ 2,000,000
1,862

$

-

$ 1,998,138-

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

2015

2014

$ 31,225,000
21,097,986$ 30,025,000
28,905,839

31,275,000
65,52983,532,457
29,683,086

24,505,000
60,464
83,375,375
13,858,278$ 53,849,371$ 69,517,097

Secured bank loans were secured by buildings, machinery equipment and flight equipment, please refer
to Note 32.
Bank loans (New Taiwan dollars and U.S. dollars) are repayable quarterly, semiannually or in lumpsum upon maturity date. Related information is summarized as follows:
Currency
New Taiwan
Dollars
U.S. Dollars
Original currency
December 31, 2015
December 31, 2014

$ 48,282,617
50,475,804- 41 -$

122,827
267,179(Continued)

Currency
New Taiwan
Dollars
U.S. Dollars
Translated in New Taiwan dollars
December 31, 2015
December 31, 2014

$ 48,282,617
50,475,804$

4,040,369
8,455,035

1.1432%-1.83%
1.288%2.2074%

0.4067%-4.39%
0.2326%4.39%

2004/12/162021/3/12
2004/12/162020/2/26

2004/6/282017/9/21
2003/7/222017/9/21(Concluded)Interest rates
December 31, 2015
December 31, 2014

Periods
December 31, 2015
December 31, 2014

The Company has note issuance facilities obtained from certain financial institutions. The NIFs, withvarious maturities until February 2021, were used by the Company to guarantee commercial paper it
issued. The commercial paper was issued at discount rates of 1.2407%-1.5833% in 2015 and1.3895%-2.086% in 2014.

19. BONDS PAYABLE
December 31
2015
Secured corporate bonds - first issue in 2010
Secured corporate bonds - first issue in 2011
Unsecured corporate bonds - first issue in 2012
Unsecured corporate bond first-time issued in 2013
Convertible bonds - fifth issue
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- 42 -

2014$

1,440,000
4,200,000
5,785,000
10,900,000
5,023,836
27,348,836
9,025,000$ 18,323,836

Related issuance conditions were as follows:
Category

PeriodFive-year secured domestic bonds - issued at par in
January 20102010.1.25-2015.1.25

Five-year secured domestic bonds - issued at par in
February 2010; repayable in February 2013,
February 2014 and February 2015; indicator rateplus 1.5% interest p.a., payable quarterly
Five-year secured domestic bonds - issued at par in
February 2010; repayable in February 2013,
February 2014 and February 2015; indicator rateplus 1.5% interest p.a., payable quarterly
Five-year secured domestic bonds - issued at par in
May 2011; repayable in May 2014, May 2015 andMay 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 andMay 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 andMay 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 andMay 2016; 1.35% interest p.a., payable annually
Five-year secured domestic bonds - issued at par in
January 2012; 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 and2018; 1.6% interest p.a., payable annually
Seven-year private unsecured bonds - issued at par in
January 2013; repayable in January 2019 and2020; 1.85% interest p.a., payable annually
Five-year convertible bonds - issued at discount in
December 2013; repayable in lump sum uponmaturity; 1.8245% discount rate p.a.

2010.2.1-2015.2.1

Conditions

Rate (%)

Principal repayable in January and February
2013, 2014 and 2015; indicator rate plus
1.5% interest p.a., payable quarterly
Principal repayable in January and February
2013, 2014 and 2015; indicator rate plus
1.5% interest p.a., payable quarterly

Indicator rateplus 1.50

2010.2.8-2015.2.8

Principal repayable in January and February
2013, 2014 and 2015; indicator rate plus
1.5% interest p.a., payable quarterly

Indicator rateplus 1.50

2011.5.20-2016.5.20

Principal repayable in May of 2014, 2015 and2016; indicator rate; payable annually

1.35

2011.5.20-2016.5.20

Principal repayable in May of 2014, 2015 and2016; indicator rate; payable annually

1.35

2011.5.20-2016.5.20

Principal repayable in May of 2014, 2015 and2016; indicator rate; payable annually

1.35

2011.5.20-2016.5.20

Principal repayable in May of 2014, 2015 and2016; indicator rate; payable annually

1.35

2012.1.10-2015.1.10

Principal repayable in January 2015; indicatorrate; payable semi-annually

2.00

2013.1.17-2018.1.17

Principal repayable in January of 2017 and2018; indicator rate; payable annually

1.60

2013.1.17-2020.1.17

Principal repayable in January of 2019 and2020; indicator rate; payable annually

1.85

2013.12.26-2018.12.26

Unless bonds are converted to capital stock orredeemed, principal repayable one time in
December 2018; 1.8245% discount rate p.a

Indicator rateplus 1.50-

The indicator rate mentioned above is the 90 days’ commercial paper rates in Taiwan’s secondary market.
In January 2012, the Company made a first issue of 2012 private unsecured bonds with aggregate facevalue of $5,785,000 thousand. The investors included these affiliates: Taoyuan International Airport
Services, Mandarin Airlines and Abacus Distribution Systems (Taiwan) held $440,000 thousand of its facevalue in aggregate and would be written off in the consolidation financial report. Private unsecured bonds
were all expired and paid off in January 2015.
The Company made the fifth issue of unsecured convertible bonds, and the issue conditions are 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 inmarket 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.
- 43 -

The convertible bonds contain both liability and equity components. The equity component was presented
in equity under the heading of capital surplus - options. The effective interest rate for the liability
component was 1.8245% per annum on initial recognition.
Proceeds from issue
Equity component$ 6,000,000(518,621)

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

20. CAPITAL LEASE OBLIGATIONS
a. Sale-leaseback - finance lease
December 31
2015

2014

Not later than one year
Later than one year and not 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

Current
Noncurrent$ 1,428,467
5,079,133$ 2,727,933
6,945,200$ 6,507,600$ 9,673,133

1.1828%1.5667%

1.287%1.667%

Minimum lease payments - aircraftInterest rate

As of December 31, 2015, the Company has leased engines and A330-300, A340-300, B747-400 total 5
aircraft by sale-leaseback under finance leases. The lease terms are from June 2006 to April 2019.
During the lease term, the Company retained all risks and rewards attached to aircraft and engines, andenjoyed the same substantive right prior to the transaction. Interest rate underlying all obligation
under finance leases were floated. Therefore, the minimum lease payments under sale-leaseback
aircraft contract are not inclusive of interest expense.
b. Operating lease (including sale lease back - operating lease)
The Company rented planes head quarter and hangars under various operating lease contracts expiring
on various dates until November 2026. The Company does not have a bargain purchase option toacquire the leased planes and hangar at the expiration of the lease periods.
The rental rates stated in the aircraft lease agreements are fixed or floated. If the agreed-upon rental
rate is floating and will be revised monthly or semiannually. Subleasing is not allowed for all thelease arrangements. As of December 31, 2015, the Company has rented eleven A330-300 aircrafts,
eight B737-800 aircrafts and eight 777-300 ER aircrafts under operating contracts; the lease terms range
from 8 to 12 years, with an extension option.
As of December 31, 2015 and 2014, the refundable deposits paid by the Company under operating lease
contracts were $329,155 thousand and $544,694 thousand, respectively. Part of the refundable
deposits is secured by credit guarantees. The credit guarantees were $1,213,309 thousand and$528,196 thousand, respectively.
- 44 -

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

$

2014

8,571,767
31,781,215
32,297,131$ 72,650,113$

5,288,346
20,303,770
18,723,586$ 44,315,702

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$ 7,210,055$ 4,019,389

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

1,879,615
1,792,920
871,757
255,933
3,045,476
702,261
450,492
1,723,598$

3,529,688
1,021,534
836,870
347,145857,268
667,196607,366
1,741,451$ 10,722,052$

9,608,518

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

Current
Noncurrent- 45 -

2,610,666
11,204,391

2014$

2,501,231
9,791,588$ 13,815,057$ 12,292,819$ 11,951,128
1,863,929$ 10,487,504
1,805,315$ 13,815,057$ 12,292,819

23. PROVISIONS
December 31

Operating lease - aircraft

2015

2014

$ 5,033,257$ 3,416,601

The Company rented flight equipment under operating lease agreements. Under the contracts, when the
Company returns aircraft to the lessor, the flight equipment have to be repaired on the basis of operating
years and flight hours, flight cycle and the engine revolution times; for these contracts, the Company
recognizes a provision after entering into the lease contracts or during the lease term.
Aircraft Lease
Contract
Balance at January 1, 2014
Additional provisions recognizedUsage$ 2,591,678
1,217,163(392,240)

Balance at December 31, 2014

$ 3,416,601

Balance at January 1, 2015
Additional provisions recognizedUsage$ 3,416,601
1,620,216(3,560)

Balance at December 31, 2015

$ 5,033,257

24. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The Company adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, an entity makes monthly contributions toemployees’ individual pension accounts at 6% of monthly salaries and wages.
b. Defined benefit plans
The Company adopted the defined benefit plan under the Labor Standards Law, under which pension
benefits are calculated on the basis of the length of service and average monthly salaries of the six
months before retirement. The Company contribute amounts equal to 6%-9.5% of total monthly
salaries and wages to a pension fund administered by the pension fund monitoring committee.
Pension contributions are deposited in the Bank of Taiwan in the committee’s name.
Before the end of each year, the Company 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 toretirement requirements in the next year, the Company 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 Company has no right toinfluence the investment policy and strategy.

- 46 -

The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as
follows:
December 31
2015

2014

Present value of defined benefit obligation
Fair value of plan assets$ 10,769,419(1,803,890)$ 10,523,038(1,852,469)

Net defined benefit liability$$

8,965,529

8,670,569

Movements in net defined benefit liability 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 loss - changes in financial
assumptions
Actuarial gain - experience adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid
Balance 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 loss - changes in financial
assumptions
Actuarial gain loss - experience
adjustments
Recognized in other comprehensive income
Contributions from the employer
Benefits paid

$ 11,390,715$ (2,511,360)$

342,520
208,019
550,539(46,506)(46,506)

342,520
161,513504,033-(10,246)(10,246)

233,264(322,658)(89,394)(1,328,822)
10,523,038(10,246)(462,258)
1,177,901(1,852,469)

233,264(322,658)(99,640)(462,258)(150,921)
8,670,569

301,607
177,835
479,442(28,564)(28,564)

301,607149,271
450,878-(25,230)(25,230)

94,375-94,375472,546
566,921(799,982)(25,230)(582,644)
685,017472,546
541,691(582,644)(114,965)

Balance at December 31, 2015

$ 10,769,419$ (1,803,890)- 47 -$

8,879,355

8,965,529

Through the defined benefit plans under the Labor Standards Law, the Company 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. Based on relevant regulations, the return generated by plan assets should
not be below the interest rate for a two-year time deposit with local banks.
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. Thus, an increase in the salaries of the plan participants will
increase the present value of the defined benefit obligations.
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
Expected rate of salary increase

2015

2014

1.11%
1.00%

1.68%
1.50%

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

Discount rate
0.5% increase
0.5% decrease
Expected rate of salary increase
0.5% increase
0.5% decrease

2015

2014

$ (475,494)$ 515,961$ (466,132)$ 505,803$ 495,727$ (465,377)$ 495,885$ (456,214)

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

$ 583,456$ 460,500

The average duration of the defined benefit obligation

9.9 years

9.7 years- 48 -

25. EQUITY
a. Share capital
Common shares
December 31

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

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 amounting to $2,713,900 thousand
convertible bonds holders apply for conversion, and the capital shares exchanged 221,724 thousand andentitled to change registration after issuing new shares.
On March 27, 2015 the Company’s board of directors approved the issuance of 700,000 thousand
shares. After the registration of this issuance with the authorities, prevailing stock market conditions
indicated that stock issuance would not be favorable for the Company. In consideration of the overall
interests of the Company, the board decide to cancel this share issuance.
b. Capital surplus
December 31
2015
Issue 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 (additional paid-in capital from issuance ofcommon shares and treasury stock transactions) and donations may be used to offset a deficit; inaddition, when the Company has no deficit, such capital surplus may be distributed as cash dividends ortransferred to capital (limited to a certain percentage of the Company’s paid-in capital and once a year).
The capital surplus from long-term investments and employee stock options expired may not be used
for any purpose. Besides, capital surplus from conversion of employee stock and convertible bonds
payable may not be used for any purpose.
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.

- 49 -

All earnings appropriations should be made and approved by the stockholders in, and given effect to in
the financial statements of, the year following the year of earnings generation.
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 on
and are 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 the actual appropriations,please refer to f. employee benefits expense in Note 26.
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. Therefore, the remaining amount of accumulated
deficit was $3,864,876 thousand. The Company offset the accumulated deficit against before
compensation legal reserve of $1,511,953 thousand. No bonus to employees was appropriated for2014 because of a net loss in that year.
The appropriations of earnings for 2015 had been proposed by the Company’s board of directors on
March 25, 2016. The appropriations and dividends per share were as follows:
Appropriationof Earnings
Legal reserve
Special reserve
Cash dividends$

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.

- 50 -

d. Other equity items
The movement of other equity items is as follows:
Exchange
Unrealized
Differences on Gain (Loss) on
Translating
Available-forForeign
sale Financial
Operations
AssetsCash Flow
Hedge

Balance at January 1, 2014
Exchange differences arising ontranslating the foreign
operations
Unrealized gain on
available-for-sale financial
assetsCash flow hedge on change infair value
Cumulative loss arising onchanges in fair value ofhedging instruments
reclassified to profit or loss
Share of associates accounted
for using the equity method
Effect of income tax$$

Balance at December 31, 2014$

99,852

Balance at January 1, 2015
Exchange differences arising ontranslating the foreign
operations
Cash flow hedge on change infair value
Cumulative loss arising onchanges 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

Balance at December 31, 2015

$

1,843

$

(11,486)

96,579Total$

86,936

109,512--

109,512-

16,523-

16,523--(2,934,947)(2,934,947)--

397,424

397,424

8,571(20,074)

1,787(2,809)431,379

10,358408,496$

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

$

4,015

$ (2,009,565)$ (1,905,698)

67,886--67,886--(403,323)(403,323)--

2,556,615

2,556,615(473)(9,306)(2,260)-(3,664)(366,060)(6,397)(375,366)

157,959- 51 -

$

1,755

$

(225,997)$(66,283)

e. Treasury stock(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Stock

Reduction
Duringthe Year(Note)

Number of
Shares,Endof YearFor the year 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

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

The Company’s shares held by its subsidiaries as the ended of the reporting periods were as follows:

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 acquired the Company’s stock in previous years was based on investment planning.
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 the right to subscribe for theCompany’s new shares and the right to vote.

26. NET INCOME
a. Revenue
For the Year Ended December 31
2015
2014
Passenger
Cargo
Others- 52 -$ 87,908,718
39,916,992
5,616,015$ 90,984,009
43,176,442
5,565,717$ 133,441,725$ 139,726,168

b. Other income
For the Year Ended December 31
2015
2014
Interest income
Subsidy income
Dividend income
Others$367,360
184,5121,883,826
514,067$

353,002
194,671
24,847346,101$ 2,949,765$

918,621c. Other 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
Litigation settlement
Gain or loss on foreign exchange, net
Impairment loss on assets held for saleImpairment loss on flight equipment
Others$13,137150,714248,626(1,899,372)(569,000)(844,204)$ (2,900,099)$

52,277
77,668(1,212,121)(83,129)(548,694)$ (1,713,999)

The Company and other leading global carriers were named as defendants in a civil class action by
global airfreight forwarders, who alleged that the fuel surcharges levied on the shipments to and fromthe United States between 2000 and 2006 were in violation of US Antitrust Laws. On May 6, 2014,
the board of directors approved a resolution to make a settlement payment of US$90,000 thousand in
three annual installments starting in 2014; of this amount, US$50,000 thousand was recognized in thefinancial report for the year of 2013, the remaining balance was recognized as non-operating loss in2014.
d. Finance costs
For the Year Ended December 31
2015
2014
Interest on bonds payable
Interest on bank loans
Interest on obligations under finance leases
Loss arising on derivatives as designated hedging instruments incash flow hedge accounting relationship reclassified fromequity to profit or loss

- 53 -$

292,242
1,280,181
132,409$548,687
1,247,095
162,084

7,151

7,428

$ 1,711,983$ 1,965,294

Information about capitalized interest is as follows:
For the Year Ended December 31
2015
2014
Capitalized interest
Capitalization rate

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

e. Depreciation and amortization
For the Year Ended December 31
2015
2014
Property, plant and equipment
Intangible assets

An analysis of deprecation by function
Operating costs
Operating expenses

An analysis of amortization by function
Operating expenses$ 16,266,952
60,044$ 16,588,695
47,013$ 16,326,996$ 16,635,708$ 15,991,635
275,317$ 16,249,887
338,808$ 16,266,952$ 16,588,695$$

60,04447,013f. Employee benefit expense
For the Year Ended December 31
2015
2014
Post-employment benefits
Defined contribution plans
Defined benefit plans

Other employee benefits
Salary expenses
Labor and health insurance
Personnel service expenses

An analysis of employee benefit expense by function
Operating costs
Operating expenses$

272,662
450,878$

245,836
504,033$

723,540$

749,869$ 14,186,351
1,052,067
3,154,803$ 11,188,769
1,037,000
1,888,383$ 18,393,221$ 14,114,152$ 15,375,171
3,741,590$ 11,837,714
3,026,307$ 19,116,761$ 14,864,021

The existing Articles of Incorporation of the Company stipulate to distribute bonus to employees at therates 3% of distributable earnings (net of tax). No bonus to employees was estimated for 2014
because of a net loss in that year.

- 54 -

To be in compliance with the Company Act as amended in May 2015, the board of directors inproposed in November 2015 amendments to the Company’s Articles of Incorporation. Under theseamendments, the Company will distribute employees’ compensation at rates of no less than 3% of net
profit before income tax and employees’ compensation. For the year ended December 31, 2015,
employees’ compensation of $1,810,196 thousand was approved based on the certain rate of net profit.
The employees’ compensation in cash for the year ended December 31, 2015, which was approved by
the Company’s board of directors on January 15, 2016, is subject to the shareholders’ approval of theamendments to the Company’s Articles of Incorporation in their June 24, 2016 meeting, during which areport of the employees’ compensation will be reported.
Material differences between such estimated amounts and the amounts proposed by the board of
directors on or before the date the annual financial statements are authorized for issue are adjusted in
the year the bonus and remuneration were recognized. If there is a change in the proposed amounts
after the annual financial statements were authorized for issue, the differences are recorded as a changein accounting estimate.
Information on the employees’ compensation resolved by the Company’s board of directors in 2016 andbonus to employees, resolved by the shareholders’ meeting in 2015 and 2014 are available on theMarket Observation Post System website of the Taiwan Stock Exchange.

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

57,3781,983$

1,014,747

Income tax expense recognized in profit or loss

$ 1,074,108

50,615(8,835)756,718$

798,498

A reconciliation of accounting profit and income tax expense is as follows:
For the Year Ended December 31
2015
2014
Profit before tax$ 6,837,822$

49,425

Income tax expense calculated at the statutory rate (17%)
Add (deduct) tax effects of:Nondeductible expenses in determining taxable income
Temporary differences
Tax-exempt income
Loss carryforwards - current used
Overseas income tax expense$ 1,162,430

$

8,402

- 55 -

11,716478,850(87,683)(1,565,313)
57,37818,603
69,632(96,637)
50,615(Continued)

For the Year Ended December 31
2015
2014
Deferred tax
Temporary differences
Unrecognized loss carryforwards and investment tax credits
Adjustments for prior years’ tax$ 1,048,747(34,000)
1,983$

501,718
255,000(8,835)

Income tax expense recognized in profit or loss

$ 1,074,108$

798,498(Concluded)b. Income tax recognized in other comprehensive income
For the Year Ended December 31
2015
2014
Deferred tax
Recognized in other comprehensive income
Translation of foreign operations
Fair value changes of available-for-sale financial assets
Fair value changes of hedging instruments for cash flow
hedgesActuarial gain or loss on defined benefit plan$

Total income tax recognized in other comprehensive income(9,306)-$ (20,074)(2,809)(366,060)
92,088431,379(16,939)$ (283,278)$ 391,557

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

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive Income$ 1,475,338
432,196
580,822$$

Deferred tax assets
Temporary differences
Defined benefit plan
Dynasty flyer program
Maintenance reserve
Allowance for reduction of
inventory
OthersLoss carryforwards(41,944)
20,753274,831

92,088-$ 1,525,482
452,949855,653(366,082)-

172,901
849,476
2,834,341$ 6,690,802

148,436
1,038,650
4,380,524

24,465
176,908(1,546,183)$ 8,055,966$ (1,091,170)$(273,994)

$

$

$

-

Deferred tax liabilities
Temporary differences
Unrealized foreign exchange
gain
Depreciation difference fromfixed assets
Others78,125
126,488
34,977$

239,590- 56 -(78,125)(1,480)3,182$(76,423)

$

9,284
$

9,284

125,008
47,443$

172,451

For the year ended December 31, 2014

Beginning
Balance

Recognized in
Profit or Loss

Recognized in
Other
Comprehensive Income$ 1,509,490
448,617$$

EndingBalance

Deferred tax assets
Temporary differences
Defined benefit plan
Dynasty flyer program
Depreciation of significant
components
Maintenance reserve
Depreciation of major sparepart depreciation
Allowance for reduction of
inventory
OthersLoss carryforwards(17,275)(16,421)(16,877)-$ 1,475,338
432,196

1,058,025
440,585(1,058,025)
140,237-

580,822

114,947(114,947)--

327,711500,134
4,242,162(179,275)
129,328
138,362

409,188-

148,436
1,038,650
4,380,524$ 8,055,966$ 8,641,671$(978,016)$

392,311$$(156,272)$-

Deferred tax liabilities
Temporary differences
Unrealized foreign exchange
gain
Depreciation difference fromfixed assets
Others234,397
127,862
97,875$

460,134(1,374)(63,590)$$

78,125692(221,236)$

692

126,488
34,977$

239,590

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

2014

Loss carryforwards
Expiry in 2019

$ 4,500,000$ 4,700,000

Investment credits
Automated equipment

$

$

-

40,542d. Unused tax loss carryforwards as of December 31, 2015 were as follows:
UnusedAmountExpiry Year
2019
2021
2022

$ 17,674,629
2,899,496
598,471$ 21,172,596- 57 -

e. Integrated income tax
December 31

Imputation credit accounts

2015

2014

$ 539,835$ 385,435

Expected creditable tax ratios in 2015 is 18.79%, the Company had accumulated deficit as of December
31, 2014; thus, there were no expected creditable tax ratios.
Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputationcredits allocated to ROC resident stockholders of the Company was calculated based on the creditableratio as of the date of dividend distribution.
f. The income tax returns of the Company through 2013 have been examined by the tax authorities.

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

$
$

1.06
1.00

$ (0.14)$ (0.14)

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

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
Weighted average number of ordinary shares used in thecomputation of diluted earnings per share$ 5,763,714$(749,073)

47,716-$ 5,811,430$ (749,073)
For the Year Ended December 31
2015
2014

5,432,728

5,199,401

255,186
150,850-

5,838,764

5,199,401

If the Company offered to settle compensation or bonuses paid to employees in cash or shares, theCompany assumed the entire amount of the compensation or bonus would be settled in shares and theresulting 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.

- 58 -

29. CAPITAL MANAGEMENTThe Company manages its capital to ensure that entities in the Company 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 Company consists of net debt (borrowings offset by cash and cash
equivalents) and equity of the Company comprising issued capital, reserves, retained earnings, other equity
and non-controlling interests.
To support its operating activities and purchase of aircraft, the Company needs to maintain sufficient
capital. Therefore, the goal of capital management is to ensure financial resources and operating plan isable to support the future working capital, capital expenditures, debt repayment and dividend expenses andother needs.

30. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
1) Fair value of financial instruments not carried at fair value
December 31
2015

2014

Carrying
AmountFair Value

Carrying
AmountFair Value$ 15,844,106
83,532,457$ 16,459,680
83,693,104$ 27,348,836
83,375,375$ 28,381,058
83,505,438

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. The fair values of long-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% in 2015 and 0.436% in 2014 prevailing in the market for long-term debts (Level 2). Fairvalues of bond payable trading in OTC and based on quoted market prices (Level 1).
December 31, 2015
Level 1
Financial assets at FVTPL
Derivative instrument
Beneficial certificates

Derivative financial assets forhedging
Derivative financial liabilities forhedging$

Level 2

Level 3

Total

100,029$

65,528-$-$$ 100,029$

65,528$-$ 165,557$-$

44,222$

12,738$-$12,702$ 300,501- 59 -$

65,528100,029

56,960$ 313,203

December 31, 2014
Level 1
Financial assets at FVTPL
Derivative instrument
Derivative financial assets forhedging
Derivative financial liabilities forhedging

Level 2

Level 3

Total

$

-

$

46,812$-$

46,812

$

-

$

727

$

42,850$43,577

$

-

$

5,150

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

There were no transfers between Level 2 and 3 in the current and prior periods.
2) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value
measurement
Financial Instruments

Valuation Techniques and Inputs

Derivatives - foreign exchange
forward contracts andinterest rate swaps

Discounted cash flow. Future cash flows are estimated basedon observable forward exchange rates at the end of thereporting period and contract forward rates, discounted at a
rate that reflects the credit risk of various counterparties.

3) 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 historical volatility. An increase in the historicalvolatility used in isolation would result in an decrease in the fair value of foreign exchanges andfuel options.
Because some financial instruments and non financial instruments are not required to disclose theirfair value, the total fair value shown in this note can not represents total value of the Company.
b. Categories of financial instruments
December 31
2015

2014

Financial assets
Financial assets at FVTPL
Available-for-sale financial assets (3)Derivative financial assets for hedging
Loans and receivables (1)$165,557
126,125
56,96027,834,830$

46,812
371,367
43,57727,358,789$ 28,183,472$ 27,820,545$$

Financial liabilities
Derivative financial liabilities for hedging
Financial liabilities at amortized cost (2)313,203
119,588,050$ 119,901,253- 60 -

2,465,150
127,207,000$ 129,672,150

1) The balances included loans and receivables measured at amortized cost, which comprise cash andcash equivalents, notes and accounts receivables, accounts receivable - related parties, otherreceivables, refundable deposits, other financial asset and other restricted financial asset.
2) The balances included financial liabilities measured at amortized cost, which comprise short-termloans, short-term notes payable, notes and accounts payables, accounts payable - related parties,
other payable, bonds payable and long-term loans, capital lease obligation, part of other current
liabilities, part of other noncurrent liability and guarantee deposit.
3) Including the Financial assets measured at cost.
c. Financial risk management objectives and policies
The Company has risk management and hedging strategies to respond to changes in the economic,
financial environment and in the fuel market. To reduce the financial risks from changes in interest,
exchange rates and fuel prices, the Company 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 Company
stockholders to reduce the impact of changes in market price 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 Company has a risk management committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging portion. This committee
informs the Company 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 Company is primarily exposed to the financial risks of changes in foreign currency exchange
rates and interest rates. The Company entered into derivative financial instruments to manage its
exposure to foreign currency risk and interest rate risk.
The Company 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 Company 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 Company is mainly exposed to the U.S. dollar.
The following details the Company’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
risk internally 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.
- 61 -

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 $127,516 thousand anddecrease in pre-tax profit in 2014 $123,024 thousand, respectively.
b) Interest rate risk
The Company enters into interest swap contracts to hedge against the risks on change in net
liabilities interest rates.
The risk is managed by the Company by maintaining an appropriate mix of fixed and floating
rate borrowings, and using interest rate swap contracts and forward interest rate contracts.
The carrying amount of the Company’s financial liabilities with exposure to interest rates at theend of the reporting period were as follows.
December 31

Fair value interest rate risk
Cash flow interest rate risk

2015

2014

$ 16,540,596
89,343,567$ 33,174,970
93,380,512

Sensitivity analysis
The sensitivity analyses below were determined based on the Company’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.
Had interest rates increased 100 basis points and had all other variables been held constant, theCompany’s pretax profit for the year ended December 31, 2015 would have decreased by$641,000 thousand.
Had interest rates increase 100 basis points and had all other variables been held constant, theCompany’s pretax profit for the year ended December 31, 2014 would have decreased by$645,000 thousand.
c) Other price risk
The Company is exposed to fuel price risk on its purchase of aviation fuel. The Company
enters into fuel option 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.

- 62 -

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%

$

9,799
(9,799)$ (32,769)(106,002)$

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 Company. The Company’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 Company has established procedures to management operations related credit risk to maintainthe quality of accounts receivable.
To assess individual customers, the Company consider into the financial condition of the customers,
the credit rating agency rating, the Company’s internal credit rating, transaction history and current
economic conditions and many other factors that may affect the repayment. Sometimes, theCompany 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 Company’s finance department. The Company’s trading partners and other parties
were well-performing banks and financial institutions, corporations, and government agencies, therisk of Counterparties fail to discharge an obligation is low, therefore there is no significant credit
risk.
Endorsement given by parent on behalf of subsidiaries please refer to Note 31,c.
3) Liquidity risk
The objective of the Company’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 Company has adequate financial flexibility.
Liquidity and interest risk rate tables
The following table shows the remaining contractual maturity analysis of the Company’s financial
liabilities with agreed-upon repayment periods, which were based on the date the Company may berequired to pay the first repayment and financial liabilities is evaluated based on undiscounted cash
flows, including cash flows of interest and principal.
- 63 -

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 Company’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$$357,118

1,071,350

1-2 Years$

2-5 Years

1,517,133$

5+ Years

3,562,000$-

1.2233

6,893,834

22,306,473

33,457,662

19,898,375

260,688

0.0334

113,811

341,433

241,246--

1.3798110,660-

197,880
4,944,106

4,664-

10,900,000-

7,475,423$ 28,861,242$ 35,220,705$ 34,360,375

1-3 Months

3 Months to
1 Year

1-2 Years

2-5 Years$

525,733$ 2,202,200$ 1,602,933$ 5,342,267

1.4627

3,292,800

10,116,038

27,428,713

41,318,518

83,333

4.374

109,489

328,467

437,956

232,084-

1.37182,504
7,225,000

21,879-394
1,800,000

405
15,923,836-$ 11,155,526$ 12,668,584$ 31,269,996$ 62,817,110$$

260,688

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

5+ Years$$-

83,333

Loan commitments
December 31

Disposal unsecured bank loan limit- 64 -

2015

2014$ 22,172,000$ 18,202,000

31. RELATED-PARTY TRANSACTIONS
Details of transactions between the Company 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$ 3,449,074$
13,950$34,835Purchases of Goods
For the Year Ended
December 31
2015
2014

$ 2,300,506$
16,558$28,605$ 3,568,025$ 1,531,649$
78,374$ 3,419,013$ 1,439,844$
60,913

The amount of accounts receivable - related parties at reporting dates were as follows:
December 31

Associates
Jointly controlled entities
Major stockholder

2015

2014

$ 542,449
599
3,093

$ 490,497
1,749
4,626

$ 546,141$ 496,872

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

$

2014

952,166
388,371
7,138$ 1,071,774
365,493
4,699$ 1,347,675$ 1,441,966

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)
The Company rented out planes to Mandarin Airlines under an operating lease contract. The monthly
rent received is based on flight hours. In 2015 and 2014, the rentals received amounted $1,388,499
thousand and $1,399,962 thousand, respectively.
For fleet scheduling, the Company rented planes from Mandarin Airlines under an operating leaseagreement beginning from July 2003. The Company paid the rental by flight hours. The payment offlight rentals were $205,604 thousand in 2015 and $246,377 thousand in 2014, respectively.
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 based on
usage hours. In 2015 and 2014, the Company had paid rentals of about $78,374 thousand and $60,913
thousand, respectively.

- 65 -

In March 2010, the Company signed with CAL Park a one-year renewable operating lease agreement to
use the Operating and Aviation Headquarters building of the Taiwan Taoyuan International Airport at a
fixed rental of $18,101 thousand monthly. In 2015 and 2014, the Company paid rentals of $217,210
thousand each.
c. Endorsements and guarantees
December 31
2015

2014

Authorized
AmountActualAmountUsed

Authorized
AmountActualAmountUsed$ 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. Bonds payable - related parties
Related parties that invested in the first issue of private unsecured bonds in 2012 (Note 19) aresummarized as follows:
December 31, 2014
Aggregate
Units
Par/Dollars

Related Party
The first issue of private unsecured bonds in 2012
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)

100
280
60

$ 100,000
280,000
60,000In 2015 and 2014, interest expenses are $0 thousand and $8,776 thousand, respectively. This bonds
payable was paid off in January 2015. As of December 31, 2014 the interests payable were $4,195
thousand.
e. Compensation of key management personnel
For the Year Ended December 31
2015
2014
Short-term employee benefits
Post-employment benefits$ 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.

- 66 -

32. 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
US treasury bills

2015

2014

$ 88,609,505$ 102,792,761

236,634

279,497$ 88,846,139$ 103,072,258

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

33. COMMITMENTS AND CONTINGENT LIABILITIESAs of December 31, 2015, the Company had commitments and contingent liabilities, 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 aircrafts are from 2016
to 2018.
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
and the option to buy six more planes, at aggregate purchase prices of US$2,067,261 thousand andUS$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 the confirm orders for six
aircrafts to the aircraft leasing Group (SKYHIGH XXXVII Leasing Company Limited) then leasing theaircrafts back. As of December 31, 2015, the Company had received 4 aircrafts 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 March
2016.

- 67 -

d. The Company has been named as a defendant, together with other airline members of the Associationof Asia 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.
e. The Company has reached a settlement with class plaintiffs of “Air Cargo Antitrust Class Action” by
US$9,000 thousand. One of class plaintiffs - DHL Global Forwarding (DHL) et al. has opted out fromclass plaintiffs. In early 2015, DHL has filed civil lawsuit against the Company. The Company alreadyappointed lawyer to duly react.

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

Carrying
AmountExchange Rate

Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

283,326
15,820229,643
1,472,009
1,713,347

32.8947
35.97124.24450.2731
5.0659113,609
8,332
76,421
4,515,925
121,287

32.8947
35.97124.24450.2731
5.0659$9,319,930
569,057
974,720
402,006
8,679,643

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

3,737,148
299,726
324,371
1,233,299
614,428

December 31, 2014
Foreign
Currencies

Carrying
AmountExchange Rate

Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB

$

- 68 -

192,053
17,824317,204
1,267,381
1,662,290

31.5433
38.12444.07420.26485.0739$6,069,658
683,842
1,292,353
335,6028,434,956(Continued)

Foreign
Currencies

Exchange Rate

Carrying
AmountFinancial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

$

373,256
4,958
70,103
4,495,581
122,666

31.5433
38.12444.07420.26485.0739$ 11,796,374
190,215
285,613
1,190,430
622,446(Concluded)

For the years ended December 31, 2015 and 2014, net foreign exchange gains (losses) were $248,626
thousand and $(83,129) 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.

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

None.

2) Endorsement/guarantee provided: Table 1 (attached).
3) Marketable securities held: Table 2 (attached).
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 8.
b. Investment in Mainland China: Table 6 (attached).

- 69 -

36. SEGMENT INFORMATIONThe Company mainly engages in air transportation services for passengers, cargo and others. The major
revenue-generating asset is the fleet, which is jointly used for passenger and cargo services. Thus, theCompany’s sole reportable segment is the flight segment. For operating segment reporting in the financial
statements, the Company’s reportable segment comprises the flight and the non-flight businessdepartments.

- 70 -TABLE 1

CHINA AIRLINES, LTD. AND INVESTEESENDORSEMENT/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.

- 71 -

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 INVESTEESMARKETABLE SECURITIES HELDDECEMBER 31, 2015
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

Marketable Security Type and Issuer/Name

China Airlines (“Parent company”) Stock
Everest Investment Holdings Ltd. - common stockEverest Investment Holdings Ltd. - preferred stock
Chung Hua Express Co.
Jardine Air Terminal Services
Regal International Advertising
Beneficial certificates
FSITC Taiwan Money Market Fund

Mandarin Airlines

Cal-Asia Investment

Abacus Distribution Systems(Taiwan)

Stock
China Airlines

Relationship with
the Holding
Company

December 31, 2015
Financial Statement AccountShares/Units

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-

Carrying Value-

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-

Financial assets at fair value through profit orloss - current

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-

Parent company

Beneficial 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

$

Note

(Continued)- 72 -

Holding Company Name

Taiwan Airport Services

Hwa Hsia

Hwa SinMarketable Security 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)- 73 -TABLE 3

CHINA AIRLINES, LTD. AND INVESTEESTOTAL 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

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

- 74 -

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 INVESTEESRECEIVABLES 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)

Company Name

Related Party

Nature of Relationship

OverdueEnding Balance(Note)

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

AmountAllowance for
Bad Debts--$ 326,977

1.01

-

-

219,556-

370,608

3.98

-

-

253,723-

309,627

3.64

-

-

308,227-

Note: Transactions with subsidiaries have been written off in consolidated financial report.

- 75 -$

Action Taken

Amounts Received
in Subsequent
Period$-TABLE 5

CHINA AIRLINES, LTD. AND INVESTEESNAMES, 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.

- 76 -TABLE 6

CHINA AIRLINES, LTD. AND INVESTEESINVESTMENTS 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 Amount
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)- 77 -

Taiwan Airport Services

Investee Company

Main Business andProduct

Accumulated
Outward
Remittance for
Method ofPaid-in Capital
Investment
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)- 78 -