stock code - eva air per employee thousand 1,896 1,941 -2.3% ... deliver a stellar performance. ......

Stock Code:

1

Financial and Operating Highlights 2

To Shareholders 3

2006 in Review 3

2007 Preview 8

Future Core Strategies 11

Competition, Changing Regulations and Macro Economy 12

The Company 14

Major Milestones 14

Calendar of 2006 Events 17

Directors and Supervisors 18

Principal Officers 28

Capital and Shares 37

EVA Air People 43

The Fleet 45

The Market 46

The Network 52

Principal Subsidiaries 53

Important Resolutions by Shareholders and BOD 54

Financial and Operating Results 56

Financial Results 56

Operating Results 63

Financial Statements 65

Independent Auditors' Report 65

Balance Sheets 67

Statements of Operations 68

Statements of Changes in Stockholders' Equity 69

Statements of Cash Flows 70

Notes to Financial Statements 72

Consolidated Balance Sheets 124

Consolidated Statements of Operations 125

Consolidated Statements of Changes in Stockholders' Equity 126

Consolidated Statements of Cash Flows 127

2

Financial and Operating Highlights

2006 2005 % ChangeFinancial

Income Statement

Revenue NT$ thousand 93,903,564 88,518,249 6.1%

Passenger Revenue NT$ thousand 46,325,605 42,652,809 8.6%

Cargo Revenue NT$ thousand 41,382,151 39,931,818 3.6%

Total Costs NT$ thousand 97,241,348 87,667,249 10.9%

Operating Profit NT$ thousand (3,337,784) 851,000 -

Net Profit NT$ thousand (1,686,585) 1,326,060 -

EPS NT$ (0.45) 0.39 -

Profit Margin % -3.55% 0.96% -4.51ppt

Balance Sheet

Total Assets NT$ thousand 141,168,129 128,523,279 9.8%

Total Liabilities NT$ thousand 95,027,526 84,547,407 12.4%

Total Equity NT$ thousand 46,140,603 43,975,872 4.9%

Total Capital NT$ thousand 38,749,794 33,898,869 14.3%

Book Value per Share NT$ 11.91 12.97 -8.2%

Debt Ratio % 67.32% 65.78% 1.5ppt

Operating

Overall Capacity Thousand 9,778,493 9,893,897 -1.2%

Overall Traffic Thousand 7,344,465 7,364,227 -0.3%

Overall Load Factor % 75.11% 74.43% 0.7ppt

Overall Yield NT$ 11.94 11.21 6.5%

Passenger Capacity Thousand 30,366,618 29,348,257 3.5%

Passenger Traffic Thousand 24,277,090 23,098,868 5.1%

Passengers Carried No. of Passengers 6,172,267 5,904,419 4.5%

Passenger Load Factor % 79.95% 78.71% 1.2ppt

Passenger Yield NT$ 1.91 1.85 3.2%

Cargo Capacity Thousand 7,045,497 7,252,554 -2.9%

Cargo Traffic Thousand 5,159,527 5,285,329 -2.4%

Cargo Carried Tons 829,952 844,099 -1.7%

Cargo Load Factor % 73.23% 72.88% 0.4ppt

Cargo Yield Nt$ 8.02 7.56 6.1%

Unit Cost Nt$ 9.94 8.86 12.2%

Number of Employees 5,158 5,098 1.2%

Capacity per Employee Thousand 1,896 1,941 -2.3%

Traffic per Employee Thousand 1,424 1,445 -1.4%

Revenue per Employee NT$ thousand 18,205 17,363 4.8%

2006 In Review2006 Operations Review

Overall in 2006, the global aviation

industry was stuck in an operational

dilemma caused by soaring fuel prices

that showed no sign of easing. At the

same time, EVA carried 6.17 million pas-

sengers and 830,000 tons of freight, and

achieved an overall load factor of 75.11%

through proactive marketing strategies

and flexible fleet deployment. Audited

financial results showed total operating

revenues of NT$93.904 billion, up by

6.08% or NT$5.385 billion over 2005.

Although operating revenues reached an

all-time high, they were overshadowed

by the daunting fuel costs. The yearly

loss after income tax was NT$1.687 bil-

lion.

■ Passenger revenue rose by 8.61% or

NT$3.673 bill ion over 2005 to

NT$46.326 billion.

Market demand on European and

American routes remained robust.

Japan's visa-free admission policy

spurred traffic on existing routes and

encouraged service increases. We

launched service from Taipei to Nagoya

on 10 July, 2006 and introduced our sec-

ond Airbus 330-200 EVA Hello Kitty Jet in

October 2006, fanning tourism fever for

Japan. To expand our participation in

3

To Shareholders

the Indian market, we introduced Taipei -

Mumbai (Bombay) passenger service on

10 December, 2006. We also maintained

stable growth on routes to other regions.

Our strategic flight network linking

Europe, Asia and America, combined

with aggressive marketing, enabled us to

deliver a stellar performance.

■ Cargo revenue grew by 3.63% or

NT$1.45 bill ion over 2005 to

NT$41.382 billion.

EVA expanded freight business in

Indochina and upgraded service quality

by initiating code-share arrangements

with Vietnam Airlines on the route from

Hanoi to Ho-Chi-Minh City (Saigon), and

with Far Eastern Air on service from

Taipei to Phnom Penh. We strengthened

our cargo network in Northeast Asia and

added capacity on our Osaka route by

boosting freighter service to four flights a

week, and by code-sharing on other

routes with Air Nippon (ANK). In

Mainland China, EVA expanded code-

sharing cooperation. We also exercised

our flexibility by adjusting existing route,

scrutinizing less-profitable routes and

taking disciplined steps to increase our

operating revenue.

■ Replaced older aircraft with new mod-

els and kept fleet size at 49.

To increase availability of state of the

4

98.8%. The net loss forecast for 2006

before taxes was NT$ 1.173 billion, but

actual results totaled NT$1.687 billion.

Analysis of Financial Results

Total Revenues: NT$ 97.005 billion

Annual operating revenues reached

NT$ 93.904 billion in 2006, up by 6.08%

compared to 2005. Passenger revenue

grew by 8.61% compared to 2005 due to

the robust demand on European and

American routes and the launch of the

second EVA Hello Kitty Jet, which boost-

ed tourism to Japan. Cargo business,

through cooperative service with other

airlines and flexible adjustments in exist-

ing routes, was up by 3.63% compared to

last year. Our 2006 non-operating income

reached NT$ 3.101 bill ion, jumping

49.69% over 2005, and came about pri-

marily through the disposal of investment

gains.

Total Expenses: NT$ 99.269 billion

Total yearly operating expenses in

2006 amounted to NT$ 97.241 billion, an

increase of 10.92% compared to 2005.

The increase was caused by soaring fuel

costs and rising expenses associated with

expanded operations. Non-operating

expenses mounted to NT$ 2.028 billion,

or up by 13.51% compared to last year,

due to higher interest costs.

art and most innovative service features

for further enhancing passenger comfort,

we placed two brand-new Boeing 777-

300ERs in use on our Los Angeles route

in June and November 2006. We added

our 11th Airbus 330-200 passenger jet in

May, and retired the remaining two

Boeing 767-300ER passenger jets. In

April, the lease term ended for one MD-

90 passenger jet. This kept the size of

our passenger fleet at a constant 34 air-

craft. We sold one MD-11 freighter and

the lease agreement ended for another,

reducing our freighter fleet to 15 aircraft.

At the end of 2006, EVA was operating a

fleet of 49 aircraft, detailed in the follow-

ing chart:

Results Compared to Projections

Operating revenue forecast for

2006 was NT$ 95.045 billion, compared

to actual results of NT$ 93.904 billion,

giving us an achievement ratio of

Aircraft Type Quantity

B747-400 6

B747-400 Combi 9

B747-400 Freighter 3

MD-11 Freighter 12

MD-90 4

B777-300ER 4

A330-200 11

Total 49

5

service as early as 24 hours and as late

as three hours before their flight's

scheduled departure. This service is

via EVA's Global Information Network,

and will soon be expanded to Hong

Kong, Macau and Bangkok.

■ In December 2005, we began introduc-

ing a Short Message Service on our

brand-new B777-300ERs and newest

A330-200s. The Short Message Service

in English and Chinese offers passen-

gers a more economical option than

the satellite phone, and provided two-

way communication with family, friends

and colleagues on the ground.

■ EVA has partnered with 12 airlines for

interline e-ticketing services, including

Profitability Analysis

Return on total assets: - 0.16%

Return on shareholders' equity: - 3.74%

Ratio of operating profit to paid-in capi-

tal: - 8.61%

Return on sales: - 1.8%

Loss per share: NT$ 0.45

Research and Development

■ In addition to user-friendly services

such as online pre-flight meal selec-

tion, lost-and-found and seat selection,

EVA introduced online check-in for

passengers departing from Taiwan in

April 2006. After making reservations

and buying tickets, passengers can use

our fast, convenient online check-in

6

SMS helps EVA control over potential

threats with preventive measures that

eliminate factors causing possible safe-

ty concerns. This program strengthens

risk management procedures for the

entire organization and creates a

sound safety-related system.

■ The Line Operation Safety Audit

(LOSA) program, developed and con-

ducted by the University of Texas is

used for snapshot audits. EVA has set

up a Line Observation Program (LOP)

based on the LOSA structure.

Qualified observers, using frontal per-

spectives, are allowed to participate in

each stage of flights on all routes,

including pre-flight briefings, pre-flight

preparations, flying the route, landing,

etc. The observer is asked to thor-

oughly document all activities and to

provide this data to management.

Management then analyzes all the

data using a digitized management

Singapore Airlines, Thai Airways, Air

Canada and British Airways. We have

also strengthened our code-share ties

with leading carriers such as Pacific

Airlines, Qantas and All Nippon to give

our passengers flight services that are

speedy and convenient.

■ We entered the second stage of plat-

form for our évasion packages, giving

passengers greater flexibility in plan-

ning their itineraries. From selecting

seats on a flight to reserving hotel and

renting cars, passengers can tailor their

trip to meet their individual needs and

preferences. We also completed our

new "évasion Management System"

so that all functions of the évasion pro-

gram are standardized and automated.

Internal controls have also been

strengthened so that we can respond

more quickly to passengers and satisfy

their demands.

■ As recommended by ICAO and

required by the Aviation Bureau, EVA

has established Safety Management

Systems (SMS) that fit our organization

and its operational characteristics. The

Safety Work Team, a cross-departmen-

tal unit, and the promotion of the SMS

concept have enabled all departments

to identify hazards and apply risk man-

agement procedures in policy making

and operations. The establishment of

system provides risk appraisal analysis

for every flight so that flight crews have

an up-to-date risk coefficient for a

flight of their assignment. It also gives

management a reference for policy

making and elevates flight safety.

■ EVA completed the automation of

printing process for maintenance work

sheets, merging words and graphs,

selecting colored paper stock for dif-

ferent pages and binding it into a com-

plete package for approval. As part of

the printing process, different colored

papers are selected to visualize for dif-

ferent functions in work-sheet printing.

This reduces human error by enabling

the maintenance crew to easily and

program. Results are used to identify

risks before they advance and immedi-

ately take appropriate corrective

actions. This program strengthens

flight safety.

■ EVA partnered with the U.S. Navy

Meteorological Lab to establish our

Flight Operation Risk Assessment

System (FORAS). This system inte-

grates and systematically analyzes real-

time weather information, flight-crew

experience, airport facilities, aircraft

equipment and other data to provide a

quantified index appraisal. This quanti-

fied index appraisal is used by flight

crews and management for real-time

risk management during flights. The

7

8

cabins of three B747-400 aircraft. With

these improvements, our passengers will

enjoy safer and more comfortable flight

experiences.

EVA Air Traffic Projections

Passenger service

The estimated 2007 passenger count

is 6.27 million, compared to 6.17 million

in 2006, projected to grow by 1.62%.

Estimation basis:

Our 2007 seat capacity will be similar

as it was in 2006 and the market is fore-

casted to grow moderately. EVA will

adopt a far more flexible approach to

meeting market demand by strategically

deploying aircraft on routes in expecta-

tion of continuous growth.

Cargo service

Estimated 2007 cargo volume is

750,000 tons compared to 830,000 tons

in 2006, with 9.64% shrinkage.

quickly determine what needs to be

done based on color. Improved

processes have also helped save time

and reduce the workforce, paring

costs, lifting maintenance quality and

strengthening safety.

■ E-communications have been

improved with a multi-function intranet

system that includes electronic bul-

letins, a new e-mail platform and real-

time messaging, enabling EVA's global

workforce to communicate without

time constrain. The system's powerful

database and searching engine allow

staffs to efficiently store, share and

search for information and documents.

2007 PreviewOperations Guidelines

EVA keeps our long-standing com-

mitment to safety and excellent service.

To advance our service quality, we will

add four new B777-300ERs in 2007 and

upgrade furnishings in the passenger

■ A total of 14 cross-strait chartered

flights will be operated to accommo-

date demand during the Chinese

Lunar New Year holiday, Tomb-sweep-

ing Day, the Dragon-boat Festival and

the Mid-autumn Festival.

■ Starting from June, passenger-cabin

furnishings on three B747-400s will be

upgraded and the renovated aircraft

have been scheduled to serve on

Taipei-Vancouver and Taipei-London

routes.

■ One MD-90 will be added to the fleet

in July. Flights on the Taipei-Hanoi

route will be resumed with five flights

per week. Frequency between Taipei

and Phnom Penh will be raised to 12

Estimation basis:

EVA's cargo capacity will contract

due to retiring and replacing cargo air-

craft, and expiring leases for two MD-11

freighters. Global economic outlook indi-

cates moderate for 2007, but suggests

vigorous growth for Mainland China,

Vietnam and India. EVA is expanding

operations and exploring new opportuni-

ties in Mainland China, Vietnam and

India. Through efficient use of existing

cargo space and cooperative services

with other carriers, our goal is to increase

cargo business.

Key Marketing Strategies

Passenger service

9

10

Company are cooperating on the

Pudong - Hong Kong freighter service.

EVA is also proactively seeking to

extend our reach into China via part-

nerships with other carriers.

■ Beginning on 25 March, EVA is

expanding cooperation with Air

Nippon to enhance freighter services

to Tokyo, Nagoya and Osaka. This

move demonstrates our commitment

to optimizing our cargo service net-

work in Japan. EVA is continuing

efforts to expand the European market

by cooperating with Lufthansa on the

Brussels route. We will also work with

Thai Airways on a cargo space

flights per week.

■ Brand-new B777-300ERs will be intro-

duced and serve all flights on the

Taipei - Los Angeles route.

■ Continue Code-share operations with

American Airlines, Continental Airlines,

Air Canada, Air Nippon, Qantas, Air

India and more.

■ Ad-hoc chartered service to destina-

tions such as Guam and Saipan.

■ In step with relaxing policies, plan to

operate cross-strait chartered service

on specific holidays and weekends.

Cargo service

■ Beginning on 1 March, EVA and

Shanghai Airlines Cargo International

mizing fleet utilization. At the same

time, we will sharpen our competitive

edge by nurturing potential passenger

and cargo markets such as Northeast

Asia, Mainland China and Central Asia,

and by continually monitoring traffic

rights amendments.

■ EVA will add more new-generation,

fuel-saving B777-300ERs and upgrade

cabin furnishings on B747-400s to give

passengers more comfortable and reli-

able services. As remaining B747-400s

are gradually retired, we will modify

the passenger cabins to freighter serv-

ices and optimize our fleet utilization.

Consistency in our ability to provide

safe air transportation and quality serv-

ice, EVA also strengthens management

of controllable costs through enhanc-

ing fleet utilization, upgrading soft-

ware and hardware to maximize oper-

ating profitability.

■ EVA has established alliances with 15

airlines, including American Airlines,

Air Canada, Air Nippon, Qantas,

British Airways (World Cargo),

Lufthansa Cargo and more. In addi-

tion, we are expanding and exploring

cooperative services with other Asian

carriers. By joining networks and form-

ing reciprocal operating environments

with carriers, we can reduce costs and

spread risks, and give all our cus-

exchange on Frankfurt and Los

Angeles routes to reduce operating

costs and extend our cooperation net-

work.

■ Looking carefully at soaring fuel prices,

we have withdrawn two MD-11

freighters from leasing agreements. To

ensure effective cost controls and step

up revenues, we are aiming to meet

cargo market demands by being more

efficient in how we deploy our fleet.

■ In response to relaxing policies, we are

in the process of planning cross-strait

chartered cargo services.

Looking ahead at 2007 and taking a

careful look at the fierce competition

within the aviation industry, EVA will hold

fast to our corporate culture of team-

work, service and innovation as we press

onward in promoting operating efficien-

cies and reducing costs so that we can

better meet the business challenges

ahead of us.

Future Core Strategies■ EVA will stick with Taipei, Taiwan as the

center of our network connecting

major cities in Europe, the Americas

and Asia to continue to provide fre-

quent and convenient flight services.

EVA will meet market demand by

effectively adjusting capacity on routes

of highly profitable markets and opti-

11

transit have minimized the impact. But

China's open-sky policy has led it to

purchase aircraft, build airports and

infrastructure, and open traffic rights to

European and American carriers, in

addition to easing its qualification

requirement on freighters. These

moves have significantly impacted

Taiwan's cargo market.

■ Development of the transportation

infrastructure within Taiwan, e.g., the

east-west highway and the high-speed

rail, is expected to force domestic car-

riers transform to international and

affect the supply and demand balance

within passenger and cargo markets

■ Rapid economic growth in the Asia

Pacific region and aviation deregula-

tion, e.g., Canada's open-sky policy, in

addition to the rapid emergence of

low-cost carriers has increased both

passenger and cargo capacities

between regions and continents.

Whether market demand will grow

with the capacity affects the market

fare.

■ Mainland China, the world's factory, is

encouraging air cargo development.

There has been a surge of newly-

established China-based freighters,

which has created huge cargo capacity

and eroded the profits of the aviation

industry.

tomers fast and convenient services.

■ Electronic Services

•EVA's e-ticketing system has covered

80% of total ticket issuance. Starting

interline electronic ticketing with

Continental Airlines in September 2005,

we have completed e-ticketing partner-

ships with 16 carriers and will continue

seeking these relationships with more.

•E-communications, including electronic

bulletins, documentation have made it

easier and faster to deliver information

promptly and accurately and creates a

working environment with less paper.

•Online seat selection, introduced in

April 2006, makes the process even

easier, giving our passengers better

service, and saving EVA operating time

and costs.

Competition, Changing Regula-tions and Macro EconomyCompetition

■ Low cost carriers have shared part of

market with the allure of their fares and

affected the supply and demand of

short-haul market.

■ Rapid economic growth in Mainland

China and offshore migration of

Taiwanese manufacturing directly

impacts Taiwan's air cargo market. For

now, China's limited air cargo capacity

and heavy reliance on Taiwan for cargo

12

worldwide, leaving the aviation indus-

try to face a potential slide in traveling

demand as well as escalating costs.

■ Global warming has caused climate

changes, resulting in floods, blizzards

and hurricanes, etc. Threats of terrorist

attacks or the outbreak of contagious

diseases could also devastate the air

transport market.

■ The outlook for the global economy is

stable, though the United States is

expected to grow slowly with revived

economies in Europe and Japan

expected to offset its slowing pace.

Mainland China will continue to be a

leading driver for the world economy

and keep its growth momentum at a

projected 10%. Other emerging

economies will continue their strong

growth. In Taiwan, economic growth

for 2007 is expected to surpass 4%.

Balancing influences beyond our

control, EVA Air will proceed with plans

for strategic market expansion, imple-

ment cost controls, cautiously work to

advance liberalized policies and laws,

and practice financial hedging to

enhance our competitiveness.

Changing Regulations

■ Development of the air transport mar-

ket goes hand-in-hand with the politi-

cal and economic stability.

■ Uncertainty over Taiwan's cross-strait

policies related to admission of

Mainland Chinese tourists into Taiwan,

investment in China, sea-to-inland

transit, cargo charter flights, direct

links and relevant bilateral policies,

leave the evaluation of market trend

and demand open to ongoing scrutiny.

■Holding fuel surcharges at levels below

those allowed by foreign governments

creates an unfavorable operating envi-

ronment for Taiwan carriers.

■ Rising consumer consciousness has

caused some related policies to

become burdensome to the aviation

industry, e.g., the penalty code enact-

ed by the European Union that sets

compensation for over-booking.

Macro Economy

■ High fuel prices that show no sign of

letting up have created ripples by way

of slowed economic growth, inflation

and stagnant consumer spending

13

14

cooperation with affiliated carriers to

maximize mutual efficiencies and effec-

tively compete on a global scale. Its

worldwide hub of operations at Taoyuan

International Airport in Taiwan has proven

to be both successful and strategic.

EVA Air listed its stock on Taiwan's

TAISDAQ Market in October 1999, and

moved to the main board, TSE, in

September 2001.

Major Milestones1988~1990

On September 1, 1988 at the celebra-

tion for the 20th birthday of Evergreen

Marine Corporation, Group Chairman Y.

F. Chang announced that Evergreen

would launch an international airline.

EVA Air was officially formed in March

1989. After careful deliberation, the

fledgling airline signed a contract with

Boeing/McDonnell Douglas for 26 aircraft

at a total purchase value of US$3.6 billion,

and immediately captured the attention

of the global airline market.

1991EVA Air accepted delivery of its first

two B767-300ERs in April, and made its

inaugural flight on July 1. Within that first

week, the new airline opened five desti-

nations in Asia -- Bangkok, Seoul, Jakarta,

Kuala Lumpur and Singapore.

1992The comprehensive EVA Training

Center opened in July, and the carrier's

first two all-passenger B747-400s were

EVA Air was founded in March 1989

as a 100% privately owned Taiwan-based

airline. It is an affiliate of Evergreen

Marine Corporation, the world's leading

container-shipping line.

From its maiden flight on July 1,

1991, EVA Air has grown steadily and

today, serves more than 40 major destina-

tions on four continents and in Oceania

with a fleet of 49 aircraft (as of December

2006). The carrier has flourished as it has

continued to expand its fleet and opera-

tion network.

In 1997, after carefully nurturing an

environment where faultless service quali-

ty and flight safety are the standard, EVA

Air became the first airline in Taiwan to

achieve official ISO 9002 Certification in

three areas at the same time -- passenger,

cargo and maintenance operations.

Diligently upholding these objectives,

EVA Air earned ISO-9001:2000

Certification for all categories of opera-

tion in 2001.

In addition, EVA has ensured quality,

smooth ongoing operations and reduced

costs by investing capital and expertise in

airline-related companies, including

Evergreen Sky Catering Corporation,

Evergreen Airline Services Corporation,

Evergreen Air Cargo Service Corporation,

and other selected subsidiaries.

Operating strategies developed by

the carrier are far-reaching. Company

goals place equal importance on its pas-

senger and cargo services, and it works in

The Company

three MD-11s, one B747-400 and four

B767-200s. The airline also added Bali,

Fukuoka and Auckland routes to its net-

work.

1995The carrier purchased three MD-11

freighters and began to vigorously devel-

op air cargo operations. It set goals

emphasizing passenger and cargo servic-

es equally. And it used joint operations

and land transportation to successfully

extend EVA Cargo services worldwide.

1996Enhancing the high quality of its

operations, EVA applied for ISO-9002 cer-

tification. Within the next year, its pas-

senger service, cargo service and aviation

maintenance operations were all three

delivered in November. EVA used the

first flights of the new aircraft to launch its

Taipei-Los Angeles route and introduce

its four classes of cabin service, including

the debut of its trend-setting Evergreen

Deluxe Class in-between Economy and

Super Business.

1993EVA Air set new standards and

heightened expectations by expanding

its network to more than half a dozen new

destinations, and by launching service to

London, Paris, Seattle, New York, San

Francisco, Brisbane, Sydney and Dubai.

1994EVA made the greatest number of

new aircraft additions to its fleet this year,

purchasing a total of eight, including

15

16

craft and an option for eight more.

Deliveries began in 2005. The carrier

relocated its hub to the brand-new

Terminal 2 at Chiang Kai-Shek

International Airport at the end of July.

2001EVA committed to add more new,

technologically advanced aircraft to its

fleet in March by signing a purchase con-

tract for eight Airbus A330-200s and mak-

ing plans to start taking deliveries in 2003.

EVA Air also secured approval to transfer

its stock listing from OTC and on 17

September, moved its shares to the

Taiwan Security Exchange (TSE).

2002EVA launched its online booking sys-

tem on January 9. It gained approval to

add 24 passenger flights on its thriving

Hong Kong route and to begin new

freighter service. It also introduced a new

slogan "Just relax, your home in the air."

granted ISO-9002 international certifica-

tions simultaneously. EVA achieved ISO-

9001:2000 certification in 2001.

1997Ensuring consistent service quality,

EVA and Singapore Air formed Evergreen

Sky Catering Corporation as a joint ven-

ture and in February, began providing in-

flight catering services.

1998Promoting air safety, EVA signed a

joint-venture contract with General

Electric and established Evergreen

Aviation Technologies Corporation on

February 24. That same day, a powerful

new engine test cell was placed in opera-

tion, and the new joint venture began an

aggressive campaign to raise the stan-

dards of the aircraft maintenance busi-

ness.

1999Earning brilliant results with both pas-

senger and cargo service, EVA produced

outstanding operating performances for

five successive years. The Securities and

Futures Commission (SFC) of Taiwan

approved its admission to the exchange,

and on October 27, EVA Air shares began

to be traded on the over-the-counter

market.

2000In anticipation of future needs and to

expand its fleet, EVA signed a purchase

contract in June with the Boeing

Company for 15 B777-200X/300Xs that

included a firm order for seven of the air-

its intercontinental fl ights between

Taiwan and the Dutch city.

MayEVA Air opened its new Southern

China Cargo Center in Hong Kong,

enabling it to more efficiently and quickly

moving air freight shipments in and out of

the region. The strategically located

Center enhances EVA's highly reliable

cargo services and is especially designed

to meet the needs of Taiwanese manufac-

turers with operations in the Southern

China region.

JuneShareholders voted at their 2006

annual shareholders' meeting to distrib-

ute a cash dividend of NT$0.2, in addition

to allocating NT$52.32 million for

employee bonuses and NT$10.9 million

for supervisors and directors.

JulyEVA Air launched a new service Taipei

- Nagoya service on July 10, 2006 with

five scheduled flights per week. Nagoya

is the carrier's sixth destination in Japan.

SeptemberEVA invested US$ 5 million and

acquired a 100% stake in Sky Castle

Investment Ltd.

EVA invested US$ 4 million and

acquired a 100% stake in Concord Pacific

Ltd.

DecemberEVA introduced Taipei - Mumbai

(Bombay) passenger service on 10

December, 2006 with three weekly flights.

2003EVA debuted stylish new cabin-crew

uniforms on April 1, took delivery of its

first A330-200 on June 26 and introduced

its new generation of a top cabin class,

Premium Laurel, along with an upgraded

economy class and an awesome, state-of-

the-art Audio/Video on Demand system.

2004EVA Air exercised an option for eight

B777s that was part of the firm purchase

contract executed with Boeing in June

2000, expanding its fleet by a total of 15

brand-new B777s. Deliveries of the new

aircraft started in 2005 and will continue

through 2009.

2005EVA took delivery of its first two of 15

B777s and introduced the extra-roomy,

exceptionally comfortable new aircraft to

passengers on the Bangkok and London

with an inviting new slogan, "Sharing the

World, Flying Together."

2006EVA Air opened its new Southern

China Cargo Center in Hong Kong,

enabling it to more efficiently and quickly

move air freight shipments in and out of

the region.

Calendar of 2006 EventsMarch

Amsterdam Airport Schiphol selected

EVA Air to receive its 2005 Efficient Airline

Award in recognition of the carrier's

effective use of ground-support time for

17

18

Directors and Supervisors

ShareholdingWhen Elected

PresentShareholdings

Date ofElection

(Inauguration)

Date ofInitial

Election,Appointment

Shares Held bySpouses,

DependentsName Tenure

Number (%) Number (%) Number (%)Lin Bou-Shiu 2004.06.15 3 Years 2004.06.15 236,587 0 402,619 0.01 19,667 0

Hsu Po-Jung 2004.06.15 3 Years 2006.12.26 660,454,669 22.75 750,571,262 19.37 32,050 0

(Note 1)

Chang Kuo-Cheng 2004.06.15 3 Years 1989.03.31 660,454,669 22.75 750,571,262 19.37 0 0

(Note 1)

Director Lin Ching-En 2004.06.15 3 Years 2001.04.19 3,690,013 0.13 4,099,354 0.11 0 0

(Note 1)

Director Lin Shin-I 2004.06.15 3 Years 1998.05.06 0 0 0 0 0 0

Director Kao Jui-Peng 2004.06.15 3 Years 2002.06.18 275 0 1,048 0 0 0

Supervisor Ko Li-Ching 2004.06.15 3 Years 1992.05.02 136,887 0 143,509 0 0 0

Supervisor Owng Rong-Jong 2004.06.15 3 Years 1996.03.21 660,454,669 22.75 750,571,262 19.37 0 0

(Note 1)

Supervisor Chen Cheng-Pang 2004.06.15 3 Years 2001.04.19 5,770 0 6,398 0 6,351 0

Title

Chairman

Vice Chairman

Director

Director

Supervisor

Note 1: Representative of Evergreen Marine Corp.

Note 2: As of April 30, 2007, the Company has issued 3,874,979,444 shares.

19

April 30, 2007

Shares Held byThird Parties Education & Experience

Concurrent Positions

in Other Companies

Other Managers, Directors or Supervisors Related by Marriage or

Within Second-degree BloodRelationship of Each Other

Number (%) Title Name Relationship0 0 Department of Computer, Director, Uni Airways Corp.

Tamkang University Director, Evergreen Sky Catering Corp. - - -

President, EVA Airways Corp. Chairman, Hsiang-Li Investment Corp.

0 0 Department of Mechanical Director, Evergreen Aviation

Engineering,National Taipei Technologies Corp.

Institute of Technology - - -

Vice Chairman, Evergreen

Aviation Technologies Corp.

0 0 BA, Boston University Director, Evergreen Marine Corp.

Chairman, Evergreen Director, Evergreen Intl.

International Corp. Storage & Transport Corp.

Director, Evergreen Intl. Corp.- - -

Director, Evergreen Sky Catering Corp.

Director,Hsin-Tao Power Corp.

0 0 MBA, Kobe University, Japan Chairman, Evergreen Air Cargo

EVP, EVA Airways Corp., Service Corp. - - -

America.

0 0 BA in Political Science, NTU Chairman, United Holdings

Director, China Development Corp. - - -

Industrial Bank

0 0 Keelung Commercial School Executive Consultant of Chang Yung-Fa

Director, Evergreen Container Foundation - - -

Terminal Corp.

0 0 Keelung Girls' Senior High School Supervisor, Evergreen Marine Corp.

Executive VP, Evergreen Supervisor, Evergreen Intl.

International Corp. Storage & Transport Corp.

Supervisor, Central Reinsurance Corp.- - -

Supervisor, Uni Airways Corp.

Supervisor, Hsin-Tao Power Corp.

0 0 E.M.B.A, Department of Chief Financial Officer,

Business Administration, Evergreen Marine Corp.

College of Business, National Supervisor, Evergreen Intl.

Taipei University Storage & Transport Corp.- - -

Executive Vice President, Director , Central Reinsurance Corp.

Evergreen Marine Corp.

0 0 BA, Soochow University Senior VP, Italia- - -Senior VP, Uniglory Marine Corp. Marittima S.P.A.

20

Major Shareholder of EVA Air's Institutional Shareholder

April 30, 2007

Name of Institutional Shareholder Major Shareholders of Institutional ShareholderEvergreen Marine Corp. Evergreen International S.A.(Panama)(11.49%),

Chang Kuo-Hua(8.16%), Chang Yung-Fa(6.48%),

Ultra International Investments Ltd.(4.59%),

Falcon Investment Services Ltd.(4.58%), Chang

Kuo-Cheng(4.58%), Chang Kuo-Ming(3.43%),

Cheng Shen-Chin(2.29%), Chang Shu-Hua

(2.18%), Management Board of Public Service

Pension Fund(1.72%)

21

If the Above-mentioned Shareholders of Major Shareholder of EVA Air's

Institutional Shareholder are Corporations, the Principal Shareholders

of these Corporations are as follows:

April 30, 2007

Name of Institutional Shareholders Major Shareholders of Institutional ShareholdersChang Yung-Fa(20%), Chang Kuo-Hua(20%),

Evergreen International S.A.(Panama) Chang Kuo-Ming(20%),

Chang Kuo-Cheng(20%),Pieca Corp.(20%)

Ultra International Investments Ltd. 100% shareholders of bearer share certificates

Falcon Investment Services Ltd. 100% shareholders of bearer share certificates

Management Board of Public Service Pension Fund Non-profit organization

22

Criteria for Expertise and Independence of Directors and Supervisors

(1) Not an employee of the Company or any of its affiliated companies;

(2) Not a director or supervisor of the Company's or any of its affiliates. The same does not apply, however , in case

where the person is an independent director of the company , its parent company or any subsidiary in which the

company holds, direct or indirectly, more than 50% of the voting shares.

(3) Not an individual shareholder who holds shares, together with those held by the person's spouse, minor children,

or held by the person under others' names, in an aggregate amount of 1% or more of the total number of issued

shares of the company or ranking in the top 10 in holdings.

(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any

of the persons in the preceding three subparagraphs.

(5) Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total num-

ber of issued shares of the company or that holds shares ranking in the top five in holdings.

Lin Bou-Shiu √ √ √ √ √ √ √ √ √ √ Nil

Hsu Po-Jung √ √ √ √ √ √ √ √ √ Nil

Chang Kuo-Cheng √ √ √ √ √ √ Nil

Lin Ching-En √ √ √ √ √ √ √ √ √ √ Nil

Lin Shin-I √ √ √ √ √ √ √ √ √ √ Nil

Kao Jui-Peng √ √ √ √ √ √ √ √ √ √ Nil

Ko Li-Ching √ √ √ √ √ √ √ √ √ Nil

Owng Rong-Jong √ √ √ √ √ √ √ √ Nil

Chen Cheng-Pang √ √ √ √ √ √ √ √ √ √ Nil

1 2 3 4 5 6 7 8 9 10

Qualifications

Name

Independence Criteria

CocurrentlyServing as anIndependentDirector/Number ofOther PublicCompanies

An Instructoror HigherPosition in aDepartmentof Commerce,Law, Finance,Accounting, orOtherAcademicDepartmentRelated to theBusinessNeeds of theCompany in aPublic or PrivateJunior College,College orUniversity

A Judge,PublicProsecutor, Attorney, Certified Public Accountant, or OtherProfessional or Technical Specialists Who Has Passed a NationalExaminationand Been Awarded a Certificate in a Profession Necessary for the Business ofthe Company

Have Work Experience in the Area of Commerce, Law, Finance, or Otherwise Necessary for the Business ofthe Company

Meet One of the Following QualificationRequirements, Together with at Least Five

Years Work Experience

23

(6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or insti-

tution that has a financial or business relationship with the company.

(7) Not a professional individual who, or an owner , partner, director, supervisor, or officer of a sole proprietorship, part-

nership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to

the company or any affiliate of the company, or a spouse thereof.

(8) Not having a marital relationship, or a relative within the second degree of kinship to any other director of the com-

pany.

(9) Not been a person of any condition defined in Article 30 of the Company Code.

(10) Not a government, institutional person or its representative as defined in Article 27 of the Company Code.

24

Chairman Lin Bou-Shiu

Vice Evergreen Marine Corp.

Chairman Hsu Po-Jung

DirectorEvergreen Marine Corp.

Chang Kuo-Cheng 3,566 9,629 0 4,500 0 0 (0.21) (1.08)

Director Lin Ching-En

Director Lin Shin-I

Director Kao Jui-Peng

Compensation for Directors

Compensation AllowanceSalary

Directors Salary,Compensation, and

Allowance as %2006 Net Profit

Title Name

EVAConsolidatedSubsidiaries

of EVAEVA

ConsolidatedSubsidiaries

of EVAEVA


of EVAEVA


of EVA

Remuneration Paid to Directors

25

Compensation Earned as Employee of EVA or EVA Subsidiary Affiliates

Salary, Bonus etc. Employee Profit Sharing Employee StockOption

Total CompensationPaid to Directors as% 2006 Net Profit

OtherCompensation from

Non-SubsidiaryAffiliates

0 0 0 0 0 0 0 0 (0.21) (1.08) Yes

Dec. 31, 2006

NT$ (Thousand)


of EVAEVA


of EVAEVA


of EVAEVA

EVAConsolidatedSubsidiaries

of EVA

Cash Stock Cash Stock

26

Supervisor Ko Li-Ching

Evergreen

Supervisor Marine Corp. 0 0 0 750 0 0

Owng Rong-Jong

Supervisor Chen Cheng-Pang

Compensation for Supervisors

Title NameCompensationSalary

Remuneration paid to Supervisors

EVAConsolidatedSubsidiaries of

EVAEVA

ConsolidatedSubsidiaries of

EVA

Allowance

EVAConsolidatedSubsidiaries of

EVA

27

Supervisors Salary, Compensation, and Allowance as %of 2006 Net Profit

Other Compensation fromNon-Subsidiary Affiliates

EVA Consolidated Subsidiaries of EVA

0 (0.06) -

Dec. 31, 2006

NT$ (Thousand)

28

Principal Officers

President Chen Hsing-Te 2006.07.01 339,930 0.009 0 0 0 0

Chief Executive Kao Wan-Hsin 2007.01.01 92,220 0.002 0 0 0 0

Vice President

Executive Vice President, Chiu Ke-Tai 2001.04.19 253,017 0.007 0 0 0 0

Taoyuan Airport Div.

Executive Vice President, Yuen Ping-Yu 2004.01.01 37,041 0.001 0 0 0 0

Flight Operations Div.

Executive Vice President, Nieh Kuo-Wei 2005.01.01 50,456 0.001 125 0 0 0

Public Relations Div.

Executive Vice President, Ho Ching-Sheng 2005.01.01 450,101 0.012 0 0 0 0

Safety & Security Div.

Executive Vice President, Tai Jiin-Chyuan 2005.07.01 90,843 0.002 0 0 0 0

Legal & Insurance Div.

Executive Vice President Yang I-Teng 2006.07.01 12,682 0 296 0 0 0

Cabin Service Div.

Executive Vice President, Wu Kuang-Hui 2006.07.01 127,964 0.003 0 0 0 0

Finance Div.

Executive Vice President, Fang Gwo-Shianng 2007.01.01 164,058 0.004 0 0 0 0

Computer Div.

Executive Vice President, Kuo Sheng-Yih 2007.01.01 53,398 0.001 885 0 0 0

Engineering &

Maintenance Div.

Executive Vice President, Chang Lih-Lih 2007.01.01 156,340 0.004 0 0 0 0

Inflight Service Div.

Spouse & Shares Held Shareholding Dependent by Other

Shareholding Nominal Holder

Number (%) Number (%) Number (%)

Title NameDate of

Inauguration

29

April 30, 2007

Bachelor degree in Transportation Director, Evergreen

Technology & Management, Chiao-Tung Sky Catering Corp.- - -

University Director,

Senior Vice President, Evergreen Intl. Corp. Hsiang-Li Investment Corp.

Bachelor degree in French, Fu Jen

University - - - -

Senior Vice President, Uni Airways Corp.

Bachelor degree in Politics, Chinese Cultural

University - - - -

Junior Vice President, Evergreen Securities Corp.

Bachelor degree in Electrical Engineering,- - - -

Cheng Kung University

Master degree in Communications, Shih Hsin

University - - - -

Manager, Evergreen Intl. (UK) Ltd

Master degree in Flight Safety,- - - -

University of Missouri

Master degree in Maritime Law, National

Taiwan Ocean University - - - -

Manager, Evergreen Intl. Corp.

Department of Chemical Engineering, Minghsin

Institute - - - -

Senior Vice President, Evergreen Sky Catering Corp.

MBA, Sun Yat Sen University- - - -

Junior Vice President, Evergreen Intl. Corp.

Bachelor degree in Computer Science, Feng Chia

University - - - -

Deputy Junior Vice President, Evergreen IT Corp.

Department of Marine Engineering, Kaohsiung

Institute of Marine Technology - - - -

Chief Engineer, Evergreen Marine Corp.

Bachelor degree in Statistics, Tamkang University- - - -

Secretary, Evergreen Intl. Corp.

Manager Related by Marriage or Within Second-degree Kinship of Each Other

Title Name Relationship

Concurrent Positionswith OtherCompanies

Education and Experience

30

Title NameDate of

Inauguration

Spouse & Shares Held Shareholding Dependent by Other

Shareholding Nominal Holder

Number (%) Number (%) Number (%)

Senior Vice President, Han Jei-Li 2003.01.01 765 0 0 0 0 0

Flight Operations Div.

Senior Vice President, Li Shyn-Liang 2005/11/14 96,634 0.002 22 0 0 0

Passenger Div.

Senior Vice President, Sun Chia-Ming 2006.01.01 83,461 0.002 0 0 0 0

Corporate Planning Div.

Senior Vice President, Cheng Chuan-Yi 2006.01.01 252 0 0 0 0 0


Senior Vice President, Lee Jen-Ling 2006.01.01 84,958 0.002 0 0 0 0


Senior Vice President, Lu Yu-Chuan 2006.01.01 43,050 0.001 0 0 0 0

Personnel Div.

Senior Vice President, Yang Yung-Heng 2006.04.15 57,652 0.001 0 0 0 0

Cargo Div.

Senior Vice President, Tsai Ta-Wei 2006.07.01 749 0 828 0 0 0

Finance Div.

Senior Vice President, Soong Allen 2007.01.01 12,310 0 0 0 0 0


Deputy Senior Vice President, Li Ping-Yin 2005.01.01 115,558 0.003 891 0 0 0

Auditing Div.

Deputy Senior Vice President, Wu Su-Shin 2006.01.01 103,944 0.003 0 0 0 0

Service Co-ordination Div.

Deputy Senior Vice President, Tsai Zu -Ming 2007.01.01 11,184 0 0 0 0 0


Deputy Senior Vice President, Hou Hsien-Yu 2007.01.01 0 0 0 0 0 0

Computer Div.

Deputy Senior Vice President, Chen Shen-Chi 2007.01.01 30,507 0 0 0 0 0

Taoyuan Airport Div.

31

Manager Related by Marriage or Within Second-degree Kinship of Each Other

Title Name Relationship

Concurrent Positionswith OtherCompanies

Education and Experience

Department of Soil & Water Conservation,- - - -

Tamkang College of Arts and Sciences

Bachelor degree in Traffic and Transportation

Management, Feng Chia University- - - -

Bachelor degree in International Trade,

Chinese Cultural University- - - -

Bachelor degree in International Trade,- - - -

Tunghai University

Bachelor degree in Industrial & Business- - - -

Management, National Taiwan University

Bachelor degree in Business Administration,

Fu Jen University

Junior Vice President,- - - -

Evergreen Aviation Technologies Corp.

Bachelor degree in Business Administration,- - - -

Chinese Cultural University

Bachelor degree in Accounting,- - - -

Chinese Cultural University

Department of Tourism, World College of- - - -

Journalism

Graduate School of Management,

Yuan Ze University - - - -

Manager, Evergreen Heavy Industry Corp.

Bachelor degree in Sociology,- - - -

Fu Jen University

Department of Navigation Technology, National- - - -

Taiwan College of Marine Science and Technology.

Department of Industrial Management, Taiwan

College of Science and Technology- - - -

Department of Tourism, World College of- - - -

Journalism

32

Compensation for President and Executive Vice Presidents

President Chen Hsing-Te

Executive Vice President Kao Wan-Hsin

Executive Vice President Chiu Ke-Tai

Executive Vice President Yuen Ping-Yu

Executive Vice President Nieh Kuo-Wei 20,424 20,424 1,269 1,269

Executive Vice President Ho Ching-Sheng

Executive Vice President Tai Jiin-Chyuan

Executive Vice President Yang I-Teng

Executive Vice President Wu Kuang-Hui

Salary Bonus & Perquisite

Title Name

EVAConsolidated

Subsidiaries ofEVA

EVAConsolidated

Subsidiaries ofEVA

33

Dec. 31, 2006

NT$ (Thousand)

Total Compensation toPresident &EVPs as %

of 2006 Net Profit

Employee StockOptions

Compensationfrom

InvestmentsOther thanSubsidiariesEVA


of EVAEVA


of EVA

0 0 0 0 (1.29) (1.66) 0 0 -

Employee Profit Sharing

EVAConsolidated

Subsidiaries of EVA

Cash Stock Cash Stock

34

Management Team Granted Employee Bonuses, Distribution

The board adopted a proposal for 2006 earning distribution at its meeting on April19, 2007 that no employee bonuses will be distributed.

35

Net Changes in Shareholdings and Shares Pledged by Directors, Supervisors,

Managers and Major Shareholders

2006 As of April 30,2007

Title Name

Chairman Lin Bou-Shiu 31,197 0 0 0

Evergreen Marine Corp. 58,158,835 0 0 0

Vice Chairman Representative:0 0 0 0

Hsu Po-Jung(Note 2)


Director Representative:9,200,540 0 0 0

Chang Kuo-Cheng

Director Lin Ching-En 127,789 0 (50,000) 0

Director Kao Jui-Peng 0 0 0 0

Director Lin Shin-I 0 0 0 0

Supervisor Ko Li-Ching 0 0 0 0


Supervisor Representative:0 0 0 0

Owng Rong-Jong

Supervisor Chen Cheng-Pang 0 0 0 0

Major Shareholder Evergreen Marine Corp. 58,158,835 0 0 0

Major Shareholder Evergreen International Corp. 31,636,754 0 0 0

President Chen Hsin-Te 82,465 0 (10,000) 0

Chief Executive

Vice PresidentKao Wan-Hsin 47,736 0 0 0

Executive Vice President Nieh Kuo-Wei 5,754 0 0 0

Executive Vice President Yuen Ping-Yu (24,130) 0 0 0

Executive Vice President Chiu Ke-Tai 30,000 0 0 0

Executive Vice President Ho Ching-Sheng 44,101 0 0 0

Executive Vice President Tai Jiin-Chyuan 25,489 0 0 0

Executive Vice President Chang Lih-Lih 21,339 0 0 0

Executive Vice President Kuo Sheng-Yih 20,595 0 (10,000) 0

Executive Vice President Fang Gwo-Shianng 68,985 0 0 0

Executive Vice President Wu Kuang-Hui 40,358 0 0 0

Executive Vice President Yang I-Teng 0 0 0 0

Senior Vice President Lu Yu-Chuan 47,081 0 (5,000) 0

Senior Vice President Lee Jen-Ling 46,251 0 0 0

Senior Vice President Sun Chia-Ming 0 0 0 0

Increase(Decrease)

in Shareholding

Increase(Decrease) in

Shares Pledged


Shares Pledged

Increase(Decrease)

in Shareholding

36

2006 As of April 30,2007

Title Name

Increase(Decrease)

inShareholding


SharesPledged


SharesPledged

Increase(Decrease)

inShareholding

Senior Vice President Cheng Chuan-Yi 19 0 0 0

Senior Vice President Soong Allen 10,000 0 0 0

Senior Vice President Li Shyn-Liang 62,838 0 0 0

Senior Vice President Han Jei-Li 59 0 0 0

Senior Vice President Yang Yung-Heng 0 0 0 0

Senior Vice President Tsai Ta-Wei (5,942) 0 0 0

Deputy Senior

Vice PresidentLi Ping-Yin 73,530 0 0 0

Deputy Senior

Vice PresidentWu Su-Shin 44,954 0 0 0

Deputy Senior

Vice PresidentTsai Zu -Ming(Note 3) 0 0 0 0

Deputy Senior

Vice PresidentHou Hsien-Yu(Note 3) 0 0 0 0

Deputy Senior

Vice PresidentChen Shen-Chi(Note 3) 0 0 0 0

Note 1: Shareholders holding more than 10% of the Company's stock are noted as "major shareholders" and listed

respectively.

Note 2: Director Hsu Po-Jung was appointed as the representative of Evergreen Marine Corp. on December 26,2006.

Note 3: Deputy Senior Vice President Tsai Zu -Ming, Hou Hsien-Yu, Chen Shen-Chi were inaugurated on January 1,

2007.

Information on Stock Transfer: Nil

Information on Stock Pledged: Nil

37

Authorized Capital Issued Capital Non-Month/

Price Shares Amount Shares AmountSources of Capital Monetary

Year('000) ('000) ('000) ('000)

('000) Capital Expansion

03/1989 10 1,000,000 10,000,000 250,000 2,500,000 Cash founding 2,500,000 -

10/1990 10 1,000,000 10,000,000 350,000 3,500,000 Cash offering 1,000,000 -

08/1991 10 1,000,000 10,000,000 700,000 7,000,000 Cash offering 3,500,000 -

05/1992 10 1,000,000 10,000,000 1,000,000 10,000,000 Cash offering 3,000,000 -

10/1992 10 1,800,000 18,000,000 1,200,000 12,000,000 Cash offering 2,000,000 -

08/1993 10 1,800,000 18,000,000 1,400,000 14,000,000 Cash offering 2,000,000 -

05/1994 10 1,800,000 18,000,000 1,800,000 18,000,000 Cash offering 4,000,000 -

09/1995 10 2,000,000 20,000,000 1,500,000 15,000,000 Capital reduction(6,300,000)

Cash offering 3,300,000 -

06/1996 10 2,000,000 20,000,000 1,800,000 18,000,000 Cash offering 3,000,000 -

06/1997 10 2,000,000 20,000,000 2,000,000 20,000,000 Cash offering 2,000,000 -

07/2000 10 2,400,000 24,000,000 2,100,000 21,000,000 Capital surplus 300,000;

Capitalization of profit 700,000 -

08/2001 10 2,400,000 24,000,000 2,205,000 22,050,000 Capitalization of profit 1,050,000 -

12/2002 10 3,000,000 30,000,000 2,425,000 24,250,000 Cash offering 2,200,000 -

10/2003 10 3,000,000 30,000,000 2,632,580 26,325,800 Capitalization of profit 485,000

Corporate bond conversion 1,590,800 -

12/2003 10 3,000,000 30,000,000 2,753,433 27,534,330 Corporate bond conversion 1,208,530 -


07/2004 10 3,000,000 30,000,000 2,934,369 29,343,694 Corporate bond conversion 414,656 -

08/2004 10 4,000,000 40,000,000 3,046,477 30,464,767 Capitalization of profit 1,121,073 -

09/2004 10 4,000,000 40,000,000 3,266,477 32,664,767 Cash offering 2,200,000 -

common stock at NT$10 par value per

share with 3,874,979,444 shares issued and

outstanding.

Capital and SharesAs of December 31, 2006, EVA Air had

authorized share capital of 4,000,000,000 in

History of Capitalization

Number of Shareholders 0 1 145 81,566 720 82,432

Shareholdings 0 559 1,394,847,518 1,453,879,740 1,026,251,627 3,874,979,444

Holding Percentage 0 0 36 37.52 26.48 100

38

Shareholder Structure

Status of Shareholders

As of April 15,2007

EvergreenMarine Corp.

(Taiwan)19%

Other 32%

Chang Family12%

ForeignInstitution &

Individual26%

Evergreen Intl.Corp.11%

Government Financial Other Legal DomesticForeign

Agency Institution Entity IndividualInstitution & Total

Individual

Authorized Capital Issued Capital Non-Month/

Price Shares Amount Shares AmountSources of Capital Monetary

Year('000) ('000) ('000) ('000)

('000) CapitalExpansion




08/2005 10 4,000,000 40,000,000 3,389,667 33,896,675 Capitalization of profit 329,230 -


03/2006 10 4,000,000 40,000,000 3,749,887 37,498,869 Cash offering 3,600,000 -


39

Distribution of Common Shares

As of April 15,2007

Range of Shareholdings Number of Shareholders Number of Shares %

1-999 22,922 4,811,720 0.1242

1,000-5,000 29,960 71,541,774 1.8462

5,001-10,000 11,470 86,367,304 2.2288

10,001-15,000 5,461 65,273,792 1.6845

15,001-20,000 2,835 51,592,493 1.3314

20,001-30,000 3,231 79,824,650 2.0600

30,001-50,000 2,765 108,830,181 2.8085

50,001-100,000 2,224 156,040,198 4.0269

100,001-200,000 878 119,614,597 3.0868

200,001-400,000 342 93,505,864 2.4131

400,001-600,000 81 39,840,294 1.0281

600,001-800,000 57 39,234,835 1.0125

800,001-1,000,000 24 22,345,147 0.5767

1,000,001 and above 182 2,936,156,595 75.7723

Total 82,432 3,874,979,444 100.0000

40

Market Price, Net Worth, Earnings and Dividends per Share for Most Recent Two

Years

Note 1: Price/Earnings Ratio = Average Share Price at Market Close for Current Fiscal Year/Earnings per Share

Note 2: Price/Dividend Ratio = Average Share Price at Market Close for Current Fiscal Year/Cash Dividend per Share.

Note 3: Cash Dividend Yield Rate = Cash Dividend per Share/Average Market Closing Share Price for Current Fiscal

Year.

Year 2005 2006As of April 30, 2007

Items (Distributed in 2006) (Distributed in 2007)

Market PriceHighest NT$17.45 NT$15.30 NT$15.00

per ShareLowest NT$12.05 NT$12.10 NT$13.05

Average NT$14.66 NT$13.24 NT$14.00

Net Worth Before Distribution NT$12.97 NT$11.91 NT$11.96

per Share After Distribution NT$12.73 - -

Weighted Average Shares 3,395,071,000 shares 3,723,419,000 shares 3,874,979,000 shares

Earnings perBefore

NT$0.39 NT$(0.45) NT$(0.09)

ShareEarnings Adjustment

Per Share After NT$0.39 - -

Adjustment

Cash Dividends NT$0.19354357 - -

Dividends from

DividendsStock

Retained - - -

per ShareDividends

Earnings

Dividends from - - -

Capital Surplus

Price/Earnings Ratio37.21 - -

(Note 1)

Return on Price/Dividend Ratio 74.97 - -

Investment (Note 2)

Cash Dividend Yield Rate1.33% - -

(Note 3)

41

tor/supervisor compensation that does

not exceed 5% of the distributed

amount and submits the program at a

shareholders' meeting for resolution.

Since achieving growth status, EVA has

adopted a remainder appropriation

method as its dividend policy to

accommodate future operations and

expansion, distributing cash dividends

that range from 0 to 50% and stock div-

idends from 100% to 50% alternately.

To maintain profitability and govern the

impact of stock dividends on its oper-

ating performance, EVA may adjust the

distribution rate for cash dividends to

100%~50% and stock dividends to

0~50% in accordance with capital sta-

Dividend Policy and Implementation

Status

Dividend Policy

In accordance with Article 26 of EVA's

Articles of Incorporation, any earning

from the annual settlement should first

be used to offset accumulated deficits

from previous years, after deducting all

applicable taxes and, second, 10% of

the balance should be set aside in a

legal reserve; any remainder will be

added to undistributed earnings from

the prior period for distribution after

the board of directors proposes a dis-

tribution program with employee

bonuses of no less than 1% and direc-

42

Proposed Employee Bonus Plan

Approved by Board of Directors

Employee Cash Bonus: Nil

Employee Stock Bonus: Nil

Compensation Paid to Directors and

Supervisors: Nil

Number of shares proposed for distri-

bution to employees and the percent-

age of the shares above capitalized

earnings: 0 shares, 0%

Estimated EPS after deduction of

employee bonuses and compensation

to directors and supervisors: Not

applicable.

Distribution of Employee Bonus and


Supervisors in Prior Year:

Employee Cash Bonus: NT$ 52,320,000

Employee Stock Bonus: Nil


Supervisors: NT$ 10,900,000

Number of shares proposed for distri-

bution to employees and the percent-

age of the shares above capitalized

earnings: 0 shares, 0%.

Estimated EPS after deduction of

employee bonus and compensation to

directors and supervisors: NT$ 0.38

Status of Stock Repurchased by EVA:

N/A

tus if estimated earnings per share for

the current fiscal year are 20% lower

than those of the previous year.

Dividend Distribution in Current Year

The board adopted a proposal for 2006

dividend distribution at its meeting on

April 19, 2007 that no dividend will be

distributed to shareholders.

Employee Bonuses and Compensation

Paid to Directors and Supervisors

Range or Percentage of Employee

Bonuses and Compensation Paid to

Directors and Supervisors Specified in

Article 26 of EVA's Articles of

Incorporation: Earnings, if any, from

the annual settlement should first offset

accumulated deficits for previous years

after all applicable taxes are deducted

and, second, 10% of the balance

should be set aside in a legal reserve;

any remainder will be added to undis-

tributed earnings from the prior period

for distribution after the board of direc-

tors proposes a distribution program

with employee bonuses of no less than

1% and director/supervisor compensa-

tion that does not exceed 5% of the

distributed amount and submits the

program at a shareholders' meeting for

resolution.

43

EVA Air People

2005 2006

Pilots 738 748

Cabin Crew 1,471 1,543

No. of EmployeesDispatchers 31 29

Maintenance 106 114

Other 2,752 2,724

Total 5,098 5,158

Average Age 33.4 33.8

Average Seniority 7.4 8.8

Doctorate 0.08% 0.1%

Master's 3.60% 3.63%

Education Bachelor's 86.39% 87.26%

High School 9.30% 8.43%

Other 0.63% 0.58%

44

Organization

Shareholders

Foreign Branches

Labor Safety & H

ealth Div.

Clinic D

iv.

Com

puter Div.

Taichung Office

Taoyuan Airport D

iv.

Engineering & M

aintenance Div.

Cabin Service D

iv.

Inflight Service Div.

Flight Operations D

iv.

Safety & Security D

iv.

Cargo D

iv.

Passenger Div.

Service Co-ordination D

iv.

Corporate Planning D

iv.

Finance Div.

Legal & Insurance D

iv.

Personnel Div.

General A

ffairs Dept.

Public Relations Div.

Supervisors

Auditing Div.

President

Corporate Planning Committee

Safety Promotion Committee

Service Quality Committee

Chief Executive Vice President

Board of DirectorsChairman

Vice Chairman

45

■ September 2006 -retired one 767-

300ER and bought back one MD-11.■ November 2006 -took delivery of our

fourth B777-300ER and sold one MD-

11.■ December 2006 -ended a lease with

WOA for one MD-11.

The Fleet■ March 2006 - returned one MD-90.■ March 2006 - terminated lease contract

and buy back two 767-300ER■ May 2006 - took delivery of our

eleventh A330-200.■ June 2006 - sold one 767-300ER,

leased our third B777-300ER and

bought back one leased B747-400.

Aircraft TypeFinancial Operating Age On Order

Daily Avg.

OwnedLease Lease

Total(as of Dec. 06) (Delivery Date)

Utilization

(hrs) - 2006

B747-400 1 3 2 6 11.30 13.66

B747-400 Combi 2 0 7 9 12.42 13.46

A330-200 3 0 8 11 2.21 9.91

MD-90 0 0 4 4 9.72 5.80

MD-11 Freighter 9 0 3 12 9.69 14.35

B747-400 Freighter 3 0 0 3 5.46 15.03

2

( JuneB777-200LR 0 0 0 0

2009/NA

March 2010)

9

(Feb.,

May,Aug.,

Dec. 2007/B777-300ER 1 0 3 4 0.66

Mar.,May,13.49

July,

Oct.2008/Jun.

2009)

Total 19 3 27 49 7.52 11.86

AFTK (Million) FTK (Million) Load Factor (%)

2006 2005 % 2006 2005 % 2006 2005 %

America 4,763 4,877 -2.34% 3,401 3,421 -0.58% 71.4 70.1 1.3

Europe 1,125 1,258 -10.57% 973 1,072 -9.24% 86.5 85.2 1.3

Asia 1,108 1,065 4.04% 756 753 0.40% 68.2 70.7 -2.5

Oceania 49 53 -7.55% 30 39 -23.08% 61.2 73.6 -12.4

Total 7,045 7,253 -2.86% 5,160 5,285 -2.37% 73.2 72.9 0.3

46

Passenger Operations

ASK (Million) RPK (Million) Load Factor (%)

2006 2005 % 2006 2005 % 2006 2005 %

America 14,230 13,548 5.03% 11,905 11,171 6.57% 83.7 82.5 1.2

Europe 5,603 5,441 2.98% 4,461 4,151 7.47% 79.6 76.3 3.3

Asia 9,223 8,786 4.97% 6,964 6,656 4.63% 75.5 75.8 -0.3

Oceania 1,311 1,573 -16.66% 947 1,121 -15.52% 72.2 71.3 0.9

Total 30,367 29,348 3.47% 24,277 23,099 5.10% 79.9 78.7 1.2

Passenger No. Revenue (Million) Yield (NT$)

2006 2005 % 2006 2005 % 2006 2005 %

America 1,113,575 1,046,656 6.39% 16,928 15,182 11.50% 1.42 1.36 4.63%

Europe 580,346 523,735 10.81% 7,844 6,963 12.65% 1.76 1.68 4.82%

Asia 4,355,848 4,185,380 4.07% 20,005 18,801 6.40% 2.87 2.82 1.70%

Oceania 122,498 148,648 -17.59% 1,549 1,707 -9.26% 1.64 1.52 7.42%

Total 6,172,267 5,904,419 4.54% 46,326 42,653 8.61% 1.91 1.85 3.34%

2006 Passeng Revenue Composition

37%

17%3%

43% America

Europe

Oceania

Asia

2006 Cargo Revenue Composition

19%1%

17% 63%

America

Europe

Oceania

Asia

The Market

Cargo Operations

47

Cargo Carried ( Tons) Revenue (Million) Yield (NT$)

2006 2005 % 2006 2005 % 2006 2005 %

America 285,286 288,946 -1.27% 26,235 24,801 5.78% 7.71 7.25 6.40%

Europe 101,536 111,602 -9.02% 7,195 7,467 -3.64% 7.39 6.97 6.16%

Asia 439,136 438,269 0.20% 7,734 7,411 4.36% 10.23 9.84 3.94%

Oceania 3,994 5,282 -24.38% 218 253 -13.83% 7.27 6.49 12.02%

Total 829,952 844,099 -1.68% 41,382 39,932 3.63% 8.02 7.56 6.14%

Major Competitors and Market Shares

Data Source: Monthly Digest of Statistics, CAA

Item \ year 2006 2005

EVA Airways 27,885 27,090

Number of Flights Taiwan 146,249 139,194

Market Share (%) 19.07 19.46

EVA Airways 5,769,005 5,467,933

Number of Passengers Taiwan 27,437,098 26,144,974

Market Share (%) 21.03 20.91

EVA Airways 387,857 468,536

Tons of Cargo Taiwan 1,356,284 1,768,402

Market Share (%) 28.60 26.49

48

and plans to gradually replace theB747-400s fleet with this newer, morecomfortable and fuel efficient aircrafton America routes. The addition of theB777-300ERs to our operations pro-vides our passengers with comfortablecabins featuring up-to-date technolo-gy, and further enhances our standardsof service. Over 40 weekly cargo flights provide anintense network between Great Chinaarea and North America to meet ourcustomer's needs. To further enhanceoperating efficiency, we will increasecargo frequency, subject to marketdemand.

EuropeStarting from the end of 2007, we willbegin operating B747-400s in our newthree-class configuration on Londonroute and introduce B777-300ER on ourParis route, giving passengers a new in-flight experience and the mostadvanced cabins available, and furtherelevating our service quality. Our European routes have allied withworld renowned carriers i.e. BritishAirways (BA), Lufthansa Airlines (LH)and Austrian Airlines (OS).Through EVAEuropean Cargo Center in Belgium, wehave gradually integrated cargo net-work in Europe. In addition, 3 weeklyB747-400 combi flights to Mumbai pro-vide a stable passenger belly cargocapacity to explore long haul market in

2007 OutlookConsistent with global economic pros-perity, cross-strait business and tradeare growing persistently while the gov-ernment is lifting the ban on Chinesetourists. The charter-flight programbetween Taiwan and Mainland Chinacontinues to be an overwhelming suc-cess which is mainly contributed by thestrong demand of cross-strait travel.The forecast of growth on EVA's flightroutes sustains positive.

AmericaEVA now operates 39 direct passengerflights per week to the US and Canada.As of our 2007 summer schedule (March 25 - October 27), EVA is flying 17flights a week to Los Angeles, 12 flightsper week to San Francisco, four weeklynon-stop flights to Seattle and threeweekly to Seattle-New York. Our code-share relationship with Air Canada onVancouver route helps to increase fre-quency from three to five flights perweek to meet the demands of the peakseason (the third week of June throughthe end of August). In addition, bycode-sharing with American Airlines,Air Canada, Continental Airlines andUS Airways, we share our routes andenhance the connection to and fromcities of North America. EVA introduced our first brand-newBoeing 777-300ER in service on BR16Los Angeles flight on June 26, 2006,

49

mental Asia-Pacific Regional OperationsCenter, EVA has built a strong networklinking Southeast Asia and America, andthere is great potential for further devel-opment among these markets.Our code-sharing arrangement with AirNippon Airways (ANK) includesfreighters to Tokyo, Osaka and Nagoya,extending our cargo network to NorthEast Asia. We are also evaluating ourfleet deployment so that we can relo-cate our capacity on profitable routeswhen it's appropriate.In sum, the thriving global economy isseen positive to the aviation market. Asour operation of charter-flight toMainland China for the Chinese NewYear and other holidays matures andthe government actively involves innegotiating passenger and cargo char-ter flights, all these will translate intorevenue for EVA. As we await thisbecomes reality, EVA will remain opti-mistic and be prepared to respondquickly as we well planned.

between India and America. To nurtureIndia market, our European-bondfreighters have served stop-over inMumbai and Deli to generate moresectors revenue to lift overall Europeanroutes operational effectiveness.

Australia and New ZealandMarket demand and operating costshave dictated that EVA concentratespassenger services for this region toBrisbane since 2006 summer scheduleby code-sharing with Qantas Airwaysand maintains two weekly flights toAuckland.

AsiaThe International Civil AviationOrganization (ICAO) forecasts that the airtransport market in the Asia Pacific regionwill outperform other areas. Taiwan'slocation makes it ideal as pivot point fortraffic between America and South EastAsia. To maximize geographic advan-tages and harmonize with the govern-

50

INDIAN OCEANINDIAN OCEANSOUTHSOUTHATLANTIC ATLANTICOCEANOCEAN

NORTHNORTHATLANTIC ATLANTICOCEANOCEAN

ARCTIC OCEANARCTIC OCEAN

RED SEA

REDSEA

台灣TaiwanTaiwan

長榮航空飛航路線圖 EVA AIR ROUTE MAPEVA AIR ROUTE MAP

阿姆斯特丹 AmsterdamAmsterdam

赫爾辛基 HelsinkiHelsinki

斯德哥摩爾 StockholmStockholm

哥本哈根 CopenhagenCopenhagen

倫敦 LondonLondon

巴黎 ParisParis法蘭克福 FrankfurtFrankfurt

羅馬 RomeRome

突尼斯 TunisTunis

開羅 CairoCairo

雅典 AthensAthens

安卡拉 AnkaraAnkara

耶路撒冷 JerusalemJerusalem

米蘭 MilanMilan馬德里 MadridMadrid

莫斯科 MoscowMoscow

貝魯特 BeirutBeirut

杜拜 DubaiDubai

清邁 Chiang MaiChiang Mai

仰光 YangonYangon

曼谷 BangkokBangkok

金邊 Phnom PenhPhnom Penh普吉島 PhuketPhuket可倫坡 ColomboColombo

孟買 MumbaiMumbai

德里 DelhiDelhi

檳城 PenangPenang

吉隆坡 Kuala LumpurKuala Lumpur

新加坡 SingaporeSingapore

雅加達 JakartaJakarta泗水 SurabayaSurabaya

峇里島 BaliBali

永珍 VientianeVientiane

河內 HanoiHanoi澳門 MacauMacau香港 Hong KongHong Kong廣州 GuanzhouGuanzhou

北京 BeijingBeijing

首爾 SeoulSeoul

上海 ShanghaiShanghai

札幌 SapporoSapporo

東京 TokyoTokyo

馬達加斯加

Mad

agas

car I

s.

Mad

agas

car I

s.

開普敦柏斯 PerthPerth

阿得萊德 AdeladeAdelade

墨爾本 MeMel

雪梨

黃布

客運服務航線 Passenger routePassenger route

貨運服務航線 Freighter routeFreighter route

聯營航線 Code-sharing service operated by partner airlinesCode-sharing service operated by partner airlines

聯營航線 Code-sharing service operated by both EVA Air and partner airlinesCode-sharing service operated by both EVA Air and partner airlines

航線資料僅供參考，如需最新資訊請上網查詢 The information in these pages is for general reference only.The information in these pages is for general reference only.For further details please refer to EVA Air's internet Website:For further details please refer to EVA Air's internet Website:http://www.evaair.com http://www.evaair.com

仙台 SendaiSendai 大阪 OsakaOsaka

福岡 FukuokaFukuoka

布魯賽爾 BrusselsBrussels

台北 TaipeiTaipei

高雄 KaohsiungKaohsiung

馬尼拉 ManilaManila

胡志明市 Ho Chi Minh CityHo Chi Minh City

維也納 ViennaVienna

名古屋 NagoyaNagoya

51

YELLOWYELLOWSEASEA

PACIFIC OCEANPACIFIC OCEAN

SOUTH PACIFIC OCEANSOUTH PACIFIC OCEAN

NORTH PACIFIC OCEANNORTH PACIFIC OCEAN

ARCTIC OCEANARCTIC OCEAN

名古屋 NagoyaNagoya

台灣TaiwanTaiwan

INDIAN OCEANINDIAN OCEAN

BAY OF BAY OFBENGALBENGAL

溫哥華 VancouverVancouver

西雅圖 SeattleSeattle

elbourneMelbourne

梨 SydneySydney

黃金海岸 Gold CoastGold Coast布里斯本 BrisbaneBrisbane

奧克蘭 AucklandAuckland

舊金山 San FranciscoSan Francisco

聖荷西 San JoseSan Jose

奧斯汀 AustinAustin

墨西哥城 Mexico CityMexico City

丹佛 DenverDenver

拉斯維加斯 Las VegasLas Vegas

洛杉磯 Los AngelesLos Angeles鳳凰城 PhoenixPhoenix

安克拉治 AnchorageAnchorage

羅徹斯特 RochesterRochester

芝加哥 ChicagoChicago 水牛城 BuffaloBuffalo

克里夫蘭 ClevelandCleveland

夏威夷 HawaiiHawaii

達拉斯 DallasDallas

亞特蘭大 AtlantaAtlanta

波士頓 BostonBoston

哈瓦那 HavanaHavana

巴拿馬 PanamaPanama

邁阿密 MiamiMiami

里奇蒙 RichmondRichmond華盛頓 Washington D.C.Washington D.C.

雪城 SyracuseSyracuse

紐約 New YorkNew York費城 PhiladelphiaPhiladelphia巴爾的摩 BaltimoreBaltimore

聖地亞哥 SantiagoSantiago

聖保羅 San PauloSan Paulo

布宜諾斯艾利斯 Buenos AiresBuenos Aires

福岡 FukuokaFukuoka

台北 TaipeiTaipei


札幌 SapporoSapporo

大阪 OsakaOsaka

東京 TokyoTokyo

曼谷 BangkokBangkok

檳城 PenangPenang

新加坡 SingaporeSingapore

泗水 SurabayaSurabaya

胡志明市 Ho Chi Minh CityHo Chi Minh City

河內 HanoiHanoi

台北 TaipeiTaipei


馬尼拉 ManilaManila

峇里島BaliBali

雅加達 JakartaJakarta

台灣TaiwanTaiwan

多倫多 TorontoToronto

休士頓HoustonHouston

匹茲堡 PittsburghPittsburgh

仙台 SendaiSendai

ai

首爾 SeoulSeoul

吉隆坡 Kuala LumpurKuala Lumpur

永珍 VientianeVientiane

金邊 Phnom PenhPhnom Penh

聖路易 St. LouisSt. Louis

香港 Hong KongHong Kong

澳門 MacauMacau

52

■ Taipei - Honolulu service was suspend-

ed in September 2006.■ EVA introduced Taipei - Mumbai

(Bombay) passenger service on 10

December, 2006 with three flights per

week .

The Network■ EVA suspended service to Vientiane,

Laos in January 2006.■ Sydney service was suspended from

March 2006.■ EVA Air launched a new service Taipei -

Nagoya service with five scheduled

flights per week in July.

Air cargo destination only

Total 42 destinations

Los San Seattle Anchorage Atlanta Chicago

North Angeles Francisco

AmericaDallas Vancouver JFK Newark

SouthBrisbane Auckland

Pacific

Europe Vienna London Paris Amsterdam Brussels Frankfurt

Osaka Fukuoka Taipei Kaohsiung Hong Kong Macau

BangkokKuala

Penang JakartaDenpasar

Surabaya

AsiaLumpur Bali

SingaporeHo Chi

Bombay Manila Tokyo SapporoMinh City

PhnomSendai Seoul Delhi Nagoya

Penh

MiddleDubai

East

53

100% holdings.■ EVA invested in Concord Pacific Ltd.

with US$4,000,000 and obtained 100%

holdings.

EVA subsidiary companies are presented in

the following table.

Principal Subsidiaries■ Uni Japan Co., Ltd. stopped operating

and went into liquidation from June 2,

2006 to August 29, 2006. The liquida-

tion had been authorized by the local

government.■ EVA invested in Sky Castle Investment

Ltd. with US$5,000,000 and obtained

CompanyPrincipal

Location Date Founded Capital Share %Activities

Evergreen Airline GroundTaiwan Oct. 1990 NT$361.75 million 56.33%

Services Corp. handling

RTW AirTravel business Singapore Oct. 1989 SG$1.5 million 49.00%

Services(S) Pte. Ltd.

Green Siam Air Travel business Thailand May 1990 THB20 million 49.00%

Services Co., Ltd.

Evergreen Sky Airline catering Taiwan Oct. 1993 NT$1 billion 49.80%

Catering Corp.

Evergreen Air transport

Airways Service and aircraft Macau Dec. 1994 US$12,488 99.00%

(Macau) Ltd. leasing

Evergreen Aviation Aircraft repair

Technologies Co., and Taiwan Nov. 1997 NT$3.4 billion 80.00%

Ltd. maintenance

Hsiang-Li InvestmentTaiwan Jan. 2001 NT$1 billion 100%

Investment Corp. business

Evergreen Air Cargo terminalTaiwan Mar. 2000 NT$1.2 billion 60%

Cargo Service Corp. operation

PT Perdana

Andalan Air Travel business Indonesia May 1991 IDR 1.6 billion 49%

Service

Sky Castle InvestmentSamoa Feb. 2005 USD 5 million 100%

Investment Ltd. business

Concord Pacific InvestmentSamoa Apr. 2005 USD 4 million 100%

Ltd. business

Dec. 31, 2006

54

Important Resolutions by Shareholders and BOD

Summary of Important

Proposals1. Distribution of retained earn-

ings:

(1) NT$0.2 in cash dividends

will be distributed for each

share, amounting to

NT$749,977,384.

(2) Remuneration for directors

and supervisors amounted

to NT$10,900,000.

(3) Employee bonuses were

NT$52,320,000.

2. To amend the Articles of

Incorporation.

3. To amend Procedures for

Loaning Funds to Others and

Endorsements/Guarantees.

4. To amend Procedures for

Engaging in Derivatives Trad-

ing.

Result of

ResolutionAll shareholders present

agreed unanimously.

All shareholders present

agreed unanimously.


agreed unanimously.


agreed unanimously.

1. A resolution by the Board of Directors on

June 28, 2006 set August 2, 2006 as the

date of record for dividend distribution

and September 13 as the date for cash

dividend distribution.

2. By resolution of the Board of Directors

on July 11, 2006, EVA adjusted the cash-

dividend rate for shareholders to

NT$ 0.19354357 per share.

3. Remuneration for directors and supervi-

sors, and employee bonuses were dis-

tributed on July 31, 2006.

EVA operates in

accordance with amended

Articles of Incorporation.

EVA operates in


Procedures for Loaning

Funds to Others and

Endorsements/Guarantees.

EVA operates in


Procedures for Engaging in

Derivatives Trading.

Date of

Meeting

June 14, 2006

Important Shareholders' Resolutions

Execution

55

Important ProposalsProposal 1: To stipulate the converting-base date for the second unsecured convertible bond dur-

ing the last quarter of 2005.Proposal 2: To amend the subscribing ratio to 83.9945 shares for every 1,000 in holdings and set

the issue price to be NT$12 per share.Proposal 3: To amend the price of the second unsecured convertible bond to NT$13.51 on 26

January 2006.Proposal 1: To amend the Procedures for Loaning Funds to Others and Endorsements/

Guarantees.Proposal 2: EVA convened its shareholders' meeting on June 14, 2006 (Wednesday), and no stocks

could be transferred during the period of April 16 through June 14, as stipulated bylaw. In addition, EVA's second unsecured convertible bond could not be transferredduring this period.

To purchase two B767-300ERs from Fortune Leasing Co., Ltd. for NT$1,750,000,000.Proposal 1: President Chang Kuo-Wei is on leave without pay and deputized by Chief EVP Chen

Hsing-Te.Proposal 2: To accept the 2005 Financial Report.Proposal 3: To appoint SVP Wu Kuang-Hui and DSVP Tsai Ta-Wei to be Financial Manager and

Chief Accountant.Proposal 1: An audit of Internal Controls was in agreement and presented a Declaration of Internal

Control.Proposal 2: To accept the 2005 Consolidated Financial Report.Proposal 3: To accept the plan for distributing 2005 retained earnings.Proposal 4: To amend the proposal arrangement in the Rules of Shareholders' MeetingsProposal 5: To amend the Articles of Incorporation.Proposal 6: To amend Procedures for Engaging in Derivatives Trading.Proposal 1: To change the counterparty of the sale and leaseback for the third 777-300ER to Allco

Rentals (UK) Ltd. The selling price was US$155,000,000.Proposal 2: To sell two B767-300ERs to Aviation Financial Services at US$ 48,500,000.Proposal: To purchase one B747-400 from Forth Leasing Co., Ltd. For US$ 58,623,377.83.Proposal 1: To purchase 25% of shares in Shanghai International Cargo Ltd. for US$3,880,000 from

Sino Prime Ltd. through Concord Pacific Ltd.Proposal 2: To issue the 14th secured corporate bond.Proposal: President Chang Kuo-Wei is replaced by Chen Hsing-Te, effective on July 1,2006.EVA set August 2, 2006 as the date of record for dividend distribution with no stocks to be trans-ferred from July 29 through August 2, as stipulated by law. It also set September 13 as the date forcash-dividend distribution.Proposal 1: As the bondholder of the second unsecured convertible bond converted the corpo-

rate bond into common stock and increased the number of shares outstanding, EVAresolved to adjust cash dividend to NT$ 0.19354357 per share.

Proposal 2: To appoint JVP Richard Lee as Accountant.To purchase one MD-11 from Wells Fargo Bank Northwest N.A. for US$ 46,862,144.51.To stipulate the converting-base date for the second unsecured convertible bond during the thirdquarter of 2006.

To sell one MD-11 to Celestial Aviation Trading 17 Limited for US$ 55,000,000.

Proposal 1: To elect Hsu Po-Jung as Vice Chairman.Proposal 2: To sell 48,461,170 shares of Hsin Tao Power Company to Pieca Corporation at NT$25

per share, amounting to NT$ 1,211,529,250.Proposal 3: To purchase one spare engine from General Electric Company (GE) for approximately

US$ 22,000,000.

Date of Meeting

Important Resolutions by the Board of Directors

January 3, 2006

March 16, 2006

March 21, 2006

March 30, 2006

April 24, 2006

May 24, 2006

June 8, 2006

June 12, 2006

June 19, 2006

June 28, 2006

July 11, 2006

September 6, 2006

October 2, 2006

November 15,2006

December 28,2006

Operating Revenue 93,903,564 88,518,249 5,385,315 6 Operating Cost 90,334,648 80,858,499 9,476,149 12 Gross Profit from 3,568,916 7,659,750 (4,090,834) (53)OperationsOperating Expenses 6,906,700 6,808,750 97,950 1 Operating Income (3,337,784) 851,000 (4,188,784) (492)Non-Operating 3,101,477 2,071,997 1,029,480 50Income and GainsNon-Operating 2,027,617 1,786,306 241,311 14Expenses and Losses Income before Income (2,263,924) 1,136,691 (3,400,615) (299)TaxIncome Tax 416,648 189,369 227,279 120Benefit (Expenses) Cumulative effect of 160,691 - 160,691 -changes in accountingprincipleNet Income (1,686,585) 1,326,060 (3,012,645) (227)

56

Financial and Operating Results

The above differences had no major impact on EVA' s financial position.

Financial Results

Balance Sheet

ItemYear 2006 2005 Difference

Amount %Current Assets 31,663,684 26,424,512 5,239,172 19.83

Fixed Assets 78,892,242 67,946,716 10,945,526 16.11 Other Assets 18,845,517 22,811,541 (3,966,024) (17.39)Total Assets 141,168,129 128,523,279 12,644,850 9.84 Current Liabilities 34,250,760 31,374,815 2,875,945 9.17 Long-Term Liabilities 58,640,800 50,969,101 7,671,699 15.05 Other Liabilities 2,135,966 2,203,491 (67,525) (3.06)Total Liabilities 95,027,526 84,547,407 10,480,119 12.40 Common Stock 38,749,794 33,898,869 4,850,925 14.31Capital Surplus 4,580,118 3,424,986 1,155,132 33.73 Retained Earnings 1,890,782 4,390,564 (2,499,782) (56.94)

Funds and 11,766,686 11,340,510 426,176 3.76Investments

Total Stockholders' 46,140,603 43,975,872 2,164,731 4.92Equity

NT$(Thousand)

Income Statement

Item

Year2006 2005

Increase (Decrease)

Amount

Change

(%)

NT$(Thousand)

57

■ Analysis of deviation of more than 20% in gross profit margin:

Before and After Period

of Increase (Decrease)

Change Amount

Favorable (Unfavorable) VarianceVariance in

Sales Price

Variance in

Cost Price

Variance in Sales

Segmentation

Variance in

Volume

Other

Passenger (2,187,153) 1,449,904 (3,639,470) (102,090) 104,503 -Cargo (2,031,737) 2,524,806 (4,568,366) 58,195 (46,372) -Other 128,056 - - - - 128,056 Total (4,090,834) 3,974,710 (8,207,836) (43,895) 58,131 128,056

•Variance in sales price: The price increase this year led to positive results amountingto NT$ 3,974,710,000.

•Variance in cost price: The relentless climb in oil prices this year led to negativeresults amounting to NT$8,207,836,000.

•Variance in sales segmentation: Higher fuel costs for long- haul routes led to negativeresults amounting to NT$43,895,000.

•Variance in volume:Passenger: The addition of new routes led to positive results amounting toNT$104,503,000.Cargo: Decreased code-sharing frequency with other airlines led to negative resultsamounting to NT$46,372,000. Integrating the above variance led to positive results amounting to NT$58,131,000.

•Other:Higher income from in-flight sales led to positive results amounting to a total ofNT$128,056,000.

■ Lower net operating income was a result from the same reason as gross profit mar-

gins.■ Increased gain from disposal of equity investment contributed higher investment

income to EVA.

Cash Flow Analysis

Changes in Cash Flow Analysis Over Recent Two Years

ItemYear 2006 2005

Increase (Decrease)

Ratio%Ratio of Cash Flow(%) 13.00 13.00 (00.00)%Cash Flow Adequacy Ratio (%) 82.00 147.00 (44.22)%Ratio of Re-investment for Cash(%) 3.00 2.00 50.00 %

With higher operating revenue and reduced distribution of cash dividend, cash flow

from financing activities increased, and led to a higher ratio of re-investment for cash.

Remedy Measures for Negative Cash Balance

EVA expects to pay the capital expenditures by reducing investment on bond fund and

by increasing bank loans.

NT$(Thousand)

58

Cash Liquidity Analysis for the Coming Year

NT$(Thousand)

■ Operating activities: Oil prices for 2007 are expected to stay relatively low and loweroperating cost, so we estimated cash flow from operating activities to be higher thanin 2006.

■ Investment activities: We expect to decrease short-term bond-fund investments.■ Financing activities: For the newly delivered aircraft of 2007, we will increase both

long-term and short-term bank loans to pay the capital expenditures as well as repayloans and improve financial structure.

Net Cash Flow Remedy Measures for Negative

from Operating Cash Balance

Activities Cash Outflows Cash

Initial Cash During This During This Balance Investment Financing

Balance Year Year (Negative) Plans Plans

(1) (2) (3) (1)+(2)-(3)

2,997,459 6,600,000 24,859,738 (15,262,279) - 16,848,000

Impact of Major Capital Expenditures on Financial Operations in Recent Years

Capital Utilization and Major Capital Expenditure Resources

NT$(Thousand)Actual or Actual or Total

Expected Expected Capital

Resources Finish Date Required2007 2008 2009 2010

Purchase Financing 2010.12.31 50,000 30,000 - - 20,000

of ULD

(Unit Load

Devices)

Equipment

Purchase Financing 2010.12.31 200,000 150,000 - - 50,000

of Other

Equipment

Purchase Financing 2010.03.01 40,171,354 17,843,197 14,469,232 5,589,694 2,269,231

of

Aircraft

Expected future benefits■ By purchasing new A330-200, B777-300ER and B777-200LR aircraft, we estimate that

we can increase annual revenue by NT$1,385,000,000, NT$1,840,000,000 andNT$1,404,000,000 respectively for each model.

■ Entitling to tax incentives provided by the Statute for Upgrading Industries of ROC,an investment tax credit is available for the delivery of newly purchased aircraft.

Items

Actual or Expected Capital Utilization

2006 2005 2004 2003 2002

Operating Revenue 93,904 88,518 82,655 65,387 64,577

Operating Costs 97,241 87,667 77,940 62,894 59,520

Operating Profit (3,338) 851 4,715 2,493 5,058

Non-operating Income 3,101 2,072 1,122 905 593

Non-operating Expenses

and Loss2,028 1,786 2,154 2,182 3,233

Income before Tax (2,264) 1,137 3,683 1,216 2,417

Tax 417 189 440 180 220

Net Income (1,687) 1,326 3,243 1,396 2,637

Earnings per Share (EPS) (0.45) 0.39 1.06 0.55 1.19

2006 2005 2004 2003 2002

Current Assets 31,664 26,425 25,762 24,694 22,417

Fixed Assets 78,892 67,947 60,493 59,102 62,019

Total Assets 141,168 128,523 117,705 114,668 115,513

Current Liabilities 34,251 31,375 33,975 28,863 28,687

Long-term

Liabilities58,641 50,969 37,937 45,165 49,782

Total Liabilities 95,028 84,547 74,597 76,455 80,467

Share Capital 38,750 33,899 32,714 27,534 24,250

Shareholders'

Equity46,141 43,976 43,108 38,213 35,046

59

Condensed Balance Sheet for 2002 - 2006

NT$(Million)

Condensed Income Statement for 2002 - 2006

NT$(Million)

60

Revenue by Business Segment

NT$(Million)

Passenger Cargo Other Total

2006 46,326 49% 41,382 44% 6,196 7% 93,904 100%

2005 42,653 48% 39,932 45% 5,934 7% 88,518 100%

2004 38,349 46% 38,534 47% 5,772 7% 82,655 100%

2003 29,196 45% 31,570 48% 4,621 7% 65,388 100%

2002 32,514 50% 27,519 43% 4,545 7% 64,577 100%

Revenue and Operating Margin

2002 2003 2004 20062005

Million

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

Revenue

ProfitMargin

100.000

90.000

80.000

70.000

60.000

50.000

40.000

30.000

20.000

10.000

0

Total Revenue-2006

Passenger Services49%

Cargo Services44%

Other7%

61

Operating Costs

NT$(Million)

2006 2005 2004 2003 2002

Fuel 39,636 32,080 23,474 15,300 13,637

Staff 7,930 7,548 8,050 7,009 6,324

Lease Rental 10,393 10,600 9,406 8,384 7,442

Depreciation and Amortization 6,409 4,721 4,863 4,813 4,734

Commissions 7,223 7,399 7,240 6,188 5,853

Landing, Parking and Routes 8,909 8,904 8,764 7,515 7,121

Maintenance 5,667 5,694 5,835 5,283 5,703

Other 11,075 10,721 10,308 8,402 8,706

Total 97,241 87,667 77,940 62,894 59,520

Costs-2006

8%

41%

6%7%7%

11%

9%11%

Staff Fuel Maintenance

Commission Depreciation & Amortization Lease Rental

Landing,Parking& Routes Other

62

Financial Ratio Analysis

Item Year 2006 2005 2004 2003 2002

Financial StructureDebt Ratio 67.32 65.77 63.38 66.68 69.66

(%)Ratio of Long-term Liabilities and

132.82 139 134 141 137Stockholders' Equity to Fixed Assets

Current Ratio 92.45 85 76 86 79

Solvency (%) Quick Ratio 54.23 42 44 51 45

Times Interest Earned Ratio(Times) 0.05 2.70 2.75 1.53 1.78

Average Collection Turnover (Times) - - - - -

Operating Average Collection Days for Receivables - - - - -

Performance Average Inventory Turnover (Times) - - - - -

Analysis Average Days for Sale of Goods - - - - -

Fixed Assets Turnover (Times) 1.28 1.37 1.38 1.08 1.04

Total Assets Turnover (Times) 0.67 0.69 0.70 0.57 0.56

Return on Total Assets (%) (0.16) 2.14 4.01 2.61 4.21

Return on Stockholders' Equity (%) (3.74) 3 8 4 8

ProfitabilityOperating Income to Paid -in

(8.61) 1 14 9 21Capital (%)

Return on Sales (%) (1.8) 2 4 2 4

Earnings per Share (NTD) (0.45) 0.39 1.06 0.55 1.19

Ratio of Cash Flows 13.00 13 25 25 33

Cash Flow Cash Flow Adequacy Ratio 82.00 147 235 233 136

Ratio of Re-Investment for Cash 3.00 2 8 6 8

Degree of Operating(1.7) 61 14 21 10

Degree of Leverage Leverage

Financial Leverage 0.63 (0.31) 1.67 7.14 2.35

Note:(1) Debt Ratio: Total Liabilities/Total Assets(2) Ratio of Long-term Liabilities and Stockholders' Equity to Fixed Assets:

(Net Stockholder Equity + Long-term Liabilities) / Net Fixed Assets(3) Current Ratio: Current Assets/Current Liabilities(4) Quick Ratio: Liquid Assets/Current Liabilities(5) Times Interest Earned Ratio (Times): Earning Before Taxes and Interest Expense/Interest Expense(6) Fixed Assets Turnover: Net Sales/ Fixed Assets(7) Total Assets Turnover: Net Sales/Total Assets(8) Return on Total Assets: (Income after Tax + Interest Expenses)/Total Assets(9) Return on Stockholders' Equity: Income after Tax/Average Stockholders' Equity(10) Operating Income to Paid -in Capital: Operating Income/Capital(11) Return on Sales: Income after Tax/ Net Sales(12) Ratio of Cash Flows: Fund from Operating/Current Liability(13) Cash Flow Adequacy Ratio: 5-Year Sum of Cash from Operation/5-Year Sum of Capital Expenditures, Incremental

Inventory, and Cash Dividends(14) Ratio of Re-investment for Cash: (FFO- Cash Dividend)/ (Gross Fixed Assets + Long-term Investment + Other

Assets + Working Capital)(15) Degree of Operating Leverage: (Net Sales - Operating Variable Cost and Expense) / Operating Income(16) Financial Leverage: Operating Income / (Operating Income - Interest Expense)

63

Operating Results

2006 2005 2004 2003 2002

Overall Capacity (Million) 9,778 9,894 9,884 8,727 7,758

Overall Traffic (Million) 7,344 7,364 7,439 6,345 5,882

Overall Load Factor (%) 75.1 74.4 75.3 72.7 75.8

Overall Yield (NT$) 11.94 11.21 10.33 9.58 10.21

Passenger Capacity (Million) 30,367 29,348 27,353 25,023 25,184

Passenger Traffic (Million) 24,277 23,099 21,755 18,133 19,508

Passengers Carried ('000) 6,172 5,904 5,438 4,321 4,794

Passenger Load Factor (%) 80.0 78.7 79.5 72.5 77.5

Passenger Yield (NT$) 1.91 1.85 1.76 1.61 1.67

Cargo Capacity (Million) 7,045 7,253 7,423 6,475 5,491

Cargo Traffic (Million) 5,160 5,285 5,481 4,713 4,126

Cargo Carried (Tons) 829,952 844,099 858,989 734,900 619,435

Cargo Load Factor (%) 73.2 72.9 73.9 72.8 75.1

Cargo Yield (NT$) 8.02 7.56 7.03 6.70 6.67

Unit Cost (NT$) 9.94 8.86 7.89 7.21 7.67

Number of Aircraft 49 51 50 45 42

Number of Employees 5,158 5,098 4,934 4,469 4,394

Capacity per Employee

(Thousand)1,896 1,941 2,003 1,953 1,765

Traffic per Employee

(Thousand)1,424 1,445 1,508 1,420 1,339

Revenue per Employee

(Thousand)18,205 17,363 16,752 14,631 14,697

Passengers Carried and Load Factor

3 ,0 0 0

3 ,5 0 0

4 ,0 0 0

4 ,5 0 0

5 ,0 0 0

5 ,5 0 0

6 ,0 0 0

6 ,5 0 0

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6

( '0 0 0 )

5 0

5 5

6 0

6 5

7 0

7 5

8 0

8 5

%

P ax L /F

64

Cargo Carried and Load Factor

1 0 0

2 0 0

3 0 0

4 0 0

5 0 0

6 0 0

7 0 0

8 0 0

9 0 0

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6

T on s( '0 0 0 )

5 0

5 5

6 0

6 5

7 0

7 5

8 0

8 5

%

C argo T o n s L /F

Staff Productivity

0

500

1000

1500

2000

2500

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6

T-km

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

NT$'000

Capacity per employee Traff ic per employee Revenue per employee

Yield, Unit Cost and Load Factors

5

6

7

8

9

10

11

12

13

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6

NT$/t-km

55

60

65

70

75

80

85

%

Unit Cost Overall Yield Overall Load Factor

65

Financial Statements

Independent Auditors' Report

The Board of Directors

EVA Airways Corp.:

We have audited the balance sheets of EVA Airways Corp. (the "Company") as of

December 31, 2006 and 2005, and the related statements of operations, changes in

stockholders' equity, and cash flows for the years then ended. These financial state-

ments are the responsibility of the Company's management. Our responsibility is to

express an opinion on these financial statements based on our audits. We did not

audit the financial statements of certain non-consolidated investee companies. The

Company's investments in these companies as of December 31, 2006 and 2005, were

evaluated using the equity method, and the resulting book values of these investments

amounted to NT$2,435,421 thousand (US$74,706 thousand) constituting 1.73% of total

assets and NT$2,325,362 thousand (US$70,788 thousand) constituting 1.81% of total

assets, respectively. The resulting investment gains amounted to NT$306,578 thou-

sand (US$9,433 thousand) constituting (13.54)% of loss before income tax and

NT$292,026 thousand (US$9,078 thousand) constituting 25.69% of income before

income tax for the years 2006 and 2005, respectively. The financial statements of these

companies were audited by other auditors, whose reports were furnished to us, and

our opinion, insofar as it relates to these amounts included for the said investee com-

panies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the "Regulations Governing Auditing

and Certification of Financial Statements by Certified Public Accountants" and

Republic of China generally accepted auditing standards. Those standards and regu-

lations require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts and disclosures

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 and the reports of the

other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the

financial statements referred to in the first paragraph present fairly, in all material

respects, the financial position of the Company as of December 31, 2006 and 2005,

and the results of its operations and its cash flows for the years then ended, in con-

formity with Republic of China generally accepted accounting principles.

The Company adopted newly issued SFASs, the effects of which as of and for the

years ended December 31, 2006 and 2005, are as stated in note 3 to the accompany-

ing financial statements.

The accompanying financial statements as of and for the year ended December

31, 2006 and 2005, have been translated into United States dollars. We have audited

the translation, and in our opinion, the financial statements expressed in New Taiwan

dollars have been translated into United States dollars on the basis set forth in note

2(t) of the notes to the accompanying financial statements.

Taipei, Taiwan (the Republic of China)

February 16, 2007

Note to Readers

The accompanying non-consolidated financial statements are intended only to

present the financial position, results of operations and cash flows in accordance with

the 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 accepted and applied in the

Republic of China.

This document is an English translation of a report originally issued in Chinese. In

the event of a conflict between the English translation and the original Chinese ver-

sion, the Chinese language auditors' report shall prevail.

66

67

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68

Income (loss) Net income Income beforebefore income tax (loss) income tax Net income

NT US NT US NT US NT USEarnings per share (expressed in dollars) (note 4(q)): dollars dollars dollars dollars dollars dollars dollars dollars

Basic earnings per share:Income (loss) before cumulative effect of changes

in accounting principle $ (0.61) (0.02) (0.49) (0.01) 0.33 0.01 0.39 0.01Cumulative effect of changes in accounting principle 0.06 - 0.04 - - - - -Net income (loss) $ (0.55) (0.02) (0.45) (0.01) 0.33 0.01 0.39 0.01Diluted earnings per share:Income before cumulative effect of changes inaccounting principle - - - - 0.31 0.01 0.37 0.01Cumulative effect of changes in accounting principle - - - - - - -Net income $ - - - - 0.31 0.01 0.37 0.01

EVA AIRWAYS CORP.Statements of Operations

For the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars and U.S. Dollars, Except Earnings per Share)

2006 2005NT dollars US dollars NT dollars US dollars

Operating revenue (note 5) $ 93,903,564 2,889,341 88,518,249 2,751,577

Operating cost (notes 5 and 10) (90,334,648) (2,779,528) (80,858,499) (2,513,475)Gross profit from operations 3,568,916 109,813 7,659,750 238,102

Operating expenses (notes 5 and 10) (6,906,700) (212,514) (6,808,750) (211,649)Operating income (loss) (3,337,784) (102,701) 851,000 26,453

Non-operating income and gains:Interest income (note 4(s)) 163,130 5,019 108,262 3,365Investment income (note 4(e)) 1,009,463 31,061 796,799 24,769Gains on disposal of property, plant and equipment, net 217,392 6,689 763,659 23,738Gains on sale of investments, net (note 4(b)) 793,944 24,429 106,340 3,306Exchange gains, net 583,321 17,948 31,169 969Other income 334,227 10,284 265,768 8,261

3,101,477 95,430 2,071,997 64,408

Non-operating expenses and losses:Interest expenses, net of capitalized interest of NT$410,770

(US$12,639) and NT$315,476 (US$9,807) in 2006 and 2005,respectively (notes 4(f) and 4(s)) (1,961,357) (60,349) (1,749,587) (54,386)

Losses on valuation of financial assets (4,972) (153) - -Other losses (note 4(b)) (61,288) (1,886) (36,719) (1,141)

(2,027,617) (62,388) (1,786,306) (55,527)

Income (loss) before income tax (2,263,924) (69,659) 1,136,691 35,334

Income tax benefit (note 4(o)) 416,648 12,820 189,369 5,886

Income (loss) before cumulative effect of changes in accountingprinciple (1,847,276) (56,839) 1,326,060 41,220

Cumulative effect of changes in accounting principle (net of income tax expenses of NT$53,564 (US$1,648) (notes 3 and 4(o)) 160,691 4,944 - -

Net income (loss) $ (1,686,585) (51,895) 1,326,060 41,220

69

EV

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70

EVA AIRWAYS CORP.Statements of Cash Flows

For the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars and U.S. Dollars)

2006 2005

NT dollars US dollars NT dollars US dollars

Cash flows from operating activities:

Net income (loss) $ (1,686,585) (51,895) 1,326,060 41,220

Adjustments to reconcile net income (loss) to net cash

flow provided by operating activities:

Depreciation 6,113,356 188,103 4,436,702 137,914

Amortization and maintenance expense 1,198,250 36,869 1,215,966 37,798

Amortization expense recorded as interest expenses 24,766 762 15,710 488

Gains on sale of investments, net (793,944) (24,429) (106,340) (3,306)

Gains on disposal and obsolescence of property, plant

and equipment, net (187,038) (5,755) (733,276) (22,794)

Exchange gains arising from disposal of foreign operating units (369,383) (11,366) - -

Provision for unrealized exchange gain from long-term borrowings (11,402) (351) (9,156) (285)

Investment income (1,009,463) (31,061) (796,799) (24,769)

Amortization of deferred gain from sale and leaseback of fixed assets (952) (29) (89,765) (2,790)

Amortization of other deferred gain (166,564) (5,125) (417,913) (12,991)

Proceeds from cash dividends on long-term equity investments 466,740 14,361 158,139 4,916

Deferred income tax benefit (414,587) (12,757) (326,923) (10,162)

Decrease in financial assets at fair value thought profit or loss-current 473,906 14,582 - -

Decrease (increase) in notes receivable (1,415) (44) 6,838 213

Increase in accounts receivable (including related parties) (260,030) (8,001) (743,069) (23,098)

Decrease in other receivables (including related parties) 87,844 2,703 34,722 1,079

Increase in inventories (806,211) (24,806) (646,643) (20,101)

Increase in prepaid expenses (287,997) (8,861) (320,622) (9,966)

Decrease (increase) in other prepayments 116,112 3,573 (434,179) (13,496)

Decrease (increase) in other current assets 7,444 229 (48,502) (1,508)

Increase in financial assets at fair value through profit or loss-noncurrent (9,841) (303) - -

Increase in financial liabilities at fair value through profit or loss-current 255,284 7,855 - -

Increase in financial liabilities at fair value through profit or loss-noncurrent 431,767 13,285 - -

Decrease in tax payable - - (514,559) (15,994)

Increase in notes and accounts payable (including related parties) 94,565 2,910 39,733 1,235

Increase (decrease) in other payables (including related parties) (960,410) (29,551) 452,869 14,077

Increase in accrued expenses 246,492 7,584 899,772 27,969

Increase in unearned revenue 1,193,952 36,737 860,362 26,744

Decrease (increase) in other financial assets-current 638,807 19,656 (535,294) (16,640)

Increase in other current liabilities 427,142 13,143 291,978 9,076

Decrease in accrued employee retirement liabilities (132,057) (4,063) (122,280) (3,801)

Increase in other liabilities 4,643 143 225,640 7,014

Cumulative effect of changes in accounting principle (214,255) (6,592) - -

Net cash provided by operating activities 4,468,936 137,506 4,119,171 128,042

71

Cash flows from investing activities:

Decrease (increase) in available-for-sale financial assets-current (3,951,045) (121,571) 2,743,292 85,275

Withdrawal of long-term equity investments, net 6,480 200 152,937 4,556

Proceeds from sale of available-for-sale financial assets-noncurrent 162 4 - -

Proceeds from sale of financial assets carried at cost-noncurrent 1,211,529 37,278 - -

Payments for purchase of available-for-sale financial assets-noncurrent - - (46,354) (1,459)

Payments for purchase of long-term equity investments under

equity method (295,438) (9,091) (2,566) (81)

Proceeds from disposal of property, plant and equipment 7,006,173 215,575 3,869,120 120,271

Payments for purchase of property, plant and equipment (22,013,123) (677,327) (5,848,187) (181,790)

Decrease (increase) in other assets (47,460) (1,461) 73,852 2,296

Decrease (increase) in refundable deposits 4,905,640 150,943 (99,033) (3,079)

Increase in deferred charges (2,119,681) (65,221) (2,689,690) (83,609)

Net cash used in investing activities (15,296,763) (470,671) (1,846,629) (57,620)

Cash flows from financing activities:

Increase in short-term borrowings 20,040,000 616,615 11,919,662 370,521

Increase in long-term borrowings 23,105,000 710,923 11,662,169 362,517

Redemption of short-term borrowings (22,639,662) (696,605) (10,519,958) (327,011)

Redemption of long-term borrowings (7,873,735) (242,269) (9,480,175) (294,690)

Installment payments for purchase of property, plant and equipment (2,389,495) (73,523) (2,266,687) (70,460)

Installment payments for purchase of inventories - - (746,530) (23,206)

Redemption of lease liability (1,767,821) (54,394) (751,707) (23,367)

Payments of cash dividends (749,977) (23,313) (1,646,147) (49,330)

Cash subscription 4,320,000 133,087 - -

Payment of employees' bonuses and directors' and

supervisors' remuneration (63,220) (1,965) (71,574) (2,145)

Net cash provided by (used in) financing activities 11,981,090 368,556 (1,900,947) (57,171)

Effect of exchange rate changes on cash - 416 - (3,249)

Net increase in cash and cash equivalents 1,153,263 35,807 371,595 10,002

Cash and cash equivalents at beginning of year 1,844,196 56,140 1,472,601 46,138

Cash and cash equivalents at end of year $ 2,997,459 91,947 1,844,196 56,140

Additional disclosure of cash flow information:

Cash payments of interest (excluding capitalized interest expense) $ 1,818,517 55,954 1,560,229 48,500

Cash payments of income tax $ 12,817 394 808,321 25,127

Supplemental schedule of noncash investing and financing activities:

Current portion of long-term borrowings $ 9,104,852 279,290 5,860,213 178,393

Inventory transferred from fixed assets $ 5 - 150 5

Translation adjustments $ (853,500) (16,627) 223,373 (34,840)

Unrealized gains or losses on financial instruments $ 39,802 1,221 (141,644) (4,280)

72

1. Organization and Business Scope

EVA Airways Corp. (the Company) was incorporated on April 7, 1989, as a corpora-

tion limited by shares under special permission of the Ministry of Transportation

and Communications and under the Company Act of the Republic of China (ROC).

The Company commenced commercial operations on July 1, 1991.

The Company's business activities are

1.1 to engage in fixed-wing aircraft transport business, scheduled air transport

business, and nonscheduled air transport business;

1.2 to carry on the business of freight agent, including operation, transportation

and maintenance;

1.3 to repair and maintain fuselages, aircraft engines, navigational instruments

and related equipment, etc.;

1.4 to carry on the business of marketing aircraft facilities, equipment, and fit-

tings;

1.5 to process and manufacture machinery and spare parts;

1.6 to publish magazines in the field of aviation;

1.7 to provide on-the-job training delegated by other organizations and entities

(no recruitment from the general public is allowed);

1.8 to engage in maintaining flying facilities for navigational training;

1.9 to engage in import and export trading for the foregoing activities (excluding

businesses requiring a permit);

1.10 to provide consultant services for business operation and management;

1.11 to provide general advertising services;

1.12 to engage in the retailing of tobacco and alcohol;

1.13 to engage in general merchandise activities;

1.14 to engage in the retailing of food and beverages;

1.15 to engage in the retailing of apparel;

EVA AIRWAYS CORP.Notes to Financial Statements

December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars and U.S. Dollars Unless Otherwise Specified)

73

1.16 to engage in the retailing of umbrellas;

1.17 to engage in the retailing of hats and caps;

1.18 to engage in the retailing of books and stationery;

1.19 to engage in the retailing of sporting goods;

1.20 to engage in the retailing of toys and amusement goods;

1.21 to engage in the retailing of watches and clocks;

1.22 to engage in the retailing of glasses;

1.23 to engage in the retailing of weights and measures;

1.24 to engage in the retailing of jewelry and precious metals;

1.25 to engage in the retailing of telecommunication equipment;

1.26 to engage in the retailing of photographic equipment;

1.27 to carry out any business which is not forbidden or restricted by the applica-

ble laws and regulations, excluding those requiring licensing.

As of December 31, 2006 and 2005, the Company had 5,158 and 5,098 employees,

respectively.

2. Summary of Significant Accounting Policies

The Company prepared the accompanying financial statements in accordance with

ROC generally accepted accounting principles. The preparation of financial state-

ments in conformity with the aforementioned guidelines and principles requires

management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities

as at the date of the financial statements and the amount of revenue and expenses

reported during the reporting period. Actual results could differ from those

assumptions and estimates.

The major accounting policies and basis of measurement used in preparing the

financial statements are summarized below.

(a) Foreign currency transactions and translations

The Company maintains its books in New Taiwan dollars. Foreign currency

74

transactions during the year are translated at the exchange rates on the trans-

action dates. Foreign currency-denominated assets and liabilities are translat-

ed into New Taiwan dollars at the exchange rate prevailing on the balance

sheet date, and the resulting translation gains or losses are recognized as non-

operating income or expenses. In accordance with amended Statement of

Financial Accounting Standards (SFAS) No. 14 "The Effects of Changes in

Foreign Exchange Rates", commencing from January 1, 2006, non-monetary

assets and liabilities that are measured in terms of historical cost in a foreign

currency are translated using the exchange rate at the date of the transaction.

Non-monetary assets and liabilities denominated in foreign currencies that are

stated at fair value are translated into NT dollars at foreign exchange rates rul-

ing at the dates the fair value was determined. If the financial assets or liabili-

ties are evaluated at fair value through profit or loss, the resulting unrealized

exchange income (loss) from such translations is reflected in the accompany-

ing non-consolidated statements of income. If the adjustments of financial

assets or liabilities are evaluated at fair value through stockholders' equity, the

resulting unrealized exchange income (loss) from such translations is recorded

as a separate component of stockholders' equity.

For equity investments in foreign subsidiary companies which are accounted

for by the equity method, the translation differences resulting from translating

foreign financial statements from the functional currency into the reporting

currency are reported as cumulative translation adjustments. Cumulative

translation adjustments are reported as a separate component of stockhold-

ers' equity.

(b) Convenience translation into U.S. dollars

The financial statements are stated in New Taiwan dollars. Assets and liabil-

ities are translated at the rate of exchange at the balance sheet date.

Income statement accounts are translated at the average rates during the

year. The related translation adjustments are reported as a component of

shareholders' equity.

75

(c) Translation of foreign currency for foreign operating units

The Company regards the aircraft purchased with its own US dollar funds and

US dollar loans and operated for international passenger and cargo trans-

portation business as "foreign operating units".

The US dollar-denominated aircraft purchase costs and the related US dollar

loans at the balance sheet date are translated into New Taiwan dollars at the

exchange rates prevailing on the balance sheet date. The US dollar aircraft

depreciation amounts are translated into New Taiwan dollars at the current

year's average exchange rate. The translation differences resulting from these

translations are reported as cumulative translation adjustments.

The lease assets and lease liability arising from capital lease of aircraft at the

balance sheet date are translated into New Taiwan dollars at the exchange

rates prevailing on the balance sheet date. The US dollar leased aircraft

depreciation amounts are translated into New Taiwan dollars at the current

year's average exchange rate. The translation differences resulting from these

translations are reported as cumulative translation adjustments.

In addition, the translation differences resulting from the translation of refund-

able deposits for aircraft leases into New Taiwan dollars at the exchange rate

prevailing on the balance sheet date are also reported as cumulative transla-

tion adjustments.

(d) Criterion to classify assets and liabilities as current or noncurrent

Current assets are cash and other assets that a business will convert to cash or

use up in a relatively short period of time, one year or one operating cycle,

whichever is longer. Current liabilities are debts due within one year or one

operating cycle, whichever is longer.

(e) Asset impairment

76

In accordance with Statement of Financial Accounting Standards No. 35,

"Impairment of Assets", the Company assesses at each balance sheet date

whether there is any indication that an asset (individual asset or cash-generat-

ing unit) other than goodwill may have been impaired. If any such indication

exists, the Company estimates the recoverable amount of the asset. The

Company recognizes impairment loss for an asset whose carrying value is

higher than the recoverable amount.

The Company reverses an impairment loss recognized in prior periods for

assets other than goodwill if there is any indication that the impairment loss

recognized no longer exists or has decreased.

The carrying value after the reversal should not exceed the recoverable

amount or the depreciated or amortized balance of the assets assuming no

impairment loss was recognized in prior periods.

The Company assesses the cash-generating unit to which goodwill is allocated

on an annual basis and recognizes an impairment loss on the carrying value in

excess of the recoverable amount.

(f) Cash and cash equivalents

Cash includes cash on hand, savings and checking deposits, fixed time

deposits, cash equivalents, etc. The Company considers all highly liquid

debt instruments purchased with a maturity of three months or less to be

cash equivalents.

(g) Financial assets

The Company adopted Statement of Financial Accounting Standard No. 34

"Financial Instruments: Recognition and Measurement" commencing from

January 1, 2006. Financial assets are classified into three accounts: financial

assets at fair value through profit or loss; available-for-sale financial assets; and

financial assets carried at cost.

77

The Company adopted transaction-date accounting for financial instrument

transactions. At the beginning of recognition, financial instruments are evalu-

ated at fair value. Except for trading-purpose financial instruments, acquisition

cost or issuance cost is added to the original recognized amount.

The financial instruments the Company held or issued are classified into the

following accounts in accordance with the purpose of holding or issuing after

the original recognition.

1. Financial assets at fair value through profit or loss: The main purposes of

the financial instruments are selling or repurchasing in the short term.

Except for the derivatives that the Company held for hedging purposes

and are considered to be effective, all derivatives should be classified

into this account.

2. Available-for-sale financial assets: These are evaluated at fair value, and any

changes are recorded as a separate component of stockholders' equity. If

there is evidence of impairment, impairment loss should be recognized. If

the impairment losses decrease subsequently, the decreased amount of

impairment for equity financial instruments cannot be reversed. If the

impairment loss on debt financial instruments decreases and is apparently

related to events that occurred after the impairment, the decreased amount

of impairment loss should be reversed and recognized in the accompany-

ing non-consolidated statements of income.

3. Financial assets carried at cost: Equity investments which cannot be evaluat-

ed at fair value are booked at original cost. If there is evidence of impair-

ment, impairment loss should be recognized, and the impairment amount

cannot be reversed.

The investments of the Company as of December 31, 2005, are classified into

short-term investments and long-term investments, in accordance with their

holding purposes. Investments are accounted for at acquisition cost and are

evaluated at the lower of cost or market value. The market value used for pub-

78

licly listed stocks is the average closing price of the last month of the period.

The market value of open-end mutual funds is based on the net asset value of

the mutual funds at the balance sheet date. Devaluation loss on long-term

investments is recorded under stockholders' equity. Devaluation loss on short-

term investments is recorded in the accompanying non-consolidated state-

ments of income.

(h) Derivative financial instruments and hedging

Derivative financial instruments held by the Company were to manage foreign

exchange rate and interest rate risk exposure on foreign-currency-denominat-

ed assets and liabilities. According to this policy, derivative financial instru-

ments held or issued by the Company were for hedging. When derivative

financial instruments no longer are for hedging, they are treated as financial

instruments held for trading.

Fair value hedges, cash flow hedges, and hedges of a net investment in a for-

eign operation that met all the conditions of hedge accounting were netted,

with the resulting amount presented as gain or loss. The Company adopted

cash flow hedges, and gain or loss from hedging instruments was recognized

as an adjustment to stockholders' equity.

(i) Inventories

Inventories represent parts and supplies for maintenance of aircraft, and

merchandise to sell during flights. Except for merchandise, which is stat-

ed at the lower of cost or market value, parts and supplies are stated at

cost less allowance for slow-moving and obsolete items. Cost is calculat-

ed by the weighted-average method, and market value represents net

realizable value.

(j) Long-term equity investments

Long-term equity investments in which the Company owns 20% or less than

79

20% of the investee's voting shares but is able to exercise significant influence

over the investee's operating and financial policies are accounted for by the

equity method.

The difference between the selling price and the book value of the long-term

equity investments under the equity method is recognized as disposal gain or

loss in the accompanying non-consolidated statements of income. If there is

capital surplus resulting from long-term equity investments, the capital surplus

should be debited to disposal gain/loss based on the disposal ratio.

When the Company owns more than 50% of an investee's voting stock, it

becomes the parent of its subsidiary. For general-purpose financial reporting,

a parent and its subsidiaries present consolidated financial statements at the

end of the half-year and the end of the fiscal year.

The Company adopted amended SFAS No. 5 "Long-term Investments under

Equity Method" commencing from January 1, 2006. If the differences come

from the assets that can be depreciated, depleted or amortized, then the

Company shall amortize such differences over estimated remaining economic

lives. If the differences come from discrepancies between the carrying

amounts of assets and their fair market values, then the Company shall offset

all unamortized differences when conditions making such over- or under-valua-

tion are no longer present. When the investment cost exceeds the fair value

of identifiable net assets acquired, the excess should be recorded as goodwill.

When the fair value of identifiable net assets acquired exceeds the cost, the

difference should be assigned to non-current assets acquired proportionate to

their respective fair values. If these assets are all reduced to zero value, the

remaining difference should be recognized as extraordinary gain.

Unrealized gains or losses resulting from inter-company transactions between the

Company and its investees accounted for by the equity method are deferred.

Unrealized gains or losses derived from transactions involving depreciable or

amortizable assets are amortized over the useful lives of the related assets. Gains

or losses from other transactions are recognized when realized.

80

If the stockholders' equity of an investee company becomes negative, and

the Company guaranteed the investee company's liability or made financial

commitments to the investee company, or the deficit appears to be short

term, then the Company continues to record investment losses thereon; if

the book value of long-term investment is insufficient to offset against

investment losses, the Company offsets it against accounts receivable and

deferred credits.

(k) Property, plant, and equipment and related depreciation

Property, plant, and equipment are stated at acquisition cost. For construction

of buildings and purchase of machinery and equipment, the Company capital-

izes as part of the costs of related assets the related interest costs incurred

before commencing to use such assets. Routine repair and maintenance are

charged to current operations. Major repairs and maintenance, additions,

enhancements and replacements are capitalized in the cost of related assets.

Depreciation of plant and equipment is provided over the estimated useful

lives of the respective assets using the straight-line method. Leasehold

improvements are depreciated over the shorter of the lease term or estimated

useful lives using the straight-line method. The useful lives of main property,

plant and equipment are as follows:

Buildings: 55 years

Machinery and equipment: 3~18 years

Aircraft: 18 years

Rotable parts: 5~18 years

Gains (losses) on disposal of such asset are presented as non-operating

income and gains (expenses and losses).

81

(l) Lease

The Company sold and leased back aircraft under operating lease agree-

ments. If the translation differences resulting from the translation of the for-

eign currency cost of the aircraft and the related US dollar loans into New

Taiwan dollars at the exchange rate prevailing on the selling date and histori-

cal rates and the gains or losses from disposal of the aircraft resulting from the

translation of the US dollar selling price and US dollar book value of aircraft at

the exchange rate prevailing on the selling date were net gains, these gains

should be deferred using the unearned gain on sales-leaseback account

according to ROC Statement of Financial Accounting Standards (SFAS) No. 2,

"Leases", otherwise they should be taken as a loss.

The amortization of unearned gain on sales-leaseback depends on the nature

of the lease. For operating leases, the unearned gain is amortized to rental

expense using the lease term. For capital leases, however, the unearned gain

is amortized to depreciation expense using the leased property's useful eco-

nomic life or lease term based on the nature of those transactions.

The leased property is valued at the smaller of the following two values: (a) the

present value of all future rental payments (less the lessee's executory costs)

plus the bargain purchase price or the lessee's guaranteed residual value and

(b) the market value of leased property at the inception date of the lease.

All leased properties under capital leases are depreciated. If the lease con-

tract contains a bargain purchase option or allows the transfer of ownership

at the end of the term, then the properties under this type of lease are

depreciated based on the leased property's useful economic life, otherwise

the lease term is used.

The lessee's periodic rental payment covers two parts: (i) the purchase price

of the leased property and (ii) the interest expense due to long-term or

installment financing. Therefore, the lessee recognizes both a lease liability

82

and interest expense in each period. The interest expense is determined

using the following rules:

a) If the value of the leased property is determined using the maximum bor-

rowing rate for nonfinancial institutions (determined by the ROC Ministry of

Finance) on the inception date of the lease, then the interest expense is cal-

culated based on the beginning balance of the lease payable and the maxi-

mum borrowing rate.

b) If the value of the leased property is determined by its market price, then

the interest expense is also calculated based on the beginning balance of

the lease payable and the maximum borrowing rate. However, a service

charge is calculated based on the beginning balance of the lease payable

and the difference between the lessor's interest rate implicit in the lease

and the maximum borrowing rate.

If there is any unguaranteed residual value at the end of the lease term, the

lessee calculates the imputed interest expense based on the rental payments,

the guaranteed residual value, and the leased property's market value using

the rules described in the two paragraphs above.

The lessee's lease payable is determined by subtracting the interest expense

and the service charge from the periodic rental payment.

The lease liability is classified as either a current liability or long-term liability,

depending on the expiry date.

(m) Deferred charges

Deferred charges principally include the capitalized costs for computer soft-

ware, leasehold improvements, "D" check maintenance for aircraft and

engines and others. These costs are amortized using the straight-line method

over the shorter of the estimated years in which such assets are economically

beneficial to the Company's operation or the lease terms.

83

(n) Other financial assets

Other financial assets are financial assets other than cash and cash equivalents,

financial assets at fair value through profit and loss, accounts receivable and

other receivables, funds and investments, and refundable deposits.

(o) Convertible bonds payable

In accordance with ROC SFAS No. 36, paragraph 124, for compound equity

financial instruments issued prior to the effective date (January 1, 2006) of the

statement, the equity component cannot be separated from the financial

instruments, and calculation of accumulated changes in accounting policies is

not required. The Company's convertible bonds payable were issued in

August 2004.

The Company's convertible bonds payable are with a resell option. Therefore,

the difference between issue price and face value is amortized between the

issue date and maturity date of the resell option. The unamortized amount

was recorded as a contra account of convertible bonds payable.

The cost of issuing convertible bonds is capitalized as deferred costs and amor-

tized as interest expense over the period between the issuing date and reselling

date. When the bondholders exercise the reselling right, the unamortized

amount is recorded as interest expense based on the reselling ratio.

When bondholders exercise the conversion right, the number of shares the

bond is converted into is calculated based on the face value of the convertible

bond and the conversion price on the conversion date. The conversion price

in excess of the par value and the unamortized bond issuance costs are

recorded as capital surplus.

The Company's adopted SFAS No. 34 "Financial Instruments: Recognition and

Measurement" on January 1, 2006. Convertible bonds were recorded as finan-

cial liabilities-convertible bonds, and reclassified as current liabilities two years

84

after the issuance date.

(p) Employee retirement plan

The Company has established an employee noncontributory defined benefit

retirement plan (the "Plan") covering full-time employees in the ROC. In

accordance with the Plan, employees are eligible for retirement or are required

to retire after meeting certain age or service requirements. Payments of retire-

ment benefits are based on an employee's average monthly salary for the last

six months before the employee's retirement and the number of points accu-

mulated by the employee according to his/her years of service. Each employ-

ee receives 2 points for each service year from year 1 to year 15, and 1 point

thereafter. A lump-sum retirement benefit is paid through the retirement fund.

Under this retirement plan, the Company is responsible for making the entire

pension payment.

Starting from July 1, 2005, the enforcement rules of the newly enacted Labor

Pension Act (the "New Act") require the following categories of employees to

adopt the New Act's defined contribution plan:

(i) employees who were covered by the Plan and opted to be subject to the pen-

sion mechanism under the New Act; and

(ii) employees who commenced working after the enforcement date of the New Act.

In accordance with the New Act, the rate of the employer's monthly contribu-

tion to an individual labor pension fund account per month shall not be lower

than 6% of the worker's monthly wages.

The Company adopted ROC SFAS No. 18, "Accounting for Pensions", for its

retirement plan. SFAS No. 18 requires a company to have an actuarial calcula-

tion of its pension liability using the balance sheet date as the measurement

date. The excess of accumulated benefit obligation over the fair value of pen-

sion plan assets is deemed as the minimum pension liability and is recognized

85

as accrued pension liability. The Company provides contributions to the retire-

ment fund monthly equal to 11.9% of the paid salaries and wages. The funds

are deposited with the Central Trust of China.

For the portion of the retirement plan adopting the defined contribution

scheme, in accordance with the New Act, the Company provides monthly

contributions to the Bureau of Labor Insurance equal to 6% of the worker's

monthly wages. The amount of contribution is recognized as expense of

the current period.

(q) Revenue recognition

Passenger ticket sales are recorded as unearned revenue, included in current

liabilities, and recognized as revenue when the services are provided.

(r) Income tax

The Company adopted ROC SFAS No. 22, "Income Taxes". Under this

method, the amounts of deferred income tax assets or liabilities are recog-

nized for future tax effects attributable to temporary differences, loss carryfor-

wards, and investment tax credits. The measurement of deferred income tax

assets or liabilities is based on provisions of enacted tax law. A valuation

allowance is provided on deferred income tax assets that may not be realized

in the future.

Deferred income tax assets or liabilities are classified as current or noncurrent

based on the classification of the related assets or liabilities. If no assets or lia-

bilities are related, deferred income tax assets or liabilities are classified

according to the period of realization.

The tax imputation system was adopted in accordance with the amendment of

the ROC Income Tax Law. Under the new system, the Company may retain the

earnings after December 31, 1997, by paying a 10% surtax on such undistributed

earnings, and the surtax is accounted for as income tax expenses in the following

86

year when the shareholders approved a resolution not to distribute the earnings.

(s) Earnings per share (EPS)

The earnings per share are computed by dividing the amount of net income

attributable to common stock outstanding for the period by the weighted-

average number of common shares outstanding during the period.

The convertible bonds issued by the Company belong to potential common

stock. When computing diluted EPS, potential common shares are included in

the denominator if they are dilutive. Anti-dilutive potential common shares are

ignored in calculating diluted EPS.

The calculation of diluted EPS is consistent with the calculation of basic EPS

while giving the effects of all dilutive potential common shares that were out-

standing during the reporting period. When calculating diluted EPS, the net

income attributable to common stockholders and the weighted-average num-

ber of shares outstanding are adjusted for the effects of all dilutive potential

common shares.

The weighted-average number of common shares outstanding shall be adjust-

ed currently and retroactively for the increase in common shares outstanding

from stock issuance through the capitalization of retained earnings, additional

paid-in capital, or employees' bonuses.

3. Reason for and Effect of Accounting Changes

(a) Income effects of changes in accounting principle

The Company adopted SFAS No. 34 "Financial Instruments: Recognition and

Measurement" and SFAS No. 36 "Financial Instruments: Disclosure and

Presentation" on January 1, 2006. The effects on net loss and basic earnings

per share (EPS) for the year ended December 31, 2006, were as follows:

87

Nature of change in accounting Decrease in net loss Decrease in basic EPS

principle NT dollars US dollars NT dollars US dollars

Accounting for financial instruments 702,846 21,626 0.19 0.01

The accounting for financial instruments is recorded in accordance with SFAS

No. 34 and No. 36. The changes are stated in note 4(b).

(b) Cumulative effect of changes in accounting principle and stockholders' equity

adjustment

The Company adopted SFAS No. 34 "Financial Instruments: Recognition and

Measurement" on January 1, 2006. The financial assets and liabilities at the

beginning of the period should be evaluated at fair market value and cost

after amortization. After reclassification and re-evaluation, the cumulative

effects of changes in accounting principle, the effect of changes in accounting

principle on earnings per share, and the stockholders' equity adjustment

resulting from the changes in accounting principle were NT$160,691

(US$4,944), NT$0.04 (US$0.001), and NT$27,185 (US$828), respectively, for the

year ended December 31, 2006.

(c) The Company adopted the newly amended SFAS No.1 "Conceptual

Framework of Financial Accounting and Preparation of Financial Statements"

and SFAS No. 5 "Long-term Investments under Equity Method" commencing

from January 1, 2006. There were no significant impacts to the financial state-

ments for the year ended December 31, 2006.

(d) The Company adopted Statement of Financial Accounting Standards No. 35,

"Impairment of Assets", in 2005. After performing an impairment test on

those assets which had an indication of impairment, the Company determined

that no impairment loss need be recognized as of December 31, 2005.

4. Important Accounts

(a) Cash and cash equivalents

88

The components as of December 31, 2006 and 2005, were as follows:

2006 2005


Cash on hand $ 91,119 2,795 90,548 2,756

Cash in bank 2,906,340 89,152 1,753,648 53,384

$ 2,997,459 91,947 1,844,196 56,140

(b) Financial instruments (including derivative and non-derivative)


2006 2005


Available-for-sale financial assets–current:

Mutual funds $ 6,733,670 206,554 2,713,075 82,590

Following the interpretation of the ROC Accounting Research and

Development Foundation, the Company reclassified its 2005 financial state-

ments in accordance with SFAS No. 34. As of December 31, 2005, investments

originally accounted for under the cost or lower-of-cost-or-market methods

amounting to NT$2,713,075 (US$82,590) were reclassified as available-for-

sale–current amounting to NT$2,713,075 (US$82,590).

2006 2005


Available-for-sale-financial assets

–noncurrent:

Trade-Van Information Services Co., Ltd. $ 177,533 5,446 94,490 2,877

Central Reinsurance Corp. 380,121 11,660 358,703 10,919

$ 557,654 17,106 453,193 13,796

Details of increases in available-for-sale financial assets-noncurrent of the

Company for the years ended December 31, 2006 and 2005, were as follows:

89

Unit: thousands of shares

2006 2005

Investee Shares NT dollars US dollars Shares NT dollars US dollars

Central Reinsurance Corp. - $ - - 4,019 46,354 1,459

Details of selling available-for-sale financial assets-noncurrent of the Company

for the years ended December 31, 2006 and 2005, were as follows:


2006 2005

Gain on disposal of financial Gain on disposal of financial

assets carried at cost- financial assets carried at cost-

Cost noncurrent Cost noncurrent

Investee Shares NT dollars US dollars NT dollars US dollars Shares NT dollars US dollars NT dollars US dollars

Trade-Van Information

Services Co., Ltd. 10 $ 81 2 81 2 - - - - -

Financial assets carried at cost–noncurrent:

2006 2005

Shareholding Book value Shareholding Book value

percentage percentage

Investee (%) NT dollars US dollars (%) NT dollars US dollars

Taiwan High Speed Rail Corp. 1.21 $ 1,250,000 38,343 1.21 1,250,000 38,052

Evergreen Development Corp. 9.47 870,000 26,687 9.47 870,000 26,484

Taiwan Fixed Network Corporation 1.30 840,000 25,767 1.30 840,000 25,571

Hsin-Tao Power Corp. - - - 9.69 484,612 14,752

Abacus International Holding Ltd. 2.11 115,743 3,550 2.11 115,743 3,523

Sun Shine Corp. 19.50 40,365 1,238 19.50 40,365 1,228

Technology Partner II Venture Capital Corp. 5.88 20,000 614 5.88 20,000 609

Chung Hwa Express Co., Ltd. 10.00 20,000 614 10.00 20,000 609

Pan-Pacific Venture Capital Co., Ltd. 2.30 9,781 300 2.14 15,048 458

Total $ 3,165,889 97,113 3,655,768 111,286

90

The Company's investments in Taiwan High Speed Rail Corp., Evergreen

Development Corp., Taiwan Fixed Network Corporation, etc., had no publicly

traded prices, and their fair values were difficult to determine. Therefore, the

investments were stated at cost.

Details of selling financial assets carried at cost–noncurrent of the Company for

the years ended December 31, 2006 and 2005, were as follows:


2006 2005

Gain (loss) on disposal of Gain (loss) on disposal of

financial assets carried at financial assets carried at

Cost cost-noncurrent Cost cost-noncurrent

Investee Shares NT dollars US dollars NT dollars US dollars Shares NT dollars US dollars NT dollars US dollars

Pan-Pacific Venture Capital

Co., Ltd. (Note 1) 479 $ 5,267 162 (479) (15) 432 4,752 143 (432) (13)

Hsin-Tao Power Corp 48,461 484,612 14,911 726,917 22,367 - - - - -

489,879 15,073 726,438 22,352 4,752 143 (432) (13)

Note1: On July 26, 2006, Pan-Pacific Venture Capital decreased issued stock by

35%, and the Company withdrew NT$4,788 (US$147) in cash in propor-

tion to the Company's ownership percentage, which caused losses

amounting to NT$479 (US$15).

On December 21, 2005, Pan-Pacific Venture Capital decreased issued

stock by 24%, and the Company withdrew NT$4,320 (US$132) in cash in

proportion to the Company's ownership percentage, which caused loss-

es amounting to NT$432 (US$13).

As of December 31, 2006 and 2005, the components of derivative financial

instruments were as follows:

91

2006 2005

Nominal Nominal

Amount Book Value Amount Book Value


Derivative financial assets:

Fuel option agreements $ 21,684 665 495,590 15,087

Interest rate swap agreements NTD 3,000,000 64,955 1,992 NTD 2,400,000 55,114 1,678

USD 120,000 USD 120,000

$ 86,639 2,657 550,704 16,765

2006 2005

Nominal Nominal

Amount Book Value Amount Book Value


Derivative financial liabilities:

Fuel option agreements $ 1,017,183 31,202 316,608 9,638

Interest rate swap agreements NTD 1,100,000 6,583 202 NTD 1,700,000 20,107 612

$ 1,023,766 31,404 336,715 10,250

Details of derivative financial assets and liabilities as of December 31, 2006 and

2005, were as follows:

2006 2005


Financial assets at fair value through

profit or loss-current $ 21,684 665 495,590 15,087

Financial assets at fair value through

profit or loss-noncurrent $ 64,955 1,992 55,114 1,678

Financial liabilities at fair value through

profit or loss-current $ 255,284 7,831 - -

Financial liabilities at fair value through

profit or loss-noncurrent $ 768,482 23,573 336,715 10,250

92

(c) Other financial assets–current


2006 2005


Tax refund receivable $ 177,189 5,435 230,024 7,002

Non-operating revenues receivable 16,372 502 10,390 316

Other receivables 48,320 1,483 640,274 19,491

$ 241,881 7,420 880,688 26,809

(d) Inventories


2006 2005


Aircraft spare parts $ 9,596,308 294,365 8,705,281 265,001

Consumables for use and merchandise

for sale during flight 424,257 13,014 467,002 14,216

Fuel for aircraft 20,092 616 63,593 1,936

Less: allowance for obsolete inventories (1,341,015) (41,135) (1,342,450) (40,866)

$ 8,699,642 266,860 7,893,426 240,287

(e) Long-term equity investments under equity method

Details as of and for the years ended December 31, 2006 and 2005, were

as follows:

93

2006

Book value Cost Investment income

Shareholding

Investee percentage NT dollars US dollars NT dollars US dollars NT dollars US dollars

(%)

Evergreen Airline Services Corp. 56.33 $ 460,178 14,116 111,174 3,410 96,519 2,970

RTW Air Services (S) Pte. Ltd. 49.00 25,024 767 13,217 405 5,509 170

Green Siam Air Services Co., Ltd. 49.00 27,864 855 9,421 289 12,741 392

Evergreen Sky Catering Corp. 49.80 722,741 22,170 498,000 15,276 97,762 3,008

Evergreen Airways Service (Macau) Ltd. 99.00 647,600 19,865 327 10 151,841 4,672

Uni Airways Corp. 17.92 195,978 6,012 1,124,845 34,505 1,886 58

Evergreen Aviation Technologies Corp. 80.00 3,590,811 110,148 2,000,450 61,364 456,067 14,033

Evergreen Security Corp. 31.25 48,385 1,484 25,000 767 7,558 232

Evergreen Air Cargo Services Corp. 60.00 925,457 28,388 726,098 22,273 73,477 2,261

Hsiang-Li Investment Corp. 100.00 1,006,192 30,865 1,000,000 30,675 89,949 2,768

Uni Japan Co., Ltd. - - - - - 135 4

PT Perdana Andalan Air Service 49.00 29,794 914 2,566 79 10,991 338

Sky Castle Investment Ltd. 100.00 165,880 5,088 163,818 5,025 3,150 97

Concord Pacific Ltd. 100.00 132,284 4,058 131,620 4,037 1,878 58

$ 7,978,188 244,730 5,806,536 178,115 1,009,463 31,061

2005

Book value Cost Investment income (loss)

Shareholding

Investee percentage NT dollars US dollars NT dollars US dollars NT dollars US dollars

(%)

Evergreen Airline Services Corp. 56.33 $ 394,154 11,999 111,174 3,384 36,000 1,119

RTW Air Services (S) Pte. Ltd. 49.00 22,585 688 13,217 402 6,229 194

Green Siam Air Services Co., Ltd. 49.00 27,029 823 9,421 287 17,174 534

Evergreen Sky Catering Corp. 49.80 674,779 20,541 498,000 15,160 56,001 1,741

Evergreen Airways Service (Macau) Ltd. 99.00 762,254 23,204 327 10 197,370 6,135

Uni Airways Corp. 17.92 197,594 6,015 1,124,845 34,242 19,180 596

Evergreen Aviation Technologies Corp. 80.00 3,174,790 96,645 2,000,450 60,897 342,515 10,647

Evergreen Security Corp. 31.25 40,827 1,243 25,000 761 6,895 214

Evergreen Air Cargo Services Corp. 60.00 959,036 29,194 726,098 22,104 144,971 4,506

Hsiang-Li Investment Corp. 100.00 914,029 27,824 1,000,000 30,441 (35,112) (1,091)

Uni Japan Co., Ltd. 49.50 1,689 51 1,820 55 473 15

PT Perdana Andalan Air Service 49.00 7,669 234 2,566 78 5,103 159

$ 7,176,435 218,461 5,512,918 167,821 796,799 24,769

94

Details of increases in long-term equity investments under equity method of

the Company in 2006 and 2005 were as follows:


2006 2005

Investee Shares NT dollars US dollars Shares NT dollars US dollars

PT Perdana Andalan Air Service - $ - - 39 2,566 81

Concord Pacific Ltd. 4,000 131,620 4,050 - - -

Sky Castle Investment Ltd. 5,000 163,818 5,041 - - -

$ 295,438 9,091 2,566 81

Details of selling long-term equity investments under equity method of the

Company in 2006 and 2005 were as follows:


2006

Gain on disposal of

long-term investments

Cost under equity method

Investee Shares NT dollars US dollars NT dollars US dollars

Uni Japan Co., Ltd. (Note) 99 $ 1,824 56 562 17

Note: Uni Japan Co., Ltd. stopped operating on June 1, 2006, and went intoliquidation from June 2, 2006 to August 29, 2006. The Company withdrewNT$1,775 (US$54). The difference between book value amounting to NT$1,824(US$56) and credit balance of cumulative translation adjustments amounting toNT$611 (US$19) was gain on disposal of long-term investments under equitymethod amounting to NT$562 (US$17), which was recorded as other income.The liquidation had been authorized by the local government.

There was no such transaction during 2005.

(f) Property, plant and equipment

In 2006 and 2005, the Company capitalized the interest expenses on purchaseof aircraft amounting to NT$410,770 (US$12,639) and NT$315,476 (US$9,807),respectively. The monthly interest rates on the above transactions were0.26%~0.27% and 0.25%~0.27%, respectively.

(g) Lease assets

The details were as follows:

Present value of leased assets at the transaction date

2006 2005

Discount rate of

Lease item Quantity Lessor Lease term Terms of lease contract leased assets NT dollars US dollars NT dollars US dollars

Boeing 747 4 GECAS 2004.4.13~ The rent is payable monthly 2.86%~7.10% $ 8,681,960 266,318 8,748,540 266,318

aircraft 2016.11.12 and the lease term is equal to

75% or more of the total

estimated economic life of

the leased property

Boeing 747 2 GECAS 2006.4.26~ The rent is payable monthly, 6.82% 2,325,052 71,321 - -

aircraft 2008.3.25 and the lease term is equal to

75% or more of the total

estimated economic life of

the leased property

Engines 6 Taiwan Life 2004.6.29~ The rent is payable every 1.76% 540,296 16,573 540,296 16,447

Financing 2011.6.28 three months, and the lease

Co., Ltd. transfers ownership of the

leased property by the end of

the lease term

Computers 1 IBM 2004.7.25~ The rent is payable monthly, 2.50% 46,638 1,431 41,844 1,274

2009.7.24 and the lease transfers owner-

ship of the leased property by

the end of the lease term

Less: accumulate depreciation (2,783,744) (85,391) (1,127,171) (34,313)

$ 8,810,202 270,252 8,203,509 249,726

The abovementioned aircraft and engines were financed under sale and lease-

back arrangements. The differences (deemed as unrealized gain on sale and

leaseback) between sales price and book value of equipment are recorded as a

reduction of depreciation expenses over the lease term.

95

96

As of December 31, 2006 and 2005, the book value and present value of leaseliability were as follows:

2006 2005

Year due NT dollars US dollars NT dollars US dollars

January 1, 2006~December 31, 2006 $ - - 1,221,019 37,170

January 1, 2007~December 31, 2007 2,268,017 69,571 926,355 28,200

January 1, 2008~December 31, 2008 1,155,015 35,430 964,033 29,346

January 1, 2009~December 31, 2009 992,040 30,431 998,062 30,382

January 1, 2010~December 31, 2010 985,778 30,238 992,671 30,218

January 1, 2011~December 31, 2011 1,208,251 37,063 1,215,321 36,996

And after 4,009,800 123,000 3,843,450 117,000

Book value 10,618,901 325,733 10,160,911 309,312

Less: unrealized interest expenses (1,975,049) (60,584) (2,000,292) (60,891)

Present value 8,643,852 265,149 8,160,619 248,421

Less: current portion (1,858,271) (57,002) (879,098) (26,761)

$ 6,785,581 208,147 7,281,521 221,660

(h) Deferred charges

As of December 31, 2006 and 2005, deferred charges, net of amortization, con-

sisted of the following:

2006 2005


Computer software $ 213,837 6,559 288,062 8,769

Leasehold improvements 2,947,980 90,429 1,874,462 57,061

Major overhaul for aircraft and engines 2,424,528 74,372 2,482,515 75,571

Others 382,254 11,726 426,895 12,996

$ 5,968,599 183,086 5,071,934 154,397

(i) Short-term borrowings and payable on commercial paper


97


Unsecured loans $ 500,000 15,337 2,400,000 73,059Payable on commercial paper, net ofprepaid interest of NT$338 (US$10) for 2005 - - 699,662 21,299

$ 500,000 15,337 3,099,662 94,358

The interest expenses on the aforementioned short-term borrowings are calcu-lated based on floating interest rates. For the years ended December 31, 2006and 2005, the interest rates were 1.40%~1.81% and 1.15%~1.48%, respectively.As of December 31, 2006 and 2005, the unused credit lines amounted toapproximately NT$7,591,615 (US$232,872) and NT$5,903,733 (US$179,718),respectively.

(j) Long-term borrowings

As of December 31, 2006 and 2005, the details of long-term borrowings wereas follows:

2006 2005Nature Interest rate Interest rate

(%) NT dollars US dollars (%) NT dollars US dollarsSecured loans:

Land and buildings 2.02~2.42 $ 2,800,000 85,889 2.05~2.43 2,800,000 85,236

Aircraft

NT$ loans 1.95~3.06 17,151,600 526,123 1.95~2.77 4,637,000 141,157

US$ loans - - - 2.70~5.47 1,503,966 45,783

17,151,600 526,123 6,140,966 186,940

Simulators

US$ loans 4.71~6.10 288,344 8,845 2.58~4.71 290,591 8,846

288,344 8,845 290,591 8,846

Subtotal 20,239,944 620,857 9,231,557 281,022

Unsecured loans: 1.63~2.65 14,757,000 452,669 1.55~4.62 14,036,188 427,281

Total 34,996,944 1,073,526 23,267,745 708,303

Less: current portion (7,532,302) (231,052) (5,360,213) (163,172)

$ 27,464,642 842,474 17,907,532 545,131

98

As of December 31, 2006, the remaining balances of the loans were due as follows:

Year due NT dollars US dollarsJanuary 1, 2007~December 31, 2007 $ 7,532,302 231,052January 1, 2008~December 31, 2008 7,103,969 217,913January 1, 2009~December 31, 2009 6,448,946 197,821January 1, 2010~December 31, 2010 6,177,113 189,482January 1, 2011~December 31, 2011 2,516,879 77,205And after 5,217,735 160,053

$ 34,996,944 1,073,526

As of December 31, 2006 and 2005, the unused credit lines for long-term bor-rowings amounted to NT$900,000 (US$27,607) and NT$900,000 (US$27,397),respectively. The pledges for long-term borrowings are disclosed in note 6.

(k) Bonds payable

Details of bonds payable as of December 31, 2006 and 2005, were as follows:

Description 2006 2005Annual Issue

Guaranteed by interest rate date NT dollars US dollars NT dollars US dollarsBonds payable Taiwan Fubon Bank 3.70% 2001.07 $ - - 500,000 15,221Bonds payable Taiwan Cooperative Bank Floating 2004.02 500,000 15,337 500,000 15,221Bonds payable Land Bank 2.25% 2004.07 500,000 15,337 500,000 15,221

Chang Hwa Bank 2.25% 2004.07 500,000 15,337 500,000 15,221Taipei Fubon Bank 2.25% 2004.07 500,000 15,337 500,000 15,221

Bonds payable Bank of Taiwan 2.11% 2005.01 500,000 15,337 500,000 15,221Taiwan Cooperative Bank 2.11% 2005.01 500,000 15,337 500,000 15,221

Bonds payable Far-Eastern International 1.85% 2005.08 500,000 15,337 500,000 15,221BankShanghai Commercial & Savings Bank 1.85% 2005.08 500,000 15,337 500,000 15,221Chinatrust Commercial 1.85% 2005.08 600,000 18,405 600,000 18,263BankHua Nan Bank 1.85% 2005.08 500,000 15,337 500,000 15,221

Bonds payable Cathay United Bank 2.08% 2006.01 2,000,000 61,355 - -Bonds payable Hua Nan Bank 2.29% 2006.07 500,000 15,337 - -

Taipei Fubon Bank 2.29% 2006.07 500,000 15,337 - -Bank of Taiwan 2.29% 2006.07 500,000 15,337 - -Taiwan Cooperative Bank 2.29% 2006.07 500,000 15,337 - -

Convertible bonds payable 0.00% 2004.08 1,572,550 48,238 3,283,754 99,961Subtotal 10,672,550 327,379 8,883,754 270,434Less: current portion (1,572,550) (48,238) (500,000) (15,221)

$ 9,100,000 279,141 8,383,754 255,213

99

(l) Second convertible bonds payable

The Company issued NT$4.5 billion worth of Taiwan domestic convertible

bonds on August 9, 2004, for which the final terms and conditions were as fol-

lows:

(i) Coupon rate: 0%

(ii) Issue period: From August 9, 2004, to August 8, 2009

(iii)Redemption: Except for the bonds that have already been redeemed, con-

verted, or purchased and cancelled, the bonds can be redeemed on the

fifth anniversary of the issue date at par value.

(iv)Redemption at the option of the Company: The Company may redeem the

bonds in whole, but not in part, provided that (1) the closing price of the

common shares on the Taiwan Stock Exchange for 30 consecutive trading

days is at least 150% of the conversion price then in effect, or (2) the bonds

outstanding are less than 10% of the issue amount.

(v) Redemption at the option of the bondholders: The Company will, at the

option of the bondholders, redeem such bond on the third anniversary of

the issue date at par value.

(vi)Conversion

A) The bondholders can ask the Company to convert the convertible bonds

to common stock during the period from one month after the issue date

to ten days before the maturity date.

B) Conversion price:

The conversion price is set at NT$14.50, which is a premium of 111%

over the base price. The base price is defined as the average of the

closing prices of the issuer's common shares traded on the Taiwan Stock

Exchange for a period of 1, 3 or 5 trading days, whichever is chosen,

100

immediately preceding but excluding the pricing date, which is July 26,

2004. The conversion price will be subject to adjustments in the event

that any change occurs to the capital structure. As of December 31,

2006, the conversion price was NT$13.51.

(l) Other installments payable

The Company purchased aircraft spare parts, in installments. As of December

31, 2005, the details were as follows:

2005

NT dollars US dollars

Installment amount payable $ 427,105 13,002

Less: current portion (427,105) (13,002)

$ - -

The current portion of other installments payable was recorded as other

payables.

The interest expenses of the aforementioned installments are calculated based

on floating interest rates. For the year ended December 31, 2005 the average

interest rates were 2.33%~2.61%.

There was no such transaction for the year ended December 31, 2006.

(m) Aircraft payable

The Company purchased aircraft by installments. As of December 31, 2006 and

2005, the details were as follows:

2006 2005


Aircraft payable $ 16,908,554 518,667 19,453,463 592,191

Less: current portion (2,409,656) (73,916) (2,415,242) (73,524)

$ 14,498,898 444,751 17,038,221 518,667

101

The current portion of aircraft payable was recorded as other payables. As ofDecember 31, 2006, the remaining balances of the aircraft payables were dueas follows:

Year due NT dollars US dollarsJanuary 1, 2007~December 31, 2007 $ 2,409,656 73,916January 1, 2008~December 31, 2008 2,351,857 72,143January 1, 2009~December 31, 2009 2,408,189 73,871January 1, 2010~December 31, 2010 2,440,329 74,857January 1, 2011~December 31, 2011 1,945,982 59,692And after 5,352,541 164,188

$ 16,908,554 518,667

The interest expenses of the aforementioned aircraft payable are calculatedbased on floating interest rates. For the years ended December 31, 2006 and2005, the average interest rates were 4.14%~6.77% and 2.06%~6.77%, respec-tively. The pledges for the aircraft payable are disclosed in note 6.

(n) Retirement plans

Net retirement plan liabilities based on the actuarial computation at December31, 2006 and 2005, were as follows:


Benefit obligation:Vested benefit obligation $ 178,289 5,469 66,876 2,035Nonvested benefit obligation 2,201,791 67,539 1,808,946 55,067Accumulated benefit obligation 2,380,080 73,008 1,875,822 57,102Projected effects of salaryadjustments 331,983 10,183 268,833 8,184

Projected benefit obligation 2,712,063 83,191 2,144,655 65,286Plan assets at fair value (1,552,068) (47,609) (1,209,436) (36,817)Projected benefit obligation in

excess of plan assets 1,159,995 35,582 935,219 28,469Unrecognized net transition

obligation (136,476) (4,186) (163,770) (4,985)Unrecognized pension loss (840,818) (25,792) (456,691) (13,902)Pension liabilities that need to be

accrued 645,311 19,795 351,628 10,704Accrued employee retirement

liabilities $ 828,012 25,399 666,386 20,286

102

The components of net pension cost were as follows:

2006 2005


Service cost $ 160,823 4,949 168,481 5,237

Interest cost 74,256 2,285 67,372 2,095

Actual return on plan assets (36,358) (1,119) (15,311) (476)

Unrecognized net transition

obligation 28,223 868 18,726 582

Net pension cost $ 226,944 6,983 239,268 7,438

Actuarial assumptions at December 31, 2006 and 2005, were as follows:

2006 2005

Discount rate 2.75% 3.50%

Rate of increase in future compensation levels 1.00% 1.00%

Expected long-term rate of return on plan assets 2.75% 3.50%

As of and for the years ended December 31, 2006 and 2005, the details of the

retirement plans were as follows:

2006 2005


Balance of the retirement fund:

The Central Trust of China $ 1,552,068 47,609 1,209,436 36,817

Periodic pension cost:

Defined benefit pension plan cost 226,944 6,983 239,268 7,438

Defined contribution pension plan cost 91,274 2,808 39,331 1,222

(o) Income tax

(1) For the years ended December 31, 2006 and 2005, the components of esti-

mated income tax benefits were as follows:

103

2006 2005


Income tax benefits (expenses)-current $ 2,061 63 (137,554) (4,276)

Income tax benefits-deferred 414,587 12,757 326,923 10,162

$ 416,648 12,820 189,369 5,886

The deferred income tax benefits were as follows:

2006 2005


Loss carryforwards $ 822,581 25,310 - -

Unrealized exchange losses (21,260) (654) (51,288) (1,595)

Investment tax credits 264,869 8,150 350,098 10,883

Provision for loss on inventory market

price decline (359) (11) (40,138) (1,248)

Purchase of fixed assets by installments,

adjusted for tax purposes 48,818 1,502 85,952 2,672

Deferred gains on disposal of fixed assets,

adjusted for tax purposes (41,784) (1,285) (96,390) (2,996)

Accrued employee retirement liabilities (35,025) (1,078) 78,689 2,446

Unrealized loss on financial instruments 234,282 7,209 - -

Other 2,465 76 - -

Valuation allowance for deferred income

tax assets (860,000) (26,462) - -

$ 414,587 12,757 326,923 10,162

(2) The Company is subject to ROC income tax at a maximum rate of 25%. The

Company was subject to the "minimum tax statutes" commencing from

January 1, 2006. The differences between expected income tax benefit

(expense) at statutory rates and income tax benefit as reported in the

accompanying financial statements for the years ended December 31, 2006

and 2005, were as follows:

104


Income tax benefits (expenses) $ 565,981 17,415 (284,173) (8,833)

calculated on pre-tax financial income (loss) at

statutory income tax rate of 25%

Surtax on undistributed earnings - - (134,147) (4,170)

Gain on sale of investments 197,577 6,079 26,585 826

Investment income recognized under

equity method–unrealized 252,366 7,765 199,200 6,192

Dividend income (31,352) (964) 34,130 1,061

Permanent difference in depreciation

expenses (47,309) (1,456) (45,573) (1,417)

Exchange losses recorded as translation

adjustments $ 161,643 4,974 29,238 909

Increase in investment tax credits 264,869 8,150 460,237 14,306

Cumulative effect of changes in

accounting principle (53,564) (1,648) - -

Others (33,563) (1,033) (96,128) (2,988)

Valuation allowance for deferred income

tax assets (860,000) (26,462) - -

$ 416,648 12,820 189,369 5,886(3) The components of the deferred income tax assets (liabilities) as of

December 31, 2006 and 2005, were as follows:

2006 2005

Amount Tax effect Amount Tax effect

NT dollars US dollars NT dollars US dollars NT dollars US dollars NT dollars US dollars

Deferred income tax assets–current

Allowance for obsolete inventories 1,341,015 41,135 335,254 10,284 1,342,450 40,866 335,613 10,216

Unrealized exchange losses 25,936 796 6,484 199 110,976 3,378 27,744 845

Unrealized loss on financial

instruments 211,692 6,494 52,923 1,623 - - - -

Others 9,860 302 2,465 76 - - - -

Deferred income tax assets, net

–current 397,126 12,182 363,357 11,061

105

2006 2005

Amount Tax effect Amount Tax effect

NT dollars US dollars NT dollars US dollars NT dollars US dollars NT dollars US dollars

Deferred income tax assets (liabilities)

–noncurrent

Unrealized loss on financial

instruments 725,436 22,253 181,359 5,563 - - - -

Unrealized investment tax credits - - 614,967 18,864 - - 350,098 10,657

Accrued employee retirement

liabilities 174,656 5,358 43,664 1,339 314,756 9,582 78,689 2,395

Purchase of fixed assets on installments,

adjusted for tax purposes 3,065,124 94,022 766,281 23,505 2,869,852 87,362 717,463 21,841

Unused loss carryforwards 3,290,326 100,930 822,581 25,233 - - - -

Others (1,262,448) (38,725) (315,612) (9,681) 911,640 27,752 227,910 6,938

2,113,240 64,823 1,374,160 41,831

Less: Valuation allowance for deferred

income tax assets (860,000) (26,380) - -

Deferred income tax assets, net

–noncurrent 1,253,240 38,443 1,374,160 41,831

(4) The Company was granted investment tax credits for investment in certainhigh-tech industries, for purchases of automatic machinery and equipment,and for expenditures in research and development and employee training.These investment tax credits can be used to reduce the income tax liabilityin the current year and in the following four years at an amount not exceed-ing 50% of the income tax liability for each year during the first four years,with full utilization of the balance of the remaining unused investment taxcredits in the final year.

As of December 31, 2006, unused investment tax credits available to theCompany were as follows:

Year granted Unused investment tax credits Expiry yearNT dollars US dollars

2005 $ 375,313 11,513 20092006 239,654 7,351 2010

$ 614,967 18,864

106

(5) As of December 31, 2006, unused loss carryforward tax credits available to

the Company were as follows:

Year Unused loss carryforward Expiry year


2006 $ 3,290,326 100,930 2011

(6) Imputation credit account (ICA) and creditable ratio:

2006 2005


Unappropriated earnings before 1997 $ - - - -

Unappropriated earnings after 1998 1,030,510 28,277 3,662,898 109,572

$ 1,030,510 28,277 3,662,898 109,572

ICA $ 577,626 17,719 595,268 18,121

2006 2005

Creditable ratio for earnings distribution

to domestic shareholders - (estimated) 17.27% (actual)

(7) The Company' s income tax returns have been examined through 2003 by

the ROC income tax authority. The Company was assessed additional 2001,

2002 and 2003 Corporate Income Tax of NT$51,496 (US$1,584). This amount

was due to the tax authority' s rejection of the Company' s meal allowance.

The Company did not agree with this decision and filed an application for a

second review. In addition, the Company did not recognize income tax

because of investment tax credits.

(p) Stockholders' equity

(1) Common stock

As of December 31, 2006, the Company's authorized share capital consisted

of 4,000,000 thousand shares of common stock, at NT$10 par value per

107

share, of which 3,874,979 thousand shares were issued and outstanding.

As of December 31, 2005, the Company's authorized share capital consisted

of 4,000,000 thousand shares of common stock, at NT$10 par value per

share, of which 3,389,887 thousand shares were issued and outstanding.

On June 16, 2005, the Company's stockholders approved a resolution to

capitalize the unappropriated earnings of NT$329,229 by issuing 32,923

thousand shares of common stock, at NT$10 par value per share. The stock

issuance was authorized by and registered with the government authorities

on the date of record for capital increasing is August 22, 2005.

On November 21, 2005, the Company's board of directors approved a reso-

lution for cash subscription by issuing 360,000 thousand shares of common

stock at issuance price of NT$12 per share. The stock issuance was author-

ized by and registered with the government authorities. The date of record

for subscription is March 21, 2006.

(2) Capital surplus, legal reserve, and restrictions on appropriations of earnings

The details as of December 31, 2006 and 2005, were as follows:


Cash subscription in excess of

par value of shares $ 2,514,333 83,975 1,794,333 61,794

Additional paid-in capital from bond

conversion 1,184,621 36,334 745,546 22,711

Gain on disposal of property, plant and

equipment of investee company 1,668 53 1,668 53

Increase in net equity due to change in

percentage of ownership in long-term

investments under equity method 230,167 6,682 234,600 6,816

Donated assets 649,329 21,242 648,839 21,229

$ 4,580,118 148,286 3,424,986 112,603

108

The ROC Company Act stipulates that realized capital surplus should not be

credited to capital except for making up deficiencies of the Company. The

realized capital surplus includes the premiums from issuance of shares in

excess of par value. In addition, the capitalization of capital surplus or other

events in accordance with Article 8 of the ROC Securities and Exchange Law

and the ROC Company Act can be credited to capital on the condition that

the aforementioned capital surplus has been approved by and registered

with the competent authority in the previous year.

Furthermore, the capital surplus from the issuance of shares in excess of par

value and from gifts received which are credited to capital should not

exceed 10 percent of the amount of paid-in capital in one year.

The ROC Company Act stipulates that the Company must retain 10% of its

annual earnings, as defined in the Act, until such retention equals the

amount of authorized share capital. This retention is accounted for by trans-

fers to legal reserve, upon approval at the stockholders' meeting. Legal

reserve may be used to offset an accumulated deficit and cannot be distrib-

uted as cash dividends to stockholders. However, one-half of legal reserve

may be converted to share capital when it reaches an amount equal to one-

half of issued share capital, upon approval by the Company's stockholders.

The Company's articles of incorporation stipulate that the Company must

appropriate employees' bonuses of not less than 1% of estimated earnings

of each year, and not more than 5% of estimated earnings of each year for

remuneration of directors and supervisors. Such appropriations can only be

made after offsetting accumulated deficit and appropriation of legal

reserve, and must be accounted for as a reduction of retained earnings.

To promote long-term development, the Company has adopted a steady

dividend policy, in which a cash dividend of around 0~50% of the appropri-

ated dividend is distributed and a stock dividend of around 50%~100% of

the appropriated dividend is distributed. However, if the expected earnings

per share in the year when stock dividends are distributed decline to 20% or

109

working capital is low, a cash dividend of 50%~100% of the appropriated

dividend is distributed and a stock dividend of 0~50% of the appropriated

dividend is distributed.

The related information on employees' bonuses and directors' and supervi-

sors' remuneration appropriated from 2005 earnings was as follows:


Employees' bonuses-cash $ 52,320 1,626

Directors' and supervisors' remuneration 10,900 339

$ 63,220 1,965

According to ROC SFC regulations, beginning 2002, information related to

the appropriation of employees' bonuses and bonuses for directors and

supervisors can be found on web sites such as the Market Observation Post

System after the stockholders' meeting.

(q) Earnings per share

For the years ended December 31, 2006 and 2005, earnings per share were cal-

culated as follows:


2006 2006

Dollars Shares Earnings per Share Dollars Shares Earnings per Share

Before After Before After Before After Before After

Income Income Income Income Income Income Income Income

Tax Tax Tax Tax Tax Tax Tax Tax

Basic earnings per share:

Income (loss) before

cumulative effect of changes in

accounting principle $ (2,263,924) (1,847,276) $ (0.61) (0.49) (69,659) (56,839) (0.02) (0.01)

Cumulative effect of changes in

accounting principle 214,255 160,691 0.06 0.04 6,592 4,944 - -

Net loss $ (2,049,669) (1,686,585) 3,723,419 $ (0.55) (0.45) (63,067) (51,895) 3,723,419 (0.02) (0.01)

110


2005 2005

Income Shares Earnings per Share Income Shares Earnings per Share

Before After Before After Before After Before After

Income Income Income Income Income Income Income Income

Tax Tax Tax Tax Tax Tax Tax Tax

Basic earnings per share $ 1,136,691 1,326,060 3,395,071 $ 0.33 0.39 35,334 41,220 3,395,071 0.01 0.01

Diluted earnings per share $ 1,136,691 1,326,060 3,632,913 (note)$ 0.31 0.37 35,334 41,220 3,632,913 0.01 0.01

(note): Effect in the period of 237,842 thousand dilutive potential common

shares arising from convertible bonds.

(r) Derivative financial instruments and hedging

(1) Cash flow hedging

The Company holds floating rate assets and obligations. The future cash

flows of assets and liabilities fluctuate according to floating market rates.

This results in risk. The Company evaluates the risk as significant; thus, it has

hedged the risk by signing interest rate swap agreements.

The Company needs fuel for operating. The future cash flows of fuel cost

fluctuate according to floating market price. This results in risk. The

Company evaluates the risk as significant; thus, it has hedged the risk by

signing fuel swap agreements.

As of December 31, 2006, the cash flow hedging items and derivative finan-

cial hedging instruments were as follows:

Period of related

gain or loss

Period of recognized in

Hedging Fair value of assigned generating income

Hedging item instrument hedging instrument cash flow statement Account


Floating interest Interest rate swap (23,197) (712) 2004~2009 2004~2009 Derivative

rate of bonds agreements financial

payable liabilities for

hedge purposes

-noncurrent

Floating price of Fuel swap (356) (11) 2007 2007 Derivative

fuel agreements financial

liabilities for

hedge purposes

-current

As of December 31, 2006, the unrealized valuation loss on financial instruments

due to hedging of cash flow amounted to NT$23,553(US$722), recognized as

adjustments to stockholders' equity.

(s) Disclosure of financial instruments

(1) Fair value of financial instruments

The details of financial instruments as of December 31, 2006 and 2005, were

as follows:

111

2006NT dollars US dollars

Book value Fair value Book value Fair value

Financial assets:

Available-for-sale financial assets-current $ 6,733,670 6,733,670 206,554 206,554

Available-for-sale financial assets-noncurrent 557,654 557,654 17,106 17,106

Financial assets carried at cost-noncurrent 3,165,889 - 97,113 -

Interest rate swap agreements 64,955 64,955 1,992 1,992

Fuel option agreements 21,684 21,684 665 665

Financial liabilities:

Current portion of long-term liabilities 9,104,852 9,259,577 279,290 284,036

Bonds payable 9,100,000 8,263,399 279,141 253,478

Interest rate swap agreements 29,780 29,780 913 913

Fuel swap agreement 356 356 11 11

Fuel option agreements 1,017,183 1,017,183 31,202 31,202

Off-balance-sheet financial instruments:

Letters of credit - 687,264 - 21,082

2005NT dollars US dollars

Book value Fair value Book value Fair value

Financial assets:

Available-for-sale financial assets-current 2,713,075 2,720,864 82,590 82,827

Available-for-sale financial assets-noncurrent 453,193 460,564 13,796 14,020

Financial assets carried at cost-noncurrent 3,655,768 - 111,286 -

Interest rate swap agreements 55,114 55,114 1,678 1,678

Fuel option agreements 495,590 495,590 15,086 15,086


Current portion of long-term liabilities 5,860,213 5,860,213 178,393 178,393

Bonds payable 8,383,754 8,327,745 255,213 253,508

Interest rate swap agreements 20,107 20,107 612 612

Fuel option agreements 316,608 316,608 9,638 9,638

Off-balance-sheet financial instruments:

Letters of credit - 286,248 - 8,714

112

(2) Methods and assumptions to measure the fair value of financial instruments

i) The maturity dates of short-term financial instruments, including cash

and cash equivalents, notes and accounts receivable/payable (including

related parties), other financial assets-current, short-term borrowings,

accrued expenses, and other payables, are within one year of the bal-

ance sheet date, their book value is equal to their fair value.

ii) If public quoting of financial assets and liabilities is available, then the

quote price will be the fair value. If market value is not available, an

assessment method will be used. The assumptions used should be the

same as those used by the financial market traders when quoting their

prices.

iii) The fair value of bonds payable, long-term borrowings, aircraft payable,

and lease liability is the discounted future cash flows, and the discount

rates during the years ended December 31, 2006 and 2005, were

1.63%~7.10% p.a. and 1.18%~6.93% p.a., respectively.

iv) The fair value of letters of credit and financing guaranty is based on the

contract.

(3) The fair values of financial assets and liabilities evaluated by public quoting

and the assessment method by the Company were as follows:

2006

Public quote value Assessment value


Financial assets:

Cash and cash equivalents - - 2,997,459 91,947

Available-for-sale financial assets-current 6,733,670 206,554 - -

Notes and accounts receivable

(including receivables from related parties) - - 8,821,840 270,608

Other financial assets-current - - 241,881 7,420

113

Available-for-sale financial assets-noncurrent 557,654 17,106 - -

Interest rate swap agreements - - 64,955 1,992

Fuel option agreements - - 21,684 665


Short-term borrowings - - 500,000 15,337

Notes and accounts payable

(including payables to related parties) - - 2,477,584 76,000

Accrued expenses - - 6,910,351 211,974

Other payables - - 2,419,945 74,231

Current portion of long-term liabilities - - 9,259,577 284,036

Bonds payable - - 8,263,399 253,478

Long-term borrowings - - 27,464,642 842,474

Aircraft payable - - 14,498,898 444,751

Lease liability - - 6,785,581 208,147

Interest rate swap agreements - - 29,780 913

Fuel swap agreements - - 356 11

Fuel option agreements - - 1,017,183 31,202

Off-balance-sheet financial instruments :

Letters of credit - - 687,264 21,082

(4) For the year ended December 31, 2006, the evaluation gain on financial

assets at fair value through profit or loss amounted to NT$4,972 (US$153).

(5) As of December 31, 2006, the bonds payable with the risk arising from float-

ing interest rates amounted to NT$8,600,000 (US$263,804).

(6) For the year ended December 31, 2006, the interest income and interest

expenses arising from financial assets/liabilities at fair value through profit or

loss without valuation by fair value amounted to NT$163,130 (US$5,019) and

NT$1,961,357 (US$60,349), respectively.

(7) Disclosure of financial risks

(i) Market risk

114

The Company's bonds payable carried a fixed interest rate. If the mar-

ket interest rate increases by 1%, the fair value of bonds payable would

decrease by approximately NT$241,104 (US$7,396).

The Company's securities were recorded as available-for-sale financial

assets and measured at fair value. The Company had the risk of

changes in market price.

(ii) Credit risk

The Company has major credit risk involving cash and cash equivalents,

securities, and accounts receivable. The Company deposited the cash

in different financial institutions. The Company owns securities by pur-

chasing publicly traded bonds and stocks. The Company is exposed to

credit risk in every financial institution. However, the credit risk involving

cash and securities is not significant.

(iii) Liquidity risk

The Company's capital and operating funds are sufficient to reimburse

all the obligations. Therefore, the Company did not have liquidity risk.

(iv) Cash flow risk related to the fluctuation of interest rates

The Company's short-term and long-term borrowings carried floating

interest rates. As a result, the effective rate changes along with the fluc-

tuation of the market interest rate and thereby influences the

Company's future cash flow. If the market interest rate increases by 1%,

the Company's future cash outflow would increase by approximately

NT$354,969 (US$10,922).

5. Transactions with Related Parties

(a) Name and relationship of related parties

115

Name Relationship with the Company

Evergreen Marine Corp. Major shareholder

Evergreen International Corp. Major shareholder

Evergreen International Storage & Transport Corp. Investee company of the Company's major shareholders

Evergreen Airline Services Corp. Subsidiary

RTW Air Services (S) Pte. Ltd. Subsidiary

Green Siam Air Services Co., Ltd. Subsidiary

Evergreen Sky Catering Corp. Subsidiary

Evergreen Aviation Technologies Corp. Subsidiary

Evergreen Air Cargo Services Corp. Subsidiary

Hsiang-Li Investment Corp. Subsidiary

Uni Japan Co., Ltd. Subsidiary (the company was liquidated on

August 29, 2006)

Evergreen Airways Service (Macau) Ltd. Subsidiary

PT Perdana Andalan Air Service Subsidiary

Uni Airways Corp. Investee company accounted for by equity method

Evergreen Security Corp. Investee company accounted for by equity method

(b) Significant transactions with related parties

(1) Revenue, cost and expenses

During the years ended December 31, 2006, and 2005, the Company's trans-

actions with related parties were as follows:

2006 2005

Revenue NT dollars US dollars Percentage NT dollars US dollars Percentage

Evergreen Airline Services Corp. $ 1,618 50 - 1,754 55 -

Uni Airways Corp. 24,275 747 0.03 32,428 1,008 0.04

Evergreen Aviation Technologies Corp. 133,421 4,105 0.14 146,784 4,563 0.17

Evergreen Air Cargo Services Corp. 15,355 472 0.02 17,298 538 0.02

Evergreen International Corp. 16,116 496 0.02 11,615 361 0.01

Others 5,293 163 - 4,264 132 -

$ 196,078 6,033 0.21 214,143 6,657 0.24

116

2006 2005

Cost NT dollars US dollars Percentage NT dollars US dollars Percentage

Evergreen International Corp. $ 61,680 1,898 0.07 53,925 1,676 0.07

Evergreen International Storage &

Transport Corp. 75,499 2,323 0.08 75,081 2,334 0.09

Evergreen Airline Services Corp. 866,204 26,653 0.96 844,988 26,266 1.04

Evergreen Sky Catering Corp. 921,226 28,345 1.02 880,886 27,382 1.09

Uni Airways Corp. 891,197 27,421 0.99 944,139 29,349 1.17

Evergreen Aviation Technologies Corp.4,284,992 131,846 4.74 4,599,514 142,975 5.69

Evergreen Air Cargo Services Corp. 343,796 10,578 0.38 345,149 10,729 0.43

Others 1,234 38 - 1,607 50 -

$ 7,445,828 229,102 8.24 7,745,289 240,761 9.58

2006 2005

Expenses NT dollars US dollars Percentage NT dollars US dollars Percentage

Evergreen International Corp. $ 119,300 3,671 1.73 140,383 4,364 2.06

Evergreen International Storage &

Transport Corp. 18,930 583 0.27 19,195 597 0.28

Evergreen Airline Services Corp. 31,475 968 0.46 27,167 844 0.40

Evergreen Sky Catering Corp. 23,847 734 0.34 23,107 718 0.34

Uni Airways Corp. 60,956 1,876 0.88 78,652 2,445 1.16

Evergreen Aviation Technologies Corp. 18,285 563 0.26 22,012 684 0.32

Evergreen Security Corp. 43,724 1,345 0.63 48,697 1,514 0.72

RTW Air Services (S) Pte. Ltd. 48,830 1,502 0.71 51,108 1,589 0.75

Green Siam Air Services Co., Ltd. 79,847 2,457 1.16 71,885 2,235 1.06

Uni Japan Co., Ltd. 8,820 271 0.13 25,185 783 0.37

PT Perdana Andalan Air Service 31,587 972 0.46 25,775 801 0.38

Others 1,535 47 0.02 969 30 -

$ 487,136 14,989 7.05 534,135 16,604 7.84

117

(2) The abovementioned transactions with related parties were made with no sig-

nificant difference from those with non-related parties, but sometimes the pay-

ments were overdue. Receivables and payables as of December 31, 2006 and

2005, resulting from the aforementioned transactions were as follows:

2006 2005


Accounts receivable-related parties:

Uni Airways Corp. $ 12,084 371 11,406 347

Evergreen Aviation Technologies Corp. 28,267 867 14,722 448

Evergreen International Corp. 2,447 75 594 18

Evergreen Marine Corp. 1,877 57 2,070 63

Evergreen Air Cargo Service Corp. 1,800 55 1,429 44

Others 380 12 265 8

46,855 1,437 30,486 928

2006 2005


Other receivables-related parties:

Uni Airways Corp. $ 115,454 3,542 133,242 4,056

Evergreen International Corp. 1,706 52 5,933 181

Evergreen Air Cargo Services Corp. 900 28 6,971 212

Evergreen Aviation Technologies Corp. - - 38,689 1,178

Evergreen Airline Services Corp. 733 22 17,050 519

Evergreen Sky Catering Corp. 115 3 3,198 97

Others 708 22 2,377 72

119,616 3,669 207,460 6,315

Total receivables-related parties $ 166,471 5,106 237,946 7,243

118

119


Accounts payable-related parties:Evergreen Airline Services Corp. $ 143,752 4,409 172,359 5,247Evergreen International Corp. 13,125 403 8,429 257Evergreen Sky Catering Corp. 74,358 2,281 144,195 4,389Uni Airways Corp. 142,480 4,371 131,136 3,992Evergreen Aviation Technologies Corp. 298,310 9,151 355,065 10,809Evergreen Air Cargo Services Corp. 58,102 1,782 61,819 1,882Evergreen International Storage &Transport Corp. 5,887 180 6,807 207

Green Siam Air Services Co, Ltd. 8,729 268 6,474 197RTW Air Services (S) Pte Ltd. 8,848 271 5,989 182PT Perdana Andalan Air Service 8,561 263 3,535 108Others 99 3 2,245 68

762,251 23,382 898,053 27,338Other payables-related parties:

Evergreen International Corp. 15,828 486 15,565 474Evergreen Airline Services Corp. 9,263 284 42,931 1,307Evergreen Sky Catering Corp. 1,465 45 1,871 57Uni Airways Corp. 8,766 269 7,486 228Evergreen Aviation Technologies Corp. 2,949 90 8,706 265Evergreen Air Cargo Services Corp. 1,490 46 3,940 120Evergreen International Storage &Transpor Corp. 1,037 32 1,071 32

Evergreen Security Corp. 4,766 146 4,395 134Others 95 3 53 1

45,659 1,401 86,018 2,618Total payables-related parties $ 807,910 24,783 984,071 29,956

6. Pledged Assets

The book values of the pledged assets as of December 31, 2006 and 2005, were asfollows:

2006 2004

Pledged assets Object NT dollars US dollars NT dollars US dollars

Land Long-term borrowings $ 1,864,122 57,182 1,864,122 56,747

Buildings Long-term borrowings 2,482,271 76,143 2,573,809 78,350

Aircraft Long-term borrowings, 42,677,297 1,309,119 38,452,290 1,170,542

Aircraft payable

Engines-included in Long-term borrowings 104,390 3,202 121,051 3,685

machinery and equipment

Simulators-included in Long-term borrowings 283,753 8,704 313,487 9,543

machinery and equipment

Time deposit-included in Customs duty and contract 579,358 17,772 531,389 16,176

other assets performance guarantees

$ 47,991,191 1,472,122 43,856,148 1,335,043

7. Commitments and Contingencies

(a) As of December 31, 2006, the outstanding contracts for purchases of aircraft

were as follows:

Total price of

Entering date Type of aircraft Quantity contract Prepayments (Note)

June 2000 Boeing 777 3 US$ 1,260,851 NT$1,776,855 (US$54,505)

April 2004 Boeing 777 8 US$ 1,491,496 NT$12,446,263 (US$381,787)

Note: The prepayments were recorded as advances for purchases of equipment

(b) As of December 31, 2006, the Company had issued a total of NT$5,247,242

(US$160,958) in promissory notes to banks for obtaining guaranties for credit

lines. As of December 31, 2006, the Company had obtained guaranties from

ABN-AMRO Bank, Citibank, Calyon Corporate and Investment Bank, Mizuho

Corporate Bank, Bank of America and HSBC Bank amounting to NT$689,280

(US$21,144).

(c) The Company entered into aircraft, land, engine and aircraft parts lease con-

120

tracts using the operating lease or capital lease method. As of December 31,

2006, the Company had paid $10,905,805 (US$334,534) as refundable deposits.

According to the contracts, future lease payments in the following five years

are as follows:

Year due NT dollars US dollarsJanuary 1, 2007~December 31, 2007 $ 10,319,093 316,537

January 1, 2008~December 31, 2008 8,166,145 250,495




And after 24,340,756 746,649

$ 60,337,022 1,850,829

8. Important Damage Losses: none

9. Important Subsequent Events: none

10. Others

(a) Total personnel, depreciation and amortization expenses for the years ended

December 31, 2006 and 2005, were as follows:

2006By function NT dollars US dollars

Operating Operating Operating OperatingBy item cost expenses Total cost expenses Total

Personnel expenses

Salaries $ 3,244,963 2,616,014 5,860,977 99,845 80,493 180,338

Insurance 143,584 116,666 260,250 4,418 3,590 8,008

Pension 186,747 131,471 318,218 5,746 4,045 9,791

Others (meal

allowances, etc) 1,232,724 257,482 1,490,206 37,930 7,922 45,852

Depreciation 5,903,066 210,290 6,113,356 181,633 6,470 188,103

Amortization 990,250 208,000 1,198,250 30,469 6,400 36,869

121

2005

By function NT dollars US dollars

Operating Operating Operating Operating

By item cost expenses Total cost expenses Total

Personnel expenses

Salaries $ 3,217,212 2,647,551 5,864,763 100,006 82,299 182,305

Insurance 132,828 111,169 243,997 4,129 3,456 7,585

Pension 164,380 114,219 278,599 5,110 3,550 8,660

Others (meal

allowances, etc) 940,608 219,902 1,160,510 29,239 6,835 36,074

Depreciation 4,224,112 212,590 4,436,702 131,306 6,608 137,914

Amortization 994,308 221,658 1,215,966 30,908 6,890 37,798

(b) Reclassification

Certain amounts in the financial statements for the year ended December 31,

2005, have been reclassified to conform with the presentation of the financial

statements for the year ended December 31, 2006, for purposes of comparison

These reclassifications do not have a significant impact on the financial state-

ments.

11. Segment Financial Information

(a) Diversified industry:

The Company mainly operates an international air transportation business.

(b) Geographic area information:

122


South East Asia:Operating revenue $ 31,006,957 954,060 30,565,351 950,120Income (loss) from operations $ (1,102,136) (33,912) 293,850 9,134

Identifiable assets $ 323,666 9,928 281,371 8,565North America:

Operating revenue $ 14,742,859 453,627 13,738,032 427,045Income (loss) from operations $ (524,032) (16,124) 132,075 4,106

Identifiable assets $ 440,186 13,503 433,780 13,205Other foreign areas:


Identifiable assets $ 1,268,771 38,919 1,160,655 35,332Domestic:


Identifiable assets $ 127,433,775 3,909,012 115,362,077 3,511,783Total operating revenue $ 93,903,564 2,889,341 88,518,249 2,751,577

Income (loss) from operations $ (3,337,784) (102,701) 851,000 26,453Investment income, net 1,009,463 31,061 796,799 24,769General income 2,025,754 62,330 1,238,479 38,498Interest expenses (1,961,357) (60,349) (1,749,587) (54,386)Income (loss) before income tax $ (2,263,924) (69,659) 1,136,691 35,334Total identifiable assets $ 129,466,398 3,971,362 117,237,883 3,568,885Long-term equity investments 11,701,731 358,949 11,285,396 343,543

Total assets $ 141,168,129 4,330,311 128,523,279 3,912,428

(c) Major customer information - The Company operates an air transportationbusiness with no specific major customers

(d) Export sales information - The main business of the Company is intern-ational air transportation services. Conseque-ntly, it is not practical to separate export and domestic sales.

123

124

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Operating revenue $ 99,105,024 3,049,385 92,414,223 2,872,684

Operating cost (93,478,578) (2,876,264) (83,117,006) (2,583,681)Gross profit from operations 5,626,446 173,121 9,297,217 289,003

Operating expenses (7,347,318) (226,071) (7,237,123) (224,965)Operating income (loss) (1,720,872) (52,950) 2,060,094 64,038

Non-operating income and gains:Interest income 198,846 6,119 126,792 3,942Investment income 153,564 4,725 200,906 6,245Gains on disposal of property, plant and equipment, net 203,001 6,246 747,864 23,247Gains on sale of investments, net 860,959 26,491 116,940 3,635Exchange gains, net 571,946 17,598 31,950 993Other income 364,654 11,220 349,486 10,864

2,352,970 72,399 1,573,938 48,926

Non-operating expenses and losses:Interest expenses, net of capitalized interest of NT$416,104 (US$12,803)and NT$319,830 (US$9,841) in 2006 and 2005,respectively (2,080,177) (64,005) (1,858,908) (57,784)Impairment loss (11,130) (343) (55,075) (1,712)Losses on valuation of financial assets (5,050) (155) - -Other losses (74,408) (2,290) (61,172) (1,902)

(2,170,765) (66,793) (1,975,155) (61,398)

Income (loss) before income tax (1,538,667) (47,344) 1,658,877 51,566

Income tax benefit 74,811 2,302 4,858 151

Income (loss) before cumulative effect of changes in accountingprinciple (1,463,856) (45,042) 1,663,735 51,717

Cumulative effect of changes in accounting principle (net ofincome tax expenses of NT$53,564 (US$1,648) 160,691 4,945 - -

Net income (loss) $ (1,303,165) (40,097) 1,663,735 51,717

Income attributable to:Parent company (1,686,585) (51,895) 1,326,060 41,220Minority interest 383,420 11,798 337,675 10,497

$ (1,303,165) (40,097) 1,663,735 51,717

Net income (loss) Net incomeEarnings per share (expressed in dollars): NT dollars US dollars NT dollars US dollars

Basic earnings per share:Income (loss) before cumulative effect of changes

in accounting principle $ (0.49) (0.01) 0.39 0.01Cumulative effect of changes in accounting principle 0.04 - - -

Net income (loss) $ (0.45) (0.01) 0.39 0.01Diluted earnings per share:

Income before cumulative effect of changesin accounting principle $ - - 0.37 0.01

Cumulative effect of changes in accounting principle - - - -Net income $ - - 0.37 0.01

EVA AIRWAYS CORP. AND SUBSIDIARIESConsolidated Statements of Operations

For the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars and U.S. Dollars, Except Earnings per Share)

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EVA AIRWAYS CORP. AND SUBSIDIARIESConsolidated Statements of Cash Flows

For the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars and U.S. Dollars)

2006 2005


Cash flows from operating activities:

Net income (loss) $ (1,686,585) (51,895) 1,326,060 41,220

Income for minority interest 383,420 11,798 337,675 10,497

Adjustments to reconcile net income (loss) to net cash

flow provided by operating activities:

Depreciation 6,845,194 210,621 5,118,214 159,099

Impairment loss 11,130 343 55,075 1,712

Amortization and maintenance expense 1,247,188 38,375 1,260,913 39,195

Amortization expense recorded as interest expenses 24,766 762 15,710 488

Amortization expense recorded as other expenses 154 5 -

Exchange gains arising from disposal of foreign operating units (369,383) (11,366) - -

Gains on disposal and obsolescence of property, plant and equipment, net (184,244) (5,669) (730,756) (22,715)

Amortization of deferred gain from sale and leaseback of fixed assets (952) (29) (89,765) (2,790)

Amortization of other deferred gain (166,564) (5,125) (417,913) (12,991)

Gains on sale of investments, net (860,959) (26,491) (116,940) (3,635)

Provision for unrealized exchange gain from long-term borrowings (11,402) (351) (9,156) (285)

Investment income (153,564) (4,725) (200,906) (6,245)

Proceeds from cash dividends on long-term equity investments 110,273 3,393 298,419 9,276

Deferred income tax benefit (423,372) (13,027) (344,300) (10,703)

Decrease (increase) in financial assets at fair value thought profit or

loss–current 284,960 8,768 (282,941) (8,795)

Increase in financial assets at fair value through profit or loss–noncurrent (9,841) (303) - -

Decrease in notes receivable 343 10 4,033 125

Increase in accounts receivable (including related parties) (899,141) (27,666) (1,743,656) (54,201)

Decrease in other receivables (including related parties) 23,751 731 98,143 3,051

Decrease (increase) in other financial assets–current 588,416 18,105 (605,506) (18,822)

Increase in inventories (1,459,112) (44,896) (2,137,016) (66,429)

Increase in prepaid expenses (30,795) (948) (696,585) (21,653)

Decrease (increase) in other prepayments 94,016 2,893 (493,370) (15,336)

Increase in other current assets (39,280) (1,209) (75,616) (2,351)

Increase in deferred pension cost - - (76,244) (2,370)

Increase in accounts receivable–related parties–noncurrent 40,589 1,249 (86,548) (2,690)

Increase in financial liabilities at fair value through profit or loss–current 255,284 7,855 - -

Increase in financial liabilities at fair value through profit or loss–noncurrent 431,767 13,285 - -

Decrease in tax payable 104,067 3,202 (372,398) (11,576)

Increase in notes and accounts payable (including related parties) 254,134 7,820 270,510 8,409

Increase (decrease) in other payables (including related parties) (1,037,223) (31,915) 534,112 16,603

Increase in accrued expenses 338,887 10,427 1,517,917 47,184

Increase in unearned revenue 1,195,894 36,797 864,042 26,859

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Increase in other current liabilities 422,764 13,008 294,852 9,165

Increase (decrease) in other liabilities 33,077 1,108 (64,388) (2,001)

Decrease in accrued employee retirement liabilities (83,212) (2,560) 66,557 2,069

Cumulative effect of changes in accounting principle (214,255) (6,592) - -

Net cash provided by operating activities 5,060,190 155,698 3,518,228 109,364

Cash flows from investing activities:

Decrease (increase) in available-for-sale financial assets–current (4,212,198) (129,606) 2,743,590 85,284

Withdrawal of long-term equity investments, net 13,105 403 4,752 148

Increase in restricted assets-current - - (2,990) (93)

Proceeds from sale of available-for-sale financial assets–noncurrent 162 5 - -

Proceeds from sale of financial assets carried at cost–noncurrent 1,374,029 42,278 - -

Payments for purchase of available-for-sale financial assets–noncurrent - - (49,883) (1,551)

Payments for purchase of long-term equity investments under equity method - - (51,623) (1,605)

Payments for purchase of property, plant and equipment (22,940,854) (705,872) (7,024,412) (218,352)

Proceeds from disposal of property, plant and equipment 7,009,625 215,681 3,873,905 120,420

Decrease (increase) in refundable deposits 4,907,869 151,011 (128,590) (3,997)

Decrease (increase) in other assets (53,812) (1,656) 33,144 1,030

Increase in deferred charges (2,133,883) (65,658) (2,731,256) (84,901)

Net cash used in investing activities (16,035,957) (493,414) (3,333,363) (103,617)

Cash flows from financing activities:

Increase in short-term borrowings 21,583,136 664,096 13,199,308 410,299

Increase in long-term borrowings 23,967,000 737,446 15,625,334 485,711

Redemption of short-term borrowings (23,879,308) (734,748) (10,559,958) (328,255)

Redemption of long-term borrowings (8,576,335) (263,887) (10,461,773) (325,203)

Installment payments for purchase of property, plant and equipment (2,389,495) (73,523) (2,266,687) (70,460)

Installment payments for purchase of inventories - - (746,530) (23,206)

Redemption of lease liability (1,768,270) (54,408) (751,707) (23,367)

Increase (decrease) in minority interest (182,732) (5,048) 2,208,386 67,009

Payments of cash dividends (749,977) (23,313) (1,646,147) (49,330)

Payment of employees' bonuses and directors' and supervisors' remuneration (63,220) (1,965) (71,574) (2,145)

Cash subscription 4,320,000 133,087 - -

Net cash provided by financing activities 12,260,799 377,737 4,528,652 141,053

Effect of exchange rate changes on cash 1,726 228 (7,192) (3,011)

Effect of subsidiaries initial consolidation - - (2,846,130) (88,472)

Net increase in cash and cash equivalents 1,286,758 40,249 1,860,195 55,317

Cash and cash equivalents at beginning of year 3,332,796 101,455 1,472,601 46,138

Cash and cash equivalents at end of year $ 4,619,554 141,704 3,332,796 101,455

Additional disclosure of cash flow information:

Cash payments of interest (excluding capitalized interest expense) $ 1,962,394 60,381 1,671,214 51,949

Cash payments of income tax $ 241,052 7,417 1,085,127 33,731

Supplemental schedule of noncash investing and financing activities:

Current portion of long-term borrowings $ 9,579,557 293,851 6,306,957 191,993

Inventory transferred from fixed assets $ 7 - 150 5

Translation adjustments $ (853,500) (16,627) 223,373 (34,840)

Unrealized gains or losses on financial instruments $ 39,802 1,221 (141,644) (4,280)

EVA Airways Corporation376 Sec. 1, Hsin-nan Rd., Luchu, Taoyuan HsienTaiwanTel: 886-3-351-5151 Internet Address: http://www.evaair.com

Taipei Office117 Sec. 2, Chang-an E. Rd., Taipei, Taiwan Tel: 886-2-8500-2345

SpokesmanKuo-wei Nieh Executive Vice President, Public Relations DivisionTel: 886-2-2500-1122e-mail: [email protected] SpokespersonKatherine KoJunior Vice President, Public Relations Division Tel: 886-2-2500-1122email: [email protected]

Shareholder ServicesAddress: 8F, 100 Sec. 2, Chang-an E. Rd.Taipei, TaiwanTel: 02-2509-8720Fax: 02-2509-9180Internet Address: http://stock.evergreen.com.tw

AuditorsKPMGAddress: 68F, 7 Sec. 5, Xinyi Rd., Taipei, Taiwan Tel: 886-2-8101-6666Internet Address: http://www.kpmg.com.tw

Financial CalendarYear ended December 31, 2006

stock code - eva air per employee thousand 1,896 1,941 -2.3% ... deliver a stellar performance. ......

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