financial and operating highlights - eva air · 2012. 10. 25. · eva launched new routes in rapid...
TRANSCRIPT
1 — Financial and Operating Highlights
2— To Shareholders
2003 in Review.................................................................................................................................................................................................2
2004 Preview ....................................................................................................................................................................................................4
6— The Company
Major Milestones............................................................................................................................................................................................7
Calendar of 2003 Events.........................................................................................................................................................................10
Directors and Supervisors......................................................................................................................................................................12
Principal Officers .........................................................................................................................................................................................16
Capital and Shares....................................................................................................................................................................................22
EVA Air People..............................................................................................................................................................................................26
The Fleet...........................................................................................................................................................................................................28
The Market ......................................................................................................................................................................................................29
The Network ...................................................................................................................................................................................................44
Principal Subsidiaries ................................................................................................................................................................................45
Litigation or Non-litigious Proceedings............................................................................................................................................46
Important Resolution by Shareholders and BOD......................................................................................................................46
Corporate Governance..........................................................................................................................................................................48
48— Financial and Operating Statistics
Financial Results ..........................................................................................................................................................................................49
Operating Results........................................................................................................................................................................................52
54— Financial Statements
Auditors' Report............................................................................................................................................................................................54
Balance Sheets ............................................................................................................................................................................................55
Statements of Income..............................................................................................................................................................................56
Statements of Changes in Stockholders' Equity .........................................................................................................................57
Statements of Cash Flows ......................................................................................................................................................................58
Notes to the Accounts..............................................................................................................................................................................60
1
2003 2002 % ChangeFinancialIncome Statement
Revenue NT$ thousand 65,387,596 64,577,407 1.3%
Passenger revenue NT$ thousand 29,196,261 32,514,264 -10.2%
Cargo revenue NT$ thousand 31,570,153 27,518,537 14.7%
Total costs NT$ thousand 62,893,909 59,519,817 5.7%
Operating profit NT$ thousand 2,493,687 5,057,590 -50.7%
Net profit NT$ thousand 1,396,182 2,637,479 -47.1%
EPS NT$ 0.55 1.19 -53.8%
Profit margin % 3.8% 7.8% -4.0ppt
Balance Sheet
Total assets NT$ thousand 114,668,211 115,513,173 -0.7%
Total liabilities NT$ thousand 76,455,172 80,467,152 -5.0%
Total equity NT$ thousand 38,213,039 35,046,021 9.0%
Total capital NT$ thousand 27,534,330 24,250,000 13.5%
Book value per share NT$ 13.88 14.45 -4.0%
Debt ratio % 66.7% 69.70% -3.0ppt
OperatingOverall capacity Thousand 8,727,248 7,757,530 12.5%
Overall traffic Thousand 6,345,044 5,882,083 7.9%
Overall load factor % 72.7% 75.80% -3.1ppt
Overall yield NT$ 9.58 10.21 -6.2%
Passenger capacity thousand 25,022,555 25,184,316 -0.6%
Passenger traffic thousand 18,133,406 19,508,449 -7.0%
Passengers carried no. of passengers 4,321,395 4,793,847 -9.9%
Passenger load factor % 72.5% 77.50% -5.0ppt
Passenger yield NT$ 1.61 1.67 -3.6%
Cargo capacity thousand 6,475,218 5,490,942 17.9%
Cargo traffic thousand 4,713,037 4,126,323 14.2%
Cargo carried tons 734,900 619,435 18.6%
Cargo load factor % 72.8% 75.1% -2.3ppt
Cargo yield NT$ 6.70 6.67 0.4%
Unit cost NT$ 7.21 7.67 -6.0%
Break-even load factor % 75.2% 75.1% 0.1ppt
Number of employees 4,417 4,394 0.5%
Capacity per employee thousand 1,976 1,765 11.9%
Traffic per employee thousand 1,437 1,339 7.3%
Revenue per employee NT$ thousand 14,804 14,697 0.7%
Financial and Operating Highlights
To Shareholders2003 In Review
2003 Review The Company's 2003 operations were adversely affected during the first half of
the year by the SARS outbreak, which caused the passenger market to shrink. EVAAir reacted quickly, reducing flights to cut operating costs. During the second half,the passenger market steadily recovered pre-SARS strength. At the same time,shipping markets boomed, giving air cargo services added momentum and pushingthis business to new heights during the second half of the year. EVA Air wasproactive, consolidating marketing strategies and maintaining flexibility in fleetdeployment, and ultimately, generating higher operating revenue and reaching ourfinancial forecast for 2003. Audited reports show NT$ 65.3 billion in total revenuefor 2003, an annual growth rate of 1%, and an increase of NT$800 million over thesame period of the previous year (2002). Annual income after tax was NT$1.39billion, meeting the forecast and delivering positive financial results for fiscal 2003.
EVA launched new routes in rapid succession: Taipei-Seoul and Taipei-Hanoiwere introduced in August and September. Starting in late October 2003, weincreased flight frequency to London, Brisbane, Auckland and Macau. We added thefirst two Airbus A330-200s to our fleet in July of last year and used the debut of newaircraft to upgrade services to Tokyo, Hong Kong and Macau. We advancedoperating efficiencies by devising a program that correlates service frequency withmarket demand. And we improved the service network in southern Taiwan byappointing UNI Air as our general passenger service agent in the area.
EVA elevated air cargo capacity by converting two McDonnell Douglas MD-11passenger aircraft into freighters. We expanded our cooperative agreement withShanghai Air on August 6 to better serve that carrier's airfreight customers inMainland China. And we officially established the EVA Air Cargo Center, Europe inBrussels, Belgium to integrate logistics services and better meet demands ofescalating shipping opportunities in Europe. Beginning in late October, We openednew EVA freighter routes to Vienna, Frankfurt and Delhi. We demonstrated thepower and professionalism of our freight services by introducing a special "16-footplate" at our Taipei facilities that has enhanced loading technology andaccommodated huge pieces of machinery such as a high, wide, 60-ton TFT- LCDGeneration 5 system that we transported to Taiwan on one flight. EVA alsosponsored air transportation for priceless Egyptian artifacts on loan from the LouvreMuseum for a special exhibition in Taipei, once again confirming the reliability of ourservices and our never-ending commitment to cultural and spiritual growth.
2
3
Results Compared to Projections
NT$(Thousand)
Items Budget Actual Hit Ratio
Operating revenue 65,217,281 65,387,596 100.3%
Operating cost 56,833,367 56,835,812 100.0%
Gross profit 8,383,914 8,551,784 102.0%
Operating expense 5,994,246 6,058,097 101.1%
Net Profit 2,389,668 2,493,687 104.4%
Non-operating income 868,253 904,507 104.2%
Non-Operating expense 2,185,951 2,182,012 99.8%
Income before tax 1,071,970 1,216,182 113.5%
Income tax benefit 80,000 180,000 225.0%
Net income 1,151,970 1,396,182 121.2%
4
Income and EarningTotal Revenue: NT$ 66,292,103 thousandTotal operating income for the year ending December 31, 2003 was NT$ 65,387,596 thousand, up
1% from the year before (2002). Due to the SARS outbreak, operating revenue for passenger servicesdecreased by 10% while a vigorous market demand and fleet expansion led to a 15% increase incargo operating revenue. Total annual non-operating income reached NT$ 904,507 thousand, a 53%jump primarily due to growing investment income and exchange benefits.
Total Expense: NT$ 65,075,921 thousandTotal operating expense for the year ending December 31, 2003 was NT$ 62,893,909 thousand,
rising 6% over the previous year (2002) mainly because of fleet expansion and growth in cargoloading volume. Non-operating expense was slashed by 33% due to lower interest costs.
Profitability Analysis:Return on assets (%): 2.61%Return on shareholders' equity (%): 4%Ratio of operating profit to paid-in capital (%): 9%Return on sales (%): 2%Earnings per share: NT$ 0.55
Research and DevelopmentResponding to e-Business opportunities, EVA built a "Data Warehouse" and Internet ticketing
services. We improved cargo service quality and invigorated our ability to compete on October 1,2002 by deploying an AMS (Automatic Manifest System) and streamlining U.S. Customsrequirements.
2004 Preview
Operating Guidelines:Throughout the fiscal year ending on December 31, 2004, EVA Air is continuing to uphold our
commitment to "safe, punctual flights with friendly, professional service." We are making everyeffort to provide the most convenient and efficient cargo and transportation services possible for thegateways we serve. We are enhancing this effort with the scheduled introduction of four brand-newall-passenger Airbus A330-200s, which will increase our fleet size to 49 aircraft and give us greaterflexibility for raising income and sustaining continuous growth.
Sales ForecastEstimated passenger volume for 2004, with the expectation that there will be a full economic
recovery, is 5.46 million people. Deliveries of the four A330-200s are being paced over February,April and November and will boost the EVA passenger capacity by 9.5%.
Estimated cargo volume for 2004, based on a global recovery, is 820,000 tons. Anticipating thatthe market in Mainland China will continue its rapid growth, EVA Air is proactively working to
To Shareholders
5
boost cargo volume by maximizing business opportunities. We are securing more cargo sources andreinforcing our market niche. We are wet leasing a McDonnell-Douglas MD-11 freighter to our cargofleet in March and converting another of these aircraft for airfreight operations in August, raising ourcargo transportation capacity by 6.8% compared with the prior year.
Key Marketing Strategies:Passenger Market
• Introducing four Airbus 330-200s on routes to Vienna, Brisbane, Osaka and Sydney.• During the summer schedule March 28 through October 30, EVA Air is code sharing with
Air Canada to lift frequency from three to five flights per week on Vancouver service. • Expanding frequency to Hong Kong from 40 to 49 flights per week, effective March 28.• Dry-leasing a McDonnell Douglas MD-90 for Kaohsiung-Japan service, effective May 15. • Leasing an MD-90 through a wet leasing agreement to increase service on the Kaohsiung -
Macau route to two flights per day upon the April 30 expiration of a lease agreement withFar Eastern Air Transport Corp.
Cargo Market• Wet-leasing an MD-11 freighter in March to respond to the strong demand for cargo service
in the Mainland China market. • Taking delivery of a converted MD-11 in August to raise cargo capacity on Macau, Europe
and North America routes. • Adding freighter flights on the Osaka route and again expanding joint operations to
Mainland China, extending the range of our cargo services and giving customers moreoptions and convenience.
• Enhancing lateral and vertical business cooperation and enhancing existing high-profitservices. Also initiating research and development to refine high-efficiency productstailored for specific market segments.
6
The Company
EVA Air was founded in March 1989 as a 100% privately ownedTaiwan-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 steadilyand as of December 2003, serves 43 major destinations on fourcontinents and in Oceania with a fleet of 45 aircraft. The carrier hasflourished as it has continued to expand its fleet and operationsnetwork.
In 1997, after carefully nurturing an environment where faultlessservice quality and flight safety are the standard, EVA Air became thefirst airline in Taiwan to achieve official ISO 9002 Certification in threeareas at the same time -- passenger, cargo and maintenance operations.Diligently upholding these objectives, EVA Air earned ISO-9001:2000Certification for all categories of operation in 2001.
In addition, EVA has ensuredquality, smooth, ongoing operationsand reduced costs by investing capitaland expertise in airline-relatedcompanies, including Evergreen SkyCatering Corporation, Evergreen Air-line Services Corporation, EvergreenAir Cargo Service Corporation, andother selected subsidiaries.
Operating strategies developedby the carrier are far-reaching.
Company goals place equal importance on its passenger and cargoservices, and it works in cooperation with affiliated carriers to maximizemutual efficiencies and effectively compete on a global scale. Itsworldwide hub of operations at Chiang Kai-Shek International Airportin Taiwan has proven to be both successful and strategic.
EVA Air listed its stock on Taiwan's TAISDAQ Market in October1999, and moved to the main board, TSE, in September 2001.
7
Major Milestones
1988~1990On September 1, 1988 at the celebration of the 20th birthday of Evergreen Marine Corporation,
Group Chairman Y. F. Chang announced that Evergreen would launch an international airline. EVAAir was officially formed in March 1989. After careful deliberation, the fledgling airline signed acontract 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.
8
The Company
1991EVA Air accepted delivery of our first two B767-300ERs in April, and made our inaugural flight
on July 1. Within that first week, we opened five destinations in Asia -- Bangkok, Seoul, Jakarta,Kuala Lumpur and Singapore.
1992The comprehensive EVA Training Center was inaugurated in July, and our first two all-
passenger B747-400s were delivered in November. We used the first flights of the new aircraft tolaunch our Taipei-Los Angeles route, and also to introduce all four of our innovative classes of cabinservice, debuting our pace-setting option in-between Economy and Super Business, the acclaimed"Evergreen Deluxe Class."
1993EVA Air set new standards and heightened expectations by expanding our network to more
than half a dozen destinations and launching service to London, Paris, Seattle, New York, SanFrancisco, Brisbane, Sidney, and Dubai.
1994EVA added the greatest number of new aircraft to our fleet during this year, purchasing a total
of eight, including three MD-11s, one B747-400, and four B767-200s. We also enlarged our networkwith new routes to Bali, Fukuoka, and Auckland.
1995EVA purchased three MD-11 freighters, and began to vigorously develop air cargo operations.
We set goals emphasizing passenger and cargo services equally. And we used joint operations andland transportation to successfully extend EVA Cargo services worldwide.
1996Enhancing the high quality of our operations, EVA applied for ISO-9002 certification. Within the
next year, our passenger service, cargo service and aviation maintenance operations were all threegranted ISO-9002 international certifications simultaneously. EVA achieved ISO-9001:2000certification in 2001.
1997Ensuring consistent service quality, EVA and Singapore Air formed Evergreen Sky Catering
Corporation as a joint venture, 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 newengine test cell was placed in operation, and the new joint venture began an aggressive campaign toraise the standards of the aircraft maintenance business.
9
1999Earning brilliant results with both passenger and cargo services, EVA produced outstanding
operating performances for five successive years. The Securities and Futures Commission (SFC) ofTaiwan approved our admission to the exchange, and on October 27, EVA Air shares began to betraded on the over-the-counter market.
2000In anticipation of future needs and to expand our fleet, EVA signed a purchase contract in June
with the Boeing Company for fifteen B777-200X/300X aircraft. Deliveries for these aircraft arescheduled to begin in 2005. We relocated our hub to the brand-new Terminal 2 at Chiang Kai-ShekInternational Airport at the end of July.
2001EVA committed to add more new, technologically advanced aircraft to our fleet in March by
signing a purchase contract for eight Airbus A330-200s, and making plans to start taking deliveries in2003. We also secured approval to transfer our stock listing from OTC, and on 17 September, movedEVA Air shares to the Taiwan Security Exchange (TSE).
2002EVA launched our online booking system on January 9. We gained approval to add 24
passenger flights on our thriving Hong Kong route, and to begin new freighter service. And weintroduced a new slogan "Just relax, your home in the air."
2003EVA debuted stylish new cabin-crew uniforms on April 1, and took delivery of our first
A330-200 on June 26, unveiling our new generation of top cabin service, Premium Laurel, andupgrading Economy Class.
10
Calendar of 2003 Events
JanuaryResponding to a lift in the 54-year-old ban on direct travel across the Taiwan Straight by the
governments of Taiwan and Mainland China for the Chinese New Year, EVA flew 380 Taiwanesebusinessmen between Chiang Kai-Shek International Airport in Taipei and Pudong InternationalAirport in Shanghai, completing the return trip on January 29.
AprilEVA debuted stylish new cabin-crew uniforms on April 1.
JuneAt EVA Air's annual general meeting on June 11, shareholders voted to distribute a stock
dividend of NT$0.2 per share and a cash dividend of NT$0.2.EVA issued our first local convertible bond in early June in the amount of NT$5 billion with a
zero coupon rate and five-year maturity date.EVA took delivery of our first A330-200 on June 26, showcasing the new generation of our top
cabin class, Premium Laurel, and an upgraded Economy Class.
The Company
11
AugustEVA Air launched new charter service to Seoul that started on August 1.Beginning on August 6, EVA Air and Shanghai Airlines began working together on Shanghai-
Macau-Taipei cargo services. A through-transportation agreement expands capacity on the routefrom 100 to 1,600 tons per month, shrinks delivery time for air cargo from Shanghai to the West Coastof the United States to less than 24 hours, and reduces costs. On August 15, EVA entered into a cargocode-sharing arrangement with TransAsia Airways on the Taipei-Macau segment of the route,increasing weekly frequency from three to six flights.
The EVA Air Cargo Center, Europe, a dedicated air freight hub located in Brussels, Belgium,opened in mid-August. The new Cargo Center maximizes advantages of Brussels' excellent locationand sophisticated truck transport system and extends our reach throughout Europe.
SeptemberEVA Air launched services from Taipei to Hanoi, the largest city in northern Vietnam, on
September 17 with four flights per week. We initiated the new Hanoi service with an MD-90 aircraftleased from UNI Airways.
DecemberEVA Air launched cargo services to Delhi.
12
The Company
Title Name Tenure
Number (%) Number (%) Number (%)Chairman Chang Kuo-Cheng 2002.06.18 Expires 1989.03.31 558,461,973 25.33 660,454,669 22.75 - -
(Note 1) 2004.04.18 (Note 3)
Director Chang Yung-Fa 2001.04.19 3 years 1989.03.31 531,867,594 24.12 660,454,669 22.75 22,796,303 0.79
(Note 1) (Note 3)
Director Chang Kuo-Wei 2001.04.19 3 years 1993.03.27 283,584,568 12.86 359,208,364 12.37 - -
(Note 2) - -
Director Kitty Yen 2002.06.18 Expires 2002.06.18 226,980 0.01 207,559 0.00 - -
2004.04.18
Director Lin Ching-En 2002.04.19 3 years 2001.04.19 3,205,656 0.15 3,690,013 0.13 - -
Director Lin Shin-I 2002.06.18 Expires 2002.06.18 - - - - - -
2004.04.18
Director Kao Ruey-Perng 2002.06.18 Expires 2002.06.18 250 0.00 275 0.00 - -
2004.04.18
Supervisor Ko Li-Ching 2001.04.19 3 years 1993.03.27 283,584,568 12.86 359,208,364 12.37 - -
(Note 2)
Supervisor Owng Rong-Jong 2002.06.18 Expires 1989.03.31 558,461,973 25.33 660,454,669 22.75 - -
(Note 1) 2004.04.18
Supervisor Chen Cheng-Pang 2001.04.19 3 years 2001.04.19 5,000 0.00 5,770 0.00 - -
ShareholdingWhen Elected
PresentShareholding
Date ofElection(Inaugu-ration)
Date ofInitial
Election,Appoint-
ment
Shares Held bySpouses,
Dependents
Directors and Supervisors
Note 1: Representative of Evergreen Marine Corp.Note 2: Representative of Evergreen International Corp.Note 3: Representative of Evergreen Marine Corp.; did not serve as a Director or Supervisor for the Company April 30, 1993 - March
20, 1996.Note 4: As of April 30, 2004 the Company has issued 2,903,534,623 shares.
13
Number (%) Title Name Relationship- - BA, Boston University Director, Evergreen Intl. Director Chang Yung-Fa Father 4,013
Chairman, Storage & Transport Corp. Director Chang Kuo-Wei Brother
Evergreen International Corp. Dircector, Evergreen
Sky Catering Corp
- - Taipei Commercial High School Director, Evergreen Marine Chairman Chang Kuo-Cheng Son 3,000
Chairman, Evergreen Marine Corp. Director Chang Kuo-Wei Son
Corp. Director, Evergreen Intl.
Corp.
- - Master of Arts in Economics, Chief Exec.VP, EVA Director Chang Yung-Fa Father 2,422
- - California State University, Airways Corp. Chairman Chang Kuo-Cheng Brother
Long Beach Director, Evergreen Sky
Chief Executive VP, Catering Corp.
EVA Airways Corp. Director, Evergreen Airline
Service Corp.
- - BA in Journalism, Chairman, Evergreen Sky - - - 1,079
Chinese Culture Univ. Catering Corp.
President, EVA Airways Corp.
- - MBA, Kobe Univ. Japan Chairman, Evergreen - - - 50
VP, EVA Airways, America. Air Cargo Service Corp.
- - BA, Taiwan University Chairman, United
Director, China Development Holdings Corp. - - - 50
Industrial Bank
- - Director, Evergreen Container Director, Chang Yung-Fa - - - 50
Terminal Corp. Charitable Fund
- - Keelung Girl's Senior High School Supervisor, Evergreen - - - -
Executive VP, Marine Corp.
Evergreen International Corp. Supervisor , Evergreen Intl.
Storage & Transport Corp.
Supervisor , Central
Reinsurance Corp.
- - EMBA, Department of Business Exec.VP, Evergreen - - - -
Administration, College of Marine Corp.
Business, Supervisor , Evergreen Intl.
National Taipei University Storage & Transport Corp.
Executive Vice President,
Evergreen Marine Corp.
- - BA, Soochow University VP, Lloyd Triestino Di - - - 50
Senior VP, Uniglory Marine Corp. Navigazione S.P.A
Share Held byThird Parties Education & Experience
CompensationLast year inThousands
NTD
Concurrent Positionsin Other Companies
Other Managers, Directors or Supervisors Related by Marriage or
Within Second-degree BloodRalationship of Each Other
April 30, 2004
14
The Company
Major EVA Air Institutional Shareholders
April 30, 2004
Name of Institutional Shareholder Major Holder of Institutional Shares
Evergreen Marine Corp. Evergreen International SA (Panama)
Evergreen International Corp. Chang Yung-Fa Charitable Fund ,Chang Kuo-Cheng,
Chang Kuo-Hua, Chang Kuo-Ming, Chang Kuo-Wei
Representatives with Major Holdings of Institutional Investors
As of April 30, 2004
Name of Institutional Shareholder Major Shareholder of Institutional Shareholder
Evergreen International SA Chang Yung-Fa, Chang Kuo-Hua, Chang Kuo-Ming,
(Panama) Chang Kuo-Cheng and Chang Kuo-Wei
15
More than 5 years of experience in business, law,
finance or areas relevant to themission of the Company
Independence Criteria
(Note 1) Remarks
Criteria for Expertise and Independence of Directors and Supervisors
Qualification
Name1 2 3 4 5 6 7
Chang Kuo-Cheng √Chang Yung-Fa √ √Chang Kuo-Wei √ √ √Kitty Yen √ √ √ √ √ √ √Lin Ching-En √ √ √ √ √ √ √Lin Shin-I √ √ √ √ √ √ √ √Kao Ruey-Perng √ √ √ √ √ √ √ √Owng Rong-Jong √ √ √ √ √Ko Li-Ching √ √ √ √Chen Cheng-Pang √ √ √ √ √ √ √ √
Note 1: Check marks designate the items of criteria met by each Director or Supervisor.
(1) Not an employee of the Company or a director, supervisor or employee of affiliated companies;
but an independent director or independent supervisor of the Company's parent company or
affiliated companies would not be subject to this criteria.
(2) Not an individual shareholder directly or indirectly holding 1% or more of the total shares issued by
the Company or one of the top 10 individual shareholders.
(3) Not a spouse or relative of the second-degree or closer to persons referenced in the previous two
columns.
(4) Not a director, supervisor or employee of the institutional shareholder directly or indirectly holding
5% or more of the total stocks issued by the company or a director, supervisor or employee of one
of the top five institutional shareholders.
(5) Not a director, supervisor, manager or a shareholder holding 5% or more of the outstanding shares
issued by certain companies or institutions that have financial or business relationships with the
Company.
(6) Not an owner, partner, director, supervisor or manager of any sole proprietorship, partnership,
company or institution and his/her spouse, or a specialist and his/her spouse who has provided
financial, commerce, or legal consultation and services to the Company or affiliated companies
within one year.
(7) Not an institutional body or its representative as described in Article 27 of the Company Law.
16
The Company
President Lin Bou-Shiu 2003.01.01 236,587 0.008 16,361 0.001 -- --
Chief Executive Vice Chang Kuo-Wei 2003.07.01 70,977,610 2.445 -- -- -- --
President
Executive Vice President, Chiu Ke-Tai 2001.04.19 163,773 0.006 -- -- -- --
CKS Airport Div.
Executive Vice President, Chen Hsing-Te 2002.01.01 217,512 0.007 -- -- -- --
Passenger Div.
Executive Vice President, Lin Chen-Tsai 2002.01.01 155,195 0.005 -- -- -- --
Cargo Div.
Executive Vice President, Yuen Ping-Yu 2004.01.01 9,632 0 -- -- -- --
Flight Operations Div.
Executive Vice President, Kao Wan-Shin 2003.07.01 10,577 0 -- -- -- --
Corporate Planning Div.
Senior Vice President, Chen Wei-Chou 2000.01.01 143,663 0.005 -- -- -- --
Flight Operations Div.
Senior Vice President, Nieh Kuo-Wei 2001.01.01 7,529 0 3,433 0 -- --
Public Relations Div.
Senior Vice President, Tai Jiin-Chyuan 2003.01.01 1,567 0 -- -- -- --
Legal & Insurance Div.
Senior Vice President, Ho Ching-Sheng 2002.07.01 366,112 0.013 -- -- -- --
Flight Safety Div.
Senior Vice President, Han Jei-Li 2003.01.01 81 0 2,037 0 -- --
Flight Operations Div.
Spouse & Shares Held
Shareholding Dependent by OtherShareholding Nominal Holder
Number (%) Number (%) Number (%)
Title NameDate of
Inauguration
Principal Officers
17
Tamkang Univ. 2,889
President, Evergreen Airline Services Corp.
Master of Arts in Economics, 2,422
California State Univ., Long Beach
Junior Vice President,
Evergreen Marine Corp.
BA in Politics, Cultural Univ. 2,414
Junior Vice President,
Evergreen Construction Corp.
BA in Shipping Management, 2,530
Chiao-Tung Univ. Senior Vice President,
Evergreen Intl. Corp.
BA in International Trade, Tunghai Univ. 2,470
Senior Vice President,
Evergreen Marine Corp
BA in Electrical Engineering, 1,934
Cheng Kung Univ.
BA in French, Fu Jen Univ. 2,257
Senior Vice President, UNI AIR
BA in Maritime Science,
Ocean College
Manager, Evergreen Marine Corp.
Graduate School of Communications,
Shih Hsin Univ.
Manager, Evergreen Intl.(UK) Ltd
Graduate Institute of Maritime Law,
Ocean Univ. Manager, Evergreen Intl. Corp.
Graduate Institute of Flight Safety,
Univ. of Missouri
BA in Soil & Water Conservation,
Tamkang Univ.
Manager Related by Marriage
or Within Second-Degree Blood
Relationship of Each Other
Title Name Relationship
Concurrent
Positions with
Other
Companies
Education and Experience
Salary, Bonus andOther Compensationto President and VicePresident Last Year,
NT$thousand
Number of
Employee
Stock Options
Granted
April 30, 2004
18
The Company
Senior Vice President, Chuang Leng-Yuan 2003.01.01 95,639 0.003 -- -- -- --
Computer Div.
Senior Vice President, Fang Gwo-Shiang 2004.01.01 57,504 0.002 -- -- -- --
Computer Div.
Senior Vice President, Kuo Sheng-Yih 2003.01.01 26,707 0.001 22 0 -- --
Engineering & Maintenance Div.
Senior Vice President, Chang Lih-Lih 2004.01.01 108,811 0.004 -- -- -- --
Inflight Service Div.
Senior Vice President, Kou Jin-Cheng 2002.01.01 227,170 0.008 -- -- -- --
Cabin Service Div.
Deputy Senior Vice President, Chao Kuo-Shui 2001.01.01 10,741 0 -- -- -- --
CKS Airport Div.
Deputy Senior Vice President, Chen Yeou-Yuh 2002.05.01 1,210 0 -- -- -- --
Corporate Planning Div.
Deputy Senior Vice President, Yu Ching-Hsi 2002.07.01 24,646 0.001 -- -- -- --
Passenger Div.
Deputy Senior Vice President, Wu Kuang-Hui 2002.07.01 21,632 0.001 -- -- -- --
Finance Div.
Deputy Senior Vice President, Li Jen-Ling 2004.01.01 10,000 0 5,000 0 -- --
Corporate Planning Div.
Deputy Senior Vice President, Lin Jyh-Jong 2004.01.01 120,785 0.004 -- -- -- --
Corporate Planning Div.
Deputy Senior Vice President, Lu Yu-Chuan 2004.01.01 925 0 -- -- -- --
Personnel Div.
Junior Vice President, Li Ping-Yin 2000.01.01 10,582 0 -- -- -- --
Auditing Div.
Spouse & Shares Held
Shareholding Dependent by OtherShareholding Nominal Holder
Number (%) Number (%) Number (%)
Title NameDate of
Inauguration
19
BA in Applied Mathematics,
Cheng Chi Univ. Deputy Manager,
Evergreen IT Corp.
BA in Computer Science, Feng Chia Univ.
Deputy Junior Vice President,
Evergreen IT Corp.
Dept. of Marine Engineering,
Kaohsiung Institute of Marine Technology
BA in Statistics, Tamkang Univ.
Secretary, Evergreen Intl. Corp.
BA in Maritime Science, Ocean Univ.
Vice President, Evergreen Sky Catering Corp.
BA in English Literature, Cultural Univ.
BA in Maritime Science, Tamkang Univ.
BA in German, Tamkang Univ.
Manager, Evergreen Intl. Corp.
MBA, Sun Yat Sen Univ.
Junior VP, Evergreen Intl.Corp.
BA in Industrial & Business
Management, Taiwan University
Graduate School of Maritime Science,
Cultural Univ. Deputy Manager,
Evergreen America Corp. (US)
BA in Business Administration,
Fu Jen Univ.
Junior Vice President,
Evergreen Aviation Technologies Corp.
Dept. of Mechanical Engineering,
Pingtung Agricultural College
Manager, Evergreen Heavy Industry Corp.
Manager Related by Marriage
or Within Second-Degree Blood
Relationship of Each Other
Title Name Relationship
Concurrent
Positions with
Other
Companies
Education and Experience
Salary, Bonus andOther Compensationto President and VicePresident Last Year,
NT$thousand
Number of
Employee
Stock Options
Granted
20
The Company
Net Change in Shareholdings and Shares Pledged by Directors, Supervisors, Managers andMajor Shareholders
FY 2003 As of April 30, 2004
Title (Note 1) Name
Chairman Chang Kuo-Cheng, 11,492,011 0 46,382,189 0
Representative of
Evergreen Marine Corp.
Director Chang Yung-Fa 11,492,011 0 46,382,189 0
Representative of
Evergreen Marine Corp.
Director Chang Kuo-Wei 29,386,338 0 0 0
Representative of
Evergreen Intl. Corp.
Director Kitty Yen (12,353) 0 (72,000) 0
Director Lin Ching-En 68,165 0 (10,000) 0
Director Lin Shin-I 0 0 0 0
Director Kao Ruey-Perng 5 0 0 0
Supervisor Ko Li-Ching 29,386,338 0 0 0
Representative of
Evergreen Intl. Corp.
Supervisor Owng Rong-Jong 11,492,011 0 46,382,189 0
Representative of
Evergreen Marine Corp.
Supervisor Chen Cheng-Pang 106 0 0 0
Major shareholder Evergreen Marine Corp. 11,492,011 0 46,382,189 0
Major shareholder Evergreen Intl. Corp. 29,386,338 0 0 0
President Lin Bou-Shiu 4,358 0 0 0
Chief Executive Chang Kuo-Wei 1,307,615 0 0 0
Vice President
Senior Vice President Nieh Kuo-Wei (143,204) 0 (58,000) 0
Deputy Senior Lu Yu-Chuan(Note 3) -- -- 0 0
Vice President
Senior Vice President Tai Jiin-Chyuan (59,050) 0 0 0
Deputy Senior Wu Kuang-Hui 1,393 0 (54,000) 0
Vice President
Executive Vice Kao Wan-Shin 194 0 0 0
President
Increase(Decrease)
inShareholding
Increase(Decrease)
in SharesPledged
Increase(Decrease)
in SharesPledged
Increase(Decrease)
inShareholding
21
Deputy Senior Chen Yeou-Yuh (47,333) 0 (4,000) 0
Vice President
Deputy Senior Li Jen-Ling(Note 3) -- -- 0 0
Vice President
Deputy Senior Lin Jyh-Jong(Note 3) -- -- (19,000) 0
Vice President
Executive Vice Chen Hsing-Te 4,007 0 0 0
President
Deputy Senior Yu Ching-Hsi (15,833) 0 (75,000) 0
Vice President
Executive Vice Lin Chen-Tsai (36,220) 0 (10,000) 0
President
Senior Vice President Ho Ching-Sheng 6,910 0 (9,000) 0
Senior Vice President Chen Wei-Chou 2,646 0 0 0
Executive Vice Yuen Ping-Yu (63,565) 0 0 0
President
Senior Vice President Han Jei-Li 1 0 0 0
Senior Vice President Chang Lih-Lih 2,041 0 0 0
Senior Vice President Kou Jin-Cheng 5,658 0 (80,000) 0
Senior Vice President Kuo Sheng-Yih (24,085) 0 0 0
Executive Vice Chiu Ke-Tai 3,017 0 0 0
President
Deputy Senior Chao Kuo-Shui (115,471) 0 (14,000) 0
Vice President
Senior Vice President Chuang Leng-Yuan (7,073) 0 0 0
Senior Vice President Fang Gwo-Shiang 1,169 0 (6,000) 0
Note 1: Shareholders holding more than 10% of the Company's stock are noted as "major shareholders" and
listed respectively.
Note 2: The following form should be submitted if the counterpart of a stock transfer or share pledge is a
related party.
Note 3: Deputy Senior Vice President Lu Yu-Chuan, Li Chen-Ling and Lin Lyh-Jong were inaugurated on
January 1, 2004.
Information on Stock Transfer: Nil
Information on Stock Pledged: Nil
22
The Company
Capital and SharesAs of 31 December, 2003, EVA Air had authorized share capital of 3,000,000,000 in common
stock, valued at NT$10 par value per share with 2,753,433,007 shares issued and outstanding.
History of Capitalization
Authorized Capital Issued Capital
Month/
Non-
YearPrice Shares Amount Shares Amount
Sources of Capital Monetary
('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 -
03/2004 10 3,000,000 30,000,000 2,892,904 28,929,038 Corporate bond
conversion 1,394,708 -
23
Status of Shareholders
Shareholders Structure
As of 16 April, 2004
Government Financial Other Legal Foreign Institution Domestic TotalAgency Institution Entity & Natural Person Natural Person
Number of shareholders 0 0 126 760 63,123 64,009
Shareholdings 0 0 1,183,751,715 508,081,490 1,211,701,418 2,903,534,623
Holding percentage 0 0 40.77 17.50 41.73 100
Distribution of Common Shares
As of 16 April, 2004
Range of shareholdings Number of shareholders Number of shares %
1-999 15,646 3,676,100 0.1266
1,000-5,000 26,094 64,056,370 2.2062
5,001-10,000 9,265 74,806,369 2.5764
10,001-15,000 3,552 43,747,683 1.5067
15,001-20,000 2,461 46,083,777 1.5872
20,001- 30,000 2,201 55,517,462 1.9121
30,001-50,000 2,118 85,409,495 2.9416
50,001-100,000 1,609 113,520,227 3.9097
100,001-200,000 560 78,659,087 2.7091
200,001-400,000 228 62,281,154 2.1450
400,001-600,000 63 32,077,761 1.1048
600,001-800,000 28 20,275,859 0.6983
800,001-1,000,000 29 26,728,026 0.9205
1,000,001 and above 155 2,196,695,253 75.6559
Total 64,009 2,903,534,623 100.0000
24
The Company
Market Price, Net Worth, Earnings and Dividends Per Share for Most Recent Two Years
Year 2002 2003 As of April
Items (Distributed in 2003) (Distributed in 2004) 30, 2004
Highest NT$17.20 NT$17.60 NT$22.5
Lowest NT$9.00 NT$9.30 NT$13.55
Average NT$12.94 NT$13.11 NT$17.26
Before Distribution NT$14.45 NT$13.88 -
After Distribution NT$14.44 NT$13.32 -
Weighted Average Shares 2,425,000 2,528,790 -
thousand shares thousand shares
Before Adjustment NT$1.19 NT$0.55 -
After Adjustment NT$1.17 - -
Cash Dividends NT$0.187687 - -
Dividends from NT$0.187687 NT$0.4 -
Retained Earnings (Note 1)
Dividends from - - -
Capital Surplus
Price/Earnings Ratio (Note 2) 11.06 23.84 -
Price/Dividend Ratio (Note 3) 68.94 - -
Cash Dividend Yield Rate 1.45% - -
(Note 4)
Note 1: According to the dividend distribution program proposed by the board of directors on March 30,
2004 and submitted at the general shareholders' meeting of 2004 for resolution.
Note 2: Price/Earnings Ratio = Average Share Price at Market Close for Current Fiscal Year/Earnings Per Share
Note 3: Price/Dividend Ratio = Average Share Price at Market Close for Current Fiscal Year/Cash Dividend
Per Share.
Note 4: Cash Dividend Yield Rate = Cash Dividend Per Share/Average Market Closing Share Price for Current
Fiscal Year.
Market
Price Per
Share
Net Worth
Per Share
Earnings Per
Share
Dividends
Per Share
Return on
Investment
Stock
Dividends
Earnings
Per Share
Company's Dividend Policy and Implementation Status
Company's Dividend PolicyIn accordance with Article 26 of EVA's Articles of Incorporation, any earnings from the annualsettlement should first be used to offset accumulated deficits from previous years, afterdeducting all applicable taxes and, second, 10% of the balance should be set aside in a legalreserve; any remainder will be added to undistributed earnings from the prior period fordistribution after the board of directors proposes a distribution program with employee bonusesof no less than 1% and director/supervisor compensation that does not exceed 5% of thedistributed amount and submits the program at a shareholders' meeting for resolution.
■
25
Since achieving growth status, the Company has adopted a residual dividen policy toaccommodate future operations and expansion, distributing cash dividends and stock dividendsalternately with cash dividends that range from 0 to 50% and stock dividends from 100% to 50%.To maintain profitability and govern the impact of stock dividends on its operatingperformance, the Company may adjust the distribution rate for cash dividends to 100%~50%and stock dividends to 0~50% in accordance with capital status if estimated earnings per sharefor the current fiscal year are 20% lower than those of the previous year. Dividend Distribution in Current YearIt was resolved in the dividend distribution program, which was proposed by the board ofdirectors on March 30, 2004 and passed at the general shareholders' meeting in 2004, that stockdividends will be distributed to shareholders at NT$ 0.4 per share .
Impact of Proposed Stock Dividends on Company Operating Results and Earnings Per ShareIn addition to the balance of cash and stock dividends, the dividend distribution program alsoaccounted for a potential dilution effect that could result from increased capital. The Company's2003 operating income was expected to reach NT$76,778,361 thousand, up 17.4% compared tothe prior year (2003). Current paid-in capital is NT$29,035,346 thousand. Capitalization ofprofit is estimated at NT$1,121,073 thousand . After capitalization, paid-in capital will amountto NT$30,156,419 thousand. A preliminary calculation of net after-tax income indicates earningsper share of approximately NT$ 0.96 before distribution and NT$ 0.93 after distribution with a3.13% dilution level.
Employee Bonuses and Compensation Paid to Directors and SupervisorsRange or Percentage of Employee Bonuses and Compensation Paid to Directors and SupervisorsSpecified in Article 26 of EVA's Articles of Incorporation: Earnings, if any, from the annualsettlement should first offset accumulated deficits for previous years after all applicable taxesare deducted and, second, 10% of the balance should be set aside in a legal reserve; anyremainder will be added to undistributed earnings from the prior period for distribution afterthe board of directors proposes a distribution program with employee bonuses of no less than1% and director/supervisor compensation that does not exceed 5% of the distributed amountand submits the program at a shareholders' meeting for resolution.
Proposed Employee Bonus Plan Approved by Board of DirectorsEmployee Cash Bonus: NT$ 29,001,860Employee Stock Bonus: 0Compensation Paid to Directors and Supervisors: NT$ 10,000,000Number of shares proposed for distribution to employees and the percentage of the sharesabove capitalized earnings: 0 share; 0%.Estimated EPS after deduction of employee bonus and compensation to directors andsupervisors: NT$ 0.54
■
■
■
26
The Company
Distribution of Employee Bonus and Compensation Paid to Directors and Supervisors in PriorYear: Employee Cash Bonus: NT$ 25,129,534Employee Stock Bonus: 0Compensation Paid to Directors and Supervisors: NT$ 10,000,000Number of shares proposed for distribution to employees and the percentage of the sharesabove capitalized earnings: 0 share; 0%.Estimated EPS after deduction of employee bonus and compensation to directors andsupervisors: NT$ 1.15
Status of Stock Repurchase by the Company: Nil
EVA Air People
2003 2002Pilots 687 644
Cabin Crew 1,196 1,254No. of Dispatchers 41 42
Employees Maintenance 77 75Others 2,468 2,379Total 4,469 4,394
Average Age 32.7 32.5Average Seniority 7.2 6.2
Doctorate 0.07% 0.07%Master's 2.67% 2.62%
Education Bachelor 80.91% 81.2%High school 10.87% 10.86%
Other 5.48% 5.25%
27
Organization
28
The Company
The Fleet
■ In June and July 2003, EVA took delivery of its first two A330-200's with the new generationof top cabin class, Premium Laurel, and an upgraded Economy class.
■ In July and November 2003, EVA converted two of its MD-11 passenger aircraft intofreighters.
■ In September 2003,EVA leased two MD-90 from UNI Airways and returned one B757-200 toFar Eastern Airways Corp.
■ In December 2003,EVA converted one B747-400 Combi into an all-passenger aircraft.
■ In March 2004, EVA wet leased one MD-11 freighter from World Airways.
■ EVA Air exercised its option and firmed an order for eight B777-300ERs with BoeingCommercial Aircraft Group on 13 April, 2004. The option was part of a June 2000 purchasecontract for seven of these aircraft. The action will add a total of 15 B777s to the EVA fleet.
OperatingAge DailyAvg.
Aircraft Type OwnedLease
Total (as of On Order (delivery date) UtilizationDec.03) (hrs)-2003
B747-400 1 5 6 8.30 13.06
B747-400Combi 1 8 9 9.42 14.41
B767-300ER 0 4 4 12.07 8.81
B767-200 4 0 4 9.87 6.98
MD-11 0 1 1 9.09 11.52
MD-11Freighter 9 2 11 7.06 14.88
B747-400Freighter 3 1 4 2.23 15.43
B777-200LR 3(March, June 2008/March 2009) NA
12(July, August 2005/May,Oct.
B777-300ER 2006/Jan.,April,July,Dec.,2007/ NA
May,July,Oct.,2008/Jun.,2009)
A330-200 0 2 2 0.51( Feb., April, Nov., 2004/April, NA
May, July, Nov., 2005)
B757-200 0 1 1 3.93 3.58
MD-90 0 3 3 4.96 4.96
Total 18 27 45 7.15
29
The Market
Industry Overview
Current Position and Industry DevelopmentAt year end on December 31, 2003, there were six domestic airlines that are qualified to provide
international air transportation services in Taiwan, China Air, EVA Air, Trans Asia Airways, FarEaster Air, UNI Air and Mandarin Air, along with nearly 20, mostly Asia-based foreign carriers. Asthe spread of SARS was controlled and people learned how to prevent it, the global economystopped falling and began to recover. Once again, business travel and tourism are significantlygrowing markets. In addition, the Taiwan electronics industry has more orders and a greatershipping backlog than it had a year ago. These factors contributed to upbeat Q1 2004 forecasts forTaiwan's major airlines. Growing passenger volume and stable ticket prices are expected to lift themarket further in the future. Higher disposable income among Taiwanese people and the growingpopularity of individual optional travel has made it necessary for airlines to adapt quickly to achanging marketplace. Today's successful airline serves individual travel needs with flexible pricingpolicies and flight schedules that include charter services to selected destinations. Traditional priceand service competition among carriers has been replaced by product design with stable costs andmultiple options for diverse needs now taking priority.
Though fuel prices recently shot upwards, EVA Air hadalready taken protective measures to minimize adverseeffects. The expectation that Taiwan and the globaleconomy are quickly recovering from the recession incombination with benefits gained by effectively reducingcosts, and employing strategies such as system-wideflexibility, performing adjustments in operating strategieswhenever needed, and increasing frequency on strongroutes such as Taiwan-Japan and Taiwan-Hong Kong set thestage for an optimistic outlook. EVA Air's revenue andprofit performance for 2004 are forecast to be significantlybetter than 2003.
Relationships between Upstream, Midstream and Downstream IndustriesThe goal of the airline business is to provide passenger and cargo transportation services. The
operator with superior services that meets customers' needs requires an endless flow of support andcoordination from upstream, midstream and downstream industries. The following chart illustratesthe relationships between these upstream, midstream and downstream enterprises.
30
The Company
■Upstream IndustriesAircraft Manufacturing: The EVA fleet features aircraft from the world's leading commercial
aircraft manufacturers, e.g. Boeing Corp., McDonnell Douglas (bothmerged into Boeing Commercial Airplanes Group in 1997), andAirbus Corp. We can expand and renew our fleet by purchasing orleasing aircraft, whichever is the most advantageous strategy for usin each transaction. As we define various relationships, the aircraftcharter service should also be viewed as an upstream industry.
Aircraft Engine Manufacturing: The engine powers the aircraft, gives it range and efficiency,and is its most important part. Major engine manufacturersin the world today are Pratt & Whitney, GE and Rolls &Royce. Carriers usually select engines and the suppliers thatbest fit their own aircraft specifications, budgets,technologies and maintenance standards.
Ground Service Equipment Manufacturers: Tractors, trailers and similar implements used inapron operation are classified as ground serviceequipment.
■Midstream IndustriesPetroleum Companies: Fuel expenses account for a significant portion of airline operating
costs. Fuel prices are influenced by factors that include changinginternational conditions, reduced production by petroleumexporting countries, and fluctuating foreign exchange rates. This
Aircraft Manufacturing
Aircraft EngineManufacturing
Air Transportation
Manufacturing of GroundService Equipment
Leasing Company
Public
Travel Agency
Cargo Forwarders
Express Delivery
Upstream Midstream Downstream
PetroleumIndustry
AircraftMaintenance
SkyC
atering
Ground
Service
GroundTransportation
Service
31
makes it difficult to control fuel costs. To counter these variables andeffectively control its costs, EVA signed long-term contracts with theworld's major fuel providers and when appropriate, uses futuresinstruments to hedge prices.
Aircraft Maintenance: Regular and irregular (in an emergency or exceptional situation)inspection and maintenance are crucial to flight safety. When itstarted operations, the Company made a sizeable investment andestablished a huge, modern aircraft maintenance hangar, latertransformed into Evergreen Aviation Technology Corp (EGAT).EGAT earned multiple FAA certifications and ISO-9002 designationsearly on. EGAT also entered into an alliance with GE, strengtheningits aircraft and engine maintenance technology and giving EVA Airadded safety assurance.
Sky Catering Industry: Sky catering quality is closely linked to airlines and is a vital part ofoperations. EVA ensured consistency and quality in our inflightfood service by appointing Evergreen Sky Catering Corp. as thesupplier in Taipei and by applying the strictest guidelines toselection of sky caterers in other gateways.
Ground Service Industry: Part of airport operations, ground service includes a variety ofactivities such as passenger check-in at airport counters, apronoperations (aircraft landing and departure navigation), handlingand transportation of luggage, cargo and mail, packing, loadingand unloading, and more. We ensure the quality of theseoperations in Taiwan by appointing Evergreen Air Service Corp.as our service provider and at our international gateways, weonly select operators that meet the highest standards.
Ground Transportation Service: Further enhancing service quality, EVA Air has appointedEvergreen International Storage & Transport Corp. totransport crew and passenger luggage in Taiwan.
■Downstream IndustriesPublic: As trade has developed and personal income has risen, the public has gained more
opportunities to travel abroad for business and leisure. These members of the publicare our target customers.
Travel Agencies: We often participate in joint marketing efforts with travel agencies. Travelagencies organize tourism groups that they send to selected destinationsaboard chartered flights. Recent demand for charter flights has boomed andthe service has proven to be a profitable business opportunity for us.
Cargo forwarders: The business model for a cargo forwarder may include import/exporttransportation, freight transit services and land transportation forairfreight, and customs declarations. Cargo forwarders may also provideground transportation for shipments, e.g. Federal Express, TNT, etc. In
32
The Company
addition to goods and products, EVA has also transported priceless artcollections for important international exhibitions. Such services not onlyprovide profits but also enhance EVA's reputation in the internationalmarketplace and demonstrate our reliability.
Express Delivery: The combination of express delivery services via land and air will lead togreater emphasis on convenience and immediacy and a wider array orproducts in the future.
Product Development Trends■ Formation of International Strategic Alliances
Due to constraints in markets and traffic rights, airlines commonly form strategic alliances incooperation with other carriers, implementing joint transportation or maintenance services ondesignated routes to expand service networks and provide more efficient services fortravelers. By sharing operating resources and applying the economic benefits of scale, thesealliances reduce costs and also facilitate air cargo transportation. Today, four large alliancegroups hold 60% of the global market share.
Major Airline Alliance Groups
Star Alliance One World Sky Team Qualiflyer
Air Canada AerLingus AeroMexico Air Liberte
Air New Zealand British Airways Czech Airlines Air Littoral
All Nippon Airways Cathay Pacific Delta Air Lines Air Portugal
Austrian Airlines Finnair Korean Air LOT Polish
British Midland Iberia Air France Swissair
LOT Polish Airlines LanChile Alitalia Brussels Airlines
Lufthansa Qantas
Asiana Airlines American Airlines
SAS
Singapore Airlines
Thai Airways
Spanair
United Airlines
Varig
Data Source: Star Alliance Web site
■ Liberalization of International and Domestic Aviation MarketsLiberalization is the trend for long-term development of the international airline market. TheUnited States is now the most liberalized market. The US government does impose necessarycontrols concerning free competition and consumer rights protection. Because of out-floweffects of US government policies and powerful influences of market demand, most countries
33
around the world are gradually releasing their limitations on the airline market, too. Themarket in Taiwan has not yet been fully liberalized nor have its various controls been lifted.The government should eliminate barriers for entrance into this field and allow qualifiedcompanies to upgrade and move toward liberalization and internationalization.
■ Continuous Growth of Passenger and Cargo Transportation Markets• According to estimates provided by Airbus Corp., a well-known commercial aircraft
manufacturer, the total number of aircraft seats is increasing from 1,852,600 in 1999 to4,168,700 in 2019, growing 2.25 times. Airbus also forecasts that demand for aircraft willjump from 10,349 in 1999 to 19,173 by 2019 and that the average number of seats installedper aircraft will expand from 179 in 1999 to 217 in 2019. A detailed forecast follows below.
Passenger Aircraft Only
End 1999 End 2009 End 2019
World RPKs (billion) 3,080.1 5,100.2 7,985.7
World RPKs (billion) 4,378.5 7,076.9 10,864.2
Number of Aircraft 10,349 14,815 19,173
Number of Installed Seats 1,852,641 2,834,332 4,168,701
Seats Per Aircraft 179 191 217
Seats Per Departure 158 168 190
Average Flight Distance (km) 1,370 1,414 1,444
Block Hour Per Aircraft Per Year 3,502 3,636 3,736
• The pivotal locations of both Northeast and Southeast Asia in addition to Taiwan'spowerful international trade leadership, high per capita income, and advantageousgeographic location will spur a continuous rise in demand for passenger seats andimport/export cargo capacity year after year. As anticipated by Airbus, air transportationwill grow faster in Asia-Pacific regions and Mainland China than in other areas. In 1999,for example, the average number of seats on each aircraft in this area was 242, according toan analysis of the number of aircraft owned and seat demand, exceeding the world averageof 179 seats by 63. Within the next 20 years, the per plane seat average is estimated to riseto 307. This growth creates abundant opportunity for EVA's continuing development ofservices in the Asia- Pacific region and Mainland China.
• The Boeing Corp. estimates the annual global growth rate for cargo transportation at 6% forthe first 20 years of the 21st Century (2000-2020). The Asia-Pacific market, especially cross-strait areas (Taiwan and Mainland China) have tremendous potential for development. ABoeing analysis released in December 2000 forecasts global transportation volume of 470billion RTKs (Revenue, Ton, Km) in 2019, more than three times the volume in 1999 (137.1billion RTKs). Boeing's projections show the number of aircraft increasing from 13,670(1999) to 31,755 (2019).
34
The Company
An International Air Transport Association (IATA) report released in October 2000 showssteady growth in global air transportation for many years to come. From 2000 to 2004,passenger services annually expanded by an average of 5.6% and cargo services by 6.7%.And the industry may grow in spurts due to financial crises similar to those that have besetAsia-Pacific economies in past years. But long-term, the potential for a significantlyincreased volume of air transportation services is there as it expands in recoveringeconomies accompanied by higher national living standards and greater business andtourism travel opportunities. EVA Air has created a timetable for inaugurating new routes,introducing new destinations and launching new aircraft that is designed to meet thiscontinuous market demand. By using advanced aircraft with unprecedented performancecapabilities, our goal will continue to be to provide customers with the most convenientand secure services. It won't be long before the cross-strait cargo market is flourishing nowthat Taiwan and Mainland China have both entered the WTO. The following tablessummarize the IATA forecast.
Passenger Services
Annual Growth Rate (%) 2000 2001 2002 2003 2004 Average
Trans-Pacific 4.2 3.8 3.9 4.0 4.3 4.0
Europe-Far East 6.0 6.0 6.3 6.0 6.1 6.1
South Pacific-Far East 5.8 6.3 5.9 5.8 5.8 6.1
Within Far East 7.3 7.2 7.2 6.4 6.2 6.2
Freight Services
Annual Growth Rate (%) 2000 2001 2002 2003 2004 Average
Trans-Pacific 11.4 8.4 8.5 8.5 8.4 9.0
Europe-Far East 7.9 7.1 7.1 6.6 6.7 7.1
South Pacific-Far East 10.8 7.8 7.3 7.2 7.3 8.1
Within Far East 7.7 7.3 7.6 7.5 7.2 7.4
• Extension of Continuous-Flight Capability and Maximizing Cabin Potential The convenience and speed of air for transporting passengers and cargo is a great incentiveto use airplanes to travel and move cargo. The latest aerospace technology makes itpossible to whisk loads of passengers and cargo as heavy as 100 tons across continents. Butthis capability is not enough to meet demand on some busy routes between largemetropolitan areas and in regions with booming economies. Aircraft manufacturers willaddress this demand by building airplanes that are even larger. These huge, new aircraftwill serve booming markets as they fly continuous and distant transcontinental routeswhile passengers enjoy the maximized cabins of the future.
• High Quality ServiceBusiness travelers, tourists and shippers are paying more attention to service quality. Theyare demanding more convenient, comfortable, safe and punctual air transportation
35
services. Airlines can best meet this expectation by maintaining a perfect flight safetyrecord, reliable service, comfortable cabin spaces with excellent facilities, and punctualarrivals and departures, all in addition to providing air transportation. Only companiesthat meet or exceed these expectations can survive in this fiercely competitive market.
• Integration of Related Airline Service IndustriesThe success of every flight is made possible by the support of other operating divisionssuch as air catering, ground handling services and apron operations, maintenance andaircraft testing, ground transportation, coordination by travel agencies, and more. Thesesupport functions are critical and airlines are seeking partners that share similar operatingstrategies or who will join in alliances to reinvestment in ventures integrated at differentlevels of the industry to deliver high quality services, cut operating costs and increaserevenue. For example, China Airlines reinvested in Taoyuan International Airport ServiceCompany Limited (TIAS); China Airlines and Pratt & Whitney jointly set up ACTS; ChinaAirlines formed CPCS with Cathay Pacific Airways; TransAsia Airways establishedTransAsia Air-Catering Company, etc. As international air transportation markets developfurther, airlines will continue to make investments in related industries.
ASK (Million) RPK (Million) Load factor (%)
2003 2002 % 2003 2002 % 2003 2002 %
America 12,226 11,973 2.1 9,029 9,523 -5.2 73.9 79.6 -5.8
Europe 4,561 4,542 0.4 3,318 3,565 -6.9 72.8 78.5 -5.8
Asia 7,187 7,539 -4.7 5,009 5,636 -11.1 69.7 74.8 -5.1
Oceania 1,049 1,131 -7.2 778 783 -0.6 74.2 69.2 5.0
Total 25,022 25,184 -0.6 18,134 19,508 -7.0 72.5 77.5 -5.0
■ Passenger Operations
Review of Operations
36
The Company
AFTK (Million) FTK (Million) Load factor (%)
2003 2002 % 2003 2002 % 2003 2002 %
America 3,988 3,505 13.8 2,800 2,557 9.5 70.2 73 -2.8
Europe 1,435 1,053 36.3 1,191 929 28.2 83 88.2 -5.2
Asia 1,016 893 13.8 690 608 13.5 67.9 68.1 -0.2
Oceania 36 40 -10.0 32 32 0.0 88.9 81.3 7.6
Total 6,475 5,491 17.9 4,713 4,126 14.2 72.8 75.2 -2.4
■Cargo Operations
Cargo carried ( Tons) Revenue (Million) Yield (NT$)
2003 2002 % 2003 2002 % 2003 2002 %
America 238,211 223,126 6.8 17,736 15,948 11.2 6.33 6.24 1.4
Europe 119,290 92,461 29.0 7,586 5,952 27.5 6.37 6.41 -0.6
Asia 372,975 299,448 24.6 6,072 5,457 11.3 8.8 8.98 -2.0
Oceania 4,424 4,401 0.5 176 162 8.6 5.42 4.99 8.6
Total 734,900 619,436 18.6 31,570 27,519 14.7 6.7 6.67 0.4
Year
Item2002 2003
EVA Airways 22,206 21,765
Number of Flights Taiwan 126,533 112,168
Market Share (%) 17.55 19.40
EVA Airways 4,554,321 4,028,470
Number of Passengers Taiwan 24,006,934 19,089,442
Market Share (%) 18.97 21.10
EVA Airways 389,244 440,526
Tons of Cargo Taiwan 1,457,744 1,566,605
Market Share (%) 26.70 28.12
Data Source: 1. Taiwan: Monthly Digest of Statistics, CAA
2. EVA Airways: Provided by EVA Airways
■Major Competitors and Market Shares
Passenger no. Revenue (Million) Yield (NT$)
2003 2002 % 2003 2002 % 2003 2002 %
America 837,690 878,220 -4.6 10,402 11,646 -10.7 1.15 1.22 -5.7
Europe 412,034 447,227 -7.9 5,140 5,217 -1.5 1.55 1.46 6.2
Asia 2,967,302 3,370,688 -12.0 12,527 14,522 -13.7 2.5 2.58 -3.1
Oceania 104,579 97,712 7.0 1,127 1,128 -0.1 1.45 1.44 0.7
Total 4,321,605 4,793,847 -9.9 29,196 32,514 -10.2 1.61 1.67 -3.6
37
2004 outlookThe global economic recovery combined with surging cross-strait economic currents and the
inevitable release of the ban against travel from Mainland China to Taiwan will create a burgeoningbusiness and tourism travel market. Analyses of growth potential for EVA within this future marketshows:
■AmericaEVA Air now has 41direct passenger flight to the US and Canada every week. During thesummer season (March 28-October 30), EVA and Air Canada are raising frequency on theVancouver route from three to five flights per week through ongoing joint operations. EVAAir also has cooperative relationships with American Airlines, Air Canada, ContinentalAirlines and America West Airlines that give passengers convenient transit service todomestic destinations throughout the US and Canada.To aggressively expand cargo capacity between the West and East Coasts of the US, we willwet-lease an additional MD-11 freighter in 2004. The 37 weekly cargo flights we now have toAmerica serve customers' growing demands for airfreight services between Mainland Chinaand the US and Canada. In August when our third converted MD-11 freighter is ready foruse, we will raise our weekly cargo frequency to North America to 39 flights.
■ EuropeWe added a fifth weekly flight on the Taipei-London route on October 19, 2003 and upgradedthe equipment to a luxurious B747 for three of these trips, increasing passenger capacity at thesame time and giving more passengers the opportunity to enjoy the convenience of transitservice between Europe and destinations throughout Southeast Asia. On March 5, 2004, weintroduced a brand-new Airbus A330-200s on our Vienna route, using it for three flights aweek of the schedule.EVA began flying 13 freighter trips a week to Europe in March 2004, adding frequency andcapacity. Our lift capabilities in this market are further expanded by joint operating allianceswith the European leading carriers, British Airways (BA) and Lufthansa Airlines (LH) inGermany. Our quality service and seamless network within the region have made EVA Airthe first choice for cargo transport between Taiwan & Europe. This market leadership hasbeen enhanced by our operation of the EVA Cargo Center, Europe in Belgium, officiallyestablished on August 18, 2003 and enabling us to serve cargo customers throughout Europe.
■New Zealand and AustraliaIn addition to its allure as a destination for students and immigrants, Oceania is an attractivetourist destination with tremendous potential for development. After a review of marketdemand, convenience and operating costs, EVA Air resumed operation of Sydney service onNovember 20, 2002 and at the same time, retained our joint operating relationship withQantas Airways. During the 2004 peak summer season, we will serve our Auckland routethough a "seat-blocking" code- sharing arrangement on 3-4 flights per week with Air NewZealand. In addition, we will put new A330-200s into service on our Brisbane and Sydneyroutes by the end of 2004, deploying them as they are delivered.
38
The Company
■AsiaEVA Air enhanced efficiency in Southeast Asia and addressed sluggish demand by evaluatingall regional service in the area, keeping profitable flights and suspending unprofitable ones.We cancelled Penang passenger service in March 2004 and concentrated capacity and serviceon routes to Tokyo, Hong Kong and Macau, selecting these markets for the debut deploymentof our innovative new A330-200s. Another of these advanced aircraft will be introduced intoservice on Osaka trips. To accommodate the increase in Hong Kong frequency from 40weekly flights to 49, we are redeploying aircraft this summer and will begin serving PhnomPenh with one of our B767s.Asia recently gained recognition as the fastest growing air transportation market in the world.The ICAO projects that in the future, Asia will become the world's largest air transportationmarket. With Taiwan located at a pivotal point between America and Southeast Asia, EVAAir is developing strategies to make full use of geographic advantages in combination withour seamless services between Asia and America and the unexplored potential of linksbetween the huge markets on either side of the Pacific Ocean. The likelihood of Three DirectLinks between Taiwan and Mainland China gives EVA Air tremendous growth potential. As 2002, EVA Air was the only airline flying from Taiwan to Osaka and Fukuoka. Having ajoint service agreement with All Nippon Airways, we increased service to two flights per dayto Narita International Airport in Tokyo on April 2002. As Tokyo's gateway for internationalairlines, service to this airport links EVA to more than 40 domestic destinations in Japan. Italso makes it easy for passengers to reach downtown Tokyo within approximately 60 minutesby bus via TCAT (Tokyo City Air Terminal), or by Narita Express or Skyliner. We upgradedflights to Hokkaido from charters to scheduled three-times-a-week service on March 30, 2003.Future plans for maximizing EVA Air profits include more charter flights to selecteddestinations in of Japan from both Taipei and Kaohsiung.EVA Air launched dedicated cargo flight to Osaka on March 5, 2004, extending our freighterreach in Northeast Asia. It is clear that the vigor of the international air transportation market directly relates to globaleconomic strength. As soon as the ban against direct cross-strait flights is lifted, Taiwan,Mainland China and Hong Kong markets will skyrocket, but until then, the restrictiveconditions will continue to inhibit air transport industry performance. According to aneconomic statistic report published by Executive Yuan of the Mainland Affairs Council(Taiwan), approximately 3.66 million Taiwanese people visited Mainland China in 2003. Thishigh volume of travel is due to frequent cross-strait economic activity and points to ongoinggrowth in passenger volume. The release of the Great Three Direct Links will save thesetravelers tremendous amounts of time and money, and will lead to a surge in the demand forpassenger and cargo transportation across the strait.
Competition Niche■ Excellent Flight Safety Record
From the day it was formed, EVA Air has been guided by the Evergreen Group's 36 years ofexperience in international transportation, and has upheld that legacy by giving passengers
39
convenient, secure and comfortable flights with quality service. We promote flight safetywith regular Joint Security Committee and monthly fly safe meetings where staff andcrewmembers review all safety-related issues to ensure top awareness of "safety" concepts.Comprehensive Air Safety Investigations conducted by the U.S. Federal AviationAdministration (FAA) and Taiwan's Civil Aeronautic Administration (CAA) have rankedEVA Air's safety standards and practices among the best in the airline industry. EVA hasupheld that finding by establishing an excellent flight safety record. This exceptional recordqualifies EVA for reduced rates on fleet insurance every year, helping to bring down costs andbuild the company's safety reputation at the same time.
■New Aircraft, an Advanced Fleet and Worldwide Service NetworkBy the end of 2003, the EVA Air fleet held 45 aircraft averaging 7.15 years in age. To maintainour fleet as one of the most advanced in the industry, retain our competitive edge, andcontinue to give our customers the most comfortable and reliable flight services available, webegan introducing brand-new Airbus A330-200s into our fleet in June 2003. By the end ofnext year, we will have added a total of 10 A330s and will have begun to start taking deliveryof the first of 15 Boeing B777s. We will set a higher industry standard with this fleet oftechnologically advanced, high performance aircraft. The fleet is the key to our steadilyexpanding route network. Today, we serve more than 40 major destinations in Europe,America, Asia and Oceania, and have built an efficient, effective service network forpassenger and cargo transportation. We are creating the infrastructure and deploying theequipment to not only meet customer needs by providing the best services available, but alsoto produce greater business opportunities and a better operating environment for thetransportation industry as a whole.
■ Professional Management with a Wealth of Experience"A comfortable flight comes with assurance of flight safety." Combining a wealth ofexperience with a highly trained staff, EVA is dedicated to providing the very best in-flightservice. From organizational management and risk management to actively hosting air safetyseminars and workshops, EVA aggressively promotes staff and crew awareness of flightsafety. We also use an advanced monitoring system to help standardize flight operations andprovide a targeted and comprehensive approach to air safety. And we established theEvergreen Aviation Training Center in the days when we were just getting started. Thetraining courses available today include the latest in Aviation Training, Flight Crew Training,Ground Handling Service Training and Maintenance Training. Together, these professionaltraining courses form a framework for our quality services.
Advantages and Disadvantages of Future Development and Response Measures ■Cross-Strait Air Transportation Opportunities
The economy and international trade market in Mainland China are growing fast and creatinga high demand for air transportation. Numerous airlines from countries all over the worldare pursuing the obvious business opportunities. In anticipation of the possibility that theTaiwan government may lift its ban against cross-strait air transportation within the nearfuture, EVA Air is preparing to jump into this market by developing plans for fleet
40
The Company
adjustment, aircraft maintenance and aviation technologies so that we can quickly expand ouroperating scale.
■ Facing International Competition and Rising to OpportunityIn contrast with the giant international carriers, Taiwan's airlines are small and lackexperience in international operations. To effectively serve passengers traveling to and fromTaiwan, service quality and air transportation networks must be upgraded. Marketliberalization will bring stiff competition for Taiwan's carriers. But the rapidly increasingnumbers of passengers visiting Taiwan and Taiwanese tourists traveling abroad are obvioustargets for future market development. And Taiwan's excellent geographic position makes isan ideal traffic center for the Western Pacific region.
■ Fuel Price FluctuationFuel expenses are a big part of the operating costs for air transportation. Fuel pricefluctuation has a direct bearing on an airline's operations and profits. Early on, EVA Airadopted successful fuel-hedging strategies, and we have been able to exercise some controlover our fuel costs.
Technology and R&D■ Successfully Developed Technology and Products:
To adapt and respond to the opportunities presented by the e-Business trend, EVA Air built a"Data Warehouse" and our Internet ticketing services. And on October 1, 2003, EVA Air Cargointroduced our Automated Manifest System (AMS), certified by United States Customs, tostreamline and speed service and to strengthen our competitive position within the airfreightmarket.
■R&D Programs for the FutureEVA Air will seek out and expand cooperative alliances with other airlines, developing jointoperations that extend reach and convenience for both passengers and shippers. We aredeveloping plans to invest in airline-related businesses in Mainland China. We have atimetable for retiring aircraft in our fleet and deploying the most advanced new aircraftavailable. We are engaged in a continuous process of improving pilot and crew training,further improving service quality at the same time. Our implementation of ISO-9001standards is ongoing. And we look forward to the fulfillment of company wide trainingprograms that will not only benefit the broad scope of our services but also developprofessional talents within our staff.
Long- and Short-Term Business Development Plans ■ Short Term Plans
We will cut operating costs by seeking joint operations opportunities with other carriers.The International Civil Aviation Organization (ICAO) has predicted that Asia will becomethe world's largest air transportation market and offers vast potential. Unfortunately, theSARS crisis and global economic downturn slowed market demand. Anticipating thisdramatic and encouraging development, EVA Air has made it a priority to review Asian routedevelopment and to explore more cooperative relationships with other airlines that will helpreduce costs further.
41
Regularly initiate customer satisfaction surveys to ensure response to needs and expectations,and to uphold our high service quality standards.Implement service quality and flight safety standards system-wide, following ISO-9001procedures.The EVA Air commitment to flight safety standards and high service quality will not waiver.We have made huge investments in crew training programs and state-of-the-art trainingfacilities. And we have established flight safety as the most important EVA Air trainingprogram. This priority and these high standards earned ISO 9001 certification for EVA Air,after we had already been awarded ISO 9002 certification..
■ Long-Term Plans•Adjust the fleet to meet business development and market demands
As the passenger and cargo transportation business flourishes in Taiwan and around theworld, EVA Air will adjust the equipment and scale of our fleet so that we can mosteffectively benefit from future political and economic developments and maximize ourbenefits from developing business opportunities in Asia. by year end 2003, EVA owned 45aircraft, including 15 Boeing B747-400s, two Airbus A330-200s, eight Boeing B-767s, aMcDonnell Douglas MD-11, a Boeing B-757, three McDonnell Douglas MD-90 passengeraircraft, 11-MD-11freighters, and four all-cargo B747-400s. EVA is adding more A330s in2004, and in 2005, will begin to introduce a fleet of B-777s in 2005 that will be used toreplace aircraft now in use. We will remain in the forefront of our industry with ourefficient, modern fleet.
• Reinvest in related air transportation industriesEVA's efforts to investment in related businesses such as air catering, ground handling,maintenance and air transportation that provide lateral and vertical services is ongoing. Bycrafting a complete air transportation infrastructure, we can cap operating costs at lowerlevels, and achieve maximum operating performance.
• Work with related tourism industriesEVA meets the demand for high-quality tourism services by forming strategic relationshipswith businesses such as well-known resorts, leading travel agencies, etc, and workingtogether to create products, share resources and in the process, maximize efficiencies. Wehave also developed our own full-service capabilities to ensure that we are prepared to reactto advantageous business opportunities as they arise.
• Risk management The international air transportation industry is vulnerable to risks related to numerousvariables including weather, international politics, and more. Strong risk managementpolicies and procedures must be in place to ensure that EVA remains in continuousoperation in the event of a risk event and that we keep our competitive edge. Riskmanagement measures that are in place, ready for immediate implementation, includeinsurance for our fleet, passengers and staff, loss prevention strategies, training in lossprevention, security management and risk response.
42
The Company
法蘭克福 FrankfurtFrankfurt
43
Frankfurt
44
The Network
■ EVA Air launched a new charter service to Seoul starting on August 1, 2003.
■ The EVA Air Cargo Center, Europe, a dedicated air freight hub located in Brussels, Belgium,
opened in mid-August. The new Cargo Center maximizes advantages of Brussels' excellent
location and sophisticated truck transport system.
■ EVA Air launched services to Hanoi, the largest city in northern Vietnam, starting on
September 17, 2003 with four flights per week from Taipei. EVA initiated the new Hanoi
service with an MD-90 aircraft that we leased from UNI Airways.
■ EVA Air launched cargo services to Delhi in December 2003.
Los SanSeattle Anchorage Atlanta Chicago
North Angeles Francisco
AmericaDallas Vancouver JFK Newark
SouthBrisbane Sydney Auckland
Pacific
Vienna London Paris Amsterdam Brussels Milan
Europe
Frankurt
Osaka Fukuoka Taipei Kaohsiung Hong Kong Macau
BangkokKuala
Penang JakartaDenpasar-
Surabaya
AsiaLumpur Bali
SingaporeHo Chi
Bombay Manila Tokyo SapporoMinh City
Phnom Penh Hanoi Seoul Delhi
Middle DubaiEast
Air cargo destination only
Total 43 destinations
The Company
45
Principal Subsidiaries
EVA holds interests in the companies presented in the following table.
Company Principal Activities Location Founded date Capital Share %
EvergreenGround handling Taiwan Oct. 1990 TWD361.75 million 56.33%
Airline Services Corp.
RTW AirTravel business Singapore Oct. 1989 SGD1.5 million 49.00%
Services(S) Pte. Ltd.
Green Siam AirTravel business Thailand Mar. 1996 THB20 million 49.00%
Services Co., Ltd.
Evergreen SkyAirline catering Taiwan Oct. 1993 TWD1 billion 49.80%
Catering Corp.
EvergreenAir transport and
Airways Serviceaircraft leasing
Macau Dec. 1994 USD5.67 million 99.00%
(Macau) Ltd.
UNI Airways Corp. Domestic airline Taiwan Aug. 1988 TWD3.16 billion 17.92%
Evergreen Aviation Aircraft repair andTaiwan Nov. 1997 TWD2.8 billion 80.00%
Technologies Co.,Ltd. maintenance
Hsiang-LiInvestment business Taiwan Jan. 2001 TWD1 billion 100%
Investment Corp.
EvergreenSecurity services Taiwan Apr. 1998 TWD80 million 31.25%
Security Co., Ltd.
Evergreen Air Cargo terminalTaiwan Mar.2000 TWD1.2 billion 60%
Cargo Service Co. operation
UNI Japan Co.,Ltd Travel business Japan Feb.2002 JPY10 million 49.50%
46
The Company
Litigation or Non-Litigious Proceedings:
Definitive judgment or pending litigation, non-litigious proceedings or administrative
proceedings of the Company within two years which may have great impact on shareholder
equity or the Company stock price:
From September 2001, EVA laid off quite a few flight attendants in succession. These laid-off
employees then filed lawsuits in Taiwan Taoyuan District Court arguing the validity of their dismissal
and the criteria of separation pay. These lawsuits are currently lodged in Taiwan Taoyuan District
Court and Taiwan High Court. The approximate amount of indemnity is NT$ 44,950,000 which
causes minor impact on shareholder equity or the Company stock price.
Definitive judgment or pending litigation, non-litigious proceedings or administrative
proceedings of the subsidiaries within two years:
Evergreen Airline Services Corp.
After having terminated the labor contracts with Evergreen Airline Services Corp., fourteen
former employees who worked for Kaohsiung office filed a lawsuit in March 2001 claiming
indemnity for overtime work. In November 2003, judgment awarded that Evergreen Airline
Services Corp. was to pay NT$ 1,814,248. Twelve of the plaintiffs also filed a lawsuit for separation
pay in March 2001. The court decided against the plaintiffs in August 2002, however, one of the
plaintiff appealed.
A former employee who worked for Kaohsiung office filed a lawsuit in March 2003 for
keeping continuing the labor relationship, claiming indemnity of NT$ 1,509,162 and a monthly
indemnity of NT$ 45,504 from May 19, 2003 until the employment is resumed. This proceedings is
still in Taiwan High Court.
Important Resolutions by Shareholders and BOD
Important shareholders' resolutions:Proposed earnings distribution for 2002: With after-tax net income of NT$2,637,479,388 for the
year and retained earnings from investment gains derived from the disposal of fixed assets, our
company had distributable earnings of NT$2,637,541,743 for this fiscal year. After deducting
allowed retained earnings amounting to NT$263,754,174, the earnings distribution made in
accordance with corporate law and the company's bylaws included: stock dividends of 20
shares per 1,000 shares valued at NT$485,000,000; cash dividends NT$0.2 per share, totaling NT$
485,000,000; directors' compensation of NT$10,000,000; and employee bonuses of NT$25,129,534.
Important resolutions made by the board of directors:■ Feb. 2nd, 2003:
Disposed of all holdings in Evervoyage Transportation Corp. selling 6,550,000 shares at
NT$16.7 each for a total of NT$109,385,000.
■Mar. 19th, 2003:
Issued the company's first local convertible bond raising NT$5 billion, paying off loans and
improving financial structure.
47
■ Aug. 27th, 2003:
Oct. 19th, 2003 was established as the base date for stock dividends, capital increases,
and cash dividends, Oct 15th to Oct 19th as the closing period, and Nov. 18th as the cash
dividend distribution date.
■ Sept. 24th, 2003:
On Oct. 19th, 2003, the conversion price of the first issue of local convertable bond was
adjusted to NT$10.78 for the issue the 48,500,000 shares from earnings.
Outstanding shares for the first issue of local convertable bond were converted into
159,079,942 in common stock by creditors. The stock dividend rate was adjusted to
18.7687 shares per 1,000 and the cash dividend became NT$ 0.187687 per share.
■ Dec. 8th, 2003:
The 9th secured bond was issued to raise mid- and long-term capital to pay down debt,
lower interest costs, and strengthen financial structure.
■Mar. 25th, 2004:
Further upgrading the aircraft in our fleet, we proceeded to buy back five Boeing 747-400
aircraft from Chailease Finance Co., Ltd., Chong-Chin Leasing Co., Ltd., Fu-Chan Leasing
Co., Ltd., and Fu-Li Leasing Co., Ltd. at a total cost of NT$10,290,855,909.
■ Apr. 13th, 2004:
Making additional upgrades to our fleet, lowering financing costs, improving financial
structure, and enhancing competitive abilities, we approved the lease of six Boeing 747-
400 and three Boeing 777-300ER aircraft immediately after selling them to GECAS
AIRCRAFT LEASING NETHERLANDS B.V. Sale price was US$381,648,000 and US$560,310,000,
respectively.
Enhancing both our fleet and operating abilities, we agreed to buy eight B777-300ER
aircraft from Boeing Co., Ltd., USA at a cost of US$1,491,496,000.
48
The Company
Corporate Governance
Items Governance
1. Shareholder structure and shareholder's rights(1) Procedures for handling shareholder's propositions or to
settle their disputes.(2) Major shareholders with actual control over the Company
and the controlling party(ies) of the major shareholders.(3) Risk management mechanism and firewall from affiliated
enterprises.2. Formation and duties of the board of directors
(1) Independent directors
(2) Regular assessment of the independence of CPAs.
3. Formation and duties of Supervisors(1) Independent supervisors
(2) Communication between supervisors and employees /shareholders
4. Establishment of communication channels with stakeholders5. Disclosure of Information
(1) Disclosure of financial and corporate governanceinformation through the Company's Web site.
(2) Disclosure of information (e.g. constructing an English Website, appointing personnel responsible for the Company'sinformation collection and disclosure, establishing aspokesperson system, or summarizing details of aninstitutional investor meeting on the Web site)
6. Operation of functional committees, e.g. an auditcommittee, etc., established by the Company
The Company's stock affairs department handlesshareholder's opinions.Designated departments are responsible for thesefunctions.Risk management procedures have been stipulatedwithin the operating system for internal control.
The requirement for independent directors is still underconsideration.The Company assesses the independence of its CPAsevery year.
The requirement for independent supervisors is stillunder consideration.Employees and shareholders may directly or indirectlysubmit proposals to supervisors orally or in writing.Certain departments are responsible for stakeholders.
The Web site has been constructed and theinformation has been disclosed according toapplicable regulations.The Company has appointed responsible personneland has also established a spokesman system.
Formation of an audit committee is st i l l underconsideration.
7. If the company has stipulated corporate governance rules according to Corporate Governance Best-Practice Principles for TSEC/GTSMListed Companies, please specify the governance and the variation in any of the rules EVA Air has stipulated above.The Company hasn't stipulated the corporate governance rules yet so far.
8. Other important information helpful for better understanding of corporate governance (such as continuous education of directors andsupervisors, attendance of directors or attendance of supervisors as non-voting delegates to BOD meetings, risk management policies andstandards for risk assessment, consumers' rights protection, abstention of directors from interest-related proposals, purchase of liabilityinsurance for directors and supervisors):(1) Chairman Chang Kuo-Cheng attended the "Forum on Newly Revised Corporate Governance Best-Practice Principles for TSE/GTSM Listed
Companies and other related regulations" meeting held by TSE on March 8, 2004.Director Lin -Shin-I attended the "Rules and Orientation of Corporate Governance" and "The Function of BOD in Corporate Governanceand Equalization System" meetings held by the Chinese Security Association on October 22, 2003 and November 13, 2003, respectively.Supervisor Ko Li-Ching attended the "Forum on the Newly Revised Corporate Governance Best-Practice Principles for TSE/GTSM ListedCompanies and other related regulations" meeting held by TSE on March 8, 2004.Supervisor Wong Rong-Jong attended the "Taipei Corporate Governance Forum" meeting held by the Security & Futures Committee ofMinistry of Finance on November 26, 2003.
(2) Attendance of directors and attendance of supervisors as non-voting delegates at BOD meetings is in accordance with applicable lawsand regulations.
(3) If an action is in any way related to any interests of directors, they are required to abstain and avoid conflict of interest.(4) EVA Air has not yet purchased liability insurance for directors and supervisors, and the Company will purchase it in the future if necessary.(5) EVA Air has made donations to charitable and educational foundations to sponsoring public welfare campaigns.
Note 1: For continuous education of directors and supervisors, please refer to TSE "RE-education Guidelines for Directors and Supervisors ofTSE/GTSM Listed Companies. "
Note 2: Risk management measures, risk assessment criteria and consumers' rights protection policies will be specified for securities, trustinvestment consulting and future businesses.
Variation from CorporateGovernance Best-
Practice Principles forTSEC/GTSM Listed
Companies and Reasonsfor Variation
49
Financial and Operating StatisticsFinancial Results
Balance SheetNT$(Million)
2003 2002 2001 2000 1999 1998 1997 1996 1995
Current assets 24,694 22,417 20,938 18,715 15,598 14,555 11,941 8,731 7,072
Fixed assets 59,102 62,019 62,075 64,017 60,021 53,949 54,882 56,095 55,739
Total assets 114,668 115,513 113,402 107,874 96,869 85,919 79,310 70,220 67,218
Current liabilities 28,863 28,687 28,409 21,944 18,732 20,579 19,118 16,910 15,554
Long-term liabilities 45,165 49,782 52,725 52,191 40,609 32,478 31,887 33,759 37,093
Total liabilities 76,455 80,467 83,736 76,273 69,673 58,794 51,006 50,670 52,647
Share capital 27,534 24,250 22,050 21,000 20,000 20,000 20,000 18,000 15,000
Shareholders' equity 38,213 35,046 29,665 31,601 27,196 27,124 28,304 19,550 14,571
Income Statement NT$(Million)
2003 2002 2001 2000 1999 1998 1997 1996 1995
Operating revenue 65,388 64,577 52,451 54,529 48,077 42,927 38,626 35,187 28,859
Operating costs 62,894 59,520 52,123 49,570 44,149 40,952 35,459 32,244 26,457
Operating profit 2,494 5,058 329 4,959 3,929 1,975 3,167 2,943 2,402
Non-operating income 905 593 772 1,425 1,199 1,740 663 469 1,129
Non-operating expenses
and loss 2,182 3,233 4,385 3,860 3,779 3,389 2,849 3,103 4,433
Income before tax 1,216 2,417 (3,285) 2,523 1,348 326 980 310 (902)
Tax 180 220 110 (12) (184) (251) (91) 160 1,100
Net income 1,396 2,637 (3,175) 2,511 1,165 75 889 470 198
Earnings per share (EPS) 0.55 1.19 (1.44) 1.2 0.58 0.04 0.47 0.28 0.16
50
Financial and Operating Statistics
Operating Revenue
NT$(Million)
Passenger Cargo Other Total
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%
2001 29,550 56% 20,643 39% 2,258 5% 52,451 100%
2000 29,405 54% 23,433 43% 1,691 3% 54,529 100%
1999 26,078 54% 20,463 43% 1,536 3% 48,077 100%
1998 24,494 57% 17,078 40% 1,354 3% 42,927 100%
1997 24,313 63% 12,909 33% 1,404 4% 38,626 100%
1996 23,189 66% 10,766 31% 1,232 3% 35,187 100%
1995 18,839 65% 8,976 31% 1,043 4% 28,858 100%
Operating Costs
NT$(Million)
2003 2002 2001 2000 1999 1998 1997 1996 1995
Fuel 15,300 13,637 12,348 12,393 8,394 7,040 7,014 6,343 4,403
Staff 7,009 6,324 6,328 6,291 6,031 6,096 5,619 5,195 4,482
Lease rental 8,384 7,442 6,838 6,241 5,981 6,024 3,604 3,413 2,686
Depreciation and 4,813 4,734 4,734 4,184 3,876 3,865 4,147 3,616 3,330
amortization
Commissions 6,188 5,853 4,719 4,955 4,892 4,260 3,629 3,183 2,921
Landing, parking and 7,515 7,121 6,283 5,557 5,121 4,972 4,474 4,019 3,296
routes
Maintenance 5,283 5,703 3,805 2,955 3,635 2,167 1,203 1,105 618
Other 8,402 8,706 7,068 6,994 6,218 6,528 5,769 5,370 4,720
Total 62,894 59,520 52,123 49,570 44,148 40,952 35,459 32,244 26,457
51
Financial Ratio Analysis
Item Year 2003 2002 2001 2000 1999 1998 1997 1996 1995
Financial Debt ratio 66.68 69.66 74 71 73 68 64 72 78
Structure(%) Ratio of long-term liabilities and
stockholders' equity to fixed assets141 137 133 131 113 110 110 95 93
Solvency (%) Current ratio 86 78 74 85 83 71 62 52 46
Quick ratio 51 45 38 39 25 29 26 22 20
Interest safety factor 153 178 10 161 137 105 124 109 69
Management Receivables turnover (times) - - - - - - - - -
ability Average collection days for
receivables- - - - - - - - -
Inventory turnover (times) - - - - - - - - -
Average days for sale of goods - - - - - - - - -
Fixed assets turnover (times) 1.08 1.04 0.85 0.85 0.80 0.80 0.7 0.63 0.53
Total assets turnover (times) 0.57 0.56 0.46 0.51 0.51 0.50 0.49 0.5 0.45
Profitability Return on total assets (%) 2.61 4.21 - 5 4 3 4 4 4
Return on stockholders' equity (%) 4 8 (10) 9 4 - 4 3 2
Ratio of operating profit to paid-in
capital (%)9 21 1 24 20 10 16 16 16
Return on sales (%) 2 4 (6) 5 2 - 2 1 1
Earnings per share 0.55 1.19 (1.44) 1.2 0.58 0.04 0.47 0.28 0.16
Cash flow Ratio of cash flows 25 33 2 32 33 7 19 20 18
Ratio of fair for net cash flow 233 136 43 60 37 22 17 10 5
Ratio of re-investment for cash 6 8 - 7 7 5 5 5 5
Degree of Degree of operating leverage 21 10 125 9 14 5 4 4 4
leverage Financial leverage 7.14 2.35 (0.10) 4 4.94 (2) 8 17 (4)
Note:
(1) Debt Ratio: Total Liabilities/Total Assets
52
(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) Interest Safety Factor: 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) Ratio of Operating Profit-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) Ratio of the Fair For Net Cash Flow: 5- Year Sum Of Cash From Operation / 5 Year Sum of Capital
expenditures, Inventor, Additions, 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 Leaverage: Operating Income/(Operating Income - Interest Expense)
2003 2002 2001 2000 1999 1998 1997 1996 1995Overall capacity (million) 8,727 7,758 6,791 6,718 6,170 5,401 4,575 5,489 4,777
Overall traffic (million) 6,345 5,882 4,879 5,273 4,786 4,043 3,579 3,387 3,058
Overall load factor (%) 72.7 75.8 71.8 78.5 77.6 74.9 78.2 61.7 64.0
Overall yield (NT$) 9.58 10.21 10.28 10.02 9.72 10.28 10.4 10.02 9.1
Passenger capacity (million) 25,023 25,184 23,728 25,297 24,334 23,859 22,695 21,970 20,380
Passenger traffic (million) 18,133 19,508 17,777 19,105 18,151 16,670 16,205 16,167 14,686
Passengers carried ('000) 4,321 4,794 4,179 4,108 3,866 3,664 4,159 4,237 3,123
Passenger load factor (%) 72.5 77.5 74.9 75.5 74.6 69.9 71.4 73.6 72.1
Passenger yield (NT$) 1.61 1.67 1.66 1.54 1.44 1.47 1.5 1.43 1.28
Cargo capacity (million) 6,475 5,491 4,656 4,441 3,980 3,254 2,532 3,512 2,943
Cargo traffic (million) 4,713 4,126 3,279 3,554 3,152 2,543 2,121 1,932 1,736
Cargo carried (tons) 734,900 619,435 486,915 512,556 460,346 367,092 314,512 275,456 222,222
Cargo load factor (%) 72.8 75.1 70.4 80.0 79.2 78.2 83.8 55.0 59
Cargo yield (NT$) 6.70 6.67 6.3 6.59 6.49 6.72 6.09 5.57 5.17
Unit cost (NT$) 7.21 7.67 7.67 7.38 7.17 7.58 7.75 5.87 5.53
Breakeven load factor (%) 75.2 75.1 74.6 73.7 73.8 73.8 74.5 55.6 60.8
Number of aircraft 45 42 37 36 35 33 30 26 25
Number of employees 4,417 4,394 4,552 5,290 4,977 5,060 5,929 5,663 5,241
Capacity per employee
(thousand) 1,976 1,765 1,492 1,270 1,240 1,067 772 969 911
Traffic per employee
(thousand) 1,437 1,339 1,072 997 962 799 604 598 583
Revenue per employee
(thousand) 14,804 14,697 11,523 10,308 9,660 8,484 6,515 6,213 5,506
Operating Results
Financial and Operating Statistics
53
54
Financial Statements Auditors’ Report
The Board of Directors
EVA Airways Corp.:
We have audited the balance sheets of EVA Airways Corp. as of December 31, 2003 and
2002, and the related statements of operations, changes in stockholders’ equity, and cash flows
for the years then ended. These financial statements 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, 2003 and 2002,
were evaluated using the equity method, and the resulting book values of these investments
amounted to NT$2,117,640 thousand (US$62,320 thousand) and NT$2,250,331 thousand
(US$64,757 thousand), respectively. The resulting investment losses amounted to NT$22,745
thousand (US$660 thousand) and NT$203,339 thousand (US$5,879 thousand) for the years 2003
and 2002, 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 companies, is based solely on the reports of other auditors.
We conducted our audits in accordance with Republic of China generally accepted
auditing standards and the Republic of China Guidelines for Certified Public Accountants’
Examinations and Reports on Financial Statements. Those standards and guidelines 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 of EVA Airways Corp. referred to in the first paragraph present fairly, in all material
respects, the financial position of EVA Airways Corp. as of December 31, 2003 and 2002, and the
results of its operations and its cash flows for the years then ended, in conformity with Republic of
China generally accepted accounting principles.
February 13, 2004
The accompanying 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.
55
New
Taiw
an d
olla
rsUS
dol
lars
Liabi
litie
s and
Sto
ckho
lder
s' Eq
uity
2003
2002
2003
2002
Cur
rent
liabi
lities
:Sh
ort-t
erm
bor
row
ings
(not
e 10
)$
3
,360
,000
3,55
2,00
098
,882
102,
216
Paya
ble
on c
omm
erci
al p
aper
(not
e 10
)81
9,51
61,
238,
792
24,1
1735
,649
Note
s pay
able
3,80
591
411
226
Acco
unts
paya
ble
1,60
7,62
31,
838,
985
47,3
1152
,920
Acco
unts
paya
ble-
rela
ted
parti
es (n
ote
20)
305,
792
280,
230
8,99
98,
064
Accr
ued
expe
nses
(not
e 19
)4,
898,
068
4,82
8,57
814
4,14
613
8,95
2O
ther
pay
able
s-rel
ated
par
ties (
note
20)
579,
696
436,
574
17,0
6012
,563
Oth
er p
ayab
les (
note
s 13
and
14)
3,52
0,77
92,
973,
304
103,
613
85,5
63Un
earn
ed re
venu
e 5,
323,
404
5,80
3,40
215
6,66
316
7,00
4C
urre
nt p
ortio
n of
long
-term
bor
row
ings
(n
otes
11,
12
and
21)
8,01
8,15
77,
279,
795
235,
967
209,
491
Oth
er c
urre
nt lia
biliti
es (n
ote
19)
426,
614
453,
937
12,5
5513
,063
Tota
l cur
rent
liab
ilitie
s28
,863
,454
28,6
86,5
1184
9,42
582
5,51
1Lo
ng-te
rm li
abilit
ies:
Bond
s pay
able
(not
e 12
)6,
410,
500
5,66
0,00
018
8,65
516
2,87
7Lo
ng-te
rm b
orro
win
gs (n
otes
11
and
21)
21,4
58,5
8524
,601
,499
631,
506
707,
957
Oth
er in
stallm
ents
paya
ble
(not
e 13
)1,
673,
641
1,49
0,14
749
,254
42,8
82Ai
rcra
ft pa
yabl
e (n
ote
14)
15,6
21,9
7818
,030
,315
459,
740
518,
858
Tota
l lon
g-te
rm li
abilit
ies
45,1
64,7
0449
,781
,961
1,32
9,15
51,
432,
574
Oth
er li
abilit
ies:
Accr
ued
empl
oyee
retir
emen
t lia
biliti
es (n
ote
15)
817,
121
781,
693
24,0
4722
,495
Oth
er lia
biliti
es (n
ote
19)
1,60
9,89
31,
216,
987
47,3
7835
,021
Tota
l oth
er li
abilit
ies
2,42
7,01
41,
998,
680
71,4
2557
,516
Tota
l lia
bilit
ies
76,4
55,1
7280
,467
,152
2,25
0,00
52,
315,
601
Stoc
khol
ders
' equ
ity (n
ote
17):
Com
mon
stoc
k27
,534
,330
24,2
50,0
0097
0,53
787
5,21
4C
apita
l sur
plus
2,59
9,74
12,
352,
079
87,4
5080
,261
Reta
ined
ear
ning
s:Le
gal r
eser
ve26
3,75
4-
7,63
6-
Reta
ined
ear
ning
s2,
764,
841
2,63
7,54
280
,054
76,2
52To
tal r
etai
ned
earin
gs3,
028,
595
2,63
7,54
287
,690
76,2
52O
ther
stoc
khol
ders'
equ
ity a
djus
tmen
ts:De
ferre
d cr
edit
193,
865
115,
228
5,74
53,
431
Cum
ulat
ive
trans
latio
n ad
justm
ents
4,98
9,23
25,
788,
070
(23,
015)
(23,
860)
Net l
oss n
ot y
et re
cogn
ized
as n
et p
ensio
n co
st(1
32,7
24)
(96,
898)
(3,8
33)
(2,7
79)
Tota
l oth
er st
ockh
olde
rs' e
quity
adj
ustm
ents
5,05
0,37
35,
806,
400
(21,
103)
(23,
208)
Tota
l sto
ckho
lder
s' eq
uity
38,2
13,0
3935
,046
,021
1,12
4,57
41,
008,
519
Com
mitm
ents
and
cont
inge
ncie
s (no
tes 1
9, 2
0 an
d 22
)
Tota
l lia
bilit
ies a
nd st
ockh
olde
rs' e
quity
$ 1
14,6
68,2
1111
5,51
3,17
33,
374,
579
3,32
4,12
0
New
Taiw
an d
olla
rsUS
dol
lars
Asse
ts20
0320
0220
0320
02
Cur
rent
ass
ets:
Cas
h an
d ca
sh e
quiv
alen
ts (n
ote
3)$
1,70
0,08
21,
544,
397
50,0
3244
,443
Shor
t-ter
m in
vestm
ents
(not
e 4)
6,24
3,20
33,
864,
537
183,
731
111,
210
Note
s rec
eiva
ble
388,
354
313,
545
11,4
299,
023
Acco
unts
rece
ivab
le, n
et
5,75
7,42
46,
480,
787
169,
436
186,
498
Acco
unts
rece
ivab
le-re
late
d pa
rties
(not
e 20
)63
,034
116,
398
1,85
53,
349
Oth
er re
ceiv
able
s-rel
ated
par
ties (
note
20)
175,
347
209,
499
5,16
06,
029
Oth
er fi
nanc
ial a
sset
s-cur
rent
(not
e 5)
167,
863
104,
968
4,94
03,
020
Inve
ntor
ies (
note
6)
6,98
3,46
86,
748,
439
205,
517
194,
200
Prep
aid
expe
nses
1,67
9,88
91,
782,
022
49,4
3851
,281
Oth
er p
repa
ymen
ts36
5,70
838
4,83
010
,762
11,0
74De
ferre
d in
com
e ta
x as
sets-
curre
nt (n
ote
16)
973,
875
674,
279
28,6
6019
,404
Oth
er c
urre
nt a
sset
s (no
te 1
9)19
6,18
819
3,67
35,
774
5,57
3To
tal c
urre
nt a
sset
s24
,694
,435
22,4
17,3
7472
6,73
464
5,10
4Lo
ng-te
rm e
quity
inve
stmen
ts (n
ote
7):
Long
-term
equ
ity in
vestm
ents
unde
r equ
ity m
etho
d6,
246,
480
6,06
2,02
318
3,82
817
4,44
7Lo
ng-te
rm e
quity
inve
stmen
ts un
der c
ost m
etho
d4,
280,
626
4,26
0,16
212
5,97
512
2,59
4Ne
t lon
g-te
rm e
quity
inve
stmen
ts10
,527
,106
10,3
22,1
8530
9,80
329
7,04
1Pr
oper
ty, p
lant
and
equ
ipm
ent (
note
s 8, 2
1 an
d 22
):La
nd1,
869,
784
1,86
9,78
455
,026
53,8
07Bu
ildin
gs4,
391,
446
4,39
3,73
312
9,23
612
6,43
8M
achi
nery
and
equ
ipm
ent
5,95
5,66
15,
115,
771
175,
270
147,
216
Airc
raft
73,9
56,3
1674
,512
,938
2,17
6,46
62,
144,
257
Rota
ble
parts
445,
470
645,
955
13,1
1018
,589
86,6
18,6
7786
,538
,181
2,54
9,10
82,
490,
307
Less
: acc
umul
ated
dep
reci
atio
n(2
9,74
0,20
5)(2
5,92
1,95
2)(8
75,2
27)
(745
,955
)C
onstr
uctio
n in
pro
gres
s4,
868
4,86
814
314
0Ad
vanc
es fo
r pur
chas
es o
f equ
ipm
ent
2,21
9,02
11,
397,
498
65,3
0440
,216
Net p
rope
rty, p
lant
and
equ
ipm
ent
59,1
02,3
6162
,018
,595
1,73
9,32
81,
784,
708
Oth
er a
sset
s:De
ferre
d pe
nsio
n co
st (n
ote
15)
218,
358
245,
652
6,42
67,
069
Refu
ndab
le d
epos
its (n
ote
22)
16,2
03,5
9316
,607
,830
476,
857
477,
923
Defe
rred
char
ges (
note
9)
2,88
3,42
12,
685,
388
84,8
5677
,277
Defe
rred
inco
me
tax
asse
ts-no
ncur
rent
(not
e 16
)33
6,49
943
2,37
89,
903
12,4
43O
ther
ass
ets (
note
s 19
and
21)
702,
438
783,
771
20,6
7222
,555
Tota
l oth
er a
sset
s20
,344
,309
20,7
55,0
1959
8,71
459
7,26
7
Tota
l ass
ets
$ 1
14,6
68,2
1111
5,51
3,17
33,
374,
579
3,32
4,12
0
EVA
AIR
WA
YS
CO
RP.
Bala
nce
She
ets
De
ce
mb
er 3
1, 2
003
and
200
2(e
xpre
sse
d in
tho
usa
nds
of d
olla
rs)
56
Financial Statements
New Taiwan dollars US dollars2003 2002 2003 2002
Operating revenue (note 20) $ 65,387,596 64,577,407 1,898,595 1,866,939
Operating cost (notes 19, 20 and 23) (56,835,812) (53,282,923) (1,650,285) (1,540,414)Gross profit from operations 8,551,784 11,294,484 248,310 326,525
Operating expenses (notes 20 and 23) (6,058,097) (6,236,894) (175,903) (180,309)Operating income 2,493,687 5,057,590 72,407 146,216
Non-operating income and gains:Interest income (note 20) 12,068 62,569 351 1,809Investment income, net (note 7) 303,001 141,376 8,798 4,087Exchange gains, net (note 19) 112,808 - 3,275 -Recovery of unrealized loss on short-term investments 62,236 - 1,807 -Other income 414,394 388,924 12,033 11,244
904,507 592,869 26,264 17,140
Non-operating expenses and losses:Interest expenses, net of capitalized interest
of NT$56,556 thousand (US$1,642 thousand)and NT$88,849 thousand (US$2,569 thousand)in 2003 and 2002, respectively (notes 8 and 19) (2,144,560) (2,907,829) (62,269) (84,066)
Exchange losses, net (note 19) - (252,461) - (7,299)Other loss (37,452) (72,690) (1,088) (2,101)
(2,182,012) (3,232,980) (63,357) (93,466)
Income before income tax 1,216,182 2,417,479 35,314 69,890
Income tax benefit (note 16) 180,000 220,000 5,226 6,360
Net income $ 1,396,182 2,637,479 40,540 76,250
Earnings per share (expressed in dollars) (note 18):Basic earnings per share:Income before income tax $ 0.48 1.07 0.01 0.03Net income $ 0.55 1.17 0.02 0.03Diluted earnings per share:Income before income tax $ 0.45 1.07 0.01 0.03Net income $ 0.52 1.17 0.02 0.03
See accompanying notes to financial statements.
EVA AIRWAYS CORP.Statements of Operations
For the years ended December 31, 2003, and 2002(expressed in thousands of dollars, except earnings per share)
57
EVA
AIR
WA
YS
CO
RP.
Sta
tem
ent
s o
f Cha
nge
s in
Sto
ckh
old
ers
' Eq
uity
For t
he y
ea
rs e
nde
d D
ec
em
be
r 31,
200
3 a
nd 2
002
(exp
ress
ed
in th
ous
and
s o
f do
llars
)
Cum
ulat
ive
Tran
slatio
nA
djus
tmen
ts
Def
erre
dC
redi
t(D
ebit)
Net L
oss N
otYe
tRe
cogn
ized
As N
et
Pens
ion
Cost
Reta
ined
Earn
ings
(Acc
umula
ted
Defic
its)
Spec
ial
Rese
rve
Leg
al
Rese
rve
Cap
ital
Surp
lus
Com
mon
Stoc
kTo
tal
Cum
ulat
ive
Tran
slatio
nAd
justm
ents
De
ferr
ed
Cre
dit
(De
bit)
Net l
oss n
otYe
tRe
cogn
ized
As N
etPe
nsio
n C
ost
Reta
ined
Earn
ings
(Acc
umul
ated
Defic
its)
Spec
ial
Rese
rve
Lega
lRe
serv
eC
apita
lSu
rplu
sC
omm
onSt
ock
Ne
w T
aiw
an
do
llars
US
do
llars
Bala
nce
on D
ecem
ber 3
1, 2
001
$ 2
2,05
0,00
04,
244,
448
351,
213)
317,
634)
(2,6
69,9
71)
(558
,757
)5,
975,
282)
(44,
359)
29,6
65,4
90)
812,
104
148,
766)
11,0
48)
9,48
7)(7
9,29
4)(1
5,96
4)(3
7,29
4)(1
,267
)84
7,58
6)M
ake-
up o
f def
icie
ncie
s of t
he C
ompa
ny (n
ote
17)
Lega
l res
erve
--
(351
,213
)-
)35
1,21
3)-
)-
)-
)-
)-
-)
(11,
048)
-)
11,0
48)
-)
-)
-)
-)
Spec
ial r
eser
ve
--
-)
(317
,634
)31
7,63
4)-
)-
)-
)-
)-
-)
-)
(9,4
87)
9,48
7)-
)-
)-
)-
)C
apita
l sur
plus
-(1
,845
,667
)-
)-
)1,
845,
667)
-)
-)
-)
-)
-(6
6,65
5)-
)-
)66
,655
)-
)-
)-
)-
)C
ash
subs
crip
tion
2,20
0,00
011
0,00
0-
)-
)-
)-
)-
)-
)2,
310,
000)
63,1
103,
155)
-)
-)
-)
-)
-)
-)
66,2
65)
Trans
fer o
f cap
ital s
urpl
us a
risin
g fro
m g
ains
on
disp
osal
of e
quip
men
t to
reta
ined
ear
ning
s-
(155
,458
)-
)-
)15
5,45
8)-
)-
)-
)-
)-
(4,9
68)
-)
-)
4,96
8)-
)-
)-
)-
)De
crea
se in
net
equ
ity d
ue to
the
chan
ge
in p
erce
ntag
e of
ow
nersh
ip in
long-t
erm
equi
ty in
vestm
ents
unde
r equ
ity m
etho
d-
(1,2
95)
-)
-)
-)
-)
-)
-)
(1,2
95)
-(3
8)-
)-
)-
)-
)-
)-
)(3
8)Tra
nsfe
r of d
onat
ed a
sset
s of i
nves
tee
com
pany
un
der e
quity
met
hod
to c
apita
l sur
plus
-11
3-
)-
)-
)-
)-
)-
)11
3)-
3)-
)-
)-
)-
)-
)-
)3)
Trans
fer o
f cap
ital s
urpl
us a
risin
g fro
m g
ains
on
disp
osal
of e
quip
men
t of i
nves
tee
com
pany
un
der e
quity
met
hod
to re
tain
ed e
arni
ngs
-(6
2)-
)-
)62
)-
)-
)-
)-
)-
(2)
-)
-)
2)-
)-
)-
)-
)In
crea
se in
net
equ
ity d
ue to
reco
rdin
g ne
t los
s no
t yet
reco
gnize
d as
net
pen
sion
cost
in
long-t
erm
equ
ity in
vestm
ents
unde
r equ
ity m
etho
d-
--
)-
)-
)-
)-
)10
,204
)10
,204
)-
-)
-)
-)
-)
-)
-)
294)
294)
Reco
gnize
d ne
t los
s not
yet
reco
gnize
d as
net p
ensio
n co
st-
--
)-
)-
)-
)-
)(6
2,74
3)(6
2,74
3)-
-)
-)
-)
-)
-)
-)
(1,8
06)
(1,8
06)
Defe
rred
cred
it-
--
)-
)-
)67
3,98
5)-
)-
)67
3,98
5)-
-)
-)
-)
-)
19,3
95)
-)
-)
19,3
95)
Net i
ncom
e fo
r the
yea
r end
ed D
ecem
ber 3
1, 2
002
--
-)
-)
2,63
7,47
9)-
)-
)-
)2,
637,
479)
--
)-
)-
)76
,250
)-
)-
)-
)76
,250
)Tra
nsla
tion
adju
stmen
ts fo
r the
yea
r end
ed
Dece
mbe
r 31,
200
2 (n
ote
17)
--
-)
-)
-)
-)
(187
,212
)-
)(1
87,2
12)
--
)-
)-
)(1
2,86
4)-
)13
,434
)-
)57
0)
Bala
nce
on D
ecem
ber 3
1, 2
002
24,2
50,0
002,
352,
079
-)
-)
2,63
7,54
2)11
5,22
8)5,
788,
070)
(96,
898)
35,0
46,0
21)
875,
214
80,2
61)
-)
-)
76,2
52)
3,43
1)(2
3,86
0)(2
,779
)1,
008,
519)
Appr
opria
tion
of e
arni
ngs (
note
17)
:Le
gal r
eser
ve-
-26
3,75
4)-
)(2
63,7
54)
-)
-)
-)
-)
--
)7,
636)
-)
(7,6
36)
-)
-)
-)
-)
Stoc
k di
vide
nds
485,
000
--
)-
)(4
85,0
00)
-)
-)
-)
-)
14,0
42-
)-
)-
)(1
4,04
2)-
)-
)-
)-
)C
ash
divi
dend
s-
--
)-
)(4
85,0
00)
-)
-)
-)
(485
,000
)-
-)
-)
-)
(14,
042)
-)
-)
-)
(14,
042)
Dire
ctor
s' an
d su
perv
isors'
rem
uner
atio
n-
--
)-
)(1
0,00
0)-
)-
)-
)(1
0,00
0)-
-)
-)
-)
(290
)-
)-
)-
)(2
90)
Empl
oyee
s' bo
nuse
s-
--
)-
)(2
5,12
9)-
)-
)-
)(2
5,12
9)-
-)
-)
-)
(728
)-
)-
)-
)(7
28)
Con
verti
ble
bond
s con
verte
d in
to c
omm
onsto
ck2,
799,
330
250,
170
-)
-)
-)
-)
-)
-)
3,04
9,50
0)81
,281
7,26
4)-
)-
)-
)-
)-
)-
)88
,545
)Tra
nsfe
r of i
nter
est-
prem
ium
aris
ing
from
conv
ersio
n op
tion
exer
cise
d to
cap
ital s
urpl
us-
3,72
8-
)-
)-
)-
)-
)-
)3,
728)
-11
0)-
)-
)-
)-
)-
)-
)11
0)De
crea
se in
net
equ
ity d
ue to
the
chan
ge in
pe
rcen
tage
of o
wne
rship
in lo
ng-
term
equi
ty in
vestm
ents
unde
r equ
ity m
etho
d-
(6,2
36)
-)
-)
-)
-)
-)
-)
(6,2
36)
-(1
85)
-)
-)
-)
-)
-)
-)
(185
)Re
cogn
ized
net l
oss n
ot y
et re
cogn
ized
asne
t pen
sion
cost
--
-)
-)
-)
-)
-)
(35,
826)
(35,
826)
--
)-
)-
)-
)-
)-
)(1
,054
)(1
,054
)De
ferre
d cr
edit
--
-)
-)
-)
78,6
37)
-)
-)
78,6
37)
--
)-
)-
)-
)2,
314)
-)
-)
2,31
4)Ne
t inc
ome
for t
he y
ear e
nded
Dec
embe
r31
, 200
3-
--
)-
)1,
396,
182)
-)
-)
-)
1,39
6,18
2)-
-)
-)
-)
40,5
40)
-)
-)
-)
40,5
40)
Trans
latio
n ad
justm
ents
for t
he y
ear e
nded
Dece
mbe
r 31,
200
3-
--
)-
)-
)-
)(7
98,8
38)
-)
(798
,838
)-
-)
-)
-)
-)
-)
845)
-)
845)
Bala
nce
on D
ecem
ber 3
1, 2
003
$
27,
534,
330
2,59
9,74
126
3,75
4)-
)2,
764,
841)
193,
865)
4,98
9,23
2)(1
32,7
24)
38,2
13,0
39)
970,
537
87,4
50)
7,63
6)-
)80
,054
)5,
745)
(23,
015)
(3,8
33)
1,12
4,57
4Se
e ac
com
pany
ing
note
s to
finan
cial
stat
emen
ts.
Tota
l
58
Financial Statements
EVA AIRWAYS CORP.Statements of Cash Flows
For the years ended December 31, 2003, and 2002(expressed in thousands of dollars)
New Taiwan dollars US dollars
2003 2002 2003 2002
Cash flows from operating activities:
Net income $ 1,396,182 2,637,479 40,540 76,250
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Depreciation 4,436,303 4,270,786 128,813 123,469
Amortization and maintenance expense 1,118,123 1,123,095 32,466 32,469
Gain on donated stock - (13,510) - (391)
Provision for loss on devaluation of long-term investments - 4,000 - 116
Provision for (recovery of) loss on devaluation
of short-term investments (62,236) 21,892 (1,807) 633
Gain on disposal of short-term investments (14,131) (41,674) (410) (1,205)
Loss on disposal and obsolescence of property,
plant and equipment 20,402 11,743 592 339
Gain on disposal of long-term equity investments (1,869) (10,050) (54) (291)
Provision for unrealized exchange loss from
long-term borrowings 1,774 7,294 52 211
Investment income (303,001) (141,376) (8,798) (4,087)
Amortization of deferred gain from sale and
leaseback of fixed assets (231,566) (670,256) (6,724) (19,377)
Amortization of other deferred gain (168,815) (34,721) (4,902) (1,004)
Proceeds from cash dividends of long-term
equity investments 94,811 221,963 2,753 6,417
Deferred income tax benefit (203,717) (254,693) (5,915) (7,363)
Decrease (increase) in notes receivable (74,809) 2,330 (2,202) 67
Decrease (increase) in accounts receivable
(including related parties) 694,693 (1,508,874) 20,444 (43,420)
Decrease in other receivables from related parties 116,186 108,860 3,419 3,134
Decrease (increase) in inventories (178,875) 1,076,609 (5,264) 30,982
Decrease (increase) in prepaid expenses 102,133 (226,611) 3,006 (6,521)
Decrease (increase) in other prepayments 19,122 (23,639) 563 (680)
Decrease (increase) in other financial assets-current (62,895) 78,946 (1,851) 2,272
Increase in other current assets (6,939) (51,736) (204) (1,488)
Increase (decrease) in notes and accounts payable
(including related parties) (202,909) 350,325 (5,971) 10,081
Increase (decrease) in other payables (including related parties) 163,987 (17,953) 4,826 (517)
Increase in accrued expenses 69,490 1,029,677 2,045 29,631
Increase (decrease) in unearned revenue (479,998) 1,248,129 (14,126) 35,917
Increase (decrease) in other current liabilities (30,661) 139,380 (902) 4,011
Increase in accrued employee retirement liabilities 26,896 55,771 792 1,605
Increase (decrease) in other liabilities 1,055,576 (12,584) 31,065 (361)
Net cash provided by operating activities 7,293,257 9,380,602 212,246 270,899
59
Cash flows from investing activities:
Increase in short-term investments (2,302,299) (1,130,841) (67,755) (32,542)
Proceeds from disposal of long-term equity investments 112,330 20,855 3,306 600
Payments for purchase of long-term equity investments (122,545) (174,009) (3,606) (5,007)
Withdrawal of prepaid long-term equity investments - 7,962 - 229
Proceeds from disposal of property, plant and equipment 8,521 191,454 251 5,509
Payments for purchase of property, plant and equipment (2,564,886) (231,638) (75,482) (6,666)
Decrease (increase) in refundable deposits and other assets 217,956 (577,179) 6,414 (16,609)
Increase in deferred charges (1,316,156) (1,073,015) (38,733) (30,878)
Net cash used in investing activities (5,967,079) (2,966,411) (175,605) (85,364)
Cash flows from financing activities:
Increase in short-term borrowings 23,037,158 18,174,263 677,962 523,000
Increase in long-term borrowings 6,684,804 4,888,650 196,728 140,681
Installment payments for purchase of property,
plant and equipment (2,035,148) (733,715) (59,893) (21,114)
Payments of cash dividends (485,000) - (14,042) -
Repayment of short-term borrowings (23,648,434) (23,368,759) (695,951) (672,482)
Repayment of long-term borrowings (5,422,456) (10,637,935) (159,578) (306,128)
Installment payments for purchase of inventories (932,288) (321,246) (27,436) (9,244)
Proceeds from disposal of inventories 1,666,000 2,677,041 49,029 77,037
Proceeds from issuance of common stock - 2,310,000 - 66,265
Payment of employees' bonuses and directors' remuneration (35,129) - (1,018) -
Net cash used in financing activities (1,170,493) (7,011,701) (34,199) (201,985)
Effect of exchange rate changes on cash - - 3,147 (304)
Net increase (decrease) in cash and cash equivalents 155,685 (597,510) 5,589 (16,754)
Cash and cash equivalents at beginning of year 1,544,397 2,141,907 44,443 61,197
Cash and cash equivalents at end of year $ 1,700,082 1,544,397 50,032 44,443
Additional disclosure of cash flow information:
Cash payments of interest
(excluding capitalized interest expense) $ 2,261,506 3,017,449 65,665 87,235
Cash payments of income tax $ 23,489 46,407 682 1,342
Supplemental schedule of noncash investing
and financing activities:
Current portion of long-term borrowings $ 8,018,157 7,279,795 235,967 209,491
Inventory transferred from fixed assets $ 56,154 89,944 1,653 2,588
Translation adjustments $ (798,838) (187,212) 845 13,434
Outstanding balance of other payables and aircraft
payable resulting from purchase of property,
plant and equipment $ - 4,356,196 - 125,358
Short-term investments transferred to
long-term equity investments $ - 141,659 - 4,077
Deferred credit $ 193,865 115,228 5,745 3,431
See accompanying notes to financial statements.
60
Financial Statements
EVA AIRWAYS CORP.Notes to Financial Statements
December 31, 2003 and 2002
(amounts not otherwise specified are expressed in thousands of dollars)
(1) Organization and Business Scope
EVA Airways Corp. (the Company) was incorporated on April 7, 1989, as a corporation
limited by shares under special permission of the Ministry of Transportation and
Communications and under the Company Law of the Republic of China (ROC). The
Company commenced operations on July 1, 1991.
The Company's business activities are
1.1 to engage in fixed-wing aircraft transport business, helicopter transport business,
scheduled air transport business, and nonscheduled air transport business;
1.2 to carry on the business of freight agent, including operations, 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 fittings, and of
leasing aircraft;
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 deal with airport ground business;
1.10 to handle civil aviation airport terminal business (including passenger and cargo flight
businesses);
1.11 to engage in import and export trading for the foregoing activities (excluding
businesses requiring a permit);
1.12 to provide consultant services for business operation and management;
1.13 to provide general advertising services;
1.14 to engage in the retailing of tobacco and alcohol;
1.15 to engage in general merchandise activities;
1.16 to engage in the retailing of food and beverages;
1.17 to engage in the retailing of apparel;
1.18 to engage in the retailing of umbrellas;
1.19 to engage in the retailing of hats and caps;
61
1.20 to engage in the retailing of books and stationery;
1.21 to engage in the retailing of sporting goods;
1.22 to engage in the retailing of toys and amusement goods;
1.23 to engage in the retailing of watches and clocks;
1.24 to engage in the retailing of glasses;
1.25 to engage in the retailing of weights and measures;
1.26 to engage in the retailing of jewelry and precious metals;
1.27 to carry out any business which is not prohibited or restricted by the applicable laws
and regulations, excluding those requiring licensing.
As of December 31, 2003 and 2002, the Company had hired 4,469 and 4,394 employees,
respectively.
(2) Summary of Significant Accounting Policies
The Company prepared the accompanying financial statements in accordance with the
Guidelines Governing the Preparation of Financial Reports by Securities Issuers and ROC
generally accepted accounting principles. The major accounting policies and basis of
measurement used in preparing the financial statements are summarized below.
(a) Foreign currency transactions and translation
The Company maintains its books in New Taiwan dollars. Transactions negotiated and
settled in foreign currencies are recorded in New Taiwan dollars at the exchange rates
prevailing on the transaction dates. Assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into New Taiwan dollars at the
exchange rates prevailing on the balance sheet date, and unrealized exchange gains
or losses are reflected in the statement of operations.
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 to the reporting currency are reported as
cumulative translation adjustments. Cumulative translation adjustments are reported as
a separate component of stockholders' equity.
(b) US dollar financial statement presentation
Financial statements stated in New Taiwan dollars are translated into US dollars at the
exchange rates prevail ing on the balance sheet date, with the exception of
stockholders' equity accounts, which are translated at historical rates, and revenues,
costs, and expenses, which are translated at the average exchange rates during the
62
Financial Statements
reporting period. Translation differences resulting from translation of the financial
statements into US dollars are recorded as cumulative translation adjustments, a
separate component of stockholders' equity.
(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 transportation business as
"foreign operating units".
The aircraft 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
translation differences resulting from the translation of the aircraft and the related US
dollar loans into New Taiwan dollars at the exchange rate prevailing on the balance
sheet date and historical rates are reported as cumulative translation adjustments. The
aircraft stated in US dollars are depreciated by using the same method and the same
useful lives, and the resulting US dollar depreciation amounts are translated into New
Taiwan dollars at the current year's average exchange rate. In addition, the translation
differences resulting from the translation of the refundable deposits for aircraft leases into
New Taiwan dollars at the exchange rate prevailing on the balance sheet date and
historical rates are also reported as cumulative translation adjustments.
(d) Sale and leaseback
The Company sold and leased back aircraft under operating lease agreements. The
gains on the sales of the aircraft are deferred and amortized using the straight-line
method over the lease terms.
(e) 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.
(f) Short-term investments
Short-term investments are stated at the lower of aggregate cost or market value on the
balance sheet date. Cost is determined by using the weighted-average method.
(g) Inventories
63
Inventories represent parts and supplies for maintenance of aircraft, and merchandise to
sell during flights. Except for merchandise, which is stated 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 calculated by the weighted-average method, and market value
represents net realizable value.
(h) Long-term equity investments
Long-term equity investments are accounted for by the equity method where the
percentage of ownership in an investee is 20% or more. Otherwise, long-term equity
investments are accounted for by the cost method.
For a long-term equity investment accounted for by the equity method, where the
investment cost is different from the Company's net equity in the investee company
upon the investment, the difference is amortized over a period of 5 to 20 years. The
period of amortization is assessed and determined on a case-by-case basis.
When an investee issues new shares and the Company fails to subscribe to the new
shares in proportion to the Company's ownership percentage in the investee, thus
resulting in a change of net equity in the investee, the resulting difference is accounted
for as an increase or a decrease in capital surplus (or retained earnings, whenever there
is no capital surplus resulting from long-term equity investment to be deducted) and
long-term equity investment.
Unrealized transaction gains or losses 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.
The Company does not prepare consolidated financial statements to include the
accounts of its subsidiaries over which the Company has, directly or indirectly, over 50%
ownership and has controlling influence over their operating and financial policies and
decisions. This is because all such controlled subsidiaries have total assets and operating
revenues not exceeding 10% of the Company's non-consolidated total assets and
operating revenues and thus are not consolidated in accordance with the ruling of the
ROC Securities and Futures Commission (SFC). Under ROC SFC requirements, beginning
in 1995, if the combined revenues and total assets of all such unconsolidated subsidiaries
exceed 30 percent of the Company's unconsolidated total assets and operating
revenues, then each individual subsidiary with total assets or operating revenues greater
than 3 percent of the Company's respective unconsolidated amount shall be
64
Financial Statements
consolidated. Such subsidiaries shall be included in the consolidated financial
statements thereafter, unless the percentage of the combined total amounts of such
subsidiaries decreases to less than 20 percent of the Company's respective
unconsolidated amounts. As of December 31, 2003, the Company's non-consolidated
subsidiaries included Evergreen Airline Services Corp., Evergreen Aviation Technologies
Corp., Evergreen Airways Service (Macau) Ltd., Evergreen Air Cargo Service Corp., and
Hsiang-Li Investment Corp..
(i) 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 capitalizes related
interest costs incurred prior to commencement of the use of such assets and includes
such capitalized interest costs in the cost of related 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 estimate useful lives using the straight-
line method. If the depreciable assets are still in use when the useful lives have expired,
such assets can be depreciated by their scrap value over the estimated remaining useful
lives. The useful lives of main property, plant and equipment were 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).
(j) Deferred charges
Deferred charges principally include costs for computer software, leasehold
improvements, trademarks, air route development, training of navigators and aircraft
maintenance personnel, and "D" check maintenance for aircraft and engines. 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.
65
(k) Derivative financial instruments
All derivatives are to be recognized as assets or liabilities on the balance sheet and
measured at fair value. Change in the fair value of derivatives should be recognized
either in net income or in deferred debit or credit (a separate component of
stockholders' equity), depending on the designated purpose of the derivatives.
(l) Other financial assets
Other financial assets are financial assets other than cash and cash equivalents,
accounts receivable and other receivables, long-term equity investments, and
refundable deposits.
(m) Employee retirement plan
The Company has established a retirement plan pursuant to the ROC Labor Standards
Law and contributed retirement funds consisting of 10.7% of total salaries from January
2002 to April 2003, and 11.9% of total salaries from May 2003, on a monthly basis to an
account maintained by the government-designated institution.
The Company implemented ROC Statement of Financial Accounting Standards (SFAS)
No. 18, "Accounting for Pensions". SFAS No. 18 requires the Company to recognize a
minimum pension liability, as of the balance sheet date, equal to the amount by which
the actuarial present value of the accumulated benefit obligation exceeds the fair value
of the retirement plan's assets, and to recognize net periodic pension costs. The net
transition assets or obligations are amortized using the straight-line method over 15 years.
(n) Convertible bonds
The discount or premium on convertible bonds, which is measured as the difference
between the issued price and par value, should be amortized over the period from
issuance to maturity by using the interest method. The discount or premium on
convertible bonds with a put option should be amortized over the period from its
issuance date to the expiry date of the put option. The interest-premium of puttable
convertible bonds, which is the difference between the specified put price and the par
value, should be amortized by using the interest method and recognized as a liability
over the period from the issuance date of the bonds to the expiry date of the put option.
When the holder exercises the conversion option, the issuer should write off the
unamortized discount or premium, issued costs, interest payable, pay-back interest from
66
Financial Statements
the holder, recognized interest-premium, and par value of the convertible bonds. The
difference of the net written-off carrying amount of the convertible bonds over the par
value of the common stock exchange certificate should be recognized as additional
paid-in capital.
If the holder of convertible bonds with a put option does not exercise the put option by
the expiry date, the issuer should amortize the interest premium, which has been
recognized as a liability, over the period from the expiry date to the maturity date by
using the interest method. However, if the market price of exchangeable common stock
is higher than the specified put price of the bond, the issuer should reclassify the interest-
premium liability as additional paid-in capital.
(o) Revenue recognition
Passenger ticket sales are recorded as unearned revenue, included in current liabilities,
and recognized as revenue when the services are provided.
(p) Income tax
The Company adopted ROC SFAS No. 22, "Accounting for Income Tax". Under this
method, the amounts of deferred tax liabilities or assets are recognized for future tax
effects attributable to temporary differences, loss carryforwards, and investment tax
credits. The measurement of deferred tax assets or liabilities is based on provisions of
enacted tax law. A valuation allowance is provided on deferred 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 liabilities 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 when due.
(q) Earnings per share
The amount of earnings per share is 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.
67
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. On the contrary, anti-dilutive potential common shares are ignored in
calculating dilutive 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 outstanding during the
reporting period. When calculating diluted EPS, the net income (or loss) attributable to
common stockholders and the weighted-average number of shares outstanding shall be
adjusted for the effects of all dilutive potential common shares.
The weighted-average number of common shares outstanding shall be adjusted
currently and retroactively for the increase in common shares outstanding from stock
issuance (capitalization of retained earnings, additional paid-in capital, or employees'
bonus).
(r) 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.
(3) Cash and Cash Equivalents
The components as of December 31, 2003 and 2002, are summarized below:
New Taiwan dollars US dollars
2003 2002 2003 2002
Cash on hand $ 61,411 47,482 1,807 1,366
Cash in bank 1,638,671 1,496,915 48,225 43,077
$ 1,700,082 1,544,397 50,032 44,443
(4) Short-term Investments
The components as of December 31, 2003 and 2002, are summarized below:
68
Financial Statements
New Taiwan dollars US dollars
2003 2002 2003 2002
Mutual funds $ 6,193,776 3,877,346 182,277 111,578
Publicly traded stock 49,427 49,427 1,454 1,423
6,243,203 3,926,773 183,731 113,001
Less: provision for investment
devaluation - (62,236) - (1,791)
$ 6,243,203 3,864,537 183,731 111,210
(5) Other Financial Assets-Current
The components as of December 31, 2003 and 2002, are summarized below:
New Taiwan dollars US dollars
2003 2002 2003 2002
Tax refund receivable $ 85,450 13,191 2,515 379
Non-operating revenues receivable 2,609 15,210 77 438
Other receivables 118,201 102,287 3,478 2,943
206,260 130,688 6,070 3,760
Less: provision for doubtful accounts (38,397) (25,720) (1,130) (740)
$ 167,863 104,968 4,940 3,020
(6) Inventories
The components as of December 31, 2003 and 2002, are summarized below:
New Taiwan dollars US dollars
2003 2002 2003 2002
Rotable and expendable parts $ 7,718,824 7,137,766 227,158 205,403
Consumables for use and merchandise
for sale during flight 403,957 380,631 11,888 10,954
Fuel for aircraft 29,362 2,188 864 63
Allowance for obsolete inventories (1,168,675) (772,146) (34,393) (22,220)
$ 6,983,468 6,748,439 205,517 194,200
The above inventories were fully insured.
(7) Long-term Equity Investments
Details as of and for the years ended December 31, 2003 and 2002, were as follows:
69
2003
Book value Investment income (loss)
InvesteeShareholding New Taiwan US New Taiwan US
percentage(%) dollars dollars dollars dollars
Accounted for by the equity method:
Evergreen Airline Service Corp. 56.33 $ 367,818 10,825 54,142 1,572
RTW Air Services(s) Pte. Ltd. 49.00 16,533 486 1,729 50
Green Siam Air Services Co., Ltd. 49.00 22,495 662 12,056 350
Evergreen Sky Catering Corp. 49.80 627,535 18,468 32,729 950
Evergreen Airways Service (Macau) Ltd. 99.00 597,193 17,575 121,838 3,538
Uni Airways Corp. 17.92 275,717 8,114 (242,185) (7,032)
Evergreen Aviation Technologies Corp. 80.00 2,517,315 74,082 182,678 5,304
Evergreen Security Corp. 31.25 30,746 905 5,087 148
Evergreen Air Cargo Service Corp. 60.00 775,532 22,823 113,770 3,304
Hsiang-Li Investment Corp. 100.00 1,014,332 29,851 21,230 616
Uni Japan Co., Ltd. 49.50 1,264 37 (73) (2)
6,246,480 183,828 303,001 8,798
Accounted for by the cost method:
Publicly traded securities
Trade-Van Information Services Co., Ltd. 5.95 96,074 2,827 - -
Central Reinsurance Corp. 3.96 164,032 4,828 - -
260,106 7,655 - -
-
Non-publicy traded securities
Abacus International Holding Ltd. 2.11 115,743 3,406 - -
SunShing Corp. 19.50 40,365 1,188 - -
Taiwan High Speed Rail Corp. 1.62 1,250,000 36,786 - -
Hsin-Tao Power Corp. 9.69 484,612 14,262 - -
Technology Partner II Venture Capital Corp. 5.88 20,000 589 - -
Chung Hwa Express Co., Ltd. 10.00 20,000 589 - -
Taiwan Fixed Network Corporation 1.30 1,200,000 35,315 - -
Evergreen Development Corp. 9.47 870,000 25,603 - -
Pan-Pacific Venture Capital Co., Ltd. 1.50 19,800 582 - -
4,020,520 118,320 - -
4,280,626 125,975 - -
Total $ 10,527,106 309,803 303,001 8,798
70
Financial Statements
2002
Book value Investment income (loss)
Investee Shareholding New Taiwan US New Taiwan USpercentage(%) dollars dollars dollars dollars
Accounted for by the equity method:
Evergreen Airline Service Corp. 56.33 $ 344,243 9,906 47,452 1,372
RTW Air Services(s) Pte. Ltd. 49.00 20,824 599 6,789 196
Green Siam Air Services Co., Ltd. 49.00 21,077 607 17,038 492
Evergreen Sky Catering Corp. 49.80 639,626 18,406 54,751 1,583
Evergreen Airways Service (Macau) Ltd. 99.00 488,014 14,044 148,119 4,282
Uni Airways Corp. 18.09 475,402 13,681 (316,746) (9,157)
Ever Voyage Transport Corp. (Note) 43.67 112,552 3,239 8,532 247
Evergreen Aviation Technologies Corp. 80.00 2,334,636 67,184 203,798 5,892
Evergreen Security Corp. 31.25 25,659 738 7,721 223
Evergreen Air Cargo Service Corp. 55.80 610,364 17,564 (27,591) (798)
Hsiang-Li Investment Corp. 99.99 993,042 28,577 (7,202) (208)
Uni Japan Co., Ltd. 49.50 584 17 (1,285) (37)
6,066,023 174,562 141,376 4,087
Accounted for by the cost method:
Publicly traded securities
Trade-Van Information Services Co., Ltd. 6.10 97,983 2,820 - -
Central Reinsurance Corp. 4.07 141,659 4,076 - -
239,642 6,896 - -
Non-publicly traded securities
Abacus International Holding Ltd. 2.11 115,743 3,331 - -
SunShing Corp. 19.50 40,365 1,162 - -
Taiwan High Speed Rail Corp. 2.53 1,250,000 35,971 - -
Hsin-Tao Power Corp. 9.69 484,612 13,946 - -
Technology Partner II Venture Capital Corp. 5.88 20,000 575 - -
Chung Hwa Express Co., Ltd. 10.00 20,000 575 - -
Taiwan Fixed Network Corporation 1.30 1,200,000 34,532 - -
Evergreen Development Corp. 9.47 870,000 25,036 - -
Pan-Pacific Venture Capital Co., Ltd. 1.50 19,800 570 - -
4,020,520 115,698 - -
4,260,162 122,594 - -
Less: provision for long-term investments
devaluation - (4,000) (115) - -
Total $ 10,322,185 297,041 141,376 4,087
(Note) The Company disposed of long-term equity investment - Ever Voyage Transport Corp.-in February
2003.
71
Details of increases in long-term equity investments of the Company in 2003 and 2002 were
as follows:
Unit: thousands of shares
2003 2002Amounts Amounts
Investee Shares New Taiwan US Shares New Taiwan USdollars dollars dollars dollars
Accounted for by the equity method:
Uni Japan Co., Ltd. - $ - - - 2,702 77
Evergreen Air Cargo Service Corp. 5,039 51,398 1,512 - - -
Uni Airways Corp. 4,871 48,714 1,434 16,586 165,857 4,773
Evergreen Aviation Technologies Corp - - - 500 5,450 157
Hsiang-Li Investment Corp. 6 60 2 - - -
100,172 2,948 174,009 5,007
Accounted for by the cost method:
Central Reinsurance Corp. 2,029 22,373 658 - - -
Abacus International Holding Ltd. - - - 12 13,510 389
22,373 658 13,510 389
$ 122,545 3,606 187,519 5,396
Details of selling long-term equity investments of the Company in 2003 and 2002 were as
below:
Unit: thousands of shares
2003
CostGain on disposal of
long-term investments
Investee Shares New Taiwan US New Taiwan USdollars dollars dollars dollars
Accounted for by the equity method:
Ever Voyage Transport Corp. 6,550 $ 108,552 3,195 834 24
Accounted for by the cost method:
Trade-Van Information Services Co., Ltd. 234 1,909 56 1,035 30
$ 110,461 3,251 1,869 54
2002
CostGain on disposal of
long-term investments
Investee Shares New Taiwan US New Taiwan USdollars dollars dollars dollars
Accounted for by the equity method:
Green Siam Air services Co., Ltd. 4 $ 504 15 432 13
RTW Air Services(s) Pte. Ltd. 30 758 22 256 7
Uni Japan Co., Ltd. - 882 25 577 17
2,144 62 1,265 37
72
Financial Statements
Accounted for by the cost method:
Trade-Van Information Services Co., Ltd. 934 7,621 219 9,191 266
e' Com International Inc. 104 1,040 30 (406) (12)
Travel Exchange Asia Holdings Ltd. - 7,962 229 - -
16,623 478 8,785 254
$ 18,767 540 10,050 291
(8) Property, Plant and Equipment
In 2003 and 2002, the Company capitalized the interest expenses on construction of building
and purchase of aircraft amounting to NT$56,556 thousand (US$1,642 thousand) and
NT$88,849 thousand (US$2,569 thousand), respectively. The monthly interest rates on the
above transactions were 0.24%~0.30% and 0.31%~0.40%, respectively.
As of December 31, 2003 and 2002, insurance coverage for property, plant and equipment
amounted to approximately NT$42,577,424 thousand (US$1,253,014 thousand) and
NT$53,622,762 thousand (US$1,543,101 thousand), respectively.
(9) Deferred Charges
As of December 31, 2003 and 2002, deferred charges, net of amortization, consisted of the
following:
New Taiwan dollars US dollars
2003 2002 2003 2002
Computer software $ 244,614 251,911 7,199 7,249
Leasehold improvements 79,998 99,383 2,354 2,860
Air flight route development cost 43,329 92,204 1,275 2,653
Navigator training costs 107,594 195,431 3,166 5,624
Maintenance for aircraft and engines 2,328,620 1,991,467 68,529 57,308
Others 79,266 54,992 2,333 1,583
$ 2,883,421 2,685,388 84,856 77,277
(10)Short-term Borrowings and Payable on Commercial Paper
Details were as follows:
New Taiwan dollars US dollars
2003 2002 2003 2002
Unsecured loans $ 3,360,000 3,552,000 98,882 102,216
Payable on commercial paper, net of
prepaid interest of NT$484 thousand
(US$14 thousand) for 2003 and NT$1,208
thousand (US$35 thousand) for 2002 819,516 1,238,792 24,117 35,649
$ 4,179,516 4,790,792 122,999 137,865
73
The interest expenses on the aforementioned short-term borrowings were calculated based
on floating interest rates. For the years ended December 31, 2003 and 2002, the interest
rates were 0.74%~1.47% and 1.02%~2.30%, respectively. As of December 31, 2003 and 2002,
the unused credit lines amounted to approximately NT$5,293,521 thousand (US$155,783
thousand) and NT$6,941,510 thousand (US$199,756 thousand), respectively.
(11)Long-term Borrowings
As of December 31, 2003 and 2002, the details of long-term borrowings were as follows:
AnnualNature Interest rate New Taiwan dollars US dollars
(%) 2003 2002 2003 2002
Secured loans:
Land and buildings 3.25~6.00% $ 1,820,000 2,240,000 53,561 64,461
Aircraft
NT$ loans 1.22~5.83% 6,246,285 7,403,424 183,822 213,048
US$ loans 1.95~2.72% 4,907,551 6,678,522 144,425 192,188
11,153,836 14,081,946 328,247 405,236
Engines and simulators
NT$ loans 4.55~5.43% 500,000 500,000 14,714 14,388
US$ loans 1.69~1.78% 338,295 193,438 9,956 5,567
838,295 693,438 24,670 19,955
Sub-total 13,812,131 17,015,384 406,478 489,652
Unsecured loans: 1.30~6.50% 14,464,611 13,565,910 425,680 390,386
Total 28,276,742 30,581,294 832,158 880,038
Less: current portion (6,818,157) (5,979,795) (200,652) (172,081)
$ 21,458,585 24,601,499 631,506 707,957
As of December 31, 2003, the remaining balances of the loans were due as follows:
Year due New Taiwan dollars US dollars
2004 $ 6,818,157 200,652
2005 8,809,519 259,256
2006 4,465,030 131,402
2007 1,787,049 52,591
2008 1,016,960 29,928
2009 and after 5,380,027 158,329
$ 28,276,742 832,158
Pursuant to the syndication loan agreement signed with Chiao-Tung Bank and fourteen other
banks, the Company's liabilities-to-equity ratio and current ratio must be maintained at 300%
74
Financial Statements
and 75%, respectively, at the year-end. If any aircraft purchased with the financing of such
loans is disposed of or sold, the Company must repay the loan immediately.
As of December 31, 2003 and 2002, the unused credit lines for long-term borrowings
amounted to NT$1,094,000 thousand (US$32,195 thousand) and NT$339,000 thousand
(US$9,755 thousand), respectively. The pledges for long-term borrowings are disclosed in
note 21.
(12)Bonds Payable
Details of bonds payable as of December 31, 2003 and 2002, are as follows:
Description New Taiwan dollars US dollars
Annual Issue
Guaranteed by interest rate date 2003 2002 2003 2002
Bonds payable Taiwan Cooperative Bank 7.400% 1998.10 $ - 500,000 - 14,388
Bonds payable Bank of Taiwan 6.450% 1999.01 500,000 500,000 14,714 14,388
Bonds payable Central Trust of China 5.750%~
6.080% 1999.07 300,000 400,000 8,829 11,511
Bank of Taiwan 5.750%~
6.080% 1999.07 400,000 600,000 11,772 17,267
Bonds payable Industrial Bank of Taiwan 5.330% 2000.01 - 500,000 - 14,388
Farmers Bank 5.525% 2000.01 160,000 160,000 4,709 4,605
Bank of Taiwan 5.525% 2000.01 400,000 400,000 11,772 11,511
Bonds payable Shanghai Commercial &
Savings Bank 5.470% 2000.07 300,000 300,000 8,829 8,633
Chinatrust Commerical
Bank 5.480% 2000.07 500,000 500,000 14,714 14,388
Bank of Panhsin 5.640% 2000.07 300,000 300,000 8,829 8,633
Grand Commerical Bank 5.530% 2000.07 500,000 500,000 14,714 14,389
Bonds payable International Commerical
Bank of China 5.250% 2000.12 500,000 500,000 14,714 14,388
Cathay United Bank 5.250% 2000.12 500,000 500,000 14,714 14,388
Bank of Taiwan 5.250% 2000.12 400,000 400,000 11,772 11,511
Farmers Bank 5.250% 2000.12 400,000 400,000 11,772 11,511
Bonds payable Taipei Bank 3.700% 2001.07 500,000 500,000 14,714 14,388
Convertible bonds payable - 2003.06 1,950,500 - 57,402 -
Subtotal 7,610,500 6,960,000 223,970 200,287
Less: current portion (1,200,000) (1,300,000) (35,315) (37,410)
$ 6,410,500 5,660,000 188,655 162,877
75
The Company issued NT$5 billion Taiwan Domestic Covertible Bonds on June 6, 2003, for
which the final terms and conditions were as follows:
(a) Coupon rate: 0%
(b) Issue period: From June 6, 2003, to June 5, 2008
(c) Redemption: Except for bonds that have already been redeemed, converted, or
purchased and cancelled, the bonds can be redeemed on the fifth anniversary of the
issue date at par value.
(d) 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.
(e) Redemption at the option of the bondholders: The Company will, at the option of the
bondholders, redeem such bonds on the third anniversary of the issue date at 100.6%.
(f) Conversion
(i) The bondholders can ask the Company to convert the convertible bonds to
common stock during the period from three months after the issue date to ten days
before the maturity date.
(ii) Conversion price
The conversion price is set at NT$10.98, which is a premium of 104% of 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 10, 15 or 20 trading days, whichever is
the lowest, immediately preceding but excluding the pricing date, which is May 9, 2003. The
conversion price will be subject to adjustments in the event that change occurs to the
capital structure. As of December 31, 2003, the conversion price was NT$10.78.
(13)Other Installments Payable
The Company purchased aircraft spare parts by installments. As of December 31, 2003 and
2002, the details were as follows:
76
Financial Statements
New Taiwan dollars US dollars
2003 2002 2003 2002
Installment amount payable $ 3,089,507 2,355,795 90,921 67,793
Less: current portion (1,415,866) (865,648) (41,667) (24,911)
$ 1,673,641 1,490,147 49,254 42,882
The current portion of other installments payable was recorded as other payables. As of
December 31, 2003, the remaining balances of other installments payable were due as
follows:
Year due New Taiwan dollars US dollars
2004 $ 1,415,866 41,667
2005 1,179,736 34,719
2006 493,905 14,535
$ 3,089,507 90,921
The interest expenses of the aforementioned installments are calculated based on floating
interest rates. For the years ended December 31, 2003 and 2002, the average interest rates
were 2.11%~3.91% and 3.40%~4.49%, respectively.
(14)Aircraft Payable
The Company purchased aircraft by installments. As of December 31, 2003 and 2002, the
details were as follows:
New Taiwan dollars US dollars
2003 2002 2003 2002
Aircraft payable $ 17,651,552 20,083,497 519,469 577,942
Less: current portion (2,029,574) (2,053,182) (59,729) (59,084)
$ 15,621,978 18,030,315 459,740 518,858
The current portion of aircraft payable was recorded as other payables. As of December 31,
2003, the remaining balances of the aircraft payables were due as follows:
Year due New Taiwan dollars US dollars
2004 $ 2,029,574 59,729
2005 2,016,618 59,347
2006 2,242,479 65,994
2007 1,923,731 56,613
2008 1,835,969 54,031
2009 and after 7,603,181 223,755
$ 17,651,552 519,469
77
The interest expenses of the aforementioned aircraft payable are calculated based on
floating interest rates. For the years ended December 31, 2003 and 2002, the average
interest rates were 1.11%~6.77% and 1.80%~6.77%, respectively. The pledges for the aircraft
payable are disclosed at note 21.
(15)Retirement Plans
Net retirement plan liabilities based on the actuarial computation at December 31, 2003 and
2002, are detailed as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Benefit obligation:
Vested benefit obligation $ (70,741) (2,082) (18,736) (539)
Nonvested benefit obligation (1,358,455) (39,978) (1,179,622) (33,946)
Accumulated benefit obligation (1,429,196) (42,060) (1,198,358) (34,485)
Projected effects of salary adjustments (568,309) (16,725) (492,630) (14,176)
Projected benefit obligation (1,997,505) (58,785) (1,690,988) (48,661)
Plan assets at fair value 612,075 18,013 416,665 11,990
Projected benefit obligation
in excess of plan assets (1,385,430) (40,772) (1,274,323) (36,671)
Unrecognized net transition obligation 218,358 6,426 245,652 7,069
Unrecognized pension loss 666,878 19,626 555,373 15,982
Pension liabilities that need to be accrued (316,927) (9,327) (308,395) (8,875)
Accrued employee retirement liabilities $ (817,121) (24,047) (781,693) (22,495)
The components of net pension cost are summarized as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Service cost $ 205,001 5,952 175,440 5,072
Interest cost 62,288 1,809 62,865 1,817
Actual return on plan assets (7,261) (211) (7,202) (208)
Amortization:
Unrecognized net transition obligation 34,323 997 32,668 945
Net pension cost $ 294,351 8,547 263,771 7,626
Actuarial assumptions at December 31, 2003 and 2002, are summarized as follows:
78
Financial Statements
2003 2002
Discount rate 3.50% 3.75%
Rate of increase in future compensation levels 2.50% 2.50%
Expected long-term rate of return on plan assets 3.50% 3.75%
As of December 31, 2003 and 2002, the retirement fund deposited in the Central Trust of
China was NT$604,814 thousand (US$17,799 thousand) and NT$409,464 thousand (US$11,783
thousand), respectively.
(16)Income Tax
(a) The Company's earnings are subject to a maximum income tax rate of 25%. For the
years ended December 31, 2003 and 2002, the components of estimated income tax
benefits were as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Income tax expense-current $ (23,717) (689) (34,693) (1,003)
Income tax benefit-deferred 203,717 5,915 254,693 7,363
$ 180,000 5,226 220,000 6,360
(b) For the years ended December 31, 2003 and 2002, the differences between expected
income tax expenses at statutory rates and income tax benefits as reported in the
accompanying financial statements were as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Expected income tax expense $ (304,046) (8,828) (604,370) (17,472)
Gain on disposal of investments 8,344 242 15,209 440
Investment income recognized
under equity method-unrealized 75,750 2,199 34,344 993
Surtax on undistributed earnings (89,832) (2,608) - -
Dividend income 19,016 552 (27,708) (801)
Permanent difference in depreciation
expenses (133,421) (3,874) (138,394) (4,001)
Exchange losses recorded as
translation adjustments 115,724 3,360 164,145 4,745
Increase in investment tax credits 97,952 2,844 552,166 15,963
Valuation allowance for deferred tax
assets, net 222,461 6,459 595,246 17,208
Others 168,052 4,880 (370,638) (10,715)
$ 180,000 5,226 220,000 6,360
79
(c) For the years ended December 31, 2003 and 2002, the deferred income tax benefits
were as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Loss carryforwards $ (353,052) (10,251) (350,460) (10,132)
Unrealized exchange losses (9,295) (270) (5,349) (155)
Investment tax credits (40,394) (1,173) (292,434) (8,454)
Provision for reducing inventory
to market price 99,132 2,878 158,927 4,595
Purchase of fixed assets by installments,
adjusted for tax purposes 134,887 3,917 135,357 3,913
Deferred gains on disposal of fixed
assets, adjusted for tax purposes 166,537 4,836 8,928 258
Valuation allowance for deferred
tax assets, net 222,461 6,459 595,246 17,208
Others (16,559) (481) 4,478 130
$ 203,717 5,915 254,693 7,363
(d) The components of the deferred income tax assets as of December 31, 2003 and 2002,
are summarized as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Deferred income tax assets - current:
Unrealized exchange losses $ 46,356 1,364 55,651 1,601
Loss carryforwards 522,588 15,379 300,000 8,633
Investment tax credits 112,772 3,319 109,042 3,138
Allowance for obsolete inventories 292,159 8,598 193,027 5,555
Others - - 16,559 477
$ 973,875 28,660 674,279 19,404
Deferred income tax assets - noncurrent:
Loss carryforwards $ - - 575,640 16,565
Investment tax credits - - 44,124 1,270
Purchase of fixed assets by
installments, adjusted for tax purposes 504,544 14,848 369,657 10,638
Deferred gains on disposal of fixed
assets, adjusted for tax purposes 299,584 8,817 133,047 3,828
Less: valuation allowance for deferred
income tax assets (467,629) (13,762) (690,090) (19,858)
$ 336,499 9,903 432,378 12,443
80
Financial Statements
The expiration years of the remaining investment tax credits and loss carryforwards as of
December 31, 2003, are summarized as follows:
Tax benefit
Investment tax credits Loss carryforwards
New Taiwan New Taiwan
Expiry year dollars US dollars dollars US dollars
2005 $ 14,820 436 - -
2006 241 7 522,588 15,379
2007 97,711 2,876 - -
$ 112,772 3,319 522,588 15,379
The Company's income tax returns have been examined and assessed through 2000 by
the ROC income tax authority.
(17)Stockholders' Equity
(a) Common stock
As of December 31, 2003, the Company's authorized share capital consisted of 3,000,000
thousand shares of common stock, at NT$10 par value per share, of which 2,753,433
thousand shares were issued and outstanding.
On June 18, 2002, the Company's stockholders resolved to make up deficiencies from a
special reserve of NT$317,634 thousand (US$9,487 thousand), legal reserve of NT$351,213
thousand (US$11,048 thousand), and capital surplus of NT$1,845,667 thousand (US$66,655
thousand). In addition, the Company transferred retained earnings from capital surplus
of NT$155,458 thousand (US$4,968 thousand) arising before 2000 from gains on disposal of
equipment.
Furthermore, the Company resolved to issue 220,000 thousand shares of common stock
with an issuance price of NT$10.5 per share. The stock issuance was authorized by and
registered with the government authorities on December 26, 2002.
On June 11, 2003, the Company's stockholders resolved to transfer unappropriated
earnings of NT$485,000 thousand by issuing 48,500 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 October 19, 2003.
(b) Capital surplus, legal reserve, and restrictions on appropriations of earnings
81
The details as of December 31, 2003 and 2002, were as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Cash subscription in excess
of par value of shares $ 1,464,333 52,084 1,464,333 52,084
Gain on disposal of property,
plant and equipment of
investee company 1,668 53 1,668 53
Additional paid-in capital from
bond conversion 253,898 7,374 - -
Increase in net equity due to
change in percentage of
ownership in long-term investments
under equity method $ 231,138 6,714 237,374 6,899
Donated assets 648,704 21,225 648,704 21,225
$ 2,599,741 87,450 2,352,079 80,261
The ROC Company Law stipulates that realized capital surplus should not be credited to
capital except for making up deficiencies of the Company. The realized capital surplus
on the aforementioned includes the premiums on shares issued above their par value
and earnings from gifts received. In addition, the transferred capital surplus from
issuance of shares or other events in accordance with Article 8 of the ROC Securities and
Exchange Law and the ROC Company Law can be credited to capital upon the
condition that the aforementioned capital surplus has been approved by and registered
with the competent authority in the previous year.
Furthermore, the amount of the capital surplus from the premiums on shares issued
above their par value and earnings from gifts received credited to capital should not
exceed 10 percent of the amount of paid-in capital in one year.
The ROC Company Law stipulates that the Company must retain 10% of its annual
earnings, as defined in the Law, until such retention equals the amount of authorized
share capital. This retention is accounted for by transfers to legal reserve, upon approval
at the stockholders' meeting. Legal reserve may be used to offset an accumulated
deficit and cannot be distributed 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. When
the legal reserve reaches over fifty percent of the authorized capital, the Company may
distribute the amount in excess as dividends.
82
Financial Statements
The Company's articles of incorporation stipulate that the Company must appropriate
employees' bonuses of not less than 1% of estimated earnings to appropriate of each
year, and remuneration of directors and supervisors of not more than 5% of estimated
earrings to appropriate of each year. Such appropriations can only be made after
offsetting accumulated deficit and appropriation of legal reserve, and must be
accounted for as a reduction in 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 par value is distributed and a
stock dividend of around 50%~100% of the par value is distributed. However, if the
predicted earnings per share of a year in which stock dividends are distributed decline
to 20% or working capital is low, a cash dividend of 50%~100% of the par value is
distributed and a stock dividend of 0~50% of the par value is distributed.
The related information on employees' bonuses and directors' and supervisors'
remuneration appropriated from 2002 earnings was as follows:
2002
New Taiwan dollars US dollars
Employees' bonuses-cash $ 25,129 728
Directors' and supervisors' remuneration 10,000 290
$ 35,129 1,018
If the related expenditures listed above were taken as expenses incurred in 2002, the
related imputed earnings per share (after tax) would be NT$1.15 (US$0.03).
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.
(c) Unappropriated earnings, imputation credit account, and creditable ratio
The details of unappropriated earnings as of December 31, 2003 and 2002, were as
follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Unappropriated earnings
after 1998 $ 2,764,841 80,054 2,637,542 76,252
83
As of and for the years ended December 31, 2003 and 2002, details of the ICA and the
related creditable ratio were as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
ICA $ 158,274 4,658 128,749 3,705
Creditable ratio 5.72% 4.90%
(estimated)
(d) Cumulative translation adjustments
According to note 2(c), the Company recorded cumulative translation adjustments
amounting to NT$4,924,150 thousand and NT$5,713,871 thousand as of December 31,
2003 and 2002, respectively, and booked these as components of stockholders' equity.
(18)Earnings per Share
New Taiwan dollars 2003 US dollars 2003Dollars Shares Earnings per Share Dollars Shares Earnings per Share
Before After Before After Before After Before AfterIncome Income Income Income Income Income Income Income
Tax Tax Tax Tax Tax Tax Tax Tax
Net income $1,216,182 1,396,182 35,314 40,540
Basic earnings per share:
Net income belonging to
common stockholders $1,216,182 1,396,182 2,528,790 $0.48 0.55 35,314 40,540 2,528,790 0.01 0.02
Diluted earnings per share:
Net income belonging to
common stockholders $1,216,182 1,396,182 2,528,790 35,314 40,540 2,528,790
Effect in the period of
dilutive potential
common shares 6,827 6,827 180,937 198 198 180,937
$1,223,009 1,403,009 2,709,727 $0.45 0.52 35,512 40,738 2,709,727 0.01 0.02
New Taiwan dollars 2002 US dollars 2002Dollars Shares Earnings per Share Dollars Shares Earnings per Share
Before After Before After Before After Before AfterIncome Income Income Income Income Income Income Income
Tax Tax Tax Tax Tax Tax Tax Tax
Net income $2,417,479 2,637,479 69,890 76,250
Basic earnings per share:
Net income belonging to
common stockholders $2,417,479 2,637,479 2,257,116 $1.07 1.17 69,890 76,250 2,257,116 0.03 0.03
Diluted earnings per share:
Net income belonging to
common stockholders $2,417,479 2,637,479 2,257,116 69,890 76,250 2,257,116
Effect in the period of
dilutive potential
common shares - - - - - -
$2,417,479 2,637,479 2,257,116 $1.07 1.17 69,890 76,250 2,257,116 0.03 0.03
84
Financial Statements
(19)Financial Instruments
(a) Derivative financial instruments
(i) As of December 31, 2003 and 2002, the nominal amounts and market value of
derivative financial instruments were as follows:
2003 2002
Nominal Market Nominal Market
Amount Value Amount Value
Interest rate swap agreements NTD 700,000 NTD(3,339) USD 177,335 USD(4,081)
(recorded as other current liabilities) NTD 400,000
Option agreements
(recorded as other liabilities) USD 13,000 USD 136 USD 30,000 USD 128
Fuel price option agreements
(recorded as other current assets
and other assets) - USD 5,804 - USD 3,557
(ii) The Company entered into derivative financial instruments for the years ended
December 31, 2003 and 2002. Details were as follows:
2003 2002
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Interest rate swap agreements:
Interest expenses (recorded as
nonoperating expenses and
losses - interest expenses) $ 125,431 3,642 212,424 6,141
Interest payable (recorded as
accrued expenses) 1,234 36 18,100 521
Option agreements:
Gain (loss) on derivatives
[recorded as nonoperating
income and gains or nonoperating
expenses and losses - exchange
gain (losses)] 6,183 180 (3,955) 114
Future net cash outflow 101,940 3,000 - -
Future net cash inflow 103,650 3,050 - -
Fuel price option agreements:
Net gains (recorded as adjustment
of operating cost) 1,081,494 31,402 315,016 9,107
85
(iii) Purposes and risks of operating derivative financial instruments
(1) Interest rate swap agreements
For the years ended December 31, 2003 and 2002, the Company had several
interest rate swap agreements to hedge its exposure to fluctuations in interest
rates on long-term borrowings.
The counter-parties to the swap transactions were international financial
institutions with excellent reputations. Management believed that the risk of loss
due to non-performance of the counter-parties was remote.
(2) Option agreements
The Company entered into several interest rate and currency option agreements
for hedging purposes.
(3) Fuel price option agreements
The Company entered into several fuel price option agreements to hedge the
risk of fluctuations in fuel price.
(b) Fair value of non-derivative financial instruments
There were no significant differences between the book value and the fair value for
cash, notes and accounts receivable (including related parties), other receivables
(including related parties), prepaid expenses, other prepayments, other current assets,
short-term borrowings, notes and accounts payable (including related parties), other
payables (including related parties), accrued expenses, unearned revenue, other
current liabilities, and current portion of long-term borrowings because of the proximity of
their due dates.
The details of other non-derivative instruments as of December 31, 2003 and 2002, are
summarized as follows:
86
Financial Statements
2003
New Taiwan dollars US dollars
Non-derivative financial instruments Book value Fair value Book value Fair value
Assets:
Short-term investments $ 6,243,203 6,277,873 183,731 184,752
Long-term equity investments:
Fair value can be estimated in fact 260,106 321,515 7,655 9,462
Fair value can not be estimated
in fact 10,267,000 - 302,148 -
Long-term liabilities:
Bonds payable 6,410,500 6,730,239 188,655 198,065
Long-term borrowings 21,458,585 21,458,585 631,506 631,506
Other installments payable 1,673,641 1,673,641 49,254 49,254
Aircraft payable 15,621,978 15,621,978 459,740 459,740
Off-balance-sheet financial instruments:
Letters of credit - 206,015 - 6,063
Financing guaranty - 80,000 - 2,354
2002
New Taiwan dollars US dollars
Non-derivative financial instruments Book value Fair value Book value Fair value
Assets:
Short-term investments $ 3,864,537 3,864,537 111,210 111,210
Long-term equity investments:
Fair value can be estimated in fact 239,642 284,421 6,896 8,185
Fair value can not be estimated
in fact 10,082,543 - 290,145 -
Long-term liabilities:
Bonds payable 5,660,000 5,035,071 162,877 144,894
Long-term borrowings 24,601,499 24,601,499 707,957 707,957
Other installments payable 1,490,147 1,490,147 42,882 42,882
Aircraft payable 18,030,315 18,030,315 518,858 518,858
Off-balance-sheet financial instruments:
Letters of credit - 8,796 - 253
Financing guaranty - 80,000 - 2,302
(c) Methods and assumptions to measure the fair value of financial instruments
(1) The fair value of short-term investments is market value.
87
(2) The fair value of long-term equity investments is market value if they are traded on
the public market.
(3) The fair value of convertible bonds is market value.
(4) The fair value of long-term liabilities (except convertible bonds) is the discounted
future cash flows, and the discount rates during 2003 and 2002 were 3.18% and
4.16%, respectively.
(5) The fair value of letters of credit and financing guaranty is based on contract.
(6) The fair value of the derivative instruments is based on the receipt or payment if the
Company terminates the contracts on the balance sheet date, and generally
includes the unrealized gain or loss of the unexpired contracts. Most of the derivative
financial instruments have quotations from financial institutions.
(d) Off-balance-sheet credit risk financial instruments
Financing guaranty: As of December 31, 2003 and 2002, the Company had provided a
guaranty for an investee company amounting to NT$80,000 thousand. The guaranty was
used to guarantee financial borrowings, which have an off-balance-sheet credit risk.
Credit risk means the probable accounting loss from a counter-party who violates the
contract and/or a significant decrease in the value of a mortgage. If the credit line of
the guarantee is used up and the borrowing still cannot be redeemed, the Company's
credit risk is equal to the amount of the contract. The counter-party did not provide a
mortgage when the Company promised to provide the financing guaranty.
(e) Concentrations of credit risk
The Company's primary potential credit risk is accounts receivable. However, there was
no concentration of credit risk because there were more than one counter-party. To
decrease the credit risk of accounts receivable, the Company continually evaluated the
collectibility of accounts receivable and recognized allowance for doubtful accounts.
All bad debts were within management's expectations.
(20)Transactions with Related Parties
(a) Name and relationship of related parties
88
Financial Statements
Name Relationship with the Company
Evergreen Marine Corp. Major shareholder
Evergreen International Corp. Major shareholder
Uniglory Marine Corp. (merged with Evergreen
International Storage & Transport Corp. on
November 1, 2002) Ex-major shareholder
Evergreen International Storage & Transport Corp. Investee company of the Company's major
shareholders
Evergreen Development Corp. Investee company of the Company's major
shareholders
Evergreen Construction Corp. Investee company of the Company's major
shareholders
Evermaster Development Corp. Investee company of the Company's shareholders
Ever Voyage Transport Corp. (merged with
Evergreen International Storage & Transport Corp.
on May 1, 2003) Ex-investee company accounted for by equity
method
Evergreen Airline Service Corp. Investee company accounted for by equity method
RTW Air Services(s) Pte. Ltd. Investee company accounted for by equity method
Green Siam Air Services Co., Ltd. Investee company accounted for by equity method
Uni Airways Corp. Investee company accounted for by equity method
Evergreen Sky Catering Corp. Investee company accounted for by equity method
Evergreen Aviation Technologies Corp. Investee company accounted for by equity method
Evergreen Security Corp. Investee company accounted for by equity method
Evergreen Air Cargo Services Corp. Investee company accounted for by equity method
Hsiang-Li Investment Corp. Investee company accounted for by equity method
Uni Japan Co., Ltd. Investee company accounted for by equity method
Evergreen Airways Service (Macau) Ltd. Investee company accounted for by equity method
(b) Significant transactions with related parties
(1) Contracts and payables
The Company engaged related parties to construct its new overhaul shop for
training equipment and a new warehouse, and to install new security systems for the
new office building and for training equipment. The transactions for the years ended
December 31, 2003 and 2002, are summarized as follows:
89
2003New Taiwan dollars
Contract Amount Payable on Related party Project
price paid of period-end
Evergreen Construction Construction of a new
Corp. overhaul shop for training
equipment $ 378,740 374,953 3,787
Evergreen Construction Construction of a new 233,755 215,565 18,190
Corp. warehouse
Evergreen Construction Construction of a new
Corp. warehouse (Note) 2,298 2,068 230
Evergreen Security Corp. Installation of a new security
system for new warehouse 4,620 4,286 334
Evergreen Security Corp. Installation of a new security
system for training equipment 4,080 4,039 41
$ 623,493 600,911 22,582
2003US dollars
Contract Amount Payable on Related party Project
price paid of period-end
Evergreen Construction Construction of a new
Corp. overhaul shop for training
equipment $ 11,146 11,034 112
Evergreen Construction Construction of a new
Corp. warehouse 6,879 6,344 535
Evergreen Construction Construction of a new
Corp. warehouse (Note) 68 61 7
Evergreen Security Corp. Installation of a new security
system for new warehouse 136 126 10
Evergreen Security Corp. Installation of a new security
system for training equipment 120 119
$ 18,349 17,684 665
90
Financial Statements
2002New Taiwan dollars
Contract Amount Payable on Related party Project
price paid of period-end
Evergreen Construction Construction of a new
Corp. overhaul shop for training
equipment $ 378,740 374,953 3,787
Evergreen Construction Construction of a new
Corp. warehouse 233,755 215,565 18,190
Evergreen Construction Construction of a new
warehouse (Note) 2,298 2,068 230
Evergreen Security Corp. Installation of a new security
system for new warehouse 4,620 4,286 334
Evergreen Security Corp. Installation of a new security
system for training equipment 4,080 4,039 41
$ 623,493 600,911 22,582
2002US dollars
Contract Amount Payable on Related party Project
price paid of period-end
Evergreen Construction Construction of a new
Corp. overhaul shop for training
equipment $ 10,899 10,790 109
Evergreen Construction Construction of a new
Corp. warehouse 6,727 6,203 524
Evergreen Construction Construction of a new
Corp. warehouse (Note) 66 60 6
Evergreen Security Corp. Installation of a new security
system for new warehouse 133 123 10
Evergreen Security Corp. Installation of a new security
system for training equipment 117 116 1
$ 17,942 17,292 650
Note: During 2001, the contract was terminated. Payment amounted to NT$2,068 thousand
(US$61 thousand), and according to the contract, the Company had to pay the related
retention money of NT$230 thousand (US$7 thousand).
(2) Revenue, cost and expenses
During the years ended December 31, 2003, and 2002, the Company's transactions
with related parties were as follows:
91
RevenueNew Taiwan dollars US dollars Percentage
2003 2002 2003 2002 2003 2002
Evergreen Airline Service Corp. $ 1,812 628 53 18 - -
Uni Airways Corp. 36,175 52,291 1,050 1,512 0.06 0.08
Evergreen Aviation Technologies
Corp. 244,954 354,230 7,113 10,241 0.37 0.55
Evergreen Air Cargo Services Corp. 14,124 2,216 410 64 0.02 -
Evergreen International Corp. 4,279 3,013 124 87 0.01 0.01
Others 2,390 2,324 69 67 - -
$ 303,734 414,702 8,819 11,989 0.46 0.64
CostNew Taiwan dollars US dollars Percentage
2003 2002 2003 2002 2003 2002
Evergreen International Corp. $ 60,350 49,911 1,752 1,443 0.11 0.10
Evergreen International Storage
& Transport Corp. 60,404 - 1,754 - 0.10 -
Ever Voyage Transport Corp. - 49,905 - 1,443 - 0.09
Evergreen Airline Service Corp. 778,477 747,728 22,604 21,617 1.37 1.40
Evergreen Sky Catering Corp. 711,913 670,986 20,671 19,398 1.25 1.26
Uni Airways Corp. 476,859 479,086 13,846 13,850 0.84 0.90
Evergreen Aviation Technologies
Corp. 4,018,645 3,516,304 116,686 101,657 7.07 6.60
Evergreen Air Cargo Services Corp. 244,663 104,671 7,104 3,026 0.43 0.20
Others 3,044 516 88 15 0.01 -
$ 6,354,355 5,619,107 184,505 162,449 11.18 10.55
ExpensesNew Taiwan dollars US dollars Percentage
2003 2002 2003 2002 2003 2002
Evergreen International Corp. $ 99,411 104,778 2,886 3,029 1.64 1.68
Evergreen International Storage
& Transport Corp. 15,814 - 459 - 0.26 -
Ever Voyage Transport Corp. - 12,137 - 351 - 0.19
Evergreen Airline Service Corp. 24,081 23,693 699 685 0.40 0.38
Evergreen Sky Catering Corp. 19,518 21,269 567 615 0.32 0.34
Uni Airways Corp. 4,916 5,366 143 155 0.08 0.09
Evergreen Aviation Technologies
Corp. 12,847 13,180 373 381 0.21 0.21
Evergreen Security Corp. 43,288 40,151 1,257 1,161 0.72 0.64
RTW Air Services(s) Pte. Ltd. 40,165 54,798 1,166 1,584 0.66 0.88
Green Siam Air Services Co., Ltd. 68,873 77,945 2,000 2,254 1.14 1.25
Others 4,396 4,194 128 121 0.07 0.07
$ 333,309 357,511 9,678 10,336 5.50 5.73
92
Financial Statements
(3) Financing to others
The Company's financing to a related party for the year ended December 31, 2003,
was as follows:
Maximum balance Ending balance Interest revenueNew New New
Taiwan US Taiwan US rate Taiwan USDate dollars dollars dollars dollars (p.a.) dollars dollars
Uni Airways Corp. 2003.06.27~ $150,000 4,414 - - 4.0% 1,496 432003.09.26
There were no such transactions during the year ended December 31, 2002.
There was no mortgage for abovementioned transaction.
(4) Guaranty
As of December 31, 2003 and 2002, the Company had provided a guaranty for Uni
Airways Corp. amounting to NT$80,000 thousand (US$2,354 thousand).
(5) The abovementioned transactions with related parties were made with no significant
difference from those with non-related parties, but sometimes the payments were
overdue. Receivables and payables as of December 31, 2003 and 2002, resulting
from the aforementioned transactions are summarized as follows:
New Taiwan dollars US dollars
2003 2002 2003 2002
Accounts receivable-related parties:
Uni Airways Corp. $ 35,689 30,050 1,050 865
Evergreen Aviation Technologies Corp. 25,302 86,038 745 2,475
Others 2,043 310 60 9
63,034 116,398 1,855 3,349
Other receivables-related parties:
Uni Airways Corp. 142,217 171,506 4,185 4,935
Evergreen Air Cargo Services Corp. 3,996 1,281 117 37
Evergreen Aviation Technologies Corp. 25,103 32,146 739 926
Others 4,031 4,566 119 131
175,347 209,499 5,160 6,029
Total receivables-related parties $ 238,381 325,897 7,015 9,378
93
Accounts payable-related parties:
Evergreen International Corp. $ 19,208 3,677 565 106
Evergreen Airline Service Corp. 73,380 68,262 2,159 1,964
Evergreen Sky Catering Corp. 64,672 55,718 1,903 1,603
Uni Airways Corp. 56,733 56,431 1,670 1,624
Evergreen Aviation Technologies
Corp. 50,854 62,085 1,497 1,787
Evergreen Air Cargo Services Corp. 29,346 20,079 864 578
Green Siam Air Services Co., Ltd. 6,635 7,957 195 229
RTW Air Services(s) Pte. Ltd. 3,328 5,534 98 159
Others 1,636 487 48 14
305,792 280,230 8,999 8,064
Other payables-related parties:
Evergreen International Corp. 24,033 13,707 707 395
Evergreen Construction Corp. - 3,976 - 114
Ever Voyage Transport Corp. - 4,530 - 130
Evergreen Airline Service Corp. 100,587 91,262 2,960 2,626
Evergreen Sky Catering Corp. 69,658 43,570 2,050 1,254
Uni Airways Corp. 59,753 41,901 1,759 1,206
Evergreen Aviation Technologies Corp. 313,898 218,846 9,238 6,298
Evergreen Air Cargo Services Corp. 2,356 18,432 69 530
Others 9,411 350 277 10
579,696 436,574 17,060 12,563
Total payables-related parties $ 885,488 716,804 26,059 20,627
(21)Pledged Assets
The book values of the pledged assets as of December 31, 2003 and 2002, were as follows:
New Taiwan dollars US dollars
Pledged assets Object 2003 2002 2003 2002
Land Long-term borrowings $ 1,864,122 1,864,122 54,859 53,644
Buildings Long-term borrowings 2,766,601 2,862,622 81,419 82,378
Aircraft Long-term borrowings 43,818,771 47,678,237 1,289,546 1,372,035
Engines-included in Long-term borrowings 1,210,719 1,702,064 35,630 48,980
machinery and equipment
Simulators-included in Long-term borrowings 602,274 317,749 17,724 9,144
machinery and equipment
Time deposit-included in Customs duty and contract 475,297 614,198 13,988 17,675
other assets performance guaranties
$ 50,737,784 55,038,992 1,493,166 1,583,856
94
Financial Statements
(22)Commitments and Contingencies
(a) As of December 31, 2003, 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 7 US$ 1,260,851 NT$ 490,523 (US$14,436)
March 2001 Airbus (A330-200) 2 US$ 234,269 NT$ 1,389,779 (US$40,900)
Note: The prepayments were recorded as advances for purchases of equipment.
(b) As of December 31, 2003, the Company had issued a total of NT$11,400 million (US$335
million) in promissory notes to banks for obtaining guaranties for credit lines. As of
December 31, 2003, the Company had obtained guaranties from ABN-AMRO Bank,
Citibank, Bank of America, and HSBC amounting to NT$577,505 thousand (US$16,995
thousand).
(c) The Company entered into aircraft and land lease contracts by using the operating
lease method. As of December 31, 2003, the Company had paid US$473,455 thousand
as refundable deposits. According to the contracts, future lease payments in the
following five years are as follows:
Year due New Taiwan dollars US dollars
2004 $ 9,276,111 272,988
2005 8,716,628 256,522
2006 6,961,628 204,874
2007 4,378,089 128,843
2008 2,456,875 72,304
$ 31,789,331 935,531
(d) On June 5, 2003, according to the procedures for lending of capital and providing a
guaranty to others, the Company's board of directors resolved to issue promissory notes
for Uni Airways Corp.'s renewal of the NT$80 million loan with Taipei Commercial Bank.
(23)Others
(a) Total personnel, depreciation and amortization expenses for the years ended December
31, 2003 and 2002, are summarized below:
95
New Taiwan dollars
By function 2003 2002
Operating Operating Operating Operating
By item cost expenses Total cost expenses Total
Personnel expenses
Salaries $ 2,939,446 2,305,920 5,245,366 2,713,818 2,289,352 5,003,170
Insurance 112,253 100,296 212,549 97,362 92,462 189,824
Pension 154,728 139,623 294,351 127,652 136,119 263,771
Others
(meal allowances, etc.) 1,051,435 195,271 1,246,706 953,374 184,585 1,137,959
Depreciation 4,226,426 209,877 4,436,303 4,067,252 203,534 4,270,786
Amortization 867,837 250,286 1,118,123 831,817 291,278 1,123,095
US dollars
By function 2003 2002
Operating Operating Operating Operating
By item cost expenses Total cost expenses Total
Personnel expenses
Salaries 85,350 66,954 152,304 78,457 66,185 144,642
Insurance 3,260 2,912 6,172 2,815 2,673 5,488
Pension 4,493 4,054 8,547 3,691 3,935 7,626
Others
(meal allowances, etc.) 30,529 5,670 36,199 27,562 5,336 32,898
Depreciation 122,719 6,094 128,813 117,585 5,884 123,469
Amortization 25,199 7,267 32,466 24,048 8,421 32,469
(b) Reclassification
Certain amounts of the financial statements for the year ended December 31, 2002,
have been reclassified to conform with the presentation of the financial statements for
the year ended December 31, 2003, for purposes of comparison. These reclassifications
do not have a significant impact on the financial statements.
(24)Segment Financial Information
(a) Diversified industry:
The Company mainly operates an international air transportation business.
(b) Geographic area information:
96
Financial Statements
New Taiwan dollars US dollars
2003 2002 2003 2002
South East Asia:
Operating revenue $ 20,125,540 19,673,030 584,365 568,749
Income from operations $ 941,137 1,579,247 27,327 45,656
Identifiable assets $ 635,261 673,223 18,695 19,373
North America:
Operating revenue $ 8,657,559 9,525,885 251,381 275,394
Income from operations $ 404,856 764,688 11,755 22,107
Identifiable assets $ 281,181 368,168 8,275 10,595
Other foreign areas:
Operating revenue $ 10,639,722 8,076,407 308,935 233,490
Income from operations $ 497,549 648,330 14,447 18,744
Identifiable assets $ 499,877 294,535 14,711 8,476
Domestic:
Operating revenue $ 25,964,775 27,302,085 753,914 789,306
Income from operations $ 1,214,199 2,191,667 35,256 63,362
Identifiable assets $ 102,724,786 103,855,062 3,023,095 2,988,635
Total operating revenue $ 65,387,596 64,577,407 1,898,595 1,866,939
Income from operations $ 3,057,741 5,183,932 88,785 149,869
Investment income, net 303,001 141,376 8,798 4,087
Interest expenses (2,144,560) (2,907,829) (62,269) (84,066)
Income before income tax $ 1,216,182 2,417,479 35,314 69,890
Total identifiable assets $ 104,141,105 105,190,988 3,064,776 3,027,079
Long-term equity investments 10,527,106 10,322,185 309,803 297,041
Total assets $ 114,668,211 115,513,173 3,374,579 3,324,120
(c)Major customer information - The Company operates an air transportation business with
no specific major customers.
(d)Export sales information - The main business of the Company is international air
transportation services. Consequently, it is not practical to
separate export and domestic sales.
EVA Airways Corporation376 Hsin-nan Rd. Sec. 1 Luchu, Taoyuan Hsien, TaiwanTel: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 Senior Vice President , Public Relations DivisionTel:886-2-2500-1122e-mail:[email protected]
Deputy Spokesperson Katherine Ko Deputy Junior Vice President, Public Relations Division Tel: 886-2-2500-1122 email: [email protected]
Shareholder ServiceAddress:B1,No.114,Sec.2 Cheng-kuo N. Rd. Taipei.Tel: 02-2509-8720Fax: 02-2509-9180Internet Address:http://stock.evergreen.com.tw
AuditorsKPMG 6F,156, Sec.3, Min-sheng E. Rd. Taipei, Taiwan Tel:886-2-2715-9999Internet Address:http://www.kpmg.com.tw
Financial CalendarYear ended 31st December 2003