Advantech - Annual Report 2016 | FinancialReports.eu

Advantech Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015 and Independent Auditors’ Report

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2016 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard 10. Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we have not prepared a separate set of consolidated financial statements of affiliates.

Very truly yours,

ADVANTECH CO., LTD.

By:

K. C. LIU Chairman March 6, 2017

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Advantech Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Advantech Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2016. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters on the consolidated financial statements for the year ended December 31, 2016 were as follows:

Business acquisitions

Due to the operation plan of 2016, the Group acquired 100% of the shares of B+B SmartWorx, Inc. (B+B) for NT$3,296,048 thousand on January 4, 2016.

The evaluation on fair value of the assets, liabilities, and the amount of goodwill as of the date of acquisition of B+B was based on a specialists’ Purchase Price Allocation Report that involved several financial assumptions and inputs. The judgment of related accounting estimates will affect the presentation of accounts on the financial statements. Since the acquisition is considered to be a significant event and was transacted during the period of the financial statements and should have a material impact on the financial statements, the accuracy of the acquisition transaction of B+B conducted by the Group was deemed to be a key audit matter.

Our key audit procedures performed in respect of the above area included the following:

Tested the acquisition balance sheet prepared by management in accordance with the requirements of IFRS 3 Business Combinations by:
a. Checking that the record matched against the fair value of the assets and liabilities as of the date of acquisition.
b. Recalculating the value of goodwill recognized on the acquisition balance sheet.
Evaluated and tested the management’s judgments, through the engagement of valuation experts by:
a. Testing the completeness of the identification, recognition, and valuation of the potential intangible assets of B+B and the fixed assets of its subsidiaries.
b. Testing the valuation methodologies and assumptions used to value each identified intangible asset, fixed asset, and goodwill.

B+B obtained the specialists’ Purchase Price Allocation Report in December 2016. Through the above performed procedures, B+B recognized goodwill at NT$1,768,139 thousand and intangible assets, including client relationships, core techniques, trademarks and software, at NT$1,294,933 thousand in total.

Impairment loss recognized on goodwill

If an asset has an indefinite useful life or there is any indication that an asset is impaired, the management should assess if the carrying amount of the assets is impaired. We have expressed our concerns on the related risks since the impairment assessment of goodwill is based on the management’s significant judgment that involves assumptions of the future profitability and costs of equity and debts; the impairment of goodwill is hence recognized as a critical accounting estimate in Note 5 to the consolidated financial statements.

The consolidated balance of goodwill amounted to NT$2,845,831 thousand as of December 31, 2016. We are mainly concerned about the addition of cash-generating units from the acquisition of B+B, from which the goodwill from the cash-generating units amounted to NT$1,768,139 thousand. Since the actual operations condition of B+B was not to the level as was evaluated as of the date of acquisition, which might cause an impairment of goodwill, the assessment of impairment of goodwill was deemed to be a key audit matter.

Our key audit procedures performed in respect of the above area included the following:

When evaluating the impairment assessment, we tested management’s assumptions and inputs used for testing the impairment for goodwill, including cash flow projections and discount rates.

Other Matter

We have also audited the parent company only financial statements of Advantech Co., Ltd as of and for the years ended December 31, 2016 and 2015 on which we have issued an unmodified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including supervisors, are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.
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Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2016 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Meng-Chieh Chiu and Chin-Hsiang Chen.

Deloitte & Touche Taipei, Taiwan Republic of China

March 6, 2017

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4, 7 and 30) Available-for-sale financial assets - current (Notes 4, 8 and 30) Debt investments with no active market - current (Notes 4 and 9) Notes receivable (Notes 4, 10 and 31) Trade receivables (Notes 4 and 10) Trade receivables from related parties (Note 31) Other receivables Inventories (Notes 4 and 11) Other current assets (Note 17) Total current assets NONCURRENT ASSETS Available-for-sale financial assets - noncurrent (Notes 4, 8 and 30) Investments accounted for using the equity method (Notes 4 and 13) Property, plant and equipment (Notes 4 and 14) Goodwill (Notes 4, 5 and 15) Other intangible assets (Notes 4, 5 and 16) Deferred tax assets (Notes 4 and 23) Prepayments for business facilities Prepayments for investments (Note 26) Long-term prepayments for leases (Note 17) Other noncurrent assets (Note 28) Total noncurrent assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Notes 18 and 30) Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 30) Trade payables (Note 31) Other payables (Notes 19 and 22) Current tax liabilities (Notes 4 and 23) Short-term warranty provisions (Note 4) Other current liabilities Total current liabilities NONCURRENT LIABILITIES Deferred tax liabilities (Notes 4 and 23) Net defined benefit liabilities (Notes 4 and 20) Other noncurrent liabilities Total noncurrent liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Share capital Ordinary shares Advance receipts for share capital Total share capital Capital surplus Retained earnings Legal reserve Unappropriated earnings Total retained earnings Other equity Exchange differences on translation of foreign financial statements Unrealized gains on available-for-sale financial assets Total other equity Total equity attributable to owners of the Company NON-CONTROLLING INTERESTS Total equity TOTAL		2016 Amount % $ 4,637,577 12 113,028 - 2,956,586 8 10,007 - 965,081 3 6,384,834 17 13,957 - 13,775 - 5,597,236 15 489,630 1 21,181,711 56 1,712,578 4 598,454 2 10,089,836 26 2,845,831 7 1,317,440 3 369,156 1 47,578 - - - 325,224 1 51,145 - 17,357,242 44 $ 38,538,953 100 $ 483,750 1 10,231 - 4,983,381 13 3,902,499 10 1,229,400 3 167,122 - 659,228 2 11,435,611 29 1,362,687 4 212,360 1 141,398 - 1,716,445 5 13,152,056 34 6,330,741 16 100 - 6,330,841 16 6,058,884 16 4,473,276 12 8,435,785 22 12,909,061 34 (197,633) - 112,429 - (85,204) - 25,213,582 66 173,315 - 25,386,897 66 $ 38,538,953 100		2015
				Amount % $ 4,358,259 13 176,389 1 1,755,843 5 3,171 - 970,722 3 5,428,574 16 26,775 - 40,811 - 4,868,860 14 456,342 1 18,085,746 53 1,747,598 5 477,984 2 9,576,879 28 1,139,559 3 227,686 1 217,989 1 65,753 - 2,279,881 7 100,875 - 59,183 - 15,893,387 47 $ 33,979,133 100 $ 880,625 3 6,352 - 3,226,069 9 3,380,317 10 1,057,226 3 145,646 - 546,295 2 9,242,530 27 938,491 3 183,540 1 160,795 - 1,282,826 4 10,525,356 31 6,318,531 19 - - 6,318,531 19 5,587,555 16 3,962,842 12 7,098,449 21 11,061,291 33 271,859 1 68,265 - 340,124 1 23,307,501 69 146,276 - 23,453,777 69 $ 33,979,133 100

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

(With Deloitte & Touche audit report dated March 6, 2017)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Note 31) Sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 11, 22 and 31) GROSS PROFIT OPERATING EXPENSES (Notes 22 and 31) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses OPERATING PROFIT NONOPERATING INCOME Share of the profit of associates accounted for using the equity method (Notes 4 and 13) Interest income Gains (losses) on disposal of property, plant and equipment (Note 4) Gains (losses) on disposal of investments (Note 4) Foreign exchange gains (losses), net (Notes 4, 22 and 33) Gains on financial instruments at fair value through profit or loss (Note 4) Dividend income Other income (Note 8) Finance costs (Note 22) Losses on financial instruments at fair value through profit or loss (Note 4) Other losses Total nonoperating income PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 23) NET PROFIT FOR THE YEAR		2016 Amount % $ 40,839,800 97 1,162,398 3 42,002,198 100 24,884,649 59 17,117,549 41 4,260,554 10 2,576,210 6 3,649,292 9 10,486,056 25 6,631,493 16 65,562 - 15,989 - 289,633 1 (4,873) - (205,812) - 150,982 - 132,472 - 78,855 - (11,556) - (43,324) - (2,056) - 465,872 1 7,097,365 17 1,408,411 3 5,688,954 14		2015
				Amount % $ 36,978,961 97 1,021,621 3 38,000,582 100 22,655,592 59 15,344,990 41 3,889,856 10 1,982,879 5 3,543,748 10 9,416,483 25 5,928,507 16 110,226 - 40,613 - (5,410) - 202,458 1 (186,889) - 83,798 - 139,725 - 121,329 - (10,041) - (130,409) - (4,372) - 361,028 1 6,289,535 17 1,162,560 3 5,126,975 14

(Continued)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss (Notes 20, 21 and 23): Remeasurement of defined benefit plans Share of the other comprehensive income (loss) of associates accounted for using the equity method Income tax related to items that will not be reclassified Items that may be reclassified subsequently to profit or loss (Notes 4, 21 and 23): Exchange differences on translating foreign operations Unrealized gains (losses) on available-for-sale financial assets Share of the other comprehensive income of associates Income tax related to items that may be reclassified subsequently to profit or loss Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET PROFIT ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests		2016 Amount % $ (31,247) - 1,574 - 5,312 - (576,926) (1) 44,164 - (4,135) - 96,161 - (465,097) (1) $ 5,223,857 12 $ 5,666,862 13 22,092 - $ 5,688,954 14 $ 5,217,251 12 6,606 - $ 5,223,857 12		2015
				Amount % $ (19,303) - (2,424) - 3,281 - (101,490) - (495,012) (2) 2,449 - 13,620 - (598,879) (2) $ 4,528,096 12 $ 5,104,346 13 22,629 - $ 5,126,975 13 $ 4,524,603 12 3,493 - $ 4,528,096 12 (Continued)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 24) Basic Diluted	2016 Amount % $ 8.96 $ 8.90	2015
		Amount % $ 8.08 $ 8.05

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 6, 2017) (Concluded)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

		Equity Attributable to Owners of the Company	Equity Attributable to Owners of the Company
Issued Capital(Notes 21 and 25)		Capital Surplus (Notes 21, 25 Total and 27) $ 6,312,091 $ 5,306,958 - - - - 6,440 24,438 - 261,877 - 2,172 - (11,457 ) - 3,567 - - - - - - 6,318,531 5,587,555 - - - - 12,310 104,758 - 338,194 - 10,533 - 17,844 - - - - - - $ 6,330,841 $ 6,058,884	Retained Earnings (Notes 21and 27) Unappropriated Legal Reserve Earnings Total $ 3,472,064 $ 6,353,273 $ 9,825,337 490,778 (490,778 ) - - (3,787,255 ) (3,787,255 ) - - - - - - - - - - (62,903 ) (62,903 ) - - - - 5,104,346 5,104,346 - (18,234) (18,234) - 5,086,112 5,086,112 3,962,842 7,098,449 11,061,291 510,434 (510,434 ) - - (3,791,118 ) (3,791,118 ) - - - - - - - - - - (3,691 ) (3,691 ) - 5,666,862 5,666,862 - (24,283) (24,283) - 5,642,579 5,642,579 $ 4,473,276 $ 8,435,785 $ 12,909,061	Other Equity (Note 21) Exchange Unrealized Gain Differences on (Loss) on Translating Available-for-sale Foreign Operations Financial Assets $ 338,356 $ 563,277 - - - - - - - - - - - - - - - - (66,497) (495,012) (66,497) (495,012) 271,859 68,265 - - - - - - - - - - - - - - (469,492) 44,164 (469,492) 44,164 $ (197,633) $ 112,429
				Exchange U Differences on Translating A Foreign Operations F $ 338,356 - - - - - - - - (66,497) (66,497) 271,859 - - - - - - - (469,492) (469,492) $ (197,633)
A Share Capital $ 6,301,031 - - 17,500 - - - - - - - 6,318,531 - - 12,210 - - - - - - $ 6,330,741	dvance Receipts for Ordinary Shares $ 11,060 - - (11,060 ) - - - - - - - - - - 100 - - - - - - $ 100
			Unappropriated Legal Reserve Earnings $ 3,472,064 $ 6,353,273 490,778 (490,778 ) - (3,787,255 ) - - - - - - - (62,903 ) - - - 5,104,346 - (18,234) - 5,086,112 3,962,842 7,098,449 510,434 (510,434 ) - (3,791,118 ) - - - - - - - (3,691 ) - 5,666,862 - (24,283) - 5,642,579 $ 4,473,276 $ 8,435,785

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

(With Deloitte & Touche audit report dated March 6, 2017)

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ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expenses Amortization expenses Amortization expenses for prepayments of lease obligations Impairment loss recognized (reversal of impairment loss) on trade receivables Net loss (gain) on financial assets or liabilities at fair value through profit or loss Compensation cost of employee share options Finance costs Interest income Dividend income Share of profit of associates Loss (gain) on disposal of property, plant and equipment Loss (gain) on disposal of investments Changes in operating assets and liabilities Financial assets held for trading Notes receivable Trade receivables Trade receivables from related parties Other receivables Inventories Other current assets Other financial assets Trade payables Net defined benefit liabilities Other payables Short-term warranty provisions Other current liabilities Other noncurrent liabilities Cash generated from operations Interest received Dividends received Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of available-for-sale financial assets Proceeds from sale of available-for-sale financial assets Acquisition of investments with no active market Acquisition of investments accounted for using the equity method	2016 $ 7,097,365 582,040 238,048 6,606 (24,032) (107,658) 338,194 11,556 (15,989) (132,472) (65,562) (289,633) 4,873 174,898 5,641 (738,014) 12,807 31,402 (446,618) (8,478) - 1,569,097 (2,427) 600,572 21,476 112,933 (17,857) 8,958,768 15,989 132,472 (6,285) (1,086,369) 8,014,575 (6,491,968) 5,364,552 (6,945) (135,000)	2015 $ 6,289,535 568,241 97,953 2,577 23,360 46,611 261,877 10,041 (40,613) (139,725) (110,226) 5,410 (202,458) (59,944) (20,861) (495,148) (21,375) (1,724) (87,310) 57,051 18,650 59,874 (1,191) 147,567 4,292 47,395 36,812 6,496,671 38,076 139,725 (1,467) (850,763) 5,822,242 (9,713,717) 11,766,699 1,805 - (Continued)

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ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

Increase in prepayments for investments Net cash flow on the acquisition of subsidiaries Dividends received from associates Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (increase) in refundable deposits Acquisition of intangible assets Increase in prepayments for business facilities Net cash used from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term loans Decrease in guarantee deposits received Payment of cash dividends Exercise of employee share options Increase (decrease) in non-controlling interests Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2016 $ - (1,369,432) 88,313 (1,448,423) 587,468 8,038 (73,435) 46,599 (3,430,233) (396,875) (1,540) (3,791,118) 117,068 34,586 (4,037,879) (267,145) 279,318 4,358,259 $ 4,637,577	2015 $ (2,279,881) - 81,917 (1,333,481) 22,867 (16,567) (73,145) (18,015) (1,561,518) 877,545 (602) (3,787,255) 30,878 (118,577) (2,998,011) (26,461) 1,236,252 3,122,007 $ 4,358,259

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

(With Deloitte & Touche audit report dated March 6, 2017)

(Concluded)

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ADVANTECH CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION

Advantech Co., Ltd. (the “Company”) is a listed company that was established in September 1981. It manufactures and sells embedded computing boards, industrial automation products, and applied and industrial computers.

The Company’s shares have been listed on the Taiwan Stock Exchange since December 1999.

To improve the entire operating efficiency of Advantech Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”), the Company’s board of directors resolved on June 30, 2009 to have a short-form merger with Advantech Investment and Management Service (AIMS). The effective merger date was July 30, 2009. As the surviving entity, the Company assumed all assets and liabilities of AIMS. On June 26, 2014, the Company’s board of directors resolved to have a whale-minnow merger with Netstar Technology Co., Ltd. (Netstar), an indirect 95.51% - owned subsidiary through a wholly-owned subsidiary, Advantech Corporate Investment. The effective merger date was July 27, 2014. As the surviving entity, the Company assumed all assets and liabilities of Netstar.

The functional currency of the Company is the New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the board of directors on March 6, 2017.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the FSC for application starting from 2017.

New, Amended or Revised Standards and Interpretations Effective Date (the “New IFRSs”) Announced by IASB (Note 1) Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 3) Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: January 1, 2016 Applying the Consolidation Exception” Amendment to IFRS 11 “Accounting for Acquisitions of Interests in January 1, 2016 Joint Operations” IFRS 14 “Regulatory Deferral Accounts” January 1, 2016 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016 Amendments to IAS 16 and IAS 38 “Clarification of Acceptable January 1, 2016 Methods of Depreciation and Amortization”

(Continued)

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New, Amended or Revised Standards and Interpretations (the“New IFRSs”) Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” Amendment to IAS 27 “Equity Method in Separate Financial Statements” Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets” Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting” IFRIC 21 “Levies”	Effective Date Announced by IASB (Note 1)
	January 1, 2016 July 1, 2014 January 1, 2016 January 1, 2014 January 1, 2014 January 1, 2014 (Concluded)

New, Amended or Revised Standards and Interpretations
(the“New IFRSs”)
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants”

Amendment to IAS 19 “Defined Benefit Plans: Employee
Contributions”

Amendment to IAS 27 “Equity Method in Separate Financial
Statements”

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount
Disclosures for Non-financial Assets”

Amendment to IAS 39 “Novation of Derivatives and Continuation of
Hedge Accounting”

IFRIC 21 “Levies”

Effective Date
Announced by IASB (Note 1)

January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014
(Concluded)

Note 1: Unless stated otherwise, the above New or amended IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.
Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Group’s accounting policies, except for the following:

1) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

The amendment clarifies that the recoverable amount of an asset or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized or reversed during the period. Furthermore, if the recoverable amount of an item of property, plant and equipment for which impairment loss has been recognized or reversed is fair value less costs of disposal, the Group is required to disclose the fair value hierarchy. If the fair value measurements are categorized within [Level 2/Level 3], the valuation technique and key assumptions used to measure the fair value are disclosed. The discount rate used is disclosed if such fair value less costs of disposal is measured by using present value technique. The amendment will be applied retrospectively.

2) IFRIC 21 “Levies”

IFRIC 21 provides guidance on when to recognize a liability for a levy imposed by a government. It addresses the accounting for a liability whose timing and amount is certain and the accounting for a provision whose timing or amount is not certain. The Group accrues related liability when the transaction or activity that triggers the payment of the levy occurs. Therefore, if the obligating event occurs over a period of time (such as generation of revenue over a period of time), the liability is recognized progressively. If an obligation to pay a levy is triggered upon reaching a minimum threshold (such as a minimum amount of revenue or sales generated), the liability is recognized when that minimum threshold is reached.

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3) Annual Improvements to IFRSs: 2010-2012 Cycle

Several standards, including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 2 changes the definitions of “vesting condition” and “market condition” and adds definitions for “performance condition” and “service condition”. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group. The share-based payment arrangements with market conditions, non-market conditions or non-vesting conditions will be accounted for differently, and the aforementioned amendment will be applied prospectively to those share-based payments granted on or after January 1, 2017.

IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss. The amendment will be applied prospectively to business combinations with acquisition date on or after January 1, 2017.

The amended IFRS 8 requires the Group to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segments’ assets are regularly provided to the chief operating decision-maker. The judgments made in applying aggregation criteria should be disclosed retrospectively upon initial application of the amendment in 2017.

When the amended IFRS 13 becomes effective in 2017, the short-term receivables and payables with no stated interest rate will be measured at their invoice amounts without discounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnel services to the Group is a related party of the Group. Consequently, the Group is required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required.

4) Annual Improvements to IFRSs: 2011-2013 Cycle

Several standards, including IFRS 3 and IFRS 13, were amended in this annual improvement.

IFRS 3 was amended to clarify that IFRS 3 does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangement itself. The amendment will be applied prospectively starting from January 1, 2017.

The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32.

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5) Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization”

The entity should use appropriate depreciation and amortization method to reflect the pattern in which the future economic benefits of the property, plant and equipment and intangible asset are expected to be consumed by the entity.

The amended IAS 16 “Property, Plant and Equipment” stipulates that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The amended standard does not provide any exception from this requirement.

The amended IAS 38 “Intangible Assets” clarifies that there is a rebuttable presumption that an amortization method that is based on revenue that is generated by an activity that includes the use of an intangible asset is not appropriate. This presumption can be overcome only in the following limited circumstances:

a) In which the intangible asset is expressed as a measure of revenue (for example, the contract that specifies the entity’s use of the intangible asset will expire upon achievement of a revenue threshold); or
b) When it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.
6) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include emphasis on certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Group are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Group has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Group’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

The amendments also require additional disclosure if there is a significant difference between the actual operation after business combination and the expected benefit on acquisition date.

The disclosures of related party transactions and impairment of goodwill will be enhanced when the above amendments are retrospectively applied in 2017.

As of the date the consolidated financial statements were authorized for issue, the Group continues assessing other possible impacts that application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Group’s financial position and financial performance, and will disclose these other impacts when the assessment is completed.

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b. New IFRSs in issue but not yet endorsed by the FSC

The Group has not applied the following IFRSs issued by IASB but not yet endorsed by the FSC.

The FSC announced that IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new IFRSs.

New IFRSs Annual Improvements to IFRSs 2014-2016 Cycle Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 15 “Revenue from Contracts with Customers” Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from Contracts with Customers” IFRS 16 “Leases” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” IFRIC 22 “Foreign Currency Transactions and Advance Consideration”	Effective Date Announced by IASB (Note 1)
	Note 2 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 To be determined by IASB January 1, 2018 January 1, 2018 January 1, 2019 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018

New IFRSs
Annual Improvements to IFRSs 2014-2016 Cycle

Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions”

Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts”

IFRS 9 “Financial Instruments”

Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”

IFRS 15 “Revenue from Contracts with Customers”

Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from
Contracts with Customers”

IFRS 16 “Leases”

Amendment to IAS 7 “Disclosure Initiative”

Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”

Amendments to IAS 40 “Transfers of Investment Property”

IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”

Effective Date
Announced by IASB (Note 1)

Note 2
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
To be determined by IASB
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method;
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b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

Impairment of financial assets

IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss

Transition

Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required. The requirements for general hedge accounting shall be applied prospectively and the accounting for hedging options shall be applied retrospectively.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2018.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
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Allocate the transaction price to the performance obligations in the contract; and
Recognize revenue when the entity satisfies a performance obligation.

In identifying performance obligations, IFRS 15 and related amendment require that a good or service is distinct if it is capable of being distinct (for example, the Group regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each of those goods or services individually rather than to transfer combined items).

When IFRS 15 and related amendment are effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

3) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

The amendments stipulated that, when an entity sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate, the gain or loss resulting from the transaction is recognized in full. Also, when an entity loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full.

Conversely, when an entity sells or contributes assets that do not constitute a business to an associate, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate, i.e. the entity’s share of the gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does not contain a business but retains significant influence in an associate, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate, i.e. the entity’s share of the gain or loss is eliminated.

4) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Group may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Group should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor.

When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

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5) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

In determining whether to recognize a deferred tax asset, the Group should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendment also stipulates that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Group’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Group will achieve the higher amount, and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences.

6) Annual Improvements to IFRSs 2014-2016 Cycle

Several standards, including IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures,” were amended in this annual improvement.

The amendment to IAS 28 clarified that when the Group (non-investment entity) applies the equity method to account for investment in an associate that is an investment entity, the Group may elect to retain the fair value of the investment in subsidiaries of the investment entity associate. The election should be made separately for each investment entity associate, at the later of the date (a) the investment entity associate is initially recognized, (b) the associate becomes an investment entity, or (c) the investment entity associate first becomes a parent.

7) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration.

The Group shall apply IFRIC 22 either retrospectively or prospectively to all assets, expenses and income in the scope of the Interpretation initially recognized on or after (a) the beginning of the reporting period in which the entity first applies IFRIC 22, or (b) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies IFRIC 22.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

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b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
3) Level 3 inputs are unobservable inputs for the asset or liability.
c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;
2) Assets expected to be realized within twelve months after the reporting period; and
3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;
2) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and
3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries, including structured entities). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

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Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company.

See Note 12 and Table 8 for the detailed information of subsidiaries (including the percentage of ownership and main business).

e. Business combinations

Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as they are incurred.

Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of the measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value.

f. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the Group entities (including subsidiaries and associates in other countries that use currency different from the currency of the Company) are translated into the presentation currency – the New Taiwan dollars as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate).

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other comprehensive income.

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g. Inventories

Inventories consist of raw materials, supplies, finished goods and work-in-process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the weighted-average cost.

h. Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The Group uses the equity method to account for its investments in associates.

Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of the equity of associates attributable to the Group.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When the Group subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Group’s share of equity of associates. If the Group’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings.

When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

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The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’ consolidated financial statements only to the extent that interests in the associate that are not related to the Group.

i. Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are carried at cost, less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.

Depreciation on property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

j. Goodwill

Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units or groups of cash-generating units (referred to as cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal.

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k. Intangible assets
1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

2) Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date. Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

l. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at lease annually and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

m. Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

25 -

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

a) Measurement category

Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables.

i. Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on the financial asset. Fair value is determined in the manner described in Note 30.

ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established.

iii. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalent, and debt investments with no active market), are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalent includes time deposits with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

26 -
b) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the financial asset, that the estimated future cash flows of the investment have been affected.

For financial assets carried at amortized cost, such as trade receivables, such assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 90 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, the impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

27 -
c) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

2) Equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

3) Financial liabilities
a) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using the effective interest method:

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for trading or is designated as at fair value through profit or loss. Fair value is determined in the manner described in Note 30.

b) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

4) Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

28 -

n. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

Provisions for the expected cost of warranty obligations are recognized at the date of sale of the relevant products at the best estimate by the management of the Group of the expenditure required to settle the Group’s obligation.

o. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Allowance for sales returns and liability for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
b) The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
c) The amount of revenue can be measured reliably;
d) It is probable that the economic benefits associated with the transaction will flow to the Group; and
e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

2) Rendering of services

Service income is recognized when services are provided.

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

3) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate.

29 -

p. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

2) The Group as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

q. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current and past service cost) and net interest on the net defined benefit liability are recognized as employee benefits expense in the period they occur. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling, and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Group’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

r. Employee share options

Employee share options granted to employee and others providing similar services.

The fair value at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Group’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vesting immediately.

At the end of each reporting period, the Group revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital surplus - employee share options.

30 -

s. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. If a temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit, the resulting deferred tax asset or liability is not recognized. In addition, a deferred tax liability is not recognized on taxable temporary differences arising from the initial recognition of goodwill.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity respectively.

31 -

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a. Fair value measurements of intangible assets

Intangible assets acquired from any business combination were recognized at their fair values as of the date of acquisition. When measuring fair values of intangible assets, the Group discounted cash flows to a present value by adopting the income approach to reflect the expectation of the current market with the future cash flows.

The Group’s management used the estimated future cash flows of intangible assets with the estimated growth rates of sales and determined suitable discount rates to measure the fair values of intangible assets.

b. Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalents (time deposits with original maturities less than three months)		December 31	December 31
		2016 $ 61,640 4,350,538 225,399 $ 4,637,577	2015 $ 65,144 4,144,007 149,108 $ 4,358,259

The market rate intervals of cash in bank, at the end of the reporting period were as follows:

Demand deposits Time deposits with original maturities of less than three months	December 31
	2016 2015 0.0001%-14.02% 0.001%-13.26% 1.35%-2.30% 1.60%-5.00%

32 -

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets held for trading-current Derivative financial assets Forward exchange contracts Non-derivative financial assets Domestic quoted shares Foreign quoted shares Financial liabilities held for trading-current Derivative financial liabilities Forward exchange contracts		December 31	December 31
		2016 $ 34,348 78,680 - $ 113,028 $ 10,231	2015 $ 7,391 67,554 101,444 $ 176,389 $ 6,352

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

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2016
Sell			EUR/NTD	2017.01-2017.05	EUR5,500/NTD192,863
			EUR/USD	2017.01-2017.05	EUR8,500/USD9,451
			USD/NTD	2017.01-2017.04	USD11,414/NTD362,143
			JPY/NTD	2017.01-2017.06	JPY430,000/NTD128,601
			RMB/NTD	2017.01-2017.03	RMB83,000/NTD380,318
December	31,	2015
Sell			EUR/NTD	2016.01-2016.04	EUR5,000/NTD179,073
			EUR/USD	2016.01-2016.04	EUR6,500/USD7,102
			USD/NTD	2016.01-2016.02	USD1,499/NTD49,190
			JPY/NTD	2016.01-2016.05	JPY200,000/NTD53,236
			JPY/USD	2016.01-2016.05	JPY70,000/USD582
			RMB/NTD	2016.01-2016.03	RMB64,000/NTD321,201
			RMB/USD	2016.01-2016.02	RMB15,000/USD2,323

The Group entered into forward exchange contracts during the years ended December 31, 2016 and 2015 to manage exposures due to exchange rate fluctuations of foreign-currency denominated assets and liabilities. The Group’s financial hedging strategy is to minimize risks due to market price fluctuations and cash flows; however, because these contracts did not meet the criteria for hedge effectiveness, they were not subject to hedge accounting.

33 -

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Current Domestic investments Mutual funds Quoted shares Noncurrent Domestic investments Quoted shares Unlisted shares Foreign investments Unlisted foreign shares		December 31	December 31
		2016 $ 2,450,232 506,354 $ 2,956,586 $ 1,703,203 9,375 - $ 1,712,578	2015 $ 1,271,302 484,541 $ 1,755,843 $ 1,704,966 9,375 33,257 $ 1,747,598

For its securities borrowing and lending transactions, the Group placed some of its quoted domestic shares, recorded under available-for-sale assets - noncurrent, in a trust at Chinatrust Commercial Bank. As of December 31, 2016 and 2015, the shares held in trust amounted to $1,257,600 thousand and $1,276,400 thousand, respectively. Refer to Table 3 for more information. On the transactions, the Group recognized gains of $53 thousand and $235 thousand in the years ended December 31, 2016 and 2015, respectively. These gains were recorded under other nonoperating income.

9. DEBT INVESTMENTS WITH NO ACTIVE MARKET

Time deposits with original maturities more than three months		December	31
		2016 $ 10,007	2015 $ 3,171

The market interest rates of the time deposits with original maturity more than three months were 1.00%-2.50% and 1.00%-2.55% per annum respectively as of December 31, 2016 and 2015.

10. NOTES AND TRADE RECEIVABLE

Notes receivable (include related parties) Trade receivable Less: Allowance for impairment loss		December 31	December 31
		2016 $ 965,081 $ 6,486,188 (101,354) $ 6,384,834	2015 $ 970,722 $ 5,577,733 (149,159) $ 5,428,574

34 -

Trade Receivable

The average credit period of sales of goods was from 30 to 90 days. In determining the recoverability of a trade receivable, the Group considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. The Group recognized an allowance for impairment loss of 100% against all receivables over 1 year because historical experience had been that receivables that are past due beyond 1 year were not recoverable. Allowance for impairment loss were recognized against trade receivables between 90 days and 1 year based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial position.

For the trade receivables balances that were past due at the end of the reporting period, the Group did not recognize an allowance for impairment loss, because there was not a significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral or other credit enhancements for these balances.

The aging of receivables was as follows:

Not overdue Overdue 1 to 90 days 91 to 360 days Over 360 days		December 31	December 31
		2016 $ 5,524,036 839,609 63,558 58,985 $ 6,486,188	2015 $ 4,457,975 909,380 131,727 78,651 $ 5,577,733

The above aging schedule was based on the past due days from end of credit term.

The aging of receivables that were past due but not impaired were as follows:

1 to 30 days 31 to 60 days 61 to 90 days		December 31	December 31
		2016 $ 693,983 93,924 51,702 $ 839,609	2015 $ 714,634 127,378 55,384 $ 897,396

The above aging schedule was based on the past due days from end of credit term.

35 -

The movements of the allowance of doubtful trade receivables were as follows:

Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Balance at January 1, 2015
$ 19,802
$ 130,200

Plus (less): Impairment losses recognized
(reversed) on receivables
(2,203)
25,563
Less: Amounts written off during the period as
uncollectible
(30)
(20,586)
Foreign exchange translation losses

-

(3,587)

Balance at December 31, 2015
$ 17,569
$ 131,590

Balance at January 1, 2016
$ 17,569
$ 131,590

Plus (less): Impairment losses recognized
(reversed) on receivables
96
(24,128)
Less: Amounts written off during the period as
uncollectible
(3,979)
(26,336)
Business combinations
-
11,918
Foreign exchange translation losses

-

(5,376)

Balance at December 31, 2016
$ 13,686
$ 87,668

Total
$ 150,002
23,360
(20,616)

(3,587)
$ 149,159
$ 149,159
(24,032)
(30,315)
11,918

(5,376)
$ 101,354

The Group recognized impairment losses on trade receivables amounting to $1,432 thousand as of both December 31, 2016 and 2015. These amounts mainly related to customers that were in liquidation or in severe financial difficulties. The Group did not hold any collateral over these balances.

11. INVENTORIES

Raw materials Work in process Finished goods Inventories in transit		December 31	December 31
		2016 $ 1,991,477 1,033,831 1,922,816 649,112 $ 5,597,236	2015 $ 1,489,432 974,373 1,875,649 529,406 $ 4,868,860

The costs of inventories recognized as costs of goods sold for the years ended December 31, 2016 and 2015 were $24,517,651 thousand and $22,221,007 thousand, respectively.

The costs of inventories were decreased by $538,855 thousand and $443,926 thousand as of December 31, 2016 and 2015, respectively, when stated at the lower of cost or net realizable values.

36 -

12. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements.

The entities included in the consolidated statements are listed below.

Investor
Investee
Nature of Activities
The Company
AAC (BVI)
Investment and management service
ATC
Sale of industrial automation products
Advanixs Corporation (formerly
Advansus Corp.)
Production and sale of industrial
automation products
Advantech Corporate Investment Investment holding company
AEUH
Investment and management service
ASG
Sale of industrial automation products
AAU
Sale of industrial automation products
AJP
Sale of industrial automation products
AMY
Sale of industrial automation products
AKR
Sale of industrial automation products
ABR
Sale of industrial automation products
ACA
Production and sale of portable industrial
automation products
AIN
Sale of industrial automation products
AdvanPOS
Production and sale of POS system
ALNC
Production and sale of machines with
computerized numerical control
AMX
Sale of industrial automation products
Advantech Innovative Design Co.,
Ltd.
Product design
Advantech iFactory Co., Ltd.
Cybernation equipment manufacturing
BEMC
Sale of industrial network communications
systems
AiST
Design, develop and sale of intelligent
service
Advantech
Corporate
AiST
Design, develop and sale of intelligent
service
Investment
Cermate
Manufacturing of electronic parts,
computer, and peripheral devices
ATC
ATC (HK)
Investment and management service
ATC (HK)
AKMC
Production and sale of components of
industrial automation products
Advanixs Kun Shan Corp.
(formerly Yeh-Chiang
Technology Kun Shan Co.,
Ltd.)
Production and sale of industrial
automation products
AAC (BVI)
ANA
Sale and fabrication of industrial
automation products
AAC (HK)
Investment and management service
ANA
BEMC
Sale of industrial network communications
systems
AAC (HK)
ACN
Sale of industrial automation products
AiSC
Production and sale of industrial
automation products
AXA
Development and production of software
products
ACN
Hangzhou Advantofine
Automation Tech. Co., Ltd.
Processing and sale of industrial
automation products
AEUH
AEU
Sale of industrial automation products
APL
Sale of industrial automation products
AEU
A-DLoG
Design, R&D and sale of industrial
automation vehicles and related
products
ASG
ATH
Production of computers
AID
Sale of industrial automation products
Cermate
Land Mark
General investment
Land Mark
Cermate (Shanghai)
Sale of industrial electronic equipment
Cermate (Shenzhen)
Production of LCD touch panel, USB
cable, and industrial computer
AdvanPOS
Bright Mind Ltd.
General investment

% ofOwnership
December 31
2016
2015
Remark
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
80.00
80.00
-
100.00
i.
99.99
99.99
a.
100.00
100.00
81.17
89.93
b.
100.00
100.00
a.
100.00
100.00
a.
-
100.00
c.
60.00
-
d.
100.00
-
h.
-
100.00
h.
55.00
55.00
100.00
100.00
100.00
100.00
100.00
-
f.
100.00
100.00
100.00
100.00
40.00
-
d.
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
e.
100.00
100.00
100.00
100.00
100.00
100.00
51.00
51.00
100.00
100.00
100.00
100.00
100.00
100.00
90.00
90.00
-
100.00
g.
(Continued)

37 -

Investor
Investee
Nature of Activities
Bright Mind Ltd. AdvanPOS Shanghai
Production and sale of POS system
ALNC
Better Auto
General investment
Better Auto
Famous Now Limited
General investment
Famous Now
Limited
Dongguan Pou Yuen Digital
Technology Co., Ltd.
Production and sale of industrial
automation products
BEMC
Avtek
General investment
Avtek
B+B
General investment
B+B
BBI
Sale of industrial network communications
systems
Quatech
Sale of industrial network communications
systems
IMC
Sale of industrial network communications
systems
BBI
B&B Electronics
Sale of industrial network communications
systems
B+B (CZ) (formerly Conel)
Manufacturing of cellular and automation
solution
Conel Automation (formerly
Softcon)
Sale of industrial network communications
systems
B&B DMCC
Sale of industrial network communications
systems
B&B Electronics B+B (CZ)
Manufacturing of cellular and automation
solution
B+B (CZ)
Conel Automation
Sale of industrial network communications
systems

% ofOwnership
December 31
2016
2015
Remark
-
100.00
g.
100.00
100.00
100.00
100.00
100.00
100.00
100.00
-
d.
100.00
-
d.
100.00
-
d.
100.00
-
d.
100.00
-
d.
100.00
-
d.
99.99
-
d.
1.00
-
d.
100.00
-
d.
0.01
-
d.
99.00
-
d.

(Concluded)

Remark a: Non-significant subsidiaries and their financial statements were not audited. Management of the Group believes that there would not be material impacts had the financial statements of these subsidiaries been audited.
Remark b: In the first and third quarter of 2016, the Company acquired 0.07% and sold 8.83% equity in ALNC, respectively, decreasing the Company’s equity interest from 89.93% to 81.17%.
Remark c: In the fourth quarter of 2016, Advantech iFactory Co., Ltd. was in the process of liquidation, which was not included in the 2016 consolidated financial statements.
Remark d: In the first quarter of 2016, the Group acquired 100% share equity of BEMC with an acquisition of 60% and 40% of BEMC’s share equity by the Company and ANA, respectively.
Remark e: In the first quarter of 2016, ACN acquired 40% equity of Hangzhou Advantofine Automation Tech. Co., Ltd., which led ACN’s equity investment in the above subsidiary increased from 60% to 100%.
Remark f: In the second quarter of 2016, ATC, in an issuance of ordinary shares for cash to ATC (HK), acquired 100% equity of Advanixs Kun Shan Corp.
Remark g: In the second quarter of 2016, Bright Mind Ltd. and AdvanPOS Shanghai were in the process of liquidation, which were not included in the 2016 consolidated financial statements.
Remark h: In 2016, the Group has adjusted its investment structure and the Company directly acquired 100% share equity of AiST.
Remark i: In the third quarter of 2016, ACA was merged by AdvanPOS and ACA ceased to exist.
38 -

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in Associates

Associates that are not individually material Listed companies Axiomtek Co., Ltd. (Axiomtek) Unlisted companies AIMobile Co., Ltd. (AIMobile) Deneng Scientific Research Co., Ltd. (Deneng) Jan Hsiang Electronics Co., Ltd. (Jan Hsiang)		December 31	December 31
		2016 $ 464,155 109,241 16,154 8,904 $ 598,454	2015 $ 450,246 - 18,228 9,510 $ 477,984

In the second quarter 2016, the Group paid cash at $135,000 thousand toward the establishment of “AIMobile Co., Ltd.” by a joint investment with Inventec Corporation. The Group and Inventec Corporation held equity interests of 45% and 55%, respectively. The Group had significant influence over AIMobile.

Aggregate Information on the Associates

The Group’s share of Profit from continuing operations Other comprehensive income Total comprehensive income for the year		December 31	December 31
		2016 $ 65,562 (2,561) $ 63,001	2015 $ 110,226 25 $ 110,251

The investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2016 and 2015 was based on the associates’ financial statements audited by the auditors for the same years.

14. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2015 Additions Disposals Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2015 Accumulated depreciation and impairment Balance at January 1, 2015 Disposals Depreciation expense Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2015 Carrying amounts at December 31, 2015	Freehold Land $ 3,065,315 - - - 2,949 $ 3,068,264 $ - - - - - $ - $ 3,068,264	Buildings $ 5,320,186 82,554 - (5,438 ) (48,312) $ 5,348,990 $ 899,536 - 159,248 (857 ) (11,866) $ 1,046,061 $ 4,302,929	Equipment $ 1,554,609 63,060 (112,157 ) 40,501 (12,373) $ 1,533,640 $ 1,044,178 (108,408 ) 134,207 29 (6,978) $ 1,063,028 $ 470,612	Office Equipment $ 757,649 53,497 (30,856 ) (875 ) (9,120) $ 770,295 $ 490,419 (28,122 ) 94,943 (4,715 ) (6,758) $ 545,767 $ 224,528	Other Facilities $ 1,364,432 198,133 (49,361 ) 33,588 (13,754) $ 1,533,038 $ 792,338 (27,567 ) 179,843 2,408 (9,402) $ 937,620 $ 595,418	Construction in Progress Total $ 40,886 $ 12,103,077 947,502 1,344,746 - (192,374 ) (73,138 ) (5,362 ) (122) (80,732) $ 915,128 $ 13,169,355 $ - $ 3,226,471 - (164,097 ) - 568,241 - (3,135 ) - (35,004) $ - $ 3,592,476 $ 915,128 $ 9,576,879 (Continued)

39 -

Cost Balance at January 1, 2016 Additions Disposals Acquisitions through business combinations Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2016 Accumulated depreciation and impairment Balance at January 1, 2016 Depreciation expense Disposals Acquisitions through business combinations Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2016 Carrying amounts at December 31, 2016	Freehold Land $ 3,068,264 64,688 (187,992 ) 12,644 - (9,024) $ 2,948,580 $ - - - - - - $ - $ 2,948,580	Buildings $ 5,348,990 181,539 (101,971 ) 308,798 1,561,057 (217,424) $ 7,080,989 $ 1,046,061 169,334 (19,099 ) 88,296 488 (56,407) $ 1,228,673 $ 5,852,316	Equipment $ 1,533,640 78,609 (68,301 ) 84,400 50,897 (47,507) $ 1,631,738 $ 1,063,028 124,565 (61,429 ) 61,837 (3,692 ) (28,640) $ 1,155,669 $ 476,069	Office Equipment $ 770,295 69,265 (45,139 ) 89,771 9,934 (31,717) $ 862,409 $ 545,767 100,139 (40,515 ) 82,180 (19,369 ) (23,767) $ 644,435 $ 217,974	Other Facilities $ 1,533,038 154,789 (73,966 ) 25,390 27,200 (61,221) $ 1,605,230 $ 937,620 188,002 (58,491 ) 4,771 18,998 (37,278) $ 1,053,622 $ 551,608	Construction in Progress Total $ 915,128 $ 13,169,355 815,342 1,364,232 - (477,369 ) - 521,003 (1,686,836 ) (37,748 ) (345) (367,238) $ 43,289 $ 14,172,235 $ - $ 3,592,476 - 582,040 - (179,534 ) - 237,084 - (3,575 ) - (146,092) $ - $ 4,082,399 $ 43,289 $ 10,089,836 (Concluded)

The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings Main buildings 20-60 years Electronic equipment 5 years Engineering systems 5 years Equipment 2-8 years Office equipment 2-8 years Other facilities 2-10 years

15. GOODWILL

Cost Balance at January 1 Additional amounts recognized from business combinations occurring during the year (Note 26) Adjustments for goodwill after acquisition Effect of exchange differences Balance at December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 1,139,559 2,311,181 (543,042) (61,867) $ 2,845,831	2015 $ 1,168,727 - - (29,168) $ 1,139,559

In the fourth quarter of 2016, the Group obtained an evaluation report which stated that the total fair value of the cash and cash equivalents, trade receivables, inventories, other current financial assets, other current assets, intangible assets, deferred tax assets, trade payables, other payables, other liabilities, and deferred tax liabilities was $1,394,876 thousand as of the date of acquisition. Thus, the Group made adjustments on the accounting treatment and the fair value of assets as of the date of acquisition and re-presented the comparative information.

40 -

Adjusted items on the balance sheet of B+B were as follows:

	Acquisition
	Date	Acquisition
	(Provisional	Date (Fair
	Amount)	Value)
Goodwill adjustment	$ 2,311,181	$ 1,768,139
Cash and cash equivalents	-	71,336
Trade receivables	211,332	188,827
Inventories	301,938	281,758
Other current financial assets	33,010	-
Other current assets	30,446	17,935
Intangible assets	416,365	1,294,933
Deferred tax assets	35,125	153,651
Trade payables and other payable	(135,526)	(188,215)
Other liabilities	(10,730)	-
Deferred tax liabilities	(30,126)	(425,349)

16. OTHER INTANGIBLE ASSETS

Cost Balance at January 1, 2015 Additions Disposals Effect of foreign currency exchange differences Balance at December 31, 2015 Accumulated amortization and impairment Balance at January 1, 2015 Amortization expense Disposals Effect of foreign currency exchange differences Balance at December 31, 2015 Carrying amounts at December 31, 2016 Cost Balance at January 1, 2016 Additions Disposals Acquisitions through business combinations Effect of foreign currency exchange differences Balance at December 31, 2016	Trademark $ 84,637 - - (5,698) $ 78,939 $ - - - - $ - $ 78,939 $ 78,939 - - 461,704 (14,987) $ 525,656	Client relationship $ 128,513 - - (8,653) $ 119,860 $ 54,288 6,702 - (3,533) $ 57,457 $ 62,403 $ 119,860 - - 419,005 (16,261) $ 522,604	Technology license $ 116,884 - - (7,868) $ 109,016 $ 64,780 21,680 - (9,245) $ 77,215 $ 31,801 $ 109,016 - - 340,309 (13,852) $ 435,473	Others Total $ 522,936 $ 852,970 73,175 73,175 (76,262) (76,262) (25,966) (48,185) $ 493,883 $ 801,698 $ 447,590 $ 566,658 69,571 97,953 (76,232) (76,232) (1,589) (14,367) $ 439,340 $ 574,012 $ 54,543 $ 227,686 $ 493,883 $ 801,698 79,243 79,243 (1,750) (1,750) 73,915 1,294,933 (27,324) (72,424) $ 617,967 $ 2,101,700 (Continued)

41 -

Accumulated amortization and impairment Balance at January 1, 2016 Additions Disposals Effect of foreign currency exchange differences Balance at December 31, 2016 Carrying amounts at December 31, 2016	Trademark $ - - - - $ - $ 525,656	Client relationship $ 57,457 43,426 - (3,995) $ 96,888 $ 425,716	Technology license $ 77,215 93,797 - (4,832) $ 166,180 $ 269,293	Others Total $ 439,340 $ 574,012 100,825 238,048 (1,691) (1,691) (17,282) (26,109) $ 521,192 $ 784,260 $ 96,775 $ 1,317,440 (Concluded)

17. PREPAYMENTS FOR LEASE OBLIGATIONS

Current assets (included in other current assets) Noncurrent assets		December 31	December 31
		2016 $ 8,955 325,224 $ 334,179	2015 $ 2,557 100,875 $ 103,432

Lease prepayments are for the Group’s land-use right in Mainland China.

18. BORROWINGS

Short-term Borrowings

Unsecured borrowings Line of credit borrowings		December 31	December 31
		2016 $ 483,750	2015 $ 880,625

The range of weighted average effective interest rates on bank loans were 1.324% and 1.28%-1.84% per annum as of December 31, 2016 and 2015, respectively.

19. OTHER LIABILITIES

Other payables Payable for salaries or bonuses Payable for employee benefits Payable for royalties Others (Note)		December 31	December 31
		2016 $ 2,248,870 151,115 179,207 1,323,307 $ 3,902,499	2015 $ 2,167,475 138,206 105,186 969,450 $ 3,380,317

Note: Including construction payables, accruals of litigation, marketing expenses, and freight expenses.

42 -

20. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company and its domestic subsidiaries of the Group adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

For certain subsidiaries with a few or no employees, they have not established a set of policies for employee retirement and therefore not recognized related retirement expenses.

Except for those aforementioned subsidiaries, the rest of overseas subsidiaries recognized retirement expenses when making contribution to the retirement plan in accordance with local laws.

b. Defined benefit plans

The defined benefit plan adopted by the Company and Cermate of the Group in accordance with the Labor Standards Law, is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company and Cermate Technologies Inc. each contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by pension fund monitoring committees. Pension contributions are deposited in the Bank of Taiwan in the committees’ name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right to influence the investment policy and strategy.

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Deficit Net defined benefit liability		December 31	December 31
		2016 $ 347,702 (135,342) 212,360 $ 212,360	2015 $ 332,269 (148,729) 183,540 $ 183,540

Movements in net defined benefit liability were as follows:

	Present Value
	of the Defined		Net Defined
	Benefit	Fair Value of	Benefit
	Obligation	the Plan Assets	Liability (Asset)
Balance at January 1, 2015	$ 312,216	$ (146,788)	$ 165,428
Service cost
Current service cost	2,344	-	2,344
Past service cost	1,340	-	1,340
Net interest expense (income)	5,859	(2,830)	3,029
Recognized in profit or loss	9,543	(2,830)	6,713
			(Continued)

43 -

	Present Value	Present Value
	of the Defined				Net Defined
		Benefit	Fair Value of			Benefit
	Obligation		the	Plan Assets	Liability (Asset)
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	$	-	$	(1,032)	$	(1,032)
Actuarial (gain) loss - changes in
demographic assumptions		12,407		-		12,407
Actuarial (gain) loss - changes in financial
assumptions		10,070		-		10,070
Actuarial (gain) loss - experience
adjustments		(2,142)		-		(2,142)
Recognized in other comprehensive income		20,335		(1,032)		19,303
Contributions from the employer		-		(7,904)		(7,904)
Benefits paid		(9,825)		9,825		-
Balance at December 31, 2015		332,269		(148,729)		183,540
Service cost
Current service cost		2,645		-		2,645
Net interest expense (income)		5,405		(2,486)		2,919
Recognized in profit or loss		8,050		(2,486)		5,564
Remeasurement
Return on plan assets (excluding amounts
included in net interest)		-		1,436		1,436
Actuarial (gain) loss - changes in
demographic assumptions		8,543		-		8,543
Actuarial (gain) loss - changes in financial
assumptions		10,671		-		10,671
Actuarial (gain) loss - experience
adjustments		10,597		-		10,597
Recognized in other comprehensive income		29,811		1,436		31,247
Contributions from the employer		-		(7,991)		(7,991)
Benefits paid		(22,428)		22,428		-
Balance at December 31, 2016	$	347,702	$	(135,342)	$	212,360

(Concluded)

An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans is as follows:

Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 1,238 868 1,497 1,961 $ 5,564	2015 $ 1,083 838 2,823 1,969 $ 6,713

44 -

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic/and foreign/equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.
2) Interest risk: A decrease in the bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate(s) Expected rate(s) of salary increase	December 31
	2016 2015 1.375%-1.500% 1.625%-1.750% 3.000%-3.250% 3.000%-3.250%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December	31
		2016 $ (10,878) $ 11,353 $ 10,963 $ (10,564)	2015 $ (10,434) $ 10,894 $ 10,544 $ (10,156)

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

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		December	31
	2016 2015 $ 8,035 $ 7,977 12.7-16.2 years 12.8-16.8 years

45 -

21. EQUITY

a. Share capital

Ordinary shares

Number of shares authorized (in thousands) Amount of shares authorized Number of shares issued and fully paid (in thousands) Amount of shares issued and fully paid		December 31	December 31
		2016 800,000 $ 8,000,000 633,084 $ 6,330,841	2015 800,000 $ 8,000,000 631,853 $ 6,318,531

Fully paid ordinary shares, which have a par value of NT$10, carry one vote per share and carry a right to dividends.

For the year ended December 31, 2016, the changes in shares are due to employees’ exercise of their employee share options.

b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) Arising from issuance of ordinary shares Arising from conversion of bonds Arising from the difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets during actual disposal or acquisition May be used to offset a deficit only Arising from changes in percentage of ownership interest in subsidiaries (2) Arising from employee share options Arising from distribution of share dividends May not be used for any purpose Arising from share of changes in capital surplus of associates Arising from employee share options		December 31	December 31
		2016 $ 3,396,888 931,849 17,844 4,246 1,077,084 78,614 23,231 529,128 $ 6,058,884	2015 $ 3,396,888 931,849 - 4,246 792,341 78,614 12,698 370,919 $ 5,587,555

1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and once a year).
2) Such capital surplus arises from the effect of changes in ownership interest in a subsidiary resulted from equity transactions other than actual disposal or acquisition, or from changes in capital surplus of subsidiaries accounted for by using equity method.
46 -
c. Retained earnings and dividends policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The shareholders held their regular meeting on May 25, 2016 and, in that meeting, had resolved amendments to the Company’s Articles of Incorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and the addition of the policy on distribution of employees’ compensation.

Under the dividends policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonus to shareholders. For the policies on distribution of employees’ compensation and remuneration of directors and supervisors before and after amendment, refer to c Employee benefits expense in Note 22.

The Company operates in an industry related to computers, and its business related to network servers is new but with significant potential for growth. Thus, in formulating its dividends policy, the Company takes into account the overall business and industry conditions and trends, its objective of enhancing the shareholders’ long-term interests, and the sustainability of the Company’s growth. The policy also requires that share dividends be less than 75% of total dividends to retain internally generated cash within the Company to finance future capital expenditures and working capital requirements.

Any appropriations from earnings should be recorded in the year of shareholders’ approval, following the year the earnings were generated.

Appropriation of earnings to legal reserve should be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from a special reserve by the Company.

Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

The appropriation of earnings for 2015 and 2014 have been approved in the shareholders’ meetings on May 25, 2016 and May 28, 2015, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2015 2014 $ 510,434 $ 490,778 3,791,118 3,787,255	Dividends Per Share (NT$)
		For the Year Ended December 31
		2015 2014 $ - $ - 6.0 6.0

47 -

The appropriations of earnings for 2016 had been proposed by the Company’s board of directors on March 6, 2017. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per	Dividends Per
	of	Earnings	Share	(NT$)
Legal reserve	$	566,686	$	-
Special reserve		85,204		-
Cash dividends		3,988,367		6.3
Share dividends		633,074		1.0

The appropriations of earnings for 2016 are subject to the resolution of the shareholders’ meeting to be held on May 26, 2017.

d. Other equity items

1) Exchange differences on translating the financial statements of foreign operations

Balance at January 1 Exchange differences arising on translating the financial statements of foreign operations Related income tax Share of exchange difference of associates accounted for using the equity method Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2016 $ 271,859 (561,518) 96,161 (4,135) $ (197,633)	2015 $ 338,356 (82,566) 13,620 2,449 $ 271,859

2) Unrealized gain or loss from available-for-sale financial assets

Balance at January 1 Unrealized gain (loss) arising on revaluation of available-for-sale financial assets Cumulative gain (loss) reclassified to profit or loss on sale of available-for-sale financial assets Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2016 $ 68,265 39,048 5,116 $ 112,429	2015 $ 563,277 (292,554) (202,458) $ 68,265

e. Non-controlling interests

Balance at January 1 Attributable to non-controlling interests: Share of profit for the year Exchange difference arising on translation of foreign entities	For the Year Ended December 31
	2016 2015 $ 146,276 $ 187,000 22,092 22,629 (15,408) (18,924) (Continued)

48 -

Remeasurement on defined benefit plans Related income tax Non-controlling interests arising from acquisition or disposal of subsidiaries (Note 27) Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2016 $ (94) 16 20,433 $ 173,315	2015 $ (255) 43 (44,217) $ 146,276 (Concluded)

22. NET PROFIT FROM CONTINUING OPERATIONS

a. Finance costs

Interest on bank loans Others b. Depreciation and amortization Property, plant and equipment Intangible assets An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Selling and marketing expense General and administrative expense Research and development expense	For the Year Ended	For the Year Ended	December 31
	2016 $ 5,531 6,025 $ 11,556 For the Year Ended		2015 $ 1,285 8,756 $ 10,041 December 31
		2016 $ 582,040 238,048 $ 820,088 $ 137,801 444,239 $ 582,040 $ 285 139 208,345 29,279 $ 238,048	2015 $ 568,241 97,953 $ 666,194 $ 130,104 438,137 $ 568,241 $ 319 298 71,090 26,246 $ 97,953

49 -

c. Employee benefit expense

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans (Note 20) Share-based payments Equity-settled Other employee benefits Total employee benefit expense An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 7,723,656 276,942 5,564 282,506 338,194 518,091 $ 8,862,447 $ 1,907,784 6,954,663 $ 8,862,447	2015 $ 6,906,701 270,504 6,713 277,217 261,877 492,356 $ 7,938,151 $ 1,783,857 6,154,294 $ 7,938,151

1) Employees’ compensation and remuneration of directors and supervisors for 2016 and 2015

In compliance with the Company Act as amended in May 2015 and the amended Articles of Incorporation of the Company approved by the shareholders in their meeting on May 25, 2016, the Company accrued employees’ compensation at the rates no less than 1% and no higher than 20%, and remuneration of directors and supervisors at the rates no higher than 1%, of net profit before income tax, employees’ compensation, and remuneration of directors and supervisors. The employees’ compensation and remuneration of directors and supervisors for the years ended December 31, 2016 and 2015 which have been approved by the Company’s board of directors on March 6, 2017 and March 4, 2016, respectively, were as follows:

	2016	2015
Employees’ compensation	$ 243,000	$ 200,000
Remuneration of directors and supervisors	12,300	12,000

If there is a change in the amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in the accounting estimate.

There was no difference between the actual amounts of employees’ compensation and remuneration of directors and supervisors paid and the amounts recognized in the consolidated financial statements for the year ended December 31, 2015.

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Company’s board of directors in 2017 and 2016 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

50 -
2) Bonus to employees and remuneration of directors and supervisors for 2014

The bonus to employees and remuneration of directors and supervisors for 2014 which have been approved in the shareholders’ meeting on May 28, 2015 were as follows:

	For the Year
	Ended
	December 31,
	2014
Bonus to employees	$ 126,000
Remuneration of directors and supervisors	12,000

There was no difference between the amounts of the bonus to employees and the remuneration of directors and supervisors approved in the shareholders’ meeting on May 28, 2015 and the amounts recognized in the consolidated financial statements for the year ended December 31, 2014.

Information on the bonus to employees and remuneration of directors and supervisors resolved by the shareholders in their meeting in 2015 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

d. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Net loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 860,893 (1,066,705) $ (205,812)	2015 $ 1,113,263 (1,300,152) $ (186,889)

23. INCOME TAX

a. Major components of tax expense recognized in profit or loss

Current tax In respect of the current year Income tax expense for unappropriated earnings Adjustments for prior year Deferred tax In respect of the current year Adjustments for prior year Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 1,227,483 72,178 (1,702) 1,297,959 110,452 - 110,452 $ 1,408,411	2015 $ 1,098,440 62,909 480 1,161,829 1,872 (1,141) 731 $ 1,162,560

51 -

A reconciliation of accounting profit and income tax expenses is as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate Nondeductible expenses in determining taxable income Tax-exempt income Income tax on unappropriated earnings Land value increment tax Investment credits in the current year Loss carryforwards in the current year Unrecognized deductible temporary differences Adjustments for prior years’ tax Others Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 7,097,365 $ 1,630,913 686 (196,715) 72,178 7,833 (88,558) (16,594) 119 (1,702) 251 $ 1,408,411	2015 $ 6,289,535 $ 1,393,286 3,755 (219,899) 62,909 - (57,000) (229) (20,742) 480 - $ 1,162,560

The applicable tax rate used above is the corporate tax rate of 17% payable by the Group in ROC, while the applicable tax rate used by subsidiaries in China is 25%, except for subsidiaries qualified for 15% preferential tax rate for Hi-Tech Industries. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

As the status of 2017 appropriations of earnings is uncertain, the potential income tax consequences of 10% income tax rate of 2016 unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

Deferred tax In respect of the current year Translation of foreign operations Remeasurement on defined benefit plan	For the Year Ended	For the Year Ended	December 31
		2016 $ 96,161 5,312 $ 101,473	2015 $ 13,620 3,281 $ 16,901

c. Current tax liabilities

Current tax liabilities Income tax payable		December 31	December 31
		2016 $ 1,229,400	2015 $ 1,057,226

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d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2016

Deferred tax assets Temporary differences Unrealized gross profit Unrealized loss on inventory write-down Exchange difference on foreign operations Loss carryforwards Defined benefit obligation Unrealized exchange losses (gains) Unrealized warranty liabilities Remeasurement of defined benefit plans Allowance for impaired receivables Others Deferred tax liabilities Temporary differences Undistributed earnings of subsidiaries Exchange difference on foreign operations Remeasurement of defined benefit plans Unrealized exchange gains Property, plant and equipment Intangible assets and goodwill Others	Opening Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income Business Combination $ 56,143 $ (11,147) $ - $ - 49,486 2,084 - 22,482 - 4,636 40,479 - - (32,726) - 121,207 16,915 (391) - - 8,501 (6,886) - - 26,019 (5,401) - - 6,232 - 5,312 - 2,982 (3,568) - 1,022 51,711 (2,524) - 16,588 $ 217,989 $ (55,923) $ 45,791 $ 161,299 $ 875,958 $ 114,613 $ - $ - 55,682 - (55,682) - 3,646 - - - 823 2,004 - - - (1,593) - 11,376 - (50,833) - 406,249 2,382 (9,662) - 7,724 $ 938,491 $ 54,529 $ (55,682) $ 425,349	Closing Balance $ 44,996 74,052 45,115 88,481 16,524 1,615 20,618 11,544 436 65,775 $ 369,156 $ 990,571 - 3,646 2,827 9,783 355,416 444 $ 1,362,687

For the year ended December 31, 2015

					Recognized in	Recognized in
						Other
					Compre-
	Opening		Recognized in			hensive		Closing
	Balance		Profit or Loss			Income	Balance
Deferred tax assets
Temporary differences
Unrealized gross profit	$	40,938	$	15,205	$	-	$	56,143
Unrealized loss on inventory
write-down		46,167		3,319		-		49,486
Defined benefit obligation		16,680		235		-		16,915
								(Continued)

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Unrealized warranty liabilities Remeasurement of defined benefit plans Unrealized exchange losses Allowance for impaired receivables Others Deferred tax liabilities Temporary differences Undistributed earnings of subsidiaries Exchange difference on foreign operations Remeasurement of defined benefit plans Unrealized exchange gains (losses) Others	Opening Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income $ 23,540 $ 2,479 $ - 2,951 - 3,281 64 8,437 - 2,839 143 - 28,089 23,622 - $ 161,268 $ 53,440 $ 3,281 $ 812,609 $ 63,349 $ - 69,302 - (13,620) 3,646 - - 11,091 (10,268) - 1,292 1,090 - $ 897,940 $ 54,171 $ (13,620)	Closing Balance $ 26,019 6,232 8,501 2,982 51,711 $ 217,989 $ 875,958 55,682 3,646 823 2,382 $ 938,491 (Concluded)

e. Unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets

Loss carryforwards 2017 2018 2019 2021 2022 2024 2025		December 31	December 31
		2016 $ 18,360 - - - 2,295 18,359 9,424 $ 48,438	2015 $ 23,013 37,282 29,410 16,487 13,126 - - $ 119,318

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f. Integrated income tax

Unappropriated earnings Unappropriated earnings generated on and after January 1, 1998 Shareholder-imputation credit account Creditable ratio for distribution of earning		December 31
	2016 2015 $ 8,435,785 $ 7,098,449 $ 777,620 $ 608,917 For the Year Ended December 31
	2016 (Expected) 2015 18.69% 13.86%

g. Income tax assessments

The Company’s tax returns through 2011 have been assessed by the tax authorities. The Company disagreed with the tax authorities’ assessment of its 2008 tax returns and applied for reexamination. Nevertheless, to be conservative, the Company provided for the income tax assessed by the tax authorities.

23. EARNINGS PER SHARE

EARNINGS PER SHARE
Basic earnings per share Diluted earnings per share	Unit: NT$ Per Share For the Year Ended December 31
		2016 $ 8.96 $ 8.90	2015 $ 8.08 $ 8.05

The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share were as follows:

Net Profit for the Year

Earnings used in the computation of basic earnings per share Earnings used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 5,666,862 $ 5,666,862	2015 $ 5,104,346 $ 5,104,346

Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)

Weighted average number of ordinary shares in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Employee share option Employees’ compensation Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 632,148 3,492 1,168 636,808	2015 631,633 1,372 1,202 634,207

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

25. SHARE-BASED PAYMENT ARRANGEMENTS

Qualified employees of the Company and its subsidiaries were granted 6,500 options in 2016, 5,000 options in 2014, and 3,000 options in 2010. Each option entitles the holder to subscribe for one thousand common shares of the Company. The holders of these shares include employees whom meet certain criteria set by the Company, from both domestic and overseas subsidiaries in which the Company directly or indirectly invests over 50%. Options issued in 2016, 2014, and 2010 are valid for six, six and five years, respectively. All are exercisable at certain percentages after the second anniversary year from the grant date. Options granted in 2010 had an exercise prices equal to the closing price of the Company’s common shares listed on the grant date, and the exercise price of those granted in 2016 and 2014 was both NT$100 per share. For any subsequent changes in the Company’s paid-in capital, the exercise price and the number of options will be adjusted accordingly.

Information on employee share options was as follows:

Balance at January 1 Options granted Options exercised Balance at December 31 Options exercisable, end of the year Weighted-average fair value of options granted (NT$)	For the Year Ended December 31	For the Year Ended December 31
	2016 Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 5,000 $ 100.00 6,500 100.00 (1,231) 95.10 10,269 - 3,769 95.10 95.10	2015
		Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 5,644 $ 94.10 - - (644) 47.95 5,000 100.00 - - -

The weighted-average share price at the date of exercise of share options for the years ended December 31, 2016 and 2015 were from NT$204 to NT$269 and from NT$210 to NT$254, respectively.

Information about outstanding options as of December 31, 2016 and 2015 was as follows:

Issuance in 2016 Issuance in 2014	For the Year Ended December 31	For the Year Ended December 31
	2016 Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ 100.00 5.45 95.10 3.63	2015
		Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ - - 100.00 4.63

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Options granted were priced using the Black-Scholes model, and the inputs to the model were as follows:

	2016		2014	2010
Grant-date share price (NT$)		$235	$239.5	$67.4
Exercise price (NT$)		$100	$100	$67.4
Expected volatility	31.42%-32.48%		28.28%-29.19%	34.11%-35.15%
Expected life (years)	4-5.5	years	4-5.5 years	3.5-4.5 years
Expected dividends yield		0%	0%	0%
Risk-free interest rate	0.52%-0.65%		1.07%-1.30%	0.92%-1.10%

Expected volatility was based on the historical share price volatility over the past five years.

Compensation cost recognized was $338,194 thousand and $261,877 thousand for the years ended December 31, 2016 and 2015, respectively.

Qualified employees of AdvanPOS, a subsidiary of the Company, were granted 800 options in December 2010. Each option entitles the holder to subscribe for one thousand common shares of AdvanPOS. These option were valid for two years. All were exercisable at certain percentages after the first anniversary year from the grant date. For the exercise of options, AdvanPOS issued new shares to the employees at NT$10 per share.

Information on employee share options was as follows:

Balance at January 1 Options exercised Options expired Options forfeited Balance at December 31 Options exercisable, end of the year	For the Year Ended December 31, 2015
	Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 446 $10.00 (423) 10.00 (23) - - - - - - -

Information about outstanding options as of December 31, 2015 was as follows:

Issuance in 2010	For the Year Ended December 31, 2015
	Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ 10.00 -

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Options granted by AdvanPOS were priced using the Black-Scholes model, and the inputs to the model were as follows:

	2010
Grant-date share price (NT$)	$12.39
Exercise price (NT$)	$10
Expected volatility	30.43%
Expected life (years)	2 years
Expected dividends yield	0%
Risk-free interest rate	1.345%

26. BUSINESS COMBINATION

a. Subsidiary acquired

			Proportion of
			Voting Equity
		Date of	Interests	Consideration
	Principal Activity	Acquisition	Acquired (%)	Transferred
B+B SmartWorx, Inc.	Sale of industrial	January 4, 2016	100	$	3,296,048
(Note)	network
	communications
Advanixs Kun Shan	Production and sale of	May 27, 2016	100	$	459,648
Corp. (formerly	industrial automation
Yeh-Chiang	products
Technology Kun
Shan Co., Ltd.)

Note: For more information of BEMC, Avtek and B+B and its subsidiaries IMC, Quatech, BBI, B&B Electronics, B&B DMCC, B+B (CZ) (formerly Conel) and Conel Automation (formerly Softcon), refer to Note 12, Table 8 and Table 10.

To expand the Group’s global brand market in industrial network communications, the Company made arrangements to acquire 100% equity in B+B SmartWorx Inc. (B+B) from Graham Partners. The Group will expand its Industrial Connectivity product portfolio and increase its global market share by leveraging B+B SmartWorx’ branding and sales channels in the U.S., Europe, and the Middle East.

The Group acquired 100% share equity of Advanixs Kun Shan Corp. (Advanixs Kun Shan, formerly Yeh-Chiang Technology Kun Shan Co., Ltd.) from Yeh-Chiang Technology (Cayman), the purpose of this acquisition was to arrange future product line, establish a machinery plant, and expand operations in China.

b. Considerations transferred

		Advanixs Kun
	B+B	Shan
Cash	$ 3,296,048	$ 459,648
	(US$ 99,850	(RMB 92,758
	thousand)	thousand)

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On January 4, 2016, the Group acquired 100% share equity of B+B and its subsidiaries from Graham Partners. The Company and ANA obtained share equity of B+B mutually.

On May 27, 2016, ATC acquired 100% share equity of Advanixs Kun Shan from Yeh-Chiang Technology (Cayman) Corp. The cash of acquisition was provided by capital increase from ATC.

Acquisition-related costs amounting to $34,209 thousand were excluded from the consideration transferred and were recognized as current expenses under administrative expenses in the consolidated statement of comprehensive income.

c. Assets acquired and liabilities assumed at the date of acquisition

Current assets
Cash and cash equivalents

Trade receivables
Inventories
Other receivables
Other current assets
Non-current assets
Plant and equipment
Intangible assets
Deferred tax assets
Long-term prepayments for leases
Current liabilities
Trade and other payables
Non-current liabilities
Deferred tax liabilities

Goodwill recognized on acquisition
Consideration transferred
Less: Fair value of identifiable net assets acquired
Goodwill recognized on acquisition

B+B
Advanixs Kun
Shan
$ 71,336
$ 35,047
188,827
-
281,758
-
-
4,366
17,935
19
133,033
150,886
1,294,933
-
153,651
7,648
-
262,212
(188,215)
(530)
(425,349)

-
$ 1,527,909
$ 459,648
B+B
$ 3,296,048
(1,527,909)
$ 1,768,139

d. Goodwill recognized on acquisition

The goodwill recognized in the acquisition of B+B mainly represents the control premium included in the cost of the combination. In addition, the consideration paid for the combination effectively included amounts attributed to the benefits of expected synergies, revenue growth, future market development and the assembled workforce of B+B. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

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e. Net cash outflow on acquisition of subsidiaries

Consideration paid in cash Less: Prepayments for investments Less: Cash and cash equivalent balance acquired	B+B Advanixs Kun Shan $ 3,296,048 $ 459,648 (2,279,881) - (71,336) (35,047) $ 944,831 $ 424,601

f. Impact of acquisitions on the results of the Group

The results of the acquirees since the acquisition date included in the consolidated statements of comprehensive income were as follows:

Revenue Profit	B+B Advanixs Kun Shan $ 1,614,067 $ 222,271 $ 53,173 $ 29,532

27. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTERESTS

a. In 2015, the Group subscribed for an additional 6,533 thousand shares of AdvanPOS, increasing the Group’s equity interest from 84.01% to 100.00%.
b. In the first and third quarter of 2016, the Group acquired 0.07% and sold 8.83% equity in ALNC, respectively, decreasing the Group’s equity interest from 89.93% to 81.17%.
c. In the first quarter of 2016, the Group acquired 40% equity in Hangzhou Advantofine Automation Tech. Co., Ltd., increasing the Group’s equity interest from 60% to 100%.

The above transactions were accounted for as equity transactions, since the Group did not cease to have control over these subsidiaries.

Cash consideration received (paid) The proportionate share of the carrying amount of the net assets of the subsidiary transferred to (from) non-controlling interests Differences recognized from equity transaction	For the Year Ended December 31, 2016	For the Year Ended December 31, 2016	For the Year Ended December 31, 2016
	Hangzhou Advantofine Automation Tech. Co., Ltd. $ (12,749) 9,195 $ (3,554)	ALNC $ 47,335 (29,628) $ 17,707	Total $ 34,586 (20,433) $ 14,153 (Continued)

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For the Year Ended December 31, 2016

Hangzhou Advantofine Automation Tech. Co., Ltd. ALNC Line items adjusted for equity transaction Capital surplus - difference between consideration received or paid and carrying amounts of the subsidiaries’ net assets during actual disposal or acquisition $ - $ 17,844 Retained earnings (3,554) (137) $ (3,554) $ 17,707 Cash consideration paid The proportionate share of the carrying amount of the net assets of the subsidiary transferred to non-controlling interests Differences recognized from equity transaction Line items adjusted for equity transaction Capital surplus - difference between consideration received or paid and carrying amounts of the subsidiaries’ net assets during actual disposal or acquisition Retained earnings Capital surplus - changes in percentage of ownership interest in subsidiaries		Total $ 17,844 (3,691) $ 14,153 (Concluded) 2015
	AdvanPOS $ (118,577) 44,217 $ (74,360) $ (11,457) (62,903) $ (74,360) $ 3,567

28. OPERATING LEASE ARRANGEMENTS

The Group as Lessee

Lease arrangements

The Group leased offices in the U.S.A., Europe and Japan from third parties; the lease contracts, which will end between 2012 and 2017, are renewable upon expiry.

As of December 31, 2016 and 2015, refundable deposits (recognized as other noncurrent assets) for the operating leases were $20,030 thousand and $23,612 thousand, respectively.

Recognized as expenses

Rental expenses	For the Year Ended	For the Year Ended	December 31
		2016 $ 186,253	2015 $ 192,248

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29. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged in both 2015 and 2016.

The capital structure of the Group consists of net debt (borrowings offset by cash and cash equivalents) and equity of the Group (comprising issued capital, reserves, retained earnings, and other equity).

The Group is not subject to any externally imposed capital requirements.

Key management personnel of the Group review the capital structure on a quarterly basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Group may adjust the amount of dividends paid to shareholders, the number of new shares issued, and the amount of new debt issued.

30. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments that are measured at fair value on a recurring basis
1) Fair value hierarchy

December 31, 2016 Financial assets at FVTPL Derivative financial assets Non-derivative financial asset held for trading Available-for-sale financial assets Securities listed in ROC Equity securities Unlisted securities - ROC Equity securities Mutual funds Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - 78,680 $ 78,680 $ 2,209,557 - 2,450,232 $ 4,659,789 $ -	Level 2 $ 34,348 - $ 34,348 $ - - - $ - $ 10,231	Level 3 $ - - $ - $ - 9,375 - $ 9,375 $ -	Total $ 34,348 78,680 $ 113,028 $ 2,209,557 9,375 2,450,232 $ 4,669,164 $ 10,231

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December 31, 2015

Financial assets at FVTPL Derivative financial assets Non-derivative financial asset held for trading Available-for-sale financial assets Securities listed in ROC Equity securities Unlisted securities - ROC Equity securities Unlisted securities - other countries Equity securities Mutual funds Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - 168,998 $ 168,998 $ 2,189,507 - - 1,271,302 $ 3,460,809 $ -	Level 2 $ 7,391 - $ 7,391 $ - - - - $ - $ 6,352	Level 3 $ - - $ - $ - 9,375 33,257 - $ 42,632 $ -	Total $ 7,391 168,998 $ 176,389 $ 2,189,507 9,375 33,257 1,271,302 $ 3,503,441 $ 6,352

As of December 31, 2016 and 2015, there were no transfers between Levels 1 and 2.

2) Reconciliation of Level 3 fair value measurements of financial instruments

For the year ended December 31, 2016

Financial assets Balance at January 1, 2016 Disposal Balance at December 31, 2016	Available-for-sale Assets	Financial
	Equity Instruments $ 42,632 (33,257) $ 9,375	Total $ 42,632 (33,257) $ 9,375

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For the year ended December 31, 2015

Financial assets Balance at January 1, 2015 Purchases Disposal Effect of foreign exchange Balance at December 31, 2015		Available-for-sale Financial Assets Equity Instruments Investment Products $ 42,632 $ 947,116 - 3,629,130 - (4,565,265) - (10,981) $ 42,632 $ -	Total $ 989,748 3,629,130 (4,565,265) (10,981) $ 42,632
		Equity Instruments $ 42,632 - - - $ 42,632

3) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement

Derivatives held by the Group were foreign currency forward contracts, whose fair values were calculated using discounted cash flow. Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

4) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value measurement

The fair values of investment products denominated in RMB were using income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. Had the inputs to the valuation model been changed to reflect reasonably possible alternative assumptions and had all the other variables been held constant, the fair value of the shares would have increased/decreased.

b. Categories of financial instruments

Financial assets Fair value through profit or loss (FVTPL) Held for trading (Note 1) Loans and receivables (Note 2) Available-for-sale financial assets Financial liabilities Fair value through profit or loss (FVTPL) Held for trading Measured at amortized cost (Note 3)	December 31
	2016 2015 $ 113,028 $ 176,389 12,025,231 10,828,312 4,669,164 3,503,441 10,231 6,352 9,369,630 7,487,011

Note 1: The balance included the carrying amount of held-for-trading financial assets measured at cost.

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Note 2: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, debt investments with no active market - current, notes receivable, trade receivable, trade receivables from related parties, and other receivables.
Note 3: The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings and trade and other payables.
c. Financial risk management objectives and policies

The Group’s major financial instruments included equity investments, trade receivables, trade payables, and borrowings. The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk, and liquidity risk.

The Group sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Group’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits was reviewed by the internal auditors on a continuous basis. The Group did not enter into or trade financial instrument, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports quarterly to the board of directors on the Group’s current derivative instrument management.

1) Market risk

The Group’s activities exposed it primarily to financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). The Group entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk.

There had been no change to the Group’s exposure to market risks or the manner in which these risks were managed and measured.

a) Foreign currency risk

The Group undertook operating activities and investment of foreign operations denominated in foreign currencies, which exposed it to foreign currency risk. The Group manages the risk that fluctuations in foreign currency could have on foreign-currency denominated assets and future cash flow by entering into a variety of derivative financial instruments, which allow the Group to mitigate but not fully eliminate the effect.

The maturities of the Company’s forward contracts were less than six months. These forward exchange contracts did not meet the criteria for hedge accounting.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) are set out in Note 33. As for the carrying amounts of derivatives exposing to foreign currency risk at the end of the reporting period, refer to Note 7.

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Sensitivity analysis

The Group was mainly exposed to the U.S. dollar, Euro and Renminbi.

The following table details the Group’s sensitivity to a 5% increase in New Taiwan dollars (the functional currency) against the relevant foreign currencies. The 5% sensitivity rate is used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period is adjusted for a 5% change in exchange rates. A positive number below indicates an increase in pre-tax profit and associated with New Taiwan dollar strengthen 5% against the relevant currency. For a 5% weakening of the New Taiwan dollar against the relevant currency, there would be an equal and opposite impact on pre-tax profit, and the balances below would be negative.

Profit or loss	U.S. Dollar Impact For the Year Ended December 31 2016 2015 $ 41,430 (Note 1) $ 40,853 (Note 1)	Euro Impact For the Year Ended December 31 2016 2015 $ 56,716 (Note 2) $ 41,829 (Note 2)	Renminbi Impact
			For the Year Ended December 31
			2016 2015 $ 39,920 (Note 3) $ 79,712 (Note 3)

Note 1: This was mainly attributable to the exposure outstanding on U.S. dollars denominated cash, trade receivables, and trade payables, which were not hedged at the end of the reporting period.
Note 2: This was mainly attributable to the exposure outstanding on Euro denominated cash, trade receivables, and trade payables, which were not hedged at the end of the reporting period.
Note 3: This was mainly attributable to the exposure outstanding on Renminbi denominated cash, trade receivables and trade payables, which were not hedged at the end of the reporting period.
b) Interest rate risk

The Group’s floating-rate bank savings are exposed to risk of changes in interest rates. The Group does not operate hedging instruments for interest rates. The Group’s management monitors fluctuations in market interest rates regularly. If it is needed, the management might perform necessary procedures for significant interest rate risks to control the risks from fluctuations in market interest rates.

The Group’s fixed-term bank deposits are exposed to fair value interest rate risk; however, this expected risk is insignificant.

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The carrying amount of the Group’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities	December 31
	2016 2015 $ 235,400 $ 152,279 - 60,000 3,923,166 2,817,236 483,750 820,625

Sensitivity analysis

The sensitivity analyses below were determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher and all other variables were held constant, the Group’s pre-tax profit for the years ended December 31, 2016 and 2015 would increase by $17,197 thousand and $9,983 thousand, respectively. Had interest rates been 50 basis points lower, the effects on the Group’s pre-tax profit would have been of the same amounts but negative. The source of the negative effects would have been mainly the floating-interest rates on bank savings.

c) Other price risk

The Group was exposed to equity price risk through its investments in listed equity securities and open-end mutual funds. The Group manages this exposure by maintaining a portfolio of investments with different risks. The Group’s equity price risk was mainly concentrated on open-end mutual funds and equity instruments trading in the Taiwan Stock Exchange.

Sensitivity analysis

The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 1% higher, pre-tax profits for the years ended December 31, 2016 and 2015 would have increased by $787 thousand and $1,690 thousand as a result of changes in fair value of held-for-trading investments, respectively, and the pre-tax other comprehensive income for the years ended December 31, 2016 and 2015 would have increased by $46,598 thousand and $34,608 thousand, respectively, as a result of changes in fair value of available-for-sale investments. Had equity prices been 1% lower, the effects on pre-tax other comprehensive gains would have been of the same amounts but negative.

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure of counterparties to discharge an obligation provided by the Group could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets.

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In order to minimize credit risk, the management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance are made for irrecoverable amounts. In this regard, the management believes the Group’s credit risk as significantly reduced.

Trade receivables consisted of a large number of customers, spread across diverse industries and geographical areas and, thus, no concentration of credit risk was observed.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2016 and 2015, the Group had available unutilized short-term bank loan facilities set out in (3) below.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and continuously monitoring forecast and actual cash flows as well as matching the maturity profiles of financial assets and liabilities.

a) Liquidity and interest risk rate tables for non-derivative financial liabilities

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Group can be required to pay. The tables included both interest and principal cash flows. Specifically, bank loans with a repayment on demand clause were included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities were based on agreed repayment dates.

To the extent that interest flows are at floating rate, the undiscounted amounts were derived from the interest rate curve at the end of the reporting period.

December 31, 2016

On Demand or Less than 1 Month Non-derivative financial liabilities Non-interest bearing $ 7,013,061 Variable interest rate liabilities 534 $ 7,013,595	1-3 Months $ 855,392 1,067 $ 856,459	Over 3 Months to 1 Year Over 1 Year- 5 Years $ 1,017,427 $ - 488,554 - $ 1,505,981 $ -

68 -

December 31, 2015

On Demand or Less than 1 Month Non-derivative financial liabilities Non-interest bearing $ 3,891,231 Variable interest rate liabilities 1,258 Fixed interest rate liabilities 64 $ 3,892,553	1-3 Months $ 1,687,755 2,516 60,070 $ 1,750,341	Over 3 Months to 1 Year Over 1 Year- 5 Years $ 1,027,400 $ - 831,583 - - - $ 1,858,983 $ -

The amounts included above for variable interest rate instruments for non-derivative financial liabilities was subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period.

b) Liquidity and interest risk rate tables for derivative financial liabilities

The following tables detailed the Group’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted gross cash inflows and outflows on those derivative instruments that require gross settlement.

December 31, 2016

On Demand or Less than 1 Month Gross settled Foreign exchange forward contracts Inflows $ 325,858 Outflows 316,886 $ 8,972 December 31, 2015 On Demand or Less than 1 Month Gross settled Foreign exchange forward contracts Inflows $ 314,246 Outflows 310,013 $ 4,233	1-3 Months Over 3 Months to 1 Year $ 753,831 $ 289,030 743,308 284,408 $ 10,523 $ 4,622 1-3 Months Over 3 Months to 1 Year $ 523,146 $ 93,795 526,535 93,600 $ (3,389) $ 195	Total $ 1,368,719 1,344,602 $ 24,117 Total $ 931,187 930,148 $ 1,039

69 -

c) Financing facilities

Unsecured overdraft loan facility, reviewed annually and payable at call Amount used Amount unused		December 31	December 31
		2016 $ 483,750 3,757,750 $ 4,241,500	2015 $ 880,625 2,268,275 $ 3,148,900

31. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

a. Sales of goods

Related Party Categories Associates b. Purchases of goods Related Party Categories Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2016 2015 $ 51,709 $ 69,760 For the Year Ended December 31
		2016 $ 51,320	2015 $ 22,241

c. Receivables from related parties (excluding loans to related parties)

Related Party Line Items Categories Trade receivable from related parties Associates Notes receivable Associates		December	31
		2016 $ 13,957 $ -	2015 $ 26,775 $ 183

The outstanding trade receivables from related parties are unsecured. For the years ended December 31, 2016 and 2015, no impairment loss was recognized for trade receivables from related parties.

d. Payables to related parties (excluding loans from related parties)

Related Party Line Items Categories Trade payables Associates		December	31
		2016 $ 29,453	2015 $ 1,171

The outstanding trade payables to related parties are unsecured.

70 -

e. Other transactions with related parties

Rental income Other related parties Other Other related parties Associates	Other Income	Other Income	Other Income
	For the Year Ended December 31
		2016 $ 60 $ 2,702 - $ 2,702	2015 $ 50 $ 2,712 787 $ 3,499

Lease contracts formed between the Group and its associates were based on market rental prices and had normal payment terms. Revenue contracts for technical services formed between the Company and its associates were based on market prices and had payment terms on the contracts. For the rest of transactions with related parties, since normal payment terms with related parties were not stipulated, the payment terms were based on mutual agreement.

f. Compensation of key management personnel

Short-term employee benefits Post-employment benefits Share-based payments	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 34,349 113 20,114 $ 54,576	2015 $ 36,643 116 26,188 $ 62,947

The remuneration of directors and key executives was determined by the remuneration committee based on the performance of individuals and market trends.

32. SIGNIFICANT COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Group as of December 31, 2016 were as follows.

Significant Commitments

As of December 31, 2015, the Company had a construction contract amounting to $1,627,500 thousand for a newly constructed science park located in Linkou in Taoyuan City. The remaining payables were $701,927 thousand.

71 -

33. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Group entities’ significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currencies and the related exchange rates between foreign currencies and respective functional currencies were as follows:

December 31, 2016

	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and
		Foreign	Currencies, Except for Exchange Rate
		Foreign			Carrying
	Currencies		Exchange Rate		Amount
Financial assets
Monetary items
USD	$	198,736	32.250 (USD:NTD)	$ 6,409,236
RMB		349,617	4.6170 (RMB:NTD)		1,614,182
EUR		23,502	33.900 (EUR:NTD)		796,718
USD		9,734	6.9851 (USD:RMB)		313,924
				$ 9,134,060
Financial liabilities
Monetary items
USD		140,430	32.250 (USD:NTD)	$ 4,528,868
USD		30,933	6.9851 (USD:RMB)		997,591
RMB		200,658	4.6170 (RMB:NTD)		926,438
				$ 6,452,897

December 31, 2015

	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and	Unit: In Thousands of New Taiwan Dollars and
		Foreign	Currencies, Except for Exchange Rate
		Foreign			Carrying
	Currencies		Exchange Rate		Amount
Financial assets
Monetary items
USD	$	146,799	32.825 (USD:NTD)	$	4,818,677
RMB		328,441	4.9950 (RMB:NTD)		1,640,563
RMB		213,731	0.1522 (RMB:USD)		1,067,567
EUR		24,409	35.880 (EUR:NTD)		875,795
USD		5,064	6.5716 (USD:RMB)		166,224
				$	8,568,826
Nonmonetary items
USD		3,763	32.825 (USD:NTD)	$	123,296
					(Continued)

72 -

Foreign Currencies Exchange Rate Financial liabilities Monetary items USD $ 100,579 32.825 (USD:NTD) RMB 207,665 4.9950 (RMB:NTD) USD 25,988 6.5716 (USD:RMB) RMB 62,341 0.1522 (RMB:USD)	Carrying Amount $ 3,301,506 1,037,287 853,056 311,378 $ 5,503,227 (Concluded)

For the years ended December 31, 2016 and 2015, realized and unrealized net foreign exchange losses were $205,812 thousand and $186,889 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

34. SEPARATELY DISCLOSED ITEMS

a. Information on significant transactions and b. information on investees:
1) Financing provided to others. (Table 1)
2) Endorsement/guarantee provided. (Table 2)
3) Marketable securities held. (Table 3)
4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the paid-in capital. (Table 4)
5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital. (Table 6)
6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital. (None)
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 5)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 7)
9) Transactions of financial instruments. (Notes 7 and 30)
10) Significant transactions between the Company and subsidiaries. (Table 11)
11) Name, locations, and other information of investees. (Table 8)
12) Organization chart. (Table 10)
73 -
c. Information on investments in mainland China
1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, shareholding ratio, investment gains or losses, carrying amount of the investment at the end of the period, repatriated investment gains, and limit on the amount of investment in the mainland China area. (Table 9)
2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third area, their prices, and payment terms, and unrealized gains or losses. (Tables 1, 6 and 7)

35. SEGMENT INFORMATION

Segment information is provided to the Group’s chief operating decision maker for allocating resources to the segments and assessing their performance. The information focuses on every type of products sold or services provided. The Groups segment information disclosed is as follows:

Industrial internet of thing services: Focus on industry-driven services;
Embedded board and design-in services: provides Services involving embedded boards, systems and peripheral hardware and software and customizes designs and services to meet customers’ demands;
Smart city solution services: Referring to integrated intelligent applications that can be used in various areas;
Global customer services: Global repair, technical support and warranty services.
a. Segment revenues and results

The following was an analysis of the Group’s revenues and results by reportable segment:

Industrial Internet of Thing Services For the year ended December 31, 2016 Revenues from external customers $ 13,606,469 Inter-segment revenues - Segment revenues $ 13,606,469 Eliminations - Consolidated revenues - Segment income $ 2,901,863 Other revenues Central administration costs and directors’ salaries Other income and expense Finance costs Share of profits of associates accounted for using the equity method Profit before tax (continuing operations)	Embedded Boards and Design-in Services $ 15,817,033 - $ 15,817,033 - - $ 2,950,064	Smart City Solution Services $ 7,368,095 - $ 7,368,095 - - $ 865,132	Global Customer Services $ 4,925,786 - $ 4,925,786 - - $ 583,025	Others Total $ 284,815 $ 42,002,198 - - $ 284,815 42,002,198 - - - 42,002,198 $ (13,524) 7,286,560 227,316 (655,067 ) 184,550 (11,556 ) 65,562 $ 7,097,365 (Continued)

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Industrial Internet of Thing Services For the year ended December 31, 2015 Revenues from external customers $ 11,338,475 Inter-segment revenues - Segment revenues $ 11,338,475 Eliminations - Consolidated revenues - Segment income $ 2,579,111 Other revenues Central administration costs and directors’ salaries Other income Finance costs Share of profits of associates accounted for using the equity method Profit before tax (continuing operations)	Embedded Boards and Design-in Services $ 15,197,230 - $ 15,197,230 - - $ 2,547,943	Smart City Solution Services $ 6,903,032 - $ 6,903,032 - - $ 765,703	Global Customer Services $ 4,556,156 - $ 4,556,156 - - $ 537,244	Others Total $ 5,689 $ 38,000,582 - - $ 5,689 38,000,582 - - - 38,000,582 $ (7,332) 6,422,669 301,667 (494,162 ) (40,824 ) (10,041 ) 110,226 $ 6,289,535 (Concluded)

Segment profit represented the profit before tax earned by each segment without allocation of central administration costs and directors’ salaries, share of profits of associates, gain recognized on the disposal of interest in former associates, rental revenue, interest income, gain or loss on disposal of property, plant and equipment, gain or loss on disposal of financial instruments, exchange gain or loss, valuation gain or loss on financial instruments, finance costs and income tax expense. This was the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance.

b. Revenue from major products and services

The following is an analysis of the Group’s revenue from continuing operations from its major products and services.

Embedded boards and Chassis Industrial computer Industrial control Industry-applied computer After-sales service and others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 16,733,624 9,666,898 5,377,597 5,014,219 5,209,860 $ 42,002,198	2015 $ 15,474,001 8,762,095 5,619,222 3,696,050 4,449,214 $ 38,000,582

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c. Geographical information

The Group’s revenues from external customers by location of operations and information about its non-current assets by location of assets are detailed below.

Taiwan Asia USA Europe Others	Revenue from External Customers For the Year Ended December 31 2016 2015 $ 3,467,452 $ 3,394,536 16,781,831 15,442,152 13,337,334 10,973,966 6,526,905 6,454,993 1,888,676 1,734,935 $ 42,002,198 $ 38,000,582	Revenue from External Customers For the Year Ended December 31 2016 2015 $ 3,467,452 $ 3,394,536 16,781,831 15,442,152 13,337,334 10,973,966 6,526,905 6,454,993 1,888,676 1,734,935 $ 42,002,198 $ 38,000,582	Non-current Assets	Non-current Assets	Non-current Assets
			For the Year Ended December 31
		2016 $ 3,467,452 16,781,831 13,337,334 6,526,905 1,888,676 $ 42,002,198		2016 $ 7,924,905 2,821,073 3,371,055 555,878 4,143 $ 14,677,054	2015 $ 7,462,380 2,702,187 419,584 584,908 876 $ 11,169,935

Non-current assets exclude financial instruments and deferred tax assets.

d. Information about major customers

No customers contributed 10% or more to the Group’s revenue for both 2016 and 2015.

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TABLE 1

ADVANTECH CO., LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. (Note A)	Lender	Borrower	Financial Statement Account	Related Parties	Credit Line(Note D)	Credit Line(Note D)	Actual Borrowing	Interest Rate (%)	Nature of Financing	Business Transaction Amounts	Reasons for Short-term Financing	Allowance for Impairment Loss	Collateral	Collateral	Financing Limit for Each Borrower	Aggregate Financing Limits
					Highest Balance for the Year	Ending Balance	Ending Balance						Item	Value
1	Better Auto	Dongguan Pou Yuen Digital Technology Co., Ltd. Dongguan Pou Yuen Digital Technology Co., Ltd.	Trade receivables - related parties Trade receivables - related parties	Yes Yes	$ 22,980 ( RMB 4,520 thousand ) 16,725 ( US$ 500 thousand )	$ 20,869 (RMB 4,520 thousand ) 16,125 ( US$ 500 thousand )	$ 20,869 ( RMB 4,520 thousand ) 12,900 ( US$ 400 thousand )	- -	Short-term financing Short-term financing	$ - -	Financing need Financing need	$ - -	None None	None None	$ 2,521,358 (Note C) 2,521,358 (Note C)	$ 5,042,716 (Note C) 5,042,716 (Note C)
2	ANA	B+B	Trade receivables - related parties	Yes	66,900 ( US$ 2,000 thousand )	64,500 ( US$ 2,000 thousand )	24,188 ( US$ 750 thousand )	2	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
3	B+B	B+B (CZ) (formerly Conel)	Trade receivables - related parties	Yes	133,408 ( CZK 31,756 thousand )	39,949 (CZK 31,756 thousand )	4,382 (CZK 3,483 thousand )	2	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
4	B+B (CZ) (formerly Conel)	Conel Automation (formerly Softcon)	Trade receivables - related parties	Yes	16,111 (CZK 12,000 thousand )	15,096 ( CZK 12,000 thousand )	15,096 ( CZK 12,000 thousand )	1	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
5	Cermate Technologies (Shanghai) Inc.	Shenzhen Cermate Technologies Inc.	Prepayments of inventories	Yes	15,252 ( RMB 3,000 thousand )	13,851 ( RMB 3,000 thousand )	-	-	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
6	ALNC	Dongguan Pou Yuen Digital Technology Co., Ltd.	Prepayments of inventories	Yes	150,000	150,000	93,532	-	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
7	Advanix Corp.	The Company	Trade receivables - related parties	Yes	200,000	200,000	-	1	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
8	Advantech Corporate Investment	The Company	Trade receivables - related parties	Yes	500,000	-	-	1	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)
9	AdvanPOS	The Company	Trade receivables - related parties	Yes	100,000	-	-	1	Short-term financing	-	Financing need	-	None	None	2,521,358 (Note C)	5,042,716 (Note C)

Note A: Investee companies are numbered sequentially from 1.

Note B: The exchange rates as of December 31, 2016 were US$1=NT$32.25, RMB1=NT$4.617 and CZK1=NT$1.258.

Note C: The financing limit for each borrower and for the aggregate financing were 10% and 20%, respectively, of the Company’s net asset values.

Note D: The maximum balance for the year and ending balance are approved by the board of directors of financiers.

Note E: All intercompany financing has been eliminated from consolidation.

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TABLE 2

ADVANTECH CO., LTD. AND SUBSIDIARIES

ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorser/ Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limits on Endorsement/ Guarantee Given on Behalf of Each Party (Note A)	Maximum Amount Endorsed/ Guaranteed During the Year	Outstanding Endorsement/ Guarantee at the End of the Year	Actual Borrowing Amount	Amount Endorsed/ Guaranteed by Collaterals	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Maximum Collateral/ Guarantee Amounts Allowable (Note B)	Endorsement/ Guarantee Given by Parent on Behalf of Subsidiaries	Endorsement/ Guarantee Given by Subsidiaries on Behalf of Parent	Endorsement/ Guarantee Given on Behalf of Companies in Mainland China
		Name	Relationship
0	The Company	Advanixs Corp. (formerly Advansus Corp.) AdvanPos ANA B+B AKMC ALNC Advanixs Corp. (formerly Advansus Corp.) Cermate AiST AdvanPOS A-DLoG	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary	$ 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358 2,521,358	$ 64,500 (US$ 2,000 thousand) 64,500 (US$ 2,000 thousand) 978,450 (US$ 30,000 thousand) 326,150 (US$ 10,000 thousand) 195,690 (US$ 6,000 thousand) 114,153 (US$ 3,500 thousand) 52,184 (US$ 1,600 thousand) 50,553 (US$ 1,550 thousand) 4,892 (US$ 150 thousand) 32,615 (US$ 1,000 thousand) 36,300 (EUR 1,000 thousand)	$ 64,500 (US$ 2,000 thousand) 64,500 (US$ 2,000 thousand) 967,500 (US$ 30,000 thousand) 322,500 (US$ 10,000 thousand) 193,500 (US$ 6,000 thousand) 112,875 (US$ 3,500 thousand) 51,600 (US$ 1,600 thousand) 49,988 (US$ 1,550 thousand) 4,838 (US$ 150 thousand) 32,250 (US$ 1,000 thousand) 33,900 (EUR 1,000 thousand)	$ - - 483,750 (US$ 15,000 thousand) - - - - - - - -	$ - - - - - - - - - - -	0.27 0.27 4.07 1.36 0.81 0.47 0.22 0.21 0.02 0.14 0.14	$ 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074 7,564,074	Y Y Y Y Y Y Y Y Y Y Y	N N N N N N N N N N N	N N N N Y N N N N N N

(Continued)

78 -

No.	Endorser/ Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limits on Endorsement/ Guarantee Given on Behalf of Each Party (Note A)	Maximum Amount Endorsed/ Guaranteed During the Year	Outstanding Endorsement/ Guarantee at the End of the Year	Actual Borrowing Amount	Amount Endorsed/ Guaranteed by Collaterals	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Maximum Collateral/ Guarantee Amounts Allowable (Note B)	Endorsement/ Guarantee Given by Parent on Behalf of Subsidiaries	Endorsement/ Guarantee Given by Subsidiaries on Behalf of Parent	Endorsement/ Guarantee Given on Behalf of Companies in Mainland China
		Name	Relationship
		ABR AAU AKR	Subsidiary Subsidiary Subsidiary	$ 2,521,358 2,521,358 2,521,358	$ 48,923 (US$ 1,500 thousand) 6,523 (US$ 200 thousand) 1,631 (US$ 50 thousand)	$ 48,375 (US$ 1,500 thousand) 6,450 (US$ 200 thousand) 1,613 (US$ 50 thousand)	$ - - -	$ - - -	0.20 0.03 0.01	$ 7,564,074 7,564,074 7,564,074	Y Y Y	N N N	N N N

Note A: 10% of the Company’s net asset value.

Note B: 30% of the Company’s net asset value.

Note C: The exchange rates as of December 31, 2016 were US$1=NT$32.25 and EUR1=NT$33.90.

Note D: The latest net equity is from the financial statements on ended September 30, 2016.

(Concluded)

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TABLE 3

ADVANTECH CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2016	December 31, 2016		Note
				Shares	Carrying Amount	Percentage of Ownership	Fair Value
The Company Advantech Corporate Investment Advanixs Corp. (formerly Advansus Corp.) AiST	Stock ASUSTek Computer Inc. Pegatron Corp. Allied Circuit Co., Ltd. Fund Capital Money Market Mega Diamond Money Market FSITC Money Market Stock Allied Circuit Co., Ltd. BroadTec System Inc. BiosenseTek Corp. Jaguar Technology Allied Circuit Co., Ltd. Phison Electronics Corporation Radiant Opto-Electronics Corporation Lelon Electronics Corporation Fund Mega Diamond Money Market FSITC Money Market Taishin 1699 Money Market Fund Jih Sun Money Market CTBC Hwa-win Money Market Fund Mega Diamond Money Market Fund Jill Sun Money Market	- - - - - - - - - - - - - - - - - - - -	Available for sale financial assets - noncurrent `〃` `〃` Available for sale financial assets - current `〃` `〃` Financial assets at fair value through profit or loss - current Available for sale financial assets - noncurrent `〃` `〃` `〃` Available for sale financial assets - current `〃` `〃` Available for sale financial assets - current `〃` `〃` `〃` `〃` `〃`	5,239,461 3,540,570 1,200,000 6,257,979 24,168,482 1,698,386 2,800,000 150,000 37,500 500,000 299,000 1,500,000 500,000 2,436,000 23,861,961 2,038,341 14,932,171 38,021,440 2,290,363 2,416,413 1,226,167	$ 1,388,457 272,624 33,720 100,016 300,131 300,122 78,680 1,500 375 7,500 8,402 383,250 28,100 95,004 296,325 360,195 200,073 557,763 25,000 30,008 17,987	0.71 0.14 2.41 - - - 5.63 6.16 1.79 16.67 0.60 0.76 0.11 1.86 - - - - - - -	$ 1,388,457 272,624 33,720 100,016 300,131 300,122 78,680 1,500 375 7,500 8,402 383,250 28,100 95,004 296,325 360,195 200,073 557,763 25,000 30,008 17,987	Note A and C Note A and D Note A Note B Note B Note B Note A - - - Note A Note A Note A Note A Note B Note B Note B Note B Note B Note B Note B

(Continued)

80 -

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2016	December 31, 2016		Note
				Shares	Carrying Amount	Percentage of Ownership	Fair Value
ALTC AdvanPOS Advantech Innovative Design Co., Ltd. Cermate	Fund Mega Diamond Money Market Capital Money Market Fund Mega Diamond Money Market Fund Capital Money Market Fund Mega Diamond Money Market	- - - - -	`〃` `〃` `〃` `〃` `〃`	5,677,549 2,132,508 11,231,810 281,756 1,130,641	$ 70,506 34,082 139,480 4,503 14,041	- - - - -	$ 70,506 34,082 139,480 4,503 14,041	Note B Note B Note B Note B Note B

Note A: Market value was based on the closing price on December 31, 2016.

Note B: Market value was based on the net asset values of the open-ended mutual funds on December 31, 2016.

Note C: The amount included $1,099,750 thousand, the carrying value of 4,150,000 shares held in trust with CTBC Bank. Refer to Note 8 of the financial statements for more information.

Note D: The amount included $157,850 thousand, the carrying value of 2,050,000 shares held in trust with CTBC Bank. Refer to Note 8 of the financial statements for more information.

(Concluded)

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TABLE 4

ADVANTECH CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2016

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Type and Name of Marketable Securities	Financial Statement Account	Counterparty	Relationship	Beginning Balance	Beginning Balance	Acquisition (Note)	Acquisition (Note)		Disposal	Disposal		Ending Balance (Note)	Ending Balance (Note)
					Shares	Amount (Cost)	Shares	Amount	Shares	Amount	Carrying Amount	Gain (Loss) on Disposal	Shares	Amount (Cost)
The Company Advantech Corporate Investment Advanixs Corp. (formerly Advansus Corp.) AdvanPOS ANA ATC (HK)	Fund Capital Money Market Mega Diamond Money Market FSITC Money Market Stock B+B Fund FSITC Money Market Fund Jih Sun Money Market Fund Mega Diamond Money Market Fund B+B Stock Advanixs Kunshan Corp.	Available for sale financial assets - current Available for sale financial assets - current Available for sale financial assets - current Investments accounted for using the equity method Available for sale financial assets - current Available for sale financial assets - current Available for sale financial assets - current Investments accounted for using the equity method Investments accounted for using the equity method	- - - - - - - - -	- - - - - - - - -	- - - - - 19,537,275 242,411 - -	$ - - - - - 285,055 3,000 - -	77,706,012 126,440,929 6,174,911 230,467 2,038,341 50,635,993 35,288,731 153,644 -	$ 1,240,000 1,568,000 1,090,000 1,968,044 (US$ 59,910) 360,000 742,004 437,021 1,328,004 (US$ 39,940) 459,648 (RMB 92,758)	71,448,034 102,272,448 4,476,525 - - 32,151,828 24,299,332 - -	$ 1,140,484 1,268,601 790,207 - - 471,000 301,358 - -	$ 1,140,000 1,267,979 790,000 - - 469,941 300,824 - -	$ 484 622 207 - - 1,059 534 - -	6,257,978 24,168,481 1,698,386 230,467 2,038,341 38,021,440 11,231,810 153,644 -	$ 100,000 300,021 300,000 1,968,044 360,000 557,118 139,197 1,328,004 459,648

82 -

TABLE 5

ADVANTECH CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2016

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Buyer	Related Party	Relationship		Transaction	Transaction	Details	Abnormal Transaction	Abnormal Transaction	Notes/Trade Receivable (Payable)	Notes/Trade Receivable (Payable)	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
The Company ACA AKMC	AAU ACN AEU AiSC AJP AKMC AKR ANA ASG Advanixs Corp. A-DLoG AMY ACA AKMC Advanixs Corp. AdvanPOS The Company The Company	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Parent company Parent company	Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Purchase Purchase Purchase Purchase Sale Sale	$ (228,239) (5,414,546) (3,835,119) (495,184) (811,326) (1,493,414) (799,440) (8,315,279) (223,551) (559,010) (174,205) (145,199) 1,903,339 9,739,690 2,343,971 566,683 (1,903,339) (9,739,690)	0.75 17.75 12.57 1.62 2.66 4.90 2.62 27.26 0.73 1.83 0.57 0.48 8.81 45.08 10.85 2.62 100.00 92.60	60-90 days 45 days after month-end 30 days after month-end 45 days after month-end 60-90 days 45 days after month-end 60 days after invoice date 45 days after month-end 60-90 days 60-90 days 30 days after invoice date 45 days after month-end Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms	Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price	No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties	$ 74,609 821,752 946,905 116,622 212,728 227,740 97,049 1,114,946 53,059 119,452 9,774 52,188 - (1,212,521) (626,010) (349,650) - 1,212,521	1.35 14.84 17.10 2.11 3.84 4.11 1.75 20.14 0.96 2.16 0.18 0.94 - 29.14 15.04 8.40 - 90.85	Note A Note B Note C

(Continued)

83 -

Buyer	Related Party	Relationship		Transaction	Transaction	Details	Abnormal Transaction	Abnormal Transaction	Notes/Trade Receivable (Payable)	Notes/Trade Receivable (Payable)	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
Advanixs Corp. AdvanPOS AAU ACN AEU AiSC AJP AKMC AKR ANA ASG Advanixs Corp. A-DLoG AMY AiSC AKMC	The Company The Company The Company The Company The Company The Company The Company The Company The Company The Company The Company The Company The Company The Company AKMC ACN AiSC	Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Parent company Related enterprise Related enterprise Related enterprise	Sale Sale Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase Sale Sale Sale	$ (2,343,971) (566,683) 228,239 5,414,546 3,835,119 495,184 811,326 1,493,414 799,440 8,315,279 223,551 559,010 174,205 145,199 (123,469) (509,668) (185,452)	37.52 48.24 84.80 72.60 83.12 49.27 97.66 15.63 66.35 89.02 71.28 10.05 18.58 86.05 11.03 4.85 1.76	Usual trade terms Usual trade terms 60-90 days 45 days after month-end 30 days after month-end 45 days after month-end 60-90 days 45 days after month-end 60 days after invoice date 45 days after month-end 60-90 days 60-90 days 30 days after invoice date 45 days after month-end Usual trade terms Usual trade terms Usual trade terms	Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price	No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties	$ 626,010 349,650 (74,609) (821,752) (946,905) (116,622) (212,728) (227,740) (97,049) (1,114,946) (53,059) (119,452) (9,774) (52,188) 1,185 88,163 28,687	45.72 57.55 86.01 67.59 94.96 62.28 98.63 10.70 60.47 94.36 86.20 8.16 16.93 100.00 0.51 6.61 2.15

(Continued)

84 -

Buyer	Related Party	Relationship		Transaction	Transaction	Details	Abnormal Transaction	Abnormal Transaction	Notes/Trade Receivable (Payable)	Notes/Trade Receivable (Payable)	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
Advanixs Corp. ALNC ACN ANA Advanixs Kun Shan Corp. AKMC ACN AiSC AKMC Dongguan Pou Yuen Digital Technology Co., Ltd. AiSC AdvanPOS AKMC	AKMC Dongguan Pou Yuen Digital Technology Co., Ltd. AiSC AdvanPOS AKMC AiSC AKMC AKMC Advanixs Corp. ALNC ACN ANA Advanixs Kun Shan Corp.	Related enterprise Subsidiary Related enterprise Related enterprise Related enterprise Related enterprise Related enterprise Related enterprise Related enterprise Parent company Related enterprise Related enterprise Related enterprise	Sale Sale Sale Sale Sale Purchase Purchase Purchase Purchase Purchase Purchase Purchase Purchase	$ (2,900,081) (205,457) (127,420) (126,312) (222,271) 123,469 509,671 185,452 2,900,081 205,457 127,420 126,312 222,271	46.42 42.70 1.48 1.04 100.00 1.29 6.83 18.45 30.35 80.96 12.68 11.65 2.33	Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms Usual trade terms	Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price Contract price	No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties No significant difference in terms for related parties	$ 637,941 92,766 31,012 85,622 144,232 (1,185) (88,163) (28,687) (637,941) (92,766) (31,012) (85,622) (144,232)	46.59 84.22 1.53 5.46 100.00 0.06 7.46 15.75 30.83 72.36 17.03 17.49 6.97

Note A: Unrealized gain for the year was $9,702 thousand.

Note B: Realized gain for the year was $816 thousand.

Note C: Realized gain for the year was $5,429 thousand.

Note D: All intercompany gains and losses from investment have been eliminated from consolidation.

(Concluded)

85 -

TABLE 6

ADVANTECH CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2016

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Buyer	Property	Event Date	Transaction Amount	Payment Status	Counterparty	Relationship	Information on Previous Title Transfer If Counterparty Is A Related Party	Information on Previous Title Transfer If Counterparty Is A Related Party	Information on Previous Title Transfer If Counterparty Is A Related Party	Information on Previous Title Transfer If Counterparty Is A Related Party	Pricing Reference	Purpose of Acquisition	Other Terms
							Property Owner	Relationship	Transaction Date	Amount
The Company	Real estate	2014.4.15	$ 1,627,500	Under the contract, based on percentage of construction completed; accumulated payments of $1,627,500 thousand were made as of December 31, 2016 and $93,113 thousand were made in the fourth quarter of 2016.	Chung-Lin General Contractors, Ltd.	None	-	-	-	$ -	Contract price	For the Company’s expansion	None

86 -

TABLE 7

ADVANTECH CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2016

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Relationship	Ending Balance	Turnover Rate		Overdue	Amounts Received in Subsequent Period	Allowance for Impairment Loss
					Amount	Actions Taken
The Company AKMC Advanixs Corp. AdvanPOS	ACN AEU AiSC AJP AKMC ANA Advanixs Corp. The Company AKMC The Company The Company	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Parent company Related enterprise Parent company Parent company	$ 821,752 951,281 116,622 214,660 227,749 1,117,501 119,511 1,212,521 637,941 626,010 349,650	5.30 3.96 4.60 5.21 7.54 7.61 6.37 7.45 5.34 2.79 3.21	$ - - - - - - - - - - -	- - - - - - - - - - -	$ 249,318 155,587 34,166 38,854 189,659 751,425 63,848 983,962 280,810 301,471 156,987	$ - - - - - - - - - - -

Note: All intercompany gains and losses from investment have been eliminated from consolidation.

87 -

TABLE 8

ADVANTECH CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2016 (In Thousands of New Taiwan Dollars/Foreign Currency, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Investment Amount	Investment Amount	Balance	as of December 31, 2016	as of December 31, 2016	Net Income (Loss) of the Investee	Investment Gain (Loss) (Note A)	Note
				December 31, 2016	December 31, 2015	Shares	Percentage of Ownership	Carrying Value
The Company Advantech Corporate Investment ATC AAC (BVI) ANA AEUH AEU ASG	AAC (BVI) ATC Advanixs Corporate (formerly Advansus Corp.) Advantech Corporate Investment Axiomtek AdvanPOS ALNC Jan Hsiang AMX AEUH ASG AAU AJP AMY AKR ABR ACA Advantech Innovative Design Co., Ltd. Advantech iFactory Co., Ltd. AiST BEMC AIN AIMobile Co., Ltd. AiST Cermate Deneng ATC (HK) ANA AAC (HK) BEMC AEU APL A-DLoG ATH AID	BVI BVI Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Taichung, Taiwan Taipei, Taiwan Mexico Helmond, The Netherlands Techplace, Singapore Sydney, Australia Tokyo, Japan Malaysia Seoul, Korea Sao Paulo, Brazil Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Delaware, USA India Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Taichung, Taiwan Hong Kong Sunnyvale, USA Hong Kong Delaware, USA Eindhoven, The Netherlands Warsaw, Poland Munich, Germany Thailand Indonesia	Investment and management service Sale of industrial automation products Production and sale of industrial automation products Investment holding company Production and sale of industrial automation products Production and sale of POS system Production and sale of machines with computerized numerical control Electronic parts and components manufacturing Sale of industrial automation products Investment and management service Sale of industrial automation products Sale of industrial automation products Sale of industrial automation products Sale of industrial automation products Sale of industrial automation products Sale of industrial automation products Production and sale of portable industrial automation products Product design Cybernation equipment manufacturing Design, develop and sale of intelligent services Sale of industrial network communications systems Sale of industrial automation products Design and manufacture of industrial mobile systems Design, develop and sale of intelligent services Manufacturing of electronic parts, computer, and peripheral devices Installment and sale of electronic components and software Investment and management service Sale and fabrication of industrial automation products Investment and management service Sale of industrial network communications Sale of industrial automation products Sale of industrial automation products Design, R&D and sale of industrial automation vehicles and related products Production of computers Sale of industrial automation products	$ 1,000,207 998,788 486,000 1,400,000 249,059 460,572 431,634 3,719 4,922 1,219,124 27,134 40,600 15,472 35,140 73,355 43,216 - 10,000 - 157,915 1,968,044 5,567 135,000 - 71,500 18,095 1,212,730 504,179 539,146 1,328,004 431,963 14,176 553,536 7,537 4,797	$ 1,000,207 1,231,118 486,000 1,400,000 249,059 460,572 478,825 3,719 4,922 1,219,124 27,134 40,600 15,472 35,140 73,355 43,216 146,440 10,000 60,000 - - 5,567 - 142,063 71,500 18,095 1,212,730 504,179 539,146 - 431,963 14,176 553,536 7,537 4,797	29,623,834 33,850,000 36,000,000 150,000,000 20,537,984 20,438,000 24,350,000 655,500 - 12,572,024 1,450,000 500,204 1,200 2,000,000 600,000 1,794,996 - 1,000,000 - 10,000,000 230,467 999,999 13,500,000 - 5,500,000 658,000 41,650,001 10,952,606 15,230,001 153,644 11,314,280 6,350 1 51,000 300,000	100.00 100.00 100.00 100.00 25.99 100.00 81.17 28.50 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.00 - 100.00 100.00 100.00 60.00 99.99 45.00 - 55.00 39.69 100.00 100.00 100.00 40.00 100.00 100.00 100.00 51.00 100.00	$ 4,021,994 3,243,871 979,563 1,639,126 464,155 577,260 493,481 8,904 594 864,191 72,186 34,737 218,331 45,752 228,407 75,531 - 9,633 - 160,414 1,959,805 1,663 109,241 - 117,913 16,154 3,135,926 2,296,976 1,873,641 1,306,537 874,511 22,127 485,607 18,044 2,380	$ 429,541 104,114 486,566 34,108 360,023 224,493 11,514 (1,322) (771) 17,978 5,100 5,704 45,585 19,416 63,563 24,253 59,906 1,054 201 (23,860) 53,173 (11,974) (57,243) (23,860) 27,681 (4,606) 251,893 236,063 194,940 53,173 17,819 801 (34,598) 4,696 (1,883)	$ 427,865 96,661 462,195 33,632 93,560 218,495 10,606 (411) (771) 17,702 5,100 5,704 45,585 19,416 63,563 19,403 65,577 1,054 201 2,511 31,903 (11,974) (25,759) (26,371) 14,844 (1,828) 244,440 235,733 193,595 21,270 17,542 801 (45,520) 2,395 (1,883)	Subsidiary Subsidiary Subsidiary Subsidiary Equity-method investee Subsidiary Subsidiary Equity-method investee Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary (Note D) Subsidiary Subsidiary Subsidiary (Note E) Subsidiary (Note C) Subsidiary Equity-method investee Subsidiary (Note E) Subsidiary Equity-method investee Subsidiary Subsidiary Subsidiary Subsidiary (Note C) Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary

(Continued)

88 -

Investor Company	Investee Company	Location	Main Businesses and Products	Investment Amount	Investment Amount	Balance	as of December 31, 2016	as of December 31, 2016	Net Income (Loss) of the Investee	Investment Gain (Loss) (Note A)	Note
				December 31, 2016	December 31, 2015	Shares	Percentage of Ownership	Carrying Value
Cermate ALNC Better Auto AdvanPOS BEMC Avtek B+B BBI B&B Electronics B+B (CZ) (formerly Conel)	LandMark Better Auto Famous Now Bright Mind Limited Avtek B+B BBI Quatech IMC B&B Electronics B+B (CZ) (formerly Conel) Conel Automation (formerly Softcon) B&B DMCC B+B (CZ) (formerly Conel) Conel Automation (formerly Softcon)	BVI BVI BVI Samoa Delaware, USA Delaware, USA Ireland Delaware, USA Delaware, USA Delaware, USA Czech Republic Czech Republic Dubai Czech Republic Czech Republic	General investment General investment General investment General investment General investment General investment Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems Sale of industrial network communications systems	$ 28,200 264,445 US$ 4,000 - US$ 99,850 US$ 99,850 US$ 39,481 - - US$ 1,314 - - - - -	$ 28,200 264,445 US$ 4,000 US$ 200 - - - - - - - - - - -	972,284 8,556,096 1 - - - - - - - - - - - -	100.00 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 99.99 1.00 100.00 0.01 99.00	$ 75,241 79,770 51,779 - 3,266,342 3,266,342 128,294 - - - 141,999 112 - - 11,111	$ 15,296 (12,359) (11,654) - 53,173 53,173 (18,762) - - - 49,588 5,717 - - 5,717	$ 15,296 (12,307) (11,654) - 53,173 53,173 (18,762) - - - 49,588 57 - - 5,660	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary

Note A: The financial statements used as basis of net asset values had not been audited by independent CPAs, except those of AIN, AMX and Advantech Innovative Design Co., Ltd.

Note B: Refer to Table 9 for investments in mainland China.

Note C: In the first quarter of 2016, the Group made arrangements to acquire 100% equity in BEMC for US$99,850 thousand.

Note D: In the third quarter of 2016, ACA and AdvanPOS merged and ACA ceased to exist.

Note E: In the third quarter of 2016, the Group has adjusted its investment structure and the Company directly acquired 100% share equity of AiST.

Note F: All intercompany gains and losses from investment have been eliminated from consolidation.

(Concluded)

89 -

TABLE 9

ADVANTECH CO., LTD. AND SUBSIDIARIES

INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investee Company Name	Main Businesses and Products	Main Businesses and Products	Total Amount of Paid-in Capital	Investment Type (e.g., Direct or Indirect)	Investment Type (e.g., Direct or Indirect)	Accumulated Outflow of Investment from Taiwan as of January 1, 2016	Investment Flows	Investment Flows	Accumulated Outflow of Investment from Taiwan as of December 31, 2016	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss) (Note A)	Carrying Value as of December 31, 2016	Accumulated Inward Remittance of Earnings as of December 31, 2016
							Outflow	Inflow
Advantech Technology (China) Company Ltd. (AKMC) Beijing Yan Hua Xing Ye Electronic Science & Technology Co., Ltd. (ACN) Shanghai Advantech Intelligent Services Co., Ltd. (AiSC) Xi’an Advantech Software Ltd. (AXA) Hangzhou Advantofine Automation Tech. Co., Ltd. Advanixs Kun Shan Corp.	Production and sale of components of industrial automation products Sale of industrial automation products Production and sale of industrial automation products Development and production of software products Processing and sale of industrial automation products Production and sale of industrial automation products		US$ 43,750 thousand (Note F) US$ 4,230 thousand US$ 8,000 thousand US$ 1,000 thousand RMB 3,000 thousand RMB 99,515 thousand	Indirect Indirect Indirect Indirect Indirect Indirect		$ 1,202,925 (US$ 37,300 thousand) 171,957 (US$ 5,332 thousand) 258,000 (US$ 8,000 thousand) (Note C) (Note D) (Note G)	$ - - - - - -	$ - - - - - -	$ 1,202,925 (US$ 37,300 thousand) 171,957 (US$ 5,332 thousand) 258,000 (US$ 8,000 thousand) (Note C) (Note D) (Note G)	$ 235,499 199,635 28,343 (33,654) (6,478) 29,532	100 100 100 100 100 100	$ 227,951 199,052 27,581 (33,654) (6,478) 16,394	$ 2,691,960 1,123,813 739,662 7,771 14,954 443,870	$ - 362,232 (US$ 11,232 thousand) - - - -

Accumulated Investment i	n	Investment Amounts Authorized
Mainland China as of December 31, 2016		by Investment Commission, MOEA			Allowable Limit on Investment
$1,639,332 (US$50,832 thousand) (Note E)		$2,760,600 (US$85,600 thousand)			$15,232,138 (Note I)

(Continued)

90 -

Note A: The financial statements used as basis of asset values had been audited.

Note B: The significant events, prices, payment terms and unrealized gains or losses generated on trading between the Company and its investees in Mainland China are described in Tables 5.

Note C: Remittance by AAC (H.K.) Limited.

Note D: Remittance by ACN.

Note E: Included is the outflow of US$200 thousand on the investment in Yan Hua (Guang Zhou Bao Shui Qu) Co., Ltd. located in a free trade zone in Guang Zhou. When this investee was liquidated in September 2005, the outward investment remittance ceased upon the approval of the Ministry of Economic Affairs (MOEA). For each future capital return, the Company will apply to the MOEA for the approval of the return as well as reduce the accumulated investment amount by the return amount
Note F: For AKMC, there was a capital increase of US$6,450 thousand out of earnings.
Note G: ATC, parent company of ATC (HK), increased the share capital of ATC (HK) and ATC (HK) acquired 100% share equity of Advanixs Kun Shan Corp. from Yeh-Chiang Technology (Cayman).
Note H: The exchange rate was US$1=NT$32.25.
Note I: The maximum allowable limit on investment was at 60% of the consolidated net asset value of the Company.
Note J: All intercompany gains and losses from investment have been eliminated from consolidation.

(Concluded)

91 -

TABLE 10

ADVANTECH CO., LTD. AND SUBSIDIARIES

ORGANIZATION CHART DECEMBER 31, 2016 AND 2015

Intercompany relationships and percentages of ownership as of December 31, 2016 are shown below:

==> picture [492 x 548] intentionally omitted <==

----- Start of picture text -----

100% 100% Advantech Technology Co., Ltd. 100% Advantech Technology (China)
Advantech Technology Co., Ltd. (ATC) ATC (HK) Company Ltd. (AKMC)
80% Advantech Brasil Ltd (ABR) Avtek Corporation (Avtek) 100% Advanixs Kun Shan Corp.
60% BEMC Holdings Corporation (BEMC) 100% B+B SmartWorx Inc. (B+B) 100% 1% Technology Kun Shan Co., Ltd.) Conel Automation s.r.o. (formerly Yeh-Chiang
100% B&B IMC. LLC (IMC) CZ (Conel Automation)
40% 100% 99.99% 99%
Quatech, LLC (Quatech) Advantech B+B SmartWorx s.r.o.
CZ (B+B (CZ))
100%
B+B SmartWorx Limited (BBI) 100% 0.01%
100% B&B Electronics Holdings LLC
Advantech Automation Corp. (BVI) 100% Advantech Corp. (ANA) (B&B Electronics)
(AAC (BVI)) 100%
B&B SmartWorx DMCC (B&B
100% 100% Beijing Yan Hua Xing Ye Electronic 100% DMCC)
Advantech Automation Corp. (HK) Science & Technology Co., Ltd. (ACN) Hangzhou Advantofine
Limited (AAC (HK)) 100% Automation Tech. Co., Ltd.
Shanghai Advantech Intelligent Services
Co., Ltd. (AiSC)
100% Xi’an Advantech Software Ltd. (AXA)
Advantech 100% Advantech Electronics, S. De R.L. De C.V.
Co., Ltd. (AMX) 100% Advantech Europe B.V. (AEU) 100% DLOG Gesellschaft für
(the 100% elektronische Datentechnik mbH
Company) Advantech Europe Holding B.V. (AEUH) (A-DLoG)
100% 100% Advantech Poland Sp z o.o. (APL)
Advantech Innovative Design Co., Ltd.
100%
Advantech Intelligent Service (AiST)
100% 55% Cermate Technologies Inc. (Cermate) Landmark Co., Ltd. (Landmark)
Advantech Corporate Investment 100%
100% 90%
Advantech KR Co., Ltd. (AKR) 51% Advantech Corporation (Thailand) Shenzhen Cermate
100% Co., Ltd. (ATH) Technologies Inc.
Advantech Co., Singapore Pte, Ltd. (ASG) (Cermate (Shenzhen))
100% 100%
Advantech International, PT. (AID) Cermate Technologies
100% (Shanghai) Inc.
Advantech Japan Co., Ltd. (AJP)
(Cermate (Shanghai))
100%
Advantech Australia Pty Ltd. (AAU)
100% Advanixs Corp.
100%
Advantech Co. Malaysia Sdn. Bhd (AMY)
99.99%
Advantech Industrial Computing India
Private Limited (AIN)
100%
AdvanPOS Technology Co., Ltd.
(AdvanPOS)
81.17% 100% 100%
Advantech-LNC Technology Co., Ltd. Better Auto Holdings Limited Famous Now Limited
(ALNC) (Better Auto) (Famous Now)
100%
Dongguan Pou Yuen Digital
Technology Co., Ltd.
----- End of picture text -----

(Continued)

92 -

Intercompany relationships and percentages of ownership as of December 31, 2015 are shown below:

	Advantech Electronics, S. De R.L. De C.V. (AMX) 100% 100% Advantech Technology Co., Ltd. (ATC) 80% Advantech Brasil Ltd (ABR) Advantech Automation Corp. (HK) Limited (AAC (HK)) 100% 100% 100% Advantech Europe Holding B.V. (AEUH) 100% Advantech KR Co., Ltd. (AKR) 100% Advantech Co., Singapore Pte, Ltd. (ASG) Advantech Automation Corp. (BVI) (AAC (BVI)) 100% Advantech Corporate Investment 100% Advantech Japan Co., Ltd. (AJP) 100% Advantech Australia Pty Ltd. (AAU) 89.93% 100% 100% Advansus Corp. 100% Advantech Co. Malaysia Sdn. Bhd (AMY) Advantech-LNC Technology Co., Ltd. (ALNC) AdvanPOS Technology Co., Ltd. (AdvanPOS) 100% ACA Digital Corporation (ACA) Advantech Industrial Computing India Private Limited (AIN) 99.99% Advantech Innovative Design Co., Ltd. 100% 100% Advantech iFactory Co., Ltd.	Advantech Technology Co., Ltd. (ATC)	100% 100% 100% 100% 100% 60% 100% Hangzhou Advantofine Automation Tech. Co., Ltd. Advantech Europe B.V. (AEU) DLOG Gesellschaft für elektronische Datentechnik mbH (A-DLoG) Advantech Poland Sp z o.o. (APL) 100% 100% 100% Advantech Technology Co., Ltd. ATC (HK) Advantech Corp. (ANA) Advantech Technology (China) Company Ltd. (AKMC) Beijing Yan Hua Xing Ye Electronic Science & Technology Co., Ltd. (ACN) Shanghai Advantech Intelligent Services Co., Ltd. (AiSC) Xi’an Advantech Software Ltd. (AXA) 100% Advantech Intelligent Service (AiST) 55% Cermate Technologies Inc. (Cermate) LandmarkCo., Ltd.(Landmark) 100% 100% 100% 100% Bright Mind Limited Better Auto Holdings Limited (Better Auto) AdvanPOS Technology Shanghai Co., Ltd. (AdvanPOS Shanghai) 100% 100% Famous Now Limited Dongguan Pou Yuen Digital Technology Co., Ltd. 51% Advantech Corporation (Thailand) Co., Ltd. (ATH) Advantech International, PT. (AID) 100% Cermate Technologies (Shanghai) Inc. (Cermate (Shanghai)) Shenzhen Cermate Technologies Inc. (Cermate (Shenzhen)) 100% 90%
Advantech Co., Ltd. (the Company)
		Advantech iFactory Co., Ltd.

(Concluded)

93 -

TABLE 11

ADVANTECH CO., LTD. AND SUBSIDIARIES

SIGNIFICANT TRANSACTIONS BETWEEN ADVANTECH CO., LTD. AND SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
0	The Company	AAC (HK) AAC (HK) AAU AAU AAU AAU ABR ABR ABR ABR ACN ACN A-DLoG A-DLoG A-DLoG A-DLoG AEU AEU AEU AEU AID AID AID AID AIN AIN AIN AIN AiSC AiSC AJP AJP AJP AJP AKMC AKMC AKMC	1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1	Sales revenue Other receivables from related parties Other revenue Other receivables from related parties Receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Sales revenue Other revenue Other receivables from related parties Receivables from related parties Other receivables from related parties Receivables from related parties Other revenue Sales revenue Sales revenue Other receivables from related parties Receivables from related parties Other revenue Receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Receivables from related parties Other receivables from related parties Sales revenue	$ 16 38 3,053 1,424 74,609 228,239 3,165 710 13,377 99,256 821,752 5,414,546 4,397 674 9,774 174,205 3,835,119 21,706 4,376 946,905 3 8,202 337 14,491 8,406 3,319 18,368 3,204 116,622 495,184 4,395 1,932 212,728 811,326 227,740 9 1,493,414	Normal 45 days EOM Normal 60-90 days 60-90 days Normal Normal 90 days EOM 90 days EOM Normal 45 days EOM Normal Normal 30 days after invoice date 30 days after invoice date Normal Normal Normal 30 days EOM 30 days EOM 45 days after invoice date 45 days after invoice date Normal Normal Normal 60 days EOM 60 days EOM Normal 45 days EOM Normal Normal 60-90 days 60-90 days Normal 45 days EOM 45 days EOM Normal	- - - - - 1 - - - - 2 13 - - - - 9 - - 2 - - - - - - - - - 1 - - 1 2 1 - 4

(Continued)

94 -

Counterparty	Flow of Transaction (Notes B and D)	Transaction Details	Transaction Details	Transaction Details	Transaction Details
		Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
AKR AKR AKR AKR AMY AMY AMY AMY ANA ANA ANA ANA APL APL APL ASG ASG ASG ASG ATH ATH ATH ATH B+B B+B Cermate ACA Advantech Corporate Investment Advantech Innovative Design Co., Ltd. AiST AiST AiST AiST Advanixs Corporate Advanixs Corporate Advanixs Corporate Advanixs Corporate ALNC ALNC ALNC ALNC AdvanPOS AdvanPOS AdvanPOS	1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1	Other revenue Other receivables from related parties Receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Receivables from related parties Other receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Other revenue Other receivables from related parties Receivables from related parties Sales revenue Receivables from related parties Sales revenue Other revenue Other revenue Rental revenue Other receivables from related parties Receivables from related parties Sales revenue Other receivables from related parties Other revenue Rental revenue Other receivables from related parties Receivables from related parties Sales revenue Other revenue Sales revenue Other receivables from related parties Receivables from related parties Sales revenue Other revenue Other receivables from related parties	$ 6,238 617 97,049 799,440 2,900 881 52,188 145,199 25,885 2,555 1,114,946 8,315,279 2,313 43 18,386 1,930 805 53,059 223,551 2,887 289 5,332 59,515 5,059 44,692 1,200 2,520 36 1 6,375 46,574 3 1,000 4,800 59 119,452 559,010 1,200 2,419 381 392 30,826 2,520 883	Normal 60 days after invoice date 60 days after invoice date Normal Normal 45 days EOM 45 days EOM Normal Normal 45 days EOM 45 days EOM Normal 45 days EOM 45 days EOM Normal Normal 60-90 days 60-90 days Normal Normal 30 days after invoice date 30 days after invoice date Normal 60 days EOM Normal Normal Normal Normal 60 days EOM 30 days EOM Normal 30 days EOM Normal Normal 60-90 days 60-90 days Normal Normal Normal 60-90 days EOM 60-90 days EOM Normal Normal 60 days EOM	- - - 2 - - - - - - 3 20 - - - - - - 1 - - - - - - - - - - - - - - - - - 1 - - - - - - -

(Continued)

95 -

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
1	ACN	The Company The Company AAU AEU AiSC AiSC AiSC AKMC AKMC AKR ANA AXA Advanixs Kun Shan Corp. Advanixs Kun Shan Corp. Hangzhou Advantofine Automatin Tech. Co., Ltd. Hangzhou Advantofine Automatin Tech. Co., Ltd.	2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3	Receivables from related parties Sales revenue Sales revenue Sales revenue Sales revenue Receivables from related parties Other receivables from related parties Receivables from related parties Sales revenue Sales revenue Sales revenue Other receivables from related parties Receivables from related parties Sales revenue Sales revenue Receivables from related parties	$ 185 717 77 591 127,420 31,012 52 7,939 32,896 85 398 30,095 4,014 3,603 3,687 749	30 days EOM Normal Normal Normal Normal Immediate payment 60 days EOM 60-90 days Normal Normal Normal 60 days EOM Normal Normal Normal 60 days after invoice date	- - - - - - - - - - - - - - - -
2	AAU	The Company The Company The Company ANA	2 2 2 3	Receivables from related parties Sales revenue Other revenue Sales revenue	374 50 3,791 10	60-90 days Normal Normal Normal	- - - -
3	ABR	The Company The Company	2 2	Other revenue Receivables from related parties	2,010 270	Normal 30 days after invoice date	- -
4	ACA	The Company ACN AKMC Advanixs Corporate Advanixs Corporate	2 3 3 3 3	Sales revenue Sales revenue Other receivables from related parties Sales revenue Receivables from related parties	1,903,339 1,249 4 4,264 826	Normal Normal 45 days EOM Normal 45 days EOM	5 - - - -
5	AEU	The Company The Company The Company AAU AAU ACN A-DLoG A-DLoG AKMC AKMC AKR ANA ANA ANA	2 2 2 3 3 3 3 3 3 3 3 3 3 3	Receivables from related parties Sales revenue Other revenue Sales revenue Receivables from related parties Receivables from related parties Receivables from related parties Sales revenue Receivables from related parties Sales revenue Sales revenue Royalty revenue Receivables from related parties Sales revenue	1,644 10,373 6,425 37 35 269 213 20,522 322 9 141 933 187 16,518	30 days EOM Normal Normal Normal 30 days EOM 30 days after invoice date 30 days upon delivery Normal 30 days EOM Normal Normal Normal 30 days after invoice date Normal	- - - - - - - - - - - - - -

(Continued)

96 -

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
		APL B+B BBI	3 3 3	Sales revenue Receivables from related parties Sales revenue	$ 3,224 219 1,121	Normal 30 days after invoice date Normal	- - -
6	Better Auto	Dongguan Pou Yuen Digital Technology Co., Ltd. Dongguan Pou Yuen Digital Technology Co., Ltd.	3 3	Receivables from related parties Interest revenue	34,421 351	Financing Financing	- -
7	ALNC	The Company The Company The Company AKMC Better Auto Dongguan Pou Yuen Digital Technology Co., Ltd. Dongguan Pou Yuen Digital Technology Co., Ltd.	2 2 2 3 3 3 3	Receivables from related parties Rental revenue Sales revenue Sales revenue Royalty revenue Sales revenue Receivables from related parties	1,855 1,518 7,949 430 92 205,457 92,766	60 days EOM Normal Normal Normal Normal Normal 90 days EOM	- - - - - - -
8	AiSC	The Company The Company AAC (HK) ACN ACN ACN ACN AEU AEU AKMC AKMC ANA	2 2 3 3 3 3 3 3 3 3 3 3	Receivables from related parties Sales revenue Other receivables from related parties Sales revenue Other receivables from related parties Receivables from related parties Rental revenue Sales revenue Receivables from related parties Sales revenue Receivables from related parties Sales revenue	496 2,032 4,633 22,541 62,676 1,441 5,842 119 113 123,469 1,185 209	45 days EOM Normal 90 days Normal Immediate payment Immediate payment Normal Normal Immediate payment Normal 30 days EOM Normal	- - - - - - - - - - - -
9	AJP	The Company The Company ACN ACN AKMC AKMC ASG	2 2 3 3 3 3 3	Receivables from related parties Sales revenue Receivables from related parties Sales revenue Other receivables from related parties Other revenue Sales revenue	361 63 12 13 47 51 9	60-90 days Normal 45 days EOM Normal 45 days EOM Normal Normal	- - - - - - -
10	AKMC	The Company The Company ACN ACN ACN ACN AEU AEU AiSC AiSC	2 2 3 3 3 3 3 3 3 3	Sales revenue Receivables from related parties Rental revenue Sales revenue Other receivables from related parties Receivables from related parties Sales revenue Receivables from related parties Sales revenue Receivables from related parties	9,739,690 1,212,521 4,212 509,671 723 88,163 3,392 1,093 185,453 28,687	Normal 60 days EOM Normal Normal 60-90 days 60-90 days Normal 30 days after invoice date Normal Immediate payment	23 3 - 1 - - - - - -

(Continued)

97 -

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
		ANA ANA Hangzhou Advantofine Automatin Tech. Co., Ltd. Hangzhou Advantofine Automatin Tech. Co., Ltd. Advanixs Corporate Advanixs Corporate ALNC AdvanPOS AdvanPOS	3 3 3 3 3 3 3 3 3	Sales revenue Receivables from related parties Sales revenue Receivables from related parties Receivables from related parties Sales revenue Sales revenue Sales revenue Receivables from related parties	$ 8,451 292 21 15 413 3,453 6 5,558 1,075	Normal 60-90 days Normal 60 days EOM Immediate payment Normal Normal Normal 30 days EOM	- - - - - - - - -
11	AKR	The Company The Company ANA ASG AdvanPOS AdvanPOS	2 2 3 3 3 3	Receivables from related parties Sales revenue Sales revenue Sales revenue Receivables from related parties Sales revenue	115 14 49 447 227 371	90 days EOM Normal Normal Normal 30 days EOM Normal	- - - - - -
12	AMY	The Company AID ASG ATH ATH ATH	2 3 3 3 3 3	Receivables from related parties Other receivables from related parties Other revenue Other revenue Sales revenue Other receivables from related parties	37 20 97 279 144 58	45 days EOM 30 days EOM Normal Normal Normal 30 days EOM	- - - - - -
13	ANA	The Company The Company AAU AAU ABR ABR ACN A-DLoG A-DLoG AEU AEU AJP AKMC AKMC AKR AMY ASG B+B B+B B+B B+B ACA	2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3	Receivables from related parties Sales revenue Receivables from related parties Sales revenue Sales revenue Receivables from related parties Sales revenue Sales revenue Receivables from related parties Sales revenue Receivables from related parties Sales revenue Receivables from related parties Sales revenue Sales revenue Sales revenue Sales revenue Other receivables from related parties Sales revenue Rental revenue Interest revenue Sales revenue	18,860 34,433 10 10 1,470 1,433 161 113 4,099 66,489 5,178 441 8,625 34,789 169 3 396 24,345 2,631 826 999 14,229	45 days EOM Normal 60 days after invoice date Normal 30 days after invoice date 30 days after invoice date Normal 30 days after invoice date 60 days after invoice date Normal 60-90 days Normal 30 days EOM Normal Normal Normal Normal Normal Normal 60-90 days Normal Normal	- - - - - - - - - - - - - - - - - - - - - -

(Continued)

98 -

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
		Advanixs Corporate Advanixs Corporate AdvanPOS AdvanPOS	3 3 3 3	Sales revenue Receivables from related parties Receivables from related parties Sales revenue	$ 994 994 85,622 126,312	Normal 90 days after invoice date 30 days after invoice date Normal	- - - -
14	APL	The Company The Company AEU AEU AEU AJP ANA	2 2 3 3 3 3 3	Receivables from related parties Sales revenue Receivables from related parties Sales revenue Commission revenue Receivables from related parties Receivables from related parties	312 38 7,829 57,763 12,029 27 33	30 days after invoice date Normal 30 days after invoice date Normal Normal 60 days EOM 30 days after invoice date	- - - - - - -
15	ASG	The Company The Company AID AKR AMY AMY AMY ATH ATH ATH	2 2 3 3 3 3 3 3 3 3	Sales revenue Other revenue Sales revenue Sales revenue Receivables from related parties Sales revenue Other receivables from related parties Sales revenue Other receivables from related parties Receivables from related parties	460 891 4 898 550 7,125 5 2,505 206 887	Normal Normal Normal Normal 30 days EOM Normal 30 days EOM Normal 30 days EOM 30 days EOM	- - - - - - - - - -
16	ATC	The Company	2	Receivables from related parties	93,590	60 days EOM	-
17	ATH	The Company AKR	2 3	Receivables from related parties Sales revenue	173 11	30 days after invoice date Normal	- -
18	AXA	ACN ACN	3 3	Other receivables from related parties Other revenue	392 40,732	30 days EOM Normal	- -
19	A-DLoG	The Company The Company AEU AEU AEU AEU AKMC ANA	2 2 3 3 3 3 3 3	Receivables from related parties Sales revenue Sales revenue Receivables from related parties Other revenue Receivables from related parties Receivables from related parties Receivables from related parties	5,406 87,724 1,061 131 187 1,104 44 96	30 days after invoice date Normal Normal 30 days EOM Normal 30 days after invoice date 60 days after invoice date 30 days EOM	- - - - - - - -
20	Cermate (Shenzhen)	ACN ACN AKMC AKMC	3 3 3 3	Receivables from related parties Sales revenue Receivables from related parties Sales revenue	878 803 6,868 32,160	Immediate payment Normal 40 days EOM Normal	- - - -
							(Continued)

99 -

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
		Cermate (Shanghai) Cermate Cermate	3 3 3	Sales revenue Sales revenue Receivables from related parties	$ 26,272 20,048 2,876	Normal Normal 30 days EOM	- - -
21	Cermate (Shanghai)	Cermate (Shenzhen)	3	Sales revenue	535	Normal	-
22	Advanixs Corporate	The Company The Company The Company AKMC AKMC Cermate	2 2 2 3 3 3	Receivables from related parties Sales revenue Interest revenue Receivables from related parties Sales revenue Sales revenue	626,010 2,343,971 603 637,941 2,900,081 1,541	60-90 days Normal Normal 60-90 days Normal Normal	2 6 - 2 7 -
23	AAC (HK)	The Company The Company	2 2	Receivables from related parties Other revenue	1,419 7,447	45 days EOM Normal	- -
24	Advantech Corporate Investment	The Company The Company	2 2	Interest revenue Other receivables from related parties	3,268 355	Normal 90 days EOM	- -
25	AIN	The Company The Company The Company	2 2 2	Receivables from related parties Other revenue Sales revenue	123 3,220 10	60 days EOM Normal Normal	- - -
26	AID	The Company ASG ASG AiST	2 3 3 3	Receivables from related parties Other revenue Other receivables from related parties Other revenue	69 2,094 1,301 29	60 days EOM Normal 30 days EOM Normal	- - - -
27	AiST	The Company The Company	2 2	Receivables from related parties Sales revenue	10,368 283	60 days EOM Normal	- -
28	AMX	The Company	2	Other revenue	3,558	Normal	-
29	AdvanPOS	The Company The Company Advanixs Corporate	2 2 3	Receivables from related parties Sales revenue Sales revenue	349,650 566,683 622	60 days EOM Normal Normal	1 1 -
30	Dongguan Pou Yuen Digital Technology Co., Ltd.	ACN ACN ALNC ALNC	3 3 3 3	Sales revenue Receivables from related parties Sales revenue Receivables from related parties	9,025 893 2,887 2,107	Normal 90 days EOM Normal 90 days EOM	- - - -
31	Advantech Innovative Design Co., Ltd.	The Company	2	Receivables from related parties	5,329	30 days EOM	-
							(Continued)

100 -

Number (Note A)	Company Name	Counterparty	Flow of Transaction (Notes B and D)		Transaction	Details
				Financial Statement Account	Amount	Payment Terms	% to Consolidated Assets/Revenue (Note C)
32	B+B	The Company The Company ANA ANA B+B (CZ) B+B (CZ) B+B (CZ) B+B (CZ) BBI	2 2 3 3 3 3 3 3 3	Receivables from related parties Sales revenue Receivables from related parties Sales revenue Receivables from related parties Interest revenue Other revenue Other receivables from related parties Receivables from related parties	$ 4,528 6,492 1,847 5,668 800 840 3,778 42 23,498	90 days EOM Normal 45 days EOM Normal 45 days EOM Normal Normal 45 days EOM 45 days EOM	- - - - - - - - -
33	Cermate	The Company The Company Cermate (Shenzhen) Cermate (Shenzhen)	2 2 3 3	Receivables from related parties Sales revenue Sales revenue Receivables from related parties	4,673 4,005 85,779 26,681	30-60 days Normal Normal 30 days EOM	- - - -
34	BBI	AEU AEU Conel Automation	3 3 3	Receivables from related parties Sales revenue Sales revenue	65 87 19	45 days EOM 45 days EOM 45 days EOM	- - -
35	B+B (CZ)	B+B BBI BBI BBI Conel Automation Conel Automation Conel Automation Conel Automation	3 3 3 3 3 3 3 3	Sales revenue Receivables from related parties Sales revenue Other revenue Receivables from related parties Other receivables from related parties Other revenue Sales revenue	16,617 263 1,581 608 452 1,429 2,975 1,800	Normal 45 days EOM Normal 45 days EOM 45 days EOM 45 days EOM 45 days EOM Normal	- - - - - - - -
36	Conel Automation	B+B (CZ)	3	Interest revenue	186	Normal	-
37	Hangzhou Advantofine Automatin Tech. Co., Ltd.	ACN	3	Other receivables from related parties	505	30 days after invoice date	-
38	Advanixs Kun Shan Corp.	AKMC AKMC	3 3	Receivables from related parties Sales revenue	144,232 222,271	30 days EOM Normal	- 1

Note A: The parent company and its subsidiaries are numbered as follows:

Advantech Co., Ltd. is numbered “0”.
Subsidiaries are numbered from “1” onward.

(Continued)

101 -

(Concluded)

Note B: The flow of related-party transactions is as follows:

From the parent company to its subsidiary.
From the subsidiary to its parent company.
Between subsidiaries.

Note C: For assets and liabilities, amounts are shown as a percentage to consolidated total assets as of December 31, 2016, while revenues, costs and expenses are shown as a percentage to consolidated total operating revenues for the year ended December 31, 2016.

Note D: All intercompany transactions have been eliminated from consolidation.

102 -

AI assistant

Advantech — Annual Report 2016

52053_rns_2016-11-02_a3f2eae1-e731-4580-b3fd-d76cfaa6922c.pdf

Advantech Co., Ltd. and Subsidiaries

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

Business acquisitions

Impairment loss recognized on goodwill

Other Matter

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

ADVANTECH CO., LTD. AND SUBSIDIARIES

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

1) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

2) IFRIC 21 “Levies”

1) IFRS 9 “Financial Instruments”

Impairment of financial assets

Transition

4) IFRS 16 “Leases”

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

d. Basis of consolidation

e. Business combinations

g. Inventories

h. Investments in associates

i. Property, plant and equipment

j. Goodwill

1) Financial assets

iii. Loans and receivables

Financial liabilities at fair value through profit or loss

n. Provisions

o. Revenue recognition

2) Rendering of services

p. Leasing

1) The Group as lessor

q. Employee benefits

2) Retirement benefits

s. Taxation

1) Current tax

2) Deferred tax

3) Current and deferred tax for the year

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

a. Fair value measurements of intangible assets

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

9. DEBT INVESTMENTS WITH NO ACTIVE MARKET

10. NOTES AND TRADE RECEIVABLE

Trade Receivable

11. INVENTORIES

12. SUBSIDIARIES

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in Associates

Aggregate Information on the Associates

14. PROPERTY, PLANT AND EQUIPMENT

15. GOODWILL

16. OTHER INTANGIBLE ASSETS

17. PREPAYMENTS FOR LEASE OBLIGATIONS

18. BORROWINGS

Short-term Borrowings

19. OTHER LIABILITIES

20. RETIREMENT BENEFIT PLANS

Advantech Annual Report 2016