Advantech — Annual Report 2016

Nov 2, 2016

Advantech Co., Ltd.

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

INDEPENDENT AUDITORS’ REPORT

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

Opinion

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

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

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 Financial Statements section of our report. We are independent of the Company 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 financial statements for the year ended December 31, 2016. These matters were addressed in the context of our audit of the 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 financial statements for the year ended December 31, 2016 were as follows:

Investments accounted for using the equity method

The Company and its subsidiaries acquired 100% share of B+B SmartWorx, Inc. (B+B) for NT$3,296,048 thousand in January 4, 2016 and recognized the acquisition as investment accounted for using the equity method.

• 1 -

The evaluation on fair value of the assets, liabilities, and amount of goodwill as of the date of acquisition was based on the 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. After considering that the acquisition was a significant event and was transacted during the period of financial statements with a material impact on the financial statements, accuracy of merger transaction of B+B conducted by the Company was deemed to be a key audit matter.

Our key audit procedures performed in respect of the assets and liabilities as of the date of acquisition included the following:

1. Tested the acquisition balance sheet prepared by the management and checked the record by matching against the fair value of the assets and liabilities as of the date of acquisition.

2. Recalculated the value of goodwill recognized in the acquisition balance sheet.

Impairment assessment of investments accounted for using the equity method

The excess of cost of acquisition of investments accounted for using the equity method over the fair value of investees’ identifiable assets and liability as of the dates of acquisition should be recognized as goodwill. If there is any indication that goodwill is impaired, the management should assess if the carrying amount of goodwill is impaired. We have expressed our concerns on the related risks of impairment assessment on goodwill arising from acquisition of B+B since the impairment assessment of goodwill is based on the management’s significant judgment that involved 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 financial statements.

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

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

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

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.

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

• 2 -

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 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 financial statements.

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

1. Identify and assess the risks of material misstatement of the 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.

2. 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 Company's internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. 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 Company’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 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 Company to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the 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.

• 3 -

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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 financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and 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 financial statements shall prevail.

• 4 -

ADVANTECH CO., LTD.

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 25) Available-for-sale financial assets - current (Notes 4, 8 and 25) Notes receivable (Notes 4, 9 and 26) Trade receivables (Notes 4 and 9) Trade receivables from related parties (Notes 4 and 26) Other receivables Other receivables from related parties (Note 26) Inventories (Notes 4 and 10) Other current assets Total current assets NONCURRENT ASSETS Available-for-sale financial assets - noncurrent (Notes 4, 8 and 25) Investments accounted for using the equity method (Notes 4 and 11) Property, plant and equipment (Notes 4 and 12) Goodwill (Notes 4 and 13) Other intangible assets (Note 4) Deferred tax assets (Notes 4 and 18) Prepayments for business facilities Prepayment for investments Other noncurrent assets Total noncurrent assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 25) Trade payables Trade payables to related parties (Note 26) Other payables (Notes 14 and 17) Current tax liabilities (Notes 4 and 18) Short-term warranty provision (Note 4) Other current liabilities Total current liabilities NONCURRENT LIABILITIES Deferred tax liabilities (Notes 4 and 18) Net defined benefit liabilities (Notes 4, 15 and 17) Other noncurrent liabilities Total noncurrent liabilities Total liabilities EQUITY 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 translating foreign operations Unrealized gains (losses) on available-for-sale financial assets Total other equity Total equity TOTAL		2016 Amount % $ 2,008,247 6 34,348 - 700,269 2 67,223 - 1,543,604 5 3,908,448 11 105,929 - 19,002 - 1,935,873 6 38,361 - 10,361,304 30 1,694,801 5 15,208,839 44 6,938,084 20 111,599 - 78,321 - 136,130 1 22,676 - - - 5,661 - 24,196,111 70 $ 34,557,415 100 $ 8,845 - 1,550,969 4 2,610,642 8 2,699,374 8 1,036,650 3 49,155 - 153,992 - 8,109,627 23 988,099 3 211,170 1 34,937 - 1,234,206 4 9,343,833 27 6,330,741 18 100 - 6,330,841 18 6,058,884 18 4,473,276 13 8,435,785 24 12,909,061 37 (197,633) - 112,429 - (85,204) - 25,213,582 73 $ 34,557,415 100		2015
				Amount % $ 815,293 3 7,391 - - - 55,480 - 1,135,240 4 3,977,999 13 113,056 - 15,596 - 1,673,156 5 60,318 - 7,853,529 25 1,700,814 6 13,138,225 42 6,278,109 20 111,599 - 74,049 - 114,710 1 15,489 - 1,968,044 6 10,837 - 23,411,876 75 $ 31,265,405 100 $ 6,352 - 899,480 3 2,687,130 9 2,255,915 7 853,769 3 41,410 - 72,312 - 6,816,368 22 927,732 3 182,172 - 31,632 - 1,141,536 3 7,957,904 25 6,318,531 20 - - 6,318,531 20 5,587,555 18 3,962,842 13 7,098,449 23 11,061,291 36 271,859 1 68,265 - 340,124 1 23,307,501 75 $ 31,265,405 100

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

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

• 5 -

ADVANTECH CO., LTD.

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 (Notes 4 and 26) Sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 10, 17 and 26) GROSS PROFIT UNREALIZED LOSS ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) REALIZED GAIN ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) REALIZED GROSS PROFIT OPERATING EXPENSES (Notes 17 and 26) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses OPERATING PROFIT NONOPERATING INCOME Share of the profit of subsidiaries and associates accounted for using the equity method (Notes 4 and 11) Interest income (Note 4) Gains (losses) on disposal of property, plant and equipment (Note 4) Gains on disposal of investments (Notes 4 and 16) Foreign exchange losses, net (Notes 4, 17 and 28) Gains on financial instruments at fair value through profit or loss (Note 4) Dividend income (Note 4) Other income (Notes 8 and 26) Finance costs (Note 17)		2016 Amount % $ 30,173,747 99 327,352 1 30,501,099 100 21,604,247 70 8,896,852 30 (264,679) (1) 330,254 1 8,962,427 30 659,619 2 884,172 3 2,641,219 9 4,185,010 14 4,777,417 16 1,581,818 5 539 - 146,954 1 1,431 - (140,689) - 121,348 - 98,800 - 101,777 - (4,163) -		2015
				Amount % $ 28,673,906 99 321,746 1 28,995,652 100 20,758,574 72 8,237,078 28 (330,254) (1) 240,811 1 8,147,635 28 704,299 3 693,290 2 2,568,723 9 3,966,312 14 4,181,323 14 1,344,991 5 1,665 - (161) - 198,848 1 (88,859) - 83,798 - 105,445 - 112,567 - - - (Continued)

• 6 -

ADVANTECH CO., LTD.

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

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 18) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 15) Share of the other comprehensive loss of subsidiaries and associates accounted for using the equity method (Note 11) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 18) Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (Notes 4 and 16) Unrealized gains (losses) on available-for-sale financial assets (Notes 4 and 16) Share of other comprehensive income (loss) of subsidiaries and associates accounted for using the equity method (Notes 4, 11 and 16) Income tax relating to item that may be reclassified subsequently to profit or loss (Notes 4, 16 and 18) Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR		2016 Amount % $ (41,381) - (155) - 1,866,279 6 6,643,696 22 976,834 3 5,666,862 19 (31,039) - 1,479 - 5,277 - (24,283) - (561,518) (2) (5,765) - 45,794 - 96,161 - (425,328) (2) (449,611) (2) $ 5,217,251 17		2015
				Amount % $ (67,063) - (53) - 1,691,178 6 5,872,501 20 768,155 2 5,104,346 18 (18,736) - (2,683) - 3,185 - (18,234) - (82,566) - (557,594) (2) 65,031 - 13,620 - (561,509) (2) (579,743) (2) $ 4,524,603 16

(Continued)

• 7 -

ADVANTECH CO., LTD.

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 (Note 19) Basic Diluted	2016 Amount % $8.96 $8.90	2015
		Amount % $8.08 $8.05

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

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

• 8 -

ADVANTECH CO., LTD.

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

BALANCE AT JANUARY 1, 2015 Appropriation of the 2014 earrings Legal reserve Cash dividends distributed by the Company Issue of ordinary shares under employee share options Compensation cost recognized for employee share options Change in capital surplus from investments in associates accounted for using equity method Difference between considerations and carrying amounts of subsidiaries acquired or disposed of Changes in percentage of ownership interest in subsidiaries Net profit for the year ended December 31, 2015 Other comprehensive income for the year ended December 31, 2015, net of income tax Total comprehensive income for the year ended December 31, 2015 BALANCE AT DECEMBER 31, 2015 Appropriation of the 2015 earrings Legal reserve Cash dividends distributed by the Company Issue of ordinary shares under employee share options Compensation cost recognized for employee share options Change in capital surplus from investments in associates accounted for using equity method Difference between considerations and carrying amounts of subsidiaries acquired or disposed of Net profit for the year ended December 31, 2016 Other comprehensive income for the year ended December 31, 2016, net of income tax Total comprehensive income for the year ended December 31, 2016 BALANCE AT DECEMBER 31, 2016	Issued Capital (Notes 16 and 20) Capital Surplus Advance Receipts (Notes 4, 16 Share Capital for Share Capital Total and 20) $ 6,301,031 $ 11,060 $ 6,312,091 $ 5,306,958 - - - - - - - - 17,500 (11,060) 6,440 24,438 - - - 261,877 - - - 2,172 - - - (11,457) - - - 3,567 - - - - - - - - - - - - 6,318,531 - 6,318,531 5,587,555 - - - - - - - - 12,210 100 12,310 104,758 - - - 338,194 - - - 10,533 - - - 17,844 - - - - - - - - - - - - $ 6,330,741 $ 100 $ 6,330,841 $ 6,058,884	Retained Earnings (Notes 4, 16 and 17) 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 (Notes 4 and 16) Exchange Differences on Unrealized Gain Translating (Loss) on Foreign Available-for-sale 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	Total Equity $ 22,346,019 - (3,787,255) 30,878 261,877 2,172 (74,360) 3,567 5,104,346 (579,743) 4,524,603 23,307,501 - (3,791,118) 117,068 338,194 10,533 14,153 5,666,862 (449,611) 5,217,251 $ 25,213,582
	Advance Receipts Share Capital for Share Capital $ 6,301,031 $ 11,060 - - - - 17,500 (11,060) - - - - - - - - - - - - - - 6,318,531 - - - - - 12,210 100 - - - - - - - - - - - - $ 6,330,741 $ 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 financial statements.

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

• 9 -

ADVANTECH CO., LTD.

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 Impairment loss recognized (reversal of impairment loss) of trade receivables Net gain on financial assets or liabilities at fair value through profit or loss Finance costs Interest income Dividend income Compensation cost of employee share options Share of profit of subsidiaries and associates accounted for using the equity method Loss (gain) on disposal of property, plant and equipment Gain on disposal of investments Realized loss (gain) on the transactions with subsidiaries and associates Changes in operating assets and liabilities Financial assets held for trading Notes receivable Trade receivables Trade receivables to related parties Other receivables Other receivables to related parties Inventories Other current assets Other financial assets Trade payables Trade payables to related parties Other payables Short-term warranty provision Net defined benefit liabilities Other current liabilities Other noncurrent liabilities Cash generated from operations Interest received Dividend received Interest paid Income tax paid Net cash generated from operating activities	2016 $ 6,643,696 239,135 78,294 96 (79,967) 4,163 (539) (98,800) 338,194 (1,581,818) (146,954) (1,431) (65,575) 55,503 (11,743) (408,460) 69,551 7,127 (3,406) (262,717) 21,957 - 651,489 (76,488) 357,649 7,745 (2,041) 81,680 3,305 5,819,645 539 98,800 (4,163) (653,568) 5,261,253	2015 $ 5,872,501 242,916 74,874 (2,203) (16,735) - (1,665) (105,445) 261,877 (1,344,991) 161 (198,848) 89,443 21,877 (10,161) (139,295) 36,412 (26,992) 45 (268,954) (8,670) 18,650 121,548 253,194 185,158 5,291 (813) 11,088 (1,975) 5,068,288 1,665 105,445 - (542,066) 4,633,332 (Continued)

• 10 -

ADVANTECH CO., LTD.

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

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale financial assets Proceeds from sale of available-for-sale financial assets Acquisition of investments accounted for using equity method Proceeds from disposal of investments accounted for using the equity method Prepayment for investments Proceeds of the capital reduction of investments accounted for using the equity method Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease in refundable deposits Payments for intangible assets Proceeds from disposal of intangible assets Decrease in prepayments for equipment Dividends received from subsidiaries and associates Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in guarantee deposits received Cash dividends paid Exercise of employee share options Net cash used in financing activities NET INCREASE (DECREASE) 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 (4,128,000) 3,429,410 (293,281) 336,958 - 232,330 (930,598) 239,507 5,176 (76,875) 58 11,809 779,257 (394,249) - (3,791,118) 117,068 (3,674,050) 1,192,954 815,293 $ 2,008,247	2015 (3,710,080) 5,754,213 (688,577) - (1,968,044) 42,927 (1,181,375) 294 187 (62,714) 31 14,609 687,589 (1,110,940) (119) (3,787,255) 30,878 (3,756,496) (234,104) 1,049,397 $ 815,293

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

(Concluded)

• 11 -

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

ADVANTECH CO., LTD.

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, 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 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

Rule No. 1050050021 and Rule No. 1050026834 issued by the FSC stipulated that starting January 1, 2017, the Company should apply the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”) issued by the IASB and 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”

(Continued)

• 12 -

New, Amended or Revised Standards and Interpretations (the“New IFRSs”) Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” IFRS 14 “Regulatory Deferral Accounts” Amendment to IAS 1 “Disclosure Initiative” Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization” Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” Amendment to IAS 27 “Equity Method in Separate Financial Statements” Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets” Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting” IFRIC 21 “Levies”

Effective Date Announced by IASB (Note 1)

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

• Note 1: Unless stated otherwise, the above New 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 Company’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 Company 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) 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.

• 13 -

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 Company or another entity in the same group or the market price of the equity instruments of the Company or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Company 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 Company, but also of other entities outside the Company. 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 Company 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 Company is a related party of the Company. Consequently, the Company 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.

• 3) 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.

• 14 -

• 4) 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.

• 5) 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 Company 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 Company has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Company’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 financial statements were authorized for issue, the Company 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 Company’s financial position and financial performance, and will disclose these other impacts when the assessment is completed.

• 15 -

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

The Company 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 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

• 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 Company’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;

• 16 -

• 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 Company 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 Company takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with 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;

• 17 -

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

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

• 18 -

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

In determining whether to recognize a deferred tax asset, the Company 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 Company’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Company 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

IAS 28 “Investments in Associates and Joint Ventures,” was amended in this annual improvement.

The amendment to IAS 28 clarified that when the Company (non-investment entity) applies the equity method to account for investment in an associate that is an investment entity, the Company 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.

The Company shall apply the aforementioned amendments retrospectively.

• 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 Company 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 financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’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 parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

• 19 -

• b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values.

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.

When preparing its parent company only financial statements, the Company used equity method to account for its investment in subsidiaries and associates. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owner of the Company in its financial statements, adjustments arising from the differences in accounting treatment between parent company only basis and consolidated basis were made to investments accounted for by equity method, share of profit or loss of subsidiaries and associates, share of other comprehensive income of subsidiaries and associates and related equity items, as appropriate, in the parent company only financial statements.

• 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 financial statements are authorized for issue; and

• 3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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

• d. Business combinations

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

• 20 -

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.

e. Foreign currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’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 financial statements, the functional currencies of the Company’s foreign operations (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.

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.

f. 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 on the balance sheet date.

• g. Investment in subsidiaries

The Company uses the equity method to account for its investments in subsidiaries.

Subsidiaries are the entities (including structured entities) controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of other equity of the subsidiaries.

• 21 -

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control of the subsidiaries are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received.

When the Company’s share of losses of a subsidiary exceeds its interest in that subsidiary (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 Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary 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 Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss.

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the entire financial statements of the invested company. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes the reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of the previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

Profits and losses resulting from downstream transactions with subsidiaries are eliminated in full. Profits and losses resulting from upstream with subsidiaries and sidestream transactions between subsidiaries are recognized in the financial statements only to the extent of interests in the subsidiaries that are not related to the Company.

h. Investment in associates

An associate is an entity over which the Company has significant influence and that is not a subsidiary.

The Company uses the equity method to account for its investment in associates.

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

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate 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 Company’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.

• 22 -

When the Company 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 Company’s proportionate interest in the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Company’s share of the equity of associates. If the Company’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 Company’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 Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

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.

The Company 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 Company 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 the group-entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the financial statements only to the extent that interests in the associate are not related to the Company.

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.

Freehold land is not depreciated.

Depreciation on properties, 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 and is recognized in profit or loss.

• 23 -

• 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 Company’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.

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) 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 Company 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 Company 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.

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.

• 24 -

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 the Company 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.

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 dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 25.

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 Company’s right to receive the dividends is established.

• 25 -

iii. Loans and receivables

Loans and receivables (including trade receivables and cash and cash equivalent) 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, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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 Company’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 is 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.

• 26 -

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.

• c) Derecognition of financial assets

The Company 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 the Company 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 the Company 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.

Financial liabilities held for trading are stated at fair value, with any gain or loss arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest or dividend paid on the financial liability. Fair value is determined in the manner described in Note 25.

• 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.

• 27 -

4) Derivative financial instruments

The Company enters into forward contracts to manage its exposure to foreign exchange rate risks.

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.

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. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

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 Company of the expenditure required to settle the Company’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 Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• b) The Company 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 Company; and

• e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Company 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.

• 28 -

3) Royalties

Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Royalties determined on a time basis are recognized on a straight-line basis over the period of the agreement. Royalty arrangements that are based on production, sales and other measures are recognized by reference to the underlying arrangement.

• 4) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Company 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 Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate.

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 Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and amortized on a straight-line basis over the lease term.

• 2) The Company 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 service cost, and past service cost) are recognized as employee benefits expense in the period they occur, or when the plan amendment or curtailment occurs. 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.

• 29 -

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’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 Company’s best estimate 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 Company 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.

• 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.

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 Company 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.

• 30 -

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 Company 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.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience 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.

Impairment assessment of investments accounted for using the equity method

Determining whether the goodwill included in the investments in subsidiaries is impaired requires an estimation of the value in use of the cash-generating units which are expected to benefit from the synergies of the combination and to which the goodwill has been allocated since the acquisition date. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating units and a suitable discount rate in order to calculate the 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		December 31	December 31
		2016 $ 325 2,007,922 $ 2,008,247	2015 $ 325 814,968 $ 815,293

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

Demand deposits	December 31
	2016 2015 0.0001%-0.35% 0.001%-0.300%

• 31 -

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at held for trading-current Forward exchange contracts Financial liabilities held for trading-current Forward exchange contracts		December	31
		2016 $ 34,348 $ 8,845	2015 $ 7,391 $ 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	USD8,414/NTD266,779
			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 Company 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 Company’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.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

==> picture [479 x 137] intentionally omitted <==

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

December 31
2016 2015
Current
Domestic investments
Mutual funds $ 700,269 $ -
Noncurrent
Domestic investments
Quoted shares $ 1,694,801 $ 1,700,814
----- End of picture text -----

• 32 -

For its securities borrowing and lending transactions, the Company placed some of its quoted domestic stocks, recorded under available-for-sale assets - noncurrent, in a trust at Chinatrust Commercial Bank. As of December 31, 2016 and 2015, the stocks 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 Company recognized gains of $53 thousand and $235 thousand during the years ended December 31, 2016 and 2015, respectively. These gains were recorded under other nonoperating income.

9. NOTES AND TRADE RECEIVABLES

Notes receivable (include related parties) Trade receivable Less: Allowance for impairment loss		**December 31 **	**December 31 **
		2016 $ 67,223 $ 1,560,620 (17,016) $ 1,543,604	2015 $ 55,480 $ 1,156,139 (20,899) $ 1,135,240

Trade Receivables

The average credit period of sales of goods was from 30 to 90 days. In determining the recoverability of a trade receivable, the Company 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 Company 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 are 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 positions.

For the trade receivables balances that were past due at the end of the reporting period, the Company 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 Company 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 $ 1,404,166 140,291 1,873 14,290 $ 1,560,620	2015 $ 968,470 177,970 2,060 7,639 $ 1,156,139

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

• 33 -

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

1 to 30 days 31 to 60 days 61 to 90 days		December 31	December 31
		2016 $ 124,761 9,590 5,940 $ 140,291	2015 $ 141,583 12,722 11,681 $ 165,986

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

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

Individually Assessed for Impairment Collectively Assessed for Impairment Balance at January 1, 2015 $ 19,802 $ 3,330 Less: Impairment losses recognized on receivables (2,203) - Less: Amounts written off during the year as uncollectible (30) - Balance at December 31, 2015 $ 17,569 $ 3,330 Balance at January 1, 2016 $ 17,569 $ 3,330 Plus: Impairment losses recognized on receivables 96 - Less: Amounts written off during the year as uncollectible (3,979) - Balance at December 31, 2016 $ 13,686 $ 3,330

Total $ 23,132 (2,203) (30) $ 20,899 $ 20,899 96 (3,979) $ 17,016

The Company recognized impairment losses of $1,432 thousand both on trade receivables as of December 31, 2016 and 2015.

These amounts mainly related to customers that were in liquidation or in severe financial difficulties. The Company did not hold any collateral over these balances.

10. INVENTORIES

Finished goods Work in process Raw materials Inventories in transit		December 31	December 31
		2016 $ 707,014 462,358 732,715 33,786 $ 1,935,873	2015 $ 673,949 351,292 637,327 10,588 $ 1,673,156

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2016 and 2015 was $21,532,273 thousand and $20,644,285 thousand, respectively.

• 34 -

The costs of inventories were decreased by $89,589 thousand and $107,604 thousand as of December 31, 2016 and 2015, respectively, when stated at the lower of cost or net realizable values.

11. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates		December 31	December 31
		2016 $ 14,626,539 582,300 $ 15,208,839	2015 $ 12,678,469 459,756 $ 13,138,225

• a. Investments in subsidiaries

Unlisted companies Advantech Automation Corp. (BVI) (AAC (BVI)) Advantech Technology Co., Ltd. (ATC) Advantech Corporate Investment Advannixs Corp. (formerly Advansus Corp.) Advantech Europe Holding B.V. (AEUH) Advantech-LNC Technology Co., Ltd. (ALTC) AdvanPOS Technology Co., Ltd. (AdvanPOS) ACA Digital Corp. (ACA) (Note 1) Advantech KR Co., Ltd. (AKR) Advantech Japan Co., Ltd. (AJP) Advantech Co. Singapore Pte, Ltd. (ASG) Advantech iFactory Co., Ltd. (Note 2) Advantech Brasil Ltda. (ABR) Advantech Co. Malaysia Sdn. Bhd. (AMY) Advantech Australia Pty Ltd. (AAU) Advantech Industrial Computing India Private Limited (AIN) Advantech Innovative Design Co., Ltd. Advantech Electronics, S. De R. L. Dec. V. (AMX) BEMC Holdings Corporation (BEMC) Advantech Intelligent Service (AiST) (Note 3)		December 31	December 31
		2016 $ 4,021,994 3,243,871 1,639,126 979,563 864,191 493,481 577,260 - 228,407 218,331 72,186 - 75,531 45,752 34,737 1,663 9,633 594 1,959,805 160,414 $ 14,626,539	2015 $ 3,735,761 3,626,645 1,558,953 999,983 898,536 516,626 358,662 319,859 202,503 179,407 82,906 60,088 48,320 36,439 30,171 13,479 8,569 1,562 - - $ 12,678,469

Note 1: In 2016, ACA was merged by AdvanPOS and ACA ceased to exist.

Note 2: In 2016, Advantech iFactory Co., Ltd. was liquidated.

• Note 3: Due to the adjustment of investment structure, the Company directly acquired 100% share equity of AiST from Advantech Investment Corporate.

• 35 -

As the end of the reporting period, the Company’s percentage of ownership and voting rights in its investees were as follows:

AAC (BVI) ATC Advantech Corporate Investment Advanixs Corporation (formerly Advansus Corp.) AEUH ALTC (Note 22) AdvanPOS (Note 22) ACA AKR AJP ASG Advantech iFactory Co., Ltd. ABR AMY AAU AIN Advantech Innovative Design Co., Ltd. AMX BEMC (Note 21) AiST	December 31
	2016 2015 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 81.17% 89.93% 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% 100.00% 100.00% 100.00% 99.99% 99.99% 100.00% 100.00% 100.00% 100.00% 60.00% - 100.00% -

Refer to Note 26 to the consolidation financial statements of the year ended December 31, 2016 for the disclosures of the Company’s acquisitions of B+B.

The financial statements used as basis for calculating investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments have been audited, except those of AIN, AMX, Advantech Innovative Design Co., Ltd. and Advantech iFactory Co., Ltd. (liquidated in 2016). Management believes there would have been no material impact on the equity method accounting or the calculation of the share of profit or loss and other comprehensive income had the financial statements of the above subsidiaries been audited.

The investments in subsidiaries 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 subsidiaries’ financial statements audited by the auditors for the same years.

b. Investments in associates

Listed companies Axiomtek Co., Ltd. Unlisted companies AIMobile Co., Ltd. (AIMobile) Jan Hsiang Electronics Co., Ltd. (Jan Hsiang)		December 31	December 31
		2016 $ 464,155 109,241 8,904 $ 582,300	2015 $ 450,246 - 9,510 $ 459,756

• 36 -

The Company’s share of: Profit from continuing operations Other comprehensive income Total comprehensive income for the year	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2016 $ 67,390 1,575 $ 68,965	2015 $ 110,142 25 $ 110,167

The Company acquired AIMobile as an associate in 2016.

The investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments was based on the associates’ financial statements audited by the CPAs for the same years.

12. PROPERTY, PLANT, AND EQUIPMENT

Cost Balance at January 1, 2015 Additions Disposals Reclassifications Balance at December 31, 2015 Accumulated depreciation and impairment Balance at January 1, 2015 Disposals Depreciation expense Balance at December 31, 2015 Carrying amounts at December 31, 2015 Cost Balance at January 1, 2016 Additions Disposals Reclassifications Balance at December 31, 2016 Accumulated depreciation and impairment Balance at January 1, 2016 Disposals Depreciation expense Balance at December 31, 2016 Carrying amounts at December 31, 2016	Freehold Land $ 2,774,795 - - - $ 2,774,795 $ - - - $ - $ 2,774,795 $ 2,774,795 - (78,305 ) - $ 2,696,490 $ - - - $ - $ 2,696,490	Buildings $ 2,388,351 82,015 - - $ 2,470,366 $ 323,799 - 47,874 $ 371,673 $ 2,098,693 $ 2,470,366 124,964 (16,248 ) 1,563,490 $ 4,142,572 $ 371,673 (7,023 ) 55,755 $ 420,405 $ 3,722,167	Equipment $ 835,167 61,640 (67,681 ) 26,655 $ 855,781 $ 621,796 (67,681 ) 82,301 $ 636,416 $ 219,365 $ 855,781 22,004 (36,127 ) 55,691 $ 897,349 $ 636,416 (35,610 ) 70,612 $ 671,418 $ 225,931	Office Equipment $ 250,418 23,935 (6,705 ) - $ 267,648 $ 150,528 (6,331 ) 37,257 $ 181,454 $ 86,194 $ 267,648 20,968 (15,700 ) 11,053 $ 283,969 $ 181,454 (14,978 ) 35,077 $ 201,553 $ 82,416	Other Facilities C $ 489,059 85,436 (5,392 ) 4,542 $ 573,645 $ 318,704 (5,311 ) 75,484 $ 388,877 $ 184,768 $ 573,645 42,814 (43,656 ) 23,000 $ 595,803 $ 388,877 (39,872 ) 77,691 $ 426,696 $ 169,107	onstruction in Progress $ 31,996 928,621 - (46,323) $ 914,294 $ - - - $ - $ 914,294 $ 914,294 805,658 - (1,677,979) $ 41,973 $ - - - $ - $ 41,973	Total $ 6,769,786 1,181,647 (79,778 ) (15,126) $ 7,856,529 $ 1,414,827 (79,323 ) 242,916 $ 1,578,420 $ 6,278,109 $ 7,856,529 1,016,408 (190,036 ) (24,745) $ 8,658,156 $ 1,578,420 (97,483 ) 239,135 $ 1,720,072 $ 6,938,084

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

Buildings Main buildings 45-60 years Electronic equipment 5 years Engineering systems 50 years Equipment 2-8 years Office equipment 2-5 years Other facilities 2-5 years

• 37 -

13. GOODWILL

Cost Balance at January 1 Balance at December 31		December 31	December 31
		2016 $ 111,599 $ 111,599	2015 $ 111,599 $ 111,599

14. OTHER LIABILITIES

Other payables Salaries or bonuses Payable for royalties Payable for annual leave Others (Note)		December 31	December 31
		2016 $ 1,840,482 179,207 36,701 642,984 $ 2,699,374	2015 $ 1,753,360 105,186 25,650 371,719 $ 2,255,915

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

15. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (“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.

b. Defined benefit plans

The defined benefit plan adopted by the Company 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 contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy.

• 38 -

The amounts included in the balance sheets in respect of the Company’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
		2016 2015 $ 343,036 $ 327,854 (131,866) (145,682) 211,170 182,172 $ 211,170 $ 182,172

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	$ 308,456	$ (144,207)	$ 164,249
Service cost
Current service cost	2,344	-	2,344
Past service cost	1,340	-	1,340
Net interest expense (income)	5,784	(2,774)	3,010
Recognized in profit or loss	9,468	(2,774)	6,694
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-	(1,019)	(1,019)
Actuarial (gain) loss - changes in
demographic assumptions	12,031	-	12,031
Actuarial (gain) loss - changes in financial
assumptions	9,903	-	9,903
Actuarial (gain) loss - experience
adjustments	(2,179)	-	(2,179)
Recognized in other comprehensive income	19,755	(1,019)	18,736
Contributions from the employer	-	(7,507)	(7,507)
Benefits paid	(9,825)	9,825	-
Balance at December 31, 2015	327,854	(145,682)	182,172
Service cost
Current service cost	2,645	-	2,645
Net interest expense (income)	5,328	(2,429)	2,899
Recognized in profit or loss	7,973	(2,429)	5,544
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-	1,402	1,402
Actuarial (gain) loss - changes in
demographic assumptions	8,515	-	8,515
Actuarial (gain) loss - changes in financial
assumptions	10,487	-	10,487
Actuarial (gain) loss - experience
adjustments	10,635	-	10,635
Recognized in other comprehensive income	29,637	1,402	31,039
Contributions from the employer	-	(7,585)	(7,585)
Benefits paid	(22,428)	22,428	-
Balance at December 31, 2016	$ 343,036	$ (131,866)	$ 211,170

• 39 -

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 $ 1,230 868 1,010 1,954 $ 5,062	2015 $ 1,075 838 2,368 1,963 $ 6,244

Through the defined benefit plans under the Labor Standards Law, the Company 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% 1.625% 3.250% 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 decrease/increase 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 $ (10,694) $ 11,160 $ 10,775 $ (10,384)	2015 $ (10,254) $ 10,705 $ 10,360 $ (9,980)

• 40 -

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 $ 7,601 12.7 years	2015 $ 7,563 12.8 years

16. 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 common 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 stock dividends

December 31

2016 2015 $ 3,396,888 $ 3,396,888 931,849 931,849 17,844 - 4,246 4,246 1,077,084 792,341 78,614 78,614 (Continued)

• 41 -

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 $ 23,231 529,128 $ 6,058,884	2015 $ 12,698 370,919 $ 5,587,555 (Concluded)

• 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.

• c. Retained earnings and dividend 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 dividend 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, please refer to c. employee benefits expense in Note 17.

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 dividend 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 stock 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.

• 42 -

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

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
	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

• 43 -

• 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 reclassified to profit or loss on sale of available-for-sale financial assets Share of unrealized gain (loss) on revaluation of available-for-sale financial assets of subsidiaries accounted for using the equity method Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2016 $ 68,265 (4,334) (1,431) 49,929 $ 112,429	2015 $ 563,277 (358,746) (198,848) 62,582 $ 68,265

17. NET PROFIT AND OTHER COMPREHENSIVE INCOME FROM CONTINUING OPERATIONS

• a. Finance costs

Interest on loans from related parties Interest on short-term bank loans 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 expenses General and administrative expenses Research and development expenses	For the Year Ended	For the Year Ended	December 31
	2016 $ 3,871 292 $ 4,163 For the Year Ended		2015 $ - - $ - December 31
		2016 $ 239,135 78,294 $ 317,429 $ 55,527 183,608 $ 239,135 $ 277 13 52,694 25,310 $ 78,294	2015 $ 242,916 74,874 $ 317,790 $ 51,653 191,263 $ 242,916 $ 210 145 52,752 21,767 $ 74,874

• 44 -

c. Employee benefits expense

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans (Note 15) Share-based payments - equity - settled Other employee benefits Total employee benefits 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 $ 2,978,334 118,917 5,062 123,979 338,194 147,018 $ 3,587,525 $ 743,057 2,844,468 $ 3,587,525	2015 $ 2,792,674 115,737 6,244 121,981 261,877 141,631 $ 3,318,163 $ 685,258 2,632,905 $ 3,318,163

• 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:

Employees’ compensation Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2016 Cash $ 243,000 12,300	2015
		Cash $ 200,000 12,000

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

• 45 -

• 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:

Bonus to employees Remuneration of directors and supervisors	For the Year Ended December 31, 2014
	Cash Bonus $ 126,000 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’ meetings on May 28, 2015 and the amounts recognized in the financial statements for the years ended December 31, 2014.

Information on bonuses to employees and remuneration of directors and supervisors resolved by the shareholders’ meetings in 2015 is available on 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	For the Year Ended	For the Year Ended	December 31
		2016 $ 445,744 (586,433) $ (140,689)	2015 $ 603,588 (692,447) $ (88,859)

18. INCOME TAXES

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

Current tax In respect of the current year Income tax on unappropriated earnings Adjustments for prior years Deferred tax In respect of the current year Adjustments for prior years Income tax expense recognized in profit or loss	For the Year Ended	For the Year Ended	December 31
		2016 $ 738,950 71,661 25,838 836,449 140,385 - 140,385 $ 976,834	2015 $ 682,972 62,541 (77) 745,436 23,860 (1,141) 22,719 $ 768,155

• 46 -

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

Profit before tax Income tax expense calculated at the statutory rate Tax-exempt income Unrecognized deductible temporary differences Unrecognized investment credits Income tax on unappropriated earnings Land value increment tax Adjustments for prior years’ tax 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 $ 6,643,696 $ 1,129,428 (167,214) - (87,000) 71,661 4,121 25,838 $ 976,834	2015 $ 5,872,501 $ 998,325 (214,892) (20,742) (57,000) 62,541 - (77) $ 768,155

The applicable tax rate used above is the corporate tax rate of 17% payable by the Company.

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 5,277 $ 101,438	2015 $ 13,620 3,185 $ 16,805

c. Current tax assets and liabilities

Current tax liabilities Income tax payable		December 31	December 31
		2016 $ 1,036,650	2015 $ 853,769

• 47 -

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

				Recognized in	Recognized in	Recognized in
					Other
	Opening		Recognized in	Comprehensive
	Balance		Profit or Loss		Income		Closing Balance
Deferred tax assets
Temporary differences
Unrealized gross profit	$	56,143	$ (11,147)	$		-	$ 44,996
Unrealized loss on inventory
write-down		18,293	(3,063)			-	15,230
Defined benefit obligation		16,003	(347)			-	15,656
Unrealized exchange losses		8,545	(8,545)			-	-
Donation expense		2,550	(2,550)			-	-
Unrealized warranty liabilities		7,040	1,316			-	8,356
Exchange difference on foreign
operations		-	-		40,479		40,479
Remeasurement on defined
benefit plans		6,136	-		5,277		11,413
	$	114,710	$ (24,336)	$	45,756		$ 136,130
Deferred tax liabilities
Temporary differences
Unappropriated earnings of
subsidiaries	$	868,659	$ 113,511	$		-	$ 982,170
Exchange difference on foreign
operations		55,682	-		(55,682)		-
Remeasurement on defined
benefit plan		3,391	-			-	3,391
Unrealized exchange gain		-	2,538			-	2,538
	$	927,732	$ 116,049	$	(55,682)		$ 988,099
For the year ended December 31,	2015
				Recognized in
					Other
	Opening		Recognized in	Comprehensive
	Balance		Profit or Loss		Income		Closing Balance
Deferred tax assets
Temporary differences
Unrealized gross profit	$	40,938	$ 15,205	$		-	$ 56,143
Unrealized loss on inventory
write-down		15,771	2,522			-	18,293
Defined benefit obligation		16,141	(138)			-	16,003
Unrealized exchange losses		-	8,545			-	8,545
Donation expense		-	2,550			-	2,550
							(Continued)

• 48 -

Unrealized warranty liabilities Remeasurement on defined benefit plans Deferred tax liabilities Temporary differences Unappropriated earnings of subsidiaries Exchange difference on foreign operations Remeasurement on defined benefit plan Unrealized exchange gain	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 6,140 $ 900 $ - $ 7,040 2,951 - 3,185 6,136 $ 81,941 $ 29,584 $ 3,185 $ 114,710 $ 807,836 $ 60,823 $ - $ 868,659 69,302 - (13,620) 55,682 3,391 - - 3,391 8,520 (8,520) - - $ 889,049 $ 52,303 $ (13,620) $ 927,732 (Concluded)

• e. Integrated income tax

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%

f. 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.

19. EARNINGS PER SHARE

Unit: NT$ Per Share

Basic earnings per share Diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 8.96 $ 8.90	2015 $ 8.08 $ 8.05

• 49 -

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

	For the Year Ended December 31	For the Year Ended December 31
	2016	2015
Earnings used in the computation of basic earnings per share	$ 5,666,862	$ 5,104,346
Earnings used in the computation of diluted earnings per share	$ 5,666,862	$ 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	For the Year Ended	December 31
		2016 632,148 3,492 1,168 636,808	2015 631,633 1,372 1,202 634,207

If the Company offered to settle compensation paid to employees in cash or shares, the Company 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.

20. 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 price equal to the closing price of the Company’s common shares listed on the grant date, and the exercise prices of those granted in 2016 and 2014 were 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.

• 50 -

Information on employee share options was as follows:

Employee Share Options 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$)	2016 Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 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:

Employee Share Options 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

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 dividend 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.

• 51 -

21. ACQUISITION OF SUBSIDIARIES - WITH OBTAINED CONTROL

			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 Corp.	Production and sale of	May 27, 2016	100	$	459,648
(formerly Yeh-Chiang	industrial automation
Technology Kun Shan	products
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), please refer to Table 8.

To expand the Company’s global brand market in industrial network communications and operations in China, the Company acquired B+B SmartWorx Inc. and Advanixs Kun Shan Corp. (formerly Yeh-Chiang Technology Kun Shan Co., Ltd.). For details about the acquisition of B+B SmartWorx Inc. and Advanixs Kun Shan Corp., please refer to Note 26 to the consolidated financial statements for the year ended December 31, 2016.

22. PARTIAL ACQUISITION OR DISPOSAL OF SUBSIDIARIES - WITHOUT LOSS OF CONTROL

• a. In 2015, the Company subscribed for an additional 6,533 thousand shares of AdvanPOS, increasing the Company’s equity interest from 84.01% to 100%.

• 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%.

• c. In the first quarter of 2016, the Company acquired 40% equity in Hanzhou Advantofine Automation Co., Ltd., increasing the Company’s equity interest from 60% to 100%.

The above transactions were accounted for as equity transactions, since the Company did not cease to have control over these subsidiaries. For details about the above transactions, please refer to Note 27 to the consolidated financial statements for the year ended December 31, 2016.

23. OPERATING LEASE ARRANGEMENTS

The Company as Lessee

Operating leases are mainly leases of warehouses with lease term of 1 year. The future minimum lease payments of non-cancellable operating lease commitments were as follows:

Not later than 1 year		December	31
		2016 $ 280	2015 $ 5,352

• 52 -

The lease payments recognized in profit or loss for the current year were as follows:

Minimum lease payment	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 12,079	2015 $ 15,455

24. CAPITAL MANAGEMENT

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

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

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

Key management personnel of the Company 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 Company may adjust the amount of dividends paid to shareholders, the number of new shares issued, and the amount of new debt issued.

25. 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 Available-for-sale financial assets Securities listed in ROC Equity securities Mutual funds Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - $ 1,694,801 700,269 $ 2,395,070 $ -	Level 2 $ 34,348 $ - - $ - $ 8,845	Level 3 $ - $ - - $ - $ -	Total $ 34,348 $ 1,694,801 700,269 $ 2,395,070 $ 8,845

• 53 -

December 31, 2015

Financial assets at FVTPL Derivative financial assets Available-for-sale financial assets Securities listed in ROC Equity securities Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - $ 1,700,814 $ -	Level 2 $ 7,391 $ - $ 6,352	Level 3 $ - $ - $ -	Total $ 7,391 $ 1,700,814 $ 6,352

There were no transfers between Level 1 and 2 in the current and prior periods.

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

Derivatives held by the Company 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.

• b. Categories of financial instruments

Financial assets Fair value through profit or loss (FVTPL) Held for trading Loans and receivables (Note 1) Available-for-sale financial assets Financial liabilities Fair value through profit or loss (FVTPL) Held for trading Measured at amortized cost (Note 2)	December 31
	2016 2015 $ 34,348 $ 7,391 7,652,453 6,112,664 2,395,070 1,700,814 8,845 6,352 6,860,985 5,842,525

• Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, note receivables, trade receivables, trade receivables from related parties, and other receivables (including those due from related parties).

• Note 2: The balances included financial liabilities measured at amortized cost, which comprise trade and other payables (including those to related parties).

• 54 -

c. Financial risk management objectives and policies

The Company’s major financial instruments include equity investments, trade receivables and trade payables. The Company’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 Company 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 Company 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 Company’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 Company 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 Company’s current derivative instrument management.

1) Market risk

The Company’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 Company 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 Company’s exposure to market risks or the manner in which these risks were managed and measured.

a) Foreign currency risk

The Company undertook operating activities and investment of foreign operations denominated in foreign currencies, which exposed the Company to foreign currency risk. The Company’s forward exchange contracts are used to minimize risks of market price and fluctuations in cash flows; however, because these contracts did not meet the criteria for hedge effectiveness, they were not subject to hedge accounting.

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

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Notes 28 and 7, respectively.

Sensitivity analysis

The Company was mainly exposed to U.S. dollar, Euro and Chinese Yuan currencies.

• 55 -

The following table details the Company’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 associated with New Taiwan dollar strengthen 5% against the relevant currency. For a 5% weakening of 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 2016 2015 $ 60,788 (Note 1) $ 33,883 (Note 1)	Euro Impact 2016 2015 $ 56,716 (Note 2) $ 41,827 (Note 2)	Chinese Yuan Impact
			2016 2015 $ 23,072 (Note 3) $ 41,897 (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.

• b) Interest rate risk

The Company’s floating-rate bank savings are exposed to risk of changes in interest rates. The Company does not operate hedging instruments for interest rates. The Company’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 Company’s fixed-term bank deposits are exposed to fair value interest rate risk; however, this expected risk is insignificant.

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

Cash flow interest rate risk Financial assets Sensitivity analysis	December 31
	2016 2015 $ 2,004,912 $ 813,331

The sensitivity analyses below were determined based on the Company’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.

• 56 -

If interest rates had been 50 basis points higher and all other variables were held constant, the Company’s pre-tax profit for the years ended December 31, 2016 and 2015 would have increased by $10,025 thousand and $4,067 thousand, respectively. Had interest rates been 50 basis points lower, the effects on the Company’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 Company was exposed to equity price risk through its investments in listed equity securities and open-end mutual funds. The Company manages this exposure by maintaining a portfolio of investments with different risks. The Company’s equity price risks 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, pretax other comprehensive income for the years ended December 31, 2016 and 2015 would have increased by $23,951 thousand and $17,008 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 Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure of counterparties to discharge an obligation provided by the Company could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets.

In order to minimize credit risk, the management of the Company has delegated a team responsible for determining of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company 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, management believes the Company’s credit risk as significantly reduced.

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

3) Liquidity risk

The Company manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Company’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.

• 57 -

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the Company’s short, medium and long-term funding and liquidity management requirements. The Company 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. As of December 31, 2016 and 2015, the Group had available unutilized short-term bank loan facilities set out in (3) below.

a) Liquidity and interest risk rate tables for nonderivative financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed-upon repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay. The table included both interests 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 the agreed repayment dates.

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

December 31, 2016

Nonderivative financial liabilities Noninterest bearing December 31, 2015 Nonderivative financial liabilities Noninterest bearing	On Demand or Less than 1 Month $ 4,481,036 On Demand or Less than 1 Month $ 3,017,559	1-3 Months $ 1,320,648 1-3 Months $ 1,790,626	Over 3 Months to 1 Year Over 1 Year - 5 Years $ 1,059,301 $ - Over 3 Months to 1 Year Over 1 Year - 5 Years $ 1,034,340 $ -

The amounts included above for variable interest rate instruments for non-derivative financial assets and liabilities were 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 Company’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted gross contractual net cash inflows and outflows on these derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period.

• 58 -

December 31, 2016

Gross settled Foreign exchange forward contracts Inflows Outflows December 31, 2015 Gross settled Foreign exchange forward contracts Inflows Outflows	On Demand or Less than 1 Month $ 297,337 287,861 $ 9,476 On Demand or Less than 1 Month $ 314,246 310,013 $ 4,233	1-3 Months $ 693,399 682,033 $ 11,366 1-3 Months $ 523,146 526,535 $ (3,389)	Over 3 Months to 1 Year $ 282,619 277,958 $ 4,661 Over 3 Months to 1 Year $ 93,795 93,600 $ 195	Total $ 1,273,355 1,247,852 $ 25,503 Total $ 931,187 930,148 $ 1,039

c) Financing facilities

Unsecured bank loan facilities Amount used Amount unused		December 31	December 31
		2016 $ - 2,362,900 $ 2,362,900	2015 $ - 1,379,466 $ 1,379,466

26. TRANSACTIONS WITH RELATED PARTIES

Besides information disclosed elsewhere in the other notes, details of significant transactions between the Company and other related parties are disclosed below.

• a. Sales of goods

Related Party Categories Subsidiaries Associates Other related parties	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 22,819,095 17,108 10 $ 22,836,213	2015 $ 21,850,199 29,337 - $ 21,879,536

• 59 -

• b. Purchases of goods

Related Party Categories Subsidiaries Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 14,708,329 21,126 $ 14,729,455	2015 $ 15,254,030 22,241 $ 15,276,271

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

Line Item Related Party Categories Trade receivables - related parties Subsidiaries Associates Other related parties Note receivable Associates		December 31	December 31
		2016 $ 3,906,231 2,206 11 $ 3,908,448 $ -	2015 $ 3,961,514 16,485 - $ 3,977,999 $ 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 Categories Subsidiaries Associates		December 31	December 31
		2016 $ 2,601,846 8,796 $ 2,610,642	2015 $ 2,685,959 1,171 $ 2,687,130

The outstanding trade payables to related parties are unsecured.

• e. Other receivables from related parties

Related Party Categories Subsidiaries		December 31	December 31
		2016 $ 19,002	2015 $ 15,596

• f. Property, plant and equipment acquired

Related Party Categories Subsidiaries	Price	Price	Price
	**For the Year Ended December 31 **
		2016 $ 10,408	2015 $ 42,912

• 60 -

g. Other transactions with related parties

Administration expenses Subsidiaries Rent expenses Subsidiaries Others Subsidiaries Rent income Subsidiaries Other related parties Others Subsidiaries Other related parties Associates	Operating Expenses	Operating Expenses	Operating Expenses
	**For the Year Ended December 31 **
		2016 2015 $ 17,855 $ 13,244 $ 1,518 $ 1,518 $ 3,871 $ 2,391 Other Income
	For the Year Ended December 31
		2016 $ 4,836 60 $ 4,896 $ 88,537 2,702 - $ 91,239	2015 $ 6,416 50 $ 6,466 $ 87,367 2,712 787 $ 90,866

Lease contracts formed between the Company 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.

h. 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.

• 61 -

27. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Company 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.

28. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

December 31, 2016

Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 125,577 32.25 (USD:NTD) RMB 329,147 4.167 (RMB:NTD) EUR 23,502 33.90 (EUR:NTD) Non-monetary items Subsidiaries and associates accounted for using the equity method USD 290,712 32.25 (USD:NTD) EUR 29,470 33.90 (EUR:NTD) KRW 9,340,408 0.027 (KRW:NTD) JPY 832,407 0.276 (JPY:NTD) Financial liabilities Monetary items USD 79,465 32.25 (USD:NTD) RMB 200,202 4.617 (RMB:NTD)

Carrying Amount $ 4,049,858 1,519,672 796,718 $ 6,366,248 $ 9,375,462 999,033 252,191 229,744 $ 10,856,430 $ 2,562,746 924,333 $ 3,487,079

• 62 -

December 31, 2015

Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 84,470 32.825 (USD:NTD) RMB 328,421 4.9950 (RMB:NTD) EUR 24,408 35.880 (EUR:NTD) Non-monetary items Subsidiaries and associates accounted for using the equity method USD 230,225 32.825 (USD:NTD) EUR 29,132 35.880 (EUR:NTD) KRW 8,311,195 0.0280 (KRW:NTD) JPY 678,922 0.2730 (JPY:NTD) Financial liabilities Monetary items USD 63,419 32.825 (USD:NTD) RMB 207,665 4.9950 (RMB:NTD)

Carrying Amount $ 2,772,728 1,640,463 875,759 $ 5,288,950 $ 7,557,136 1,045,256 232,713 185,346 $ 9,020,451 $ 2,081,729 1,037,287 $ 3,119,016

For the years ended December 2016 and 2015, realized and unrealized net foreign exchange losses were $140,689 thousand and $88,859 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.

29. 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 (excluding investment in subsidiaries and associates). (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)

• 63 -

• 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 25)

• 10) Name, locations, and other information of investees. (Table 8)

• 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. Refer to Tables 1, 5 and 7.

• 64 -

TABLE 1

ADVANTECH CO., LTD. AND INVESTEES

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.

• 65 -

TABLE 2

ADVANTECH CO., LTD. AND INVESTEES

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.) AdvanDos 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)

• 66 -

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)

• 67 -

TABLE 3

ADVANTECH CO., LTD. AND INVESTEES

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)

• 68 -

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. Please 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. Please refer to Note 8 of the financial statements for more information.

(Concluded)

• 69 -

TABLE 4

ADVANTECH CO., LTD. AND INVESTEES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED AT COSTS OR PRICES OF AT LEAST $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

• 70 -

TABLE 5

ADVANTECH CO., LTD. AND INVESTEES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST $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)

• 71 -

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) (509,671) (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)

• 72 -

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: Realized gain for the year was $9,702 thousand.

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

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

(Concluded)

• 73 -

TABLE 6

ADVANTECH CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST $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

• 74 -

TABLE 7

ADVANTECH CO., LTD. AND INVESTEES

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	$ - - - - - - - - - - -

• 75 -

TABLE 8

ADVANTECH CO., LTD. AND SUBSIDIARIES

INFORMATION ON 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)

• 76 -

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.

(Concluded)

• 77 -

TABLE 9

ADVANTECH CO., LTD. AND INVESTEES

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)

• 78 -

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$1.00=NT$32.25.

• Note I: The maximum allowable limit on investment was at 60% of the consolidated net asset value of the Company.

(Concluded)

• 79 -