Advantech - Annual Report 2017 | FinancialReports.eu

Advantech Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016 and Independent Auditors’ Report

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2017 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard 10. Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we have not prepared a separate set of consolidated financial statements of affiliates.

Very truly yours, ADVANTECH CO., LTD.

By:

K. C. LIU Chairman March 2, 2018

INDEPENDENT AUDITORS’ REPORT

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

Opinion

We have audited the accompanying consolidated financial statements of Advantech Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters on the consolidated financial statements for the year ended December 31, 2017 were as follows:

Assessment of Provisions for Inventory Write-downs

Inventories as of December 31, 2017 amounted to NT$6,242,251 thousand and accounted for 15% of the total assets in the Group’s consolidated financial statements, which had a material percentage of the total assets.

The inventories of the Group are measured at the lower of cost or net realizable value and according to the ratios of possible obsolescence for aged inventories. Due to the rapid changes in the technological environment and the significant size and variety of inventories, after analyzing the structure of provisions for inventory valuation, we noticed that the provisions were generated from obsolescent inventories which were aged longer. We considered the evaluation of inventory write-downs of aged inventories as having a significant impact on the Group’s consolidated financial statements. Therefore, the assessment of provisions for inventory write-downs was deemed to be one of the key audit matters.

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

Assessed and analyzed the Group’s policies for the inventory write-downs provisions and compared them with other competitors’ policies to affirm the reasonableness and consistency of application.
Evaluated and tested the design and operating effectiveness of the internal controls over the provisions for inventory write-downs.
Reviewed the historical inventory aging reports to trace the process for the usage and scrap of aged inventories in order to assess the reasonableness of percentages for recognizing aged inventories.
Verified the appropriateness of logic and parameters used in the Group’s inventory aging analysis reports and selected source data to validate the accuracy of the ages of inventories in the system.

Sales Revenue

Since the Group operates in the highly competitive industry, we determined that revenue recognition of the Group carries risk due to the demand for the growth of sales and the need to remain competitive in the industry. Hence, the Group’s sales revenue from several product lines and customers whose sales increased materially in numbers and percentages was considered as a key audit matter.

Our audit procedures performed in respect of sales revenue included the following:

Analyzed the trend of the industry, categories of revenue, product lines and customer categories for two consecutive years to confirm whether there were any abnormal situations or centralized trading which might put revenue recognition at risk.
Interviewed with personnel who operates the control activities and reviewed related internal vouchers to understand the processes of internal controls related to revenue-recognition and evaluate the design, implementation, and operating effectiveness of internal controls over revenue recognition. Tested such internal controls to obtain sufficient and appropriate audit evidence of the effectiveness of key controls.
Obtained details of accounts, analyzed balances and confirmed or reconciled them with general ledgers; tested the reconciliation between detailed and general ledgers and traced the reconciliation to acquire sufficient and appropriate evidence.
Determined the appropriate methods of sampling and sample sizes and audited sales orders, packing lists and export declarations in order to evaluate whether the amount of revenue is recognized accurately and in accordance with the regulations for the preparation of financial reports.
Audited the records and vouchers of collections to evaluate whether the amounts of collections are accurate and the payers of such collections and the recipients of the related orders are consistent in order to attest the reality of sales.
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Other Matter

We have also audited the parent company only financial statements of the Company as of and for the years ended December 31, 2017 and 2016 on which we have issued an unmodified opinion.

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

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

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

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017 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 Jr-Shian Ke.

Deloitte & Touche Taipei, Taiwan Republic of China

March 2, 2018

Notice to Readers

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

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

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (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 32) Available-for-sale financial assets - current (Notes 4, 8 and 32) Debt investments with no active market - current (Notes 4, 10 and 34) Notes receivable (Notes 4 and 11) Trade receivables (Notes 4 and 11) Trade receivables from related parties (Note 33) Other receivables Inventories (Notes 4, 5 and 12) Other current assets (Note 18) Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Notes 4, 8 and 32) Financial assets measured at cost - non-current (Notes 4 and 9) Investments accounted for using the equity method (Notes 4 and 14) Property, plant and equipment (Notes 4, 15 and 34) Goodwill (Notes 4, 5 and 16) Other intangible assets (Notes 4, 5 and 17) Deferred tax assets (Notes 4 and 24) Prepayments for business facilities Long-term prepayments for leases (Note 18) Other non-current assets (Note 28) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 19) Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 32) Notes payable and trade payables (Notes 4 and 33) Other payables (Note 20) Current tax liabilities (Notes 4 and 24) Short-term warranty provisions Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note 19) Deferred tax liabilities (Notes 4 and 24) Net defined benefit liabilities (Notes 4 and 21) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Share capital Ordinary shares Advance receipts for share capital Total share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Exchange differences on translation of foreign financial statements Unrealized gains on available-for-sale financial assets Total other equity Total equity attributable to owners of the Company NON-CONTROLLING INTERESTS Total equity TOTAL		2017 Amount % $ 5,204,219 13 3,098,846 8 229,381 1 38,908 - 1,255,781 3 6,596,030 16 14,067 - 75,298 - 6,242,251 15 445,791 1 23,200,572 57 1,430,854 4 78,518 - 1,349,735 3 9,967,332 24 2,727,549 7 1,124,407 3 398,441 1 68,440 - 312,708 1 45,213 - 17,503,197 43 $ 40,703,769 100 $ 8,400 - 6,226 - 5,280,728 13 3,624,710 9 1,269,165 3 180,975 - 676,457 2 11,046,661 27 113,717 - 1,399,013 4 237,225 1 146,713 - 1,896,668 5 12,943,329 32 6,970,325 17 2,500 - 6,972,825 17 6,554,842 16 5,039,962 13 85,204 - 9,297,896 23 14,423,062 36 (463,479) (1) 93,824 - (369,655) (1) 27,581,074 68 179,366 - 27,760,440 68 $ 40,703,769 100		2016
				Amount % $ 4,637,577 12 113,028 - 2,956,586 8 10,007 - 965,081 2 6,384,834 17 13,957 - 13,775 - 5,597,236 15 489,630 1 21,181,711 55 1,712,578 5 - - 598,454 2 10,089,836 26 2,845,831 7 1,317,440 3 369,156 1 47,578 - 325,224 1 51,145 - 17,357,242 45 $ 38,538,953 100 $ 483,750 1 10,231 - 4,983,381 13 3,902,499 10 1,229,400 3 167,122 1 659,228 2 11,435,611 30 - - 1,362,687 3 212,360 1 141,398 - 1,716,445 4 13,152,056 34 6,330,741 16 100 - 6,330,841 16 6,058,884 16 4,473,276 11 - - 8,435,785 22 12,909,061 33 (197,633) - 112,429 - (85,204) - 25,213,582 65 173,315 1 25,386,897 66 $ 38,538,953 100

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

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 33 and 37) Sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 12, 21, 23 and 33) GROSS PROFIT OPERATING EXPENSES (Notes 21, 23 and 33) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses OPERATING PROFIT NONOPERATING INCOME Share of the profit of associates accounted for using the equity method (Note 14) Interest income Gains on disposal of property, plant and equipment Gains (losses) on disposal of investments Foreign exchange losses, net (Notes 23 and 35) Gains on financial instruments at fair value through profit or loss (Note 7) Dividend income Other income (Notes 8, 27 and 33) Finance costs (Note 23) Losses on financial instruments at fair value through profit or loss (Note 7) Impairment loss (Notes 15, 16 and 17) Other losses Total nonoperating income PROFIT BEFORE INCOME TAX INCOME TAX EXPENSES (Note 24) NET PROFIT FOR THE YEAR		2017 Amount % $ 43,367,051 98 1,007,700 2 44,374,751 100 26,993,793 61 17,380,958 39 4,400,803 10 2,389,863 5 3,811,815 9 10,602,481 24 6,778,477 15 218,651 1 16,461 - 96,885 - 292,441 1 (76,098) - 207,795 - 122,220 - 95,772 - (12,117) - (84,658) - (112,120) - (10,166) - 755,066 2 7,533,543 17 1,384,254 3 6,149,289 14		2016
				Amount % $ 40,839,800 97 1,162,398 3 42,002,198 100 24,884,649 59 17,117,549 41 4,260,554 10 2,576,210 6 3,649,292 9 10,486,056 25 6,631,493 16 65,562 - 15,989 - 289,633 1 (4,873) - (205,812) - 150,982 - 132,472 - 78,855 - (11,556) - (43,324) - - - (2,056) - 465,872 1 7,097,365 17 1,408,411 4 5,688,954 13 (Continued)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss (Notes 14, 21 and 24): Remeasurement of defined benefit plans Share of the other comprehensive income (loss) of associates accounted for using the equity method Income tax related to items that will not be reclassified Items that may be reclassified subsequently to profit or loss (Notes 4, 14, 22 and 24): Exchange differences on translation of foreign financial statements Unrealized gains (losses) on available-for-sale financial assets Share of the other comprehensive loss of associates Income tax related to items that may be reclassified subsequently to profit or loss Other comprehensive loss for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET PROFIT (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests		2017 Amount % $ (23,905) - (1,306) - 4,064 - (315,229) (1) (18,605) - (6,919) - 54,450 - (307,450) (1) $ 5,841,839 13 $ 6,156,516 14 (7,227) - $ 6,149,289 14 $ 5,850,991 13 (9,152) - $ 5,841,839 13		2016
				Amount % $ (31,247) - 1,574 - 5,312 - (576,926) (1) 44,164 - (4,135) - 96,161 - (465,097) (1) $ 5,223,857 12 $ 5,666,862 14 22,092 - $ 5,688,954 14 $ 5,217,251 12 6,606 - $ 5,223,857 12 (Continued)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 25) Basic Diluted	2017 Amount % $ 8.84 $ 8.77	2016
		Amount % $ 8.15 $ 8.09

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

(Concluded)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

			Equity Attributable to Owners of the Company
Issue	d Capital(Note 22)	Capital Surplus (Notes 22, 23 Total and 26) $ 6,318,531 $ 5,587,555 - - - - 12,310 104,758 - 338,194 - 10,533 - 17,844 - - - - - - 6,330,841 6,058,884 - - - - - - 633,074 - 8,910 68,510 - 424,637 - 2,054 - - - 757 - - - - - - $ 6,972,825 $ 6,554,842	Retained Earnings (Note 22)	Total $ 11,061,291 - (3,791,118 ) - - - (3,691 ) 5,666,862 (24,283) 5,642,579 12,909,061 - - (3,988,367 ) (633,074 ) - - - - - 6,156,516 (21,074) 6,135,442 $ 14,423,062	Other Equity (Note 22) Exchange Unrealized Gain Differences on (Loss) on Translation of Available-for-sale Foreign Financial Financial Assets Statements $ 271,859 $ 68,265 - - - - - - - - - - - - - - (469,492) 44,164 (469,492) 44,164 (197,633 ) 112,429 - - - - - - - - - - - - - - - - - - - - (265,846) (18,605) (265,846) (18,605) $ (463,479 ) $ 93,824
					Exchange U Differences on Translation of A Foreign Financial F Statements $ 271,859 - - - - - - - (469,492) (469,492) (197,633 ) - - - - - - - - - - (265,846) (265,846) $ (463,479 )
A Share Capital $ 6,318,531 - - 12,210 - - - - - - 6,330,741 - - - 633,074 6,510 - - - - - - - $ 6,970,325	dvance Receipts for Ordinary Shares $ - - - 100 - - - - - - 100 - - - - 2,400 - - - - - - - $ 2,500
			Unappropriated Legal Reserve Special Reserve Earnings $ 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 - 8,435,785 566,686 - (566,686 ) - 85,204 (85,204 ) - - (3,988,367 ) - - (633,074 ) - - - - - - - - - - - - - - - - - 6,156,516 - - (21,074) - - 6,135,442 $ 5,039,962 $ 85,204 $ 9,297,896

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

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ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments to reconcile profit (loss): Depreciation expenses Amortization expenses Amortization expenses for prepayments of lease obligations Impairment loss recognized (reversed) for trade receivables Net loss (gain) on financial assets or liabilities at fair value through profit or loss Compensation costs of employee share options Finance costs Interest income Dividend income Share of profit of associates accounted for using the equity method Gain on disposal of property, plant and equipment Loss (gain) on disposal of investments Impairment loss Changes in operating assets and liabilities Financial assets held for trading Notes receivable Trade receivables Trade receivables from related parties Other receivables Inventories Other current assets Notes payable and trade payables Net defined benefit liabilities Other payables Short-term warranty provisions Other current liabilities Other non-current liabilities Cash generated from operations Interest received Dividends received Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale financial assets Proceeds from sale of available-for-sale financial assets Purchase of debt investments with no active market Proceeds from sale of debt investments with no active market Purchase of financial assets measured at cost	2017 $ 7,533,543 587,293 228,062 8,741 3,030 (123,137) 424,637 12,117 (16,461) (122,220) (218,651) (96,885) (292,441) 112,120 (2,866,686) (290,700) (193,567) (110) (61,523) (614,558) 40,203 270,599 960 (280,286) 13,853 15,583 5,115 4,078,631 16,461 122,220 (9,620) (1,196,403) 3,011,289 (6,589,478) 9,872,540 - 26,485 (77,333)	2016 $ 7,097,365 582,040 238,048 6,606 (24,032) (107,658) 338,194 11,556 (15,989) (132,472) (65,562) (289,633) 4,873 - 174,898 5,641 (738,014) 12,807 31,402 (446,618) (8,478) 1,569,097 (2,427) 579,312 21,476 112,933 (17,857) 8,937,508 15,989 132,472 (6,285) (1,086,369) 7,993,315 (6,491,968) 5,364,552 (6,945) - - (Continued)

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ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

Purchase of investments accounted for using the equity method Net cash flow on the acquisition of subsidiaries Dividends received from associates Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease in refundable deposits Payments for intangible assets Decrease in prepayments for equipment Net cash generated from (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short-term loans Repayments of long-term borrowings Increase (decrease) in guarantee deposits received Payments of cash dividends Exercise of employee share options Increase in non-controlling interests Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2017 $ (615,000) (118,847) 75,026 (533,741) 146,582 6,858 (76,167) 12,820 2,129,745 (456,480) (22,733) 200 (3,988,367) 77,420 757 (4,389,203) (185,189) 566,642 4,637,577 $ 5,204,219	2016 $ (135,000) (1,348,172) 88,313 (1,448,423) 587,468 8,038 (73,435) 46,599 (3,408,973) (396,875) - (1,540) (3,791,118) 117,068 34,586 (4,037,879) (267,145) 279,318 4,358,259 $ 4,637,577

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

(Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

ADVANTECH CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

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

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

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

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

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the board of directors on March 2, 2018.

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

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC) of the Republic of China

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Group’s accounting policies:

1) Amendment to IFRS 3 “Business Combinations”

IFRS 3 was amended by the Annual Improvements to IFRSs 2010-2012 Cycle 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 should be applied prospectively to business combinations with acquisition dates on or after January 1, 2017. Refer to Note 28 for information on business combinations that occurred in 2017.

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2) Amendment to IFRS 8 “Operating Segments”

IFRS 8 was amended by the Annual Improvements to IFRSs 2010-2012 Cycle to require the disclosure of 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 judgments made in applying aggregation criteria should be disclosed retrospectively upon initial application of the amendment in 2017 (refer to Note 37).

3) Amendments to IFRS 13 “Fair Value Measurement”

The basis for conclusions of IFRS 13 was amended by the Annual Improvements to IFRSs 2010-2012 Cycle to clarify that when the amendments becomes effective in 2017, the short-term receivables and payables with no stated interest rates are measured at their invoice amounts without discounting, if the effect of not discounting is immaterial.

4) Amendments to IAS 36 “Impairment of Assets”

The amendment “Disclosures for Non-financial Assets” 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 amounts of items of property, plant and equipment, goodwill, and intangible assets for which impairment loss has been recognized is the fair value less costs of disposal measured by using the present value technique, then the Company is required to disclose the discount rate. The amendment should be applied retrospectively starting from January 1, 2017. Refer to Note 15, 16 and 17 for the related disclosures.

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 and issued into effect by the FSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include an 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 of the Group, or is the spouse or second immediate family of the chairman of the board of directors or president of the Group, are deemed to have a substantive related party relationship, unless it can be demonstrated that no control or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationships with whom the Group has significant transactions. If the transaction amount or balance with a specific related party is 10% or more of the Group’s respective total transaction amount or balance, such transactions 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 conditions after a business combination and the expected benefits at the acquisition date.

When the amendments are applied retrospectively from January 1, 2017, the disclosures of related party transactions are enhanced. Refer to Note 33 for the related disclosures.

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b. 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) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2018

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

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 amendments to IAS 28 are retrospectively applied for annual periods beginning on or after January 1, 2018.
1) Annual Improvements to IFRSs 2014-2016 Cycle

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

The amendments to IAS 28 clarify that when the Group (a non-investment entity) applies the equity method to account for its investment in an associate that is an investment entity, the Group may elect to retain the fair value of the investment interests in subsidiaries of the investment entity associate. The election should be made separately for each investment entity associate, at the later of the date that (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. Upon initial application of the amendments, the Group will retain the fair value of the investment interests in the subsidiaries investment entity associate retrospectively.

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2) IFRS 9 “Financial Instruments” and related amendments

Classification, measurement and impairment of financial assets

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

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

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

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

The Group analyzed the facts and circumstances of its financial assets that exist at December 31, 2017 and performed the assessment of the impact of IFRS 9 on the classification and measurement of financial assets. Under IFRS 9:

a) Listed shares, emerging market shares, and unlisted shares classified as available-for-sale will be classified as at fair value through profit or loss. Listed shares, emerging market shares, and unlisted shares classified as available-for-sale will be designated as at fair value through other comprehensive income and the fair value gains or losses accumulated in other equity will be transferred directly to retained earnings instead of being reclassified to profit or loss on disposal. Besides this, unlisted shares measured at cost will be measured at fair value instead;
b) Mutual funds classified as available-for-sale will be classified as at fair value through profit or loss because the contractual cash flows are not solely payments of principal and interest on the principal outstanding and they are not equity instruments; and
c) Debt investments classified as debt investments with no active market and measured at amortized cost will be classified as measured at amortized cost under IFRS 9 because, on initial recognition, the contractual cash flows that are solely payments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is to collect contractual cash flows.
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IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. A loss allowance is required for financial assets measured at amortized cost, investments in debt instruments measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, and certain written loan commitments. A loss allowance for 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full-lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full-lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

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

The Group has performed a preliminary assessment in which it will apply the simplified approach to recognize full-lifetime expected credit losses for trade receivables. In relation to debt instrument investments and financial guarantee contracts, the Group will assess whether there has been a significant increase in credit risk to determine whether to recognize 12-month or full-lifetime expected credit losses. In general, the Group anticipates that the application of the expected credit losses model of IFRS 9 will result in an earlier recognition of credit losses for financial assets.

The Group elects not to restate prior reporting periods when applying the requirements for the classification, measurement and impairment of financial assets under IFRS 9 with the cumulative effect of the initial application recognized at the date of initial application and will provide the disclosures related to the classification and the adjustment information upon initial application of IFRS 9.

The anticipated impact on assets, liabilities and equity of retrospective application of the requirements for the classification, measurement and impairment of financial assets as of January 1, 2018 is set out below:

	Carrying	Adjustments	Adjustments	Adjusted
	Amount as of	Arising from		Carrying
	December 31,		Initial	Amount as	of
	2017	Application		January 1, 2018
Impact on assets, liabilities and equity
Financial assets at fair value through
profit or loss - current	$ 3,098,846	$	121,695	$ 3,220,541
Financial assets at fair value through other
comprehensive income - current	-		1,617,058	1,617,058
Available-for-sale financial assets -
current	229,381		(229,381)		-
Financial assets measured at amortized
cost - current	-		38,908	38,908
Debt investments with no active market -
current	38,908		(38,908)		-
Available-for-sale financial assets -
non-current	1,430,854		(1,430,854)		-
Financial assets measured at cost -
non-current	78,518		(78,518)		-
Total effect on assets	$ 4,876,507	$	-	$ 4,876,507
				(Continued)

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		Carrying	Adjustments	Adjustments	Adjusted
	Amount as of		Arising from		Carrying
	December 31,			Initial	Amount as of
		2017	Application		January 1, 2018
Unappropriated earnings	$ 9,297,896		$	(32,606)	$ 9,265,290
Unrealized gain (loss) on
available-for-sale financial assets		93,824		(93,824)	-
Unrealized gain (loss) on financial assets
at fair value through other
comprehensive income - debt
instruments		-		126,430	126,430
Total effect on equity	$ 9,391,720		$	-	$ 9,391,720
					(Concluded)

3) IFRS 15 “Revenue from Contracts with Customers” and related amendments

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 starting from January 1, 2018.

When applying IFRS 15, the Group 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;
Allocate the transaction price to the performance obligations in the contract; and
Recognize revenue when the Group satisfies a performance obligation.

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

The Group elects to retrospectively apply IFRS 15 to contracts that are not complete as of January 1, 2018 and recognize the cumulative effect of the change in retained earnings on January 1, 2018.

For all contract modifications that occurred on or before December 31, 2017, the Group will not apply the requirements in IFRS 15 individually to each of the modifications, and will identify the performance obligations and determine and allocate transaction prices in a manner that reflects the aggregate effect of all modifications that occurred on or before December 31, 2017.

In addition, the Group will disclose the difference between the amount that results from applying IFRS 15 and the amount that results from applying current standards for 2018.

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

In determining whether to recognize a deferred tax asset, the Group should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendments also stipulate that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit

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may include some of the Group’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Group will achieve the higher amount, and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences.

In assessing a deferred tax asset, the Group currently assumes it will recover the asset at its carrying amount when estimating probable future taxable profit; the amendments will be applied retrospectively in 2018.

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

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

The Group will apply IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the interpretation.

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

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

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Effective Date
New IFRSs Announced by IASB (Note 1)
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New IFRSs	Effective Date Announced by IASB (Note 1)
Annual Improvements to IFRSs 2015-2017 Cycle	January 1, 2019
Amendments to IFRS 9 “Prepayment Features with Negative	January 1, 2019 (Note 2)
Compensation”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets	To be determined by IASB
between an Investor and its Associate or Joint Venture”
IFRS 16 “Leases”	January 1, 2019 (Note 3)
IFRS 17 “Insurance Contracts”	January 1, 2021
Amendments to IAS 19 “Plan Amendment, Curtailment or	January 1, 2019 (Note 4)
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and Joint	January 1, 2019
Ventures”
IFRIC 23 “Uncertainty Over Income Tax Treatments”	January 1, 2019

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 FSC permits the election for early adoption of the amendments starting from 2018.
Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from January 1, 2019.
Note 4: The Group shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.
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1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

The amendments stipulate 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, 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 over 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.

2) IFRS 16 “Leases”

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

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

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

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

3) IFRIC 23 “Uncertainty Over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Group should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Group concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Group should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Group should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Group has to reassess its judgments and estimates if facts and circumstances change.

On initial application, the Group shall apply IFRIC 23 either retrospectively to each prior reporting period presented, if this is possible without the use of hindsight, or retrospectively with the cumulative effect of the initial application of IFRIC 23 recognized at the date of initial application.

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4) Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”

The amendments clarified that IFRS 9 shall be applied to account for other financial instruments in an associate to which the equity method is not applied. These included long-term interests that, in substance, form part of the entity’s net investment in an associate.

When the amendments become effective, the Group shall apply the amendments retrospectively. However, the Group may elect to recognize the cumulative effect of the initial application of the amendments in the opening carrying amount at the date of initial application, or to restate prior periods if, and only if, it is possible without the use of hindsight.

5) Amendments to IFRS 9 “Prepayment Features with Negative Compensation”

IFRS 9 stipulated that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explained that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early.

6) Annual Improvements to IFRSs 2015-2017 Cycle

Several standards, including IFRS 3, IFRS 11, IAS 12 and IAS 23 “Borrowing Costs”, were amended in this annual improvement. IAS 23 was amended to clarify that, if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings. The amendment shall be applied prospectively.

7) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”

The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current service cost and the net interest for the remainder of the annual reporting period are determined using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities (assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The amendment shall be applied prospectively.

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

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

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

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 based on 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 an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
3) Level 3 inputs are unobservable inputs for the asset or liability.
c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;
2) Assets expected to be realized within 12 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 12 months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;
2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and
3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

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

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as appropriate. When necessary, adjustments are made to the financial statements of

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subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

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

See Note 13 and Table 7 for the detailed information of subsidiaries (including the percentage of ownership and main businesses).

e. Business combinations

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

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

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

Where the consideration the Group transfers in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and considered as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments being made against goodwill or gains on bargain purchases. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. The measurement period does not exceed 1 year from the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Other contingent consideration is remeasured at fair value at the end of subsequent reporting period with any gain or loss recognized in profit or loss.

During the measurement period, the acquirer shall recognize adjustments to the provisional amounts as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements as needed, including making any change in depreciation, amortization or other income effects recognized in completing the initial accounting.

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f. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (i.e. 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 translated using the exchange rate at the date of the transaction.

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

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

g. Inventories

Inventories consist of raw materials, supplies, finished goods and work in process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The 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.

h. Investments in associates

An associate is an entity over which the Group has significant influence.

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

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

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

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When the Company subscribes for additional new shares of an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in capital surplus from investments in associates accounted for using the equity method. If the Group’s ownership interest is reduced due to its additional subscription of the new shares of the associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and 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 using the equity method is insufficient, the shortage is debited to retained earnings.

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

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

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

i. Property, plant and equipment

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

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

Freehold land is not depreciated.

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

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

j. Goodwill

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

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

A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then pro rata to the other assets of the unit based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. Any 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 which is disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

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 lives, residual values, and amortization methods are reviewed at the end of each reporting period, with the effect of any changes in the estimates accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

2) Intangible assets acquired in a business combination

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

3) Derecognition of intangible assets

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

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l. Impairment of tangible and intangible assets other than goodwill

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

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

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

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

m. Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to an acquisition or issuance 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 categories

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 such financial assets are either held for trading or designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on the financial asset. Fair value is determined in the manner described in Note 32.

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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 such investments are disposed of or are determined to be impaired.

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

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and presented in a separate line item as financial assets measured at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in other comprehensive income on financial assets. Any impairment losses are recognized in profit and loss.

iii. Loans and receivables

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

Cash equivalents include time deposits with original maturities within 3 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 assets, that the estimated future cash flows of the investment have been affected.

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

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For a financial asset 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 carried 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 any 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 those financial assets 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, 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.

For financial assets that are measured at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

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

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

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2) Equity instruments

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

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

The 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, issuance or cancellation of the Company’s own equity instruments.

3) Financial liabilities
a) Subsequent measurement

Except the following situations, all financial liabilities are carried 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 such financial liabilities are either held for trading or is designated as at fair value through profit or loss. Fair value is determined in the manner described in Note 32.

b) Derecognition of financial liabilities

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

4) Derivative financial instruments

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

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

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 expenditures required to settle the Group’s obligations.

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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. Allowances for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors.

1) Sale of goods

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

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

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

2) Rendering of services

Service income is recognized when services are provided.

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

3) Dividends and interest income

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

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

p. Leasing

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

1) The Group as lessor

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

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2) The Group as lessee

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

q. Government grants

Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable.

r. 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 services.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services 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) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which 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.

Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Group’s defined benefit plans. 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.

s. Employee share options

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

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

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

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t. 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 earnings.

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

2) Deferred tax

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

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

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

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

3) Current and deferred taxes for the year

Current and deferred taxes 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. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

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5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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

a. Inventory write-downs

The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realizable value was based on current market conditions and historical experience with product sales of a similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.

b. Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating 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 Cash equivalents (time deposits with original maturities less than three months)		December 31	December 31
		2017 $ 70,453 4,942,396 191,370 $ 5,204,219	2016 $ 61,640 4,350,538 225,399 $ 4,637,577

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

Demand deposits Time deposits with original maturities of less than three months	December 31
	2017 2016 0.0001%-6.9% 0.0001%-14.02% 1.35%-2.3% 1.35%-2.3%

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7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets held for trading-current Derivative financial assets Foreign exchange forward contracts Non-derivative financial assets Domestic quoted shares Foreign quoted shares Mutual funds Financial liabilities held for trading-current Derivative financial liabilities Foreign exchange forward contracts		December 31	December 31
		2017 $ 5,084 289,570 9,334 2,794,858 $ 3,098,846 $ 6,226	2016 $ 34,348 78,680 - - $ 113,028 $ 10,231

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

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2016
Sell			EUR/NTD	2018.01-2018.05	EUR14,000/NTD499,225
			EUR/USD	2018.01-2018.04	EUR1,500/USD1,805
			JPY/NTD	2018.01-2018.05	JPY500,000/NTD134,549
			RMB/NTD	2018.01-2018.03	RMB77,000/NTD346,212
December	31,	2016
Sell			EUR/NTD	2017.01-2017.05	EUR5,500/NTD192,863
			EUR/USD	2017.01-2017.05	EUR8,500/USD9,451
			USD/NTD	2017.01-2017.04	USD11,414/NTD362,143
			JPY/NTD	2017.01-2017.06	JPY430,000/NTD128,601
			RMB/NTD	2017.01-2017.03	RMB83,000/NTD380,318

The Group entered into foreign exchange forward contracts during the years ended December 31, 2017 and 2016 to manage exposures due to exchange rate fluctuations of foreign-currency denominated assets and liabilities. The Group’s financial hedging strategy is to minimize risks due to market price fluctuations and cash flows; however, because these contracts did not meet the criteria for hedge effectiveness, they were not subject to hedge accounting.

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8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Current Domestic investments Mutual funds Quoted shares Foreign investments Quoted shares Non-current Domestic investments Quoted shares Unlisted shares		December 31	December 31
		2017 $ - 219,000 10,381 $ 229,381 $ 1,419,479 11,375 $ 1,430,854	2016 $ 2,450,232 506,354 - $ 2,956,586 $ 1,703,203 9,375 $ 1,712,578

For its securities borrowings and lending transactions, the Group placed some of its quoted domestic shares, recorded under available-for-sale assets - non-current, in a trust at Chinatrust Commercial Bank during the two months ended February 28, 2017 and for the year ended December 31, 2016. The Group ended the trust of quoted domestic shares on March 31, 2017. As of December 31, 2016, the shares held in the trust amounted to $1,257,600 thousand. For such transactions, the Group recognized gains of $53 thousand for the year ended December 31, 2016. These gains were recorded under other nonoperating income.

9. FINANCIAL ASSETS MEASURED AT COST

Non-current Private equity Classified according to financial asset measurement categories Available-for-sale financial assets		December	31
		2017 $ 78,518 $ 78,518	2016 $ - $ -

The Group measured the private equity with the costs at the end of the reporting period, because there was a significant range of reasonable estimates for fair values and the probability for each estimate cannot be assessed reasonably. Therefore, the management of the Group determined that the fair value of the private equity was not reliably measured.

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10. DEBT INVESTMENTS WITH NO ACTIVE MARKET

Time deposits with original maturities of more than three months		December	31
		2017 $ 38,908	2016 $ 10,007

The market interest rates of the time deposits with original maturities of more than three months were 1.00%-2.30% and 1.00%-2.50% per annum, respectively, as of December 31, 2017 and 2016.

For information on pledged debt investments with no active market, refer to Note 34.

11. NOTES RECEIVABLE AND TRADE RECEIVABLES

Notes receivable Trade receivables Less: Allowance for impairment loss		December 31	December 31
		2017 $ 1,255,781 $ 6,686,485 (90,455) $ 6,596,030	2016 $ 965,081 $ 6,486,188 (101,354) $ 6,384,834

Trade Receivables

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

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

The aging of receivables was as follows:

Not overdue Overdue 1 to 90 days 91 to 360 days Over 361 days		December 31	December 31
		2017 $ 5,663,891 924,551 64,669 33,374 $ 6,686,485	2016 $ 5,524,036 839,609 63,558 58,985 $ 6,486,188

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

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

December 31 2017 2016 1 to 30 days $ 763,822 $ 693,983 31 to 60 days 117,935 93,924 61 to 90 days 42,794 51,702 $ 924,551 $ 839,609 The above aging schedule was based on the number of past due days from the end of the credit term. The movements of the allowance for doubtful trade receivables were as follows: Individually Assessed for Impairment Collectively Assessed for Impairment Total Balance at January 1, 2016 $ 17,569 $ 131,590 $ 149,159 Plus (less): Impairment losses recognized (reversed) on receivables 96 (24,128) (24,032) Less: Amounts written off during the period as uncollectible (3,979) (26,336) (30,315) Business combinations - 11,918 11,918 Foreign exchange translation losses - (5,376) (5,376) Balance at December 31, 2016 13,686 87,668 101,354 Plus: Impairment losses recognized on receivables 185 2,845 3,030 Less: Amounts written off during the period as uncollectible (12,158) (1,575) (13,733) Business combinations - 37 37 Foreign exchange translation losses - (233) (233) Balance at December 31, 2017 $ 1,713 $ 88,742 $ 90,455		December 31

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

12. INVENTORIES

Raw materials Work in process Finished goods Inventories in transit		December 31	December 31
		2017 $ 3,122,276 1,235,097 1,335,817 549,061 $ 6,242,251	2016 $ 1,991,477 1,033,831 1,922,816 649,112 $ 5,597,236

The costs of inventories recognized as costs of goods sold for the years ended December 31, 2017 and 2016 were $26,610,027 thousand and $24,517,651 thousand, respectively.

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The costs of inventories decreased by $577,528 thousand and $538,855 thousand as of December 31, 2017 and 2016, respectively, when stated at the lower of cost or net realizable value.

13. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements.

The entities included in the consolidated statements are listed below.

Investor
Investee
Nature of Activities
The Company
AAC (BVI)
Investment and management services
ATC
Sale of industrial automation products
Advanixs Corporation
Production and sale of industrial
automation products
Advantech Corporate Investment
Investment holding company
AEUH
Investment and management services
ASG
Sale of industrial automation products
AAU
Sale of industrial automation products
AJP
Sale of industrial automation products
AMY
Sale of industrial automation products
AKR
Sale of industrial automation products
ABR
Sale of industrial automation products
AIN
Sale of industrial automation products
AdvanPOS
Production and sale of POS systems
LNC (formerly ALNC)
Production and sale of machines with
computerized numerical controls
AMX
Sale of industrial automation products
Advantech Innovative Design Co.,
Ltd.
Product design
BEMC
Sale of industrial network communications
systems
AiST
Design, develop and sale of intelligent
services
AKST
Production and sale of intelligent medical
displays
AKR
AKST
Production and sale of intelligent medical
displays
Advantech
Corporate
Investment
Cermate
Manufacturing of electronic parts,
computers, and peripheral devices
ATC
ATC (HK)
Investment and management services
ATC (HK)
AKMC
Production and sale of components of
industrial automation products
Advanixs Kun Shan Corp.
Production and sale of industrial
automation products
AAC (BVI)
ANA
Sale and fabrication of industrial
automation products
AAC (HK)
Investment and management services
ANA
BEMC
Sale of industrial network communications
systems
AAC (HK)
ACN
Sale of industrial automation products
AiSC
Production and sale of industrial
automation products
AXA
Development and production of software
products
ACN
Hangzhou Advantofine
Automation Tech. Co., Ltd.
Processing and sale of industrial
automation products
AEUH
AEU
Sale of industrial automation products
APL
Sale of industrial automation products
AEU
A-DLoG
Design, R&D and sale of industrial
automation vehicles and related
products
ASG
ATH
Production of computers
AID
Sale of industrial automation products
Cermate
Land Mark
General investment

% of Ownership
December 31
2017
2016
Remark
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
a
100.00
100.00
a
100.00
100.00
a
100.00
100.00
a
100.00
100.00
80.00
80.00
a
99.99
99.99
a
100.00
100.00
81.17
81.17
a
100.00
100.00
a
100.00
100.00
a
60.00
60.00
100.00
100.00
a
36.00
-
a, b
24.00
-
a, b
55.00
55.00
100.00
100.00
100.00
100.00
100.00
100.00
a
100.00
100.00
100.00
100.00
40.00
40.00
100.00
100.00
100.00
100.00
a
100.00
100.00
a
100.00
100.00
a
100.00
100.00
100.00
100.00
a
100.00
100.00
51.00
51.00
a
100.00
100.00
a
100.00
100.00
a
(Continued)

39 -

Investor
Investee
Nature of Activities
Land Mark
Cermate (Shanghai)
Sale of industrial electronic equipment
Cermate (Shenzhen)
Production of LCD touch panels, USB
cables, and industrial computers
LNC (formerly
ALNC)
Better Auto
General investment
Better Auto
Famous Now Limited
General investment
Famous Now
Limited
Advantech LNC Dong Guan Co.,
Ltd.
Production and sale of industrial
automation products
BEMC
Avtek
General investment
Avtek
B+B
General investment
B+B
BBI
Sale of industrial network communications
systems
Quatech
Sale of industrial network communications
systems
IMC
Sale of industrial network communications
systems
BBI
B&B Electronics
Sale of industrial network communications
systems
B+B (CZ)
Manufacturing of cellular and automation
solutions
Conel Automation
Sale of industrial network communications
systems
B&B DMCC
Sale of industrial network communications
systems
B&B Electronics
B+B (CZ)
Manufacturing of cellular and automation
solutions
B+B (CZ)
Conel Automation
Sale of industrial network communications
systems

% of Ownership
December 31
2017
2016
Remark
100.00
100.00
a
90.00
90.00
100.00
100.00
a
100.00
100.00
a
100.00
100.00
a
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.99
99.99
1.00
1.00
100.00
100.00
0.01
0.01
99.00
99.00
(Concluded)

Remark a: Non-significant subsidiaries and their financial statements were not audited. Management of the Group believes that there would not be material impacts had the financial statements of these subsidiaries been audited.
Remark b: In the first quarter of 2017, the Group acquired 60% of the share equity of AKST, with an acquisition of 36% and 24% of AKST’s share equity by the Company and AKR, respectively.

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in Associates

Associates that are not individually material Listed companies Axiomtek Co., Ltd. (“Axiomtek”) Winmate Inc. (“Winmate”) Unlisted companies AIMobile Co., Ltd. (“AIMobile”) Deneng Scientific Research Co., Ltd. (“Deneng”) Jan Hsiang Electronics Co., Ltd. (“Jan Hsiang”) CDIB Innovation Accelerator Co., Ltd. (“CDIB”)		December 31	December 31
		2017 $ 622,604 544,960 84,140 15,457 10,447 72,127 $ 1,349,735	2016 $ 464,155 - 109,241 16,154 8,904 - $ 598,454

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

40 -

In the second and fourth quarters of 2017, the Group paid cash at $75,000 thousand and $540,000 thousand for 20% of the share equity of CDIB Innovation Accelerator Co., Ltd. and 16.62% of the share equity of Winmate. The Group had significant influence over CDIB Innovation Accelerator Co., Ltd. and Winmate.

Aggregate Information of Associates That Are Not Individually Material

The Group’s share of: Profit from continuing operations Other comprehensive loss Total comprehensive income for the year	For the Year Ended	For the Year Ended	December 31
		2017 $ 218,651 (8,225) $ 210,426	2016 $ 65,562 (2,561) $ 63,001

Except for Axiomtek, investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on financial statements which have not been audited. Management believes there is no material impact on the equity method accounting or the calculation of the share of profit or loss and other comprehensive income from the financial statements of the associates which have been audited.

15. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2016 Additions Disposals Acquisitions through business combinations Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2016 Accumulated depreciation and impairment Balance at January 1, 2016 Depreciation expenses Disposals Acquisitions through business combinations Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2016 Carrying amounts at December 31, 2016 Cost Balance at January 1, 2017 Additions Disposals Acquisitions through business combinations Reclassifications Effect of foreign currency exchange differences Balance at December 31, 2017 Accumulated depreciation and impairment Balance at January 1, 2017 Depreciation expenses Disposals Acquisitions through business combinations Reclassifications	Freehold Land $ 3,068,264 64,688 (187,992 ) 12,644 - (9,024) $ 2,948,580 $ - - - - - - $ - $ 2,948,580 $ 2,948,580 - (22,017 ) 29,007 - (11,590) $ 2,943,980 $ - - - - -	Buildings $ 5,348,990 181,539 (101,971 ) 308,798 1,561,057 (217,424) $ 7,080,989 $ 1,046,061 169,334 (19,099 ) 88,296 488 (56,407) $ 1,228,673 $ 5,852,316 $ 7,080,989 196,264 (13,424 ) 44,460 6,716 (40,459) $ 7,274,546 $ 1,228,673 193,563 (5,741 ) 741 5,295	Equipment $ 1,533,640 78,609 (68,301 ) 84,400 50,897 (47,507) $ 1,631,738 $ 1,063,028 124,565 (61,429 ) 61,837 (3,692 ) (28,640) $ 1,155,669 $ 476,069 $ 1,631,738 48,483 (120,407 ) 24,903 55,809 (5,601) $ 1,634,925 $ 1,155,669 115,809 (111,114 ) 15,453 5,571	Office Equipment $ 770,295 69,265 (45,139 ) 89,771 9,934 (31,717) $ 862,409 $ 545,767 100,139 (40,515 ) 82,180 (19,369 ) (23,767) $ 644,435 $ 217,974 $ 862,409 60,256 (93,374 ) 6,163 6,002 (10,833) $ 830,623 $ 644,435 86,120 (85,344 ) 4,671 7,724	Other Facilities $ 1,533,038 154,789 (73,966 ) 25,390 27,200 (61,221) $ 1,605,230 $ 937,620 188,002 (58,491 ) 4,771 18,998 (37,278) $ 1,053,622 $ 551,608 $ 1,605,230 143,068 (46,807 ) 4,952 39,873 (16,734) $ 1,729,582 $ 1,053,622 191,801 (45,520 ) 3,948 1,506	Construction in Progress Total $ 915,128 $ 13,169,355 815,342 1,364,232 - (477,369 ) - 521,003 (1,686,836 ) (37,748 ) (345) (367,238) $ 43,289 $ 14,172,235 $ - $ 3,592,476 - 582,040 - (179,534 ) - 237,084 - (3,575 ) - (146,092) $ - $ 4,082,399 $ 43,289 $ 10,089,836 $ 43,289 $ 14,172,235 85,670 533,741 (1,387 ) (297,416 ) - 109,485 (123,521 ) (15,121 ) 206 (85,011) $ 4,257 $ 14,417,913 $ - $ 4,082,399 - 587,293 - (247,719 ) - 24,813 - 20,096 (Continued)

41 -

Impairment losses Effect of foreign currency exchange differences Balance at December 31, 2017 Carrying amounts at December 31, 2017	Freehold Land $ - - $ - $ 2,943,980	Buildings $ - (7,835) $ 1,414,696 $ 5,859,850	Equipment $ 7,183 (2,077) $ 1,186,494 $ 448,431	Office Equipment $ 1,031 (7,393) $ 651,244 $ 179,379	Other Facilities $ 542 (7,752) $ 1,198,147 $ 531,435	Construction in Progress Total $ - $ 8,756 - (25,057) $ - $ 4,450,581 $ 4,257 $ 9,967,332 (Concluded)

The actual sales growth post the business combination of AKST, a subsidiary of the Company, did not turn out as expected; AKST had continuous losses for the year ended December 31, 2017. In addition, the forecasted future operations of AKST are not optimistic. Hence, the estimated future cash flows expected to arise from the related equipment of AKST decreased. The Group carried out a review of the recoverable amount of the related assets and determined that the carrying amount exceeded the recoverable amount. The review led to the recognition of an impairment loss of $8,756 thousand, which was recognized in other gains and losses for the year ended December 31, 2017.

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

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

Property, plant and equipment pledged as collateral for borrowings are set out in Note 34.

16. GOODWILL

Cost Balance at January 1 Additional amounts recognized from business combinations occurring during the year (Note 28) Adjustments for goodwill after acquisition Effect of foreign currency exchange differences Balance at December 31 Accumulated impairment losses Balance at January 1 Impairment losses recognized during the year Effect of foreign currency exchange differences Balance at December 31 Carry amount at December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 2,845,831 79,713 18,075 (114,661) $ 2,828,958 $ - (97,788) (3,621) $ (101,409) $ 2,727,549	2016 $ 1,139,559 2,311,181 (543,042) (61,867) $ 2,845,831 $ - - - $ - $ 2,845,831

42 -

The Group acquired AKST in January 2017. In the second quarter of 2017, after obtaining the audited financial statements of AKST for the year ended December 31, 2016, the Group paid the remaining installment of US$600 thousand and adjusted the goodwill on the acquisition based on those audited financial statements. The actual sales growth post the business combination of AKST, a subsidiary of the Company, did not turn out as expected; AKST had continuous losses for the year ended December 31, 2017. An impairment loss for goodwill amounted to $97,788 thousand and was recognized for the year ended December 31, 2017.

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

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

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

17. OTHER INTANGIBLE ASSETS

Trademarks Client Relationships Cost Balance at January 1, 2016 $ 78,939 $ 119,860 Additions - - Disposals - - Acquisitions through business combinations 461,704 419,005 Effect of foreign currency exchange differences (14,987) (16,261) Balance at December 31, 2016 $ 525,656 $ 522,604 Accumulated amortization and impairment Balance at January 1, 2016 $ - $ 84,914 Amortization expenses - 43,426	Technology Licenses $ 109,016 - - 340,309 (13,852) $ 435,473 $ 97,153 93,797	Others Total $ 493,883 $ 801,698 79,243 79,243 (1,750) (1,750) 73,915 1,294,933 (27,324) (72,424) $ 617,967 $ 2,101,700 $ 391,945 $ 574,012 100,825 238,048 (Continued)

43 -

Trademarks Client Relationships Disposals $ - $ - Effect of foreign currency exchange differences - (3,995) Balance at December 31, 2016 $ - $ 124,345 Carrying amounts at December 31, 2016 $ 525,656 $ 398,259 Cost Balance at January 1, 2017 $ 525,656 $ 522,604 Additions - - Disposals - - Acquisitions through business combinations - - Effect of foreign currency exchange differences (31,152) (26,027) Balance at December 31, 2017 $ 494,504 $ 496,577 Accumulated amortization and impairment Balance at January 1, 2017 $ - $ 124,345 Amortization expenses - 29,259 Disposals - - Impairment losses recognized - - Effect of foreign currency exchange differences - 2,936 Balance at December 31, 2017 $ - $ 156,540 Carrying amounts at December 31, 2017 $ 494,504 $ 340,037	Technology Licenses $ - (4,832) $ 186,118 $ 249,355 $ 435,473 - - - (20,595) $ 414,878 $ 186,118 58,825 - - (2,642) $ 242,301 $ 172,577	Others Total $ (1,691) $ (1,691) (17,282) (26,109) $ 473,797 $ 784,260 $ 144,170 $ 1,317,440 $ 617,967 $ 2,101,700 77,986 77,986 (211,991) (211,991) 9,921 9,921 (37,243) (115,017) $ 456,640 $ 1,862,599 $ 473,797 $ 784,260 139,978 228,062 (211,707) (211,707) 5,576 5,576 (68,293) (67,999) $ 339,351 $ 738,192 $ 117,289 $ 1,124,407 (Concluded)

Other intangible assets were amortized on a straight-line basis over their estimated useful lives as follows:

Customers relationships	4-15 years
Technology licenses	5-8 years
Others	1-5 years

18. PREPAYMENTS FOR LEASES

Current assets (included in other current assets) Non-current assets		December 31	December 31
		2017 $ 8,854 312,708 $ 321,562	2016 $ 8,955 325,224 $ 334,179

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

44 -

19. BORROWINGS

a. Short-term borrowings

Secured borrowings Bank loans Unsecured borrowings Line of credit borrowings		December 31	December 31
		2017 $ 8,400 - $ 8,400	2016 $ - 483,750 $ 483,750

The weighted average effective interest rates on bank loans was 2.87% and 1.324% per annum as of December 31, 2017 and 2016, respectively.

b. Long-term borrowings

	December 31,	December 31,
		2017
Secured borrowings
Bank loans	$	50,258
Other loans		63,459
Long-term borrowings	$	113,717

The long-term borrowings are borrowings of the subsidiary AKST. The effective interest rate of line of secured borrowings was 1.60%-2.75% per annum as of December 31, 2017.

Other borrowings are loans from the government. As of December 31, 2017, the effective interest rate was 2.91%-3.16% per annum.

With demand of borrowings, the Group pledged time deposits, freehold land and buildings (refer to Note 34).

20. OTHER LIABILITIES

Other payables Payables for salaries or bonuses Payables for employee benefits Payables for royalties Others (Note)		December 31	December 31
		2017 $ 2,324,441 180,617 118,347 1,001,305 $ 3,624,710	2016 $ 2,248,870 151,115 179,207 1,323,307 $ 3,902,499

Note: Including marketing expenses and freight expenses.

45 -

21. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

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

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

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

b. Defined benefit plans

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

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

Present value of defined benefit obligation Fair value of plan assets Deficit Net defined benefit liabilities		December 31	December 31
		2017 $ 373,581 (136,356) 237,225 $ 237,225	2016 $ 347,702 (135,342) 212,360 $ 212,360

46 -

Movements in net defined benefit liabilities were as follows:

	Present Value		Net Defined
	of the Defined		Benefit
	Benefit	Fair Value of	Liabilities
	Obligation	the Plan Assets	(Assets)
Balance at January 1, 2016	$ 332,269	$ (148,729)	$ 183,540
Service cost
Current service cost	2,645	-	2,645
Net interest expense (income)	5,405	(2,486)	2,919
Recognized in profit or loss	8,050	(2,486)	5,564
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-	1,436	1,436
Actuarial loss - changes in demographic
assumptions	8,543	-	8,543
Actuarial loss - changes in financial
assumptions	10,671	-	10,671
Actuarial loss - experience adjustments	10,597	-	10,597
Recognized in other comprehensive income	29,811	1,436	31,247
Contributions from the employer	-	(7,991)	(7,991)
Benefits paid	(22,428)	22,428	-
Balance at December 31, 2016	347,702	(135,342)	212,360
Current service cost	2,137	-	2,137
Past service cost	4,589	-	4,589
Net interest expense (income)	4,787	(1,920)	2,867
Recognized in profit or loss	11,513	(1,920)	9,593
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-	542	542
Actuarial loss - changes in demographic
assumptions	20,380	-	20,380
Actuarial loss - experience adjustments	2,983	-	2,983
Recognized in other comprehensive income	23,363	542	23,905
Contributions from the employer	-	(8,633)	(8,633)
Benefits paid	(8,997)	8,997	-
Balance at December 31, 2017	$ 373,581	$ (136,356)	$ 237,225

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
		2017 $ 1,192 1,464 1,452 5,485 $ 9,593	2016 $ 1,238 868 1,497 1,961 $ 5,564

47 -

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

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

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

Discount rate(s) Expected rate(s) of salary increase	December 31
	2017 2016 1.375%-1.500% 1.375%-1.500% 3.000%-3.250% 3.000%-3.250%

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

Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December	31
		2017 $ (11,389) $ 11,878 $ 11,472 $ (11,062)	2016 $ (10,878) $ 11,353 $ 10,963 $ (10,564)

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.

Expected contributions to the plan for the next year Average duration of the defined benefit obligation		December	31
	2017 2016 $ 1,945 $ 8,035 12.6-15.5 years 12.7-16.2 years

48 -

22. EQUITY

a. Share capital

Ordinary shares

Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		December 31	December 31
		2017 800,000 $ 8,000,000 697,283 $ 6,972,825	2016 800,000 $ 8,000,000 633,084 $ 6,330,841

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

The changes in shares are due to share dividends to be distributed and 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) Issuance of ordinary shares Conversion of bonds The difference between consideration received or paid and the carrying amount of subsidiaries’ net assets during actual disposal or acquisition May be used to offset a deficit only Changes in percentage of ownership interests in subsidiaries (2) Employee share options Employees’ share compensation May not be used for any purpose Share of changes in capital surplus of associates Employee share options		December 31	December 31
		2017 $ 3,396,888 931,849 17,844 5,003 1,241,557 78,614 25,285 857,802 $ 6,554,842	2016 $ 3,396,888 931,849 17,844 4,246 1,077,084 78,614 23,231 529,128 $ 6,058,884

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 resulting from equity transactions other than actual disposal or acquisition, or from changes in capital surplus of subsidiaries accounted for by using equity method.
49 -
c. Retained earnings and dividends policy

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

Under the dividends policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders. For the policies on the distribution of employees’ compensation and remuneration of directors and supervisors after amendment, refer to employees’ compensation and remuneration of directors and supervisors in Note 23, d.

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

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

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

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

The appropriation of earnings for 2016 and 2015 have been approved in the shareholders’ meetings on May 26, 2017 and May 25, 2016, respectively, were as follows:

Legal reserve Special reserve Cash dividends Share dividends	Appropriation of Earnings For the Year Ended December 31 2016 2015 $ 566,686 $ 510,434 85,204 - 3,988,367 3,791,118 633,074 -	Dividends Per Share (NT$)
		For the Year Ended December 31
		2016 2015 $ - $ - - - 6.3 6.0 1.0 -

50 -

The appropriations of earnings for 2017 had been proposed by the Company’s board of directors on March 2, 2018. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per	Dividends Per
	of	Earnings	Share	(NT$)
Legal reserve	$	615,651	$	-
Special reserve		284,451		-
Cash dividends		4,600,414		6.6

The appropriations of earnings for 2017 are subject to the resolution of the shareholders’ meeting to be held on May 24, 2018.

d. Special reserves

	For the Year	For the Year
		Ended
	December 31,
		2017
Beginning at January 1	$	-
Reversal of debits to other equity items		85,204
Balance at December 31	$	85,204

e. Other equity items
1) Exchange differences on translating the financial statements of foreign operations

Balance at January 1 Exchange differences on translation of foreign financial statements 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
		2017 $ (197,633) (313,377) 54,450 (6,919) $ (463,479)	2016 $ 271,859 (561,518) 96,161 (4,135) $ (197,633)

2) Unrealized gain (loss) on available-for-sale financial assets

Balance at January 1 Unrealized gain (loss) arising on revaluation of available-for-sale financial assets Cumulative gain (loss) reclassified to profit or loss on sale of available-for-sale financial assets Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2017 $ 112,429 273,836 (292,441) $ 93,824	2016 $ 68,265 39,048 5,116 $ 112,429

51 -

f. Non-controlling interests

Balance at January 1 Attributable to non-controlling interests: Share of profit (loss) for the year Exchange difference on translation of foreign financial statements Remeasurement on defined benefit plans Related income tax Non-controlling interests arising from acquisition or disposal of subsidiaries (Note 28 and 29) Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2017 $ 173,315 (7,227) (1,852) (88) 15 15,203 $ 179,366	2016 $ 146,276 22,092 (15,408) (94) 16 20,433 $ 173,315

23. NET PROFIT FROM CONTINUING OPERATIONS

a. Finance costs

Interest on bank loans Others b. Depreciation and amortization Property, plant and equipment Intangible assets An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses	For the Year Ended	For the Year Ended	December 31
	2017 $ 7,193 4,924 $ 12,117 For the Year Ended		2016 $ 5,531 6,025 $ 11,556 December 31
		2017 $ 587,293 228,062 $ 815,355 $ 148,165 439,128 $ 587,293 $ 5,011 196 191,842 31,013 $ 228,062	2016 $ 582,040 238,048 $ 820,088 $ 137,801 444,239 $ 582,040 $ 285 139 208,345 29,279 $ 238,048

52 -

c. Employee benefits expense

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans (Note 21) 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
		2017 $ 7,809,270 284,432 9,593 294,025 424,637 604,702 $ 9,132,634 $ 2,052,280 7,080,354 $ 9,132,634	2016 $ 7,773,378 282,136 5,564 287,700 338,194 506,596 $ 8,905,868 $ 1,918,455 6,987,413 $ 8,905,868

d. Employees’ compensation and remuneration of directors and supervisors

The Company accrued employees’ compensation at the rates of no less than 1% and no higher than 20% and remuneration of directors and supervisors at the rates of 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, 2017 and 2016, which have been approved by the Company’s board of directors on March 2, 2018 and March 6, 2017, respectively, were as follows:

Employees’ compensation Remuneration of directors and supervisors	For the Year Ended December 31
	2017 2016 $ 273,000 $ 243,000 10,600 12,300

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

There is no difference between the actual amounts of employees’ compensation and remuneration of directors and supervisors paid and the amounts recognized in the consolidated financial statements for the year ended December 31, 2016 and 2015.

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Company’s board of directors in 2018 and 2017 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

53 -
e. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Net loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 871,608 (947,706) $ (76,098)	2016 $ 860,893 (1,066,705) $ (205,812)

24. INCOME TAXES

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

For the Year Ended December 31 2017 2016 Current tax In respect of the current year $ 1,284,064 $ 1,227,483 Income tax on unappropriated earnings 37,047 72,178 Adjustments for prior year (3,954) (1,702) 1,317,157 1,297,959 Deferred tax In respect of the current year 15,786 110,452 Adjustments to deferred tax attributable to changes in tax rates and laws 51,311 - 67,097 110,452 Income tax expense recognized in profit or loss $ 1,384,254 $ 1,408,411 A reconciliation of accounting profit and income tax expense is as follows: For the Year Ended December 31 2017 2016 Profit before tax from continuing operations $ 7,533,543 $ 7,097,365 Income tax expense calculated at the statutory rate $ 1,691,459 $ 1,630,913 Nondeductible expenses in determining taxable income 544 686 Tax-exempt income (264,323) (196,715) Income tax on unappropriated earnings 37,047 72,178 Land value increment tax 7,733 7,833 Investment credits in the current year (86,891) (88,558) Loss carryforwards in the current year (7,859) (16,594) Unrecognized deductible temporary differences 11,174 119 Adjustments for prior years’ tax (3,954) (1,702) Others (676) 251 Income tax expense recognized in profit or loss $ 1,384,254 $ 1,408,411	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 7,533,543 $ 1,691,459 544 (264,323) 37,047 7,733 (86,891) (7,859) 11,174 (3,954) (676) $ 1,384,254	2016 $ 7,097,365 $ 1,630,913 686 (196,715) 72,178 7,833 (88,558) (16,594) 119 (1,702) 251 $ 1,408,411

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

54 -

In February 2018, it was announced by the President of the ROC that the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to be adjusted and would increase by $41,906 thousand and $207,914 thousand, respectively, in 2018.

In December 2017, the United States amended the Income Tax Law, which reduces a profit-seeking enterprise’s federal income tax rate from 35% to 21%, effective 2017.

As the status of the 2018 appropriations of earnings is uncertain, the potential income tax consequences of 10% income tax rate of the 2017 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 plans Current tax liabilities Current tax liabilities Income tax payable	For the Year Ended	For the Year Ended	For the Year Ended	For the Year Ended	December 31
			2017 2016 $ 54,450 $ 96,161 4,064 5,312 $ 58,514 $ 101,473 December 31
		2017 $ 1,269,165		2016 $ 1,229,400

c. Current tax liabilities

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, 2017

					Recognized in	Recognized in
						Other
					Compre-
		Opening	Recognized in			hensive		Business		Closing
		Balance	Profit or Loss			Income	Combination			Balance
Deferred tax assets
Temporary differences
Unrealized gross profit	$	44,996	$	30,880	$	-	$	-	$	75,876
Unrealized loss on inventory
write-downs		74,052		(24,876)		-		-		49,176
Exchange differences on translation
of foreign financial statements		45,115		(4,485)		54,450		-		95,080
Loss carryforwards		88,481		(43,009)		-		-		45,472
Defined benefit obligation		16,524		(1,101)		-		-		15,423
Unrealized exchange losses		1,615		1,392		-		-		3,007
Unrealized warranty liabilities		20,618		3,454		-		-		24,072
Remeasurement of defined benefit
plans		11,544		(64)		4,064		-		15,544
									(Continued)

55 -

Allowance for impaired receivables

Others

Deferred tax liabilities
Temporary differences
Undistributed earnings of subsidiaries

Remeasurement of defined benefit
plans
Exchange differences on translation
of foreign financial statements
Unrealized exchange losses (gains)
Property, plant and equipment
Intangible assets and goodwill
Others

Opening
Balance
Recognized in
Profit or Loss
Recognized in
Other
Compre-
hensive
Income
Business
Combination
Closing
Balance
$ 436
$ 4,068
$ -
$ -
$ 4,504

65,775

305

-

4,207

70,287
$ 369,156
$ (33,436)
$ 58,514
$ 4,207
$ 398,441
$ 990,571
$ 179,852
$ -
$ -
$ 1,170,423
3,646
(255)
-
-
3,391
-
12,853
-
-
12,853
2,827
(2,443)
-
-
384
9,783
(3,934)
-
-
5,849
355,416
(150,158)
-
-
205,258

444

(2,254)

-

2,665

855
$ 1,362,687
$ 33,661
$ -
$ 2,665
$ 1,399,013
(Concluded)

For the year ended December 31, 2016

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

56 -
e. Unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets

Loss carryforwards Expire in 2017 Expire in 2022 Expire in 2024 Expire in 2025 Expire in 2026		December	31
		2017 $ - - 3,056 - 24,165 $ 27,221	2016 $ 18,360 2,295 18,359 9,424 - $ 48,438

f. Information about unused investment credits

As of December 31, 2017, investment tax credits comprised:

		Remaining
		Creditable	Expiry
Laws and Statutes	Tax Credit Source	Amount	Year
Statute for Upgrading Industries	Research and development	$ 420	2017
	expenditures

g. Integrated income tax

Unappropriated earnings Generated on and after January 1, 1998 Shareholder-imputed credit accounts Creditable ratio for distribution of earnings		December 31
	2017 2016 $ 9,297,896 $ 8,435,785 $ 945,178 $ 777,620 For the Year Ended December 31
	2017 (Expected) 2016 Note 14.16%

Note: Since the amended Income Tax Act which was announced in February 2018 and effective thereof, the imputation tax system has been abolished, the related information is not applicable in 2017.

h. Income tax assessments

The Company’s tax returns through 2013 have been assessed by the tax authorities.

57 -

25. EARNINGS PER SHARE

EARNINGS PER SHARE
Basic earnings per share Diluted earnings per share	Unit: NT$ Per Share For the Year Ended December 31
		2017 $ 8.84 $ 8.77	2016 $ 8.15 $ 8.09

The weighted average number of shares outstanding used for the earnings per share computation was adjusted retroactively for the issuance of bonus shares on July 8, 2017. The basic and diluted earnings per share adjusted retrospectively for the year ended December 31, 2016 were as follows:

	Unit:	NT$ Per Share
	Before	After
	Retrospective	Retrospective
	Adjustment	Adjustment
Basic earnings per share	$ 8.96	$ 8.15
Diluted earnings per share	$ 8.90	$ 8.09

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
	2017	2016
Earnings used in the computation of basic earnings per share	$ 6,156,516	$ 5,666,862
Earnings used in the computation of diluted earnings per share	$ 6,156,516	$ 5,666,862
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 options Employees’ compensation Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 696,802 3,949 1,479 702,230	2016 695,475 4,046 1,118 700,639

If the Group offered to settle compensation paid to employees in cash or shares, the Group assumed the entire amount of the compensation will 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.

58 -

26. SHARE-BASED PAYMENT ARRANGEMENTS

Qualified employees of the Company and its subsidiaries were granted 6,500 options in 2016 and 5,000 options in 2014. Each option entitles the holder to subscribe for one thousand ordinary 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 and 2014 are both valid for six years. All are exercisable at certain percentages after the second anniversary year from the grant date. The exercise prices of those granted in 2016 and 2014 were both NT$100 per share. For any subsequent changes in the Company’s capital surplus, the exercise price and the number of options will be adjusted accordingly.

Information on employee share options was as follows:

Balance at January 1 Options granted Options exercised Balance at December 31 Options exercisable, end of year Weighted-average fair value of options granted (NT$)	For the Year Ended December 31	For the Year Ended December 31
	2017 Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 10,269 $ 98.20 - - (891) 86.89 9,378 95.15 2,878 84.20 -	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 98.20 3,769 95.10 95.10

The weighted-average share price at the date of exercise of share options for the years ended December 31, 2017 and 2016 were from NT$204 to NT$266 and from NT$204 to NT$269, respectively.

Information about outstanding options as of December 31, 2017 and 2016 was as follows:

Issuance in 2016 Issuance in 2014	For the Year Ended December 31	For the Year Ended December 31
	2017 Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ 88.50 4.45 84.20 2.63	2016
		Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ 100.00 5.45 95.10 3.63

59 -

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

	2016	2014
Grant-date share price (NT$)	$235	$239.5
Exercise price (NT$)	$100	$100
Expected volatility	31.42%-32.48%	28.18%-29.19%
Expected life (in years)	4-5.5	4-5.5
Expected dividends yield	0%	0%
Risk-free interest rate	0.52%-0.65%	1.07%-1.30%

Expected volatility was based on the historical share price volatility over the past 5 years.

Compensation costs recognized were $424,637 thousand and $338,194 thousand for the years ended December 31, 2017 and 2016, respectively.

27. GOVERNMENT GRANTS

In 2017, the Group participated in a governmental project plan and received a government grant of $12,005 thousand. The amount was recognized as other income.

28. BUSINESS COMBINATIONS

a. Subsidiaries acquired

			Proportion of
			Voting Equity
		Date of	Interests	Consideration
	Principal Activity	Acquisition	Acquired (%)	Transferred
Kostec Co., Ltd.	Production and sale of	January 20, 2017	60	$ 120,592
(“AKST”)	intelligent medical
	display
B+B SmartWorx, Inc.	Sale of industrial	January 4, 2016	100	$ 3,296,048
(Note)	network
	communications
Advanixs Kun Shan	Production and sale of	May 27, 2016	100	$ 459,648
Corp.	industrial automation
	products

Note: For more information on BEMC Holdings Corporation, Avtek Corporation and B+B and its subsidiaries B&B IMC. LLC, Quatech, LLC, B+B SmartWorx Limited, B&B Electronics Holdings LLC, B&B SmartWorx DMCC, Advantech B+B SmartWorx s.r.o. CZ and Conel Automation s.r.o. CZ, refer to Note 13, Table 7 and Table 9.

The Group’s market strategy is to develop R&D technology of global medical displays. The Group acquired 60% of the share equity of Kostec Co., Ltd. (“AKST”) to expand its global intelligent medical market.

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

60 -

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

b. Consideration transferred

Cash Contingent consideration arrangement	AKST $ 120,592 30,420 $ 151,012 (US$4,800 thousand)	B+B Advanixs Kun Shan $ 3,296,048 $ 459,648 - - $ 3,296,048 $ 459,648 (US$99,850 thousand) (US$92,758 thousand)

1) The Group acquired 60% equity in AKST with a partial payment of $102,517 thousand in the first quarter of the year ended December 31, 2017. Subsequently, after obtaining the audited financial statements of AKST for the year ended December 31, 2016, the Group made an additional payment of $18,075 thousand (US$600 thousand) for the full amount of the investment. In addition, the Group adjusted the goodwill based on the identifiable net assets and liabilities in AKST’s audited financial statements.
2) Under a contingent consideration arrangement, the Group is required to pay the seller an additional US$500 thousand in 2017 and 2018, respectively, if AKST’s revenue exceeds the agreed amount.
3) On January 4, 2016, the Group acquired 100% share equity of B+B and its subsidiaries from Graham Partners. The Company and ANA obtained share equity of B+B mutually.
4) On May 27, 2016, ATC acquired 100% share equity of Advanixs Kun Shan from Yeh-Chiang Technology (Cayman) Corp. The cash of acquisition was provided by a capital increase from ATC.
5) Acquisition-related costs amounting to $33,476 thousand were excluded from the consideration transferred and were recognized as current expenses under administrative expenses in the consolidated statement of comprehensive income.
c. Assets acquired and liabilities assumed at the dates of acquisitions

					Advanixs Kun	Advanixs Kun
		AKST		B+B		Shan
Current assets
Cash and cash equivalents	$	1,745	$	71,336	$	35,047
Trade receivables		20,426		188,827		-
Inventories		30,457		281,758		-
Debt investments with no active market -
current		54,324		-		-
Other receivables		-		-		4,366
Other current assets		2,877		17,935		19
Non-current assets
Plant and equipment		84,672		133,033		150,886
Intangible assets		9,921		1,294,933		-
						(Continued)

61 -

Deferred tax assets Long-term prepayments for leases Other non-current assets Current liabilities Short-term borrowings Trade and other payables Current portion of long-term borrowings Other current liabilities Non-current liabilities Long-term borrowings Deferred tax liabilities	AKST $ 4,207 - 926 (8,100) (26,748) (22,733) (1,646) (109,656) (2,665) $ 38,007	B+B Advanixs Kun Shan $ 153,651 $ 7,648 - 262,212 - - - - (188,215) (530) - - - - - - (425,349) - $ 1,527,909 $ 459,648

(Concluded)

d. Non-controlling interests

The non-controlling interest (40% ownership interest in AKST) recognized at the acquisition date was measured by reference to the identifiable net assets of the non-controlling interest and amounted to $15,203 thousand.

e. Goodwill recognized on acquisitions

Consideration transferred Less: Fair value of identifiable net assets acquired Goodwill recognized on acquisitions	AKST $ 120,592 (22,804) $ 97,788	B+B $ 3,296,048 (1,527,909) $ 1,768,139

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

f. Net cash outflow on acquisitions of subsidiaries

Consideration paid in cash Less: Prepayments for investments Less: Cash and cash equivalent balances acquired Less: Investment payables (recorded under other payables)	AKST $ 120,592 - (1,745) - $ 118,847	B+B Advanixs Kun Shan $ 3,296,048 $ 459,648 (2,279,881) - (71,336) (35,047) - (21,260) $ 944,831 $ 403,341

62 -
g. Impact of acquisitions on the results of the Group

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

Revenue Profit (loss)		2017 AKST $ 147,194 $ (45,988)		2016
				Advanixs Kun B+B Shan $ 1,614,067 $ 222,271 $ 53,173 $ 29,532

29. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTERESTS

a. In the first and third quarters of 2016, the Group acquired 0.07% and sold 8.83% of the equity in LNC, respectively, decreasing the Group’s equity interest from 89.93% to 81.17%.
b. In the first quarter of 2016, the Group acquired 40% of the equity in Hangzhou Advantofine Automation Tech. Co., Ltd., increasing the Group’s equity interest from 60% to 100%.

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

Cash consideration received (paid) The proportionate share of the carrying amount of the net assets of the subsidiary transferred to (from) non-controlling interests Differences recognized from equity transactions Line items adjusted for equity transactions Capital surplus - difference between consideration received or paid and carrying amount of the subsidiaries’ net assets during actual disposal or acquisition Retained earnings	For the Year Ended December 31, 2016	For the Year Ended December 31, 2016	For the Year Ended December 31, 2016
	Hangzhou Advantofine Automation Tech. Co., Ltd. $ (12,749) 9,195 $ (3,554) $ - (3,554) $ (3,554)	LNC $ 47,335 (29,628) $ 17,707 $ 17,844 (137) $ 17,707	Total $ 34,586 (20,433) $ 14,153 $ 17,844 (3,691) $ 14,153

63 -

30. OPERATING LEASE ARRANGEMENTS

The Group as Lessee

Lease arrangements

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

As of December 31, 2017 and 2016, refundable deposits (recognized as other non-current assets) for the operating leases were $25,812 thousand and $20,030 thousand, respectively.

Recognized as expenses

Rental expenses	For the Year Ended	For the Year Ended	December 31
		2017 $ 147,187	2016 $ 186,253

31. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged in both 2017 and 2016.

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

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

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

32. FINANCIAL INSTRUMENTS

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

December 31, 2017

Financial assets at FVTPL Derivative financial assets Non-derivative financial assets held for trading Mutual funds	Level 1 $ - 298,904 2,794,858 $ 3,093,762	Level 2 $ 5,084 - - $ 5,084	Level 3 $ - - - $ -	Total $ 5,084 298,904 2,794,858 $ 3,098,846 (Continued)

64 -

Available-for-sale financial assets Securities listed in ROC Equity securities Unlisted securities - ROC Equity securities Securities listed in other countries Equity securities Financial liabilities at FVTPL Derivative financial liabilities December 31, 2016 Financial assets at FVTPL Derivative financial assets Non-derivative financial asset held for trading Available-for-sale financial assets Securities listed in ROC Equity securities Unlisted securities - ROC Equity securities Mutual funds Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ 1,638,479 - 10,381 $ 1,648,860 $ - Level 1 $ - 78,680 $ 78,680 $ 2,209,557 - 2,450,232 $ 4,659,789 $ -	Level 2 $ - - - $ - $ 6,226 Level 2 $ 34,348 - $ 34,348 $ - - - $ - $ 10,231	Level 3 $ - 11,375 - $ 11,375 $ - Level 3 $ - - $ - $ - 9,375 - $ 9,375 $ -	Total $ 1,638,479 11,375 10,381 $ 1,660,235 $ 6,226 (Concluded) Total $ 34,348 78,680 $ 113,028 $ 2,209,557 9,375 2,450,232 $ 4,669,164 $ 10,231

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

65 -
2) Reconciliation of Level 3 fair value measurements of financial instruments

For the year ended December 31, 2017

Financial assets Balance at January 1, 2017 Purchase Balance at December 31, 2017 For the year ended December 31, 2016 Financial assets Balance at January 1, 2016 Sales Balance at December 31, 2016	Available-for-sale Assets	Financial
	Equity Instruments $ 9,375 2,000 $ 11,375 Available-for-sale Assets	Total $ 9,375 2,000 $ 11,375 Financial
	Equity Instruments $ 42,632 (33,257) $ 9,375	Total $ 42,632 (33,257) $ 9,375

3) Valuation techniques and inputs applied for Level 2 fair value measurement

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

4) Valuation techniques and inputs applied for Level 3 fair value measurement

The fair values of unlisted equity securities - ROC were using income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees.

b. Categories of financial instruments

Financial assets Fair value through profit or loss (FVTPL) Held for trading (Note 1) Loans and receivables (Note 2) Available-for-sale financial assets (Note 3)	December 31
	2017 2016 $ 3,098,846 $ 113,028 13,184,303 12,025,231 1,738,753 4,669,164 (Continued)

66 -

Financial liabilities Fair value through profit or loss (FVTPL) Held for trading Measured at amortized cost (Note 4)	December 31
	2017 2016 $ 6,226 $ 10,231 9,027,555 9,369,630 (Concluded)

Note 1: The balance included the carrying amount of held-for-trading financial assets measured at cost.
Note 2: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, debt investments with no active market - current, notes receivable, trade receivables, trade receivables from related parties and other receivables.
Note 3: The balances include the carrying amount of available-for-sale financial assets measured at cost.
Note 4: The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, notes payable and trade payables, other payables and long-term borrowings.
c. Financial risk management objectives and policies

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

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

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

1) Market risk

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

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

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a) Foreign currency risk

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

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

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) are set out in Note 35. As for the carrying amounts of derivatives exposing to foreign currency risk at the end of the reporting period, refer to Note 7.

Sensitivity analysis

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

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

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U.S. Dollar Impact Euro Impact Renminbi Impact
For the Year Ended For the Year Ended For the Year Ended
----- End of picture text -----

	U.S. Dollar Impact For the Year Ended	Euro Impact For the Year Ended	Renminbi Impact For the Year Ended
Profit or loss	December 31 2017 2016 $ 108,887 (Note 1) $ 41,430 (Note 1)	December 31 2017 2016 $ 57,967 (Note 2) $ 41,829 (Note 2)	December 31
			2017 2016 $ 23,642 (Note 3) $ 39,920 (Note 3)

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

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

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

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

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities	December 31
	2017 2016 $ 230,278 $ 235,400 42,698 - 4,452,477 3,923,166 79,419 483,750

Sensitivity analysis

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

If interest rates had been 50 basis points higher and all other variables were held constant, the Group’s pre-tax profit for the years ended December 31, 2017 and 2016 would have increased by $21,865 thousand and $17,197 thousand, respectively. Had interest rates been 50 basis points lower for the same years, the Group’s pre-tax profit would have decreased by the same respective amounts. The source of the negative effects would have been mainly the floating-interest rates on bank savings.

c) Other price risk

The Group was exposed to equity price risk through its investments in listed equity securities. The Group manages this exposure by maintaining a portfolio of investments with different risks. The Group’s equity price risk was mainly concentrated on 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.

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If equity prices had been 1% higher, pre-tax profits for the years ended December 31, 2017 and 2016 would have increased by $2,989 thousand and $787 thousand, respectively, as a result of changes in the fair value of held-for-trading investments and the pre-tax other comprehensive income for the years ended December 31, 2017 and 2016 would have increased by $16,489 thousand and $22,096 thousand, respectively, as a result of changes in fair value of available-for-sale investments. Had equity prices been 1% lower for the same years, the pre-tax profit and other comprehensive income for would have decreased by the same respective amounts.

2) Credit risk

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

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

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

3) Liquidity risk

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

The Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2017 and 2016, the Group had available unutilized short-term bank loan facilities set out in section (c) below.

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

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

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

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

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December 31, 2017

On Demand or Less than 1 Month Non-derivative financial liabilities Non-interest bearing $ 6,683,438 Variable interest rate liabilities 192 Fixed interest rate liabilities 66 $ 6,683,696 December 31, 2016 On Demand or Less than 1 Month Non-derivative financial liabilities Non-interest bearing $ 7,013,061 Variable interest rate liabilities 534 $ 7,013,595	1-3 Months $ 1,170,810 8,777 132 $ 1,179,719 1-3 Months $ 855,392 1,067 $ 856,459	Over 3 Months to 1 Year Over 1 Year- 5 Years $ 1,051,190 $ - 1,543 86,001 592 43,280 $ 1,053,325 $ 129,281 Over 3 Months to 1 Year Over 1 Year- 5 Years $ 1,017,427 $ - 488,554 - $ 1,505,981 $ -

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 table for derivative financial liabilities

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

December 31, 2017

On Demand or Less than 1 Month Gross settled Foreign exchange forward contracts Inflows $ 264,246 Outflows 263,570 $ 676	1-3 Months Over 3 Months to 1 Year $ 488,029 $ 281,423 489,905 281,365 $ (1,876) $ 58	Total $ 1,033,698 1,034,840 $ (1,142)

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December 31, 2016

On Demand or Less than 1 Month Gross settled Foreign exchange forward contracts Inflows $ 325,858 Outflows 316,886 $ 8,972	1-3 Months Over 3 Months to 1 Year $ 753,831 $ 289,030 743,308 284,408 $ 10,523 $ 4,622	Total $ 1,368,719 1,344,602 $ 24,117

c) Financing facilities

Unsecured bank overdraft facilities, reviewed annually and payable on demand Amount used Amount unused Secured bank overdraft facilities Amount used		December 31	December 31
		2017 $ - 4,034,100 $ 4,034,100 $ 122,117	2016 $ 483,750 3,757,750 $ 4,241,500 $ -

33. TRANSACTIONS WITH RELATED PARTIES

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

a. Names and categories of related parties

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Name Related Party Category
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Name	Related Party Category
Axiomtek Co., Ltd.	Associate
AIMobile Co., Ltd.	Associate
Deneng Scientific Research Co., Ltd.	Associate
Jan Hsiang Electronics Co., Ltd.	Associate
Winmate Inc.	Associate
Ke Chang Liu	Other related party (chairman’s second immediate family)
Li Ting Huang	Other related party (spouse of chairman’s second
	immediate family)

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b. Sales of goods

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2017 2016 $ 64,487 $ 51,709 For the Year Ended December 31
	2017 $ 66,871 December	2016 $ 51,320 31
	2017 $ 14,067	2016 $ 13,957

c. Purchases of goods
d. Receivables from related parties (excluding loans to related parties)

The outstanding trade receivables from related parties are unsecured. For the years ended December 31, 2017 and 2016, no impairment loss was recognized for trade receivables from related parties.

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

Related Party Line Item Category/Name Trade payables Associates		December	31
		2017 $ 19,499	2016 $ 29,453

The outstanding trade payables to related parties are unsecured.

f. Acquisitions of property, plant and equipment

Related Party Category/Name Associates	Purchase Price	Purchase Price	Purchase Price
	For the Year Ended December 31
		2017 $ 8,381	2016 $ -

g. Disposal of property, plant and equipment

Related Party Category/ Name Other related parties	Proceeds For the Nine Months Ended September 30 2017 2016 $ 74,397 $ -	Proceeds For the Nine Months Ended September 30 2017 2016 $ 74,397 $ -	Gain (Loss) on Disposal	Gain (Loss) on Disposal	Gain (Loss) on Disposal
			For the Nine Months Ended September 30
		2017 $ 74,397		2017 $ 66,531	2016 $ -

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h. Other transactions with related parties

Related Party Category/Name Research and development expenses Associates	Operating Expenses	Operating Expenses	Operating Expenses
	For the Year Ended December 31
		2017 $ 23,709	2016 $ -

Research and development expenses formed between the Group and its associates were charged with agreed remuneration and 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.

Related Party Category/Name Rental income Other related parties Other Other related parties	Other Income	Other Income	Other Income
	For the Year Ended December 31
		2017 $ 60 $ 2,702	2016 $ 60 $ 2,702

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

i. 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
		2017 $ 46,617 201 9,653 $ 56,471	2016 $ 34,349 113 20,114 $ 54,576

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

34. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets of AKST were provided as collateral for bank borrowings:

	December 31,
	2017
Pledge deposits (recognized as debt investments with no active market)	$ 29,982
Property, plant and equipment	69,552
	$ 99,534

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35. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

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

December 31, 2017

Unit: In Thousands for Currencies, Except Exchange Rates

Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 204,045 29.760 (USD:NTD) RMB 370,046 4.5650 (RMB:NTD) EUR 32,336 35.5770 (EUR:NTD) USD 18,340 6.5192 (USD:RMB) Financial liabilities Monetary items USD 120,900 29.760 (USD:NTD) RMB 190,006 4.5650 (RMB:NTD) USD 28,310 6.5192 (USD:RMB) December 31, 2016	Carrying Amount $ 6,072,379 1,689,260 1,150,192 545,801 $ 9,457,632 $ 3,597,984 867,377 842,512 $ 5,307,873

Unit: In Thousands for Currencies, Except Exchange Rates

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

75 -

For the years ended December 31, 2017 and 2016, realized and unrealized net foreign exchange losses were $76,098 thousand and $205,812 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

36. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and b. information on investees:
1) Financing provided to others. (Table 1)
2) Endorsement/guarantee provided. (Table 2)
3) Marketable securities held. (Table 3)
4) Marketable securities acquired and disposed of at costs or prices of 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. (None)
6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital. (None)
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 5)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
- capital. (Table 6)
9) Transactions of financial instruments. (Notes 7 and 32)
10) Significant transactions between the Company and subsidiaries. (Table 10)
11) Name, locations, and other information of investees. (Table 7)
12) Organization chart. (Table 9)
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, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area. (Table 8)
2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, their prices, payment terms, and unrealized gains or losses. (Tables 1, 5 and 6)
76 -

37. SEGMENT INFORMATION

Information reported to the chief operating decision maker (“CODM”) for the purpose of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided. The Group’s segment information which is disclosed is as follows:

Industrial internet of things services: Focus on industry-driven services;
Embedded board and design-in services: Provide services involving embedded boards, systems and peripheral hardware and software and customized designs and services to meet customers’ demands;
Allied design manufacture services: Provide services involving digital logistic, digital healthcare and intelligent retail;
Intelligent services: Referring to integrated intelligent applications that can be used in various areas;
Global customer services: Global repair, technical support and warranty services.

The CODM considers each service as a separate operating segment. But for financial statements presentation purposes, these individual operating segments have been aggregated into a single operating segment, taking into account the following factors:

a. These operating segments have similar long-term gross profit margins; and
b. The nature of the products and production processes are similar.

Segment Revenue and Results

The following was an analysis of the Group’s revenue and results from continuing operations by reportable segment:

For the year ended December 31, 2017 Revenue from external customers Inter-segment revenue Segment revenue Eliminations Consolidated revenue Segment income Other revenue Central administration costs and directors’ salaries Other income and expense Finance costs Share of profits of associates accounted for using the equity method Profit before tax (continuing operations) For the year ended December 31, 2016 Revenue from external customers Inter-segment revenue Segment revenue Eliminations Consolidated revenue Segment income Other revenue Central administration costs and directors’ salaries Other income and expense Finance costs Share of profits of associates accounted for using the equity method Profit before tax (continuing operations)	Industrial Internet of Thing Services $ 14,763,233 - $ 14,763,233 - - $ 3,118,367 $ 13,606,469 - $ 13,606,469 - - $ 2,901,863	Embedded Boards and Design-in Services $ 11,906,429 - $ 11,906,429 - - $ 1,970,685 $ 15,817,033 - $ 15,817,033 - - $ 1,997,596	Allied Design Manufacture Services $ 9,005,011 - $ 9,005,011 - - $ 1,426,348 $ 9,662,962 - $ 9,662,962 - $ 1,609,214	Intelligent Services $ 3,092,256 - $ 3,092,256 - - ($ 67,163 ) $ 2,722,384 - $ 2,722,384 - - $ 208,387	Global Customer Services $ 5,540,815 - $ 5,540,815 - - $ 696,162 $ 4,924,689 - $ 4,924,689 - - $ 583,025	Others $ 67,007 - $ 67,007 - - $ (994 ) $ 285,913 - $ 285,913 - - $ (13,524 )	Total $ 44,374,751 - 44,374,751 - 44,374,751 7,143,405 234,453 (364,928 ) 314,079 (12,117 ) 218,651 $ 7,533,543 $ 42,002,198 - 42,002,198 - 42,002,198 7,286,560 227,316 (655,068 ) 184,550 (11,556 ) 65,562 $ 7,097,365

77 -

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

Revenue from Major Products and Services

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

Embedded boards and Chassis Industrial computer Industrial control Industry-applied computer After-sales service and others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 18,596,165 9,028,906 8,141,772 3,103,742 5,504,166 $ 44,374,751	2016 $ 16,733,624 9,666,898 5,377,597 5,014,219 5,209,860 $ 42,002,198

Geographical Information

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

Taiwan Asia USA Europe Others	Revenue from External Customers For the Year Ended December 31 2017 2016 $ 3,454,198 $ 3,467,452 18,696,453 16,781,831 13,277,208 13,337,334 7,170,151 6,526,905 1,776,741 1,888,676 $ 44,374,751 $ 42,002,198	Revenue from External Customers For the Year Ended December 31 2017 2016 $ 3,454,198 $ 3,467,452 18,696,453 16,781,831 13,277,208 13,337,334 7,170,151 6,526,905 1,776,741 1,888,676 $ 44,374,751 $ 42,002,198	Non-current Assets	Non-current Assets	Non-current Assets
			For the Year Ended December 31
		2017 $ 3,454,198 18,696,453 13,277,208 7,170,151 1,776,741 $ 44,374,751		2017 $ 7,837,025 2,746,244 2,984,579 674,970 2,831 $ 14,245,649	2016 $ 7,924,905 2,821,073 3,371,055 555,878 4,143 $ 14,677,054

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

Information about Major Customers

No customers contributed 10% or more to the Group’s revenue for both years ended December 31, 2017 and 2016.

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TABLE 1

ADVANTECH CO., LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Credit Line (Note D) Actual Borrowing Business Reasons for Collateral
No. Financial Statement Related Interest Nature of Allowance for Financing Limit for Aggregate
(Note A) Lender Borrower Account Parties Highest Balance for the Year Ending Balance Ending Balance Rate (%) Financing Transaction Amounts Short-term Financing Impairment Loss Item Value Each Borrower Financing Limits
1 Better Auto Advantech LNC Dong Guan Trade receivables - related Yes $ 20,729 $ - $ - - Short-term $ - Financing need $ - None None $ 2,758,107 $ 5,516,214
Co., Ltd. parties ( RMB 4,520 financing (Note C) (Note C)
thousand )
Advantech LNC Dong Guan Trade receivables - related Yes 15,673 - - Short-term - Financing need - None None 2,758,107 5,516,214
Co., Ltd. parties ( US$ 500 financing (Note C) (Note C)
thousand )
2 ANA B+B Trade receivables - related Yes 23,509 - - - Short-term - Financing need - None None 2,758,107 5,516,214
parties ( US$ 750 financing (Note C) (Note C)
thousand )
3 B+B B+B (CZ) Trade receivables - related Yes 39,505 - - - Short-term - Financing need - None None 2,758,107 5,516,214
parties ( CZK 31,756 financing (Note C) (Note C)
thousand )
4 B+B (CZ) Conel Automation Trade receivables - related Yes 16,764 16,740 16,740 2 Short-term - Financing need - None None 2,758,107 5,516,214
parties ( CZK 12,000 ( CZK 12,000 ( CZK 12,000 financing (Note C) (Note C)
thousand ) thousand ) thousand )
5 B+B (CZ) Conel Automation Trade receivables - related Yes 5,580 5,580 5,580 2 Short-term - Financing need - None None 2,758,107 5,516,214
parties ( CZK 4,000 ( CZK 4,000 ( CZK 4,000 financing (Note C) (Note C)
thousand ) thousand ) thousand )
6 Cermate Technologies Shenzhen Cermate Prepayments of inventories Yes 13,758 - - - Short-term - Financing need - None None 2,758,107 5,516,214
(Shanghai) Inc. Technologies Inc. ( RMB 3,000 financing (Note C) (Note C)
thousand )
7 Cermate Technologies Shenzhen Cermate Prepayments of inventories Yes 13,695 13,695 - - Short-term - Financing need - None None 2,758,107 5,516,214
(Shanghai) Inc. Technologies Inc. ( RMB 3,000 ( RMB 3,000 financing (Note C) (Note C)
thousand ) thousand )
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Note A: Investee companies are numbered sequentially from 1.

Note B: The exchange rates as of December 31, 2017 were RMB1=NT$4.565 and CZK1=NT$1.395.

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

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

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

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TABLE 2

ADVANTECH CO., LTD. AND SUBSIDIARIES

ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Endorsee/Guarantee Ratio of
Endorsement/
Limits on Maximum Accumulated Maximum Endorsement/ Endorsement/
Outstanding Guarantee
Endorsement/ Amount Amount Endorsement/ Collateral/ Guarantee Guarantee
Endorsement/ Actual Given on
Endorser/ Guarantee Endorsed/ Endorsed/ Guarantee to Guarantee Given by Given by
No. Guarantee at Borrowing Behalf of
Guarantor Name Relationship Given on Behalf Guaranteed Guaranteed by Net Equity in Amounts Parent on Subsidiaries
the End of the Amount Companies in
of Each Party During the Collaterals Latest Financial Allowable Behalf of on Behalf of
Year Mainland
(Note A) Year Statements (Note B) Subsidiaries Parent
China
(%)
0 The Company Advanixs Corp. Subsidiary $ - $ 62,690 $ - $ - $ - - $ - Y N N
(US$ 2,000
thousand)
AdvanPOS Subsidiary - 62,690 - - - - - Y N N
(US$ 2,000
thousand)
ANA Subsidiary 2,758,107 940,350 892,800 - - 3.24 8,274,321 Y N N
(US$ 30,000 (US$ 30,000
thousand) thousand)
B+B Subsidiary 2,758,107 313,450 297,600 - - 1.08 8,274,321 Y N N
(US$ 10,000 (US$ 10,000
thousand) thousand)
AKMC Subsidiary 2,758,107 188,070 178,560 - - 0.65 8,274,321 Y N Y
(US$ 6,000 (US$ 6,000
thousand) thousand)
LNC Subsidiary 2,758,107 109,708 44,640 - - 0.16 8,274,321 Y N N
(US$ 3,500 (US$ 1,500
thousand) thousand)
Advanixs Corp. Subsidiary 2,758,107 50,152 47,616 - - 0.17 8,274,321 Y N N
(US$ 1,600 (US$ 1,600
thousand) thousand)
Cermate Subsidiary 2,758,107 48,585 29,760 - - 0.11 8,274,321 Y N N
(US$ 1,550 (US$ 1,000
thousand) thousand)
AiST Subsidiary 2,758,107 4,702 4,464 - - 0.02 8,274,321 Y N N
(US$ 150 (US$ 150
thousand) thousand)
AdvanPOS Subsidiary 2,758,107 31,345 29,760 - - 0.11 8,274,321 Y N N
(US$ 1,000 (US$ 1,000
thousand) thousand)
A-DLoG Subsidiary 2,758,107 35,890 35,570 - - 0.13 8,274,321 Y N N
(EUR 1,000 (EUR 1,000
thousand) thousand)
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(Continued)

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Endorsee/Guarantee Ratio of
Endorsement/
Limits on Maximum Accumulated Maximum Endorsement/ Endorsement/
Outstanding Guarantee
Endorsement/ Amount Amount Endorsement/ Collateral/ Guarantee Guarantee
Endorsement/ Actual Given on
Endorser/ Guarantee Endorsed/ Endorsed/ Guarantee to Guarantee Given by Given by
No. Guarantee at Borrowing Behalf of
Guarantor Name Relationship Given on Behalf Guaranteed Guaranteed by Net Equity in Amounts Parent on Subsidiaries
the End of the Amount Companies in
of Each Party During the Collaterals Latest Financial Allowable Behalf of on Behalf of
Year Mainland
(Note A) Year Statements (Note B) Subsidiaries Parent
China
(%)
ABR Subsidiary $ 2,758,107 $ 47,018 $ 44,640 $ - $ - 0.16 $ 8,274,321 Y N N
(US$ 1,500 (US$ 1,500
thousand) thousand)
AAU Subsidiary 2,758,107 6,269 5,952 - - 0.02 8,274,321 Y N N
(US$ 200 (US$ 200
thousand) thousand)
AKR Subsidiary 2,758,107 1,567 1,488 - - 0.01 8,274,321 Y N N
(US$ 50 (US$ 50
thousand) thousand)
Shenzhen Cermate Subsidiary 2,758,107 16,731 16,368 - - 0.06 8,274,321 Y N Y
Technologies Inc. (US$ 550 (US$ 550
thousand) thousand)
Advantech LNC Dong Guan Subsidiary 2,758,107 60,840 59,520 - - 0.22 8,274,321 Y N Y
Co., Ltd. (US$ 2,000 (US$ 2,000
thousand) thousand)
----- End of picture text -----

Note A: The limit on endorsements or guarantees provided on behalf of the respective party is 10% of the Company’s net asset value.

Note B: The maximum collateral or guarantee amount allowable is 30% of the Company’s net asset value.

Note C: The exchange rates as of December 31, 2017 were US$1=NT$29.76 and EUR1=NT$35.57.

Note D: The latest net equity is from the Group’s consolidated financial statements for the year ended December 31, 2017.

(Concluded)

81 -

TABLE 3

ADVANTECH CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Relationship with December 31, 2017
Holding Company Name Type and Name of Marketable Securities the Holding Financial Statement Account Carrying Percentage of Note
Shares Fair Value
Company Amount Ownership
The Company Stock
ASUSTek Computer Inc. - Available-for-sale financial assets - non-current 4,739,461 $ 1,324,679 0.64 $ 1,324,679 Note A
Allied Circuit Co., Ltd. - Same as above 1,200,000 94,800 2.41 94,800 Note A
Fund
Mega Diamond Money Market - Financial assets at fair value through profit or 28,879,554 360,007 - 360,007 Note B
loss - current
FSITC Money Market - Same as above 1,578,639 280,009 - 280,009 Note B
Advantech Corporate Investment Stock
Allied Circuit Co., Ltd. - Financial assets at fair value through profit or 2,501,000 197,579 5.03 197,579 Note A
loss - current
AzureWave Technologies, Inc. - Same as above 5,492,000 91,991 4.11 91,991 Note A
Contec - Same as above 15,500 9,334 0.23 9,334 Note A
BroadTec System Inc. - Available-for-sale financial assets - non-current 182,700 1,500 1.79 1,500 -
BiosenseTek Corp. - Same as above 37,500 375 7.50 375 -
Juguar Technology - Same as above 500,000 7,500 16.67 7,500 -
Taiwan DSC PV Ltd. - Same as above 160,000 2,000 3.20 2,000 -
Phison Electronics Corporation - Available-for-sale financial assets - current 750,000 219,000 0.38 219,000 Note A
Xplore Technologies Corp. - Same as above 122,829 10,381 1.11 10,381 Note A
Fund
Mega Diamond Money Market - Financial assets at fair value through profit or 49,657,452 619,020 - 619,020 Note B
loss - current
FSITC Money Market - Same as above 2,926,124 519,018 - 519,018 Note B
Advanixs Corporate Fund
Jih Sun Money Market - Same as above 40,686,999 599,218 - 599,218 Note B
Mega Diamond Money Market - Same as above 7,437,828 92,718 - 92,718 Note B
AiST Fund
Jih Sun Money Market - Same as above 6,057,244 89,208 - 89,208 Note B
ALTC Fund
Mega Diamond Money Market - Same as above 481,926 6,008 - 6,008 Note B
Capital Money Market - Same as above 499,083 8,005 - 8,005 Note B
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(Continued)

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Relationship with December 31, 2017
Holding Company Name Type and Name of Marketable Securities the Holding Financial Statement Account Carrying Percentage of Note
Shares Fair Value
Company Amount Ownership
AdvanPOS Fund
Mega Diamond Money Market - Financial assets at fair value through profit or 15,442,275 $ 192,500 - $ 192,500 Note B
loss - current
Advantech Innovative Design Co., Ltd. Fund
Capital Money Market - Same as above 600,530 9,633 - 9,633 Note B
Cermate Fund
Mega Diamond Money Market - Same as above 1,565,402 19,514 - 19,514 Note B
AiSC Fund
Shanghai Shangchuang Xinwei Investment - Financial assets measured at cost-non current - 78,518 7.50 78,518 -
Management Co., Ltd.
----- End of picture text -----

Note A: Market value was based on the closing price on December 31, 2017.

Note B: Market value was based on the net asset values of the open-ended mutual funds on December 31, 2017.

(Concluded)

83 -

TABLE 4

ADVANTECH CO., LTD. AND SUBSIDIARIES

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, 2017

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

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Beginning Balance Acquisition (Note) Disposal Ending Balance (Note)
Type and Name of Financial Statement
Company Name Counterparty Relationship Carrying Gain (Loss) on
Marketable Securities Account Shares Amount (Cost) Shares Amount Shares Amount Shares Amount (Cost)
Amount Disposal
The Company Fund
Capital Money Market Available-for-sale financial - - 6,257,978 $ 100,000 57,235,311 $ 916,000 63,493,289 $ 1,016,513 $ 1,016,000 $ 513 - $ -
assets - current
Mega Diamond Money Available-for-sale financial - - 24,168,481 300,021 127,827,675 1,590,000 151,996,156 1,891,872 1,890,021 1,851 - -
Market assets - current
FSITC Money Market Available-for-sale financial - - 1,698,386 300,000 14,552,185 2,576,000 16,250,571 2,878,210 2,876,000 2,210 - -
assets - current
Fund
Mega Diamond Money Financial assets at fair value - - - - 28,879,554 360,000 - - - - 28,879,554 360,000
Market through profit or loss -
current
Advantech Corporate Fund
Investment FSITC Money Market Available-for-sale financial - - 2,038,341 360,000 520,024 92,000 2,558,365 453,754 452,000 1,754 - -
assets - current
Mega Diamond Money Available-for-sale financial - - 23,861,961 296,000 25,930,564 323,000 49,792,525 620,684 619,000 1,684 - -
Market assets - current
Fund
Mega Diamond Money Financial assets at fair value - - - - 49,657,452 619,000 - - - - 49,657,452 619,000
Market through profit or loss -
current
FSITC Money Market Financial assets at fair value - - - - 3,038,880 539,000 112,756 20,000 19,999 1 2,926,124 519,001
through profit or loss -
current
Advanixs Corporate Fund
Jih Sun Money Market Available-for-sale financial - - 38,021,440 557,118 33,850,653 497,702 71,872,093 1,057,497 1,054,820 2,677 - -
assets - current
Fund
Jih Sun Money Market Financial assets at fair value - - - - 40,686,999 599,197 - - - - 40,686,999 599,197
through profit or loss -
current
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84 -

TABLE 5

ADVANTECH CO., LTD. AND SUBSIDIARIES

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, 2017

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

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Notes/Trade
Transaction Details Abnormal Transaction
Receivable (Payable)
Buyer Related Party Relationship Note
Purchase/ % of Ending % of
Amount Payment Terms Unit Price Payment Terms
Sale Total Balance Total
The Company AAU Subsidiary Sale $ (220,309) 0.71 60-90 days Contract price No significant difference in $ 38,731 0.62
terms for related parties
B+B Subsidiary Sale (149,747) 0.48 60 days after month-end Contract price No significant difference in 36,942 0.59
terms for related parties
AEU Subsidiary Sale (4,316,172) 13.97 30 days after month-end Contract price No significant difference in 1,363,473 21.93
terms for related parties
AiSC Subsidiary Sale (159,793) 0.52 45 days after month-end Contract price No significant difference in 41,117 0.66 Note A
terms for related parties
AJP Subsidiary Sale (778,432) 2.52 60-90 days Contract price No significant difference in 151,705 2.44
terms for related parties
ACN Subsidiary Sale (6,039,617) 19.55 45 days after month-end Contract price No significant difference in 964,313 15.51 Note B
terms for related parties
AKR Subsidiary Sale (917,245) 2.97 60 days after invoice date Contract price No significant difference in 73,977 1.19
terms for related parties
ANA Subsidiary Sale (8,255,247) 26.72 45 days after month-end Contract price No significant difference in 1,595,920 25.67
terms for related parties
ASG Subsidiary Sale (269,444) 0.87 60-90 days Contract price No significant difference in 68,340 1.10
terms for related parties
Advanixs Corp. Subsidiary Sale (599,509) 1.94 60-90 days Contract price No significant difference in 140,428 2.26
terms for related parties
A-DLoG Subsidiary Sale (181,312) 0.59 30 days after invoice date Contract price No significant difference in 46,969 0.76
terms for related parties
AMY Subsidiary Sale (188,191) 0.61 45 days after month-end Contract price No significant difference in 23,549 0.38
terms for related parties
AKMC Subsidiary Purchase 10,519,469 48.88 Usual trade terms Contract price No significant difference in (966,466) 21.09
terms for related parties
Advanixs Corp. Subsidiary Purchase 1,328,501 6.17 Usual trade terms Contract price No significant difference in (16,222) 0.35
terms for related parties
AdvanPOS Subsidiary Purchase 1,342,553 6.24 Usual trade terms Contract price No significant difference in (747) 0.02
terms for related parties
AKMC The Company Parent company Sale (10,519,469) 94.01 Usual trade terms Contract price No significant difference in 966,466 95.48
terms for related parties
Advanixs Corp. The Company Parent company Sale (1,328,501) 34.38 Usual trade terms Contract price No significant difference in 16,222 14.80
terms for related parties
(Continued)
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85 -

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Notes/Trade
Transaction Details Abnormal Transaction
Receivable (Payable)
Buyer Related Party Relationship Note
Purchase/ % of Ending % of
Amount Payment Terms Unit Price Payment Terms
Sale Total Balance Total
AdvanPos The Company Parent company Sale $ (1,342,553) 99.65 Usual trade terms Contract price No significant difference in $ 747 100.00
terms for related parties
AAU The Company Parent company Purchase 220,309 81.12 60-90 days Contract price No significant difference in (38,731) 81.66
terms for related parties
B+B The Company Parent company Purchase 149,747 15.78 60 days after month-end Contract price No significant difference in (36,942) 33.28
terms for related parties
AEU The Company Parent company Purchase 4,316,172 80.31 30 days after month-end Contract price No significant difference in (1,363,473) 81.13
terms for related parties
AiSC The Company Parent company Purchase 159,793 35.14 45 days after month-end Contract price No significant difference in (41,117) 47.31
terms for related parties
AJP The Company Parent company Purchase 778,432 90.57 60-90 days Contract price No significant difference in (151,705) 93.23
terms for related parties
ACN The Company Parent company Purchase 6,039,617 72.58 45 days after month-end Contract price No significant difference in (964,313) 72.28
terms for related parties
AKR The Company Parent company Purchase 917,245 61.29 60 days after invoice date Contract price No significant difference in (73,977) 51.47
terms for related parties
ANA The Company Parent company Purchase 8,255,247 91.20 45 days after month-end Contract price No significant difference in (1,595,920) 93.29
terms for related parties
ASG The Company Parent company Purchase 269,444 75.14 60-90 days Contract price No significant difference in (68,340) 86.69
terms for related parties
Advanixs Corp. The Company Parent company Purchase 599,509 17.44 60-90 days Contract price No significant difference in (140,428) 9.59
terms for related parties
A-DLoG The Company Parent company Purchase 181,312 21.32 30 days after invoice date Contract price No significant difference in (46,969) 54.57
terms for related parties
AMY The Company Parent company Purchase 188,191 89.92 45 days after month-end Contract price No significant difference in (23,549) 95.22
terms for related parties
Cermate Cermate Shenzen Related enterprise Sale (104,225) 1.45 Usual trade terms Contract price No significant difference in - -
terms for related parties
AKMC ACN Related enterprise Sale (511,855) 4.57 Usual trade terms Contract price No significant difference in 58,129 4.02
terms for related parties
Advanixs Corp. AKMC Related enterprise Sale (1,583,883) 40.99 Usual trade terms Contract price No significant difference in 5,597 5.11
terms for related parties
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(Continued)

86 -

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Note A: Realized gain for the year was $3,460 thousand.

Note B: Unrealized gain for the year was $14,281 thousand.

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

(Concluded)

87 -

TABLE 6

ADVANTECH CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2017

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

==> picture [1096 x 192] intentionally omitted <==

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Overdue Amounts
Received in Allowance for
Company Name Related Party Relationship Ending Balance Turnover Rate
Amount Actions Taken Subsequent Impairment Loss
Period
The Company ANA Subsidiary $ 1,595,920 6.08 $ - - $ 892,800 $ -
AEU Subsidiary 1,363,473 3.73 - - 725,469 -
ACN Subsidiary 964,313 6.76 - - 785,179 -
AJP Subsidiary 151,705 4.25 - - 89,530 -
Advanixs Corp. Subsidiary 140,428 4.30 - - 139,250 -
AKMC The Company Parent company 966,466 8.12 - - 216,353 -
LNC Advantech LNC Dong Guan Subsidiary 183,546 1.93 - - 21,825 -
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Note: All intercompany gains and losses from investment have been eliminated from consolidation.

88 -

TABLE 7

ADVANTECH CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars/Foreign Currency, Unless Stated Otherwise)

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Investment Amount Balance as of December 31, 2017 Net Income
Investment
Investor Company Investee Company Location Main Businesses and Products December 31, December 31, Percentage of Carrying (Loss) of the Note
Shares Gain (Loss)
2017 2016 Ownership Value Investee
The Company AAC (BVI) BVI Investment and management service $ 1,000,207 $ 1,000,207 29,623,834 100.00 $ 4,187,055 470,086 471,305 Subsidiary
ATC BVI Sale of industrial automation products 998,788 998,788 33,850,000 100.00 3,518,872 334,407 333,941 Subsidiary
Advanixs Corporate Taipei, Taiwan Production and sale of industrial automation products 486,000 486,000 36,000,000 100.00 856,049 296,431 313,646 Subsidiary
Advantech Corporate Investment Taipei, Taiwan Investment holding company 1,400,000 1,400,000 150,000,000 100.00 1,899,479 290,136 290,555 Subsidiary
Axiomtek Taipei, Taiwan Production and sale of industrial automation products 249,059 249,059 20,537,984 25.85 622,604 926,239 240,551 Equity-method investee
AdvanPOS Taipei, Taiwan Production and sale of POS system 460,572 460,572 20,438,000 100.00 552,116 61,335 66,667 Subsidiary
ALNC Taichung, Taiwan Production and sale of machines with computerized 431,634 431,634 24,350,000 81.17 492,441 10,297 8,334 Subsidiary (Note A)
numerical control
Jan Hsiang Taipei, Taiwan Electronic parts and components manufacturing 3,719 3,719 655,500 28.50 10,447 5,663 1,616 Equity-method investee
(Note A)
AMX Mexico Sale of industrial automation products 4,922 4,922 - 100.00 (399) (1,036) (1,036) Subsidiary (Note A)
AEUH Helmond, The Netherlands Investment and management service 1,219,124 1,219,124 12,572,024 100.00 925,225 36,775 36,448 Subsidiary
ASG Techplace, Singapore Sale of industrial automation products 27,134 27,134 1,450,000 100.00 90,848 14,531 14,531 Subsidiary (Note A)
AAU Sydney, Australia Sale of industrial automation products 40,600 40,600 500,204 100.00 49,785 9,163 9,163 Subsidiary (Note A)
AJP Tokyo, Japan Sale of industrial automation products 15,472 15,472 1,200 100.00 269,111 57,366 57,366 Subsidiary (Note A)
AMY Malaysia Sale of industrial automation products 35,140 35,140 2,000,000 100.00 66,713 29,340 29,340 Subsidiary (Note A)
AKR Seoul, Korea Sale of industrial automation products 73,355 73,355 600,000 100.00 278,131 42,501 42,501 Subsidiary
ABR Sao Paulo, Brazil Sale of industrial automation products 43,216 43,216 1,794,996 80.00 64,801 9,547 7,637 Subsidiary (Note A)
Advantech Innovative Design Taipei, Taiwan Product design 10,000 10,000 1,000,000 100.00 10,421 809 809 Subsidiary (Note A)
Co., Ltd.
AiST Taipei, Taiwan Design, develop and sale of intelligent services 157,915 157,915 10,000,000 100.00 171,803 9,938 9,938 Subsidiary (Note A)
BEMC Delaware, USA Sale of industrial network communications systems 1,968,044 1,968,044 6 60.00 1,885,077 121,314 71,930 Subsidiary
AIN India Sale of industrial automation products 19,754 5,567 999,999 99.99 11,376 (3,848) (3,848) Subsidiary (Note A)
AIMobile Co., Ltd. Taipei, Taiwan Design and manufacture of industrial mobile systems 135,000 135,000 13,500,000 45.00 84,140 (55,780) (25,101) Equity-method investee
(Note A)
AKST Gangwon-do, Korea Production and sale of intelligent medical display 83,313 - 17,280 36.00 - (45,988) (16,556) Subsidiary (Note A)
Winmate Inc. Taipei, Taiwan Embedded System Modules 540,000 - 12,000,000 16.62 544,960 136,205 5,333 Equity-method investee
(Note A)
AKR AKST Gangwon-do, Korea Production and sale of intelligent medical display 55,579 - 11,520 24.00 - (45,988) (11,037) Subsidiary (Note A)
Advantech Corporate Investment Cermate Taipei, Taiwan Manufacturing of electronic parts, computer, and 71,500 71,500 5,500,000 55.00 121,946 25,821 14,620 Subsidiary
peripheral devices
Deneng Taichung, Taiwan Installment and sale of electronic components and 18,095 18,095 658,000 39.69 15,457 (1,600) (635) Equity-method investee
software (Note A)
CDIB Innovation Accelerator Taipei, Taiwan Investment holding company 75,000 - 7,500,000 20.00 72,127 (16,087) (3,113) Equity-method investee
Co., Ltd. (Note A)
ATC ATC (HK) Hong Kong Investment and management service 1,212,730 1,212,730 41,650,001 100.00 3,499,871 387,373 386,906 Subsidiary
AAC (BVI) ANA Sunnyvale, USA Sale and fabrication of industrial automation products 504,179 504,179 10,952,606 100.00 2,430,085 300,055 299,531 Subsidiary
AAC (HK) Hong Kong Investment and management service 539,146 539,146 15,230,001 100.00 2,026,873 170,254 171,997 Subsidiary
ANA BEMC Delaware, USA Sale of industrial network communications systems 1,328,004 1,328,004 4 40.00 1,270,360 121,314 48,526 Subsidiary
AEUH AEU Eindhoven, The Netherlands Sale of industrial automation products 431,963 431,963 11,314,280 100.00 950,362 33,149 32,821 Subsidiary
APL Warsaw, Poland Sale of industrial automation products 14,176 14,176 6,350 100.00 27,909 3,220 3,220 Subsidiary (Note A)
AEU A-DLoG Munich, Germany Design, R&D and sale of industrial automation 553,536 553,536 1 100.00 474,134 (34,148) (34,475) Subsidiary
vehicles and related products
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(Continued)

89 -

(Concluded)

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Note A: The respective entity is an immaterial subsidiary; its financial statements have not been audited, which does not result in a significant impact on the Group’s consolidated financial statements.

Note B: In the first quarter of 2017, the Group made arrangement to acquire equity in AKST for US$3,800 thousand and recognized it as impairment loss in the end of 2017.

Note C: Refer to Table 8 for investments in mainland China.

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

90 -

TABLE 8

ADVANTECH CO., LTD. AND SUBSIDIARIES

INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

==> picture [1096 x 548] intentionally omitted <==

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Investment Flows Accumulated
Accumulated Accumulated
Outflow of %
Investment Outflow of Carrying Inward
Total Amount Investment Net Income Ownership of Investment
Main Businesses and Type (e.g., Investment Value as of Remittance of
Investee Company Name of Paid-in from Taiwan (Loss) of the Direct or Gain (Loss)
Products Direct or from Taiwan Outflow Inflow December 31, Earnings as of
Capital as of Investee Indirect
Indirect) as of 2017 December 31,
December 31, Investment
January 1, 2017 2017
2017
Advantech Technology Production and sale of US$ 43,750 Indirect $ 1,110,048 $ - $ - $ 1,110,048 $ 325,934 100 $ 325,467 2,998,770 $ -
(China) Company Ltd. components of thousand (US$ 37,300 (US$ 37,300
(“AKMC”) industrial automation (Note F) thousand) thousand)
products
Beijing Yan Hua Xing Ye Sale of industrial US$ 4,230 Indirect 158,680 - - 158,680 156,780 100 157,802 1,271,553 334,264
Electronic Science & automation products thousand (US$ 5,332 (US$ 5,332 (US$ 11,232
Technology Co., Ltd. thousand) thousand) thousand)
(“ACN”)
Shanghai Advantech Production and sale of US$ 8,000 Indirect 238,080 - - 238,080 (10,721) 100 (10,000) 702,327 -
Intelligent Services Co., Ltd. industrial automation thousand (US$ 8,000 (US$ 8,000 (Note A)
(“AiSC”) products thousand) thousand)
Xi’an Advantech Software Ltd. Development and US$ 1,000 Indirect (Note C) - - (Note C) 22,831 100 22,831 30,808 -
(“AXA”) production of thousand (Note A)
software products
Hangzhou Advantofine Processing and sale of RMB 3,000 Indirect (Note D) - - (Note D) (125) 100 (125) 14,659 -
Automation Tech. Co., Ltd. industrial automation thousand (Note A)
products
Advanixs Kun Shan Corp. Production and sale of RMB 99,515 Indirect (Note G) - - (Note G) 71,350 100 61,438 501,101 -
industrial automation thousand (Note A)
products
Accumulated Investment in Investment Amounts Authorized
Mainland China as of by Investment Commission, Allowable Limit on Investment
December 31, 2017 MOEA
$1,512,760 $2,547,456 $16,656,264
(US$50,832 thousand) (US$85,600 thousand) (Note I)
(Note E)
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(Continued)

91 -
Note A: The respective entity is an immaterial subsidiary; its financial statements have not been audited, which does not result in a significant impact on the Group’s consolidated financial statements.
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 (HK).
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$29.76.
Note I: The maximum allowable limit on investment was at 60% of the consolidated net asset value of the Company.
Note J: All intercompany gains and losses from investment have been eliminated from consolidation.

(Concluded)

92 -

TABLE 9

ADVANTECH CO., LTD. AND SUBSIDIARIES

ORGANIZATION CHART DECEMBER 31, 2017 AND 2016

Intercompany relationships and percentages of ownership as of December 31, 2017 are shown below:

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

100% 100% HK Advantech Technology Co., Ltd. 100% Advantech Technology (China)
Advantech Technology Co., Ltd. (“ATC”) ATC (HK) Company Ltd. (“AKMC”)
80% Advantech Brasil Ltd (“ABR”) Avtek Corporation (“Avtek”) 100% Advanixs Kun Shan Corp.
100% 100% (“Advanixs Kun Shan”)
60% BEMC Holdings Corporation (“BEMC”) B+B SmartWorx Inc. (“B+B”) 1% Conel Automation s.r.o.
100% CZ (“Conel Automation”)
B&B IMC. LLC (“IMC”)
40% 100% 99.99% 99%
Quatech, LLC (“Quatech”) Advantech B+B SmartWorx
s.r.o. CZ (“B+B (CZ)”)
100%
B+B SmartWorx Limited (“BBI”) 100% 0.01%
100% B&B Electronics Holdings LLC
Advantech Automation Corp. (BVI) 100% Advantech Corp. (“ANA”) (“B&B Electronics”)
(“AAC (BVI)”) 100%
B&B SmartWorx DMCC (“B&B
Advantech Automation Corp. (HK) 100% 100% Beijing Yan Hua Xing Ye Electronic 100% Hangzhou Advantofine DMCC”)
Science & Technology Co., Ltd. (“ACN”)
Limited (“AAC (HK)”) 100% Automation Tech. Co., Ltd.
Shanghai Advantech Intelligent Services
Co., Ltd. (“AiSC”)
100% Xi’an Advantech Software Ltd. (“AXA”)
Advantech 100% Advantech Electronics, S. De R.L. De C.V.
Co., Ltd. (AMX) 100% Advantech Europe B.V. (“AEU”) 100% DLOG Gesellschaft für
(the 100% elektronische Datentechnik mbH
Company) Advantech Europe Holding B.V. (AEUH) (“A-DloG”)
100% 100% Advantech Poland Sp z o.o. (“APL”)
Advantech Innovative Design Co., Ltd.
100%
Advantech Intelligent Service (“AiST”)
100% Advantech Corporate Investment 55% Cermate Technologies Inc. (“Cermate”) 100% Landmark(“Landmark”) Co., Ltd.
36%
Kostec Co., Ltd.
(“AKST”)
100% 24% 90%
Advantech KR Co., Ltd. (“AKR”) 51% Advantech Corporation (Thailand) Shenzhen Cermate
100% Co., Ltd. (“ATH”) Technologies Inc.
Advantech Co., Singapore Pte, Ltd. (“Cermate (Shenzhen)”)
(“ASG”) 100% 100%
Advantech International, PT. (“AID”) Cermate Technologies
100% (Shanghai) Inc.
Advantech Japan Co., Ltd. (“AJP”)
(“Cermate (Shanghai)”)
100%
Advantech Australia Pty Ltd. (“AAU”)
100%
Advanixs Corp.
100%
Advantech Co. Malaysia Sdn. Bhd
(“AMY”)
99.99%
Advantech Industrial Computing India
Private Limited (“AIN”)
100%
AdvanPOS Technology Co., Ltd.
(“AdvanPOS”)
81.17% 100% 100%
LNC Technology Co., Ltd. Better Auto Holdings Limited Famous Now Limited
(“LNC”) (“Better Auto”) (“Famous Now”)
100%
Advantech LNC Dong Guan Co., Ltd.
----- End of picture text -----

(Continued)

93 -

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

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

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

(Concluded)

94 -

TABLE 10

ADVANTECH CO., LTD. AND SUBSIDIARIES

SIGNIFICANT TRANSACTIONS BETWEEN ADVANTECH CO., LTD. AND SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
0 The Company AAC (HK) 1 Receivables from related parties $ 4 45 days EOM -
AAC (HK) 1 Other receivables from related parties 15 45 days EOM -
AAC (HK) 1 Sales revenue 4 Normal -
AAU 1 Sales revenue 220,309 Normal -
AAU 1 Receivables from related parties 38,731 60-90 days -
AAU 1 Other revenue 2,428 Normal -
AAU 1 Other receivables from related parties 456 60-90 days -
ABR 1 Sales revenue 97,608 Normal -
ABR 1 Receivables from related parties 13,363 90 days EOM -
ABR 1 Other revenue 2,589 Normal -
ABR 1 Other receivables from related parties 580 90 days EOM -
ACN 1 Receivables from related parties 964,313 45 days EOM 2
ACN 1 Sales revenue 6,039,617 Normal 14
A-DLoG 1 Sales revenue 181,312 Normal -
A-DLoG 1 Receivables from related parties 46,969 30 days after invoice date -
A-DLoG 1 Other revenue 2,412 Normal -
A-DLoG 1 Other receivables from related parties 439 30 days after invoice date -
AEU 1 Sales revenue 4,316,172 Normal 10
AEU 1 Receivables from related parties 1,363,473 30 days EOM 3
AEU 1 Other revenue 19,257 Normal -
AEU 1 Other receivables from related parties 2,681 30 days EOM -
AID 1 Sales revenue 19,027 Normal -
AID 1 Receivables from related parties 4,351 45 days after invoice date -
AIN 1 Sales revenue 31,566 Normal -
AIN 1 Receivables from related parties 14,218 60 days EOM -
AIN 1 Other revenue 2,642 Normal -
AIN 1 Other receivables from related parties 300 60 days EOM -
AiSC 1 Sales revenue 159,793 Normal -
AiSC 1 Receivables from related parties 41,117 45 days EOM -
AJP 1 Sales revenue 778,432 Normal 2
AJP 1 Receivables from related parties 151,705 60-90 days -
AJP 1 Other revenue 5,118 Normal -
AJP 1 Other receivables from related parties 629 60-90 days -
AKMC 1 Receivables from related parties 447,127 45 days EOM 1
AKMC 1 Sales revenue 4 Normal -
AKR 1 Sales revenue 917,245 Normal 2
AKR 1 Receivables from related parties 73,977 60 days after invoice date -
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(Continued)

95 -

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
AKR 1 Other revenue $ 6,061 Normal -
AKR 1 Other receivables from related parties 559 60 days after invoice date -
AKST 1 Receivables from related parties 6,742 30 days EOM -
AKST 1 Sales revenue 6,834 30 days EOM -
AKST 1 Other receivables from related parties 399 30 days EOM -
AMY 1 Sales revenue 188,191 Normal -
AMY 1 Receivables from related parties 23,549 45 days EOM -
AMY 1 Other revenue 2,901 Normal -
AMY 1 Other receivables from related parties 414 45 days EOM -
ANA 1 Sales revenue 8,255,247 Normal 19
ANA 1 Receivables from related parties 1,595,920 45 days EOM 4
ANA 1 Other revenue 23,387 Normal -
ANA 1 Other receivables from related parties 5,004 45 days EOM -
APL 1 Sales revenue 15,384 Normal -
APL 1 Receivables from related parties 4,896 45 days EOM -
ASG 1 Sales revenue 269,444 Normal 1
ASG 1 Receivables from related parties 68,340 60-90 days -
ASG 1 Other revenue 3,491 Normal -
ASG 1 Other receivables from related parties 853 60-90 days -
ATH 1 Sales revenue 57,824 Normal -
ATH 1 Receivables from related parties 4,774 30 days after invoice date -
ATH 1 Other revenue 2,829 Normal -
ATH 1 Other receivables from related parties 222 30 days after invoice date -
B+B 1 Sales revenue 149,747 Normal -
B+B 1 Receivables from related parties 36,942 60 days EOM -
B+B 1 Other receivables from related parties 4 60 days EOM -
B+B (CZ) 1 Sales revenue 701 Normal -
B+B (CZ) 1 Receivables from related parties 5 Normal -
Cermate 1 Other revenue 1,200 Normal -
Advantech Innovative Design Co., Ltd. 1 Rental revenue 36 Normal -
AiST 1 Sales revenue 6,523 Normal -
AiST 1 Receivables from related parties 1,198 30 days EOM -
Advanixs Corporate 1 Sales revenue 599,509 Normal 1
Advanixs Corporate 1 Receivables from related parties 140,428 60-90 days -
Advanixs Corporate 1 Rental revenue 4,800 Normal -
Advanixs Corporate 1 Other receivables from related parties 2,690 60-90 days -
AdvanPOS 1 Other revenue 3,360 Normal -
LNC 1 Sales revenue 3,112 Normal -
LNC 1 Other revenue 1,200 Normal -
LNC 1 Receivables from related parties 548 60-90 days EOM -
LNC 1 Other receivables from related parties 315 60-90 days EOM -
1 AAC (HK) The Company 2 Other revenue 8,056 Normal -
2 AAU The Company 2 Receivables from related parties 358 60-90 days -
The Company 2 Sales revenue 104 Normal -
The Company 2 Other revenue 2,307 Normal -
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(Continued)

96 -

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
3 ABR The Company 2 Receivables from related parties $ 1,231 30 days after invoice date -
The Company 2 Sales revenue 52 Normal -
The Company 2 Other revenue 3,937 Normal -
4 ACN AAU 3 Sales revenue 477 Normal -
AEU 3 Receivables from related parties 104 30 days EOM -
AEU 3 Sales revenue 8,964 Normal -
AiSC 3 Sales revenue 157,292 Normal -
AiSC 3 Receivables from related parties 17,537 Immediate payment -
AiSC 3 Other receivables from related parties 25 30 days EOM -
AKMC 3 Sales revenue 38,686 Normal -
AKMC 3 Receivables from related parties 4,597 60-90 days -
AKMC 3 Other revenue 9 Normal -
AKR 3 Receivables from related parties 39 45 days EOM -
AKR 3 Sales revenue 476 Normal -
ANA 3 Receivables from related parties 379 30 days EOM -
ANA 3 Sales revenue 634 Normal -
The Company 2 Receivables from related parties 1,416 30 days EOM -
The Company 2 Sales revenue 3,750 Normal -
The Company 2 Other revenue 1,338 Normal -
5 A-DLoG AAU 3 Sales revenue 1,136 Normal -
AEU 3 Receivables from related parties 1,092 30 days upon delivery -
AEU 3 Rental revenue 2,295 Normal -
AEU 3 Other revenue 4,025 Normal -
AEU 3 Sales revenue 1,613 Normal -
AEU 3 Other receivables from related parties 103 30 days EOM -
AKMC 3 Sales revenue 484 Normal -
AKR 3 Sales revenue 4,966 Normal -
ANA 3 Receivables from related parties 193 30 days after invoice date -
ANA 3 Sales revenue 1,261 Normal -
ASG 3 Sales revenue 11 Normal -
The Company 2 Sales revenue 92,812 Normal -
The Company 2 Receivables from related parties 19,594 30 days after invoice date -
6 AEU AAU 3 Sales revenue 36 Normal -
ACN 3 Sales revenue 43 Normal -
A-DLoG 3 Sales revenue 27,268 Normal -
AIN 3 Sales revenue 11 Normal -
AJP 3 Sales revenue 60 Normal -
AKMC 3 Sales revenue 328 Normal -
AKR 3 Sales revenue 123 Normal -
ANA 3 Sales revenue 10,575 Normal -
ATH 3 Sales revenue 2 Normal -
BBI 3 Sales revenue 8,593 Normal -
(Continued)
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97 -

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

Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
The Company 2 Sales revenue $ 11,825 Normal -
The Company 2 Receivables from related parties 2,515 30 days EOM -
The Company 2 Other receivables from related parties 1,033 30 days EOM -
The Company 2 Other revenue 385 Normal -
7 AID ACN 3 Receivables from related parties 9 Normal -
ASG 3 Receivables from related parties 1,215 Financing -
ASG 3 Other revenue 1,871 Normal -
8 AIN APL 3 Prepayments of inventories 2 30 days EOM -
The Company 2 Receivables from related parties 190 60 days EOM -
The Company 2 Sales revenue 191 Normal -
The Company 2 Other revenue 254 Normal -
9 AiSC AAC (HK) 3 Other receivables from related parties 4,581 90 days -
ACN 3 Other receivables from related parties 31,817 Immediate payment -
ACN 3 Sales revenue 24,521 Normal -
ACN 3 Rental revenue 5,623 Normal -
ACN 3 Receivables from related parties 439 Immediate payment -
AEU 3 Sales revenue 1,411 Normal -
AKMC 3 Sales revenue 310 Normal -
AKMC 3 Receivables from related parties 132 30 days EOM -
ASG 3 Sales revenue 8 Normal -
ASG 3 Receivables from related parties 9 30 days EOM -
The Company 2 Sales revenue 126 Normal -
The Company 2 Receivables from related parties 34 45 days EOM -
10 AJP ACN 3 Sales revenue 21 Normal -
AKMC 3 Sales revenue 7,071 Normal -
AKMC 3 Other revenue 266 45 days EOM -
AKMC 3 Other receivables from related parties 37 60 days EOM -
AKMC 3 Receivables from related parties 2,158 45 days EOM -
The Company 2 Receivables from related parties 44 60-90 days -
The Company 2 Sales revenue 63 Normal -
The Company 2 Other revenue 106 Normal -
11 AKMC ACN 3 Sales revenue 511,855 Normal 1
ACN 3 Receivables from related parties 58,129 60-90 days -
ACN 3 Rental revenue 3,876 Normal -
AEU 3 Sales revenue 8,029 Normal -
AEU 3 Receivables from related parties 355 30 days after invoice date -
AiSC 3 Sales revenue 39,032 Normal -
AiSC 3 Receivables from related parties 2,148 Immediate payment -
ANA 3 Sales revenue 1,811 Normal -
ANA 3 Receivables from related parties 164 60-90 days -
The Company 2 Sales revenue 10,519,469 Normal 24
The Company 2 Receivables from related parties 966,466 60 days EOM 2
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(Continued)

98 -

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
The Company 2 Other revenue $ 4 Normal -
Advanixs Kun Shan 3 Sales revenue 2,618 Normal -
Advanixs Kun Shan 3 Receivables from related parties 314 30 days EOM -
Cermate (Shenzhen) 3 Receivables from related parties 915 60 days EOM -
Cermate (Shenzhen) 3 Sales revenue 782 Normal -
Advanixs Corporate 3 Sales revenue 4,087 Normal -
Advanixs Corporate 3 Receivables from related parties 469 Immediate payment -
AdvanPOS 3 Sales revenue 2,323 Normal -
12 AKR AKST 3 Sales revenue 36 Normal -
ASG 3 Sales revenue 420 Normal -
The Company 2 Receivables from related parties 75 90 days EOM -
The Company 2 Sales revenue 25 Normal -
The Company 2 Other revenue 269 Normal -
13 AKST AKMC 3 Sales revenue 1,118 Normal -
AKMC 3 Receivables from related parties 793 30 days EOM -
The Company 2 Receivables from related parties 5,089 30 days EOM -
The Company 2 Sales revenue 4,149 Normal -
The Company 2 Other revenue 619 Normal -
14 AMX The Company 2 Other revenue 6,097 Normal -
15 AMY ASG 3 Sales revenue 30 Normal -
ATH 3 Other revenue 114 Normal -
16 ANA AAU 3 Receivables from related parties 84 60 days after invoice date -
AAU 3 Sales revenue 162 Normal -
ABR 3 Sales revenue 1,343 Normal -
A-DLoG 3 Sales revenue 80 Normal -
A-DLoG 3 Receivables from related parties 3,280 60-90 days -
AEU 3 Receivables from related parties 2,898 60-90 days -
AEU 3 Sales revenue 29,134 Normal -
AJP 3 Sales revenue 3 Normal -
AKMC 3 Receivables from related parties 15,699 30 days EOM -
AKMC 3 Sales revenue 32,126 Normal -
AKR 3 Receivables from related parties 129 30 days EOM -
AKR 3 Sales revenue 450 Normal -
ASG 3 Sales revenue 129 Normal -
BBE 3 Rental revenue 1,415 Normal -
BBE 3 Interest revenue 225 Normal -
The Company 2 Sales revenue 48,010 Normal -
The Company 2 Receivables from related parties 4,294 45 days EOM -
The Company 2 Other revenue 2,157 Normal -
Advanixs Corporate 3 Sales revenue 1,799 Normal -
AdvanPOS 3 Sales revenue 47,921 Normal -
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(Continued)

99 -

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
17 APL AEU 3 Sales revenue $ 71,285 Normal -
AEU 3 Royalty revenue 19,371 Normal -
AEU 3 Receivables from related parties 6,753 30 days after invoice date -
The Company 2 Receivables from related parties 165 30 days after invoice date -
The Company 2 Sales revenue 4 Normal -
The Company 2 Other receivables from related parties 41,078 30 days after invoice date -
The Company 2 Other revenue 688 Normal -
18 ASG AEU 3 Sales revenue 3 Normal -
AID 3 Sales revenue 1,456 Normal -
AKMC 3 Receivables from related parties 27 30 days after invoice date -
AKMC 3 Sales revenue 27 Normal -
AKR 3 Sales revenue 764 Normal -
AMY 3 Sales revenue 7,602 Normal -
AMY 3 Receivables from related parties 966 30 days EOM -
ATH 3 Sales revenue 3,134 Normal -
ATH 3 Other revenue 2,550 Normal -
ATH 3 Receivables from related parties 957 30 days EOM -
The Company 2 Sales revenue 177 Normal -
The Company 2 Receivables from related parties 58 60-90 days -
The Company 2 Other revenue 872 Normal -
19 ATC The Company 2 Receivables from related parties 33,867 60 days EOM -
20 ATH The Company 2 Sales revenue 7 Normal -
The Company 2 Other revenue 75 Normal -
21 AXA ACN 3 Other revenue 42,013 Normal -
22 B+B The Company 2 Sales revenue 34,178 Normal -
The Company 2 Receivables from related parties 7,966 90 days EOM -
23 BBE AEU 3 Sales revenue 25,060 Normal -
AEU 3 Receivables from related parties 16,221 90 days EOM -
24 BBI AEU 3 Royalty revenue 12,882 45 days EOM -
B+B (CZ) 3 Other revenue 1,175 Normal -
B+B (CZ) 3 Other receivables from related parties 531 45 days EOM -
25 B+B (CZ) AEU 3 Sales revenue 72,991 Normal -
AEU 3 Receivables from related parties 55,824 45 days EOM -
BBE 3 Sales revenue 30,253 Normal -
BBE 3 Receivables from related parties 4,180 Normal -
BBI 3 Sales revenue 1,703 Normal -
(Continued)
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100 -

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
Conel Automation 3 Other revenue $ 2,264 45 days EOM -
Conel Automation 3 Other receivables from related parties 498 45 days EOM -
Conel Automation 3 Sales revenue 339 Normal -
Conel Automation 3 Interest revenue 317 Normal -
Conel Automation 3 Receivables from related parties 38 45 days EOM -
The Company 2 Sales revenue 8,168 Normal -
The Company 2 Receivables from related parties 4,304 45 days EOM -
The Company 2 Other revenue 15 Normal -
26 Conel Automation B+B (CZ) 3 Sales revenue 632 Normal -
B+B (CZ) 3 Receivables from related parties 119 60 days EOM -
27 Advantech LNC Dong Guan Co., Ltd. ACN 3 Sales revenue 2,809 Normal -
ACN 3 Receivables from related parties 95 90 days EOM -
LNC 3 Sales revenue 1,403 Normal -
LNC 3 Receivables from related parties 569 90 days EOM -
28 Cermate (Shanghai) Cermate (Shenzhen) 3 Sales revenue 713 Normal -
Cermate (Shenzhen) 3 Receivables from related parties 35 60 days EOM -
29 Cermate The Company 2 Sales revenue 2,606 Normal -
The Company 2 Receivables from related parties 457 30-60 days -
The Company 2 Other revenue 296 Normal -
Cermate (Shenzhen) 3 Sales revenue 104,225 Normal -
LNC 3 Sales revenue 6 Normal -
30 Cermate (Shenzhen) ACN 3 Sales revenue 17 Normal -
AKMC 3 Sales revenue 39,402 Normal -
AKMC 3 Receivables from related parties 394 40 days EOM -
Cermate (Shanghai) 3 Sales revenue 29 Normal -
Cermate 3 Sales revenue 17,510 Normal -
Cermate 3 Receivables from related parties 1,964 60 days EOM -
31 Hangzhou Advantofine Automation Tech. Co., Ltd. ACN 3 Sales revenue 4,236 Normal -
32 Advantech Innovative Design Co., Ltd. The Company 2 Other revenue 1,000 Normal -
33 AiST The Company 2 Receivables from related parties 18 60 days EOM -
The Company 2 Sales revenue 26 Normal -
34 Advanixs Corporate AKMC 3 Sales revenue 1,583,883 Normal 4
AKMC 3 Receivables from related parties 5,597 60-90 days -
The Company 2 Sales revenue 1,328,501 Normal 3
The Company 2 Receivables from related parties 16,222 60-90 days -
Cermate 3 Sales revenue 202 Normal -
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(Continued)

101 -

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Transaction Details
Flow of
Number % of Consolidated
Company Name Counterparty Transaction
(Note A) Financial Statement Account Amount Payment Terms Assets/Revenue
(Notes B and D)
(Note C)
35 LNC The Company 2 Sales revenue $ 2,451 Normal -
The Company 2 Rental revenue 1,539 Normal -
The Company 2 Receivables from related parties 359 60 days EOM -
The Company 2 Other revenue 6 Normal -
Advantech LNC Dong Guan Co., Ltd. 3 Receivables from related parties 183,546 90 days EOM -
Advantech LNC Dong Guan Co., Ltd. 3 Sales revenue 267,280 Normal 1
36 AdvanPOS The Company 2 Sales revenue 1,342,553 Normal 3
The Company 2 Receivables from related parties 747 60 days EOM -
The Company 2 Other revenue 76 Normal -
Advanixs Corporate 3 Sales revenue 4,601 Normal -
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Note A: The parent company and its subsidiaries are numbered as follows:

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

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

From the parent company to its subsidiary.
From the subsidiary to its parent company.
Between subsidiaries.
Note C: For assets and liabilities, amounts are shown as a percentage of the Group’s consolidated total assets as of December 31, 2017, while revenue, costs and expenses are shown as a percentage of the Group’s consolidated total operating revenue for the year ended December 31, 2017.
Note D: All intercompany transactions have been eliminated from consolidation.

(Concluded)

102 -

AI assistant

Advantech — Annual Report 2017

52053_rns_2017-11-02_4122aa47-b79e-40e2-ae7d-8d8d40e15de3.pdf

Advantech Co., Ltd. and Subsidiaries

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

Sales Revenue

Other Matter

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

f. Foreign currencies

i. Property, plant and equipment

m. Financial instruments

1) Financial assets

ii. Available-for-sale financial assets

iii. Loans and receivables

Financial liabilities at fair value through profit or loss

o. Revenue recognition

2) The Group as lessee

q. Government grants

s. Employee share options

t. Taxation

1) Current tax

2) Deferred tax

3) Current and deferred taxes for the year

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

a. Inventory write-downs

b. Impairment of goodwill

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

9. FINANCIAL ASSETS MEASURED AT COST

10. DEBT INVESTMENTS WITH NO ACTIVE MARKET

11. NOTES RECEIVABLE AND TRADE RECEIVABLES

Trade Receivables

12. INVENTORIES

13. SUBSIDIARIES

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in Associates

Aggregate Information of Associates That Are Not Individually Material

15. PROPERTY, PLANT AND EQUIPMENT

16. GOODWILL

17. OTHER INTANGIBLE ASSETS

18. PREPAYMENTS FOR LEASES

19. BORROWINGS

a. Short-term borrowings

20. OTHER LIABILITIES

21. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

b. Defined benefit plans

22. EQUITY

Ordinary shares

b. Capital surplus

2) Unrealized gain (loss) on available-for-sale financial assets

f. Non-controlling interests

23. NET PROFIT FROM CONTINUING OPERATIONS

a. Finance costs

Advantech Annual Report 2017