AIDC — Annual Report 2014

Jul 29, 2015

2634

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Aerospace Industrial Development Corporation Annual Report 2014

Notice to readers

This English version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English and Chinese version, the Chinese version shall prevail.

AIDC annual report is available at：http://www.aidc.com.tw Taiwan Stock Exchange Market Observation Post System：http://mops.twse.com.tw Printed in May, 2015

Spokesperson and Deputy Spokesperson Information

Spokesperson：Nan-Juh Lin	Tel：886-4-22842881
Title：Senior Vice President	E-mail：IR@ms.aidc.com.tw
Deputy Spokesperson：Shiu-Chun Du	Tel：886-4-22842881
Title：Director	E-mail：IR@ms.aidc.com.tw

Headquarter, Branch and Plant, and Website Information

Taichung Complex (I)：No.2, Hanxiang Road, Xitun District, Taichung City / Tel: 886-4-27020001 Taichung Complex (II)：No.1, Hanxiang Road, Xitun District, Taichung City / Tel: 886-4-27020001 Sha Lu Complex (N)：No.366 / 368, Sec. 6, Zhongqing Rd., Shalu Dist., Taichung City / Tel: 886-4-25213800 Sha Lu Complex (S)：No.178, Ln. 20, Zhongzhen Rd., Shalu Dist., Taichung City / Tel: 886-4-25213800 TACC Complex：No.66, Sec. 1, Zhonghang Rd., Shalu Dist., Taichung City / Tel: 886-4-25213800

Gang Shan Complex：No.1, Gangde Rd., Gangshan Dist., Kaohsiung City / Tel: 886-7-6285600 http://www.aidc.com.tw

Stock Transfer Agent Information

Name：Fubon Securities Co., Ltd. Address：2F., No.17, Xuchang St., Zhongzheng Dist., Taipei City Website：http://www.fubon.com Tel：886-2-23611300

Auditors’ Information

Deloitte & Touche Name：Done-Yuin Tseng, Ted Cheng Address：27F., No. 218, Sec. 2, Taiwan Boulevard, West District, Taichung City Website：http://www.deloitte.com.tw Tel：886-4-23280055

Overseas Securities Exchange Information: N/A

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AIDC’s Core Values

Accountability

Innovation

Dedication

Customer Orientation

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We Keep Our Words

Fulfill “Total Quality Management” Build “Customer Satisfaction”

Pursuit “Reasonable Profit”

Assure “Sustainable Operation”

**Contents **	UPage
Letter to Shareholders	1	Operational Highlights	44
Company Profile	3	Financial Information	59
Corporate Governance Report	4	Review of Financial Conditions,
Capital Overview	40	Operating Results, and Risk
		Management	97
		Special Disclosure	105

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I. Letter to Shareholders

Dear Shareholders,

First of all, I would like to proudly announce myself as a part of the “AIDC” team, which allows me to work hand-in-hand with all those in AIDC to go for the best, for the benefit of all shareholders.

The rise of the newly emerged markets, the sustained growth of flight routes and traffic volume, and the strong appeal to environmental protection, drove the air transportation industry into a new wave of replacement of new hardware. As such, the demand for the purchase of new aircraft and new models of aircraft engines surged. Despite the prosperity of business, AIDC is bound to confront even keener competition from the global supply chain. Under such circumstance, all manufacturers of the parts and components in the system in all sizes of operations attuned to lean production and cost restructuring in order to keep their competitive edge.

In the past, AIDC has successfully established its foothold in the markets of various industries with its state-of-the-art technological know-how and innovative management skill, and made itself a top-notch performer in these markets. Yet, AIDC seeks to do better. Seeing the challenges in the future will be even more unanticipated, AIDC will further upgrade its technological know-how and refine its management capability, and will keep abreast of the trend of the development of the global aerospace industry. Conceived with vision and dedicated to its corporate philosophy, AIDC will carry on the heritage of its predecessors for new triumph. Under the effort of all in 2014, AIDC has made profit for 8 consecutive years and has maintained stable growth in revenue and pre-tax earnings.

May I express my gratitude to all the shareholders for your perpetual supports in our programs. I would like to present the summary of the report on the operation result in FY 2014 and the business plan in FY 2015:

FY 2014 Operation Highlights

Revenue and Income

The Company had revenue of NT$ 24,924,039 thousand in FY 2014, which was an increase of NT$ 1,837,580 thousand from NT$ 23,086,459 thousand in the same period of FY 2013. Pre-tax earnings in FY 2014 amounted to NT$ 1,838,606 thousand, which was an increase of NT$ 465,788 thousand from NT$ 1,372,818 thousand in the same period of FY 2013.

Financial Structure and Profitability Analysis

As of December 31 2014, the financial structure of AIDC showed total assets of NT$ 25,326,100 thousand and total liabilities of NT$ 15,032,598 thousand. The analysis of overall profitability of current period indicated better performance than FY 2013, and is shown in the table below:

Title	2013	2014
ROA(%)	6.35	8.20
ROE(%)	16.51	20.02
EBT to Paid-in Capital Ratio(%)	15.11	20.24
Net Profit Ratio(%)	5.52	7.50

Research and Development Outlook

The R&D expenses of AIDC in FY 2014 amounted to NT$ 659,149 thousand with the successful development of Project “Upgrade the Process Capacity of Composite Materials and Refinement Plan“ and so on, which could help to upgrade the overall technological capacity and production capacity of the Company for better business opportunity.

Credentials and Awards

＊Won the “Supplier of the Year Award” by Sikorsky Aircraft United Technologies Corp. in March 2014.

＊Won the “Supplier of the Year Award” by American Helicopter Society in May 2014.

＊Won the trophy of Performance Excellence Award 2013 by Boeing Company in May 2014. AIDC has won this award for 3 consecutive years.

＊Won the trophy of Performance Excellence Award 2014 by Boeing Company in February 2015. AIDC has won this award for 4 consecutive years.

＊Gang Shan Complex won the Distinguished Award of “2014 Energy Saving and Carbon Reduction” label presented by Environmental Protection Administration on January 23 2015.

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Business Plan in FY 2015

Business Development Planning

• ＊ In the area of defense business, AIDC seeks to successfully upgrade the performance of the jet fighters in desired quality on schedule, and to make effort for securing orders for the maintenance of different types of aircraft and the manufacturing of advance and lead-in trainers with domestic resources or through international cooperation.

• ＊ In the area of civil aviation, AIDC seeks to expand its production capacity and vendor system for more business in the adding of high value for parts and components of aircraft segments and engines.

• ＊ In the area of industrial technology service, AIDC will extend its momentum of aerospace technology to disasters prevention and rescue, to atmospheric testing and measurement service, to support the national objective of energy saving and carbon reduction, and to expands in the business of green energy.

Corporate Management Policy

AIDC has adopted the Balanced Scorecard (BSC) as a management tool a few years ago. This BSC system helps to converge and link the Company’s vision, strategy, objectives, the gravity of works for each department and the action plans, and this system has been properly implemented in full effort under the culture of accountability. In an environment where the aerospace industry is extremely competitive worldwide, AIDC will spare no effort to secure more business, and will continue to refine its management capability. The corporate management policy in FY 2015 will cover:

• Optimization of financial structure ▲ Upgrade the competitive power of composite materials ▲ Satisfaction of customer value ▲ Launch the lean activity of production

• Refinement of core business process

• Vitalization of human resources and strengthening of core competence

• Planning and advocacy of the vital energy buildup

• Fortify the supply chain and integration with outsourced contractors

• Conduct of Corporate Social Responsibility

At this critical moment of privatization and organizational transformation, the quest for excellence and sustainable development through the perpetuation of the heritage of “Innovative Research and Development, and Leadership in Technology” for maintaining “indigenous capacity of the aerospace industry” and the competitive power of “competition and cooperation with the civil aviation sector” will be the ultimate goal of the AIDC management team. In the future, we hope we have the continued support and further encouragement from all shareholders so that AIDC can create a prosperous future for the aerospace industry and start a new page of the glorious economic development of Taiwan driven by the new wave of oil prices and surging demand in market!

May I wish you all good luck and good health.

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Chairman Jung-Hsin Liao
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II. Company Profile

1. Date of Establishment

Aerospace Industry Development Corp. was established on July 1, 1996.

2. Chronicle

Chronicle
Year	Milestones
1969	The Aerospace Industry Development Center was established and was subordinated to the Air Force High Command of the Republic of China.
1973	Establishment of Chieh-Shou Plant No. 2 (manufactory of aircraft engines).
1981	Approved to develop new jet fighter, and was engaged in a joint venture with GetSweet Incorporation for the development of the TFE1042 engine, which contributed significantly to air defense capacity.
1983	Administered by National Chung-Shan Institute of Science and Technology of the Ministry of National Defense.
1988	The initial launch of the self-developed IDF and was named by former President of the Republic of China Lee Teng-Hui as “Ching Kuo Fighter”. This jet fighter has been launched into pilot run and mass production later, and has been transferred to the Air Force Academy.
1989	Accomplishment of the production of the AT-3 advanced trainer plane and transferred the planes to the Air Force.
1996	1. Reorganized as “Aerospace Industry Development Corporation” and transferred to the Ministry of Economic Affairs. AIDC then moves towards the reengineering as an enterprise, privatization and internationalization. The corporate strategy has also been attuned from military aviation to military and civil aviation. 2. Entered into a joint venture agreement with Sikorsky Aircraft United Technologies Corp. for the development of the S-92 helicopter. This is the very first time that this entity was engaged in an international big firm in aircraft manufacturing for joint design and development of an aircraft before turning into a state-owned enterprise.
1999	1. Entered into an agreement with Bombardier for the joint development of the tail for the CL300 commercial aircraft. This was a milestone of AIDC for the development of commercial aviation technology. 2. Ended the production of the IDF.
2000	Engine Casing Plant No. 1 was established. This laid down the foundation of production capacity for civil aircraft engine casing.
2006	The upgrade of IDF “Ching Kuo” under the schemed codenamed as “F-KC-1, C/D, Hsiang Sheng”. The IDF has successfully launched its pilot flight in the air show after the upgrade.
2007	Senior executives of ACE (Aerospace Composite Engineering) of Germany visited AIDC, and are engaged in lengthy talks about the possible joint venture in the development and manufacturing of composite materials.
2008	Completed the 100thS-92 helicopter cabin for delivery.
2009	Entered into a supply agreement with MITAC of Japan for supply system parts of aircrafts, and participated in the design and manufacturing of products for the MRJ portions of jet planes.
2010	The official opening of Taiwan Advanced Composite Center (TACC), which was a milestone for the development of the aerospace industry and composite materials industry in the history of Taiwan.
2011	1. Accomplishment of the IDF Ching Kuo models upgrade program with the delivery of the first batch of upgraded jet fighters. 2. Accomplishment of the debut flight from Taichung to Kinmeng, the launch of commercial chartered flight service provided by AIDC. This started the new era of AIDC in participation in commercial chartered flight business.
2012	Completion of the 400thaircraft of the CL-300 project. This is an important milestone of this project.
2013	1. Won the Boeing Performance Excellence Award and GE Growth (Engines) Excellence Award. 2. Approved for privatization by the Executive Yuan through public offering of stocks on September 13.
2014	1. AIDC became a private owned corporate on August 21 and was listed in TWSE for trading on August 25. 2. Delivery of the MRJ portions parts and components for the first civilian jet plane. This was an important milestone of this project. 3. Won the “Supplier of the Year Award” from Sikorsky Aircraft United Technologies Corp., the “Supplier of the Year Award” from American Helicopter Society, and the “Performance Excellence Award” from Boeing Company. 4. Delivery of the 10,000thpiece of engine casing for Rolls-Royce engine.

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III. Corporate Governance Report

1. Organization

1.1 Organization Chart

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Board of Directors
Chairman
Executive Auditing
CEO
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Engineering/QA/
Defense Industry Civil Aviation Engine and Power Administration
Procurement
System System System System
System
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1.2 Major Corporate Functions

The defense industry system is responsible for the maintenance and overall supports for all types of military aircrafts, analysis of market for aircraft repair and maintenance, business strategy, development and performance of program contracts.

The civil aviation system is responsible for the analysis of the market of civilian aircrafts, business strategy, development, operation and production, and performance of program contracts.

The engineering/QA/procurement system is responsible for engineering design and system integration, the integration of production and manufacturing, efficiency upgrade, quality improvement, quality assurance policy, procurement, vendor integration, and outsourcing, and the performance of program contracts on related technologies and services.

The engine and power system is responsible for the analysis of the market of aircraft engines and power systems, business strategy, development, operation and production, and performance of program contracts.

The administrative system and other departments are responsible for related corporate planning, legal affairs, human resources planning, accounting management, financial planning, capital management, and related information integration and development, security and protection, industrial safety and health, environmental protection, assets and facility management, and assistance to all functional departments of AIDC.

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2. Directors, Supervisors and Management Team

2.1 Directors and Supervisors March 31, 2015

Title (Note 1)	Nationality/ Country of Origin	Name	Date Elected	Term	Date First Elected (Note 2)	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience/Education	Other Position	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
Chairman	R.O.C	MOEA Representative: Liao, Jung-Hsin	March 2, 2015	4M	March 2, 2015	415,345,402	45.73	415,345,402	45.73	0	0	0	0	Military Strategy Advisor to the President of the ROC; Vice Chief of General Staff, Ministry of National Defense; Administrative Deputy Minister of Ministry of National Defense; Commander, Air Defense Missile Command, General Staff Headquarters, Ministry of National Defense; War College of National Defense University; General Staff College of National Defense University; Air Force Academy.	Chairman, AIDC.	－	－	－
Executive Director	R.O.C	MOEA Representative: Hsu, Yen-Nien	October 17, 2014	8M	March 26, 2012	415,345,402	45.73	415,345,402	45.73	0	0	0	0	VP, AIDC; CEO, National Defense and Technology Division, AIDC; Deputy Director, Aeronautical System, National Chung-Shan Institute of Science and Technology; Department of Aeronautics, Chung ChengInstitute of Technology.	CEO, AIDC; Director, Taiwan Aerospace Industry Association; Director, Metal Industries Research & Development Centre.	－	－	－
Director	R.O.C	MOEA Representative: Wan, Tung	October 17, 2014	8M	June 25, 2012	415,345,402	45.73	415,345,402	45.73	0	0	0	0	Director of Personnel Office, Director-General, Chairman of Department of Aerospace Engineering, Tamkang University; Member of ICAS; Director, Airworthy Validation Center, MOTC; PhD, Aerospace Engineering, University of Texas at Arlington,USA.	Associate Professor, Department of Aerospace Engineering, Tamkang University.	－	－	－
Director	R.O.C	MOEA Representative: Pao, Chuan	October 17, 2014	8M	June 25, 2012	415,345,402	45.73	415,345,402	45.73	0	0	0	0	Professional staff of Department of Commerce, MOTC; Professional staff of International Cooperation Dept, MOEA; Deputy Director, Intellectual Properties Bureau,MOEA(formerlyCentral	Executive Secretary, Petitions and Appeals Commission, MOEA.	－	－	－

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Title (Note 1)	Nationality/ Country of Origin	Name	Date Elected	Term	Date First Elected (Note 2)	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience/Education	Other Position	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
														Standardization Bureau); LLM, Comparative Legal Studies, Universityof Miami.
Director	R.O.C	MOEA Representative: Chien, Feng-Yuan	October 17, 2014	8M	October 17, 2014	415,345,402	45.73	415,345,402	45.73	0	0	0	0	Chief of Branch No. 5, State-Owned Enterprise Commission, MOEA; Master, Institute of Land Administration Studies, National Cheng Chi University.	Chief of Branch No.2, State-Owned Enterprise Commission, MOEA; Directors, Tang Eng Iron Works,Co.,Ltd.	－	－	－
Director	R.O.C	MOEA Representative: Tso, Ao-Nan	October 17, 2014	8M	October 17, 2014	415,345,402	45.73	415,345,402	45.73	0	0	0	0	Chairman, Aerospace Industrial Development Enterprise Union in Taichung; Shu Deh Industrial Vocational School.	Technician, Chemical Engineering, AIDC.	－	－	－
Director	R.O.C	MOEA Representative: Yu, Cheng-Te	December 23, 2014	6M	February 6, 2013	415,345,402	45.73	415,345,402	45.73	0	0	0	0	Supervisor, Executive Secretary, Executive Director, Aerospace Industrial Development Enterprise Union in Taichung; Master degree, Yun Lin University of Science and Technology.	Professional technical staff, Labor Safety and Environmental Protection, AIDC.	－	－	－
Director	R.O.C	National Defense Industry Development Foundation Representative: Kao, Tien-Chung	October 17, 2014	8M	October 17, 2014	2,670,078	0.29	2,670, 078	0.29	0	0	0	0	Director, Military Planning Department, Ministry of National Defense; Executive Officer, War Room, Ministry of National Defense; Chief of Staff, Naval Command; Director, Combat Training Department, Naval Command; War College, National Defense University; Naval Academy, Ministry of National Defense.	Administrative Deputy Minister of Ministry of National Defense.	－	－	－
Executive and Independent Director	R.O.C	Wu, Hsiu-Kuang	June 25, 2012	3Y	June 25, 2012	0	0	0	0	0	0	0	0	Professor, National Taipei University, National Cheng Chi University, Shih Hsin University; Executive Director, Taipei Agricultural Products Co., Ltd.; Deputy Major, Taipei City Government; Director of Civil Affairs Bureau, Taipei City Government,; PhD., Political Science, University of Rochester,USA.	Chairman, CDIB Partners Investment Holding Corp.; Director, Taroko Textile Corporation; Director, Kingfond Corporation; Supervisor, An Tie Bank; Member, Compensation Committee,AIDC.	－	－	－
Independent Director	R.O.C	Chan, Chia-Chang	July 31, 2014	11M	July 31, 2014	0	0	0	0	0	0	0	0	Director, Secretary-General, Department of ContinuingEducation,	Chairman, College of Management,TungHai	－	－	－

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Title (Note 1)	Nationality/ Country of Origin	Name	Date Elected	Term	Date First Elected (Note 2)	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience/Education	Other Position	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
														Tung Hai University; Chairman, Department of Finance, Tung Hai University; Chairman, Department of Finance and Banking, Providence University; Member, Compensation Committee, Mobiletron Co., Ltd.; DBA,National ChungShan University.	University; Professor, Department of Finance, Tung Hai University; Member, Compensation Committee, AIDC.
Independent Director	R.O.C	Hsu, Yung-Hao	October 17, 2014	8M	October 17, 2014	0	0	0	0	0	0	0	0	Member, Aviation Safety Commission, Executive Yuan; Executive Secretary, Emergency Response Center, Civil Aeronautics Administration, MOTC; Chief of Logistics Supply, Civil Aeronautics Administration, MOTC; Director, Aircraft Design and Manufacturing Airworthy Accreditation Centre; PhD, International Transportations, Cardiff University,UK.	Secretary-General, China Aviation Development Foundation.	－	－	－
Executive Supervisor	R.O.C	Lin, Chung-Yi	June 25, 2012	3Y	October 28, 2008	0	0	0	0	0	0	0	0	VP in Finance, Chief Auditor, Deputy Manager of Finance Division, China Steel Corporation; Supervisor of Chung Hung Steel, China Steel Machinery, KRTC, and all affiliates to CSC; Department of Economics, Soochow University.	VP in Planning, China Steel Corporation.	－	－	－
Supervisor	R.O.C	Chu, Yung-Fa	April 3, 2014	14M	April 3, 2014	0	0	0	0	0	0	0	0	Professional Staff, Legal Commission, MOEA; Section Chief, Secretary, Editing Staff, Professional Staff, MOEA; LLM, Southern Methodist University, USA; Master, Mainland Studies, University of Chinese Culture.		－	－	－
Supervisor	R.O.C	Mao, Tai-Chi	April 3, 2014	14M	April 3, 2014	0	0	0	0	0	0	0	0	Deputy Director of Finance Division, Deputy Director of Accounting Division, Manager of Finance Division, CSBC Corp.; Adjunct Assistant Professor,		－	－	－

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Title (Note 1)	Nationality/ Country of Origin	Name	Date Elected	Term	Date First Elected (Note 2)	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience/Education	Other Position	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship	Executives, Directors or Supervisors who are spouses or within two degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
														Department of Accounting, Evergreen University; Department of Banking and Insurance, Ming Chuan University.

Note 1: The List of AIDC’s Director that is an Institutional Shareholder.

Director that is an Institutional Shareholder of AIDC	Main Shareholder of the Institutional Shareholder
Ministry of Economic Affairs, MOEA	None
National Defense Industrial Development Foundation	None (Note)

Note: The foundation is a juristic institution.

Note 2: Owing to privatization, the directors whose terms ever changed are listed as below:

Director Tung Wan (resigned on March 12, 2014 and assumed office on April 3, 2014；resigned on August 21, 2014 and assumed office on October 17, 2014), Executive Director Yen-Nien Hsu and Director Chuan Pao (resigned on August 21, 2014 and assumed office on October 17, 2014), Director Cheng-Te Yu (resigned on August 21, 2014 and assumed office on December 23, 2014).

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Professional Qualifications and Independence Analysis of Directors and Supervisors:

Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Liao, Jung-Hsin			�	�	�	�	�	�	�	�	�	�		－
Hsu, Yen-Nien			�		�	�	�	�	�	�	�	�		－
Wan, Tung	�		�	�	�	�	�	�	�	�	�	�		－
Pao, Chuan		�	�	�	�	�	�	�	�	�	�	�		－
Kao, Tien-Chung			�	�	�	�	�	�	�	�	�	�		－
Chien, Feng-Yuan			�	�	�	�	�	�	�	�	�	�		－
Tso, Ao-Nan			�		�	�	�	�	�	�	�	�		－
Yu, Cheng-Te			�		�	�	�	�	�	�	�	�		－
Wu, Hsiu-Kuang	�		�	�	�	�	�	�	�	�	�	�	�	－
Chan, Chia-Chang	�		�	�	�	�	�	�	�	�	�	�	�	－
Hsu, Yung-Hao		�	�	�	�	�	�	�	�	�	�	�	�	－
Lin, Chung-Yi			�	�	�	�	�	�	�	�	�	�	�	－
Chu, Yung-Fa			�	�	�	�	�	�	�	�	�	�	�	－
Mao, Tai-Chi	�		�	�	�	�	�	�	�	�	�	�	�	－

Note: Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.

1. Not an employee of the Company or any of its affiliates.

2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.

5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.

6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.

7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.

8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.

9. Not been a person of any conditions defined in Article 30 of the Company Law.

10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

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2.2 Management Team April 24, 2015

Title	Nationality/ Country of Origin	Name	Date Effective	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience/Education	Other Position	Managers who are Spouses or Within Two Degrees of Kinship	Managers who are Spouses or Within Two Degrees of Kinship	Managers who are Spouses or Within Two Degrees of Kinship	Exercisable Employee Stock Options
				Shares	%	Shares	%	Shares	%			Title	Name	Relation
Chief Executive Officer	R.O.C	Hsu, Yen-Nien	February 3, 2012	71,921	－	－	－	－	－	VP, AIDC; CEO, National Defense and Technology Division, AIDC; Deputy Director, Aeronautical System, National Chung-Shan Institute of Science and Technology; Department of Aeronautics, Chung Cheng Institute of Technology.	Director, Taiwan Aerospace Industry Association; Director, Metal Industries Research & Development Centre.	－	－	－	－
Vice President	R.O.C	Hsia, Kang	January 1, 2009	69,716	－	－	－	－	－	Director of Civil Aircrafts Division, Deputy Director of Engineering Division, AIDC; Director of Engineering, Director of Inspectorate, Defense System and Technology Division, AIDC; Logistics Staff Training Course, Air Force Engineering Academy; Department of Aeronautics, Chung Cheng Institute of Technology.	－	－	－	－	－
Vice President	R.O.C	Lin, Nan-Juh	January 1, 2009	70,482	－	－	－	－	－	Director, Engineering Division and Technology Service Division, AIDC; MBA, Providence University; Bachelor of Aerospace Engineering, Tamkang University.	Director, Metro Consulting Service Ltd.	－	－	－	－
Vice President	R.O.C	Chen, Yi-Min	July 1, 2012	70,482	－	－	－	－	－	Director, Defense System and Technology Management Division, Customer Service Division, Maintenance and Avionics Division, Military Aircraft Project Division, AIDC; Bachelor and Master of Aerospace Engineering, Chung ChengInstitute of Technology.	Director, AeroVision Avionics Inc.	－	－	－	－
Vice President	R.O.C	Liu, Kuo-Ching	January 1, 2014	72,780	－	－	－	－	－	Director, Production Division, and Engine Division, AIDC; Technical Specialist,Chieh-I	－	－	－	－	－

10

Title	Nationality/ Country of Origin	Name	Date Effective	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience/Education	Other Position	Managers who are Spouses or Within Two Degrees of Kinship	Managers who are Spouses or Within Two Degrees of Kinship	Managers who are Spouses or Within Two Degrees of Kinship	Exercisable Employee Stock Options
				Shares	%	Shares	%	Shares	%			Title	Name	Relation
										Plant, Aeronautics Development Center, National Chung-Shang Institute of Science and Technology; Logistics Staff Training Course, Air Force Engineering School; Bachelor, Dept. of Mechanical Engineering, Feng Chia University; Graduate of Air Force EngineeringSchool.

11

2.3 Remuneration of Directors, Supervisors, President and Vice Presidents

2.3.1 Remuneration of Directors December 31, 2014 / Units：NT$ thousands；%

Title	Name (Note 1)	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Ratio of Total Remuneration (A+B+C+D) to Net Income(%)	Ratio of Total Remuneration (A+B+C+D) to Net Income(%)	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Ratio of Total Compensation (A+B+C+D+E+F+G) to Net Income(%)	Ratio of Total Compensation (A+B+C+D+E+F+G) to Net Income(%)	Compensation paid to Directors from an Invested Company other than the Company’s Subsidiary
		Base Compensation(A) (Note 2)		Severance Pay(B)		Bonus to Directors(C)		Allowances(D)				Salary, Bonuses, and Allowances(E)		Severance Pay(F)		Profit Sharing- Employee Bonus(G)				Exercisable Employee Stock Options(H)		Restricted ESO(I)
		The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company		Companies in the consolidated financial statements		The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements
																Cash	Stock	Cash	Stock
Chairman	Liu,Jieh-Tsern	1,590		0		0		0		0.08%		12,264		20,820		0		0		0		0		1.85%		12
Executive Director	Hsu, Yen-Nien
Director	Wan,Tung
Director	Pao,Chuan
Director	Kao,Tien-Chung
Director	Chien,Feng-Yuan
Director	Tso,Ao-Nan
Director	Yu,Cheng-Te
Executive Director	Hsia, Kang
Director	Chen,Si-Ming
Director	Ma,Chiu-Jung
Director	Chao,Ke-Da
Director	Hu,Yen-Nien
Director	Hsiao,Wei-Min
Director	Cheng,Yun-Peng
Director	Lin,Nan-Juh
Director	Tsao,Bao-Chang
Executive and Independ- ent Director	Wu, Hsiu-Kuang
Independ- ent Director	Chan, Chia-Chang
Independ- ent Director	Hsu, Yung-Hao
Independ- ent Director	Hsu, En-De

12

Note 1：Executive Director Kang Hsia resigned on October 16, 2014, Director Si-Ming Chen resigned on March 12, 2014, Director Chiu-Jung Ma resigned on August 21, 2014, Director Ke-Da Chao resigned on August 21, 2014, Director Yen-Nien Hu resigned on August 21, 2014, Director Wei-Min Hsiao resigned on August 21, 2014, Director Yun-Peng Cheng resigned on August 21, 2014, Director Nan-Juh Lin resigned on October 16, 2014, Director Bao-Chang Tsao resigned on November 20, 2014, Independent Director En-De Hsu resigned on July 31, 2014.

Note 2：The calculation base depends on the individual tenure.

Remuneration Paid to Directors

Bracket	Name of Directors	Name of Directors	Name of Directors	Name of Directors
	Totalof(A+B+C+D)		Totalof(A+B+C+D+E+F+G)
	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements
Under NT$ 2,000,000	Jieh-Tsern Liu, Yen-Nien Hsu, Tung Wan, Chuan Pao, Tien-Chung Kao, Feng-Yuan Chien, Ao-Nan Tso, Cheng-Te Yu, Si-Ming Chen, Chiu-Jung Ma, Ke-Da Chao, Yen-Nien Hu, Wei-Min Hsiao, Yun-Peng Cheng, Kang Hsia, Nan-Juh Lin, Bao-Chang Tsao, Hsiu-Kuang Wu, Chia-Chang Chan,Yung-Hao Hsu,En-De Hsu	As Left	Tung Wan, Chuan Pao, Tien-Chung Kao, Feng-Yuan Chien, Ao-Nan Tso, Si-Ming Chen, Ke-Da Chao, Yen-Nien Hu, Wei-Min Hsiao, Yun-Peng Cheng, Hsiu-Kuang Wu, Chia-Chang Chan, Yung-Hao Hsu, En-De Hsu	As Left
NT$2,000,000 ~ NT$5,000,000	－	－	Jieh-Tsern Liu, Yen-Nien Hsu, Cheng-Te Yu, Chiu-JungMa,Bao-ChangTsao	As Left
NT$5,000,000 ~ NT$10,000,000	－	－	KangHsia,Nan-Juh Lin	As Left
NT$10,000,000 ~ NT$15,000,000	－	－	－	－
NT$15,000,000 ~ NT$30,000,000	－	－	－	－
NT$30,000,000 ~ NT$50,000,000	－	－	－	－
NT$50,000,000 ~ NT$100,000,000	－	－	－	－
Over NT$100,000,000	－	－	－	－
Total	21	As Left	21	As Left

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2.3.2 Remuneration of Supervisors December 31, 2014 / Units：NT$ thousands；%

Title	Name	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Ratio of Total Remuneration (A+B+C) to Net Income (%)	Ratio of Total Remuneration (A+B+C) to Net Income (%)	Compensation paid to Supervisors from an Invested Company other than the Company’s Subsidiary
		Base Compensation(A)		Bonus to Supervisors( B)		Allowances(C)
		The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements
Executive Supervisor	Lin, Chung-Yi	96		0		0		0.005%		0
Supervisor	Chu, Yung-Fa	71		0		0		0.004%		0
Supervisor	Mao, Tai-Chi	71		0		0		0.004%		0
Supervisor	Lin, Yong-Fa (Note)	19		0		0		0.001%		0

Note： Supervisor Yong-Fa Lin resigned on March 12, 2014.

Remuneration Paid to Supervisors

Bracket	Name of Supervisors	Name of Supervisors
	Total of (A+B+C)
	The company	Companies in the consolidated financial statements
Under NT$ 2,000,000	Chung-Yi Lin,Yung-Fa Chu,Tai-Chi Mao,Yong-Fa Lin	As Left
NT$2,000,000 ~ NT$5,000,000	－	－
NT$5,000,000 ~ NT$10,000,000	－	－
NT$10,000,000 ~ NT$15,000,000	－	－
NT$15,000,000 ~ NT$30,000,000	－	－
NT$30,000,000 ~ NT$50,000,000	－	－
NT$50,000,000 ~ NT$100,000,000	－	－
Over NT$100,000,000	－	－
Total	4	As Left

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2.3.3 Compensation of President and Vice Presidents December 31, 2014 / Units：NT$ thousands；%

Title	Name	Salary(A) (Note)	Salary(A) (Note)	Severance Pay(B)	Severance Pay(B)	Bonuses and Allowances(C)	Bonuses and Allowances(C)	Profit Sharing- Employee Bonus (D)	Profit Sharing- Employee Bonus (D)	Profit Sharing- Employee Bonus (D)	Profit Sharing- Employee Bonus (D)	Ratio of Total Compensation (A+B+C+D) to Net Income(%)	Ratio of Total Compensation (A+B+C+D) to Net Income(%)	Exercisable Employee Stock Options	Exercisable Employee Stock Options	Restricted ESO	Restricted ESO	Compensation paid to the President and Vice President from an Invested Company other than the Company’s Subsidiary
		The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company		Companies in the consolidated financial statements		The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements
								Cash	Stock	Cash	Stock
Chief Executive Officer	Hsu, Yen-Nien	9,658		24,168		4,330		0	0	0	0	2.04%		0	0	0	0	24
Vice President	Hsia, Kang
Vice President	Lin, Nan-Juh
Vice President	Chen, Yi-Min
Vice President	Liu, Kuo-Ching

Note：The calculation base includes the whole period of 2014.

Compensation Paid to President and Vice Presidents

Bracket	Name of President and Vice Presidents	Name of President and Vice Presidents
	The company	Companiesinthe consolidatedfinancialstatements
Under NT$ 2,000,000	－	－
NT$2,000,000 ~ NT$5,000,000	Yen-Nien Hsu	As Left
NT$5,000,000 ~ NT$10,000,000	KangHsia,Nan-Juh Lin,Yi-Min Chen,Kuo-ChingLiu	As Left
NT$10,000,000 ~ NT$15,000,000	－	－
NT$15,000,000 ~ NT$30,000,000	－	－
NT$30,000,000 ~ NT$50,000,000	－	－
NT$50,000,000 ~ NT$100,000,000	－	－
Over NT$100,000,000	－	－
Total	5	As Left

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2.3.4 Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents

in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents and Vice Presidents

A. The Ratio of Total Remuneration Paid by the Company and by all Companies included in the

Consolidated Financial Statements for the Most Recent Two Fiscal Years to Directors, Supervisors, Presidents and Vice Presidents of the Company, to the Net Income

	Unit：NT$ thousands	Unit：NT$ thousands	Unit：NT$ thousands	Unit：NT$ thousands
Year Identity	2013		2014
	The company	Companies in the consolidated financial statements (Note 1)	The company	Companies in the consolidated financial statements (Note 1)
Director fee	1,204	－	1,590	－
Director fee in proportion to corporate earnings (%)	0.09	－	0.08	－
Supervisor fee	251	－	257	－
Supervisor fee in proportion to corporate earnings (%)	0.02	－	0.01	－
Remunerations to the President and Vice Presidents	18,589	－	38,156	－
Remunerations to the President and Vice Presidents in proportion to corporate earnings(%)	1.46	－	2.04	－

Note 1：AIDC has no subsidiary. No consolidated financial statement was presented. Note 2：The remuneration listed refers to the total remuneration (A+B+C+D) in 2.3.1.

B. The Policies, Standards, and Portfolios for the Payment of Remuneration, the Procedures

for Determining Remuneration, and the Correlation with Business Performance

The remuneration to the Directors (including the Chairman of the Board and Independent Directors) has been determined in accordance with the Articles of Incorporation of AIDC subject to the finalization of the Board under authorization. The Articles of Incorporation of AIDC also requires that earnings from each fiscal year be subject to mandatory reserve allocated at 10% of the earnings unless otherwise the accumulated mandatory reserves allocated from the earnings of each fiscal year is equal to or higher than the stated capital of AIDC. It is followed by the allocation of special reserve as required by applicable legal rules or the competent authority. The remainder net of the aforementioned allocations shall be subject to the payment of remuneration to the Directors and Supervisors at up 1%.

3. Implementation of Corporate Governance

3.1 Board of Directors

A total of 15 meetings of the board of directors were held in the previous period. Director and supervisor attendance was as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate (%)	Remarks
Chairman	MOEA Representative: Liu, Jieh-Tsern	15	0	100.00 %	Required for presence in 15 sessions with 100.00% attendance.
Executive Director	MOEA Representative: Hsu, Yen-Nien	11	0	100.00 %	Re-assumed office on October 17 2014. Required for presence in 11 sessions with 100.00% attendance.
Director	MOEA Representative: Wan, Tung	10	1	90.90 %	Re-assumed office on October 17 2014. Required for presence in 11 sessions with 90.90% attendance.
Director	MOEA Representative: Pao, Chuan	9	2	81.82 %	Re-assumed office on October 17 2014. Required

16

					for presence in 11 sessions with 81.82% attendance.
Director	MOEA Representative: Kao, Tien-Chung	1	2	33.33 %	Assumed office on October 17 2014. Required for presence in 3 sessions with 33.33 attendance.
Director	MOEA Representative: Chien, Feng-Yuan	3	0	100.00 %	Assumed office on October 17 2014. Required for presence in 3 sessions with 100.00% attendance.
Director	MOEA Representative: Tso, Ao-Nan	3	0	100.00 %	Assumed office on October 17 2014. Required for presence in 3 sessions with 100.00% attendance.
Director	MOEA Representative: Yu, Cheng-Te	8	0	100.00 %	Re-assumed office on December 23 2014. Required for presence in 8 sessions with 100.00% attendance.
Executive Director	Hsia, Kang	8	2	80.00 %	Resigned on October 16 2014. Required for presence in 10 sessions with 80.00% attendance.
Director	MOEA Representative: Chen, Si-Ming	2	0	100.00 %	Resigned on March 12 2014. Required for presence in 2 sessions with 100.00% attendance.
Director	MOEA Representative: Ma, Chiu-Jung	8	0	100.00 %	Resigned on August 21 2014. Required for presence in 8 sessions with 100.00% attendance.
Director	MOEA Representative: Chao, Ke-Da	0	0	0.00 %	Resigned on August 21 2014. Required for presence in 8 sessions with 0.00% attendance.
Director	MOEA Representative: Hu, Yen-Nien	3	4	37.50 %	Resigned on August 21 2014. Required for presence in 8 sessions with 37.50% attendance.
Director	MOEA Representative: Hsiao, Wei-Min	1	7	12.50 %	Resigned on August 21 2014. Required for presence in 8 sessions with 12.50% attendance.
Director	MOEA Representative: Cheng, Yun-Peng	3	0	37.50 %	Resigned on August 21 2014. Required for presence in 8 sessions with 37.50% attendance.
Director	Lin, Nan-Juh	9	1	90.00 %	Resigned on October 16 2014. Required for presence in 10 sessions with 90.00% attendance.
Director	MOEA Representative: Tsao, Bao-Chang	3	4	33.00 %	Resigned on November 20 2014. Required for presence in 10 sessions with 33.00% attendance.
Executive and Independent Director	Wu, Hsiu-Kuang	9	4	60.00 %	Required for presence in 15 sessions with 60.00% attendance.
Indenpendent Director	Chan, Chia-Chang	7	0	100.00 %	Assumed office on July 31 2014. Required for presence in 7 sessions with 100.00% attendance.
Indenpendent Director	Hsu, Yung-Hao	3	0	100.00 %	Assumed office on October 17 2014. Required for presence in 3 sessions with 100.00% attendance.
Indenpendent Director	Hsu, En-De	5	2	71.43 %	Resigned on July 31 2014. Required for presence in 7 sessions with 71.43%

17

attendance.

Important notice:

• I. For particulars as stated in Article 14-III of the Securities and Exchange Act, and the adverse opinions and qualified opinions of other independent directors on the resolutions of the Board with record or declaration in writing, specify the date of the meeting, the session, the content of the motion, the opinions of all independent directors, and responses to the independent directors: No.

II.	The avoidance of conflict of interests of particular motions by the Directors, specify the names of the Directors, the	The avoidance of conflict of interests of particular motions by the Directors, specify the names of the Directors, the	The avoidance of conflict of interests of particular motions by the Directors, specify the names of the Directors, the	The avoidance of conflict of interests of particular motions by the Directors, specify the names of the Directors, the	The avoidance of conflict of interests of particular motions by the Directors, specify the names of the Directors, the
	content of the motions,	the reasons for avoidance of the conflict of interest, and the participation in voting:
	Date of Board Session	Content of the Motion	Reasons for the Voidance of Conflict of Interest	Voting
	The 7th session of the 6th term of the Board dated 2014.01.20	The motion of the establishment of the Compensation Committee and the appointment of the committee members	Appointment of the members of the Compensation Committee	Independent Directors Hsiu-Kuang Wu and En-Deh Hsu recused from the meeting and were not engaged in the discussion and voting of this motion.
	The 9th session of the 6th term of the Board dated 2014.07.31	Preliminary evaluation of the annual evaluation of the Chairman and the CEO	Personal evaluation	Chairman Jieh-Tsern Liu and CEO Yen-Nien Hsu recused from the meeting and were not engaged in the discussion and voting of this motion.
	The 10th session of the 6th term of the Board dated 2014.10.28	Final approval of the salaries for the Chairman and the CEO	Personal salary	Chairman Jieh-Tsern Liu and CEO Yen-Nien Hsu recused from the meeting and were not engaged in the discussion and voting of this motion.
		The motion of the payment		Independent Directors
	The 4th special	for the members of the		Hsiu-Kuang Wu and En-Deh
	session of the 6th	Compensation Committee	Personal	Hsu recused from the meeting
	term of the Board	for presence in the meeting,	remuneration	and were not engaged in the
	dated 2014.03.03	review of motions and		discussion and voting of this
		transportation		motion.
	The 13th special session of the 6th term of the Board dated 2014.11.17	The motion of appointment of the Compensation Committee members	Appointment of the members of the Compensation Committee	Independent Directors Chia-Chang Chan recused from the meeting and were not engaged in the discussion and voting of this motion.

III. The evaluation of the objective the Board in fortifying is function (e.g., the establishment of the Auditing Committee, enhance of transparency in disclosure) in current year and the previous years, and the pursuit of the objective:

(I) Fortification of the function of the Board:

AIDC has established 3 seats of independent directors. They all have the professional competence in accounting, financial analysis, and aviation safety and aerospace industry, and always provide sound and professional recommendations to the Board in the internal control systems, business, and financial topics.

AIDC has established its “Parliamentary Procedure of the Board” in accordance with the “Regulations Governing Procedure for Board of Directors Meeting of Public Companies” as the regulation governing the Board. Record of attendance of the Directors to Board meetings is posted at MOPS. In addition, AIDC has also established an exclusive zone on its official website for disclosing important resolutions of the Board, and ensures related departments to protect and disclose vital information on AIDC operation and financial position.

(II) Enhancement of transparency in disclosure:

The financial statements of AIDC were audited and certified by the certified public accountants of Deloitte & Touché Taiwan. As required by law, AIDC has appointed designated personnel to disclose relevant areas of information, and made announcement on the revenue and financial reports and called for institutional investor conferences at regular intervals. AIDC has established a viable spokesman system to ensure the timely disclosure of vital information for the reference of the shareholders and stakeholders on the financial position and the operation of the Company.

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3.2 Audit Committee （ Attendance of Supervisors for Board Meeting ）

A. Audit Committee

AIDC has mapped out the plan for the establishment and operation of the Auditing Committee in accordance with Financial Supervisory Commission Letter Chin-Kuan-Cheng-Fa-Zi No. 10200531121. The Auditing Committee will be formally established by January 1 2017.

B. Attendance of Supervisors for Board Meetings

A total of 15 meetings of the board of directors were held in the previous period. Supervisor attendance was as follows:

Title	Name	Attendance in Person	Attendance Rate (%)	Remarks
Executive Supervisor	Lin, Chung-Yi	8	53.33 %
Supervisor	Chu, Yung-Fa	13	100.00 %	Assumed office on April 3 2014. Required for presence in 13 sessions with 100.00% attendance.
Supervisor	Mao, Tai-Chi	10	76.92 %	Assumed office on April 3 2014. Required for presence in 13 sessions with 76.92% attendance.
Supervisor	Lin, Yong-Fa	1	50.00 %	Note
Note：Supervisor Yong-Fa Lin resigned on March 12, 2014. Important notice: I. The organization and functions of the Supervisors: (I) The communications between the Supervisors and employees at AIDC (e.g., channels and means of communications): The Supervisors may contact with the employees, shareholders, and stakeholders within their authority at any time as needed. There is also a special zone on the website showing the e-mail for contact with the Supervisors so that the public, employees of AIDC can express their opinions to the Supervisors. The channels of communications are free of any obstacle for the time being. (II) The communications between the Supervisors and the chief of internal auditing and the external auditors (e.g., the content of communications pertinent to the financial position and the operation of AIDC, the methods and the results of communications): 1. The chief of internal auditing presents the internal audit reports to the Supervisors after the completion of each audit. The Supervisors expressed no adverse opinions. 2. The chief of internal auditing presents the quarterly audit reports to the Supervisors after the completion of the quarterly audit plans. The Supervisors expressed no adverse opinions. 3. The supervisors, the chief of internal auditing, and chief accounting officer and the external auditors will meet at least once a year in separate occasions. II. In the event of an expression of opinions by the Supervisors when attending Board meetings as observers, specify the date, the session, the content of the motions, the result of Board resolution, and the response to the opinions expressed by the Supervisors: AIDC did not have any adverse opinion from the Supervisors deriving from the resolutions of the Board in previous period.

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3.3 Corporate Governance Execution Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”

Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and Reasons
	Y	N	Abstract
I. Has the Company established best practice principles of corporate governance in accordance with the “Best Practice Principles of Corporate Governance for TWSE/GTSM-listed Companies”?	�		AIDC has established the “Corporate Governance Guideline for Aerospace Industrial Development Corp.” and has uploaded the information to MOPS and the official website of the Company.	No Significant Variation
II. Shareholder structure and equity (I) Has the Company established the internal procedures for responding to the suggestions, queries, disputes, and legal actions of the shareholders and comply with the procedures in these matters? (II) Has the Company kept the dominant shareholders in control, and the list of the final shareholders of these dominant shareholders on track? (III) Has the Company established and exercised risk control between the Company and its affiliates and a firewall for such purpose? (IV) Has the Company established internal code for the prohibition of the use of insider information for securities trade before going public?	� � � �		(I) AIDC has called for the General Meeting of Shareholders as required by law, and responded to the opinions representing the equity holding of the shareholders one by one and kept as minutes on record. The Company has also established the spokesman system and customer service hotline, and the telephone and e-mail for access to the Supervisors, Spokesman and Deputy Spokesman. (II) AIDC has entrusted a share registration service agent for assistance in handling share registration, transfer and related matters for the shareholders, and can keep the dominant shareholders of the Company in control and the list of the final shareholders of these dominant shareholders on track. (III) AIDC has established related operation procedures for risk control. (IV) AIDC has established the “Aerospace Industrial Development Corp. Guidelines for Materiality Management and the Prevention of Insider Trade”, and has been passed by the Board of Directors.	No Significant Variation No Significant Variation No Significant Variation No Significant Variation
III. The organization and functions of the Board (I) Has the Board mapped out aplan for the diversityof its	�		(I) AIDC has explicitly stated in the “Corporate Governance Guideline for Aerospace	No Significant Variation

20

Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and Reasons
	Y	N	Abstract
members and properly implemented the plan? (II) Has the Company voluntarily established different types of functional committees further to the mandatory Compensation Committee? (III) Has the Company established the regulation governing the evaluation of performance of the Board, and has conducted routine evaluation on performance every year? (IV) Has the Company conducted routine evaluation on the independence of the external auditors?	�	� �	Industrial Development Corp.” that all members of the Board shall be qualified with the knowledge, skill and competence in performing their duties. For purpose of corporate governance, the Board shall be capable of making judgment on the operation, corporate management, crisis management, and possess industry knowledge, a broad view of the international market, leadership, and decision-making latitude. (II) AIDC has already established the Compensation Committee, and is planning for the establishment of the Audit Committee. The Audit Committee will be established by January 1, 2017 as required by Financial Supervisory Commission Letter Chin-Kuan-Cheng-Fa-Zi No. 10200531121. (III) AIDC has not yet established the regulation governing the performance evaluation of the Board. (IV) AIDC selected renowned CPA firms and auditors to conduct its audit. The audit plan has been presented to the Supervisors for approval before execution. There is no conflict of interest with the Company and the external auditors have strictly observed its independence. The related departments of the Company apply the CPA Independence and Suitability Survey to all the Directors and Supervisors every year, and the survey result is that the CPAs’ independence and suitability are appropriate.	AIDC has not yet established various types of functional committees. AIDC has started to study on the institution of the regulations. No Significant Variation

21

Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and Reasons
	Y	N	Abstract
IV. Has the Company established channels for communications with the stakeholders, and has reserved a special zone for the stakeholders in the website with appropriate responses to the issues of corporate social responsibility concerned by the stakeholders?	�		There is a special zone for investors on the web pages of the AIDC website. On the web page marked “contact us”, the telephones and e-mails for contact with the Supervisors, spokesman, and deputy spokesman are provided.	No Significant Variation
V. Has the Company entrusted a professional share registration service agent for handling matters related the General Meeting of Shareholders?	�		AIDC has entrusted Fubon Securities for handling matters related to the General Meeting of Shareholders	No Significant Variation
VI. Disclosure (I) Has the Company installed a website for disclosure of its financial information and corporate governance information? (II) Has the Company adopted other means of disclosure (e.g., the installation of a website in English, collection and disclosure of information by designated personnel, materialization of the spokesman system, minutes of the institutional investor conference posted at the website)?	� �		(I) There is a special zone reserved for corporate governance on the AIDC website posting information for the viewing of the stakeholders. There is also a link connecting to MOPS for disclosure of the financial information and corporate governance information on AIDC. (II) AIDC has designated personnel responsible for the collection and disclosure of information, and has installed a website in the English language. The spokesman system is in place as required for responding to relevant issues. The minutes of the institutional investor conference have been posted at the website for viewing.	No Significant Variation No Significant Variation
VII. Is there other vital information that may help to understand the pursuit of corporate governance by the Company (including but not limiting to employee rights and privileges, employee care, investor relation, supplier relation, rights of the stakeholders, continuing education of the Directors and the Supervisors, risk managementpolicy,the	�		(I) Employee rights and privileges and employee care: 1. AIDC has established an industry labor union and labor-management meeting as the platform for two-way communication between the management and the labor. 2. AIDC has also established an employee welfare committee for providing fringe benefits for the employees. 3. Employment of the physically and mentally impaired for work. (II) Investor relation: AIDC has disclosed information required for disclosure at MOPS and the system of	No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and Reasons
	Y	N	Abstract
implementation of the standard of risk assessment, the implementation of customer policy, the protection of the Directors and Supervisors by professional liability insurance)?			spokesman and deputy spokesman for responding to relevant issues to maintain positive interactions and relation with the investors. (III) Supplier relation: AIDC is on good terms with the suppliers and convened with each other regularly for exchange of opinions. (IV) Rights of the stakeholders: AIDC has established the system of spokesman as the channel for communications with the stakeholders. AIDC has also established special news zone and corporate governance zone at its website for providing information on the operation and financial position. (V) Continuing education of the Directors and Supervisors: The Directors and Supervisors of AIDC always pay close attention to information on corporate governance, and take related courses for personal needs in studying. In 2014, the status of continuing education of the Directors and Supervisors has been disclosure at MOPS. (VI) The pursuit of risk management policy and conduct of risk assessment standard: The Board of AIDC has approved the Risk Management Guideline and Risk Management Policy, and has established the Risk Management Committee for the identification and management of risks. (VII) The pursuit of customer policy: AIDC has designated bodies for taking care of customer issues. (VIII) The protection of the Directors and Supervisors by professional liability insurance: AIDC has taken professional liability insurance coverage for the Directors and Supervisors.
VIII. Is there any corporate governance self-assessment report for the Company? Or, is there any professional firm entrusted for reporting on the assessment of corporate governance? (If so, elaborate its opinion on the Board, the opinions on the findings of self-assessment or external assessment,major	�		AIDC has uploaded its corporate governance self-assessment report to MOPS.	No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and Reasons
	Y	N	Abstract
shortcomings or recommendations and corrective action taken)

3.4 Composition, Responsibilities and Operations of Compensation Committee

3.4.1 Professional Qualifications and Independence Analysis of Committee Members

Title	Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least FiveYearsWork Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least FiveYearsWork Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least FiveYearsWork Experience	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Independence Criteria (Note)	Number of Other Public Companies in which the Individual is Concurrently Serving as a Committee Member	Remarks
		An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8
Indenpendent Director	Wu, Hsiu- Kuang	�		�	�	�	�	�	�	�	�	�	0
Indenpendent Director	Hsu, En-De	�	�	�	�	�	�	�	�	�	�	�	5
Other	Hsing, You- Guang			�	�	�	�	�	�	�	�	�	0

• Note：If Compensation Committee members, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate corresponding boxes:

• Not an employee of the company or any of its affiliates.

• Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares.

• Not a nature-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under other’s names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders.

• Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, or any of the above persons in the preceding three subparagraphs.

• Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as one of its top five shareholders.

• Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company.

• Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof.

• Not been a person of any conditions defined in Article 30 of the Company Law.

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3.4.2 Operations of Compensation Committee

The Compensation Committee is comprised of three members, and the tenure of three members starts from February 21, 2014 and ends at June 24, 2015. A total of 4 meetings of Compensation Committee were held in the previous period. Member attendance was as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate (%)	Remarks
Chair	Wu, Hsiu-Kuang	4	0	100%
Member	Hsu, En-De	4	0	100%
Member	Hsing, You- Guang	4	0	100%	Resigned on October 9, 2014
Important notice: 1. There was not any recommendation of the Compensation Committee which was not adopted or was modified by the Board of Directors in 2014. 2. There were not any written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or qualified opinion.

3.5 Social Responsibility Implementation

Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
I. Conduct of Corporate Governance (I) Has the Company made the policy or system of corporate social responsibility and has review the effect of implementation? (II) Has the Company organized training programs in corporate social responsibility regularly? (III) Has the Company	� � �		(I) AIDC has explicitly established its corporate social responsibility policy and reviewed its implementation at regular intervals. The content of the policy is elaborated below: 1. Duly observe applicable laws governing corporate social responsibility and perform the obligation as a corporate citizen. 2. Treasure corporate governance and make management information transparent to protect the rights and privileges of the stakeholders. 3. Concern for environmental protection, energy saving, and carbon reduction for protection of the environment on earth. 4. Provide a safe and healthy work environment to protect the physical and psychological health of the employees. 5. Concern for the social misfortunes and participate in social charity positively. (II) AIDC has organized online training program in corporate social responsibility for the employees, and advocates the ideas of corporate social responsibility through the eNews column and routine meetings. (III) The corporate management function of AIDC	No Significant Variation No Significant Variation No Significant

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
established a designated body (part-time body) for the advocacy of corporate social responsibility with the appointment of a senior officer by the Board for handling related affairs with report to the Board on the progress? (IV) Has the Company made a reasonable remuneration policy and integrated the employee performance evaluation system and its corporate social responsibility policy, and has also established a clear-cut reward and punishment system?	�		is responsible for the advocacy of corporate social responsibility and report to the Board on the result at regular intervals. (IV) AIDC has established the “AIDC Human Resources Spending Management Guideline” and “AIDC Payroll Management Guideline”, and has integrated its performance evaluation system and corporate social responsibility policy. In addition, AIDC has also established the “AIDC Criteria for Reward and Punishment” for fair and just reward and punishment.	Variation No Significant Variation
II. Environment for Sustainable Development (I) Has the Company committed its effort in upgrading the efficient use of all resources and used recycled materials for mitigating the impact on the environment? (II) Has the Company established suitable environmental management system relevant with its specific industry feature? (III) Has the Company paid attention to the effect of climate change on its operation,andproceeds	� � �		(I) AIDC continues its effort in supporting the policy of the Environmental Protection Administration in making green purchase, advocacy of the recycling of metallic wastes and dumped water. In addition, AIDC has also supported the Bureau of Energy in its “Biogas Power Generation System Promotion Scheme” in assisting the advocacy of Biogas power generation in all counties and cities. In practice, the methanol gas generated from the dumps of the livestock farming industry was converted into electric power. This conversion helps to mitigate the impact on the environment. (II) AIDC has been successfully passed the accreditation of ISO-14001 by SGS since December 1999, and has been accredited the ISO-50001 system by SGS in December 2013 in energy management to ensure all environmental management policies are in conformity to environmental protection policy of the Company. (III) AIDC has explicitly stated its energy policy and the content is elaborated below: 1. Continue to reduce the consumption of energy.	No Significant Variation No Significant Variation No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
to the inspection of greenhouse gas, establishment of energy saving and carbon reduction, and greenhouse gas emission reduction strategy?			2. Continue the upgrading of energy efficiency. 3. Continue to commit its effort in energy to achieve the energy objective and standard. 4. Duly abide applicable laws and other requirements of energy. 5. Fully consider energy efficiency in the design of facilities and equipment, and related repairs. 6. Efficient purchase and the use of high-energy efficiency products and service.
III. Social Charity (I) Has the Company established related management policies and procedures in accordance with applicable legal rules and international conventions of human rights? (II) Has the Company established the mechanism and channels for the complaints of the employees and properly managed the channels? (III) Has the Company provided a safe and healthy work environment, and provided labor safety and health education for the employees regularly? (IV) Has the Company developed the mechanism for routine	� � � �		(I) AIDC will continue to enforce Labor Standards Act, Employment Service Act, Act of Gender Equality in Employment, and other applicable legal rules for the protection of the rights and privileges of the employees under law. (II) AIDC has established different channels for filing complaints. Employees can file their complaints via the intranet, employee concern system, labor union, labor-management meeting, and designated channels. All complaints will be responded properly. (III) AIDC has duly observed the laws and regulations governing health and safety promulgated by the government and provided the employees a healthy, safe, and clean work environment. In addition, the Company also organizes regular physical examination for general employees and special physical examination for employees engaged in special duties with follow up of the findings. In addition, training of CPR and AED, medication safety were provided and advocated. All plant sites have designed their own fire safety plans and conduct exercise drill in fire fighting. Training in all kinds of labor safety has also been provided. (IV) AIDC makes use of its intranet, labor union, labor union representatives meeting, labor-management meeting,executive	No Significant Variation No Significant Variation No Significant Variation No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
communications with the employees and informed the employees of any change in the operation that may cause significant impact in reasonable means? (V) Has the Company established an effective scheme for helping the employees in career planning and development? (VI) Has the Company established relevant policies and procedures for complaints in research and development, procurement, production, operation, and service for the protection of the consumers? (VII) Has the Company followed applicable legal rules and international standards in the marketing and labeling of products and services? (VIII) Has the Company evaluated the suppliers on their record of negative influence on the environment and society before engaging in partnership with these suppliers?	� � � �		meetings, and incentive meetings for communications with the employees in order to allow the employees understand the operation performance of AIDC and any change in the operation. (V) AIDC reviews and trains competent people in key technical skills in accordance with the operation plan and development objective, and pools up reserve human resources in management in accordance with the “AIDC Guidelines for the Development and Use of Management Personnel”. (VI) AIDC has explicitly stated the quality policy of “Comprehensive Quality Assurance and Continuous Customer satisfaction”, and provided e-mail, customer satisfaction survey, and customer visit and other channels for filing complaints. In addition, there is a 24-hour customer complaint response system in place to protect the rights of the customers. (VII) AIDC is a manufacturer of aircrafts and related parts and components. Domestic marketing of these products must be in conformity to the requirements of the military of the ROC. For export sale marketing, products must be conforming to the accreditation standards of world-class aircrafts including D6-82479 of Boeing, AP2190 and GEAE S-1000 of Airbus, ASQR-01 of UTAC, SPOC, MITAC MRJ-SQC-01 of Honeywell, Alenia IAYC 05C, QPS100/200/300 of Bell, and QD 4.6-40 of Bombardier. (VIII) Before entering into supply agreements with the suppliers, AIDC will evaluate these suppliers to ensure no record on impact on the environment and society. If AIDC discovers any supplier causing impact on the environment and society in production, manufacturing, and others after entering into agreements, AIDC will discharge the agreements, return all goods and suspend their rights as suppliers and disqualifies them from the list of suppliers.	No Significant Variation No Significant Variation No Significant Variation No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
(IX) Do the agreements binding the Company and its major suppliers contain the clauses that the Company may terminate or discharge the agreements at any time if the suppliers were found violation of its corporate social responsibility policy and has significant impact on the environment and society?	�		(IX) The principal clauses contained in the agreements binding AIDC and its suppliers contain the following elements: AIDC shall terminate or discharge the agreement in whole or in part on any violation of the environmental protection laws and laws governing labor safety and health without compensation of any form to the supplier.	No Significant Variation
IV. Bolstering disclosure (I) Has the Company made disclosure on relevant and reliable information related to corporate social responsibility at its official website or MOPS?	�		AIDC duly follows the principle of transparency in disclosure, and has posted relevant and reliable information on corporate social responsibility at its official website and MOPS.	No Significant Variation
V. If the Company has established the best practice principles of corporate social responsibility in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies”, specify the variation: AIDC has established the “AIDC Corporate Social Responsibility Best Practice Principles”, which is not significantly varied with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies”.
VI. Any other vital information that helps to understand the conduct of corporate social responsibility: In the area of “social concern”: 1. AIDC duly observes the Labor Standards Act and the Act for Gender Equality in Employment and other applicable legal rules, treasures education and training of the employees, provides routine health examination, advocates the employee assistance system, and protects the physical and psychological health of the employees and their families. 2. Engagement in events of social concern such as “Good Neighbor”, “Aid for the Social Underprivileged and Charity Groups”, “Concern for the Social Misfortune School Children”. 3. Support the Central Weather Bureau in launching the “Chasing Typhoon Scheme” thereby watch typhoons that may influence Taiwan closely by reducing possible misjudgment of the path of these typhoons in an average of 78.6 km from 12 to 72 hours before hitting Taiwan. The accuracy rate for forecasting the correct path is 26.5%. These efforts help to reduce property damage and casualties. In 2014, AIDC launched 2 flights to watch Typhoons Matmo and Phoenix, and has launched 70 flights for chasing typhoons from 2003 to 2014. 4. Entered into the “Emergency Chartered Flight Delivery” agreement with Tung’s Taichung MetroHarbor Hospital to provide flight services for medical purpose after medical treatment between Taiwan and other offshore islands and international flight routes. In 2014, AIDC has accomplished 19 flight missions for emergency medical air transport services. This allows for integration between aviation and medical services so that thepeople can have better and viable healthcare service.
VII. If the corporate social responsibility report has been accredited under specific standard of an accreditation agency,elaborate the detail: No.

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3.6 Corporate Conduct and Ethics Implementation

Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
I. The making of ethical corporate management policy and action plans (I) Has the Company explicitly declared its policy, practices of ethical corporate management in its internal code and external documents, and the commitment of the Board and the management for the realization of ethical corporate management? (II) Has the Company designed plans for the prevention of unethical practices, and explicitly stated the procedure, guidelines, penalty for violation and the system of filing complaints with proper implementation of the policy? (III) Has the Company taken preventive measures against business activities with high risks of unethical practices or as stated in Article 7-II of the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-listed Companies”?	� � �		(I) AIDC has established the “AIDC Ethical Corporate Management Best Practice Principles”, the “AIDC Management Personnel Code of Conduct”, and the “AIDC Guidelines for Management of Materiality and Prevention of Insider Trade” for the effective pursuit of the policy of ethical corporate management for the Directors and all corporate management personnel. The Chairman and President of AIDC have also explicitly declared and signed the ethical corporate management policy in the Chinese and English versions, and posted the policy in the intranet and official website of AIDC. (II) AIDC has established the “AIDC Employee Code of Conduct” with the setup of telephone and e-mails for reporting on unethical practices. There is also a hotline number posted at the special section of the eNews column of AIDC for reporting to Ministry of Justice Agency Against Corruption. (III) AIDC will dispatch designated personnel to supervise the procurement in excess of 1/10 of the amount required for announcement and conduct audit on the purchase. In addition, AIDC also conducts questionnaire survey and visits for the prevention of corruption. For business entailing high risks of unethical practice, AIDC conducts investigation on possible areas of trouble. For donation, the security function will review if it is in compliance with applicable laws.	No Significant Variation No Significant Variation No Significant Variation
II. Realization of business integrity (I) Has the Company assessed the track of record of its counterparties in business integrityand explicitlystated the	�		(I) AIDC highly treasures business integrity and has explicitly stated in all business contracts that no offering of commission,undue donations andgifts	No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
clauses of ethical practices in the agreements with the counterparties? (II) Has the Company established a designated (part-time) body for the advocacy of business integrity directly under the Board, and this body has reported to the Board on the status of enforcement regularly? (III) Does the Company has the policy for the avoidance of the conflict of interest in place and provides appropriate channels for the reporting of the conflict of interest with proper pursuit of the policy? (IV) Has the Company established a viable and effective accounting system and internal control system for the realization of ethical corporate management subject to the routine audit of the internal audit function, or by an independent certified public accountant? (V) Has the Company organized internal and external training in ethical corporate management?	� � � �		and invitation to offering will be permitted. In addition, AIDC also restricts unethical suppliers to participate in the bidding for procurement with AIDC. (II) AIDC has established the Security Division directly supervised by the Chairman. This body is responsible for the advocacy of business integrity and the code of conduct of the employees , and it has reported on the status of enforcement regularly. (III) The Security Division of AIDC visits HR and Procurement functions of AIDC at regular intervals for the education of the avoidance of the conflict of interest and conduct self-review questionnaire. (IV) AIDC has established an accounting system and internal control system for the realization of ethical corporate management. Relevant departments have performed their duties in compliance with the aforementioned systems. The auditing function will conduct regular or special audits on a selective basis as needed. AIDC has also retained certified public accountants to audit and certify the system and provide sound recommendation to ensure legality and security. (V) AIDC has invited lawyers, public prosecutors, judges and experts to give lectures and training in business integrity and ethical corporate management at least once ayear.	No Significant Variation No Significant Variation No Significant Variation No Significant Variation
III. The running of the system for reporting unethical practices (I) Has the Company established substantive system for reporting and reward with channels for easy reporting on unethical practices, and has appointed designate person to deal with the target of reporting?	�		(I) According to the procedure for reward and punishment of AIDC, those who report on anything concerning corruption or jeopardizing the rights of AIDC the extent to which damage is caused, the reporting person will be rewarded. In addition, the person in charge of related operation can release	No Significant Variation

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Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-listed Companies” and Reasons
	Y	N	Abstract
(II) Has the Company established related standards for investigation on reported matters and the confidentiality of the reports? (III) Has the Company taken appropriate measures to protect the informant for undue treatment due to the report on unethical practices?	� �		a price as encouragement for the person under relevant guidelines for releasing prices and bonus. External parties who reported on unethical practice of the employees will also be rewarded. AIDC has appointed designated personnel to answer to reporting on unethical practice. The personnel for accepting reports and the method of contact will be posted at the AIDC website, all plant sites, and offices. (II) The investigation on report of unethical practices in AIDC is akin to the practices in the Criminal Litigation Act whereby the principle of confidentiality and no disclosure is in effect. All participants in the investigations are required to keep strict confidence and protect human rights in the entire investigation. (III) AIDC promises to protect the informants and guarantees no revenge will result due to the report on unethical practices by the informants. Such commitment is posted at the official website, all plant sites, and offices of AIDC.	No Significant Variation No Significant Variation
IV. Bolstering disclosure (I) Has the Company disclosed the content of its Ethical Corporate Management Best Practice Principles at its official website and MOPS and the result of the pursuit?	�		(I) AIDC has posted the content of its Ethical Corporate Management Best Practice Principles and Employee Code of Conduct at its official website and MOPS, and provide education on related rules and regulation at any time as needed.	No Significant Variation
V. If the Company has established its Ethical Corporate Management Best Practice Principles in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-listed Companies”, describe the implementation of the regulation and the variation with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-listed Companies”: No.
VI. Any other vital information that helps to understand the ethical corporate management in action better: (e.g., the review and amendment to the ethical corporate management best practice principles of the Company). AIDC pronounced its policy of business integrity and anti-corruption policy in the annual suppliers conference and explicitly declares no acceptance of offering and gifts. In addition, AIDC has also provided the telephone for reporting on unethical practices at 04-2284 2373 and e-mail at peterwei@ms.aidc.com.tw .The suppliers can report on anyillegalpractices with evidence. AIDC will keepthe identityof the informant in strict confidence.

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• 3.7 If the Company has established corporate governance and related code, disclose the

• means of inquiry: AIDC has installed the “Corporate Governance” zone at the official website at http:// www.aidc.com.tw for disclosure of related rules and regulations of corporate governance.

• 3.8 Other Vital Information that Helps to Understand the Practice of Corporate Governance Better: None.

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3.9 The Pursuit of the Internal Control System:

==> picture [343 x 451] intentionally omitted <==

Aerospace Industry Development Corporation Statement of Declaration on Internal Control

Date: January 29, 2015

Aerospace Industry Development Corporation has conducted internal audit in accordance with its Internal Control Regulation covering the period from January 1 to December 31 2014, and hereby declares as follows:

• I. The Company acknowledges and understands that the establishment, enforcement and preservation of internal control system is the responsibility of the Board and the managers, and that the Company has already established such system. The purpose is to reasonably ensure the effect and efficiency of operation (including profitability, performance and security of assets), the reliability of financial reporting and the compliance with relevant legal rules.

• II. There is limitation inherent to internal control system, no matter how perfect the design. As such, effective internal control system may only reasonably ensure the achievement of the aforementioned goals. Further, the operation environment and situation may vary, and hence the effectiveness of the internal controls system. The internal control system of the Company features the self-monitoring mechanism. Once identified, any shortcoming will be corrected immediately.

• III. The Company judges the effectiveness of the internal control system in design and enforcement in accordance with the “Criteria for the Establishment of Internal Control System of Public Offering Companies” (hereinafter referred to as “the Criteria”). The Criteria is instituted for judging the effectiveness of the design and enforcement of internal control system. There are five components of effective internal control as specified in the Criteria with which the procedure for effective internal control is composed by five elements, namely, 1. Control Environment, 2. Risk Evaluation, 3. Control Operation, 4. Information and Communication, and 5. Monitoring. Each of the elements in turn contains certain audit items, and shall be referred to the Criteria for detail.

• IV. The Company has adopted the aforementioned internal control system for internal audit on the effectiveness of the design and enforcement of the internal control system.

• V. Basing on the aforementioned audit findings, the Company holds that has reasonably preserved the achievement of the aforementioned goals within the aforementioned period of internal control (including the monitoring over the subsidiaries), including the effectiveness and efficiency in operation, reliability in financial reporting and compliance with relevant legal rules, and that the design and enforcement of internal control are effective.

• VI. This statement of declaration shall form an integral part of the annual report and prospectus on the Company and will be announced. If there is any fraud, concealment and unlawful practice discovered in the content of the aforementioned information, the Company shall be liable to legal consequences under Article 20, Article 32, Article 171 and Article 174 of the Securities and Exchange Act.

• VII. This statement of declaration has been approved by the Board on January 29 2015 with the presence of 10 directors in common consent.

• Chairman: Jieh-Tsern Liu President: Yen-Nien Hsu

Aerospace Industry Development Corporation

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• 3.10 The Penalty on AIDC and its Internal Personnel, the Penalty of AIDC Personnel for Violation of the Internal Control System, Major Shortcomings and the Status of Corrective Action: None.

3.11 Major Resolutions of the General Meetings of Shareholders and the Board in the Previous Period to the Date this Report was Printed

3.11.1 2014 – 2015 Major Resolutions of Board Meetings

Date	Session	Motions
January 20, 2014	The 7~~th~~session of the 6th term of the Board	� Employment of Vice President � Level-I function heads employment � Appointment of certified public accountants for audit and certification of financial statements in FY2014 � Declaration of internal control system in FY2013 � Addition and amendment to essential internal regulations � The establishment of the Compensation Committee and appointment of members
March 3, 2014	The 4~~th~~special session of the 6th term of the Board	� Election of Directors and Supervisors to fill the vacancies � Lift the ban of the conflict of interest on the Directors and Supervisors elected to fill the vacancies � The 1stspecial session of the General Meeting of Shareholders in FY 2014 � The payment for the members of the Compensation Committee on their attendance to meetings, review of motions, and transportation � Amendment to essential internal regulations of the Company
April 3, 2014	The 5~~th~~special session of the 6th term of the Board	� Financial report of AIDC in FY 2013 � Proposal for distribution of earnings in FY 2013 � AIDC applies for listing in TWSE � Appointment of the lead underwriter for distribution of shares during the underwriting period. � The Company issues shares under the central depository system
April 25, 2014	The 6~~th~~special session of the 6th term of the Board	� Calling for the regular session of the General Meeting in 2014
May 9, 2014	The 8~~th~~session of the 6th term of the Board	� Amendment to the Internal Audit Plan for FY2014 � Amendment to essential regulations of AIDC � Election of independent directors to fill the vacancies � Lift the ban of the conflict of interest on the independent directors elected to fill the vacancies � Calling for the 2ndspecial session of the General Meeting in 2014
June 4, 2014	The 7~~th~~special session of the 6th term of the Board	� Participation in bidding for business contracts
June 30, 2014	The 8~~th~~special session of the 6th term of the Board	� Shares offering date in central depository system � Nomination of shareholders for candidacy of independent directors
July 31, 2014	The 9~~th~~session of the 6th term of the Board	� Amendment to the proposal for allocation of earnings to cover loss carried forward in FY 2013 � Preliminary evaluation of the performance of the Chairman and the President � Addition and amendment to essential regulations of the Company
August 21, 2014	The 9~~th~~special session of the 6th term of the Board	� Election of Executive Directors to fill the vacancies � Election of the new Chairman
August 29, 2014	The 10~~th~~special session of the 6th term of the Board	� Adjustment of the sessions of current term (6~~th~~term) of the Board of Directors � Election of Directors to fill the vacancies � Lift the ban of the conflict of interest on the Directors elected to the new term of office � Amendment to essential regulations of AIDC � Calling for the 3rdspecial session of the General Meeting in 2014 � Internal reassignment of the external auditors by the CPA firm. � Level-I function heads employment
September 4, 2014	The 11~~th~~special session of the 6th term of the Board	� Election of Directors (including 1 seat of independent director) to fill the vacancies

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		� Supplementary amendment to the 3~~rd~~special session of the General Meeting in 2014 for the election of 1 independent director to fill the vacancy
September 18, 2014	The 12~~th~~special session of the 6th term of the Board	� Review of the qualification of the candidate nominated to the seat of independent director � Amendment to essential regulation of AIDC
October 28, 2014	The 10~~th~~session of the 6th term of the Board	� Twelve (12) clauses of the collective agreement of AIDC subject to the approval of the Board before coming into effect � Salary payment to the Chairman and the President � Amendment to essential regulation of AIDC � Amendment to the Plan of F-16 Complex of AIDC � Financing of mid to long-term working capital dedicated by the capital restructuring of the Company � Internal Audit Plan for FY 2015
November 17, 2014	The 13~~th~~special session of the 6th term of the Board	� The Procurement of TACC-19 Plant project � Appointment of the members of Compensation Committee to fill the vacancies
December 12, 2014	The 14~~th~~special session of the 6th term of the Board	� Amendment to essential regulation of AIDC � Business plan for FY2015 � Application for secured loans
January 29, 2015	The 15~~th~~special session of the 6th term of the Board	� Declaration of internal control for FY2014 � Amendment to the Internal Audit Plan for FY2015 � Establishment of a US subsidiary � Amendment to essential regulation � Amendment to the organizational code � Change of shares registration and transfer agent � The principles for disbursement of reward and bonus for senior managers
March 2, 2015	The 16~~th~~special session of the 6th term of the Board	� Election of Executive Directors to fill the vacancies � Election of the Chairman
March 20, 2015	The 11~~th~~session of the 6th term of the Board	� Level-I function heads employment � Appointment of external auditors for FY2015-2016 � Financial report for FY2014 � Proposal for distribution of earnings for FY2014 � Election of the 7thterm of the Board of Directors � Lift the ban of the conflict of interest on the Directors and their representatives elected to the new term of office. � Calling for the regular session of the General Meeting in FY 2015

3.11.2 2014 Major Resolutions of Shareholders’ Meetings and Implementation Status

Date	Session	Motions	Action Status
April 3, 2014	1st special session of the General Meeting	� Amendment to the Articles of Incorporation � Election of Directors and Supervisors to fill the vacancies � Lift the ban of the conflict of interest on the Directors	All motions proposed in the regular sessions and special sessions of the General Meeting in FY 2014 have been resolved in due procedure on record. The amendment to essential management regulations have also been released and announced in FY 2014 in accordance with the internal control system.
June 30, 2014	Regular session of the General Meeting	� Ratification of the amendment to the proposal of the allocation of earnings to cover loss carried forward in FY2012 � Ratification of the operation review and financial report for FY2013 � Ratification of the proposal of the allocation of earnings to cover loss carried forward in FY2013
July 31, 2014	2nd special session of the General Meeting	� Election of 1 independent director to fill the vacancy � Lift the ban of the conflict of interest on the Directors elected for the new term

36

Date	Session	Motions	Action Status
October 17, 2014	3rd special session of the General Meeting	� Amendment to the Articles of Incorporation � Amendment to the parliamentary procedure of the General Meeting � Procedure for the Election of Directors and Supervisors confirmation � Motion of the Regulations Governing the Assumption and Resignation of the Chairman and the President from Office and Pension Management � Amendment to the Procedure for the Acquisition and Disposition of Assets � Amendment to the Procedure for Derivative Trade � Election of Directors (including independent directors) to fill the vacancies. � Lift the ban of the conflict of interest on the Directors and their representatives elected to the new term of office

• 3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors: None.

3.13 Resignation or Discharge of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D

3.13 Resignation or Discharge of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D	3.13 Resignation or Discharge of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D	3.13 Resignation or Discharge of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D	3.13 Resignation or Discharge of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D	3.13 Resignation or Discharge of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D
March 24,2015
Title	Name	Date of Office	Date of Discharge	Cause of Resignation or Discharge
Chairman	Liu,Jieh-Tsern	August 1,2011	March 1,2015	Relieved of Office

4. Information Regarding Independent Auditors

4.1 Audit Fees

Brackets of the Service Charge for the Certified Public Accountants

Accounting Firm	Accounting Firm	Name of CPA	Name of CPA	Name of CPA	Period	Period	Remarks	Remarks
Deloitte & Touche		Li-Tung Wu	Ted Cheng		1~~st~~& 2~~nd~~Seasons, 2014		Internal Rotation of the CPA Firm
Deloitte & Touche		Done-Yuin Tseng	Ted Cheng		3rd& 4thSeasons, 2014
							Unit：NT$ thousands
Bracket			Item	Audit Fee		Non-audit	Fee	Total
1	Under NT$ 2,000,000
2	NT$ 2,000,000~4,000,000
3	NT$ 4,000,000~6,000,000
4	NT$ 6,000,000~8,000,000			4,277		2,831		7,108
5	NT$ 8,000,000~10,000,000
6	Over NT$10,000,000

Unit：NT$ thousands

									Unit：NT$ thousands
Accounting Firm	Name of CPA	Audit Fee		Non-audit Fee				Period	Remarks
			System Design	Company Registration	Human Resource	Others (Note)	Subtotal

37

==> picture [469 x 201] intentionally omitted <==

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

1.Certification of
financial statements
amounted to NT$
1 [st] & 2 [nd]
Li-Tung Wu, 837 thousand.
Seasons,
Ted Cheng
2014 2.Consulting fee for
supervision of
privatization and
Deloitte & listing in TWSE in
4,277 0 0 0 2,831 2,831
Touche internal control
review and
documentation
Done-Yuin 3 [rd] & 4 [th]
amounted to NT$
Tseng, Ted Seasons,
Cheng 2014 1,804 thousand.
3. Service charge for
audit on sales tax
amounted to NT$
190 thousand.
----- End of picture text -----

Note：For service charge beyond auditing service, itemize the detail. If the “miscellaneous” spending of service charges beyond auditing service accounted for 25% of the total service charge beyond auditing service, specify the content of the services in the space provided.

• 4.2 Change in the CPA Firm and the Service Charge for Auditing Spent in the Year of Change was Less than that in the Same Period of the Previous Year: None.

• 4.3 In the Event that the Service Charge for Auditing Falls by 15% of more than the Same Period of the Previous Year, Disclose the Amount Change, the Proportion of Change, and the Causes: None.

5. Information on Change in External Auditors:

The financial statements of AIDC were certified by the certified public accountants of Deloitte & Touche Taiwan under appointment. For the independence of the certified public accountants and the proper implementation of the rotation of duties, Deloitte & Touche has made internal transfer. Effective the 3[rd] quarter of 2014, Deloitte & Touche replaced Li-Tung Wu, CPA, and Ted Cheng, CPA, by Tung-Chun Tseng, CPA, and Ted Cheng as the external auditors to AIDC.

6. AIDC’s Chairman, Chief Executive Officer, Chief Financial Officer, and managers in charge of its finance and accounting operations did not hold any positions within AIDC’s independent audit firm or its affiliates during 2014.

7. Net Change in Shareholding and Shares Pledged by Directors, Supervisors, Managers and Shareholders with 10% Shareholdings or More: None.

8. Related Party Relationship among AIDC’s 10 Largest Shareholders:

Common Share As of 4 / 24 / 2015 (Last Record Date)

Name	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	AIDC Shareholding by Nominee Arrangement	AIDC Shareholding by Nominee Arrangement	Name and Relationship between AIDC’s Shareholders	Name and Relationship between AIDC’s Shareholders	Remarks
	Shares	%	Shares	%	Shares	%	Name	Relation- ship
MOEA	415,345,402	45.73%	N/A	N/A	-	-	-	-
Fubon Life Insurance Co., Ltd.	45,300,000	4.99%	N/A	N/A	-	-	Fubon Insurance Co., Ltd.	Fubon Financial’s Subsidiary Company
Cathay Life Insurance Co.,Ltd.	23,773,000	2.62%	N/A	N/A	-	-	-	-

38

Mercuries Life Insurance Co.,Ltd.	13,941,000	1.53%	N/A	N/A	-	-	-	-
Karst Peak Asia Master Fund	10,698,000	1.18%	N/A	N/A	-	-	N/A	N/A
The New Labor Pension Fund	10,340,000	1.14%	N/A	N/A	-	-	N/A	N/A
Nan-shan Life Insurance Co.,Ltd.	9,335,000	1.03%	N/A	N/A	-	-	-	-
Schroder International Selection Fund Asian Smaller Companies	9,299,000	1.02%	N/A	N/A	-	-	N/A	N/A
Fubon Insurance Co., Ltd.	8,000,000	0.88%	N/A	N/A	-	-	Fubon Life Insurance Co., Ltd.	Fubon Financial’s Subsidiary Company
Matthews Asia Small Companies Fund	7,541,000	0.83%	N/A	N/A	-	-	N/A	N/A

9. Proportion of Overall Shareholding: As of 12 / 31 / 2014

Direct Investment	Ownership by AIDC	Ownership by AIDC	Ownership by Directors, Managers and Directly/Indirectly Owned Subsidiaries	Ownership by Directors, Managers and Directly/Indirectly Owned Subsidiaries	Total Ownership	Total Ownership
	Thousand Shares	%	Thousand Shares	%	Thousand Shares	%
ITEC LLC	(Note)	22.05	－	－	(Note)	22.05
AeroVision Avionics Inc.	4,968	13.09	－	－	4,968	13.09
Metro Consulting Service Ltd.	300	6.00	－	－	300	6.00

Note：a limited liability company without issuing shares. No information on quantity of shares is available.

39

IV. Raising of Capital

1. Capital and Shares

1.1 Source of Capital

1.1.1 Type of Capital March 31, 2015；Unit：Shares

Type of Stock	Authorized Share Capital	Authorized Share Capital	Authorized Share Capital
	Issued Shares	Unissued Shares	Total
Common Stock	908,261,428	591,738,572	1,500,000,000

1.1.2 Capitalization

1.1.2.1 Changes in Capital Stocks in the Last 5 Years March 31, 2015；Unit：NT$ thousands

Month/ Year	Issue Price (Per Share)	Authorized Share Capital	Authorized Share Capital	Capital Stock	Capital Stock	Remarks	Remarks	Remarks
		Shares	Amount	Shares	Amount	Sources of Capital	Capital Increase by Assets Other than Cash	Others
June, 1996	10	1,500,000	15,000,000	905,591,351	9,055,913,507	Valuation in Cash and Assets	NT$ 6,527,455,995	Note 1
June, 1999	10	1,500,000	15,000,000	908,261,429	9,082,614,287	Offset by Rights to Debt	NT$ 26,700,780	Note 2
January, 2000	10	1,500,000	15,000,000	908,261,428	9,082,614,280	Writing Less		Note 3

• Note 1: As per Approval Letter Ji-Ching (85) Shang-Zi No. 109686 issued by the Executive Yuan on June 24, 1996, the Ministry of National Defense was approved to assign assets amounted to NT$ 9,055,913,447 as equity for investment for the establishment of Aerospace Industry Development Corp. together with the investment of six other companies, including Taiwan Power Corporation, a subsidiary of the Ministry of Economic Affairs, amounted to NT$ 10, which made up the total of NT$ 9,055,913,507. Of the pool of investment, non-cash assets amounted to NT$ 6,527,455,995 were allocated, including fixed assets amounted to NT$ 6,526,751,995 and long-term investment amounted to NT$ 704,000.

• Note 2: As per Approval Letter Ji-Ching (88) Shang-Zi No. 088118904, right to debt is permitted to offset the payment on the basis of the written instruction of the Executive Yuan on June 1, 1999, that supports the National Defense Industry Development Fund for the former Aerospace Industry Development Center under the Ministry of National Defense in the purchase of machinery and tools had residual value of NT$ 26,700,780, and shall be allocated as capital stock for AIDC in the budgeting procedure.

• Note 3: As per Approval Letter Ji-Ching (089) Shang-Zi No. 089102830 dated January 28, 2000, capital stocks amounted to NT$ 9,082,614,287 were approved for registration of writing less in 2000 as NT$& is less than the value of 1 share.

1.1.2.2 Raising Capital by Private Placement of Common Shares in the Last 3 Years: No.

1.2 Composition of Shareholders

Common Share As of 4 / 24 / 2015 (Last Record Date)；Units：person/shares/%

Type of Shareholders	Government Agencies	Financial Institutions	Other Juridical Persons	Domestic Natural Persons	Foreign Institutions & Natural Persons	Total
Number of Shareholders	1	15	125	20,732	85	20,958
Shareholding	415,345,402	112,337,000	63,176,861	226,138,660	91,263,505	908,261,428
Holding Percentage(%)	45.73%	12.37%	6.95%	24.90%	10.05%	100.00%

40

1.3 Distribution Profile of Share Ownership

Common Share As of 4 / 24 / 2015 (Last Record Date)

Common Share		As of 4/	24/2015(Last Record Date
Shareholder Ownership (Unit: Share)	Number of Shareholders	Ownership	Ownership(%)
1 ~ 999	344	75,431	0.01%
1,000 ~ 5,000	15,050	28,982,815	3.19%
5,001 ~ 10,000	1,527	13,113,666	1.44%
10,001 ~ 15,000	399	5,259,905	0.58%
15,001 ~ 20,000	412	7,827,854	0.86%
20,001 ~ 30,000	529	13,864,344	1.53%
30,001 ~ 50,000	935	38,069,583	4.19%
50,001 ~ 100,000	1,518	93,202,451	10.26%
100,001 ~ 200,000	91	12,990,307	1.43%
200,001 ~ 400,000	61	18,442,460	2.03%
400,001 ~ 600,000	28	13,640,042	1.50%
600,001 ~ 800,000	13	9,717,500	1.07%
800,001 ~ 1,000,000	6	5,486,000	0.60%
1,000,001 ~ 2,000,000	16	22,502,000	2.49%
Over 2,000,001	29	625,087,070	68.82%
Total	20,958	908,261,428	100.00%

1.4 Major Shareholders

Names, quantity and proportion of shareholding by shareholders holding more than 5% of the shares or the top 10 shareholders by proportion of shareholding:

Common Share As of 4 / 24 / 2015 (Last Record Date)

Shareholders	Total Shares Owned	Ownership(%)
MOEA	415,345,402	45.73%
Fubon Life Insurance Co., Ltd.	45,300,000	4.99%
Cathay Life Insurance Co., Ltd.	23,773,000	2.62%
Mercuries Life Insurance Co., Ltd.	13,941,000	1.53%
Karst Peak Asia Master Fund	10,698,000	1.18%
The New Labor Pension Fund	10,340,000	1.14%
Nan-shan Life Insurance Co., Ltd.	9,335,000	1.03%
Schroder International Selection Fund Asian Smaller Companies	9,299,000	1.02%
Fubon Insurance Co., Ltd.	8,000,000	0.88%
Matthews Asia Small Companies Fund	7,541,000	0.83%

41

1.5 Net Worth, Earnings, Dividends, and Market Price Per Common Share

Units：NT$ dollar/shares

				Units	：NT$ dollar/shares
	Item		2013 (Note 1)	2014 (Note 1)	1/1/2015~3/31/2015 (Note 1)
Market Price Per Share (Note 2)	Highest		Unlisted	42	38
	Lowest		Unlisted	25.15	35.6
	Average		Unlisted	35.45	36.57
Net Worth Per Share	Before Distribution		9.25	11.33	11.79
	After Distribution		9.25	(Note 8)	－
Earnings Per Share	Weighted Average Shares(thousand shares)		908,262	908,262	908,262
	Earnings Per Share(Note 3)	Cum-right	1.40	2.06	0.47
		Ex-right	－	－	－
Dividends Per Share	Cash Dividends		－	(Note 8)	－
	Stock dividend	Capitalization of Retained Earnings	－	－	－
		Capitalization of Capital Surplus	－	－	－
	Accumulated Undistributed Dividend(Note 4)		－	－	－
Return on Investment (Note 2)	Price/Earnings Ratio(Note 5)		Unlisted	17.21	－
	Price/Dividend Ratio(Note 6)		Unlisted	(Note 8)	－
	Cash Dividend Yield(Note 7)		Unlisted	(Note 8)	－

Note 1：The basis of comparison for FY2013, FY2014, and Q1 of FY2015 are the figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively.

Note 2：AIDC stock has not yet been listed in TWSE (GTSM), therefore, no price market is available for reference. Accordingly, related ratios cannot be calculated.

Note 3：If there is a change in the earnings per share from the cum-dividend to ex-dividend points of time due to the release of stock dividend, specify the value before and after the payout of dividend.

Note 4：As a condition for the issuance of equity securities, any undistributed dividend accumulated to the year of surplus for dividend payout shall be disclose in as unpaid dividend cumulated for the current year. Note 5：Price/Earnings Ratio = Average Market Price/Diluted Earnings Per Share Note 6：Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share Note 7：Cash Dividend Yield = Cash Dividends Per Share/ Average Market Price

Note 8：As the date on which the annual report is printed, the amount hasn’t been approved by the General Meeting.

1.6 Dividend Policy of the Company and the Implementation

1.6.1 Dividend Policy of the Company

The Company’s Articles of Incorporation provide that the annual net income after paying income tax should be used first to make up for prior years’ losses, set aside 10% as a legal reserve and set aside a special reserve, but directors who also serve as executive officers of the Company are not entitled to receive bonus to directors. The residual earnings will be appropriated for (i) employee bonus of not less than 1% and not more than 8%; bonus to the directors and supervisors of not more than 1% and (ii) Any balance left over shall be allocated according to the following principles per resolution in the shareholders’ meeting:

• A. Profits may be distributed by taking financial, business, operational, or other related factors into consideration.

• B. Profits of the Company may be distributed by way of cash dividend and/or stock dividend. Since the Company is in a capital-intensive industry with steady growth in its current business, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend, provided however, the ratio for stock dividend shall not exceed 50% of total distribution.

1.6.2 The Proposal for Distribution of Dividend as Resolved in Current Session of the General Meeting

42

AIDC has corporate earnings of NT$ 1,871,503 thousand in FY 2014 of which NT$ 671,870 thousand were allocated to cover the loss carried forward with remainder of NT$ 1,199,633. The appropriations of earnings for 2014 had been proposed by the Company’s board of directors on March 20, 2015. The appropriations and dividends per share were as follows:

• (1) The appropriation of legal reserve: NT$ 119,963 thousand.

• (2) The appropriation of special reserve: NT$ 239,926 thousand. This pool of capital is reserved for the investment in fixed assets for upgrading production capacity.

• (3) Cash dividend is paid at NT$ 0.92/share which totaled NT$ 835,601 thousand.

Note: The appropriations of earning are subject to the resolution in the shareholders’ meeting to be held on June 23, 2015.

1.6.3 Notes to Anticipated Significant Change in the Dividend Policy: None.

1.7 The Effect of Stock Dividend Planned to Release by Current Session of the General Meeting on the Operation Performance and Earnings per Share: None.

• 1.8 Employee Bonus and Remuneration to the Directors and Supervisors

• 1.8.1 The Percentage or Scope of Employee Bonus and Remunerations to the Directors and Supervisors Provided in the Articles of Incorporation

• 1.8.1.1 Remunerations to the Directors and Supervisors: up to 1%.

• 1.8.1.2 Employee Bonus: above 1% and up to 8%.

• 1.8.2 In the event of a discrepancy between the basis for the estimation of employee bonus and remunerations to the Directors and Supervisors, the calculation of the quantity of shares in the distribution of dividend and the actual amount distributed, the accounting of the discrepancy will be:

If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate.

1.8.3 Proposal for Distribution of Earnings Passed by the Board Pending on the Finalization of the General Meeting of Shareholders:

Remuneration to the Directors and the Supervisors is proposed at NT$ 4,199 thousand and employee bonus proposed at NT$ 67,179 thousand.

1.8.4 Proposal for Distribution of Earnings Approved by the General Meeting: None.

• 1.8.5 The difference between the remuneration to the Directors and Supervisors (including the quantity of shares, amount and stock price) of the previous fiscal period actually disbursed, and the recognized employee bonus, and remunerations to the Directors and the Supervisors, and explain the difference, if applicable, and cause of the difference and the response: None.

• 1.9 Repurchase of Company Shares: None.

2. Corporate Bonds (including overseas corporate bonds): None.

3. Preferred Shares: None.

4. Participation in Issuance of Overseas Depository Receipts: None.

5. Employee Stock Options: None.

6. Restricted ESO: None.

7. Merger and Acquisition: None.

8. Issuance of New Shares through Acceptance of Assignment of Shares from other Issuers: None.

9. Capital Utilization Plan and Implementation of the Plan: None.

43

V. Operation Outlook

1. Business Content

1.1 Scope of Business

1.1.1 The Content of Principal Business

Manufacturing and Maintenance of Airplanes and its Parts and Components

Manufacturing and Maintenance of Engine and its Parts and Components

Industrial Technology Services (energy, tracks, information and aviation service)

1.1.2 Proportion of Different Business Lines

AIDC runs 3 categories of business, namely, “Maintenance of Airplanes and Vehiclas”, “Engines”, and “Industrial Technology Services” in the following proportions: Unit：NT$ thousands

strial Technology Services” in the following pro	portions:	portions:	Unit：NT$ thousands	Unit：NT$ thousands
Product Category	2013		2014
	Amount	%	Amount	%
Maintenance of Airplanes and Vehicals(Note 1)	15,296,417	66.26	14,908,055	59.81
Engines(Note 2)	7,287,809	31.57	9,592,657	38.49
Industrial TechnologyServices	502,233	2.17	423,327	1.70
Total	23,086,459	100.00	24,924,039	100.00

Note 1: Airplanes and Vehicles Maintenance: including military and civilian planes and vehicles maintenance. Note 2: Engines: including military and civilian use engines.

1.1.3 Running Products (Services) of the Company

AIDC runs the merchandises (services) for defense, civilian aviation and industrial technology services.

Defense industry includes the manufacturing maintenance, and performance upgrade of domestic military aircrafts, commercial maintenance of air fleets, production of military hardware by private sector, and military aircraft engines.

Civil aviation business includes the design and OEM production of aircraft physical structure and secondary assembly parts, and the design, processing and OEM production of international civilian aircraft engines and parts and components.

Industrial technology services aim at the aviation service and the application of the R&D, design, manufacturing, testing, system integration, and post-delivery service deriving from aerospace technology capacity currently in service.

1.1.4 Development of New Products (Services) under Planning

In the area of defense industry, AIDC plans to develop high performance trainer planes, the next generation jet fighter, and overall maintenance of the fighter jets in new models or fleets, private contractors for military hardware.

In the area of civil aviation, AIDC plans to the parts and components under subcontracts of civilian planes and engines under risk diversification, expansion of the production of engine casing and overall maintenance of the engine.

In the area of industrial technology, AIDC plans to develop green energy engineering, information service in medium to large technology service projects, and develop in the fields of engineering technologies, system integration, and supply chain management.

1.2 Industry Outlook

1.2.1 Industry Outlook and Development

1.2.1.1 Defense Industry

In Taiwan, about 70% of the military planes are about to be retired from service in 10 years. Examples are the F-5 jet fighters, which have already been consumed to expire. For the AT-3 trainer

44

plane, it has been in service for 30 years. The replacement need of these fighter planes is clear. In addition, China has already deployed a new generation of advanced jet fighter along the straits, which posed a security threat to Taiwan.

The defense budget has been on continuous the growth despite being up and down in recent years. The budget is set for supporting the upgrade of the performance of different types of jet fighters and for the replacement of advanced military trainer plane for maintaining the air defense power. The pursuit of the “recruitment” system instead of the conscription system, and the “yong gu scheme” of downsizing the military force would help to the growth of outsourcing business for the maintenance of military aircrafts in the private sector and the privatization of state-owned enterprises.

1.2.1.2 Civil Aviation

Both Boeing and Airbus have forecast sustained growth in global air transportation in the future, with the air travelers turnover rate grown by 4.7% to 5.0% in the next 2 decades. New aircrafts featuring lightweight, fuel efficient, and low pollution will be the mainstream product in market. This also drives for new waves of replacement for new aircrafts by the aviation industry. Composite materials remained an indispensable part in the development. The table showing the forecast of the demand for new aircrafts is shown below with gravity at Asia-Pacific, which accounted for 37% ~40% of the world. Single-aisle plane would be the product of primary demand in market. The forecast of Boeing is shown in the table below. The sustained growth of passenger, cargo, and commercial jet liners also drive the growth of the demand for new engine.

Quantity of demand	Quantity of demand	Total quantity of	Estimated total
in passenger planes	for cargo planes	demand for new	production value
		l
Forecast of			USD5.2
Boeing			trillion
Forecast of			USD 4.6
Airbus			trillion
he 20-year forecast of demand for new planes by Boeing and Airbus
		Sources:
		Sources:

The 20-year forecast of demand for new planes by Boeing and Airbus

Note: Complied by AIDC from sources of Boeing Current Market Outlook 2014-2033, Sep. 2014; and AIRBUS Global Market Forecast 2014-2033, 25 Sep. 2014.

45

1.2.2 The Association of the Upper Course, Middle Course, and Lower Course of Industries

In general, the international aerospace and aircrafts and engines supply chain can be classified into 4 tiers: components/materials supplier (Tier 4), parts supplier (Tier 3), subsystems supplier (Tier 2), and (cabin-mounted equipment, module portion critical components) and main body structure supplier (Tier 1), and aircraft whole engine manufacturers. The international vertical division of labor of the aerospace industry value chain is shown in the chart below.

International Vertical Division of Labor in the Aerospace Industry Value Chain

==> picture [420 x 11] intentionally omitted <==

==> picture [420 x 162] intentionally omitted <==

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

Domestic and foreign final
customers
Strategic alliance
The whole aircraft Primary manufacturers Technology transfer International key aircraft manufacturers
Product supply
Subsystem
manufacturers Strategic alliance International key aircraft
subsystem manufacturers
Product supply
Parts and components
suppliers Strategic alliance International key parts and
components suppliers
Product supply
Components/raw materials
suppliers International key
Strategic alliance components/raw materials
• O/I/D maintenance • Operation/maintenance suppliers
• Product Support training
• Training/ support/simulated • Logistics supply system
assembly • Peripheral support system
Mechanical Power body Aircraft
parts Avionic parts Mechanical parts/ engine/power All types of and parts the sections Structure of
standard parts parts and components, Avionic parts, part/prototype s/standard components/partand components, Mechanical parts and components mechanical parts of all types of materials/protogype parts/raw The standard materials paints/raw extensions/ structures, components of the Parts and
----- End of picture text -----

Sources: complied by AIDC

In the area of aircraft manufacturing, Boeing, Airbus, and commercial plane manufacturer Bombardier are the manufacturers of the whole aircraft. GE, Rolls-Royce, Snecma, Pratt & Whitney, and Honeywell and their subsidiaries are major aircraft engine manufacturers. Only Boeing, Airbus and Bombardier have the capacity of assembling the whole aircraft engines and the whole aircrafts.

AIDC is a key member of the global aerospace industry supply chain, and is the leader in the

aerospace industry of Taiwan providing aircraft body parts and engine subcomponents and parts for the international aircraft market. AIDC has also established a complete network of supply for the speedy upgrading of the entire aerospace industry of Taiwan. AIDC takes orders from major international firms. Further to manufacturing and assembly at its Taichung, Sha Lu and Gang Shan Complex etc., AIDC outsources part of its operation to vendor firms for parts and components. The relation of the upper course, middle course, and lower course of the aerospace industries in Taiwan is shown in the chart below.

46

The Association of the Upper Course, Middle Course, and Lower Course Industries of the Aerospace Industry of Taiwan

==> picture [386 x 20] intentionally omitted <==

==> picture [386 x 19] intentionally omitted <==

==> picture [386 x 201] intentionally omitted <==

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

Body structure Engine Interior Avionics Subsystems
Front Air inlet Air kitchen system Navigation system Undercarriage
system
Middle Compressor Seats Communication system Hydraulic system
Rear Combustion chamber Lighting system Dash board system control systemEnvironment
Wing Turbine Emergency escape Electric power
system
Cargo equipment
Tail Gear box system Aviation control
system
Passenger entertainment
system Internal
Vendor system with AIDC as communication system
the center provides Tier 2 of
the international supply chain
and system parts
• Aircraft body structure vendor
system
Tier 3 parts and components • Engine parts and components
vendor system
• Tools vendor system
----- End of picture text -----

Sources: complied by AIDC

1.2.3 Different Development Trends of Products

In national defense, most of the jet fighters are at the brink of retirement from service. As such, the Ministry of National Defense has budgeted for the purchase of new fighters for replacement, and for long-term maintenance and performance improvement of the jet fighters and trainer planes currently in service. Under the new policy of “recruitment” of armed forces instead of conscription, the maintenance of military aircrafts has been outsourced to private firms. This trend will be developed further in stable paces.

In civil aviation, both Boeing and Airbus forecast that lightweight, fuel efficient and low pollution new aircrafts will be mainstream product in market. This will drive for further demand for replacement of new aircrafts in the aviation industry of which composite materials are an indispensable part of the development. The continued demand for passenger planes, cargo planes, and commercial jet liners will also stimulate for a higher demand in the engine market.

In industrial technology service, AIDC supports the government policy of prevention of disasters prevails the relief after disasters and the national energy saving and carbon reduction, and intensifies its operation in aviation service for atmospheric testing and measurement in disaster prevention and energy technology service.

1.2.4 The Competition

1.2.4.1 Defense Business

The improvement of the performance and subsequent maintenance of the IDF “Ching Kuo” and AT-3 trainer planes developed and made by AIDC give AIDC an edge in the competition. In addition, AIDC has already participated in and have experience of the maintenance of military aircrafts and military installation outsourcing for services in the private sector, which give AIDC additional momentum in the competition.

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1.2.4.2 Civil Aviation Business

Key aircraft and engine manufacturing in Europe and America adopted global division of labor in production and established the parts and components supply chain system. Currently, the newly emerged economies penetrated into the processing of particular part of aircraft and engine at very low price under the support of their governments. This poses a threat in the competition. For avoiding this kind of cutthroat competition, AIDC has already oriented towards the development of system parts and components and seek to engage in the value addition of aircraft segments and engine components, and proactively launched the operation of the center-satellite operation system so as to build up an edge in the competition.

1.2.4.3 Industrial Technology Service Business

AIDC mainly use its aerospace technology on hand to provide this service. In supporting the government in the development of strategic industries and the demand for large-scale system engineering in the private sector, AIDC develops relevant products and services and has already have an edge in the competition.

1.3 R&D Expenses and Result, Orientation in the Future

1.3.1 The R&D expenses in the last 2 years are shown in the table below. In the future, more

funding will be injected into R&D for fine-tuning the core competence:

Unit：NT$ thousands

		Unit：NT$thousands
Item	2013	2014
R&D Expenditures	390,794	659,149
Net Revenue	23,086,459	24,924,039
% of Revenue	1.69%	2.64%

1.3.2 The technologies or products developed in FY 2014 are shown in the table below:

Item	Technologyor Product	Result
1	Installation of the General Purpose Track Driving Simulator Software Module Design	The result has been applied to the rapid transit system of Thailand.
2	Upgrade the Technology for the Manufacturing of Thin Engine Case	Establishment of the processing cutting power under the application of NC program and the life span parameters of the cutting knives. This has been successfullyapplied topartsproduction.
3	Establishment of Special Process Application and Product Development Plan	Completed the production of turbo blade and has been sent to the foreign customers for testing and validation. This success will helpto bringin new business.
4	Lean Design of Mobile Production Line	There are 6 projects in progress and have demonstrated the result of cost reduction in operation.
5	Upgrade the Process Capacity of Composite Materials and Refinement Plan	Completed the conversion of the manual stacking process to automatic stacking process. In the future, it could be applied toperformance ofprogram contract.

1.3.3 R&D Direction in the Future

• 1.3.3.1 Development of New Products: invest in the research and manufacturing of advanced trainer planes and jet fighters to meet defense needs.

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• 1.3.3.2 Development of Critical Technology Upgrading: upgrade the design of aircraft structure composite materials and parts of non-composite materials, manufacturing, and assembly technology. Upgrade the capacity in the development of engine parts and components and production technology. Development of the capacity in logistics support and maintenance of aircraft. Upgrade and refinement of the core testing capacity of aircraft system.

• 1.3.3.3 Refinement of Production Process: refinement of the process for the production, assembly and automation of the parts and components for aircraft structures and engines.

1.4 Business Development Plans in the Long and Short Run

1.4.1 Defense Business

• 1.4.1.1 Short Run: upgrade the performance of all types of jet fighters in desired quality and on schedule, and seek maintenance contracts of all types of aircrafts fleets and the integration of self-developed models.

• 1.4.1.2 Long Run: seek the contract for the remodeling of the advanced trainer planes of the ROC air force and related business for the new generation jet fighters, develop the business for the commercial maintenance of all types of military aircrafts, shop maintenance and repairs and the repairs and maintenance work at 1st and 3rd Command.

1.4.2 Civil Aviation Business

• 1.4.2.1 Short Run : continue lean production and capacity expansion, and expand the scale of operation and bring in more business profit through joint call for customer orders or outsourcing for manufacturing.

• 1.4.2.2 Long Run: fortify the relation of the international supply chain system, and use the core technology and prowess to its entirety to expand value adding business.

1.4.3 Industrial Technology Service

• 1.4.3.1 Short Run : further development of the aviation service of atmospheric testing and measurement for the prevention of disasters and green engineering business.

• 1.4.3.2 Long Run: extend the application of aviation technology to support the development of national strategic industries and the demand of the large-scale engineering and industrial upgrading of the private sector, and assist the development of related industries and services.

2. Market and Industry Outlook

2.1 Market Analysis

2.1.1 The Regions and Targets of Sales (Supply) of Premium Products (Services):

Product Category	Area	Customers
Defense	Domestic	Ministryof National Defense,Ministryof Interior.
Civil Aviation	Foreign	Manufacturing of aircraft body: Aerospace manufacturing giant firms in Europe, America, and Japan, such as Boeing, Airbus, Bombardier, Bell Helicopter, Sikorsky, Alenia, Spirit, and Mitsubishi. Engines: Engine manufacturing giant firms in Europe, America, and Japan, such as GE, Rolls-Royce, Snecma, Pratt & Whitney, and Honeywell.
Industrial Technology Service	Domestic	National Aerospace Center, Taiwan Railway Corporation, Taipei Rapid Transit Corporation,Autolease Inc.,Tung’s TaichungMetroHarbor

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Hospital, Central Weather Bureau. Foreign Bangkok rapid transit system in Thailand.

2.1.2 Market Share

2.1.2.1 Defense Business

AIDC has the capacity in full-range logistics support service of AT-3 and IDF and the advantage of the maintenance of the aforementioned aircrafts and engines, performance upgrade, and fleet maintenance. In addition, the advocacy of the Ministry of National Defense for outsourcing private contractors for the maintenance of different types of military aircraft and the government-owned and contract-operated military industry plants makes AIDC an indispensable supplier.

2.1.2.2 Civil Aviation Business

AIDC has emerged as a strategic partner of major aerospace industrial firms of the world and is the leader of aerospace industry of Taiwan. AIDC has already been accredited for different parts and components in the aerospace industry and has good experience in international cooperation and mainly secure the contracts of renowned international giant firms. The international market is so big that the market share is conditioned by the sales of products of the giant firms. As such, there is no information on the market share of the parts and components in the aerospace industry available for reference.

2.1.2.3 Industrial Technology Service

AIDC provides industrial technology service on the foundation of aerospace technology, and expands and applies the technology to tracks, automobile electronics, energy technology, and aviation service. However, the income from this business only account for about 1.7% of the revenue. As such, the shares in respective markets have not been estimated.

2.1.3 The Supply and Demand in the Market and Growth in the Future

2.1.3.1 Defense Business

The use of jet fighters by the ROC Air Force and the combat need in the future will be associated with the combat power of the air force and the upgrade of the availability of the force. As such, AIDC has the opportunity for growth in the procurement of weaponry for the armed forces of ROC, the maintenance of different types of military aircraft, and the government-owned and contract-operated business.

2.1.3.2 Civil Aviation Business

The forecast of international giant aerospace manufacturing firms such as Boeing, Airbus, Bombardier, Rolls-Royce and the professional assessors indicated stable growth in the volume of air traveling passengers and cargos in the future worldwide. This will drive the demand for aircrafts. As such, they are optimistic of the trend of development for the aerospace industry.

In responding to the development trend of lightweight, energy and fuel efficient aircrafts in the aerospace industry, AIDC has invested in the TACC and engine casing center to med the strong demand in market. There is the opportunity for growth in the manufacturing of aircraft body and engine parts.

2.1.3.3 Industrial Technology Service Business

The government makes positive effort in the advocacy of regenerated energy for environmental protection. As such, green engineering has the opportunity for further growth. The economic booming in Southeast Asia drives for more public installations and transportation

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facilities. There is the opportunity for the growth of the mechanical and electrical integration.

2.1.4 Competitive Edge

2.1.4.1 Defense Business

AIDC has the capacity in integrated design, manufacturing and logistics support in maintenance of the whole aircraft, and can help to extend the life span, upgrade the performance, research and manufacture of new jet fighters, commercial maintenance of military aircrafts, and the state-owned and private-run business.

2.1.4.2 Civil Aviation Business

The years of joint venture with international giant firms enabled AIDC to establish world-class engineering design capacity in body structure, advanced composite materials, and avionics for civilian aircraft, and support the needs in the development of various business areas with flexible design of production process.

AIDC has been accredited the ISO 9001 and AS9100 systems and the quality accreditation system of Boeing, Airbus, Bombardier, Sikorsky and Bell, and has developed positive partnership with the aforementioned aerospace giant firms.

In the area of aircraft engine, the manufacturing technology capacity of engine casing of AIDC has been recognized by the international aircraft engines giant firms, and AIDC has been accredited the quality accreditation system of the area of aircraft engine as well. Currently, AIDC mainly manufacturing engine casing, and is engaged in essential partnership with the top 5 engine manufacturers including GE, Honeywell, Pratt & Whitney, Rolls-Royce of the UK, and Snecma in supply.

2.1.4.3 Industrial Technology Service Business

AIDC has the experience of developing large-scale system, engineering integration technology and full capacity of performance. All personnel in testing, research and development, production and manufacturing are well-experienced.

2.1.5 Factors Favorable and Unfavorable for Development and the Response

2.1.5.1 Favorable Factors

• A. Maintenance of self-reliance in national defense that makes the aerospace industry a strategic industry in national development.

• B. The strong demand for new aircrafts worldwide makes Asia-Pacific region the biggest market for the aerospace industry.

• C. Light weight, fuel efficient, and low emission aircrafts and engines has emerged as the new trend.

2.1.5.2 Unfavorable Factors and Response

• A. The rise of the newly emerged economies posed a threat of low cost competition and displacement of purchase orders.

Response

AIDC will upgrade and refine the core capability of research and development, design and manufacturing, and launch the production lean process to further control cost, and to upgrade operation efficiency and enhance competitiveness.

In addition, AIDC will keep abreast of the dynamics and development trend of the industry, lead the vendors to continue the investment in research and development, and win a higher position in the supply chain of the international aerospace industry supply chain, upgrade its technological know-how and production process to reduce cost, enhance competitive power, and reduce the risk of cut throat competition in the industry.

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2.2 The Primary Purpose of Main Products and the Production Process

2.2.1 Primary Purpose

==> picture [415 x 390] intentionally omitted <==

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

Product Category Purpose
Defense, combat training, civilian aircraft, civilian helicopters, aircraft
Maintenance of Airplanes
aviation control/navigation/monitoring, maintain normal
and Vehicals
operation/function of aircrafts/engines/avionics within the life span.
Engines Engine for aircrafts, industrial use engines.
Large-scale engineering system is applicable to national infrastructure,
aerospace technology is applicable to the research and manufacturing
Industrial Technology
of high value addition industry and common household
Services
products/technology services to upgrade the industrial level of
Taiwan.
Customer
eProcess
Market Satisfaction
analysis
Self inspection
Sales Production
orderstake developmentProcess Production planning procurementMaterials manufacturingand assuranceQuality performanceProject
Commercial engineeringProduction Production planning managementMaterials Production line assuranceQuality Commercial projects
Industrial Outsourcing planning Procurement manufacturingParts NDT & Lab Military
Military Development of engineeringsuppliers Production scheduling Logistics control Parts-inspection Development and accreditation of suppliers projects
managementSupplier Production control Quality audit
Finance and Corporate General Affairs and
Human Resources Accounting Management IT ESH management
----- End of picture text -----

2.2.2 Production Process

2.3 The Supply of Key Materials/Equipment and Apparatus

AIDC is an aerospace manufacturer and relies on qualified suppliers designated by the customers in the supply of direct materials given its specific nature. The materials include the materials for the manufacturing of aircraft body structure, engines and chemical substances (including composite materials). For securing better terms and conditions of supply, AIDC usually entered into long-term contracts with the suppliers in line with the needs of the customers. The supply of key materials is shown in the table below:

Name of key	Supplier	Status of supply
material
Metals	AMS BRALCO TMZ UAC FUTURE	The key suppliers of aluminium, steel, titanium plate, sheet, tube, rod, and molded forms of metals in market.
Non-metals	CYTEC HEXCEL 3M PPG EURO	The key suppliers of composite materials, rubber, paints, and cell devices in market.
Standard metal parts	WESCO KLX ALCOA TE	The key suppliers of standard metal parts, electronic parts.

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	PEERLESS
Finished items and standardized parts	C.F.W. S.F.C. PCC F.R.C. L.M.O.C.	As per the request of the customers.

• 2.4 The Names of the Customers Each Accounted for More than 10% of the Purchase (Sales) and the Amount and Proportion of Purchase (Sales) in any of the Last 2 Years, and the Reasons for the Changes. Use Code Names for Customer Name and Counterparty Required by the Agreements to Keep Confidential and these Parties are not Related Parties to AIDC.

2.4.1 The List of Customers Each Accounted for More than 10% of the Net Purchase in the Last

2 Years

AIDC did not have any particular supplier in FY 2013, FY 2014 and Q1 of FY 2015 that accounted for more than 10% of the net purchase.

2.4.2 The List of Customers Each Accounted for More than 10% of the Net Sales in the Last 2 Years:

Unit：NT$ thousands/%

									Unit：NT$ thousands/%	Unit：NT$ thousands/%	Unit：NT$ thousands/%	Unit：NT$ thousands/%
	2013				2014				1/1/2015~3/31/2015
Item	Customer	Amount	% of 2013 Total Net Revenue	Relation to AIDC	Customer	Amount	% of 2014 Total Net Revenue	Relation to AIDC	Customer	Amount	% of 2015 Total Net Revenue	Relation to AIDC
1	A	9,506,008	41.18	None	A	9,072,920	36.40	None	A	1,828,272	31.31	None
2	B	3,522,356	15.26	None	B	4,182,591	16.78	None	B	1,074,029	18.39	None
	Others	10,058,095	43.56		Others	11,668,528	46.82		C	596,287	10.21	None
									Others	2,341,329	40.09
	Net Revenue	23,086,459	100.00		Net Revenue	24,924,039	100.00		Net Revenue	5,839,917	100.00

Note 1: AIDC is in good relationship with the aforementioned 2 major customers and there has been no significant change in the last 2 years.

Note 2: The aforementioned financial information is based on the approved figures of NAO for FY 2013 and on the audited figures of CPA for FY 2014 and FY 2015 Q1.

2.5 Production Volume and Value in the Last 2 Years: Unit：NT$ thousands

Year Val. & Vol. Product	2013	2013	2013	2014	2014	2014
	Production Capacity	Production Volume	Production Value	Production Capacity	Production Volume	Production Value
Maintenance of Airplanes and Vehicles	－	－	12,886,416	－	－	13,787,947
Engines	－	－	6,994,728	－	－	8,417,489
Industrial Technology Services	－	－	385,116	－	－	329,313
Total	－	－	20,266,260	－	－	22,534,749

Note 1: The items for delivery included self-made parts, spare parts, support equipment, documents, software, and technology service. Due to the nature of the business, there are no standard items that make the estimation of production capacity and momentum.

• Note 2: The items of engines for delivery including backup items, service, OEM order for commercial use engines in foreign countries.

• Note 3: The aforementioned financial information is based on the approved figures of NAO for FY 2013 and on the audited figures of CPA for FY 2014.

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2.6 The Sales Value and Volume in the Last 2 Years: Unit：NT$ thousands

Year Val. & Vol. Product	2013	2013	2013	2013	2014	2014	2014	2014
	Domestic		Foreign		Domestic		Foreign
	Qty	Amount	Qty	Amount	Qty	Amount	Qty	Amount
Maintenance of Airplanes and Vehicles	－	8,139,463	－	7,156,954	－	6,858,672	－	8,049,383
Engines	－	1,216,672	－	6,071,137	－	2,153,763	－	7,438,894
Industrial TechnologyServices	－	441,024	－	61,209	－	375,788	－	47,539
Total	－	9,797,159	－	13,289,300	－	9,388,223	－	15,535,816

Note 1: The items for delivery included self-made parts, spare parts, support equipment, documents, software, and technology service. Due to the nature of the business, there are no standard items that make the estimation of production capacity and momentum.

• Note 2: The items of engines for delivery including backup items, service, OEM order for commercial use engines in foreign countries.

• Note 3: The aforementioned financial information is based on the approved figures of NAO for FY 2013 and on the audited figures of CPA for FY 2014.

3. Employee Profiles in the Last 2 Years to the Date this Report was Printed

	Year	2013	2014	1/1/2015~ 4/24/2015
Job	VP and higher	6	6	6
	Level I Executives	23	22	20
	Others	3,183	3,124	3,555
	Total	3,212	3,152	3,581
Average Age(years)		50.7	50.9	49.3
Average Years of Service(years)		16.0	16.5	14.5
Education	Ph.D.	0.6%	0.6%	0.5%
	Master’s	19.2%	20.1%	18.74%
	Bachelor’s	26.4%	26.1%	28.96%
	Other Higher Education	31.3%	30.8%	29.82%
	High School	21.5%	21.3%	21.03%
	Junior High and below	1.0%	1.1%	0.95%

4. Information on Expenditures for Environmental Protection

In the last 2 years to the date this report was printed, the loss incurred from pollution to the environment and the total amount of penalty, with disclosure of the plan to tackle with the pollution problem and the possible expenditures:

• 4.1 The Environmental Protection Bureau of Kaohsiung conducted an audit on the waste water blowdown from the chemical treatment facility at Gang Shan Complex on May 28 2013 and took sampling. The testing result for the oxygen content of the sample went beyond the required level of regulation. AIDC received an official notice on July 23 with a fine of NT$110,000.

• 4.2 Taichung Complex had generated hazardous industrial waste, silver and its compound (total silver), declared of the storage of these waste in April 2011, and petitioned to the Environmental Protection Bureau of Taichung for an extension of the storage period on July 5 2012. The Bureau granted the petition on July 12 on record. However, the Bureau informed AIDC on January 2 2014 that the period for the storage of this hazardous waste is 1 year, and AIDC applied for the extension of storage period was later than 1 year. The petition was supposed to be made 2 months prior to the expiration date. As a result, a fine of NT$

54

60,000 was imposed and AIDC has to receive 2 hours of training course on environmental protection.

• 4.3 In 2012, the underground water under Taichung Complex site was found contaminated. AIDC then installed the monitoring well inside and outside the Complex to monitor the quality of underground water, commissioned a professional firm to conduct a detailed investigation within the area of pollution, and prepared an effective plan to deal with the pollution issue for the Authority’s approval. The Environmental Protection Bureau of Taichung approved the “Taichung Complex Site No. 1 Underground Water Pollution Clean Up Plan” on June 26 2013. This plan will cost NT$ 260.84 million and the treatment project is expected to be completed in October 2018. The plan is summarized as below:

• 4.3.1 The treatment activities for 2014 have been accomplished on December 27 2014. As for, the treatment operations to improve TCE contamination have already been started as early as on May 1 2014. AIDC has submitted the progress reports on water pollutant treatment for Q4 2013, Q1, Q2 and Q3 of 2014 under the “Taichung Complex Site No. 1 Underground Water Pollution Clean Up Plan” to the Environmental Protection Bureau of Taichung for status review. All the reports have been approved and kept on file. The remedy work will be in progress with full effort until 2018.

• 4.3.2 From 2014 onward, AIDC conducts Resident Health Risk Evaluation and the examination report was sent to the Bureau of Health for further actions.

5. Labor-management Relation

• 5.1 Specify the Welfare Policy, Continuing Education, Training, and Retirement Systems and the Status of Implementation, Labor-management Coordination and the Measures for the Protection of the Rights and Privileges of the Employees

5.1.1 Welfare Policy of the Company

• 5.1.1.1 Welfare Policy: provide all employees with labor insurance, national health insurance and accident insurance with NT$4 million insured. General physical examination for all employees and special physical examination for employees engaged in special duties. Prices and awards are also offered.

• 5.1.1.2 Employee Welfare Committee: AIDC has established the Employee Welfare Committee in accordance with the Employee Welfare Fund Statue for coordination of all fringe benefits for the employees, supervise and advocate all group activities with subsidy. In addition, an annual budget has been prepared for the planning of welfare to subsidize employees in matrimony, funeral, sickness, maternity and paternity. Gifts were also granted on birthdays and festivities. Recreational activities, parent-children events, and group activities were organized for the employees as well.

• 5.1.1.3 Psychological health care has also been an essential policy of AIDC. For this reason, the Company has established the Employee Assistance System (EAS). The EAS integrates the resources of labor safety, human resources, psychological counseling, employee welfare and community to form a network of care. It provides timely aid to the employees by funding assistance for hospitalization, concern for the decease of employees and families, medical

55

expenses and major disasters. It also helps to launch the Employee Assistance Programs (EAPs) , including: concern and service for the new employees, personal or family counseling, balance between work and living, psychosocial health assessment, and assistance, concern for employees in sickness and injury and group support, concern for the employees at retirement.

• 5.1.1.4 The Regulation and Operation of the Committee Against Sexual Harassment: AIDC has instituted the guideline for filing complaints and punishment of sexual harassment at workplace, and has established a Sexual Harassment Complaints Committee in 2002 for the prevention of sexual harassment with positive effort.

• 5.1.1.5 Compliant Response Committee: AIDC has instituted the regulation governing complaints from the employees. This committee seeks to protect the legitimate rights of the employees and respond to the complaints thereof. This function helps to improve labor-management relation.

• 5.1.1.6 Creation of a Friendly and LOHAS Workplace: AIDC highly treasures the value and spirit of human right and equality of both sexes, and makes proactive effort in materializing such rights through its internal code for nurturing an environment of sexual equality. In addition, AIDC also employs social misfortunes and pursue safety and health management at workplace, bolster consensus and identification as a team, motivate the employees and enhance work efficiency for the creation of a workplace preferred by all employees.

5.1.2 Employee Training and Continuing Education

AIDC highly values the development and training of good people, and has made “technology advancement, professional standing, learning by all, life-time education” as its training policy:

• 5.1.2.1 Employee Training: AIDC provides training for the employees through orientation of new employees and on-the-job training. The gravity of orientation for the new employees is the merge with AIDC culture and understanding and the job skills required for all duties at entry level. From the day of registration for duty, new employees have to undergo a training program of general duties and professional duties in line with the probation （from3 to 6 months）. The training aims at developing the potential of the new employees to adapt to the new work environment and perform the assigned duties with competence. Current employees will receive internal and external training arranged in accordance with the corporate strategic objective, legal rules, organizational development, business contracts need, and career development of the employees, including corporate planning, lean management, inventory management, financial management, project management, contract negotiation, and other critical management skills, and also engineering development, production and manufacturing, production process, machinery processing, process control, quality inspection, aircraft maintenance, avionics repair and maintenance, aviation safety and related professional training. These skills would be essential to ensure all officers and employees of related business are competent for the duties. In addition, the focus of current year is to active development of 5 categories of engineer-class personnel in sales, project,

56

production and manufacturing, quality assurance, and engineering R&D, and foremen, totally 6 cateories of personnel and also foremen in their career development so that the gravity of core business in 2015 will be the strategic development and training of human resources. This will help to upgrade the quality of people and competitive power of the Company.

• 5.1.2.2 On-the-job Training: AIDC selects employees of good standing and with high potential to receive domestic and overseas full-time education or part-time education every year, and is engaged in cooperative education program with a number of universities. AIDC also subsidizes and encourages employees to engage in continuing education, participation in the test of foreign language proficiency, and get licensing of relevant technical skills. AIDC spares no effort to encourage employees to engage in lifetime learning, self-development and upgrade of professional standing at all times.

5.1.3 Employee Retirement Plan and Implementation

5.1.3.1 Retirement under the Old System

• A. According to the “AIDC Employee Retirement, Pension, and Layoff Guideline”, the pension for retirement of AIDC employees could be claimed from the account at the Bank of Taiwan.

• B. The “Employee Pension Reserve Monitoring Committee” was established pursuant to Article 56 of the Labor Standards Act. The “Employee Pension Reserve Monitoring Committee” convenes once every 3 months for reviewing and monitoring the contribution to pension fund and the balance of pension reserve for the employees.

• C. AIDC appoints an actuarial professional to conduct actuarial calculation on the pension fund, and allocates pension expenses for deposit at the special pension account at the Bank of Taiwan in compliance with legal requirements (allocation of 2~15%).

5.1.3.2 Retirement under the New System

All employees under the new system are subject to the rules of the “Labor Pension Act” thereby contributing 6% of their monthly salary to their individual special pension accounts at the Labor Insurance Bureau.

5.1.4 Labor-management Agreement and the Pursuit of Policy for the Protection of Labor Rights

• 5.1.4.1 AIDC entered into a collective agreement with the labor union for the protection of labor rights and make labor-management relation more stable and harmonious in August 21 2014.

• 5.1.4.2 AIDC strongly attaches to the principle of labor-management harmony and the advocacy of labor-management cooperation thereby spares no effort to cultivate channels for communications with the employees for protecting their rights. In addition, AIDC also holds labor-management meetings pursuant to Article 83 of the Labor Standards Act and the “Regulations Governing Labor-Management Meetings” for building up consensus.

• 5.2 Loss Caused by Labor-management Disputes in the Last 2 years to the Date this Report was Printed

AIDC always treasures labor-management harmony and there has been no significant loss

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caused by labor-management disputes deriving in the last 2 years to the date this report was printed. It is expected that no significant loss may incur in foreseeable years from labor-management disputes.

6. Major Agreements

6. Major Agreements
ContractingParty	Principal Content
Airbus	Commercial aircraft components andparts manufacturing program
Alenia	Commercial aircraft components andparts manufacturing program
Bell	Helicopter components andparts manufacturing program
Boeing	Commercial aircraft components andparts manufacturing program
Bombardier	Commercial aircraft components andparts manufacturing program
GE	Engineparts manufacturing program
GKN	Commercial aircraft components andparts manufacturing program
Honeywell	Engineparts manufacturing program
KHI	Commercial aircraft components andparts manufacturing program
Latecoere	Commercial aircraft components andparts manufacturing program
MITAC	Commercial aircraft components andparts manufacturing program
Pratt & Whitney	Engineparts manufacturing program
Rohr,Inc	Commercial aircraft components andparts manufacturing program
Rolls-Royce	Engineparts manufacturing program
Sikorsky	Helicopter components andparts manufacturing program
Spirit	Commercial aircraft components andparts manufacturing program
Ministry of National Defense R.O.C.	GOCO (Government Owned, Contract Operated) program for 2nd Air Force Logistic Command GOCO program for 11th Maintenance & Supply Group Enhancement and maintenanceprogram for Indigenous Defensive Fighter

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VI. Financial Position

1. Condensed Financial Statement Covering the Last 5 Years

1.1 Condensed Balance Sheet and Comprehensive Income Statement

1.1.1 Condensed Balance Sheet and Comprehensive Income Statement - IFRSs

1.1.1.1 Condensed Balance Sheet:

1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:	1.1.1.1 Condensed Balance Sheet:
Unit：NT$ thousands
Fiscal Year Title		Financial Information Covering the Last 5 Years
		2010	2011	2012	2013	2014	2015 Q1
Current Assets		－	－	12,940,440	14,830,381	18,942,251	21,450,116
Financial Assets on the Basis of Cost–Noncurrent		－	－	46,200	46,200	46,200	46,200
Investment Accounted for under the Equity Method		－	－	239,031	304,107	482,193	491,811
Real Properties, Plants, and Equipment		－	－	5,231,047	5,114,956	4,853,536	4,880,752
Intangible Assets		－	－	1,012,225	830,455	339,894	386,159
Other Assets		－	－	91,121	449,168	662,026	528,439
Total Assets		－	－	19,560,064	21,575,267	25,326,100	27,783,477
Current Liabilities	Cum-dividend	－	－	5,967,845	6,658,430	12,932,282	15,010,777
	Ex-dividend	－	－	5,967,845	6,658,430	(Note 3)	－
Non-current Liabilities		－	－	6,539,127	6,517,738	2,100,316	2,060,473
Total Liabilities	Cum-dividend	－	－	12,506,972	13,176,168	15,032,598	17,071,250
	Ex-dividend	－	－	12,506,972	13,176,168	(Note 3)	－
Shareholders’ Equity Attributable to the Parent Company		－	－	7,053,092	8,399,099	10,293,502	10,712,227
Capital Stock		－	－	9,082,615	9,082,615	9,082,615	9,082,615
Capital Surplus		－	－	－	－	－	－
Retained Earnings	Cum-dividend	－	－	(2,010,992)	(671,870)	1,199,633	1,623,060
	Ex-dividend	－	－	(2,010,992)	(671,870)	(Note 3)	－
Other Equity		－	－	(18,531)	(11,646)	11,254	6,552
Treasury Stock		－	－	－	－	－	－
Uncontrolled Equity		－	－	－	－	－	－
Total Equity	Cum-dividend	－	－	7,053,092	8,399,099	10,293,502	10,712,227
	Ex-dividend	－	－	7,053,092	8,399,099	(Note 3)	－

Note 1: The basis of comparison for FY2012, FY2013, FY2014, and Q1 of FY2015 are the figures approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively.

Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

Note 3: As the date on which the annual report is printed, the proposal for distribution of earnings in 2014 hasn’t been approved by the General Meeting.

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1.1.1.2 Condensed Comprehensive Income Statement:

Unit：NT$ thousands

	Unit：NT$ thousands	Unit：NT$ thousands	Unit：NT$ thousands	Unit：NT$ thousands	Unit：NT$ thousands	Unit：NT$ thousands
Fiscal Year Title	Financial Information Coveringthe Last 5 Years
	2010	2011	2012	2013	2014	2015Q1
Revenue	－	－	22,603,096	23,086,459	24,924,039	5,839,917
Gross Profit	－	－	2,345,318	2,266,580	2,765,133	766,957
OperatingIncome	－	－	1,476,365	1,264,424	1,454,433	576,848
Non-operating Income and Expenses	－	－	(236,249)	108,394	384,173	(66,366)
Earnings before Taxation	－	－	1,240,116	1,372,818	1,838,606	510,482
Earnings for Continued Operations	－	－	1,240,116	1,275,864	1,871,503	423,427
Earnings for Discontinued Operations	－	－	－	－	－	－
Earnings in Current Period	－	－	1,240,116	1,275,864	1,871,503	423,427
Other Incomes in Current Period(after taxation)	－	－	(386,640)	70,143	22,900	(4,702)
Total Incomes in Current Period	－	－	853,476	1,346,007	1,894,403	418,725
Earnings Attributable to Parent Shareholders	－	－	1,240,116	1,275,864	1,871,503	423,427
Earnings Attributable to Uncontrolled Equity	－	－	－	－	－	－
Total Comprehensive Incomes Attributable to Parent Shareholders	－	－	853,476	1,346,007	1,894,403	418,725
Total Comprehensive Incomes Attributable to Uncontrolled Equity	－	－	－	－	－	－
Earningsper Share(NTD)	－	－	1.37	1.40	2.06	0.47

Note 1: The basis of comparison for FY2012, FY2013, FY2014, and Q1 of FY2015 are the figures approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively.

Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

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1.1.2 Condensed Balance Sheet and Income Statement – ROC SFAS

1.1.2.1 Condensed Balance Sheet:

Unit：NT$ thousands

Fiscal Year Title	Fiscal Year Title	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years
		2010	2011	2012	2013	2014
Current Assets		14,710,491	14,779,813	12,940,039	－	－
Funds and Investment		379,628	350,302	312,327	－	－
Fixed Assets		5,799,662	5,487,708	5,295,073	－	－
Intangible Assets		52,396	31,501	50,988	－	－
Other Assets		956,554	699,869	961,638	－	－
Total	Assets	21,898,731	21,349,193	19,560,065	－	－
Current Liabilities	Cum-dividend	9,532,495	8,529,053	5,731,766	－	－
	Ex-dividend	9,532,495	8,529,053	5,731,766	－	－
Long-term Liabilities		3,248,455	2,309,945	1,556,054	－	－
Other Liabilities		2,594,581	2,973,157	3,779,626	－	－
Total Liabilities	Cum-dividend	15,375,531	13,812,155	11,067,446	－	－
	Ex-dividend	15,375,531	13,812,155	11,067,446	－	－
Capital Stock		9,082,615	9,082,615	9,082,615	－	－
Capital Surplus		452,152	0	0	－	－
Retained Earnings	Cum-dividend	(3,003,364)	(1,423,462)	(175,165)	－	－
	Ex-dividend	(3,003,364)	(1,423,462)	(175,165)	－	－
Unrealized Gain/Loss of Financial Assets		1,148	(420)	(113)	－	－
Adjustment of Accumulated Conversion		(9,351)	(1,585)	(20,003)	－	－
Net Loss not Recognized as Pension Cost		－	(120,110)	(394,715)	－	－
Total Shareholders’ Equity	Cum-dividend	6,523,200	7,537,038	8,492,619	－	－
	Ex-dividend	6,523,200	7,537,038	8,492,619	－	－

Note 1: The figures of 2010~2012 were approved by the NAO under ROC GAAP.

Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

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1.1.2.2 Condensed Income Statement:

Unit：NT$ thousands

Fiscal Year Title	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years
	2010	2011	2012	2013	2014
Revenue	17,942,176	20,095,657	22,603,096	－	－
Gross Profit	2,000,419	2,039,627	2,352,860	－	－
OperatingIncome	1,288,457	1,294,179	1,484,546	－	－
Non-operating Incomes and Profits	229,214	309,003	200,946	－	－
Non-operating Expenses and Loss	497,366	475,432	437,194	－	－
Earnings of Continued Operations before Taxation	1,020,305	1,127,750	1,248,298	－	－
Earnings of Continuing Operations	1,020,270	1,127,750	1,248,298	－	－
Incomes of Discontinued Operations	－	－	－	－	－
Contingent Incomes	－	－	－	－	－
Cumulative Adjustment of the Accumulated Effect of Change in AccountingPolicy	－	－	－	－	－
Earnings in Current Period	1,020,270	1,127,750	1,248,298	－	－
Earningsper Share(NTD)	1.12	1.24	1.37	－	－

Note 1: The figures of 2010~2012 were approved by the NAO under ROC GAAP. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

1.1.3 Notes to the Variation of the Audited Financial Figures and the Financial Figures Approved by NAO

1.1.3.1 AIDC is still a state-owned enterprise which requires its accounting and financial statements to be prepared in accordance with the Criteria for the Compilation of Financial Statements by Securities Issuers, Commercial Accounting Act, Regulation on Business Entity Accounting Handling, and the ROC GAAP. Where the Executive Yuan, Ministry of Economic Affairs, and the National Audit Office may promulgate different regulations governing the accounting of state-owned enterprises, comply accordingly. Account settlement of each fiscal year shall be subject to the review of the Executive Yuan and the National Audit Office of the Control Yuan. The aforementioned review includes the review of AIDC on the execution of the budget passed by the Legislative Yuan. The accounts of AIDC shall be confirmed only after the review. As of 2012, the journal books of AIDC have been subjected to the review of the Executive Yuan and National Audit Office of the Control Yuan, which was based on the ROC GAAP before the application of IFRSs. Related adjustment has been made and the accounts were updated accordingly.

1.1.3.2 AIDC compiled its financial statement under IFRSs since 2013 in compliance with the “Introduction of IFRSs to State-Owned Enterprises Implementation Scheme” established by the Executive Yuan. The financial report of FY2013 was the very first financial report prepared in accordance with the IFRSs, and has been reviewed by the Executive Yuan and the National Audit Office of the Control Yuan. Related adjustments and accounts update have been made as per

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their instructions. AIDC switched to the IFRSs on January 1 2012. For the consistency of comparing the financial statements, the aforementioned financial statements covering FY 2012 were prepared and audited under the ROC GAAP with approval of the NAO and also the adjustments under IFRSs. The financial statements covering FY 2013 were prepared in accordance with the IFRSS and reviewed by NAO. The financial statements covering FY 2014 were prepared in accordance with IFRSs and audited accordingly.

1.1.3.3 AIDC was a state-owned enterprise under the Ministry of Economic Affairs and became a private owned corporate on August 21 2014. The financial statements prepared before privatization were based on the figures audited by NAO and Executive Yuan. After privatization, the financial figures audited by independent accountants and the figures approved by NAO are congruent.

1.2 Materiality that may Affect the Consistency of the Aforementioned Condensed Financial Statements in Comparison, such as Change in Accounting Policy, Corporate Merger, or Discontinuation of Specific Operation Segments, and the Effect on the Financial Statement of Relevant Perio: None.

2. Names of External Auditors and Their Opinions in the Last 5 Years

2.1 External Auditors and Their Audit Opinions in the Last 5 Years

Year	Accounting Firm	Name of CPA	Audit Opinion
2010	Deloitte & Touche	Huei-Min Lyu, Li-Tung Wu	Modified Unqualified Opinions
2011	Deloitte & Touche	Huei-Min Lyu, Li-Tung Wu	Modified Unqualified Opinions
2012	Deloitte & Touche	Li-Tung Wu, Ted Cheng	Modified Unqualified Opinions
2013	Deloitte & Touche	Li-Tung Wu, Ted Cheng	Modified Unqualified Opinions
2014	Deloitte & Touche	Done-Yuin Tseng, Ted Cheng	Modified Unqualified Opinions

2.2 If there is a Replacement of the External Auditors in the Last 5 Years, Explanation of the Replacement by the Company, the Former and the Current External Auditors

The replacement of external auditors in 2012 and 2014 was the result of the internal rotation of duties of the CPA firm.

2.3 If a domestic company has been going public for 7 consecutive years, or a foreign company has been public for 7 consecutive years but the financial statements were audited by the same certified public accountant, explain why there is no replacement of the certified public accountant, the independence of the certified public accountant currently in service, and substantive measures taken by the Company to bolster the independent position of the certified public accountant.

For the independence of the certified public accountant and in supporting the internal rotation of duties of the CPA firm, the Company supports the internal rotation of duties of the CPA firm in 2014 thereby replaced the certified public accountants acting as external auditors for the Company. The aforementioned situation does not exist.

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3. Financial Analysis in the Last 5 Years

3.1 Comprehensive Analysis of the Financial Data of the Last 5 Years –IFRTs:

Title	Fiscal Year	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years
		2010	2011	2012	2013	2014	2015Q1
Financial Structure (%)	Liabilities to Assets Ratio	－	－	63.94	61.07	59.35	61.44
	Long-term Capital to Real Properties, Plants, and Equipment Ratio	－	－	164.58	180.58	226.34	233.62
Ability to Pay Debt (%)	Current Ratio	－	－	216.84	222.73	146.47	142.89
	Quick Ratio	－	－	89.74	116.44	68.45	65.87
	Debt Service Coverage Ratio	－	－	19.67	36.93	29.61	18.89
Utility	A/C Turnover Rate (times)	－	－	5.80	5.82	4.81	3.73
	Average Daily Cash Receipt	－	－	63.00	62.71	75.88	97.85
	Inventory Turnover Rate(times)	－	－	2.20	2.38	2.47	2.02
	A/P Turnover Ratio (times)	－	－	12.74	11.94	13.60	13.97
	Average Days of Sales	－	－	166.00	153.36	147.77	180.69
	Real Properties, Plant and Equipment Turnover Rate (times)	－	－	4.25	4.46	5.00	4.79
	Total Assets Turnover Rate (times)	－	－	1.11	1.12	1.06	0.87
Profitability	Return on Assets (%)	－	－	6.33	6.35	8.20	6.73
	Return on Equity (%)	－	－	18.71	16.51	20.02	16.12
	EBT to Paid-in Capital Ratio(%)	－	－	13.65	15.11	20.24	5.62
	Net Profit Rate(%)	－	－	5.49	5.52	7.50	7.25
	EPS(NTD)	－	－	1.37	1.40	2.06	0.46
Cash Flow	Cash Flow Ratio (%)	－	－	90.37	42.93	－	－
	Cash Flow Suitability Ratio (%)	－	－	127.32	172.74	132.31	146.76
	Cash Reinvestment Ratio(%)	－	－	23.78	11.67	－	－
Leverage	Operation Leverage	－	－	2.83	2.74	2.27	1.52
	Financial Leverage	－	－	1.05	1.03	1.04	1.05
Reasons for Changes in the Items of Financial Analysis in the Last 2 Years (if the change falls below 20%, no analysis is necessary): 1. The ratio between long-term capital to real properties, plants and equipment of 2014 was higher than 2013 mainly because of the growth of operation performance to the extent that corporate earnings increased in this period and also the equity. 2. The current ratio in 2014 was lower than 2013 mainlybecause of the increase in bank loans in the

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settlement of service seniority of the employees under privatization to the extent that cash and cash equivalent in the same period decreased.

1. The average days of cash receipt in 2014 was more than 2013 mainly because the revenue in Q4 2014 was higher than the same period of 2013, to the extent that account receivable also increased.

2. The ROA, ROE, earnings to paid-in capital ratio. EBT to paid-in capital ratio, net profit rate, and EPS in FY2014 increased from FY2013 mainly because of the prosperity of the international aerospace industry market that drove the growth of operation performance, to the extent that gross profits of relevant products, net exchange gain and the proportion of revenue from associated enterprises accounted for under the equity method increased, which resulted in the increase of earnings in the period.

3. Cash flow ratio and cash flow reinvestment ratio were affected by the settlement of service seniority of the employees under privatization in 2014, and the increase in payment for procurement in supporting military procurement, to the extent that there was net cash outflow from operation in 2014.

4. The cash flow suitability ratio in 2014 was lower than in the same period of 2013 mainly because of the decrease of net cash flow from operation in the last 5 years and the increase of purchase.

5. Note 1: The basis of comparison for FY2012, FY2013, FY2014, and Q1 of FY2015 are the figures approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively.

6. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

The equation for calculation in this sheet:

1. Financial structure

2. (1) Liabilities to assets ratio = total liabilities / total assets

3. (2) Long-term capital to real properties, plant and equipment ratio = (total equity + non-current liabilities) /net real properties, plant, and equipment

4. Ability to pay debt

5. (1) Current ratio = current assets/ current liabilities

6. (2) Quick ratio = (current assets – inventory – other current assets)/ current liabilities

7. (3) Debt service coverage ratio = EBIT/ interest expenses in current period

8. 1. Utility

9. (1) Receivables (including account receivables and note receivables deriving from business operation) turnover rate = revenue/ average receivables (including account receivables and note receivables deriving from business operation) in relevant periods.

10. (2) Average days of cash receipt = 365/account receivable turnover rate

11. (3) Inventory turnover rate = cost of operation/ average inventory

12. (4) Payables (including account payables and note payables deriving from business operation) turnover rate = cost of operation/ balance of average payables (including account payables and note payables deriving from business operation) in relevant periods.

13. (5) Average days of sales = 365 / inventory turnover rate

14. (6) Real properties, plant and equipment turnover rate = revenue/ average net real properties, plant, and equipment

15. (7) Total assets turnover = revenue/ average total assets

16. Profitability

(1) Return on assets = [Earnings (loss) net in current period + interest expense x (1-tax rate)/average total assets

• (2) Return on equity = Earnings (loss) net in current period / average total equity

• (3) Net profit rate = Earnings (loss) net in current period/ revenue

• (4) Earnings per share = (incomes attributable to parent shareholders’ equity – preferred share dividend) /weighted average quantity of outstanding shares

• Cash flow

• (1) Cash flow ratio = net cash flow from operation / current liabilities

• (2) Net cash flow suitability ratio = net cash flow from operation in the last 5 years / (capital expenditure + increase of inventory + cash dividend) in the last 5 years

• (3) Cash reinvestment ratio = (net cash flow from operation – cash dividend) / (gross real properties, plant and equipment + long-term investment + other non-current assets + working capital)

• Leverage

(1) Operation leverage = (net sales – operating variable cost and expense) / operating income

• (2) Financial leverage = operating income / (operating income – interest expenses)

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－ 3.2 Comprehensive Analysis of the Financial Data of the Last 5 Years ROC GAAP:

Title	Fiscal Year	Fiscal Year	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years	Financial Information Coveringthe Last 5 Years
			2010	2011	2012	2013	2014
Financial Structure (%)	Liabilities to Assets Ratio		70.21	64.70	56.58	－	－
	Long-term Capital to Fixed Assets Ratio		168.49	179.44	189.77	－	－
Ability to Pay Debt (%)	Current Ratio		154.32	173.29	225.76	－	－
	Quick Ratio		46.78	60.00	93.52	－	－
	Debt Service Coverage Ratio		15.03	12.07	19.80	－	－
Utility	A/C Turnover Rate (times)		4.88	4.80	5.80	－	－
	Average Daily Cash Receipt		75.00	76.00	63.00	－	－
	Inventory Turnover Rate(times)		1.80	1.97	2.20	－	－
	A/P Turnover Ratio (times)		13.53	13.72	12.73	－	－
	Average Days of Sales		203	185	166	－	－
	Fixed Assets Turnover Rate(times)		3.33	3.56	4.19	－	－
	Total Assets Turnover Rate(times)		0.87	0.93	1.11	－	－
Profitability	Return on Assets(%)		5.26	5.61	6.37	－	－
	Return on Equity (%)		16.95	16.04	15.57	－	－
	Proportion to Paid-in Capital(%)	Operating Income	14.19	14.25	16.34	－
		EBT	11.23	12.42	13.74	－
	Net Profit Rate(%)		5.69	5.61	5.52	－	－
	EPS(NTD)		1.12	1.24	1.37	－	－
Cash Flow	Cash Flow Ratio(%)		－	40.53	88.41	－	－
	Cash Flow Suitability Ratio(%)		36.70	95.82	157.34	－	－
	Cash Reinvestment Ratio(%)		－	16.19	22.12	－	－
Leverage	Operation Leverage		0.48	1.52	1.51	－	－
	Financial Leverage		1.06	1.09	1.05	－	－
Reasons for Changes in the Items of Financial Analysis in the Last 2 Years (if the change falls below 20%, no analysis is necessary): Not applicable.

Note 1: The figures of 2010~2012 were approved by the NAO under ROC GAAP.

Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

The equation for calculation in this sheet:

1. Financial structure

(1) Liabilities to assets ratio = total liabilities / total assets

• (2) Long-term capital to fixed assets ratio = (Net shareholders’ equity + long-term liabilities)/ net fixed assets

• Ability to pay debt

• (1) Current ratio = current assets/ current liabilities

• (2) Quick ratio = (current assets – inventory – other prepayments -other current assets)/ current liabilities

• (3) Debt service coverage ratio = EBIT/ interest expenses in current period

• Utility

• (1) Receivables (including account receivables and note receivables deriving from business operation) turnover rate = revenue/ average receivables (including account receivables and note receivables deriving from business operation) in relevant periods.

(2) Average days of cash receipt = 365/account receivable turnover rate

(3) Inventory turnover rate = cost of operation/ average inventory

(4) Payables (including account payables and note payables deriving from business operation) turnover = cost of

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operation/ balance of average payables (including account payables and note payables deriving from business operation) in relevant periods.

• (5) Average days of sales = 365 / inventory turnover rate

• (6) Fixe assets turnover rate = revenue/ average net fixed assets

• (7) Total assets turnover = revenue/ average total assets

• Profitability

(1) Return on assets = [Earnings (loss) in current period + interest expense x (1-tax rate)/average total assets

• (2) Return on equity = Earnings (loss) in current period / average total equity

• (3) Net profit rate = Earnings (loss) in current period/ revenue

• (4) Earnings per share = (Earnings (loss) in current period – preferred share dividend)/ weighted average quantity of outstanding shares

• Cash flow

• (1) Cash flow ratio = net cash flow from operation / current liabilities

• (2) Net cash flow suitability ratio = net cash flow from operation in the last 5 years / (capital expenditure + increase of inventory + cash dividend) in the last 5 years

• (3) Cash reinvestment ratio = (net cash flow from operation – cash dividend) / (gross fixed assets + long-term investment + other assets + working capital)

• Leverage

(1) Operation leverage = (net sales – change in cost of operation and expense) / operating income

• (2) Financial leverage = operating income / (operating income – interest expenses)

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4. Supervisors’ Review Report on the Financial Statements of Previous Year 4.1 Review Report — Supervisors Chung-Yi Lin, Yung-Fa Chu, Tai-Chi Mao

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5. Financial Statements of the Previous Year

5.1 Auditors’ Report

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5.2 Balance Sheet Covering 2 Fiscal Years

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5.3 Income Statement Covering 2 Fiscal Years

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5.4 Statement of Changes in Shareholders’ Equity

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5.5 Statement of Cash Flow

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6. Audited Consolidated Financial Statements in the Previous Year: None.

7. Insolvency and the Effect on the Financial Position of the Company: There is no insolvency to the Company and its affiliated enterprises in

previous year to the date this report was printed, and there is no effect on the financial position of the Company.

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VII. Financial Position and Review of Financial Performance and Risk

1. Review and Analysis of Financial Position:

1. Review and Analysis of Financial Position:	1. Review and Analysis of Financial Position:	1. Review and Analysis of Financial Position:
			Unit：NT$ thousands
Fiscal Year Title	2013	2014	Difference
			Amount	%
Current Assets	14,830,381	18,942,251	4,111,870	27.73
Financial Assets on the Basis of Cost-noncurrent	46,200	46,200	0	0.00
Investment Accounted for under the EquityMethod	304,107	482,193	178,086	58.56
Real Properties, Plant and Equipment	5,114,956	4,853,536	(261,420)	(5.11)
Intangible Assets	830,455	339,894	(490,561)	(59.07)
Other Assets	449,168	662,026	212,858	47.39
Total Assets	21,575,267	25,326,100	3,750,833	17.38
Current Liabilities	6,658,430	12,932,282	6,273,852	94.22
Noncurrent Liability	6,517,738	2,100,316	(4,417,422)	(67.78)
Total Liabilities	13,176,168	15,032,598	1,856,430	14.09
Capital Stock	9,082,615	9,082,615	0	0.00
Retained Earnings	(671,870)	1,199,633	1,871,503	(278.55)
Other Equity	(11,646)	11,254	22,900	(196.63)
Total Equity	8,399,099	10,293,502	1,894,403	22.55
Significant changes in the components of assets, liabilities and shareholders’ equity (change in 10% of more and the amount changed approximated NTD 10 million) in the last 2 years, the main causes and the effect, and the plan for responding to the changes are specified below: 1.Increase of current assets: mainly because of the growth of operation performance with eventual increase of account receivables and increase in purchase and inventory. 2.Increase in investment accounted for under the equity method: mainly because of the increase in the share of profit from the associated enterprise of International Turbine Engine Company LLC. accounted for under the equity method. 3.Decrease of intangible assets: mainly because of the conversion of the amortization of the expenses incurred from airplane and vehicle maintenance project to cost of operation. 4.Increase of other assets: mainly because of the increase of prepayment for purchase of equipment and the estimate of recognized deferred income tax assets. 5.Increase of total assets: mainly because of the increase of current assets and other assets. 6.Increase of current liabilities and total liabilities: mainly because of the disbursement for the settlement of service seniority of the employees under privatization that resulted in the increase of short-term loans. 7.Decrease of noncurrent liabilities: mainly because of the decease of accruable pension liabilities under the disbursement for the settlement of service seniority of the employees under privatization. 8.Increase of retained earnings and total equity: mainly because of the growth of operation performance that resulted in the increase of earnings net in currentperiod.

Note: the comparison was made by figures approved by NAO in accordance with the IFRSs and the audited figures in accordance with IFRSs in FY 2013 and FY 2014.

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2. Review and Analysis of Financial Performance

2.1 Comparison of Financial Performance Analysis in the Last 2 Years:

Unit：NT$ thousands

				Unit：NT$ thousands
Fiscal Year Title	2013	2014	Difference Amount	Difference%
Net Sales	23,086,459	24,924,039	1,837,580	7.96
Cost of Sales	20,819,879	22,158,906	1,339,027	6.43
Gross Profit	2,266,580	2,765,133	498,553	22.00
OperatingExpense	1,002,156	1,310,700	308,544	30.79
OperatingIncome	1,264,424	1,454,433	190,009	15.03
Non-operating Expenses and Loss	108,394	384,173	275,779	254.42
EBT	1,372,818	1,838,606	465,788	33.93
Income Tax Expense	96,954	(32,897)	(129,851)	(133.93)
Earnings Net in Current Period	1,275,864	1,871,503	595,639	46.69
Other Comprehensive Income (after taxation)	70,143	22,900	(47,243)	(67.35)
Total Comprehensive Income in Current Period	1,346,007	1,894,403	548,396	40.74
The major causes of significant changes in revenue, operating income and EBT (change of more than 10% and the absolute value of change amounted to NT$10 million): 1.Increase of gross profit and operating net income: mainly because of the increase of the real gross profit from maintenance of airplanes and vehicles, engines. 2.Increase of operating expense: recognized increase of the cost of defined benefit plan under actuarial calculation and the increase of R&D expenses. 3.Increase of non-operating income and expense: mainly because of the increase of net exchange gain, the share of profit from associates accounted for under the equity method, and the conversion of account payables to other incomes. 4.Increase of income tax benefit: mainly because of the disbursement of service seniority settlement under the privatization of the enterprise that pushed up the deferred tax assets and resulted in income tax benefits. 5.Increase of EBT and earnings net in current period: the prosperity of the international aerospace market continued with the increase of business scale for further upgrade of business profit, which resulted in the increase of gross profit for all types of products. Factors such as the increase of net exchange gain, the share of profit from associates accounted for under the equity method that resulted in the increase of non-operating incomes and expenses. These contributed to the increase of EBT and earnings net in current period. 6.Decrease of other comprehensive income (after taxation): mainly because of the recognition of actuarial benefit of the defined benefit plan under the actuarial report for FY2013, and the assessment result of FY 2014 did not require the recognition of actuarial benefit from defined benefit plan. 7. Increase of total comprehensive income: mainly because of the growth of operation performance to the extent that earnings increased in currently period with the increase of other comprehensive income (corporate earnings).

Note: the comparison was made by figures approved by NAO in accordance with the IFRSs and the audited figures in accordance with IFRSs in FY 2013 and FY 2014.

2.2 The Effect of the Reference for the Projection of Sale Volume on the Operation and Financial Position of the Company, and the Measures in Response:

AIDC projects its sale volume on the basis of market demand and development trend, the operation outlook of its customers, and the customer orders on hand and the production capacity. The products of AIDC were recognized by the customers and customer order quantity is stable. There is also the opportunity of new business. It is expected that the sale volume will grow in the future.

2.3 Possible Effect on the Financial Position and Operation of the Company: No significant influence.

2.4 Plan in Response: Not applicable.

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3. Cash Flow and Liquidity Analysis

3.1 Liquidity Analysis Over the Last 2 Years:

Year Title	2013	2014	Proportion of Change (%)
Cash flow ratio(%)	42.93%	-	-
Cash flow suitabilityratio(%)	172.74%	132.31%	(23.41)%
Cash reinvestment ratio(%)	11.67%	-	-

Notes to the Analysis of the Proportion of Change:

1. Cash Flow Ratio and Cash Reinvestment Ratio:

The disbursement for service seniority of the employees for settlement under privatization and the

increase in the payment for the military procurement project resulted in net cash outflow from operation in FY 2014

1. Cash Flow Suitability Ratio fell:

Mainly because of the decrease of net cash flow from operation in the last 5 years but with the increase of purchase.

3.2 Liquidity Analysis of the Year Ahead: Not applicable.

4. Major Capital Expenditures in Previous Year and the Effect on the Financial Position and Operation: None.

5. Direct Investment in Previous Year and the Effect of Operation on the Income Status of the Company

5.1 The Outlook of Direct Investment:

December 31, 2014；Units：NT$ thousands/thousand shares

Business of Investment	Principal Operation	Cost of Investment	Book Value	Shares Invested	Shares Invested	Net Equity Value	Market Value	Accounting Method	ROI in Previous Year (2014)	ROI in Previous Year (2014)	Percentage of Shareholding
				Qty	Proportion of Equity (%)				Investment Gain	Dividend Paid
ITEC LLC	The Production and Delivery of Military Aircraft Engine Equipment and the Execution of Engineering Service Contracts	728	482,193	(Note)	22.05	482,193	－	Equity method	241,815	89,190	－
AeroVision Avionics Inc.	The Production of Commercialized Civilian Plane Cabin Information System Products	43,200	43,200	4,968	13.09	60,356	－	Cost method	－	－	－
Metro Consulting Service Ltd.	The Planning, Operation, Maintenance Consulting, and Operation Management of the Mass Transit System UsingTrack and Rail	3,000	3,000	300	6.00	3,304	－	Cost method	－	135	－

Note：a limited liability company without issuing shares. No information on quantity of shares is available.

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5.2 Notes to the Effect of Direct Investment on the Income Status of the Company:

Units：NT$ thousands

			Units	：NT$ thousands
Industry Type	Name of Investee	FY 2014 Income/Loss	Main Cause of Profit or Loss	Improvement Plan
Aerospace Manufacturing	ITEC LLC	1,096,667 (Note)	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpense.	－
Avionics	AeroVision Avionics Inc.	5,194	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpense.	－
Track Consulting	Metro Consulting Service Ltd.	2,551	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpense.	－

Source: The audited financial statements of the aforementioned companies in FY 2014. Note: The amount of income is based on the average exchange rate of 30.306 in FY 2014.

6. Risks under Assessment in Previous Year to the Date this Report was Printed

6.1 Industry and Operation Risk

6.1.1 The Rise of the Newly Emerged Economies Unleashed Cutthroat Competition in OEM

Production and the Threat of Trade Order Displacement

The aviation industry in the newly emerged economies is on the rise. With their relative low cost of labor, such as in China, India, and Mexico, they gradually formed a new cluster of aviation manufacturing sector. Accordingly, the international aerospace product supply chain is being regrouped. The outcome is low cost competition in OEM production and the threat of attracting purchase orders to these regions. AIDC will spare no effort in making investment for capacity expansion, and to work in conjunction with domestic vendors to form a supply team for presenting joint quotation in order to position at the higher end along the industry chain of the international aerospace industry to reduce the risk of cutthroat competition. Furthermore, AIDC will continue to invest in the R&D of technology for bolstering its core competence, technology and process upgrade, and the advocacy of lean production process to reduce cost for the eventual fortification of its competitive power. AIDC will take another step forward by seeking joint venture with major international aerospace manufacturing firms to broaden its competitive edge, fortify the relation of the international supply chain system, and seek new prospective strategic partners from international giant aerospace firms like Boeing and GE.

6.1.2 The Effect of Exchange Rate Fluctuation on Profitability of the Company

AIDC has been proactively sought to develop the business in civilian aircraft and engine in the last 3 fiscal years, and moved towards an export-oriented operation in the proportion of 50.24%, 57.58%, and 62.33%, respectively. Export sales are mainly denominated in USD. In addition, most of the accredited suppliers of materials and equipment are in Europe and America, and the purchase from them is also denominated in USD. As such, the purchases from foreign sources in the last fiscal periods are 89.78%, 89.10%, and 90.52%, respectively. The export value of AIDC usually goes higher than the purchase value from foreign sources. Under normal condition, the nature hedge of account will usually give a balance of USD. Therefore,

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exchange rate fluctuation does influence the income level of the Company to certain extent. For this reason, the financial staff of the Company always pays close attention to the development of international political and economic situation, intensify its liaison with the financial institutions for consultation, and gather real-time information on exchange rate to keep abreast of the changes in the exchange rate. In addition, they also make adjustment of the foreign exchange position at any time as needed to mitigate the effect of exchange rate fluctuation. As required by the competent authority, the Company has instituted the “Procedure for Derivative Trade” so as to use proper financial tool for hedging off the risk deriving from exchange rate fluctuation and minimize the impact of exchange rate fluctuation on the Company.

6.2 The Effect of Interest Rate and Exchange Rate Fluctuation and Inflation on the Income Level of the Company and the Responding Measures

6.2.1 The Effect of Interest Rate Fluctuation on the Income Level of the Company and the Response in the Future

Interest income in FY 2014 amounted to NT$ 29,623 thousand or accounted for 0.12% of the corporate earnings. Interest expense in the same year amounted to NT$ 64,256 thousand or accounted for 0.26 % of the corporate earnings. These figures indicated that interest expense has marginal effect on the income level of the Company. The Company also makes timely adjustment of the use of capital in line with the change in interest rate to mitigate the influence of interest rate fluctuation on income level.

6.2.2 The Effect of Exchange Rate Fluctuation on the Income Level of the Company and the

Response in the Future

Net exchange gain in FY 2014 amounted to NT$ 447,082 thousand or accounted for 1.79% of the corporate revenue. The Company has its export sales and purchases of the Company mostly denominated in USD and therefore takes the following measures to tackle with exchange rate fluctuation:

• 6.2.2.1 Gather timely information on the exchange rate and is engaged in frequent consultation with relevant financial institutions on mapping out the hedge strategy in exchange rate in order to keep abreast of the trend of exchange rate.

• 6.2.2.2 Manage the liabilities and assets denominated in foreign currencies through offsetting account payables and receivables with flexibility to minimize the effect of exchange rate fluctuation.

• 6.2.2.3 In compliance with the requirement of the competent authority, the Company has instituted the “Procedure for Derivative Trade” so as to use proper financial tool for hedging off the risk deriving from exchange rate fluctuation and minimize the impact of exchange rate fluctuation on the Company.

6.2.3 The Effect of Inflation on the Income Level of the Company and the Response in the Future

Most of the quotations for long-term orders of the Company are adjustable with inflation rate. In addition, the Company continues its effort in controlling the cost of operation. As such,

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the effect of inflation on its operation and profit position is not significant.

6.3 The Policy of the Company in Undertaking High Risk and High Leverage Investment, Lending to a Third Party, Guarantee and Endorsement, and Derivative Trade, the Main Causes of Profit or Loss, and the Response in the Future

• 6.3.1 The Company is conceived with the corporate philosophy of stable growth in its operation and only takes forwards contract for hedging. As such, the Company does not undertake any high risk or high leverage investment and financial operation.

• 6.3.2 The Board resolved in a session dated July 30 2007 that the Company shall not engage in any lending to third party or undertaking of guarantee and endorsement.

• 6.3.3 In compliance with the requirement of the competent authority, the Company has instituted the “Procedure for Derivative Trade” as the guideline for derivative trade. From FY 2014 to April 2015, the Company has not conducted any derivative trade.

6.4 R&D Plan in the Future and Projected R&D Expenses

The Company has made ceaseless effort over the years to upgrade the human resources in research and development and committed larger amount of funding to satisfy the needs of business development and customer orders. In the future, the Company will continue to invest NT$ 0.4 to 0.6 billion per year in research and development for attaining the goal of the operation as planned.

6.5 Changes in the Legal and Policy Environment at Home and Aboard and its Influence on the

Operation and Financial Position of the Company, and the Response

The Company runs its operation in compliance with applicable legal rules at home and abroad, and pays close attention to any change in the policy and legal environment. The Company responds to any change in the policy and legal environment by making appropriate adjustment in related business and financial operation. In the previous year to the date this report was printed, the Company has not been affected by any change in the policy and legal environment at home and abroad.

6.6 The Effect of Technological and Industrial Changes on the Operation and Financial Position

of the Company and the Response

According to the economic forecast of Global Insight in January 2015, global economic growth in 2015 is projected 3.0% at and will be as high as 3.4% in 2016. The forecast of aerospace manufacturing giant firms, such as Boeing, Airbus, Bombardier, and Rolls-Royce and other professional assessors hold optimistic view about the trend of the long-term development of the aerospace industry.

The falling price of oil may affect the market of replacement for new aircrafts, but fuel efficiency is not the only concern for the airlines companies for purchase new aircrafts. Other factors, such as low interest rate (which makes the cost of capital for purchasing new aircrafts relatively low), and the meeting the needs in the newly emerged markets, are also considered.

As such, lightweight, fuel efficient, and environmental friendly aircrafts and engines will be the new trend of civil aviation industry worldwide. The application of composite materials will

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be critical in this trend of development. Further to the investment in TACC, the Company also plans to invest for the establishment of facility for the design, development and production of aerospace composite materials with the succession of technological capacity on hand, introduction of advanced technologies and machinery, and engagement in joint venture with international aerospace giant firms. These measures will help the Company to establish a position in the booming market of aerospace composite materials and will contribute to the financial position and operation of the Company.

AIDC will keep abreast of the development of related technologies and market trend, and will assess the effect of the development on the operation of the Company.

6.7 The Effect of the Change in Corporate Image on Corporate Crisis Management and the

Response

AIDC is strictly attached to its corporate philosophy of “Accountability, Integrity, Innovation, Dedication, and Customer Orientation” and its corporate culture and seeks to upgrade its technology in the production and manufacturing of aircrafts and quality management at all times. It also seeks to enhance its relation with the customers and create value for the customers, and spares no effort in upgrading its quality and efficiency through internal management and external inspection. AIDC has positive corporate image and has no significant change in such image that may result in corporate crisis.

6.8 Expected Return On and Possible Risk from Mergers and Acquisitions, and the Response

In the previous year to the date this report was printed, AIDC has no plan for acquiring any other companies. If there is such a plan in the future, AIDC will take caution in the assessment and will fully consider the synergy after the merger, and comply with applicable legal rules and the internal code of the Company to protect the interest of the Company and shareholders’ equity.

6.9 Expected Return On and Possible Risk from Capacity Expansion, and the Response

AIDC has already secured business from international giant firms in engine casing and components and parts in composite materials, and the maintenance of military aircrafts of the country. After its consultation with the international giant firms, AIDC will launch the plan for the building of new plants for housing the engine casing manufacturing center, composite materials manufacturing centers, and the depot for the maintenance of military aircrafts. The expected result, possible risk, and response are elaborated below:

6.9.1 Expected Result: capacity expansion can help to accommodate a larger volume of engine casing and composite materials production and the maintenance of military aircrafts. This helps to satisfy the needs of customer orders and also enhance the economic efficiency.

6.9.2 Possible Risk and Response: the Company has completed its assessment on the schedule of plant construction, business volume, cost of production, and the sources of capital, and has mapped out the goals for managing relevant risks and a backup plan.

6.10 The Risk Deriving from Concentration of Purchase or Sales and the Response

6.10.1 Assessment of the Risk Deriving from Concentration of Purchase and the Response:

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The procurement of AIDC is mainly based on the procurement operation procedure of AIDC. Purchase will be made by tender offer by nature of the content of purchase, and could be classified as public tender, selective tender, restricted tender and joint supply contracts. The top 10 suppliers of AIDC in the last 3 years accounted for 39.00%, 32.78%, and 35.14% of purchase, respectively. The number one supplier in these years accounted for 7.00%, 5.80%, and 5.98% of the purchase of respective year. There is no particular supply that purchases amounted to 30% or more. AIDC has developed strong bonding with key suppliers in the long run and the supply from these suppliers in the last 3 years was good. There is no shortage of supply, severing of supply or delay that affected production. There is also no over concentration of purchase.

6.10.2 Assessment of Risk Deriving from Concentration of Sales and the Response

Conceived with the mission of “Self-reliance in defense with indigenous technologies”, AIDC concentrated its sales to the Ministry of Defense in the past. Under the increasing attention of the international aerospace giant firms in aerospace technologies, AIDC sought to develop new overseas customers in aircrafts and engines. As such, the business line has been changed from military supply to a proper balance between military supply and civilian use. The biggest customer is still the Ministry of National Defense which share of business accounted for 90% at the initial stage of the operation, and adjusted to 48.06%, 41.18%, and 36.40% as were in FY 2012 to FY 2014, respectively. The proportion of revenues from sales to the Ministry of National Defense fell gradually over the years. As such, there is no risk of concentration of sales.

6.11 The Massive Transfer or Swap of Shares by the Directors, Supervisors, or Dominant Shareholders Holding more than 10% of the Stakes and the Influence, Risk on the Company and the Response

In the previous year to the date this report was printed, the dominant shareholder, the Ministry of Economic Affairs disposed its shares 54% under the privatization of state-owned enterprise policy for the subscription of AIDC employees, auction for public offering, and subscription. However, there is limitation of shares for subscription in the aforementioned means and there is no shareholder holding more than 10% of the stakes. Still, the Ministry of Economic Affairs is still the dominant shareholder and such changes in shareholding structure did not cause any influence on the operation of the Company. There is also no massive transfer or swap of shares by the Directors, Supervisors, or shareholders holding more than 10% of the stakes.

6.12 The Influence On and the Risk Deriving from the Change in the Management and the

Response

The Ministry of Economic Affairs is still the dominant shareholders by holding specific proportion of the shares after privatization of AIDC. As such, the change in equity structure did not cause any unfavorable influence on the management.

6.13 Lawsuits or Non-contentious Matters

6.13.1 Are there suits, non-contentious matters or administrative action, ruled or still pending, in the last 2 years to the date this report was printed, and the result may cause significant

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influence on the shareholders’ equity or stock price? Disclose the facts, the targeted amount involved, the starting date of the actions, the parties concerned in the actions, and the status of the actions:

AIDC has no pending lawsuits and in most cases AIDC was the claimant for damage. Some of targeted amount involved in the cases are not high, and there will be no significant loss even if the ruling is unfavorable to AIDC. As such, there is no significant influence on the shareholders’ equity or stock price of the Company.

• 6.13.2 Directors, Supervisors, President, the Deputy Agent of the Company, and Shareholders Holding More than 10% of the Stakes and their Subsidiaries, who were Involved in Law Suits, Non-contentious Matters, or Administrative Actions, Ruled or Pending, in the Last 2 Years to the Date this Report was Printed, and the Result may Cause Significant Influence on the Shareholders’ Equity or Stock Price: None.

• 6.14 Other Major Risks and Response: None.

7. Other Important Notice: None.

VIII. Special Notes

1. Subsidiary Information: None.

2. Private Placement Securities in 2014 and as of the Date of this Annual Report: None.

3. Status of AIDC Common Shares and ADRs Acquired, Disposed of, and Held by Subsidiaries: None.

4. Other Necessary Supplement: None.

5. Any Events in 2014 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None.

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Aerospace Industrial Development Corporation

Chairman Jung-Hsin Liao

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‧ ‧ ‧ Accountability Innovation Dedication Customer Orientation

Aerospace Industrial Development Corporation