AIDC — Annual Report 2015

Jul 26, 2016

2634

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Aerospace Industrial Development Corporation Annual Report 2015

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 versions, 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, 2016

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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：Senior Vice President	E-mail：IR@ms.aidc.com.tw

Headquarter, Branch and Plant Address and Telephone, 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 Shalu Complex (N)：No. 366 / 368, Sec. 6, Zhongqing Rd., Shalu Dist., Taichung City / Tel: 886-4-25213800

Shalu 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

Website：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

We Keep Our Words

Fulfill “Total Quality Build “Customer Satisfaction” Pursue “Reasonable Profit” Assure “Sustainable Operation”

**Contents **	UPage
Letter to Shareholders ………………………………………………………….………....	1
Company Profile ……..…………………………………………………….…….………...	4
Corporate Governance Report .…………………………………………………….……..	5
Raising of Capital ……………………………………………………………………....	41
Operation Outlook …….……………………………………………………………………...	46
Financial Position ………………………………………………………….………….………..	62
Financial Position and Review of Financial Performance and Risk ………...	98
Special Notes ……………………………………………………………………..…………	105

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I. Letter to Shareholders

Dear Shareholders,

Despite the economic downturn in Taiwan, the aviation industry maintains its steady growth. Taiwan’s aviation parts suppliers have been receiving medium- and long-term parts orders from international aircraft/engine companies, and are expanding their capacity accordingly. However, in the face of increasing pressure from cost down demands, new contract subcontract management and pay raise amendment bills, AIDC as well as all the domestic suppliers are subject to harsh cost challenges. In response to this situation, AIDC’s efforts include internally, investing in the R&D of core technologies and implementing LEAN initiatives to reduce costs; externally, providing upgrade assistance to its supply chain partners and utilizing outsourcing resources. It is our hope that by integrating the competitive edge of Taiwan’s suppliers to achieve cost reductions and ensure corporate profits.

To meet the strong market demand and maintain self-developed product service and core competence, AIDC made a significant investment in its fixed assets which included the construction of its Engine Case Manufacturing Center (ECMC), Taiwan Advanced Composite Center (TACC #19) and the F-16 A/B Upgrade & Maintenance Building. These projects are scheduled to be completed and put into operation in 2016 and 2017.

The ECMC is designed for the manufacture of large engine cases to meet the growing requirement for large engine cases. The TACC #19 is aimed at the production of after belly fairing composite parts for Airbus popular models. And the F-16 A/B Upgrade & Maintenance Building is planned for long-term and steady aircraft maintenance business, and will fully support Taiwan’s independent defense industry policy.

I would like to express my appreciation and gratitude to all the shareholders for your steadfast support of our programs, and the summary of the report on the operation results for FY 2015 and the business plan for FY 2016 are presented hereunder.

FY 2015 Operation Highlights

Revenue and Income

The Company had revenue of NT$26,878,156 thousand in FY 2015, which was an increase of NT$1,954,117 thousand from NT$24,924,039 thousand in the same period of FY 2014. Pre-tax earnings in FY 2015 amounted to NT$2,482,284 thousand, which was an increase of NT$643,678 thousand from NT$ 1,838,606 thousand in the same period of FY 2014.

Financial Structure and Profitability Analysis

As of December 31 2015, the financial structure of AIDC showed total assets of NT$ 28,704,182 thousand and total liabilities of NT$ 17,177,587 thousand. The analysis of overall profitability indicators are shown in the table below:

Indicators	2014	2015
ROA (%)	8.20	7.92
ROE (%)	20.02	18.59
EBT to Paid-in Capital Ratio(%)	20.24	27.33
Net Profit Ratio (%)	7.50	7.54

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Research and Development Outlook

The R&D expenses of AIDC in FY 2015 amounted to NT$439,262 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

• ＊Gang Shan Complex (AEF) received the Distinguished Award of “2014 Energy Saving and Carbon Reduction” label presented by Environmental Protection Administration in January 2015.

• ＊Received the “Performance Excellence Award 2014” from The Boeing Company in February 2015, the fourth for four consecutive years.

• ＊Received the “Most Improved Supplier Award” from Honeywell during Honeywell Supplier Summit held in Malaysia in March 2015

• ＊Ranked the 140[th] in Top 1000 Taiwan Manufacturers by the CommonWealth Magazine in May 2015

• ＊Received the “Growth Excellence Award” from GE in May 2015, the fourth award for five consecutive years

• ＊Selected as “Taiwan High Compensation 100 Index” stock by Taiwan Stock Exchange Corporation in June 2015

• ＊Selected as “TWSE RA Taiwan Employment Creation 99 Index” stock by Taiwan Stock Exchange Corporation in July 2015

• ＊Gang Shan Complex (AEF) received the distinguished ROC Enterprise Environmental Protection Award (Manufacturing: Bronze Medal) presented by Environmental Protection Administration, Executive Yuan, in Nov. 2015

• ＊Gang Shan Complex (AEF) was awarded Excellent Occupational Safety and Health Workplace by Kaohsiung City Government in Nov. 2015

• ＊Received “Award of the Year 2015 for Best Partner ” from Mitsubishi Aircraft Corporation in Dec. 2015

• ＊Gang Shan Complex (AEF) received “Health Navigator Award for Healthy Workplace ” presented by Health Promotion Administration, Ministry of Health and Welfare in Dec. 2015

Business Plan in FY 2016

Business Development Planning

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

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

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

Corporate Management Policy

AIDC will continue to adopt the Balanced Scorecard (BSC) as a management tool in FY 2016. 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 2016 will cover:

• Optimization of financial structure

• Upgrade the competitive power of composite materials

• Satisfaction of customer value

• Launch the lean activity

• Refinement of core business process

• Planning and implementation of the key capability buildup

• Vitalization of human resources and strengthening of core competence

• strengthening of core competence ▲ Fortify the supply chain and integration with outsourced

• ▲ Conduct of Corporate Social Responsibility contractors

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While aviation industry is considered an indicator of the industrial level of a country it leads the development of national economy as well as defense industry. Therefore the advanced industrialized countries always regard it as one of the major strategic industries. AIDC, while sustaining the great responsibilities of national defense and development of Taiwan’s aviation industry, is dedicated to fortifying the supply chain to develop dual-use technologies of Taiwan’s aviation industry and promoting industry collaboration to improve industrial level and overall competitiveness. AIDC is currently engaged in promoting the concept of A-Team 4.0 which is to bring together suppliers who share similar values and beliefs to form a cross-sector collaboration for the developmet of Taiwan’s aerospace industry. It is hoped that by integrating suppliers of raw material, machinery & equipment, manufacturing, logistics and transport to achieve the objective of improving Taiwan’s competitiveness, establishing mutually beneficial win-win relationship and making Taiwan’s A-team an integral part of the global aerospace supply chain; and at the same time, increasing Company’s revenue and profits to improve shareholders’ equity.

May I wish you all good fortune and good health.

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

Year	Milestones
1969	The Aerospace Industry Development Center was established and was subordinated to the Air Force High Command of the Republic of China.
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.
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 commercial 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	Delivery of the 100thS-92 helicopter cockpit.
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.
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 upgrade program with the delivery of the first batch of upgraded jet fighters. 2. Accomplishment of the debut flight from Taichung to Kinmen, 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. Received 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 company on August 21 and was listed on TWSE for trading on August 25. 2. Delivery of the parts and components for the first MRJ, an important milestone of the project. 3. Received the “Supplier of the Year Award” from Sikorsky Aircraft United Technologies Corp., the “Supplier Excellence Award 2014” from American Helicopter Society, and the “Performance Excellence Award” from The Boeing Company. 4. Delivery of the 10,000thRolls-Royce engine case.
2015	1. Construction of 3 new projects namely ECMC, TACC #19 and F-16A/B Upgrade & Maintenace Building launched in February, April and September respectively. 2. Delivery of the 300th S-92 cockpit made in Shalu Complex in April 3. Received “Award of the Year 2015 for Best Partner" from Mitsubishi Aircraft Corporation in December 4. Organized Taiwan Aviation Industry Forum in December which paved the way for Taiwan Aerospace A-Team to become a major supply chain of global aerospace industry.
2016	AIDC set up the US subsidiary, AIDC USA LLC, on March 2, 2016.

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III. Corporate Governance Report

1. Organization

1.1 Organization Chart

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1.2 Major Corporate Functions

The defense industry system is responsible for the commercial maintenance of military aircraft, integrated logistics support and aircraft maintenance related market analysis, business strategy and development, program performance, and performance of technology and services contracts.

The production system is responsible for the aircraft parts and component fabrication, assembly, production engineering and management; and aero engine component market analysis, business strategy, engineering service and support, manufacturing, maintenance, logistics support and marketing.

The engineering system is responsible for engineering design and system integration, quality improvement, quality insurance policy, industrial safety and environmental protection, information technology and services, procurement, supplier integration, and outsourcing. The civil aviation & administration system is responsible for the commercial aircraft market analysis, business strategy and development, operations and production, program performance management; and planning and implementation of human resources, finance and general administration related matters.

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2. Directors, Supervisors and Management Team

2.1 Directors and Supervisors March 31, 2016

																Executives, Directors or	Executives, Directors or	Executives, Directors or
										Spouse &		Shareholding
	Nationality/				Date First	Shareholding when		Current								Supervisors who are
Title			Date
	Country of	Name		Term	Elected	Elected		Shareholding		Minor		by Nominee		Experience/Education	Other Position	spouses or within two
(Note 1)			Elected
	Origin				(Note 2)					Shareholding		Arrangement				degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
Chairman	R.O.C	MOEA	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Liao, Jung-Hsin (Note 2)	June 23, 2015	3Y	March 2, 2015	0	0.00	0	0.00	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. Chairman, Taiwan Aerospace Industry Association	－	－	－
Executive Director	R.O.C	MOEA	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Shiah, Kang (Note 2)	February 1, 2016	2.4Y	February 1., 2016	82,264	0.01	82,264	0.01	0	0	0	0	Senior Vice President; Inspector General; Vice President, Commercial Aircraft Programs; Vice President, Business Development; Director, Engineering of AIDC; BS in Aeronautical Engineering, ChungChengInstitute of Technology.	Acting President, AIDC	－	－	－
Director	R.O.C	MOEA	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Pao, Chuan (Note 2)	January 5, 2016	2.5Y	January 5, 2016	0	0.00	0	0.00	0	0	0	0	Executive Secretary, Petitions and Appeals Committee, MOEA; Senior Executive Officer, Dept. of Commerce, MOEA; Senior Executive Officer, Dept. of Int’l Cooperation, MOEA; Master of Comparative Law (MCL), Miami University,USA;	Deputy Director General, Intellectual Property Office, MOEA	－	－	－

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																Executives, Directors or	Executives, Directors or	Executives, Directors or
										Spouse &		Shareholding
	Nationality/				Date First	Shareholding when		Current								Supervisors who are
Title			Date
	Country of	Name		Term	Elected	Elected		Shareholding		Minor		by Nominee		Experience/Education	Other Position	spouses or within two
(Note 1)			Elected
	Origin				(Note 2)					Shareholding		Arrangement				degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
														Bachelor of Law, Fu Jen Catholic University
Director	R.O.C	MOEA	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: LI, Shiu-Huei	June 23, 2015	3Y	April 7, 2015	0	0.00	0	0.00	0	0	0	0	Board Director, Taiwan NGK Spark Plug Co., Ltd.; General Manager, Safe-Taiwan Investment Inc.; Study at UCLA; B.S. in Electronic Engineering, Chung Yuan Christian University	Chairman, Jung Chuan Construction Inc. Director, Chuan Tung Construction Inc. Director, Safe-Taiwan Investment Inc.	－	－	－
Director	R.O.C	MOEA	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Chien, Feng-Yuan	June 23, 2015	3Y	October 17, 2014	0	0	0	0	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	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Tso, Ao-Nan	June 23, 2015	3Y	October 17, 2014	53,579	0.01	63,223	0.01	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	June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	393,740,743	43.35	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Yu, Cheng-Te	June 23, 2015	3Y	December 23, 2014	60,863	0.01	71,818	0.01	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 (Note 1)	June 23, 2015	3Y	April 3, 2014	2,670,078	0.29	4,259,078	0.47	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Wu, Wan-Jiao	June 23, 2015	3Y	June 23, 2015	0	0.00	0	0.00	0	0	0	0	Inspector General, Ministry of National Defense;	President, National Defense University	－	－	－

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																Executives, Directors or	Executives, Directors or	Executives, Directors or
										Spouse &		Shareholding
	Nationality/				Date First	Shareholding when		Current								Supervisors who are
Title			Date
	Country of	Name		Term	Elected	Elected		Shareholding		Minor		by Nominee		Experience/Education	Other Position	spouses or within two
(Note 1)			Elected
	Origin				(Note 2)					Shareholding		Arrangement				degrees of kinship
						Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
														Deputy Commanding General, Director of Political Warfare, and Air Combat Commander of Air Force Command Headquarters; MBA, Nanhua University; B.S.,Air Force Academy
Executive and Independent Director	R.O.C	Pan, Wei-Da	June 23, 2015	3Y	June 23, 2015	0	0.00	0	0.00	0	0	0	0	Chairman, Private School Development Foundation; Arbitrator, Chinese Arbitration Association; Commissioner, Central Election Commission; J.D., University of Nebraska, USA	President, Soochow University; Independent Director, and Member of Remuneration Committee, China Life Insurance Co., Ltd.; Independent Director, Quanta Computer Inc.	－	－	－
Independent Director	R.O.C	Hsu, Yung-Hao	June 23, 2015	3Y	October 17, 2014	0	0.00	0	0.00	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.	－	－	－
Independent Director	R.O.C	Jeng, Huan-Guei	June 23, 2015	3Y	June 23, 2015	0	0.00	0	0.00	0	0	0	0	Director, ITRI Auditing Office; Executive Supervisor , Gold Sun Technology Co., Ltd.; Supervisor, Board Director, TaiGen Biotechnology Co. Ltd.; Director, ITRI Accounting, Resources Center; Chairman, The Institute of Internal Auditors-Chinese Taiwan; Founding Director, Taiwan Corporate Governance Association ; Founding Director, Computer Audit Association; Member,MOEA Accounting& Internal	Director, Library of National Health Research Institutes; Supervisor, CSIST; Executive Supervisor, The Institute of Internal Auditors-Chinese Taiwan	－	－	－

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

Executives, Directors or
Spouse & Shareholding
Nationality/ Date First Shareholding when Current Supervisors who are
Title Date Minor by Nominee
Country of Name Term Elected Elected Shareholding Experience/Education Other Position spouses or within two
(Note 1) Elected Shareholding Arrangement
Origin (Note 2) degrees of kinship
Shares % Shares % Shares % Shares % Title Name Relation
Audit System Review Committee;
MBA, Saginaw Valley State University,
Mississippi, USA
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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	NOTE
Ministry of Economic Affairs, MOEA	None
National Defense Industrial Development Foundation	None (Note)	The foundation is a juristic institution.

Note 2: MOEA representatives Liu, Jieh-Tsern was discharged and replaced by Liao, Jung-Hsin on March 2, 2015；Hsu, Yen-Nien was discharged and replaced by Shiah, Kang on February 1, 2016; and Mr. Wang, Tun was discharged and replaced by Ms. Pao, Chuan on January 5, 2016.

Professional Qualifications and Independence Analysis of Directors and Supervisors:

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

Meet One of the Following Professional Qualification
Requirements, Together with at Least Five Years Work Independence Criteria (Note)
Experience
An Instructor or A Judge, Public Have Work
Higher Position Prosecutor, Experience in the
in a Department Attorney, Certified Areas of Number of
Criteria of Commerce, Public Accountant, Commerce, Law, Other Public
Law, Finance, or Other Finance, or Companies in
Accounting, or Professional or Accounting, or Which the
Other Academic Technical Otherwise Individual is
Department Specialist Who has Necessary for the Concurrently
1 2 3 4 5 6 7 8 9 10
Related to the Passed a National Business of the Serving as an
Name
Business Needs Examination and Company Independent
of the Company been Awarded a Director
in a Public or Certificate in a
Private Junior Profession
College, College Necessary for the
or University Business of the
Company
Chairman
� � � � � � � � � � －
Liao, Jung-Hsin
Executive Director
� � � � � � � � � －
Shiah, Kang
----- End of picture text -----

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	Meet One of the Following Professional Qualification	Meet One of the Following Professional Qualification	Meet One of the Following Professional Qualification
	Requirements, Together with at Least Five Years Work			Independence Criteria (Note)
		Experience
	An Instructor or	A Judge, Public	Have Work	1	2	3	4	5	6	7	8	9	10
	Higher Position	Prosecutor,	Experience in the
	in a Department	Attorney, Certified	Areas of											Number of
Criteria	of Commerce,	Public Accountant,	Commerce, Law,											Other Public
	Law, Finance,	or Other	Finance, or											Companies in
	Accounting, or	Professional or	Accounting, or											Which the
	Other Academic	Technical	Otherwise											Individual is
	Department	Specialist Who has	Necessary for the											Concurrently
Name	Related to the	Passed a National	Business of the											Serving as an
	Business Needs	Examination and	Company											Independent
	of the Company	been Awarded a												Director
	in a Public or	Certificate in a
	Private Junior	Profession
	College, College	Necessary for the
	or University	Business of the
		Company
Director Pao,Chuan		�	�	�	�	�	�	�	�	�	�	�		－
Director Li,Shiu-Huei			�	�	�	�	�	�	�	�	�	�		－
Director Wu,Wan-Jiao	�		�	�	�	�	�	�	�	�	�	�		－
Director Chien,Feng-Yuan			�	�	�	�	�	�	�	�	�	�		－
Director Tso,Ao-Nan			�		�	�	�	�	�	�	�	�		－
Director Yu,Cheng-Te			�		�	�	�	�	�	�	�	�		－
Executive and Independent Director Pan,Wei-Da	�		�	�	�	�	�	�	�	�	�	�	�	－
Independent Director Hsu,Yung-Hao		�	�	�	�	�	�	�	�	�	�	�	�	－
Independent Director Jeng,Huan-Guei	�		�	�	�	�	�	�	�	�	�	�	�	－

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.

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1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

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

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

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

2.2 Management Team March 31, 2016

								Shareholding	Shareholding			Managers who are	Managers who are	Managers who are	Exercisable
	Nationality/					Spouse & Minor
			Date	Shareholding								Spouses or Within Two			Employee
Title	Country of	Name				Shareholding		by Nominee		Experience/Education	Other Position
			Effective									Degrees of Kinship			Stock
	Oii							Arrangement
	rgn			Shares	%	Shares	%	Shares	%			Title	Name	Relation	Options
Acting President	R.O.C	Shiah, Kang	January 1, 2009	82,264	－	－	－	－	－	Senior Vice President; Inspector General; Vice President, Commercial Aircraft Programs; Vice President, Business Development; Director, Engineering of AIDC; BS in Aeronautical Engineering, Chung Cheng Institute of Technology	－	－	－	－	－
Vice President	R.O.C	Lin, Nan-Juh	January 1, 2009	83,168	－	－	－	－	－	Director, Engineering ; Director, Technology Implementation, AIDC; MBA, Providence University; B.S. in Aerospace Engineering, TamkangUniversity.	Director, Metro Consulting Service Ltd.	－	－	－	－
Vice President	R.O.C	Chen, Yi-Min	July 1, 2012	83,168	－	－	－	－	－	Director, Defense System and Technology Management; Technology Implementation; Aircraft Maintenance and Avionics; Military Aircraft Programs, AIDC; Bachelor and Master in Aerospace Engineering, Chung ChengInstitute of Technology.	Director, AeroVision Avionics Inc.	－	－	－	－
Vice President	R.O.C	Ho, Poa-Hua	November 11, 2015	81,686	－	53,000	－	－	－	VP, Aero Engine Factory; Director, Quality Assurance; Deputy Director, Manufacturing, AIDC; Senior Specialist,Aircraft	Director, International Turbine Engine Company, LLC	－	－	－	－

11

Title								Shareholding	Shareholding			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
	Nationality/					Spouse & Minor
			Date	Shareholding											Employee
	Country of	Name				Shareholding		by Nominee		Experience/Education	Other Position
			Effective												Stock
	Oii							Arrangement
	rgn			Shares	%	Shares	%	Shares	%			Title	Name	Relation	Options
										Factory, AIDC/CSIST, B.S. in Mechanical Engineering, FengChia University
Vice President	R.O.C.	Du ,Shiu-Chun	February 1, 2016	93,289	－	－	－	－	－	Director, Strategy and Legal Affairs; Director, Engineering; Director, IT, AIDC; Ph.D. in Mechanical Engineering, National Taiwan University		－	－	－	－

Note: President Hsu, Yen-Nien retired on February 1, 2016.

3. Remuneration of Directors, Supervisors, President and Vice Presidents

3.1 Remuneration of Directors December 31, 2015 / Units：NT$ thousands；%

		Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Ratio of Total	Ratio of Total	Relevant Remuneration	Relevant Remuneration	Relevant Remuneration	Relevant Remuneration	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Ratio of Total	Ratio of Total
		Base								Remuneration										Exercisable				Compensation		Compensation
						’
		Comensation(A)		Severance Pa(B)		Directors		Allowances(D)		(A+B+C+D) to Net		Salary, Bonuses, and		Severance Pa(F)		Employee Remuneration				Emloee Stock		Restricted ESO(I)		(A+B+C+D+E+F+G) to		paid to
		p (Note 2)		y		Remuneration(C)				Income(%)		Allowances(E)		y		(G)				py Options(H)				Net Income (%)		Directors from
Title	Name		Companies in		Companies in		Companies in		Companies in		Companies in				Companies in			Companies in			Companies in		Companies in		Companies in	an Invested
	(Note 1)												Companies in					the								Company other
		The	the	The	the	The	the	The	the	The	the	The	the consolidated	The	the	The company		consolidated		The	the	The	the	The	the	than the
		company	consolidated	company	consolidated	company	consolidated	company	consolidated	compan	consolidated	company	financial	company	consolidated			financial		company	consolidated	company	consolidated	company	consolidated	Company’s
			financial		financial		financial		financial		financial statements		statements		financial			statements			financial		financial		financial	Subsidiary
			statements		statements		statements		statements						statements						statements		statements		statements
																Cash	Stock	Cash	Stock
Chairman	Liu, Jieh-Tsern (MOEA Rep.)	2,548		0		12,493 (Note 3)		0		0.7413%		8,774		1,668		99( Not e 3)	0	0		0		0		1.2608%		0
Chairman	Liao, Jung-Hsin (MOEA Rep.)
Executive Director	Hsu, Yen-Nien (MOEA Rep.)
Director	Pao, Chuan (MOEA Rep.)
Director	Wan, Tung (MOEA Rep.)
Director	Kao, Tien-Chung (NDIDF Rep.)
Director	Chien, Feng-Yuan (MOEA Rep.)
Director	Tso, Ao-Nan (MOEA Rep.)

12

		Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Ratio of Total	Ratio of Total	Relevant Remuneration	Relevant Remuneration	Relevant Remuneration	Relevant Remuneration	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Received byDirectors who are also Employees	Ratio of Total	Ratio of Total
		Base								Remuneration										Exercisable				Compensation		Compensation
						’
		Comensation(A)		Severance Pa(B)		Directors		Allowances(D)		(A+B+C+D) to Net		Salary, Bonuses, and		Severance Pa(F)		Employee Remuneration				Emloee Stock		Restricted ESO(I)		(A+B+C+D+E+F+G) to		paid to
		p (Note 2)		y		Remuneration(C)				Income (%)		Allowances(E)		y		(G)				py Options(H)				Net Income (%)		Directors from
Title	Name (Note 1)		Companies in		Companies in		Companies in		Companies in		Companies in		Ci i		Companies in			Companies in h			Companies in		Companies in		Companies in	an Invested Company other
		The	the	The	the	The	the	The	the	The	the	The	ompanes n the consolidated	The	the	The company		te consolidated		The	the	The	the	The	the	than the
		company	consolidated	ompany	consolidated	company	consolidated	company	consolidated	company	consolidated	company	financial	company	consolidated			financial		company	consolidated	company	consolidated	company	consolidated	Company’s
			financial statements		financial		financial		financial		financial		statements		financial			statements			financial		financial		financial	Subsidiary
					statements		statements		statements		statements				statements						statements		statements		statements
																Cash	Stock	Cash	Stock
Director	Yu, Cheng-Te (MOEA Rep.)
Director	Li, Shiu-Huei (MOEA Rep.)
Executive and Indepen- dent Director	Wu, Hsiu-Kuang
Independent Director	Chan, Chia-Chang
Independent Director	Hsu, Yung-Hao
Executive and Indepen- dent Director	Pan, Wei-Da
Independent Director	Jeng, Huan-Guei
Director	Wu,Wan-Jiao

• Note 1：Chairman Liu, Jieh-Tsern was discharged on March 2, 2015; Director Pao, Chuan was discharged on April 7, 2015; Director Kao, Tien-Chung, Executive and Independent Director Wu, Hsiu-Kuang and Independent Director Chan, Chia-Chang were discharged after election on June 23, 2015.

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

Note 3：The amount is accrued, and hasn’t been issued yet.

Remuneration Paid to Supervisors

	Name of Directors	Name of Directors	Name of Directors	Name of Directors
Bracket	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	Liu, Jieh-Tsern; 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; Li, Shiu-Huei; Pan, Wei-Da; Jeng, Huan-Guei; Wu, Wan-Jiao,	As Left	Wan, Tung; Pao, Chuan; Kao, Tien-Chung; Chien, Feng-Yuan; Wu, Hsiu-Kuang; Chan, Chia-Chang; Hsu, Yung-Hao; Li, Shiu-Huei; Pan, Wei-Da; Jeng, Huan-Guei; Wu, Wan-Jiao	As Left
NT$2,000,000 ~ NT$5,000,000	－	－	Liu, Jieh-Tsern; Liao, Jung-Hsin; Hsu, Yen-Nien;Tso,Ao-Nan;Yu,Cheng-Te,	－

13

	Name of Directors	Name of Directors	Name of Directors	Name of Directors
Bracket	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
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	16persons	Same as Left	16persons	Same as Left

3.2 Remuneration of Supervisors December 31, 2015 / Units：NT$ thousands；%

		Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Ratio of Total Remuneration	Ratio of Total Remuneration
		Base Compensation(A)		Bonus to Supervisors( B)		Allowances(C)		(A+B+C) to Net Income (%)		Compensation paid to Supervisors from an
Title	Name									Invested Company
		The	Companies in the	The	Companies in the	The	Companies in the	The	Companies in the	other than the
		company	consolidated	company	consolidated	company	consolidated	company	consolidated	Company’s Subsidiary
			financial statements		financial statements		financial statements		financial statements
Executive Supervisor	Lin, Chung-Yi	46		635 (Note 2)		0		0.0336%		0
Supervisor	Chu, Yung-Fa	46		635 (Note 2)		0		0.0336%		0
Supervisor	Mao, Tai-Chi	46		635 (Note 2)		0		0.0336%		0

Note 1：Supervisors Lin, Chung-Yi, Chu, Yung-Fa and Mao, Tai-Chi were discharged on June 23, 2015. Note 2：The amount is accrued and has not been issued yet.

14

Remuneration Paid to Supervisors

	Name of Supervisors	Name of Supervisors
Bracket	Total of (A+B+C)
	The Company	Companies in the consolidated financial statements
Under NT$ 2,000,000	Lin, Chung-Yi; Chu, Yung-Fa; Mao, Tai-Chi	Same 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	3	Same as left

3.3 Compensation of President and Vice Presidents December 31, 2015 / Units：NT$ thousands；%

												Ratio of Total	Ratio of Total					Compensation
		Salary(A)		Severance Pay(B)		Bonuses and		EmployeeRemuneration (D)				Compensation		Exercisable Employee		Restricted ESO		paid to the
		(Note1)				Allowances(C)						(A+B+C+D) to Net		Stock Options				President and
												Income (%)						Vice President
Title	Name	Th	Companies in the	Th	Companies in the	Th	Companies in the	The company		Companies in the consolidated		Th	Companies in the	Th	Companies in the	Th	Companies in the	from an Invested
		e company	consolidated financial	e company	consolidated financial	e company	consolidated financial			financial statements		e company	consolidated financial	e company	consolidated financial	e company	consolidated financial	Company other than the
			statements		statements		statements	Cash	Stock	Cash	Stock		statements		statements		statements	Company’s
																		Subsidiary
President	Hsu,Yen-Nien	10,097		0		6,201		185	0	0	0	0.8123%		0	0	0	0	32 (Note 2)
Vice President	Shiah, Kang
Vice President	Lin, Nan-Juh
Vice President	Chen, Yi-Min
Vice President	Ho, Poa-Hua

Note 1: The remuneration to managerial officers is calculated on a yearly basis for FY 2015. Liou, Gwo-Ching was discharged and replaced by Ho, Poa-Hua on Nov. 11, 2015. Note 2: Vice President Lin, Nan-Juh received NT$24,000 transportation allowance serving as Director of Metro Consulting Service Ltd. and Vice President Chen, Yi-Min received NT$8,000 transportation allowance serving as Director of AeroVision Avionics Inc. in FY 2015.

15

Remuneration Paid to President and Vice Presidents

	Name of President and Vice Presidents	Name of President and Vice Presidents
Bracket
	The company	Companiesinthe consolidatedfinancialstatements
Under NT$ 2,000,000	Ho, Poa-Hua	Same as left
NT$2,000,000 ~ NT$5,000,000	Hsu, Yen-Nien; Shiah, Kang; Lin, Nan-Juh; Chen, Yi-Min; Liou,Gwo-Ching	Same as left
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	6	Same as left

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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
	2014		2015
Year
		Companies in		Companies in
		the consolidated		the consolidated
	The company	financial	The company	financial
		statements		statements
Identity
		(Note)		(Note)
Director fee	4,889	－	15,041	－
Director fee in proportion to corporate earnings (%)	0.28	－	0.7413%	－
Supervisor fee	1,157	－	2,042	－
Supervisor fee in proportion to corporate earnings (%)	0.06	－	0.1006%	－
Remuneration to the President and Vice Presidents	38,410	－	16,483	－
Remuneration to the President and Vice Presidents in proportion to corporate earnings(%)	2.05	－	0.8123%	－

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

Pursuant to the Articles of Incorporation, remuneration to directors (including chairman and independent directors) shall be determined by the board of directors as authorized. Further, in the event of earnings, not more than 0.58% EBT shall be set aside as remuneration to directors, while not less than 0.58% and not more than 4.65% as bonus of employees; however if the Company sustains an accumulated loss, amount of which shall be set aside to cover the loss.

4. Implementation of Corporate Governance

4.1 Board of Directors

A total of 8 meetings of the board of directors were held in the previous period. Attendance of directors and supervisors was as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate (%)	Remarks
Chairman	MOEA Representative: Liao, Jung-Hsin	6	1	85.71%	Re-elected on June 23, 2015; 7 attendances required.
Chairman	MOEA Representative: Liu, Jieh-Tsern	1	0	100.00 %	Discharged on March 2, 2015; 1 attendance required
Executive Director	MOEA Representative: Hsu, Yen-Nien	8	0	100.00 %	Re-elected on June 23, 2015; 8 attendances required
Director	MOEA Representative: Wan, Tung	8	0	100.00 %	Re-elected on June 23, 2015; 8 attendances required
Director	MOEA Representative: Pao, Chuan	2	1	66.67 %	Discharged on April 7, 2015; 3 attendances required
Director	MOEA Representative: Li, Shiu-Huei	4	1	80.00 %	Re-elected on June 23, 2015; 5 attendances required
Director	MOEA Representative: Chien, Feng-Yuan	6	2	75.00 %	Re-elected on June 23, 2015; 8 attendances required

17

Title	Name	Attendance in Person	By Proxy	Attendance Rate (%)	Remarks
Director	MOEA Representative: Tso, Ao-Nan	8	0	100.00 %	Re-elected on June 23, 2015; 8 attendances required
Director	MOEA Representative: Yu, Cheng-Te	8	0	100.00 %	Re-elected on June 23, 2015; 8 attendances required
Director	Defense Development Foundation Wu, Wan-Jiao	2	2	50.00 %	Appointed on June 23, 2015; 4 attendances required
Director	MOEA Representative: Kao, Tien-Chung	0	2	0.00 %	Discharged on June 23, 2015; 4 attendances required
Executive and Independent Director	Pan, Wei-Da	4	0	100.00 %	Elected on June 23, 2015; 4 attendances required
Independent Director	Hsu, Yung-Hao	8	0	100.00 %	Re-elected on June 23, 2015; 8 attendances required
Independent Director	Jeng, Huan-Guei	4	0	100.00 %	Elected on June 23, 2015; 4 attendances required
Executive and Independent Director	Wu, Hsiu-Kuang	2	1	50.00 %	Discharged on June 23, 2015; 4 attendances required
Independent Director	Chan, Chia-Chang	3	0	75.00 %	Discharged on June 23, 2015; 4 attendances required
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 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 Avoidance of Conflict of Interest Voting Jan. 29, 2015, 6thterm, 15thInterim BOD meeting Principles for bonus of Chairman, President and Vice Presidents Personal bonus Chairman Liu, Jieh-Tsern and President Hsu, Yen-Nien entered recusal duringdiscussion and voting May 5, 2015, 6thterm, 12th BOD meeting Qualification review of independent director candidates nominated by shareholders Personal evaluation Independent Director Hsu, Yung-Hao enterted recusal during discussion and voting May 5, 2015, 6thterm, 12th BOD meeting Remuneration of Chairman Personal remuneration Chairman Liao, Jung-Hsin entered recusal duringdiscussion and voting May 5, 2015, 6thterm, 12th BOD meeting Bonus of Chairman, President and Vice Presidents for FY 2014 Personal bonus Chairman Liao, Jung-Hsin and President Hsu, Yen-Nien entered recusal duringdiscussion and voting May 5, 2015, 6thterm, 12th BOD meeting Principles for bonus of Chairman, President and Vice Presidents for FY 2015 Personal bonus Chairman Liao, Jung-Hsin and President Hsu, Yen-Nien entered recusal duringdiscussion and voting Aug. 11, 2015, 7thterm, 1st BOD meeting Appointment of the 2ndterm of Remuneration Committee members Approval of Remuneration Committee members Independent directors Pan, Wei-Ad, Hsu, Yung-Halo and Jing, Huan-Guei entered recusal during discussion and voting Aug. 11, 2015, 7thterm, 1st BOD meeting Tenure extension of President Personal tenure extension President Hsu, Yen-Nien entered recusal duringdiscussion and voting Nov. 11, 2015, 7thterm, 2nd BOD meeting Adjustment to principles for bonus of Chairman and President for 2015 Personal bonus President Hsu, Yen-Nien entered recusal during discussion and voting; Chairman Liao did not attend this meeting. 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 3 independent directors, with specialties in finance, law and aviation safety, who shall provide sound and professional recommendations to Board of Directors on matters relating to internal audit, business and finance. Functional committees of the Board of Directors including Audit Committee and Remuneration Committee comprisingall the independent directors have been set up. Theyshallprovide

18

Board of Directors professional and impartial review recommendations to ensure the integrity of company’s financial and non-financial reports, effectiveness of internal audit system, improve remuneration system of directors and management, and ensure the agreement of long term interest between the company and shareholders.

Pursuant to Securities and Exchange Act and Regulations Governing Procedure for Board of Directors Meetings of Public Companies, AIDC has drawn up Rules of Procedure for Board of Directors Meeting, Audit Committee Charter, Remuneration Committee Charter, Guidelines for Corporate Governance, etc. for the management to follow, and has released news about the attendance and training of board of directors through the Market Observation Post System. AIDC has included Investors zone in its website to disclose important resolutions made by the board of directors; and related departments are designated to maintain and disclose important financial and business information of the Company.

• (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.

4.2 Audit Committee （ Attendance of Supervisors for Board Meeting ）

A. Audit Committee

AIDC Audit Committee was set up on June 23, 2015, comprising 3 independent directors. A total of two

meetings were held in 2015 (A); attendance of the committee members was as follows:

Title	Name	Attendance in Person (B)	Attendance rate (%) (Ｂ/Ａ)	Remarks
Independent Director	Jeng, Huan-Guei	2	100.00%
Executive and Independent Director	Pan, Wei-Da	2	100.00%
Independent Director	Hsu, Yung-Hao	2	100.00%
Important notices： 1. There was not matter that specified in Article 14-5 of Securities and Exchange Act and matter that failed the approval of the audit committee but undertaken upon the consent of two-thirds or more of all directors in 2015. 2. There was not matter that required recusal of independent directors in 2015. 3. Communications between independent directors, internal auditor and CPA firm 3.1 AIDC internal auditor shall report to the audit committee on a regular basis, however in case of special circumstance, immediate report is necessary. There is no special circumstance occurred in 2015. Independent directors and internal auditor maintain good communication. 3.2 CPA firm shall make a financial statement review report and other matters required by related regulations to the audit committee on a quarterly basis. Independent directors and CPA firm maintain good communication.

• 3.1 AIDC internal auditor shall report to the audit committee on a regular basis, however in case of special circumstance, immediate report is necessary. There is no special circumstance occurred in 2015. Independent directors and internal auditor maintain good communication.

B. Attendance of Supervisors for Board Meetings

A total of 8 meetings of the board of directors were held in the previous period. Supervisor attendance was as follows:

19

Title	Name	Attendance in Person(Ｂ)	Attendance Rate (%)(Ｂ/Ａ)	Remarks
Executive Supervisor	Lin, Chung-Yi	3	75.00%	Discharged after election on June 23, 2015; four attendances required.
Supervisor	Chu, Yung-Fa	4	100.00 %	Discharged after election on June 23, 2015;four attendances required.
Supervisor	Mao, Tai-Chi	3	75.00 %	Discharged after election on June 23, 2015;four attendances required.
Note： An Audit Committee was set up in lieu of supervisors during the election of the seventh term of board of directors on June 23, 2015. Important notices: 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): According to supervisors’ power and obligation, supervisors are eligible to communicate with employees, shareholders and stakeholders at any time. While supervisors were in place, AIDC set up a supervisor’ mailbox at AIDC website for comments and recommendations from the public and employees. The communication channel remains open. (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. An Audit Committee was set up in lieu of supervisors during election of the seventh term of board of directors on June 23, 2015.

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

	Implementation Status	Implementation Status	Implementation Status	Deviations from
				“Corporate
				Governance
				Best-Practice
Item
	Y			Principles for
				TWSE/GTSM Listed
		N	Abstract
				Companies” and
				Reasons
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

20

				Deviations from
				“Corporate
	Implementation Status
				Governance
				Best-Practice
Item
				Principles for
				TWSE/GTSM Listed
	Y	N	Abstract
				Companies” and
				Reasons
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 a plan for the diversity of its members and properly implemented the plan?	�		(I) AIDC has explicitly stated in the “Corporate Governance Guideline for Aerospace 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.	No Significant Variation

21

				Deviations from
				“Corporate
	Implementation Status
				Governance
				Best-Practice
Item
				Principles for
				TWSE/GTSM Listed
	Y	N	Abstract
				Companies” and
				Reasons
(II) Has the Company voluntarily established different types of functional committees further to the mandatory Remuneration 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?	�	� �	(II) Further to the establishment of the Remuneration Committee an Audit Committee was set up on June 23, 2015. (III) AIDC has not yet established the regulation governing the performance evaluation of the Board. (IV) 1.AIDC set up an Audit Committee in June 2015, and one of its major functions is to assess the independence and competency of the external auditors. 2. The Audit Committee shall assess once a year the independence and competency of the CPA firm per following processes and report the result to the Board: 2.1 The Company shall draw up a questionnaire per the “No. 10 Bulletin of Norm of Professional Ethics for Certified Public Accountant of the Republic of China -Integrity, Objectivity and Independence”, and provide it with CPA firm’s declaration of independence and its performance report to the directors and major management departments of the Company for assessment, and shall prepare the assessment report for submittal to Audit Committee. 2.2 Confirm the audit is not conducted by the same external auditors for more than 7 consecutive years 3. The assessment report on the independence and competency of the CPA firm for FY 2015 has been submitted to Audit Committee on Oct. 27, 2015 and was approved and duly recognized by the Board of Directors on November 11, 2015.	AIDC has not yet established various types of functional committees. AIDC has started to study on the institution of the regulations. No Significant Variation

22

				Deviations from
				“Corporate
			Implementation Status
				Governance
				Best-Practice
Item
				Principles for
				TWSE/GTSM Listed
	Y	N	Abstract
				Companies” and
				Reasons
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 reserved for stakeholders on the web pages of the AIDC website at http://www.aidc.com.tw/tw/cse/stakeholder .All the issues of corporate social responsibility concerned by the stakeholders will be duly responded.	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 area reserved for corporate governance on the AIDC website at http://www/aidc.com.tw/tw/investor/gover nance/principle 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 at http://www.aidc.com.tw/tw. 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	�		(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	No Significant Variation

23

				Deviations from
				“Corporate
	Implementation Status
				Governance
				Best-Practice
Item
				Principles for
				TWSE/GTSM Listed
	Y	N	Abstract
				Companies” and
				Reasons
management policy, the implementation of the standard of risk assessment, the implementation of customer policy, the protection of the Directors and Supervisors by professional liability insurance)?			disclosure at MOPS and the system of 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 2015, 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	�		AIDC has uploaded its corporate governance self-assessment report to MOPS.	No Significant Variation

24

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

4.4 Composition, Responsibilities and Operations of Remuneration Committee

4.4.1 Professional Qualifications and Independence Analysis of Committee Members

		Meet One of the Following Professional	Meet One of the Following Professional	Meet One of the Following Professional
	Criteria	Qualification Requirements, Together with at Least			Independence Criteria (Note)
		FiveYearsWork Experience
		An Instructor	A Judge, Public	Have Work
		or Higher	Prosecutor,	Experience in
		Position in a	Attorney,	the Areas of
		Department of	Certified Public	Commerce,
													Number of
		Commerce,	Accountant, or	Law, Finance,									Other Public
		Law, Finance,	Other	or Accounting,
													Ci
		Accounting, or	Professional or	or Otherwise									ompanes	Remarks
													in which the
Title		Other	Technical	Necessary for
		Academic	Specialist Who	the Business of									Individual is
		Department	has Passed a	the Company	1	2	3	4	5	6	7	8	Concurrently
													Servin as a
		Related to the	National										g Committee
		Business Needs	Examination and
													Member
		of the	been Awarded a
		Company in a	Certificate in a
		Public or	Profession
		Private Junior	Necessary for the
		College,	Business of the
	Name	College or	Company
		University
Independent Director	Wu, Hsiu- Kuang	�		�	�	�	�	�	�	�	�	�	0	First
Independent Director	Hsu, En-De	�	�	�	�	�	�	�	�	�	�	�	5	First
Independent Director	Chan, Chia-Ch ang	�			�	�	�	�	�	�	�	�	1	First
Executive and Independent Director	Pan,Wei -Da	�			�	�	�	�	�	�	�	�	0	Second
Independent Director	Jeng,Hu an-Guei			�	�	�	�	�	�	�	�	�	0	Second
Independent Director	Hsu, Yung-H ao			�	�	�	�	�	�	�	�	�	0	Second

• Note：If Remuneration 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

25

persons in the preceding three subparagraphs.

1. 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.

2. 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.

3. 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.

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

4.4.2 Operations of Remuneration Committee

The Remuneration Committee is comprised of three members, and the tenure of three members starts from February 21, 2014 and ends on June 24, 2015. Two meetings were held in the previous period. Ther tenure of the 2[nd] term committee member starts from August 12, 2015 and ends on June 22, 2018. A total of 3 meetings of Remuneration Committee were held in the most recent period. Member attendance was as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate (%)	Remarks (term)
Chair	Wu, Hsiu- Kuang	2	0	100%	First
Member	Hsu, En-De	2	0	100%	First
Member	Chan, Chia-Chang	2	0	100%	First
Chair	Pan, Wei-Da	3	0	100%	Second
Member	Jeng, Huan-Guei	3	0	100%	Second
Member	Hsu, Yung-Hao	3	0	100%	Second
Important notices: 1. If there is any recommendation of the Remuneration Committee which is not adopted by the Board of Directors, specify the date of the BOD meeting, term, contents of the matter, resolution of the BOD and disposition of the Company on the recommendation of the Remuneration Committee (for example: if the BoD’s resolution is better than that recommended by the Remuneration Committee, specify the difference and the reason for difference): None. 2. On the resolution of the Remuneration Committee, if there is any written or otherwise recorded resolutions on which a member of the Remuneration Committee had a dissenting opinion or qualified opinion, specify the date of Remuneration Committee meeting, term, contents of the matter, and opinions of individual members and the disposition: None.

4.5 Social Responsibility Implementation

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
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?	�		(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	No Significant Variation

26

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
(II) Has the Company organized training programs in corporate social responsibility regularly? (III) Has the Company 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?	� � �		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 disadvantaged 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 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.	No Significant Variation No Significant 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?	�		(I) AIDC continues its effort in supporting the policy of the Environmental Protection Administration in making green purchase, and recycling of industrial wastewater and is dedicated in production waste reduction and recycling. The recycling rate is 66.4% in 2015, 67.2% in 2014. The GHG inventory and carbon emission for the recent two years were disclosed in the corporate social responsibility report at website http://www.aidc.com.tw/tw/cse/report.	No Significant Variation

27

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
(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, and proceeds to the inspection of greenhouse gas, establishment of energy saving and carbon reduction, and greenhouse gas emission reduction strategy?	� �		(II) AIDC has 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. 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.	No Significant Variation
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	� � �		(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	No Significant Variation No Significant Variation No Significant Variation

28

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
employees regularly? (IV) Has the Company developed the mechanism for routine 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?	� � � �		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 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	No Significant Variation No Significant Variation No Significant Variation No Significant Variation

29

					Deviations from
					“Corporate Social
	Implementation Status
					Responsibility Best
					Practice Principles
Item
					for
					TWSE/GTSM-listed
	Y	N	Abstract
					Companies” and
					Reasons
(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? (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?	� �		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. (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 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 athttp://www.aidc.com.tw/tw/cser 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” (http://www.aidc.com.tw/Content/File/2634_SOP_CSR_AR019.pdf), 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 stock was listed on TWSE in Aug. 2014, and later in 2015 was included in the “Taiwan High Compensation 100 Index” and “TWSE RA Taiwan Employment Creation 99 Index” by TWSE. The remuneration policy for employees shall maintain a balance among sustainable development of the Company, shareholders’ equity and employee care.

30

1. AIDC utilized its flight engineering resources to support 4 flights of Typhoon Surveillance programs. During the flight observing typhoon Goni, the severe weather condition caused crack of the windshield, however the mission was completed as planned. In support of government’s call for disaster mitigation and rescue, AIDC also carried out 21 flights of emergency medical transportation, including transporting the injured of the recreational water park disaster back to Hong Kong for treatment.

2. Gong Shan Complex (Aero Engine Factory) won the “Award of Excellent Occupational Safety and Health Workplace” presented by Kaohsiung City Government and the “Health Navigator Award for Healthy Workplace” presented by Health Promotion Administration, Ministry of Health and Welfare.

3. AIDC continued to deliver warmth to the disadvantaged with the year-end employee donation activity. The donation was divided and delivered to 3 social welfare organizations, namely Taiwan Lourdes Association (Taichung office), Taiwan Indigenous Dmavun Development Association and Kaohsiung Autism Foundation-Autism Homeland.

4. Through AIDC Volunteer Group AIDC continued to support government agencies and the disadvantaged groups at social welfare activities. In 2015, AIDC volunteers devoted 3549 hours and 133,940 person-times to volunteer service; 28 activity announcements were made through intranet and by volunteers to encourage donation of money and goods as well as to render assistance to the operation of the disadvantaged groups. With all the dedicated service of the volunteers, AIDC was presented “Group Service Award” by Labor Bureau of Taichung City Government this year.

5. AIDC continued to promote volunteer service, encouraged employees’ participation in social welfare groups; moreover, employees initiated and formed the “AIDC NT$100 Children Care Association” to provide tutorial service to the disadvantaged and high risk families, economically disadvantaged families and sponsor activities for the healthy growth of children.

VII. If the corporate social responsibility report has been accredited under specific standard of an accreditation agency, elaborate the detail: No.

4.6 Corporate Conduct and Ethics Implementation

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

Deviations from
“Ethical Corporate
Implementation Status
Management Best
Practice Principles
Item
for
TWSE/GTSM-listed
Y N Abstract
Companies” and
Reasons
I. The making of ethical corporate
management policy and action
plans
(I) Has the Company explicitly � (I) AIDC has established the “AIDC Ethical No Significant
declared its policy, practices of Corporate Management Best Practice Variation
ethical corporate management in Principles”, the “AIDC Management
its internal code and external Personnel Code of Conduct”, and the
documents, and the commitment “AIDC Guidelines for Management of
of the Board and the Materiality and Prevention of Insider
management for the realization Trade” for the effective pursuit of the
of ethical corporate policy of ethical corporate
management? 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) Has the Company designed plans � (II) AIDC has established the “AIDC No Significant
----- End of picture text -----

31

				Deviations from
				“Ethical Corporate
	Implementation Status
				Management Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
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”?	�		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.	Variation No Significant Variation
II. Realization of business integrity (I) Has the Company assessed the track of record of its counterparties in business integrity and explicitly stated the 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	� � � �		(I) AIDC highly treasures business integrity and has explicitly stated in all business contracts that no offering of commission, undue donations and gifts 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. In Jan. 2015 AIDC employees were requested to sign the codes of ethical conduct to confirm their awareness of and compliance with integrity. (IV)AIDC has established an accounting	No Significant Variation No Significant Variation No Significant Variation No Significant

32

				Deviations from
				“Ethical Corporate
	Implementation Status
				Management Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
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?	�		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.	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? (II) Has the Company established related standards for investigation on reported matters and the confidentiality of the reports?	� �		(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 a price as encouragement for the person under relevant guidelines for releasing prizes 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.	No Significant Variation No Significant Variation

33

				Deviations from
				“Ethical Corporate
	Implementation Status
				Management Best
				Practice Principles
Item
				for
				TWSE/GTSM-listed
	Y	N	Abstract
				Companies” and
				Reasons
(III) Has the Company taken appropriate measures to protect the informant for undue treatment due to the report on unethical practices?	�		(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
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.

4.7 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/tw/investor/governance/regulation for disclosure of related rules and regulations of corporate governance.

4.8 Other Vital Information that Helps to Understand the Practice of Corporate Governance

Better: AIDC has installed the “Investor” zone at the official website at

http://www.aidc.com.tw/tw/investor/material for disclosure of vital information.

34

4.9 The Pursuit of the Internal Control System:

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Aerospace Industry Development Corporation Statement of Declaration on Internal Control

Date: February 1, 2016

Aerospace Industry Development Corporation has conducted internal audit in accordance with its Internal Control Regulation covering the period from January 1 to December 31, 2015, 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 February 1, 2016 with the presence of 11 directors in common consent.

Chairman: Liao,Jung-Hsin President: Shiah, Kang

Aerospace Industry Development Corporation

35

• 4.10 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.

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

4.11.1 2015 – 2016 Major Resolutions of Board Meetings

Date	Session	Motions
January 29, 2015	The 15~~th~~special session of the 6th term of the Board	� Declaration of internal control for FY 2014 � Amendment to the Internal Audit Plan for FY 2015 � 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 FY 2015-2016 � Financial report for FY2014 � Proposal for distribution of earnings for FY 2014 � 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
May 5, 2015	The 12thsession of the 6th term of the Board	� Amendment to AIDC Corporate Charter (Articles of Incorporation) � Amendments to the “Rules of Procedure for Shareholder Meetings”, “Procedures for the Election of Directors” and “Operating Procedures for Trading Derivatives” � Addition and amendment to AIDC Audit Committee Charter and essential management regulations � Amendment to the election of the 7thterm of the Board of Directors � Amendment to the calling for the 2015 shareholders’ meeting � Qualification review of independent director candidates nominated by shareholders � Salary adjustment for FY 2015 � Remuneration of AIDC chairman � Bonus of chairman and senior managers for FY 2014 � Principles for remuneration distribution of AIDC chairman and senior managers for FY 2015
June 23, 2015	The 1stspecial session of the 7th term of the Board	� Election of the 7thterm executive directors � Election of AIDC chairman
August 11, 2015	The 1stsession of the 7th term of the Board	� Amendment to the F-16A/B upgrade & maintenance building project � Approval of the 2ndterm of remuneration committee members � Tenure extension of AIDC president � Amendments to AIDC “Internal Audit System”, “Operating Procedures of Internal Audit”, “Rules of Procedure for Board of Directors Meetings”, “Operation Guidelines for Corporate Governance” and “Operation Directions for Flight Crew Service Management”
November 11, 2015	The 2ndsession of the 7th term of the Board	� Distribution of remuneration to directors and supervisors for FY 2014 � Amendment to principles for remuneration distribution of AIDC chairman and senior managers for FY 2015 � Amendments to AIDC “Procedures for Assets Acquisition and Disposition”, “Division of Powers and Obligations of Board of Directors, Chairman and President” and “Remuneration Committee Charter” � Internal audit plan for FY 2016 � Discharge of Senior Vice President

36

December 16, 2015	The 3rdsession of the 7th term of the Board	� Amendment to AIDC Corporate Charter (Articles of Incorporation) � Drafting of “Operation Procedures for Application for Halt and Resumption of Trading” � Employee voluntary retirement plan for 2015 � Work allowances for special working environment � AIDC business plan for 2016
February 1, 2016	The 4thsession of the 7th term of the Board	� Election of 1 Executive Director to fill the vacancy � Calling for the regular session of the General Meeting in 2016 � Declaration of internal control for FY 2015 � Appointment of General Manager of US Subsidiary � Employment of new Senior Vice President � Special resolution of allocation rate for the remuneration to employees and directors for FY 2015 � Principles for remuneration distribution of chairman, president and senior vice presidents for FY2016
March 29, 2016	The 5th session of the 7th term of the Board	� Donation to Tainan earthquake disaster � Business report of FY 2015 � Remuneration to employees and directors for FY 2015 � Financial Report for FY 2015 � Distribution of earnings for FY 2015 � Remuneration of chairman, president and senior vice presidents for FY 2015 � Employee stock ownership trust

4.11.2 2015 Major Resolutions of Shareholders’ Meetings and Implementation Status

Date	Session	Motions	Action Status
June 23, 2015	Regular session of the General Meeting	� Amendment to appropriation of profit and loss for FY 2013 � Financial Report of FY 2014 � Distribution of Earnings for FY 2014 � Amendment to AIDC Corporate Charter (Articles of Incorporation) � Amendment to Rules of Procedure for Shareholders Meetings � Amendment to Operating Procedures for Trading Derivatives � Election of eleven 7thterm directors (including three seats of independent directors) � Lift the ban of the conflict of interest on the Directors	� All motions have been resolved and implemented in due procedure on record. � Distribution of earnings for FY2014: shareholders’ cash dividend was NT$835,600,514; stock dividend was NT$ 0; employees’ cash dividend was NT$67,179,434; and cash remuneration to directors and supervisors was NT$4,198,715.

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

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

			March 31,2016	March 31,2016
Title	Name	Date of Office	Date of Discharge	Cause of Resignation or Discharge
Chairman	Liu, Jieh-Tsern	August 1, 2011	March 2, 2015	Relieved of Office
President	Hsu,Yen-Nien	February3,2012	February1,2016	Retirement

5. Information Regarding Independent Auditors

5.1 Audit Fees

Brackets of the Service Charge for the Certified Public Accountants

37

Accounting Firm	Accounting Firm	Name of CPA	Name of CPA	Name of CPA	Period	Period	Remarks	Remarks
Deloitte & Touche		Done-Yuin Tseng	Ted Cheng		2015
						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			2,997		560		3,557
3	NT$ 4,000,000~6,000,000
4	NT$ 6,000,000~8,000,000
5	NT$ 8,000,000~10,000,000
6	Over NT$10,000,000

Unit：NT$ thousands

	Name of CPA
				Non-audit Fee
Accounting		Audit
								Period	Remarks
Firm		Fee
			System	Company	Human	Others (Note)
							Subtotal
			Design	Registration	Resource
Deloitte & Touche	Done-Yuin Tseng, Ted Cheng	2,997				560	3,557	2015	1. Certification of Project financial statements amounted to NT$310,000 2. Audit of business tax report amounted to NT$164,000 3. Certification of transfer pricing report amounted to NT$86,000

• 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.

• 5.2 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.

• 5.3 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: Comparing with the same period of the previous year, audit fees decreased NT$1,280,000, a drop of 30%. The cause of the change is that AIDC has turned from a state-owned enterprise and a public company into a private company, the audit service charge decreased as a result of new contract negotiations.

6. Information on Change in External Auditors: None.

7. 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 2015.

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

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

38

As of July 16, 2015 (Last Record Date)

Name	Current Shareholding	Current Shareholding	Spouse &	Spouse &	AIDC hhldi	AIDC hhldi	Name and Relationship between AIDC’s Shareholders	Name and Relationship between AIDC’s Shareholders	Remarks
			Minor		Sareong b Ni
			Shareholding		y omnee Arrangement
	Shares	%	Shares	%	Shares	%	Name	Relation- ship
MOEA	415,345,402	45.73%	N/A	N/A	-	-	-	-
Representative： Liao,Jung-Hsin	-	-	-	-	-	-	-	-
Representative： Hsu,Yen-Nien	71,921	0.01%	-	-	-	-	-	-
Representative： Wan,Tung	-	-	-	-	-	-	-	-
Representative： Pao,Chuan	-	-	-	-	-	-	-	-
Representative： Chien,Feng-Yuan	-	-	-	-	-	-	-	-
Representative： Tso,Ao-Nan	53,579	0.01%	-	-	-	-	-	-
Representative： Yu,Cheng-Te	60,863	0.01%	-	-	-	-	-	-
Fubon Life Insurance Co., Ltd.	46,310,000	5.10%	N/A	N/A	-	-	Fubon Insurance Co., Ltd.	Fubon Financial’s Subsidiary Company
Responsible person： Jheng,Ben-Yuan	-	-	-	-	-	-	-	-
Cathay Life Insurance Co.,Ltd.	34,344,000	3.78%	N/A	N/A	-	-	-	-
Responsible person： Tsai,Hung-Tu	-	-	-	-	-	-	-	-
The New Labor Pension Fund	23,633,000	2.60%	N/A	N/A	-	-	N/A	N/A
Karst Peak Asia Master Fund	10,698,000	1.18%	N/A	N/A	-	-	N/A	N/A
The Old Labor Pension Fund	10,135,000	1.12%	N/A	N/A	-	-	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
Responsible person: Chen, Tsan-Huang	-	-	-	-	-	-	-	-
Nan Shan Life	7,848,000	0.86%	N/A	N/A	-	-	-	-

39

Name	Current Shareholding	Current Shareholding	Spouse &	Spouse &	AIDC hhldi	AIDC hhldi	Name and Relationship between AIDC’s Shareholders	Name and Relationship between AIDC’s Shareholders	Remarks
			Minor		Sareong b Ni
			Shareholding		y omnee Arrangement
	Shares	%	Shares	%	Shares	%	Name	Relation- ship
Insurance Co., Ltd.
Responsible person: Tu, Yin-Tsung	-	-	-	-	-	-	-	-
Matthews Asia Small Companies Fund	7,615,000	0.84%	N/A	N/A	-	-	N/A	N/A

10.Proportion of Overall Shareholding: As of December 31, 2015

			Ownership by Directors,	Ownership by Directors,
			Managers and
	Ownership by AIDC				Total Ownership
			Directly/Indirectly Owned
Direct Investment
			Subsidiaries
	Thousand		Thousand		Thousand
		%		%		%
	Shares		Shares		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.

40

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	Authorized Share Capital	Authorized Share Capital	Authorized Share Capital
Stock	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

	Issue	Authorized Share Capital	Authorized Share Capital	Capital Stock	Capital Stock	Remarks	Remarks	Remarks
Month/	Price						Capital Increase by
						Sources of
Year	(Per	Shares	Amount	Shares	Amount		Assets Other than	Others
						Capital
	Share)						Cash
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 July16, 2015 (Last Record Date) / Units：person; shares; %

					Foreign
				Domestic
Type of	Government	Financial	Other Juridical		Institutions
				Natural		Total
Shareholders	Agencies	Institutions	Persons		& Natural
				Persons
					Persons
Number of Shareholders	1	21	119	18,961	89	19,191
Shareholding	415,345,402	113,967,000	76,916,547	211,206,649	90,825,830	908,261,428
Holding Percentage(%)	45.73%	12.55%	8.47%	23.25%	10.00%	100.00%

41

1.3 Distribution Profile of Share Ownership

As of July16, 2015 (Last Record Date)

Shareholder Ownership		Ownership
	Number of Shareholders		Ownership(%)
(Unit: Share)		(Unit: Share)
1 ~ 999	344	75,431	0.01%
1,000 ~ 5,000	13,517	26,396,362	2.90%
5,001 ~ 10,000	1,398	11,729,105	1.29%
10,001 ~ 15,000	407	5,330,597	0.59%
15,001 ~ 20,000	381	7,173,992	0.79%
20,001 ~ 30,000	517	13,498,756	1.49%
30,001 ~ 50,000	889	36,071,204	3.97%
50,001 ~ 100,000	1,481	90,552,982	9.97%
100,001 ~ 200,000	87	12,563,621	1.38%
200,001 ~ 400,000	52	15,216,000	1.67%
400,001 ~ 600,000	22	10,689,000	1.18%
600,001 ~ 800,000	13	9,326,500	1.03%
800,001 ~ 1,000,000	10	9,342,000	1.03%
1,000,001 ~ 2,000,000	16	21,157,000	2.33%
Over 2,000,001	27	639,135,627	70.37%
Total	19,191	908,261,428	100%

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 July16, 2015 (Last Record Date)

Shareholders	Total Shares Owned	Ownership (%)
MOEA	415,345,402	45.73%
Fubon Life Insurance Co., Ltd.	46,310,000	5.10%
Cathay Life Insurance Co., Ltd.	34,344,000	3.78%
The New Labor Pension Fund	23,633,000	2.60%
Karst Peak Asia Master Fund	10,698,000	1.18%
The Old Labor Pension Fund	10,135,000	1.12%
Schroder International Selection Fund Asian Smaller Companies	9,299,000	1.02%
Fubon Insurance Co., Ltd.	8,000,000	0.88%
Nan-shan Life Insurance Co., Ltd.	7,848,000	0.86%
Matthews Asia Small Companies Fund	7,615,000	0.84%

42

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

Units：NT$ dollar/shares

			2014	2015	1/1/2015~3/31/2016
	Item
			(Note 1)	(Note 1)	(Note 1)
Market Price Per Share (Note 1)	Highest		42	46	42.90
	Lowest		25.15	32.85	36.30
	Average		35.45	39.24	39.24
Net Worth Per Share	Before Distribution		11.33	12.69	13.21
	After Distribution		10.02	11.33(Note 6)	－
Earnings Per Share	Weighted Average Shares(thousand shares)		908,262	908,262	908,262
	Earnings Per Share(Note 2)		2.06	2.23	0.53
Dividends Per Share	Cash Dividends		0.92	1.36 (Note 6)	－
	Stock dividend	Capitalization of Retained Earnings	－	－	－
		Capitalization of Capital Surplus	－	－	－
	Accumulated Undistributed Dividend(Note 4)		－	－	－
Return on Investment (Note 2)	Price/Earnings Ratio(Note 3)		17.21	17.60	－
	Price/Dividend Ratio(Note 4)		38.53	28.86(Note 6)	－
	Cash Dividend Yield(Note 5)		2.60%	3.47%(Note 6)	－

Note 1: The highest and lowest market price per common share in respective years; and the annual average market price is calculated based on the annual trading value. Note 2: As the earnings per share is subject to retroactive adjustment due to stock dividend distribution, specify the value before and after the adjustment. Note 3：Price/Earnings Ratio = Average Market Price/Diluted Earnings Per Share Note 4：Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share Note 5：Cash Dividend Yield = Cash Dividends Per Share/ Average Market Price Note 6：Net value per share and earnings per share shall be those audited by the CPA for the quarter preceding the date of printing of the annual report; others shall be current year data up to the printing of the annual report.

1.6 Dividend Policy of the Company and the Implementation

1.6.1 Dividend Policy of the Company

Based on the draft amendment to Article 28-1 of the Company’s Articles of Incorporation: On allocating the annual earrings, the Company shall first pay the income tax, offset the losses of previous years, set aside 10% as a legal reserve except that the legal reserve has equaled the total capital of the Company; then set aside a special reserve in accordance with relevant laws or regulations. The residual earnings will be appropriated 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, 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.

However, if there is no earnings for distribution in the current year, or if the amount of the earnings is far less than the actual earnings for distribution of the previous year, or in consideration of financial, business, operational, or other related factors, the Company shall distribute all or part of

43

the reserve according to the laws or regulations of the competent authorities.

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

AIDC has corporate earnings of NT$ 2,029,169 thousand in FY 2015. The appropriations of earnings for FY 2015 was proposed to and approved by the Company’s board meeting on March 29, 2016. The appropriations and dividends per share were as follows:

• (1) The appropriation of legal reserve (10%) totals NT$202,917 thousand.

• (2) The appropriation of special reserve (30%) totals NT$608,751 thousand. This pool of capital is reserved for the investment in fixed assets.

• (3) After setting aside the aforesaid reserves and adding the beginning retained earnings and other adjustments (or reversals) to the earnings net in the current period, the amount of earnings for distribution is NT$1,241,808 thousand. It is proposed to disburse cash dividend at NT$1.36/share (the calculation rounded to two decimal places), a total of NT$1,235,236 thousand which is 99.47% of the earnings for distribution. The unappropriate retained earnings is NT$6,572 thousand.

• Note: The draft amendment to the Article of Incorporation and the appropriations of earnings are subject to the resolution of the shareholders’ meeting to be held on June 14, 2016.

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 Remuneration to Empolyees and the Directors ：

1.8.1 The Percentage or Scope of Remuneration to Employees and the Directors and Supervisors Provided in the Articles of Incorporation

In the event of earnings, the Company shall set aside not less than 0.58% and not more than 4.65% of EBT as remuneration to employees, while not more than 0.58% of EBT as remuneration to directors. However if the Company sustains an accumulated loss, amount of which shall be set aside to cover the loss.

1.8.2 In the event of a discrepancy between the basis for the estimation of remuneration of employees, 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:

For FY 2015, the remuneration to employees was NT$ 115,426 thousand and remuneration to the directors and supervisors was NT$14,397 thousand. The estimation of distributions is based on related part in the Articles of Incorporation, the remuneration to employees, directors and supervisors represented 4.65% and 0.58% of net income (net of the remuneration). The share dividend was not proposed in earnings distribution category.

If there is any difference between such estimated amounts and the amounts resolved by the General Meeting of Shareholders, the difference shall be adjusted in the year of the General Meeting of Shareholders.

1.8.3 Proposal for Distribution of Earnings Passed by the Board:

• (1) Employees’ cash/stock remuneration and remuneration to the directors:

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Following amounts are approved by the board：

• (A) employee cash remuneration：NT$ 115,426 thousand

• (B) employee share dividend：NT$ 0

• (C) remuneration to the directors and supervisors：NT$14,397 thousand

The Board resolved earnings distribution proposal for FY 2015, and the total amount

of remuneration to employees, directors and supervisors was the same as that recognized in the financial statements.

• (2) Number of shares proposed as employee remunertion and relative percentage to capitalized earnings：

No share dividend was proposed as the employee remuneration.

• 1.8.4 The difference between the employee bonus and remuneration to the directors (including the quantity of shares, amount and stock price) of the previous fiscal period actually disbursed, and the recognized employee bonus and remuneration to the directors, and explain the difference, if applicable, and cause of the difference and the response:

It was resolved by the Shareholders' Meeting on June 23, 2015 that for FY 2014 the amount disbursed for employee bonus was NT$67,179 thousand, remuneration to the directors and supervisors was NT$4,199 thousand, and no employee share dividend was proposed. There is no difference between the said amount and that recognized in the financial statements.

• 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.

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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 Vehicles”, “Engines”, and “Industrial Technology Services” in the following proportions:

Unit：NT$ thousands

Product Category	2014	2014	2015	2015
	Amount	%	Amount	%
Maintenance of Airplanes and Vehicles(Note 1)	14,908,055	59.81	15,196,514	56.54
Engines(Note 2)	9,592,657	38.49	11,130,551	41.41
Industrial TechnologyServices	423,327	1.70	551,091	2.05
Total	24,924,039	100.00	26,878,156	100.00

Note 1: Airplanes and Vehicles Maintenance: including military and commercial planes and vehicles maintenance.

Note 2: Engines: including military and commercial engines.

1.1.3 Running Products (Services) of the Company

AIDC runs the merchandises (services) for defense, commercial 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.

Commercial aviation business includes the design and OEM production of airframe structure and sub-assembly parts, and the design, processing and OEM production of international commercial 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 after-sales 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 advanced trainer and the next generation jet fighter, and expand business in military aircraft and fleet maintenance and GOCO.

In the area of commercial aviation, AIDC plans to develop the parts and components of new commercial planes and engines under risk sharing plan, and expand business in large engine case and overall maintenace of engines.

In the area of industrial technology, AIDC plans to develop green energy engineering, information service, and 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

Defense business in Taiwan lies with the defense budget of the government. Although defense

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budget varied in recent years, it remained at a steady level to support performance upgrade of fighters and advanced trainer replacement project, and at the same time maintain the military power.

While the F-5 fighters have reached its service life and the AT-3 jet trainers have been in service for thirty years, the Air Force has an imminent requirement for replacement. The Ministry of National Defense (MND) has drawn up a budget plan of NT$70 billion to acquire new advanced trainers.

To meet the combat requirement with limited defense budget, performance upgrade and life extension of the aging military aircraft become viable choices. Furthermore, while the MND is working on downsizing and streamlining the armed forces, there stands a good chance for the MND to release the commercial maintenance of military aircraft and government-owned contractor-operated (GOCO) businesses to the private sector.

1.2.1.2 Commercial Aviation

According to the market forecast released by Airbus and Boeing, for the next 20 years air passenger turnover volume will grow at an annual rate of 4.6%-4.9%, with the new aircraft requirement between 32,585-38,050, and a total production value of US$4.9-5.6 trillion. New aircraft featuring lightweight, fuel efficient, and low pollution will be the mainstream product in the market. This also drives for new waves of replacement for new aircrafts by the aviation industry. Composite materials remains an indispensable part in the development. The table depicting 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 engines.

Boeing’s forecast on new aircraft requirement in the next 20 years

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

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

Source：Boeing Current Market Outlook 2015-2034, June. 2015

Airbus’s forecast on new aircraft requirement in the next 20 years

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==> picture [266 x 134] intentionally omitted <==

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

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----- End of picture text -----

Source： Airbus GMF (Global Market Forecast 2015-2034), May. 2015

1.2.2 The Association of the Upper-, Middle- and Lower-Stream of Industries

In general, the international aerospace and aircrafts and engines supply chains can be classified into 4 tiers: components/materials supplier (Tier 4), parts supplier (Tier 3), subsystems supplier (Tier 2), (cabin-mounted equipment, module segment critical components) and main structure supplier (Tier 1), and aero 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 [471 x 235] intentionally omitted <==

Sources: complied by AIDC

In the area of aircraft manufacturing, Boeing, Airbus, and Bombardier are the manufacturers of the whole aircraft. GE, Rolls-Royce, Snecma, Pratt & Whitney, and Honeywell and their subsidiaries are the major aero engine manufacturers who are capable of providing engine and aircraft assembly to meet the requirements of Boeing, Airbus and Bombardier

AIDC is a key member of the global aerospace industry supply chain, and is the leader in the aerospace industry of Taiwan providing aircraft structural parts and engine sub-assembly components 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. After receiving orders from major international firms, in addition to manufacturing and assembly at its Taichung, Sha Lu and Gang Shan Complexes, AIDC outsources part of the parts and components business to its suppliers. The relation of the upper-, middle-, and lower-stream of the aerospace industries in Taiwan is shown in the chart below.

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

==> picture [386 x 15] intentionally omitted <==

==> picture [386 x 14] intentionally omitted <==

==> picture [386 x 177] 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 MND’s policy of downsizing and streamlining the armed forces, the maintenance of military aircraft has been outsourced to the private sector. This trend will be developed further in stable paces.

In commercial aviation, both Boeing and Airbus forecast that lightweight, fuel efficient and environtal friendly new aircrafts will be the mainstream product in market. This will drive for further demand for replacement of new aircraft in the aviation industry of which composite materials play 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 performance upgrade and subsequent maintenance of the IDF “Ching Kuo” fighters and AT-3 jet trainers 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 Commercial Aviation Business

Key aircraft and engine manufacturers 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. To avoid this kind of cutthroat competition, AIDC has already oriented towards the development of system parts and components and seeked to engage in the value-added aircraft segments and engine components, and proactively launched the operation of the industrial satellite subcontract system so as to gain an edge in the competition.

1.2.4.3 Industrial Technology Service Business

AIDC mainly uses its aerospace technology on hand to provide the 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 gained an edge in the competition.

1.3 Overview of Technology and R&D

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

Item	2014	2015
R&D Expenditures	659,149	439,262
Net Revenue	24,924,039	26,878,156
% of Revenue	2.64%	1.63%

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

Item	Technologyor Product	Result
1	General railway driving simulator software modularization project	The General Railway Driving Simulator Software Modules have been well applied in the software development of HK MTR Simulator Project and Thailand Bangkok MRT Purple Line Simulator Project. The Software Requirement Trace System facilitates systematic software requirement tracking function, which complies with the general requirements on supplier management for international railwaysimulatorproject.
2	Avionics EMC OFP software and hardware enhancement	The capabilities established by this research program can be used by the following NMC software and hardware development in order to solve the DMS problem of the current IDF MC.
3	Development of complex thin-wall structure part	Honeywell diffuser (3092100-111) passed the Honeywell certification. We have established the non-contact measurement system applied to the measurement of casting dimension, wax pattern and ceramic core. The system we have can effectively solve the variation problem of part dimension inprocess.

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Item	Technologyor Product	Result
4	Engine nacelle composite and developed the inspection technology for Acoustic parts	Completed and established the capacity for acoustic reticulation process on OPB (One Piece Barrel) acoustic parts refer to potential relevant business.
5	Thin-Wall engine cases machining optimization project	In the process of RR XWB HP/IP engine case NC program optimization, by applying the accumulated machining experience, and combining the automatic optimizing software developed by ITRI and research achievement of difficult-to-machine material by NCUT, the total machining time has been improved by 9.7%. Through introducing computerization, systematization and digitalization into conventional machining, the quality and efficiency of engine case manufacturing have been enhanced.
6	Improve the capability for manufacturing composite parts	6.1 Completed equipment and process qualification from Boeing Company for Automated Tape Laying (ATL) Machine, Hot Drape Forming (HDF), and three items of B787 WP03 program. 6.2 Successfully performed and verified the 2-nd bond process qualification for composite parts of MRJ Program. 6.3 Developed spring-back measurement & adjustment technique capability for electro-formed nickel mold. 6.4 Established the Auto-feed drilling capability for Assembly Composite parts. 6.5 Improved the cutting capability of Robot Machine for Composite parts and developed the supporting system of equipment.

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.

• 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: Provide quality- and schedule-compliant service to carry out 2[nd] phase fighter performance upgrade program and F-16A/B upgrade program, and seek maintenance contracts of aircraft fleets and the integration of self-developed models.

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• 1.4.1.2 Long Run: Pursue the contract for the replacement of the self-developed or co-produced advanced trainer of the ROC air force and related business for the new generation fighters, develop the business for the commercial maintenance of military aircraft, shop maintenance and repairs and the repairs and maintenance work of the 1st and 3rd Logistics Commands.

1.4.2 Commercial Aviation Business

• 1.4.2.1 Short Run : Implement lean manufacturing and capacity expansion, pursue high value-added aircraft segment and engine components business, expand business scale and improve business profit, fortify relation with international supply chain and form strategic partnership with international companies such as Boeing and GE.

• 1.4.2.2 Long Run: Integrate competitive edge of Taiwan suppliers, provide assistance to upgrade the supply chain performance, establish long-term and stable cooperation with subcontractors, and enhance competitiveness of regional aerospace industry.

1.4.3 Industrial Technology Service

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

• 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.
Commercial 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, Tung’s Taichung MetroHarbor 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 Commercial Aviation Business

AIDC has emerged as a strategic partner of major aerospace industrial firms of the world and

52

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 occupies a small portion 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

In view of the existing service and future combat requirements for jet fighters of the ROC Air Force, in order to maintain combat power and improve aircraft availability, requirements for replacement and upgrade are growing. As such, AIDC has the opportunity for growth in the supply of weapon systems for the armed forces, the maintenance of different types of military aircraft, and the government-owned, contractor-operated business.

2.1.3.2 Commercial 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. The falling oil price may be an advantage to the commercial aircraft business as new aircraft requirements remain strong, yet it poses short-term setback to commercial helicopter business as requirements for offshore platform transportation go weak. In the long run, the oil price effect should be observed.

In response to the development trend of lightweight, energy and fuel efficient aircraft of the aerospace industry, AIDC has invested in the TACC and engine case center to meet 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 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 Commercial aviation Business

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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 commercial 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

Growing Demands for Cost Down from International Companies, Cutthroat Competition in OEM Production and the Threat of Trade Order Displacement

The cost down demands from international companies have grown into a great pressure. Whether it is Boeing’s “Partnering for Success” or Airbus’s “Scope+” supplier strategy, they all tend to bind new business opportunity with demand for cost reduction during negotiation.

Response

AIDC will upgrade and refine the core competence 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.

2.2 The Primary Purpose of Main Products and the Production Process

2.2.1 Primary Purpose

Product Category Purpose Maintenance of Airplanes Defense, combat training, commercial aircraft, commercial

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and Vehicles	helicopters, aircraft aviation control/navigation/monitoring, maintain normal operation/function of aircrafts/engines/avionics within the life span.
Engines	Engine for aircrafts,industrial use engines.
Industrial Technology Services	Large-scale engineering system is applicable to national infrastructure, aerospace technology is applicable to the research and manufacturing of high value-added industry and common household products/technology services to upgrade the industrial level of Taiwan.

2.2.2 Production Process

==> picture [483 x 259] intentionally omitted <==

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	The key suppliers of aluminum, steel, titanium plate, sheet, tube, rod, and molded forms of metals in market.

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==> picture [261 x 159] intentionally omitted <==

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

UAC
FUTURE
CYTEC
HEXCEL
Non-metals 3M The key suppliers of composite materials,
PPG rubber, paints, and cell devices in market.
EURO
WESCO
KLX
Standard metal ALCOA The key suppliers of standard metal parts,
parts TE electronic parts.
PEERLESS
C.F.W.
S.F.C.
Finished items and
PCC As per the request of the customers.
standardized parts F.R.C.
L.M.O.C.
----- End of picture text -----

• 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 2014, FY 2015 and Q1 of FY 2016 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;/%

	2014	2014	2014	2014	2015	2015	2015	2015	1/1/2016~3/31/2016	1/1/2016~3/31/2016	1/1/2016~3/31/2016	1/1/2016~3/31/2016
Item											% of Q1
			% of 2014				% of 2015
											of 2016	Relation
	Customer	Amount	Total Net	Relation	Customer	Amount	Total Net	Relation	Customer	Amount
											Net	to AIDC
			Revenue	to AIDC			Revenue	to AIDC
											Revenue
1	A	9,072,920	36.40	None	A	11,594,157	43.14	None	A	2,522,271	39.85	None
2	B	4,182,591	16.78	None	B	4,093,160	15.23	None	B	1,098,437	17.36	None
	Others	11,668,528	46.82		Others	11,190,83 9	41.63		Others	2,708,309	42.79	None
	Net Revenue	24,924,039	100.00		Net Revenue	26,878,156	100.00		Net Revenue	6,329,017	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 for FY 2014, FY 2015 and Q1 of FY 2016 is based on the audited figures under IFRSs, and audited figures under IFRSs, respectively.

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

Year	2014	2014	2014	2015	2015	2015
Val. & Vol. Product	Production	Production	Production	Production	Production	Production
	Capacity	Volume	Value	Capacity	Volume	Value
Maintenance of Airplanes and Vehicles	－	－	13,787,947	－	－	14,281,121
Engines	－	－	8,417,489	－	－	9,635,087
Industrial Technology Services	－	－	329,313	－	－	428,126
Total	－	－	22,534,749	－	－	24,344,334

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.

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Note 2: The items of engines for delivery including spare parts, service, and OEM order for commercial engines of foreign countries.

Note 3: The financial information for FY 2014 and FY 2015 is based on the audited figures under IFRSs.

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

Year
	2014				2015
Val. & Vol. Product
	Domestic		Foreign		Domestic		Foreign
	Qty	Amount	Qty	Amount	Qty	Amount	Qty	Amount
Maintenance of Airplanes and Vehicles	－	6,858,672	－	8,049,383	－	8,127,868	－	7,068,646
Engines	－	2,153,763	－	7,438,894	－	3,391,533	－	7,739,018
Industrial TechnologyServices	－	375,788	－	47,539	－	419,261	－	131,830
Total	－	9,388,223	－	15,535,816	－	11,938,662	－	14,939,494

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 spare parts, service, and OEM order for commercial engines of foreign countries.

Note 3: The financial information for FY 2014 and FY 2015 is based on the audited figures under IFRSs.

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

				1/1/2016~
	Year	2014	2015
				3/31/2016
Job	VP and higher	6	6	6
	Level I Executives	22	21	21
	Others	3,124	3,740	4328
	Total	3,152	3,767	4355
Average Age(years)		50.9	48.4	46.4
Average Years of Service(years)		16.5	15.0	12.9
Education	Ph.D.	0.6%	0.56%	0.51%
	Master’s	20.1%	18.00%	16.78%
	Bachelor’s	26.1%	28.48%	31.34%
	Other Higher Education	30.8%	28.27%	26.41%
	High School	21.3%	23.92%	24.43%
	Junior High and below	1.1%	0.77%	0.53%

4. Information on Expenditures for Environmental Protection

In the last 2 years to the date this report is 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 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 had exceeded 1 year. The petition was supposed to be made 2 months prior to the expiration date. As a result, a fine of NT$ 60,000 was imposed and AIDC has to receive 2 hours of training course on environmental protection.

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

• 4.2.1 329 groundwater remediation wells in 6 different independently working Bio barriers including single injection bio stimulation wells were installed on AIDC production site. The result of the biological groundwater circulation was very efficient. After the full remediation system starts up the groundwater pollution plumb was cut off and the contamination distribution out of the AIDC production location was contained or stopped, as a result the circulation system of bio barrier No. B4 was stopped at the end of 2015. The full industrial site of AIDC stands now under permanent groundwater monitoring.

• 4.2.2 AIDC conducted resident health risk assessment. Based on the exposure assessment, residents went through urine test and only low TCA was found. The remediation result was reported to the Environmental Protection Bureau on Nov. 18, 2015, and confirmed that health risk assessment is not necessary pursuant to the Soil and Groundwater Pollution Remediation Act. AIDC shall continue to monitor the remediation status and shall initiate health checkup if needed.

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

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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 expenses and major disasters. It also helps to launch the Employee Assistance Programs (EAPs) , including: individual and family consultation assistance, project for balancing work and living, psychological health assessment, assistance for employees in sickness and injury and group support, care 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

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officers and employees of related business are competent for the duties. This year, the Company is dedicated to promoting aerospace industry professional competency plan and has developed the competency models for various professions of the industry. Planning for training and application of related competency is in process. This will help to upgrade the quality of the work force and competitiveness 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 Two meetings on the implementation of collective agreement were held with the labor union on April 24 and December 17, 2015 respectively to ensure rights of employees were duly protected.

• 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

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

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
PFW	Commercial aircraft components andparts 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		Financial Information Covering the Last 5 Years
Title		2011	2012	2013	2014	2015	2016 Q1
Current Assets		－	12,940,440	14,830,381	18,942,251	21,185,744	23,775,120
Financial Assets on the Basis of Cost–Noncurrent		－	46,200	46,200	46,200	46,200	46,200
Investment Accounted for under the Equity Method		－	239,031	304,107	482,193	665,521	676,895
Real Properties, Plants, and Equipment		－	5,231,047	5,114,956	4,853,536	5,713,002	5,800,041
Intangible Assets		－	1,012,225	830,455	339,894	412,054	512,246
Other Assets		－	91,121	449,168	662,026	681,661	706,646
Total Assets		－	19,560,064	21,575,267	25,326,100	28,704,182	31,517,148
Current Liabilities	Cum-dividend	－	5,967,845	6,658,430	12,932,282	13,765,578	16,467,623
	Ex-dividend	－	5,967,845	6,658,430	12,860,904	(Note 4)	－
Non-current Liabilities		－	6,539,127	6,517,738	2,100,316	3,412,009	3,051,343
Total Liabilities	Cum-dividend	－	12,506,972	13,176,168	15,032,598	17,177,587	19,518,966
	Ex-dividend	－	12,506,972	13,176,168	14,961,220	(Note 4)	－
Shareholders’ Equity Attributable to the Parent Company		－	7,053,092	8,399,099	10,293,502	11,526,595	11,998,182
Capital Stock		－	9,082,615	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	2,413,365	2,897,158
	Ex-dividend	－	(2,010,992)	(671,870)	4,142	(Note 4)	－
Other Equity		－	(18,531)	(11,646)	11,254	30,615	18,409
Treasury Stock		－	－	－	－	－	－
Uncontrolled Equity		－	－	－	－	－	－
Total Equity	Cum-dividend		7,053,092	8,399,099	10,293,502	11,526,595	11,998,182
	Ex-dividend		7,053,092	8,399,099	9,098,011	(Note 4)	－

Note 1: The basis of comparison for FY 2012, FY 2013, FY 2014, FY 2015 and Q1 of FY 2016 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 figures for FY 2012-FY 2015 are information on parent company only, Q1 of FY 2016 is consolidated financial statements information. Note 3: The proposal for distribution of earnings for FY 2014 has been approved by the General Meeting on June 23, 2015.

Note 4: Up to the date of the printing of annual report, proposal for distribution of earnings for FY 2015 has not been resolved by the shareholders’ meeting.

1.1.1.2 Condensed Comprehensive Income Statement:

Unit：NT$ thousands

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
Title	2011	2012	2013	2014	2015	2016Q1
Revenue	－	22,603,096	23,086,459	24,924,039	26,878,156	6,329,017
Gross Profit	－	2,345,318	2,266,580	2,765,133	3,251,707	976,518
OperatingIncome	－	1,476,365	1,264,424	1,454,433	2,153,717	725,009
Non-operating Income and Expenses	－	(236,249)	108,394	384,173	328,567	(152,275)
Earnings before Taxation	－	1,240,116	1,372,818	1,838,606	2,482,284	572,734
Earnings for Continued Operations	－	1,240,116	1,275,864	1,871,503	2,029,169	483,793

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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
Title	2011	2012	2013	2014	2015	2016Q1
Earnings for Discontinued Operations	－	－	－	－	－	－
Earnings in Current Period	－	1,240,116	1,275,864	1,871,503	2,029,169	483,793
Other Incomes in Current Period(after taxation)	－	(386,640)	70,143	22,900	39,525	(12,206)
Total Incomes in Current Period	－	853,476	1,346,007	1,894,403	2,068,694	471,587
Earnings Attributable to Parent Shareholders	－	1,240,116	1,275,864	1,871,503	2,029,169	483,793
Earnings Attributable to Uncontrolled Equity	－	－	－	－	－	－
Total Comprehensive Incomes Attributable to Parent Shareholders	－	853,476	1,346,007	1,894,403	2,068,694	471,587
Total Comprehensive Incomes Attributable to Uncontrolled Equity	－	－	－	－	－	－
Earningsper Share(NTD)	－	1.37	1.40	2.06	2.23	0.53

• Note 1: The basis of comparison for FY2012, FY2013, FY2014, FY2015 and Q1 of FY2016 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 for FY2012-FY2015. As such, the aforementioned figures are information on parent company only. Q1 of 2016 is consolidated financial statements information.

1.1.2 Condensed Balance Sheet and Income Statement – ROC SFAS

1.1.2.1 Condensed Balance Sheet:

Unit：NT$ thousands

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
Title		2011	2012	2013	2014	2015
Current Assets		14,779,813	12,940,039	－	－	－
Funds and Investment		350,302	312,327	－	－	－
Fixed Assets		5,487 ,708	5,295,073	－	－	－
Intangible Assets		31,501	50,988	－	－	－
Other Assets		699,869	961,638	－	－	－
Total	Assets	21,349,193	19,560,065		－	－
Current Liabilities	Cum-dividend	8,529,053	5,731,766	－	－	－
	Ex-dividend	8,529,053	5,731,766	－	－	－
Long-term Liabilities		2,309,945	1,556,054	－	－	－
Other Liabilities		2,973,157	3,779,626	－	－	－
Total Liabilities	Cum-dividend	13,812,155	11,067,446	－	－	－
	Ex-dividend	13,812,155	11,067,446	－	－	－
Capital Stock		9,082,615	9,082,615	－	－	－
Capital Surplus		0	0	－	－	－
Retained Earnings	Cum-dividend	(1,423,462)	(175,165)	－	－	－
	Ex-dividend	(1,423,462)	(175,165)	－	－	－
Unrealized Gain/Loss of Financial Assets		(420)	(113)	－	－	－
Adjustment of Accumulated Conversion		(1,585)	(20,003)	－	－	－

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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
Title		2011	2012	2013	2014	2015
Net Loss not Recognized as Pension Cost		(120,110)	(394,715)	－	－	－
Total Shareholders’ Equity	Cum-dividend	7,537,038	8,492,619	－	－	－
	Ex-dividend	7,537,038	8,492,619	－	－	－

Note 1: The figures of 2011~2012 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.

1.1.2.2 Condensed Income Statement:

Unit：NT$ thousands

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
Title	2011	2012	2013	2014	2015
Revenue	20,095,657	22,603,096	－	－	－
Gross Profit	2,039,627	2,352,860	－	－	－
OperatingIncome	1,294,179	1,484,546	－	－	－
Non-operating Incomes and Profits	309,003	200,946	－	－	－
Non-operating Expenses and Loss	475,432	437,194	－	－	－
Earnings of Continued Operations before Taxation	1,127,750	1,248,298	－	－	－
Earnings of Continuing Operations	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	1,127,750	1,248,298	－	－	－
Earningsper Share(NTD)	1.24	1.37	－	－	－

Note 1: The figures of 2011~2012 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

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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 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 Period: 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
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
2015	Deloitte & Touche	Done-Yuin Tseng, Ted Cheng	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

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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.: None.

3. Financial Analysis in the Last 5 Years

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

	Fiscal Year	Financial Analysis Coveringthe Last 5 Years	Financial Analysis Coveringthe Last 5 Years	Financial Analysis Coveringthe Last 5 Years	Financial Analysis Coveringthe Last 5 Years	Financial Analysis Coveringthe Last 5 Years	Financial Analysis Coveringthe Last 5 Years
Title		2011	2012	2013	2014	2015	2016Q1
Financial Structure (%)	Liabilities to Assets Ratio	－	63.94	61.07	59.35	59.84	61.93
	Long-term Capital to Real Properties, Plants, and Equipment Ratio	－	164.58	180.58	226.34	235.38	235.15
Ability to Pay Debt (%)	Current Ratio	－	216.84	222.73	146.47	153.90	144.37
	Quick Ratio	－	89.74	116.44	68.45	62.27	62.69
	Debt Service Coverage Ratio	－	19.67	36.93	29.61	19.60	19.29
Utility	A/C Turnover Rate (times)	－	5.80	5.82	4.81	4.28	3.34
	Average Daily Cash Receipt	－	63.00	62.71	75.88	85.28	109.28
	Inventory Turnover Rate(times)	－	2.20	2.38	2.47	2.33	1.89
	A/P Turnover Ratio (times)	－	12.74	11.94	13.60	16.46	13.45
	Average Days of Sales	－	166.00	153.36	147.77	156.65	193.12
	Real Properties, Plant and Equipment Turnover Rate (times)	－	4.25	4.46	5.00	5.08	4.39
	Total Assets Turnover Rate (times)	－	1.11	1.12	1.06	0.99	0.84
Profitability	Return on Assets (%)	－	6.33	6.35	8.20	7.92	6.77
	Return on Equity (%)	－	18.71	16.51	20.02	18.59	16.45
	EBT to Paid-in Capital Ratio(%)	－	13.65	15.11	20.24	27.33	6.30
	Net Profit Rate(%)	－	5.49	5.52	7.50	7.54	7.64
	EPS(NTD)	－	1.37	1.40	2.06	2.23	0.53
Cash Flow	Cash Flow Ratio (%)	－	90.37	42.93	－	17.47	－
	Cash Flow Suitability Ratio (%)	－	127.32	172.74	132.31	140.02	97.89
	Cash Reinvestment Ratio(%)	－	23.78	11.67	－	6.38	－
Leverage	Operation Leverage	－	2.83	2.74	2.27	1.68	1.34
	Financial Leverage	－	1.05	1.03	1.04	1.06	1.04

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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 debt service coverage ratio of FY 2015 is lower than that of FY 2014, mainly because of the increase in the interest of the bank loans.

2. The A/P Turnover Ratio of FY 2015 is higher than that of FY 2014, mainly because of the continued growth of the aerospace industry which resulted in the increase of revenue and eventually the increase of the cost.

3. The EBT to Paid-in Capital Ratio of FY 2015 is higher than that of FY 2014 mainly because of the prosperity of the international aerospace industry market that drives the growth of customer requirement; increase of gross profit of engine products; and the decrease of R&D expense.

4. Cash flow ratio and cash flow reinvestment ratio of FY 2015 are higher that those of FY 2014 mainly because of the net cash used in the settlement of service seniority of the employees under privatization in 2014, and the increase in cash provided by the growth of operation performance of FY 2015.

5. The Operation Leverage of FY 2015 is lower than that of FY 2014 mainly because of the growth of operation performance that leads to the increase of operating profit.

6. Note 1: The basis of comparison for FY 2012, FY 2013, FY 2014, FY 2015 and Q1 of FY2016 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.

7. Note 2: AIDC is not required to prepare consolidated financial statements for FY 2012- FY 2015. As such, the aforementioned figures are information on parent company only; Q1 of FY 2016 is consolidated financial statements.

8. Note 3: The equation for calculation in this sheet:

9. Financial structure (1) Liabilities to assets ratio = total liabilities / total assets

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

11. Ability to pay debt (1) Current ratio = current assets/ current liabilities

12. (2) Quick ratio = (current assets – inventory – other financial assets – other current assets)/ current liabilities (3) Debt service coverage ratio = EBIT/ interest expenses in current period

13. 1. Utility (1) Receivables (including account receivables and note receivables deriving from business operation) turnover rate = net sales/ average receivables (including account receivables and note receivables deriving from business operation) in relevant periods.

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

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

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

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

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

19. (7) Total assets turnover = net sales / average total assets

20. Profitability (1) Return on assets = [Earnings (loss) net + interest expense x (1-tax rate)]/average total assets

21. (2) Return on equity = Earnings (loss) net / average total equity

22. (3) EBT to paid-in capital ratio = Earnings (loss) net / average paid-in capital

23. (4) Net profit rate = Earnings (loss) net / net sales

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

25. Cash flow

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

27. (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

28. (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) (Note 5)

29. Leverage

30. (1) Operation leverage = (net sales – operating variable cost and expense) / operating income (Note 6)

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

Note 4: On applying the equation for calcuation of the earnings per share, following factors shall be noted:

1. The calculation is based on the weighted average quantity of common shares, not the number of the outstanding issued shares at year end.

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1. In the case of capital increased by cash or trade of treasury stock, time of the circulation shall be considered in calculating weighted average shares.

2. In the case of capital increase by earnings recapitalization, on calculating earnings per share for the previous fiscal year and 1/2 fiscal year, the calculation shall be retrospected and adjusted per the ratio of capital increase, not the period of issuance.

3. If the stock is non-convertible cumulative preferred stock, the dividend of the current year (whether distribute or not) shall be deducted from net profit or added to net loss. If the preferred stock is non-cumulative, in the case of net earnings, dividend of the preferred stock shall be deducted from net earnings; no adjustment is required in the case of loss.

4. Note 5: On cash flow analysis, following factors shall be noted:

5. Net cash flow provided by operating activity refers to the net cash inflow provided by operating activity in the Statement of Cash Flows.

6. Capital expense refers to the cash flow of capital investment each year.

7. Inventory increase shall only be recorded when the amount at the end of the period is greater than that of the beginning of the period; if less, the number 0 shal be recorded.

8. Cash dividend includes cash dividend of common share and preferred share.

9. Gross value of real properties, plant and equipment refers to the total value of real properties, plant and equipment before deducting accumulated depreciation.

10. Note 6: The issuer shall break items of operating cost and operating expense into fixed and variable categories. In

11. the event that estimation or subjective judgement is involved, rationality and consistency shall be observed.

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

	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
Title			2011	2012	2013	2014	2015
Financial Structure (%)	Liabilities to Assets Ratio		64.70	56.58	－	－	－
	Long-term Capital to Fixed Assets Ratio		179.44	189.77	－	－	－
Ability to Pay Debt (%)	Current Ratio		173.29	225.76	－	－	－
	Quick Ratio		60.00	93.52	－	－	－
	Debt Service Coverage Ratio		12.07	19.80	－	－	－
Utility	A/C Turnover Rate (times)		4.80	5.80	－	－	－
	Average Daily Cash Receipt		76.00	63.00	－	－	－
	Inventory Turnover Rate(times)		1.97	2.20	－	－	－
	A/P Turnover Ratio (times)		13.72	12.73	－	－	－
	Average Days of Sales		185	166	－	－	－
	Fixed Assets Turnover Rate(times)		3.56	4.19	－	－	－
	Total Assets Turnover Rate(times)		0.93	1.11	－	－	－
Profitability	Return on Assets(%)		5.61	6.37	－	－	－
	Return on Equity (%)		16.04	15.57	－	－	－
	Proportion to Paid-in Capital(%)	Operating Income	14.25	16.34	－	－
		EBT	12.42	13.74	－	－
	Net Profit Rate(%)		5.61	5.52	－	－	－
	EPS(NTD)		1.24	1.37	－	－	－
Cash Flow	Cash Flow Ratio(%)		40.53	88.41	－	－	－
	Cash Flow Suitability Ratio(%)		95.82	157.34	－	－	－
	Cash Reinvestment Ratio(%)		16.19	22.12	－	－	－
Leverage	Operation Leverage		1.52	1.51	－	－	－
	Financial Leverage		1.09	1.05	－	－	－

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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.

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.	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 FY 2011- FY2012 were approved by the NAO under ROC GAAP.
Note 2: AIDC is not required to prepare consolidated financial statements for FY 2011 & FY 2012. As such, the
	aforementioned figures are information on parent company only.
Note 3: 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
2.	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
3.	Utility
	(1) Receivables (including account receivables and note receivables deriving from business operation) turnover
	rate = net sales / 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 sales / average inventory
	(4) Payables (including account payables and note payables deriving from business operation) turnover = cost of
	sales / 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
4.	Profitability
	(1) Return on assets = [Earnings (loss) net + interest expense x (1-tax rate)]/average total assets
	(2) Return on equity = Earnings (loss) net / average total equity
	(3)Operating income to paid-in capital ratio = operating income / average paid-in capital
	(4) EBT to paid-in capital ratio = Earnings net / average paid-in capital
	(5)Net profit rate = Earnings (loss) net / net sales
	(6) Earnings per share = (Earnings net – preferred share dividend) / weighted average quantity of outstanding
	shares
5.	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)
6.	Leverage
	(1) Operation leverage = (net sales – change in cost of operation and expense) / operating income
	(2) Financial leverage = operating income / (operating income – interest expenses)
Note 4: On applying the equation for calcuation of the earnings per share, following factors shall be noted:
1.	The calculation is based on the weighted average quantity of common shares, not the number of the
	outstanding issued shares at year end.
2.	In the case of capital increased by cash or trade of treasury stock, time of the circulation shall be considered in
	calculating weighted average shares.
3.	In the case of capital increase by earnings recapitalization, on calculating earnings per share for the previous
	fiscal year and 1/2 fiscal year, the calculation shall be retrospected and adjusted per the ratio of capital
	increase, not the period of issuance.
4.	If the stock is non-convertible cumulative preferred stock, the dividend of the current year (whether distribute
	or not) shall be deducted from net profit or added to net loss. If the preferred stock is non-cumulative, in the
	case of net earnings, dividend of the preferred stock shall be deducted from net earnings; no adjustment is
	required in the case of loss.
Note 5: On cash flow analysis, following factors shall be noted:
1.	Net cash flow provided by operating activity refers to the net cash inflow provided by operating activity in the
	Statement of Cash Flows.
2.	Capital expense refers to the cash flow of capital investment each year.
3.	Inventory increase shall only be recorded when the amount at the end of the period is greater than that of the
	beginning of the period; if less, the number 0 shal be recorded.
4.	Cash dividend includes cash dividend of common share and preferred share.
5.	Gross value of real properties, plant and equipment refers to the total value of real properties, plant and
	equipment before deducting accumulated depreciation.
Note 6: The issuer shall break items of operating cost and operating expense into fixed and variable categories. In
the	event that estimation or subjective judgement is involved, rationality and consistency shall be observed.

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4. Audit Committee Review Report on the Financial Statements of Previous Year

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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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5.4 Statement of Changes in Shareholders’ Equity

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5.6 Note to Financial Statements

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6. Audited Individual Financial Statements in the Previous Year: N/A.

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:

Unit：NT$ thousands

Fiscal Year			Difference	Difference
	2014	2015
Title			Amount	%
Current Assets	18,942,251	21,185,744	2,243,493	11.84
Financial Assets on the Basis of Cost-noncurrent	46,200	46,200	0	0
Investment Accounted for under the EquityMethod	482,193	665,521	183,328	38.02
Real Properties, Plant and Equipment	4,853,536	5,713,002	859,466	17.71
Intangible Assets	339,894	412,054	72,160	21.23
Other Assets	662,026	681,661	19,635	2.97
Total Assets	25,326,100	28,704,182	3,378,082	13.34
Current Liabilities	12,932,282	13,765,578	833,296	6.44
Noncurrent Liability	2,100,316	3,412,009	1,311,693	62.45
Total Liabilities	15,032,598	17,177,587	2,144,989	14.27
Capital Stock	9,082,615	9,082,615	0	0.00
Retained Earnings	1,199,633	2,413,365	1,213,732	101.18
Other Equity	11,254	30,615	19,361	172.04
Total Equity	10,293,502	11,526,595	1,233,093	11.98
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; for reducing purchase cost, adopt batch material purchase which resulted in increase in inventory; and for cutting the borrowing rate, increase the pledge of USD certificate of deposit. 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.Increase of real properties, plant and equipment: mainly because of the replacement and construction of the F-16A/B upgrade and maintenance building, ECMC and TACC-19 facilities. 4.Increase of intangible assets: mainly because of the increase of project development expenses for acquisition of airplane and air vehicle maintenance products. 5.Increase of total assets: mainly because of the increase of current assets and real properties, plant and equipment. 6.Increase of non-current liabilities and total liabilities: mainly because of the increase of long-term loans for the investment of fixed assets. 7.Increase of other equity: mainly because of the translation of foreign currency financial statements of associated enterprise International Turbine Engine Company LLC resulted in the increase of cumulative translation adjustments. 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 current period.

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 2014 and FY 2015.

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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

	Fiscal Year Title		2014	2015	Difference Amount	Difference%
	Net OperatingIncome		24,924,039	26,878,156	1,954,117	7.84
	OperatingCost		22,158,906	23,626,449	1,467,543	6.62
	OperatingGross Profit		2,765,133	3,251,707	486,574	17.60
	OperatingExpense		1,310,700	1,097,990	(212,710)	(16.23)
	OperatingNet Profit		1,454,433	2,153,717	699,284	48.08
	Non-operating revenues and expenditures		384,173	328,567	(55,606)	(14.47)
	EBT		1,838,606	2,482,284	643,678	35.01
	Income Tax Expense		(32,897)	453,115	486,012	1477.37
	Earnings Net in Current Period		1,871,503	2,029,169	157,666	8.42
	Other Comprehensive Income (after taxation)		22,900	39,525	16,625	72.60
	Total Comprehensive Income in Current Period		1,894,403	2,068,694	174,291	9.20

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 operating gross profit and operating net income: mainly because of the growth of customers’ requirements, increase of gross profit of engine products, and decrease of R&D expense.

2.Decrease of operating expense: mainly because of the closure of part of commercial aircraft R&D projects which resulted in the decrease of R&D expense.

3.Decrease of non-operating revenues and expenditures: mainly because of the decrease of the net exchange gain from the export due to the fluctuations of exchange rate against USD and the transfer of liabilities to miscellaneous income.

4.Increase of income tax expense: mainly because of increase of the net income from the growth of operating

income in current year which resulted in the increase of income tax and undistributed earnings tax expenses.

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. The decrease of R&D expense also contributed to the increase. 6.Increase of other comprehensive income (after taxation): mainly because of the recognition of actuarial benefit of the defined benefit plan under the actuarial report for FY2015.

1. 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 (after taxation).

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 2014 and FY 2015.

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	2014	2015	Proportion of Change (%)
Cash flow ratio(%)	-	17.47%	-
Cash flow suitabilityratio(%)	132.31%	140.02%	5.83%
Cash reinvestment ratio(%)	-	6.38%	-
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 resulted in net cash outflow from operation in FY 2014; the growth of revenue resulted in net cash inflow from operation in FY 2015. 2. Cash Flow Suitability Ratio increased Mainly because of the decrease of net cash flow from operation and the increase of purchase in the last 5 years.

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, 2015/Units: NT$ thousands; thousand shares

									ROI in Previous Year	ROI in Previous Year
				Shares Invested
						Net			(2014)
Business of		Cost of	Book				Market	Accounting			Percentage of
	Principal Operation				Proportion	Equity
Investment		Investment	Value				Value	Method	Investment	Dividend	Shareholding
				Qty	of Equity	Value
									Gain	Paid
					(%)
ITEC LLC	The Production and Delivery of Military Aircraft Engine Equipment and the Execution of Engineering Service Contracts	728	665,521	(Note)	22.05	665,521	－	Equity	302,673	142,671	－
AeroVision Avionics Inc.	The Production of Commercialized Civil Aircraft Cabin Information System	43,200	43,200	4,968	13.09	58,859	－	Cost	－	745	－
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	3,300	－	Cost	－	135	－

Source: The audited financial statements of the aforementioned companies in FY 2015

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

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

Units：NT$ thousands

Industry Type	Name of Investee	FY 2015 Income/Loss	Main Cause of Profit or Loss	Improvement Plan
Aerospace Manufacturing	ITEC LLC	1,372,667 (Note)	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpense.	－
Avionics	AeroVision Avionics Inc.	-1,081	The main causes of loss are the revenue of in-flight entertainment system fell short of	AeroVision Avionics will

100

Industry Type	Name of Investee	FY 2015 Income/Loss	Main Cause of Profit or Loss	Improvement Plan
			expectation, and customer product development fell behind schedule.	use its edge in touch panel to develop new business.
Track Consulting	Metro Consulting Service Ltd.	2,134	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 2015.

Note: The amount of income is based on the average exchange rate of 31.739 in FY 2015.

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

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

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

Interest income in FY 2015 amounted to NT$21,519 thousand or accounted for 0.08% of the corporate earnings. Interest expense in the same year amounted to NT$133,440 thousand or accounted for 0.5% 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.

6.1.2 The Effect of Exchange Rate Fluctuation on the Income Level of the Company and the Response in the Future

Net exchange gain in FY 2015 amounted to NT$292,404 thousand or accounted for 1.09% 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:

• 6.1.2.1 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.

• 6.1.2.2 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.

• 6.1.2.3 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.

6.1.3 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

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rate. In addition, the Company continues its effort in controlling the cost of operation. As such, the effect of inflation on its operation and profit position is not significant.

• 6.2 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

• 6.2.1 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.

• 6.2.2 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.

• 6.2.3 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 2015 to March 2016, the Company has not conducted any derivative trade.

6.3 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 a great amount of funding to satisfy the needs of business development and customer orders. In the future, the Company will continue to invest 2%~4% of the revenue per year in research and development for attaining the goal of the operation as planned.

6.4 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.

6.5 The Effect of Technological and Industrial Changes on the Operation and Financial Position of the Company and the Response

According to U.S. Energy Information Administration, North Sea Brent crude oil prices averaged $54/barrel in 2015, and are forecast to $56/barrel in 2016. While the oil prices remain at a lower level, it contributes to higher uncertainty in aircraft purchase. The falling oil prices may affect the market of replacement for new passenger aircraft, but the cost of fuel is not the only factor for the airlines to decide on the purchase of new aircraft, other factors such as low interest rates (which make the cost of capital for purchasing new aircrafts relatively low) and meeting the needs of newly emerged markets are also considered stimuli for new aircraft purchase.

For environmental protection, demands for light weight, fuel efficiency, low carbon and reduced emission continue to lead the design and development of new aircrafts and engines,

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and the application of composite materials plays a key part in this trend. Further to the investment in TACC, AIDC also invested in the construction of TACC #19 for the production of composite parts and components of the popular single aisle A320 series aircraft, in order to bolster its position as tier 1 supplier of Airbus as well as contribute to the financial position and operation of the Company.

In light of the rapid advances of technology, AIDC will keep abreast of and be prepared for the development of related technologies and market trend.

6.6 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.

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

In the previous year to the date this report is 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.

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

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

6.8.1 Expected Result: capacity expansion can help to accommodate a large volume of engine case 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.

6.8.2 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.

6.8.3 The construction work and procurement of the equipment of the aforementioned capacity expansion projects are progressing as scheduled, and is expected to satisfy customer orders.

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

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

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 32.78%, 35.14% and 34.98% of purchase, respectively. The number one supplier in these years accounted for 5.80%, 5.98% and 8.55% of the purchase of respective years. 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 no over concentration of purchase either.)

6.9.2 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 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 commercial use. The biggest customer is still the Ministry of National Defense whose share of business accounted for 90% at the initial stage of the operation, and fell gradually over the years to less than 50%. As such, there is no risk of concentration of sales.

6.10 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 is printed, AIDC has provided shares for employees to subscribe on a favorable term and preemptive basis pursuant to the regulations of the Statute of Privatization of Government-Owned Enterprises. The dominant shareholder, the Ministry of Economic Affairs disposed 2.38% of its shares. However, there is limitation of shares for subscription in the aforementioned means and there is no shareholder holding more than 10% of the stakes. The Ministry of Economic Affairs remains 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.

6.11 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.

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• 6.12 Lawsuits or Non-contentious Matters

• 6.12.1 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 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.

• 6.12.2 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.

• 6.13 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 3 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

‧ ‧ ‧ Accountability Innovation Dedication Customer Orientation

Aerospace Industrial Development Corporation