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Aerospace Industrial Development Corporation Annual Report 2016

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 APR. 2017

Spokesperson and Deputy Spokesperson Information

Spokesperson: Nan‐Juh Lin Tel: 886‐4‐22842881 Title: Senior Vice President E‐mail:[email protected] Deputy Spokesperson: Shiu‐Chun Du Tel: 886‐4‐22842881 Title: Senior Vice President E‐mail: [email protected]

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

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	Page
Letter to Shareholders ………………………………………………………….………....	1
Company Profile ……..…………………………………………………….…….…………	4
Corporate Governance Report .…………………………………………………….……..	6
Raising of Capital …………………………………………………………………….....	40
Operation Outlook …….………………………………………………………………….……	46
Financial Position ………………………………………………………….………….………..	61
Financial Position and Review of Financial Performance and Risk …….…...	131
Special Notes ……………………………………………………………………..……….….	141

I. Letter to Shareholders

Dear Valued Shareholders,

The year 2016 was a challenging year for the global aerospace industry. While sluggish economic growth and oil price fluctuation had considerable impacts upon the industry, reduction and deferral of international orders, low price competition from emerging countries, and the fact that the advanced countries using high‐efficient automatic machines to lower manufacturing costs added more pressure upon AIDC. To survive in such a difficult environment, AIDC has rearranged its business composition, and encouraged employees to do their best to overcome difficulties and to further pursue and explore new businesses. The results evidenced that our efforts has paid back with revenue exceeding that of 2015.

The market outlooks released by Boeing, Airbus and Bombardier in 2016 all forecasted optimistic growth for the commercial aircraft market in the next 10 years. To meet the anticipated strong market demand and to maintain self‐developed product services and core technologies, internally AIDC has completed the construction of its Engine Case Manufacturing Center (ECMC), the Taiwan Advanced Composite Center (TACC #19) and the F‐16 A/B Upgrade & Maintenance Building which are all operational. In tandem we have undertaken improvements from the perspectives of business, industry, human resources and cross sector integration and have launched Lean Production practices and Industry 4.0 intelligent factory. Externally, AIDC has joined hands with nearly 300 domestic suppliers who share the similar values and concepts to form the Taiwan Aerospace Industry A‐Team 4.0 Alliance to pursue and explore business opportunities and to interact with international aerospace companies. It is hoped with such dedicated effort and close coordination of the A‐Team 4.0, that members can work to reduce costs, upgrade the technological level, enhance overall competitiveness and significantly benefit Taiwan's aerospace supply chain as a whole.

I would like to express my appreciation and gratitude to all our valued shareholders for your steadfast support of our programs, and the summary of the report on the operation results for FY 2016 and the business plan for FY 2017 are presented hereunder.

FY 2016 Operation Highlights

Revenue and Income

The Company had consolidated revenue of NT$27,325,514 thousand in FY 2016, which was an increase of NT$447,358 thousand from NT$26,878,156 thousand in FY 2015. Consolidated pre‐tax income in FY 2016 amounted to NT$2,594,223 thousand, which was an increase of NT$111,939 thousand from NT$2,482,284 thousand of FY 2015.

Financial Structure and Profitability Analysis

As of December 31 2016, the financial structure of AIDC showed total consolidated assets of NT$ 31,025,000 thousand and total consolidated liabilities of NT$ 18,664,561 thousand. The analysis of overall profitability indicators are shown in the table below:

Indicators	2015	2016
ROA(%)	7.92	7.32
ROE(%)	18.59	17.43
EBT to Paid‐in Capital Ratio(%)	27.33	28.56
Net Profit Ratio(%)	7.54	7.62

Research and Development Outlook

The R&D expenses of AIDC in FY 2016 amounted to NT$655,828 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

＊Ranked in Top 20% in 2016 Corporate Governance Evaluation TWSE listed companies by the Securities and Futures Institute in April 2016
＊Awarded the 12[th] term “CSR Award in Traditional Manufacturers Category” by the Global Views Magazine in May 2016
＊Selected as “Taiwan High Compensation 100 Index” stock by Taiwan Stock Exchange Corporation in June 2016
＊Selected as “TWSE Corporate Governance 100 Index” stock by Taiwan Stock Exchange Corporation in July 2016
＊Presented the Top 50 Excellence in Corporate Social Responsibility Award by the CommonWealth Magazine in August 2016
＊Presented “Taiwan i Sport Enterprise Certification” Award by the Sports Administration of the Ministry of Education in Oct. 2016
＊Presented “Enterprise Environmental Protection Award” by the Environmental Protection Administration, Executive Yuan in Nov. 2016
＊Awarded one‐star “ LOHAS Workplace Award” by Taichung City Government in Nov. 2016
＊Received National Awards for both Outstanding Enterprise as well as Outstanding Personnel for Occupational Safety & Health in Nov. 2016
＊Received “Healthy Enterprise Award” and “Outstanding Personnel Award for the Promotion of Healthy Workplace” presented by Taichung City Government in Dec. 2016
＊Awarded 2016 Outstanding Labor Volunteer Service by Taichung City Government in Dec. 2016

Business Plan for FY 2017

Business Development Planning

＊ In the area of defense business, AIDC seeks to successfully upgrade the performance of the jet fighters and to launch the new advanced jet trainer program as scheduled, and to make effort in securing orders for the maintenance of different types of aircraft.
＊ In the area of commercial aviation, AIDC seeks to expand its supplier system for more production sources, as well as 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

In the face of harsh competition within the global aerospace industry, AIDC will spare no effort to

secure and pursue business opportunities. Meanwhile, AIDC will continue to adopt a Balanced Scorecard (BSC) as a management tool. This BSC system helps to align and link the Company’s vision, strategy, objectives, to business activities, department tasks and action plans; with which AIDC will be able to continue to improve its business management while implementing the culture of accountability. The corporate management policy in FY 2017 will cover:

▲ Optimize financial structure ▲ Continue engaging the lean activity ▲ Satisfy customer value proposition ▲ Strengthen core competence ▲ Refine core business process ▲ Fortify the supply chain and integration with ▲ Vitalize human resources outsourced contractors ▲ Upgrade business competitive power ▲ Fulfill corporate social responsibility

The development of a country's aviation industry is considered an indicator of the country's industrial level. Accordingly AIDC is vigorously pursuing the new advanced jet trainer program, which shall help sustain the pool of human resource as well as enhance Taiwan's aerospace industry capability. Internally, AIDC has completed three new facilities, namely Engine Case Manufacturing Center (ECMC), the Taiwan Advanced Composite Center (TACC #19) and the F‐16 A/B Upgrade & Maintenance Building which all three are operational. In addition, the Taiwan Aerospace A‐Team 4.0 Alliance which integrates domestic suppliers from diverse business sectors, including; raw material, intelligent machinery, manufacturing, logistics, academia, research, finance, to mention a few, are intended to enhance Taiwan’s competitiveness in the global aerospace industry. It is hoped that through this joint effort, Taiwan will acquire an increased share of the global aerospace business, and AIDC will be able to expand overall business opportunities while at the same time, increase both revenue and shareholders’ interests.

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 & Maintenance 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	1. AIDC set up the US subsidiary, AIDC USA LLC, on March 2, 2016. 2. Grand opening of 3 new facilities: ECMC in April, TACC‐19 in July and GE LEAP Caseline in November. 3. Delivery of the 1000thAirbus A321 16A barrel in February; delivery of the 50,000thGE Engine Case in November.
2017	Grand opening of the new #23 military maintenance building in February.

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.

2. Directors, Supervisors and Management Team

2.1 Directors (I) March 31, 2017

																	Executives, Directors or	Executives, Directors or	Executives, Directors or
											Spouse &		Shareholding
	Nationality/					Date First	Shareholding when		Current								Supervisors who are
Title
	Country of	Name	Sex	Date Elected	Term	Elected	Elected		Shareholding		Minor		by Nominee		Experience/Education	Other Position	spouses or within two
(Note 1)
	Origin					(Note 2)					Shareholding		Arrangement				degrees of kinship

							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
Chairman	R.O.C	MOEA (Note 1)		June 23, 2015	3Y	July 1, 1996	415,345,402	45.73	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Liao, Jung‐Hsin (Note 2)	M	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; Director, Industrial Technology Research Institute (ITRI)	－	－	－
Executive Director	R.O.C	MOEA		June 23, 2015	3Y	July1, 1996	415,345,402	45.73	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Shiah, Kang (Note 2)	M	February 1, 2016	2.4Y	February 1., 2016	82,264	0.01	99,693	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	July1, 1996	415,345,402	45.73	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Pao, Chuan (Note 2)	F	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; Bachelor of Law, Fu Jen Catholic University	Deputy Director General, Intellectual Property Office, MOEA	－	－	－
Director	R.O.C	MOEA		105.07.01	3Y	July 1, 1996	415,345,402	45.73	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－

																	Executives, Directors or	Executives, Directors or	Executives, Directors or
											Spouse &		Shareholding
	Nationality/					Date First	Shareholding when		Current								Supervisors who are
Title
	Country of	Name	Sex	Date Elected	Term	Elected	Elected		Shareholding		Minor		by Nominee		Experience/Education	Other Position	spouses or within two
(Note 1)
	Origin					(Note 2)					Shareholding		Arrangement				degrees of kinship

							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
	R.O.C	Representative: Shieu, Fuh‐Sheng (Note 2)	M	105.07.22	2Y	105.07.22	0	0.00	0	0.00	0	0	0	0	Dean, College of Engineering, NCHU; Chair, Department of Materials Science and Engineering, NCHU; Chair, Institute of Materials Engineering, NCHU; Director, Office of R&D, NCHU; Ph.D. in Materials Science and Engineering,Cornell University	President, National Chung Hsing University (NCHU); Director, Industrial Technology Research Institute (ITRI)	－	－	－
Director	R.O.C	MOEA		June 23, 2015	3Y	July1, 1996	415,345,402	45.73	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Chien, Feng‐Yuan	M	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’s degree, Institute of Land Administration Studies, National Chengchi 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	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Tso, Ao‐Nan	M	June 23, 2015	3Y	October 17, 2014	53,579	0.01	89,617	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	363,979,482	40.07	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Yu, Cheng‐Te	M	June 23, 2015	3Y	December 23, 2014	60,863	0.01	83,033	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 Industrial Development Foundation (Note 1)		June 23, 2015	3Y	April 3, 2014	2,670,078	0.29	4,477,078	0.49	N/A	N/A	N/A	N/A	－	－	－	－	－
	R.O.C	Representative: Po, Hung‐Hui (Note 2)	M	105.08.08	1.8Y	105.08.08	0	0.00	0	0.00	0	0	0	0	Chief of Staff, Air Force Command Headquarters; Director, Administration office, MND; Director, Defense Mission, TECRO in USA; Director, Congressional Liaison, MND EMBA, National Taiwan University; War College of National Defense	Administrative Deputy Minister, Ministry of National Defense (MND)	－	－	－

																	Executives, Directors or	Executives, Directors or	Executives, Directors or
											Spouse &		Shareholding
	Nationality/					Date First	Shareholding when		Current								Supervisors who are
Title
	Country of	Name	Sex	Date Elected	Term	Elected	Elected		Shareholding		Minor		by Nominee		Experience/Education	Other Position	spouses or within two
(Note 1)
	Origin					(Note 2)					Shareholding		Arrangement				degrees of kinship

							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
															University,2002
Executive and Independent Director	R.O.C	Pan, Wei‐Da	M	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	M	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	M	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 Audit System Review Committee; MBA, Saginaw Valley State University, Mississippi,USA	Director, Library of National Health Research Institutes; Supervisor, CSIST; Executive Supervisor, The Institute of Internal Auditors‐Chinese Taiwan	－	－	－

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 (NDIDF)	None	The foundation is a juristic institution.

Note 2: MOEA representative changes: Pao, Chuan replaced Wan, Tung on Jan. 05, 2016; Shiah, Kang replaced Hsu, Yen‐Nien on Feb. 1, 2016; and Shieu, Fuh‐Sheng replaced Li, Shiu‐Huei on July 22, 2016. National Defense Industrial Development Foundation representative Po, Hung‐Hui replaced Wu, Wan‐Jiao on August 8, 2016 .

2.1 Directors (II)

Professional Qualifications and Independence Analysis of Directors and Supervisors:

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

	College or University	the Company
Chairman Liao,Jung‐Hsin														－
Executive Director Shiah,Kang														－
Director Pao,Chuan														－
Director Chien,Feng‐Yuan														－
Director Shieu,Fuh‐Sheng														－
Director Po,Hung‐Hui														－
Director Tso,Ao‐Nan														－
Director Yu,Cheng‐Te														－
Executive and Independent Director Pan,Wei‐Da														2

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

	College or University	the Company
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.
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% of the voting shares.
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.
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.
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.
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.
Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
Not been a person of any conditions defined in Article 30 of the Company Law.
Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

2.2 Management Team March 31, 2017

			Sex						Shareholding	Shareholding
	Nationality/						Spouse & Minor						Managers who are Spouses or
					Shareholding
Title	Country of	Name		Date Effective			Shareholding		by Nominee		Experience/Education	Other Position	Within Two Degrees of Kinship

	Origin								Arrangement
					Shares	%	Shares	%	Shares	%			Title	Name	Relation

Acting President	R.O.C	Shiah, Kang	M	January 1, 2009	99,693	－	－	－	－	－	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	－	－	－	－

									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
	Nationality/						Spouse & Minor

Title	Country of	Name	Sex	Date Effective	Shareholding		Shareholding		by Nominee		Experience/Education	Other Position

	Origin								Arrangement
					Shares	%	Shares	%	Shares	%			Title	Name	Relation

Vice President	R.O.C	Lin, Nan‐Juh	M	January 1, 2009	100,788	－	－	－	－	－	Director, Engineering ; Director, Technology Implementation, AIDC; MBA, Providence University; B.S. in Aerospace Engineering, TamkangUniversity.		－	－	－
Vice President	R.O.C	Chen, Yi‐Min	M	July 1, 2012	100,788	－	－	－	－	－	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.		－	－	－
Vice President	R.O.C	Ho, Poa‐Hua	M	November 11, 2015	98,992	－	53,000	－	－	－	VP, Aero Engine Factory; Director, Quality Assurance; Deputy Director, Manufacturing, AIDC; Senior Specialist, Aircraft Factory, AIDC/CSIST, B.S. in Mechanical Engineering, FengChia University	Director, International Turbine Engine Company, LLC	－	－	－
Vice President	R.O.C.	Du, Shiu‐Chun	M	February 1, 2016	111,147	－	－	－	－	－	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, 2016 / Units：NT$ thousands；%

					Remun	eration	eration			Ratio of Total	Ratio of Total	Relevant Remuner	Relevant Remuner	ation Rec	eived byDirec	tors who are also	tors who are also	Employees	Employees	Ratio of Total	Ratio of Total	Compensation
										Remuneration										Compensation		paid to
		Base Compensation(A) (Note 2)				’
				Severa	nce Pay(B)	Directors Remuneration(C)		Allowances(D)		(A+B+C+D) to Net Income(%)		Salary, Bonuses, and Allowances(E)		Severa	nce Pay(F)	Employee Rem		uneration (G)		(A+B+C+D+E+F+G) to Net Income(%)		Directors from an Invested
Title	Name (Note 1)		Companies in		Companies in		Companies in		Companies in		Companies in		Companies in		Companies in			Companies in the			Companies in	Company other
			the		the		the		the		the		the		the			consolidated			the	than the
		The
			consolidated	The	consolidated	The	consolidated	The	consolidated	The	consolidated	The	consolidated	The	consolidated	The company		financial		The	consolidated	Company’s
		company	financial	company	financial	company	financial	company	financial	company	financial	company	financial	company	financial			statements		company	financial	Subsidiary
			statements		statements		statements		statements		statements		statements		statements	Cash	Stock	Cash	Stock		statements

		Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Remuneration	Ratio of Total	Ratio of Total	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Relevant Remuneration Received byDirectors who are also Employees	Ratio of Total	Ratio of Total	Compensation
										Remuneration										Compensation		paid to
		Base Compensation(A) (Note 2)				’
				Severance Pay(B)		Directors Remuneration(C)		Allowances(D)		(A+B+C+D) to Net Income(%)		Salary, Bonuses, and Allowances(E)		Severance Pay(F)		Employee Remuneration (G)				(A+B+C+D+E+F+G) to Net Income(%)		Directors from an Invested
Title	Name (Note 1)		Companies in		Companies in		Companies in		Companies in		Companies in		Companies in		Companies in			Companies in the			Companies in	Company other
			the		the		the		the		the		the		the			consolidated			the	than the
		The
			consolidated	The	consolidated	The	consolidated	The	consolidated	The	consolidated	The	consolidated	The	consolidated	The company		financial		The	consolidated	Company’s
		company	financial	company	financial	company	financial	company	financial	company	financial	company	financial	company	financial			statements		company	financial	Subsidiary
			statements		statements		statements		statements		statements		statements		statements	Cash	Stock	Cash	Stock		statements
Chairman	Liao, Jung‐Hsin (MOEA Rep.)	2,617		0		15,045 (Note 3)		0		0.8481%		10,835		182		109	0	109	0	1.3823%		0
Executive Director	Shiah, Kang (MOEA Rep.)
Executive Director	Hsu, Yen‐Nien (MOEA Rep.)
Director	Pao, Chuan (MOEA Rep.)
Director	Wan, Tung (MOEA Rep.)
Director	Chien, Feng‐Yuan (MOEA Rep.)
Director	Shieu, Fuh‐Sheng (MOEA Rep.)
Director	Li, Shiu‐Huei (MOEA Rep.)
Director	Tso, Ao‐Nan (MOEA Rep.)
Director	Yu, Cheng‐Te (MOEA Rep.)
Director	Po, Hung‐Hui (NDIDF Rep.)
Director	Wu, Wan‐Jiao (NDIDF Rep.)
Executive and Independent Director	Pan, Wei‐Da
Independent Director	Hsu, Yung‐Hao
Independent Director	Jeng, Huan‐Guei

Note 1：Director Wan, Tung was discharged on Jan. 05, 2016.Executive Director Hsu, Yen‐Nien was discharged due to retirement on Feb. 2, 2016; Director Li, Shiu‐Huei was discharged due to decease; Director Wu, Wan‐Jiao was discharged on August 8, 2016. Note 2：The calculation base depends on the individual tenure.

Note 3：The amount is accrued, and hasn’t been issued yet; the report of retirement/separation pay is made to the individual. .

Remuneration Paid to Directors

	Name of Directors	Name of Directors	Name of Directors	Name of Directors
Bracket	Total of (A+B+C+D)		Total of (A+B+C+D+E+F+G)
	The company	Companies in the consolidated financial statements	Th	Companies in the consolidated financial statements
		(H)	e company	(I)

Under NT$ 2,000,000	Liao, Jung‐Hsin; Hsu, Yen‐Nien; Shiah, Kang ; Pao, Chuan; Shieu, Fuh‐Sheng; Li, Shiu‐Huei; Tso, Ao‐Nan; Yu, Cheng‐Te; Po, Hung‐Hui; Wu, Wan‐Jiao; Pan, Wei‐Da; Hsu, Yung‐Hao; Jeng, Huan‐Guei	Same as left	Hsu, Yen‐Nien; Li, Shiu‐Huei; Wu, Wan‐Jiao; Pao, Chuan; Shieu, Fuh‐Sheng; Po, Hung‐Hui; Pan, Wei‐Da; Hsu, Yung‐Hao; Jeng, Huan‐Guei	Same as left
NT$2,000,000 ~ NT$5,000,000	Chien,Feng‐Yuan	－	Yu,Cheng‐Te;Tso,Ao‐Nan;Chien,Feng‐Yuan	Same as left
NT$5,000,000 ~ NT$10,000,000	－	－	Liao,Jung‐Hsin;Shiah,Kang	Same as left
NT$10,000,000 ~ NT$15,000,000	－	－	－	－
NT$15,000,000 ~ NT$30,000,000	－	－	－	－
NT$30,000,000 ~ NT$50,000,000	－	－	－	－
NT$50,000,000 ~ NT$100,000,000	－	－	－	－
Over NT$100,000,000	－	－	－	－
Total	14persons	Same as left	14persons	Same as left

3.2 Compensation of President and Vice Presidents December 31, 2016 / Units：NT$ thousands；%

Title	Name	Salary(A)	Salary(A)			Bonuses and	Bonuses and					Ratio of Total Compensation	Ratio of Total Compensation
				Severance Pay(B)				EmployeeRemuneration (D)
		(Note1)				Allowances(C)						(A+B+C+D) to Net Income (%)
			Companies in the		Companies in the		Companies in the			Companies in the consolidated				Compensation paid to the President and Vice President from an Invested Company other than
													Companies in the
		The company	consolidated	The company	consolidated	The company	consolidated	The company		financial		The company	consolidated financial	the Company’s Subsidiary
			financial		financial		financial			statements			ttt
			statements		statements		statements	Cash	Stock	Cash	Stock		saemens

President	Hsu,Yen‐Nien	9,855	9,855	182	182	6,612	6,612	209	0	209	0	0.8094%	0.8094%	18 (Note 2)
President	Shiah,Kang
Vice President	Lin, Nan‐Juh
Vice President	Chen, Yi‐Min
Vice President	Ho, Poa‐Hua
Vice President	Du, Shiu‐Chun (Note 1)

Note 1: The remuneration to managerial officers is calculated on a yearly basis for FY 2016. Hsu, Yen‐Nien was discharged on Feb. 01, 2017; Du, Shiu‐Chun was appointed on Feb. 01, 2016.

Note 2: Vice President Lin, Nan‐Juh received NT$12,000 transportation allowance serving as Director of Metro Consulting Service Ltd. and Vice President Chen, Yi‐Min received NT$6,000 transportation allowance serving as Director of AeroVision Avionics Inc. in FY 2016.

Note 3: The report of the abovementioned amounts is made to the individuals.

Remuneration Paid to President and Vice Presidents

	Name of President and Vice Presidents	Name of President and Vice Presidents
Bracket
	The company	Companies in the consolidated financial statements

Under NT$ 2,000,000	Hsu, Yen‐Nien	Same as left
NT$2,000,000 ~ NT$5,000,000	Lin, Nan‐Juh; Chen, Yi‐Min; Ho, Poa‐Hua ; Du, Shiu‐Chun	Same as left
NT$5,000,000 ~ NT$10,000,000	Shiah,Kang	Same as left
NT$10,000,000 ~ NT$15,000,000	－	－
NT$15,000,000 ~ NT$30,000,000	－	－
NT$30,000,000 ~ NT$50,000,000	－	－
NT$50,000,000 ~ NT$100,000,000	－	－
Over NT$100,000,000	－	－
Total	6 persons	6 persons

3.3 Employee Remuneration of Managerial Officers

July 25, 2016 / Unit: NT$ thousands

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

Ratio of Total Remuneration to
Title Name Shares Total Cash Total Total
Net Income (%)
President Hsu, Yen‐Nien
President Shiah, Kang
Managerial Vice President Lin, Nan‐Juh
0 209 (Note1) 209 0.1737%
Officers Vice President Chen, Yi‐Min
Vice President Ho, Poa‐Hua
Vice President Du, Shiu‐Chun
----- End of picture text -----

Note 1: The amount is accrued, and hasn’t been issued yet. Employee remuneration is calculated based on individual tenure. Note 2: It shall follow the principle of consistency of FY 2015.

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

	2015	2015	2016	2016
Year
		Companies in		Companies in

		the consolidated		the consolidated

	The company	financial	The company	financial

		statements		statements
Identity
		(Note)		(Note)

Director fee	15,041	－	17,662	17,662
Director fee in proportion to corporate earnings (%)	0.7413%	－	0.8481%	0.8481%
Supervisor fee	2,042	－	0	－
Supervisor fee in proportion to corporate earnings (%)	0.1006%	－	0	－
Remuneration to the President and Vice Presidents	16,483	－	16,857	16,857
Remuneration to the President and Vice Presidents in proportion to corporate earnings(%)	0.8123%	－	0.8094%	0.8094%

Note 1：The remuneration listed above does not include employee remuneration.

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 6 meetings of the board of directors were held in the previous period (A). Attendance of directors and supervisors was as follows:

Title	Name	Attendance in Person (B)	By Proxy	Attendance Rate (%) B/A	Remarks
Chairman	Liao, Jung‐Hsin (MOEA Rep.)	6	0	100.00%
Executive Director	Shiah, Kang (MOEA Rep.)	6	0	100.00 %	Appointed on Feb. 1, 2016; 6 attendances required
Executive Director	Hsu, Yen‐Nien (MOEA Rep.)	0	0	—	Discharged on Feb. 1, 2016; 0 attendance required
Director	Pao, Chuan (MOEA Rep.)	5	0	83.33 %	Appointed on Jan. 5, 2016; 6 attendances required
Director	Chien, Feng‐Yuan (MOEA Rep.)	5	1	83.33%
Director	Shieu, Fuh‐Sheng (MOEA Rep.)	3	0	100.00 %	Appointed on July 22, 2016; 3 attendances required
Director	Li, Shiu‐Huei (MOEA Rep.)	2	1	66.67 %	Discharged on June 1, 2016; 3 attendances required

Director	Tso, Ao‐Nan (MOEA Rep.)	6	0	100.00 %
Director	Yu, Cheng‐Te (MOEA Rep.)	6	0	100.00 %
Director	Po, Hung‐Hui (NDIDF Rep.)	1	2	33.33 %	Appointed on Aug. 8, 2016; 3 attendances required
Director	Wan, Tung (MOEA Rep.)	0	0	—	Discharged on Jan. 5, 2016; 0 attendance required
Director	Wu, Wan‐Jiao (NDIDF Rep.)	1	2	33.33 %	Discharged on Aug. 8, 2016; 3 attendances required
Executive and Indepen‐ dent Director	Pan, Wei‐Da	6	0	100.00 %
Independent Director	Hsu, Yung‐Hao	6	0	100.00 %
Independent Director	Jeng, Huan‐Guei	6	0	100.00 %
Note: Attendance rate (%) is calculated by the required and actual attendances during the tenure of each director. 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 Feb. 1, 2016, 7 thterm, 4 th BOD meeting Principles for bonus of Chairman, President and Vice Presidents for FY 2016 Personal bonus Chairman Liao, Jung‐Hsin, Acting President Shiah, Kang and Vice Presidents entered recusal during discussion and voting March 29, 7 thterm, 5 th BOD meeting Bonus of Chairman, President and Vice Presidents for FY 2015 Personal bonus Chairman Liao, Jung‐Hsin, Acting President Shiah, Kang and managerial officers concerned entered recusal duringdiscussion and voting August 10, 7 thterm, 7 th BOD meeting Amendment to principles for bonus of Chairman, President for FY 2016 Personal bonus Chairman Liao, Jung‐Hsin and Acting President Shiah, Kang entered recusal duringdiscussion and voting 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 comprising all the independent directors have been set up. They shall provide Board of Directors professional and impartial review comments to ensure the integrity of company’s financial and non‐financial reports, effectiveness of internal audit system, improve remuneration system of directors and management. Furthermore, to consolidate corporate governance, and to establish the communication and interactive mechanism between the Board and the shareholders, AIDC set up the Board mailbox to enhance mutual understanding of the objectives of the Company, push forward the sustainable development of the Company, increase the mid‐ and long‐term values of the Company 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 five meetings were held in 2016 (A); attendance of the committee members was as follows:

Title	Name	Attendance in Person (B)		Attendance rate
			By Proxy	(%)
				(B/A)
Independ ent Director	Jeng, Huan‐Guei	5	0	100.00%
Executive and Independ ent Director	Pan, Wei‐Da	5	0	100.00%
Independ ent Director	Hsu, Yung‐Hao	5	0	100.00%
Important notices： 1. Dates, sessions and content of the motions are specified as below: Date Session Motions January 26, 2016 The 3~~rd~~session of the 7~~th~~term of the Board Declaration of internal control for FY 2015 March 21, 2016 The 4~~th~~session of the 7~~th~~term of the Board Business report for FY 2015 Financial report for FY 2015 Distribution of earnings for FY 2015 August 4, 2016 The 6~~th~~session of the 7~~th~~term of the Board Consolidated financial report for Q2 of FY 2016 November 2, 2016 The 7~~th~~session of the 7~~th~~term of the Board Consolidated financial report for Q3 of FY 2016 2. 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 2016. 3. There was not matter that required recusal of independent directors in 2016. 4. Communications between independent directors, internal auditor and CPA firm 4.1 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 2016. Independent directors and internal auditor maintain good communication. 4.2 CPA firm shall make the financial statement review report and other matters required by related regulations at the Audit Committee meetings. Independent directors and CPA firm maintain good communication.

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

				Deviations from
				“Corporate
	Implementation Status
				Governance

				Best‐Practice
Item
				Principles for

				TWSE/GTSM Listed
	Y	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. http://www.aidc.com.tw/tw/investor/governance/re gulation	No Significant Variation
II. Shareholder structure and equity (I) Has the Company established the internal procedures for responding to the suggestions, queries, disputes, and legal actions of the shareholders and comply with the procedures in these matters? (II) Has the Company kept the dominant shareholders in control, and the list of the final shareholders of these dominant shareholders on track? (III) Has the Company established and exercised risk control between the Company and its affiliates and a firewall for such purpose? (IV) Has the Company established internal code for the prohibition of the use of insider information for securities trade before going public?	   		(I) AIDC has called for the General Meeting of Shareholders as required by law, and responded to the opinions representing the equity holding of the shareholders one by one and kept as minutes on record. The Company has also established the spokesman system, mailbox of the Board 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 a diversity of knowledge, skill and competence in performing their duties. For purpose of corporate governance, the Board with the diverse abilities shall be capable of	No Significant Variation

				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?		 	making judgment on the operation, corporate management, crisis management, and possess industry knowledge, a broad view of the international market, leadership, and decision‐making latitude. (II) 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 2016 has been submitted to Audit Committee on Nov. 02, 2016 and was approved and duly recognized by the Board of Directors on November 09, 2016.	AIDC has not yet established various types of functional committees. AIDC has started to study on the institution of the regulations. No Significant Variation

				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 a fill‐ (or part‐) time unit or personnel to be in charge of corporate governance affairs (including but not limited to; furnishing information required by business execution by directors and supervisors, handling matters relating to board meetings and shareholders meetings according to laws, handling corporate registration and amendment registration, and producing minutes of board meetings and shareholders meetings?			AIDC has established a part‐time unit to handle corporate governance affairs and has designated officers who have at least three years of experience in handling legal, financial or stock affairs in charge of supervision. Personnel of business management, finance, audit and executive offices are responsible for handling corporate governance affairs. Their responsibilities include, but not limited to, legal and stock affairs, board meetings and shareholders meetings, minutes of board meetings and shareholders meetings, timely disclosure/report to the designated places (M.O.P.S., annual report and website).	No Significant Variation
V. Has the Company established channels for communications with the stakeholders (including but not limited to shareholders, employees, customers and suppliers) , 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 (including but not limited to shareholders, employees, customers and suppliers) on the web pages of the AIDC website at http://www.aidc.com.tw/tw/cse/stakeholder .All the matters and issues of corporate social responsibility concerned by the stakeholders will be duly responded.	No Significant Variation
VI. 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
VII. 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	 		(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	No Significant Variation No Significant Variation

				Deviations from
				“Corporate
	Implementation Status
				Governance

				Best‐Practice
Item
				Principles for

				TWSE/GTSM Listed
	Y	N	Abstract
				Companies” and

				Reasons
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)?			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.
VIII. 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 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)?			(I) Employee rights and privileges and employee care: 1. AIDC has established an industry labor union and labor‐management meeting as the platform for two‐way communication between the management and the labor. 2. AIDC has also established an employee welfare committee for providing fringe benefits for the employees. 3. Employment of the physically and mentally impaired for work. (II) Investor relation: AIDC has disclosed information required for disclosure at MOPS and the system of 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. AIDC has requested suppliers’ cooperation in compliance with laws and regulations of environmental protection, industrial safety and health, as well as improvement of CSR. (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 of AIDC always pay close attention to information on corporate governance, and take related courses for personal needs in studying. In 2016 the status of continuing education of the Directors and Supervisors has been disclosed at MOPS. (VI) The pursuit of risk management policy and conduct of risk assessment standard:	No Significant Variation

				Deviations from
				“Corporate
	Implementation Status
				Governance

				Best‐Practice
Item
				Principles for

				TWSE/GTSM Listed
	Y	N	Abstract
				Companies” and

				Reasons
			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 managerial officers.
IX.As per the corporate governance evaluation result for the last year announced by the Corporate Governance Center, improvements and measures taken on yet improved matters are listed as below: 1. Improvements made in year 2016: The carbon dioxide and greenhouse gas emission of 2016 has been disclosed at AIDC website, and that of 2015 was disclosed in CSR report. 2. Priority matters and actions to be taken in 2016‐2017: (1) The amendment to the Corporate Charter (Articles of Incorporation) to adopt the candidate nomination system for the elections of directors was approved by the Board at the end of 2016, and shall be released upon approval of the Shareholders’ Meeting in 2017. (2) Provide material information in Chinese and English simultaneously. (3) The Company has established the mailbox of the Board to provide channels for directors to communicate with stakeholders (not limited to shareholders, employees, customers and suppliers). (4) In compliance with Financial Supervisory Commission’s regulation, the Company will continue to reinforce corporate governance and information disclosure.

4.4 Composition, Responsibilities and Operations of Remuneration Committee

4.4.1 Professional Qualifications and Independence Analysis of Committee Members

	Criteria	Meet One of the Following Professional		Number of	Remarks
Title		Qualification Requirements, Together with at Least	Independence Criteria (Note)	Other Public
		Five Years Work Experience		Companies

		An Instructor	A Judge, Public	Have Work	1	2	3	4	5	6	7	8	in which the
		or Higher	Prosecutor,	Experience in									Individual is
		Position in a	Attorney,	the Areas of									Concurrently
		Department of	Certified Public	Commerce,									Serving as a
		Commerce,	Accountant, or	Law, Finance,									Committee
		Law, Finance,	Other	or Accounting,									Member
		Accounting, or	Professional or	or Otherwise
		Other	Technical	Necessary for
		Academic	Specialist Who	the Business of
		Department	has Passed a	the Company
		Related to the	National
		Business Needs	Examination and
		of the	been Awarded a
		Company in a	Certificate in a
		Public or	Profession
		Private Junior	Necessary for the
	Name	College,	Business of the
		College or	Company
		University
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 persons in the preceding three subparagraphs.
Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as one of its top five shareholders.
Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company.
Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof.
Not been a person of any conditions defined in Article 30 of the Company Law.

4.4.2 Operations of Remuneration Committee

The Remuneration Committee is comprised of three members for each term.

The tenure of the 2[nd] term committee members 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	Attendance Rate (%)	Remarks (term)
Chair	Pan, Wei‐Da	3	100%	Second
Member	Jeng, Huan‐Guei	3	100%	Second
Member	Hsu, Yung‐Hao	3	100%	Second

Important notices:

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.
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? (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	  		(I) AIDC has explicitly established its corporate social responsibility policy and reviewed its implementation at regular intervals. The content of the policy is elaborated below: 1. Duly observe applicable laws governing corporate social responsibility and perform the obligation as a corporate citizen. 2. Treasure corporate governance and make management information transparent to protect the rights and privileges of the stakeholders. 3. Concern for environmental protection, energy saving, and carbon reduction for protection of the environment on earth. 4. Provide a safe and healthy work environment to protect the physical and psychological health of the employees. 5. Concern for the 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.	No Significant Variation No Significant Variation No Significant Variation

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons
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?			(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
II. Environment for Sustainable Development (I) Has the Company committed its effort in upgrading the efficient use of all resources and used recycled materials for mitigating the impact on the environment? (II) Has the Company established suitable environmental management system relevant with its specific industry feature? (III) Has the Company paid attention to the effect of climate change on its operation, and proceeds to the inspection of greenhouse gas, establishment of energy saving and carbon reduction, and greenhouse gas emission reduction strategy?	  		(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 70% in 2016 and 74% in 2015. 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. (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 No Significant Variation

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons

III. Social Charity (I) Has the Company established related management policies and procedures in accordance with applicable legal rules and international conventions of human rights? (II) Has the Company established the mechanism and channels for the complaints of the employees and properly managed the channels? (III) Has the Company provided a safe and healthy work environment, and provided labor safety and health education for the employees regularly? (IV) Has the Company developed the mechanism for routine 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	    		(I) AIDC will continue to enforce Labor Standards Act, Employment Service Act, Act of Gender Equality in Employment, and other applicable legal rules for the protection of the rights and privileges of the employees under law. (II) AIDC has established different channels for filing complaints. Employees can file their complaints via the intranet, employee concern system, labor union, labor‐management meeting, and designated channels. All complaints will be responded properly. (III) AIDC has duly observed the laws and regulations governing health and safety promulgated by the government and provided the employees a healthy, safe, and clean work environment. In addition, the Company also organizes regular physical examination for general employees and special physical examination for employees engaged in special duties with follow up of the findings. In addition, training of CPR and AED, medication safety were provided and advocated. All plant sites have designed their own fire safety plans and conduct exercise drill in fire fighting. Training in all kinds of labor safety has also been provided. (IV) AIDC makes use of its intranet, labor union, labor union representatives meeting, labor‐management meeting, executive 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, andpools upreserve human resources in	No Significant Variation No Significant Variation No Significant Variation No Significant Variation No Significant Variation

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons
planning and development? (VI) Has the Company established relevant policies and procedures for complaints in research and development, procurement, production, operation, and service for the protection of the consumers? (VII) Has the Company followed applicable legal rules and international standards in the marketing and labeling of products and services? (VIII) Has the Company evaluated the suppliers on their record of negative influence on the environment and society before engaging in partnership with these suppliers? (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	   		management in accordance with the “AIDC Guidelines for the Development and Use of Management Personnel”. (VI) AIDC has explicitly stated the quality policy of “Comprehensive Quality Assurance and Continuous Customer satisfaction”, and provided e‐mail, customer satisfaction survey, and customer visit and other channels for filing complaints. In addition, there is a 24‐hour customer complaint response system in place to protect the rights of the customers. (VII) AIDC is a manufacturer of aircrafts and related parts and components. Domestic marketing of these products must be in conformity to the requirements of the military of the ROC. For export sale marketing, products must be conforming to the accreditation standards of world‐class aircrafts including D6‐82479 of Boeing, AP2190 and GEAE S‐1000 of Airbus, ASQR‐01 of UTAC, SPOC, MITAC MRJ‐SQC‐01 of Honeywell, Alenia IAYC 05C, QPS100/200/300 of Bell, and QD 4.6‐40 of Bombardier. (VIII) Before entering into supply agreements with the suppliers, AIDC will evaluate these suppliers to ensure no record on impact on the environment and society. If AIDC discovers any supplier causing impact on the environment and society in production, manufacturing, and others after entering into agreements, AIDC will discharge the agreements, return all goods and suspend their rights as suppliers and disqualifies them from the list of suppliers. (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 No Significant Variation No Significant Variation

				Deviations from
				“Corporate Social
	Implementation Status
				Responsibility Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons
the environment and society?
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 important information that helps to understand the conduct of corporate social responsibility: In the area of “social concern”: 1. AIDC stock was included in the “Taiwan High Compensation 100 Index” by TWSE for the past two years. The remuneration policy for employees shall maintain a balance among sustainable development of the Company, shareholders’ equity and employee care.

For better care of the employees and the stability of Company’s operation, in consideration of the business status and financial concern, AIDC launched the “employee stock ownership trust” program in Sept. 2016. Employees are free to join the program and determine the dollar amount they want to invest; the Company shall in return provide subsidy by a fixed ratio based on the investment of each employee. Participation of employees is growing.
AIDC utilized its flight engineering resources to support 2 typhoon surveillance missions for a total of 9 hours; and through which enabled DOTSTAR program make more accurate typhoon forecast while helping government take effective measures to significantly prevent the damages and losses of the people. In addition, 27 flights were made to support rescue mission; a 28.5% growth in traffic volume, an extension to 18 overseas destinations and 23 cases of successfully transporting Taiwan nationals back home and among which the case that transporting 2 residents back to Kinmen received wide media coverage. AIDC shall continue to expand its international collaboration and establish better corporate image.
Through AIDC Volunteer Group AIDC continued to provide volunteer service and to support government agencies and the disadvantaged groups at social welfare activities. In 2016, AIDC volunteers organized 20 charity activities with 371 person‐times providing volunteer service to 2,126 person‐times; co‐organized 11 charity activities with 298 person‐times providing volunteer service to 24,891 person‐times. In addition, promotion of charity activities was made through network and by volunteers to encourage donation of money and goods as well as to render assistance to the operation of the disadvantaged groups.
5 . To provide the local students opportunity to be familiarized with AIDC’s effort and intention to improve local educational level and to fulfill corporate social responsibility, AIDC held the “Fly with your dreams” activity for the students of remote areas/disadvantaged groups on a quarterly basis to provide them with knowledge in aerospace industry.
Through the year‐end employee donation activity AIDC continued to deliver warmth to the disadvantaged group on a 3‐5 years term. The donation was divided and delivered to 4 social welfare organizations, namely Kaohsiung Autism Foundation‐Autism Homeland, Taiwan Indigenous Dmavun Development Association, Taiwan Lourdes Association (Taichung office), and Hualien Walk with You Social Care Association.
AIDC continued to promote volunteer service, encouraged employees’ participation in social welfare groups; moreover, employees initiated and formed the “Sino‐AIDC Hundred Dollars Youngster Assistance Association” to provide tutorial service to the disadvantaged and high risk families, sponsor economically disadvantaged families and organize 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

				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 declared its policy, practices of ethical corporate management in its internal code and external documents, and the commitment of the Board and the management for the realization of ethical corporate management?			(I) AIDC has established the “AIDC Ethical Corporate Management Best Practice Principles”, the “AIDC Management Personnel Code of Conduct”, and the “AIDC Guidelines for Management of Materiality and Prevention of Insider Trade” for the effective pursuit of the policy of ethical corporate management for the Directors and all corporate management personnel. The Chairman and President of AIDC have	No Significant Variation

				Deviations from
				“Ethical Corporate
	Implementation Status
				Management Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons
(II) Has the Company designed plans for the prevention of unethical practices, and explicitly stated the procedure, guidelines, penalty for violation and the system of filing complaints with proper implementation of the policy? (III) Has the Company taken preventive measures against business activities with high risks of unethical practices or as stated in Article 7‐II of the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM‐listed Companies”?	 		also explicitly declared and signed the ethical corporate management policy in the Chinese and English versions, and posted the policy in the intranet and official website of AIDC. (II) AIDC has established the “AIDC Employee Code of Conduct” with the setup of telephone and e‐mails for reporting on unethical practices. There is also a hotline number posted at the special section of the eNews column of AIDC for reporting to Ministry of Justice Agency Against Corruption. (III) AIDC will dispatch designated personnel to supervise the procurement in excess of 1/10 of the amount required for announcement and conduct audit on the purchase. In addition, AIDC also conducts questionnaire survey and visits for the prevention of corruption. For business entailing high risks of unethical practice, AIDC conducts investigation on possible areas of trouble. For donation, the security function will review if it is in compliance with applicable laws.	No Significant Variation No Significant Variation
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?	 		(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 Ethics & 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 the status of enforcement to the Board on a quarterly basis and report of which was published at its official website at: http://www.aidc.com.tw/tw/about/eth ical.	No Significant Variation No Significant Variation

				Deviations from
				“Ethical Corporate
	Implementation Status
				Management Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons
(III) Does the Company has the policy for the avoidance of the conflict of interest in place and provides appropriate channels for the reporting of the conflict of interest with proper pursuit of the policy? (IV) Has the Company established a viable and effective accounting system and internal control system for the realization of ethical corporate management subject to the routine audit of the internal audit function, or by an independent certified public accountant? (V) Has the Company organized internal and external training in ethical corporate management?	  		(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 system and internal control system for the realization of ethical corporate management. Relevant departments have performed their duties in compliance with the aforementioned systems. The auditing function will conduct regular or special audits on a selective basis as needed. AIDC has also retained certified public accountants to audit and certify the system and provide sound recommendation to ensure legality and security. (V) AIDC has invited lawyers, public prosecutors, judges and experts to give lectures and training in business integrity and ethical corporate management at least once ayear.	No Significant Variation No Significant Variation No Significant Variation
III. The running of the system for reporting unethical practices (I) Has the Company established substantive system for reporting and reward with channels for easy reporting on unethical practices, and has appointed designate person to deal with the target of reporting?			(I) According to the procedure for reward and punishment of AIDC, those who report on anything concerning corruption or jeopardizing the rights of AIDC the extent to which damage is caused, the reporting person will be rewarded. In addition, the person in charge of related operation can release 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.	No Significant Variation

				Deviations from
				“Ethical Corporate
	Implementation Status
				Management Best

				Practice Principles
Item
				for

				TWSE/GTSM‐listed
	Y	N	Abstract
				Companies” and

				Reasons
(II) Has the Company established related standards for investigation on reported matters and the confidentiality of the reports? (III) Has the Company taken appropriate measures to protect the informant for undue treatment due to the report on unethical practices?	 		(II) The investigation on report of unethical practices in AIDC is akin to the practices in the Criminal Litigation Act whereby the principle of confidentiality and no disclosure is in effect. All participants in the investigations are required to keep strict confidence and protect human rights in the entire investigation. (III) AIDC promises to protect the informants and guarantees no revenge will result due to the report on unethical practices by the informants. Such commitment is posted at the official website, all plant sites, and offices of AIDC.	No Significant Variation No Significant Variation
IV. Bolstering disclosure (I) Has the Company disclosed the content of its Ethical Corporate Management Best Practice Principles at its official website and MOPS and the result of the pursuit?			(I) AIDC has posted the content of its Ethical Corporate Management Best Practice Principles and Employee Code of Conduct at its official website and MOPS, and provide education on related rules and regulation at any time as needed.	No Significant Variation
V. If the Company has established its Ethical Corporate Management Best Practice Principles in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM‐listed Companies”, describe the implementation of the regulation and the variation with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM‐listed Companies”: No.
VI. Any other vital information that helps to understand the ethical corporate management in action better: (e.g., the review and amendment to the ethical corporate management best practice principles of the Company). AIDC pronounced its policy of business integrity and anti‐corruption policy in the annual suppliers’ conference and explicitly declares no acceptance of offering and gifts. In addition, AIDC has also provided the telephone for reporting on unethical practices at 04‐2284 2373 and e‐mail at [email protected] . 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.

4.9 The Pursuit of the Internal Control System:

Aerospace Industry Development Corporation Statement of Declaration on Internal Control

Date: February 22, 2017

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

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 2016 – 2017 Major Resolutions of Board Meetings

Date	Session	Motions
February 1, 2016	The 4~~th~~session of the 7th term of the Board	 By‐election of one Executive Director  Calling for the regular session of the General Meeting in FY 2016 Amendment to the Internal Audit Plan for FY 2015  Declaration of internal control for FY 2015  Appointment of President of US subsidiary  Employment of one new Senior Vice President  Special resolution of allocation rate for the remuneration to employees and directors for FY 2015  The principles for disbursement of bonus for Chairman, President, Vice Presidents for FY 2016
March 29, 2016	The 5~~th~~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
May 10, 2016	The 6~~th~~session of the 7~~th~~term of the Board	 Drafting of donation operation procedure
August 10, 2016	The 7thsession of the 7th term of the Board	 Remuneration distribution of directors and supervisors for FY 2015 and principles for remuneration disbursement in the following years  Amendments to the principles for bonus of chairman and president for FY 2016  Subsidy for health check‐up of directors  Amendment to “Division of Powers and Obligations of Board of Directors, Chairman and President”  Plan for investment in UHT Unhitch Co., Ltd.
November 9, 2016	The 8thsession of the 7th term of the Board	 Amendment to AIDC Corporate Charter (Note: adoption of candidate nomination system for elections of directors)  Amendment to “Division of Powers and Obligations of Board of Directors, Chairman and President”  Disposition of CL‐350 A626 aft fuselage  Internal audit implementation plan for FY 2017
December 27, 2016	The 2ndspecial session of the 7th term of the Board	 Business Plan for FY 2017
February 22, 2017	The 9th session of the 7th term of the Board	 Calling for the regular session of the General Meeting in FY 2017  Declaration of internal control for FY 2016  Appointment and service charge of external auditors for FY 2017‐2018
March 27, 2017	The 10thsession of the 7th term of the Board	 Business Report of FY 2016  Allocation rate and amount of remuneration to employees and directors  Financial Report for FY 2016  Distribution of earnings for FY 2016  Capitalization of FY 2016 retained earnings and issuance of new shares  Amendment to Calling for the regular session of the General Meeting in FY 2017  The disbursement of bonus for Chairman, President, Vice Presidents and related managerial officers for FY 2016  The principles for disbursement of bonus for Chairman, President, Vice Presidents and related managerial officer for FY 2017  Amendment to Internal Audit Plan for FY2017  Transfer of AIDC’s ITEC equity and capital injection to AIDC

USA LLC

4.11.2 2016 Major Resolutions of Shareholders’ Meetings and Implementation Status

Date	Session	Motions	Action Status
June 14, 2016	Regular session of the General Meeting	 Amendment to AIDC Corporate Charter (Articles of Incorporation)  Business report and financial report for FY 2015  Distribution of Earnings for FY 2015  Amendment to “Procedures for Assets Acquisition and Disposition”	 All motions have been resolved and implemented in due procedure on record.  Distribution of earnings for FY2015: distribution completed on Aug. 8, 2016; shareholders’ cash dividend was NT$1,235,235,542 ($1.36 per share); stock dividend was NT$ 0.

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

Title	Name	Date of Office	Date of Discharge	Cause of Resignation or Discharge
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

Accounting Firm	Name of CPA	Name of CPA	Period	Remarks
Deloitte & Touche	Done‐Yuin Tseng	Ted Cheng	2016
				Unit：NT$ thousands

Accounting Firm	Accounting Firm	Name of CPA	Name of CPA	Name of CPA	Period	Period	Remarks
Deloitte & Touche		Done‐Yuin Tseng	Ted Cheng		2016
Unit：NT$ thousands
Item Bracket				Audit Fee		Non‐audit Fee	Total
1	Under NT$ 2,000,000
2	NT$ 2,000,000 ~ 4,000,000			3,268		603	3,871
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

==> picture [474 x 197] intentionally omitted <==

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

Non‐audit Fee
Accounting Audit
Name of CPA Period Remarks
Firm Fee
System Company Human Others
Subtotal
Design Registration Resource (Note)
1. Certification of
Project financial
statements
amounted to
NT$310,000
Done‐Yuin
Deloitte & 2. Audit of business tax
Tseng, Ted 3,268 603 603 2016
Touche report amounted to
Cheng
NT$164,000
3. Certification of
transfer pricing
report amounted to
NT$129,000
----- End of picture text -----

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

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: . None

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 hold any positions within AIDC’s independent audit firm or its affiliates during 2016: None.

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:

As of July 11, 2016 (note)/ Unit: shares; %

Name	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	AIDC Shareholding by Nominee Arrangement	AIDC Shareholding by Nominee Arrangement	Name and Relationship between AIDC’s Shareholders	Name and Relationship between AIDC’s Shareholders
	Shares	%	Shares	%	Shares	%	Name	Relation‐ ship
MOEA	393,740,743	43.35%	N/A	N/A	‐	‐	‐	‐
Representative: Liao,Jung‐Hsin	‐	‐	‐	‐	‐	‐	‐	‐
Representative: Shiah,Kang	82,264	0.01%	‐	‐	‐	‐	‐	‐
Representative: Chien,Feng‐Yuan	‐	‐	‐	‐	‐	‐	‐	‐
Representative: Pao,Chuan	‐	‐	‐	‐	‐	‐	‐	‐
Representative:	63,223	0.01%	‐	‐	‐	‐	‐	‐

Name	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	AIDC Shareholding by Nominee Arrangement	AIDC Shareholding by Nominee Arrangement	Name and Relationship between AIDC’s Shareholders	Name and Relationship between AIDC’s Shareholders
	Shares				Shares	%	Name	Relation‐ ship
		%	Shares	%

Tso, Ao‐Nan
Representative: Yu,Cheng‐Te	67,818	0.01%	‐	‐	‐	‐	‐	‐
Representative: Shieu, Fuh‐Sheng	-	-	-	-	-	-	-	-
Fubon Life Insurance Co.,Ltd.	52,935,000	5.83%	N/A	N/A	‐	‐
Responsible person: Tsai,Ming‐Hsing	‐	‐	‐	‐	‐	‐	‐	‐
Cathay Life Insurance Co.,Ltd.	30,501,000	3.36%	N/A	N/A	‐	‐	‐	‐
Responsible person : Tsai,Hung‐Tu	‐	‐	‐	‐	‐	‐	‐	‐
The New Labor Pension Fund	26,662,000	2.94%	N/A	N/A	‐	‐	N/A	N/A
The Old Labor Pension Fund	11,511,000	1.27%	N/A	N/A	‐	‐	N/A	N/A
Matthews Asia Small Companies Fund	9,035,000	0.99%	N/A	N/A	‐	‐	N/A	N/A
Schroder International Selection Fund Asian Smaller Companies	8,918,000	0.98%	N/A	N/A	‐	‐	N/A	N/A
Nan Shan Life Insurance Co., Ltd.	8,829,000	0.97%	N/A	N/A	‐	‐	N/A	N/A
Responsible person: Tu, Yin‐Tsung	‐	‐	‐	‐	‐	‐	‐	‐
Matthews Asia Selection Fund Co., Ltd.	7,859,000	0.87%	N/A	N/A	‐	‐	N/A	N/A
Schroders International Selection Fund Taiwanese Equity	5,856,000	0.64%	N/A	N/A	‐	‐	N/A	N/A

Note: the record date

10.Proportion of Overall Shareholding: As of December 31, 2016/Unit: thousand shares; %

			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	4,968	13.09	－	－	4,968	13.09

			Ownership by Directors,	Ownership by Directors,
			Managers and
	Ownership by AIDC				Total Ownership
			Directly/Indirectly Owned
Direct Investment
			Subsidiaries

	Thousand				Thousand
		%	Thousand	%		%
	Shares		Sh		Shares
			ares
Avionics Inc.
Metro Consulting Service Ltd.	300	6.00	－	－	300	6.00
AIDC USA LLC	(Note)	100	－	－	(Note)	100
UHT Unitch Co.,Ltd.	1,100	4.55	－	－	1,100	4.55

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

IV. Raising of Capital

1. Capital and Shares

1.1 Source of Capital

March 31, 2017 / Unit: shares; NT$

	Issue	Authorized Share Capital	Authorized Share Capital	Capital Stock	Capital Stock	Remarks	Remarks	Remarks
Month/	Price						Capital Increase
						Sources of
Year	(Per	Shares	Amount	Shares	Amount		by Assets Other	Others
						Capital
	Share)						than Cash

June 1996	10	1,500,000,000	15,000,000,000	905,591,351	9,055,913,507	Valuation in Cash and Assets	6,527,455,995	Note 1
June 1999	10	1,500,000,000	15,000,000,000	908,261,429	9,082,614,287	Offset by Rights to Debt	26,700,780	Note 2
January 2000	10	1,500,000,000	15,000,000,000	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.

March 31, 2016 /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

1.2 Composition of Shareholders

Common Share As of July 11, 2016 (Last Record Date) / Units：person; shares; %

Type of Shareholders					Foreign
				Domestic
	Government	Financial	Other Juridical		Institutions
				Natural		Total
	Agencies	Institutions	Persons		& Natural
				Persons
					Persons

Number of Shareholders	1	12	123	23,163	103	23,402
Shareholding	393,740,743	100,459,000	77,833,238	245,391,511	90,836,936	908,261,428
Holding Percentage (%)	43.35%	11.06%	8.57%	27.02%	10.00%	100.00%

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	522	97,105	0.01%
1,000 ~ 5,000	16,715	33,267,787	3.66%
5,001 ~ 10,000	1,886	16,017,350	1.76%
10,001 ~ 15,000	575	7,499,195	0.83%
15,001 ~ 20,000	429	8,034,544	0.89%
20,001 ~ 30,000	495	12,807,768	1.41%
30,001 ~ 50,000	839	34,081,858	3.75%
50,001 ~ 100,000	1,717	114,921,378	12.65%
100,001 ~ 200,000	97	13,571,050	1.49%
200,001 ~ 400,000	53	14,787,072	1.63%
400,001 ~ 600,000	20	9,950,000	1.10%
600,001 ~ 800,000	11	7,752,000	0.85%
800,001 ~ 1,000,000	4	3,694,000	0.41%
1,000,001 ~ 2,000,000	14	18,538,500	2.04%
Over 2,000,001	25	613,241,821	67.52%
Total	23,402	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 July 11, 2016 (Last Record Date)

Shareholders	Total Shares Owned	Ownership (%)
MOEA	393,740,743	43.35%
Fubon Life Insurance Co., Ltd.	52,935,000	5.83%
Cathay Life Insurance Co., Ltd.	30,501,000	3.36%
The New Labor Pension Fund	26,662,000	2.94%
The Old Labor Pension Fund	11,511,000	1.27%
Matthews Asia Small Companies Fund	9,035,000	0.99%
Schroder International Selection Fund Asian Smaller Companies	8,918,000	0.98%
Nan‐Shan Life Insurance Co., Ltd.	8,829,000	0.97%
Matthews Asia Selection Fund Co., Ltd.	7,859,000	0.87%

Schroders International Selection Fund Taiwanese Equity 5,856,000 0.64%

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

Units：NT$ dollar/shares


Item			2015	2016	1/1/2015~3/31/2017

Market Price Per Share (Note 1)	Highest		46.00	47.45	41.15
	Lowest		32.85	36.30	38.20
	Average		39.24	41.78	38.92
Net Worth Per Share (Note 2)	Before Distribution		12.69	13.61	(Note 8)
	After Distribution		11.33	(Note 7)	(Note 8)
Earnings Per Share	Weighted Average Shares (thousand shares)		908,262	908,262	(Note 8)
	Earnings Per Share (Note 3)		2.23	2.29	(Note 8)
Dividends Per Share	Cash Dividends		1.36	1.00(Note 7)	－
	Stock dividend	Capitalization of Retained Earnings	－	0.37(Note 7)	－
		Capitalization of Capital Surplus	－	－	－
	Accumulated Undistributed Dividend		－	－	－
Return on Investment	Price/Earnings Ratio(Note 4)		17.60	18.24	－
	Price/Dividend Ratio(Note 5)		28.86	41.78(Note 7)	－
	Cash Dividend Yield(Note 6)		3.47%	2.39%(註7)	－

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: Use the outstanding shares at the end of the year as the basis, fill in resolution of distribution in the Shareholders’ Meeting next year.

Note 3: As the earnings per share is subject to retroactive adjustment due to stock dividend distribution, specify the value before and after the adjustment.

Note 4: Price/Earnings Ratio = Average Market Price/Diluted Earnings Per Share

Note 5: Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share Note 6: Cash Dividend Yield = Cash Dividends Per Share/ Average Market Price

Note 7: Proposal for distribution of retained earnings of FY 2016 is pening resolution of the Shareholders’ Meeting. Note 8: Up to the date of printing of this annual report financial statement of Q1 of 2017 has not been audited by

the CPA, therefore it is not disclosed here. Net value per share after distribution = (equity ‐ cash dividend) / outstanding shares.

1.6 Dividend Policy of the Company and the Implementation

1.6.1 Dividend Policy of the Company

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. After setting aside the legal and special reserves and adding the beginning retained earnings and other adjustments (or reversals) to the earnings net in the current period, 50%‐100% of the distribution earnings shall be allocated as cash dividend and subject to the Shareholders’ Meeting resolution for disbursement. Distribution of profits may be made by way of cash dividend and/or stock dividend. Since the Company is in a capital‐intensive industry, distribution of profits may be

made preferably by way of cash dividend or 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 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

Since the Company went public, dividend was disbursed each year per Company’s dividend policy. The Company has corporate earnings of NT$2,082,655 thousand in FY 2016. The appropriations of earnings for FY 2016 was proposed to and approved by the Company’s board meeting on March 27, 2017. The appropriations and dividends per share were as follows:

(1) The appropriation of legal reserve (10%) totals NT$208,265 thousand.
(2) The appropriation of special reserve (30%) totals NT$624,796 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$1,253,180 thousand. It is proposed to disburse:
Cash dividend at NT$1.00/share, a total of NT$908,261 thousand which is72.5% of the earnings for distribution.
Stock dividend at NT$0.37/share, a total of NT$336,057 thousand which is 26.8% of the earning for distribution.
The unappropriate retained earnings is NT$8,862 thousand, which is 0.7% of the earnings for distribution.
Note: The appropriations of earnings of FY 2016 is subject to the resolution of the Shareholders’ Meeting to be held on June 14, 2017.

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

1.7 The Impact of Stock Dividend Planned to Release by Current Session of the Shareholders’ Meeting on Business Performance and Earnings per Share

Meeting on Business Performance and Earnings per Share	Meeting on Business Performance and Earnings per Share
		Unit: NT$
Year Item		2017
Beginning paid‐in capital		9,082,614,280
The distribution of stock and cash dividends （Note 1）	Cash dividend per share	NT$1.0
	Stock divident per share through capitalization of earnings	0.37 share
	Stock dividend per share through capitalization of additional paid‐in capital	0
The change of business performance	Operating profits	Not applicable （Note 2）
	Operating profits, YOY (%)
	Net income after tax

	Net income after tax, YOY (%)	Net income after tax, YOY (%)
	Earnings per share
	Earnings per share, YOY (%)
	Annual average return on investment (A reciprocal of annual average PE ratio)
Pro Forma EPS and PE ratio	The distribution of cash dividend through capitalization of earnings	Pro Forma EPS	Not applicable （Note 2）
		Pro Forma annual average eturn on investmnet
	No diividend distribution through capitalization of additional paid-in capital	Pro Forma EPS
		Pro Forma annual average eturn on investmnet
	No dividend distribution through capitalization of additional paid-in capital and distribution of cash dividend through capatalization of earnings	Pro Forma EPS
		Pro Forma annual average eturn on investmnet

Note 1: The cash and stocks to be distributed to each share is calculated according to the resolution by the Board of Directors Meeting on March 27, 2017, and shall be implemented upon resolution of the 2017 Shareholders’ Meeting.

Note 2: The Company does not disclose the 2017 financial forecast, therefore it is not applicable.

1.8 Remuneration to Employees 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 2016, the remuneration to employees was NT$ 120,624 thousand and remuneration to the directors was NT$15,046 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) For remuneration to employees and directors, following amounts are approved by the board meeting held on March 27, 2017：
(A) employee cash remuneration：NT$ 120,624 thousand
(B) employee share dividend：NT$ 0
(C) remuneration to the directors and supervisors：NT$15,046 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 Board Meeting on March 29, 2016 that for FY 2015 the amount disbursed for employee bonus was NT$115,426 thousand, remuneration to the directors and supervisors was NT$14,397 thousand, and no employee share dividend was proposed. The said Board resolution was reported to the Shareholders’ Meeting on June 14, 2016. 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.

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	2015	2015	2016	2016
	Amount	%	Amount	%
Maintenance of Airplanes and Vehicles(Note 1)	15,196,514	56.54	16,466,407	60.26
Engines(Note 2)	11,130,551	41.41	10,410,899	38.10
Industrial TechnologyServices	551,091	2.05	448,208	1.64
Total	26,878,156	100.00	27,325,514	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 the advanced jet trainer 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 related 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

While air force is our primary customer, defense business lies with the defense budget of the government. Although defense budget varied in recent years, it remained at a steady level to maintain the military power.

To replace the aging F‐5 fighters and AT‐3 jet trainers Air Force has drawn up a budget plan of NT$68.64 billion in 2017 to acquire new advanced jet trainers, and plan is to be executed from 2017 to 2028.

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 (2016‐2035) new airplane requirement is 33,070~39,620, with market value of US$5.2~5.9 trillion and an passenger traffic average annual growth rate of 4.5%‐4.8%, as measured in revenue passenger kilometers (RPK). That indicates the air traffic industry is and will remain in stable development.

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

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average annual RPK growth rate

Sources: Airbus GMF (Global Market Forecast 2016‐2035); Boeing Current Market Outlook 2016‐2035

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.

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

International Vertical Division of Lab or in the Aerospace Industry Value Chain
----- End of picture text -----

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, Shalu 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.

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

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==> picture [387 x 15] intentionally omitted <==

==> picture [387 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
Sources: complied by AIDC • vendor system Tools vendor system
----- End of picture text -----

Sources: complied by AIDC

1.2.3 Different Development Trends of Products

I n 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 long‐term maintenance and performance upgrade of the jet fighters and trainers 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, lightweight, fuel efficient and environmental friendly new aircraft has become the mainstream product in the market, and the composite material is the impetus that leads to the trend of airplane replacement in the aviation industry. The continued demand for new airplanes will also drive 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 objectives of energy saving and carbon reduction, and intensifies its operation in aviation service for atmospheric measurement in disaster prevention and energy technology service.

1.2.4 The Competition

1.2.4.1 Defense Business

The capability and expertise acquired from the development of the IDF fighter and AT‐3 jet trainer give AIDC the edge in pursuing the subsequent performance upgrade and maintenance business. In addition, AIDC has already participated in and has experience in the operation of GOCO services and that give AIDC additional momentum in the competition.

1.2.4.2 Commercial Aviation Business

Major aircraft and engine manufacturers in Europe and America adopted global division of work practice and established the parts and components supply chain system. Currently, the newly emerged economies penetrated into the processing of particular part of aircraft and engines at very low price under the support of their governments. This poses a threat in the price competition. Boeing came up with the “Partnering for Success” policy, in which suppliers are required to reduce prices by 15%‐25%, and those who fail to comply shall be excluded for future contracts. In view of the popularity of its A320 series aircraft, Airbus too brought up “Scope+” supplier strategy demanding for 10% price reduction before 2019. The cost reduction demands from international companies have grown into a tremendous pressure.

To relieve from the vicious cycle of cutthroat competition, AIDC has already oriented towards the development of system parts and components and seeked to engage in the high value‐added aircraft segments and engine components. Meanwhile, AIDC has organized the Taiwan Aerospace Industry A‐Team 4.0 Alliance with the objectives of “cross‐sector alliance, work division of same sector, lean production , and competitiveness enhancement”, and has integrated diverse sectors including; raw materials, machinery, manufaturing and logistics to form the aerospace industry supply chain. It is hoped that by bringing together suppliers who share similar value and concepts, and via work division by speciality and strength to promote the cooperation between members and eventually upgrade the competitivness of Taiwan aerospace indusry as a whole.

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	2015	2016	Q1 of 2017
R&D Expenditures	439,262	655,828	Note 2
Net Revenue	26,878,156	27,325,514	Note 2
% of Revenue	1.63%	2.40%	Note 2

Note 1: A 2‐4% of annual net revenue will be allocated as R&D expenditures in the future.

Note 2: The financial information for Q1 FY 2017 has not been audited by the CPA Up to the printing of the annual report, therefore it is not disclosed.

1.3.2 The technologies or products developed in FY 2016 are shown in the table below:

Item	Technologyor Product	Result
1	Radome product development	Completed the EOP design of Satcom Radome and can be use for continued Radome business in future. And completed material design allowable data of the first batch MXB 7701/7781, it could be used as design evidence in commercial aircraft and AJTproject.
2	High Altitude Long Endurance(HALE) solar power experimental UAV development program	The experimental UAV made by composite material has 15.12 meters wingspan, and 8.4 meters in length. The fabrication and assembly of the experimental UAV has passed the first stage evaluation by the customer, National Space Organization, who continued to commission the flight control/guidance system development and system module installationjobs.
3	S engine thrust improvement program	Conceptual design and preliminary design of compressor module, turbine module and exhaust nozzle were implemented and the results showed that the objectives of engine performance improvement will be met; besides, engine control unit(ECU) development and detail design of inlet casing、oil tank and fuel metering valve were carried out.
4	Composite capability and capacity enhancement program	Improved composite capability and personnel skills of material preparation, automated tape layer, hot drape forming, autoclave, machining, inspection, assembly and caul plate. Through this program linked to Airbus tool supplier MUK, the annual cutting tool costs of prepreg & honeycomb core cutting machine and automatic laminatingmachine will be reduced by40‐60%.
5	Development of improving the radar detection range for I plane	We broke the technical bottleneck and developed an engineering unit of fire control Radar Transmitter. This is the first developed by ourselves in country and improves the Radar capability of updating the Radar system.
6	Intelligent integration and monitoring of machinery	AIDC completed internet of machines connecting machines located at three separate complexes in Taichung,TaichungShalu and Kaohsiung

Item	Technologyor Product	Result
		Gang‐Shan; established intelligent manufacturing and intelligent management system platform (iAIDC); renovated #8 Machine Shop, Taiwan Advanced Composite Center and ECMC #2 and #3 Caselines as demonstration factories. To promote A‐Team 4.0 “collaboration of intelligent machinery”, AIDC hosted 50 visits by Taiwan Aerospace Industry Association, machine tools manufacturers, industry, academic and research institutes and international customers.
7	The development of automatic prototyping system and technical progression	Incorporated the results into the production process to reduce production costs, e.g. efficient tool design enables more competitive pricing. Via Taiwan University Optical cooperation program, the technology has been applied to the measurement on general machines, the production engineering staff continues to explore this technology to make it production core competence.
8	Upgrading production technologies	Upgrading production technologies have contributed to the production efficiency and stable quality. It could provide engineers the design information; e.g. investigation of caul plate technique improved. By collecting the related information about caul plate design and the important reference of production. According to the actual testing analysis, building up the designed standard of composite material and preparing the composite‐material caul plate as core ability could fight for more business opportunities for company.

1.3.3 R&D Direction in the Future

1.3.3.1 Development of New Products: Based on military business demand invest in the development of unmanned aircraft system and advanced jet trainer, as well as passenger airplane seats.

1.3.3.2 Development and Upgrading of Critical Technology: Upgrade the design of aircraft structural parts (composites or non‐composites), manufacturing, and assembly technology. Upgrade the capacity in the development of engine parts and components and production technology. Development of the capacity in maintenance, repair and overhaul of aircraft. Upgrade and refinement of the core testing capacity of flight control system.
1.3.3.3 Refinement of Production Process: Develop and improve the process for production, assembly and automation to enhance business management efficiency.
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 the 2[nd] phase of fighter performance upgrade program and F‐16A/B upgrade program, and dedicate to the development of the new Advanced Jet Trainer program.
1.4.1.2 Long Run: Pursue the business of the primary trainers and next generation fighters, develop the business for the commercial maintenance of military aircraft, I‐level maintenance and depot‐level maintenance work of the Air Force 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 Business

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 and America, 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 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 Boeing and Airbus indicates stable growth in the global air traffic in passengers and cargos and that drives the demand for new airplanes. However, the weak growth of world economy and the low oil prices have posed potential threat to new aircraft purchase.

In response to the development trend of lightweight, energy and fuel efficient aircraft of the aerospace industry, AIDC has invested in the advanced composite center and Engine Case Manufacturing Center (ECMC) to expand its production capacity. There are opportunities for growth in the manufacturing of airframe and engine parts.

2.1.3.3 Industrial Technology Service Business

For environmental protection, the government makes positive effort in the advocacy of green energy technology and circular economy. As such, green engineering has the opportunity for further growth. The economic booming in the Southeast Asia drives more public installations and transportation facilities. There is the opportunity for the growth of the mechatronics business.

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, commercial maintenance of military aircrafts, and the GOCO business.

2.1.4.2 Commercial aviation Business

The years of joint venture with international giant firms enabled AIDC to establish world‐class engineering design capacity in body structure, advanced composite materials, and avionics for 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 case 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 manufactures engine cases, and is engaged in essential partnership with the top 5 engine manufacturers including GE, Honeywell, Pratt & Whitney, Rolls‐Royce of the UK, and Snecma.

2.1.4.3 Industrial Technology Service Business

AIDC has large‐scale aviation system development and integration experience, and has extended our engineering capability to other industrial product and service like flight service,

mechanical and electrical integration, and green energy engineering. Thus, AIDC is able to follow our government’s policy on industrial development, responding to civil needs of large‐scale systems development and upgrade, enhancing our nation’s technology level and product value, as well as practicing corporate social responsibility.

2.1.5 Factors Favorable and Unfavorable for Development and the Response

2.1.5.1 Favorable Factors

A. Taiwan government has designated five innovative industries as the driving force of the next generation. Defense industry being one of the five is expected to lead the investment of the industry.
B. Light‐weight, fuel efficient and low carbon emission aircrafts and engines has led the trend for acquiring new green aircraft.
C. With the rise of the newly emerging countries, Asia‐Pacific region becomes the biggest market for the aerospace industry.

2.1.5.2 Unfavorable Factors and Response

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

Response

AIDC will upgrade and refine the core competence of research and development, design and manufacturing process, and adopt lean production to enhance technology added value, reduce cost, and improve competitiveness.

In addition, AIDC will keep abreast of the dynamics and development trend of the industry, integrate the edge of Taiwan Aerospace Industry A‐Team 4.0 alliance, provide assistance to upgrade supply chain level, establish a long‐term and stable cooperation relationship with collaborative partners, enhance competitiveness of regional aerospace industry, pursue higher position in the global aviation supply chain, and reduce the risk of cutthroat price competition from global suppliers.

B. Technology advanced countries adopted highly automated and intelligent machinery to enhance production efficiency; on the other hand, the newly emerging countries established low‐cost aerospace clusters with government support. Both have unfavorable impacts on business development of AIDC.

Response

AIDC is vigorously organizing the Taiwan Aerospace Industry A‐Team 4.0 alliance, hoping to integrate Taiwan’s industry edge to play a part in the global community. Meanwhile, AIDC has implemented Industry 4.0 to established intelligent factory, and via robots, internet of things, big data and CPS technologies to consolidate digital manufacturing and intelligent management, upgrade production efficiency and enhanced competitive power.

2.2 The Primary Purpose of Main Products and the Production Process

2.2.1 Primary Purpose

Product Category	Purpose
Maintenance of Airplanes and Vehicles t	nse, combat training, commercial aircraft, commercial helicopters, aircraft ion control/navigation/monitoring, maintain normal operation/function of afts/engines/avionics within the life span.
Engines	ne for aircrafts,industrial use engines.
Industrial Technology Services	e‐scale engineering system is applicable to national infrastructure, aerospace nologyis applicable to the research and manufacturingof high value‐added

Product Category Purpose

stry and common household products/technology services to upgrade the strial level of Taiwan.

2.2.2 Production Process

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2.3 The Supply of Key Materials/Equipment and Apparatus

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

Name of key	Supplier	Status of supply
material

Metals	AMS BRALCO TMZ UAC FUTURE	The key suppliers of aluminum, steel, titanium plate, sheet, tube, rod, and molded forms of metals in market.
Non-metals	CYTEC HEXCEL 3M PPG EURO	The key suppliers of composite materials, rubber, paints, and cell devices in market.
Standard metal parts	WESCO KLX ALCOA TE PEERLESS	The key suppliers of standard metal parts, electronic parts.
Finished items and non-standardized parts	C.F.W. S.F.C. PCC M.I.I. L.M.O.C.	As per the request of the customers.

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

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

2 Years

AIDC did not have any particular supplier in the last two years 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; %

	2015	2015	2015	2015	2016	2016	2016	2016	1/1/2017~3/31/2017	1/1/2017~3/31/2017	1/1/2017~3/31/2017	1/1/2017~3/31/2017
Item											% of Q1
			% of 2014				% of 2015
				Relation				Relation			of 2016	Relation
	Customer	Amount	Total Net		Customer	Amount	Total Net		Customer	Amount
				to AIDC				to AIDC			Net	to AIDC
			Revenue				Revenue
											Revenue

1	A	11,594,157	43.14	None	A	12,967,878	43.14	None	A	Note 3	Note 3	Note3
2	B	4,093,160	15.23	None	B	4,304,780	15.23	None	B	Note 3	Note 3	Note3
	Others	11,190,839	41.63		Others	10,052,856	41.63		Others	Note 3	Note 3	Note3
	Net Revenue	26,878,156	100.00		Net Revenue	26,878,156	100.00		Net Revenue	Note 3	Note 3	Note3

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 2015 and FY 2016 is based on the audited figures under IFRSs.

Note 3: Financial information for Q1 of FY 2017 has not been audited by the CPA up to the date of printing of this annual report, therefore it is not disclosed.

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

Year	2015	2015	2015	2016	2016	2016
Val. & Vol. Product	Production	Production	Production	Production	Production	Production
	Capacity	Volume	Value	Capacity	Volume	Value
Maintenance of Airplanes and Vehicles	－	－	14,281,121	－	－	14,140,029
Engines	－	－	9,635,087	－	－	8,725,713
Industrial TechnologyServices	－	－	428,126	－	－	337,746
Total	－	－	24,344,334	－	－	23,203,488

Note 1: The items for delivery included self‐made parts, spare parts, support equipment, documents, software, and technology service. The nature of the business is made‐to‐order and there are no standard items therefore the estimation of production capacity and volume is not available.

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 is based on the audited figures under IFRSs.

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

Year					2016 Domestic Foreign Qty Amount Qty Amount － 10,296,896－ 6,169,511 － 2,577,207－ 7,833,692 － 311,981－ 136,227 － 13,186,084－ 14,139,430	2016 Domestic Foreign Qty Amount Qty Amount － 10,296,896－ 6,169,511 － 2,577,207－ 7,833,692 － 311,981－ 136,227 － 13,186,084－ 14,139,430	2016 Domestic Foreign Qty Amount Qty Amount － 10,296,896－ 6,169,511 － 2,577,207－ 7,833,692 － 311,981－ 136,227 － 13,186,084－ 14,139,430
	2015
Val. & Vol. Product

	Domestic		Foreign		Domestic
	Qty	Amount	Qty	Amount	Qty	Amount	Qty
Maintenance of Airplanes and Vehicles	－	8,127,868	－	7,068,646	－	10,296,896	－
Engines	－	3,391,533	－	7,739,018	－	2,577,207	－
Industrial TechnologyServices	－	419,261	－	131,830	－	311,981	－
Total	－	11,938,662	－	14,939,494	－	13,186,084	－

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 is based on the audited figures under IFRSs.

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

				1/1/2017~
Year		2015	2016
				3/31/2017

	Level I Executives and higher	24	25	25
	Others	3730	4384	4536
	Total	3754	4409	4561
Average Age(years)		48.5	46.6	46.3
Average Years of Service(years)		15.0	13.4	13.1
Education	Ph.D.	0.56%	0.57%	0.48%
	Master’s	17.88%	16.78%	16.49%
	Bachelor’s	28.48%	32.07%	32.47%
	Other Higher Education	28.34%	25.65%	25.35%
	High School	23.97%	24.43%	24.73%
	Junior High and below	0.77%	0.50%	0.48%

Note: Chairman, President and 7 directors are not included.

4. Information on Expenditures for Environmental Protection

In the last 2 years up to the publication of the annual report, 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 On April 14, 2016, Te Chang Construction Co. started the construction work of AEF Automated Warehouse before its wastewater pollution control measure was approved by the competent authority, for which a fine of NT$30,000 was imposed on July 26 and paid by Te Chang Construction Co. on August 19, 2016.
4.2 In 2012, the groundwater under Taichung Complex site was found contaminated. AIDC then installed the monitoring well inside and outside the Complex to monitor the quality of groundwater, commissioned a professional firm to conduct a detailed investigation within the area of pollution, and prepared an effective plan to remediate the pollution issue for the Authority’s approval. The Environmental Protection Bureau of Taichung approved the “Taichung Complex Site No. 1 Groundwater Pollution Cleanup Plan” on June 26, 2013. This plan will cost NT$ 260.84 million and the remediation project is expected to be completed in October 2018. Currently the risk of groundwater remediation is under AIDC's control, and the progress is as follows:
4.2.1 The goal of TCE and hexavalent chromium levels twice below the groundwater control standard was completed in Q2 2016, then all of the groundwater cycle system was stopped on Ausugt 25, 2016, including the Percol injection. However, the TCE concentration exceeded groundwater standard in Q4 2016. (Interruptting Percol injection is a necessary process to confim if the residual source exists.) AIDC then restarted the groundwater cycle system and restored Percol injection on Dec. 17, 2016, the hexavalent chromium remains twice lower than groundwater control standard. The risk of groundwater remediation is still within AIDC's control.
4.2.2 Based on quarterly monitoring report, AIDC and Jetpo Technology Co. are actively working on improvement measures to ensure the positive degree of pollution remediation.
4.2.3 The quarterly progress reports were submited to and accepted by the Environmental Protection Bureau of Taichung City Government for recordation. It is expected that the groundwater control site will be deregulated within the approved period.

5. Labor‐Management Relation

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

5.1.1 Welfare Policy of the Company

5.1.1.1 Welfare Policy: provide all employees with labor insurance, national health insurance and accident insurance with NT$4 million insured. General physical examination for all employees and special physical examination for employees engaged in special duties. Prices and awards are also offered.
5.1.1.2 Employee Welfare Committee: AIDC has established the Employee Welfare Committee in accordance with the Employee Welfare Fund Statue for coordination of all fringe benefits for the employees, supervise and advocate all group activities with subsidy. In addition, an annual budget has been prepared for the planning of welfare to subsidize employees in matrimony, funeral, sickness, maternity and paternity. Gifts were also granted on birthdays and festivities. Recreational activities, parent‐children events, and group activities were organized for the employees as well.
5.1.1.3 Psychological health care has also been an essential policy of AIDC. For this reason, the Company has established the Employee Assistance System (EAS). The EAS integrates the resources of labor safety, human resources, psychological counseling, employee welfare and community to form a network of care. It provides timely aid to the employees by funding assistance for hospitalization, concern for the decease of employees and families, medical 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

For cultivation and development of human resources, AIDC has made “technology advancement, professional standing, learning by all and 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 focus of orientation training is the merge with AIDC culture and understanding of concept, quality and cost, teamwork and the job skills

required for all duties at entry level. From day one, new employees have to undergo a 3‐6 months training program of general duties and professional duties in line with the probation. The training aims at developing the potential of the new employees to adapt to the new work environment and perform the assigned duties with competence. Current employees will receive internal and external training arranged in accordance with the corporate strategic objective, legal rules, organizational development, business contracts need, and career development of the employees, including corporate planning, lean management, inventory management, financial management, project management, contract negotiation, and other critical management skills, and also engineering development, production and manufacturing, production process, machinery processing, process control, quality inspection, aircraft maintenance, avionics repair and maintenance, aviation safety and related professional training. These skills would be essential to ensure all officers and employees of related business are competent for the duties. The Company continues to promote aerospace industry professional competency plan and has developed the competency models for various professions of the industry. Through competency appraisal to plan for training and application and that 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 Labor‐management meetings: AIDC management and the Labor Union held 3 meetings on March 3, May 9 and May 24 respectively to discuss and exchange views on topics such as corporate business, pay raise, allocation rate of new labor pension system , employee stock ownership trust and collective agreement amendments to ensure the rights of employees were duly protected.

5.1.4.2 To maintain good labor‐management relations, the management hosted dinners with directors and supervisors of Taichung Labor Union and Gang Shan Labor Union on July 27 and July 28, 2016 respectively.
5.1.4.3 The Company provided support to the operation of Sharlu Labor Union since its establishment under the authority of Taichung City Government on August 5.
5.1.4.4 AIDC strongly attaches to the principle of labor‐management harmony and the advocacy of labor‐management cooperation thereby spares no effort to cultivate channels for communications with the employees for protecting their rights. In addition, AIDC also holds labor‐management meetings pursuant to Article 83 of the Labor Standards Act and the “Regulations Governing Labor‐Management Meetings” for building up consensus.
5.2 Loss Caused by Labor‐management Disputes in the Last 2 years to the Date this Report was Printed

AIDC always treasures labor‐management harmony and there has been no significant loss 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
Leonardo	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
FHI	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, Contractor Operated) program for 2nd Air Force Logistics Command GOCO program for 11th Maintenance & Supply Group Upgrade and maintenanceprogram for Indigenous Defensive Fighter

VI. Financial Position

1. Concise Financial Statement Covering the Last 5 Years

1.1 Concise Balance Sheet and Comprehensive Income Statement

1.1.1 Concise Balance Sheet and Comprehensive Income Statement ‐ IFRSs

1.1.1.1 Consolidated Concise Balance Sheet:

Unit：NT$ thousands

Fiscal Year	Fiscal Year	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years
Title		2012	2013	2014	2015	2016	2017 Q1
Current Assets		－	－	－	－	20,455,490	Note 4
Financial Assets on the Basis of Cost–Noncurrent		－	－	－	－	79,200	Note 4
Investment Accounted for under the Equity Method		－	－	－	－	779,331	Note 4
Real Properties, Plants, and Equipment		－	－	－	－	8,244,072	Note 4
Intangible Assets		－	－	－	－	734,805	Note 4
Other Assets		－	－	－	－	732,102	Note 4
Total Assets		－	－	－	－	31,025,000	Note 4
Current Liabilities	Cum‐dividend	－	－	－		16,499,889	Note 4
	Ex‐dividend	－	－	－		Note 3	Note 4
Non‐current Liabilities		－	－	－	－	2,164,672	Note 4
Total Liabilities	Cum‐dividend	－	－	－		18,664,561	Note 4
	Ex‐dividend	－	－	－		Note 3	Note 4
Shareholders’ Equity Attributable to the Parent Company		－	－	－	－	12,360,439	Note 4
Capital Stock		－	－	－	－	9,082,615	Note 4
Capital Surplus		－	－	－	－	－	Note 4
Retained Earnings	Cum‐dividend	－	－	－		3,257,799	Note 4
	Ex‐dividend	－	－	－		Note 3	Note 4
Other Equity		－	－	－	－	20,025	Note 4
Treasury Stock		－	－	－	－	－	Note 4
Uncontrolled Equity		－	－	－	－	－	Note 4
Total Equity	Cum‐dividend		－	－		12,360,439	Note 4
	Ex‐dividend		－	－		Note 3	Note 4

Note 1: The basis for FY 2016 is audited figures under IFRSs.

Note 2: AIDC is not required to prepare consolidated financial statements for FY 2012 to FY 2015, FY 2016 is the first‐time consolidated financial statements.
Note 3: Up to the date of the printing of this annual report, proposal for distribution of earnings for FY 2016 has not been resolved by the shareholders’ meeting.
Note 4: Up to the date of the printing of this annual report, the first quarter of FY 2017 has not been audited by the CPA.

1.1.1.2 Concise Individual Company Balance Sheet:

Fiscal Year	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years
Title	2012	2013	2014	2015	2016

Fiscal Year	Fiscal Year	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years	Financial Information Covering the Last 5 Years
Title		2012	2013	2014	2015	2016
Current Assets		12,940,440	14,830,381	18,942,251	21,185,744	20,440,224
Financial Assets on the Basis of Cost–Noncurrent		46,200	46,200	46,200	46,200	79,200
Investment Accounted for under the Equity Method		239,031	304,107	482,193	665,521	795,692
Real Properties, Plants, and Equipment		5,231,047	5,114,956	4,853,536	5,713,002	8,242,666
Intangible Assets		1,012,225	830,455	339,894	412,054	734,805
Other Assets		91,121	449,168	662,026	681,661	732,030
Total Assets		19,560,064	21,575,267	25,326,100	28,704,182	31,024,617
Current Liabilities	Cum‐dividend	5,967,845	6,658,430	12,932,282	13,765,578	16,499,622
	Ex‐dividend	5,967,845	6,658,430	13,767,883	15,000,814	Note 4
Non‐current Liabilities		6539127	6,517,738	2,100,316	3,412,009	2,164,556
Total Liabilities	Cum‐dividend	12,506,972	13,176,168	15,032,598	17,177,587	18,664,178
	Ex‐dividend	12,506,972	13,176,168	15,868,199	18,412,823	Note 4
Shareholders’ Equity Attributable to the Parent Company		7,053,092	8,399,099	10,293,502	11,526,595	12,360,439
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	3,257,799
	Ex‐dividend	(2,010,992)	(671,870)	364,032	1,178,129	Note 4
Other Equity		(18531)	(11,646)	11,254	30,615	20,025
Treasury Stock		－	－	－	－	－
Uncontrolled Equity		－	－	－	－	－
Total Equity	Cum‐dividend	7,053,092	8,399,099	10,293,502	11,526,595	12,360,439
	Ex‐dividend	7,053,092	8,399,099	9,457,901	10,291,359	Note 4

Note 1: The basis for FY 2012 is approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, FY 2013 figures approved by NAO under IFRSs, the figures from FY 2014 to FY 2016 are audited under IFRSs.

Note 2: Aforementioned figures for FY 2012‐2016 are information on parent company only.

Note 3: Proposal for distribution of earnings for FY 2015 has been resolved by the shareholders’ meeting on June 14, 2016.

Note 4: Up to the date of the printing of this annual report, proposal for distribution of earnings for FY 2016 has not been resolved by the shareholders’ meeting.

1.1.1.3 Consolidated Concise 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	2012	2013	2014	2015	2016	2017Q1
Revenue	－	－	－	－	27,325,514	Note 3
Gross Profit	－	－	－	－	4,115,496	Note 3
Operating Income	－	－	－	－	2,725,933	Note 3
Non‐operating Income and Expenses	－	－	－	－	(131,710)	Note 3
Earnings before Taxation	－	－	－	－	2,594,223	Note 3

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	2012	2013	2014	2015	2016	2017Q1
Earnings for Continued Operations	－	－	－	－	2,082,655	Note 3
Earnings for Discontinued Operations	－	－	－	－	－	Note 3
Earnings in Current Period	－	－	－	－	2,082,655	Note 3
Other Incomes in Current Period(after taxation)	－	－	－	－	(13,575)	Note 3
Total Incomes in Current Period	－	－	－	－	2,069,080	Note 3
Earnings Attributable to Parent Shareholders	－	－	－	－	2,082,655	Note 3
Earnings Attributable to Uncontrolled Equity	－	－	－	－	－	Note 3
Total Comprehensive Incomes Attributable to Parent Shareholders	－	－	－	－	2,069,080	Note 3
Total Comprehensive Incomes Attributable to Uncontrolled Equity	－	－	－	－	－	Note 3
Earnings per Share (NTD)	－	－	－	－	2.29	Note 3

Note 1: The information of FY 2016 is the audited figures under IFRSs.

Note 2: AIDC is not required to prepare consolidated financial statements for FY2012‐FY2015. FY 2016 is the first‐time consolidated financial statements.

Note 3: Up to the date of printing of this annual report, information of Q1 of FY2017 has not been audited by the CPA, therefore it is not disclosed.

1.1.1.4 Concise Individual Company 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
Title	2012	2013	2014	2015	2016
Revenue	22,603,096	23,086,459	24,924,039	26,878,156	27,325,514
Gross Profit	2,345,318	2,266,580	2,765,133	3,251,707	4,115,496
Operating Income	1,476,365	1,264,424	1,454,433	2,153,717	2,725,542
Non‐operating Income and Expenses	(236,249)	108,394	384,173	328,567	(131,475)
Earnings before Taxation	1,240,116	1,372,818	1,838,606	2,482,284	2,594,067
Earnings for Continued Operations	1,240,116	1,275,864	1,871,503	2,029,169	2,082,655
Earnings for Discontinued Operations	－	－	－	－	－
Earnings in Current Period	1,240,116	1,275,864	1,871,503	2,029,169	2,082,655
Other Incomes in Current Period(after taxation)	(386,640)	70,143	22,900	39,525	(13,575)
Total Incomes in Current Period	853,476	1,346,007	1,894,403	2,068,694	2,069,080
Earnings Attributable to Parent Shareholders	1,240,116	1,275,864	1,871,503	2,029,169	2,082,655
Earnings Attributable to Uncontrolled Equity	－	－	－	－	－
Total Comprehensive Incomes Attributable to Parent Shareholders	853,476	1,346,007	1,894,403	2,068,694	2,069,080

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	2012	2013	2014	2015	2016
Total Comprehensive Incomes Attributable to Uncontrolled Equity	－	－	－	－	－
Earnings per Share (NTD)	1.37	1.40	2.06	2.23	2.29

Note 1: The basis of comparison for FY2012, FY2013, FY2014, FY2015 and 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: The aforementioned figures for FY2012‐FY2016 are information on AIDC individual company only.

1.1.2 Concise Balance Sheet and Income Statement – ROC GAAP

1.1.2.1 Concise 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		2012	2013	2014	2015	2016
Current Assets		12,940,039	－	－	－	－
Funds and Investment		312,327	－	－	－	－
Fixed Assets		5,295,073	－	－	－	－
Intangible Assets		50,988	－	－	－	－
Other Assets		961,638	－	－	－	－
Total	Assets	19,560,065	－	－	－	－
Current Liabilities	Cum‐dividend	5,731,766	－	－	－	－
	Ex‐dividend	5,731,766	－	－	－	－
Long‐term Liabilities		1,556,054	－	－	－	－
Other Liabilities		3,779,626	－	－	－	－
Total Liabilities	Cum‐dividend	11,067,446	－	－	－	－
	Ex‐dividend	11,067,446	－	－	－	－
Capital Stock		9,082,615	－	－	－	－
Capital Surplus		－	－	－	－	－
Retained Earnings	Cum‐dividend	(175,165)	－	－	－	－
	Ex‐dividend	(175,165)	－	－	－	－
Unrealized Gain/Loss of Financial Assets		(113)	－	－	－	－
Adjustment of Accumulated Conversion		(20,003)	－	－	－	－
Net Loss not Recognized as Pension Cost		(394,715)	－	－	－	－
Total Shareholders’ Equity	Cum‐dividend	8,492,619	－	－	－	－
	Ex‐dividend	8,492,619	－	－	－	－

Note 1: The figures of FY 2012 are approved by the NAO under ROC GAAP.

Note 2: AIDC is not required to prepare consolidated financial statements for FY 2012. As such, the aforementioned figures are information on AIDC individual company only.

1.1.2.2 Concise 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	2012	2013	2014	2015	2016
Revenue	22,603,096	－	－	－	－
Gross Profit	2,352,860	－	－	－	－
OperatingIncome	1,484,546	－	－	－	－
Non‐operating Incomes and Profits	200,946	－	－	－	－
Non‐operating Expenses and Loss	437,194	－	－	－	－
Earnings of Continued Operations before Taxation	1,248,298	－	－	－	－
Earnings of Continuing Operations	1,248,298	－	－	－	－
Incomes of Discontinued Operations	－	－	－	－	－
Contingent Incomes	－	－	－	－	－
Cumulative Adjustment of the Accumulated Effect of Change in AccountingPolicy	－	－	－	－	－
Earnings in Current Period	1,248,298	－	－	－	－
Earningsper Share(NTD)	1.37	－	－	－	－

Note 1: The figures of FY 2012 are approved by the NAO under ROC GAAP.

Note 2: AIDC is not required to prepare consolidated financial statements for FY 2012. As such, the aforementioned figures are information on AIDC individual company only.

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

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

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

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
2016	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 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 Consolidated Financial Data of the Last 5 Years –IFRSs:

Fiscal Year Title	Fiscal Year Title	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years
		2012	2013	2014	2015	2016	2017Q1
Financial Structure (%)	Liabilities to Assets Ratio	－	－	－	－	60.15	Note 3
	Long‐term Capital to Property,Plant,	－	－	－	－	159.00	Note 3

Fiscal Year Title	Fiscal Year Title	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years	Financial Analysis Covering the Last 5 Years
		2012	2013	2014	2015	2016	2017Q1
	and Equipment Ratio
Ability to Pay Debt (%)	Current Ratio	－	－	－	－	123.97	Note 3
	Quick Ratio	－	－	－	－	61.94	Note 3
	Debt Service Coverage Ratio	－	－	－	－	21.37	Note 3
Utility	A/C Turnover Rate (times)	－	－	－	－	3.85	Note 3
	Average Daily Cash Receipt	－	－	－	－	94.80	Note 3
	Inventory Turnover Rate(times)	－	－	－	－	2.26	Note 3
	A/P Turnover Ratio (times)	－	－	－	－	16.22	Note 3
	Average Days of Sales	－	－	－	－	161.50	Note 3
	Property, Plant and Equipment Turnover Rate (times)	－	－	－	－	3.91	Note 3
	Total Assets Turnover Rate (times)	－	－	－	－	0.91	Note 3
Profitability	Return on Assets (%)	－	－	－	－	7.32	Note 3
	Return on Equity (%)	－	－	－	－	17.43	Note 3
	EBT to Paid‐in Capital Ratio(%)	－	－	－	－	28.56	Note 3
	Net Profit Rate (%)	－	－	－	－	7.62	Note 3
	EPS (NTD)	－	－	－	－	2.29	Note 3
Cash Flow	Cash Flow Ratio (%)	－	－	－	－	27.47	Note 3
	Cash Flow Suitability Ratio (%)	－	－	－	－	119.13	Note 3
	Cash Reinvestment Ratio(%)	－	－	－	－	13.02	Note 3
Leverage	Operation Leverage	－	－	－	－	1.52	Note 3
	Financial Leverage	－	－	－	－	1.04	Note 3
Reasons for Changes in the Items of Financial Analysis in the Last 2 Years (if the change falls below 20%, no analysis is necessary): N/A

Note 1: The figures for FY 2016 are the audited figures under IFRSs.

Note 2: AIDC is not required to prepare consolidated financial statements for FY 2012‐ FY 2015. FY 2016 is the first‐time consolidated financial statements.

Note 3: Up to the publication of this annual report, Q1 2017 financial statements have not been audited by the CPA, therefore it is not disclosed.

Note 4: The equation for calculation in this sheet:

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

(2) Long‐term capital to property, plant and equipment ratio = (total equity + non‐current liabilities) /net property, plant, and equipment

Ability to pay debt

(1) Current ratio = current assets/ current liabilities
(2) Quick ratio = (current assets – inventory – prepaid expenses)/ current liabilities
(3) Debt service coverage ratio = EBIT/ interest expenses in current period
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.
(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 rate = 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) Property, plant and equipment turnover rate = net sales / average net property, plant, and equipment
(7) Total assets turnover = net sales / average total assets
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) Net profit rate = Earnings (loss) net / net sales
(4)Earnings per share = (incomes attributable to parent shareholders’ equity – preferred share dividend) /weighted average quantity of outstanding shares (Note 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 property, plant and equipment + long‐term investment + other non‐current assets + working capital) (Note 6)
Leverage
(1) Operation leverage = (net sales – operating variable cost and expense) / operating income (Note 7)
(2) Financial leverage = operating income / (operating income – interest expenses)
Note 5: On applying the equation for calcuation of the earnings per share, following factors shall be noted:
The calculation is based on the weighted average quantity of common shares, not the number of the outstanding issued shares at year end.
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.
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.
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 6: On cash flow analysis, following factors shall be noted:
Net cash flow provided by operating activity refers to the net cash inflow provided by operating activity in the Statement of Cash Flows.
Capital expense refers to the cash flow of capital investment each year.
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.
Cash dividend includes cash dividend of common share and preferred share.
Gross value of property, plant and equipment refers to the total value of property, plant and equipment before deducting accumulated depreciation.
Note 7: Items of operating cost and operating expense shall be broken into fixed and variable categories. In the event that estimation or subjective judgement is involved, rationality and consistency shall be observed.
Note 8: In the case of the Company with shares having non par value or a par value other than NT$10, for the paid‐in capital ratio in the calculation mentioned above shall be substituted with incomes attributable to parent shareholders’ equity ratio of the balance sheet.

3.2 Comprehensive Analysis of the AIDC Individual Company Financial Data of the Last 5 Years IFRSs: －

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		2012	2013	2014	2015	2016
Financial Structure	Liabilities to Assets Ratio	63.94	61.07	59.35	59.84	60.15

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		2012	2013	2014	2015	2016
(%)	Long‐term Capital to Property, Plant and Equipment Ratio	164.58	180.58	226.34	235.38	159.03
Ability to Pay Debt (%)	Current Ratio	216.84	222.73	146.47	153.90	123.88
	Quick Ratio	89.74	116.44	68.45	62.27	61.85
	Debt Service Coverage Ratio	19.67	36.93	29.61	19.60	21.37
Utility	A/C Turnover Rate (times)	5.80	5.82	4.81	4.28	3.85
	Average Daily Cash Receipt	63.00	62.71	75.88	85.28	94.80
	Inventory Turnover Rate(times)	2.20	2.38	2.47	2.33	2.26
	A/P Turnover Ratio (times)	12.74	11.94	13.60	16.46	16.22
	Average Days of Sales	166.00	153.36	147.77	156.65	161.50
	Property, Plant and Equipment Turnover Rate(times)	4.25	4.46	5.00	5.08	3.91
	Total Assets Turnover Rate(times)	1.11	1.12	1.06	0.99	0.91
Profitability	Return on Assets(%)	6.33	6.35	8.20	7.92	7.32
	Return on Equity (%)	18.71	16.51	20.02	18.59	17.43
	Pre‐tax Income to Paid‐in Capital Ratio (%)	13.65	15.11	20.24	27.33	28.56
	Net Profit Rate(%)	5.49	5.52	7.50	7.54	7.62
	EPS(NTD)	1.37	1.40	2.06	2.23	2.29
Cash Flow	Cash Flow Ratio(%)	90.37	42.93	－	17.47	27.47
	Cash Flow Suitability Ratio(%)	127.32	172.74	132.31	140.02	118.98
	Cash Reinvestment Ratio(%)	23.78	11.67	－	6.38	13.02
Leverage	Operation Leverage	2.83	2.74	2.27	1.68	1.52
	Financial Leverage	1.05	1.03	1.04	1.06	1.04
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. Long‐term capital to property, plant and equipment ratio of FY 2016 is lower than FY 2015 due to decrease of long‐term loans and increase of capital expenditure of plant and equipment. 2. Current ratio of FY 2016 is lower than Fey 2015 due to decrease of current assets and increase of current liabilities (decrease of inventory and other financial assets, increase of short‐term loans). 3. Property, plant and equipment turnover rate of FY 2016 is lower than FY 2015 due to the increase of revenue is less than the increase of property, plant and equipment. 4.Cash flow ratio and cash reinvestment ratio of FY 2016 is higher than FY 2015 due to the prepayment for the purchase of non‐commercial parts of military programs in FY 2015 which caused increase of outflow of cash. This year with arrival of prepaid parts and the decrease of material procurement, operating net cash inflow increased.

Note 1: The basis FY 2012 is approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, FY 2013 figures approved by NAO under IFRSs, the figures from FY 2014 to FY 2016 are audited under IFRSs.

Note 2: The aforementioned figures of FY 2012 – FY 2016 are information on AIDC individual company only. Note 3: The equation for calculation in this sheet:
Financial structure
(1) Liabilities to assets ratio = total liabilities / total assets
(2) Long‐term capital to property, plant and equipment ratio = (Total equity + non‐current liabilities)/ net property, plant and equipment
Ability to pay debt

(1) Current ratio = current assets/ current liabilities
(2) Quick ratio = (current assets – inventory – prepaid expenses)/ current liabilities
(3) Debt service coverage ratio = EBIT/ interest expenses in current period
Utility

(1) Receivables (including account receivables and note receivables deriving from business operation) turnover rate = 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) Property, plant and equipment turnover rate = revenue/ average net property, plant and equipment

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

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)Net profit rate = Earnings (loss) net / net sales

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

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 property, plant and equipment + long‐term investment + other non‐current assets + working capital) (note 5)
Leverage
(1) Operation leverage = (net sales – change in cost of operation and expense) / operating income (note 6) (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:
The calculation is based on the weighted average quantity of common shares, not the number of the outstanding issued shares at year end.
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.
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.
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:
Net cash flow provided by operating activity refers to the net cash inflow provided by operating activity in the Statement of Cash Flows.
Capital expense refers to the cash flow of capital investment each year.
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.
Cash dividend includes cash dividend of common share and preferred share.
Gross value of property, plant and equipment refers to the total value of property, plant and equipment before deducting accumulated depreciation.
Note 6: Items of operating cost and operating expense shall be broken into fixed and variable categories. In the event that estimation or subjective judgement is involved, rationality and consistency shall be observed.
Note 7: In the case of the Company with shares having non par value or a par value other than NT$10, for the paid‐in capital ratio in the calculation mentioned above shall be substituted with incomes attributable to parent shareholders’ equity ratio of the balance sheet.

3.3 Comprehensive Analysis of the AIDC Individual Company 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		2012	2013	2014	2015	2016
Financial Structure (%)	Liabilities to Assets Ratio	56.58	－	－	－	－
	Long‐term Capital to Fixed Assets Ratio	189.77	－	－	－	－

Ability to Pay Debt (%)	Current Ratio	Current Ratio	225.76	－	－	－	－
	Quick Ratio		93.52	－	－	－	－
	Debt Service Coverage Ratio		19.80	－	－	－	－
Utility	A/C Turnover Rate (times)		5.80	－	－	－	－
	Average Daily Cash Receipt		63.00	－	－	－	－
	Inventory Turnover Rate(times)		2.20	－	－	－	－
	A/P Turnover Ratio (times)		12.73	－	－	－	－
	Average Days of Sales		166.00	－	－	－	－
	Fixed Assets Turnover Rate(times)		4.19	－	－	－	－
	Total Assets Turnover Rate(times)		1.11	－	－	－	－
Profitability	Return on Assets (%)		6.37	－	－	－	－
	Return on Equity (%)		15.57	－	－	－	－
	Proportion to Paid‐in Capital (%)	Operating Income	16.34	－	－	－	－
		EBT	13.74	－	－	－	－
	Net Profit Rate (%)		5.52	－	－	－	－
	EPS (NTD)		1.37	－	－	－	－
Cash Flow	Cash Flow Ratio (%)		88.41	－	－	－	－
	Cash Flow Suitability Ratio(%)		157.34	－	－	－	－
	Cash Reinvestment Ratio(%)		22.12	－	－	－	－
Leverage	Operation Leverage		1.51	－	－	－	－
	Financial Leverage		1.05	－	－	－	－
Reasons for Changes in the Items of Financial Analysis in the Last 2 Years (if the change falls below 20%, no analysis is necessary): Not applicable.

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 are approved by the NAO under ROC GAAP.

Note 2: AIDC is not required to prepare consolidated financial statements for FY 2012. As such, the aforementioned figures are information on AIDC individual 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
1. Ability to pay debt
(1) Current ratio = current assets/ current liabilities
(2) Quick ratio = (current assets – inventory – prepaid expenses)/ current liabilities
(3) Debt service coverage ratio = EBIT/ interest expenses in current period
Utility

(2) Average days of cash receipt = 365/account receivable turnover rate
(3) Inventory turnover rate = cost of sales / average inventory

(5) Average days of sales = 365 / inventory turnover rate
(6) Fixed assets turnover rate = net sales/ average net fixed assets
(7) Total assets turnover rate = net sales/ average total assets

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)Net profit rate = Earnings (loss) net / net sales
(4) Earnings per share = (Earnings net – preferred share dividend) / weighted average quantity of outstanding shares (note 4)
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) (note 5)
Leverage
(1) Operation leverage = (net sales – change in cost of operation and expense) / operating income (note 6) (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:
The calculation is based on the weighted average quantity of common shares, not the number of the outstanding issued shares at year end.
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.
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.
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:
Net cash flow provided by operating activity refers to the net cash inflow provided by operating activity in the Statement of Cash Flows.
Capital expense refers to the cash flow of capital investment each year.
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.
Cash dividend includes cash dividend of common share and preferred share.
Gross value of property, plant and equipment refers to the total value of property, plant and equipment before deducting accumulated depreciation.
Note 6: Items of operating cost and operating expense shall be broken into fixed and variable categories. In the event that estimation or subjective judgement is involved, rationality and consistency shall be observed.

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

5.5 Statement of Cash Flow

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5.6 Note to Financial Statements

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6. Audited Individual Financial Statements in the Previous Year:

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6.1 Auditors’ Report

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6.2 Balance Sheet Covering 2 Fiscal Years

6.3 Income Statement

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6.4 Statement of Changes in Shareholders’ Equity

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6.5 Statement of Cash Flow

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6.6 Note to Financial Statements

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7. Insolvency and the Effect on the Financial Position of the Company: There is no insolvency to the Company and its affiliated enterprises in previous year to the date this report was printed, and there is no effect on the financial position of the Company.

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VII. Financial Position and Review of Financial Performance and Risk

1. Review and Analysis of Financial Position:

1.1 Review and Analysis of Consolidated Financial Position:

Unit：NT$ thousands

Fiscal Year			Difference	Difference
	2015	2016
Title			Amount	%

Current Assets	21,185,744	20,455,490	(730,254)	(3.45)
Financial Assets on the Basis of Cost‐noncurrent	46,200	79,200	33,000	71.43
Investment Accounted for under the EquityMethod	665,521	779,331	113,810	17.10
Real Properties, Plant and Equipment	5,713,002	8,244,072	2,531,070	44.30
Intangible Assets	412,054	734,805	322,751	78.33
Other Assets	681,661	732,102	50,441	7.40
Total Assets	28,704,182	31,025,000	2,320,818	8.09
Current Liabilities	13,765,578	16,499,889	2,734,311	19.86
Noncurrent Liability	3,412,009	2,164,672	(1,247,337)	(36.56)
Total Liabilities	17,177,587	18,664,561	1,486,974	8.66
Capital Stock	9,082,615	9,082,615	0	0
Retained Earnings	2,413,365	3,257,799	844,434	34.99
Other Equity	30,615	20,025	(10,590)	(34.59)
Total Equity	11,526,595	12,360,439	833,844	7.23
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.Adding of financial assets at cost ‐ noncurrent: for business operation consideration, made investment in UHT Unitech Co., Ltd. this year. 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 property, 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 capitalized non‐recurrent costs not being amortized. 5.Increase of current liabilities: mainly because of the increase of loans for investment in fixed assets and increase of equipment payment. 6.Decrease of non‐current liabilities: mainly because of the repayment of long‐term loans. 7.Increase of retained earnings: mainly because of the growth of operation performance that resulted in the increase of earnings net in the current period. 8.Decrease of other equity: mainly because of the translation of foreign currency financial statements of associated enterprise International Turbine Engine Company LLC resulted in the decrease of cumulative translation adjustments.

Note 1: The comparison is made by the audited figures in accordance with IFRSs in FY 2015 and FY 2016.

Note 2: AIDC prepared the first‐time consolidated financial statements for FY2016. As such, the abovementioned figures of FY 2015 are information on AIDC individual company only.

1.2 Review and Analysis of Individual Company Financial Position:

131

Unit：NT$ thousands

Fiscal Year Title	2015	2016	Difference Amount
Current Assets	21,185,744	20,440,224	(745,520)	(3.52)
Financial Assets on the Basis of Cost‐noncurrent	46,200	79,200	33,000	71.43
Investment Accounted for under the EquityMethod	665,521	795,692	130,171	19.56
Real Properties, Plant and Equipment	5,713,002	8,242,666	2,529,664	44.28
Intangible Assets	412,054	734,805	322,751	78.33
Other Assets	681,661	732,030	50,369	7.39
Total Assets	28,704,182	31,024,617	2,320,435	8.08
Current Liabilities	13,765,578	16,499,622	2,734,044	19.86
Noncurrent Liability	3,412,009	2,164,556	(1,247,453)	(36.56)
Total Liabilities	17,177,587	18,664,178	1,486,591	8.65
Capital Stock	9,082,615	9,082,615	0	0
Retained Earnings	2,413,365	3,257,799	844,434	34.99
Other Equity	30,615	20,025	(10,590)	(34.59)
Total Equity	11,526,595	12,360,439	833,844	7.23

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. Adding of financial assets at cost ‐ noncurrent: for business operation consideration, made investment in UHT Unitech Co., Ltd. this year. 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 property, 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 capitalized non‐recurrent costs not being amortized.

5.Increase of current liabilities: mainly because of the increase of loans for investment in fixed assets and increase of equipment payment.

6.Decrease of non‐current liabilities: mainly because of the repayment of long‐term loans.

7.Increase of retained earnings: mainly because of the growth of operation performance that resulted in the increase of earnings net in the current period.

8.Decrease of other equity: mainly because of the translation of foreign currency financial statements of associated enterprise International Turbine Engine Company LLC resulted in the decrease of cumulative translation adjustments.

Note 1: The comparison was made by the audited figures in accordance with IFRSs in FY 2015 and FY 2016. Note 2: The abovementioned figures of FY 2015 and FY 2016 are information on AIDC individual company only.

2. Review and Analysis of Financial Performance

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

			Unit：NT$ thousands	Unit：NT$ thousands
Fiscal Year Title
	2015	2016	Difference Amount	Difference%

132

Fiscal Year
	2015	2016	Difference Amount	Difference%
Title

Net Operating Income	26,878,156	27,325,514	447,358	1.66
Operating Cost	23,626,449	23,210,018	(416,431)	(1.76)
Operating Gross Profit	3,251,707	4,115,496	863,789	26.56
Operating Expense	1,097,990	1,389,563	291,573	26.56
Operating Net Profit	2,153,717	2,725,933	572,216	26.57
Non‐operating revenues and expenditures	328,567	(131,710)	(460,277)	(140.09)
EBT	2,482,284	2,594,223	111,939	4.51
Income Tax Expense	453,115	511,568	58,453	12.90
Earnings Net in Current Period	2,029,169	2,082,655	53,486	2.64
Other Comprehensive Income (after taxation)	39,525	(13,575)	(53,100)	(134.35)
Total Comprehensive Income in Current Period	2,068,694	2,069,080	386	0.02
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 increase of revenue of aircraft products and maintenance service, and continuous LEAN efforts which resulted in increase of gross profit. 2.Increase of operating expense: mainly because of the increase of R&D expense than the previous year. 3.Decrease of non‐operating revenues and expenditures: mainly because of the fluctuations of exchange rate against USD which resulted in increase of the net exchange loss in the current year. 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.Decrease of other comprehensive income (after taxation): mainly because of the actuarial loss by recognition of actuarial benefit of the defined benefit plan under the actuarial report for FY2015; and the decrease of cumulative translation adjustment due to translation of foreign currencyfinancial statements.

Note 1: The comparison was made by the audited figures in accordance with IFRSs in FY 2014 and FY 2015. Note 2: AIDC prepared the first‐time consolidated financial statements for FY2016. As such, the abovementioned figures of FY 2015 are information on AIDC individual company only.

2.2 Comparison of Individual Company Financial Performance Analysis in the Last 2 Years:

Unit：NT$ thousands

Fiscal Year Title
	2015	2016	Difference Amount	Difference%

et Operating Income	26,878,156	27,325,514	447,358	1.66
Operating Cost	23,626,449	23,210,018	(416,431)	(1.76)
Operating Gross Profit	3,251,707	4,115,496	863,789	26.56
Operating Expense	1,097,990	1,389,954	291,964	26.59
Operating Net Profit	2,153,717	2,725,542	571,825	26.55
Non‐operating revenues and expenditures	328,567	(131,475)	(460,042)	(140.01)
EBT	2,482,284	2,594,067	111,783	4.50
Income Tax Expense	453,115	511,412	58,297	12.87
Earnings Net in Current Period	2,029,169	2,082,655	53,486	2.64

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Other Comprehensive Income (after taxation)	39,525	(13,575)	(53,100)	(134.35)
Total Comprehensive Income in Current Period	2,068,694	2,069,080	386	0.02
The major causes of significant changes in revenue, operating income and EBT in the last two years (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 increase of revenue of aircraft products and maintenance service, and continuous LEAN efforts which resulted in increase of gross profit. 2. Increase of operating expense: mainly because of the increase of R&D expense in the current year. 3.Decrease of non‐operating revenues and expenditures: mainly because of the fluctuations of exchange rate against USD which resulted in increase of the net exchange loss in the current year. 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.Decrease of other comprehensive income (after taxation): mainly because of the actuarial loss by recognition of actuarial benefit of the defined benefit plan under the actuarial report for FY2015; and the decrease of cumulative translation adjustment due to translation of foreign currencyfinancial statements.

Note 1: The comparison is made by the audited figures in accordance with IFRSs in FY 2015 and FY 2016. Note 2: The aforementioned figures are information on AIDC individual company only.

2.3 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.

2.4 Possible Effect on the Financial Position and Operation of the Company: No significant

influence .

2.5 Plan in Response: Not applicable.

3. Cash Flow and Liquidity Analysis

3.1 Liquidity Analysis of Consolidated Financial Data Over the Last 2 Years:

Year Title	2015	2016	Proportion of Change (%)
Cash flow ratio (%)	17.47%	27.47%	10.00%
Cash flow suitability ratio (%)	140.02%	119.13%	(20.89)%
Cash reinvestment ratio (%)	6.38%	13.02%	6.64%
Notes to the Analysis of the Proportion of Change: 1.Cash Flow Ratio and Cash Reinvestment Ratio increased The prepayment for the purchase of non‐commercial parts of military programs in 2015 resulted in the increase of outflow of cash. This year with arrival of prepaid parts and the decrease of material procurement, operating net cash inflow increased. 2.Cash Flow Suitability Ratio decreased In the last 5 years the increase of net cash flow from operating activities was less than the increase of capital expenditure and cash dividend.

Note 1: The basis of comparison for FY2015 and FY2016 are the audited figures under IFRSs.

Note 2: FY 2016 is the first year AIDC is required to prepare consolidated financial statements, as such

aforementioned information for FY 2015 is on AIDC individual company and FY2016 is the consolidated one.

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3.2 Liquidity Analysis of Individual Company Over the Last 2 Years:

Year Title	2015	2016	Proportion of Change (%)
Cash flow ratio (%)	17.47%	27.47%	10.00%
Cash flow suitability ratio (%)	140.02%	118.98%	(21.04)%
Cash reinvestment ratio (%)	6.38%	13.02%	6.64%
Notes to the Analysis of the Proportion of Change: 1.Cash Flow Ratio and Cash Reinvestment Ratio increased The prepayment for the purchase of non‐commercial parts of military programs in 2015 resulted in the increase of outflow of cash. This year with arrival of prepaid parts and the decrease of material procurement, operating net cash inflow increased. 2.Cash Flow Suitability Ratio decreased In the last 5 years the increase of net cash flow from operating activities was less than the increase of capital expenditure and cash dividend.

Note 1: The basis of comparison for FY2015 and FY2016 are the audited figures under IFRSs. Note 2: The aforementioned figures are information on the AIDC individual company.

3.3 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, 2016/Units: NT$ thousands; thousand shares

				Shares Invested	Shares Invested				ROI in Previous Year	ROI in Previous Year
						Net
Business of		Cost of	Book		Proportion		Market	Accounting			Percentage of
	Principal Operation					Equity			Itt	Diidd
Investment		Investment	Value	Qty	of Equity	Value	Value	Method	nvesmen Gain	ven Paid	Shareholding
					(%)

ITEC LLC	The Production and Delivery of Military Aircraft Engine Equipment and the Execution of Engineering Service Contracts	728	779,331	(Note)	22.05	779,331	－	Equity	177,625	51,521	－
AeroVision Avionics Inc.	The Production of Commercialized Civil Aircraft Cabin Information System	43,200	43,200	4,968	13.09	52,914	－	Cost	－	497	－
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	3,272	－	Cost	－	117	－
AIDC USA LLC	Program management and relevant services for purchasing and selling of raw materials, parts and components of aircraft, engines and subsystems	16,590	16,361	(Note)	100	16,361	－	Equity	236		－
UHT Unitch Co., Ltd.	Medium and high modulus/strength carbon fibers	33,000		1,100	4.55	5,614	－	Cost			－

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

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

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Units：NT$ thousands

Industry Type	Name of Investee	Income/Loss	Main Cause of Profit or Loss	Improvement Plan
Aerospace Manufacturing	ITEC LLC	805,556	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpense.	－
Avionics	AeroVision Avionics Inc.	‐49,793	The main causes of loss are the revenue of in‐flight entertainment system fell short of expectation, and customer product development fell behind schedule.	Exert program management effectiveness to pursue in‐flight entertainment system and related business
Track Consulting	Metro Consulting Service Ltd.	1,461	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpenses.	－
Aerospace Manufacturing	AIDC USA LLC	236	The main cause of profit is the proactive expansion of service business and the effective control of operatingexpenses.	－
Other	UHT Unitch Co., Ltd.	‐102,213	The main causes of loss include; huge R&D investment, expansion of team, pilot run and production line expansion	Reduce operation cost and pursue carbon fiber equipment export licensing

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 2016 amounted to NT$33,714 thousand or accounted for 0.12% of the consolidated earnings. Interest expense in the same year amounted to NT$127,344 thousand or accounted for0.47% of the consolidated 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 loss in FY 2016 amounted to NT$49,748 thousand or accounted for 0.18% of the consolidated 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

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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

(1) According to the Directorate‐General of Budget, Accounting and Statistics, the CPI (Consumer Price Index) of 2016 increased 1.4%, while Core CPI(*) increased 0.85%, the effect of inflation was low.
- *Core CPI refers to the index eliminating short term or occasional factors (such as typhoon, war), in Taiwan it refers to the CPI indices excluding vegetables and energy (gas, electricity and oil prices)
(2) AIDC shall continue to control cost through inventory management, procurement policy and process development and innovation; and shall continue to monitor inflation for adjustment. 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 FY 2016 to March FY 2017, 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

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of the Company and the Response

According to the forecast of international aerospace companies such as Boeing, Airbus, Bombardier, Rolls‐Royce and professional market research institutes, the aerospace industry will sustain continuous growth and development in the long run.

The plunging oil prices may have impact on the aircraft replacement market, however 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 aircraft relatively low) and meeting the needs of emerging markets are also considered stimuli for new aircraft purchase.

For environmental protection, demands for light weight, fuel efficiency, and low carbon emission continue to lead the design and development of new aircrafts and engines, and the application of composite materials also plays a key part in this trend. To bolster its position as tier 1 supplier of Airbus, in addition to TACC, AIDC further invested in the construction of TACC #19 dedicated to the production of composite parts and components for the popular single aisle A320 series aircraft. To satisfy the strong demand of GE and Rolls‐Royce for green engines, Engine Case Manufacturing Center (ECMC) was thus built and certified for production. The focus of future efforts shall be on the design, development and production of aerospace composite materials. AIDC shall use the existing technological capability as the basis to introduce advanced key technology and machinery and to cooperate with international companies in order to contribute to the financial position and operation of the Company.

AIDC will keep abreast of and be prepared for the development of related technologies and market trend, and at the same time assess the impact it may have on AIDC’s business operation.

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

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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

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 35.14%, 42.75% and 50.15% of purchase, respectively. The number one supplier in these years accounted for 5.98%, 10.44% and 8.28% 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 “enforce autonomous defense, enhance national security, develop aerospace industry and boost economic prosperity”, 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 5.66% of its shares in 2015 and 2016. 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, 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.

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VIII. Special Notes

1. Affiliates Information:

1.1 Organizational Chart of the Affiliates

Aerosapace Industrial Development Corporation

100% AIDC USA LLC

1.2 Information of the Affiliates

Name	Incorporation Date	Address	Capital	Main Business Items
AIDC USA LLC	March 2, 2016	2999 North 44th Street, Suite 514, Phoenix, Arizona 85018	US$500,000.	Program management and relevant services for purchasing and selling of raw materials, parts and components of aircraft, engines and subsystems

1.3 Companies presumed to have a relationship of control and subordination that have the

shareholders in common: None.

1.4 The industries covered by the business operated by the affiliates overall: AIDC USA LLC is

the sole affliliate AIDC currently has, and its main business items are specified in item 1.2 above.

1.5 Details of Directors, Supervisors and Managerial Officer of Affiliates

Dec. 31, 2016; Unit: shares

Name of		Name or	Shareholding	Shareholding
	l
Affiliate	Tite	Representative	Number of Share	Shareholding ratio

AIDC USA LLC	Chairman President	Liao, Jung‐Hsin Lai, Wen‐Yi	Capital contribution by AIDC US$500,000. (Note)	100%

Note: A limited liability company without issuing shares; no information on quantity of shares is applicable.

1.6 Operations of the Affiliates

Unit: NT$ thousands


Name	Capital	Total	Total	Book	Revenue	Operating	Net
		Assets	Liabilities	Value		Income	Income

AIDC USA LLC	16,590	17,986	1,625	16,361	8,695	391	236

1.7 Consolidation of Financial Statements of Affiliates

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports,

141

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

2. Private Placement Securities in 2016 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 2016 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

AI assistant

AIDC — Annual Report 2016

52175_rns_2017-07-25_8aa300cf-da25-426b-a9ce-c4b2756ec06f.pdf

Aerospace Industrial Development Corporation Annual Report 2016

Notice to readers

Spokesperson and Deputy Spokesperson Information

Headquarter, Branch and Plant Address and Telephone, and Website Information

Stock Transfer Agent Information

Auditors’ Information

Overseas Securities Exchange Information: N/A

AIDC’s Core Values

We Keep Our Words

I. Letter to Shareholders

Dear Valued Shareholders,

FY 2016 Operation Highlights

Revenue and Income

Financial Structure and Profitability Analysis

Research and Development Outlook

Credentials and Awards

Business Plan for FY 2017

Business Development Planning

Corporate Management Policy

May I wish you all good fortune and good health.

Chairman Jung‐Hsin Liao

II. Company Profile

1. Date of Establishment

2. Chronicle

III. Corporate Governance Report

1. Organization

1.1 Organization Chart

1.2 Major Corporate Functions

2. Directors, Supervisors and Management Team

2.1 Directors (I) March 31, 2017

2.1 Directors (II)

Professional Qualifications and Independence Analysis of Directors and Supervisors:

2.2 Management Team March 31, 2017

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

3.1 Remuneration of Directors December 31, 2016 / Units：NT$ thousands；%

Remuneration Paid to Directors

3.2 Compensation of President and Vice Presidents December 31, 2016 / Units：NT$ thousands；%

Remuneration Paid to President and Vice Presidents

3.3 Employee Remuneration of Managerial Officers

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

B. The Policies, Standards, and Portfolios for the Payment of Remuneration, the Procedures for Determining Remuneration, and the Correlation with Business Performance

4. Implementation of Corporate Governance

4.1 Board of Directors

4.2 Audit Committee （ Attendance of Supervisors for Board Meeting ）

A. Audit Committee

4.4 Composition, Responsibilities and Operations of Remuneration Committee

4.4.1 Professional Qualifications and Independence Analysis of Committee Members

4.4.2 Operations of Remuneration Committee

Important notices:

4.5 Social Responsibility Implementation

4.6 Corporate Conduct and Ethics Implementation

Aerospace Industry Development Corporation Statement of Declaration on Internal Control

4.11.1 2016 – 2017 Major Resolutions of Board Meetings

USA LLC

4.11.2 2016 Major Resolutions of Shareholders’ Meetings and Implementation Status

5. Information Regarding Independent Auditors

Brackets of the Service Charge for the Certified Public Accountants

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

IV. Raising of Capital

1. Capital and Shares

1.1 Source of Capital

1.2 Composition of Shareholders

1.3 Distribution Profile of Share Ownership

1.4 Major Shareholders

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

1.6 Dividend Policy of the Company and the Implementation

1.6.1 Dividend Policy of the Company

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

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

1.8 Remuneration to Employees 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

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

1.8.3 Proposal for Distribution of Earnings Passed by the Board:

V. Operation Outlook

1. Business Content

1.1 Scope of Business

AIDC Annual Report 2016