AUO - Annual Report 2016 | FinancialReports.eu

Stock Code：2409

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2016 and 2015

(With Independent Auditors’ Report)

Representation Letter

The entities that are required to be included in the combined financial statements of AU Optronics Corp. as of and for the year ended December 31, 2016 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 endorsed by the Financial Supervisory Commission, "Consolidated Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, AU Optronics Corp. and its subsidiaries do not prepare a separate set of combined financial statements.

Hereby declare

AU Optronics Corp.

By:

Shuang-Lang (Paul) Peng Chairman

February 13, 2017

Independent Auditors’ Report

To the Board of Directors of AU Optronics Corp.:

Opinion

We have audited the consolidated financial statements of AU Optronics Corp. and its subsidiaries (“the Company”), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, the consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows for the years ended December 31, 2016 and 2015, and notes to the consolidated financial statements including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for each of the years then ended, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards, International Accounting Standards, interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

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

Impairment of long-term non-financial assets (including goodwill)

Refer to Note 4(17) “Impairment – non-financial assets”, Note 5(2) and Note 5(3) “Critical accounting judgments and key sources of estimation and assumption uncertainty”, Note 6(8) “Property, plant and equipment”, and Note 6(10) “Intangible assets” to the consolidated financial statements.

Description of key audit matter:

The Company operates in an industry with high investment costs, has goodwill through the acquisition of subsidiaries, and may experience volatility in response to changes in the external market; hence, it is important to assess the impairment of its long-term non-financial assets (including goodwill). The impairment assessment includes identifying cash-generating units, determining a valuation model, determining significant assumptions, and computing recoverable amounts. With the complexity of the impairment assessment process and the involvement of significant management judgment regarding assumptions used, this is one of the key areas our audit focused on.

How the matter was addressed in our audit:

In relation to the key audit matter above, our principal audit procedures included understanding and testing the Company’s controls surrounding the impairment assessment and testing process; assessing whether there are impairment indications for the identified cash-generating units of the Company and its related assets; understanding and assessing the appropriateness of the valuation model used by the management in the impairment assessment and the significant assumptions used to determine related assets’ future cash flows projection, useful lives, and weighted-average cost of capital; retrospectively reviewing the accuracy of assumptions used in prior-period estimates and performing a sensitivity analysis of key assumptions and results; in addition to the above audit procedures, appointing specialists to evaluate the appropriateness of the weighted-average cost of capital used and related assumptions; performing an inquiry of the management and identifying any event after the balance sheet date if able to affect the results of the impairment assessment; and assessing the adequacy of the Company’s disclosures of its policy on impairment of noncurrent non-financial assets and other related disclosures.

Recognition of deferred tax assets

Refer to Note 4(22) “Income taxes”, Note 5(5) “Critical accounting judgments and key sources of estimation and assumption uncertainty”, and Note 6(26) “Income taxes” to the consolidated financial statements.

Description of key audit matter:

The recognition of deferred tax assets for the related unused tax losses, unused tax credits, and deductible temporary differences arising from operating entities located in other areas is based on management estimates of its future available taxable profits and the probability that the related deferred tax assets will be realized. This is one of the key areas our audit focused on.

How the matter was addressed in our audit:

In relation to the key audit matter above, our principal audit procedures included understanding and testing the controls surrounding the Company’s assessment process for recognition of deferred tax assets; understanding the Company’s significant operating entities for which deferred tax assets are recognized and assessing the management estimates for assumptions used in the future cash flow projection and future taxable profits calculation; retrospectively reviewing the accuracy of assumptions used in prior-period estimates of future cash flow projection and assessing whether there are any other matters that will affect the recognition of deferred tax assets; and assessing the adequacy of the Company’s disclosures regarding its deferred tax asset recognition policy and other related disclosures.

Revenue recognition

Refer to Note 4(19) “Revenue recognition”, and Note 6(20) “Revenue” to the consolidated financial statements.

Description of key audit matter:

Revenue is recognized when the risks and rewards specified in each individual contract with customers are transferred. The Company recognizes revenue depending on the various sales terms in each individual contract with customers to ensure the significant risks and rewards of ownership have been transferred. In addition, the Company operates in an industry in which sales revenue is easily influenced by various external factors such as supply and demand of the market, and this may impact the recognition of revenue. Consequently, this is one of the key areas our audit focused on.

How the matter was addressed in our audit:

In relation to the key audit matter above, our principal audit procedures included testing the Company’s controls surrounding revenue recognition; assessing whether appropriate revenue recognition policies are applied through comparison with accounting standards and understanding the Company’s main revenue types, its related sales agreements, and sales terms; on a sample basis, inspecting contracts with customers or customers’ orders and assessing whether the accounting treatment of the related contracts (including sales terms) is applied appropriately; performing a test of details of sales revenue and understanding the rationale for any identified significant sales fluctuations and any significant reversals of revenue through sales discounts and sales returns which incurred within a certain period before or after the balance sheet date; and assessing the adequacy of the Company’s disclosures of its revenue recognition policy and other related disclosures.

Other Matters

AU Optronics Corp. has additionally prepared its parent-company-only financial statements as of and for the years ended December 31, 2016 and 2015, on which we have issued an unmodified opinion.

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance (inclusive of the Audit Committee) are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

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

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

Identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Concluded on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit.

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

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

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

KPMG Yu, Wan Yuan Hsinchu, Taiwan (Republic of China) CPA of Republic of China February 13, 2017 KPMG Tseng, Mei Yu Hsinchu, Taiwan (Republic of China) CPA of Republic of China February 13, 2017

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance, and cash flows in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards, International Accounting Standards, interpretations as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

The auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors’ report and consolidated financial statements, the Chinese version shall prevail.

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

December 31 2016 2015 Assets Amount % Amount % Current assets: 1100 Cash and cash equivalents (Note 6(1)) $ 80,191,248 19 78,880,700 19 1110 Financial assets measured at fair value through profit or loss－current (Note 6(2)) 65,669 - 214,194 - 1170 Notes and accounts receivable, net (Note 6(5)) 45,710,177 11 32,319,986 8 1180 Accounts receivable from related parties, net (Note 6(5)&7) 2,533,224 1 2,492,479 1 1210 Other receivables from related parties (Note 7) 34,288 - 27,958 - 1220 Current tax assets 14,057 - 28,571 - 130X Inventories (Note 6(6)) 27,679,335 6 31,795,525 7 1476 Other current financial assets (Note 6(1),(5)&8) 559,946 - 11,734,252 3 1460 Noncurrent assets held for sale (Note 6(8)) 228,015 - 702,390 - 1479 Other current assets (Note 6(7)&(11)) 6,330,283 1 3,796,085 1 163,346,242 38 161,992,140 39 Noncurrent assets: 1523 Available-for-sale financial assets－noncurrent (Note 6(3)) 2,836,696 1 2,077,203 - 1543 Financial assets carried at cost－noncurrent (Note 6(4)) 193,582 - 70,938 - 1550 Investments in equity-accounted investees (Note 6(3)&(7)) 5,178,337 1 12,401,725 3 1600 Property, plant and equipment (Note 6(8),(16),7&8) 222,741,832 52 208,785,609 49 1760 Investment property (Note 6(9),(16)&8) 465,868 - 465,868 - 1780 Intangible assets (Note 6(10)) 13,602,834 3 14,575,279 3 1840 Deferred tax assets (Note 6(26)) 14,364,745 3 17,024,372 4 1900 Other noncurrent assets (Note 6(7),(11)&8) 7,039,115 2 8,161,111 2 266,423,009 62 263,562,105 61 Total assets $ 429,769,251 100 425,554,245 100 December 31 2016 2015 Liabilities and Stockholders’ Equity Amount % Amount % Current liabilities: 2100 Short-term borrowings (Note 6(12)) $ 526,723 - 1,593,714 - 2120 Financial liabilities measured at fair value through profit or loss－current (Note 6(2)) 896,998 - 553,663 - 2125 Hedging derivative financial liabilities－current (Note 6(2)) 3,540 - - - 2170 Notes and accounts payable 51,148,055 13 52,087,584 12 2180 Notes and accounts payable to related parties (Note 7) 8,823,065 2 9,326,171 2 2213 Equipment and construction payable 12,647,041 3 7,622,160 2 2220 Other payables to related parties (Note 7) 27,341 - 29,014 - 2230 Current tax liabilities 949,890 - 2,461,902 1 2250 Provisions－current (Note 6(15)) 1,783,407 - 5,012,361 1 2399 Other current liabilities 22,385,488 5 23,555,082 7 2322 Current installments of long-term borrowings (Note 6(14)&8) 18,074,627 4 39,107,738 9 117,266,175 27 141,349,389 34 Noncurrent liabilities: 2510 Hedging derivative financial liabilities－noncurrent (Note 6(2)) - - 10,739 - 2540 Long-term borrowings, excluding current installments (Note 6(14)&8) 106,187,993 26 68,537,430 16 2550 Provisions－noncurrent (Note 6(15)) 1,038,264 - 1,123,975 - 2570 Deferred tax liabilities (Note 6(26)) 3,705,300 1 5,128,394 1 2600 Other noncurrent liabilities (Note 6(17)) 1,936,337 - 4,767,913 1 112,867,894 27 79,568,451 18 Total liabilities 230,134,069 54 220,917,840 52 Equity:(Note 6(18)) Equity attributable to shareholders of AU Optronics Corp.: 3100 Common stock 96,242,451 22 96,242,451 23 3200 Capital surplus 59,979,723 14 60,249,983 14 3300 Retained earnings 24,243,153 6 20,407,277 5 3400 Other components of equity 779,372 - 5,085,511 1 181,244,699 42 181,985,222 43 Non-controlling interests: 36XX Non-controlling interests 18,390,483 4 22,651,183 5 Total equity 199,635,182 46 204,636,405 48 Total Liabilities and Equity $429,769,251 100 425,554,245 100	December 31 2016 2015 Assets Amount % Amount % Current assets: 1100 Cash and cash equivalents (Note 6(1)) $ 80,191,248 19 78,880,700 19 1110 Financial assets measured at fair value through profit or loss－current (Note 6(2)) 65,669 - 214,194 - 1170 Notes and accounts receivable, net (Note 6(5)) 45,710,177 11 32,319,986 8 1180 Accounts receivable from related parties, net (Note 6(5)&7) 2,533,224 1 2,492,479 1 1210 Other receivables from related parties (Note 7) 34,288 - 27,958 - 1220 Current tax assets 14,057 - 28,571 - 130X Inventories (Note 6(6)) 27,679,335 6 31,795,525 7 1476 Other current financial assets (Note 6(1),(5)&8) 559,946 - 11,734,252 3 1460 Noncurrent assets held for sale (Note 6(8)) 228,015 - 702,390 - 1479 Other current assets (Note 6(7)&(11)) 6,330,283 1 3,796,085 1 163,346,242 38 161,992,140 39 Noncurrent assets: 1523 Available-for-sale financial assets－noncurrent (Note 6(3)) 2,836,696 1 2,077,203 - 1543 Financial assets carried at cost－noncurrent (Note 6(4)) 193,582 - 70,938 - 1550 Investments in equity-accounted investees (Note 6(3)&(7)) 5,178,337 1 12,401,725 3 1600 Property, plant and equipment (Note 6(8),(16),7&8) 222,741,832 52 208,785,609 49 1760 Investment property (Note 6(9),(16)&8) 465,868 - 465,868 - 1780 Intangible assets (Note 6(10)) 13,602,834 3 14,575,279 3 1840 Deferred tax assets (Note 6(26)) 14,364,745 3 17,024,372 4 1900 Other noncurrent assets (Note 6(7),(11)&8) 7,039,115 2 8,161,111 2 266,423,009 62 263,562,105 61 Total assets $ 429,769,251 100 425,554,245 100 December 31 2016 2015 Liabilities and Stockholders’ Equity Amount % Amount % Current liabilities: 2100 Short-term borrowings (Note 6(12)) $ 526,723 - 1,593,714 - 2120 Financial liabilities measured at fair value through profit or loss－current (Note 6(2)) 896,998 - 553,663 - 2125 Hedging derivative financial liabilities－current (Note 6(2)) 3,540 - - - 2170 Notes and accounts payable 51,148,055 13 52,087,584 12 2180 Notes and accounts payable to related parties (Note 7) 8,823,065 2 9,326,171 2 2213 Equipment and construction payable 12,647,041 3 7,622,160 2 2220 Other payables to related parties (Note 7) 27,341 - 29,014 - 2230 Current tax liabilities 949,890 - 2,461,902 1 2250 Provisions－current (Note 6(15)) 1,783,407 - 5,012,361 1 2399 Other current liabilities 22,385,488 5 23,555,082 7 2322 Current installments of long-term borrowings (Note 6(14)&8) 18,074,627 4 39,107,738 9 117,266,175 27 141,349,389 34 Noncurrent liabilities: 2510 Hedging derivative financial liabilities－noncurrent (Note 6(2)) - - 10,739 - 2540 Long-term borrowings, excluding current installments (Note 6(14)&8) 106,187,993 26 68,537,430 16 2550 Provisions－noncurrent (Note 6(15)) 1,038,264 - 1,123,975 - 2570 Deferred tax liabilities (Note 6(26)) 3,705,300 1 5,128,394 1 2600 Other noncurrent liabilities (Note 6(17)) 1,936,337 - 4,767,913 1 112,867,894 27 79,568,451 18 Total liabilities 230,134,069 54 220,917,840 52 Equity:(Note 6(18)) Equity attributable to shareholders of AU Optronics Corp.: 3100 Common stock 96,242,451 22 96,242,451 23 3200 Capital surplus 59,979,723 14 60,249,983 14 3300 Retained earnings 24,243,153 6 20,407,277 5 3400 Other components of equity 779,372 - 5,085,511 1 181,244,699 42 181,985,222 43 Non-controlling interests: 36XX Non-controlling interests 18,390,483 4 22,651,183 5 Total equity 199,635,182 46 204,636,405 48 Total Liabilities and Equity $429,769,251 100 425,554,245 100	December 31 2016 2015 Assets Amount % Amount % Current assets: 1100 Cash and cash equivalents (Note 6(1)) $ 80,191,248 19 78,880,700 19 1110 Financial assets measured at fair value through profit or loss－current (Note 6(2)) 65,669 - 214,194 - 1170 Notes and accounts receivable, net (Note 6(5)) 45,710,177 11 32,319,986 8 1180 Accounts receivable from related parties, net (Note 6(5)&7) 2,533,224 1 2,492,479 1 1210 Other receivables from related parties (Note 7) 34,288 - 27,958 - 1220 Current tax assets 14,057 - 28,571 - 130X Inventories (Note 6(6)) 27,679,335 6 31,795,525 7 1476 Other current financial assets (Note 6(1),(5)&8) 559,946 - 11,734,252 3 1460 Noncurrent assets held for sale (Note 6(8)) 228,015 - 702,390 - 1479 Other current assets (Note 6(7)&(11)) 6,330,283 1 3,796,085 1 163,346,242 38 161,992,140 39 Noncurrent assets: 1523 Available-for-sale financial assets－noncurrent (Note 6(3)) 2,836,696 1 2,077,203 - 1543 Financial assets carried at cost－noncurrent (Note 6(4)) 193,582 - 70,938 - 1550 Investments in equity-accounted investees (Note 6(3)&(7)) 5,178,337 1 12,401,725 3 1600 Property, plant and equipment (Note 6(8),(16),7&8) 222,741,832 52 208,785,609 49 1760 Investment property (Note 6(9),(16)&8) 465,868 - 465,868 - 1780 Intangible assets (Note 6(10)) 13,602,834 3 14,575,279 3 1840 Deferred tax assets (Note 6(26)) 14,364,745 3 17,024,372 4 1900 Other noncurrent assets (Note 6(7),(11)&8) 7,039,115 2 8,161,111 2 266,423,009 62 263,562,105 61 Total assets $ 429,769,251 100 425,554,245 100 December 31 2016 2015 Liabilities and Stockholders’ Equity Amount % Amount % Current liabilities: 2100 Short-term borrowings (Note 6(12)) $ 526,723 - 1,593,714 - 2120 Financial liabilities measured at fair value through profit or loss－current (Note 6(2)) 896,998 - 553,663 - 2125 Hedging derivative financial liabilities－current (Note 6(2)) 3,540 - - - 2170 Notes and accounts payable 51,148,055 13 52,087,584 12 2180 Notes and accounts payable to related parties (Note 7) 8,823,065 2 9,326,171 2 2213 Equipment and construction payable 12,647,041 3 7,622,160 2 2220 Other payables to related parties (Note 7) 27,341 - 29,014 - 2230 Current tax liabilities 949,890 - 2,461,902 1 2250 Provisions－current (Note 6(15)) 1,783,407 - 5,012,361 1 2399 Other current liabilities 22,385,488 5 23,555,082 7 2322 Current installments of long-term borrowings (Note 6(14)&8) 18,074,627 4 39,107,738 9 117,266,175 27 141,349,389 34 Noncurrent liabilities: 2510 Hedging derivative financial liabilities－noncurrent (Note 6(2)) - - 10,739 - 2540 Long-term borrowings, excluding current installments (Note 6(14)&8) 106,187,993 26 68,537,430 16 2550 Provisions－noncurrent (Note 6(15)) 1,038,264 - 1,123,975 - 2570 Deferred tax liabilities (Note 6(26)) 3,705,300 1 5,128,394 1 2600 Other noncurrent liabilities (Note 6(17)) 1,936,337 - 4,767,913 1 112,867,894 27 79,568,451 18 Total liabilities 230,134,069 54 220,917,840 52 Equity:(Note 6(18)) Equity attributable to shareholders of AU Optronics Corp.: 3100 Common stock 96,242,451 22 96,242,451 23 3200 Capital surplus 59,979,723 14 60,249,983 14 3300 Retained earnings 24,243,153 6 20,407,277 5 3400 Other components of equity 779,372 - 5,085,511 1 181,244,699 42 181,985,222 43 Non-controlling interests: 36XX Non-controlling interests 18,390,483 4 22,651,183 5 Total equity 199,635,182 46 204,636,405 48 Total Liabilities and Equity $429,769,251 100 425,554,245 100
	2016
		Amount % 1,593,714 - 553,663 - - - 52,087,584 12 9,326,171 2 7,622,160 2 29,014 - 2,461,902 1 5,012,361 1 23,555,082 7 39,107,738 9 141,349,389 34 10,739 - 68,537,430 16 1,123,975 - 5,128,394 1 4,767,913 1 79,568,451 18 220,917,840 52 96,242,451 23 60,249,983 14 20,407,277 5 5,085,511 1 181,985,222 43 22,651,183 5 204,636,405 48 425,554,245 100

(See accompanying notes to the consolidated financial statements)

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars, except for earnings per share)

2016	2015	% 101 1
Amount 329,931,849 842,813 329,089,036 294,598,017 34,491,019 3,895,089 9,176,683 9,080,791 22,152,563 12,338,456 2,380,228 (925,673) (2,707,887) 100,778 (1,152,554 ) 11,185,902 4,579,191 6,606,711 (225,194) 574 38,283 (186,337 ) (7,500,071) 766,534 7,199 (609,071) 1,162,102 (6,173,307 ) (6,359,644 ) 247,067 7,818,938 (1,212,227 ) 6,606,711 3,326,560 (3,079,493 ) 247,067 0.81 0.80	Amount 363,484,151 3,137,657 360,346,494 320,509,439 39,837,055 4,206,101 9,205,987 8,903,819 22,315,907 17,521,148 2,197,593 (9,978,320) (2,591,023) 449,452 (9,922,298 ) 7,598,850 2,755,968 4,842,882 (251,401) (2,381) 25,980 (227,802 ) (294,749) (521,173) (3,646) 324,928 (45,783 ) (540,423 ) (768,225 ) 4,074,657 4,931,960 (89,078 ) 4,842,882 4,838,950 (764,293 ) 4,074,657 0.51 0.46
		100 89
		11
		1 3 2
		6
		5
		1 (3) 1 -
		(3)
		2 1
		1
		- - -
		-
		- - - - -
		-
		-
		1
		1 -
		1
		1 -
		1

(See accompanying notes to the consolidated financial statements)

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

		Equity attributable to shareholders of AU Optronics Corp.	Equity attributable to shareholders of AU Optronics Corp.	Equity attributable to shareholders of AU Optronics Corp.	Equity attributable to shareholders of AU Optronics Corp.	Equity attributable to shareholders of AU Optronics Corp.
Capital Stock	Capital surplus 59,258,041 - - - - - 174,751 817,191 - 60,249,983 - - - - - (290,266 ) 20,006 - 59,979,723	Retained earnings Legal reserve Unappropriated earnings Subtotal 401,750 20,127,081 20,528,831 1,762,846 (1,762,846 ) - - (4,812,123 ) (4,812,123 ) - 4,931,960 4,931,960 - (232,805 ) (232,805 ) - 4,699,155 4,699,155 - (8,586 ) (8,586 ) - - - - - - 2,164,596 18,242,681 20,407,277 493,196 (493,196 ) - - (3,368,486 ) (3,368,486 ) - 7,818,938 7,818,938 - (186,239 ) (186,239 ) - 7,632,699 7,632,699 - (428,377 ) (428,377 ) - - - - - - 2,657,792 21,585,361 24,243,153			Other components of equity		Subtotal 4,945,716 - - - 139,795 139,795 - - - 5,085,511 - - - (4,306,139 ) (4,306,139 ) - - - 779,372
Common stock 96,242,451 - - - - - - - - 96,242,451 - - - - - - - - 96,242,451		Legal reserve 401,750 1,762,846 - - - - - - - 2,164,596 493,196 - - - - - - - 2,657,792	Unappropriated earnings	Cumulative translation differences 4,901,303 - - - 711,582 711,582 - - - 5,612,885 - - - (5,076,066 ) (5,076,066 ) - - - 536,819	Unrealized gains (losses) on available- for-sale financial assets 29,108 - - - (568,761 ) (568,761 ) - - - (539,653 ) - - - 763,952 763,952 - - - 224,299	Unrealized gains (losses) on cash flow hedges 15,305 - - - (3,026 ) (3,026 ) - - - 12,279 - - - 5,975 5,975 - - - 18,254
			20,127,081 (1,762,846 ) (4,812,123 ) 4,931,960 (232,805 ) 4,699,155 (8,586 ) - - 18,242,681 (493,196 ) (3,368,486 ) 7,818,938 (186,239 ) 7,632,699 (428,377 ) - - 21,585,361

(See accompanying notes to the consolidated financial statements)

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

Cash flows from operating activities: Profit before income tax $ Adjustments for: Depreciation Amortization Interest expense Interest income Dividend income Share of profit of equity-accounted investees Gains on disposals of property, plant and equipment, net Losses on disposals of investments and financial assets, net Impairment losses on assets Losses on purchase of convertible bonds payable Effect of exchange rates on purchase and redemption of convertible bonds payable Changes in fair values of financial instruments Unrealized foreign currency exchange losses (gains) Others Subtotal of income and expense items not affecting cash flows Change in operating assets and liabilities: - notes and accounts receivable - receivables from related parties - inventories - other current assets - notes and accounts payable - payables to related parties - net defined benefit liability - provisions - other current liabilities Subtotal of net changes in operating assets and liabilities Subtotal of adjustment items Cash generated from operations Cash received from interest income Cash received from dividend income Cash paid for interest Cash paid for income taxes Net cash provided by operating activities Cash flows from investing activities: Acquisitions of financial assets carried at cost Proceeds from disposals of financial assets carried at cost Proceeds from disposals of available-for-sale financial assets Proceeds from return of capital by available-for-sale financial assets Acquisitions of equity-accounted investees Proceeds from disposals of equity-accounted investees Net cash inflows resulting from disposals of subsidiaries Acquisitions of property, plant and equipment Proceeds from disposals of property, plant and equipment Decrease (increase) in refundable deposits Increase in intangible assets Decrease (increase) in other financial assets Net cash used in investing activities Cash flows from financing activities: Increase (decrease) in short-term borrowings Purchase of convertible bonds payable Redemption of convertible bonds payable Proceeds from long-term borrowings Repayments of long-term borrowings Increase (decrease) in guarantee deposits Cash dividends Net change of non-controlling interests and others Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at January 1 Cash and cash equivalents at December 31 $	2016 11,185,902 38,533,775 1,159,465 2,707,887 (494,542) (107,141) (100,778) (24,278) 333,858 34,733 - - 491,860 (1,386,370) (37,295 ) 41,111,174 (13,023,581) (47,075) 3,785,921 7,312,751 (601,488) (504,779) (57,382) (3,125,053) (4,454,647) (10,715,333) 30,395,841 41,581,743 501,076 311,492 (2,105,285) (3,593,180 ) 36,695,846 (66,948) - 9,917 - (240,500) 3,522,610 179,262 (46,220,129) 789,682 (16,955) (187,020) (37,246 ) (42,267,327 ) (1,065,842) - - 61,799,594 (45,650,997) (30,944) (3,368,486) (962,106 ) 10,721,219 (3,839,190 ) 1,310,548 78,880,700 80,191,248	2015
		7,598,850 46,851,487 894,362 2,591,023 (672,638) (112,661) (449,452) (585,196) 10,618 7,026,226 87,984 576,167 240,002 107,556 10,671 56,576,149 22,073,800 1,150,032 4,162,665 (7,567,250) (10,266,543) (2,165,658) (86,866) (4,012,891) (2,967,282) 320,007 56,896,156 64,495,006 595,475 380,589 (2,474,887) (992,795 ) 62,003,388 (33,593) 99,517 - 1,497 (51,700) - - (33,440,160) 1,762,401 3,341 (303,282) 227,320 (31,734,659 ) 1,212,392 (14,799,715) (563,999) 30,633,963 (50,849,749) 156,994 (4,812,123) 4,745,245 (34,276,992 ) 923,630 (3,084,633) 81,965,333 78,880,700

(See accompanying notes to the consolidated financial statements)

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars, unless otherwise indicated)

1. Organization

AU Optronics Corp. (“AUO”) was founded on August 12, 1996 and is located in Hsinchu Science Park, the Republic of China (“ROC”). AUO’s main activities are the research, development, production and sale of thin film transistor liquid crystal displays (“TFT-LCDs”) and other flat panel displays used in a wide variety of applications. AUO also engages in the production and sale of solar modules and systems. AUO’s common shares have been publicly listed on the Taiwan Stock Exchange since September 2000, and its American Depositary Shares (“ADSs”) have been listed on the New York Stock Exchange since May 2002.

On September 1, 2001 and October 1, 2006, Unipac Optoelectronics Corp. (“Unipac”) and Quanta Display Inc. (“QDI”) were merged with and into AUO, respectively. AUO is the surviving Company, whereas Unipac and QDI were dissolved.

The consolidated financial statements comprise AUO and its subsidiaries (collectively as “the Company”).

2. The Authorization of Financial Statements

These consolidated financial statements were approved and authorized for issue by the Board of Directors of AUO on February 13, 2017.

3. Application of New Standards, Amendments and Interpretations

As of the date that the accompanying consolidated financial statements were issued, the Company has not adopted the following International Financial Reporting Standards (“IFRS”), International Accounting Standards (IASs), and Interpretations that have been issued by the International Accounting Standards Board (“IASB”) (collectively, “IFRSs”)

(1) The IFRSs in issue and endorsed by the Financial Supervisory Commission, ROC (“FSC”) with effective date commencing 2017

According to Ruling No. 1050026834 issued by the FSC, the following IFRSs that have been issued by the IASB and endorsed by the FSC should be adopted by the Company commencing from 2017.

New, Revised or Amended Standards and Interpretations	Effective Date Issued by IASB
Amendments to IFRS 10, IFRS 12 and IAS 28,Investments Entities: Applying the Consolidation Exception Amendments to IFRS 11,Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations IFRS 14,Regulatory Deferral Accounts	January 1, 2016 January 1, 2016 January 1, 2016

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

	Effective Date
New, Revised or Amended Standards and Interpretations	Issued by IASB
Amendments to IAS 1,Presentation of Financial Statements - Disclosure	January 1, 2016
Initiative
Amendments to IAS 16 and IAS 38,Clarification of Acceptable Methods	January 1, 2016
of Depreciation and Amortization
Amendments to IAS 16 and IAS 41,Agriculture: Bearer Plants	January 1, 2016
Amendments to IAS 19,Defined Benefit Plans: Employee Contributions	July 1, 2014
Amendments to IAS 27,Equity Method in Separate Financial Statements	January 1, 2016
Amendments to IAS 36,Impairment of non-financial assets -	January 1, 2014
Recoverable Amount Disclosures for Non-Financial Assets
Amendments to IAS 39,Financial instruments - Novation of Derivatives	January 1, 2014
and Continuation of Hedge Accounting
Annual Improvements to IFRSs 2010 – 2012 Cycle and 2011 – 2013	July 1, 2014
Cycle
Annual Improvements to IFRSs 2012 – 2014 Cycle	January 1, 2016
IFRIC 21,Levies	January 1, 2014

The amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets, clarify that the Company is required to disclose the recoverable amount of an asset or a cashgenerating unit only when an impairment loss on the asset has been recognized or reversed during the period. Furthermore, if the recoverable amount for which impairment loss has been recognized or reversed is fair value less costs of disposal, the Company is required to disclose the fair value hierarchy. If the fair value measurements are categorized within Level 2 or Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed.

Except for the abovementioned impact, the adoption of aforementioned IFRSs will not have a significant effect on the Company’s consolidated financial statements.

(2) Newly release or amended standards and interpretations issued by the IASB but not yet endorsed by the FSC

A summary of the new standards and amendments issued by the IASB but not yet endorsed by the FSC is set out below. The FSC has announced that the Company should apply IFRS 9 and IFRS 15 starting January 1, 2018. As of the date that the accompanying consolidated financial statements were issued, the FSC has not yet announced the effective dates of the other IFRSs.

New, Revised or Amended Standards and Interpretations	Effective Date Issued by IASB
Amendments to IFRS 2,Share-based payments - Classification and Measurement of Share-based Payment Transactions	January 1, 2018

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

New, Revised or Amended Standards and Interpretations	Effective Date Issued by IASB
Amendments to IFRS 4,Insurance Contracts - Applying IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts IFRS 9,Financial Instruments Amendments to IFRS 10 and IAS 28,Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IFRS 15,Revenue from Contracts with Customers Amendments to IFRS 15,Revenue from Contracts with Customers - Clarifications to IFRS 15 IFRS 16,Leases Amendments to IAS 7,Statement of Cash Flows - Disclosure Initiative Amendments to IAS 12,Income taxes - Recognition of Deferred Tax Assets for Unrealized Losses Amendments to IAS 40,Transfers of Investment Property Annual Improvements to IFRSs 2014 – 2016 Cycle: IFRS 12,Disclosure of Interests in Other Entities IFRS 1,First-time Adoption of International Financial Reporting Standards_and IAS 28,_Investments in Associates and Joint Ventures IFRIC 22,Foreign Currency Transactions and Advance Consideration	January 1, 2018 January 1, 2018 Subject to IASB’s announcement January 1, 2018 January 1, 2018 January 1, 2019 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2017 January 1, 2018 January 1, 2018

New, Revised or Amended Standards and Interpretations

Effective Date
Issued by IASB

Amendments to IFRS 4,Insurance Contracts - Applying IFRS 9,
Financial Instruments with IFRS 4, Insurance Contracts
IFRS 9,Financial Instruments
Amendments to IFRS 10 and IAS 28,Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
IFRS 15,Revenue from Contracts with Customers
Amendments to IFRS 15,Revenue from Contracts with Customers -
Clarifications to IFRS 15
IFRS 16,Leases
Amendments to IAS 7,Statement of Cash Flows - Disclosure Initiative
Amendments to IAS 12,Income taxes - Recognition of Deferred Tax
Assets for Unrealized Losses
Amendments to IAS 40,Transfers of Investment Property
Annual Improvements to IFRSs 2014 – 2016 Cycle:
IFRS 12,Disclosure of Interests in Other Entities
IFRS 1,First-time Adoption of International Financial Reporting
Standards_and IAS 28,_Investments in Associates and Joint
Ventures
IFRIC 22,Foreign Currency Transactions and Advance Consideration

January 1, 2018
January 1, 2018
Subject to IASB’s
announcement
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2017
January 1, 2018
January 1, 2018

Except for the items discussed below, the Company believes that the initial adoption of aforementioned standards or interpretations will not have any significant impact on its accounting policies.

a.

IFRS 9, Financial Instruments

IFRS 9 replaces the existing guidance in IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including an expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements.

IFRS 9 adds a new expected credit loss model to measure the impairment of financial assets. A loss allowance for expected credit losses should be recognized on financial assets measured at amortized cost and financial assets mandatorily measured at fair value through other comprehensive income.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The main changes in hedge accounting amended the application requirements for hedge accounting. Compared with IAS 39, the main changes include: (i) enhancing types of transactions eligible for hedge accounting; (ii) changing the way hedging derivative instruments are accounted for; and (iii) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

The Company has performed a preliminary assessment on adoption of IFRS 9 based on its positions at December 31, 2016, and does not expect that the new requirements, if applying at December 31, 2016, would have had a material impact on the classification and measurement for the Company’s financial instruments. However, the impact of adopting IFRS 9 on the Company’s consolidated financial statements for the year 2018 will be depend on the financial instruments that the Company holds then and the economic condition at the same time, as well as accounting judgments that the Company will make in the future.

b. IFRS 15, Revenue from Contracts with Customers and related amendments

IFRS 15 establishes a five-step model framework for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18, Revenue , IAS 11, Construction Contracts , and a number of revenue-related interpretations.

When applying IFRS 15, the Company shall recognize revenue when a customer obtains control of the goods and services, by applying the following steps:

(i) Identify the contract with the customer;
(ii) Identify the performance obligations;
(iii) Determine the transaction price;
(iv) Allocate the transaction price to the performance obligations in the contracts; and
(v) Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 and related amendment become effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with a recognition of cumulative effect of the initial adoption of this Standard at the date of initial adoption.

The Company is currently performing an assessment of the impact resulting from the adoption of IFRS 15, and considers that it does not have significant differences and influences on the current recognition of the Company’s revenue from contracts with customers. However, the impact of adopting IFRS 15 on the Company’s consolidated financial statements for the year 2018 will be depend on the relative contracts with customers then.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

c. IFRS 16, Leases

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

Under IFRS 16, a lessee is required to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with exception for leases of low-value assets and short-term leases which the Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17. Additionally, a depreciation expense charged on the right-of-use asset and an interest expense accrued on the lease liability, for which interest is computed by using effective interest method, are recognized separately on the statement of comprehensive income. On the statement of cash flows, cash payments for the principal amount and the interest of the lease liability are generally classified within financing activities.

When IFRS 16 becomes effective, as a lessee, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with a recognition of cumulative effect of the initial adoption of this Standard at the date of initial adoption. As a lessor, the Company is not required to make any adjustments for leases except it is an intermediate lessor in a sub-lease.

The Company has performed a preliminary assessment and identification on whether its current operating leases are in the scope of IFRS 16, in which the main impact is that, in case a lease contract meets the lease definition in this Standard, the Company shall recognize an asset and a liability. The related impact of adoption IFRS 16 by the Company will be disclosed when the Company completes the assessment.

Except for the aforementioned impact, as of the date that the accompanying consolidated financial statements were issued, the Company continues in assessing the potential impact on its financial position and results of operations as a result of the application of other standards, interpretations and amendments. The potential impact will be disclosed when the assessment is complete.

4. Summary of Significant Accounting Policies

The significant accounting policies applied in the preparation of these consolidated financial statements are set out as below. The significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements.

(1) Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as “the Regulations”) and the IFRSs endorsed by the FSC with effective dates (hereinafter referred to as “TIFRSs”).

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2) Basis of preparation

a. Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated balance sheets:

(i) Financial instruments measured at fair value through profit or loss (including derivative financial instruments) (note 6(2));
(ii) Hedging derivative financial instruments measured at fair value (note 6(2));
(iii) Available-for-sale financial assets measured at fair value (note 6(3)); and
(iv) Defined benefit asset (liability) is recognized as the fair value of the plan assets less the present value of the defined benefit obligation (note 6(17)).
b. Functional and presentation currency

The functional currency of each individual consolidated entity is determined based on the primary economic environment in which the entity operates. The Company’s consolidated financial statements are presented in New Taiwan Dollar (“NTD”), which is also AUO’s functional currency. All financial information presented in NTD has been rounded to the nearest thousand, unless otherwise noted.

(3) Basis of consolidation
a. Principle of preparation of the consolidated financial statements

The Company includes in its consolidated financial statements the results of operations of all controlled entities in which the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All significant inter-company transactions, income and expenses are eliminated in the consolidated financial statements.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Total comprehensive income (loss) in a subsidiary is allocated to the shareholders of AUO and the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Subsidiaries’ financial statements are adjusted to align the accounting policies with those of the Company.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Changes in the Company’s ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Company’s investment and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between such adjustment and the fair value of the consideration paid or received is recognized directly in equity and attributed to shareholders of AUO.

Upon the loss of control, the Company derecognizes the carrying amounts of the assets and liabilities of the subsidiary and non-controlling interests. Any interest retained in the former subsidiary is measured at fair value when control is lost. The gain or loss is measured as the difference between: (i) the aggregate of the fair value of the consideration received and the fair value of any retained non-controlling investment in the former subsidiary at the date when the Company losses control; and (ii) the aggregate of the carrying amount of the former subsidiary’s assets (including goodwill), liabilities and non-controlling interests at the date when the Company losses control.

The Company shall account for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

b. List of subsidiaries in the consolidated financial statements

The consolidated entities were as follows:

Name of Investor	Name of Subsidiary	Main Activities and Location Holding and trading company (Malaysia) Venture capital investment (Taiwan ROC) Venture capital investment (Taiwan ROC) Manufacturing and sale of color filters (Taiwan ROC) Sale of TFT-LCD panels; leasing (Taiwan ROC) Manufacturing, design and sale of TFT-LCD modules, TV set, backlight modules and related parts (Taiwan ROC) Holding company (Taiwan ROC) Manufacturing and sale of ingots and solar wafers (Taiwan ROC)	Percentage of Ownership (%)	Percentage of Ownership (%)
			December 31, 2016 100.00 100.00 100.00 -(6) 100.00 51.04 99.99 96.31	December 31, 2015
AUO AUO AUO AUO AUO AUO, Konly and Ronly AUO, Konly and Ronly AUO, Konly and Ronly	AU Optronics (L) Corp. (AULB) Konly Venture Corp. (Konly) Ronly Venture Corp. (Ronly) Taiwan CFI Co., Ltd. (CFI) (Previously named as “Toppan CFI (Taiwan) Co., Ltd. (Toppan CFI)”) Space Money Inc. (SMI) Darwin Precisions Corporation (DPTW) Sanda Materials Corporation (SDMC) AUO Crystal Corp. (ACTW)			100.00 100.00 100.00 100.00(6) 100.00(2) 46.16(1) 99.99 96.54

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Name of Investor	Name of Subsidiary	Main Activities and Location Renewable energy power generation (Taiwan ROC) Solar power generation (Taiwan ROC) Renewable energy power generation (Taiwan ROC) Renewable energy power generation (Taiwan ROC) Manufacturing and sale of solar wafers (Malaysia) Manufacturing and sale of ingots (Japan) Sales and sales support of TFT- LCD panels (United States) Sales support of TFT-LCD panels (Japan) Sales support of TFT-LCD panels (Netherlands) Sales support of TFT-LCD panels (South Korea) Holding company and sales support of TFT-LCD panels (Singapore) Assembly of solar modules (Czech Republic) Sales support of TFT-LCD panels (PRC) Manufacturing and assembly of TFT-LCD modules (PRC) Manufacturing and assembly of TFT-LCD modules (PRC) Manufacturing and assembly of TFT-LCD modules (PRC) Repairing of TFT-LCD modules; injecting and stamping parts; manufacturing and sale of mold (Slovakia Republic) Manufacturing TFT-LCD panels based on low temperature polysilicon technology (Singapore) Manufacturing and sale of liquid crystal products and related parts (PRC) Manufacturing and sale of TFT- LCD panels (PRC)	Percentage of Ownership (%)	Percentage of Ownership (%)
			December 31, 2016 100.00 -(7) 100.00 100.00(2) 100.00 99.9991 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 -(5) 51.00	December 31, 2015
Konly Konly Konly Konly ACTW SDMC AULB AULB AULB AULB AULB AULB AULB AULB AULB AULB AULB AULB AULB AULB	Fargen Power Corporation (FGPC) Evergen Power Corporation (EGPC) LiGen Power Corporation (LGPC) Trogen Power Corporation (TGPC) AUO Crystal (Malaysia) Sdn. Bhd. (ACMK) M.Setek Co., Ltd. (M.Setek) AU Optronics Corporation America (AUUS) AU Optronics Corporation Japan (AUJP) AU Optronics Europe B.V. (AUNL) AU Optronics Korea Ltd. (AUKR) AU Optronics Singapore Pte. Ltd. (AUSG) AU Optronics (Czech) s.r.o. (AUCZ) AU Optronics (Shanghai) Co., Ltd. (AUSH) AU Optronics (Xiamen) Corp. (AUXM) AU Optronics (Suzhou) Corp., Ltd. (AUSZ) AU Optronics Manufacturing (Shanghai) Corp. (AUSJ) AU Optronics (Slovakia) s.r.o. (AUSK) AFPD Pte., Ltd. (AUST) Huizhou Bri-King Optronics Co., Ltd. (BKHZ) AU Optronics (Kunshan) Co., Ltd. (AUKS)			100.00 100.00 100.00(2) - 100.00 99.9991 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00(5) 51.00

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Name of Investor	Name of Subsidiary	Main Activities and Location Research and development and IP related business (United States) Holding company (Malaysia) Manufacturing and sale of liquid crystal products and related parts (PRC) Holding company (Malaysia) Holding company (BVI) Holding company (BVI) Holding company (Mauritius) Holding company (Samoa) Holding company (Samoa) Holding company (Mauritius) Holding company (Mauritius) Manufacturing of motorized treadmills (PRC) Manufacturing and sale of light guide plates, backlight modules and related parts (PRC) Manufacturing and sale of light guide plates, backlight modules and related parts (PRC) Manufacturing and sale of precision plastic parts (PRC) Manufacturing and sale of light guide plates, backlight modules and related parts (PRC) Manufacturing and sales of precision metal parts (PRC) Holding company (Hong Kong) Manufacturing, assembly and sale of automotive parts (Slovakia Republic) Manufacturing and sale of backlight modules and related parts (PRC)	Percentage of Ownership (%)	Percentage of Ownership (%)
			December 31, 2016 100.00 100.00 100.00(4) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00(3) 100.00 100.00(2) 100.00	December 31, 2015
AULB AULB and DPTW AUXM and BVLB DPTW DPTW DPTW FHVI FHVI FHVI FHVI FRVI FFMI FTMI FTMI FWSA and FTMI PMSA FLMI DPLB DPLB DPHK	a.u. Vista Inc. (AUVI) BriView (L) Corp. (BVLB) BriView (Xiamen) Corp. (BVXM) Darwin Precisions (L) Corp. (DPLB) Forhouse International Holding Ltd. (FHVI) Force International Holding Ltd. (FRVI) Fortech International Corp. (FTMI) Forward Optronics International Corp. (FWSA) Prime Forward International Ltd. (PMSA) Full Luck Precisions Co., Ltd. (FLMI) Forefront Corporation (FFMI) Forthouse Electronics (Suzhou) Co., Ltd. (FHWJ) Fortech Electronics (Suzhou) Co., Ltd. (FTWJ) Fortech Optronics (Xiamen) Co., Ltd. (FTXM) Suzhou Forplax Optronics Co., Ltd. (FPWJ) Fortech Electronics (Kunshan) Co., Ltd. (FTKS) Full Luck (Wujiang) Precisions Co., Ltd. (FLWJ) Darwin Precisions (Hong Kong) Limited (DPHK) Darwin Precisions (Slovakia) s.r.o. (DPSK) Darwin Precisions (Suzhou) Corp. (DPSZ)			100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00(3) 100.00 - 100.00

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Name of Investor	Name of Subsidiary	Main Activities and Location Manufacturing and sale of backlight modules and related parts (PRC) Manufacturing and sale of backlight modules and related parts (PRC) Manufacturing and sale of liquid crystal products and related parts (PRC) Manufacturing and sale of solar modules (PRC) Sale and sales support of solar modules (United States) Holding company and sales support of solar modules (Netherlands) Sales support of solar modules (Germany)	Percentage of Ownership (%)	Percentage of Ownership (%)
			December 31, 2016 100.00 100.00(3) 100.00 100.00 100.00 100.00 -(5)	December 31, 2015
DPHK DPHK BVLB AUSG AUSG AUSG AENL	Darwin Precisions (Xiamen) Corp. (DPXM) Darwin Precisions (Chengdu) Corp. (DPCD) BriView (Hefei) Co., Ltd. (BVHF) AUO Energy (Tianjin) Corp. (AETJ) AUO Green Energy America Corp. (AEUS) AUO Green Energy Europe B.V. (AENL) AUO Green Energy Germany GmbH (AEDE)			100.00 100.00(3) 100.00 100.00 100.00 100.00 100.00(5)

Note 1: Although the Company did not own more than 50% of DPTW’s ownership interests in 2015, it was considered to have de facto control over the operating policies of DPTW. As a result, DPTW was accounted for as a subsidiary of the Company.
Note 2: SMI and LGPC were both incorporated in October 2015. TGPC was incorporated in April 2016. DPSK was incorporated in May 2016.
Note 3: As part of a business restructuring, DPCD and FLWJ have been resolved by their respective boards of directors for liquidation. The liquidation is still in process for these entities as of December 31, 2016.
Note 4: As part of a business restructuring, BVLB has disposed all its shareholdings in wholly owned subsidiary, BVXM, to AUXM in March 2016. This was treated as an equity transaction with no change in control of BVXM by the Company.
Note 5: AEDE and BKHZ were liquidated in 2016.
Note 6: On October 1, 2016, CFI was amalgamated to AUO and dissolved on that day.
Note 7: Konly has disposed all its shareholdings in EGPC to Star River Energy Corporation (“SREC”) in October, 2016.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4) Foreign currency

In preparing the financial statements of each individual consolidated entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date and the resulting exchange differences are included in profit or loss for the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date when the fair value was determined. The resulting exchange differences are included in profit or loss for the year except for those arising from the retranslation of nonmonetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items in foreign currencies that are measured at historical cost are translated using the exchange rate at the date of the transaction.

Exchange differences arising from the effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges are recognized in other comprehensive income.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are translated into NTD using the exchange rates at each reporting date. Income and expenses of foreign operations are translated at the average exchange rates for the period unless the exchange rates fluctuate significantly during the period; in that case, the exchange rates at the dates of the transactions are used. Foreign currency differences are recognized in other comprehensive income within equity.

(5) Classification of current and non-current assets and liabilities

An asset is classified as current when:

a. The asset expected to realize, or intends to sell or consume, in its normal operating cycle;
b. The asset primarily held for the purpose of trading;
c. The asset expected to realize within twelve months after the reporting date; or
d. Cash and cash equivalent excluding the asset restricted to be exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets are classified as non-current.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

A liability is classified as current when:

a. The liability expected to settle in its normal operating cycle;
b. The liability primarily held for the purpose of trading;
c. The liability is due to be settled within twelve months after the reporting date; or
d. The Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments, do not affect its classification.

All other liabilities are classified as non-current.

(6) Cash and cash equivalents

Cash comprise cash balances and demand deposits. Cash equivalents comprise short-term highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in their fair value. Deposits with short-term maturity but not for investments and other purposes and are qualified with the aforementioned criteria are classified as cash equivalent.

(7) Financial Instruments

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

a. Financial assets
(i) The Company classifies financial assets into the following categories: financial assets measured at fair value through profit or loss, receivables and available-forsale financial assets.
- (a) Financial assets measured at fair value through profit or loss

The Company has certain financial assets classified in this category to hedge its exposure to foreign exchange and interest rate risks arising from operating and financing activities. When a derivative financial instrument is not effective as a hedge the Company accounts for it as a financial asset or liability measured at fair value through profit or loss. See note 4(7)c. for further detail of the Company’s derivative financial instruments and hedge accounting policy.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(b) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as receivables or financial assets measured at fair value through profit or loss. Available-forsale financial assets are recognized initially at fair value, plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, dividend income and foreign currency differences related to monetary financial assets, are recognized in other comprehensive income and presented within equity in unrealized gains (losses) on available-for-sale financial assets. When an investment is derecognized, the cumulative gain or loss in equity is reclassified to profit or loss and presented under nonoperating income and expenses. A regular way, purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting.

Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are carried at their cost less any impairment losses and presented under the heading of financial assets carried at cost.

Cash dividends on equity instruments are recognized under non-operating income and expenses on the date that the Company’s right to receive dividends is established.

(c) Receivables

Receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Receivables comprise trade receivables and other receivables. Such assets are recognized initially at fair value, plus any directly attributable transaction costs. Subsequently, receivables are measured at amortized cost using the effective interest method, less any impairment. If the effect of discounting is immaterial, the short-term receivables are measured at the original amount.

(ii) Impairment of financial assets

Financial assets not measured at fair value through profit or loss are assessed at each reporting date for indicators of impairment. Financial assets are considered to be impaired if an objective evidence indicates that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of those assets have been negatively impacted.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

When an available-for-sale equity security is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss. Such impairment losses are not reversed through profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income and accumulated in other components of equity.

If no impairment exists for receivables individually assessed, the Company further assesses those receivables for impairment on a collective basis. An impairment loss for trade receivables is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable previously written off is credited against the allowance account. Changes in the amount of the allowance accounts are recognized in profit or loss.

When a financial asset carried at cost is considered to be impaired, an impairment loss for this financial asset is recognized and reduced directly from its carrying amount. Such impairment loss recognized is not reversed through profit or loss in subsequent periods.

Bad debt expenses and reversal of allowance for doubtful debts for trade receivables are recognized in general and administrative expenses while impairment losses and reversal of impairment for financial assets other than receivables are recognized under non-operating income and expenses.

(iii) De-recognition of financial assets

The Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets to another entity.

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

b. Financial liabilities

(i) The Company classifies financial liabilities into the following categories: convertible bonds, financial liabilities measured at fair value through profit or loss and other financial liabilities.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(a) Convertible bonds

Convertible bonds issued by AUO give bondholders the right to convert bonds into a given number of equity instruments of AUO at a specific conversion price. The derivatives embedded in the convertible bonds are recognized initially at fair value in financial liabilities measured at fair value through profit or loss. The difference between the par value of the convertible bonds and the fair value of the derivatives is recognized in convertible bonds payable.

Subsequent to initial recognition, the liability component of the convertible bonds is measured at amortized cost using the effective interest method. Convertible option is measured at fair value using Least Square Monte Carlo simulation and changes therein are recognized in profit or loss.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and the convertible option components in proportion to their relative fair value. Transaction costs allocated to the convertible option are recognized directly in profit or loss. Transaction costs allocated to the liability component are included in the initial carrying amount of the liability component and amortized using the effective interest method.

(b) Financial liabilities measured at fair value through profit or loss

The Company designates financial liabilities in this category as held for trading for the purpose of hedging exposure to foreign exchange and interest rate risks arising from operating and financing activities. When a derivative financial instrument is not effective as a hedge the Company accounts for it as a financial asset or liability measured at fair value through profit or loss. See note 4(7)c. for further detail of the Company’s derivative financial instruments and hedge accounting policy.

The Company designates financial liabilities, other than the one mentioned above, as measured at fair value through profit or loss at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities in this category are subsequently measured at fair value and changes therein, which takes into account any interest expense, are recognized in profit or loss and presented under non-operating income and expenses.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(c) Other financial liabilities

Financial liabilities not classified as held for trading, or not designated as measured at fair value through profit or loss (including loans and borrowings, trade and other payables), are measured at fair value, plus any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method, except for insignificant recognition of interest expense from short-term borrowings and trade payables. Interest expense not capitalized as an asset cost is recognized in profit or loss and presented under non-operating income and expenses.

(ii) De-recognition of financial liabilities

The Company derecognizes financial liabilities when the contractual obligation has been discharged, cancelled or expired. The difference between the carrying amount and the consideration paid or payable, including any non-cash assets transferred or liabilities assumed is recognized in profit or loss and presented under non-operating income and expenses.

(iii) Offsetting of financial assets and liabilities

The Company presents financial assets and liabilities on a net basis when the Company has the legally enforceable rights to offset, and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

c. Derivative financial instruments and hedge accounting

The Company holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss and presented under non-operating income and expenses. When a derivative is designated as a hedging instrument, its timing of recognition in profit or loss is determined based on the nature of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset, and when the fair value is negative, it is classified as a financial liability.

When a derivative is designated as a cash flow hedge, the changes in the fair value of the derivative that is determined to be effective is recognized in other comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized in profit or loss and presented under non-operating income and expenses.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

When the hedged item is recognized in profit or loss, amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss, and it is presented in the same accounting caption with the hedged item recognized in the consolidated statements of comprehensive income. When a cash flow hedge is expected to recognize as a non-financial asset or liability, amounts previously recognized in other comprehensive income and accumulated in other components of equity are reclassified as the initial cost of the non-financial asset or liability.

(8) Inventories

The cost of inventories includes all necessary expenditures and charges for bringing the inventory to a stable, useable and marketable condition and location. Inventories are recorded at cost, and cost is determined using the weighted-average method. The production overhead is allocated based on the normal capacity of the production facilities. Inventories are measured at the lower of cost or net realizable value. Net realizable value for finished goods and work in process is calculated based on the estimated selling price less all estimated costs of completion and necessary selling costs.

(9) Noncurrent assets held for sale

Noncurrent assets are classified as held for sale when their carrying amounts are expected to be recovered primarily through sale rather than through continuing use. Such noncurrent assets must be available for immediate sale in their present condition and the sale is highly probable within one year. When classified as held for sale, the assets are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized in profit or loss. However, subsequent gains are not recognized in excess of the cumulative impairment loss that has been recognized.

When intangible assets and property, plant and equipment are classified as held for sale, they are no longer amortized or depreciated. In addition, once an equity-accounted investee is classified as held for sale, it is no longer equity accounted.

(10) Investments in associates

Associates are those entities in which the Company has the power to exercise significant influence, but not control or joint control, over their financial and operating policies.

Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill, which is arising from the acquisition, less any accumulated impairment losses.

The difference between acquisition cost and fair value of associates’ identifiable assets and liabilities as of the acquisition date is accounted for as goodwill. Goodwill is included in the original investment cost of acquired associates and is not amortized. If the fair value of identified assets and liabilities is in excess of acquisition cost, the remaining excess over acquisition cost is recognized as a gain in profit or loss.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

If an equity security is not acquired through cash, that is, by providing services or other assets, then the fair value of such security or the fair value of the services or assets surrendered, whichever is more objectively determinable, is the purchase price of the security. If an equity investment of associates is acquired by providing subsequent services and the cost is determined based on the fair value of such services, the Company defers and recognizes revenue using a reasonable amortization method over the future period when the service is rendered.

The consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of associates, after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until the date that significant influence ceases. When an associate incurs changes in its equity not derived from profit or loss and other comprehensive income, the Company recognizes all the equity changes in proportion to its ownership interest in the associate as capital surplus provided that the ownership interest in the associate remain unchanged.

The Company discontinues the use of the equity method from the date when the Company ceases to have significant influence over an associate, and then measures the retained interests at fair value at that date. The difference between the carrying amount of the investment at the date the equity method was discontinued and the fair value of the retained interests along with any proceeds from disposing of a part interest in the associate is recognized in profit or loss. Moreover, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that investment on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. If the Company's ownership interest in an associate is reduced, but the Company continues to apply the equity method, the Company shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest on the same basis as mentioned above.

If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Company continues to account for the investment using equity method and does not remeasure the interest previously held.

When the Company subscribes to additional shares in an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the capital surplus arising from investment accounted for under the equity method in associates is insufficient to offset with the said corresponding amount, the differences will be charged or credited to retained earnings. If the Company’s ownership interest is reduced due to circumstances as mentioned above, the proportionate amount of the gains or losses previously recognized in other comprehensive income relating to that associate or joint venture shall be reclassified to profit or loss on the same basis as would be required if the associate or joint venture had directly disposed of the related assets or liabilities.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At the end of each reporting period, if there is any indication of impairment, the entire carry amount of the investment including goodwill is tested for impairment as a single asset, by comparing its recoverable amount with its carrying amount. An impairment loss recognized forms part of the carrying amount of the investment in associates. Accordingly, any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

Unrealized profits or losses resulting from the transactions between the Company and associates are eliminated to the extent of the Company’s interest in the associate.

When the Company’s share of losses exceeds its interest in an associate, the carrying amount of that interest, including any long-term investments that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has a legal or contractual obligation, or has made payments on behalf of the investee.

(11) Investments in joint ventures

Joint venture is a joint arrangement whereby the Company and other parties agreed to share the control of the arrangement, and have rights to the net assets of the arrangement. Unanimous consent from the parties sharing control is required when decisions about the relevant activities of the arrangement. Investments in joint venture are accounted for in the Company’s consolidated financial statements under the equity method.

(12) Investment property

Investment property is the property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition. Subsequent to initial recognition, investment properties are measured at initial acquisition cost less any subsequent accumulated depreciation. Depreciation methods, useful lives and residual values are in accordance with the policy of property, plant and equipment. Cost includes expenditure that is directly attributable to the acquisition of the investment property.

An investment property is reclassified to property, plant and equipment at its carrying amount when the use of the investment property changes.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(13) Property, plant and equipment

a. Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that is eligible for capitalization. The cost of the software is capitalized as part of the equipment if the purchase of the software is necessary for the equipment to be capable of operating.

When part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item and the useful life or the depreciation method of the significant part is different from another significant part of that same item, it is accounted for as a separate item (significant component) of property, plant and equipment.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and is recognized in profit or loss.

b. Subsequent costs

Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. Ongoing repairs and maintenance is recognized in profit or loss as incurred.

c. Depreciation

Excluding land, depreciation is provided over the estimated useful lives of the respective assets, considering significant components of an individual asset, on a straight-line basis less any residual value. If a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. The depreciation charge is recognized in profit or loss.

Leased assets are depreciated over their useful lives, provided that it is reasonably certain that the Company will obtain ownership by the end of the lease term; otherwise are depreciated over the shorter of the lease term and their useful lives.

The estimated useful lives of the assets, except for land are as follows:

(i) Buildings: 20~50 years
(ii) Machinery and equipment: 3~10 years

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(iii) Other equipment: 3~6 years

Depreciation methods, useful lives, and residual values are reviewed at each annual reporting date and, if necessary, adjusted as appropriate. Any changes therein are accounted for as changes in accounting estimates.

d. Reclassification to investment property

A property is reclassified to investment property at its carrying amount when the use of the property changes from owner-occupied to investment purpose.

(14) Long-term prepaid rent

Long-term prepaid rent is for the use right of land (classified as other noncurrent assets), which is amortized over the shorter of economic useful life or covenant period on a straightline basis.

(15) Leases
a. Lessor

Lease income from an operating lease is recognized in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset, and recognized as an expense on a straight-line basis over the lease term.

b. Lessee

Payments made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease.

(16) Intangible assets
a. Goodwill

Goodwill is recognized when the purchase price exceeds the fair value of identifiable net assets acquired in a business combination. Goodwill is measured at cost less accumulated impairment losses.

Investor-level goodwill is included in the carrying amounts of the equity investments. The impairment losses for the goodwill within the equity-accounted investees are accounted for as deductions of carrying amounts of investments in equity-accounted investees.

b. Research and development

During the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during this phase are recognized in profit or loss as incurred.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Expenditure arising from development is capitalized as an intangible asset when the Company demonstrates all of the following:

(i) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(ii) its intention to complete the intangible asset and use or sell it;
(iii) its ability to use or sell the intangible asset;
(iv) the probability that the intangible asset will generate probable future economic benefits;
(v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
(vi) its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Development expenditure which fails to meet the criteria for recognition as an intangible asset is reflected in profit or loss when incurred. Capitalized development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.

c. Other intangible assets

Technology-related fees, including purchased patents and licenses pursuant to patent licensing agreements, and core technologies acquired in connection with a merger are measured at cost less accumulated amortization and any accumulated impairment losses.

d. Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

e. Amortization

The depreciable amount of an intangible asset is the cost less its residual value. Other than goodwill and intangible assets with indefinite useful life, an intangible asset with a finite useful life is amortized over 3 to 20 years using the straight-line method from the date that the asset is made available for use. The amortization charge is recognized in profit or loss.

The residual value, amortization period, and amortization method are reviewed at least annually at each annual reporting date, and any changes therein are accounted for as changes in accounting estimates.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(17) Impairment – non-financial assets

Other than inventories, deferred tax assets and noncurrent assets held for sale, the carrying amounts of the Company’s investment property measured at cost and long-term nonfinancial assets (property, plant and equipment and other intangible assets with finite useful lives), are reviewed at the reporting date to determine whether there is any indication of impairment. When there is an indication of impairment exists for the aforementioned assets, the recoverable amount of the asset is estimated. If it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset has been allocated to.

In performing an impairment test for the aforementioned assets, the estimated recoverable amount is evaluated in terms of an asset or a CGU. Any excess of the carrying amount of the asset or its related CGU over its recoverable amount is recognized as an impairment loss. If there is evidence that the accumulated impairment loss of an asset other than goodwill and intangible assets with indefinite useful lives in prior years no longer exists or has diminished, the amount previously recognized as an impairment loss is reversed, and the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount. The increase in the carrying amount shall not exceed the carrying amount (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years.

For goodwill and intangible assets with indefinite useful lives or that are not yet available for use, are required to be tested for impairment at least annually. Any excess of the carrying amount of the asset over its recoverable amount is recognized as an impairment loss.

Goodwill acquired in a business combination is allocated to CGUs that are expected to benefit from the synergies of the combination. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the unit, then the carrying amounts of the other assets in the unit on a pro rata basis. The impairment loss recognized on goodwill and intangible assets with indefinite useful lives is not reversed.

(18) Provisions

A provision is recognized for a legal or constructive obligation arising from a past event, if there is probable outflow of resources and the amount can be estimated reliably. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as interest expense.

a. Warranties

A provision for warranties is recognized when the underlying products or services are sold. The provision is weighting factors based on historical experience of warranty claims rate and other possible outcomes against their associated probabilities.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

b. Decommissioning obligation

The Company is subject to decommissioning obligations related to certain items of property, plant and equipment. Such decommissioning obligations are primarily attributable to clean-up costs, including deconstruction, transportation, and recover costs. The unwinding of the discount based on original discount rate is recognized in profit or loss as interest expense over the periods with corresponding increase in the carrying amounts of the accrued decommissioning costs. The carrying amount of the accruals at the end of the assets’ useful lives is the same as the estimated decommissioning costs.

c. Onerous contracts

A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.

d. Loss contingencies

Provision for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recognized when it is probable the present obligation as a result of a past event will result in an outflow of resources and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Management periodically assesses the obligation of all litigation and claims and relative legal costs. Such provisions are adjusted as further information becomes known or circumstances change.

Provisions recognized are the best estimates of the consideration for settling the present obligation at each reporting date.

(19) Revenue recognition

a. Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement.

b. Government grants

Grants that compensate the Company for research and development expenses incurred are recognized as other income in profit or loss on a systematic basis in the periods in which the expenses are recognized.

(20) Employee benefits

a. Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

b. Defined benefit plans

The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each benefit plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. Discount rate is determined by reference to the yield rate of Taiwan government bonds at the reporting date. The calculation of defined benefit obligations is performed annually by a qualified actuary using the Projected Unit Credit Cost Method.

Remeasurements of the net defined benefit liability (asset) which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized in other comprehensive income in the period in which they occur, and which then are reflected in retained earnings and will not be reclassified to profit or loss.

c.

Short-term employee benefits

Short-term employee benefit obligations, which are due to be settled within twelve months are measured on an undiscounted basis and are expensed as the related service is provided.

The expected cost of cash bonus or profit-sharing plans, which is anticipated to be paid within one year, are recognized as a liability when the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(21) Share-based payment arrangements

The compensation cost of employee share-based payment arrangements is measured based on the fair value at the date on which they are granted. The compensation cost is recognized, together with a corresponding increase in equity, over the periods in which the performance and/or service conditions are being fulfilled. The cumulative expense recognized for share-based payment arrangements at each reporting date reflects the extent to which the vesting period has passed and the Company’s estimate of the quantity of equity instruments that will ultimately vest.

For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions, and there is no true-up for differences between expected and actual outcomes.

(22) Income taxes

Income tax expense comprises current and deferred taxes.

a. Current taxes

Current taxes comprise the expected tax payable or receivable on the taxable income or losses for the year and any adjustments to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted tax rate at the reporting date.

In accordance with the ROC Income Tax Act, undistributed earnings from the companies located in the Republic of China, if any, is subject to an additional 10% surtax. The 10% tax on unappropriated earnings is expensed in the year the shareholders approved the distributions which is the year subsequent to the year the earnings arise.

b. Deferred taxes

Deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax liabilities are recognized for temporary difference of future taxable income. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent it is probable that future taxable profits will be available against which they can be utilized.

Deferred tax assets are reviewed at each reporting date, by considering nature of industry cycles, statutory tax deduction years and projected future taxable income, and reduced to the extent that it is no longer probable that future taxable profits will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets which originally not recognized is also reviewed at each reporting date and recognized to the extent that it is probable that future taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Deferred taxes liabilities are recognized for taxable temporary differences related to investments in subsidiaries, associates and joint arrangements, however, if the Company is able to control the timing of the reversal of the taxable temporary differences and it is probable that they will not reverse in the foreseeable future, deferred taxes are not recognized.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when the reverse, using tax rates enacted or substantively enacted tax rate on the reporting date. Deferred tax assets and liabilities are offset only if certain criteria are met.

Current taxes and deferred taxes are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.

(23) Business combinations

The Company accounts for business combinations using the acquisition method. The consideration transferred in the acquisition is measured at fair value, as are identifiable net assets acquired. Goodwill is measured as the excess of the aggregate of the consideration transferred and the amount of any non-controlling interests in the acquiree over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, after reassessing all of the assets acquired and all of the liabilities assumed being properly identified, the difference is recognized in profit or loss as a gain on bargain purchase.

Acquisition-related costs are expensed as incurred, except that the costs are related to the issue of debt or equity securities.

Each identifiable asset and liability is measured at its acquisition-date fair value. Noncontrolling interests in an acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured at either fair value or the present ownership instruments' proportionate share in the recognized amounts of the acquiree's net identifiable assets. All other components of non-controlling interests shall be measured at their acquisition-date fair values, unless another measurement basis is required by TIFRSs.

(24) Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing profit or loss attributable to the shareholders of AUO by the weighted-average number of common shares outstanding during the period. In the event that potential common shares are anti-dilutive, only basic earnings per share is disclosed; otherwise, in addition to the disclosure of basic earnings per share, diluted earnings per share is also disclosed. In computing diluted earnings per share, profit or loss attributable to the shareholders of AUO and the weighted-average number of common shares outstanding during the period are adjusted for the effects of dilutive potential common stock, assuming dilutive share equivalents had been issued.

The weighted-average outstanding shares are retroactively adjusted for the effects of stock dividends transferred from retained earnings and capital surplus to common stock.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(25) Operating segments

An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses (including revenues and expenses relating to transactions with other components of the same entity). Operating results are reviewed regularly by the Company’s chief operating decision maker (“CODM”) to make decisions pertaining to the allocation of resources to the segment and to assess its performance. Meanwhile, discrete financial information for operating results is available.

5. Critical Accounting Judgments and Key Sources of Estimation and Assumption Uncertainty

The preparation of the consolidated financial statements in conformity with TIFRSs requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed by management on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

(1) Estimate of provisions

Provision for warranty is estimated when product revenue is recognized. The estimate has been made based on the quantities within the warranty period, the historical and anticipated warranty claims rate associated with similar products and services, and the projected unit cost of maintenance. The Company regularly reviews the basis of the estimate and if necessary, amends it as appropriate. There could be a significant impact on provision for warranty for any changes of the basis of the estimate.

Provision for unsettled litigation and claims is recognized when it is probable that it will result in an outflow of the Company’s resources and the amount can be reasonably estimated. While the ultimate resolution of litigation and claims cannot be predicted with certainty, the final outcome or the actual cash outflow may be materially different from the estimated liability.

(2) Impairment of long-term non-financial assets, other than goodwill

In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required to make subjective judgments in determining the independent cash flows, useful lives, expected future income and expenses related to the specific asset groups with the consideration of the nature of industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future years.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(3) Impairment of goodwill

The assessment of impairment of goodwill requires the Company to make subjective judgment to determine the identified CGUs, allocate the goodwill to relevant CGUs and estimate the recoverable amount of relevant CGUs.

(4) Measurement of defined benefit obligations

Accrued pension liabilities and the resulting pension expenses under defined benefit pension plans are calculated using the Projected Unit Credit Cost Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, long-term average future salary increase, etc. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

(5) Realization of deferred tax assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires management’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Changes in the economic environment, the industry trends and relevant laws and regulations may result in adjustments to the deferred tax assets.

(6) Estimate of allowance for sales returns and discounts

The Company estimates future sales returns and other allowances in the same period the related revenue is recognized. Estimated sales returns and other allowances are generally made and adjusted based on historical experience and any known factors that would significantly affect the allowance, and management periodically reviews the reasonableness of the estimates.

(7) Valuation of inventories

As inventories are stated at the lower of cost or net realizable value, the Company estimates the net realizable value of inventories for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon. Due to the rapid industrial transformation, there may be significant changes in the net realizable value of inventories.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

6. Description of Significant Accounts

(1) Cash and Cash Equivalents

Cash on hand, demand deposits and checking accounts $ Time deposits Government bonds with reverse repurchase agreements $	December 31,	December 31,
	2016 2015 (in thousands) 42,389,461 48,937,310 37,676,746 28,648,288 125,041 1,295,102 80,191,248 78,880,700	2015
		78,880,700

Refer to note 6(29) for the disclosure of currency risk and sensitivity analysis of the financial assets and liabilities of the Company.

As of December 31, 2015, deposits not qualifying as cash and cash equivalents amounting to $9,997,888 thousand were classified as other current financial assets.

As of December 31, 2016 and 2015, no cash and cash equivalents were pledged with banks as collaterals.

(2) Derivative Financial Instruments and Hedging Instruments

a. Derivative Financial Instruments

Financial assets measured at fair value through profit or loss – current: Foreign currency forward contracts $ Financial liabilities measured at fair value through profit or loss – current: Foreign currency forward contracts $ Hedging derivative financial liabilities – current: Interest rate swap contracts $ Hedging derivative financial liabilities – noncurrent: Interest rate swap contracts $	December 31,	December 31,
	2016 2015 (in thousands) 65,669 214,194 896,998 553,663 3,540 - - 10,739	2015
		553,663
		-
		10,739

Refer to note 6(29) for the disclosure of the Company’s credit, currency and interest rate risks related to financial instruments.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of December 31, 2016 and 2015, outstanding foreign currency forward contracts were as follows:

	December 31, 2016	December 31, 2016
Contract item Sell USD / Buy NTD Sell USD / Buy JPY Sell NTD / Buy JPY Sell USD / Buy CNY Sell EUR / Buy JPY Sell EUR / Buy CZK Sell EUR / Buy USD Sell USD / Buy MYR Sell JPY / Buy NTD Sell CNY/ Buy USD Sell EUR/ Buy NTD Sell CNY/ Buy JPY Sell USD/ Buy SGD	Maturity date Jan. 2017 – Feb. 2017 Jan. 2017 – Mar. 2017 Mar. 2017 Jan. 2017 – Jun. 2017 Mar. 2017 Jan. 2017 – Feb. 2017 Mar. 2017 Jan. 2017 – Mar. 2017 Mar. 2017 Jan. 2017 – Apr. 2017 Jan. 2017 Jan. 2017 – Jul. 2017 Jan. 2017	Contract amount
		(in thousands) USD711,000 / NTD22,687,304 USD126,730 / JPY13,860,716 NTD1,474,085 / JPY5,400,000 USD96,000 / CNY662,180 EUR90,000 / JPY10,693,738 EUR3,190 / CZK85,791 EUR41,000 / USD44,148 USD741 / MYR3,296 JPY50,000 / NTD13,725 CNY359,763 / USD52,189 EUR5,000 / NTD171,967 CNY588,583 / JPY9,068,273 USD170,157 / SGD245,680

	December 31, 2015	December 31, 2015
Contract item Sell USD / Buy NTD Sell USD / Buy JPY Sell NTD / Buy JPY Sell NTD / Buy USD Sell JPY / Buy NTD Sell USD / Buy MYR Sell USD / Buy CNY Sell EUR / Buy USD Sell EUR / Buy JPY Sell EUR / Buy CZK	Maturity date Jan. 2016 – Mar. 2016 Jan. 2016 – Mar. 2016 Jan. 2016 Jan. 2016 – Apr. 2016 Jan. 2016 – May 2016 Jan. 2016 – Mar. 2016 Jan. 2016 – May 2016 May 2016 Jan. 2016 – Feb. 2016 Feb. 2016	Contract amount
		(in thousands) USD203,000 / NTD6,600,968 USD289,645 / JPY35,307,718 NTD3,484,954 / JPY12,957,000 NTD101,300 / USD3,110 JPY51,000,000 / NTD13,702,255 USD496 / MYR2,132 USD308,700 / CNY1,989,416 EUR47,000 / USD51,267 EUR65,000 / JPY8,578,916 EUR3,000 / CZK81,150

Net gains (losses) of foreign currency forward contracts were as follows: Unrealized losses $ Realized gains $	For the years ended December 31, 2016 2015 (in thousands) (491,860) (240,002) 80,423 1,179,119 (411,437 ) 939,117

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AUO entered into interest rate swap contracts with several banks to manage interest rate risk exposure arising from financing activities. As of December 31, 2016 and 2015, AUO’s total notional amount of outstanding interest rate swap contracts amounted to $1,760,000 thousand and $3,040,000 thousand, respectively, and all of which were related to effective hedges. For the years ended December 31, 2016 and 2015, no unrealized gains or losses resulting from change in fair value of interest rates swap contracts were recognized in profit and loss.

b. Hedge accounting

The Company entered into Plain Vanilla type interest rate swap contracts as the primary hedging instrument. The Company paid interest based on fixed rate and received market floating-rate from the counterparty. The aforementioned hedging contracts were intended to protect the Company from the risk of future cash flow fluctuation of debt bearing floating interest rate. These contracts were designated as cash flow hedges and met the criteria for hedge accounting.

Details of hedged items designated as cash flow hedges and their respective hedging derivative financial instruments were as follows:

December 31, 2016

Hedged item Long-term borrowings with floating interest rate	Hedging instrument Fair value of hedging instrument (in thousands) Interest rate swap contracts $ (3,540) December 31, 2015	Expected period of cash flows Jan. 2017 – Aug. 2017	Expected period of recognition in comprehensive income
			Jan. 2017 – Aug. 2017 Expected period of recognition in comprehensive income Jan. 2016 – Aug. 2017
Hedged item Long-term borrowings with floating interest rate	Hedging instrument Fair value of hedging instrument (in thousands) Interest rate swap contracts $ (10,739)	Expected period of cash flows Jan. 2016 – Aug. 2017

－ (3) Available-for-sale Financial Assets noncurrent

Equity securities– listed company $	December 31,	December 31,
	2016 2015 (in thousands) 2,836,696 2,077,203	2015

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In May 2015, the Company ceased having significant influence over Qisda Corporation (“Qisda”) and reclassified its investment in Qisda as noncurrent available-for-sale financial asset. Please refer to note 6(7) for further information on the Company’s investment in Qisda.

Some of the available-for-sale securities held by the Company were publicly listed equity shares, if the share price of these securities appreciates or depreciates by 10% at the reporting date, other comprehensive income would increase or decrease $283,670 thousand and $207,720 thousand for the years ended December 31, 2016 and 2015, respectively.

－ (4) Financial Assets Carried at Cost noncurrent

Equity securities – unlisted company $	December 31,	December 31,
	2016 2015 (in thousands) 193,582 70,938	2015

Given that the probabilities for each assumption in the range of estimated fair value of the aforementioned investments held by the Company cannot be reasonably determined, the Company had determined that the fair value thereof cannot be reliably measured and therefore should be measured at cost less any impairment loss at year-end.

The Company did not sell any of its investments in available-for-sale securities during 2016, however, sold part of those investments during 2015 with selling prices and realized gains on disposal both amounting to $99,517 thousand.

(5) Notes and Accounts Receivable, net (Including Related and Unrelated Parties)

Notes and accounts receivable $ Less: allowance for doubtful accounts allowance for sales returns and discounts $ Notes and accounts receivable, net $ Accounts receivable from related parties, net $	December 31, 2016 2015 (in thousands) 49,201,632 36,406,506 (104,617) (69,897) (853,614 ) (1,524,144 ) 48,243,401 34,812,465 45,710,177 32,319,986 2,533,224 2,492,479

Aging analysis of notes and accounts receivable, which were past due but not impaired, was as follows:

Past due less than 60 days $ Past due 61~180 days Past due over 180 days $	December 31,	December 31,
	2016 2015 (in thousands) 531,327 628,657 9,505 32,852 1,020 74,906 541,852 736,415	2015
		736,415

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The movement in the allowance for doubtful accounts was as follows:

Balance at beginning of the year $ Provisions (reversals) charged to (against) expense Write-offs Effect of changes in foreign currency exchange rates Balance at end of the year $	For theyears ended December 31, 2016 2015 Individually assessed for impairment Collectively assessed for impairment Individually assessed for impairment Collectively assessed for impairment 11,714 58,183 10,334 72,906 31,360 12,938 3,196 (14,864) - (7,385) (1,814) (383) (1,262 ) (931 ) (2 ) 524 41,812 62,805 11,714 58,183	For theyears ended December 31, 2016 2015 Individually assessed for impairment Collectively assessed for impairment Individually assessed for impairment Collectively assessed for impairment 11,714 58,183 10,334 72,906 31,360 12,938 3,196 (14,864) - (7,385) (1,814) (383) (1,262 ) (931 ) (2 ) 524 41,812 62,805 11,714 58,183
	2016 Individually assessed for impairment Collectively assessed for impairment 11,714 58,183 31,360 12,938 - (7,385) (1,262 ) (931 ) 41,812 62,805
	Individually assessed for impairment 11,714 31,360 - (1,262 ) 41,812	Individually assessed for impairment 10,334 3,196 (1,814) (2 ) 11,714

The payment terms granted to customers are generally 30 to 60 days from the end of the month during which the invoice is issued. The Company evaluates possible uncollected amounts and uses allowance for doubtful accounts to record its doubtful receivable expenses. When evaluating the allowances, the Company considers the historical experience, the customer credits and the account aging analysis. While it is determined a receivable is uncollectible, receivable balances is offset against the allowance for doubtful accounts.

Information about the Company’s exposure to credit risk is included in note 6(29).

As of December 31, 2016 and 2015, the Company entered into financing facilities with banks to factor certain of its accounts receivable without recourse, details of which were as follows:

	December 31, 2016	December 31, 2016	December 31, 2016
Underwriting bank Chinatrust Commercial Bank Taishin Bank Bank of Taiwan Taipei Fubon Bank E. Sun Bank DBS Bank Taishin Bank	Factoring limit USD 230,000 USD 80,000 USD 250,000 USD 120,000 USD 100,000 USD 184,000 USD 35,000	Amount advanced (in thousands) USD - USD - USD - EUR - USD - USD - USD - USD -	Amount sold and derecognized USD - USD - USD - EUR - USD - USD - USD - USD 8,780	Principle terms
				See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(d) and (f)

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

	December 31, 2015	December 31, 2015	December 31, 2015
Underwriting bank Chinatrust Commercial Bank Taishin Bank Bank of Taiwan Taipei Fubon Bank E. Sun Bank DBS Bank Taishin Bank First Commercial Bank	Factoring limit USD 230,000 USD 180,000 USD 250,000 USD 75,000 USD 60,000 USD 96,000 USD 35,000 USD 30,000	Amount advanced (in thousands) NTD 1,500,000 NTD 1,500,000 USD 35,000 EUR 43,100 USD 46,400 USD 11,570 USD 15,300 - -	Amount sold and derecognized USD 50,941 USD 50,941 USD 35,000 EUR 43,100 USD 51,659 USD 12,869 USD 15,330 USD 12,109 -	Principle terms
				See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(c) and (e) See notes(a)~(d) and (f) See notes(a)~(d) and (f)

Note (a): Under these facilities, the Company transferred accounts receivable to the respective underwriting banks, which are without recourse.

Note (b): The Company informed its customers pursuant to the respective facilities to make payment directly to the respective underwriting banks.
Note (c): As of December 31, 2016 and 2015, total outstanding receivables after the above assignment transactions, net of fees charged by underwriting banks, of $283,694 thousand and $985,158 thousand, respectively, were classified under other current financial assets.
Note (d): To the extent of the amount transferred to the underwriting banks, risks of non-collection or potential payment default by customers in the event of insolvency are borne by respective banks. The Company is not responsible for the collection of receivables subject to these facilities, or for any legal proceedings and costs thereof in collecting these receivables.
Note (e): To the extent of the amount transferred to the underwriting banks, risks of non-collection or potential payment default by customers in the event of insolvency are borne by respective banks. The Company is not responsible for the collection of receivables subject to these facilities, or for any legal proceedings and costs thereof in collecting these receivables. In case any commercial dispute between the Company and customers or other reasons results in the Company’s failure to perform the obligation under these facilities, the banks have requested the Company to issue promissory notes in the amounts equal to 10 percent of respective facilities or to transfer receivables in the amounts equal to 10 percent of respective facilities. Other than such arrangements, no collaterals were provided by the Company.

Note (f): The Company bears all risks deriving from the customers except credit risk.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(6) Inventories

Finished goods $ Work-in-progress Raw materials $	December 31,	December 31,
	2016 2015 (in thousands) 9,532,199 13,487,008 11,100,347 11,324,925 7,046,789 6,983,592 27,679,335 31,795,525	2015
		31,795,525

For the years ended December 31, 2016 and 2015, the amounts of inventories that were charged to cost of sales were $296,661,898 thousand and $319,606,448 thousand, respectively, and the net of provisions (reversals) that charged to (against) cost of sales for inventories written down to net realizable value amounted to $(2,063,881) thousand and $902,991 thousand for the years ended December 31, 2016 and 2015, respectively.

As of December 31, 2016 and 2015, none of the Company’s inventories was pledged as collateral.

(7) Investments in equity-accounted Investees

Investments in equity-accounted investees at the reporting dates consisted of the following:

Associates $ Joint ventures $	December 31,	December 31,
	2016 2015 (in thousands) 4,853,325 4,787,892 325,012 7,613,833 5,178,337 12,401,725	2015
		12,401,725

a. Associates

Name of associate Lextar Electronics Corp. (“Lextar”) Raydium Semiconductor Corporation (“Raydium”) SREC Daxin Materials Corp. (“Daxin”) Others	Principal Principal activities place of business Manufacturing and sales of Light Emitting Diode Taiwan ROC IC design Taiwan ROC Holding company Taiwan ROC Research, manufacturing, and sales of display related chemicals Taiwan ROC	December 31, 2016 Amount Ownership interest (in thousands) % $ 3,082,856 25 712,829 18 531,805 34 525,835 25 - $ 4,853,325	December	31, 2015 Ownership interest % 24 16 35 25
		Amount	Amount
		(in thousands) $ 3,082,856 712,829 531,805 525,835 - $ 4,853,325	(in thousands) $ 3,337,655 590,839 259,393 484,578 115,427 $ 4,787,892

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Prior to May 2015, the Company was able to exercise significant influence over the operating policies of Qisda, and accounted for its investments in Qisda under the equity method of accounting. Since the Company and Qisda had mutual holdings, the share of profit or loss was recognized using the treasury stock method.

In May 2015, the Company reassessed its relationships with Qisda and determined that it is no longer able to exercise significant influence over Qisda. Therefore, the Company reclassified its investment in Qisda as noncurrent available-for-sale financial asset measured at fair value. The difference between the fair value of the investment and carrying amount accounted for under the equity method as at the date of the reclassification was recognized in profit or loss. Further, previously recognized other comprehensive income or loss and other equity reserves related to the Company’s investment in Qisda were also reclassified to profit or loss. In total, a loss of $110,136 thousand was recognized under other gains and losses in the consolidated statement of comprehensive income for the year ended December 31, 2015.

On October 1, 2016, Raydium, the associate of the Company, issued its new shares in exchange for all outstanding shares of another associate of the Company, Dazzo Technology Corporation (“Dazzo”). Subsequent to the share exchange, the Company held approximately 18% ownership interest in Raydium. The transaction did not result in any material impact on the Company’s consolidated financial statements.

There is no individually significant associate for the Company. The following table summarized the amount recognized by the Company at its share of those associates.

The Company’s share of: Profits for the year $ Other comprehensive loss for the year Total comprehensive (loss) income for the year $	For the years ended December 31, 2016 2015 (in thousands) 18,644 248,165 (29,460 ) (71,585 ) (10,816 ) 176,580

b. Joint ventures

Name of joint ventures AUO SunPower Sdn. Bhd. (“AUSP”) Others	Principal Principal activities place of business Manufacturing and sales of solar power products Malaysia	Principal place of business	December	31, 2016 Ownership interest % -	December 31, 2015	December 31, 2015
			Amount (in thousands) $ - 325,012 $ 325,012		Amount (in thousands) $7,240,360 373,473 $ 7,613,833	Ownership interest
						% 50

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AUO, through its subsidiary AUSG, entered into a joint venture agreement with SunPower Technology, Ltd. (“SPTL”) which is 100% owned by SunPower Corporation. In accordance with the joint venture agreement, the Company acquired its 50% ownership interests of AUSP on July 5, 2010 (co-investment date) by contributing technology with an estimated fair value of US$30,000 thousand and agreed to contribute additional cash over time. The total cash payments made by the Company amounted to US$180,069 thousand. In September 2016, AUSG disposed of its entire 50% interest in AUSP to SPTL for total selling price of $5,408,546 thousand (US$170,100 thousand) in cash and recognized a loss on disposal, net of tax, amounting to $382,608 thousand. The selling price will be settled with repayment of installments over the years. As of December 31, 2016, the outstanding selling price amounting to US$61,100 thousand is classified as long-term receivables under other noncurrent assets, which will be received in cash at US$1,100 thousand, US$30,000 thousand and US$30,000 thousand in year 2018, 2019 and 2020, respectively.

Additionally, in September 2016, AUO entered into a long-term Module Supply Agreement with SunPower Systems Sarl (“SPSW”), a subsidiary of SunPower Corporation, under which, SPSW agreed to supply AUO with commercial terms of SunPower’s ESeries solar modules. AUO has prepaid in full to SPSW in September 2016 and classified the prepayment under other current assets and other noncurrent assets, respectively, by its liquidity.

There is no individually significant joint venture for the Company. The following table summarized the amount recognized by the Company at its share of those joint ventures.

The Company’s share of: Profits for the year $ Other comprehensive (loss) income for the year Total comprehensive (loss) income for the year $	For the years ended December 31,	For the years ended December 31,
	2016 2015 (in thousands) 82,134 201,287 (314,710 ) 394,132 (232,576 ) 595,419	2015
		595,419

As of December 31, 2016 and 2015, none of the Company’s investments in equityaccounted investees was pledged as collateral.

(8) Property, Plant and Equipment

	For theyear ended December 31, 2016	For theyear ended December 31, 2016	For theyear ended December 31, 2016
Balance, Beginning of Year 9,112,286 122,156,354 779,019,328 34,248,005 944,535,973	Additions - 1,086 2,424,626 4,532,365 6,958,077	Disposal or write off (in thousands) (14,455) (580,089) (24,033,087) (6,462,949) (31,090,580)	Reclassification and effect of change in exchange rate (223,850) 9,018,493 40,635,567 102,315 49,532,525	Balance, End of Year
				8,873,981 130,595,844 798,046,434 32,419,736
				969,935,995

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

	For theyear ended December 31, 2016	For theyear ended December 31, 2016	For theyear ended December 31, 2016
Balance, Beginning of Year 184,889 32,791,946 694,955,031 30,215,702 758,147,568 22,397,204 208,785,609	Additions - 3,107,870 30,329,428 5,130,524 38,567,822 48,931,054	Disposal or write off (14,487) (132,589) (23,846,019) (6,430,868 ) (30,423,963 ) (29,246 )	Reclassification and effect of change in exchange rate 2,995 261,074 (3,327,777) (2,761,185 ) (5,824,893 ) (58,026,641 )	Balance, End of Year
				173,397 36,028,301 698,110,663 26,154,173
				760,466,534
				13,272,371
				222,741,832

	For theyear ended December 31, 2015	For theyear ended December 31, 2015	For theyear ended December 31, 2015
Balance, Beginning of Year 9,238,072 131,097,652 783,042,586 38,498,570 961,876,880 179,227 34,106,261 675,578,141 34,011,574 743,875,203 13,813,047 231,814,724	Additions 200,006 22,234 2,855,605 3,464,238 6,542,083 - 5,309,628 43,794,880 4,773,205 53,877,713 25,422,448	Disposal or write off (in thousands) (513,574) (1,512,232) (29,667,810) (7,037,238 ) (38,730,854 ) - (1,244,735) (29,282,299) (7,027,110 ) (37,554,144 ) (495 )	Reclassification and effect of change in exchange rate 187,782 (7,451,300) 22,788,947 (677,565) 14,847,864 5,662 (5,379,208) 4,864,309 (1,541,967 ) 2,051,204 (16,837,796 )	Balance, End of Year
				9,112,286 122,156,354 779,019,328 34,248,005
				944,535,973
				184,889 32,791,946 694,955,031 30,215,702
				758,147,568
				22,397,204
				208,785,609

As of December 31, 2016 and 2015, a non-irrigated farmland located in LongTan plant amounted to $23,671 thousand was registered in the name of a farmer due to regulations. An agreement of pledge had been signed between the Company and the farmer clarifying the rights and obligations of each party.

ACTW sold its lands located in Chang Hua Coastal Industrial Park, Taiwan, during 2015. The selling price and gains on disposal amounted to $790,342 thousand and $276,769 thousand, respectively.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

According to the resolution of board of directors’ meeting held on August 10, 2015, AUO decided to sell part of its plants and has entered into an agreement with Wistron NeWeb Corporation. This transaction was completed in December 2015, and the selling price and gain on disposal (net of costs of disposal) were $808,504 thousand and $558,206 thousand, respectively.

Pursuant to the resolution of AETJ’s board of directors’ meeting held on December 9, 2015, AETJ decided to sell its use right of land and plants to Tianjin Binhai Hi-tech Development Area Asset Management Ltd. The assets were classified as noncurrent assets held for sale in the consolidated balance sheet as of December 31, 2015. This transaction was completed in June 2016, and the selling price and gain on disposal (net of cost of disposal) were $683,078 thousand (RMB141,117 thousand) and $14,717 thousand, respectively.

In 2015, the Company recognized an impairment loss relating to its display segment of $172,530 thousand, for certain machineries and equipments with low utilization resulting from the decline in the application for certain products.

In 2016 and 2015, the Company wrote down certain long-term assets with lower capacity utilization associated with its solar segment and recognized impairment losses of $34,047 thousand and $101,764 thousand, respectively.

Polysilicon in the solar industry has experienced significant downturns including sharp decline in pricing because of oversupply capacity worldwide; therefore, the management of M.Setek, the Company’s subsidiary in Japan, decided to cease the production of polysilicon which was approved by the board of directors of M.Setek on January 8, 2016. The Company performed its impairment assessment over the polysilicon CGU’s long-term assets in the fourth quarter of 2015. The recoverable amount was determined based on the relevant assets’ estimated fair value less cost of disposal. The fair value of long-term assets was determined by management with reference to the sales prices of recent transactions of similar asset in the same geographical area. Based on management assessment, the carrying amount of the polysilicon CGU was determined to be higher than its estimated recoverable amount; consequently, an impairment loss of $6,755,157 thousand was recognized during the year ended December 31, 2015.

Impairment losses as mentioned above are recognized as other gains and losses in the consolidated statements of comprehensive income.

In December 2016, M.Setek intended to dispose part of its land and buildings and has entered into sales agreement and letter of intent for disposal with TAKEEI Corporation and other companies with a selling price approximately JPY3,084,000 thousand. The transaction has not completed as of the reporting date. Certain of the abovementioned assets did not meet the requirement of IFRS 5 for reclassification as noncurrent assets held for sale which still remain under property, plant and equipment.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The capitalized borrowing costs were $542,994 thousand and $186,025 thousand for the years ended December 31, 2016 and 2015, respectively. The interest rates applied for the capitalization, ranged from 1.09% to 4.66% and 1.29% to 6.73% for the years ended December 31, 2016 and 2015, respectively.

Certain property, plant and equipment were pledged as collateral, see note 8.

(9) Investment Property

For the	year ended December 31,	2016
Balance, Beginning of Year 465,868 1,402,040 For the	Additions Disposal (in thousands) - - year ended December 31,	Balance, End of Year
		465,868
		1,402,040
		2015
Balance, Beginning of Year 465,868 1,145,098	Additions Disposal (in thousands) - -	Balance, End of Year
		465,868 1,402,040

The fair value of investment property is based on regular valuation performed by a qualified independent appraiser who holds a recognized and relevant professional qualification and has recent valuation experience in the location and category of the investment property being valued. The valuation is performed using market valuation approach and land development analysis approach with reference to available market information.

Market valuation approach is through comparison, analysis, adjustment and other means of value for comparable properties to estimate the value of the investment property. Land development analysis approach determine the fair value of investment property based on the value prior to development or construction, after deducting the direct cost, indirect cost, capital interest and profit during the development period, and also consider total sales price of properties after completion of development or construction. It also incorporates the possibility of changes in utility of land through development or improvement in accordance with legal use and density of the land. The inputs in valuation techniques are overall capital interest rate and rate of return of 2.06% and 10.00%, respectively.

Certain investment property were pledged as collateral, see note 8.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(10) Intangible Assets

For theyear ended December 31, 2016	For theyear ended December 31, 2016	For theyear ended December 31, 2016
Balance, Beginning of Year 11,456,176 11,901,662 23,357,838 175,581 8,606,978 8,782,559 14,575,279	Additions Effect of change in exchange rate (in thousands) - - 187,020 (9,915 ) 187,020 (9,915 ) - - 1,159,465 (9,915 ) 1,159,465 (9,915 )	Balance, End of Year
		11,456,176 12,078,767
		23,534,943
		175,581 9,756,528
		9,932,109
		13,602,834

		For theyear	For theyear	ended	December 31, 2015	December 31, 2015	December 31, 2015	December 31, 2015	December 31, 2015	December 31, 2015
		Balance,				Effect of
		Beginning				change in				Balance,
		of Year	Additions			exchange rate				End of Year
				(in thousands)
Cost:
Goodwill	$	11,456,176	-				-			11,456,176
Patent and technology fee		11,597,995	303,282						385	11,901,662
		23,054,171	303,282						385	23,357,838
Accumulated amortization:
Goodwill		175,581	-				-			175,581
Patent and technology fee		7,712,240	894,362						376	8,606,978
		7,887,821	894,362						376	8,782,559
Net carrying amounts	$	15,166,350								14,575,279
For the purpose of impairment test, the following				table	shows		the		information of the
operating business that the	Company’s goodwill allocating to.
								December 31,
						2016				2015
								(in thousands)
Display business					$	11,280,595				11,280,595

For the purpose of impairment test, the following table shows the information of the operating business that the Company’s goodwill allocating to.

The Company’s goodwill has been tested for impairment at least once at the end of the annual reporting period and the recoverable amount is determined based on fair value less cost to sell. The fair value less cost to sell was calculated based on discounted cash flow forecast with unobservable inputs which categorized within level 3 of fair value measurement.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The annual discount rates for the year 2016 and 2015 are 11.7% and 10.9%, respectively, based on industry weighted average cost of capital. The cash flow forecast is based on the financial budgets covering the future five-year period with terminal growth rates of 0% and (0.30)% for the year 2016 and 2015, respectively. Such key assumptions abovementioned represents the management’s forecast of the future for the related industry considering the history information on internal and external sources.

In accordance with the assessments of impairment for the years ended December 31, 2016 and 2015, no impairment losses were recognized as the recoverable amount of cashgenerating unit was higher than its carrying value.

(11) Other Current Assets and Other Noncurrent Assets

Prepayment for equipment $ Refundable and overpaid tax Long-term prepaid rents Prepayments for purchases Long-term receivables Refundable deposits Others Less: current Noncurrent $	December 31,	December 31,
	2016 2015 (in thousands) 463,910 4,817,842 3,015,534 2,551,114 1,940,489 2,158,758 3,360,869 1,041,314 1,974,271 - 133,221 128,727 2,481,104 1,259,441 13,369,398 11,957,196 (6,330,283 ) (3,796,085 ) 7,039,115 8,161,111	2015
		11,957,196 (3,796,085 )
		8,161,111

(12) Short-term Borrowings

Unsecured borrowings $ Unused credit facility $ Interest rate	December 31,	December 31,
	2016 2015 (in thousands) 526,723 1,593,714 33,877,442 29,219,632 4.35%~ 4.39% 1.25%~ 1.30%	2015
		29,219,632
		1.25%~ 1.30%

(13) Convertible Bonds Payable

AUO issued unsecured overseas convertible corporate bonds (hereinafter referred to as “ECB”) on October 13, 2010 with par value of US$800,000 thousand and coupon rate at 0%. The duration period is five years commencing from the issuance date.

AUO purchased the outstanding ECB starting from 2011. In 2015, AUO purchased the outstanding ECB with par value of US$399,700 thousand, at costs of US$461,015 thousand. The remaining outstanding balance of ECB with par value of US$14,500 thousand was fully redeemed by AUO at the redemption price equal to 115.34% of the remaining par value of ECB on the maturity date of October 13, 2015, with no exercise of conversion rights.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(14) Long-term Borrowings

Bank or agent bank Durations Syndicated loans: Bank of Taiwan and others From Feb. 2015 to Feb. 2020 $ Bank of Taiwan and others From Apr. 2016 to Apr. 2021 Bank of Taiwan and others From Jan. 2014 to Jan. 2019 Bank of Taiwan and others From Feb. 2013 to Aug. 2017 Bank of Taiwan and others From Dec. 2009 to Oct. 2016 Bank of Taiwan and others From Sep. 2011 to Sep. 2016 First Commercial Bank and others From Feb. 2016 to Feb. 2019 First Commercial Bank and others From Feb. 2012 to Feb. 2016 Standard Chartered Bank and others From Sep. 2014 to Mar. 2019 Bank of China and others From Nov. 2015 to Nov. 2023 Unsecured loans From Jul. 2011 to Nov. 2019 Mortgage loans From Apr. 2016 to Apr. 2021 Less: transaction costs Less: current portion $ Unused credit facility $ Interest rate range	December 31, 2016	December 31, 2015
	(in thousands) 25,800,000 20,000,000 25,000,000 - 23,672,000 26,900,000 7,596,757 13,132,757 - 11,881,032 - 14,860,950 3,000,000 - - 3,139,247 2,358,776 3,172,800 21,216,394 148,818 16,005,955 14,978,755 95,727 - 124,745,609 108,214,359 (482,989 ) (569,191 ) 124,262,620 107,645,168 (18,074,627 ) (39,107,738 ) 106,187,993 68,537,430 43,228,323 83,531,440 1.09%~ 4.90% 1.17%~ 5.00%

The Company entered into the aforementioned long-term loan arrangements with banks and financial institutions to finance capital expenditures on construction projects and the purchase of machinery and equipment, and to fulfill working capital, as well as to repay the matured debts. A commitment fee is negotiated with the leading banks of syndicated loans, and is calculated based on the committed-to-withdraw but unused balance, if any. No commitment fees were paid for the year ended December 31, 2016.

These credit facilities contain covenants that require the Company to maintain certain financial ratios, calculating based on the Company’s annual consolidated financial statements prepared in accordance with Taiwan Financial Reporting Standards, such as current ratio, leverage ratio, interest coverage ratio, tangible net worth and others as specified in the loan agreements.

As of December 31, 2015, AUO was in compliance with the covenants under each of the loan agreements except for one of AUO’s subsidiaries which failed to comply with tangible net worth covenants in its loan agreements. Failure to comply with financial covenants is not considered an event of default under the loan agreements until a resolution is made by majority of the banks and financial institutions to refuse for granting a waiver of the covenants. These loans were voluntarily repaid in advance by the subsidiary in the first quarter of 2016. As of December 31, 2016, the Company complied with all financial covenants under each of the loan agreements.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Refer to note 6(29) for detailed information of exposures to interest rate, currency, and liquidity risk. Refer to note 8 for assets pledged as collateral to secure the aforementioned long-term borrowings.

(15) Provisions

Movements in provisions for the years ended December 31, 2016 and 2015 were as follows:

Warranties Balance at January 1, 2016 $ 1,819,519 Additions (Reversals) (24,699) Usage (265,917) Effect of change in exchange rate (5 ) Balance at December 31, 2016 1,528,898 Less: current (756,079 ) Noncurrent $ 772,819 Warranties Balance at January 1, 2015 $ 2,668,512 Additions (Reversals) (229,091) Usage (619,845) Effect of change in exchange rate (57 ) Balance at December 31, 2015 1,819,519 Less: current (993,481 ) Noncurrent $ 826,038	Litigation and claims Others (in thousands) 4,018,880 297,937 597,325 (25,839) (3,405,923) - (182,954 ) (6,653 ) 1,027,328 265,445 (1,027,328 ) - - 265,445 Litigation and claims Others (in thousands) 7,318,092 286,362 4,848,442 - (8,012,397) - (135,257 ) 11,575 4,018,880 297,937 (4,018,880 ) - - 297,937	Total 6,136,336 546,787 (3,671,840) (189,612 ) 2,821,671 (1,783,407 ) 1,038,264 Total 10,272,966 4,619,351 (8,632,242) (123,739 ) 6,136,336 (5,012,361 ) 1,123,975

a. Provisions for warranties

The provisions for warranties were estimated based on historical experience of warranty claims rate associated with similar products and services. The Company expects most warranty claims will be made within two years from the date of the sale of the product.

b. Provisions for litigation and claims

The provisions for litigation and claims are expected to be paid over the years in accordance with the outcome of litigation and claims and settlement agreements. See note 9(6) for further information.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(16) Operating Leases

a. Lessees

Non-cancellable lease payments as of December 31, 2016 and 2015 were as follows:

Less than one year $ Between one and five years More than five years $	December 31,	December 31,
	2016 2015 (in thousands) 843,880 863,465 3,483,532 2,614,891 4,011,338 3,020,500 8,338,750 6,498,856	2015
		6,498,856

AUO entered into various operating lease agreements for land with Hsinchu Science Park Administration Bureaus beginning from March 1, 1994 for a period of 20 years, with renewal option upon expiration. AUO had on July 2003 and November 2006, entered into various operating lease for land with Central Science Park Administration Bureaus for period from July 28, 2003 till December 31, 2023 and November 9, 2006 till December 31, 2025. All lease amounts are adjusted in accordance with the land value fixed by the government from time to time.

AUO had also on February 2008 renewed its lease agreement with Hsinchu Science Park for the land in Longtan Science Park. The period covers from February 9, 2008 till December 31, 2027. The lease amount is adjusted in accordance with the land value fixed by the government from time to time.

According to the resolution of board of directors’ meeting held on December 22, 2016, AUO decided to acquire the land located at Tainan Technology Industrial Park, which is originally leased from Ministry of Economic Affairs with an acquisition price approximately at $559,000 thousand.

In addition, the Company’s subsidiaries, including ACTW, DPTW and AUCZ, also entered into operating lease agreements for operating facilities and land, under which the lease agreements will expire from March 2020 through December, 2030.

Rental expense for operating leases amounted to $1,178,774 thousand and $1,115,570 thousand for the years ended December 31, 2016 and 2015, respectively.

The Company’s subsidiaries in China have obtained the land use rights which were recognized as long-term prepaid rents.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

b. Lessor

The Company leased its investment properties to third parties under operating lease. Refer to note 6(9) for further information on investment properties.

Non-cancellable lease receivables as of December 31, 2016 and 2015, were as follows:

Less than one year $ Between one and five years More than five years $	December 31,	December 31,
	2016 2015 (in thousands) 8,052 8,052 32,208 32,208 87,230 95,282 127,490 135,542	2015
		135,542

The Company also leased partial offices, see note 6(23) for rental income. Repair and maintenance expenses incurred from aforementioned operating leases for the years ended December 31, 2016 and 2015 amounted to $449 thousand and $403 thousand, respectively.

(17) Employee Benefits

a. Defined benefit plans

Pursuant to the ROC Labor Standards Law, AUO and DPTW have established defined benefit pension plans covering their full-time employees in the ROC. These plans provide for retirement benefits to retiring employees based on years of service and the average salary for the six-month period before the employee’s retirement. The funding of these retirement plans by the companies is based on a certain percentage of employees’ total salaries. The funds are deposited with Bank of Taiwan.

M.Setek has established defined benefit pension plans providing for retirement benefits to retiring employees based on years of service, position, and certain other factors in accordance with the regulations of its country of establishment.

AUO, DPTW and M.Setek recognized liabilities for defined benefit obligation and fair value of plan assets at the reporting date as follows:

Present value of defined benefit obligation $ Fair value of plan assets Net defined benefit liability $	December 31, 2016 2015 (in thousands) (3,027,176) (2,813,072) 2,105,690 2,059,399 (921,486 ) (753,673 )

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(i) Plan assets

AUO and DPTW contribute an amount based on a certain percentage of employees’ total salaries paid every month to their respective pension funds (the “Funds”), which are administered by the Bureau of Labor Fund, Ministry of Labor and supervised by the Labor Pension Fund Supervisory Committee (the “Committee”) and deposited in the Committee’s name with Bank of Taiwan. Under the ROC Labor Standards Law, the minimum return on the plan assets should not be lower than the average interest rate on two-year time deposits published by the local banks. As of the reporting date, the Funds deposited in the Committee’s name in the Bank of Taiwan amounted to $2,153,148 thousand. Information on utilization of labor pension funds, including the yield rate of funds and the component of plan assets are available at the Bureau of Labor Funds, Ministry of Labor website.

Under the defined benefit plans in Japan, M.Setek is responsible to pay to employees when they are retired.

(ii) Movements in the present value of defined benefit obligation

Balance at January 1, $ Benefits paid Current service cost and interest cost Effect of changes in exchange rates and others Remeasurements (loss) gain: Actuarial (loss) gain arising from: - demographic assumptions - financial assumptions - experience adjustment Balance at December 31, $	For the years ended December 31, 2016 2015 (in thousands) (2,813,072) (2,510,735) 62,516 25,240 (72,186) (66,080) (321) (2,637) (51,349) (79,154) (244,142) (88,709) 91,378 (90,997 ) (3,027,176 ) (2,813,072 )

(iii) Movements in the fair value of plan assets

Balance at January 1, $ Contributions paid by the employer Benefits paid Interest income Others Remeasurements (loss) gain: Return on plan assets excluding interest income Balance at December 31, $	For the years ended December 31, 2016 2015 (in thousands) 2,059,399 1,919,312 103,761 105,145 (28,443) (15,565) 39,054 43,048 47,000 - (21,081 ) 7,459 2,105,690 2,059,399

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In 2016, DPTW reached an agreement with its employees for terminating its defined benefit plans and is subject to a reimbursement amounting to $47,000 thousand withdrawn from the surplus of pension fund, and recognized a loss on settlement amounting to $8,967 thousand in profit or loss.

(iv) Expenses recognized in profit or loss

Current service costs $ Interest costs $	For the years ended December 31,
	2016 2015 (in thousands) 18,227 10,887 14,905 12,145 33,132 23,032

(v) Remeasurement of net defined benefit liability recognized in other comprehensive income

Balance at January 1, $ Recognized during the period Balance at December 31, $	For the years ended December 31, 2016 2015 (in thousands) (608,396) (356,995) (225,194 ) (251,401 ) (833,590 ) (608,396 )

(vi) Principal actuarial assumptions

Discount rate Rate of increase in future salary	As of December 31, 2016 2015 0.33%~1.8% 0.53%~2.00% 1.19%~3.79% 1.19%~3.79%
	2016 0.33%~1.8% 1.19%~3.79%

The Company anticipates contributing $103,761 thousand to the defined benefit plans in the next year starting from January 1, 2017.

As at December 31, 2016, the weighted-average duration of the defined benefit obligation was between 9 years to 22 years.

(vii) Sensitivity analysis

Reasonably possible changes at December 31, 2016 and 2015 to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Discount rate $ Rate of increase in future salary $	December 31, 2016 Changes in assumptions + 0.25% - 0.25% (in thousands) (156,764 ) 166,453 164,140 (155,466 )	December 31, 2015
		Changes in assumptions + 0.25% - 0.25% (in thousands) (146,656 ) 156,049 154,530 (146,035 )

In practical, the relevant actuarial assumptions are correlated to each other. The approach to develop the sensitivity analysis as above is the same approach to recognize the net defined benefit liability in the balance sheet. The approach to develop the sensitivity analysis and its relevant actuarial assumptions are the same as those in previous year.

b. Defined contribution plans

Commencing July 1, 2005, pursuant to the ROC Labor Pension Act (the “Act”), employees who elected to participate in the Act or joined the Company after July 1, 2005, are subject to a defined contribution plan under the Act. Under the defined contribution plan, AUO and its subsidiaries located in the ROC contribute monthly at a rate of no less than six percent of an employee’s monthly salary to the employee’s individual pension fund account at the ROC Bureau of Labor Insurance. The Company’s foreign subsidiaries have set up their retirement plans, if necessary, based on their respective local government regulations.

AUO and its subsidiaries in the ROC have set up defined contribution plans in accordance with the Act. For the years ended December 31, 2016 and 2015, these companies set aside $936,923 thousand and $927,083 thousand, respectively, of the pension costs under the pension plan to the ROC Bureau of the Labour Insurance. Except for the aforementioned companies, other foreign subsidiaries recognized pension expenses of $1,127,958 thousand and $1,400,994 thousand for the years ended December 31, 2016 and 2015, respectively, for the defined contribution plans based on their respective local government regulations.

(18) Capital and Other Components of Equity

a. Common stock

AUO’s authorized common stock, with par value of $10 per share, both amounted to $100,000,000 thousand as of December 31, 2016 and 2015.

AUO’s issued and outstanding common stock, with par value of $10 per share, both amounted to $96,242,451 thousand as of December 31, 2016 and 2015.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AUO’s ADSs were listed on the New York Stock Exchange. Each ADS represents 10 shares of common stock. As of December 31, 2016, AUO had issued 77,673 thousand ADSs, which represented 776,729 thousand shares of its common stock.

b. Capital surplus

Balance of capital surplus as of December 31, 2016 and 2015 were as follows:

From common stock $ From convertible bonds From others $	December 31,	December 31,
	2016 2015 (in thousands) 52,756,091 52,756,091 6,049,862 6,049,862 1,173,770 1,444,030 59,979,723 60,249,983	2015
		60,249,983

According to the ROC Company Act, capital surplus, including premium from stock issuing and donations received, shall be applied to offset accumulated deficits before it can be used to issue common stock as stock dividends or distribute cash as cash dividends according to original proportion of shareholdings. Pursuant to the ROC Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the total sum of capital surplus capitalized per annum shall not exceed 10 percent of the paid-in capital.

c. Legal reserve

According to the ROC Company Act, 10 percent of the annual earnings after payment of income taxes due and offsetting accumulated deficits, if any, shall be allocated as legal reserve until the accumulated legal reserve equals the issued common stock. When a company incurs no loss, it may, pursuant to a resolution to be adopted by a shareholders' meeting, distribute its legal reserve by issuing new shares or by cash, only the portion of legal reserve which exceeds 25 percent of the paid-in capital may be distributed.

d. Distribution of earnings and dividend policy

The amendments to AUO’s Articles of Incorporation had been approved pursuant to resolution of the shareholders’ meeting held on June 16, 2016, where 10 percent of the annual earnings, after payment of income taxes due and offsetting accumulated deficits, if any, shall be set aside as a legal reserve until the accumulated legal reserve equals AUO’s paid-in capital. In addition, a special reserve in accordance with applicable laws and regulations shall also be set aside. The remaining current-year earnings together with accumulated undistributed earnings from preceding years can be distributed after the earnings distribution plan proposed by the board of directors is approved by resolution of the shareholders’ meeting.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Pursuant to relevant laws or regulations or as requested by the local authority, a special reserve equivalent to the total amount of items that are accounted for as deductions to the equity shall be set aside from current earnings, and not distributed. The special reserve shall be made available for appropriation to the extent of reversal of deductions to equity in subsequent periods.

AUO’s appropriations of earnings for 2014 had been approved in the shareholders’ meeting held on June 2, 2015. The appropriations and dividends per share were as follows:

Legal reserve $ Cash dividends to shareholders $	For fiscalyear 2014	For fiscalyear 2014
	Appropriation of earnings Dividends per share (in thousands, except for per share data) 1,762,846 4,812,123 $0.50 6,574,969	Dividends per share

AUO had on June 2, 2015, through its shareholders’ meeting approved profit sharing to employees of $1,189,922 thousand, bonus to employees of $1,189,921 thousand and remuneration to directors of $47,597 thousand. The aforementioned distribution of profit sharing to employees, bonus to employees and remuneration to directors for 2014 was consistent with the resolutions of the board of directors’ meeting held on March 17, 2015, and the amount has been charged against earnings of 2014.

AUO’s appropriations of earnings for 2015 had been approved in the shareholders’ meeting held on June 16, 2016. The appropriations and dividends per share were as follows:

Legal reserve $ Cash dividends to shareholders $	For fiscalyear 2015	For fiscalyear 2015
	Appropriation of earnings Dividends per share (in thousands, except for per share data) 493,196 3,368,486 $0.35 3,861,682	Dividends per share

The aforementioned appropriations of earnings for 2015 was consistent with the resolutions of the board of directors’ meeting held on March 10, 2016.

Information on the approval of board of directors and shareholders for AUO’s appropriations of earnings of are available at the Market Observation Post System website.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

e. Other components of equity

Balance at January 1, 2016 $ Foreign operations – foreign currency translation differences Effective portion of changes in fair value of cash flow hedges Net change in fair value of available- for-sale financial assets Equity-accounted investees – share of other comprehensive income Realized gain on sales of securities reclassified to profit or loss Related tax Balance at December 31, 2016 $ Balance at January 1, 2015 $ Foreign operations – foreign currency translation differences Effective portion of changes in fair value of cash flow hedges Net change in fair value of available- for-sale financial assets Equity-accounted investees – share of other comprehensive income Realized gain on sales of securities reclassified to profit or loss Related tax Balance at December 31, 2015 $	Cumulative translation differences 5,612,885 (5,510,836) - - (342,162) (265,849) 1,042,781 536,819 4,901,303 405,731 - - 470,545 (104,905) (59,789 ) 5,612,885	Unrealized gains (losses) on available-for- sale financial assets Unrealized gains (losses) on cash flow hedges (in thousands) (539,653) 12,279 - - - 7,199 769,410 - (2,582) - (2,876) - - (1,224 ) 224,299 18,254 29,108 15,305 - - - (3,646) (521,173) - 22,070 - (69,658) - - 620 (539,653 ) 12,279	Total 5,085,511 (5,510,836) 7,199 769,410 (344,744) (268,725) 1,041,557 779,372 4,945,716 405,731 (3,646) (521,173) 492,615 (174,563) (59,169 ) 5,085,511

f. Non-controlling interests, net of tax

Balance at the beginning of the year
$
Equity attributable to non-controlling interests:
Loss for the year
Adjustment of changes in ownership of investees
Foreign currency translation differences
Remeasurement of defined benefit plans
Cash dividends from subsidiaries
Proceeds from subsidiaries capital increase
Proceeds from capital return upon dissolution of subsidiary
Redemption of subsidiary treasury shares
Effect of acquisition of non-controlling interests and others
Balance at the end of the year
**$ **

For the years ended
December 31,
2016
2015
(in thousands)

22,651,183
19,394,885
(1,212,227)
(89,078)
(191,239)
(264,364)
(1,867,168)
(680,218)
(98)
5,003
(87,749)
(328,234)
9,590
10,086,575
(83,208) -
(865,633)
(227,676)
37,032
(5,245,710
)

18,390,483
22,651,183

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(19) Share-based Payments

The Company’s employee stock option plans were as follows:

a. DPTW Option Plan

(i) As of December 31, 2016, the key terms and conditions related to the grants under DPTW’s outstanding employee stock option plan were disclosed as follows.

2011 Employee stock option plan	Grant date Total number of options issued (units in thousands)	Contractual life of options	Exercisable period	Original exercise price (per share) $29.2	Adjusted exercise price (per share)
	Jan. 6, 2011 10,000	Jan. 6, 2011 – Jan. 6, 2017	After Jan 6, 2013		$19.04

(ii) The fair value of the employee stock option granted by DPTW was measured at the date of grant using the Black-Scholes option pricing model. The valuation information was as follows:

Dividend rate Expected volatility Risk-free interest rate Expected duration Fair value at the grant date	2011 Employee Stock Option Plan
	- % 29% 1.0% 6 years NT$7.49/per unit

The expected volatility is calculated based on the weighted-average historical volatility and adjusted by the expected change due to publicly available information. The expected duration of stock option is according to the terms of the plan. The expected dividend rate and risk-free interest rate are determined based on the ROC government bonds. When determining the fair value of the stock option, service and non-market performance conditions are not taken into consideration.

(iii) Information about DPTW’s outstanding stock options is as follows:

For theyears ended December 31,	For theyears ended December 31,	For theyears ended December 31,
2016		2015
Weighted- average exercise price (per share) $ 19.36 - 19.04	Number of options (shares)	Weighted- average exercise price (per share) $ 20.42 - 19.36	Number of options (shares)
	3,880,000 (967,000 ) 2,913,000 2,913,000		6,510,000 (2,630,000 ) 3,880,000 3,880,000

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

b. ACTW Option Plan

(i) As of December 31, 2016, the key terms and conditions related to the grants under ACTW’s outstanding employee stock option plan were disclosed as follows:

2012 Employee stock option plan 2014 Employee stock option plan	Grant date	Total number of options issued(units)	Contractual life of options	Exercisable period	Exercise price (per share)
	Sep. 1, 2012 Sep. 1, 2014	20,000 20,000	Sep.1, 2012 – Aug. 30, 2017 Sep.1, 2014 – Aug. 30, 2019	After Aug. 30, 2014 After Aug. 30, 2016	$10 $10

(ii) The related employee benefit expenses and capital surplus recognized on ACTW’s employee stock options were $1,534 thousand and $2,386 thousand for the years ended December 31, 2016 and 2015, respectively.
(iii) The fair value of the employee stock options granted by ACTW was measured at the dates of grant using the Binomial option pricing model. The valuation information was as follows:

Dividend rate Expected volatility Risk-free interest rate Expected duration Fair value at the grant date	2014 Employee Stock Option Plan -% 38.88% 1.1648% 5 years NT$0.20/per share	2012 Employee Stock Option Plan
		-% 45.40% 0.8887% 5 years NT$0.34/per share

Information about ACTW’s outstanding stock options is as follows:

For theyears ended December 31,	For theyears ended December 31,	For theyears ended December 31,	For theyears ended December 31,
2016		2015
Weighted- average exercise price (per share) $ 10 10 - 10	Number of options (shares)	Weighted- average exercise price (per share) $ 10 10 - 10	Number of options (shares)
	32,843,000 (959,000) (2,675,000 ) 29,209,000		36,942,000 (109,000) (3,990,000 ) 32,843,000
	20,578,000		11,096,000

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(20) Revenue

Sale of goods $ Other operating revenue $	For the years ended December 31,	For the years ended December 31,
	2016 2015 (in thousands) 318,243,539 351,566,289 10,845,497 8,780,205 329,089,036 360,346,494	2015
		360,346,494

Refer to note 13 for further revenue information.

(21) Remuneration to Employees and Directors

According to AUO’s Articles of Incorporation, AUO should distribute remuneration to employees and directors not less than 5% and not more than 1% of annual profits, respectively, after offsetting accumulated deficits, if any. Only employees, including employees of affiliate companies that meet certain conditions are subject to the abovementioned remuneration which to be distributed in stock or cash. The said conditions and distribution method are decided by board of directors or the personnel authorized by board of directors.

For the years ended December 31, 2016 and 2015, AUO estimated the remuneration to employees amounting to $1,107,486 thousand and $665,815 thousand, respectively. AUO accrued remuneration to employees based on the profits before income tax, excluding the remuneration to employees and directors of each period, multiplied the percentage resolved by board of directors. Remuneration to directors was estimated based on the amount expected to pay and recognized together with the remuneration to employees as costs for sales or expenses. If remuneration to employees is resolved to be distributed in stock, the number of shares is determined by dividing the amount of remuneration by the closing price of the shares (ignoring ex-dividend effect) on the day preceding the board of directors’ meeting. If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are accounted for as a change in accounting estimate and adjust prospectively to next year’s profit or loss.

Remuneration to employees and directors for 2015 in the amounts of $665,815 thousand and $13,316 thousand, respectively, in cash for payment had been approved in the meeting of board of directors held on March 10, 2016. The aforementioned approved amounts are the same as the amounts charged against earnings of 2015.

The information about AUO’s remuneration to employees and directors is available at the Market Observation Post System website.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(22) Additional Information of Expenses by Nature

	For theyears ended December 31,	For theyears ended December 31,	For theyears ended December 31,	For theyears ended December 31,
	2016	Total 33,283,639 1,804,900 2,098,013 3,024,372 38,533,775 1,159,465		2015
Recognized in cost of sales $25,434,347 1,331,724 1,724,329 2,460,214 34,305,760 1,159,465	Recognized in operating expenses		Recognized in cost of sales 26,904,122 1,400,037 2,011,456 2,465,530 42,558,430 892,566	Recognized in operating expenses	Total
	7,849,292 473,176 373,684 564,158 4,228,015 -			7,257,669 479,745 339,653 445,046 4,293,057 1,796	34,161,791 1,879,782 2,351,109 2,910,576 46,851,487 894,362

(23) Other Income

Interest income on bank deposits $ Interest income on government bonds with reverse repurchase agreements and others Rental income, net Dividend income Grants Insurance compensation and others $	For the years ended December 31,	For the years ended December 31,
	2016 2015 (in thousands) 491,160 629,057 3,382 43,581 527,381 472,484 107,141 112,661 631,750 337,526 619,414 602,284 2,380,228 2,197,593	2015
		2,197,593

(24) Other Gains and Losses

Foreign exchange gains, net $ Gains (losses) on valuation of financial instruments measured at fair value through profit or loss, net Losses on disposals of investments and financial assets, net Gains on disposals of property, plant and equipment, net Impairment losses on property, plant and equipment and investment property, net Litigation losses and others $	For the years ended December 31,	For the years ended December 31,
	2016 2015 (in thousands) 770,325 537,248 (411,437) 939,117 (333,858) (10,618) 24,278 585,196 (34,733) (7,026,226) (940,248 ) (5,003,037 ) (925,673 ) (9,978,320 )	2015
		(9,978,320 )

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(25) Finance Costs

Interest expense on long-term borrowings $ Interest expense on short-term borrowings and others $	For the years ended December 31,	For the years ended December 31,
	2016 2015 (in thousands) 2,577,416 2,540,724 130,471 50,299 2,707,887 2,591,023	2015
		2,591,023

(26) Income Taxes

The Company cannot file a consolidated tax return under local regulations. Therefore, AUO and its subsidiaries calculate their income taxes liabilities individually on a stand-alone basis using the enacted tax rates in their respective tax jurisdictions.

a. Income tax expenses

The components of income tax expense (benefit) for the years ended December 31, 2016 and 2015 were as follows:

Current income tax expense (benefit): Current year $ Adjustment to prior years and others Deferred tax expense (benefit): Temporary differences Investment tax credit and tax losses carryforwards Total income tax expense $	For the years ended December 31,	For the years ended December 31,
	2016 2015 (in thousands) 953,966 2,029,487 1,279,690 507,423 2,233,656 2,536,910 572,509 198,585 1,773,026 20,473 2,345,535 219,058 4,579,191 2,755,968	2015
		2,536,910
		198,585 20,473
		219,058
		2,755,968

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Income taxes expense (benefit) recognized directly in other comprehensive income for the years ended December 31, 2016 and 2015 were as follows:

Items that will never be reclassified to profit or loss: Remeasurement of defined benefit obligation $ Items that may or may not be reclassified subsequently to profit or loss: Foreign operations – foreign currency translation differences Cash flow hedges Equity-accounted investees – share of other comprehensive income $	For the years ended December 31, 2016 2015 (in thousands) (38,283 ) (25,980) (1,064,788) (20,793) 1,224 (620) (98,538 ) 67,196 (1,162,102 ) 45,783	For the years ended December 31, 2016 2015 (in thousands) (38,283 ) (25,980) (1,064,788) (20,793) 1,224 (620) (98,538 ) 67,196 (1,162,102 ) 45,783
		(20,793) (620) 67,196 45,783

Reconciliation of the expected income tax expense (benefit) calculated based on the ROC statutory income tax rate compared with the actual income tax expense (benefit) as reported in the consolidated statements of comprehensive income for the years ended December 31, 2016 and 2015, was as follows:

Income tax expense at AUO’s statutory tax rate
$ Tax on undistributed earnings, net
Effect of different subsidiaries income tax rate
Share of profit of equity-accounted subsidiaries
Effect of changes in statutory income tax rate
Net of non-taxable income and non-deductible expense
Effect of change of unrecognized deductible temporary
differences, tax losses carryforwards, and investment
tax credits
Adjustments to prior year
Others
Income tax expense
$
Effective tax rate

For the years ended
December 31,
2016
2015
(in thousands)

1,901,603
1,291,804
118,002
1,060,164
285,661
(1,601,589)
(434,256)
(2,188,328)
-
305,312
109,315
466,836
1,302,383
2,948,597
1,296,215
477,477
268
(4,305
)

4,579,191
2,755,968
40.94%
36.27%

The above reconciliation is prepared based on each individual entity of the Company and presented on an aggregate basis.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

b. Deferred tax assets and liabilities

Deferred tax assets had not been recognized were as follows:

		December 31,	December 31,
		2016	2015
		(in thousands)
Deductible temporary differences	$	5,383,968	9,488,229
Unused investment tax credits		47,268	67,490
Unused tax losses carryforwards		22,068,113	18,129,385
	$	27,499,349	27,685,104

The unused investment tax credits with no expiration for the year ended December 31, 2016 from AUST and ACMK were $6,513 thousand and $40,755 thousand, respectively.

Net losses recognized by the Company’s foreign subsidiaries and verified by their local tax authorities are able to carry forward as a reduction for future taxable income according to the subsidiaries’ local tax laws. Under the rules of the ROC Income Tax Act, AUO and other domestic subsidiaries are enjoyed to make taxation on their net profits after deduction of losses incurred in the preceding ten years as verified by the tax authorities.

As of December 31, 2016, the expiration period for abovementioned unrecognized deferred tax assets of unused tax losses carryforwards were as follows:

Year of assessment 2009 $ 2010 2011 2012 2013 2014 2015 2016 (estimated) $	Unrecognized deferred tax assets (in thousands) 3,711,751 670,176 5,667,276 1,541,011 1,825,890 2,187,832 3,956,566 2,507,611 22,068,113	Expiration inyear
		2017 ~ 2019 2019 2020 2017 ~ 2022 2018 ~ 2023 2019 ~ 2024 2020 ~ 2025 2021 ~ 2026

As of December 31, 2016 and 2015, the aggregate taxable temporary differences associated with investments in subsidiaries not recognized as deferred tax liabilities amounted to $448,513 thousand and $673,044 thousand, respectively.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The components of deferred tax assets and liabilities were as follows:

Investment tax credits $ Tax losses carryforwards Unrealized loss and expenses Inventories write-down Foreign investment losses (gains) under the equity method Accumulated amortization of goodwill in accordance with local tax laws Remeasurement of defined benefit plans Cash flow hedges Unrealized gains on available -for-sale financial assets Others $	Deferred	tax assets December 31, 2015 859,300 13,097,443 560,256 867,333 - - 103,770 - - 1,536,270 17,024,372	Deferred tax liabilities	Deferred tax liabilities	Total	Total
	December 31, 2016		December 31, 2016	December 31, 2015	December 31, 2016	December 31, 2015
	840,112 11,324,417 370,586 587,346 - - 139,255 - - 1,103,029 14,364,745				840,112 11,324,417 367,091 587,346 (1,091,023) (1,881,415) 139,255 (3,738) - 377,400 10,659,445	859,300 13,097,443 559,316 867,333 (1,174,733) (1,766,052) 103,770 (2,514) (903) (646,982 ) 11,895,978

Investment tax credits $ Tax losses carryforwards Unrealized loss and expenses Inventories write-down Foreign investment losses (gains) under the equity method Accumulated amortization of goodwill in accordance with local tax laws Remeasurement of defined benefit plans Cash flow hedges Unrealized gains on available-for-sale financial assets Others $	January 1, 2015 73,517 13,874,371 630,062 716,833 (1,523,464) (1,589,438) 77,790 (3,134) (908) (125,663 ) 12,129,966	Recognized in profit or loss 756,455 (776,928) (70,212) 150,500 348,731 (176,614) - - - (450,990 ) (219,058 )	Recognized in other comprehensive income	Effect of exchange rate and others	December 31, 2015 Recognized in profit or loss (in thousands) 859,300 - 13,097,443 (1,773,026) 559,316 (179,276) 867,333 (277,416) (1,174,733) 83,710 (1,766,052) (115,363) 103,770 - (2,514) - (903) - (646,982 ) (84,164 ) 11,895,978 (2,345,535 )	Recognized in other comprehensive income - - - - - - 38,283 (1,224) - 1,163,326 1,200,385	Effect of change in consolidated entities, exchange rate and others (19,188) - (12,949) (2,571) - - (2,798) - 903 (54,780 ) (91,383 )	December 31, 2016
			- - - - - - 25,980 620 - (46,403 ) (19,803 )	29,328 - (534) - - - - - 5 (23,926 ) 4,873				840,112 11,324,417 367,091 587,346 (1,091,023) (1,881,415) 139,255 (3,738) - 337,400
								10,659,445

c. Assessments by the tax authorities

As of December 31, 2016, the tax authorities had completed the examination of income tax returns of AUO through 2014.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

d. The integrated income tax system

Unappropriated earnings generated after 1998 $ Balance of the imputation credit account (ICA) $ Creditable ratios for distribution of AUO’s earnings for ROC resident shareholders	December 31,	December 31,
	2016 2015 (in thousands) 21,585,361 18,242,681 3,878,285 4,025,832 (Estimated) (Actual) 17.97% 26.29%	2015
		4,025,832
		(Actual) 26.29%

The abovementioned integrated income tax information is prepared in accordance with Decree No. 10204562810 announced on October 17, 2013, by the ROC Ministry of Finance.

(27) Earnings per Share

Basic earnings per share Profit attributable to AUO’s shareholders $ Weighted-average number of common shares outstanding during the year Basic earnings per share $ Diluted earnings per share Profit attributable to AUO’s shareholders $ Effect of convertible bonds $ Weighted-average number of common shares Effect of employee remuneration in stock Effect of convertible bonds Diluted earnings per share $	For the years ended December 31,	For the years ended December 31,
	2016 (in thousands, share 7,818,938 9,624,245 0.81 7,818,938 - 7,818,938 9,624,245 107,547 - 9,731,792 0.80	2015
		except for per data) 4,931,960
		9,624,245
		0.51
		4,931,960 (340,686 ) 4,591,274 9,624,245 67,731 199,894 9,891,870 0.46

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(28) Financial Instruments

a. Fair value and carrying amount

The carrying amount of the Company’s non-derivative financial instruments － current, including cash and cash equivalents, receivables or payables (including related parties), other current financial assets, and short-term borrowings, were considered to approximate their fair value due to their short-term nature. Except for aforementioned financial instruments, the carrying amount and fair value of other financial instruments of the Company as of December 31, 2016 and 2015 were as follows:

December 31, 2016 December 31, 2015 Carrying Amount Fair Value Carrying Amount Fair Value (in thousands) Financial assets: Available-for-sale financial assets－ noncurrent $ 2,836,696 2,836,696 2,077,203 2,077,203 Foreign currency forward contracts 65,669 65,669 214,194 214,194 Refundable deposits 133,221 133,221 128,727 128,727 Financial liabilities: Long-term borrowings (including current installments) 124,262,620 124,262,620 107,645,168 107,645,168 Foreign currency forward contracts 896,998 896,998 553,663 553,663 Interest rate swap contracts 3,540 3,540 10,739 10,739 Guarantee deposits received 838,263 838,263 913,804 913,804	December 31, 2016	December 31, 2016	December 31, 2015	December 31, 2015
	Carrying Amount	Fair Value	Carrying Amount	Fair Value
				2,077,203 214,194 128,727 107,645,168 553,663 10,739 913,804

b. Valuation techniques and assumptions applied in fair value measurement

The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market prices. The fair vales of other financial assets and financial liabilities without quoted market prices are estimated using valuation approach. The estimates and assumptions used are the same as those used by market participants in the pricing of financial instruments.

Fair value of foreign currency forward contract is measured based on the maturity date of each contract with quoted spot rate and quoted swap points from Reuters quote system. Fair value of interest rate swap contract is measured based on reasonable valuation model and assumptions with reference to market valuation information provided by counterparties, i.e. financial institutions.

The refundable deposits and guarantee deposits received are based on carrying amount as there is no fixed maturity.

The fair value of floating-rate long-term borrowings approximates to their carrying value.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company refers to the quoted spot rates from Reuters quote system for US Dollar’s closing price and other currencies’ buy rates, which has been applied consistently to all periods presented and served as the basis for retranslation of the fair value of abovementioned financial instruments that denominated in foreign currencies.

c. Fair value measurements recognized in the consolidated balance sheets

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

(i) Level 1 inputs: Unadjusted quoted prices for identical assets or liabilities in active markets.
(ii) Level 2 inputs: Other than quoted prices included within Level 1, inputs are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
(iii) Level 3 inputs: Derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value measurement level of an asset or liability within their fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Level 1 December 31, 2016 Assets: Available-for-sale financial assets－ noncurrent $ 2,836,696 Foreign currency forward contracts - Liabilities: Foreign currency forward contracts - Interest rate swap contracts - December 31, 2015 Assets: Available-for-sale financial assets－ noncurrent $ 2,077,203 Foreign currency forward contracts - Liabilities: Foreign currency forward contracts - Interest rate swap contracts -	Level 2 Level 3 (in thousands) - - 65,669 - 896,998 - 3,540 - - - 214,194 - 553,663 - 10,739 -	Total
		2,836,696 65,669 896,998 3,540 2,077,203 214,194 553,663 10,739

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

There were no transfers between Level 1 and 2 for the years ended December 31, 2016 and 2015.

(29) Financial Risk Management

a. Risk management framework

The managerial officers of related divisions are appointed to review, control, trace and monitor the strategic risks, financial risks and operational risks faced by the Company. The managerial officers report to executive officers the progress of risk controls from time to time and, if necessary, report to the board of directors, depending on the extent of impact of risks.

b. Financial risk information

Hereinafter discloses information about the Company’s exposure to variable risks, and the goals, policies and procedures of the Company’s risk measurement and risk management.

The Company is exposed to the following risks due to usage of financial instruments:

(i) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company’s exposures to credit risk are mainly from:

(a) The carrying amount of financial assets recognized in the consolidated balance sheets.
(b) The amount of contingent liabilities as a result from the Company providing financial guarantee to its customers.

The Company’s potential credit risk is derived primarily from cash in bank, cash equivalents and trade receivables. The Company deposits its cash and cash equivalent investments with various reputable financial institutions of high credit quality. The Company also entered into reverse repurchase agreements with securities firms or banks in Taiwan covering government bonds that classified as cash equivalents. There should be no major concerns for the performance capability of trading counterparts. Management performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution. Management believes that there is a limited concentration of credit risk in cash and cash equivalent investments.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The majority of the Company’s customers are in high technology industries. Management continuously evaluates and controls the credit quality, credit limit and financial strength of its customers to ensure any overdue receivables are taken necessary procedures. The Company also flexibly makes use of prepayments, accounts receivable factoring and credit insurance as credit enhancement instruments. If necessary, the Company will request collaterals or assurance from its customers in order to reduce the credit risk from particular customers.

Additionally, on the reporting date, the Company reviews the recoverability of its receivables to provide appropriate valuation allowances. Consequently, management believes there is a limited concentration of its credit risk.

For the years ended December 31, 2016 and 2015, the Company’s five largest customers accounted for 36.3% and 36.5%, respectively, of the Company’s consolidated net revenue. There is no other significant concentration of credit risk.

Refer to note 6(5) for aging analysis of accounts receivable and the movement in the allowance of doubtful accounts receivable.

For credit of guarantee, the Company’s policy is to provide financial guarantees only to wholly-owned subsidiaries.

(ii) Liquidity risk

Liquidity risk is the risk that the Company has no sufficient working capital and unused credit facilities to meet its obligations associated with matured financial liabilities, that may resulting from an economic downturn or uneven demand and supply in the market and cause a significant decrease in product selling prices and market demands.

Liquidity risk of the Company is monitored through its corporate treasury department which tracks the development of the actual cash flow position for the Company and uses input from a number of sources in order to forecast the overall liquidity position both on a short and long term basis. Corporate treasury invests surplus cash in money market deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due, without incurring unacceptable losses or risking damage to the Company’s reputation. As of December 31, 2016, the Company’s working capital together with existing unused credit facilities under its existing loan agreements will be sufficient to fulfill all of its contractual obligations. Therefore, management believes that there is no liquidity risk resulting from incapable of financing to fulfill the contractual obligations.

The following, except for payables (including related parties) and equipment and construction payable, are the contractual maturities of other financial liabilities. The amounts include estimated interest payments (except for short-term borrowings) but exclude the impact of netting agreements.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016 Non-derivative financial liabilities Short-term borrowings $ Long-term borrowings (including current installments) Refundable deposits Derivative financial instruments Foreign currency forward contracts－inflows Foreign currency forward contracts－outflows Interest rate swap contracts $ December 31, 2015 Non-derivative financial liabilities Short-term borrowings $ Long-term borrowings (including current installments) Refundable deposits Derivative financial instruments Foreign currency forward contracts－inflows Foreign currency forward contracts－outflows Interest rate swap contracts $	Contractual cash flows 526,723 133,125,692 838,263 (37,819,838) 38,625,310 3,446	2017.1.1~ 2017.12.31 526,723 21,116,908 75,970 (37,819,838) 38,625,310 3,446 22,528,519 2016.1.1~ 2016.12.31 1,593,714 40,803,750 109,831 (28,576,545) 28,857,477 6,975 42,795,202	2018.1.1~ 2019.12.31 2020.1.1~ 2021.12.31 (in thousands) - - 75,423,482 27,662,194 3,078 7,275 - - - - - - 75,426,560 27,669,469 2017.1.1~ 2018.12.31 2019.1.1~ 2020.12.31 (in thousands) - - 52,961,785 17,812,457 - 2,554 - - - - 2,252 - 52,964,037 17,815,011	2022 and thereafter - 8,923,108 751,940 - - - 9,675,048 2021 and thereafter - 94,773 801,419 - - - 896,192
	135,299,596
	Contractual cash flows 1,593,714 111,672,765 913,804 (28,576,545) 28,857,477 9,227
	114,470,442

The Company is not expecting that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts.

(iii) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable range, while optimizing the return.

The Company buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are executed in accordance with the Company’s handling procedures for conducting derivative transactions, and also monitored by internal audit department.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(a) Currency risk

The Company is exposed to currency risk on foreign currency denominated financial assets and liabilities arising from operating, financing and investing activities such that the Company uses forward exchange contracts to hedge its currency risk. Gains and losses derived from the foreign currency fluctuations on underlying assets and liabilities are likely to offset. However, transactions of derivative financial instruments help minimize the impact of foreign currency fluctuations, but the risk cannot be fully eliminated.

The Company periodically examines portions exposed to currency risks for individual asset and liability denominated in foreign currency and uses forward contracts as hedging instruments to hedge positions exposed to risks. The contracts have maturity dates that do not exceed six months, and do not meet the criteria for hedge accounting.

I. Exposure of currency risk

The Company’s significant exposure to foreign currency risk was as follows:

		December 31, 2016	December 31, 2016	December 31, 2016	December 31, 2015	December 31, 2015	December 31, 2015
		Foreign			Foreign
		currency	Exchange		currency	Exchange
		amounts	rate	NTD	amounts	rate	NTD
		(in thousands)		(in thousands)	(in thousands)		(in thousands)
Financial assets
Monetary items
USD	$	2,287,148	32.312	73,902,326	1,773,639	33.05	58,618,769
JPY		20,236,416	0.2773	5,611,558	42,093,750	0.2743	11,546,316
EUR		106,660	33.895	3,615,241	69,627	36.12	2,514,927
Non-monetary
items
USD		3,000	32.312	96,936	221,321	33.05	7,314,659
RMB		20,758	4.6391	96,298	20,285	5.0928	103,307
Financial
liabilities
Monetary items
USD		1,099,799	32.312	35,536,705	769,280	33.05	25,424,704
JPY		26,820,343	0.2773	7,437,281	27,607,729	0.2743	7,572,800
EUR		987	33.895	33,454	1,274	36.12	46,017

II. Sensitivity analysis

The Company’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, trade receivables, loans and borrowings and trade payables that are denominated in foreign currency. Depreciation or appreciation of the NTD by 1% against the USD, EUR, JPY and RMB at December 31, 2016 and 2015, while all other variables were remained constant, would have increased or decreased the net profit before tax for the years ended December 31, 2016 and 2015 as follows:

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

		For the years	ended
		December	31,
		2016	2015
		(in thousands)
1% of depreciation	$	401,217	396,365
1% of appreciation		(401,217)	(396,365)

III. Foreign exchange gain (loss) on monetary items

With varieties of functional currencies within the consolidated entities of the Company, the Company disclosed foreign exchange gain (loss) on monetary items in aggregate. The aggregate of realized and unrealized foreign exchange gains for the years ended December 31, 2016 and 2015 were $770,325 thousand and $537,248 thousand, respectively.

(b) Interest rate risk

The Company’s exposure to changes in interest rates is mainly from floatingrate long-term debt obligations. Any change in interest rates will cause the effective interest rates of long-term borrowings to change and thus cause the future cash flows to fluctuate over time. The Company enters into and designates interest rate swaps as hedges of the variability in cash flows attributable to interest rate risk.

The following sensitivity analysis is determined based on the exposure to interest rate risk. For floating-rate debts, the analysis assumes that the balances of outstanding debts at the end of the reporting period had been outstanding for the entire year.

For the Company’s floating-rate debts, assuming all other variables were remained constant, an increase or a decrease in the interest rate by 0.25% would have resulted in a decrease or an increase in the net profit before tax for the years ended December 31, 2016 and 2015 by $307,464 thousand and $262,936 thousand, respectively.

(c) Equity price risk

See note 6(3) for disclosure of equity price risk analysis.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(30) Capital Management

Through clear understanding and managing of significant changes in external environment, related industry characteristics, and corporate growth plan, the Company manages its capital structure to ensure it has sufficient financial resources to sustain proper liquidity, to invest in capital expenditures and research and development expenses, to repay debts and to distribute dividends in accordance to its plan. The management pursues the most suitable capital structure by monitoring and maintaining proper financial ratios as below. The Company aims to enhance the returns of its shareholders through achieving an optimized debt-toequity ratio from time to time.

	December 31,	December 31,
	2016	2015
	(in thousands)
Total liabilities	$ 230,134,069	220,917,840
Total equity	199,635,182	204,636,405
Interest-bearing debts	124,789,343	109,238,882
Debt-to-equity ratio	115%	108%
Interest-bearing debt-to-equity ratio	63%	53%
Net debt-to-equity ratio(1)	22%	15%

(1) Net debt-to-equity ratio is defined as interest-bearing debts less cash and cash equivalents divided by total equity.

7. Related-party Transactions

AUO is the ultimate parent company of the Company’s subsidiaries. All significant intercompany transactions and balances are eliminated in the consolidated financial statements and are not disclosed in the note. The significant related party transactions were as follows:

(1) Compensation to key management personnel

Key management personnel’s compensation comprised:

		For the years	ended
		December	31,
		2016	2015
		(in thousands)
Short-term employee benefits	$	354,883	365,310
Post-employment benefits		1,937	2,168
	$	356,820	367,478

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2) Except as disclosed in the consolidated financial statements and other notes, the Company’s significant related party transactions and balances were as follows:
a. Sales

				Accounts receivable	Accounts receivable
		Sales		from relatedparties
		For the years	ended
		December	31,	December 31,
		2016	2015	2016	2015
			(in thousands)
Associates	$	554,889	8,745,681	58,755	37,233
Joint ventures		4,105,390	5,453,152	-	434,978
Others		12,761,161	6,005,175	2,474,469	2,020,268
	$	17,427,440	20,204,008	2,533,224	2,492,479

The collection terms for sales to related parties were month-end 30 to 55 days. The pricing for sales to related parties were not materially different from those with third parties.

b. Purchases

				Notes and accounts payable	Notes and accounts payable
		Purchases		to relatedparties
		For the years	ended
		December	31,	December 31,
		2016	2015	2016	2015
			(in thousands)
Associates	$	9,886,487	19,563,609	3,734,927	4,089,418
Joint ventures		3,754,404	4,786,344	-	373,151
Others		18,317,386	10,587,095	5,088,138	4,863,602
	$	31,958,277	34,937,048	8,823,065	9,326,171

The payment terms for purchases from related parties were 30 to 120 days. The pricing and payment terms with related parties were not materially different from those with third parties.

c. Acquisition of property, plant and equipment

		For the years	ended
		December	31,
		2016	2015
		(in thousands)
Associates	$	7,391	368,171
Others		-	326
	$	7,391	368,497

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

d. Disposal of property, plant and equipment and others

Proceeds from disposal For the years ended December 31, 2016 2015 (in thousands) Associates $ 926 - Joint ventures - 8 Others - 1,790 $ 926 1,798	Gains on disposal	Gains on disposal
	For the years ended December 31,
	2016 2015 (in thousands) 22 - - 8 - 36 22 44	2015

e. Other related party transactions

		Other receivables due from
		relatedparties
		December 31,
		2016 2015
		(in thousands)
Associates	$	10,970 7,429
Joint ventures		- 3,701
Others		23,318 16,828
	$	34,288 27,958
		Other payables due to
		relatedparties
		December 31,
		2016 2015
		(in thousands)
Associates	$	16,218 7,875
Joint ventures		406 1,639
Others		10,717 19,500
	$	27,341 29,014
		Rental income
		For the years ended
		December 31,
		2016 2015
		(in thousands)
Associates	$	31,858 61,159
Joint ventures		6,611 6,659
Others		90,032 47,271
	$	128,501 115,089

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

		Administration and other	Administration and other
		income
		For the years	ended
		December	31,
		2016	2015
		(in thousands)
Associates	$	15,083	21,132
Joint ventures		8,301	11,538
Others		5,174	2,889
	$	28,558	35,559
		Rental and other	expenses
		For the years	ended
		December	31,
		2016	2015
		(in thousands)
Associates	$	36,499	104,415
Joint ventures		21,821	1,168
Others		55,131	40,546
	$	113,451	146,129

The Company leased portion of its facilities to related parties. The collection term was 15 days from quarter-end, and the pricing was not materially different from that with third parties.

For the years ended December 31, 2016 and 2015, the Company had received cash dividends from related parties of $307,481 thousand and $380,433 thousand, respectively.

8. Pledged Assets

The carrying amounts of the assets which the Company pledged as collateral were as follows:

Pledged assets Restricted cash in banks(i) Land and building (including investment property) Machinery, equipment and prepayments for equipment	Pledged to secure R&D projects, oil purchases and guarantees for foreign labors and customs duties $ Long-term borrowings Long-term borrowings $	December 31,	December 31,
		2016 2015 (in thousands) 93,379 56,453 52,076,840 69,268,103 27,058,442 35,722,519 79,228,661 105,047,075	2015
			105,047,075

(i) Classified as other current financial assets and other noncurrent assets by its liquidity.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Significant Contingent Liabilities and Unrecognized Commitments

The significant commitments and contingencies of the Company as of December 31, 2016, in addition to those disclosed in other notes to the consolidated financial statements, were as follows:

(1) As of December 31, 2016, the Company had the following outstanding letters of credit for the purpose of purchasing machinery and equipment and materials:

Currency USD JPY	December 31, 2016
	(in thousands) 5,165 7,052,585

(2) Starting 1998, AUO has entered into technical collaboration, patent licensing, and/or patent cross licensing agreements with Fujitsu Display Technologies Corp. (subsequently assumed by Fujitsu Limited), Toppan Printing Co., Ltd. (“Toppan Printing”), Semiconductor Energy Laboratory Co., Ltd., Japan Display Inc. (formerly Japan Display East Inc./Hitachi Displays, Ltd.), Panasonic Liquid Crystal Display Co., Ltd. (formerly IPS Alpha Technology Ltd.), LG Display Co., Ltd., Sharp Corporation, Samsung Electronics Co., Ltd., Hydis Technologies Co., Ltd. and others. AUO believes that it is in compliance with the terms and conditions of the aforementioned agreements.
(3) In April 2011, AUO signed a long-term materials supply agreement with Korean OCI Company Ltd. (“OCI”), under which, AUO and OCI agreed on the supply of certain polysilicon. Purchase prices were determined and adjusted through negotiation on each order basis between both parties. AUO paid proportionate prepayments in three installments to OCI in 2011. In May 2015 and December 2016, the supply agreement was amended and the amended effective term is from April 15, 2011 to December 31, 2020.
(4) Starting from 2006, DPTW has entered into a long-term materials supply agreement with Evonik Forhouse Optical Polymers Corp. (“EFOP”), under which, DPTW and EFOP agreed on the supply of certain optical-grade molding compounds at negotiated prices and quantities.
(5) As of December 31, 2016, significant outstanding purchase commitments for construction in progress, property, plant and equipment totaled $20,056,931 thousand.
(6) Since December 2006, AUO and certain of its subsidiaries, along with various competitors in the TFT-LCD industry, were under investigation for alleged violation of antitrust and competition laws of certain jurisdictions. Set forth below is a list of the material antitrust proceedings against AUO and certain of its subsidiaries.

United States

In 2012, the Northern California Court rendered judgment against AUO and AUUS regarding the alleged violations of Section 1 of the Sherman Act and imposed a fine of US$500 million against AUO. Such fine was fully paid by AUO as of December 31, 2015.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Northern California Court also placed AUO and AUUS on probation as well as assigned a monitor and required AUO to adopt an effective antitrust compliance program. The probationary period and monitorship ended in December 2016.

Antitrust Civil Actions Lawsuits

There were over 100 civil lawsuits filed against AUO, AUUS and various manufacturers in the TFT-LCD industry in the United States and Canada alleging, among other things, antitrust violations. As of February 13, 2017, AUO and AUUS have reached settlement agreements with the relevant plaintiffs, including a settlement with the state of Illinois in April 2016 and a settlement with the Costco Wholesale Corporation in September 2016. In addition to the above cases in the United States and Canada, a lawsuit was filed by certain consumers in Israel against certain LCD manufacturers including AUO in the District Court of the Central District in Israel (“Israeli Court”). The defendants contested various issues including whether the lawsuit was properly served. In December 2016, the Israeli Court overturned the original decision and revoked the permission for this case to serve out of Israeli jurisdiction. The decision of the Israeli Court is appealable but subject to the permission by the Supreme Court. The ultimate outcome of these matters is uncertain and will depend on further court proceedings.

(7) In July and August of 2014, SunPower Technology, Ltd. (“SPTL”), AUO and AUSG submitted certain disputes for arbitration in the International Court of Arbitration of the International Chamber of Commerce in San Francisco, U.S. in connection with the joint venture agreement among the parties. The arbitration was amicably settled by the parties in September 2016. AUSG sold all of its shares in the joint venture company AUSP to SPTL at the price of US$170,100 thousand. Please see note 6(7)b. for further details. The shares purchase price shall be paid by SPTL in accordance with the agreement and guaranteed by SunPower Corporation, SPTL’s parent company. The parties have reached amicable agreements regarding the relevant issues, including terminations of the joint venture agreement and relevant agreements and agreed to terminate the arbitration.

As of February 13, 2017, the Company had made certain provisions with respect to certain of the above lawsuits as the management deems appropriate, considering factors such as the nature of the litigation or claims, the materiality of the amount of possible loss, the progress of the cases and the opinions or views of legal counsel and other advisors. Management will reassess all litigation and claims at each reporting date based on the facts and circumstances that exist at that time, and will make additional provisions or adjustments to previous provisions. The ultimate amount cannot be ascertained until the relevant cases are closed. The ultimate resolution of the legal proceedings and/or lawsuits cannot be predicted with certainty. While management intends to defend certain of the lawsuits described above vigorously, there is a possibility that one or more legal proceedings or lawsuits may result in an unfavorable outcome to the Company. In addition to the matters described above, the Company is also a party to other litigations or proceedings that arise during the ordinary course of business. Except as mentioned above, the Company, to its knowledge, is not involved as a defendant in any material litigation or proceeding which could be expected to have a material adverse effect on the Company’s business or results of operations.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

10. Significant Disaster Losses: None.

11. Subsequent Event

Except for otherwise disclosed in the other notes to the consolidated financial statements, there is no significant reportable subsequent event.

12. Others

There have been environmental proceedings relating to the development project of the Central Taiwan Science Park in Houli, Taichung, which AUO’s second 8.5-generation fab is located at and which has been established since 2010. The proceedings were initiated by six residents in Houli District, Taichung City (the “Plaintiffs”) to object the administrative dispositions of the environmental assessment and development approval issued in 2010 by the Environmental Protection Administration of the Executive Yuan of Taiwan to the third phrase development area in the Central Taiwan Science Park (the “Project”). On August 8, 2014, the Plaintiffs reached a settlement with the defendants (i.e. the governmental authorities, including the Environmental Protection Administration of the Executive Yuan of Taiwan, the Ministry of Science and Technology (former National Science Council of the ROC Executive Yuan) and the Central Taiwan Science Park Development Office) in the Taipei High Administrative Court. The second phase environmental impact assessment for the Project continues to proceed. Primarily in light of the settlement and based on the principle of protection of reliance under the Administrative law and in light of the relevant approvals issued by the government to the Company, currently management does not believe that this event will have a material adverse effect on the Company’s operation and will continue to monitor the development of this event.

13. Segment Information

(1) Operating segment information

The Company has two operating segments: display and solar. The display segment generally is engaged in the research, development, design, production and sale of flat panel displays and most of our products are TFT-LCD panels. The solar segment primarily is engaged in the design, manufacturing and sale of ingots, solar wafers and solar modules, as well as providing technical engineering services and maintenance services for solar system projects.

Segment results are excluding non-operating income and expenses and income tax expense (benefit). There are no differences between the consolidated financial statements for the years ended December 31, 2016 and 2015 with the financial results received by the Company’s chief operating decision maker. The accounting policies for the operating segments are the same as those used in preparation of the consolidated financial statements of the Company. The Company uses the net revenue, profit (loss) from operations and segment profit (loss) excluding depreciation and amortization as the basis of segment performance assessment.

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Net revenue from external customers $ Segment profit (loss) $ Other income and expenses Consolidated profit before income tax Segment profit (loss) excluding depreciation and amortization $ Segment assets Net revenue from external customers $ Segment profit (loss) $ Net non-operating income and expenses Consolidated profit before income tax Segment profit (loss) excluding depreciation and amortization $ Segment assets (2) Geographic information a. Net revenue from external customers	For theyear	ended December 31, 2016 Solar Total segments (in thousands) 24,262,354 329,089,036 (365,092 )12,338,456 (1,152,554 ) $ 11,185,902 1,467,718 52,031,696 $ 429,769,251 ended December 31, 2015 Solar Total segments (in thousands) 26,954,200 360,346,494 (1,704,804 )17,521,148 (9,922,298 ) $ 7,598,850 1,250,970 65,266,997 $ 425,554,245
	Display 304,826,682 12,703,548 50,563,978 For theyear
	Display 333,392,294 19,225,952 64,016,027

		For the years	ended
		December	31,
		2016	2015
Region		(in thousands)
PRC (including Hong Kong)	$	115,110,137	123,476,526
Taiwan		104,059,325	119,626,443
Japan		33,346,041	37,903,886
Singapore		31,776,305	30,210,618
Malaysia		9,168,062	10,455,953
Others		35,629,166	38,673,068
	$	329,089,036	360,346,494

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

b. Consolidated noncurrent assets [(][i] [)]

	December 31,	December 31,
	2016	2015
Region	(in thousands)
Taiwan	$ 160,109,961	171,624,019
PRC (including Hong Kong)	68,356,214	43,123,629
Others	15,383,473	17,185,024
	$ 243,849,648	231,932,672

(i) Noncurrent assets are not inclusive of financial instruments, deferred tax assets, and prepaid pension.

(3) Major customer information

Customer A $	For	theyears ended December 31, % of consolidated net revenue 2015 % of consolidated net revenue (in thousands) 11 42,173,089 12
	2016 37,306,348	% of consolidated net revenue 2015 (in thousands) 11 42,173,089

(4) Product information

Information of the Company’s consolidated net revenue from external customers was as follows:

	For the years ended	For the years ended
	December 31,
	2016	2015
	(in thousands)
Products for Televisions	$ 140,519,923	159,534,820
Products for Mobile PCs	52,721,494	52,488,064
Products for Mobile Devices	14,170,637	23,622,445
Products for Monitors	44,668,054	48,234,547
Products for Commercial and Other Applications	43,561,918	40,741,401
Others(ii)	33,447,010	35,725,217
	$ 329,089,036	360,346,494

(ii) Others include sales of solar-related products, raw materials, components and from service charges.

AI assistant

AUO — Annual Report 2016

52062_rns_2016-11-11_27b4fad8-cd09-4c6c-8554-f33cd0286797.pdf

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Financial Statements

Representation Letter

Independent Auditors’ Report

Opinion

Basis for Opinion

Key Audit Matters

Impairment of long-term non-financial assets (including goodwill)

Description of key audit matter:

How the matter was addressed in our audit:

Recognition of deferred tax assets

Description of key audit matter:

How the matter was addressed in our audit:

Revenue recognition

Description of key audit matter:

How the matter was addressed in our audit:

Other Matters

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

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars, except for earnings per share)

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

AU OPTRONICS CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the years ended December 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars, unless otherwise indicated)

1. Organization

2. The Authorization of Financial Statements

3. Application of New Standards, Amendments and Interpretations

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

a.

IFRS 9, Financial Instruments

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

c. IFRS 16, Leases

4. Summary of Significant Accounting Policies

(1) Statement of compliance

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2) Basis of preparation

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4) Foreign currency

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(b) Available-for-sale financial assets

(c) Receivables

(ii) Impairment of financial assets

AU OPTRONICS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(iii) De-recognition of financial assets

b. Financial liabilities

AU OPTRONICS CORP. AND SUBSIDIARIES

AUO Annual Report 2016