2634 Aerospace Industrial Development Corporation Annual

2634

Aerospace Industrial Development Corporation

Annual Report 2014

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

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

Spokesperson and Deputy Spokesperson Information

Spokesperson ：Nan-Juh Lin Tel ：886-4-22842881

Title ：Senior Vice President E-mail ：[email protected]

Deputy Spokesperson ：Shiu-Chun Du Tel ：886-4-22842881

Title ：Director E-mail ：[email protected]

Headquarter, Branch and Plant Address and Telephone, and Website Information Taichung Complex (I) ：No.2, Hanxiang Road, Xitun District, Taichung City / Tel: 886-4-27020001

Taichung Complex (II) ：No.1, Hanxiang Road, Xitun District, Taichung City / Tel: 886-4-27020001

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

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

Stock Transfer Agent Information

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

Auditors’ Information

Deloitte & Touche Name ：Done-Yuin Tseng, Ted Cheng Address ：27F., No. 218, Sec. 2, Taiwan Boulevard, West District, Taichung City Website ：http://www.deloitte.com.tw Tel ：886 -4-23280055 Overseas Securities Exchange Information: N/A i AIDC’s Core Values

Accountability

Inno vation

Dedication Customer Orientation

We Keep Our Words

Fulfill “Total Quality Management”

Build “Customer Satisfaction”

Pursuit “Reasonable Profit” Assure “Sustainable Operation”

Contents UPage

Letter to Shareholders 1 Operational Highlights 48

Company Profile 3 Financial Information 63

Corporate Governance Report 4 Review of Financial Conditions,

Capital Overview 43 Operating Results, and Risk

Management 101

Special Disclosure 109

I. Letter to Shareholders Dear Shareholders,

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

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

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

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

FY 2014 Operation Highlights

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

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

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

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

Credentials and Awards ＊Won the “Supplier of the Year Award” by Sikorsky Aircraft United Technologies Corp. in March 2014. ＊Won the “Supplier of the Year Award” by American Helicopter Society in May 2014. ＊Won the trophy of Performance Excellence Award 2013 by Boeing Company in May 2014. AIDC has won this award for 3 consecutive years. ＊Won the trophy of Performance Excellence Award 2014 by Boeing Company in February 2015. AIDC has won this award for 4 consecutive years. ＊Gang Shan Complex won the Distinguished Award of “2014 Energy Saving and Carbon Reduction” label presented by Environmental Protection Administration on January 23 2015.

Business Plan in FY 2015

Business Development Planning ＊ In the area of defense business, AIDC seeks to successfully upgrade the performance of the jet fighters in desired quality on schedule, and to make effort for securing orders for the maintenance of different types of aircraft and the manufacturing of advance and lead-in trainers with domestic resources or through international cooperation. ＊ In the area of civil aviation, AIDC seeks to expand its production capacity and vendor system for more business in the adding of high value for parts and components of aircraft segments and engines. ＊ In the area of industrial technology service, AIDC will extend its momentum of aerospace technology to disasters prevention and rescue, to atmospheric testing and measurement service, to support the national objective of energy saving and carbon reduction, and to expands in the business of green energy.

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

▲ Optimization of financial structure ▲ Upgrade the competitive power of composite materials ▲ Satisfaction of customer value ▲ Launch the lean activity of production ▲ Refinement of core business process ▲ Planning and advocacy of the vital energy buildup

▲ Vitalization of human resources and ▲ Fortify the supply chain and integration with outsourced strengthening of core competence contractors ▲ Conduct of Corporate Social Responsibility

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

May I wish you all good luck and good health.

Chairman Jung-Hsin Liao

II. Company Profile

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

III. Corporate Governance Report 1. Organization 1.1 Organization Chart Board of Directors Chairman

Executive Auditing

CEO

Defense Industry Civil Aviation Engineering/QA/ Engine and Power Administration System System Procurement System System System

1.2 Major Corporate Functions

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

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

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

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

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

2. Directors, Supervisors and Management Team 2.1 Directors and Supervisors March 31, 2015 Executives, Directors or Spouse & Shareholding Nationality/ Date First Shareholding when Current Supervisors who are Title Date Minor by Nominee Country of Name Term Elected Elected Shareholding Experience/Education Other Position spouses or within two (Note 1) Elected Shareholding Arrangement Origin (Note 2) degrees of kinship Shares % Shares % Shares % Shares % Title Name Relation MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 Military Strategy Advisor to the Chairman, AIDC. President of the ROC; Vice Chief of General Staff, Ministry of National Defense; Administrative Deputy Minister of Ministry of National Defense; Chairman Representative: March 2, March 2, Commander, Air Defense Missile R.O.C Liao, Jung-Hsin 4M 00.00 00.00 0 0 0 0 －－－ 2015 2015 Command, General Staff Headquarters, (Note 3) Ministry of National Defense; War College of National Defense University; General Staff College of National Defense University; Air Force Academy. MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 VP, AIDC; CEO, AIDC; CEO, National Defense and Technology Director, Taiwan Executive Division, AIDC; Aerospace Industry Director Representative: October March 26, Deputy Director, Aeronautical System, Association; R.O.C 8M 71,921 0.01 71,921 0.01 0 0 0 0 －－－ Hsu, Yen-Nien 17, 2014 2012 National Chung-Shan Institute of Director, Metal Science and Technology; Industries Research & Department of Aeronautics, Chung Development Centre. Cheng Institute of Technology. MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 Director of Personnel Office, Associate Professor, Director-General, Chairman of Department of Department of Aerospace Engineering, Aerospace Engineering, Director Tamkang University; Tamkang University. Representative: October June 25, R.O.C 8M 00.00 00.00 0 0 0 0 Member of ICAS; －－－ Wan, Tung 17, 2014 2012 Director, Airworthy Validation Center, MOTC; PhD, Aerospace Engineering, University of Texas at Arlington, USA.

Executives, Directors or Spouse & Shareholding Nationality/ Date First Shareholding when Current Supervisors who are Title Date Minor by Nominee Country of Name Term Elected Elected Shareholding Experience/Education Other Position spouses or within two (Note 1) Elected Shareholding Arrangement Origin (Note 2) degrees of kinship Shares % Shares % Shares % Shares % Title Name Relation MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 Professional staff of Department of Executive Secretary, Commerce, MOTC; Petitions and Appeals Professional staff of International Commission, MOEA. Director Cooperation Dept, MOEA; Representative: October June 25, R.O.C 8M 00.00 00.00 0 0 0 0 Deputy Director, Intellectual Properties －－－ Pao, Chuan 17, 2014 2012 Bureau, MOEA (formerly Central Standardization Bureau); LLM, Comparative Legal Studies, University of Miami. MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 Chief of Branch No. 5, State-Owned Chief of Branch No.2, Director Representative: Enterprise Commission, MOEA; State-Owned Enterprise October October 17, R.O.C Chien, 8M 00.00 00.00 0 0 0 0 Master, Institute of Land Commission, MOEA; －－－ 17, 2014 2014 Feng-Yuan Administration Studies, National Cheng Directors, Tang Eng Iron Chi University. Works, Co., Ltd. MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 Chairman, Aerospace Industrial Technician, Chemical Director Representative: October October 17, Development Enterprise Union in Engineering, AIDC. R.O.C 8M 53,579 0.01 53,579 0.01 0 0 0 0 －－－ Tso, Ao-Nan 17, 2014 2014 Taichung; Shu Deh Industrial Vocational School. MOEA October R.O.C 8M July 1, 1996 415,345,402 45.73 415,345,402 45.73 N/A N/A N/A N/A －－－－－ (Note 2) 17, 2014 Supervisor, Executive Secretary, Professional technical Executive Director, Aerospace staff, Labor Safety and Director Representative: December February 6, Industrial Development Enterprise Environmental R.O.C Yu, Cheng-Te 6M 60,863 0.01 60,863 0.01 0 0 0 0 －－－ 23, 2014 2013 Union in Taichung; Protection, AIDC. (Note 3) Master degree, Yun Lin University of Science and Technology. National Defense Industry April 3, April 3, R.O.C 14M 2,670,078 0.29 2,670,078 0.29 N/A N/A N/A N/A －－－－－ Development 2014 2014 Foundation Director Director, Military Planning Department , Administrative Deputy Representative: October October 28 , Ministry of National Defense; Minister of Ministry of R.O.C Kao, Tien-Chung 8M 00.00 00.00 0 0 0 0 －－－ 28, 2014 2014 Executive Officer, War Room, Ministry National Defense. (Note 4) of National Defense;

Executives, Directors or Spouse & Shareholding Nationality/ Date First Shareholding when Current Supervisors who are Title Date Minor by Nominee Country of Name Term Elected Elected Shareholding Experience/Education Other Position spouses or within two (Note 1) Elected Shareholding Arrangement Origin (Note 2) degrees of kinship Shares % Shares % Shares % Shares % Title Name Relation Chief of Staff, Naval Command; Director, Combat Training Department, Naval Command; War College, National Defense University; Naval Academy, Ministry of National Defense. Professor, National Taipei University, Chairman, CDIB National Cheng Chi University, Shih Partners Investment Hsin University; Holding Corp.; Executive Executive Director, Taipei Agricultural Director, Taroko Textile and June 25, June 25, Products Co., Ltd.; Corporation; R.O.C Wu, Hsiu-Kuang 3Y 0 0 0 0 0 0 0 0 －－－ Independent 2012 2012 Deputy Major, Taipei City Government; Director, Kingfond Director Director of Civil Affairs Bureau, Taipei Corporation; City Government,; Supervisor, An Tie Bank; PhD., Political Science, University of Member, Compensation Rochester, USA. Committee, AIDC. Director, Secretary-General, Chairman, College of Department of Continuing Education, Management, Tung Hai Tung Hai University; University; Chairman, Department of Finance, Professor, Department Independent Chan, July 31, July 31, Tung Hai University; of Finance, Tung Hai R.O.C 11M 0 0 0 0 0 0 0 0 －－－ Director Chia-Chang 2014 2014 Chairman, Department of Finance and University; Banking, Providence University; Member, Member, Compensation Committee, Compensation Mobiletron Co., Ltd.; Committee, AIDC. DBA, National Chung Shan University. Member, Aviation Safety Commission, Secretary-General, Executive Yuan; China Aviation Executive Secretary, Emergency Development Response Center, Civil Aeronautics Foundation. Administration, MOTC; Independent October October 17, Chief of Logistics Supply, Civil R.O.C Hsu, Yung-Hao 8M 0 0 0 0 0 0 0 0 －－－ Director 17, 2014 2014 Aeronautics Administration, MOTC; Director, Aircraft Design and Manufacturing Airworthy Accreditation Centre; PhD, International Transportations, Cardiff University, UK. Executive June 25, October 28, VP in Finance, Chief Auditor, Deputy VP in Planning, China R.O.C Lin, Chung-Yi 3Y 0 0 0 0 0 0 0 0 －－－ Supervisor 2012 2008 Manager of Finance Division, China Steel Corporation.

Director that is an Institutional Shareholder of AIDC Main Shareholder of the Institutional Shareholder Ministry of Economic Affairs, MOEA None National Defense Industrial Development Foundation None (Note) Note: The foundation is a juristic institution.

Note 2: Upon privatization on 21 August 2014, MOEA transferred to the public more than one half of the company shares it held, the directors representing MOEA were discharged ipso facto. A re-election of directors was effected at the shareholders’ meeting on 17 Oct. 2014. Directors whose terms were discontinued thereby include; Director Tung Wan (discharged on March 12, 2014 and re-elected on April 3, 2014 ；discharged on August 21, 2014 and re-elected on October 17, 2014), Executive Director Yen-Nien Hsu and Director Chuan Pao (discharged on August 21, 2014 and re-elected on October 17, 2014), Director Cheng-Te Yu (discharged on August 21, 2014 and re-elected on December 23, 2014) . Note 3: Director Jung-Hsin Liao was appointed to replace Chieh-Tsen Liu as the authorized representative of MOEA on 2 March 2015, while Director Chen-Te Yu was appointed as

a MOEA representative on 23 Dec. 2014. Note 4: Director Tien-Chung Kao was appointed to replace Chieh-Tsen Liu as the authorized representative of NDIDF on 28 Oct. 2014. Note 5: In the process of privatization, Chieh-Tsen Liu, the 6th term of the Chairman of the Board, served as Director - authorized representative of the MOEA (25 June 2012 – 21 Aug. 2014); NDIDF (21 Aug. 2014 – 28 Oct. 2014); and the MOEA from 28 Oct. 2014 to 2 March 2015 when he was discharged.

Professional Qualifications and Independence Analysis of Directors and Supervisors: Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Independence Criteria (Note) Experience An Instructor or A Judge, Public Have Work Higher Position Prosecutor, Experience in the in a Department Attorney, Certified Areas of Number of Other Public Criteria of Commerce, Public Accountant, Commerce, Law, Companies in Law, Finance, or Other Finance, or Which the Accounting, or Professional or Accounting, or Individual is Other Academic Technical Otherwise Concurrently Department Specialist Who has Necessary for the 1 2 3 4 5 6 7 8 9 10 Serving as an Name Related to the Passed a National Business of the Business Needs Examination and Company Independent of the Company been Awarded a Director in a Public or Certificate in a Private Junior Profession College, College Necessary for the or University Business of the Company Chairman － Liao, Jung-Hsin Executive Director － Hsu, Yen-Nien Director － Wan, Tung Director － Pao, Chuan Director － Kao, Tien-Chung Director － Chien, Feng-Yuan Director － Tso, Ao-Nan Director － Yu, Cheng-Te Executive and Independent Director － Wu, Hsiu-Kuang Independent Director － Chan, Chia-Chang Independent Director － Hsu, Yung-Hao Executive Supervisor － Lin, Chung-Yi Supervisor － Chu, Yung-Fa Supervisor － Mao, Tai-Chi Note: Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company. 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.

8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law. 10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

2.2 Management Team April 24, 2015 Shareholding Managers who are Exercisable Nationality/ Spouse & Minor Date Shareholding by Nominee Spouses or Within Two Employee Title Country of Name Shareholding Experience/Education Other Position Effective Arrangement Degrees of Kinship Stock Origin Shares % Shares % Shares % Title Name Relation Options VP, AIDC; Director, Taiwan Aerospace CEO, National Defense and Industry Association; Technology Division, AIDC; Director, Metal Industries Chief Deputy Director, Aeronautical Research & Development February 3, System, National Chung-Shan Centre. Executive R.O.C Hsu, Yen-Nien 71,921 －－－－－－－－－ 2012 Institute of Science and Officer Technology; Department of Aeronautics, Chung Cheng Institute of Technology. Director of Civil Aircrafts Division, Deputy Director of Engineering Division, AIDC; Director of Engineering, Director of Inspectorate, Vice January 1, Defense System and Technology R.O.C Hsia, Kang 69,716 －－－－－－－－－－ President 2009 Division, AIDC; Logistics Staff Training Course, Air Force Engineering Academy; Department of Aeronautics, Chung Cheng Institute of Technology. Director, Engineering Division and Technology Service Division, AIDC; Vice January 1, Director, Metro Consulting MBA, Providence University; R.O.C Lin, Nan-Juh 70,482 －－－－－ Service Ltd. －－－－ President 2009 Bachelor of Aerospace Engineering, Tamkang University. Director, Defense System and Technology Management Division, Customer Service Division, Maintenance and Vice Director, AeroVision Avionics Avionics Division, Military R.O.C Chen, Yi-Min July 1, 2012 70,482 －－－－－ Inc. －－－－ President Aircraft Project Division, AIDC; Bachelor and Master of Aerospace Engineering, Chung Cheng Institute of Technology. Director, Production Division, Vice January 1, R.O.C Liu, Kuo-Ching 72,780 －－－－－ and Engine Division, AIDC; －－－－－ President 2014 Technical Specialist, Chieh-I

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

2.3 Remuneration of Directors, Supervisors, President and Vice Presidents 2.3.1 Remuneration of Directors December 31, 2014 / Units ：NT$ thousands ；% Remuneration Ratio of Total Relevant Remuneration Received by Directors who are also Employees Ratio of Total Base Remuneration Exercisable Compensation Compensation Salary, Bonuses, and Profit Sharing- Employee Compensation(A) Severance Pay(B) Bonus to Directors(C) Allowances(D) (A+B+C+D) to Net Severance Pay(F) Employee Stock Restricted ESO(I) (A+B+C+D+E+F+G) to paid to Allowances(E) Bonus(G) (Note 2) Income(%) Options(H) Net Income(%) Directors from Name Companies in an Invested Title Companies in Companies in Companies in Companies in Companies in Companies in Compa nies in Companies in Companies in (Note 1) Companies in the Company other the the the the the the the the the The The The The The The the consolidated The The company consolidated The The The than the consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated company company company company company company financial company financial company company company Company’s financial financial financial financial financial financial financial financial financial statements statements Subsidiary statements statements statements statements statements statements statements statements statements Cash Stock Cash Stock Liu, Jieh-Tsern 3,299 156 Chairman 1,590 0 0 0.26% 12,264 20,820 0 0 0 2.04% 12 (MOEA Rep.) (Note 3) (Note 3) Executive Hsu, Yen-Nien Director (MOEA Rep.) Wan, Tung Director (MOEA Rep.) Pao, Chuan Director (MOEA Rep.) Kao, Tien-Chung Director (NDIDF Rep.) Chien, Feng-Yuan Director (MOEA Rep.) Tso, Ao-Nan Director (MOEA Rep.) Yu, Cheng-Te Director (MOEA Rep.) Executive Hsia, Kang Director Chen, Si-Ming Director (MOEA Rep.) Ma, Chiu-Jung Director (MOEA Rep.) Chao, Ke-Da Director (MOEA Rep.) Hu, Yen-Nien Director (MOEA Rep.) Hsiao, Wei-Min Director (MOEA Rep.) Cheng, Yun-Peng Director (MOEA Rep.) Director Lin, Nan-Juh Tsao, Bao-Chang Director (MOEA Rep.)

Executive and Wu, Hsiu-Kuang Independ- ent Director Independ- Chan, Chia-Chang ent Director Independ- Hsu, Yung-Hao ent Director Independ- Hsu, En-De ent Director

Note 1：Executive Director Kang Hsia resigned on October 16, 2014, Director Si-Ming Chen resigned on March 12, 2014, Director Chiu-Jung Ma resigned on August 21, 2014, Director Ke-Da Chao resigned on August 21, 2014, Director Yen-Nien Hu resigned on August 21, 2014, Director Wei-Min Hsiao resigned on August 21, 2014, Director Yun-Peng Cheng resigned on August 21, 2014, Director Nan-Juh Lin resigned on October 16, 2014, Director Bao-Chang Tsao resigned on November 20, 2014, Independent Director En-De Hsu resigned on July 31, 2014. Note 2：The calculation base depends on the individual tenure. Note 3 ：The amount is accrued, and it hasn’t been issued.

Remuneration Paid to Directors

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

2.3.2 Remuneration of Supervisors December 31, 2014 / Units ：NT$ thousands ；% Remuneration Ratio of Total Remuneration (A+B+C) to Net Income (%) Compensation paid to Base Compensation(A) Bonus to Supervisors(B) Allowances(C) Supervisors from an Title Name Invested Company Companies in the Companies in the Companies in the Companies in the The The The The other than the consolidated consolidated consolidated consolidated Company’s Subsidiary company financial statements company financial statements company financial statements company financial statements

Executive Supervisor Lin, Chung-Yi 96 330 (Note 2) 0 0.023% 0 Supervisor Chu, Yung-Fa 71 257 (Note 2) 0 0.018% 0 Supervisor Mao, Tai-Chi 71 257 (Note 2) 0 0.018% 0 Lin, Yong-Fa Supervisor (Note 1) 19 56 (Note 2) 0 0.004% 0 Note 1 ： Supervisor Yong-Fa Lin resigned on March 12, 2014. Note 2 ： The amount is accrued, and it hasn’t been issued.

Remuneration Paid to Supervisors

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

2.3.3 Compensation of President and Vice Presidents December 31, 2014 / Units ：NT$ thousands ；% Ratio of Total Compensation Salary(A) Severance Pay(B) Bonuses and Profit Sharing- Employee Bonus Compensation Exercisable Employee Restricted ESO paid to the (Note1) Allowances(C) (D) (A+B+C+D) to Net Stock Options President and Income(%) Vice President Title Name Companies in Companies in Companies in Companies in the Companies in Companies in Companies in from an the the the consolidated the the the Invested The The The The company financial The The The Company company consolidated company consolidated company consolidated company consolidated company consolidated company consolidated financial financial financial statements financial financial financial other than the statements statements statements statements statements statements Company’s Cash Stock Cash Stock Subsidiary Chief Executive Hsu, Yen-Nien Officer Vice Hsia, Kang President 254 Vice 9,658 24,168 4,330 0 0 0 2.05% 0 0 0 0 24 Lin, Nan-Juh (Note 2) President Vice Chen, Yi-Min President Vice Liu, Kuo-Ching President Note 1 ：The calculation base includes the whole period of 2014. Note 2 ：The amount is accrued, and it hasn’t been issued.

Compensation Paid to President and Vice Presidents

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

Under NT$ 2,000,000 －－

NT$2,000,000 ~ NT$5,000,000 Yen-Nien Hsu As Left NT$5,000,000 ~ NT$10,000,000 Kang Hsia, Nan-Juh Lin, Yi-Min Chen, Kuo-Ching Liu As Left NT$10,000,000 ~ NT$15,000,000 －－ NT$15,000,000 ~ NT$30,000,000 －－ NT$30,000,000 ~ NT$50,000,000 －－ NT$50,000,000 ~ NT$100,000,000 －－ Over NT$100,000,000 －－ Total 5 As Left

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

A. The Ratio of Total Remuneration Paid by the Company and by all Companies included in the Consolidated Financial Statements for the Most Recent Two Fiscal Years to Directors, Supervisors, Presidents and Vice Presidents of the Company, to the Net Income Unit ：NT$ thousands 2013 2014 Year Companies in Companies in the consolidated the consolidated The company financial The company financial Identity statements statements (Note 1) (Note 1) Director fee 1,204 － 4,889 － Director fee in proportion to corporate earnings (%) 0.09 － 0.26 － Supervisor fee 251 － 1,157 － Supervisor fee in proportion to corporate earnings (%) 0.02 － 0.06 － Remuneration to the President and Vice Presidents 18,589 － 38,410 － Remuneration to the President and Vice Presidents in proportion to corporate earnings (%) 1.46 － 2.05 － Note 1 ：AIDC has no subsidiary. No consolidated financial statement was presented. Note 2 ：The remuneration listed refers to the total remuneration (A+B+C+D) in 2.3.1 .

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

3. Implementation of Corporate Governance 3.1 Board of Directors A total of 15 meetings of the board of directors were held in the previous period. Director and supervisor attendance was as follows:

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

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

attendance. Important notice: I. For particulars as stated in Article 14-III of the Securities and Exchange Act, and the adverse opinions and qualified opinions of other independent directors on the resolutions of the Board with record or declaration in writing, specify the date of the meeting, the session, the content of the motion, the opinions of all independent directors, and responses to the independent directors: No. II. The avoidance of conflict of interests of particular motions by the Directors, specify the names of the Directors, the content of the motions, the reasons for avoidance of the conflict of interest, and the participation in voting: Date of Board Reasons for the Session Content of the Motion Voidance of Conflict Voting of Interest The motion of the Independent Directors The 7th session of establishment of the Appointment of the Hsiu-Kuang Wu and En-Deh the 6th term of the Compensation Committee members of the Hsu recused from the meeting Board dated Compensation and the appointment of the and were not engaged in the 2014.01.20 committee members Committee discussion and voting of this motion. Chairman Jieh-Tsern Liu and The 9th session of Preliminary evaluation of the CEO Yen-Nien Hsu recused the 6th term of the annual evaluation of the Personal evaluation from the meeting and were Board dated Chairman and the CEO not engaged in the discussion 2014.07.31 and voting of this motion. Chairman Jieh-Tsern Liu and The 10th session of Final approval of the salaries CEO Yen-Nien Hsu recused the 6th term of the for the Chairman and the Personal salary from the meeting and were Board dated CEO not engaged in the discussion 2014.10.28 and voting of this motion. The motion of the payment Independent Directors The 4th special for the members of the Hsiu-Kuang Wu and En-Deh session of the 6th Compensation Committee Personal Hsu recused from the meeting term of the Board for presence in the meeting, remuneration and were not engaged in the dated 2014.03.03 review of motions and discussion and voting of this transportation motion. Independent Directors The 13th special The motion of appointment Appointment of the Chia-Chang Chan recused session of the 6th members of the of the Compensation from the meeting and were term of the Board Committee members Compensation not engaged in the discussion dated 2014.11.17 Committee and voting of this motion. III. The evaluation of the objective the Board in fortifying is function (e.g., the establishment of the Auditing Committee, enhance of transparency in disclosure) in current year and the previous years, and the pursuit of the objective: (I) Fortification of the function of the Board: AIDC has established 3 seats of independent directors. They all have the professional competence in accounting, financial analysis, and aviation safety and aerospace industry, and always provide sound and professional recommendations to the Board in the internal control systems, business, and financial topics. AIDC has established its “Parliamentary Procedure of the Board” in accordance with the “Regulations Governing Procedure for Board of Directors Meeting of Public Companies” as the regulation governing the Board. Record of attendance of the Directors to Board meetings is posted at MOPS. In addition, AIDC has also established an exclusive zone on its official website for disclosing important resolutions of the Board, and ensures related departments to protect and disclose vital information on AIDC operation and financial position. (II) Enhancement of transparency in disclosure: The financial statements of AIDC were audited and certified by the certified public accountants of Deloitte & Touché Taiwan. As required by law, AIDC has appointed designated personnel to disclose relevant areas of information, and made announcement on the revenue and financial reports and called for institutional investor conferences at regular intervals. AIDC has established a viable spokesman system to ensure the timely disclosure of vital information for the reference of the shareholders and stakeholders on the financial position and the operation of the Company.

3.2 Audit Committee （（（Attendance of Supervisors for Board Meeting ））） A. Audit Committee AIDC has mapped out the plan for the establishment and operation of the Auditing Committee in accordance with Financial Supervisory Commission Letter Chin-Kuan-Cheng-Fa-Zi No. 10200531121. The Auditing Committee will be formally established by January 1 2017. B. Attendance of Supervisors for Board Meetings A total of 15 meetings of the board of directors were held in the previous period. Supervisor attendance was as follows:

Title Name Attendance in Attendance Remarks Person Rate (%) Executive Lin, Chung-Yi 8 53.33 % Supervisor

Assumed office on April 3 2014. Supervisor Chu, Yung-Fa 13 100.00 % Required for presence in 13 sessions with 100.00% attendance.

Assumed office on April 3 2014. Supervisor Mao, Tai-Chi 10 76.92 % Required for presence in 13 sessions with 76.92% attendance.

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

3.3 Corporate Governance Execution Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” Deviations from “Corporate Implementation Status Governance Best-Practice Item Principles for TWSE/GTSM Listed Y N Abstract Companies” and Reasons I. Has the Company AIDC has established the “Corporate Governance No Significant established best practice Guideline for Aerospace Industrial Development Variation principles of corporate Corp.” and has uploaded the information to MOPS governance in accordance and the official website of the Company. with the “Best Practice Principles of Corporate Governance for TWSE/GTSM-listed Companies”? II. Shareholder structure and equity (I) Has the Company (I) AIDC has called for the General Meeting of No Significant established the internal Shareholders as required by law, and Variation procedures for responding responded to the opinions representing the to the suggestions, queries, equity holding of the shareholders one by one disputes, and legal actions and kept as minutes on record. The Company of the shareholders and has also established the spokesman system comply with the procedures and customer service hotline, and the in these matters? telephone and e-mail for access to the Supervisors, Spokesman and Deputy Spokesman.

(II) Has the Company kept the (II) AIDC has entrusted a share registration No Significant dominant shareholders in service agent for assistance in handling share Variation control, and the list of the registration, transfer and related matters for final shareholders of these the shareholders, and can keep the dominant shareholders on dominant shareholders of the Company in track? control and the list of the final shareholders of these dominant shareholders on track.

(III) Has the Company (III) AIDC has established related operation No Significant established and exercised procedures for risk control. Variation risk control between the Company and its affiliates and a firewall for such purpose?

(IV) Has the Company (IV) AIDC has established the “Aerospace No Significant established internal code Industrial Development Corp. Guidelines for Variation for the prohibition of the Materiality Management and the Prevention use of insider information of Insider Trade”, and has been passed by for securities trade before the Board of Directors. going public?

III. The organization and functions of the Board (I) Has the Board mapped out (I) AIDC has explicitly stated in the “Corporate No Significant a plan for the diversity of its Governance Guideline for Aerospace Variation

Deviations from “Corporate Implementation Status Governance Best-Practice Item Principles for TWSE/GTSM Listed Y N Abstract Companies” and Reasons members and properly Industrial Development Corp.” that all implemented the plan? members of the Board shall be qualified with the knowledge, skill and competence in performing their duties. For purpose of corporate governance, the Board shall be capable of making judgment on the operation, corporate management, crisis management, and possess industry knowledge, a broad view of the international market, leadership, and decision-making latitude.

(II) Has the Company (II) AIDC has already established the AIDC has not yet voluntarily established Compensation Committee, and is planning established various different types of functional for the establishment of the Audit types of functional committees further to the Committee. The Audit Committee will be committees. mandatory Compensation established by January 1, 2017 as required Committee? by Financial Supervisory Commission Letter Chin-Kuan-Cheng-Fa-Zi No. 10200531121.

(III) Has the Company (III) AIDC has not yet established the regulation AIDC has started to established the regulation governing the performance ev aluation of the study on the governing the evaluation of Board. institution of the performance of the Board, regulations. and has conducted routine evaluation on performance every year?

(IV) Has the Company (IV) AIDC selected renowned CPA firms and No Significant conducted routine auditors to conduct its audit. The audit plan Variation evaluation on the has been presented to the Supervisors for independence of the approval before execution. There is no external auditors? conflict of interest with the Company and the external auditors have strictly observed its independence. The related departments of the Company apply the CPA Independence and Suitability Survey to all the Directors and Supervisors every year, and the survey result is that the CPAs’ independence and suitability are appropriate.

Deviations from “Corporate Implementation Status Governance Best-Practice Item Principles for TWSE/GTSM Listed Y N Abstract Companies” and Reasons IV. Has the Company There is a special zone for investors on the web No Significant established channels for pages of the AIDC website. On the web page Variation communications with the marked “contact us”, the telephones and e-mails stakeholders, and has for contact with the Supervisors, spokesman, and reserved a special zone for deputy spokesman are provided. the stakeholders in the website with appropriate responses to the issues of corporate social responsibility concerned by the stakeholders? V. Has the Company entrusted AIDC has entrusted Fubon Securities for handling No Significant a professional share matters related to the General Meeting of Variation registration service agent Shareholders for handling matters related the General Meeting of Shareholders? VI. Disclosure (I) Has the Company installed (I) There is a special zone reserved for No Significant a website for disclosure of corporate governance on the AIDC website Variation its financial information and posting information for the viewing of the corporate governance stakeholders. There is also a link connecting information? to MOPS for disclosure of the financial information and corporate governance information on AIDC.

(II) Has the Company adopted (II) AIDC has designated personnel responsible No Significant other means of disclosure for the collection and disclosure of Variation (e.g., the installation of a information, and has installed a website in website in English, the English language. The spokesman system collection and disclosure of is in place as required for responding to information by designated relevant issues. The minutes of the personnel, materialization institutional investor conference have been of the spokesman system, posted at the website for viewing. minutes of the institutional investor conference posted at the website)? VII. Is there other vital (I) Employee rights and privileges and No Significant information that may help employee care: Variation to understand the pursuit 1. AIDC has established an industry labor of corporate governance by union and labor-management meeting as the Company (including but the platform for two-way communication not limiting to employee between the management and the labor. rights and privileges, 2. AIDC has also established an employee employee care, investor welfare committee for providing fringe relation, supplier relation, benefits for the employees. rights of the stakeholders, 3. Employment of the physically and continuing education of the mentally impaired for work. Directors and the (II) Investor relation: Supervisors, risk AIDC has disclosed information required for management policy, the disclosure at MOPS and the system of

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

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

3.4 Composition, Responsibilities and Operations of Compensation Committee 3.4.1 Professional Qualifications and Independence Analysis of Committee Members Meet One of the Following Professional Criteria Qualification Requirements, Together with at Least Independence Criteria (Note) Five Years Work Experience An Instructor A Judge, Public Have Work or Higher Prosecutor, Experience in Position in a Attorney, the Areas of Department of Certified Public Commerce, Number of

Commerce, Accountant, or Law, Finance, Other Public Law, Finance, Other or Accounting, Companies Accounting, or Professional or or Otherwise Remarks in which the Other Technical Necessary for Title Individual is Academic Specialist Who the Business of Concurrently Department has Passed a the Company 1 2 3 4 5 6 7 8 Serving as a

Related to the National Committee Business Needs Examination and Member of the been Awarded a Company in a Certificate in a Public or Profession Private Junior Necessary for the College, Business of the Name College or Company University Wu, Indenpendent Hsiu- 0 Director Kuang Indenpendent Hsu, 5 Director En-De Hsing, Other You- 0 Guang Note ：If Compensation Committee members, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate corresponding boxes: 1. Not an employee of the company or any of its affiliates. 2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares. 3. Not a nature-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under other’s names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, or any of the above persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as one of its top five shareholders. 6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company. 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof. 8. Not been a person of any conditions defined in Article 30 of the Company Law.

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

Attendance in By Attendance Title Name Person Proxy Rate (%) Remarks

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

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

(II) Has the Company (II) AIDC has organized online training program No Significant organized training in corporate social responsibility for the Variation programs in corporate employees, and advocates the ideas of social responsibility corporate social responsibility through the regularly? eNews column and routine meetings.

(III) Has the Company (III) The corporate management function of AIDC No Significant 27

Deviations from “Corporate Social Implementation Status Respo nsibility Best Practice Principles Item for TWSE/GTSM-listed Y N Abstract Companies” and Reasons established a designated is responsible for the advocacy of corporate Variation body (part-time body) for social responsibility and report to the Board the advocacy of corporate on the result at regular intervals. social responsibility with the appointment of a senior officer by the Board for handling related affairs with report to the Board on the progress?

(IV) Has the Company made a (IV) AIDC has established the “AIDC Human No Significant reasonable remuneration Resources Spending Management Guideline” Variation policy and integrated the and “AIDC Payroll Management Guideline”, employee performance and has integrated its performance evaluation evaluation system and its system and corporate social responsibility corporate social policy. In addition, AIDC has also established responsibility policy, and the “AIDC Criteria for Reward and has also established a Punishment” for fair and just reward and clear-cut reward and punishment. punishment system?

II. Environment for Sustainable Development (I) Has the Company (I) AIDC continues its effort in supporting the No Significant committed its effort in policy of the Environmental Protection Variation upgrading the efficient use Administration in making green purchase, of all resources and used advocacy of the recycling of metallic wastes recycled materials for and dumped water. In addition, AIDC has also mitigating the impact on supported the Bureau of Energy in its “Biogas the environment? Power Generation System Promotion Scheme” in assisting the advocacy of Biogas power generation in all counties and cities. In practice, the methanol gas generated from the dumps of the livestock farming industry was converted into electric power. This conversion helps to mitigate the impact on the environment.

(II) Has the Company (II) AIDC has been successfully passed the No Significant established suitable accreditation of ISO-14001 by SGS since Variation environmental December 1999, and has been accredited the management system ISO-50001 system by SGS in December 2013 relevant with its specific in energy management to ensure all industry feature? environmental management policies are in conformity to environmental protection policy of the Company.

(III) Has the Company paid (III) AIDC has explicitly stated its energy policy No Significant attention to the effect of and the content is elaborated below: Variation climate change on its 1. Continue to reduce the consumption of operation, and proceeds energy.

Deviations from “Corporate Social Implementation Status Respo nsibility Best Practice Principles Item for TWSE/GTSM-listed Y N Abstract Companies” and Reasons to the inspection of 2. Continue the upgrading of energy greenhouse gas, efficiency. establishment of energy 3. Continue to commit its effort in energy to saving and carbon achieve the energy objective and reduction, and standard. greenhouse gas emission 4. Duly abide applicable laws and other reduction strategy? requirements of energy. 5. Fully consider energy efficiency in the design of facilities and equipment, and related repairs. 6. Efficient purchase and the use of high-energy efficiency products and service.

III. Social Charity (I) Has the Company (I) AIDC will continue to enforce Labor Standards No Significant established related Act, Employment Service Act, Act of Gender Variation management policies and Equality in Employment, and other applicable procedures in accordance legal rules for the protection of the rights and with applicable legal rules privileges of the employees under law. and international conventions of human rights?

(II) Has the Company (II) AIDC has established different channels for No Significant established the filing complaints. Employees can file their Variation mechanism and channels complaints via the intranet, employee for the complaints of the concern system, labor union, employees and properly labor-management meeting, and designated managed the channels? channels. All complaints will be responded properly.

(III) Has the Company provided (III) AIDC has duly observed the laws and No Significant a safe and healthy work regulations governing health and safety Variation environment, and promulgated by the government and provided labor safety and provided the employees a healthy, safe, and health education for the clean work environment. In addition, the employees regularly? Company also organizes regular physical examination for general employees and special physical examination for employees engaged in special duties with follow up of the findings. In addition, training of CPR and AED, medication safety were provided and advocated. All plant sites have designed their own fire safety plans and conduct exercise drill in fire fighting. Training in all kinds of labor safety has also been provided.

(IV) Has the Company (IV) AIDC makes use of its intranet, labor union, No Significant developed the mechanism labor union representatives meeting, Variation for routine labor-management meeting, executive

Deviations from “Corporate Social Implementation Status Respo nsibility Best Practice Principles Item for TWSE/GTSM-listed Y N Abstract Companies” and Reasons communications with the meetings, and incentive meetings for employees and informed communications with the employees in order the employees of any to allow the employees understand the change in the operation operation performance of AIDC and any that may cause significant change in the operation. impact in reasonable means?

(V) Has the Company (V) AIDC reviews and trains competent people in No Significant established an effective key technical skills in accordance with the Variation scheme for helping the operation plan and development objective, employees in career and pools up reserve human resources in planning and management in accordance with the “AIDC development? Guidelines for the Development and Use of Management Personnel”.

(VI) Has the Company (VI) AIDC has explicitly stated the quality policy of No Significant established relevant “Comprehensive Quality Assurance and Variation policies and procedures Continuous Customer satisfaction”, and for complaints in research provided e-mail, customer satisfaction survey, and development, and customer visit and other channels for procurement, production, filing complaints. In addition, there is a operation, and service for 24-hour customer complaint response system the protection of the in place to protect the rights of the consumers? customers.

(VII) Has the Company followed (VII) AIDC is a manufacturer of aircrafts and No Significant applicable legal rules and related parts and components. Domestic Variation international standards in marketing of these products must be in the marketing and labeling conformity to the requirements of the of products and services? military of the ROC. For export sale marketing, products must be conforming to the accreditation standards of world-class aircrafts including D6-82479 of Boeing, AP2190 and GEAE S-1000 of Airbus, ASQR-01 of UTAC, SPOC, MITAC MRJ-SQC-01 of Honeywell, Alenia IAYC 05C, QPS100/200/300 of Bell, and QD 4.6-40 of Bombardier.

(VIII) Has the Company (VIII) Before entering into supply agreements with No Significant evaluated the suppliers the suppliers, AIDC will evaluate these Variation on their record of suppliers to ensure no record on impact on negative influence on the the environment and society. If AIDC environment and society discovers any supplier causing impact on the before engaging in environment and society in production, partnership with these manufacturing, and others after entering into suppliers? agreements, AIDC will discharge the agreements, return all goods and suspend their rights as suppliers and disqualifies them from the list of suppliers.

Deviations from “Corporate Social Implementation Status Respo nsibility Best Practice Principles Item for TWSE/GTSM-listed Y N Abstract Companies” and Reasons (IX) Do the agreements (IX) The principal clauses contained in the No Significant binding the Company agreements binding AIDC and its suppliers Variation and its major suppliers contain the following elements: AIDC shall contain the clauses that terminate or discharge the agreement in the Company may whole or in part on any violation of the terminate or discharge environmental protection laws and laws the agreements at any governing labor safety and health without time if the suppliers were compensation of any form to the supplier. found violation of its corporate social responsibility policy and has significant impact on the environment and society?

IV. Bolstering disclosure (I) Has the Company made AIDC duly follows the principle of transparency in No Significant disclosure on relevant disclosure, and has posted relevant and reliable Variation and reliable information information on corporate social responsibility at its related to corporate social official website and MOPS. responsibility at its official website or MOPS? V. If the Company has established the best practice principles of corporate social responsibility in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies”, specify the variation: AIDC has established the “AIDC Corporate Social Responsibility Best Practice Principles”, which is not significantly varied with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies”. VI. Any other vital information that helps to understand the conduct of corporate social responsibility: In the area of “social concern”: 1. AIDC duly observes the Labor Standards Act and the Act for Gender Equality in Employment and other applicable legal rules, treasures education and training of the employees, provides routine health examination, advocates the employee assistance system, and protects the physical and psychological health of the employees and their families. 2. Engagement in events of social concern such as “Good Neighbor”, “Aid for the Social Underprivileged and Charity Groups”, “Concern for the Social Misfortune School Children”. 3. Support the Central Weather Bureau in launching the “Chasing Typhoon Scheme” thereby watch typhoons that may influence Taiwan closely by reducing possible misjudgment of the path of these typhoons in an average of 78.6 km from 12 to 72 hours before hitting Taiwan. The accuracy rate for forecasting the correct path is 26.5%. These efforts help to reduce property damage and casualties. In 2014, AIDC launched 2 flights to watch Typhoons Matmo and Phoenix, and has launched 70 flights for chasing typhoons from 2003 to 2014. 4. Entered into the “Emergency Chartered Flight Delivery” agreement with Tung’s Taichung MetroHarbor Hospital to provide flight services for medical purpose after medical treatment between Taiwan and other offshore islands and international flight routes. In 2014, AIDC has accomplished 19 flight missions for emergency medical air transport services. This allows for integration between aviation and medical services so that the people can have better and viable healthcare service. VII. If the corporate social responsibility report has been accredited under specific standard of an accreditation agency, elaborate the detail: No.

3.6 Corporate Conduct and Ethics Implementation Deviations from Implementation Status “Ethical Corporate Management Best Practice Principles Item for Y N Abstract TWSE/GTSM-listed Companies” and Reasons I. The making of ethical corporate management policy and action plans (I) Has the Company explicitly (I) AIDC has established the “AIDC Ethical No Significant declared its policy, practices of Corporate Management Best Practice Variation ethical corporate management in Principles”, the “AIDC Management its internal code and external Personnel Code of Conduct”, and the documents, and the commitment “AIDC Guidelines for Management of of the Board and the Materiality and Prevention of Insider management for the realization Trade” for the effective pursuit of the of ethical corporate policy of ethical corporate management? management for the Directors and all corporate management personnel. The Chairman and President of AIDC have also explicitly declared and signed the ethical corporate management policy in the Chinese and English versions, and posted the policy in the intranet and official website of AIDC.

(II) Has the Company designed plans (II) AIDC has established the “AIDC No Significant for the prevention of unethical Employee Code of Conduct” with the Variation practices, and explicitly stated setup of telephone and e-mails for the procedure, guidelines, reporting on unethical practices. There penalty for violation and the is also a hotline number posted at the system of filing complaints with special section of the eNe ws column of proper implementation of the AIDC for reporting to Ministry of policy? Justice Agency Against Corruption.

(III) Has the Company taken (III) AIDC will dispatch designated No Significant preventive measures against personnel to supervise the Variation business activities with high risks procurement in excess of 1/10 of the of unethical practices or as stated amount required for announcement in Article 7-II of the “Ethical and conduct audit on the purchase. In Corporate Management Best addition, AIDC also conducts Practice Principles for questionnaire survey and visits for the TWSE/GTSM-listed Companies”? prevention of corruption. For business entailing high risks of unethical practice, AIDC conducts investigation on possible areas of trouble. For donation, the security function will review if it is in compliance with applicable laws.

II. Realization of business integrity (I) Has the Company assessed the (I) AIDC highly treasures business No Significant track of record of its integrity and has explicitly stated in all Variation counterparties in business business contracts that no offering of integrity and explicitly stated the commission, undue donations and gifts

Deviations from Implementation Status “Ethical Corporate Management Best Practice Principles Item for Y N Abstract TWSE/GTSM-listed Companies” and Reasons clauses of ethical practices in the and invitation to offering will be agreements with the permitted. In addition, AIDC also counterparties? restricts unethical suppliers to participate in the bidding for procurement with AIDC.

(II) Has the Company established a (II) AIDC has established the Security No Significant designated (part-time) body for Division directly supervised by the Variation the advocacy of business Chairman. This body is responsible for integrity directly under the the advocacy of business integrity and Board, and this body has the code of conduct of the employees , reported to the Board on the and it has reported on the status of status of enforcement regularly? enforcement regularly.

(III) Does the Company has the policy (III) The Security Division of AIDC visits HR No Significant for the avoidance of the conflict and Procurement functions of AIDC at Variation of interest in place and provides regular intervals for the education of appropriate channels for the the avoidance of the conflict of interest reporting of the conflict of and conduct self-review questionnaire. interest with proper pursuit of the policy?

(IV) Has the Company established a (IV) AIDC has established an accounting No Significant viable and effective accounting system and internal control system for Variation system and internal control the realization of ethical corporate system for the realization of management. Relevant departments ethical corporate management have performed their duties in subject to the routine audit of compliance with the aforementioned the internal audit function, or by systems. The auditing function will an independent certified public conduct regular or special audits on a accountant? selective basis as needed. AIDC has also retained certified public accountants to audit and certify the system and provide sound recommendation to ensure legality and security.

(V) Has the Company organized (V) AIDC has invited lawyers, public No Significant internal and external training prosecutors, judges and experts to give Variation in ethical corporate lectures and training in business management? integrity and ethical corporate management at least once a year. III. The running of the system for reporting unethical practices (I) According to the procedure for reward No Significant (I) Has the Company established and punishment of AIDC, those who Variation substantive system for reporting report on anything concerning and reward with channels for corruption or jeopardizing the rights of easy reporting on unethical AIDC the extent to which damage is practices, and has appointed caused, the reporting person will be designate person to deal with the rewarded. In addition, the person in target of reporting? charge of related operation can release

Deviations from Implementation Status “Ethical Corporate Management Best Practice Principles Item for Y N Abstract TWSE/GTSM-listed Companies” and Reasons a price as encouragement for the person under relevant guidelines for releasing prices and bonus. External parties who reported on unethical practice of the employees will also be rewarded. AIDC has appointed designated personnel to answer to reporting on unethical practice. The personnel for accepting reports and the method of contact will be posted at the AIDC website, all plant sites, and offices.

(II) Has the Company established (II) The investigation on report of No Significant related standards for unethical practices in AIDC is akin to Variation investigation on reported matters the practices in the Criminal Litigation and the confidentiality of the Act whereby the principle of reports? confidentiality and no disclosure is in effect. All participants in the investigations are required to keep strict confidence and protect human rights in the entire investigation.

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

3.7 If the Company has established corporate governance and related code, disclose the means of inquiry: AIDC has installed the “Corporate Governance” zone at the official website at http:// www.aidc.com.tw for disclosure of related rules and regulations of corporate governance. 3.8 Other Vital Information that Helps to Understand the Practice of Corporate Governance Better: None.

3.9 The Pursuit of the Internal Control System:

Aerospace Industry Development Corporation Statement of Declaration on Internal Control Date: January 29, 2015 Aerospace Industry Development Corporation has conducted internal audit in accordance with its Internal Control Regulation covering the period from January 1 to December 31 2014, and hereby declares as follows: I. The Company acknowledges and understands that the establishment, enforcement and preservation of internal control system is the responsibility of the Board and the managers, and that the Company has already established such system. The purpose is to reasonably ensure the effect and efficiency of operation (including profitability, performance and security of assets), the reliability of financial reporting and the compliance with relevant legal rules. II. There is limitation inherent to internal control system, no matter how perfect the design. As such, effective internal control system may only reasonably ensure the achievement of the aforementioned goals. Further, the operation environment and situation may vary, and hence the effectiveness of the internal controls system. The internal control system of the Company features the self-monitoring mechanism. Once identified, any shortcoming will be corrected immediately. III. The Company judges the effectiveness of the internal control system in design and enforcement in accordance with the “Criteria for the Establishment of Internal Control System of Public Offering Companies” (hereinafter referred to as “the Criteria”). The Criteria is instituted for judging the effectiveness of the design and enforcement of internal control system. There are five components of effective internal control as specified in the Criteria with which the procedure for effective internal control is composed by five elements, namely, 1. Control Environment, 2. Risk Evaluation, 3. Control Operation, 4. Information and Communication, and 5. Monitoring. Each of the elements in turn contains certain audit items, and shall be referred to the Criteria for detail. IV. The Company has adopted the aforementioned internal control system for internal audit on the effectiveness of the design and enforcement of the internal control system. V. Basing on the aforementioned audit findings, the Company holds that has reasonably preserved the achievement of the aforementioned goals within the aforementioned period of internal control (including the monitoring over the subsidiaries), including the effectiveness and efficiency in operation, reliability in financial reporting and compliance with relevant legal rules, and that the design and enforcement of internal control are effective. VI. This statement of declaration shall form an integral part of the annual report and prospectus on the Company and will be announced. If there is any fraud, concealment and unlawful practice discovered in the content of the aforementioned information, the Company shall be liable to legal consequences under Article 20, Article 32, Article 171 and Article 174 of the Securities and Exchange Act. VII. This statement of declaration has been approved by the Board on January 29 2015 with the presence of 10 directors in common consent. Chairman: Jieh-Tsern Liu President: Yen-Nien Hsu

Aerospace Industry Development Corporation

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

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

3.11.1 2014 – 2015 Major Resolutions of Board Meetings Date Session Motions January 20, The 7th session of the 6th Employment of Vice President 2014 term of the Board Level-I function heads employment Appointment of certified public accountants for audit and certification of financial statements in FY2014 Declaration of internal control system in FY2013 Addition and amendment to essential internal regulations The establishment of the Compensation Committee and appointment of members March 3, The 4th special session of the Election of Directors and Supervisors to fill the vacancies 2014 6th term of the Board Lift the ban of the conflict of interest on the Directors and Supervisors elected to fill the vacancies The 1 st special session of the General Meeting of Shareholders in FY 2014 The payment for the members of the Compensation Committee on their attendance to meetings, review of motions, and transportation Amendment to essential internal regulations of the Company April 3, 2014 The 5th special session of the Financial report of AIDC in FY 2013 6th term of the Board Proposal for distribution of earnings in FY 2013 AIDC applies for listing in TWSE Appointment of the lead underwriter for distribution of shares during the underwriting period. The Company issues shares under the central depository system April 25, The 6th special session of the Calling for the regular session of the General Meeting in 2014 2014 6th term of the Board May 9, The 8th session of the 6th Amendment to the Internal Audit Plan for FY2014 2014 term of the Board Amendment to essential regulations of AIDC Election of independent directors to fill the vacancies Lift the ban of the conflict of interest on the independent directors elected to fill the vacancies Calling for the 2 nd special session of the General Meeting in 2014 June 4, 2014 The 7th special session of the Participation in bidding for business contracts 6th term of the Board June 30, The 8th special session of the Shares offering date in central depository system 2014 6th term of the Board Nomination of shareholders for candidacy of independent directors July 31, 2014 The 9th session of the 6th Amendment to the proposal for allocation of earnings to term of the Board cover loss carried forward in FY 2013 Preliminary evaluation of the performance of the Chairman and the President Addition and amendment to essential regulations of the Company August 21, The 9th special session of the Election of Executive Directors to fill the vacancies 2014 6th term of the Board Election of the new Chairman August 29, The 10 th special session of the Adjustment of the sessions of current term (6 th term) of the 2014 6th term of the Board Board of Directors Election of Directors to fill the vacancies Lift the ban of the conflict of interest on the Directors elected to the new term of office Amendment to essential regulations of AIDC Calling for the 3 rd special session of the General Meeting in 2014 Internal reassignment of the external auditors by the CPA firm. Level-I function heads employment September The 11 th special session of the Election of Directors (including 1 seat of independent 4, 2014 6th term of the Board director) to fill the vacancies

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

3.11.2 2014 Major Resolutions of Shareholders’ Meetings and Implementation Status Date Session Motions Action Status April 3, 2014 1st special session of Amendment to the Articles of All motions proposed in the General Meeting Incorporation the regular sessions Election of Directors and Supervisors to and special sessions of fill the vacancies the General Meeting in Lift the ban of the conflict of interest on FY 2014 have been the Directors resolved in due June 30, Regular session of the Ratification of the amendment to the procedure on record. 2014 General Meeting proposal of the allocation of earnings to The amendment to cover loss carried forward in FY2012 essential management Ratification of the operation review and regulations have also financial report for FY2013 been released and Ratification of the proposal of the announced in FY 2014 allocation of earnings to cover loss in accordance with the carried forward in FY2013 internal control system. July 31, 2nd special session of Election of 1 independent director to fill 2014 the General Meeting the vacancy Lift the ban of the conflict of interest on the Directors elected for the new term

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

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

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

4. Information Regarding Independent Auditors 4.1 Audit Fees

Brackets of the Service Charge for the Certified Public Accountants

Accounting Firm Name of CPA Period Remarks Deloitte & Touche Li-Tung Wu Ted Cheng 1st & 2 nd Seasons, 2014 Internal Rotation of the Deloitte & Touche Done-Yuin Ted Cheng 3rd & 4 th Seasons, 2014 CPA Firm Tseng Unit ：NT$ thousands

Item Audit Fee Non-audit Fee Total Bracket 1 Under NT$ 2,000,000 2 NT$ 2,000,000 ~ 4,000,000 3 NT$ 4,000,000 ~ 6,000,000 4 NT$ 6,000,000 ~ 8,000,000 4,277 2,831 7,108 5 NT$ 8,000,000 ~ 10,000,000 6 Over NT$ 10,000,000

Unit ：NT$ thousands

Accounting Audit Non-audit Fee Name of CPA Period Remarks Firm Fee System Company Human Others Subtotal Design Registr ation Resource (Note)

1.Certification of financial statements st nd amounted to NT$ 1 & 2 Li-Tung Wu, Seasons, 837 thousand. Ted Cheng 2014 2.Consulting fee for supervision of privatization and Deloitte & listing in TWSE in Touche 4,277 0 0 0 2,831 2,831 internal control review and

rd th documentation Done-Yuin 3 & 4 amounted to NT$ Tseng, Ted Seasons, Cheng 2014 1,804 thousand. 3. Service charge for audit on sales tax amounted to NT$ 190 thousand. Note ：For service charge beyond auditing service, itemize the detail. If the “miscellaneous” spending of service charges beyond auditing service accounted for 25% of the total service charge beyond auditing service, specify the content of the services in the space provided.

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

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

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

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

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

8. Related Party Relationship among AIDC’s 10 Largest Shareholders: Common Share As of 4 / 24 / 2015 (Last Record Date)

Spouse & AIDC Name and Relationship Current Shareholding Minor Shareholding between AIDC’s Remarks Name Shareholding by Nominee Shareholders Arrangement Relation- Shares % Shares % Shares % Name ship MOEA 415,345,402 45.73% N/A N/A - - - -

Representative ： ------Liao, Jung-Hsin Representative ： 71,921 0.01% ------Hsu, Yen-Nien

Representative ： ------Wan, Tung Representative ： ------Pao, Chuan Representative ： ------Chien, Feng-Yuan Representative ： 53,579 0.01% ------Tso, Ao-Nan Representative ： 60,863 0.01% ------Yu, Cheng-Te Fubon Fubon Life Insurance Fubon Financial’s 45,300,000 4.99% N/A N/A - - Insurance Subsidiary Co., Ltd. Co., Ltd. Company Responsible person ： ------Jheng, Ben-Yuan Cathay Life Insurance 23,773,000 2.62% N/A N/A - - - - Co., Ltd. Responsible person ： ------Tsai, Hung-Tu Mercuries Life 13,941,000 1.53% N/A N/A - - - - Insurance Co., Ltd. Responsible person ： ------Liu, Chung-Hsing Karst Peak Asia Master 10,698,000 1.18% N/A N/A - - N/A N/A Fund The New Labor 10,340,000 1.14% N/A N/A - - N/A N/A Pension Fund Nan-shan Life 9,335,000 1.03% N/A N/A - - - - Insurance Co., Ltd. Responsible person ： ------Guo, Wen-De Schroder International Selection Fund Asian 9,299,000 1.02% N/A N/A - - N/A N/A Smaller Companies Fubon Fubon Insurance Co., Fubon Life Financial’s 8,000,000 0.88% N/A N/A - - Insurance Ltd. Subsidiary Co., Ltd. Company Responsible person ： ------Gong, Tian-Sing Matthews Asia Small 7,541,000 0.83% N/A N/A - - N/A N/A Companies Fund

9. Proportion of Overall Shareholding: As of 12 / 31 / 2014 Ownership by Directors, Ownership by AIDC Managers and Total Ownership Direct Investment Directly/Indirectly Owned Subsidiaries Thousand Thousand Thousand Shares % Shares % Shares % ITEC LLC (Note) 22.05 －－ (Note) 22.05 AeroVision Avionics Inc. 4,968 13.09 －－ 4,968 13.09 Metro Consulting 300 6.00 －－ 300 6.00

Ownership by Directors, Managers and Ownership by AIDC Total Ownership Direct Investment Directly/Indirectly Owned Subsidiaries Thousand Thousand Thousand % % % Shares Shares Shares Service Ltd. Note ：a limited liability company without issuing shares. No information on quantity of shares is available.

IV. Raising of Capital

1. Capital and Shares 1.1 Source of Capital 1.1.1 Type of Capital March 31, 2015 ；Unit ：Shares Type of Authorized Share Capital Stock Issued Shares Unissued Shares Total Common 908,261,428 591,738,572 1,500,000,000 Stock

1.1.2 Capitalization 1.1.2.1 Changes in Capital Stocks in the Last 5 Years March 31, 2015 ；Unit ：NT$ thousands Issue Authorized Share Capital Capital Stock Remarks Month/ Price Capital Increase by Sources of Year (Per Shares Amount Shares Amount Assets Other than Others Capital Share) Cash Valuation in June, 10 1,500,000 15,000,000 905,591,351 9,055,913,507 Cash and NT$ 6,527,455,995 Note 1 1996 Assets Offset by June, 10 1,500,000 15,000,000 908,261,429 9,082,614,287 Rights to NT$ 26,700,780 Note 2 1999 Debt January, 10 1,500,000 15,000,000 908,261,428 9,082,614,280 Writing Less Note 3 2000 Note 1: As per Approval Letter Ji-Ching (85) Shang-Zi No. 109686 issued by the Executive Yuan on June 24, 1996, the Ministry of National Defense was approved to assign assets amounted to NT$ 9,055,913,447 as equity for investment for the establishment of Aerospace Industry Development Corp. together with the investment of six other companies, including Taiwan Power Corporation, a subsidiary of the Ministry of Economic Affairs, amounted to NT$ 10, which made up the total of NT$ 9,055,913,507 . Of the pool of investment, non-cash assets amounted to NT$ 6,527,455,995 were allocated, including fixed assets amounted to NT$ 6,526,751,995 and long-term investment amounted to NT$ 704,000 . Note 2: As per Approval Letter Ji-Ching (88) Shang-Zi No. 088118904, right to debt is permitted to offset the payment on the basis of the written instruction of the Executive Yuan on June 1, 1999, that supports the National Defense Industry Development Fund for the former Aerospace Industry Development Center under the Ministry of National Defense in the purchase of machinery and tools had residual value of NT$ 26,700,780 , and shall be allocated as capital stock for AIDC in the budgeting procedure. Note 3: As per Approval Letter Ji-Ching (089) Shang-Zi No. 089102830 dated January 28, 2000, capital stocks amounted to NT$ 9,082,614,287 were approved for registration of writing less in 2000 as NT$& is less than the value of 1 share.

1.1.2.2 Raising Capital by Private Placement of Common Shares in the Last 3 Years: No. 1.2 Composition of Shareholders Common Share As of 4 / 24 / 2015 (Last Record Date) ；Units ：person/shares/% Foreign Domestic Type of Government Financial Other Juridical Institutions Natural Total Shareholders Agencies Institutions Persons & Natural Persons Persons Number of 1 15 125 20,732 85 20,958 Shareholders Shareholding 415,345,402 112,337,000 63,176,861 226,138,660 91,263,505 908,261,428 Holding 45.73% 12.37% 6.95% 24.90% 10.05% 100.00% Percentage(%)

1.3 Distribution Profile of Share Ownership Common Share As of 4 / 24 / 2015 (Last Record Date) Shareholder Ownership (Unit: Share) Number of Shareholders Ownership Ownership(%) 1 ~ 999 344 75,431 0.01%

1,000 ~ 5,000 15,050 28,982,815 3.19%

5,001 ~ 10,000 1,527 13,113,666 1.44%

10,001 ~ 15,000 399 5,259,905 0.58%

15,001 ~ 20,000 412 7,827,854 0.86%

20,001 ~ 30,000 529 13,864,344 1.53%

30,001 ~ 50,000 935 38,069,583 4.19%

50,001 ~ 100,000 1,518 93,202,451 10.26%

100,001 ~ 200,000 91 12,990,307 1.43%

200,001 ~ 400,000 61 18,442,460 2.03%

400,001 ~ 600,000 28 13,640,042 1.50%

600,001 ~ 800,000 13 9,717,500 1.07%

800,001 ~ 1,000,000 6 5,486,000 0.60%

1,000,001 ~ 2,000,000 16 22,502,000 2.49%

Over 2,000,001 29 625,087,070 68.82%

Total 20,958 908,261,428 100.00%

1.4 Major Shareholders Names, quantity and proportion of shareholding by shareholders holding more than 5% of the shares or the top 10 shareholders by proportion of shareholding: Common Share As of 4 / 24 / 2015 (Last Record Date) Shareholders Total Shares Owned Ownership(%) MOEA 415,345,402 45.73% Fubon Life Insurance Co., Ltd. 45,300,000 4.99% Cathay Life Insurance Co., Ltd. 23,773,000 2.62% Mercuries Life Insurance Co., Ltd. 13,941,000 1.53% Karst Peak Asia Master Fund 10,698,000 1.18% The New Labor Pension Fund 10,340,000 1.14% Nan-shan Life Insurance Co., Ltd. 9,335,000 1.03% Schroder International Selection Fund Asian Smaller 9,299,000 1.02% Companies Fubon Insurance Co., Ltd. 8,000,000 0.88% Matthews Asia Small Companies Fund 7,541,000 0.83%

1.5 Net Worth, Earnings, Dividends, and Market Price Per Common Share Units ：NT$ dollar/shares 2013 2014 1/1/2015~3/31/2015 Item (Note 1) (Note 1) (Note 1) Market Price Highest Unlisted 42 38 Per Share Lowest Unlisted 25.15 35.6 (Note 2) Average Unlisted 35.45 36.57 Net Worth Before Distribution 9.25 11.33 11.79 Per Share After Distribution 9.25 (Note 8) － Weighted Average Shares (thousand shares) 908,262 908,262 908,262 Earnings Per Earnings Per Cum-right 1.40 2.06 0.47 Share Share (Note 3) Ex-right －－－ Cash Dividends － (Note 8) － Capitalization of －－－ Dividends Retained Earnings Stock dividend Per Share Capitalization of －－－ Capital Surplus Accumulated Undistributed Dividend (Note 4) －－－ Return on Price/Earnings Ratio (Note 5) Unlisted 17.21 － Investment Price/Dividend Ratio (Note 6) Unlisted (Note 8) － (Note 2) Cash Dividend Yield (Note 7) Unlisted (Note 8) － Note 1 ：The basis of comparison for FY2013, FY2014, and Q1 of FY2015 are the figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively. Note 2 ：AIDC stock has not yet been listed in TWSE (GTSM), therefore, no price market is available for reference. Accordingly, related ratios cannot be calculated. Note 3 ：If there is a change in the earnings per share from the cum-dividend to ex-dividend points of time due to the release of stock dividend, specify the value before and after the payout of dividend. Note 4 ：As a condition for the issuance of equity securities, any undistributed dividend accumulated to the year of surplus for dividend payout shall be disclose in as unpaid dividend cumulated for the current year. Note 5 ：Price/Earnings Ratio = Average Market Price/Diluted Earnings Per Share Note 6 ：Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share Note 7 ：Cash Dividend Yield = Cash Dividends Per Share/ Average Market Price Note 8 ：As the date on which the annual report is printed, the amount hasn’t been approved by the General Meeting. 1.6 Dividend Policy of the Company and the Implementation 1.6.1 Dividend Policy of the Company The Company’s Articles of Incorporation provide that the annual net income after paying income tax should be used first to make up for prior years’ losses, set aside 10% as a legal reserve and set aside a special reserve, but directors who also serve as executive officers of the Company are not entitled to receive bonus to directors. The residual earnings will be appropriated for (i) employee bonus of not less than 1% and not more than 8%; bonus to the directors and supervisors of not more than 1% and (ii) Any balance left over shall be allocated according to the following principles per resolution in the shareholders’ meeting: A. Profits may be distributed by taking financial, business, operational, or other related factors into consideration. B. Profits of the Company may be distributed by way of cash dividend and/or stock dividend. Since the Company is in a capital-intensive industry with steady growth in its current business, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend, provided however, the ratio for stock dividend shall not exceed 50% of total distribution. 1.6.2 The Proposal for Distribution of Dividend as Resolved in Current Session of the General Meeting

AIDC has corporate earnings of NT$ 1,871,503 thousand in FY 2014 of which NT$ 671,870 thousand were allocated to cover the loss carried forward with remainder of NT$ 1,199,633. The appropriations of earnings for 2014 had been proposed by the Company’s board of directors on March 20, 2015. The appropriations and dividends per share were as follows: (1) The appropriation of legal reserve: NT$ 119,963 thousand. (2) The appropriation of special reserve: NT$ 239,926 thousand. This pool of capital is reserved for the investment in fixed assets for upgrading production capacity. (3) Cash dividend is paid at NT$ 0.92/share which totaled NT$ 835,601 thousand. Note: The appropriations of earning are subject to the resolution in the shareholders’ meeting to be held on June 23, 2015. 1.6.3 Notes to Anticipated Significant Change in the Dividend Policy: None. 1.7 The Effect of Stock Dividend Planned to Release by Current Session of the General Meeting on the Operation Performance and Earnings per Share: None. 1.8 Employee Bonus and Remuneration to the Directors and Supervisors 1.8.1 The Percentage or Scope of Employee Bonus and Remuneration to the Directors and Supervisors Provided in the Articles of Incorporation When allocating the net profits for each fiscal year, except that the legal profit reserve has equaled the total capital of the Corporation, the Corporation shall first offset its losses in previous years and set aside a legal capital reserve at 10% of the profits left over; then set aside special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; and then set aside not more than 1% of the balance as bonus to the directors and not less than 1% and not more than 8% as bonus to employees of this Corporation. Directors who also serve as executive officers of this Corporation are not entitled to receive bonus to directors. 1.8.2 In the event of a discrepancy between the basis for the estimation of employee bonus and remuneration to the Directors and Supervisors, the calculation of the quantity of shares in the distribution of dividend and the actual amount distributed, the accounting of the discrepancy will be: For the year ended December 31, 2014, the bonus to employees was NT $ 67,179 thousand and remuneration to the directors and supervisors was NT $ 4,199 thousand. The estimation of distributions is based on related part in the Articles of Incorporation, the bonus to employees and remuneration to the directors and supervisors represented 8% and 0.5% of net income(net of the bonus and remuneration) after deductions to make up for losses in prior years, to set aside a legal reserve and to set aside a special reserve for the year ended December 31, 2014. The share dividend was not proposed in earning distribution category. If there is any difference between such estimated amounts and the amounts resolved by the General Meeting of Shareholders, the different amount will be adjusted in the year of the General Meeting of Shareholders. 1.8.3 Proposal for Distribution of Earnings Passed by the Board Pending on the Finalization of the General Meeting of Shareholders: (1) Employees’ cash/stock bonus and remuneration to the directors and supervisors ： Following amounts are approved by the board ： (A) employee bonus ：NT $ 67,179 thousand

(B) employee share dividend ：NT $ 0 (C) remuneration to the directors and supervisors ：NT $ 4,199 thousand The board resolved earning distribution proposal for 2014, and the total amount of employee bonus and remuneration to the directors and supervisors was NT$ 71,378 thousand. The amount was same as the one recognized as expense, therefore, the adjustment was not required. (2) Number of shares proposed as employee bonus and relative percentage to capitalized earnings ： No share dividend distribution to employees was proposed to the board. (3) Earnings per share after taking into account the proposed employee bonus and remuneration to the directors and supervisors ： Since employee bonus and remuneration to the directors and supervisors have been recognized as expenses, therefore, the estimation of earnings per share dosen’t change, which is NT$ 2.06 per share. 1.8.4 The difference between the remuneration to the Directors and Supervisors (including the quantity of shares, amount and stock price) of the previous fiscal period actually disbursed, and the recognized employee bonus, and remuneration to the Directors and the Supervisors, and explain the difference, if applicable, and cause of the difference and the response: For the year ended December 31, 2013, AIDC had deficits ；therefore, no distribution of earnings or accrual for bonus to employees and remuneration to the directors and supervisors was made. 1.9 Repurchase of Company Shares: None. 2. Corporate Bonds (including overseas corporate bonds): None. 3. Preferred Shares: None. 4. Participation in Issuance of Overseas Depository Receipts : None. 5. Employee Stock Options: None. 6. Restricted ESO: None. 7. Merger and Acquisition: None. 8. Issuance of New Shares through Acceptance of Assignment of Shares from other Issuers: None. 9. Capital Utilization Plan and Implementation of the Plan: None.

V. Operation Outlook 1. Business Content 1.1 Scope of Business 1.1.1 The Content of Principal Business Manufacturing and Maintenance of Airplanes and its Parts and Components Manufacturing and Maintenance of Engine and its Parts and Components Industrial Technology Services (energy, tracks, information and aviation service) 1.1.2 Proportion of Different Business Lines AIDC runs 3 categories of business, namely, “Maintenance of Airplanes and Vehiclas”, “Engines”, and “Industrial Technology Services” in the following proportions: Unit ：NT$ thousands 2013 2014 Product Category Amount % Amount % Maintenance of Airplanes and Vehicals (Note 1) 15,296,417 66.26 14,908,055 59.81 Engines (Note 2) 7,287,809 31.57 9,592,657 38.49 Industrial Technology Services 502,233 2.17 423,327 1.70 Total 23,086,459 100.00 24,924,039 100.00 Note 1: Airplanes and Vehicles Maintenance: including military and civilian planes and vehicles maintenance. Note 2: Engines: including military and civilian use engines. 1.1.3 Running Products (Services) of the Company AIDC runs the merchandises (services) for defense, civilian aviation and industrial technology services. Defense industry includes the manufacturing maintenance, and performance upgrade of domestic military aircrafts, commercial maintenance of air fleets, production of military hardware by private sector, and military aircraft engines. Civil aviation business includes the design and OEM production of aircraft physical structure and secondary assembly parts, and the design, processing and OEM production of international civilian aircraft engines and parts and components. Industrial technology services aim at the aviation service and the application of the R&D, design, manufacturing, testing, system integration, and post-delivery service deriving from aerospace technology capacity currently in service. 1.1.4 Development of New Products (Services) under Planning In the area of defense industry, AIDC plans to develop high performance trainer planes, the next generation jet fighter, and overall maintenance of the fighter jets in new models or fleets, private contractors for military hardware. In the area of civil aviation, AIDC plans to the parts and components under subcontracts of civilian planes and engines under risk diversification, expansion of the production of engine casing and overall maintenance of the engine. In the area of industrial technology, AIDC plans to develop green energy engineering, information service in medium to large technology service projects, and develop in the fields of engineering technologies, system integration, and supply chain management. 1.2 Industry Outlook 1.2.1 Industry Outlook and Development 1.2.1.1 Defense Industry In Taiwan, about 70% of the military planes are about to be retired from service in 10 years. Examples are the F-5 jet fighters, which have already been consumed to expire. For the AT-3 trainer

plane, it has been in service for 30 years. The replacement need of these fighter planes is clear. In addition, China has already deployed a new generation of advanced jet fighter along the straits, which posed a security threat to Taiwan. The defense budget has been on continuous the growth despite being up and down in recent years. The budget is set for supporting the upgrade of the performance of different types of jet fighters and for the replacement of advanced military trainer plane for maintaining the air defense power. The pursuit of the “recruitment” system instead of the conscription system, and the “yong gu scheme” of downsizing the military force would help to the growth of outsourcing business for the maintenance of military aircrafts in the private sector and the privatization of state-owned enterprises. 1.2.1.2 Civil Aviation Both Boeing and Airbus have forecast sustained growth in global air transportation in the future, with the air travelers turnover rate grown by 4.7% to 5.0% in the next 2 decades. New aircrafts featuring lightweight, fuel efficient, and low pollution will be the mainstream product in market. This also drives for new waves of replacement for new aircrafts by the aviation industry. Composite materials remained an indispensable part in the development. The table showing the forecast of the demand for new aircrafts is shown below with gravity at Asia-Pacific, which accounted for 37% ~40% of the world. Single-aisle plane would be the product of primary demand in market. The forecast of Boeing is shown in the table below. The sustained growth of passenger, cargo, and commercial jet liners also drive the growth of the demand for new engine.

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

Sources:

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

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

International Vertical Division of Labor in the Aerospace Industry Value Chain

Domestic and foreign final customers

Strategic alliance The whole International key aircraft Primary manufacturers aircraft Technology transfer manufacturers Mechanical Aircraft Power body Product supply

Subsystem

International key aircraft engine/power manufacturers Structure of thesections All oftypes Strategic alliance Mechanical

and parts subsystem manufacturers Avionic parts/ parts parts Product supply

Parts and compon ents Mechanicalparts and and components, components of components/part suppliers

materials/protogype materials/protogype International ke y parts and standard parts Avionic parts, part/prototype Strategic alliance

components, mechanical parts parts mechanical and componentsand extensions/ s/standard of all types of paints/raw parts andparts standard The structures, components suppliers Partsand materials parts/raw parts/raw Product supply Components/raw materials

the suppliers International key

Strategic alliance components/raw materials • O/I/D maintenance • Operation/maintenance suppliers • Product Support training • Training/ support/simulated • Logistics supply system assembly • Peripheral support system

Sources: complied by AIDC

In the area of aircraft manufacturing, Boeing, Airbus, and commercial plane manufacturer Bombardier are the manufacturers of the whole aircraft. GE, Rolls-Royce, Snecma, Pratt & Whitney, and Honeywell and their subsidiaries are major aircraft engine manufacturers. Only Boeing, Airbus and Bombardier have the capacity of assembling the whole aircraft engines and the whole aircrafts. AIDC is a key member of the global aerospace industry supply chain, and is the leader in the aerospace industry of Taiwan providing aircraft body parts and engine subcomponents and parts for the international aircraft market. AIDC has also established a complete network of supply for the speedy upgrading of the entire aerospace industry of Taiwan. AIDC takes orders from major international firms. Further to manufacturing and assembly at its Taichung, Sha Lu and Gang Shan Complex etc., AIDC outsources part of its operation to vendor firms for parts and components. The relation of the upper course, middle course, and lower course of the aerospace industries in Taiwan is shown in the chart below.

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

Body structure Engine Interior Avionics Subsystems

Air kitchen system Front Air inlet Navigation system Undercarriage system Middle Compressor Seat s Communication system Hydraulic system

Combustion Lighting system Dash board Rear Environment chamber system control system Emergency escape Wing Turbine Electric power system Cargo equipment Tail Gear box system Aviation control system Passenger entertainment system Internal Vendor system with AIDC as communication system the center provides Tier 2 of the international supply chain and system parts • Aircraft body structure vendor system Tier 3 parts and components • Engine parts and components vendor system • Tools vendor system

Sources: complied by AIDC

1.2.3 Different Development Trends of Products In national defense, most of the jet fighters are at the brink of retirement from service. As such, the Ministry of National Defense has budgeted for the purchase of new fighters for replacement, and for long-term maintenance and performance improvement of the jet fighters and trainer planes currently in service. Under the new policy of “recruitment” of armed forces instead of conscription, the maintenance of military aircrafts has been outsourced to private firms. This trend will be developed further in stable paces. In civil aviation, both Boeing and Airbus forecast that lightweight, fuel efficient and low pollution new aircrafts will be mainstream product in market. This will drive for further demand for replacement of new aircrafts in the aviation industry of which composite materials are an indispensable part of the development. The continued demand for passenger planes, cargo planes, and commercial jet liners will also stimulate for a higher demand in the engine market. In industrial technology service, AIDC supports the government policy of prevention of disasters prevails the relief after disasters and the national energy saving and carbon reduction, and intensifies its operation in aviation service for atmospheric testing and measurement in disaster prevention and energy technology service. 1.2.4 The Competition 1.2.4.1 Defense Business The improvement of the performance and subsequent maintenance of the IDF “Ching Kuo” and AT-3 trainer planes developed and made by AIDC give AIDC an edge in the competition. In addition, AIDC has already participated in and have experience of the maintenance of military aircrafts and military installation outsourcing for services in the private sector, which give AIDC additional momentum in the competition.

1.2.4.2 Civil Aviation Business Key aircraft and engine manufacturing in Europe and America adopted global division of labor in production and established the parts and components supply chain system. Currently, the newly emerged economies penetrated into the processing of particular part of aircraft and engine at very low price under the support of their governments. This poses a threat in the competition. For avoiding this kind of cutthroat competition, AIDC has already oriented towards the development of system parts and components and seek to engage in the value addition of aircraft segments and engine components, and proactively launched the operation of the center-satellite operation system so as to build up an edge in the competition. 1.2.4.3 Industrial Technology Service Business AIDC mainly use its aerospace technology on hand to provide this service. In supporting the government in the development of strategic industries and the demand for large-scale system engineering in the private sector, AIDC develops relevant products and services and has already have an edge in the competition.

1.3 Overview of Technology and R&D 1.3.1 The R&D expenses in the last 2 years are shown in the table below. In the future, more funding will be injected into R&D for fine-tuning the core competence: Unit ：NT$ thousands Item 2013 2014 R&D Expenditures 390,794 659,149 Net Revenue 23,086,459 24,924,039 % of Revenue 1.69% 2.64% 1.3.2 The technologies or products developed in FY 2014 are shown in the table below: Item Technology or Product Result Installation of the General The result has been applied to the rapid Purpose Track Driving transit system of Thailand. 1 Simulator Software Module Design Establishment of the processing cutting Upgrade the Technology for power under the application of NC 2 the Manufacturing of Thin program and the life span parameters of Engine Case the cutting knives. This has been successfully applied to parts production. Completed the production of turbo blade Establishment of Special and has been sent to the foreign customers 3 Process Application and for testing and validation. This success will Product Development Plan help to bring in new business. There are 6 projects in progress and have Lean Design of Mobile 4 demonstrated the result of cost reduction Production Line in operation. Completed the conversion of the manual Upgrade the Process Capacity stacking process to automatic stacking 5 of Composite Materials and process. In the future, it could be applied Refinement Plan to performance of program contract. 1.3.3 R&D Direction in the Future 1.3.3.1 Development of New Products: invest in the research and manufacturing of advanced trainer planes and jet fighters to meet defense needs.

1.3.3.2 Development of Critical Technology Upgrading: upgrade the design of aircraft structure composite materials and parts of non-composite materials, manufacturing, and assembly technology. Upgrade the capacity in the development of engine parts and components and production technology. Development of the capacity in logistics support and maintenance of aircraft. Upgrade and refinement of the core testing capacity of aircraft system. 1.3.3.3 Refinement of Production Process: refinement of the process for the production, assembly and automation of the parts and components for aircraft structures and engines. 1.4 Business Development Plans in the Long and Short Run 1.4.1 Defense Business 1.4.1.1 Short Run: upgrade the performance of all types of jet fighters in desired quality and on schedule, and seek maintenance contracts of all types of aircrafts fleets and the integration of self-developed models. 1.4.1.2 Long Run: seek the contract for the remodeling of the advanced trainer planes of the ROC air force and related business for the new generation jet fighters, develop the business for the commercial maintenance of all types of military aircrafts, shop maintenance and repairs and the repairs and maintenance work at 1st and 3rd Command. 1.4.2 Civil Aviation Business 1.4.2.1 Short Run : continue lean production and capacity expansion, and expand the scale of operation and bring in more business profit through joint call for customer orders or outsourcing for manufacturing. 1.4.2.2 Long Run: fortify the relation of the international supply chain system, and use the core technology and prowess to its entirety to expand value adding business. 1.4.3 Industrial Technology Service 1.4.3.1 Short Run : further development of the aviation service of atmospheric testing and measurement for the prevention of disasters and green engineering business. 1.4.3.2 Long Run: extend the application of aviation technology to support the development of national strategic industries and the demand of the large-scale engineering and industrial upgrading of the private sector, and assist the development of related industries and services. 2. Market and Industry Outlook 2.1 Market Analysis 2.1.1 The Regions and Targets of Sales (Supply) of Premium Products (Services): Product Category Area Customers Defense Domestic Ministry of National Defense, Ministry of Interior. Manufacturing of aircraft body: Aerospace manufacturing giant firms in Europe, America, and Japan, such as Boeing, Airbus, Bombardier, Bell Helicopter, Sikorsky, Alenia, Spirit, and Mitsubishi. Civil Aviation Foreign Engines: Engine manufacturing giant firms in Europe, America, and Japan, such as GE, Rolls-Royce, Snecma, Pratt & Whitney, and Honeywell. Industrial Technology National Aerospace Center, Taiwan Railway Corporation, Taipei Rapid Service Domestic Transit Corporation, Autolease Inc., Tung’s Taichung MetroHarbor

Hospital, Central Weather Bureau. Foreign Bangkok rapid transit system in Thailand. 2.1.2 Market Share 2.1.2.1 Defense Business AIDC has the capacity in full-range logistics support service of AT-3 and IDF and the advantage of the maintenance of the aforementioned aircrafts and engines, performance upgrade, and fleet maintenance. In addition, the advocacy of the Ministry of National Defense for outsourcing private contractors for the maintenance of different types of military aircraft and the government-owned and contract-operated military industry plants makes AIDC an indispensable supplier. 2.1.2.2 Civil Aviation Business AIDC has emerged as a strategic partner of major aerospace industrial firms of the world and is the leader of aerospace industry of Taiwan. AIDC has already been accredited for different parts and components in the aerospace industry and has good experience in international cooperation and mainly secure the contracts of renowned international giant firms. The international market is so big that the market share is conditioned by the sales of products of the giant firms. As such, there is no information on the market share of the parts and components in the aerospace industry available for reference. 2.1.2.3 Industrial Technology Service AIDC provides industrial technology service on the foundation of aerospace technology, and expands and applies the technology to tracks, automobile electronics, energy technology, and aviation service. However, the income from this business only account for about 1.7% of the revenue. As such, the shares in respective markets have not been estimated. 2.1.3 The Supply and Demand in the Market and Growth in the Future 2.1.3.1 Defense Business The use of jet fighters by the ROC Air Force and the combat need in the future will be associated with the combat power of the air force and the upgrade of the availability of the force. As such, AIDC has the opportunity for growth in the procurement of weaponry for the armed forces of ROC, the maintenance of different types of military aircraft, and the government-owned and contract-operated business. 2.1.3.2 Civil Aviation Business The forecast of international giant aerospace manufacturing firms such as Boeing, Airbus, Bombardier, Rolls-Royce and the professional assessors indicated stable growth in the volume of air traveling passengers and cargos in the future worldwide. This will drive the demand for aircrafts. As such, they are optimistic of the trend of development for the aerospace industry. In responding to the development trend of lightweight, energy and fuel efficient aircrafts in the aerospace industry, AIDC has invested in the TACC and engine casing center to med the strong demand in market. There is the opportunity for growth in the manufacturing of aircraft body and engine parts. 2.1.3.3 Industrial Technology Service Business The government makes positive effort in the advocacy of regenerated energy for environmental protection. As such, green engineering has the opportunity for further growth. The economic booming in Southeast Asia drives for more public installations and transportation

54 facilities. There is the opportunity for the growth of the mechanical and electrical integration. 2.1.4 Competitive Edge 2.1.4.1 Defense Business AIDC has the capacity in integrated design, manufacturing and logistics support in maintenance of the whole aircraft, and can help to extend the life span, upgrade the performance, research and manufacture of new jet fighters, commercial maintenance of military aircrafts, and the state-owned and private-run business. 2.1.4.2 Civil Aviation Business The years of joint venture with international giant firms enabled AIDC to establish world-class engineering design capacity in body structure, advanced composite materials, and avionics for civilian aircraft, and support the needs in the development of various business areas with flexible design of production process. AIDC has been accredited the ISO 9001 and AS9100 systems and the quality accreditation system of Boeing, Airbus, Bombardier, Sikorsky and Bell, and has developed positive partnership with the aforementioned aerospace giant firms. In the area of aircraft engine, the manufacturing technology capacity of engine casing of AIDC has been recognized by the international aircraft engines giant firms, and AIDC has been accredited the quality accreditation system of the area of aircraft engine as well. Currently, AIDC mainly manufacturing engine casing, and is engaged in essential partnership with the top 5 engine manufacturers including GE, Honeywell, Pratt & Whitney, Rolls-Royce of the UK, and Snecma in supply. 2.1.4.3 Industrial Technology Service Business AIDC has the experience of developing large-scale system, engineering integration technology and full capacity of performance. All personnel in testing, research and development, production and manufacturing are well-experienced. 2.1.5 Factors Favorable and Unfavorable for Development and the Response 2.1.5.1 Favorable Factors A. Maintenance of self-reliance in national defense that makes the aerospace industry a strategic industry in national development. B. The strong demand for new aircrafts worldwide makes Asia-Pacific region the biggest market for the aerospace industry. C. Light weight, fuel efficient, and low emission aircrafts and engines has emerged as the new trend. 2.1.5.2 Unfavorable Factors and Response A. The rise of the newly emerged economies posed a threat of low cost competition and displacement of purchase orders. Response AIDC will upgrade and refine the core capability of research and development, design and manufacturing, and launch the production lean process to further control cost, and to upgrade operation efficiency and enhance competitiveness. In addition, AIDC will keep abreast of the dynamics and development trend of the industry, lead the vendors to continue the investment in research and development, and win a higher position in the supply chain of the international aerospace industry supply chain, upgrade its technological know-how and production process to reduce cost, enhance competitive power, and reduce the risk of cut throat competition in the industry.

2.2 The Primary Purpose of Main Products and the Production Process 2.2.1 Primary Purpose Product Category Purpose Defense, combat training, civilian aircraft, civilian helicopters, aircraft Maintenance of Airplanes aviation control/navigation/monitoring, maintain normal and Vehicals operation/function of aircrafts/engines/avionics within the life span. Engines Engine for aircrafts, industrial use engines. Large-scale engineering system is applicable to national infrastructure, aerospace technology is applicable to the research and manufacturing Industrial Technology of high value addition industry and common household Services products/technology services to upgrade the industrial level of Taiwan.

2.2.2 Production Process Customer eProcess Market Satisfaction analysis Self inspection

Sales Production Process Production Materials Quality Project and take development planning procurement assurance performance orders manufacturing

Production Production Materials Production Quality Commercial Commercial engineering planning management line assurance projects Outsourcing Parts Industrial NDT & Lab planning Procurement manufacturing Military Military engineering projects Logistics Development and Development of Production Parts-inspection accreditation of control suppliers suppliers scheduling Supplier Production Quality audit management control

Finance and Corporate General Affairs and ESH management Human Resources Accounting Management IT

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

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

PEERLESS C.F.W. S.F.C. Finished items and PCC As per the request of the customers. standardized parts F.R.C. L.M.O.C. 2.4 The Names of the Customers Each Accounted for More than 10% of the Purchase (Sales) and the Amount and Proportion of Purchase (Sales) in any of the Last 2 Years, and the Reasons for the Changes. Use Code Names for Customer Name and Counterparty Required by the Agreements to Keep Confidential and these Parties are not Related Parties to AIDC. 2.4.1 The List of Customers Each Accounted for More than 10% of the Net Purchase in the Last 2 Years AIDC did not have any particular supplier in FY 2013, FY 2014 and Q1 of FY 2015 that accounted for more than 10% of the net purchase. 2.4.2 The List of Customers Each Accounted for More than 10% of the Net Sales in the Last 2 Years: Unit ：NT$ thousands/% 2013 2014 1/1/2015~3/31/2015 % of 2013 % of 2014 % of 2015 Relation Relation Relation Item Customer Amount Total Net Customer Amount Total Net Customer Amount Total Net to AIDC to AIDC to AIDC Revenue Revenue Revenue 1 A 9,506,008 41.18 None A 9,072,920 36.40 None A 1,828,272 31.31 None 2 B 3,522,356 15.26 None B 4,182,591 16.78 None B 1,074,029 18.39 None Others 10,058,095 43.56 Others 11,668,528 46.82 C 596,287 10.21 None Others 2,341,329 40.09 Net Net Net Revenue 23,086,459 100.00 Revenue 24,924,039 100.00 Revenue 5,839,917 100.00 Note 1: AIDC is in good relationship with the aforementioned 2 major customers and there has been no significant change in the last 2 years. Note 2: The aforementioned financial information is based on the approved figures of NAO for FY 2013 and on the audited figures of CPA for FY 2014 and FY 2015 Q1.

2.5 Production Volume and Value in the Last 2 Years: Unit ：NT$ thousands Year 2013 2014 Val. & Production Production Production Production Production Production Product Vol. Capacity Volume Value Capacity Volume Value Maintenance of Airplanes －－ 12,886,416 －－ 13,787,947 and Vehicles Engines －－ 6,994,728 －－ 8,417,489 Industrial Technology 385,116 329,313 Services －－－－ Total －－ 20,266,260 －－ 22,534,749 Note 1: The items for delivery included self-made parts, spare parts, support equipment, documents, software, and technology service. Due to the nature of the business, there are no standard items that make the estimation of production capacity and momentum. Note 2: The items of engines for delivery including backup items, service, OEM order for commercial use engines in foreign countries. Note 3: The aforementioned financial information is based on the approved figures of NAO for FY 2013 and on the audited figures of CPA for FY 2014.

2.6 The Sales Value and Volume in the Last 2 Years: Unit ：NT$ thousands Year 2013 2014 Val. & Product Vol. Domestic Foreign Domestic Foreign Qty Amount Qty Amount Qty Amount Qty Amount Maintenance of Airplanes and － 8,139,463 － 7,156,954 － 6,858,672 － 8,049,383 Vehicles Engines － 1,216,672 － 6,071,137 － 2,153,763 － 7,438,894 Industrial Technology Services － 441,024 － 61,209 － 375,788 － 47,539 Total － 9,797,159 － 13,289,300 － 9,388,223 － 15,535,816 Note 1: The items for delivery included self-made parts, spare parts, support equipment, documents, software, and technology service. Due to the nature of the business, there are no standard items that make the estimation of production capacity and momentum. Note 2: The items of engines for delivery including backup items, service, OEM order for commercial use engines in foreign countries. Note 3: The aforementioned financial information is based on the approved figures of NAO for FY 2013 and on the audited figures of CPA for FY 2014.

3. Employee Profiles in the Last 2 Years to the Date this Report was Printed 1/1/2015~ Year 2013 2014 4/24/2015 VP and higher 6 6 6 Level I Executives 23 22 20 Job Others 3,183 3,124 3,555 Total 3,212 3,152 3,581 Average Age (years) 50.7 50.9 49.3 Average Years of Service (years) 16.0 16.5 14.5 Ph.D. 0.6% 0.6% 0.5% Master’s 19.2% 20.1% 18.74% Bachelor’s 26.4% 26.1% 28.96% Education Other Higher Education 31.3% 30.8% 29.82% High School 21.5% 21.3% 21.03% Junior High and below 1.0% 1.1% 0.95%

4. Information on Expenditures for Environmental Protection In the last 2 years to the date this report was printed, the loss incurred from pollution to the environment and the total amount of penalty, with disclosure of the plan to tackle with the pollution problem and the possible expenditures:

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

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

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

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

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

4.3.2 From 2014 onward, AIDC conducts Resident Health Risk Evaluation and the examination report was sent to the Bureau of Health for further actions. 5. Labor-management Relation 5.1 Specify the Welfare Policy, Continuing Education, Training, and Retirement Systems and the Status of Implementation, Labor-management Coordination and the Measures for the Protection of the Rights and Privileges of the Employees 5.1.1 Welfare Policy of the Company 5.1.1.1 Welfare Policy: provide all employees with labor insurance, national health insurance and accident insurance with NT$4 million insured. General physical examination for all employees and special physical examination for employees engaged in special duties. Prices and awards are also offered. 5.1.1.2 Employee Welfare Committee: AIDC has established the Employee Welfare Committee in accordance with the Employee Welfare Fund Statue for coordination of all fringe benefits for the employees, supervise and advocate all group activities with subsidy. In addition, an annual budget has been prepared for the planning of welfare to subsidize employees in matrimony, funeral, sickness, maternity and paternity. Gifts were also granted on birthdays and festivities. Recreational activities, parent-children events, and group activities were organized for the employees as well. 5.1.1.3 Psychological health care has also been an essential policy of AIDC. For this reason, the Company has established the Employee Assistance System (EAS). The EAS integrates the resources of labor safety, human resources, psychological counseling, employee welfare and community to form a network of care. It provides timely aid to the employees by funding assistance for hospitalization, concern for the decease of employees and families, medical

expenses and major disasters. It also helps to launch the Employee Assistance Programs (EAPs) , including: concern and service for the new employees, personal or family counseling, balance between work and living, psychosocial health assessment, and assistance, concern for employees in sickness and injury and group support, concern for the employees at retirement. 5.1.1.4 The Regulation and Operation of the Committee Against Sexual Harassment: AIDC has instituted the guideline for filing complaints and punishment of sexual harassment at workplace, and has established a Sexual Harassment Complaints Committee in 2002 for the prevention of sexual harassment with positive effort. 5.1.1.5 Compliant Response Committee: AIDC has instituted the regulation governing complaints from the employees. This committee seeks to protect the legitimate rights of the employees and respond to the complaints thereof. This function helps to improve labor-management relation. 5.1.1.6 Creation of a Friendly and LOHAS Workplace: AIDC highly treasures the value and spirit of human right and equality of both sexes, and makes proactive effort in materializing such rights through its internal code for nurturing an environment of sexual equality. In addition, AIDC also employs social misfortunes and pursue safety and health management at workplace, bolster consensus and identification as a team, motivate the employees and enhance work efficiency for the creation of a workplace preferred by all employees. 5.1.2 Employee Training and Continuing Education AIDC highly values the development and training of good people, and has made “technology advancement, professional standing, learning by all, life-time education” as its training policy: 5.1.2.1 Employee Training: AIDC provides training for the employees through orientation of new employees and on-the-job training. The gravity of orientation for the new employees is the merge with AIDC culture and understanding and the job skills required for all duties at entry level. From the day of registration for duty, new employees have to undergo a training program of general duties and professional duties in line with the probation （from3 to 6 months ）. The training aims at developing the potential of the new employees to adapt to the new work environment and perform the assigned duties with competence. Current employees will receive internal and external training arranged in accordance with the corporate strategic objective, legal rules, organizational development, business contracts need, and career development of the employees, including corporate planning, lean management, inventory management, financial management, project management, contract negotiation, and other critical management skills, and also engineering development, production and manufacturing, production process, machinery processing, process control, quality inspection, aircraft maintenance, avionics repair and maintenance, aviation safety and related professional training. These skills would be essential to ensure all officers and employees of related business are competent for the duties. In addition, the focus of current year is to active development of 5 categories of engineer-class personnel in sales, project, 60

production and manufacturing, quality assurance, and engineering R&D, and foremen, totally 6 cateories of personnel and also foremen in their career development so that the gravity of core business in 2015 will be the strategic development and training of human resources. This will help to upgrade the quality of people and competitive power of the Company. 5.1.2.2 On-the-job Training: AIDC selects employees of good standing and with high potential to receive domestic and overseas full-time education or part-time education every year, and is engaged in cooperative education program with a number of universities. AIDC also subsidizes and encourages employees to engage in continuing education, participation in the test of foreign language proficiency, and get licensing of relevant technical skills. AIDC spares no effort to encourage employees to engage in lifetime learning, self-development and upgrade of professional standing at all times. 5.1.3 Employee Retirement Plan and Implementation 5.1.3.1 Retirement under the Old System A. According to the “AIDC Employee Retirement, Pension, and Layoff Guideline”, the pension for retirement of AIDC employees could be claimed from the account at the Bank of Taiwan. B. The “Employee Pension Reserve Monitoring Committee” was established pursuant to Article 56 of the Labor Standards Act. The “Employee Pension Reserve Monitoring Committee” convenes once every 3 months for reviewing and monitoring the contribution to pension fund and the balance of pension reserve for the employees. C. AIDC appoints an actuarial professional to conduct actuarial calculation on the pension fund, and allocates pension expenses for deposit at the special pension account at the Bank of Taiwan in compliance with legal requirements (allocation of 2~15%). 5.1.3.2 Retirement under the New System All employees under the new system are subject to the rules of the “Labor Pension Act” thereby contributing 6% of their monthly salary to their individual special pension accounts at the Labor Insurance Bureau. 5.1.4 Labor-management Agreement and the Pursuit of Policy for the Protection of Labor Rights 5.1.4.1 AIDC entered into a collective agreement with the labor union for the protection of labor rights and make labor-management relation more stable and harmonious in August 21 2014. 5.1.4.2 AIDC strongly attaches to the principle of labor-management harmony and the advocacy of labor-management cooperation thereby spares no effort to cultivate channels for communications with the employees for protecting their rights. In addition, AIDC also holds labor-management meetings pursuant to Article 83 of the Labor Standards Act and the “Regulations Governing Labor-Management Meetings” for building up consensus. 5.2 Loss Caused by Labor-management Disputes in the Last 2 years to the Date this Report was Printed AIDC always treasures labor-management harmony and there has been no significant loss

caused by labor-management disputes deriving in the last 2 years to the date this report was printed. It is expected that no significant loss may incur in foreseeable years from labor-management disputes. 6. Major Agreements Contracting Party Principal Content Airbus Commercial aircraft components and parts manufacturing program Alenia Commercial aircraft components and parts manufacturing program Bell Helicopter components and parts manufacturing program Boeing Commercial aircraft components and parts manufacturing program Bombardier Commercial aircraft components and parts manufacturing program GE Engine parts manufacturing program GKN Commercial aircraft components and parts manufacturing program Honeywell Engine parts manufacturing program KHI Commercial aircraft components and parts manufacturing program Latecoere Commercial aircraft components and parts manufacturing program MITAC Commercial aircraft components and parts manufacturing program Pratt & Whitney Engine parts manufacturing program Rohr, Inc Commercial aircraft components and parts manufacturing program Rolls-Royce Engine parts manufacturing program Sikorsky Helicopter components and parts manufacturing program Spirit Commercial aircraft components and parts manufacturing program GOCO (Government Owned, Contract Operated) program for 2nd Air Force Ministry of National Defense Logistic Command R.O.C. GOCO program for 11th Maintenance & Supply Group Enhancement and maintenance program for Indigenous Defensive Fighter

VI. Financial Position

1. Condensed Financial Statement Covering the Last 5 Years 1.1 Condensed Balance Sheet and Comprehensive Income Statement 1.1.1 Condensed Balance Sheet and Comprehensive Income Statement - IFRSs 1.1.1.1 Condensed Balance Sheet: Unit ：NT$ thousands Fiscal Year Financial Information Covering the Last 5 Years Title 2010 2011 2012 2013 2014 2015 Q1 Current Assets －－ 12,940,440 14,830,381 18,942,251 21,450,116 Financial Assets on the Basis of Cost – Noncurrent －－ 46,200 46,200 46,200 46,200 Investment Accounted for under the Equity Method －－ 239,031 304,107 482,193 491,811 Real Properties, Plants, and Equipment －－ 5,231,047 5,114,956 4,853,536 4,880,752 Intangible Assets －－ 1,012,225 830,455 339,894 386,159 Other Assets －－ 91,121 449,168 662,026 528,439 Total Assets －－ 19,560,064 21,575,267 25,326,100 27,783,477 Current Cum-dividend －－ 5,967,845 6,658,430 12,932,282 15,010,777 Liabilities Ex-dividend －－ 5,967,845 6,658,430 (Note 3) － Non-current Liabilities －－ 6,539,127 6,517,738 2,100,316 2,060,473 Total Cum-dividend －－ 12,506,972 13,176,168 15,032,598 17,071,250 Liabilities Ex-dividend －－ 12,506,972 13,176,168 (Note 3) － Shareholders’ Equity Attributable to the Parent －－ 7,053,092 8,399,099 10,293,502 10,712,227 Company Capital Stock －－ 9,082,615 9,082,615 9,082,615 9,082,615 Capital Surplus －－－－－－ Retained Cum-dividend －－ (2,010,992) (671,870) 1,199,633 1,623,060 Earnings Ex-dividend －－ (2,010,992) (671,870) (Note 3) － Other Equity －－ (18,531) (11,646) 11,254 6,552 Treasury Stock －－－－－－ Uncontrolled Equity －－－－－－ Cum-dividend 7,053,092 8,399,099 10,293,502 10,712,227 Total Equity －－ Ex-dividend －－ 7,053,092 8,399,099 (Note 3) － Note 1: The basis of comparison for FY2012, FY2013, FY2014, and Q1 of FY2015 are the figures approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only. Note 3: As the date on which the annual report is printed, the proposal for distribution of earnings in 2014 hasn’t been approved by the General Meeting.

1.1.1.2 Condensed Comprehensive Income Statement: Unit ：NT$ thousands Fiscal Year Financial Information Covering the Last 5 Years Title 2010 2011 2012 2013 2014 2015 Q1 Revenue －－ 22,603,096 23,086,459 24,924,039 5,839,917 Gross Profit －－ 2,345,318 2,266,580 2,765,133 766,957 Operating Income －－ 1,476,365 1,264,424 1,454,433 576,848 Non-operating －－ (236,249) 108,394 384,173 (66,366) Income and Expenses Earnings before Taxation －－ 1,240,116 1,372,818 1,838,606 510,482 Earnings for －－ 1,240,116 1,275,864 1,871,503 423,427 Continued Operations Earnings for －－－－－－ Discontinued Operations Earnings in Current Period －－ 1,240,116 1,275,864 1,871,503 423,427 Other Incomes in Current －－ (386,640) 70,143 22,900 (4,702) Period (after taxation) Total Incomes －－ 853,476 1,346,007 1,894,403 418,725 in Current Period Earnings Attributable to －－ 1,240,116 1,275,864 1,871,503 423,427 Parent Shareholders Earnings Attributable to －－－－－－ Uncontrolled Equity Total Comprehensive Incomes Attributable to Parent －－ 853,476 1,346,007 1,894,403 418,725 Shareholders Total Comprehensive Incomes Attributable to Uncontrolled －－－－－－ Equity Earnings per Share (NTD) －－ 1.37 1.40 2.06 0.47 Note 1: The basis of comparison for FY2012, FY2013, FY2014, and Q1 of FY2015 are the figures approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

1.1.2 Condensed Balance Sheet and Income Statement – ROC SFAS 1.1.2.1 Condensed Balance Sheet: Unit ：NT$ thousands Fiscal Year Financial Information Covering the Last 5 Years Title 2010 2011 2012 2013 2014 Current Assets 14,710,491 14,779,813 12,940,039 －－ Funds and Investment 379,628 350,302 312,327 －－ Fixed Assets 5,799,662 5,487 ,708 5,295,073 －－ Intangible Assets 52,396 31,501 50,988 －－ Other Assets 956,554 699,869 961,638 －－ Total Assets 21,898,731 21,349,193 19,560,065 －－ Current Cum-dividend 9,532,495 8,529,053 5,731,766 －－ Liabilities Ex-dividend 9,532,495 8,529,053 5,731,766 －－ Long-term Liabilities 3,248,455 2,309,945 1,556,054 －－ Other Liabilities 2,594,581 2,973,157 3,779,626 －－ Total Cum-dividend 15,375,531 13,812,155 11,067,446 －－ Liabilities Ex-dividend 15,375,531 13,812,155 11,067,446 －－ Capital Stock 9,082,615 9,082,615 9,082,615 －－ Capital Surplus 452,152 0 0 －－ Retained Cum-dividend ( 3,003,364) (1,423,462) (175,165) －－ Earnings Ex-dividend (3,003,364) (1,423,462) (175,165) －－ Unrealized Gain/Loss of 1,148 (420) (113) －－ Financial Assets Adjustment of Accumulated (9,351) (1,585) (20,003) －－ Conversion Net Loss not Recognized as － (120,110) (394,715) －－ Pension Cost Total Cum-dividend 6,523,200 7,537,038 8,492,619 －－ Shareholders’ Equity Ex-dividend 6,523,200 7,537,038 8,492,619 －－ Note 1: The figures of 2010~2012 were approved by the NAO under ROC GAAP. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

1.1.2.2 Condensed Income Statement: Unit ：NT$ thousands Fiscal Year Financial Information Covering the Last 5 Years Title 2010 2011 2012 2013 2014 Revenue 17,942,176 20,095,657 22,603,096 －－ Gross Profit 2,000,419 2,039,627 2,352,860 －－ Operating Income 1,288,457 1,294,179 1,484,546 －－ Non-operating 229,214 309,003 200,946 －－ Incomes and Profits Non-operating 497,366 475,432 437,194 －－ Expenses and Loss Earnings of Continued 1,020,305 1,127,750 1,248,298 －－ Operations before Taxation Earnings of Continuing 1,020,270 1,127,750 1,248,298 －－ Operations Incomes of Discontinued －－－－－ Operations Contingent Incomes －－－－－ Cumulative Adjustment of the Accumulated Effect of Change in －－－－－ Accounting Policy Earnings in Current Period 1,020,270 1,127,750 1,248,298 －－ Earnings per Share (NTD) 1.12 1.24 1.37 －－ Note 1: The figures of 2010~2012 were approved by the NAO under ROC GAAP. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

1.1.3 Notes to the Variation of the Audited Financial Figures and the Financial Figures Approved by NAO 1.1.3.1 AIDC is still a state-owned enterprise which requires its accounting and financial statements to be prepared in accordance with the Criteria for the Compilation of Financial Statements by Securities Issuers, Commercial Accounting Act, Regulation on Business Entity Accounting Handling, and the ROC GAAP. Where the Executive Yuan, Ministry of Economic Affairs, and the National Audit Office may promulgate different regulations governing the accounting of state-owned enterprises, comply accordingly. Account settlement of each fiscal year shall be subject to the review of the Executive Yuan and the National Audit Office of the Control Yuan. The aforementioned review includes the review of AIDC on the execution of the budget passed by the Legislative Yuan. The accounts of AIDC shall be confirmed only after the review. As of 2012, the journal books of AIDC have been subjected to the review of the Executive Yuan and National Audit Office of the Control Yuan, which was based on the ROC GAAP before the application of IFRSs. Related adjustment has been made and the accounts were updated accordingly. 1.1.3.2 AIDC compiled its financial statement under IFRSs since 2013 in compliance with the “Introduction of IFRSs to State-Owned Enterprises Implementation Scheme” established by the Executive Yuan. The financial report of FY2013 was the very first financial report prepared in accordance with the IFRSs, and has been reviewed by the Executive Yuan and the National Audit Office of the Control Yuan. Related adjustments and accounts update have been made as per

their instructions. AIDC switched to the IFRSs on January 1 2012. For the consistency of comparing the financial statements, the aforementioned financial statements covering FY 2012 were prepared and audited under the ROC GAAP with approval of the NAO and also the adjustments under IFRSs. The financial statements covering FY 2013 were prepared in accordance with the IFRSS and reviewed by NAO. The financial statements covering FY 2014 were prepared in accordance with IFRSs and audited accordingly. 1.1.3.3 AIDC was a state-owned enterprise under the Ministry of Economic Affairs and became a private owned corporate on August 21 2014. The financial statements prepared before privatization were based on the figures audited by NAO and Executive Yuan. After privatization, the financial figures audited by independent accountants and the figures approved by NAO are congruent.

1.2 Materiality that may Affect the Consistency of the Aforementioned Condensed Financial Statements in Comparison, such as Change in Accounting Policy, Corporate Merger, or Discontinuation of Specific Operation Segments, and the Effect on the Financial Statement of Relevant Perio: None. 2. Names of External Auditors and Their Opinions in the Last 5 Years 2.1 External Auditors and Their Audit Opinions in the Last 5 Years

Year Accounting Firm Name of CPA Audit Opinion

2010 Deloitte & Touche Huei-Min Lyu, Li-Tung Wu Modified Unqualified Opinions

2011 Deloitte & Touche Huei-Min Lyu, Li-Tung Wu Modified Unqualified Opinions

2012 Deloitte & Touche Li-Tung Wu, Ted Cheng Modified Unqualified Opinions

2013 Deloitte & Touche Li-Tung Wu, Ted Cheng Modified Unqualified Opinions

2014 Deloitte & Touche Done-Yuin Tseng, Ted Cheng Modified Unqualified Opinions

2.2 If there is a Replacement of the External Auditors in the Last 5 Years, Explanation of the Replacement by the Company, the Former and the Current External Auditors The replacement of external auditors in 2012 and 2014 was the result of the internal rotation of duties of the CPA firm. 2.3 If a domestic company has been going public for 7 consecutive years, or a foreign company has been public for 7 consecutive years but the financial statements were audited by the same certified public accountant, explain why there is no replacement of the certified public accountant, the independence of the certified public accountant currently in service, and substantive measures taken by the Company to bolster the independent position of the certified public accountant. For the independence of the certified public accountant and in supporting the internal rotation of duties of the CPA firm, the Company supports the internal rotation of duties of the CPA firm in 2014 thereby replaced the certified public accountants acting as external auditors for the Company. The aforementioned situation does not exist.

3. Financial Analysis in the Last 5 Years 3.1 Comprehensive Analysis of the Financial Data of the Last 5 Years –IFRTs: Fiscal Year Financial Information Covering the Last 5 Years Title 2010 2011 2012 2013 2014 2015 Q1 Liabilities to Assets －－ 63.94 61.07 59.35 61.44 Ratio Financial Long-term Capital Structure to Real Properties, (%) －－ 164.58 180.58 226.34 233.62 Plants, and Equipment Ratio Current Ratio －－ 216.84 222.73 146.47 142.89 Ability to Quick Ratio －－ 89.74 116.44 68.45 65.87 Pay Debt Debt Service (%) －－ 19.67 36.93 29.61 18.89 Coverage Ratio A/C Turnover Rate －－ 5.80 5.82 4.81 3.73 (times) Average Daily Cash －－ 63.00 62.71 75.88 97.85 Receipt Inventory Turnover －－ 2.20 2.38 2.47 2.02 Rate (times) A/P Turnover Ratio －－ 12.74 11.94 13.60 13.97 (times) Average Days of Utility －－ 166.00 153.36 147.77 180.69 Sales Real Properties, Plant and Equipment －－ 4.25 4.46 5.00 4.79 Turnover Rate (times) Total Assets Turnover Rate －－ 1.11 1.12 1.06 0.87 (times) Return on Assets －－ 6.33 6.35 8.20 6.73 (%) Return on Equity －－ 18.71 16.51 20.02 16.12 (%) Profitability EBT to Paid-in －－ 13.65 15.11 20.24 5.62 Capital Ratio (%) Net Profit Rate (%) －－ 5.49 5.52 7.50 7.25 EPS (NTD) －－ 1.37 1.40 2.06 0.46 Cash Flow Ratio －－ 90.37 42.93 －－ (%) Cash Flow Cash Suitability Ratio －－ 127.32 172.74 132.31 146.76 Flow (%) Cash Reinvestment －－ 23.78 11.67 －－ Ratio (%) Operation －－ 2.83 2.74 2.27 1.52 Leverage Leverage Financial Leverage －－ 1.05 1.03 1.04 1.05 Reasons for Changes in the Items of Financial Analysis in the Last 2 Years (if the change falls below 20%, no analysis is necessary): 1. The ratio between long-term capital to real properties, plants and equipment of 2014 was higher than 2013 mainly because of the growth of operation performance to the extent that corporate earnings increased in this period and also the equity. 2. The current ratio in 2014 was lower than 2013 mainly because of the increase in bank loans in the

settlement of service seniority of the employees under privatization to the extent that cash and cash equivalent in the same period decreased. 3. The average days of cash receipt in 2014 was more than 2013 mainly because the revenue in Q4 2014 was higher than the same period of 2013, to the extent that account receivable also increased. 4. The ROA, ROE, earnings to paid-in capital ratio. EBT to paid-in capital ratio, net profit rate, and EPS in FY2014 increased from FY2013 mainly because of the prosperity of the international aerospace industry market that drove the growth of operation performance, to the extent that gross profits of relevant products, net exchange gain and the proportion of revenue from associated enterprises accounted for under the equity method increased, which resulted in the increase of earnings in the period. 5. Cash flow ratio and cash flow reinvestment ratio were affected by the settlement of service seniority of the employees under privatization in 2014, and the increase in payment for procurement in supporting military procurement, to the extent that there was net cash outflow from operation in 2014. 6. The cash flow suitability ratio in 2014 was lower than in the same period of 2013 mainly because of the decrease of net cash flow from operation in the last 5 years and the increase of purchase. Note 1: The basis of comparison for FY2012, FY2013, FY2014, and Q1 of FY2015 are the figures approved by National Audit Office (NAO) under ROC GAAP +IFRSs adjustment, figures approved by NAO under IFRSs, audited figures under IFRSs, and audited figures under IFRSs, respectively. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

The equation for calculation in this sheet: 1. Financial structure (1) Liabilities to assets ratio = total liabilities / total assets (2) Long-term capital to real properties, plant and equipment ratio = (total equity + non-current liabilities) /net real properties, plant, and equipment 2. Ability to pay debt (1) Current ratio = current assets/ current liabilities (2) Quick ratio = (current assets – inventory – other current assets)/ current liabilities (3) Debt service coverage ratio = EBIT/ interest expenses in current period 3. Utility (1) Receivables (including account receivables and note receivables deriving from business operation) turnover rate = revenue/ average receivables (including account receivables and note receivables deriving from business operation) in relevant periods. (2) Average days of cash receipt = 365/account receivable turnover rate (3) Inventory turnover rate = cost of operation/ average inventory (4) Payables (including account payables and note payables deriving from business operation) turnover rate = cost of operation/ balance of average payables (including account payables and note payables deriving from business operation) in relevant periods. (5) Average days of sales = 365 / inventory turnover rate (6) Real properties, plant and equipment turnover rate = revenue/ average net real properties, plant, and equipment (7) Total assets turnover = revenue/ average total assets 4. Profitability (1) Return on assets = [Earnings (loss) net in current period + interest expense x (1-tax rate)/average total assets (2) Return on equity = Earnings (loss) net in current period / average total equity (3) Net profit rate = Earnings (loss) net in current period/ revenue (4) Earnings per share = (incomes attributable to parent shareholders’ equity – preferred share dividend) /weighted average quantity of outstanding shares 5. Cash flow (1) Cash flow ratio = net cash flow from operation / current liabilities (2) Net cash flow suitability ratio = net cash flow from operation in the last 5 years / (capital expenditure + increase of inventory + cash dividend) in the last 5 years (3) Cash reinvestment ratio = (net cash flow from operation – cash dividend) / (gross real properties, plant and equipment + long-term investment + other non-current assets + working capital) 6. Leverage (1) Operation leverage = (net sales – operating variable cost and expense) / operating income (2) Financial leverage = operating income / (operating income – interest expenses)

3.2 Comprehensive Analysis of the Financial Data of the Last 5 Years －－－ROC GAAP: Fiscal Year Financial Information Covering the Last 5 Years Title 2010 2011 2012 2013 2014 Liabilities to Assets Financial 70.21 64.70 56.58 －－ Ratio Structure Long-term Capital to (%) 168.49 179.44 189.77 －－ Fixed Assets Ratio Current Ratio 154.32 173.29 225.76 －－ Ability to Quick Ratio 46.78 60.00 93.52 －－ Pay Debt Debt Service Coverage (%) 15.03 12.07 19.80 －－ Ratio A/C Turnover Rate 4.88 4.80 5.80 －－ (times) Average Daily Cash 75.00 76.00 63.00 －－ Receipt Inventory Turnover 1.80 1.97 2.20 －－ Rate (times) Utility A/P Turnover Ratio 13.53 13.72 12.73 －－ (times) Average Days of Sales 203 185 166 －－ Fixed Assets Turnover 3.33 3.56 4.19 －－ Rate (times) Total Assets Turnover 0.87 0.93 1.11 －－ Rate (times) Return on Assets (%) 5.26 5.61 6.37 －－ Return on Equity (%) 16.95 16.04 15.57 －－ Proportion Operating 14.19 14.25 16.34 － Profitability to Paid-in Income Capital (%) EBT 11.23 12.42 13.74 － Net Profit Rate (%) 5.69 5.61 5.52 －－ EPS (NTD) 1.12 1.24 1.37 －－ Cash Flow Ratio (%) － 40.53 88.41 －－ Cash Flow Suitability 36.70 95.82 157.34 －－ Cash Flow Ratio (%) Cash Reinvestment － 16.19 22.12 －－ Ratio (%) Operation Leverage 0.48 1.52 1.51 －－ Leverage Financial Leverage 1.06 1.09 1.05 －－ Reasons for Changes in the Items of Financial Analysis in the Last 2 Years (if the change falls below 20%, no analysis is necessary): Not applicable. Note 1: The figures of 2010~2012 were approved by the NAO under ROC GAAP. Note 2: AIDC is not required to prepare consolidated financial statements. As such, the aforementioned figures are information on parent company only.

The equation for calculation in this sheet: 1. Financial structure (1) Liabilities to assets ratio = total liabilities / total assets (2) Long-term capital to fixed assets ratio = (Net shareholders’ equity + long-term liabilities)/ net fixed assets 2. Ability to pay debt (1) Current ratio = current assets/ current liabilities (2) Quick ratio = (current assets – inventory – other prepayments -other current assets)/ current liabilities (3) Debt service coverage ratio = EBIT/ interest expenses in current period 3. Utility (1) Receivables (including account receivables and note receivables deriving from business operation) turnover rate = revenue/ average receivables (including account receivables and note receivables deriving from business operation) in relevant periods. (2) Average days of cash receipt = 365/account receivable turnover rate (3) Inventory turnover rate = cost of operation/ average inventory (4) Payables (including account payables and note payables deriving from business operation) turnover = cost of

operation/ balance of average payables (including account payables and note payables deriving from business operation) in relevant periods. (5) Average days of sales = 365 / inventory turnover rate (6) Fixe assets turnover rate = revenue/ average net fixed assets (7) Total assets turnover = revenue/ average total assets 4. Profitability (1) Return on assets = [Earnings (loss) in current period + interest expense x (1-tax rate)/average total assets (2) Return on equity = Earnings (loss) in current period / average total equity (3) Net profit rate = Earnings (loss) in current period/ revenue (4) Earnings per share = (Earnings (loss) in current period – preferred share dividend)/ weighted average quantity of outstanding shares 5. Cash flow (1) Cash flow ratio = net cash flow from operation / current liabilities (2) Net cash flow suitability ratio = net cash flow from operation in the last 5 years / (capital expenditure + increase of inventory + cash dividend) in the last 5 years (3) Cash reinvestment ratio = (net cash flow from operation – cash dividend) / (gross fixed assets + long-term investment + other assets + working capital) 6. Leverage (1) Operation leverage = (net sales – change in cost of operation and expense) / operating income (2) Financial leverage = operating income / (operating income – interest expenses)

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

5. Financial Statements of the Previous Year 5.1 Auditors’ Report

5.2 Balance Sheet Covering 2 Fiscal Years

5.3 Income Statement Covering 2 Fiscal Years

5.4 Statement of Changes in Shareholders’ Equity

5.5 Statement of Cash Flow

5.6 Note to Financial Statements

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

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

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

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2. Review and Analysis of Financial Performance 2.1 Comparison of Financial Performance Analysis in the Last 2 Years: Unit ：NT$ thousands Fiscal Year 2013 2014 Difference Amount Difference % Title Net Sales 23,086,459 24,924,039 1,837,580 7.96 Cost of Sales 20,819,879 22,158,906 1,339,027 6.43 Gross Profit 2,266,580 2,765,133 498,553 22.00 Operating Expense 1,002,156 1,310,700 308,544 30.79 Operating Income 1,264,424 1,454,433 190,009 15.03 Non-operating 108,394 384,173 275,779 254.42 Expenses and Loss EBT 1,372,818 1,838,606 465,788 33.93 Income Tax Expense 96,954 (32,897) (129,851) (133.93) Earnings Net in Current Period 1,275,864 1,871,503 595,639 46.69 Other Comprehensive Income 70,143 22,900 (47,243) (67.35) (after taxation) Total Comprehensive Income 1,346,007 1,894,403 548,396 40.74 in Current Period The major causes of significant changes in revenue, operating income and EBT (change of more than 10% and the absolute value of change amounted to NT$10 million): 1.Increase of gross profit and operating net income: mainly because of the increase of the real gross profit from maintenance of airplanes and vehicles, engines. 2.Increase of operating expense: recognized increase of the cost of defined benefit plan under actuarial calculation and the increase of R&D expenses. 3.Increase of non-operating income and expense: mainly because of the increase of net exchange gain, the share of profit from associates accounted for under the equity method, and the conversion of account payables to other incomes. 4.Increase of income tax benefit: mainly because of the disbursement of service seniority settlement under the privatization of the enterprise that pushed up the deferred tax assets and resulted in income tax benefits. 5.Increase of EBT and earnings net in current period: the prosperity of the international aerospace market continued with the increase of business scale for further upgrade of business profit, which resulted in the increase of gross profit for all types of products. Factors such as the increase of net exchange gain, the share of profit from associates accounted for under the equity method that resulted in the increase of non-operating incomes and expenses. These contributed to the increase of EBT and earnings net in current period. 6.Decrease of other comprehensive income (after taxation): mainly because of the recognition of actuarial benefit of the defined benefit plan under the actuarial report for FY2013, and the assessment result of FY 2014 did not require the recognition of actuarial benefit from defined benefit plan. 7. Increase of total comprehensive income: mainly because of the growth of operation performance to the extent that earnings increased in currently period with the increase of other comprehensive income (corporate earnings). Note: the comparison was made by figures approved by NAO in accordance with the IFRSs and the audited figures in accordance with IFRSs in FY 2013 and FY 2014.

2.2 The Effect of the Reference for the Projection of Sale Volume on the Operation and Financial Position of the Company, and the Measures in Response: AIDC projects its sale volume on the basis of market demand and development trend, the operation outlook of its customers, and the customer orders on hand and the production capacity. The products of AIDC were recognized by the customers and customer order quantity is stable. There is also the opportunity of new business. It is expected that the sale volume will grow in the future.

2.3 Possible Effect on the Financial Position and Operation of the Company: No significant influence . 2.4 Plan in Response: Not applicable.

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3. Cash Flow and Liquidity Analysis 3.1 Liquidity Analysis Over the Last 2 Years:

Year Title 2013 2014 Proportion of Change (%) Cash flow ratio (%) 42.93% - - Cash flow suitability ratio (%) 172.74% 132.31% (23.41)% Cash reinvestment ratio (%) 11.67% - - Notes to the Analysis of the Proportion of Change: 1. Cash Flow Ratio and Cash Reinvestment Ratio: The disbursement for service seniority of the employees for settlement under privatization and the increase in the payment for the military procurement project resulted in net cash outflow from operation in FY 2014 2. Cash Flow Suitability Ratio fell: Mainly because of the decrease of net cash flow from operation in the last 5 years but with the increase of purchase.

3.2 Liquidity Analysis of the Year Ahead: Not applicable. 4. Major Capital Expenditures in Previous Year and the Effect on the Financial Position and Operation: None. 5. Direct Investment in Previous Year and the Effect of Operation on the Income Status of the Company 5.1 The Outlook of Direct Investment: December 31, 2014 ；Units：NT$ thousands/thousand shares ROI in Previous Year Shares Invested Net (2014) Business of Cost of Book Market Accounting Percentage of Principal Operation Proportion Equity Investment Investment Value Value Method Investment Dividend Shareholding Qty of Equity Value Gain Paid (%) ITEC LLC The Production and Delivery of Military Aircraft Engine Equity Equipment and the Execution 728 482,193 (Note) 22.05 482,193 － 241,815 89,190 － of Engineering Service method Contracts The Production of AeroVision Commercialized Civilian Cost 43,200 43,200 4,968 13.09 60,356 －－－－ Avionics Inc. Plane Cabin Information method System Products The Planning, Operation, Metro Maintenance Consulting, and Cost Consulting Operation Management of 3,000 3,000 300 6.00 3,304 －－ 135 － Service Ltd. the Mass Transit System method Using Track and Rail Note ：a limited liability company without issuing shares. No information on quantity of shares is available.

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5.2 Notes to the Effect of Direct Investment on the Income Status of the Company: Units：NT$ thousands Name of FY 2014 Improvement Industry Type Main Cause of Profit or Loss Investee Income/Loss Plan The main cause of profit is the proactive Aerospace 1,096,667 ITEC LLC expansion of service business and the effective － Manufacturing (Note) control of operating expense. The main cause of profit is the proactive AeroVision Avionics 5,194 expansion of service business and the effective － Avionics Inc. control of operating expense. Metro The main cause of profit is the proactive Track Consulting 2,551 expansion of service business and the effective － Consulting Service Ltd. control of operating expense. Source: The audited financial statements of the aforementioned companies in FY 2014. Note: The amount of income is based on the average exchange rate of 30.306 in FY 2014.

6. Risks under Assessment in Previous Year to the Date this Report was Printed 6.1 Industry and Operation Risk 6.1.1 The Rise of the Newly Emerged Economies Unleashed Cutthroat Competition in OEM Production and the Threat of Trade Order Displacement The aviation industry in the newly emerged economies is on the rise. With their relative low cost of labor, such as in China, India, and Mexico, they gradually formed a new cluster of aviation manufacturing sector. Accordingly, the international aerospace product supply chain is being regrouped. The outcome is low cost competition in OEM production and the threat of attracting purchase orders to these regions. AIDC will spare no effort in making investment for capacity expansion, and to work in conjunction with domestic vendors to form a supply team for presenting joint quotation in order to position at the higher end along the industry chain of the international aerospace industry to reduce the risk of cutthroat competition. Furthermore, AIDC will continue to invest in the R&D of technology for bolstering its core competence, technology and process upgrade, and the advocacy of lean production process to reduce cost for the eventual fortification of its competitive power. AIDC will take another step forward by seeking joint venture with major international aerospace manufacturing firms to broaden its competitive edge, fortify the relation of the international supply chain system, and seek new prospective strategic partners from international giant aerospace firms like Boeing and GE. 6.1.2 The Effect of Exchange Rate Fluctuation on Profitability of the Company AIDC has been proactively sought to develop the business in civilian aircraft and engine in the last 3 fiscal years, and moved towards an export-oriented operation in the proportion of 50.24%, 57.58%, and 62.33%, respectively. Export sales are mainly denominated in USD. In addition, most of the accredited suppliers of materials and equipment are in Europe and America, and the purchase from them is also denominated in USD. As such, the purchases from foreign sources in the last fiscal periods are 89.78%, 89.10%, and 90.52%, respectively. The export value of AIDC usually goes higher than the purchase value from foreign sources. Under normal condition, the nature hedge of account will usually give a balance of USD. Therefore,

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exchange rate fluctuation does influence the income level of the Company to certain extent. For this reason, the financial staff of the Company always pays close attention to the development of international political and economic situation, intensify its liaison with the financial institutions for consultation, and gather real-time information on exchange rate to keep abreast of the changes in the exchange rate. In addition, they also make adjustment of the foreign exchange position at any time as needed to mitigate the effect of exchange rate fluctuation. As required by the competent authority, the Company has instituted the “Procedure for Derivative Trade” so as to use proper financial tool for hedging off the risk deriving from exchange rate fluctuation and minimize the impact of exchange rate fluctuation on the Company. 6.2 The Effect of Interest Rate and Exchange Rate Fluctuation and Inflation on the Income Level of the Company and the Responding Measures 6.2.1 The Effect of Interest Rate Fluctuation on the Income Level of the Company and the Response in the Future Interest income in FY 2014 amounted to NT$ 29,623 thousand or accounted for 0.12% of the corporate earnings. Interest expense in the same year amounted to NT$ 64,256 thousand or accounted for 0.26 % of the corporate earnings. These figures indicated that interest expense has marginal effect on the income level of the Company. The Company also makes timely adjustment of the use of capital in line with the change in interest rate to mitigate the influence of interest rate fluctuation on income level. 6.2.2 The Effect of Exchange Rate Fluctuation on the Income Level of the Company and the Response in the Future Net exchange gain in FY 2014 amounted to NT$ 447,082 thousand or accounted for 1.79% of the corporate revenue. The Company has its export sales and purchases of the Company mostly denominated in USD and therefore takes the following measures to tackle with exchange rate fluctuation: 6.2.2.1 Gather timely information on the exchange rate and is engaged in frequent consultation with relevant financial institutions on mapping out the hedge strategy in exchange rate in order to keep abreast of the trend of exchange rate. 6.2.2.2 Manage the liabilities and assets denominated in foreign currencies through offsetting account payables and receivables with flexibility to minimize the effect of exchange rate fluctuation. 6.2.2.3 In compliance with the requirement of the competent authority, the Company has instituted the “Procedure for Derivative Trade” so as to use proper financial tool for hedging off the risk deriving from exchange rate fluctuation and minimize the impact of exchange rate fluctuation on the Company. 6.2.3 The Effect of Inflation on the Income Level of the Company and the Response in the Future Most of the quotations for long-term orders of the Company are adjustable with inflation rate. In addition, the Company continues its effort in controlling the cost of operation. As such,

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the effect of inflation on its operation and profit position is not significant. 6.3 The Policy of the Company in Undertaking High Risk and High Leverage Investment, Lending to a Third Party, Guarantee and Endorsement, and Derivative Trade, the Main Causes of Profit or Loss, and the Response in the Future 6.3.1 The Company is conceived with the corporate philosophy of stable growth in its operation and only takes forwards contract for hedging. As such, the Company does not undertake any high risk or high leverage investment and financial operation. 6.3.2 The Board resolved in a session dated July 30 2007 that the Company shall not engage in any lending to third party or undertaking of guarantee and endorsement. 6.3.3 In compliance with the requirement of the competent authority, the Company has instituted the “Procedure for Derivative Trade” as the guideline for derivative trade. From FY 2014 to April 2015, the Company has not conducted any derivative trade. 6.4 R&D Plan in the Future and Projected R&D Expenses The Company has made ceaseless effort over the years to upgrade the human resources in research and development and committed larger amount of funding to satisfy the needs of business development and customer orders. In the future, the Company will continue to invest NT$ 0.4 to 0.6 billion per year in research and development for attaining the goal of the operation as planned. 6.5 Changes in the Legal and Policy Environment at Home and Aboard and its Influence on the Operation and Financial Position of the Company, and the Response The Company runs its operation in compliance with applicable legal rules at home and abroad, and pays close attention to any change in the policy and legal environment. The Company responds to any change in the policy and legal environment by making appropriate adjustment in related business and financial operation. In the previous year to the date this report was printed, the Company has not been affected by any change in the policy and legal environment at home and abroad. 6.6 The Effect of Technological and Industrial Changes on the Operation and Financial Position of the Company and the Response According to the economic forecast of Global Insight in January 2015, global economic growth in 2015 is projected 3.0% at and will be as high as 3.4% in 2016. The forecast of aerospace manufacturing giant firms, such as Boeing, Airbus, Bombardier, and Rolls-Royce and other professional assessors hold optimistic view about the trend of the long-term development of the aerospace industry. The falling price of oil may affect the market of replacement for new aircrafts, but fuel efficiency is not the only concern for the airlines companies for purchase new aircrafts. Other factors, such as low interest rate (which makes the cost of capital for purchasing new aircrafts relatively low), and the meeting the needs in the newly emerged markets, are also considered. As such, lightweight, fuel efficient, and environmental friendly aircrafts and engines will be the new trend of civil aviation industry worldwide. The application of composite materials will

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be critical in this trend of development. Further to the investment in TACC, the Company also plans to invest for the establishment of facility for the design, development and production of aerospace composite materials with the succession of technological capacity on hand, introduction of advanced technologies and machinery, and engagement in joint venture with international aerospace giant firms. These measures will help the Company to establish a position in the booming market of aerospace composite materials and will contribute to the financial position and operation of the Company. AIDC will keep abreast of the development of related technologies and market trend, and will assess the effect of the development on the operation of the Company. 6.7 The Effect of the Change in Corporate Image on Corporate Crisis Management and the Response AIDC is strictly attached to its corporate philosophy of “Accountability, Integrity, Innovation, Dedication, and Customer Orientation” and its corporate culture and seeks to upgrade its technology in the production and manufacturing of aircrafts and quality management at all times. It also seeks to enhance its relation with the customers and create value for the customers, and spares no effort in upgrading its quality and efficiency through internal management and external inspection. AIDC has positive corporate image and has no significant change in such image that may result in corporate crisis. 6.8 Expected Return On and Possible Risk from Mergers and Acquisitions, and the Response In the previous year to the date this report was printed, AIDC has no plan for acquiring any other companies. If there is such a plan in the future, AIDC will take caution in the assessment and will fully consider the synergy after the merger, and comply with applicable legal rules and the internal code of the Company to protect the interest of the Company and shareholders’ equity. 6.9 Expected Return On and Possible Risk from Capacity Expansion, and the Response AIDC has already secured business from international giant firms in engine casing and components and parts in composite materials, and the maintenance of military aircrafts of the country. After its consultation with the international giant firms, AIDC will launch the plan for the building of new plants for housing the engine casing manufacturing center, composite materials manufacturing centers, and the depot for the maintenance of military aircrafts. The expected result, possible risk, and response are elaborated below: 6.9.1 Expected Result: capacity expansion can help to accommodate a larger volume of engine casing and composite materials production and the maintenance of military aircrafts. This helps to satisfy the needs of customer orders and also enhance the economic efficiency. 6.9.2 Possible Risk and Response: the Company has completed its assessment on the schedule of plant construction, business volume, cost of production, and the sources of capital, and has mapped out the goals for managing relevant risks and a backup plan. 6.10 The Risk Deriving from Concentration of Purchase or Sales and the Response 6.10.1 Assessment of the Risk Deriving from Concentration of Purchase and the Response:

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The procurement of AIDC is mainly based on the procurement operation procedure of AIDC. Purchase will be made by tender offer by nature of the content of purchase, and could be classified as public tender, selective tender, restricted tender and joint supply contracts. The top 10 suppliers of AIDC in the last 3 years accounted for 39.00%, 32.78%, and 35.14% of purchase, respectively. The number one supplier in these years accounted for 7.00%, 5.80%, and 5.98% of the purchase of respective year. There is no particular supply that purchases amounted to 30% or more. AIDC has developed strong bonding with key suppliers in the long run and the supply from these suppliers in the last 3 years was good. There is no shortage of supply, severing of supply or delay that affected production. There is also no over concentration of purchase. 6.10.2 Assessment of Risk Deriving from Concentration of Sales and the Response Conceived with the mission of “Self-reliance in defense with indigenous technologies”, AIDC concentrated its sales to the Ministry of Defense in the past. Under the increasing attention of the international aerospace giant firms in aerospace technologies, AIDC sought to develop new overseas customers in aircrafts and engines. As such, the business line has been changed from military supply to a proper balance between military supply and civilian use. The biggest customer is still the Ministry of National Defense which share of business accounted for 90% at the initial stage of the operation, and adjusted to 48.06%, 41.18%, and 36.40% as were in FY 2012 to FY 2014, respectively. The proportion of revenues from sales to the Ministry of National Defense fell gradually over the years. As such, there is no risk of concentration of sales. 6.11 The Massive Transfer or Swap of Shares by the Directors, Supervisors, or Dominant Shareholders Holding more than 10% of the Stakes and the Influence, Risk on the Company and the Response In the previous year to the date this report was printed, the dominant shareholder, the Ministry of Economic Affairs disposed its shares 54% under the privatization of state-owned enterprise policy for the subscription of AIDC employees, auction for public offering, and subscription. However, there is limitation of shares for subscription in the aforementioned means and there is no shareholder holding more than 10% of the stakes. Still, the Ministry of Economic Affairs is still the dominant shareholder and such changes in shareholding structure did not cause any influence on the operation of the Company. There is also no massive transfer or swap of shares by the Directors, Supervisors, or shareholders holding more than 10% of the stakes. 6.12 The Influence On and the Risk Deriving from the Change in the Management and the Response The Ministry of Economic Affairs is still the dominant shareholders by holding specific proportion of the shares after privatization of AIDC. As such, the change in equity structure did not cause any unfavorable influence on the management. 6.13 Lawsuits or Non-contentious Matters 6.13.1 Are there suits, non-contentious matters or administrative action, ruled or still pending, in the last 2 years to the date this report was printed, and the result may cause significant

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influence on the shareholders’ equity or stock price? Disclose the facts, the targeted amount involved, the starting date of the actions, the parties concerned in the actions, and the status of the actions: AIDC has no pending lawsuits and in most cases AIDC was the claimant for damage. Some of targeted amount involved in the cases are not high, and there will be no significant loss even if the ruling is unfavorable to AIDC. As such, there is no significant influence on the shareholders’ equity or stock price of the Company. 6.13.2 Directors, Supervisors, President, the Deputy Agent of the Company, and Shareholders Holding More than 10% of the Stakes and their Subsidiaries, who were Involved in Law Suits, Non-contentious Matters, or Administrative Actions, Ruled or Pending, in the Last 2 Years to the Date this Report was Printed, and the Result may Cause Significant Influence on the Shareholders’ Equity or Stock Price: None. 6.14 Other Major Risks and Response: None.

7. Other Important Notice : None.

VIII. Special Notes

1. Subsidiary Information: None. 2. Private Placement Securities in 2014 and as of the Date of this Annual Report: None. 3. Status of AIDC Common Shares and ADRs Acquired, Disposed of, and Held by Subsidiaries: None. 4. Other Necessary Supplement: None. 5. Any Events in 2014 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 3 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None.

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Aerospace Industrial Development Corporation

Chairman Jung-Hsin Liao

Accountability ‧Innovation ‧Dedication ‧Customer Orientation

Aerospace Industrial Development Corporation