Stock Code 2317 HON HAI PRECISION INDUSTRY CO., LTD. Annual Report 2017 Annual Report Website Market Observation Post System: http://mops.twse.com.tw Company Website: http://www.foxconn.com Printing Date: April 30, 2018 THIS IS A TRANSLATION OF THE 2016 ANNUAL REPORT (THE “ANNUAL REPORT”) OF HON HAI PRECISION INDUSTRY CO., LTD. (THE “COMPANY”). THIS TRANSLATION IS INTENDED FOR REFERENCE ONLY AND NOTHING ELSE, THE COMPANY HEREBY DISCLAIMS ANY AND ALL LIABILITIES WHATSOEVER FOR THE TRANSLATION. THE CHINESE TEXT OF THE ANNUAL REPORT SHALL GOVERN ANY AND ALL MATTERS RELATED TO THE INTERPRETATION OF THE SUBJECT MATTER STATED HEREIN. I. Spokesperson: Deputy Spokesperson: Name: Simon Hsing Name: Chin-Min Huang Title: Spokesperson Title: Vice Director of Public Relations Office Tel:(02)2268-3466#3629 Tel: (02)2268-3466#3907 E-mail:[email protected] II. Contact Information of the Head Office, Branch Offices and Factories Head office Add: No. 66, Zhongshan Road, Tucheng Industrial Zone, Tucheng District, New Taipei City Tel: (02)2268-3466 Hsinchu Science Park Branch Office Add: 5F-1, No. 5, Hsin-an Road, Hsinchu Science and Industrial Park, East Area, Hsinchu City Tel: (03)578-4975 California (US) Branch Office Add: 288 S. Mayo Ave City of Industry, CA 91789 U.S.A. Tel: 1-714-680-2066 Huyue Factory Add: No. 2, Zihyou Street, Tucheng Industrial Zone, Tucheng District, New Taipei City Tel: (02)2268-3466 Minsheng Factory Add: No. 4-1, Minsheng Road, Tucheng Industrial Zone, Tucheng District, New Taipei City Tel: (02)2267-6511 Dingpu No. 1 Factory Add: No. 53, Section 4, Zhongyang Road, Tucheng District, New Taipei City Tel: (02)2268-3466 Dingpu No. 2 Factory Add: 2F, No. 53, Section 4, Zhongyang Road, Tucheng District, New Taipei City Tel: (02)2268-3466 Dingpu No. 5 Factory Add: 4F, No. 53, Section 4, Zhongyang Road, Tucheng District, New Taipei City Tel: (02)2268-3466 Nankan Factory Add: No. 151, Section 1, Nankan Road, Luzhu Township, Taoyuan County Tel: (03)270-0000 III. Share Transfer Agency Name: Grand Fortune Securities Co., Ltd. Address: 6F, No. 6, Section 1, Chung Hsiao West Road, Taipei City Tel: (02)2371-1658 Website: http://www.gfortune.com.tw IV. Contact Information of the Certified Public Accountants for the Latest Financial Report Name: Accountant Yong-jian Hsu and Ming-Hui Chang CPA Firm: Pricewaterhouse Coopers (PwC) Taiwan Address: 27F, No. 333, Section 1, Keelung Road, Taipei City Tel: (02)2729-6666 Website: http://www.pwc.tw V. Overseas Trade Places for Listed Negotiable Securities London Stock Exchange: http://www.londonstockexchange.com VI. Company Website: http://www.foxconn.com Table of Contents I. Letter to Shareholders ............................................................................................................... 1 II. Company Introduction .............................................................................................................. 3 A. Founding Date: February 20, 1974 .............................................................................................. 3 B. Formation History ........................................................................................................................ 3 III. Corporate Governance Report ............................................................................................... 10 A. Organization .............................................................................................................................. 10 B. Implementation of corporate governance ................................................................................... 29 C. Information on Accountants’ Fees ............................................................................................. 55 D. Alternation of CPA .................................................................................................................... 56 E. The Company’s chairman, general manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise ............................................................................................... 56 F. Transfer & pledge of stock equity by directors, supervisors, managerial officers and holders of 10% or more of company shares ................................................................................................ 57 G. Information on relationships among the top ten shareholders .................................................... 59 H. Combined shareholding percentage ........................................................................................... 60 IV. Company Shares and Fund Raising ....................................................................................... 61 A. Company capital and shares ...................................................................................................... 61 B. Section on Corporate Bonds ...................................................................................................... 69 C. Preferred Shares (with warrants) ................................................................................................ 84 D. Global Depository Receipts (GDR) ........................................................................................... 85 E. Subscription of warrants for employees ..................................................................................... 86 F. Name of managers holding warrants for employees and top ten employees in terms of subscription of warrants, and the acquisition status ................................................................... 86 G. Subscription of new shares for employee restricted stocks .......................................................... 86 H. Name of managers holding the new shares for employee restricted stocks and top ten employees in terms of subscription of the new share, and the acquisition status ....................... 86 I. Issuance of new shares due to acquisition of shares of another company .................................. 86 J. Implementation of fund usage plan ............................................................................................ 86 V. Operational Highlights ............................................................................................................ 87 A. Business Activities .......................................................................................................................... 87 B. Production and Sales Status ....................................................................................................... 89 C. Information on Environmental Protection Costs ........................................................................ 92 D. Labor Relations .......................................................................................................................... 93 VI. Financial Standing ................................................................................................................... 99 A. Most Recent 5-Year Concise Financial Information .................................................................. 99 B. Most Recent 5-Year Financial Analysis .................................................................................. 103 C. Audit Committee’s Review Report .......................................................................................... 106 D. 2016 Consolidated Financial Statements with Subsidiaries Audited by CPA .......................... 107 VII. Financial Analysis .................................................................................................................. 221 A. Comparative Analysis of Financial Position ............................................................................ 221 B. Comparative Analysis of Financial Performance ..................................................................... 222 C. Cash Flow Analysis ................................................................................................................. 222 VIII. Special Notes........................................................................................................................... 224 A. Affiliates Information .............................................................................................................. 224 B. The most recent fiscal year and up to the date of this Annual Report printed, Private Placement Securities ................................................................................................................................. 225 C. The most recent fiscal year and up to the date of this Annual Report printed, subsidiary companies holding or disposal of the Company’s stock list..................................................... 225 D. Other supplementary information ............................................................................................ 225 IX. Matters Affecting Shareholders’ Equity or Stock Price ..................................................... 225 I. Letter to Shareholders Over the past year, the technology industry had undergone transformations both structurally and in its business models. Global competition had broken all geographical constraints, and the integration of software with hardware has become all the more apparent. Faced with a highly competitive environment, Hon Hai/Foxconn Technology Group (“the Group”) has continued to achieve historical- high consolidated revenue, on top of winning No. 27 in Fortune Global 500 with