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2023 ReportStock Code: 2324 Compal Electronics, Inc. 2016 Annual Report Notice to readers This English-version annual report is a summary translation of the Chinese version and is not an official document approved in a shareholders’ meeting in accordance with Taiwanese laws. Should any discrepancy arise between the English and Chinese versions, the Chinese version shall prevail. Taiwan Stock Exchange Market Observation Post System: http://newmops.twse.com.tw Company Annual Report is available at: http://www.compal.com Printed on May 15, 2017 0 I. Spokesperson Spokesperson: Gary Lu / Vice President Deputy Spokesperson: Jack Wang / Director of Accounting Dept. Tel: 886-2-8797-8588 E-mail: Investor@compal.com II. Headquarters, Branches and Plant Headquarters Address: No.581& 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan Tel: 886-2- 8797-8588 Manufacturing Site Address: No. 8, South East Rd., Pingzhen City, Taoyuan County Tel: 886-3-439-1707 III. Share Administration Agency Chinatrust Transfer Agent Address: 5F, No. 83, Sec 1, Chung Ching Nan Road, Taipei, Taiwan Tel: 886-2-6636-5566 Website: https://www.ctbcbank.com IV. Auditors CPA Firm: KPMG Auditors: Kuo, Kuan Ying and Au, Yiu Kwan Address: 68F, No. 7, Sec. 5, Xinyi Road, Taipei, Taiwan Tel.: 886-2-8101-6666 Website: http://www.kpmg.com.tw V. Overseas Securities Exchange Luxembourg Stock Exchange: http://www.bourse.lu London Stock Exchange http://www.londonstockexchange.com VI. Corporate Website http://www.compal.com 1 Table of Contents 3 I. Letter to Shareholders II. Company Profile 6 6 2.1 Date of Incorporation 2.2 Company History III. Corporate Governance Report 8 10 33 64 67 3.1 Organization 3.2 Directors, Supervisors and Management Team 3.3 Implementation of Corporate Governance 3.4 Information Regarding the Company’s Audit Fee and Independence 3.5 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders 69 70 3.6 Relationship among the Top Ten Shareholders 3.7 Ownership of shares in Affiliated Enterprises IV. Capital Overview 73 79 79 80 80 82 82 4.1 Capital and Shares 4.2 Bonds 4.3 Global Depository Receipts 4.4 Employee Warrants 4.5 Subscription of New Shares by Employees and Restricted Shares 4.6 New Share Issuance in Connection with Mergers and Acquisitions 4.7 Financing Plans and Implementation V. Operational Highlights 5.1 Business Activities 5.2 Market and Sales Overview 5.3 Human Resources 5.4 Environmental Protection Expenditure 5.5 Labor Relations 5.6 Important Contracts 83 87 90 90 91 93 VI. Financial Information 94 102 106 107 107 6.1 Five-Year Financial Summary 6.2 Five-Year Financial Analysis 6.3 Audit Committee’s Report in the Most Recent Year 6.4 Consolidated Financial Statements and Independent Auditors’ Report 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report 1 VII. Review of Financial Position, Operating Results, and Risk Management 108 109 110 111 111 7.1 Analysis of Financial Status 7.2 Analysis of Operation Results 7.3 Analysis of Cash Flow 7.4 Major Capital Expenditures 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year 113 7.6 Analysis of Risk Management VIII. Special Disclosure 117 121 121 121 8.1 Summary of Affiliated Companies 8.2 Private Placement of Securities in the Most Recent Year 8.3 Subsidiaries’ Holding of the Company’s Shares in the Most Recent Year 8.4 Events with Significant Impacts 2 I. Letter to Shareholders Dear Shareholders: Thank you for your support to Compal Electronics, Inc. (hereafter referred to as “Compal”) over the past years! The year 2016 was a year of changes. The global political and economic situations have brought along new changes, and industry developments have been facing new challenges. The growth of the hardware device markets stagnated; the demands even went into recession; and that made Compal experience a hard year. However, many internal efforts have been made, which including actively adoption of systematic management and full implementation has been driven all the way from R&D side to the production process. Thus our operational efficiency and costmanagement have been further improved in 2016. In addition, the investment in innovation and new business has started to pay off at the customers; therefore, on the way to year 2017, we gradually to see some light inside the tunnel of doom. We herein summarize the operational results of the last year and the business outlook of this year as follows: 2016 Financial Performance Compal’s 2016 consolidated revenue was NT$766,810 million, declined 9.5% year-over-year, given the impact of consumer demand recession. However, owing to the efforts of all the company employees to actively improve the efficiency, the 2016 consolidated gross margin has reached 4.3%, and the consolidated operating profit margin has reached 1.4%, both were improved over the previous year. The non-operating incomes were increased year-over-year, due to higher contribution from equity-investments. Therefore, Compal’s 2016 consolidated pre-tax profits were NT$11,813 million, which maintained at the previous year's NT$11,792 million level, of which the net profit attributed to the parent company was NT$8,131 million, and the earnings per share (EPS) was NT$1.88. Business Development As to the business development, due to the demand declines of the notebook and tablet market, and the smartphone market growth stagnation last year, Compal’s total shipment of 5C-related electronic products decreased 4% from the previous year. However, given the commercial PC replacement demand has been gradually warming up since this year, and Compal’s continued efforts in innovation designs and efficient manufacturing to attract customer cooperation, we expect Compal’s computer related business to regain growth momentum in 2017. For the Smart Device business, to fully implement the risk control and efficiency improvement, and achieve better profits across all the product lines will be the main goal of this year. With the rapid growth of the Internet of Things (IoT) market, Compal is putting full efforts into the developments of new business, including the fields of Wearable Devices, Smart Homes, Auto Electronics, Servers, and Industrial PCs and so on, and has started to pay off at the customer side, particularly in the wearable business. The alliance and co-development with Google and Qualcomm on the wearable devices has brought the successful results, therefore, we have wonover the top-tier customers andachieved 3 breakthrough in shipments in 2016. The primary target of the new business development remains to be continuously developing innovative technologies and diversifying product lines for more business opportunities in 2017. In addition, Compal has continued to invest in Smart Medical and Healthcare since it has engaged in the medical business in year 2015. According to the estimates of the National Development Council, in 2018, the percentage of senior persons (over 65 ages) will account for 14% of the population in Taiwan and it will enter into an “aged society”. In 2025, the percentage will be weighing up to 20% for a “super-aged society”. Based on that, we believe the consumer consumptions and industrial developments will have big change in the future. While, for the medical investment, we realize it needs to involve in more cross industry collaboration. Therefore, starting from 2016, we began to talk with hospitals, medical institutions, and long-term caring centers in Taiwan regarding the establishment of the medical platform system and the cooperation of medical equipment. Compal’s smart medical team has also actively participated in public health issues and became the co-developer for New Taipei City’s “Fit for Age” Project in 2016. We believe our investment in Smart Medical and Healthcare will become the company’s new business driver over the next 3-5 years. Honors and awards With all the continuous efforts invested in innovations, Compal has won 10 awards from the German 《iF》 product designs in 2016. The total 39 awards accumulated over the past 5 years have made Compal become the 15th in the Global Innovation ranking. With regard to the corporate governance, Compal received the award for top 20% ranking in the Corporate Governance Evaluation by the Taiwan Stock Exchange Corporation (TWSE) in 2016, and it has been consecutively selected as a Stock Exchange Corporate Governance Index constituent stock for many years. Moreover, the CommonWealth Magazine ranked the Company No. 26 in the “CSR Corporate Citizen Awards” for large corporations in 2016. With regard to the green environment, Compal was on the list of participants of the United Nations Climate Change Framework Convention 2050 greenhouse gas reduction path platform for the first time, and became one of the three Taiwanese companies in it. Compal was once again recognized by the public for its investments towards sustainability. 2017 Business Outlook Looking ahead to 2017, although the global macro still have uncertainties, for Compal, we think the most difficult year has passed, and we are ready to greet some light in the business. According to the market research firm (IDC), the global notebook, tablet, smartphone, and wearable device market in 2017 will grow +0.6%, -8.0%, +4.2% and +28.6%, respectively comparing to the previous year. With the consideration of the global market condition and the company’s business development itself, we expect Compal’s total shipment of 5C-related electronic products to grow 10% year-over-year in 2017. Furthermore, we expect the revenue of non-PC products to continuously march for exceeding 30% contribution. Meanwhile, Compal is committed to strengthen the enterprise constitution continually, to put efforts in the comprehensive organization innovations, collaborations, resource integrations, efficiency improvement, and 4 to further enhance profitability and competitive position in the industry. Once again, we sincerely appreciate your support and advice for Compal and wish you a peaceful and prosperous year! Sincerely yours, Chairman: Sheng-Hsiun Hsu (Rock Hsu) Chief Executive Officer (CEO): Jui-Tsung Chen (Ray Chen) Chief Finance Officer (CFO): Ching-Hsiung Lu (Gary Lu) 5 II. Company Profile 2.1 Date of Incorporation: June 1, 1984 2.2 Company History Company history in the past two years: Year 2015 2016 Milestones Ranked 423rd on the Fortune Global 500. • Won 6 awards of 2015 “iF design” and ranked 18th on Global Innovation. • • • Ranked 1412nd on the Fobes Global 2000. Ranked 6th in CommonWealth Magazine’s “Top-2000 Manufacturers” and 44th in the “Cross-strait • • • • • • • Top-1000 Survey.” Top 5% TWSE –listed companies of the “First Round of Corporate Governance Evaluation” conducted by TWSE. Ranked 16th on CommonWealth Magazine’s Top 50 CSR in Corporate Citizen Awards. Ranked 34th on The 100 most sustainable companies in Asia by CSR Asia Summit. 4th National Industrial Innovation Award of Ministry of Economic Affairs, R.O.C for Innovative Trailblazer Award. Received Taiwan Corporate Sustainability Report Awards in “2015 Taiwan Corporate Sustainability Awards.” – ICT Manufacturing - The Bronze Medal. First-time being included in the 2015 Climate Disclosure Leadership Index (CDLI) by Carbon Disclosure Project CDP (CDP). First-time completion of the inspections and verifications of the emissions produced by staff business flights of GHG Protocol Scope 3. The Company’s share capital reached NTD 44.7 billion by the end of 2015. • • The Company earned NTD 847.3 billion in consolidated revenues in 2015. • Won 10 awards of 2016 “iF design” and ranked 15th on Global Innovation. • Ranked within top 6%~20% TWSE-listed companies of the “Second Round of Corporate Governance Evaluation” by TWSE Ranked 4th in CommonWealth Magazine’s “Top-2000 Manufacturers.” Ranked 48th in CommonWealth Magazine’s “Cross-strait Top 1000 Survey. Ranked 400th on the Fortune Global 500. Ranked 1467th on the Forbes Global 2000. Ranked 26th on CommonWealth Magazine’s Top 50 CSR in Corporate Citizen Awards. Ranked 25th on The 100 most sustainable companies in Asia by CSR Asia Summit. Received Taiwan Corporate Sustainability Report Awards in “2016 TCSA” – ICT Manufacturing – The Silver Medal. The Company’s share capital reached NTD 44.2 billion by the 2016. The Company earned NTD 766.8 billion in consolidated revenues in 2016. • • • • • • • • • 6 2017 • Won 4 awards of 2017 “iF design” and ranked 31th on Global Innovation. • Ranked within top 6%~20% TWSE-listed companies of the “Third Round of Corporate Governance Evaluation” by TWSE. • • Ranked 5th in CommonWealth Magazine’s “Top-2000 Manufacturers”. Ranked 53th in CommonWealth Magazine’s “Cross-strait Top 1000 Survey. 7 III. Corporate Governance Report 3.1 Organization 3.1.1 Organizational Chart (As of Jan 1, 2017) Shareholders Board of Directors President’s Office Remuneration Committee Audit Committee Personnel Evaluation Committee Investment Office Legal Affairs Office Insider Trading Prevention Office PC BG Smart Device BG Auditing Office Top Management Committee Green Sustainability Office Corporate Social Responsibility Office Accounting Group HR & Administration 8 3.1.2 Major Corporate Functions Department Functions President’s Office Responsible for the Company’s operation Investment Office Responsible for investment-related activities Auditing Office Conducts internal audits Legal Affairs Office Handles the Company’s legal affairs Green Sustainability Office Executes “Green Life” projects Insider Trading Prevention Office Corporate Social Responsibility Office Implements preventive measures against insider trading Promotes and executes CSR-related affairs PC BG Responsible for the R&D, production, quality control and sale of PC products Smart Device BG Responsible for the R&D, production, quality control and sale of smart devices Accounting Group Handles accounting, share administration, and funding affairs HR & Administration Group Responsible for human resource, training, education, employee relations, procurement and building management 9 3.2 Directors, Supervisors and Management Team 3.2.1 Directors and Supervisors Title Name/ Nationality/Gender (Note 1) Elected Date Ter m First Elected Date (Note 3) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Current shareholding Shares held by proxy Shares Shareho lding Percent age (%) Shares Shareh olding Percent age (%) Shares Shareh olding Percent age (%) Shares Shareh olding Percent age (%) Chairman Hseng-Hsiun Hsu 2015.6.26 Director Jui-Tsung Chen 2015.6.26 Director Wen-Being Hsu 2015.6.26 3 years 3 years 3 years Director Kinpo Electronics, Inc. Representative: Shyh-Yong Shen 2015.6.26 3 years Director Charng-Chyi Ko(Note 2) 2015.6.26 3 years 1984.04.16 17,775,401 0.40% 8,975,401 0.20% 17,107,025 0.39% 0 0.00% 1992.04.30 50,782,587 1.14% 40,352,587 0.91% 1,069,405 0.02% 0 0.00% 1984.04.16 4,000,000 0.09% 4,000,000 0.09% 0 0.00% (Note3) (Note 3) 1990.06.22 151,628,692 3.39% 151,628,692 3.43% - - 0 0.00% 2012.03.14 0 0.00% 0 0.00% 0 0.00% 0 0.00% 1984.04.16 7,896,867 0.18% 7,896,867 0.18% 10,645 0.00% 0 0.00% Director Sheng-Chieh Hsu (Note 2) 2015.6.26 1997.05.29 9,119,297 0.20% 9,119,297 0.21% 8,834,928 0.20% (Note 3) (Note 3) 3 years 3 2015.6.26 years 1987.06.13 8,022,874 0.18% 8,022,874 0.18% 2,502,768 0.06% 0 0.00% Director Yung-Chia Chou (Note 2) Director Wen-Chung Shen 2015.6.26 3 years 1998.04.08 11,935,968 0.27% 11,935,968 0.27% 101,931 0.00% 0 0.00% 10 April 24, 2017 Spouse or relatives of second degree or as Directors, acting Supervisors, or department heads closer Title Name Relations hip Selected Current Positions held concurrently in the company and/or any other companies (Note 4) Director Director Sheng-Chieh Hsu Shyh-Yong Shen Brothers Father and son in law (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) Chairman Hseng-Hsiun Hsu Father and son in law (Note 4) N/A N/A N/A (Note 4) Chairman Hseng-Hsiun Hsu Brothers (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A Major career (academic) achievements Honorary Doctorate, National Taiwan Normal University Chairman of Kinpo and Compal Electronics Inc. Department of Electrical Engineering, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. National Tao-Yuan Sr. Vocational Agricultural & Industrial School Director of BAOTEK, Inc. M.B.A., University of Southern California; PhD, Whittier Law School MBA WHITTIER Director and President of Kinpo Electronics Inc. National Taiwan University College of Management Chairman and President of Taiwan Biotech Co., Ltd. Department of Architecture, Tam-Kang University Managing Director of Kinpo Electronics Inc. Department of Geosciences, National Taiwan University Supervisor of Kinpo Electronics Inc. Department of Electrical Engineering, National Taiwan University Director of Arcadyan Technology Corp. Title Name/ Nationality/Gender (Note 1) Elected Date Ter m First Elected Date (Note 3) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Current shareholding Shares held by proxy Shares Shareho lding Percent age (%) Shares Shareh olding Percent age (%) Shares Shareh olding Percent age (%) Shares Shareh olding Percent age (%) Director Yung-Ching Chang 2015.6.26 Director Chung-Pin Wong 2015.6.26 Director Chiung-Chi Hsu 2015.6.26 Director Chao-Cheng Chen 2015.6.26 Independent Director Min-Chih Hsuan 2015.6.26 Independent Director Duei Tsai 2015.6.26 Independent Director Duh-Kung Tsai 2015.6.26 3 years 3 years 3 years 3 years 3 years 3 years 3 years 2000.03.30 3,898,587 0.09% 3,178,587 0.07% 7,259 0.00% 0 0.00% 2007.06.15 4,833,618 0.11% 5,853,618 0.13% 1,398 0.00% 0 0.00% 1994.04.23 2,000,731 0.04% 2,000,731 0.05% 30,000 0.00% 0 0.00% 2014.6.20 4,850,000 0.11% 4,020,000 0.09% 1,428 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Selected Current Positions held concurrently in the company and/or any other companies Spouse or relatives of second degree or as Directors, acting Supervisors, or department heads closer Title Name Relations hip (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A Major career (academic) achievements Master’s Degree in Graduate School of Management, Yuan Ze University Chairman of Allied Circuit Co., Ltd. Graduate Institute of Management Science, National Chiao Tung University Chairman of Rayonnant Technology Holdings Ltd. Master’s Degree, Golden Gate University, San Francisco, USA Director of I PAO Bearing Co., Ltd. Graduate Institute of Electrical Engineering, National Taiwan University President of Compal Communication Inc. Honorary Doctorate, National Chiao Tung University Chairman of United Microelectronics Corp. & Faraday Technology Corp. PhD, Graduate Institute of Electrical Engineering,National Taiwan University Minister of Transportation and Communications R.O.C. Department of Industrial Engineering, National Taipei Institute of Technology Chairman of Powertech Technology Inc. Note: All directors are Republic of China nationals and male. 2. The previous supervisors Charng-Chyi Ko, Sheng-Chieh Hsu and Yung-Chia Chou resigned as of June 26, 2015 and were elected as directors in 2015 shareholders meeting. The service of Supervisor Sheng-Chieh Hsu was temporarily discontinued between June 22, 1990 and April 22, 1994. 3. Director Wen-Being Hsu held 5,000,000 shares (0.11%) through proxies, while Supervisor Sheng-Chieh Hsu held 3,500,000 shares (0.08%) through proxies. 4. Selected Current Positions as below: 11 Title Name Chairman Sheng-Hsiun Hsu Director Jui-Tsung Chen Selected Current Positions Chairman: Kinpo Electronics, Inc, Acbel Polytech Holdings Inc., Teleport Access Services Inc., New Kinpo Group, TAS - Teleport Access Services Gempal Technology Corp., Panpal Technology Corporation, Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Zhaopal Investment Co., Ltd., Yongpal Investment Co., Ltd., Kaipal Investment Co., Ltd., Jipo Investment Inc., Kinpo Group Management Consultant Company, Breeze Integrated Development Co., Ltd. and China Productivity Center, Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (Chongqing) Co., Ltd., Compal Electronics (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Kinpo Electronics (China) Co., Ltd., Managing Director: Taiwan Biotech Co., Ltd. Director: Baotek Industrial Materials Ltd., Crownpo Technology Inc., Compal System Trading (Kunshan) Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communication (Suzhou) Co., Ltd., Acbel Polytech Holdings Inc., Acbel Polytech (Singapore) Pte. Ltd., Ascendant Private Equity Investment Ltd., Billion Sea Holdings Limited, Big Chance International Co., Ltd., Center Mind International Co., Ltd., Compal Display Holding (HK) Limited, Compal Electronics (Holding) Ltd., Compal Electronics International Ltd., Compal International Ltd, Compal International Holding (HK) Limited., Compal International Holding Co., Ltd., Compal Rayonnant Holding Ltd., Core Profit Holdings Limited, Flight Global Holding Inc., Forward International Ltd., Fortune Way Technology Corp., Global Strategic Investment Inc., Goal Reach Enterprises Ltd., HengHao Holding A Co., Ltd., HengHao Holding B Co., Ltd., HengHao Trading Co., Ltd., High Shine Industrial Corp., Intelligent Universal Enterprise Ltd., Jenpal International Ltd., Just International Ltd., Kingbolt International (Singapore) Pte. Ltd., Kinpo International Ltd., Lipo Holding Co., Ltd., Prospect Fortune Group Ltd., Prisco International Co., Ltd., Ranashe International Ltd., Smart International Trading Ltd.and so forth President: Kinpo Group Management Consultant Company Other: Chinese National Federation of Industries President,Importers and Exporters Association of Taipei Honorary President,, Taiwan Electrical and Electronic Manufacturers’ Association Strategy Consultant, China Productivity Center Chairman, Straits Exchange Foundation Vice Chairman,SINOCON Industrial Standards Foundation Vice Chairman,Taiwan Design Center Managing Director, Management Institute in Taipei Director Chairman: Arcadyan Technology Corp., Ripal Optoelectronics Co., Ltd. Infinno Technology Corporation, Huang Feng Communication Co., Ltd., UNICOM GLOBAL INC., General life Biotechnology Co., Ltd., Unico Cell Biomed Co., Ltd., Compal System Trading (Kunshan) Co., Ltd., Amexcom Electronics, Inc. Director: New Kinpo Group, Compal Broadband Networks, Inc., Henghao Technology Co., Ltd., Mactech Co., Ltd., Gempal Technology Corp., Panpal Technology Corp., Reber Biotech Co., Ltd., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Zhaopal Investment Co., Ltd., Yongpal Investment Co., Ltd., Kaipal Investment Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Electronics (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Network Information (Kunshan) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Compal (Vietnam) Co., Ltd., Compal Development & Management (Vietnam) Co., Ltd., Ascendant Private Equity Investment Ltd., Arcadyan Technology N.A. Corporation, Arcadyan Holding (BVI) Corp., Arch Holding (BVI) Corp., Billion Sea Holdings Limited, Big Chance International Co., Ltd., Bizcom Electronics, Inc., Center Mind International Co., Ltd., Compal Display Holding (HK) Limited, Compal Electronics International Ltd., Compal Electronics (Holding) Ltd., Compal International Ltd., Compal International Holding Co., Ltd., Compal International Holding (HK) Limited, Compal Rayonnant Holding Ltd., Compalead Electronics B.V., Core Profit Holdings Limited, Etrade Management Co., Ltd., Flight Global Holding Inc., Forever Young Technology Inc., Fortune Way Technology Corp., Giant Rank Trading Ltd., Goal Reach Enterprises Ltd., HengHao Holding A Co., Ltd., HengHao Holding B Co., Ltd., HengHao Trading Co., Ltd., High Shine Industrial Corp., Intelligent Universal Enterprise Ltd., Jenpal International Ltd., Just International Ltd., Prospect Forture Group Ltd., Prisco International Co., Ltd., Smart International Trading Ltd., Sinoprime Global Inc., Wah Yuen Technology Holding Ltd., Webtek Technology Co., Ltd. President: Compal Electronics, Inc., Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Zhaopal Investment Co., Ltd., Yongpal Investment Co., Ltd., Kaipal Investment Co., Ltd. 12 Title Director Name Wen-Being Hsu Director: Baotek Industrial Materials Ltd. Selected Current Positions Chairman: CastleNet Technology Inc., Cal-Comp Biotech Co., Ltd.、Cal-Comp Big Data, Inc, XYZprinting Co., Ltd., Kaipo Electronics Co., Ltd. Cal-Comp Optoelectronic (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics & Communications (Suzhou) Co., Ltd., Peifeng (Kunshan) Co., Ltd., Xinli (Shanghai) Network Technology Co., Ltd., Cal-Comp Precision (Wujiang) Co., Ltd, Cal-Comp Precision (Dongguan) Co., Ltd., Avaplas Precision Plastics (Shanghai) Co., Ltd, XYZprinting (Suzhou) Co., Ltd., Cal Comp (Malaysia) SDN. BHD., Cal-Comp Electronics de Mexico Co. S.A. de CV, Cal-Comp Precision (Philippines) Ltd., Cal-Comp Precision (Singapore) Ltd., Cal-Comp Technology (Philippines), INC., Kinpo Electronics (Philippines) Inc., XYZLife (Philippines) Inc., XYZprinting Japan, Inc. Vice Chairman: Cal-Comp Technology Co., Ltd., and PChome (Thailand) Co., Ltd. Director: New Kinpo Group, AcBel Polytech Inc., Cal-Comp Electronics & Communications (Suzhou) Co., Ltd., Qbit Semiconductor Ltd., Dawning Leading Technology Inc., Jipo Investment Inc., Kinpo Group Management Consultant Company, Kinpo Electronics (China) Co., Ltd., Ascendant Private Equity Investment Ltd., Cal-Comp Big Data International Ltd., Cal-Comp Electronics (USA) Co., Ltd., Cal-Comp Holding (Brasil) S.A., Cal-Comp Industria De Semicondutores S.A., Cal-Comp Precision (Malaysia) Sdn. Bhd., Cal-Comp Precision (Thailand) Ltd., Cal-Comp USA (San Diego) Co., Ltd., Castlenet Techology (BVI) Inc., Kinbolt International (Singapore) Pte. Ltd., Kinpo International Ltd., Power Station Holdings Ltd., QBit Semiconductor Holding, Ltd., XYZprinting, Inc. (Korea), XYZprinting, Inc. (Samoa), XYZprinting, Inc. (U.S.A), XYZprinting Netherlands, B.V., XYZprinting (Thailand) Co. Ltd. President: New Kinpo Group, Cal-Comp Electronics & Communications Co., Ltd., Cal-Comp Big Data, Inc, Kinpo Electronics (China) Co., Ltd., Cal-Comp Optoelectronic (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics & Communications (Suzhou) Co., Ltd., Xinli (Shanghai) Network Technology Co., Ltd., Avaplas Precision Plastics (Shanghai) Co., Ltd, , XYZprinting (Suzhou) Co., Ltd., Cal-Comp Electronics (USA) Co., Ltd., Cal-Comp USA (Indiana) Co., Ltd., Cal-Comp USA (San Diego) Co., Ltd., XYZprinting, Inc. (U.S.A) Chairman: Baotek Industrial Materials Ltd., Taiwan Biotech Co., Ltd., SMARTINT, INC., Evergene Biotech Industrial Co., Ltd., Wei Ke Biotech Co., Ltd., Global BioPharma, Inc. ,Genhealth Pharma Co., Ltd., Taiwan Veterans Pharmaceutical Co., Ltd., Chao Chien Industrial Co., Ltd., You Yuen Co., Ltd., Taiwan Venture Capital Association, Chang Yi Investment Co., Ltd., Yin Feng International Co., Ltd., Charleston Asset Management Co., Ltd., Twin Luck Global Co., Ltd. Director: New Kinpo Group, Tong Tong Information Co., Ltd., Sintong Animal Pharmaceutical Co., Ltd., OmniHealth Group, Inc., AIM PIC/S GMP, Chi Ji International Co., Ltd., Min-Sheng Asset Management Co., Ltd., Min-Sheng Healthcare Co., Ltd., Global Strategic Investment Inc. (Samoa), Gold Precision Ltd., KKXC Intergrated Management Holding (CYPRUS) Ltd., Medinox Inc., Optics Lab Inc., Syn Pharm Inc. Supervisor: Teleport Access Services Inc., Cal-Comp Electronics & Communications Co., Ltd., Kenly Precision Industrial Co., Ltd., Formosan Union Chemical Corp., Sunny Special Dyeing & Finishing Co., Ltd., Zhaopal Investment Co., Ltd., Yongpal Investment Co., Ltd., Kaipal Investment Co., Ltd., CommonWealth Magazine Group President: Baotek Industrial Materials Ltd., Yin Feng International Co., Ltd. Chairman: Cheng Chi Investment Co., Ltd. Director: New Kinpo Group, Cal-Comp Technology Co., Ltd., Cal-Comp Electronics & Communications Co., Ltd., Jipo Investment Inc., Kinpo Electronics (China) Co., Ltd., , Kaipo Electronics Co., Ltd., Kinpo International Ltd. Supervisor: Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd. Chairman: Sceptre Industry Co., Ltd. Director: New Kinpo Group, Micro Metal Electronics Co., Ltd. Supervisor: Full Power Investment Co., Ltd. President: Sceptre Industry Co., Ltd. Director Kinpo Electronics Inc. Representative: Shyh-Yong Shen Director Charng-Chyi Ko Director Sheng-Chieh Hsu Director Yen-Chia Chou 13 Title Director Name Wen-Chung Shen Director Yung-Ching Chang Director Chung-Pin Wong Director Chiung-Chi Hsu Director Chao-Cheng Chen Independent Director Min Chih Hsuan Independent Director Duei Tsai Selected Current Positions Director: Arcadyan Technology Corp., Topower Co., Ltd., Arcadyan Technology (Shanghai) Corp., Maxima Ventures I, LC Future Center Ltd Senior Consultant: Compal Electronics, Inc. Chairman: Allied Circuit Co., Ltd., Mactech Co., Ltd. Director: Kunshan Allied Circuit Co., Ltd., Wei Chu Holding Co., Ltd., Bo Feng Capital Management Co., Ltd., Senior Consultant: Compal Electronics, Inc. Chairman: Henghao Technology Co., Ltd., Jui Hong Technology Co., Ltd., Kunshan Botai Electronic Services Co., Ltd., Auscom Engineering Inc., Wah Yuen Technology Holding Ltd. Director: Arcadyan Technology Corp., Allied Circuit Co., Ltd, Mactech Co., Ltd., Panpal Technology Corp., Ripal Optoelectronics Co., Ltd., UNICOM GLOBAL INC., General life Biotechnology Co., Ltd., Unico Cell Biomed Co., Ltd.,, Sanga Taiwan Co., Ltd., Hong Ji Capital Co., Ltd., Zhaopal Investment Co., Ltd., Yongpal Investment Co., Ltd., Kaipal Investment Co., Ltd., Compal System Trading (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronic Technology (Chongqing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Changbao Electronic Technology (Chongqqing) Co., Ltd., Allied Power Holding Corp., Amexcom Electronics, Inc., Bizcom Electronics, Inc., Compal Connector Manufacture Ltd., Compal Europe (Poland) Sp. z o.o., Primetek Enterprises Ltd., Sirqul Inc. Supervisor: Hong Ye Technology Corporation Executive Vice President: Compal Electronics Inc. Chairman: Full Power Investment Co., Ltd. Director: Plank Optoelectronics Inc., Eb Bearing Co., Ltd., Chienhsinbao Hardware Co., Ltd. Chairman: Compal Broadband Networks Inc., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co. Ltd., HANHELT Communications (Nanjing) Co., Ltd. Director: Mactech Co., Ltd., Henghao Technology Co., Ltd., Gempal Technology Corp., Huang Feng Communication Co., Ltd., Ripal Optoelectronics Co., Ltd., General Life Biotechnology Co., Ltd., Unico Cell Biomed Co., Ltd., Hong Jing Co., Ltd., Kinpo Group Management Consultant Company, Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Electronics (China) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Amexcom Electronics, Inc., Bizcom Electronics, Inc., CENA Electromex S. A. de C. V., Compalead Electronics, B. V., Mexcom Electronics, LLC, Mexcom Technologies, LLC, Speedlink Tradings Ltd. President: Compal Investment (Jiangsu) Co., Ltd. Executive Vice President: Compal Electronics Inc. Chairman: Taiwan Memory Corporation, Meridigen Biotech Co., Ltd., Maxima Ventures I, Inc., Maxima Ventures II, Inc. Director: D-Link Corporation, Alpha Networks Inc., Murad Chia Jei Biotechnology Co., Ltd., General Biologicals Corporation, SIPP Technology Corporation, Clientron Corp., Pacgen Biopharmaceuticals Corporation (Canada) Independent Director: Wistron Corporation, Siliconware Precision Industries Co., Ltd. Remunerate Committee member: Compal Electronics, Inc., Wistron Corporation, Siliconware Precision Industries Co., Ltd. Audit Committee member :Compal Electronics, Inc., Wistron Corporation, Siliconware Precision Industries Co., Ltd. Independent Director: Getec Technology Corporation,TaiwanTaxi Corp., TTY Biopharm Remunerate Committee member: Compal Electronics, Inc.,Getec Technology Corporation, TaiwanTaxi Corp., TTY Biopharm Audit Committee member:Compal Electronics, Inc., TTY Biopharm Chairman: Powertech Technology Inc., Greatek Electronics Inc. Director: Powertech Technology (Suzhou) Ltd., Powertech Holding (B.V.I.) Inc., Powertech Technology (Singapore) Pte. Ltd. and PTI Technology (Singapore) Pte. Independent Director Duh Kung Tsai Ltd. Independent Director: Wistron Corporation, Chicony Power Technology Co., Ltd. Remunerate Committee member: Compal Electronics, Inc., Wistron Corporation, Chicony Power Technology Co., Ltd. Audit Committee member: Compal Electronics, Inc., Wistron Corporation, 14 Major shareholders of the Company’s corporate shareholders Name of corporate shareholder Kinpo Electronics, Inc. Major shareholders of the corporate shareholder (Note) Compal Electronics, Inc. (8.52%), Jipo Investment Inc.(3.17%), Nan Shan Life Insurance Company Ltd. (2.85%), Lai-Shun Shen Tsai (2.84%), Panpal Technology Corporation(1.59%), Citibank Taiwan in its Capacity as Trustee of NBIM Investment Account (1.58%)、Hebao Investment Co., Ltd. (1.50%), Li-Chu Tsai (1.49%), Standard Chartered in custody of CITIC Hong Kong accounts (1.44%), Kun-Chao Shen (1.39%) April 25, 2017 Note: If the major shareholder is also a corporate entity, please refer to the following table. Major shareholders of the Company’s major corporate shareholders Name of corporate shareholder Major shareholders of corporate shareholders Jipo Investment Inc. Kinpo Electronics Inc. (100%) Nan Shan Life Insurance Company Ltd. First Commercial Bank in its Capacity as Trustee of Ruen Chen Investment Holding (76.46%), Ruen Chen Investment Holding (14.16%), Ying-Zong Tu (3.25%), Ruen Hua Dyeing & Weaving Co., Ltd.(0.28%), Ruentax Leasing Co., Ltd.(0.15%), Wen-De Kuo (0.11%), Jipin Investment Co., Ltd.(0.11%), Bao Chi Investment Co., Ltd. (0.05%), Bao Yi Investment Co., Ltd.(0.05%), Bao Hui Investment Co., Ltd. (0.05%) and Bao Huang Investment Co., Ltd. (0.05%) Panpal Technology Corporation Compal Electronics Inc. (100%) Hebao Investment Co., Ltd. Chieh-Li Hsu (41.52%), Li-Chu Tsai (27.83%), Yong-Hsu Hsu (12.50%), Chun-Chi Hsu (12.50%), Huang-Hsin Hsu(2.83%), Yue-Hsia Huang Hsu(1.41%), Yue-Chen Hsu (1.41%) 15 Professional qualifications and independence analysis of directors and supervisors Criteria Name Sheng-Hsiun Hsu Jui-Tsung Chen Wen-Being Hsu Kinpo Electronics Inc. Representative: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Wen-Chung Shen Yung-Ching Chang Chung-Pin Wong Chiung-Chi Hsu Chao-Cheng Chen Min Chih Hsuan Duei Tsai Duh Kung Tsai Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company Having Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company Independence Criteria (Note) 1 2 3 4 5 6 7 8 9 10 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) 0 0 0 0 0 0 0 0 0 0 0 0 2 3 2 Note: Tick the corresponding boxes that apply to the directors or supervisors 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. 16 2. Not a director or supervisor of the Company or any of its affiliates. Not applicable 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 third degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company or who holds shares ranking in the top five holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual who is 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 a person of any conditions defined in Article 30 of the Company Act. 10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Act. 17 3.2.2 Management Team Title Name/ National ity/ Gender (Note 1) Date elected / appointed Shares held Shares Shareho lding Percent age (%) Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareho lding Percent age (%) Shares Sharehol ding Percentag e (%) Major career (academic) achievements Selected Current Positions 1989.06.01 40,352,587 0.91% 1,069,405 0.02% 0 0.00% Department of Electrical Engineering, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. Graduate Institute of Management Science, 2007.04.01 5,853,618 0.13% 1,398 0.00% 2014.02.27 4,020,000 0.09% 1,428 0.00% 2011.08.31 0 0.00% 0 0.00% 2002.01.01 11,935,968 0.27% 101,931 0.00% 0 0 0 0 0.00% National Chiao Tung University Rayonnant Technology Co., Ltd.Chairman Graduate Institute of Electrical Engineering, 0.00% National Taiwan University President of Compal Communication Inc. National Chiao Tung University EMBA Corporation Department of Electrical Engineering, National 0.00% Taiwan University 2003.01.01 3,178,587 0.07% 7,259 0.00% 0 0.00% Director of Arcadyan Technology Corp. Master’s Degree in Graduate School of Management, Yuan Ze University Director and President of Toppoly Optoelectronics Corp. Graduate Institute of Electrical Engineering, President Jui-Tsung Chen Executive Vice Chung-Pin President Wong Executive Vice Chao-Cheng President Chen Executive Vice Chen-Chang President Hsu Senior Advisor Wen-Chung Shen Senior Advisor Yung-Ching Chang Senior Vice President Chun-De Shen Senior Vice President Kuo-Chuan Chen April 24, 2017 Spouse or relatives of second degree or closer acting as managers Title Name Relatio nship Vice President Bo-Tang Wang Relative by affinity N/A N/A N/A N/A N/A N/A Refer to Page 12-14 Refer to Page 12-14 Refer to Page 12-14 Refer to Page 12-14 Refer to Page 12-14 N/A N/A N/A N/A N/A N/A 2007.01.01 2,638,700 0.06% 900,000 0.02% 0 0.00% National Taiwan University (Note 3) N/A N/A N/A Director of Kinpo Electronics Inc. Department of Physics, Chung Yuan Christian 2007.01.01 1,140,823 0.03% 10,924 0.00% 0 0.00% University N/A N/A N/A N/A Senior Vice President of Compal 18 0.00% Executive Vice President of WINTEK (Note 3) N/A N/A N/A Title Name/ National ity/ Gender (Note 1) Date elected / appointed Shares held Shares Shareho lding Percent age (%) Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareho lding Percent age (%) Shares Sharehol ding Percentag e (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relatio nship 2009.10.06 3,487,698 0.08% 1,045,585 0.02% 0 0.00% College (Note 3) N/A N/A N/A Communication Inc. Department of International Trade, Hsingwu Senior Vice Pei-Yuan President Chen Senior Vice Chiu-Rui President Wei Senior Vice President Ming-Chih Chang Senior Vice President Sheng-Hua Peng Senior Vice President Wen-Da Hsu Senior Vice President Wei-Cheng Chen Senior Vice President Hsi-Kuan Chen Senior Vice President Chih-Wei Wen 2010.03.18 200,000 0.00% 142,966 0.00% 0 0.00% Senior Vice President Ying Chang 2011.02.24 420,000 0.01% 0 0.00% 2011.08.01 1,919,489 0.04% 0 0.00% 0 0 0.00% 0.00% 2014.02.27 520,000 0.01% 0 0.00% 0 0.00% 2014.02.27 1,093,000 0.02% 0 0.00% 0 0.00% 2004.04.01 630,656 0.01% 0 0.00% 0 0.00% 2009.05.01 0 0.00% 0 0.00% 2017.05.10 0 0.00% 0 0.00% 0 0 0.00% 0.00% 19 Director of Kinpo Electronics Inc. Master of Business Administration, University of Washington, USA Senior Vice President of Toppoly Optoelectronics Corp. MBA, University Of Georgia President of Swenc Technology Co., Ltd. Department of Electrical Engineering, Ming Chi University of Technology LCFC (Hefei) Co., Ltd. CEO Graduate Institute of Electrical Engineering, National Taiwan University Senior Vice President of Compal Communication Inc. Department of Media Administration, Shih Hsin University Senior Vice President of Compal Communication Inc. Department of Electronic Engineering, Taipei College of Maritime Technology Vice President of Cheong Tat Technology Master of Industrial Design, Cranbrook Academy of Art Director of Design and Customer Affairs, Philips (Hong Kong) Department of Electrical Engineering, Fu Jen Catholic University (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A Title Name/ National ity/ Gender (Note 1) Date elected / appointed Shares held Shares Shareho lding Percent age (%) Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareho lding Percent age (%) Shares Sharehol ding Percentag e (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relatio nship 2003.01.01 1,923,786 0.04% 51,194 0.00% 0 0.00% 2003.01.01 8,762,007 0.20% 0 0.00% 0 0.00% 2003.01.01 10,197 0.00% 0 0.00% 0 0.00% 2006.02.21 132,000 0.00% 270 0.00% 0 0.00% 2007.07.10 459,548 0.01% 486 0.00% 0 0.00% Inventec Corp. Vice President Department of Electronic Engineering, Lunghwa University of Science and Technology Deputy Manager of Research and Development, Top Information Technologies Co., Ltd. Department of Accounting, Feng Chia University Director Compal Communication Inc. Graduate Institute of Electrical Engineering, San Jose State University KC Technology Inc.Vice President Department of Electrical Engineering, National Taipei Institute of Technology UNICOM GLOBAL., Inc. Director Department of Computer Science and Information Engineering, National Taiwan University President of Vibo Telecom Inc. 2009.07.16 318,184 0.01% 0 0.00% 2009.07.16 124,662 0.00% 0 0.00% 0 0 0.00% National Taipei Institute of Technology Head of Research and Development, CLEVO Company 0.00% National Chin-Yi University of Technology Production Manager, ADI Corp Vice President Chih-Chuan Cheng Vice President and head of finance Ching-Hsiu ng Lu Vice President Shih-Tung Wang Vice President Bo-Hsiung Chang Vice President Bo-Tang Wang Vice President Vice President Zong-Ming Wang Fu-Chuan Chang N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A President Jui-Tsung Chen Relative by affinity N/A N/A N/A N/A (Note 3) N/A N/A N/A 20 Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relatio nship Title Name/ National ity/ Gender (Note 1) Date elected / appointed Shares held Shares Shareho lding Percent age (%) Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareho lding Percent age (%) Shares Sharehol ding Percentag e (%) Vice President 2011.01.01 52,624 0.00% 0 0.00% 0 0.00% Chi-Hsiang Ma Yung-Nan Vice President 2011.01.01 0 0.00% 0 0.00% Vice President Chang Sheng-Hung Li 2011.07.01 324,574 0.01% 0 0.00% Vice President Yung-He Su 2011.07.01 320,401 0.01% 0 0.00% Department of Business Administration, Fu Jen Catholic University Product Manager, MiTAC International Corporation 0 0 0 0.00% MBA, Pacific Western University Factory Manager, Delta Electronics Inc. 0.00% Department of Electronics, National Taipei Institute of Technology 0.00% Department of Electrical Engineering, National Taipei Institute of Technology Vice President of Arima Photovoltaic & Optical Corp. Vice President Ming-Hsian g Kan Vice President Chih-Hsien Liang Vice President Lung-Hua Shen Vice President Ming-Dong Wong Vice President Yue-Chun Li 2011.08.31 0 0.00% 0 0.00% 0 0.00% 2011.10.31 160,000 0.00% 0 0.00% 0 0.00% 2012.08.29 240,000 0.01% 0 0.00% 0 0.00% 2013.01.31 383,786 0.01% 0 0.00% 0 0.00% 2014.02.17 240,000 0.01% 0 0.00% 0 0.00% 21 University of Leicester(U.K.)MBA Vice President of NB R&D, Flextronics International (Taiwan) Ltd. University of Colorado Postgraduate Institute of Digital Communication/Vice President of Wireless Communication, Altek Corporation Department of Civil Engineering,Tamkang University Vice President of Procurement, ASUS Ltd. Master of Business Administration, University of Washington, USA Deputy Manager of Sales, Kapok Computer Company Department of Electronic Engineering, Lee-Ming Institute of Technology Chairman's Special Assistant, Mag Technology Co., Ltd. N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Title Name/ National ity/ Gender (Note 1) Date elected / appointed Shares held Shares Shareho lding Percent age (%) Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareho lding Percent age (%) Shares Sharehol ding Percentag e (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relatio nship Vice President Chiao-Lieh Huang Vice President Chung-Hsin g Tan Vice President Yi-Yun Chang Vice President Vice President Hsin-Kung Mao Ling-Sheng Wu Vice President Hsin-Hsiun g Huang Shih-Hung 2014.02.27 118,992 0.00% 0 0.00% 2014.02.27 250,000 0.01% 5,320 0.00% 2014.08.13 350,246 0.01% 0 0.00% 2014.11.13 240,714 0.01% 0 0.00% 2015.01.22 285,000 0.01% 0 0.00% 2015.01.22 299,001 0.01% 0 0.00% Vice President 2016.02.24 160,000 0.00% 0 0.00% 0 0.00% Huang Yi-Chiang Vice President 2016.02.24 160,000 0.00% 0 0.00% 0 0.00% Chiu Vice President Ching-Fa Li 2016.02.24 200,690 0.00% 0 0.00% 0 0.00% Vice President 2016.02.24 160,010 0.00% 0 0.00% 0 0.00% Bo-Heng Chen 22 0 0 0 0 0 0 0.00% Graduate Institute of Electrical Engineering, National Taiwan University Vice President of Compal Communication Inc. 0.00% 0.00% 0.00% Department of Electrical Engineering, Tatung University Vice President of Compal Communication Inc. Graduate Institute of Electrical Engineering, National Taiwan University Senior Manager of Compal Communication Inc. Master of Business Administration, University of Lincoln Head of Business, Display BU 0.00% U. of Southern California; Senior Manager of Compal Communication Inc. 0.00% Department of Electronics, Chung Yuan Christian University Senior Manager of Compal Communication Inc. Master in Control Engineering, National Chiao Tung University Director - Coretronic Corporation Master in Earth Sciences, National Central University Information Engineering Ph.D., National Tsing Hua University Vice General Manager – Eten Technology Inc. COLUMBIA UNIVERSITY Master of Industrial Engineering and Operations Management (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Title Name/ National ity/ Gender (Note 1) Date elected / appointed Shares held Shares Shareho lding Percent age (%) Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareho lding Percent age (%) Shares Sharehol ding Percentag e (%) Vice President Jui-Chun Hsu 2016.05.11 0 0.00% 0 0.00% 0 0.00% Vice President Shih-An Li 2016.06.29 76,071 0.00% 4,259 0.00% 0 0.00% Vice President Ta-Chun Wang Vice President Fei-Long Chen Advisor Tian-Yuan Tsai Head of Audit Bo-Wen Hsieh 2016.06.29 204,200 0.00% 4,119 0.00% 0 0.00% 2016.06.29 9,000 0.00% 0 0.00% 2006.06.28 712,715 0.02% 0 0.00% 0 0 0.00% 0.00% 2010.10.27 0 0.00% 0 0.00% 0 0.00% Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relatio nship PhD, Graduate Institute of Electrical Engineering, National Taiwan University Photonics Industries International, Inc.President Department of Navigation, Taipei College of Maritime Technology LCFC Taiwan Branch Vice CEO Master of Industrial Engineering, University of Illinois Shanghai Real Industrial Co., Ltd. Managing Vice President PhD, Industrial Engineering, Auburn Uni., USA Kunshan MYZY Technology Co., Ltd. CTO Graduate Institute of Public Finance, National Chengchi University Accountant of KPMG Department of Accounting, National Taiwan University Audit Manager, KGT Telecom N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A Note: 1. All managers are ROC nationals; with the exception of Senior Vice President Chui-Rui Wei, all other managers are male. 2. Senior Vice President Min-Hsing Hsu and Vice President Chin-Wen Liao resigned in 2016. 3. Concurrent positions in other companies 23 Title Name Executive Vice President Chen-Chang Hsu Senior Vice President Senior Vice Chun-De Shen Pei-Yuan President Chen Senior Vice President Chiu-Rui Wei Senior Vice President Sheng-Hua Peng 3. Concurrent positions in other companies Chairman: Henghao Technology (Kunshan) Co., Ltd., Lucom Display Technology (Kunshan) Ltd. Vice Chairman: Henghao Technology Co., Ltd., Optronics Corporation Director: Mactech Co., Ltd. President: Henghao Technology Co., Ltd., Henghao Technology (Kunshan) Co., Ltd., Lucom Display Technology (Kunshan) Ltd. Director: Kinpo Electronics Inc., Compal Information Research & Development (Nanjing) Co., Ltd., Auscom Engineering Inc. President: Compal Information Research & Development (Nanjing) Co., Ltd. Director: Kinpo Electronics In., Infinno Technology Corporation, Full Power Investment Co., Ltd. Chairman: Allmedi Electronic Co., Ltd. Rapha Bio Ltd. Director: Chipbond Technology Corporation, Taiwan Star Telecom Corporation Limited, Suyin Optronics Corp., Trust Bio-Sonic Co., Ltd. ,Maxima Ventures I, Inc., HWA VI Venture Capital Corp., Hwa Chi Venture Capital Corp., ,CDIB Partners Investment Holding Corp., Zhengying Electronics (Chongqing) Co., Ltd., Compal Precision Model (Jiangsu) Co., ShengBao Precision Electronics (Taicang) Co., Ltd. , Rayonnant Technology (HK) Holdings Limited, LC Future Center Ltd Supervisor: Henghao Technology Co., Ltd., Infinno Technology Corporation, Rayonnant Technology Co., Ltd., Ripal Optoelectronics Co., Ltd., Mactech Co., Ltd., Unicom Global Inc., General life Biotechnology Co., Ltd., Global Pharma Co., Ltd., Unico Cell Biomed Co., Ltd., Rayonnant Precision Technology (Taicang) Co., Ltd. Independent Director: Synergy Scientech Corp. Remunerate Committee member: Synergy Scientech Corp. Director: Huang Feng communication Co., Ltd., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co. Ltd., HANHELT Communications (Nanjing) Co., Ltd., CENA Electromex S. A. de C. V., Compal Electronics India Private Limited President: Compal Display Electronics (Kunshan) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd. Senior Vice President Wen-Da Hsu Director: HANHELT Communications (Nanjing) Co., Ltd. Senior Vice President Ming-Chih Chang Vice Hsi-Kuan Chen President Vice President and head of finance Director: Kunshan Botai Electronic Services Co., Ltd., LC Future Center Ltd. President: Compal System Trading (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronic Technology (Chongqing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Director: Rayonnant Technology Holdings Ltd., Rayonnant Technology (Taicang) Co., Ltd. Ching-Hsiung Lu Director: ZHI-PAL Technology Inc., Arcadyan Technology (Shanghai) Corp., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co. Ltd., Kunshan Botai Electronic Services Co., Ltd., Great Arch Group Ltd., Leading Images Limited Supervisor: Compal Broadband Networks Inc., Accesstek Inc., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., 24 Title Name 3. Concurrent positions in other companies Compal Information Technology (Kunshan) Co., Ltd., Compal Electronics (China) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronic Technology (Chongqing) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Network Information (Kunshan) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Vice Bo-Hsiung President Chang Vice Fu-Chuan President Chang Vice Chiao-Lieh President Huang Advisor Tian-Yuan Tsai Director: Unicom Global Inc., Avalue Technology Inc. President: Compal Optoelectronics (Kunshan) Co., Ltd., Compal Electronics (China) Co., Ltd. Supervisor: HANHELT Communications (Nanjing) Co., Ltd. Chairman: Crownpo Technology Inc. Managing Director: LIZ Electronics (Kunshan) Co., Ltd., LIZ Electronics (Nantong) Co., Ltd. President: Crownpo Technology Inc. Remuneration Committee member: Sanyang Motor Co., Ltd. 25 3.2.3 Remuneration of Directors, Supervisors, President, and Vice Presidents Remuneration of Directors Directors' remuneration Remuneration from earnings appropriation (C) Pension (B) Remuneration (A) The Compa ny All compan ies include d in the financi al stateme nts The Com pany All compan ies include d in the financi al stateme nts The Compa ny All compan ies include d in the financi al stateme nts Business department implementation Fees for services rendered (D) All compan ies include d in the financi al stateme nts The Compa ny Remuneration as an employee Unit: NTD thousand; thousand shares; % The sum of A, B, C and D as a percentage of after-tax profit Salaries, bonuses, special allowances etc (E) Retirement Pension (F) Share of profit as an employee (G) The Compa ny All compan ies include d in the financi al stateme nts The Company All companie s included in the financial statement s The Compa ny All companie s included in the financial statement s The Company All companies included in the financial statements Cash Amount Stock Amoun t Cash Stock The sum of A, B, C, D, E, F, and G as a percentage of after-tax profit The Compa ny All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (H) 4,320 4,320 0 0 46,323 46,323 2,759 3,419 0.66% 0.66% 146,994 147,059 678 678 14,795 0 14,795 0 2.65% 2.66% 68,139 Title Name Chairman Director Director Director Director Director Director Director Director Director Sheng-Hsiun Hsu Jui-Tsung Chen Wen-Being Hsu Representativ e of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Wen-Chung Shen Yung-Ching Chang Chung-Pin Wong 26 Directors' remuneration Remuneration from earnings appropriation (C) Pension (B) Remuneration (A) The Compa ny All compan ies include d in the financi al stateme nts The Com pany All compan ies include d in the financi al stateme nts The Compa ny All compan ies include d in the financi al stateme nts Business department implementation Fees for services rendered (D) All compan ies include d in the financi al stateme nts The Compa ny The sum of A, B, C and D as a percentage of after-tax profit Salaries, bonuses, special allowances etc (E) Remuneration as an employee Retirement Pension (F) Share of profit as an employee (G) The Compa ny All compan ies include d in the financi al stateme nts The Company All companie s included in the financial statement s The Compa ny All companie s included in the financial statement s The Company All companies included in the financial statements Cash Amount Stock Amoun t Cash Stock The sum of A, B, C, D, E, F, and G as a percentage of after-tax profit The Compa ny All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (H) Title Name Director Director Chiung-Chi Hsu Chao-Cheng Chen Independent Min Chih Director Hsuan Independent Director Duei Tsai Independent Duh Kung Director Note: 1. In 2016, the Company made pension contributions totaling NTD 678,000 (including NTD 216,000 under the new system and NTD 462,000 under the old system) for directors who Tsai also assumed managerial roles as employees; meanwhile, all companies reported in the financial statements had made pension contributions totaling NTD 678,000 (includingNTD 216,000 under the new system and NTD 462,000 under the old system). 2. Directors’compensation refers to the estimated directors’ compensation approved by the Board of Directors meeting on March 28, 2017. 27 Range of Remuneration The Company 4 (Note 1) 11 (Note 2) 1 (Note 3) Under NT$ 2,000,000 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 Note: 1. Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai and Shyh-Yong Shen- 4 positions 16 Number of Directors Total of (A+B+C+D) Total of (A+B+C+D+E+F+G+H) Companies in the consolidated financial statements 4 (Note 4) 10 (Note 5) 2 (Note 6) The Company 4 (Note 7) 6 (Note 8) 1 (Note 9) 1 (Note 10) 1 (Note 11) 2 (Note 12) 1 (Note 13) Companies in the consolidated financial statements 3 (Note 14) 4 (Note 15) 2 (Note 16) 1 (Note 17) 1 (Note 18) 4 (Note 19) 1 (Note 20) 16 16 16 2. Jui-Tsung Chen, Wen-Being Hsu, Charng-Chi Ko, Sheng-Chieh Hsu, Yung-Chia Chou, Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chiung-Chi Hsu, Chao-Cheng Chen, Kinpo Electronics Inc.- 11 positions 3. Sheng-Hsiun Hsu - 1 positions 4. Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai and Shyh-Yong Shen - 4 positions 5. Wen-Being Hsu, Charng-Chi Ko, Sheng-Chieh Hsu, Yen-Chia Chou, Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chiung-Chi Hsu, Chao-Cheng Chen, Kinpo Electronics Inc. - 10 positions 6. Sheng-Hsiun Hsu and Jui-Tsung Chen - 2 positions 7. Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai and Shyh-Yong Shen - 4 positions 8. Wen-Being Hsu, Charng-Chi Ko, Sheng-Chieh Hsu, Yen-Chia Chou, Chiung-Chi Hsu, Kinpo Electronics Inc. - 6 positions 9. Sheng-Hsiun Hsu - 1 positions 10. Wen-Chung Shen - 1 positions 11. Yung-Ching Chang - 1 positions 12. Chung-Pin Wong, Chao-Cheng Chen - 2 positions 13. Jui-Tsung Chen - 1 positions 14. Min-Chih Hsuan, Duei Tsai and Duh-Kung Tsai - 3 positions 15. Wen-Being Hsu, Yen-Chia Chou, Chiung-Chi Hsu, Kinpo Electronics Inc. - 4 positions 16. Charng-Chi Ko, Sheng-Chieh Hsu - 2 positions 17. Wen-Chung Shen - 1 positions 18. Yung-Ching Chang - 1 positions 19. Sheng-Hsiun Hsu, Chung-Pin Wong, Chao-Cheng Chen and Shyh-Yong Shen - 4 positions 20. Jui-Tsung Chen - 1 positions Remuneration of Supervisors: Not Applicable (The Company adopts an Audit Committee system) 28 Remuneration of the President and Vice Presidents Salary (A) Pension (B) Bonus and special allowances (C) Share of profit as an employee (D) The Company All companies included in the financial statements The Compa ny All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Cash Amount Stock Amount Cash Amount Stock Amount Unit: NTD thousand; thousand shares; % Sum of A, B, C and D as a percentage of after-tax profit (%) The Company All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (E) 124,608 131,767 6,163 6,163 426,690 427,042 69,501 0 69,501 0 7.71% 7.80% 3,915 Title Name 50 employees including President Jui-Tsung Chen (Note1) Note: 1.Managers’ titles and names ‧President: Jui-Tsung Chen – 1 position ‧Executive Vice Presidents and Senior Advisors: Chung-Pin Wong, Cheng-Chao Chen, Chen-Chang Hsu, Wen-Chung Shen and Yung-Ching Chang – 5 positions ‧Senior Vice Presidents: Chun-De Shen, Kuo-Chuan Chen, Pei-Yuan Chen, Chiu-Rui Wei, Ying Chang, Ming-Chih Chang, Shen-Hua Peng, Wen-Da Hsu, Wei-Cheng Chen, Hsi-Kuan Chen, Chih-Wei Wen, Ming-Hsing Hsu – 12 positions ‧Vice Presidents and Advisors: Chih-Chuan Cheng, Ching-Hsiung Lu, Shih-Tung Wang, Bo-Hsiung Chang, Bo-Tang Wang, Zong-Ming Wang, Fu-Chuan Chang, Chi-Hsiang Ma, Yung-Nan Chang, Sheng-Hung Li, Yung-He Su, Ming-Hsiang Kan, Chih-Hsien Liang, Lung-Hua Shen, Ming-Dong Wen, Yue-Chun Li, Chiao-Lieh Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Ling-Sheng Wu, Hsin-Hsiung Huang, Shih-Hung Huang, Yi-Chiang Chiu, Ching-Fa Li, Bo-Heng Chen, Jui-Chun Hsu, Shih-An Li, Ta-Chun Wang, Fei-Lung Chen, Tian-Yuan Tsai, Chin-Wen Liao – 32 positions 2. In 2016, Ming-Chih Chang, Senior Vice President, Hsi-Kuan Chen, Senior Vice President, Shih-Hung Huang, Vice President, Yi-Chiang Chiu, Vice President, Bo-Heng Chen, Vice President were either transferred back or promoted. Jui-Chun Hsu, Vice President, Shih-An Li, Vice President, Ta-Chun Wang, Vice President and Fei-Lung Chen, Vice President took office while Ming-Hsing Hsu, Senior Vice President and Chin-Wen Liao, Vice President resigned. In 2017, Chih-Wei Wen, Senior Vice President, took office. 3. No pension benefit was paid in 2016. In the mean time, the Company made pension contributions totaling NTD 6,163,000 (including NTD 4,367,000 under the new system and NTD 1,796,000 under the old system); while all companies reported in the financial statements made pension contributions totaling NTD 6,163,000 (including NTD 4,367,000 under the new system and NTD 1,796,000 under the old system). 4. Employees’ compensation appropriation was approved by Board of Directors on meeting on March 28, 2017. The compensations of the aforementioned managers were not yet final and will be reviewed based on the list of the date of distribution. 29 Range of Remuneration Under NT$ 2,000,000 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 Note: 1. Ming-Hsing Hsu, Chin-Wen Liao and Chih-Wei Wen - 3 positions Number of President and Vice Presidents Total of (A+B+C+D) The Company 3 人(註 1) 9persons (Note2) 8persons(Note3) 17persons(Note4) 10persons(Note5) 2persons(Note6) 1 persons (Note 7) Total of (A+B+C+D+E) Companies in the consolidated financial statements 3 persons (Note 8) 5 persons (Note 9) 12 persons (Note 10) 17 persons (Note 11) 10 persons (Note 12) 2 persons (Note 13) 1 persons (Note 14) 50 50 2. Pei-Yuan Chen, Fu-Chuan Chang, Chi-Hsiang Ma, Yung-Nan Chang, Jui-Chun Hsu, Shih-An Li, Ta-Chun Wang, Fei-Lung Chen and Tian-Yuan Tsai – 9 positions 3. Shih-Tung Wang, Ming-Hsiang Kan, Chih-Hsien Liang, Ling-Sheng Wu, Shih-Hung Huang, Yi-Chiang Chiu, Ching-Fa Li and Bo-Heng Chen – 8 positions 4. Wen-Chung Shen, Yung-Ching Chang, Chiu-Jui Wei, Wei-Chang Chen, Hsi-Kuan Chen, Chih-Chuan Cheng, Ching-Hsiung Lu, Bo-Hsiung Chang, Bo-Tang Wang, Zong-Ming Wang, Sheng-Hung-Li, Yung-He Su, Lung-Hua Shen, Chiao-Lieh Huang, Yi-Yun Chang, Hsin-Kong Mao and Hsin-Hsiung Huang – 17 positions 5. Chen-Chang Hsu, Chun-De Shen, Kuo-Chuan Chen, Ying Chang, Min-Chih Chang, Sheng-Hua Peng, Wen-Da Hsu, Min-Tung Wong, Yue-Chun Li and Chung-Hsing Tan – 10 positions 6. Chung-Pin Wong and Chao-Cheng Chen – 2 positions 7. Jui-Tsung Chen – 1 position 8. Ming-Hsing Hsu, Chin-Wen Liao and Chih-Wei Wen – 3 positions 9. Chi-Hsiang Ma, Jui-Chun Hsu, Shih-An Li, Ta-Chun Wang and Fei-Lung Chen - 5 positions 10. Pei-Yuan Chen, Shih-Tung Wang, Fu-Chuan Chang, Yung-Nan Chang, Ming-Hsiang Kan, Chih-Hsien Liang, Ling-Sheng Wu, Shih-Hung Huang, Yi-Chiang Chiu, Ching-Fa Li, Bo-Heng Chen and Tian-Yuan Tsai – 12 positions 11. Wen-Chung Shen, Yung-Ching Chang, Chiu-Jui Wei, Wei-Chang Chen, Hsi-Kuan Chen, Chih-Chuan Cheng, Ching-Hsiung Lu, Bo-Hsiung Chang, Bo-Hsiung Chang, Bo-Tang Wang, Zong-Ming Wang, Sheng-Hung-Li, Yung-He Su, Lung-Hua Shen, Chiao-Lieh Huang, Yi-Yun Chang, Hsin-Kong Mao and Hsin-Hsiung Huang – 17 positions 12. Chen-Chang Hsu, Chun-De Shen, Kuo-Chuan Chen, Ying Chang, Min-Chih Chang, Sheng-Hua Peng, Wen-Da Hsu, Min-Tung Wong, Yue-Chun Li and Chung-Hsing Tan – 10 positions 13. Chung-Pin Wong and Chao-Cheng Chen – 2 positions 14. Jui-Tsung Chen – 1 position 30 Employee profit sharing granted to the management team Unit: NTD thousand Title Name Stock dividends Cash dividends Total Total as a percentage to after-tax profit (%) 49 employees including President Jui-Tsung Chen (Note 1) 0 69,646 69,646 0.86% Note: 1.Managers’ titles and names ‧President: Jui-Tsung Chen -1 position ‧ Executive Vice Presidents and Senior Advisors: Chung-Pin Wong, Cheng-Chao Chen, Chen-Chang Hsu, Wen-Chung Shen and Yung-Ching Chang – 5 positions ‧Senior Vice Presidents: Chun-De Shen, Kuo-Chuan Chen, Pei-Yuan Chen, Chiu-Rui Wei, Ying Chang, Ming-Chih Chang, Shen-Hua Peng, Wen-Da Hsu, Wei-Chang Chen, Hsi-Kuan Chen and Chih-Wei Wen – 11 positions ‧Vice Presidentsand Advisors: Chih-Chuan Cheng, Ching-Hsiung Lu, Shih-Tung Wang, Bo-Hsiung Chang, Bo-Tang Wang, Zong-Ming Wang, Fu-Chuan Chang, Chi-Hsiang Ma, Yung-Nan Chang, Sheng-Hung Li, Yung-He Su, Ming-Hsiang Kan, Chih-Hsien Liang, Lung-Hua Shen, Min-Tung Wong, Yue-Chun Li , Chiao-Lieh Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kong Mao, Ling-Sheng Wu, Hsin-Hsiung Huang, Shih-Hung Huang, Yi-Chiang Chiu,Ching-Fa Li,Bo-Heng Chen, Jui-Chun Hsu, Shih-An Li, Ta-Chun Wang,Fei-Lung Chen andTian-Yuan Tsai – 31 positions ‧Head of Audit: Bo-Wen Hsieh - 1 position 2. In 2016, Ming-Chih Chang, Senior Vice President, Hsi-Kuan Chen, Senior Vice President, Shih-Hung Huang, Vice President, Yi-Chiang Chiu, Vice President, Bo-Heng Chen, Vice President were either transferred back or promoted. Jui-Chun Hsu, Vice President, Shih-An Li, Vice President, Ta-Chun Wang, Vice President and Fei-Lung Chen, Vice President took office while Ming-Hsing Hsu, Senior Vice President and Chin-Wen Liao, Vice President resigned. In 2017, Chih-Wei Wen, Senior Vice President, took office. 3. Employees’ compensation appropriation was approved by the Board of Directors at the March 28, 2017 meeting. The compensations of the aforementioned managers have not been finalized and will be reviewed based on the list upon the date of distribution. 31 3.2.4 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 percentage of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the two most recent fiscal years to directors, supervisors, presidents and vice presidents of the Company, relative to net income. Analysis Directors Supervisors Presidents and Vice Presidents Net Income 2016 2015 (Note) Amount % Amount % Unit: NT$ thousands Increase (Decrease) % Amount 688,535 8.47% 701,829 8.08% (13,294) (1.89)% 8,130,890 8,684,610 (553,720) Note: 2015 is the actual amount. B. The policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and correlation with business performance. (cid:2) All remuneration to directors, supervisors and managers are proposed according to the Articles of Incorporation and HR policies, reviewed by the Remuneration Committee, and resolved by the Board of Directors and shareholders’ Meeting before proceeding. (cid:2) The above remuneration is determined mainly based on the Company’s earnings, while taking into account each individual’s participation, contribution and performance, as well as the level of remuneration paid by peers. These decisions are also adjusted according to changes in the global economy, the financial market, industry cycles, future prospects, and business risks in ways that ensure sustainability of the Company’s business and maximize shareholders’ interests. 32 3.3 Implementation of Corporate Governance 3.3.1 Board of Directors ‧The term of the Board of Directos is from June 26, 2015 to June 25, 2018. ‧There were six Board meetingsduring 2016 (A). Director’s attendance records are as shown below: Title Name Sheng-Hsiun Hsu Chairman Director Jui-Tsung Chen Director Wen-Being Hsu Director Director Director Director Kinpo Electronics, Inc. Representative: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Director Wen-Chung Shen Director Yung-Ching Chang Director Chung-Pin Wong Director Director Chiung-Chi Hsu Chao-Cheng Chen Independent Director Independent Director Independent Director Min Chih Hsuan Duei Tsai Duh Kung Tsai Attendance in Person (B) 6 6 5 3 6 6 5 5 6 5 5 5 6 6 4 By Proxy Attendance Rate (%)[B/A] Remarks 0 0 1 3 0 0 1 1 0 1 1 1 0 0 2 100% 100% 83% 50% 100% 100% 83% 83% 100% 83% 83% 83% 100% 100% 67% A. Enhance the valuation regarding the target achievement and execution by the Board of Directors in the current and most recent year: The Company established a“Remuneration Committee”since 2011. During the election of the 11th Board of Directors and Supervisors in 2012 shareholders’ meeting, 3 independent directors were elected and appointed to be the committee members of the Remuneration Committee. Supervisors were replaced with the Audit committee after the 12th Board of Directors was chosen in 2015 shareholders’ meeting. B. Other notes: Please refer to page 23-25 of the Chinese annual report. 3.3.2 Audit Committee ‧The Company’s Audit Committee has three members. ‧The term of the committee members is from June 26, 2015 to June 25, 2018. ‧There were four Audit Committee meetings during 2016 (A). The attendance records of the Independent Directors are as follows: 33 Title Name Independent Director Independent Director Independent Director Min Chih Hsuan Duei Tsai Duh Kung Tsai Attendance in Person (B) 4 4 3 By Proxy 0 0 1 Attendance Rate (%) [B/A] 100% 100% 75% Remarks - - - Other notes: 1. The Company should record the date of the Board of Directors’ meeting, the term, content of discussion, the result of the Audit Committee’s decision and the actions the Company has taken in response should any of the following situations arise in the operation of the Audit Committee: (1) Matters listed in Item 5, Article 14 of the Security Act: Board of Directors 5th Meeting of the 12th term of Board of Directors 2016.3.30 6th Meeting of the 12th term of Board of Directors 2016.5.11 8th Meeting of the 12th term of Board of Directors 105.8.11 Content of discussion and actions taken in response 1. To review and approve the consolidated and individual financial statements for 2015. 2. To review and approve the independence and fitness of the CPA engaged by the Company for the financial statements. ˙Decisions by the Audit Committee (2016.3.30): Matters listed in Item 5, Article 14 of the Security Act V V Not approved by the Audit Committee but had the consent of more than two-thirds of all directors. N/A N/A The motion was moved with unanimous support from all committee members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision: The motion was moved with unanimous support from all board members in attendance when inquired by the Chair. 1. To approve the motion of changing the Company’s CPA. 2. To review and approve the independence and fitness of the CPA engaged by the Company for the financial statements. ˙Decisions by the Audit Committee (2016.5.11): V V N/A N/A The motion was moved with unanimous support from all committee members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision: The motion was moved with unanimous support from all board members in attendance when inquired by the Chair. 1. The consolidated financial statement for the 1st half of 2016 was presented to the Board for review and approval. 2. To review and approve the loan to be made to Henghao Technology Co., Ltd. ˙Decisions by the Audit Committee (2016.8.11): V V N/A N/A The motion was moved with unanimous support from all committee members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision for motion No. 1: not applicable (the motion was a report intended for the board of directors) ˙Actions taken by the Company in response to the Audit Committee’s decision for motion No. 2: As directors Jui-Tsung Chen, Wen-Chung Shen and Chung-Pin Wong were also serving concurrently as directors of Henghao Technology Co., Ltd., they were excluded from the discussion and voting in order to avoid conflicts of interest per rules and procedures of board of directors meeting. The motion was moved with unanimous support from the remaining board members in attendance when inquired by the Chair. 34 Board of Directors 9th Meeting of the 12th term of Board of Directors 2016.11.9 Content of discussion and actions taken in response 1. To review and approve the draft of “Annual Audit Plan for 2017”. 2. To review and approve the request by a spinoff business for a letter of support from the Company needed for a loan from a financial institution. 3. To review and approve the release of the Company’s guaranteed obligation to Compalead Eletrônica do Brasil Indústria e Comércio Ltda. ˙Decisions by the Audit Committee (2016.11.9): Matters listed in Item 5, Article 14 of the Security Act V V V Not approved by the Audit Committee but had the consent of more than two-thirds of all directors. N/A N/A N/A The motion was moved with unanimous support from all committee members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision: The motion was moved with unanimous support from all board members in attendance when inquired by the Chair. 1. To review and approve the consolidated and individual financial statements for 2016. 2. To review and approve the Company’s internal control declaration for 2016. 11th Meeting of the 12th term of Board of Directors 2017.3.28 3. To review and approve the independence and fitness of the CPA engaged by the Company for the financial statements. 4. To review and approve Compal Information Technology (Kunshan) Co., Ltd. (100% owned by the Company)’s investment in Leshi Zhixin Electronic Technology (Tianjin) Limited. ˙Decisions by the Audit Committee (2017.3.28): V V V V N/A N/A N/A N/A The motion was moved with unanimous support from all committee members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision: The motion was moved with unanimous support from all board members in attendance when inquired by the Chair. 1. To review and approve the motion to revise the “Procedures for Acquisition or Disposal of Assets”. 2. To review and approve the motion to lift the non-competition restriction for directors and managers. 3. To review and approve the request by Compal Europe (Poland) Sp.z o.o. (100% owned by the Company) for a letter of support from the Company needed for factory lease escrow. ˙Decisions by the Audit Committee (2017.5.10): V V V N/A N/A N/A The motion was moved with unanimous support from all committee members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision for motions No. 1 and 3: The motions were moved with unanimous support from all board members in attendance when inquired by the Chair. ˙Actions taken by the Company in response to the Audit Committee’s decision for motion No.2: As directors and managers Jui-Tsung Chen, Chung-Pin Wong and Chao-Cheng Chen were directly involved in the matter, they were excluded from the discussion and voting in order to avoid conflicts of interest per rules and procedures of board of directors meeting. The motion was moved with unanimous support from the remaining board members in attendance when 35 12th Meeting of the 12th term of Board of Directors 106.5.10 Board of Directors Content of discussion and actions taken in response inquired by the Chair. Matters listed in Item 5, Article 14 of the Security Act Not approved by the Audit Committee but had the consent of more than two-thirds of all directors. (2) With the exception of the aforementioned matter, other matters not approved by the Audit Committee but had the consent of more than two-thirds of all directors: none. 2. The actions of the independent directors with respect to the avoidance of conflict of interest should be disclosed including the name of the independent director, the matter, the reasons for the avoidance and the voting and attendance status: none. 3. Status of communication between independent directors, internal audit supervisor and accountant: 1. Method of communication between independent directors, internal audit supervisor and accountant: ˙After the internal audit supervisor has submitted an audit report and follow-up report, he/she should provide the completed audited items to the independent directors for their review by the end of the following month. Should the independent directors require clarification of the audit and follow-up, they should contact the internal audit supervisor at any time. The internal auditor shall report audit results to the Audit Committee on a quarterly basis and discuss relevant matters in person with the committee. ˙The independent directors must communicate with the CPA on a yearly basis through the Audit Committee or Board of Directors’ Meeting. The CPA shall report to the independent directors on the results of financial statement audit and other pertinent legal requirements while the Audit Committee shall also evaluate the selection, independence, and fitness of the CPA engaged by the Company. 2. Summary of the communications between independent directors and internal audit supervisor: Date Key point of communication 2016 March 30 Report on audits carried out between 2015/11/1~2016/3/4 2016 May 11 Report on audits carried out between 2016/3/5~2016/5/4 2016 August 11 Report on audits carried out between 2016/5/5~2016/7/31 2016 November 9 Report on audits carried out between 2016/8/1~2016/10/31 and the compilation of Audit Plan for 2017 2017 March 28 Report on audits carried out between 2016/11/1~2017/1/31, internal audit 2017 May 10 Report on audits carried out between 2017/2/1~2017/4/20 self-evaluation review results and internal audit declaration 3. Summary of the communications between independent directors and accountant: Date Key point of communication 2016 March 30 Report on the outcome of audit for 2015 consolidated and individual financial statements 2017 February 8 Report on the key audit items for 2016 consolidated and individual financial statements 2017 March 28 Report on the outcome of audit for 2016 consolidated and individual financial statements 36 3.3.3 Corporate Governance Implementation and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies” Assessment criteria Yes No Yes Yes Yes Yes I. Has the company established and disclosed its corporate governance principles based on "Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies?" II. Shareholding structure and shareholders’ interests 1. Has the company implemented a set of internal procedures to handle shareholders’ suggestions, queries, disputes and litigations? 2. Is the company constantly informed of the identities of its major shareholders and the ultimate controller? 3. Has the company established and implemented risk management practices and firewalls for companies it is affiliated with? 4. Has the company established internal Yes policies that prevent insiders from trading securities against non-public information? Actual governance Summary description The Company’s corporate governance principles were approved by the Board of Directors on August 11, 2015, and have been disclosed on its official website and MOPS. Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found The Company has a spokesperson and acting spokesperson that represent the interest of the shareholders and a unit that specializes in addressing shareholders’ suggestions, queries, disputes and litigations. No deviations were found The Company keeps track of the identity of its ultimate controller by monitoring insider shareholding positions (including that of directors, supervisors, managers, and shareholders with more than 10% ownership interest), with the shareholder registry is held by the share administration agency. The Company has established “Internal Control Policy - Non-trade Activities - Supervision and Management of Subsidiaries”, “Internal Control Policy - Trade Activities – Invstment Management,” and “Guidelines on Financial and Business Dealings Between Affiliated Enterprises” to set up and execute firewalls and risk controls over related parties. To prevent insider trading, the “CO10 Insider Trading Prevention Management” and “Insider Trading Prevention Procedures” have been included as part of internal control of the company and details are published on the intranet and linked to the TWSE website to which employees have access. Both policies have been included No deviations were found No deviations were found No deviations were found 37 Assessment criteria Yes No Summary description Actual governance III. Assembly and obligations of the board of directors 1. Has the board devised and implemented Yes policies to ensure diversity of its members? 2. Apart from the Remuneration Committee and Audit Committee, has the company assembled other functional committees at its own discretion? as part of the compulsorye-Learning courses for departmental heads, and eCSA questionnaires are issued on a yearly basis to facilitate self-assessment. Insiders such as directors, supervisors and managers are given a copy of the TWSE “Insider Share Trading Manual” when they come aboard to make them aware of the company insider rules. The Company has established rules and regulations such as the “Corporate Governance Guidelines” and “Rules for Director Election” to ensure diversified board member composition in addition to drafting suitable guidelines for diversification based on the Board’s operation, the Company’s operating format and its needs and developments. And as such, board members are required to possess the required knowledge, skills and character in order to accomplish the goal of ideal corporate governance. For more information on the diversification of board members, please refer to page 42. No Apart from the Remuneration and Audit Committees, the Company has also established a CSR Committee headed by Advisor Wen-Chung Shen, who in turn reports to the Board of Directors regarding the operating status and results of the committee on a yearly basis. 3. Has the Company established a set of No At present, the Company has yet to establish any policy or assessment tool to evaluate Board performance. Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found Such policies and tools will be created after careful consideration. policies and assessment tools to evaluate the board’s performance? Is performance evaluated regularly at least on an annual basis? 4. Are external auditors’ independence Yes assessed on a regular basis? The CPA issues an “Independent Auditor’s Report” on an annual basis and is required to decline engagement should he/she be involved in any direct or indirect material interest. The Company evaluates the independence and suitability of the No deviations were found 38 Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found Assessment criteria Yes No Summary description Actual governance CPA at least once a year, in accordance with Article 47 of the CPA Law and Bulletin 10 of the Norm of Ethics for Certified Public Accountants. The CPA cannot be a director, supervisor or shareholder of the company and may not be on the payroll or be a related party to the Company. The Company then submits the “CPA Independence and Fitness Evaluation Form” along with the “Independent Auditor’s Report” to the Audit Committee for review before it is submitted to the Board of Directors for examination and discussion. The same principles apply to whenever there is an internal rotation within the accounting firm. VP Ching-Hsiung Lu has been appointed to take charge of and supervise affairs pertaining to corporate governance in accordance with the Company’s “Corporate Governance Guidelines”, while the HQ Accounting Department was assigned as the Company’s responsible unit for corporate governance to handle relevant affairs including organizing director and shareholder meetings as required by pertinent regulations, preparing the agendas for board of directors’ meeting/shareholders’ meeting, processing changes in company registration, periodically examining and revising the Company’s corporate governance guidelines and relevant procedures, providing the requisite information/data to directors or auditors to perform their improve disclosure duties and ensuring transparency,safeguard shareholder rights and promote better corporate governance . legal compliance so as to IV. Has the company established dedicated Yes unit or full time (or part time) personnel responsible for corporate governance related affairs (including but not limited to providing the requisite information/data to directors or supervisors to perform their duties, organizing director and shareholder meetings as required by pertinent regulations, processing company registration and/or changes in registration, preparing the agendas for board of directors’ meeting/shareholders’ meeting)? V. Has the company provided proper Yes communication channels and created The Company has created a "Stakeholder Communication Area" on its website to address stakeholder relations. Separate contact persons, phone numbers, and email No deviations were found 39 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies dedicated sections on its website to address corporate social responsibility issues that are of significant concern to stakeholders (including but not limited to shareholders, employees, customers and suppliers)? VI. Does the company engage a share administration agency to handle shareholder meeting affairs? VII. Information disclosure 1. Has the company established a website that discloses financial, business and corporate governance-related information? 2. Has the company adopted other means to disclose information (e.g. English website, assignment of specific personnel to collect and disclose corporate information, implementation of a spokesperson system, broadcasting of investor conferences via the company website)? Yes Yes Yes addresses have been provided to each type of stakeholder relation to ensuring that queries are directed to the relevant departments. In addition, a “Material Aspects” questionnaire has also been created, through which stakeholders may identify issues that are of serious concern. The Company will address stakeholders’ responses properly and take their suggestions as part of the Company’s goals. The Chinatrust Commercial Bank – Securities Trust has been appointed as the share administration agency responsible for handling shareholder affairs and meetings while offering share administration services. No deviations were found The Company website at (www.compal.com) is regularly updated with information such as financial performance, corporate governance and shareholder meetings. No deviations were found ˙The Company website has both Chinese and English pages. The information is No deviations were found gathered and disclosed by a dedicated department. ˙The Company has also appointed a spokesperson and an acting spokesperson in place. ˙Investor conferences are held regularly and whenever deemed necessary. The proceedings are posted on the Company’s website and also broadcasted on the TWSE platform (at http://webpro2.twse.com.tw/webportal/schedule/). 40 Assessment criteria Yes No Summary description Actual governance VIII. Does the company offer other vital Yes information (including but not limited to employee rights, employee care, investor relationship, supplier relationship, stakeholders’ interests, continuing education of directors/supervisors, risk management policies, risk assessment standard implementation status, implementation status of customer policies, insuring against liabilities of company directors and supervisors) that would enable a better understanding of the company’s corporate governance practices? • • • • • • • • • Employee welfare and care to employees Directors and Managers code of conduct; Employee code of conduct Investor relations Supplier relations and execution of customer policy Stakeholders’ interests Risk management execution and framework; risk analysis and evaluation Insuring against liabilities of company directors and supervisors Directors’, supervisors’ and managers’ ongoing education Qualification of personnel involved in financial transparency Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found IX. State the improvements that have been made with regards to the results of the latest Corporate Governance Evaluation conducted by TWSE in the most recent year; for items that have yet to be improved upon, state the company’s priorities and measures for improvement. In the “3rd Round of Corporate Governance Evaluation” by TWSE, Compal was placed in the top 6%~20% listed companies. Units responsible for the promotion of ethical operation have reported to the Board of Directors routinely regarding the status of ethical operation. The Company will make improvements by increasing the frequency of reporting to the Board of Directors. With regards to the continuing education for directors (including independent directors), the Company will promote and encourage directors to participate while having the affiliate Kinpo Group Management Consultant Company to organize relevant courses that are compliant with pertinent regulations or other external organizations to host relevant training. Pursuant to the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies (revised on September 30, 2016), the Company has already amended its “Corporate Governance Guidelines” and appointed relevant personnel to be responsible for affairs relating to corporate governance and include the status of liability insurance coverage for directors, supervisors and other key personnel in the latest Board of Directors’ Meeting Minutes. 41 A. Status of board member diversification : Core items for diversification Gender Name of director Sheng-Hsiun Hsu Jui-Tsung Chen Wen-Being Hsu Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Wen-Chung Shen Yung-Ching Chang Chung-Pin Wong Chiung-Chi Hsu Chao-Cheng Chen Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Male Male Male Male Male Male Male Male Male Male Male Male Male Male Male Operation management V V V V V V V V V V V V V V V Leadership and decision-making V Knowledge of the industry V International market perspective V Finance and accounting V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V B. Other vital information on the operating status of corporate governance: Please refer to page 31-35 of the Chinese annual report. (1) Purchasing liability coverage for the Company’s directors, supervisors and managers Starting from 2002, the Company has been purchasing liability coverage for directors, supervisors and managers. The amount for their liability insurance in 2016 came to USD 50,000 thousand, which was roughly equivalent to NTD 1,612,500 thousand. Vital information relating to their liability insurance was reported to the Board of Directors on February 8, 2017. (2) Continuing education for directors, supervisors and managers All directors and managers are equipped with relevant professional knowledge and skills. In addition to offering relevant information both on a regular and irregular basis to directors and managers, the Company would also organize seminars and workshops when deemed necessary. Trainings completed by directors and managers in 2016 include: Title Name Independent Director Min-Chih Hsuan Date of training 2016.11.3 Securities and Futures Organized by Institute 2016.12.2 Taiwan Corporate Course title Case study of recognized revenue fraud in financial statements Hours of training 3 The offense and defense of hostile 6 Head of Finance Ching-Hsi ung Lu 105.12.26~ 105.12.27 Governance merger – from the perspective of Association Accounting Research and Development Foundation merger and litigation Continuing Education for Principal Accounting Officers of Issuers, Securities Firms and Stock Exchanges 12 42 Title Name Head of Audit Bo-Wen Hsieh Date of training 105.01.13 Accounting Research Organized by and Development Foundation 105.03.09 Accounting Research and Development Foundation 105.05.25 Accounting Research and Development Foundation Course title Corporate Governance Evaluation and CSR Report Hours of training 6 Accounting and Tax Audit Practice and Case Studies for Taiwanese Businesses in China Internal audit and control practice for ERP system corresponding to enterprise transaction cycles 6 6 (3) Certificate and qualification acquisition status for personnel involved in financial information transparency Name of certificate CPA qualification USCPA qualification Senior Securities Specialist Securities Specialist Futures Specialist Securities Investment Trust and Consulting Professional Certified Internal Auditor - Taiwan Certified Internal Auditor Chartered Financial Analyst No. of persons 7 persons 2 persons 12 persons 8 persons 7 persons 5 persons 4 persons 4 persons 1 person 43 3.3.4 Composition, Responsibilities and Operations of the Remuneration Committee A. Professional Qualifications and Independence Analysis of Remuneration Committee Members Criteria Title (Note 1) Name Independent Director Independent Director Independent Director Min Chih Hsuan Duei Tsai Duh Kung Tsai Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience A judge, public prosecutor, attorney, Certified Public Accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the Company Having work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company An instructor or higher position in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the Company in a public or private junior college, college or university Independence Criteria (Note 2) 1 2 3 4 5 6 7 8 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Remuneration Committee Member Remarks (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) 2 3 2 - - - Note 1: Please fill in director, independent director, or other in the identification. Note 2: Please check “(cid:1)” in the box for a member, who during the two years before being elected or during the term of office, any of the following applied: (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 natural-person shareholder or holder of shares, together with those held by a spouse, minor children, or held by the person under other names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranking within the top 10 in holdings. (4) Not a spouse, relative within a second degree of kinship, or lineal relative within the third degree of kinship, or a person in compliance with any of the preceding three subparagraphs. (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds five percent or more of the total number of issued shares of the company or that holds shares ranking within the top five in holdings. (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, as 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 the spouse thereof. (8) No matters as noted in Article 30 of Company Law. 44 B. Attendance of Members at Remuneration Committee Meetings ‧The Company elected three members of the Remuneration Committee. ‧The term of the committee members is from June 26, 2015 to June 25, 2018. ‧There were five Remuneration Committee meetings during 2016(A) and the committee member qualifications and attendance records are as follows: Title Name Convener Committee Member Committee Member Min Chih Hsuan Duei Tsai Duh Kung Tsai Attendance in Person (B) 5 5 4 By Proxy 0 0 1 Attendance Rate (%) [B/A] 100% Remarks 100% 80% Other notes: 1. If the board of directors declines to adopt or modifies a recommendation of the remuneration committee, it should specify the date of the meeting, the session, the nature of motion, the resolution made by the board of directors, and the Company’s response to the remuneration committee’s opinion (eg., if the amount of remuneration passed by the Board of Directors exceeds the remuneration committee’s recommended amount, the circumstances and cause for the difference shall be specified): None. 2. If resolutions of the remuneration committee are objected by members or become subject to a qualified opinion, which have been recorded or declared in writing, then the date of the meeting, the session, the nature of the motion, all members’ opinions and the response to members’ opinion should be specified: None. 45 3.3.5 Corporate Social Responsibility Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies I. 1. 2. 3. 4. Sound corporate governance Does the company have a corporate social responsibility policy or system in place? Is progress reviewed on a regular basis? Does the company organize social responsibility training on a regular basis? Does the company have a unit that specializes (or is involved) in CSR practices? Is the CSR unit run by senior management and reports its progress to the board of directors? Has the company implemented a reasonable remuneration system that associates employees’ performance appraisals with CSR? Is the remuneration system supported Yes The Company’s corporate social responsibility policy was passed by the Board of Directors. CSR progress is reported to and reviewed by the board on a regular basis. No deviations were found Yes Yes Yes The Company organizes annual CSR training courses in accordance with its Employee Code of Conduct and CSR-related policies. These training courses cover a broad variety of topics including corporate policies, HR system, employee code of conduct, personal information protection act and other areas as the law may require. All training courses are accessible online and have been made as requisites for new employees. Existing employees may complete courses online at their own discretion at any time. In 2016, 2,457 employees had completed their training for a total of 12,304 hours. The Company has a CSR Office that specializes in CSR-related matters. The Board of Directors has authorized its senior management to perform CSR-related tasks and to update the board on the overall progress. No deviations were found No deviations were found Employees’ salary levels are set based upon those of similar responsibilities, with adjustments made based on individual work performance. Different salary levels may be granted depending on education, experience, job grade and the assigned duties, but are higher than the statutory minimum in any case. Furthermore, employees are entitled to a portion of share of the Company’s current year profits. The Company has set clear guidelines to reward and penalize employees’ conducts and performance. No deviations were found 46 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies II. 1. 2. 3. by an effective reward/discipline system? Fostering a sustainable environment Is the company committed to achieving efficient use of resources, and using renewable materials that produce less impact on the environment? Has the company developed an appropriate environmental management system, given its distinctive characteristics? Is the company aware of how climate changes affect its business activities? Are there any actions taken to measure and reduce greenhouse gas emission and energy use? Yes Yes Yes Rewards and penalties are decided to depend on the severity and impact of the event involved The R&D and production teams are well aware of how the design and production of more environmentally friendly, green, low-carbon products contribute to mitigating climate changes and impacts. They respond quickly to customers’ needs in terms of certifications such as Energy Star, US EPEAT, US & WW EPEAT, China CECP & CEC and Taiwan Green Mark. No deviations were found The Company began its implementation of ISO 14001 Environment Management System in April 1997; quality and environmental safety policies were created in 2005 to guide the Company’s efforts on employee workplace safety and corporate responsibilities. Operating procedures and environmental/safety/health management systems have been established based on government regulations and international standards such as ISO, OHSAS etc. The Company adopts proper communication channels to convey its environmental and safety policies and goals to employees, suppliers, contractors, surrounding neighbors and interest groups. The Company began its greenhouse gas surveys (scopes 1 and 2) and carbon footprint inventory as early as 2010. Starting from 2014, the Company has conducted greenhouse gas inventory and validation on a yearly basis. In 2015, Compal was included in the CDP Climate Disclosure Leadership Index for the first time (CDLI). The Company has actively participated in the Carbon Disclosure Project (CDP) as a means to improve its response to climate changes . The CDP achieves its purpose by assessing a company’s carbon emission, reduction progress, compliance risks and exposure to physical risks such as supply disruption, shortage of resources, extreme weather, rising sea levels and diseases etc. And as such, Compal participated in UNFCCC’s 2050 pathways platform initiative in 2016 in the hopes of reducing operational risks and costs through autonomous carbon reduction or even turn risks into opportunities to ensure the Company’s sustainability. No deviations were found No deviations were found 47 Assessment criteria Yes No Summary description Actual governance III. Enforcement of public welfare Has the company developed its 1. policies and procedures in accordance with laws and International Bill of Human Rights? Yes 2. 3. 4. Yes Yes Does the company have means through which employees may raise complaints? Are employee complaints being handled properly? Does the company provide employees with a safe and healthy work environment? Are employees trained regularly on safety and health issues? Yes Does the company have means to communicate with employees on a regular basis, and inform them of operational changes that may be of The Company places great emphasis on equal opportunities and business ethics. It has policies and systems in place to ensure compliance with international conventions. The Company and all its subsidiaries throughout the world have established employment guidelines according to international human rights conventions and local labor regulations. All employment terms have been assured to conform with the laws of the local country or region. Out of respect towards labor rights, the Company changes its policies and rules in line with the latest regulations, and announces them to the understanding of all its employees. For the purpose of maintaining harmonic employer-employee relations, a communication platform has been created to enable exchange of opinions and information between the Company and its employees. The Company has set up email contacts through which employees may express their opinions and offer suggestions. These opinions and suggestions are referred to appropriate units within the Company; progress and outcomes are reported back to employees as they become available. The Company is well-aware of how significantly “workplace safety and health” affects a company, its employees and stakeholders. This was the reason why the Company has enhanced its environmental, safety and quality policies and obtained OHSAS 18001 certification since 2005, which requires all departments to implement proper safety and health practices as well as regular training on matters such as fire safety equipment, utility plans, waste disposal, emergency response procedures etc. The Company organizes health and safety training for employees on a regular basis as a means to prevent occupational hazards and ensure workplace safety. In 2016, 2,384 employees had completed their training for a total of 5,442 hours. The Company is committed to creating communication platforms where employees may exchange opinions and information. “Employee opinion boxes” have been made available at the headquarter and at various plant sites to receive employees’ complaints; “Sunshine Group” and hotlines have been set up in all plant sites and are run by compassionate people who promptly respond to employees’ opinions so that the Company can rectify its flaws and help solve employees’ problems immediately. 48 Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviation was found No deviations were found No deviations were found No deviations were found Assessment criteria Yes No Summary description Actual governance significant impact? Has the company implemented an effective training program that helps employees develop skills over their career? Has the company implemented consumer protection and grievance policies with regards to its research, development, procurement, production, operating and service activities? Has the company complied with laws and international standards with regards to the marketing and labeling of products and services? Does the company evaluate suppliers’ environmental and social conducts before commencing business relationships? Is the company entitled to terminate supply agreement at any time with a major supplier, 5. 6. 7. 8. 9. Yes Yes Yes Yes Townhall Meetings are organized regularly at the turn of the year. During which, the CEO will personally address employees on the Company’s new business developments. Key points of this meeting are also summarized and delivered to all employees via email. Annual training programs are tailored to suit the needs of different employees, based on the Company’s business strategies, policy guidelines, and career roadmaps. The Company constantly aims to establish itself as a learning organization and coaching management. The Company is an OEM/ODM manufacturer, manufacturing TV sets, notebooks, cell phones and electronics for top brands. There is a dedicated unit responsible for every step in the production process such as product development and design, shippings, and maintenance and service. Once customers have launched their products, the Company will continue to support them with services and parts until the product no longer requires after-sale responsibilities. Customers are given the option to visit Compal’s website, click on Stakeholder Communication Area and leave messages using an exclusive link; these messages will then be handled by the appropriate departments. The Company is an OEM/ODM. It manufactures TV sets, notebooks, cell phones and electronics for the world’s top brands. All products are printed with customers’ trademarks, names, and labeling that conform with relevant laws and international guidelines; however, the Company does not print its own logos or names on the products it produces. The Company requests all its suppliers to fulfill their responsibilities with respect to the environment, labor, management, and ethics. Furthermore, the Company also demands its suppliers to sign and comply with EICC® (Electronics Industry Supply Chain Code of Conduct) and evaluates suppliers’ performance by their contribution to corporate social responsibilities. No deviations were found Yes The Company requires all major suppliers to comply with local regulations and fulfill their duties to the environment and the society. They are demanded to immediately rectify any violations found to ensure the business relationship with the Company. No deviations were found 49 Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found No deviations were found Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies if the supplier is found to have violated its corporate social responsibilities and caused significant impacts against the environment or the society? IV. Enhanced information 1. disclosure Has the company disclosed relevant and reliable CSR information on its website and at the Market Observation Post System? Yes The Company’s standard procurement contract specifically requires suppliers to comply with EICC® (Electronics Industry Supply Chain Code of Conduct) and environmental protection laws. The contract empowers the Company to terminate procurement relationship with any supplier that is found to have violated the above rules. A “CSR” section is created on the Company’s website to disclose information in different categories. A “News” section is also available on the home page where stakeholders are given access to the latest information. The Company prepares CSR reports on an annual basis to disclose how it has fulfilled its social responsibilities. This report may be downloaded from the Company’s website and from Market Observation Post System (MOPS). No deviations were found 50 V. If the company has established the corporate social responsibility principles based on “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies,” please describe any discrepancy between the Principles and their implementation: ■ The Company has established “Compal Corporate Social Responsibility Best Practices” based on “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies.” A “CSR Office” has also been introduced specifically for the purpose of promoting social responsibilities, environmental sustainability, public welfare, and information disclosure. The Company has adopted the principles of EICC by including corporate social responsibilities as part of its overall business plan, thereby making sure that everything it does confirms with EICC. The CSR Office reports its progress regularly to the Board of Directors, and publishes annual CSR reports to ensure proper disclosure of CSR information. ■ To contribute to the sustainability of our environment, the Company publishes green knowledge materials on a monthly basis and organizes regular environmental training courses for the management and general employees. It adopts green product management starting from the design stage and covering all aspects of the supply chain, which aims to: reduce resource and energy consumption, minimize discharge of pollutants and toxic waste, ensure proper waste disposal, enhance recyclability and reusability of raw materials and products, maximize usage of available resources, extend product durability, and enhance product/service efficiency. The green management also aims to prevent pollution to water, air and soil, and embodies a series of strategies to reduce the level of greenhouse gas and carbon emitted during the Company’s operations. It is our hope to minimize adverse impacts on health and the environment by adopting the best and most feasible pollution controls available. VI. Other important information to facilitate better understanding of the company’s corporate social responsibility practices: There is a specific CSR section on the corporate website containing CSR policy, target and management procedures. Please refer to: http://www.compal.com 51 VII. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions: ■ Criteria undertaken by institutions to certify the Company’s products: The Company adopts the green concept right from the design and development stage for all products it manufactures. In addition to making sure that all manufactured products conform with compulsory regulations and voluntary certifications in countries where they are distributed, the Company also takes the initiative in developing talents and technologies in relation to energy-saving issues and thereby keeping up with world’s latest trends and challenges. Apart from knowing the latest news in environmental regulations and certifications, Compal also possesses adequate R&D and execution capacity to quickly respond to customers’ needs for certification such as IECQ QC 080000, Energy Star, US & EPEAT, US & WW EPEAT, China CECP & CEC, Taiwan Green Mark and Indoor Air Quality Testing & Certification. ■ Criteria undertaken by institutions to certify the Company’s CSR report: The Company has been preparing annual CSR reports and disclosing them to stakeholders on its website since 2010. The CSR report was first certified by an external institution in 2012, and later in 2016, the Company adopted Global Reporting Initiative’s G4 guidelines (GRI G4, published in 2013) to prepare its CSR report. The 2014 report was compiled based on stakeholders’ concerned issues and the Company’s key objectives. To ensure the credibility of reported contents, the Company commissioned SGS to provide independent assurance based on the criteria specified in AA 1000 AS and GRI G4. After their assurance, the report was certified to meet AA 1000 AS Standard Type 2, mid-level accountability and GRI G4 application core requirements. The Company was awarded a Silver or Bronze Awards by Taiwan Institute for Sustainable Energy in three consecutive years for its “Taiwan Corporate Sustainability Report Award”. 52 3.3.6 Ethical Corporate Management Assessment criteria Yes No Summary description Actual governance I. 1. 2. Establishment of integrity policies and solutions Has the company stated in its Memorandum or external correspondence about the policies and practices it has to maintain business integrity? Are the board of directors and the management committed in fulfilling this commitment? Does the company have any measures against dishonest conducts? Are these measures supported by proper procedures, behavioral guidelines, disciplinary actions and complaint systems? Yes The Company has clearly outlined the procedures for ethical management and guidelines for conduct in its HR policies, social responsibility policies, the integrity principles and code of conduct for directors, supervisors, managers, and the general code of conduct. The Board of Directors and the management have committed themselves to business integrity. The Company’s “Board of Directors Meeting Guidelines” contain a conflicting interest clause that requires directors to disassociate from all discussion and voting of any agenda that poses a conflict of interest between the Company and themselves or the entities they represent. Yes The Company has established the “Ethical Corporate Management Best Practice Principles” and “Business Integrity Procedures and Behaviors” (hereinafter, “Procedures and Behaviors”) as an incentive to insiders and outsiders to report unethical or unseemly conduct. Any insider who makes a false report or a malicious accusation shall be subject to disciplinary action and be removed from office if the circumstance concerned have substance. This Company has appointed a contact person, and has established a hotline and mailbox that can be used either through the Intranet of the company website. Any person involved in unethical conduct will be referred to an authorized department and processed according to the “Business Integrity Procedures and Behaviors”. Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found 3. Has the company taken steps to prevent occurrences listed in Article 7, Paragraph Yes The Company’s “Business Integrity Procedures and Behaviors” govern the following ‧ Prohibition against offering and acceptance of improper gains No deviations were found 53 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 2 of “Ethical Corporate Management Best Practice Principles for TWSE/TPEX-Listed Companies” or business conducts that are prone to integrity risks? II. 1. 2. Integrity actions Does the company evaluate the integrity of all counterparties it has business relationships with? Are there any integrity clauses in the agreements it signs with business partners? Does the company have a unit that specializes (or is involved) in business integrity? Does this unit report its progress to the board of directors on a regular basis? ‧ Prohibition against lobbying ‧ Prohibition against illegal political donations ‧ Prohibition against improper donations or sponsorships ‧ Prohibition against inappropriate gifts, treatments and illegitimate benefits ‧ Prohibition against unfair competition ‧ Prohibition against leakage of commercial secrets and infringement of intellectual property rights ‧ Prohibition against insider trading and rules of confidentiality Furthermore, the “Information Security Policy” has introduced measures to prevent violation of commercial secrets. Yes The Company requires all suppliers to sign commitments to EICC® (Electronic Industry Citizenship Coalition), which binds them to local regulations on workers’, environment, safety, health, management, and moral conducts, and prevents them against corruptive and unethical behaviors. No deviations were found Yes The Company has appointed its Human Resources, Administrative management and Legal Affairs Office as the competent unit in charge of the Company’s ethical matters. Together, these units set the guidelines and policies, which are monitored by the auditors and reports to the Board of Directors on a yearly basis. To prevent potential conflicts of interest, the Company has established the “Ethical Corporate Management Best Practice Principles” and “Business Integrity Procedures and Behaviors” in 2014 and 2015 respectively. In addition, the Company has also designed relevant course for its No deviations were found 54 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 3. Yes Does the company have any policy that prevents conflict of interest, and channels that facilitate the report of conflicting interests? online e-Learning, including legal affairs related training on information security, personal information protection act, relevant company policies and employees’ code of conduct so as to familiarize all employees with the aforementioned guidelines and thereby facilitate the promotion of honest management. In 2016, a total of 2,457 trainees participated in the trainings and completed a total of 12,304 hours of training. The Company has established the “Ethical Corporate Management Best Practice Principles” and “Business Integrity Procedures and Behaviors” (hereinafter, “Procedures and Behaviors”); a No deviations were found Company director, officer or other stakeholder attending, or present at a board meeting, or a juristic representative whose presence infers a likelihood that company interests might be prejudiced, may not participate in a discussion or vote on that proposal, shall recuse themselves from any discussion and voting, and may not exercise voting rights as proxy on behalf of another director. The directors shall exercise discipline among themselves, and may not support each other in any inappropriate manner. If, in the course of conducting company business, an employee of this Corporation discovers that a potential conflict of interest exists involving themselves or the juristic person that they represent, or that they or their spouse, parents, children, or a person with whom they have a relationship of interest is likely to obtain improper benefit, the matter shall be reported to their immediate supervisor and the responsible unit, and the supervisor shall provide the employee with the proper instructions. No employee of this Corporation may use company resources for commercial activities other than those of this Corporation, nor may his or her job performance be affected by involvement in commercial activities other than those of this Corporation. The Company’s HR policy and employee code of conduct have introduced rules to identify, supervise and manage conflicts of interest for business activities that are more highly prone to dishonest 55 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies behaviors. There are channels in place for directors, supervisors, managers, stakeholders, and board meeting participants to state their conflicting interests with the Company. To prevent leakage of material non-public information, the Company has established “CO10 Insider Trading Prevention Management” as part of its internal control and demanded strict compliance from directors, supervisors, managers, employees, and any party that gains knowledge to the Company’s material non-public information whether because of their identity, job responsibility or controlling relationships. 4. 5. Has the company implemented effective accounting and internal control systems for the purpose of maintaining business integrity? Are these systems reviewed by internal or external auditors on a regular basis? Does the company organize internal or external training on a regular basis to maintain business integrity? III. 1. Implementation of whistleblowing system Does the company provide incentives and means for Yes The Company has set “Ethical Corporate Management Best Practice Principles” and focuses on creating an effective accounting system and internal control system to avoid high-risk or unethical business activities and the use of external or secret accounts. Self-evaluation is done on a regular basis to make sure the design and execution of the system is effective. The Company’s internal audit unit oversees compliance of the system and prepares routine audit reports for the Board of Directors. No deviations were found Yes The Company organizes training courses in accordance with “Regulations Governing Establishment of Internal Control Systems by Public Companies” and the board-approved “Insider Trading Prevention Principles.” Insider training prevention courses are organized for vice president-grade employees and above, while general employees are subjected to training on ethical behaviors on a No deviations were found yearly basis. Yes The Company has mailboxes in place to receive malpractice reports from within or outside the No deviations were found 56 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies employees to report malpractices? Does the company assign dedicated personnel to investigate the reported malpractices? Has the company implemented any standard procedures or confidentiality measures for handling reported malpractices? Does the company assure malpractice reporters that they will not be mistreated for making such reports? 2. 3. IV Enhanced information Company. Once a report has been sent to the mailbox, it will be referred to the appropriate department and personnel depending on the nature of the underlying issue. The identity of the informer and details of the report will be kept confidential, and may involve internal auditors if the situation requires it. Yes The Company has specifically instructed case handlers to strictly follow procedures when building, assigning and investigating cases, and to exercise discretion during the investigation process. No deviations were found Yes The Company has confidentiality procedures built into its management policies and employee code of conduct to protect informers and investigators from improper treatments or retaliation. No deviations were found 1. V Yes disclosure Has the company disclosed its integrity principles and progress onto its website and MOPS? If the company has established business integrity policies in accordance with “Ethical Corporate Management Best Practice Principles for TWSE/TPEX-Listed Companies,” please describe its current practices and any deviations from the Best Practice Principles: The Company’s “Business Integrity Principles” and “Business Integrity Procedures and Behaviors” have been passed by the Board of Directors and disclosed at the Company’s website and MOPS. A specialized unit will be empowered to enforce these policies and ensure employees’ compliance. The Company has disclosed corporate governance and business integrity matters and updated the progress of such efforts in its annual reports, CSR reports and “Investor Relations-corporate governance” and “CSR” sections of its website. No deviations were found VI. Other information relevant to understanding the company’s business integrity (e.g. reviews over business integrity principles): Courses have been introduced to the e-Learning system so that employees are made aware of the Company’s “Business Integrity Principles” and “Business Integrity Procedures and Behaviors.” 57 3.3.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website→ Investor Relations → Corporate Governance → Major Internal Policies http://www.compal.com/investor-relations/corporate-governance/#major-internal ˙Framework of Corporate Governance ˙Articles of Incorporation ˙Rules of Procedure for Shareholders’ Meetings ˙Regulations for Election of Directors ˙Procedures for Acquisition or Disposal of Assets ˙Procedures for Financial Derivatives Transactions ˙Procedures for Lending Funds to Other Parties ˙Procedures for Endorsement and Guarantee ˙Board of Directors Meeting Guidelines ˙The Responsibilities and Rules for Independent Directors ˙Audit Committee Procedures ˙Remuneration Committee Procedures ˙Corporate Governance Best-Practice Procedures ˙Code of Conduct for Directors and Managers ˙Code of Conduct for Employees ˙Ethical Corporate Management Best Practice Principles ˙Business Integrity Procedures and Behaviors ˙Insider Trading Prevention Procedures ˙Corporate Social Responsibility Best Practice Principles ˙Rules Governing Financial and Business Matters Between this Corporation and its Affiliated Enterprises ˙Procedures of Application to Suspend and Resume Trading 3.3.8 Other Important Information Regarding Corporate Governance Please refer to the Company’s website→ CSR http://www.compal.com/CSR/ ˙Sustainable Management ˙Employee Relationship ˙Charity ˙Environment ˙Supply Chain Management ˙Stakeholders ˙Download CSR Report Please refer to the Company’s website→ Stakeholder Communication http://www.compal.com/stakeholder-communication-area/ • • • • • • Issues of Concern Employee Relations Customer Relations Supplier Relations Investor Relations Other Affiliates 58 3.3.9 Internal Control Systems Compal Electronics, Inc. Statement of the Internal Control System Date: March 28 2017 Based on the findings of a self-assessment, the Company states the following with regard to its internal control system for the year of 2016: 1. The Company is fully aware that the establishment, operation, and maintenance of an internal control system is the responsibility of the Board of Directors and management. The Company has established such a system. It is aimed at providing reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations (including profitability, performance, and the safeguard of assets); Reliability, timeliness, transparency, and regulatory compliance of reporting, and compliance with all the applicable laws and regulations. 2. An internal control system has inherent limitations. No matter how perfectly designed, it can only provide some reasonable assurance of the accomplishment of the three objectives mentioned above. Moreover, the effectiveness of an internal control system may be subject to changes of environment or circumstances. Nevertheless, the internal control system of the Company contains self-monitoring mechanisms, and corrective action is taken whenever a deficiency is identified. 3. The Company evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the “Regulations Governing the Establishment of Internal Control System by Public Companies” (herein below, the “Regulations”). The criteria adopted by the Regulations identify five components of internal control based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.Each component further contains several items. Please refer to the Regulations for details. 4. The Company has evaluated the design and operating effectiveness of its internal control system according to the aforementioned criteria. 5. Based on the findings of the evaluation mentioned in the preceding paragraph, the Company believes that, onDecember 31 2016, its internal control system (including the supervision and management of subsidiaries), as well as internal controls to monitor the effectiveness of its own objectives concerning operational effectiveness and efficiency, reliability, timeliness, transparency, and regulatory compliance in reporting, and compliance with applicable laws and regulations, were effective in design and operation, and provided reasonable assurance that the above-stated objectives would be achieved. 6. This Statement will be an integral part of the Company’s Annual Report and Prospectus, and will be made public. Any falsehood, concealment, or other illegality of content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law. 7. This Statement has been passed by the Board of Directors at a meeting held on March 28, 2017, with 0 of the 14 attending directors expressing dissenting opinions; the remainder all affirmed the content of this Statement. Compal Electronics, Inc. Chairman: President: 59 3.3.10 Penalties imposed against the company and its staff, or penalties imposed by the company against its staff for violations of internal control or regulations; state any corrective actions taken in the most recent years up till the date of the annual report: None. 3.3.11 Major Resolutions Made in Shareholders’ Meeting and Board Meetings 1. Shareholders’ meeting ▓Time: 9 AM, June 24, 2016 (Friday) Venue: B1, No. 581, Ruiguang Road, Neihu District, Taipei City ▓Major resolutions: (1) Passed amendments to the Company's "Articles of Incorporation." (2) Passed to distribute capital reserves in cash. (3) Passed amendments to the Company's "Derivative Trading Procedures." (4) Passed the removal of restrictions imposed against directors for involving in competing businesses. (5) Ratified the Financial Statement for the year 2015. (6) Ratified the Distribution of Earnings for the year 2015. ▓ Post-meeting execution: (1) The amendments to the Company’s Articles of Incorporation were approved and registered on file by the Ministry of Economic Affairs on July 21, 2016. (2) The 2016 distribution of cash dividend and capital reserve are summarized as followed: ˙The adjustment of the dividend ratio and the ratio of cash distributed from capital reserve results from cancellation of new restricted employee shares because the criteria were not met by the intended employees and the impact on outstanding shares is as follows: ˙Cash dividend: Initial NTD 1 per share, adjusted to NTD 1.00044974 per share. ˙Cash distributed from capital reserve: Initial NTD 0.2 per share, adjusted to NTD 0.20008994 per share. ˙Ex-dividend date: August 1, 2016. ˙Declaration date: August 23, 2016. 60 2. Board meetings Date 12th term 4th meeting 105.2.24 12th term 5th meeting 105.3.30 12th term 6th meeting 105.5.11 12th term 7th meeting 105.6.29 12th term 8th meeting 105.8.11 12th term 9th meeting 105.11.9 Major resolutions 1. Approved management changes. 2. Approved amendment to the Company’s Articles of Incorporation. 3. Approved 2015 Statement of Internal Control System. 4. Approved the cancellation of new restricted employee shares because the criteria were not met by the intended employees 5. Approved of the Company’s financing authorization from financial institute. 1. Approved 2015 appropriation rate and amount for employees and directors. 2. Approved the distribution of the first 2016 mid-year bonus (Dragon Boat Festival). 3. Approved the 2016 compensation adjustments 4. Approved the 2015 consolidated and individual financial statements. 5. Approved the evaluation of the independence and fitness of the Company’s CPA. 6. Approved the call of 2016 shareholders’ meeting. 7. Approved the 2016 CSR goal. 8. Approved of the Company’s financing authorization from financial institute. 1. Approved the appointment of the manager. 2. Approved the change of CPA. 3. Approved the evaluation of the independence and fitness of the Company CPA. 4. Approved the 2015 operation report. 5. Approved the 2016 operation plan. 6. Approved the 2015 distribution of earnings. 7. Approved capital surplus to shareholders. 8. Approved the proposal to partially amend the Articles of Incorporation. 9. Resolved to remove non-competition for directors and managers. 10. Approved the 2016 appropriation of directors and employees compensation ratio. 11. Approved the cancellation of restricted employee warrant shares where conditions had not been met by the intended employee. 12. Approved and authorized the re-investment company to name after Compal. 13. Approved of the Company’s financing authorization from financial institute. 1. Approved the appointment of manager. 2. Approved the distribution of 2015 cash dividend and capital reserve in cash to shareholders. 3. Approved the retirement of treasury stocks. 4. Approved the financing of re-investment companies through the issue of a Company Letter of Support. 5. Approved the termination of the Company’s liabilities and obligations as a guarantor of Compalead Eletrônica do Brasil Indústria e Comércio Ltda. 6. Approved of the Company’s financing authorization from financial institute. 1. Approved the 2015 director compensation. 2. Approved the distribution of the second 2016 mid-year bonus (Mid-Autumn Festival). 3. Approved the cancellation of restricted employee warrant shares where conditions had not been met by the intended employee. 4. Approved the loan to Henghao Technology Co., Ltd. 5. Approved of the Company’s financing authorization from financial institute. 1. Approved the 2015 employee bonus. 2. Approved the 2016 year-end bonus. 3. Approved the cancellation of restricted employee warrant shares where conditions had not been met by the intended employee. 4. Approved the proposal to partially amend the Procedures of Application to Suspend and Resume Trading. 5. Approved the proposal to partially amend the Corporate Governance Best-Practice Principles. 61 Date Major resolutions 6. Approved the Company’s new registered address. 7. Approved the submission of application for the business license for “F108031 Wholesale of Drugs, Medical Goods” and “F208031 Retail Sale of Medical Equipments” to the competent authority. 8. Approved the 2017 audit plan. 9. Approved the financing of the re-investment company through the issue of a Company Letter of Support. 10. Approved the termination of the Company’s liabilities and obligations as a guarantor of Compalead Eletrônica do Brasil Indústria e Comércio Ltda. 11. Approved financing for suppliers. 12. Approved of the Company’s financing authorization from financial institute. 1. Approved the promotion of managers. 2. Approved the cancellation of restricted employee warrant shares where conditions had not been met by the intended employee. 3. Approved the settlement of CPT shares between the Company along with subdiairies Zhaopal Investment Co., Ltd., Yongpal Investment Co., Ltd., and Kaipal Investment Co., Ltd with Tatung Company Per arbitration No. 103814 issued in 2014. 4. Approved the cap of short-term loans from financial institutions. 5. Approved of the Company’s financing authorization from financial institute. 1. Approved the 2016 employee and director compensation. 2. Approved the distribution of the first 2017 mid-year bonus (Dragon Boat Festival). 3. Approved the 2017 salary adjustment. 4. Approved the 2016 consolidated and individual financial statements. 5. Approved 2016 Statement of Internal Control System. 6. Approved the call of 2017 shareholders’ meeting. 7. Approved the 2017 CSR goal. 8. Approved the evaluation of the independence and suitability of the Company CPA. 9. Approved the submission of application for the business license for “CF01011 Medical Materials and Equipment Manufacturing” to the competent authority. 10. Approved the investment in Leshi Zhixin Electronic Technology (Tianjin) Limited. through Compal Information Technology (Kunshan) Co., Ltd. (100% owned by the Company). 11. Approved the amendment of Corporate Governance Best-Practice Principles. 12. Approved the change of endorsement and guarantee seal custodian. 13. Approved the financing of the re-investment company through the issue of a Company Letter of Support. 14. Approved of the Company’s financing authorization from financial institute. 1. Approved the appointment of the manager. 2. Approved the 2016 operation report. 3. Approved the 2017 operation plan. 4. Approved the 2016 distribution of earnings. 5. Approved capital surplus to shareholders. 6. Approved the amendments to “Guidelines for Handling Acquisition and Disposal of Assets”. 7. Resolved to remove non-competition for directors and managers. 8. Approved the 2017 appropriation of director and employee compensation ratio. 9. Approved the cancellation of restricted employee warrant shares where conditions had not been met by the intended employee. 10. Approved the issuance of Corporate Guarantee by the Company to extend factory lease fulfillment guarantee for Compal Europe (Poland) Sp.z o.o. (100% owned subsidiary in Europe. 12th term 10th meeting 106.2.8 12th term 11th meeting 106.3.28 12th term 12th meeting 106.5.10 62 3.3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors: None. 3.3.13 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D: None. 63 3.4 Information Regarding the Company’s Audit Fee and Independence 3.4.1 Audit Fee Accounting Firm Name of CPA Period Covered by CPA’s Audit Remarks KPMG Kuo, Kuan-Ying Au, Yiu Kwan 2016.01.01~2016.12.31 Fee Range 1 Under NT$ 2,000,000 2 NT$2,000,000 ~ NT$4,000,000 3 NT$4,000,000 ~ NT$6,000,000 4 NT$6,000,000 ~ NT$8,000,000 5 NT$8,000,000 ~ NT$10,000,000 6 Over NT$100,000,000 Fee Items Audit Fee Non-audit Fee Total Unit: NT$ thousands 10,095 8,515 8,515 10,095 (1) Non-audit fees paid to CPA, accounting firm and affiliated companies thereof that amount to more than 1/4 of audit fees: Unit: NT$ thousands Firm Name of CPA Audit Fee Non-audit Fee Period Covered by System Design Company Registration Human Resource Others Subtotal CPA’s Audit Remarks KPMG Kuo, Kuan-Ying Au, Yiu-Kwan 10,095 275 8,240 8,515 2016.01.01~2016.12.31 Note: Other non-audit fees: Transfer pricing report of $525,000, tax consultation of $7,620,000, and others of $95,000. (2) Changes in the accounting firm that result in lesser audit fees paid in comparison to the previous year: None (3) Reduction of audit fees by more than 15% compared to the previous year: None 64 3.4.2 Replacement of CPA (1) About the former CPA Date of replacement Approved by the Board of Directors on May 11, 2016 Reason and explanation for replacement Due to adjustments in work and duties at KPMG in 2016, the CPAs were changed from Kuo, Kuan-Ying and Lo, Jui-Lan to Kuo, Kuan-Ying and Au, Yiu-Kwan. Party involved Situation Voluntarily terminated the commission Will no longer accept (continue) the commission CPA Commissioner Not applicable Not applicable Not applicable Not applicable State whether the commissioner or the CPA terminated the service or declined the commission Other audit report opinions and causes issued within the last two years other than unqualified opinion Did he/she have opinions that differed from that of the publisher? Yes N/A Description Other items of disclosure (Contents that should be disclosed as covered in Clauses 1.4~1.7, Section 6, Article 10 of this guideline) (II) About the succeeding CPA Name of accounting firm KPMG N/A Accounting principles or practices Disclosure of financial report Scope or step of auditing Other V N/A Name of CPA Date commissioned Items of consultation and results on the accounting methods for specific transactions, accounting principles and potential opinions for financial report prior to commissioning Written opinion from succeeding CPA on items of disagreement with the former CPA Kuo, Kuan-Ying, Au, Yiu-Kwan Approved by the Board of Directors on May 11, 2016 N/A N/A 65 (3) Response from the former CPA on Clauses 1 and Clause 2.3, Section 6, Article 10 of this guideline: None. 3.4.3 If the chairman, president, and financial or accounting manager of the Company had worked for the accounting firm or related parties thereof in the most recent year, the name, title, and the term of service with the accounting firm or the related party must be disclosed: None. 66 3.5 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders Title Name 2016 Up till April 24, 2017 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) Unit: shares Chairman Sheng-Hsiun Hsu 0 (1,172,555) (8,800,000) Director and President Director Director Director Director Director Director and Senior Advisor Director and Senior Advisor Director and Executive Vice President Director Director and Executive Vice President Jui-Tsung Chen (200,000) Wen-Being Hsu Kinpo Electronics , Inc. Representative: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Wen-Chung Shen 0 0 0 0 0 0 0 Yung-Ching Chang (252,000) Chung-Pin Wong Chiung-Chi Hsu Chao-Cheng Chen Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh-Kung Tsai Executive Vice President Chen-Chang Hsu Senior Vice President Chun-De Shen Senior Vice President Kuo-Chuan Chen Senior Vice President Pei-Yuan Chen Senior Vice President Chiu-Rui Wei Senior Vice President Ying Chang Senior Vice President Ming-Chih Chang Senior Vice President Sheng-Hua Peng Senior Vice President Wen-Da Hsu Senior Vice President Wei-Cheng Chen Senior Vice President Hsi-Kuan Chen Senior Vice President Chih-Wei Wen Vice President Vice President and head of finance Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Chih-Chuan Cheng Ching-Hsiung Lu Shih-Tung Wang Bo-Hsiung Chang Bo-Tang Wang Zong-Ming Wang Fu-Chuan Chang Chi-Hsiang Ma Yung-Nan Chang Sheng-Hung Li 0 0 0 0 0 0 0 0 (135,000) (1,000,000) (133,764) 0 1,900,000 0 0 0 0 - 0 (120,000) 0 0 (10,000) (50,000) 0 (30,000) 0 0 67 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - 0 0 0 0 0 0 0 0 0 0 (10,230,000) 0 0 0 0 0 0 0 (396,000) 1,020,000 0 1,020,000 0 0 0 0 420,000 320,000 0 200,000 420,000 0 420,000 320,000 240,000 0 0 240,000 240,000 0 132,000 230,000 210,000 (10,000) 0 0 240,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2016 Up till April 24, 2017 Title Name Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Advisor Head of Audit Yung-He Su Ming-Hsiang Kan Chih-Hsien Liang Lung-Hua Shen Ming-Dong Wong Yue-Chun Li Chiao-Lieh Huang Chung-Hsing Tan Yi-Yun Chang Hsin-Kung Mao Ling-Sheng Wu Hsin-Hsiung Huang Shih-Hung Huang Yi-Chiang Chiu Ching-Fa Li Bo-Heng Chen Jui-Chun Hsu Shih-An Li Ta-Chun Wang Fei-Lung Chen Tian-Yuan Tsai Bo-Wen Hsieh Senior Vice President Ming-Hsing Hsu Vice President Chin-Wen Liao Shares held Increase (Decrease) 0 0 0 0 0 0 0 (120,529) 0 0 (30,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 200,000 0 160,000 240,000 320,000 240,000 95,000 250,000 240,000 240,000 50,000 160,000 160,000 160,000 160,000 160,000 0 0 0 9,000 0 0 - - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - Note: In 2016, the following five people, Ming-Chih Chang, Senior VP, His-Kuan Chen, Senior VP, Shih-Hung Huang, VP, Yi-Chiang Chiu, VP and Bo-Heng Chen, VP were called back or promoted. Jui-Chun Hsu, VP, Shih-An Li, Ta-Chun Wang, Fei-Lung Chen took office. Ming-Hsing Hsu, VP and Chin-Wen Liao, VP, resigned. In 2017, Chih-Wei Wen, Senior VP, took office. 68 3.5.1 Shares Trading with Related Parties: Name Reason for transfer Transaction date Counterparty Counterparty's relationship with the Company, Directors, Supervisors, and shareholders with more than 10% ownership interest Shares Transaction price Jui-Tsung Gift 106.03.24 Hsin-Chong Chen Father and son 10,230,000 19.15 Chen Ching-Hsiung Gift 105.07.07 Shao-Hsuan Lu Father and Daughter 120,000 20.25 Lu 3.5.2 Shares Pledge with Related Parties: None 3.6 Relationship among the Top Ten Shareholders April 24, 2017 Name Self Shares held Shareholdings of spouse and underage children Total shares held in the names of others Shares held Shares Kinpo Electronics Inc. 151,628,69 2 Shareholding Percentage 3.43% Shares Shareholding Percentage - - 8,975,401 0.20% 17,107,025 0.39% Shareholding Percentage 0% 0% Unit: Shares Spouse, relative of second degree or closer, and relationships among top 10 shareholders. Name Relationship N/A N/A Representative: Sheng-Hsiun Hsu Bank of Taiwan in custody for Silchester International Investors International Value Standard Chartered in custody for Vanguard Stock Index Fund Standard Chartered in custody for Fidelity Puritan Fund: Fidelity Low-Priced Stock Fund Citi (Taiwan) Commercial Bank in custody for Dimensional Emerging Markets Value Fund Yung-Kun Hsieh FuBon Insurance Representative: Ming-Hsing Tsai 76,904,000 1.74% 75,897,629 1.72% 72,000,000 1.63% 67,242,333 1.52% 64,598,000 64,200,991 1.46% 1.45% 0 0% - - - - - 0 69 Shares 0 0 0 0 0 - - - 0% N/A N/A 0% N/A N/A 0% N/A N/A - 0 0% N/A N/A (Note) 0 0% N/A N/A - 0% Name Self Shares held Shareholdings of spouse and underage children Shares Shares Shareholding Percentage 1.41% Shareholding Percentage - Total shares held in the names of others Shares held Shares Shareholding Percentage Spouse, relative of second degree or closer, and relationships among top 10 shareholders. Name Relationship - 0 0 0 0% 0% N/A 1.25% 0% N/A 55,367,000 62,330,500 Shin Kong Life Insurance Co., Ltd. Representative: Eugene Wu JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency Citi (Taiwan) Commercial Bank in custody for Norges Bank Note: The Company has sent the request to Yung-Kun Hsieh for the relevant infoamtion, but did not receive the reply until the annual report was published. 53,620,697 0% N/A 0% N/A 1.21% N/A N/A 0 0 - - - - 3.7 Ownership of Shares in Affiliated Enterprises December 31, 2016 Unit: Shares; % Investees (Note) Invested by the Company Panpal Technology Corp. 500,000,000 Shares Shareholding percentage 100.00 Gempal Technology Corp. 90,000,000 100.00 Hong Ji Capital Co., Ltd. 100,000,000 100.00 Hong Jin Investment Co., Ltd. 29,500,000 100.00 Zhaopal Investment Co., Ltd. 200,100,000 100.00 Yongpal Investment Co., Ltd. 175,100,000 100.00 Kaipal Investment Co., Ltd. 75,100,000 100.00 Rayonnant Technology Co., Ltd. 29,500,000 100.00 RiPAL Optotronics Co., Ltd. 6,000,000 100.00 Unicom Global Inc. 10,000,000 100.00 Huang Feng Communication Co., Ltd. 10,000,000 100.00 Henghao Technology Co., Ltd. 205,795,414 96.98 Held by directors, supervisors, managers, and directly/indirectly controlled entities Shares Shareholding percentage Aggregate investment Shares Shareholding percentage - - - - - - - - - - - - - 500,000,000 - 90,000,000 - 100,000,000 - 29,500,000 - 200,100,000 - 175,100,000 - 75,100,000 - 29,500,000 - 6,000,000 - 10,000,000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 10,000,000 100.00 - 205,795,414 96.98 95.40 88.72 Compal Broadband Networks Inc., 26,418,342 49.61 24,384,413 45.79 50,802,755 Crownpo Technology Co., Ltd. 3,738,668 33.23 6,243,082 55.49 9,981,750 70 Investees (Note) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Shares Shareholding percentage Shares Shareholding percentage Shares Shareholding percentage Kinpo Group Management Consultant Company 300,000 37.50 300,000 37.50 600,000 Mactech Co., Ltd. 21,756,192 52.88 274,954 0.67 22,031,146 General life Biotechnology Co., Ltd. Li Hong Optoelectronic Co., Ltd. 15,000,000 50.00 - - 15,000,000 2,772,000 42.00 - - 2,772,000 Infinno Technology Corporation 10,983,719 41.03 - - 10,983,719 Accesstek Inc. 899,160 27.78 319,707 9.88 1,218,867 Allied Circuit Co., Ltd. 10,157,730 20.42 8,212,152 16.50 18,369,882 Arcadyan Technology Corp., 41,304,504 21.84 27,192,437 14.37 68,496,941 Maxima Ventures I, Inc. 126,000 22.55 3,000 0.54 129,000 Avalue Technology Inc. 14,600,070 21.07 672,000 0.97 15,272,070 Core Profit Holdings Ltd. 147,000,000 100.00 Flight Global Holding Inc. 89,755,495 100.00 Just International Ltd. 48,010,000 100.00 High Shine Industrial Corp. 42,700,000 100.00 Compal International Holding Co., Ltd. Big Chance International Co., Ltd. Compal Rayonnant Holdings Limited Auscom Engineering Inc. Compal Europe (Poland) Sp. z o.o. Bizcom Electronics, Inc. Compal Electronics (Holding) Ltd. 47,001,000 100.00 90,820,000 100.00 12,500,000 100.00 3,000,000 100.00 136,080 100.00 100,000 100.00 1,000 100.00 Compalead Electronics B.V. 6,426,516 100.00 - - - - - - - - - - - - - 147,000,000 - 89,755,495 - 48,010,000 - 42,700,000 - 12,500,000 - 3,000,000 - 136,080 - 100,000 - 1,000 - 6,424,516 Etrade Management Co., Ltd. 46,900,000 90.37 5,000,000 9.63 51,900,000 Webtek Technology Co., Ltd. 100,000 100.00 Forever Young Technology Inc. 50,000 100.00 - - - 100,000 - 50,000 Lipo Holding Co., Ltd. 98,000 49.00 102,000 51.00 200,000 71 75.00 53.55 50.00 42.00 41.03 37.66 36.92 36.21 23.09 22.04 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 47,001,000 100.00 - 90,820,000 100.00 Investees (Note) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Ascendant Private Equity Investment Ltd. Shares Shareholding percentage Shares Shareholding percentage Shares Shareholding percentage 31,253,125 34.72 37,253,825 42.50 68,506,950 77.22 72 IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital Authorized capital Paid-up capital Year Month Issuanc e Price Shares Amount (NTD) Shares Amount (NTD) Source of capital 2015 1 10 6,000,000,000 60,000,000,000 2015 2 10 6,000,000,000 60,000,000,000 4,423,236,625 44,232,366,250 Exercise of employee warrants totaling NTD 20,266,000 4,472,596,625 44,725,966,250 Issuance of employees’ restricted shares 2015 8 10 6,000,000,000 60,000,000,000 4,472,196,625 44,721,966,250 2015 9 10 6,000,000,000 60,000,000,000 4,471,126,625 44,711,266,250 NTD493,600,000 Cancellation of Restricted Employee Shares of $4,000,000 Cancellation of Restricted Employee Shares of $10,700,000 Cancellation of Restricted Employee Shares of $4,900,000 2016 2016 2 5 10 10 6,000,000,000 60,000,000,000 4,470,636,625 44,706,366,250 6,000,000,000 60,000,000,000 4,470,486,625 44,704,866,250 Cancellation of Restricted Employee Shares of 2016 6 10 6,000,000,000 60,000,000,000 $1,500,000 4,426,670,625 44,266,706,250 Retirement of treasury stock $438,160,000 2016 8 10 6,000,000,000 60,000,000,000 4,424,680,625 44,246,806,250 Cancellation of Restricted Employee Shares of $19,900,000 2016 11 10 6,000,000,000 60,000,000,000 4,424,510,625 44,245,106,250 Cancellation of Restricted Employee Shares of $1,700,000 2017 2 10 6,000,000,000 60,000,000,000 4,422,464,625 44,224,646,250 Cancellation of Restricted Employee Shares of $20,460,000 73 May 15, 2017 Remarks Paid in properties other than cash Others N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Change of capital approved by the Ministry of Economic Affairs on February 10, 2015 Change of capital approved by the Ministry of Economic Affairs on March 23, 2015 Change of capital approved by the Ministry of Economic Affairs on September 2, 2015 Change of capital approved by the Ministry of Economic Affairs on December 11, 2015 Change of capital approved by the Ministry of Economic Affairs on March 14, 2016 Change of capital approved by the Ministry of Economic Affairs on June 2, 2016 Change of capital approved by the Ministry of Economic Affairs on July 21, 2016 Change of capital approved by the Ministry of Economic Affairs on August 29, 2016 Change of capital approved by the Ministry of Economic Affairs on November 29, 2016 Change of capital approved by the Ministry of Economic Affairs on February 24, 2017 Share Type Ordinary shares Outstanding shares (public listed) Unissued shares Total Authorized capital 4,422,464,625 (Note) 1,577,535,375 6,000,000,000 Note: Unconcealed restricted employee shares (RSA) are 312, 000 shares. Approved to include 100,000,000 shares of employees shares and corporate bonds with warrant in capital. Remarks ■ Shelf registration system information: None 74 4.1.2 Status of Shareholders Analysis Government Agencies Financial Institutions Other Institutions Foreign Institutions & Natural Persons Domestic Natural Persons Treasury stocks Total April 24, 2017 Number of Shareholders Shareholding (shares) Percentage 3 8 42 242 1,009 159,113 1 160,410 246,855,469 344,505,872 2,433,096,828 1,397,694,448 312,000 4,422,464,625 0.00% 5.58% 7.79% 55.02% 31.60% 0.01% 100.00% 4.1.3 Share Ownership Distribution Range of Shareholding (Unit: Shares) Number of Shareholders Shareholding (Shares) Percentage April 24, 2017 1 ~ 999 1,000 ~ 5,000 5,001 ~ 10,000 10,001 ~ 15,000 15,001 ~ 20,000 20,001 ~ 30,000 30,001 ~ 40,000 40,001 ~ 50,000 50,001 ~ 100,000 100,001 ~ 200,000 200,001 ~ 400,000 400,001 ~ 600,000 600,001 ~ 800,000 800,001 ~ 1,000,000 1,000,001 and over Total 49,981 71,868 18,921 6,742 3,372 3,331 1,537 935 1,809 827 413 156 80 49 389 160,410 9,779,162 163,997,690 136,610,284 81,005,069 60,596,826 82,047,829 54,059,597 42,858,140 127,919,729 115,854,490 115,748,714 76,533,792 55,508,252 44,383,320 3,255,561,731 4,422,464,625 0.22% 3.71% 3.09% 1.83% 1.37% 1.86% 1.22% 0.97% 2.89% 2.62% 2.62% 1.73% 1.26% 1.00% 73.61% 100.00% 4.1.4 List of Major Shareholders Shares Shareholder’s name Kinpo Electronics Inc. Bank of Taiwan in custody for Silchester International Investors International Value Standard Chartered in custody for Vanguard Stock Index Fund Standard Chartered in custody for Fidelity Puritan Fund: Fidelity Low-Priced Stock Fund Citi (Taiwan) Commercial Bank in custody for Dimensional Emerging Markets Value Fund Yung-Kun Hsieh FuBon Insurance Shin Kong Life Insurance Co., Ltd. JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency Citi (Taiwan) Commercial Bank in custody for Norges Bank 75 April 24, 2017 Shares held Percentage (%) 151,628,692 76,904,000 75,897,629 72,000,000 67,242,333 64,598,000 64,200,991 62,330,500 55,367,000 53,620,697 3.43% 1.74% 1.72% 1.63% 1.52% 1.46% 1.45% 1.41% 1.25% 1.21% 4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Year Measurement Per-share market price Per-share net worth (Note) High Low Average Before dividend After dividend 2015 29.30 15.10 22.23 23.71 22.49 2016 21.65 16.55 19.24 24.19 22.98 Year-to-date March 31, 2017 20.25 18.45 19.20 23.62 - Earnings per share Weighted average Before adjustment outstanding shares Earnings per share Weighted average After adjustment outstanding shares Earnings per share Cash dividends Per-share dividend Stock dividends From earnings From capital reserves Cumulative unpaid dividends P/E ratio Price to dividends ratio Cash dividend yield Analysis of investment returns 4,329,403,194 4,329,403,194 4,341,770,936 2.01 1.88 0.25 4,329,403,194 4,329,403,194 2.01 1.20 - - - 11.06 18.53 5.40% 1.88 1.20 - - - 10.23 16.03 6.24% - - - - - - - - - Note: The 2016 distribution of earning was resolved at the May 10, 2017 Board of Directors’ Meeting and will be submitted to the 2017 shareholders’ meeting for final approval. 76 4.1.6 Dividend Policy and Implementation Status (1) Dividend Policy When the Company makes a profit during the year, 10% of annual net income after appropriating income tax expense, offsetting any prior deficit, is to be set aside as legal reserve and a special reserve is set aside or reserved in accordance with pertinent laws and regulations. The balance of earning available for distribution is composed of the remainder of the said profit and the retained earning from previous years. The earnings appropriation, distribution of dividends and bonuses shall be proposed by the Board of Directors and approved at a Shareholder’s Meeting. The rest of the unappropriated earning shall be reserved. The Company is in a growth period of its life cycle. And as such, for the consideration of future capital needs and to meet cash flow needs of its shareholders, the Company’s distribution of cash dividend, after closing and has distribution of earning, shall be no less than 10% of the total cash and stock dividends. Although a dividend ratio has not been specified in the Company’s articles of incorporation, the Company shall not appropriate less than 30% of its income after tax for dividends, after taking into account factors such as the Company’s capital needs, the capital budget, long term financial plans, domestic and international competition and the interests of the shareholders. The board of directors shall propose the distribution of earnings and submit them to the shareholders’ meeting for approval. (2) Proposed Distribution of Dividend (cid:3) The proposed 2016 distribution of earning of shareholders’ dividend in the amount of NTD 4,422,152,625 will be discussed at the 2017 shareholders’ meeting. The aforementioned amount is set to be distributed as an all cash dividend of NTD 1 per share and incurred capital surplus generated from the excess of the issuance price over the par value of the capital stock in the amount of NTD 884,430,525, or NTD 0.2 per share. The total cash distribution amounts to NTD 5,306,583,150. (cid:3) Should the Company decide to buy back/recover outstanding shares, transfer treasury stock to employees, reduce share capital or in any other way alter the number of outstanding shares sometime later, the Board of Directors shall be authorized to adjust the payment rate of cash dividends and cash capital surplus as deemed necessary at its discretion. (3) Impact to 2016 Business Performance and EPS resulting from Stock Dividend Distribution: Not Applicable. 77 4.1.7 Employees’ and Directors’ Compensation (1) Employees’ and directors’ compensation policies as stated in the Articles of Incorporation When the Company makes a profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to the deduction of compensation to employees and directors, shall be distributed to employees as compensation in the amount of no less than two percent (2%) thereof and to director as compensation in an amount of no more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset the accumulated losses. The compensation to employees as mentioned above may be distributed in the form of stock or cash and employees entitled to receive said stock/cash may include the employees of the Company’s subordinate companies pursuant to the Company Act. (2) Basis for estimating employees’and directors’ compensation and stock dividends, and accounting treatments for any discrepancies between the amounts estimated and the amounts paid. (cid:3) Compensation to directors and employees, as denoted in the Articles of Incorporations, shall be estimated based on income before tax prior to the subtraction of directors and employees compensation during the current year and multiplied by the ratio as denoted in the Article of Incorporation (shall not be more than 2% or less than 2% of the remainder, respectively.) (cid:3) (cid:3) If the compensation approved for distribution to employees is to be in the form of common shares, the number of shares is determined by dividing the amount of the compensation by the closing price of the shares on the day preceding the Board of Directors’ meeting. If the actual amounts differ from the amounts estimated, the differences are recorded as gains/losses in the subsequent year as a change in accounting estimate. (3) 2016 employees compensation proposal passed by the board of directors (cid:3) Accrued employees compensation is NTD $876,027,690 and directors compensation is NTD $46,323,438. (cid:3) If the estimated distribution amount differs from the amounts estimated in accrued expense, the variance, reason and resolution should be disclosed: No variance. (cid:3) The proposed distribution of employee stock compensation, and the size of such an amount as a percentage of the sum of the after-tax net income stated in the individual financial reports for the current period and total employee compensation: Not applicable (no employee stock compensation). (4) Actual distribution of 2015 employee and directors compensation: (cid:3) The employee compensation is NTD $949,980,218 and the directors compensation is NTD $50,233,972. (cid:3) The 2015 actual distribution of employee and directors compensation was approved at the 2016 shareholders’ meeting and remained as proposed by the board of directors. 78 4.1.8 Company Buyback of Own Shares Per resolution reached at the 8th Board of Directors Meeting (11th term) on March 25, 2013, the Company planned to buy back its own shares for transferring to employees. Between April 1, 2013 and May 17, 2013, the Company bought a total of 58,516,000 shares. Up to May 16, 2016, i.e., three years have passed since the buyback of Company’s own shares for transferring to employees, a total of 14,700,000 shares have been transferred to employees. The expiration date for the remaining 43,816,000 has elapsed. The resolutions to cancel the registration of these shares and perform the amendment to corporate registration for capital reduction and the cancellation of shares with the competent authority were passed at the 7th Board of Directors Meeting (12th term) on June 29, 2016. The amendment to corporate registration was completed and the Company has received the MOEA’s approval dated July 21, 2016 (MOEA’s Notice No. 10501169070). 4.2 Bonds: None 4.3 Global Depository Receipts Details Date of issue: November 9, 1999 May 21, 2001 Issuance and trading location Total sum issued Issuance price per unit Number of units issued Luxembourg USD 122,160,000 USD 15.27 8,000,000 units Source of represented securities Participating shareholder(s): Kinpo Electronics, Inc. Quantity of represented securities 40,000,000 ordinary shares of Compal Electronics 1. Voting rights: Luxembourg USD 174,816,000 USD 6.07 28,800,000 units 1. Participating shareholder(s): 44,000,000 shares contributed by (1) Kinpo Electronics, Inc. (2) Panpal Technology Corporation (3) Gempal Technology Corporation 2. New cash issue of Compal shares: 1,000,000,000 shares 144,000,000 ordinary shares of Compal Electronics GDR holders’ rights and obligations Trustee Depository bank Custodian Unredeemed balance Allocation of expenses incurred at issuance and over the duration According to the terms of the depository agreement and the laws of the Republic of China, the beneficiary certificate holder is entitled to the voting rights of shares represented under the beneficiary certificate. 2. Rights to dividend distribution, share subscription and other rights: Unless otherwise specified in the agreement, the GDR carries identical rights as do ordinary shares N/A The Bank of New York Mega International Commercial Bank Mega International Commercial Bank 6,624,177 units (May 15, 2017) N/A The Bank of New York Borne by participating shareholder(s) Allocated proportionally between the Company and participating shareholders 79 Date of issue: Details Key terms of the depository and custodian agreements Per Unit Market Price 2016 Year-to-date May 10, 2017 High Low Average High Low Average 4.4 Employee Warrants: None November 9, 1999 May 21, 2001 See descriptions below USD $3.38 USD $2.53 USD $2.98 USD $3.42 USD $2.89 USD $3.17 4.5 Subscription of New Shares by Employees and Restricted Shares 4.5.1 Issuance of Restricted Employee Shares Type of restricted employee shares Effective date of application Date of issue: Number of new restricted employee shares issued Issue price New restricted shares issued as a percentage to total outstanding shares Criteria of entitlement to restricted employee shares 2014 1st issue New restricted employee shares May 15, 2017 October 30, 2014 February 25, 2015 49,360,000 shares NTD 0 (issued without subscription) 1.12% (Note) 1. Employees may receive the following percentages of the restricted shares they have been allocated, if they remain employed by the Company after the duration specified below and satisfy their target performance appraisals (i.e. a performance grade of B or higher in the latest year before the duration is due). However, the actual percentage of shares entitled to employees will be subject to the Company’s performance criteria, as calculated in Subparagraph 2 of this Paragraph. After 2 years: 40% After 3 years: 30% After 4 years: 30% 2. The Company’s performance criteria is calculated based on the weighted score of net income and ROE taken from the latest full-year consolidated financial statements before the duration is due. The following performance criteria applies: A. Net Income: increase by 10% or more compared to the Company’s 3-year average B. Return on equity (ROE): surpass the Company’s 3-year average Net income is defined as: “current net profit attributable to parent company shareholders” as shown in audited financial statements; whereas ROE is defined as: “current net profit attributable to parent company shareholders” divided by “equity attributable to parent company shareholders” as shown in audited financial statements. To align the interests of employees who have participated in this program and the interests of shareholders, the two performance indicators above are each assigned a 50% weight. If indicators A and B are both achieved, employees will be entitled to receive the full percentage mentioned in Subparagraph 1 of this Paragraph. If only A or B is achieved, employees will be entitled to receive half the percentage mentioned in Subparagraph 1 of this Paragraph. Restricted rights to restricted 1. Employees may not sell, pledge, transfer, gift, charge or in any way 80 Type of restricted employee shares 2014 1st issue New restricted employee shares employee shares dispose the restricted shares for the duration of entitlement. 2. For citizens of the Republic of China, any restricted employee shares received must be placed immediately under the custody of a custodian appointed by the Company. Employees may not request to collect restricted shares for any reason or through any means. For employees of all other nationalities, any restricted employee shares received will be placed under the custody of a custodian bank. 3. Restricted employee shares may be allocated cash and stock dividends for the duration of entitlement. Any cash or stock dividends allocated on restricted shares will be transferred from the custodian account to employees’ personal accounts on the date of distribution. Custody of restricted employee shares Held in trust If the criteria of entitlement is not met after employees are allocated or have subscribed to restricted shares 1. Once employees have been allocated restricted shares, the Company may recover and retire restricted shares that have yet to satisfy their criteria of entitlement, or from employees who have committed severe mistakes or violations against their employment contracts or work rules, or from those who have willingly surrendered entitlement of restricted employee shares in writing. 2. The Company may recover allocated but unreceived shares from employees who resign, retire, or are dismissed, made redundant, or decease for causes unrelated to occupational hazards within 4 years after the date of distribution. 3. The Company will recover (without compensation) allocated shares from employees who violate the terms of issuance before the criteria of entitlement is met. 4. The Company will recover (without compensation) allocated shares that fail to meet the required criteria over the duration of entitlement. In which case, the Company shall instruct the custodian institution or custodian bank to complete book-entry transfers at least 15 business days before the book closure date of any stock dividend/cash dividend/cash issue. Number of restricted employee shares recovered Number of restricted shares with restrictions removed Number of restricted shares with restrictions intact Number of restricted shares with restrictions remaining as a percentage to total outstanding shares (%) 6,718,000Shares 16,200,000Shares 26,442,000Shares 0.60% (Note) Impacts on shareholders’ equity Possible expenses: A total of49,360,000 restricted shares have been issued; the issuance price per share is NTD0. The fair value of shares is measured on the day they are distributed; expenses shall be recognized over the duration of entitlement. If all criteria is met, total expenses of this restricted share scheme should approximate to NTD1,009,493,000; of which NTD400,262,000 is recognized in 2015, NTD373,429,000 in 2016, NTD147,897,000 in 2017, NTD 83,520,000 in 2018, and NTD4,385,000 in 2019. Dilution of EPS and other impacts on shareholders' equity: Based on the 4,422,464,625 shares outstanding as at May 11, 2017, the restricted share scheme, once expensed, should dilute earnings per share by NTD0.09 in 2015, NTD0.08 in 2016, NTD0.03 in 2017, NTD0.02 in 2018, and NTD0.00 in 2019. This issue produced limited dilutive effects on the Company's EPS, and hence should not cause any significant impacts on shareholders' equity. Note: Calculations were based on share capital registered with the Ministry of Economic Affairs as at May 15, 2017 81 4.5.2 Information on Name of Managers and Top 10 Employees obtaining Restricted Employee Shares Restrictions removed Restrictions intact Number of new restricted New restricted shares shares acquired acquired as an as a percentage to employee total outstanding (shares) shares (Note 1) Number of restricted shares with restrictions removed (shares) Number of restricted shares Issuance Issuance with restrictions Price Amount removed as a (NTD) (NTD) percentage of total outstanding shares (Note 1) Number of restricted shares with restrictions intact (shares) 24,200,000 0.55% 9,020,000 18.90 170,478,000 0.20% 15,180,000 Title Name Managers 32 persons (Note 2) Employees with top-10 holding 3,200,000 0.07% 1,280,000 18.90 24,192,000 0.03% 1,920,000 12 persons (Note 3) Note: 1. Calculations were based on share capital registered with the Ministry of Economic Affairs as at May 15, 2017. May 15, 2017 Number of restricted shares Issuance Issuance with restrictions Price Amount intact as a (NTD) (NTD) percentage of total outstanding shares 0 0 0 0 (Note 1) 0.34% 0.04% 2. Managers' titles and names ‧Executive VP and Senior Advisors: Chung-Pin Wong, Chao-Cheng Chen and Yung-Ching Chang – 3 persons. ‧Senior VP: Chun-De Shen, Chiu-Rui Wei, Ying Chang, Kuo-Chuan Chen, Sheng-Hua Peng, Wen-Da Hsu, Wei-Chang Chen – 7 persons. ‧VP: Chih-Chuan Cheng, Ching-Hsiung Lu, Bo-Hsiung Chang, Bo-Tang Wang, Zong-Ming Wang, Yung-Nan Chang, Sheng-Hung Li, Yung-He Su, Chih-Hsien Liang, Lung-Hua Shen, Min-Dong Wong, Yue-Chun Li, Chiao-Lieh Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Ling-Sheng Wu, Hsin-Hsiung Huang, Yi-Chiang Chiu, Shih-Hung Huang, Ching-Fa Li and Bo-Heng Chen – 22 persons. 3. Titles and names of employees with top – 10 holding ‧Director: Jen-Liang Lin, Hsin-Chih Huang, Yao-Chung Tsai, Cheng-Chiang Wang, Yung-Ching Tian and De-Chi Hsia – 6 persons. ‧Deputy Director: Nai-Ping Chen, Hsin-Shu Wang, Chi-Bin Li, Bo-An Lin, Chang-Wen Lin and Chao-Bin Huang – 6 persons. 4.6 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions: None Financing Plans and Implementation: None 82 V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope (1) Main areas of business operations The development, designed, manufacture and sales of Notebook PCs, Ultrabook PCs, 2-in-1 PCs, AIO PCs, Tablet PCs, Server, AE, Smart Home, LCD TVs, LCD Monitor, Public Display, Smart Phone and other Smart Accessory and Wearable Devices. (2) Revenue distribution Major Divisions (%) of Total Sales in 2016 Unit: NTD thousands 5C electronics Other products Total (3) New products development 99.4% 0.6% 100.0% The development and design of IoT Vertical Solution, EMR and hospital management system, Point of Care management system, and smart Sport. ■ Notebook PCs For notebook PC hardware, Compal has adopted the most efficient R&D methods in 2016 to launch the latest (6th generation) Intel Core i3, i5 and i7 series processors and AMD central processors, with graphics incorporated in single silicon chip in the development of the APU on top of launching a new generation of laptop which is compatible with the Windows 10 operating system. Compal possesses special expertise in system integration, R&D and manufacturing to assist customers in developing and mass-producing new products with the latest specifications under relatively short time. Compal's price-competitive, slim-type notebooks were launched a time when the market favored more affordable and portable devices, and for which it received positive responses from consumers. The purchase signal in high-end gaming laptop market has been relatively stable, making gaming laptops a new ground for brand name companies to vie for growth. These companies have injected more investments in the gaming notebook market and launched the global market for gaming notebook into intense competition. After years of operation as an OEM of gaming notebooks for our brand partners, Compal has accumulated profound experience in design and development and in 2017, the Company shall continue to keep up with the market trends by introducing high-end technical specifications, multi-dimensional graphics chips and Intel’s 7th generation high-end H series central processor to launch a new brand of gaming computer. Together with our clients, we shall secure our share in the gaming laptop market. Compal has also been improving its ability to design customized models for customers across different countries and markets. A significant amount of resources has been devoted to developing commercial notebooks, given how their demands are resilience against economic downturns. Overall, Compal aims to attain industry-leading R&D capabilities in both consumer and commercial markets. ■ Ultrabook PCs Innovative technology and extensive R&D capabilities allow Compal to maintain a leading position in the industry. Compal produces an ultra-thin notebook (Ultrabook), that uses the latest generation of the Intel industry-leading 15 Watt standard voltage processor. Not only is it slim and light but it has the most excellent 83 performance and allows users to stay productive. More Windows 10 Ultrabooks equipped with standard voltage processors are scheduled for launch in 2017. Apart from compatibility with Intel’s design specifications for its latest generation products, we will also be introducing products of a slimmer design at a lower price to meet market demand. The product will feature the stylish and elegant body that is typical of Compal products yet offer powerful computing power that can rival high-performance PCs. Compal will also continue to develop newer and more competitive technologies so that not only consumers around the world will get to enjoy Compal’s innovations but also enables our customers to access this market more quickly. ■ 2-in-1 PCs The 2-in-1 laptop is a novel product that borrows the concept of “Transformers” – in addition to having a standard laptop keyboard for diverse functional operations, the product also features Tablet PC touch versatility. With a touch-sensing display module coupled with Microsoft’s latest Windows 10 OS, the product is aimed at attracting the consumer base for standard laptops and tablet PCs. Utilizing our rich R&D experience, Compal has presented a number of innovative concepts to incorporate the Company’s exclusive technologies, materials and fan-less design in 2-in-1 PCs of different designs and form factors, the Company is poised to create new market demands and earn unanimous praises from customers and consumers alike. ■ AIO PCs AIO has been on the market for years. It is an elegant combination of screen and computer with a thin, special shape, and elegant design. The product has replaced the desktop in many households and corporations. Compal has also enhanced the design to allow the AIO to lie flat and also be portable (Portable AIO). Since Compal possess the fundamental technical capabilities required for notebook PCs featured in the AIOs, the Company is therefore able to commence production in the shortest time possible. Our AIO product lines have been very well received by clients. ■ Smart Home Smart Home has been in development for many years and with the dawn of the IoT (Internet of Things) era, the central control platform for smart home will no doubt become the focal point of competition for relevant industries. Compal has ventured into the development of Home Gateway platform using our production and design capacity for mobile computers and devices. We have also developed new products and business lines by cultivating wireless technology and sensor network technologies, integrating background cloud computing services and focusing on smart energy saving, smarter safety and smart home care. In the future, Compal will also rely on its core capabilities to gradually expand its products width and depth in different domains of IoT in order to locate corresponding niche markets to expand product coverage. ■ Server Cloud application has been a growing market. A significant portion of data storage and computing analytics have shifted to cloud servers in the back-end. In order to meet the demand from both Enterprises and Data Centers, Compal has mastered the R&D of High-density computing power and precision performance management, with the capacity to design and manufacture servers of higher C/P value. ■ Tablet PCs Compal has long cultivated tablet PC technology for industrial, commercial and consumer users. We will continue to develop a series of tablet PCs and LTE compatible products at affordable price points in order to satisfy the needs of our clients while winning the support and recognition from consumers. We will also extend our product lines to eBooks and deliver more competitive solutions to name brand clients. ■ LCD TVs As consumers change their viewing habits, the interaction experience between users of Smart TVs (or smart phones) is also redefined by seamless extension of the content on the devices, such as simplification of TV 84 network setup. This improves user convenience to meet new expectations from such devices as smart TVs. ■ LCD Monitor Existing UHD products have advanced to HDMI 2.0 specification and now supports up to 4K2K 60Hz input signal and USB Type-C connectivity to achieve comprehensive connection interface in order to accommodate the demand for professional graphics design and B2B market. ■ Smartphone Compal continues to strengthen the operational efficiency of R&D, develop core communications technologies, and continue the development of innovative technologies to maintain an industry-leading position. In the near future, we will continue to develop high-end smart mobile devices that feature multi-core, frameless, multi-camera image integration and special feature camera. We will also increase the speed for TDD-LTE/ FDD-LTE carrier aggregation. Apart from continuing to strengthen the competitiveness of low-priced entry-level products, we will also actively develop cost-effective, visually appealing products to cope with the rapid growth and customer needs in emerging markets. ■ Smart Accessory+Wearable Devices Compal began shipping its wearable devices in 2016 and with our design capacity for smart products and capabilities for mass production, we have made significant progress in terms of shipping quantity for Android Wear smart watches. Apart from continuing to develop even more compact and energy efficient smart watches in the near future, we will also aggressively expand our production lines for other wearable products in the hopes of achieving greater success in the future. ■ AE Car PCs consists of in-car communication system (Telematics) and in-car AV entertainment system (in-Vehicle-Infotainment). As telematics systems are governed by special regulations on safety and communication control, we have long been working with car manufacturers to ensure relevant processes were in sync. Due to the similiarity in system framework between in-car AV entertainment and PCs, the field became a natural starting point for Compal’s foray into the car PC market. After years of hard work in the field, Compal products have been adopted by several major car manufacturers around the world. ■ IoT Vertical Solution Vertical solutions have been one of the key demands in the development of IoT with an extensive range of applications covering smart cities, Industry 4.0, smart buildings, smart retail and smart medical care. Such solutions feature integrated software and hardware and are designed specifically to accommodate clients’ needs. Demands from B2B customers not only account for a higher portion in the existing IoT market but also bring Compal more immediate profit. Compal offers competitive products to address the primary needs of development in many different fields not just as a hardware manufacturer, but also as a full Service Provider. ■ Smart Medical and Healthcare The aging population, China’s new two-child policy, the flourishing health care industry, and the rise of sports fashion, especially the popularity of convenience smart devices, have all contributed to smart healthcare becoming a focus of attention. It has also become a major matter of cross industry cooperation. Compal has responded to market demand and the rapid advent of the IoT era by actively foraying into the healthcare market by reaching out to major hospitals and point of care (POC)s such as long-term care centers and post-partum care centers through our strengths in integration and profound experience in product development. The designs, which include science, technology, and humanity, help caregivers to provide higher quality services and also give hope of a better quality of life and personal dignity to those who need healthcare. 85 5.1.2 Industry Overview Please refer to page 74-82 of the Chinese annual report. 5.1.3 Research and Development Research and Development Expenses in the past year: Year R&D expenses Operating revenues Unit: NTD thousands; % R&D expenses as a percentage to operating revenues 2016 2017 first quarter 11,961,428 2,397,542 766,810,035 187,427,921 1.6% 1.3% 5.1.4 Long-term and Short-term Development (1) Short-term Development • We will adapt to market changes, follow current trends, strengthen new design concepts, maintain the focus on product difference, and launch ahead of our competitors. • We will enhance operation efficiency, to further increase our product competitiveness and push the sales growth rate higher than the market average. • We will improve logistics management and flexibility to shorten delivery time. • We will elaborate different market strategies for different product markets. Main stream products will be bundled with new technology and modular features to boost the added value and diversity of products. For featured products, we will adopt a prospective standpoint in our design concept for new products in order to become the focal point of the product market. For low-price products, apart from pricing competitiveness, user functionality should also be taken into consideration. • Production bases will be diversified to spread the risk of a single production, reduce the cost of manufacturing and improve product competitiveness. • We will pay closer attention to market trends and evolution in smart devices and develop product concepts suitable for OEM customers and the market. We will help customers create differentiated products with feasible designs. • Product development times will be further shortened to optimize supply chain management, maintain persistent high quality, and provide customers with more competitive products. • More effort will be made to maintain existing customer relations. Apart from maintaining a high degree of customer satisfaction, we will work towards increasing the volume of product cooperation. We will also seek other opportunities for cooperation with new customers in order to achieve a growth rate that is superior to the market average for smart device products. • We will improve product profitability to achieve the maximum utilization of capacity and enhance overall operational efficiency and profitability. • We will tap our accumulated communications industry R&D energy resources to quickly and efficiently cut into the high-growth networking market. • A number of different industry alliance strategies will be used for the rapid development of a diversified product line that will strengthen customer relationships in the shortest possible time. (2) Long-term Development • A spirit of innovation will strengthen the value-added Company products and improve long-term core competitiveness. • Cooperation with our customers will be improved to allow better product planning, development and manufacture as well as comprehensive after-sales service. • Horizontal and vertical integration of all parts and products of the Group’s affiliates will be strengthened strategically and aligned with customers, to give them more convenient and complete services. • Optimization of the quality of sophisticated products will be enhanced by new development and cost structures and strategic alliances with main parts providers in the supply chain to give customers better and more competitive products and services. • Closer horizontal and vertical integration will be made with affiliates in the Group to create and improve the 86 loyalty of long-term customers. • Our ability to innovate will be further cultivated, aiming to be able to more accurately predict market trends, before the client does, and provide them with products and services and high value-added solutions to improve long-term core competitiveness. • The Company has established a service-oriented business model and new revenue sources through careful long-term upstream and downstream integration and cooperation. • We are strengthening the breadth of learning of our team in preparation for future new business and product development through cross-industry alliances. • We are cultivating the ability to control key technology, strategize high-end product lines, and gain cooperation opportunities with big manufacturers around the world. • In addition, we will continue to strengthen our core R&D capability and capacity for technical services for smart devices 5.2 Market and Sales Overview 5.2.1 2016 Sales (Service) by Regions Area Americas Europe Asia (Including Taiwan) Other Area Total Percentage 38.5% 27.1% 31.6% 2.8% 100.0% 5.2.2 Major Products and Their Main Uses ■ Notebook PCs Analog-digital application hardware platform combined with dedicated software to enable a variety of applications such as data editing/processing, word processing, layout, graphics application, web browsing, communications, digital multimedia entertainment, gaming and so forth. ■ Ultrabook PCs Emphasize laptop that is thin and light-weighted and take into account the performance of the battery performance to meet the consumer’s needs of portable and productivity. ■ 2-in-1 PCs The device uses the Windows 10 operating system, has an optional stylus, and satisfies the growing consumer demand for mobile computing. In addition to multiple operating modes, the laptop has a touch screen that enables it to be used as a tablet. ■ AIO PCs Beautiful aesthetics suited for home use, with emphasis on touch screen input interface, software applications and high computing power. ■ Smart Home 87 Smart appliances, controls and sensors that provide users with diversified services for smart lifestyle. ■ Server Designed with high computing power, capable of storing massive amount of data and compatible with different processing programs for data analysis; built to accommodate different applications required at enterprises, data centers and cloud platforms. ■ Tablet PCs Portable touch screen multimedia, mobile viewing and online information applications. ■ Displays Graphics display and audio output. ■ Smartphone Personal communication and internet access. ■ AE ˙Touch screen Car multimedia player. ˙Voice controlled natural sound navigation. ˙Bluetooth wireless phone to answer calls. ˙WiFi smartphone that enables two-way communications. ˙Accident alarm ˙Integrated peripheral safety warning systems such as wireless tire pressure and collision avoidance radar. ■ IoT Vertical Solution Through flexible hardware design and a range of customized software applications along with cloud and big data analysis for horizontal alliance, we offer clients with complete solutions and services by creating novel applications. ■ Smart Medical and Healthcare The penetration of households and point-of-care areas using technology, including that of the IoT, and gradual integration with our own peripheral software products to provide comprehensive solutions, and give convenient and instant smart health care that will enhance dependence on the products as well as user brand loyalty. 5.2.3 Supply Status of Main Materials Main materials include CPU/Chipset, HDD, Memory, ODD, Battery, LCD Panel, and Touch Panel Module. Regarding their supply status, please refer to page 96-98 of the Chinese annual report. 88 5.2.4 Major Suppliers and Clients (1) Major Suppliers in the Last Two Calendar Years 2016 2017 first quarter Unit: NTD thousand Party Name Amount 2015 As a percentage to 2015 net purchases (%) Relationship with the issuer Name Amount As a percentage to 2016 net purchases (%) Relationship with the issuer Name Amount 223,294,338 1 Company E 112,207,244 2 Company B 478,425,759 Others Net Purchase 813,927,341 27.43 13.79 58.78 100.00 N/A N/A Company E Company B Others Net Purchase 235,953,445 102,218,447 395,801,173 733,973,065 32.15 13.93 53.92 100.00 N/A N/A Company E Company B Others Net Purchase 63,144,635 23,186,399 93,272,462 179,603,496 As a percentage to 2017 first quarter net purchases (%) 35.16 12.91 51.93 100.00 Relationship with the issuer N/A N/A (2) Major Clients in the Last Two Calendar Years Party Name Amount 2015 As a percentage to 2015 net sales (%) Relationship with the issuer Name Amount 2016 2017 first quarter As a percentage to 2016 net sales (%) Relationship with the issuer Name Amount As a percentage to 2017 first quarter net sales (%) Relationship with the issuer Unit: NTD thousand 1 Company a 2 Company d 3 Company e 4 Company f Others Net sales 133,830,636 288,523,817 103,644,690 97,984,283 223,322,272 847,305,698 15.79 34.05 12.23 11.57 26.36 100.00 N/A N/A N/A N/A Company a Company d Company e Company f Others Net sales 119,219,545 306,571,029 93,254,993 95,357,708 152,406,760 766,810,035 N/A N/A N/A N/A 15.55 39.98 12.16 12.44 19.87 100.00 Company a Company d Company e Company f Others Net sales 27,986,164 81,253,846 23,620,097 24,711,557 29,856,257 187,427,921 N/A N/A N/A N/A 14.93 43.35 12.60 13.18 15.94 100.00 89 5.2.5 Production in the Last Two Years Year Production volume/ 2015 2016 Unit: thousand devices; NTD thousands Production Production Production Production Production Production value capacity volume value capacity volume value Main products 5C electronics 114,324 101,644 829,209,071 125,442 100,575 734,512,835 5.2.6 Shipments and Sales in the Last Two Years Year 2015 Unit: devices; NTD thousands 2016 Sales volume Domestic sales Export sales Domestic sales Export sales Main products Volume Value Volume Value Volume Value Volume Value 5C electronics 651 3,481,047 99,902 843,824,651 456 1,938,470 100,429 764,871,565 5.3 Human Resources Year December 31, 2015 December 31, 2016 March 31, 2017 Number of employees Average age Average years of service Academic qualifications Doctoral Degree Master Degree University High school Below high school/others 72,796 26.63 1.94 0.07% 3.78% 19.75% 53.86% 22.54% 64,728 27.36 1.99 0.07% 4.24% 21.81% 53.84% 20.04% 74,956 27.53 1.86 0.05% 3.64% 19.00% 54.07% 23.24% 5.4 Environmental Protection Expenditure (1) The Company is an assembler of electronic products, and produces no significant pollution: To protect the environment and fulfill our social responsibility as well as reduce carbon emissions and the impact on global warming. The Taiwan and Mainland China plants together incurred expenses of NT$23,680 thousand (excluding regular maintenance and green R&D) in 2016. We are keeping the promises we made as an earth citizen, hoping to make substantial contribution to protection of the global environment. We will continue our commitment to efforts in this respect. (2) Compliance with EU RoHS directives: (cid:3) All Compal products are 100% compliant with EU RoHS Directives. There have been no cases of any 90 returns for non-compliance with RoHS standards. In addition, Compal has begun demanding that suppliers make timely adjustments for any RoHS exclusions that are scheduled for the near future and restrict the use of substances such as DEHP, BBP, DBP and DIBP, the ban on these comes into effect in 2019. (cid:3) In order to manufacture environmentally friendly green products and meet the requirements of both international environmental laws and client demand, the Company has implemented “Management Standards for the Control of Environment-Related Substances in Parts and Materials” that covers all hazardous substances currently prohibited by law and banned by customers. We have implemented efficient and effective methods of inspection for hazardous substances using recognized component classification and risk control to establish a plant monitoring mechanism for oversight and verification. All the products manufactured by the Company comply with the validation IECQ QC 080000 Electrical and Electronic Components and Products Hazardous Substance Process Management System Requirements. (3) Responsive strategies and possible expenses: (cid:3) In the future, the Company will continue to implement its environmental responsibilities including the boosting of staff knowledge of environmental matters, the advocation of updated green living knowledge, Company response to government policy with respect to green consumption, and the regular priority assessment of green product content in procurement as well as continuous improvement in the energy efficiency of our plants. This includes scrutiny for all kinds of possible violations of environmental regulations in the operations management system, and the mandate to make timely response to all environmental laws. 5.5 Labor Relations (1) Availability and execution of employee welfare, education, training and retirement policies. Elaborate on the agreements between employers and employees, and protection of employees’ rights ■ Employee welfare: In addition to all their statutory labor rights and to help employees find a balance between work and personal life, both physical and mental, and to improve their vitality in the workplace, the Company has established an Employee Benefits Committee, a Life Committee, and other groups responsible for promoting worker welfare. The employee health benefits and activities include a fitness center, a medical facility, periodic health checks, recreational team competitions, family activities, travel, the arts, and leisure and all kinds. Group Life Insurance is covered by the Company that includes accident, medical, and cancer. The employees’ dependants may also join the scheme at a discounted rate, but at their own expense. We also have benefits such as scholarships for employees and their children. The Company actively supports the government in resolving the low birth rate crisis and childcare policy in Taiwan. Since 2011, we have provided generous maternity grants for employees and their spouses and children. By the end of 2016, the Company had provided NT$113.25 million in maternity allowances and bonuses. There were 39 counts of employees who took parenting leave, with the right to return, in 2016. ■ Education and training: The Company set training credits and outlined the credit system according to the needs of each level. The Company also integrates all training records in online learning platform to further assist the 91 competent staff in keeping abreast of the learning progress. In 2016, a total of 1,668 training sessions (both internal and external) were organized; these courses delivered 104,062 hours of training and 31,940 persons enrolled. The total training expenses were NT$10,080 thousand. The training courses included: Orientation: Organized new hire seminars and corporate culture experience camp to help the new hires better understand the Company’s culture, the current status of the industry, and the Company strategy and visions. Language training: Basic to advance English and Japanese courses that train the employees’ ability to respond to customers and equip them with a global vision through workspace situational training. Managerial skills Training: To establish a comprehensive blueprint of development level, strengthen the core competency at all levels in such aspects as teamwork, problem analysis, innovative thinking... and soon, and also to conduct planning for Company talent training in various stages. Professional training: Categorized new professional knowledge lectures, courses, and experiences heritage job training to enhance employees’ expertise and technology. Also enhance the Company’s core competitiveness through systematic management. E-learning: Offers related courses in new hire requisites, IT, 6 sigma, language, management, CSR and occupational safety. The Company uses Internet learning and resource sharing to offer real-time learning, maximizing the effect with a complete learning and training mechanism that utilizes a comprehensive knowledge management system. ■ Retirement system The Company has developed its retirement system in accordance with the Labor Standards Act and the Labor Pension Act. For employees who are transferred to affiliated companies, pension benefits are paid according to employees’ years of service in their respective departments, and out of pension fund accounts that each department has contributed over the course of employees’ service. ■ Employer-employee communications and enforcement of workers’ rights The Company has always valued employer-employee relations, and has communication channels available to facilitate two-way communication between the two parties, thereby allowing the Company to respond to employees’ thoughts and opinions in a prompt manner. The Company not only has policies in place to protect employees’ rights, but also makes decisions in the best interests of its employees. (2) Personnel management The Company has clear policies in place to manage human resources and to guide employees’ behaviors. There are specific levels of approval authority and detailed rules to guide decisions concerning employees’ recruitment, promotion, appraisal, assignment, leave of absence, resignation, confidentiality agreement, reward and discipline. These policies and rules exist to eliminate subjective judgments and to create a fair, open, and systematic corporate culture. (3) Work environment • Buildings are subjected to annual fire safety inspections and reports. • Buildings, plants and equipment are inspected daily and maintained on a regular basis. • The Company hires regular cleaning services to ensure the cleanliness of its work environment. (4) Employees’ safety • Personnel entry and exit are controlled by security system. • Security personnel are stationed 24 hours a day to patrol plant premise and monitor the surveillance system. 92 • Lectures and rehearsals are organized annually to demonstrate the proper responses in case of an emergency. (5) Actual or estimated losses arising as a result of employment disputes in the recent year up till the publication date of this annual report, and any responsive measures taken: • The Company did not suffer any losses due to employment dispute in the recent year, and nor does it expect any occurrence in the coming year. • Responsive strategies and possible expenses: none. 5.6 Important Contracts Agreement Counterparty Patent licensing agreement Trading and manufacturing agreement Phoenix Technologies Ltd. Dell Products L.P. Trading agreement Toshiba Co. Trading and manufacturing agreement Acer Inc. Period Since 2010.1.1 Auto-renewed upon expiry Since 1997.06.26 Auto-renewed upon expiry Since 1999.09.09 Yearly Auto-renewed upon expiry Since 2001.10.01 Yearly Auto-renewed upon expiry Major Contents Restrictions 1. Tool Licenses 2. Source Code licenses 3. Maintenance Under this agreement, the buyer will procure computer products developed and manufactured by the seller, while the seller will give the buyer proper licenses to use the products and provide after-sale technical services thereafter. Under this agreement, the buyer will procure computer products developed and manufactured by the seller, along with after-sale technical services provided by the seller. Under this agreement, the buyer will procure computer products developed and manufactured by the seller, along with after-sale technical services provided by the seller. N/A N/A N/A N/A 93 VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Condensed Balance Sheet and Statement of Comprehensive Income – Based on IFRS (1) Consolidated Condensed Balance Sheet – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2017 Analysis Current assets Property, plant, and equipment 2012 2013 2014 2015 2016 259,133,608 287,380,820 324,845,249 277,783,476 300,469,007 289,710,910 20,772,790 21,209,228 24,472,732 24,308,631 20,952,677 19,289,173 Intangible assets 1,451,181 1,293,643 1,035,162 1,194,193 1,291,281 30,431,001 26,219,123 28,397,575 24,639,275 24,303,146 311,788,580 336,102,814 378,750,718 327,925,575 347,016,111 331,952,737 195,000,133 220,597,261 250,264,267 202,757,075 209,232,199 197,483,353 199,333,956 224,902,606 256,832,412 208,009,032 (Note 2) - 1,205,308 21,747,346 Non-current assets 1,995,177 15,314,137 22,266,514 15,570,384 25,500,097 24,737,741 196,995,310 235,911,398 272,530,781 218,327,459 234,732,296 222,221,094 201,329,133 240,216,743 279,098,926 223,579,416 (Note 2) - 106,039,633 95,102,289 101,386,923 103,775,795 105,804,389 103,268,810 Other assets Total assets Prior to Current distribution liabilities After distribution Total liabilities Prior to distribution After distribution Equity attributable to parent company shareholders Ordinary shares Capital reserves 16,122,810 16,193,087 14,296,445 12,838,638 11,779,274 44,126,526 44,134,467 44,232,366 44,711,266 44,241,606 44,224,346 11,769,686 Prior to Retained distribution earnings After distribution 55,053,941 44,489,978 47,721,872 51,877,511 55,289,409 56,366,197 50,669,755 42,312,310 43,293,091 47,450,840 (Note 2) - Other equity interests (8,382,397) (7,707,518) (3,139,021) (3,926,881) (4,624,653) (8,210,172) Treasury stock (881,247) (2,007,725) (1,724,739) (1,724,739) Non-controlling interests 8,753,637 5,089,127 4,833,014 5,822,321 (881,247) 6,479,426 (881,247) 6,462,833 Total equity Prior to distribution After distribution 114,793,270 100,191,416 106,219,937 109,598,116 112,283,815 109,731,643 110,459,447 95,886,071 99,651,792 104,346,159 (Note 2) - Note: 1. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2017, has not yet been audited by the CPA. 2. 2016 annual financial statements have not been approved at a shareholders’ meeting. Therefore, the amount after allocation is not listed. 3. The Company has retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 94 (2) Consolidated Condensed Statement of Comprehensive Income – Based on IFRS Year Analysis Financial Summary for The Last Five Years (Note 1) 2012 2013 2014 2015 2016 Unit: NT$ thousands As of March 31, 2017 Net sales revenue 683,913,713 692,748,293 845,700,752 847,305,698 766,810,035 187,427,921 Gross profit 28,749,803 28,110,391 32,364,662 33,378,357 32,836,970 Net operating income 10,054,894 9,234,044 11,664,922 11,312,452 11,063,645 7,824,425 2,949,361 Non-operating income and expense (631,049) (4,873,662) (1,937,570) 479,641 749,700 (1,494,276) Net income before tax 9,423,845 4,360,382 9,727,352 11,792,093 11,813,345 1,455,085 Net income from continuing operations Net loss from discounting operations 7,240,147 2,903,732 7,545,381 9,007,147 8,968,006 1,108,146 - - - - - - Net income (loss) 7,240,147 2,903,732 7,545,381 9,007,147 8,968,006 1,108,146 Other comprehensive income (loss) (net of tax) Net income Net income attributes to shareholders of the Parent Net income attributes to non-controlling interests Comprehensive income attributed to owners of parent Comprehensive income (59,127) 711,298 4,555,499 (101,970) (1,265,546) (3,698,266) 7,181,020 3,615,030 12,100,880 8,905,177 7,702,460 (2,590,120) 6,399,958 2,467,211 7,024,461 8,684,610 8,130,890 1,073,335 840,189 436,521 520,920 322,537 837,116 34,811 6,406,588 3,160,663 11,548,480 8,552,926 6,916,562 (2,570,306) attributed to non-controlling 774,432 454,367 552,400 352,251 785,898 (19,814) interests Earning per share (unit: dollar) 1.47 0.57 1.63 2.01 1.88 0.25 Note: 1. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2017, has not yet been audited by the CPA. 2. The 2016 annual financial statement for the current year has not yet been approved at a shareholders’ meeting 3. The Company has retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 95 (3) Parent-Company-Only Condensed Balance Sheet – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2017 2012 2013 2014 2015 2016 Analysis Current assets 194,403,691 210,646,593 255,609,554 207,496,808 237,412,415 Property, plant, and equipment Intangible assets Other assets Total assets Current liabilities Prior to distribution After distribution 2,295,444 2,218,316 2,230,023 2,181,737 2,132,114 724,106 617,739 412,185 378,454 268,316 76,775,902 82,728,525 85,179,353 86,182,040 88,808,075 274,199,143 296,211,173 343,431,115 296,239,039 328,620,920 167,275,463 187,574,634 220,791,532 177,664,877 197,566,162 171,659,649 191,929,970 227,434,703 182,976,882 (Note 2) Non-current assets 884,047 13,534,250 21,252,660 14,798,367 25,250,369 Total liabilities Prior to distribution After distribution Equity attributable to parent company shareholders 168,159,510 201,108,884 242,044,192 192,463,244 222,816,531 172,543,696 205,464,220 248,687,363 197,775,249 (Note 2) - - - - - N/A Ordinary shares 44,126,526 44,134,467 44,232,366 44,711,266 44,241,606 Capital reserves 16,122,810 16,193,087 14,296,445 12,838,638 11,779,274 Retained earnings Prior to distribution After distribution 55,053,941 44,489,978 47,721,872 51,877,511 55,289,409 50,669,755 42,312,310 43,293,091 47,450,840 (Note 2) Other equity interests (8,382,397) (7,707,518) (3,139,021) (3,926,881) (4,624,653) Treasury stock (881,247) (2,007,725) (1,724,739) (1,724,739) (881,247) Non-controlling interests - - - - - Total equity Prior to distribution After distribution 106,039,633 95,102,289 101,386,923 103,775,795 105,804,389 101,705,810 90,796,944 94,818,778 98,523,838 (Note 2) Note: 1.The financial information is audited and reviewed by the CPA every year. 2. The 2016 annual financial statements have not been approved at a shareholders’ meeting. Therefore, the amount after allocation is not listed. 3. The Company retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 96 (4) Parent-Company-Only Condensed Statement of Comprehensive Income – Based on IFRS Year Analysis Net sales revenue Gross profit Net operating income Non-operating income and expense Net income before tax Net income from continuing operations Net loss from discounting operations Net income (loss) Income (loss) from other comprehensive income (net after tax) Net income Net income attributes to shareholders of the Parent Net income attributes to non-controlling interests Comprehensive income attributed to owners of parent Comprehensive income attributed to non-controlling interests Earning per share(unit: dollar) Unit: NT$ thousands As of March 31, 2017 Financial Summary for The Last Five Years (Note 1) 2012 608,702,320 15,258,012 4,877,292 2013 632,622,772 16,359,240 5,505,654 2014 803,504,061 21,288,913 7,291,756 2015 802,994,930 22,737,590 7,305,278 2016 725,653,095 21,281,652 5,972,854 2,288,536 (2,503,176) 286,853 2,857,612 3,398,892 7,165,828 3,002,478 7,578,609 10,162,890 9,371,746 6,399,958 2,467,211 7,024,461 8,684,610 8,130,890 - - - - - 6,399,958 2,467,211 7,024,461 8,684,610 8,130,890 6,630 693,452 4,524,019 (131,684) (1,214,328) N/A 6,406,588 3,160,663 11,548,480 8,552,926 6,916,562 - - - - - - - - - - - - - - - - - - - - 1.47 0.57 1.63 2.01 1.88 Note: 1.The financial information is audited and reviewed by the CPA every year. 2. The 2016 financial statement has not yet approved by the shareholders’ meeting. 3. The Company retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 97 6.1.2 Condensed Balance Sheet and Statement of Comprehensive Income – Based on ROC GAAP (1) Consolidated Condensed balance sheet – Based on ROC GAAP Analysis Year Financial Summary for The Last Five Years 2012 2013 2014 2015 2016 As of March 31, 2017 Unit: NT$ thousands Prior to distribution After distribution Current assets Funds and investments Fixed assets Intangible assets and other assets Total assets Prior to distribution Current liabilities After distribution Long-term and other liabilities Total liabilities Ordinary shares Capital reserves Retained earnings Currency exchange rate adjustment Net loss not recognized as pension cost Unrealized gains and losses of financial instruments Treasury stock Minority interest Prior to distribution After distribution 257,852,167 28,044,206 21,386,512 2,000,627 309,283,512 192,909,628 197,243,451 1,005,337 193,914,965 198,248,788 44,126,526 15,776,692 56,373,219 51,989,033 (3,134,299) (165,627) (5,518,799) (881,247) 8,792,082 N/A N/A N/A N/A N/A Total Shareholder’s equity Prior to distribution 115,368,547 After distribution 111,034,724 Note: All yearly financial information has been audited. 98 (2) Consolidated Condensed Statement of Income – Based on ROC GAAP Year Financial Summary for The Last Five Years Analysis Net sales revenue Gross profit Net operating income Non-operating income and gains Non-operating expense and losses Income from continuing 2012 2013 2014 2015 2016 682,891,359 29,812,097 10,067,934 2,261,926 2,890,453 Unit: NT$ thousands As of March 31, 2017 N/A N/A N/A N/A N/A operations before income 9,439,407 tax Income from continuing operations 7,255,485 Consolidated total income 7,255,485 Net income attributed to owners of parent Earning per share retroactive 6,411,027 adjustment 1.47 (Unit: dollars) Note: All yearly financial information has been audited. 99 (3) Parent-Company-Only Condensed balance sheet – Based on ROC GAAP Year Financial Summary for The Last Five Years Unit: NT$ thousands As of March 31, 2017 Analysis Current assets Funds and long term investments Fixed assets Intangible assets Other assets Total assets Current liabilities Long-term liabilities Other liabilities Total liabilities Ordinary shares Capital reserves Retained earnings Prior to distribution After distribution Prior to distribution After distribution Prior to distribution After distribution Unrealized gains and losses of financial instruments 2012 2013 2014 2015 2016 193,064,991 76,151,586 2,160,328 724,106 189,276 272,290,287 165,490,729 169,874,915 - 223,093 165,713,822 170,098,008 44,126,526 15,776,692 56,373,219 51,989,033 (5,518,799) N/A N/A N/A N/A N/A cumulative exchange rate adjustments (3,134,299) Net loss not recognized as pension cost (165,627) Total shareholder’s equity Prior to distribution After distribution 106,576,465 102,242,642 Note: All yearly financial information has been audited. 100 (4) Parent-Company-Only Condensed Statement of Income – Based on ROC GAAP Financial Summary for The Last Five Years Unit: NT$ thousands As of March 31, 2017 2012 2013 2014 2015 2016 607,679,574 16,228,493 4,869,926 2,620,408 315,184 7,175,150 6,411,027 - - - N/A N/A N/A N/A N/A Analysis Year Net sales revenue Gross profit Net operating income Non-operating Income and gains Non-operating Expense and losses Continuing operations Net income (loss) before tax Continuing operations Income (loss) Income (loss) from discontinued operations Income (loss) from extraordinary items Cumulative Effect of Changes in Accounting Principle Net income 6,411,027 Retroactively adjusted earnings per share (Unit: Dollar) Note: All yearly financial information has been audited. 1.47 6.1.3 Auditors’ Opinions Accounting Firm Year 2012 KPMG 2013 KPMG 2014 KPMG 2015 KPMG 2016 KPMG CPA Audit Opinion Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Au, Yiu Kwan Unqualified opinion Modified unqualified opinion (Note 1) Modified unqualified opinion (Note 1) Modified unqualified opinion (Note 2) Unqualified opinion Note: 1. Brief disclosures of Company disposal of the equity investment of VIBO Telecom Inc and a record of the impairment of equity investment in Chunghwa Picture Tubes, Ltd. 2. Impact of retroactive adjustments to the 2014 financial statement due to adoption of the 2013 version of the International Financial Reporting Standards (IFRS) endorsed by the Financial Supervisory Commission (FSC) of the ROC. 101 6.2 Five-Year Financial Analysis A. Consolidated Financial Analysis – Based on IFRS Year Financial Analysis for the Last Five Years 2012 2013 2014 2015 2016 As of March 31, 2017 Debt ratio 63.18 70.19 71.96 66.58 67.64 66.94 Analysis Capital Structure (%) Long term fund to property, plant and equipment ratio Current ratio Liquidity analysis Quick ratio Interest coverage Account receivable turnover (times) Average collection turnover Operating Inventory turnover (times) Performance Account payable turnover (times) Analysis Average inventory turnover days Profitability Analysis Fixed assets turnover (times) Total assets turnover(times) Return on total assets (%) Return on equity (%) Operating income to paid-in capital ratio (%) Net margin (%) Earning per share (dollar) Cash flow ratio (%) Cash flow Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Leverage Operating leverage Financial leverage Note: 1.The ratio is negative. 562.22 544.60 525.02 514.91 657.59 697.12 132.89 105.61 23.88 4.61 79.18 13.29 4.82 27.47 37.81 2.31 2.55 6.34 21.36 1.06 1.47 (Note 1) (Note 2) (Note 1) 1.58 1.04 130.27 106.85 9.83 4.02 90.76 12.91 4.67 28.26 33.00 2.14 1.00 2.70 9.88 0.42 0.57 0.25 129.80 102.70 10.54 4.66 78.25 13.73 5.13 26.59 37.03 2.37 2.33 7.31 21.99 0.89 1.63 13.51 (Note 2) (Note 2) 19.59 (Note 1) 1.57 1.66 1.10 1.06 137.00 113.71 14.11 4.93 74.03 14.31 5.42 25.50 34.74 2.40 2.74 8.35 26.37 1.06 2.01 4.70 (Note 2) 1.95 1.58 1.09 143.60 146.70 120.22 119.52 6.99 13.47 4.47 4.50 81.65 81.11 14.22 15.51 5.67 5.68 25.66 23.53 37.26 33.88 2.20 2.27 0.38 2.87 0.99 8.08 3.29 26.70 0.59 1.16 0.25 1.88 - 0.61 - 42.42 - (Note 1) - 1.57 - 1.09 2. Not applicable as the financial information, for more than five years, in accordance with IFSR has not yet been disclosed. 3. The financial ratio has changed by up to 20% in the past two years: (cid:3) Long term fund to property, plant and equipment ratio: mainly due to increase in long term fund compared to earlier period. (cid:3) Cash flow adequacy ratio: mainly due to the cash inflow from operating activies (cid:3) Cash reinvestment ratio: mainly due to the cash inflow from operating activies was lower than the earlier period. 4. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2017, has not yet audited by the CPA. 5. The Company made retroactive adjustment to previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 6. The 2016 financial statement has not yet been approved at a shareholders’ meeting. 102 Formula: 1. Financial Structure (1) Debt Ratio = Total liabilities / Total assets (2) Ratio of long-term capital to property, plant and equipment = (Net shareholders’ equity + Long-term liability) / Net property, plant and equipment 2. Solvency (1) Current ratio = Current Assets / Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liability (3) Interest coverage ratio = Net income before income tax and interest expense / Interest expense 3. Operating Efficiency (1) Account receivable (including account receivable and notes receivable from business activities) turnover = Net sales / Average account receivable balance (including account receivable and notes receivable from business activities) (2) A/R turnover days = 365 / account receivable turnover (3) Inventory turnover = Cost of Goods Sold / Average inventory balance (4) Account payable (including account payable and notes payable from business activities) turnover = Cost of goods sold / Average account payable balance (including account payable and notes payable from business activities) (5) Inventory turnover days = 365 / Inventory turnover (6) Property, plant and equipment turnover = Net sales / Average Net property, plant and equipment (7) Total assets turnover = Net sales / Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)] / average asset balance (2) Return on equity = PAT / average net equity (3) Pre-tax income to paid-in capital = Net income before tax / Issued capital stock (4) Net profit ratio = PAT / Net sates (5) EPS = (PAT - preferred stock dividends) / weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities / Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities / Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend) / (Gross fixed assets + long-term investment + other assets + working capital) 6. Leverage (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense) / operating income (2) Financial leverage = Operating income / (Operating income - interest expenses) 103 B. Consolidated Financial Analysis – Based on ROC GAAP Year Financial Analysis for the Last Five Years 2012 2013 2014 2015 2016 As of March 31, 2017 Analysis Capital Structure Debt ratio (%) Long-term capital to fixed assets ratio Current ratio Liquidity analysis Quick ratio Interest coverage Account receivable turnover (times) Average collection turnover Operating Inventory turnover (times) Performance Account payable turnover (times) Analysis Average inventory turnover days Profitability Analysis Fixed assets turnover (times) Total assets turnover(times) Return on total assets (%) Return on shareholder’s equity (%) Operating to paid-in capital ratio income % Net margin (%) Income before tax Retroactively adjusted earning per share (dollar) Cash flow ratio (%) Cash flow Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Leverage Operating leverage Financial leverage Note: 1.The ratio is negative. 62.70 542.02 133.66 106.09 23.98 4.66 78.31 13.24 4.81 27.56 35.63 2.32 2.57 6.32 22.82 21.39 1.06 1.47 (Note 1) 46.44 (Note 1) 1.62 1.04 N/A N/A N/A N/A N/A 2. The financial ratio has changed by up to 20% over the past two years: Not applicable. 3. The financial information is audited and reviewed by the CPA every year. 104 Formula: 1. Financial Structure (1) Debt Ratio = Total liabilities / Total assets (2) Long-term debts to fixed assets = (Net equity + Long-term debts) / Net fixed assets 2. Solvency (1) Current ratio = Current Assets / Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liability (3) Interest coverage ratio = Net income before income tax and interest expense / Interest expense 3. Operating Efficiency (1) Account receivable (including account receivable and notes receivable from business activities) turnover = Net sales / Average account receivable balance (including account receivable and notes receivable from business activities) (2) A/R turnover days = 365 / account receivable turnover (3) Inventory turnover = Cost of Goods Sold / Average inventory balance (4) Account payable (including account payable and notes payable from business activities) turnover = Cost of goods sold / Average account payable balance (including account payable and notes payable from business activities) (5) Inventory turnover days = 365 / Inventory turnover (6) Fixed assets turnover = Net sales / Average Net Fixed Assets (7) Total assets turnover = Net sales / Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)] / average asset balance (2) Return on equity = PAT / average net equity (3) Net profit ratio = PAT / Net sates (4) EPS = (PAT - preferred stock dividends) / weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities / Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities / Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend) / (Gross fixed assets + long-term investment + other assets + working capital) 6. Leverage (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense) / operating income (2) Financial leverage = Operating income / (Operating income - interest expenses) 105 6.3 Audit Committee’s Report for the Most Recent Year Audit Committee’s Review Report The Company’s 2016 financial statements have been approved by the Audit Committee and by the Board of Directors. Kuan-Ying Kuo and Yiu-Kwan Au, certified public accountants of KPMG, have completed the audit of the financial statements and issued an audit report relating thereto. In addition, the Board of Directors has prepared and submitted to us the Company’s 2016 business report and proposal for distribution of earnings. We, the Audit Committee members, have duly examined and determined such business report and proposal for distribution of earnings to be in line with the requirements under the Company Law and relevant laws and regulations. According to Article 14-4 of the Securities and Exchange Act and Article 219 of Company Law, we hereby submit this report. Compal Electronics, Inc. Chairman of the Audit Committee: May 15, 2017 106 6.4 Consolidated Financial Statements and Independent Auditors’ Report Please refer to Attachment I. 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report Please refer to Attachment II. 107 VII. Review of Financial Conditions, Financial Performance, and Risk Management 7.1 Analysis of Financial Status Unit: NT$ thousands Analysis Year 2016 2015 Difference Amount Current Assets Funds & Investments Property, plant and equipment Other Assets Total Assets Current Liabilities Other Liabilities Total Liabilities Share capital Capital reserves Retained Earnings Other Adjustments Treasury stock Non-controlling Equity 300,469,007 277,783,476 11,726,370 20,952,677 13,868,057 347,016,111 209,232,199 11,788,042 24,308,631 14,045,426 327,925,575 202,757,075 25,500,097 15,570,384 234,732,296 218,327,459 44,241,606 11,779,274 55,289,409 (4,624,653) (881,247) 6,479,426 44,711,266 12,838,638 51,877,511 (3,926,881) (1,724,739) 5,822,321 22,685,531 (61,672) (3,355,954) (177,369) 19,090,536 6,475,124 9,929,713 16,404,837 (469,660) (1,059,364) 3,411,898 (697,772) 843,492 657,105 Total Shareholders’ Equity Note: Analysis of variations exceeding 20% and amounting to more than NTD10 million: (cid:3) The increase in non-current liabilities: mainly due to increase in long-term loans. (cid:3) The decrease in treasury stock: mainly due to the retirement of treasury stock. 109,598,116 112,283,815 2,685,699 % 8.17 (0.52) (13.81) (1.26) 5.82 3.19 63.77 7.51 (1.05) (8.25) 6.58 17.77 (48.91) 11.29 2.45 (cid:1) Effect of changes on the company’s financial position: Judging from the aforementioned causes, the effect from changes on the Company’s financial position in the last two years are normal outcomes from standard operating activities. (cid:1) Future response actions: Not applicable 108 7.2 Analysis of Financial Performance Analysis Year 2016 2015 Net Sales Cost of Sales Gross Profit Operating Expenses Operating Income Non-operating Income and Expenses Income Before Tax Less: Tax Expense Net Income (loss) 766,810,035 733,973,065 32,836,970 21,773,325 11,063,645 749,700 11,813,345 2,845,339 8,968,006 847,305,698 813,927,341 (79,954,276) 33,378,357 22,065,905 11,312,452 479,641 11,792,093 2,784,946 9,007,147 (541,387) (292,580) (248,807) 270,059 21,252 60,393 (39,141) Unit: NT$ thousands Difference Amount (80,495,663) % (9.50) (9.82) (1.62) (1.33) (2.20) 56.30 0.18 2.17 (0.43) Other comprehensive income (1,265,546) (101,970) (1,163,576) 1141.10 Total comprehensive income Note: The analytics for change of more than 20%: 7,702,460 8,905,177 (1,202,717) (13.51) (cid:3) Increase in net operating income and expenses: Mainly due to the decrease in impairment losses, an increase in foreign currency exchange losses, and the decrease of the profit recognition in affiliates and joint ventures using the equity method. (cid:3) Increase in other comprehensive (net of tax) losses: mainly due to the decrease of exchange differences arising from the conversion of financial statements of foreign operations, increase in unrealized valuation loss of available-for-sale financial assets, the decrease of profit recognition in affiliates and joint ventures using the equity method and increase in other comprehensive losses. 109 7.3 Analysis of Cash Flow 7.3.1 Cash Flow Analysis for the Current Year Cash and Cash Equivalents, Beginning of Year (1) Net Cash Flow from Operating Activities (2) Cash Inflow (Outflow) (3) Cash Surplus (Deficit) (1)+(2)+(3) 62,751,542 1,287,662 8,911,392 72,950,596 Note: 1.Analysis of the change of 2016 cash flow changes: Unit: NT$ thousands Financing of Cash Deficit Investment Plans - Financing Plans - • • Net cash inflow in operating activities of $1,287,662 thousand: mainly due to a decrease in profit from operating and net changes of assets and liabilities from operating activities. Net cash outflow in investing activities of $3,181,966: mainly due to the purchase of real-estate property, plant and equipment. Net outflow of financing activities of $11,913,185 thousand: mainly due to the increase in loan and distribution of cash dividend. 2. Financing of cash deficits: not applicable. 3. Liquidity analysis: current asset to current liability ratio is 143.6% and liquidity is healthy. • 7.3.2 Cash Flow Analysis for the Coming Year Estimated Cash and Cash Equivalents, Beginning of Year (1) Estimated Net Cash Flow from Operating Activities (2) Estimated Cash Inflow (Outflow) (3) Cash Surplus (Deficit) (1)+(2)+(3) 72,950,596 9,712,808 (9,969,162) 72,694,242 Note:1.Analysis of the 2017 cash flow changes: Unit: NT$ thousands Financing of Cash Surplus (Deficit) Investment Plans - Financing Plans - • • • Net cash inflow in operating activities of $9,712,808 thousand: expect sales growth and profit from the operation. Net cash outflow in investing activities of $1,894,059 thousand: expect to increase investment expenditures next year. Net cash outflow in financing activities of $5,772,954 thousand: expect to distribute cash dividend and increase/decrease in long-term and short-term debt next year. 2. Financing of cash deficits: not applicable. 3. Liquidity analysis: The Company should be able to mainly sound liquidity, as opening cash balance plus net cash inflows from operating activities are adequate in meeting the Company's investing and financing needs. 110 7.4 Major Capital Expenditures 7.4.1 Major Capital Expenditures and Sources of Capital Project Actual or Planned Actual or Planned Source of Capital Date of Completion Total Capital Unit: NT$ thousands Actual or Expected Capital Expenditure 2016 Global BioPharma Inc. Private capital 2016 100,000 100,000 7.4.2 Expected Benefits The investment in healthcare and biotechnology industries has been one of Compal’s many directions of development as it gradually transitions from the ICT (information and communication technologies). In addition to establishing an R&D team to focus on the development of biotech, medical and healthcare devices, relevant healthcare software and service platforms, the Company has also invested in new drug development (Global BioPharma Inc. specializes in new cancer drug development) in 2016 and long-term care in the hopes of utilizing Compal’s core software/hardware capabilities from years of operation in the ICT industry would speed up the digitization and systemization for the healthcare/biotech industry. 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year (1) Investment policy 1. Competition in the industry has accelerated and Compal is in full thrust integration mode. “Enlightened Living and Computing with a Green Connection” is the Compal vision. Our long-term investment strategies are to focus on products that relate to our core business, to provide the best quality in computing, communications, consumer, cloud and connection, to provide full solutions in cost and technology, and to put emphasis on our partner’s compliance with labor regulations, and the avoidance of human trafficking and slavery. Strengthen the core resources, through vertical integration, diversification, and strategic investments or acquisitions as well as integration and horizontal competition. 2. Improve post investment performance, strengthen the integration of Group resources and strategic partnerships with investment businesses, facilitate the cooperation between the Company and invested business, and require their full compliance with labor regulations and those against human trafficking and slavery. Connect related customers to an information network, and form strategic alliances with other industries. Sustain the performance of operating output in social, economic and environmental aspects using a high standard of specification. This includes increasing the efficiency and productivity, improving the rights of the workers, proper economic development, and environmentally friendly production in a clean operating base. The Company fully supports investment companies with good performance to plan for IPO to accelerate the realization of good return on investment. (2) Main causes of profits or losses incurred on investments, and any corrective actions planned The 2016 consolidated profits from investment using the equity method came to approximately NTD 1.07 billion, coming mainly from the outstanding performance of LCFC and Compal Precision Module Co., Ltd. (3) 2017 investment plans The long-term investment plan next year will be based on the Company’s operating policy to position ourselves as the pioneer provider of the mobile device solution and provide products, through the integration 111 of R&D resources and clients, of an all-in-one computer, TV, AE and enterprise servers. The Company follows the principle of steady operation and always focuses on our core businesses. We expand on the foundation of our existing businesses, make some vertical integration where appropriate and expand horizontally into related activities, while continuing to grow our core business. In the vertical integration of upstream and downstream businesses, not involved in hardware production, we also expand the size of our developers and the proportion of softwareand firmware, to increase the value of their tangible assets and bring in value from additional sales. We expect horizontal mergers and expansions to provide full IoT solutions for our clients which include applications in cross-industry automation, industrial computers, security control, the healthcare industry, cars, smart cities, smart buildings, restaurants and retail outlets, with the primary aim of providing new investment opportunities and challenges. In practice, apart from achieving internal growth under the existing business framework, we also accept the possibility of mergers, acquisitions, joint ventures, technical calibrations and investment activities through bilateral or multi-lateral collaboration between business entities. The Company and its affiliates will proceed with the aforementioned expansion based on the consideration of whether the expansion can strengthen the Group’s advantage and assessment of reasonable risks. In terms of reinvestments, we follow the above mentioned principles and set basic principles in the following three directions: 1. The vertical integration of upstream and downstream businesses to increase the proportion of self-made parts and improve overall competitiveness. 2. Horizontal mergers and expansion of related products and services as well as other industries that provide prominent synergy or growth. 3. Develop technology which is beneficial to the Company or its affiliates, or invest in assets that provide synergy or growth. 112 7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on Corporate Finance, and Future Response Measures Net interest revenue and expense Items Net gain on exchange (including valuation of financial instruments) Net revenues Pre-tax income (Note) Net interest revenue/expense to net revenues Net interest revenue/expense to pre-tax income Net exchange gains to net revenues Net exchange gains to pre-tax income 1. Interest rate changes: Unit: NTD thousand; % 2016 (384,996) (1,242,728) 766,810,035 11,813,345 (0.050%) (3.259%) (0.162%) (10.52%) The most recent US Fed meeting statement showed that the US economy is experiencing a continued moderate growth, with solid growth in employment. In light of the status of the employment market and inflation, the federal fund rate has been increased by one quarter point from 0.75% to 1%. Not only that, the Fed even hinted that there would be two more hikes in 2017. As for interest rate for NTD, the Central Bank of Taiwan has noted that in light of the high degree of uncertainty in US and European economic policies and the slow recovery of domestic economy, with current inflation and future inflation forecast remaining moderate, in order to facilitate economic recovery, the Central Bank would maintain the current rate at 1.375%. The Company’s cash balance, as of the end of 2016, came to approximately NTD 72.951 billion. The long and short-term bank loans came to about NTD 75.402 billion, with net interest expense for the year at NTD 384,996 thousand. The amount accounted for 0.050% and 3.259% of net sales and income before tax respectively. As of December 31, 2016, all other factors remain unchanged, the increase of 0.25% in interest will cause a decrease in income before tax by NTD 32,415 thousand. The Company will watch the change of interest rate closely and respond in a timely manner. 2. Exchange rate changes: The Company is export-oriented. And as such, the change and movement of exchange rate have a considerable impact on annual profit and loss. To mimimize the impact on the Company’s operating profit/loss, the Company mainly utilizes hedging such as forward foreign exchange contracts and swaps to minimize the risks of exchange rate movements. The full year net exchange gains and losses, including the valuation of financial assets, came to $(1,242,728) thousand, accounting for (0.162%) and (10.52%) of net revenue and net profit before tax respectively. As of December 31, 2016, with all other factors remain unchanged, a 5% appreciation of USD/TWD will increase income before tax by $1,608,957 thousand. We will take all necessary actions based on the fluctuation of the exchange rate in the future. 3. Inflation: According to relevant data published by the Central Bank, while imported raw materials such as crude oil are expected to increase in prices this year, the recent growth in NTD has effectively alleviated imported inflation. With domestic demand gradually dwindling, the output gap remained in the negative. The CPI for the year was expected to grow by 1.25% and while CP outlook should remain stable, we will continue to watch for potential impact on prices. 113 7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-risk, High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions 1. The Company does not make high-risk, high-leveraged investments. 2. The Company only offers financing to its related parties, mainly providing short-term financing for their operating needs. 3. The Company is engaged in endorsement and guarantee activities which are only negotiated between subsidiaries and the parent company. The arrangements are covered by proper Endorsement and Guarantee Procedures. 4. The Company uses hedging strategy for assets and liabilities valued in foreign currencies. Such hedging, done through forward foreign exchange contracts and swap trading, covers the amount of net assets and liabilities to achieve the objective of risk aversion. At the end of 2016, the Company’s position in open forward foreign exchange contracts amounted to USD$ 55,000 thousand, EUR 51,000 thousand, GBP 3,000 thousand and swap contracts of USD$ 31,600 thousand. The Company will continue to pay close attention to changes in exchange rates and execute timely hedging in the future. 5. In addition to prudent evaluation and control of the execution of related policies, the Company also relies on regulations such as “Guidelines for Handling Acquisition and Disposal of Assets”, “Endorsement and Guarantee Procedures”, “Third Party Lending Procedures” and “Procedures for the Handling of Derivatives Trading”. 7.6.3 Future Research & Development Projects and Corresponding Budget Other than the Company’s efforts in innovation and improvement of computers, TVs, and other peripheral products, the Company also deems innovative research and development works as the niche for the Company’s sustainable growth. Various R&D programs are developed and proposed by R&D team based on their forecast of new technologies, understand of market trends, and intergration of add-on function. They also team with clients to meet their market planning and detail product developments. In general, the Company’s usually has less than one year product development cycle and aim to shorten the R&D cycle year after year. The IT industry is highly competitive, and the timing of product development is of vital importance. The rapid growth of sales has made the quality, experience and capacity of R&D a decisive factor that will become the key as to whether the Company can achieve its sales target in 2017 and whether the existing clients will renew their contracts. The 2017 R&D expense is expected to be more than NT$ 12.5 billion. 7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales The Company’s management team is paying close attention to any policies or regulations that may impact the Company’s operation. In 2016, the Company made all the necessary responses to significant change in international and domestic policies and regulations, without significant impact on Company operation. 7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales Tech products are always being updated and this changes user habits. The demand for different types of application is mushrooming. The presence of ARM and Android has also had an impact on Wintel, which used to have a market monopoly. To cope with these changes, the Company has expanded new business to its existing product lines to embrace the industry trends. As a result, the Company has established teams for innovative products, technology and design to strengthen Company research on consumer behavior, and provide more accurate market segregation and product positioning to satisfy user need. We are also focusing on innovative technology capability and plans for future 114 product and market opportunities. 7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures Compal has concentrated on the IT and Communications industry for many years and has firmly adhered to our business philosophy of transcendence, sincerity, and harmony in a culture of ethics and honesty. We aim to be the best in world-class professional design, manufacture and services. As we pursue business growth, we always remember our obligations as a corporate citizen. We have strengthened Company governance, fulfilled our social responsibility, and have established a good corporate image. In recent years, Company business has expanded, the number of employees has increased and our global production branches have increased in number. We have become acutely aware of the need for periodic checks of the external environment, a self-management system and operational strategies for the early detection of potential corporate crises and the need for concrete and positive response plans and corrective measures. For many years, Compal has placed amongst the top 500, top 2000 businesses and top 2000 manufacturers in Taiwan by Fortune, Forbes Magazine and CommonWealth Magazine respectively. In 2016, the Company placed within the top 20% in the TWSE-listed Companies in the second round of “Corporate Governance Evaluation” and ranked 26th in CSR CRopraote Citizenship by CommonWealth Magazine. These prestigious awards once again reaffirmed the Company’s corporate image. There had been no company crisis in 2016 nor was there any significant event that affected the company image in any way. 7.6.7 Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans In addition to continued cultivation of the existing information and communication technology (ICT) operations and enhancement of the core profit base, we are actively seeking out upcoming industries for merger, acquisition, joint venture, technical collaboration and other patterns, with the aim being to move into industrial computing, medical networking, IoT networking, vehicle networking and the medical equipment market. We will maintain stable development of existing business and also move ahead of the curve in other areas which have high growth momentum. The Company will integrate resources to increase R&D capacity, improve operational efficiency, and increase competitiveness. We expect to benefit from synergy, have positive impact on future shareholder equity, and maintain adequate control of organizational integration matters and financial risks. 7.6.8 Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans: None 7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration: None 7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10%: None 115 7.6.11 Effects of, Risks Relating to and Response to the Changes in Management: None 7.6.12 Litigation or Non-litigation Matters The Company and the Company’s subsidiaries, Zhaopal Investment Co., Ltd, Yongpal Investment Co., Ltd, and Kaipal Investment Co. Ltd. (The Company and its subsidiaries) purchased newly issued shares of Chunghwa Picture Tubes, Ltd. (“CPT”) through private placement in 2009. The Company and its subsidiaries purchased newly issued common stocks via the private placement at the cost of NTD $2.5 dollars per share, amount to a total of NTD $7 billion. The Company signed an agreement with Tatung Company (“Tatung”) on such matter. In accordance with the agreement, the Company has the right to request Tatung to purchase all the CPT shares obtained via the private placement within certain agreed periods at the price the Company and its subsidiaires originally paid for the CPT shares plus interest. Despite many requests sent from the Company, Tatung has not fulfilled its obligation in accordance with the contract. The Company filed an arbitration based on the agreement on March 29, 2013, requesting Tatung to perform its obligations. The Company received the verdict on May 12, 2014. According to the verdict, Tatung should pay NTD $2,118,607 thousand to the Company and its subsidiaries for the purchase of all the CPT shares held by the Company and its subsidiaries. Also, Tatung should pay the interest which is calculated at an annual rate of 5% for the period from April 3, 2013 to the actual date of payment. Also, Tatung is responsible for one-third of the legal expenses. With respect to the part which is not favorable to the Company, a civil complaint was lodged with the Taiwan Taipei District Court on June 13, 2014, to revoke the arbitration award. The Taiwan Supreme Court dismissed the third instance of the Company’s appeal on January 11, 2017 and per arbitration, the Company and its subsidiaries has sold all CPT shares to Tatung on February 9 2017 at a total of NTD $ 2,272,104 thousand (including interest) at a loss of NTD$ 4,252 thousand. The aforementioned amount has been recovered in full. 7.6.13 Other Major Risks International conglomerates face many risks such as regulatory compliance, business competition, localization, and globalization. It is the responsibility of each Company employee to turn such challenges into future opportunity. Ex ante risk identification, weekly risk assessment and prevention, and post-crisis management, have all been added to the Company target management cycle (PDCA), key performance indicators (KPI), and control system for internal use. Such processes allow the dedicated units responsible for these specific risks to establish rigorous and rapid means for response and a problem-solving culture. By working through regular and irregular reviews and combining education, training and a performance risk appraisal system, they can cope with significantly different kinds of risk management based on local conditions. The company was not faced by any significant risk in 2016. 116 VIII. Special Disclosure 8.1 Summary of Affiliated Companies (As of Dec 31, 2016) 117 118 Overview of Operating Status for Affliated Companies in 2016 Unit: NTD thousand Company Name Capital Net asset value Total liabilities Net worth Operating revenue Operating income 44,241,606 328,620,920 222,816,531 105,804,389 725,653,095 5,972,854 1,606,780 85,960,669 54,200,407 31,760,262 88,993,461 2,963,367 2,335,151 Net loss/profit for the period (after tax) 8,130,890 EPS (in NTD) (After tax) 1.88 49.68 Compal Electronics, Inc. Compal International Holding Co., Ltd. and its subsidiaries Just International Ltd. and its subsidiaries Big Chance International Co., Ltd. and its subsidiaries Core Profit Holdings Ltd. High Shine Industrial Corp. and its subsidiaries Panpal Technology Corporation and its subsidiaries Gempal Technology Co., Ltd. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. Accesstek Inc. and its subsidiaries Arcadyan Technology Corp. and its subsidiaries Compal Broadband Networks Inc. and its subsidiaries Zhaopal Investment Co., Ltd. Yongpal Investment Co., Ltd. 1,480,509 15,393,029 6,820,486 8,572,543 21,161,984 1,180,223 768,478 16.01 2,636,051 12,424,050 6,858,662 5,565,388 7,436,027 (3,370) 133,413 4,318,860 5,147,628 - 5,147,628 1,346,814 1,124,503 241,932 882,571 - - - 400,455 (53,086) (44,935) (1.05) 1.47 2.72 5,000,000 8,162,452 2,622,524 5,539,928 5,466,931 1,462 130,900 900,000 1,000,000 295,000 1,923,116 1,034,048 338,634 32,369 37,969 131 105 71 866 1,922,985 1,033,943 338,563 37,103 - - - - (293) (232) (222) (104) 97,287 63,243 31,699 80 1,891,190 15,217,137 6,121,974 9,095,163 23,910,479 1,794,183 1,357,473 532,525 4,968,537 3,595,136 1,373,401 5,221,031 120,614 133,949 2,001,000 1,751,000 648,100 568,156 51 50 648,049 568,106 - - (76) (76) (76) (76) 0.26 1.08 0.63 1.07 0.02 7.19 2.52 - - 119 Company Name Capital Net asset value Total liabilities Net worth Operating revenue Operating income 751,000 243,384 50 243,334 - (76) 2,122,127 6,920,203 5,573,203 1,347,000 8,000,828 (585,666) (784,892) 411,458 60,000 584,315 30,123 165,568 8,634 418,747 21,489 260,698 26,047 (100,990) (8,238) (31,325) (8,073) 300,000 319,768 67,061 252,707 211,946 (11,465) (11,447) Net loss/profit for the period (after tax) (76) EPS (in NTD) (After tax) - (3.70) (0.76) (1.35) (0.38) 295,000 171,187 37,502 133,685 - (30,990) (5,500) (0.19) 377,328 1,373,649 1,138,542 235,107 1,777,939 (54,033) (8,781) (0.70) 3,031 90,156 101,747 2,754,741 197,463 555,004 210,512 192,662 4,114,094 558,302 112,150 208,699 74,789 86,868 - 442,854 1,813 117,873 4,027,226 558,302 565,697 726,056 172,055 - 1,579,087 28,324 53,478 11,256 (119) 15,089 19,092 38,427 1,820 384,469 398,853 190.92 282.39 0.61 4.28 62.06 1,693,279 10,221,162 10,589,033 (367,871) 35,295,560 (444,216) (436,731) (8.41) 3,340 5,864,181 4,468,685 1,395,496 35,238,625 (10,940) (18,108) (181.08) 1,575 18,689,073 17,130,918 1,558,155 70,578,185 (5,222) 587 11.74 100,000 207,620 330,297 (122,677) 100,116 (147,311) (147,223) (14.72) 100,000 142,424 31,587 110,837 74,370 3,776 4,001 0.40 life Biotechnology Co., Kaipal Investment Co., Ltd. Henghao Technology Co., Ltd. and its subsidiaries Mactech Co., Ltd. Ripal Optoelectronics Co., Ltd. General Ltd. Rayonnant Technology Holdings Ltd., Compal Rayonnant Holdings Ltd. and its subsidiaries Bizcom Electronics, Inc. Compal Europe (Poland) Sp.z o.o. Auscom Engineering Inc. Flight Global Holding Inc. Compalead Electronics B.V. Etrade Management Co., Ltd and its subsidiaries Webtek Technology Co., Ltd Forever Young Technology Inc. and its subsidiaries Unicom Global Inc., Huang Feng Communication Co., Ltd. Compal Electronics (Holding) Ltd. 34 3,798,619 - 3,798,619 - - - - 120 8.2 Private Placement of Securities in the Most Recent Year: None 8.3 Company Shares Held or Disposed by Subsidiaries in the Most Recent Year: Name of Subsidiary Share Capital Acquired Funding Source Percentage of Shares Held by the Company Date of Acquisition or Disposition Shares and Amount Acquired Shares and Amount Disposed Investme nt Gain (Loss) Shareholdings and Amount as of March 31, 2017 Collateraliz ed Amount of Endorsements Made for the Subsidiary Amount Loaned to the Subsidiar y Unit: NT$ thousands; Shares; % Panpal Technology Corporation Gempal Technology Co., Ltd. Note: NTD 5,000,000,000 NTD 900,000,000 Proprietary capital Proprietary capital 100% - 100% - - - - - - - 31,648,082 shares NTD 559,812,000 18,369,349 shares NTD 321,435,000 N/A N/A - - - - Impacts on the Company’s financial performance and position: none of the subsidiaries had acquired or disposed the Company’s shares in the current year up till the publication date of this annual report, hence there were no impacts. 8.4 Any Events in 2016 and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Interests or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None 121 Attachment I Independent Auditor’s Report To COMPAL ELECTRONICS, INC.: Opinion We have audited the consolidated financial statements of COMPAL ELECTRONICS, INC. and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as of December 31, 2016 and 2015, and the consolidated statement of comprehensive income, consolidated statements of changes in equity and consolidated statement of cash flows for the years ended December 31, 2016 and 2015, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audit in accordance with the “Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants” and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1. Account receivable valuation Please refer to Note (4)(f) and Note (5) for the accounting policy of accounts receivable, as well as the estimation and assumption uncertainly of the valuation of accounts receivable, respectively. Information of account receivable valuation are shown in Note (6)(e) of the parent company only financial statements. Description of key audit matters: The Company devotes to develop new product lines and customers in emerging countries, and the credit risks of these customers are higher than other world leading corporations. Therefore, valuation of accounts receivable has been identified as a key audit matter. Our key audit procedures performed in report of the above area included the following: In order to evaluate the reasonableness of the Company’s estimations for bad debts, our key audit procedures included analyzing the aging of accounts receivable, examining the historical recovery records, and the current credit status of customers, as well as inspecting the amount received in the subsequent period. 2. Provision of sales returns and allowances Please refer to Note (4)(o) and Note (5) for the policy of the estimation of sales returns and allowance provisions, as well as the estimation and assumption uncertainly of sales returns and allowances provisions, respectivley. Information on sales returns and allowances provisions are shown in Note (6)(m) of the parent company only financial statements. Description of key audit matters: Part of the sales need to provide allowance and return to the customers, the estimation of the above items affects the net sales. Since the said matter is subject to management's judgment, the rationality of the basis is one of the key audit matters. Our key audit procedures performed in report of the above area included the following: Our key audit procedures included reviewing the appropriateness of accounting policy and disclosure of provision for sales return and allowance, and evaluating the historical accuracy of the estimation of sales return and allowance, as well as evaluating the appropriateness of estimation in the following year. In addition, to evaluate if there is a significant misstatement, we analyzed the trend of sales by main customers and by products, to compare to the changes of provision sales returns and allowances. 3. Inventory valuation Please refer to Note (4)(g) and Note (5) for the accounting policy of inventory valuation, as well as the estimation and assumption uncertainly of the valuation of inventory, respectively. Information of estimation of the valuation of inventory are shown in Note (6)(f) of the parent company only financial statements. Description of key audit matters: The inventory is measured at the lower of cost or net realizable value. The short life cycle of electronic products may cause significant changes in customers’ demand and sales of related products. Consequently, the book value of inventory may be lower than the net realizable value of inventory. Therefore, the valuation of inventory is one of the key audit matters. Our key audit procedures performed in report of the above area included the following: In order to verify the rationality of assessment of inventory valuation estimated by the Company, our key audit procedures included reviewing the consistency of accounting policy, inspecting the Company’s inventory aging reports, analyzing the change of inventory aging, as well as verifying the inventory aging reports and the calculation of lower of cost or net realizable value. Other Matter Compal Electronics Inc, has prepared the annual parent company only financial statements as of and for the years ended December 31, 2016 and 2015, on which we have issued an unqualified opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements The management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs, IASs, interpretation as well as the related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated individual financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated individual financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditor’s report are Kuan Ying Kuo and Yiu Kwan Au. KPMG Taipei, Taiwan (Republic of China) March 28, 2017 Notes to Readers The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position, financial performance and its cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. The auditor’s report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language auditor’s report and consolidated financial statements, the Chinese version shall prevail. (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. AND ITS SUBSIDIARIES Consolidated Balance Sheets December 31, 2016 and 2015 (Expressed inThousands of New Taiwan Dollars) Assets Current assets: Cash and cash equivalents (note (6)(a)) Current financial assets at fair value through profit or loss (note (6)(b)) Current available-for-sale financial assets (note (6)(d)) Current derivative financial assets used for hedging (note (6)(c)) Current bond investments without active market (note (6)(f)) Notes and accounts receivable, net (notes (6)(g) and 8) Notes and accounts receivable due from related parties, net (notes (6)(g) and 8) Other receivables, net (notes (6)(g) and 8) Inventories (note (6)(h)) Other current assets (note 8) Non-current assets: Investments accounted for using equity method (note (6)(i)) Non-current available-for-sale financial assets (note (6)(d)) Non-current financial assets at cost (note (6)(e)) Non-current investments without active market (note (6)(f)) Property, plant and equipment (notes (6)(n) and (8)) Intangible assets Deferred tax assets (note (6)(t)) Long-term prepaid rents (note (6)(r)) Other non-current assets (note (6)(s)) 1100 1110 1125 1135 1147 1170 1180 1200 1310 1470 1550 1523 1543 1546 1600 1780 1840 1985 1990 December 31, 2016 Amount % December 31, 2015 % Amount $ 72,950,596 21.0 62,751,542 19.1 86,440 48,631 - - - - 25,412 29,738 21,360 - - - 350,000 0.1 350,000 0.1 175,318,313 50.5 164,799,743 50.3 70,972 - 62,245 - 1,082,607 0.3 824,160 0.3 48,105,125 13.9 46,520,021 14.2 2,456,323 0.7 2,399,255 0.7 300,469,007 86.5 277,783,476 84.7 11,726,370 9,556,461 3.4 2.8 11,788,042 9,063,101 3.6 2.8 71,820 - 103,867 - 700,000 20,952,677 0.2 6.0 1,291,281 0.4 1,262,986 594,520 0.4 0.2 390,989 0.1 1,050,000 24,308,631 1,194,193 1,377,465 747,066 509,734 0.3 7.4 0.4 0.4 0.2 0.2 46,547,104 13.5 50,142,099 15.3 2100 2120 2170 2180 2200 2230 2250 2300 2313 2320 2540 2570 2640 2670 3110 3200 3300 3400 3500 Liabilities and Equity Current liabilities: Short-term borrowings (note (6)(o)) Current financial liabilities at fair value through profit or loss (note (6)(b)) Notes and accounts payable Notes and accounts payable to related parties (note (7)) Other payables Current tax liabilities Current provisions (note (6)(q)) Other current liabilities Unearned revenue Long-term borrowings, current portion (note (6)(f)) Non-Current liabilities: Long-term borrowings (note (6)(p)) Deferred tax liabilities (note (6)(t)) Non-current net defined benefit liabilities (note (6)(s)) Non-current liabilities Total liabilities Equity attributable to parent company shareholders: Ordinary share (notes (6)(u) and (t)) Capital surplus (note (6)(u)) Retained earnings (note (6)(u)) Other equity interest (note (6)(u)) Treasury shares (note (6)(u)) Total assets $ 347,016,111 100.0 327,925,575 100.0 36XX Non-controlling interests Total equity Total liabilities and equity December 31, 2016 December 31, 2015 Amount % Amount % $ 43,480,777 12.5 29,481,176 9.0 137,489 - 29,215 - 127,523,732 36.7 127,152,784 38.8 1,958,211 17,853,264 0.6 5.1 3,795,925 1.1 1,842,094 2,899,674 0.5 0.9 1,774,158 0.5 1,473,760 18,141,188 4,196,978 2,388,710 3,929,073 1,747,574 7,966,875 2.3 14,216,617 0.4 5.5 1.3 0.7 1.2 0.5 4.3 209,232,199 60.2 202,757,075 61.7 23,954,688 746,962 7.0 0.2 631,821 0.2 166,626 - 14,356,563 481,497 545,460 186,864 25,500,097 7.4 15,570,384 4.4 0.2 0.2 0.1 4.9 234,732,296 67.6 218,327,459 66.6 44,241,606 12.8 44,711,266 13.6 11,779,274 3.4 12,838,638 3.9 55,289,409 15.9 51,877,511 15.8 (4,624,653) (1.3) (3,926,881) (1.2) (881,247) (0.3) (1,724,739) (0.5) (5,505,900) (1.6) (5,651,620) (1.7) 105,804,389 30.5 103,775,795 31.6 6,479,426 1.9 5,822,321 1.8 112,283,815 32.4 109,598,116 33.4 $ 347,016,111 100.0 327,925,575 100.0 See accompanying notes to financial statements. (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. AND ITS SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Common Share) Net sales revenue (notes (6)(x) and 7) Cost of sales (notes (6)(h), (s), 7 and 12) Gross profit Operating expenses: (notes (6)(r), (s) and 12) Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses (notes (6)(d), (i), (l) and (z)) Finance costs Other income (notes (6)(r) and (z)) Miscellaneous disbursements Impairment loss (notes(6)(d), (e) and (n)) Share of profit of associates and joint ventures accounted for using equity method (note 6(i)) Total non-operating income and expenses Profit before tax Less: Tax expense (note (6)(t)) Profit Other comprehensive income: Items that will not be reclassified subsequently to profit or loss Other comprehensive income, before tax, remeasurement of defined benefit obligation Share of other comprehensive income of associates and joint ventures accounted for using equity method Income tax relating to items that will not be reclassified (note 6(t)) Items that will be reclassified subsequently to profit or loss Items that will be reclassified subsequently to profit or loss % 2015 2016 Amount $ 766,810,035 100.0 847,305,698 100.0 733,973,065 95.7 813,927,341 96.1 3.9 4.3 Amount % 32,836,970 33,378,357 5,270,267 4,541,630 11,961,428 21,773,325 11,063,645 0.7 0.6 1.6 2.9 1.4 5,011,950 4,804,295 12,249,660 22,065,905 11,312,452 (1,042,285) (946,893) 1,961,554 (54,672) (239,989) 1,071,985 749,700 11,813,345 2,845,339 8,968,006 (0.1) (0.1) 0.3 - - 0.1 0.2 1.6 0.4 1.2 (323,839) (899,702) 1,495,156 (37,562) (121,574) 367,162 479,641 11,792,093 2,784,946 9,007,147 0.6 0.6 1.4 2.6 1.3 - (0.1) 0.2 - - - 0.1 1.4 0.3 1.1 (97,739) (1,673) 16,616 (82,796) - - - - (93,596) (794) 15,911 (78,479) - - - - Other comprehensive income, before tax, exchange differences on translation of foreign financial (938,426) (0.1) 1,766,330 0.2 statement Other comprehensive income, before tax, available-for-sale financial assets Gains (losses) on effective portion of cash flow hedges Share of other comprehensive income of associates and joint ventures accounted for using equity 458,015 (21,360) (702,159) - - (0.1) (1,629,927) 21,360 (146,939) (0.2) - - method Income tax relating to items that will be reclassified (note 6(t)) Items that will be reclassified subsequently to profit or loss Other comprehensive income, net Comprehensive income Profit, attributable to: Profit, attributable to parent company shareholders Profit, attributable to non-controlling interests Comprehensive income attributable to: Comprehensive income, attributable to parent company shareholders Comprehensive income, attributable to non-controlling interests Earnings per share (note 6(w)) Basic earnings per share Diluted earnings per share 21,180 (1,182,750) (1,265,546) 7,702,460 - (0.2) (0.2) 1.0 8,130,890 837,116 8,968,006 6,916,562 785,898 7,702,460 1.2 - 1.2 1.0 - 1.0 1.88 1.84 $ $ $ $ $ $ $ (34,315) (23,491) (101,970) 8,905,177 8,684,610 322,537 9,007,147 8,552,926 352,251 8,905,177 - - - 1.1 1.1 - 1.1 1.0 - 1.0 2.01 1.97 4000 5000 6100 6200 6300 7020 7050 7190 7590 7670 7770 7900 7950 8300 8310 8311 8320 8349 8360 8361 8362 8363 8370 8399 8300 8500 8610 8620 8710 8720 9750 9850 See accompanying notes to financial statements. (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. AND ITS SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars) Equity attributable to parent company shareholders Retained earnings Other equity items Ordinary shares 44,232,366 $ Capital reserves Legal reserve Special reserve 14,296,445 15,867,903 - - - - - - - - - - 478,900 - - - - - - - (2,214,390) 258 28,275 5,824 647,200 75,026 - - - - - 703,408 - - - - - - - - - 44,711,266 12,838,638 16,571,311 - - - - - - - - - (31,500) - - - - - - - (885,334) 22 1,723 (40,846) 60,048 - (438,160) 44,241,606 $ - (194,977) 11,779,274 - - - 868,461 - - - - - - - - - 17,439,772 - (4,568,497) - - - - - - - - 3,139,021 - - - 60,653 - - - - - - - Unappropriated retained earnings 24,146,451 8,684,610 (71,032) 8,613,578 7,707,518 - - - Total retained earnings 47,721,872 8,684,610 (71,032) 8,613,578 - - (4,428,781) - - (703,408) 4,568,497 (4,428,781) - - (14,572) (15,956) (14,572) (15,956) 1,370 1,370 - - 32,167,179 8,130,890 (74,452) 8,056,438 (868,461) (60,653) (4,426,671) - (658) (10,527) - - 51,877,511 8,130,890 (74,452) 8,056,438 - - (4,426,671) - (658) (10,527) 3,671 3,671 - - Exchange differences on translation of foreign financial statements Unrealized gains (losses) on available-for-sa le financial assets (4,317,328) 1,178,307 - 1,624,754 1,624,754 - - - - - - - - - - 2,803,061 - (1,478,779) (1,478,779) - - - - - - - - - (1,693,104) (1,693,104) - - - - - - - - - - (6,010,432) - 346,602 346,602 - - - - - - - - - - (5,663,830) Unearned employee benefit and others - - 7,698 7,698 Total other equity interest Treasury stock Total equity attributable to owners of parent Non-control ling interests (3,139,021) - (60,652) (60,652) (1,724,739) 101,386,923 8,684,610 (131,684) 8,552,926 - - - 4,833,014 322,537 29,714 352,251 - - - - - - - - - - - - - - (727,208) - - (719,510) - (7,699) (7,699) (727,208) - - (3,926,881) - (1,139,876) (1,139,876) - - - - - - - - - - - - (4,428,781) (2,214,390) 258 13,703 (10,132) 400,262 75,026 - (1,724,739) 103,775,795 8,130,890 (1,214,328) 6,916,562 - - - - - - - - - - - - Total equity 106,219,937 9,007,147 (101,970) 8,905,177 - - (4,428,781) (2,214,390) 258 13,703 (10,132) 400,262 75,026 637,056 5,822,321 837,116 (51,218) 785,898 637,056 109,598,116 8,968,006 (1,265,546) 7,702,460 - - - - - - 442,104 - - - (285,105) - - - - - - 442,104 - - - - - - - - - - - - - (4,426,671) (885,334) (636) (8,804) 373,429 60,048 - - - - - - - - - - (4,426,671) (885,334) (636) (8,804) 373,429 60,048 - 843,492 - - (128,793) - (128,793) - (4,624,653) (881,247) 105,804,389 6,479,426 112,283,815 - - 3,199,674 - (210,355) 34,649,963 - (210,355) 55,289,409 - - 1,324,282 Balance at January 1, 2015 Profit for the year ended December 31, 2015 Other comprehensive income Comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Reversal of special reserve Cash dividends on ordinary shares Cash dividends from capital surplus Difference between consideration and carrying amount of subsidiaries acquired or disposed Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for the company's cash dividends received by subsidiaries Changes in non-controlling interests Balance at December 31, 2015 Profit for the year ended December 31, 2016 Comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends on ordinary shares Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for the company's cash dividends received by subsidiaries Changes in non-controlling interests Retirement of treasury share Balance at December 31, 2016 See accompanying notes to financial statements. (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. AND ITS SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation and amortization Increase (decrease) in allowance for uncollectible accounts Interest expense Interest income Dividend income Compensation cost of employee share-based payment Share of profit of associates and joint ventures accounted for using equity method Loss (gain) on disposal of property, plant and equipment Loss (gain) on disposal of investments Impairment loss on financial assets Long-term prepaid rents Adjustments to reconcile profit (loss) Changes in working capital assets and liabilities: Changes in working capital assets: Changes in financial assets at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivable Decrease (increase) in inventories Decrease (increase) in other current assets Decrease (increase) in other non-current assets Total changes in operating assets Changes in operating liabilities: Changes in financial liabilities at fair value through profit or loss Increase (decrease) in notes and accounts payable Increase (decrease) in other payable Increase (decrease) in provisions Increase (decrease) in unearned revenue Increase (decrease) in other current liabilities Other Total changes in working capital liabilities Total changes in working capital assets and liabilities Total adjustments Cash flows from (used in) operations Interest received Dividends received Interest paid Income taxes paid Cash flows from (used in) investing activities: Net cash flows from (used in) operating activities 2016 2015 $ 11,813,345 11,792,093 5,668,112 643,362 946,893 (561,897) (191,333) 398,302 (1,071,985) (87,995) (112,448) 239,989 14,171 5,885,171 (61,028) (11,651,155) (306,896) (1,605,047) 127,598 153,782 (13,342,746) 108,274 953,860 (52,699) (546,616) 26,584 (607,250) 197,107 79,260 (13,263,486) (7,378,315) 4,435,030 552,344 313,080 (905,672) (3,107,120) 1,287,662 5,924,610 64,736 899,702 (599,764) (237,232) 431,627 (367,162) (3,560) 20,718 121,574 15,790 6,271,039 158,681 14,112,057 29,017 20,977,572 235,139 (46,752) 35,465,714 (10,223) (43,388,753) 251,855 313,461 (729,446) 653,199 46,899 (42,863,008) (7,397,294) (1,126,255) 10,665,838 597,659 418,826 (938,675) (1,209,392) 9,534,256 Acquisition of investments accounted for using equity method, available-for-sale financial assets and (186,052) (187,700) financial assets at cost Proceeds from disposal of investments accounted for using equity method and available-for-sale financial assets Redemption from bond investments without active market Net cash flow from acquisition of subsidiaries Net cash flow from disposal of subsidiaries Proceeds from capital reduction and liquidation of investments Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Other Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Cash dividends paid Acquisition of non-controlling interests Change in non-controlling interests Other Net cash flows from (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period See accompanying notes to financial statements. 345,026 350,000 - (139,401) 47,695 (3,595,770) 519,243 (579,740) 57,033 (3,181,966) 13,999,601 23,515,000 (20,166,617) (5,251,957) (8,643) (153,961) (20,238) 11,913,185 180,173 10,199,054 62,751,542 72,950,596 1,718,652 350,000 250,273 - 68,125 (5,492,667) 128,388 (616,124) (40,682) (3,821,735) (17,330,697) 12,930,000 (8,555,354) (6,568,145) (13,518) 282,154 22,998 (19,232,562) 1,563,453 (11,956,588) 74,708,130 62,751,542 $ Attachment II Independent Auditor’s Report To COMPAL ELECTRONICS, INC.: Opinion We have audited the financial statements of COMPAL ELECTRONICS, INC.(“the Company”), which comprise the statements of financial position as of December 31, 2016 and 2015, and the statements of comprehensive income, statements of changes in equity and cash flows for the years ended December 31, 2016 and 2015, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2016 and 2015, and its financial performance and its cash flows for the years ended December 31, 2016 and 2015 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Basis for Opinion We conducted our audit in accordance with the “Regulations Governing Auditing and Attestationof Financial Statements by Certified Public Accountants” and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the section of the Auditor’s Responsibilities for the Audit of the Financial Statements . We are independent of the Company in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and other ethical responsibilities in accordance with the Code have been fulfilled. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1. Account receivable valuation Please refer to Note (4)(f) and Note (5) for the accounting policy of accounts receivable, as well as the estimation and assumption uncertainty of the valuation of accounts receivable, respectively. Information of account receivable valuation are disclosed in Note (6)(e) of the parent company only financial statements. Description of key audit matters: The Company devotes to develop new product lines and customers in emerging countries, and the credit risks of these customers are higher than other world leadingenterprises. Therefore, valuation of accounts receivable has been identified as a key audit matter. Our key audit procedures performed in report of the above area included the following: In order to evaluate the reasonableness of the Company’s estimations for bad debts, our key audit procedures included analyzing the aging of accounts receivable, examining the historical recovery records, and the current credit status of customers, as well as inspecting the amount collected in the subsequent period. 2. Provision of sales returns and allowances Please refer to Note (4)(o) and Note (5) for the policy of the estimation of sales returns and allowance provisions, as well as the estimation and assumption uncertainty of sales returns and allowances provisions, respectively. Information on sales returns and allowances provisions are disclosedin Note (6)(m) of the parent company only financial statements. Description of key audit matters: Part of the sales need to provide allowance and return to the customers, and the estimation of the above items affects the net sales. Since the said matter is subject to management's judgment, the rationality of the basis is one of the key audit matters. Our key audit procedures performed in report of the above area included the following: Our key audit procedures included reviewing the appropriateness of accounting policy and disclosure of provision for sales return and allowance, and evaluating the historical accuracy of the estimation of sales return and allowance, as well as evaluating the appropriateness of estimation in the following year. In addition, to evaluate if there is a significant misstatement, we analyzed the trend of sales by main customers and by products to compare with the changes of provision of sales returns and allowances. 3. Inventory valuation Please refer to Note (4)(g) and Note (5) for the accounting policy of inventory valuation, as well as the estimation and assumption uncertainty of the valuation of inventory, respectively. Information of estimation of the valuation of inventory are disclosedin Note (6)(f) of the parent company only financial statements. Description of key audit matters: The inventory is measured at the lower of cost or net realizable value. The short life cycle of electronic products may cause significant changes in customers’ demand and sales of related products. Consequently, the book value of inventory may be lower than the net realizable value of inventory. Therefore, the valuation of inventory is one of the key audit matters. Our key audit procedures performed in report of the above area included the following: In order to verify the rationality of assessment of inventory valuation estimated by the Company, our key audit procedures included reviewing the consistency of accounting policy, inspecting the Company’s inventory aging reports, analyzing the change of inventory aging, as well as verifying the inventory aging reports and the calculation of lower of cost or net realizable value. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the parent companyonlyfinancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient and appropriate audit evidence regarding the financial information of the investment in other entities accounted for using the equity method to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be consideredto bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent companyonlyfinancial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditor’s report are Kuan-Ying Kuo and Yiu-Kwan Au. KPMG Taipei, Taiwan (Republic of China) March 28, 2017 Notes to Readers The accompanying financial statements are intended only to present the statement of financial position, financial performance and its cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The auditor’s report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language auditor’s report and financial statements, the Chinese version shall prevail. Assets Current assets: Cash and cash equivalents Current available-for-sale financial assets Current bond investments without active market Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Inventories Other current assets Non-current assets: Investments accounted for using equity method Non-current available-for-sale financial assets Non-current financial assets at cost Non-current bond investment without active market Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets 1100 1125 1147 1170 1180 1200 1310 1470 1550 1523 1543 1546 1600 1780 1840 1990 (English Translation of Financial Statements and Report Originally Issued in Chinese) Compal Electronics, Inc. Consolidated Balance Sheets December 31, 2016 and 2015 (Expressed inNew Taiwan Dollars) December 31, 2016 Amount % December 31, 2015 % Amount $ 43,392,135 13.2 30,797,312 10.4 48,631 - 29,738 - 350,000 0.1 350,000 0.1 162,701,780 49.5 148,844,537 50.2 2,177,705 0.7 314,439 0.1 973,946 553,185 27,969,011 8.5 25,344,975 458,714 0.1 603,115 0.3 0.3 8.6 0.2 237,412,415 72.2 207,496,808 70.1 80,626,717 24.5 78,006,762 26.3 6,349,202 1.9 5,970,903 2.0 2,333 - 6,588 - 700,000 0.2 2,132,114 0.8 268,316 0.1 1,050,000 2,181,737 378,454 1,012,590 0.3 1,042,365 0.4 0.7 0.1 0.4 117,233 - 105,422 - 91,208,505 27.8 88,742,231 29.9 Liabilities and Equity Current liabilities: Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties) Other payables Current tax liabilities Current provisions Other current liabilities Unearned revenue Long-term liabilities, current portion Non-Current liabilities: Long-term borrowings Deferred tax liabilities Non-current net defined benefit liabilities Other non-current liabilities Total liabilities Equity attributable to parent company shareholders: Ordinary share Capital reserves Retained earnings Other equity items Treasury stock Total equity 2100 2170 2180 2200 2230 2250 2300 2313 2320 2540 2570 2640 2670 3110 3200 3300 3400 3500 December 31, 2016 Amount % December 31, 2015 % Amount $ 30,443,750 9.3 22,087,200 7.5 72,535,568 22.0 63,996,915 21.6 73,903,066 22.5 62,361,931 21.1 7,725,946 2.4 1,024,690 0.3 1,532,250 0.5 926,734 0.3 8,957,625 2,200,353 2,034,677 428,602 1,774,158 0.5 1,747,574 7,700,000 2.3 13,850,000 3.0 0.7 0.7 0.1 0.6 4.7 197,566,162 60.1 177,664,877 60.0 23,635,000 7.2 13,740,000 699,875 0.2 541,693 0.2 373,801 0.1 4.6 0.2 0.2 448,762 469,846 139,759 - 25,250,369 7.7 14,798,367 5.0 222,816,531 67.8 192,463,244 65.0 44,241,606 13.5 44,711,266 15.1 11,779,274 3.6 12,838,638 4.3 55,289,409 16.8 51,877,511 17.5 (4,624,653) (1.4) (3,926,881) (1.3) (881,247) (0.3) (1,724,739) (0.6) 105,804,389 32.2 103,775,795 35.0 Total assets $ 328,620,920 100.0 296,239,039 100.0 Total liabilities and equity $ 328,620,920 100.0 296,239,039 100.0 (English Translation of Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. Statements of Comprehensive Income For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share) 2016 2015 4000 5000 5910 6100 6200 6300 7020 7050 7190 7370 7900 7950 8300 8310 8311 8330 Net sale revenue Cost of sales: Gross profit Less:Unrealized profit from sales Gross profit Operating expenses: Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses, net Finance costs Other income Share of profit of subsidiaries, associates and joint ventures accounted for using equity method Total non-operating income and expenses Profit before tax Less: tax expense Profit Other comprehensive income: Items that will not be reclassified subsequently to profit or loss Other comprehensive income, before tax, remeasurement of defined benefit obligation Share of other comprehensive income of subsidiaries, associates and joint ventures accounted for using equity method that will not be reclassified subsequently to profit or loss 8349 Income tax relating to items that will not be reclassified Items that will not be reclassified subsequently to profit or loss Items that maybe reclassified subsequently to profit or loss % Amount % Amount $ 725,653,095 100.0 802,994,930 100.0 704,371,443 97.1 780,260,207 97.2 2.8 2.9 - - 2.8 2.9 21,281,652 481 21,281,171 22,734,723 (2,867) 22,737,590 4,060,832 2,395,657 8,851,828 15,308,317 5,972,854 0.6 0.3 1.2 2.1 0.8 3,798,280 2,581,758 9,052,274 15,432,312 7,305,278 (581,031) (719,294) 933,004 3,766,213 3,398,892 9,371,746 1,240,856 - (0.1) 0.1 0.5 0.5 1.3 0.2 261,589 (604,735) 786,958 2,413,800 2,857,612 10,162,890 1,478,280 0.5 0.3 1.1 1.9 0.9 - - 0.1 0.3 0.4 1.3 0.2 8,130,890 1.1 8,684,610 1.1 (82,021) (6,375) 13,944 (74,452) - - - - (79,571) (4,988) 13,527 (71,032) - - - - 8360 8361 8362 8380 Other comprehensive income, before tax, exchange differences on translation of foreign financial (1,004,076) (0.1) 2,011,139 0.2 statements Other comprehensive income, before tax, available-for-sale financial assets Share of other comprehensive income of subsidiaries, associates and joint ventures accounted for 362,179 (521,847) - - (1,695,723) (357,582) (0.2) - using equity method that maybe reclassified subsequently to profit or loss 8399 Income tax relating to items that maybe reclassified Items that maybe reclassified subsequently to profit or loss 8300 8500 9750 9850 Other comprehensive income, net of tax Total comprehensive income Earnings per share: Basic earnings per share Diluted earnings per share 23,868 (1,139,876) (1,214,328) 6,916,562 - (0.1) (0.1) 1.0 (18,486) (60,652) - - (131,684) 8,552,926 - 1.1 1.88 1.84 2.01 1.97 $ $ $ (English Translation of Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. Statements of Changes in Equity For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars) Retained earnings Other equity items Legal reserve 15,867,903 Special reserve Total retained earnings Unappropriated retained earnings 24,146,451 8,684,610 (71,032) 8,613,578 Balance onJanuary 1, 2015 Profit for the year ended December 31, 2015 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Reversal of special reserve Cash dividends on ordinary shares Cash dividends from capital surplus Difference between consideration and carrying amount arising from acquisition or disposal of subsidiaries Ordinary shares 44,232,366 $ - - - - - - - - Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for the Company’s cash dividends received by - - 478,900 Capital reserves 14,296,445 - - - - - - (2,214,390) 258 28,275 5,824 647,200 subsidiaries Balance onDecember 31, 2015 Profit for the year ended December 31, 2016 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends on ordinary shares Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for the Company's cash dividends received by subsidiaries Retirement of treasury share Balance onDecember 31, 2016 $ - 44,711,266 75,026 12,838,638 - - - - - - - - - (31,500) - - - - - - (885,334) 22 1,723 (40,846) - - - 703,408 - - - - - - - - 16,571,311 - - - 868,461 - - - - - - 7,707,518 - - - - (4,568,497) - - - - - - - 3,139,021 - - - 60,653 - - - - - - - (438,160) 44,241,606 60,048 (194,977) 11,779,274 - - 17,439,772 - - 3,199,674 Exchange differences on translation of foreign financial statements Unrealized gains (losses) on available-for- sale financial assets (4,317,328) 47,721,872 8,684,610 (71,032) 8,613,578 - - (4,428,781) - - (14,572) (15,956) 1,370 - 51,877,511 8,130,890 (74,452) 8,056,438 - - (4,426,671) - (658) (10,527) 3,671 - (210,355) 55,289,409 1,178,307 - 1,624,754 1,624,754 - - - - - - - - - 2,803,061 - (1,478,779) (1,478,779) - - - - - - - - - 1,324,282 - (1,693,104) (1,693,104) - - - - - - - - - (6,010,432) - 346,602 346,602 - - - - - - - - - (5,663,830) (703,408) 4,568,497 (4,428,781) - - (14,572) (15,956) 1,370 - 32,167,179 8,130,890 (74,452) 8,056,438 (868,461) (60,653) (4,426,671) - (658) (10,527) 3,671 - (210,355) 34,649,963 Total other equity interest (3,139,021) - (60,652) (60,652) Others - - 7,698 7,698 - - - - - - - (727,208) - (719,510) - (7,699) (7,699) - - - - - - 442,104 - - (285,105) - - - - - - - (727,208) - - (1,139,876) (1,139,876) - - - - - - 442,104 - - (4,624,653) Treasury stock (1,724,739) - - - - - - - - - - - - - - - - - - - - - - Total equity 101,386,923 8,684,610 (131,684) 8,552,926 - - (4,428,781) (2,214,390) 258 13,703 (10,132) 400,262 75,026 103,775,795 8,130,890 (1,214,328) 6,916,562 - - (4,426,671) (885,334) (636) (8,804) 373,429 - 843,492 (881,247) 60,048 - 105,804,389 (3,926,881) (1,724,739) Note:Employees’ compensation amounting to $876,028 and $949,980 and directors’ compensation amounting to $46,323 and $50,234 were recognized in the statements of comprehensive income for the years ended December 31, 2016 and 2015, respectively. (English Translation of Financial Statements and Report Originally Issued in Chinese) COMPAL ELECTRONICS, INC. Statements of Cash Flows For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Depreciation and amortization Increase in allowances for uncollectible accounts Finance costs Interest income Dividend income Compensation cost arising fromshare-based payment transaction Share of profit of subsidiaries,associates and joint ventures accounted for using equity method Gain on disposal of investments Impairment loss on financial assets Adjustments to reconcile profit Changes in operating assets and liabilities: Changes in operating assets: Changes in financial assets at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivables Decrease (increase) in inventories Decrease (increase) in other current assets Total changes in operating assets Changes in operating liabilities: Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase (decrease) in provisions Increase (decrease) in unearned revenue Increase (decrease) in other current liabilities Others Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash flows from (used in) operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Redemption from bond investment without active market Acquisition of investments accounted for using equity method and available-for-sale financial assets Proceeds from disposal of investments accounted for using equity method and available-for sale financing assets Proceeds from capital reduction and liquidation of investments Acquisition of property, plant and equipment Decrease (Increase) in other receivables due from related parties Acquisition of intangible assets Others Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Cash dividends paid Others Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 2016 2015 $ 9,371,746 10,162,890 609,655 714,682 719,294 (119,754) (133,485) 373,429 (3,766,213) - 13,403 (1,588,989) - (15,775,684) 175,486 (2,624,036) 144,401 (18,079,833) 20,079,788 (1,220,679) (502,427) 26,584 498,132 (9,738) 18,871,660 791,827 (797,162) 8,574,584 110,209 359,324 (730,294) (2,097,820) 6,216,003 698,496 27,627 604,735 (153,268) (170,537) 400,262 (2,413,800) (405,885) 32,000 (1,380,370) 114,111 19,681,148 (150,363) 16,183,878 (80,932) 35,747,842 (49,432,576) 807,475 358,492 (546,111) (216,920) (26,483) (49,056,123) (13,308,281) (14,688,651) (4,525,761) 160,900 900,359 (588,159) (240,077) (4,292,738) 350,000 (303,702) 350,000 (1,023,451) - 1,489,852 25,630 (159,703) (20,939) (290,200) (11,811) (410,725) 8,356,550 23,515,000 (19,770,000) (5,312,005) - 6,789,545 12,594,823 30,797,312 43,392,135 51,520 (153,958) 27,733 (470,768) 17,144 288,072 (6,580,500) 12,770,000 (7,840,000) (6,643,171) 152 (8,293,519) (12,298,185) 43,095,497 30,797,312 $ Compal Electronics, Inc. Chairman: Sheng-Hsiun Hsu (Rock Hsu) Chief Executive Officer (CEO): Jui-Tsung Chen (Ray Chen)
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