InnoLux Corporation Handbook for 2018 General Shareholders' Meeting

Transcription

1 Stock Symbol: 3481 InnoLux Corporation Handbook for 2018 General Shareholders' Meeting June 20, 2018

2 INDEX I. Meeting Procedures. 1 II. Meeting Agenda Reporting Items Adopting Items Discussion Items Extemporary Motions III. Attachments Operating Report Audit Committee s Review Report CPA Auditor s Report and Financial Statements Profit Distribution Table Comparative table for Amendment to Articles of Incorporations of the 37 Company.. 6. Regulations related to Issuance and Conversion of Private Placement of Foreign 40 or Domestic Corporate Bonds(Prescribed Temporarily)... IV. Appendices Rules for Shareholders Meeting Articles of Incorporation of the Company Shareholding table of all Directors Impact of instant gratuitous allocation of shares on Company s operating 55 performance and earning per share...

3 INNOLUX CORPORATION Procedures of 2018 Annual General Shareholders Meeting 1. Report of Number of Shares Represented by Attendees 2. Call the Meeting to Order 3. Chairperson Remarks 4. Reporting Items 5. Adopting Items 6. Discussion Items 7. Extemporary Motions 8. Adjournment 1

4 INNOLUX CORPORATION Agenda of 2018 Annual General Shareholders Meeting Time & Date:9:00 a.m. on June Location:3F, No.36 Ke Yan Rd., Zhunan Township, Miaoli County The assembly hall of the Administrative Service Center of Zhunan Park, Hsinchu Science Park 1. Chairperson Remarks 2. Reporting Items: (1) Operating report of the year of (2) Audit Committee s Review Report. (3) To report in relation to the compensation distributed to the employees and directors of year (4) To report the issuance of securities in private placement. 3. Adopting Items (1) Adoption of the Operating Report and Financial Statements for the year of (2) Adoption of the Proposal for Distribution of 2017 Profits. 4. Discussion Items (1) Amendment to the Articles of Incorporations of the Company. (2) Proposal to process domestic capital increase by cash to issue common shares, to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. (3) Proposal to process capital increase in cash to conduct private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds. 5. Extemporary Motions 6. Adjournment 2

5 Reporting Items 1. Operating Report of the year of Review is respectfully requested. Explanation: 2017 Operating Report is attached hereto as Attachment 1(page 13~14) 2. Audit Committee s Review Report. Review is respectfully requested. Explanation: Audit Committee s Review Report is attached hereto as Attachment 2 (page 15) 3. Report in relation to the compensation distributed to the employees and directors of year Explanation: The meeting of board of directors of the Company dated February 9, 2018 has resolved to distribute compensation at the amount of NTD 3,136,952,398 to employees and NTD 48,260,806 to directors in cash. 4. Report the issuance of securities in private placement. Explanation: (1) It has been approved by the Annual General Shareholders Meeting held on 20 June, 2017 to authorize the Board of Directors, within the limit of 950,000,000 common shares, depending on the market conditions and the Company s capital needs, to choose appropriate timing and one or more fund raising instruments to process capital increase in cash to conduct private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds in accordance with the applicable laws and regulations. (2) For private placements of securities conducted pursuant to Securities and Exchange Act, the private placement may be carried out by installments within one year of the date of the resolution of the shareholders meeting. (3) In consideration of the capital market situation, the Company will not continue with the above private placement. 3

6 Adopting Items (Proposed by the Board of Directors) Proposal 1 : 2017 Operating Report and the Financial Statement of the Company. Adoption is respectfully requested. Explanation : financial statements of the Company had been duly audited by CPA Wu, Han-Chi and CPA Sheng-Chung Hsu of Pricewaterhousecoopers. 2. The Operating report and finance statements are attached hereto as Attachment 1&3 (page 13~14 and 16~35). Resolution : 4

7 (Proposed by the Board of Directors) Proposal 2 : Distribution of 2017 Profits. Adoption is respectfully requested. Explanation : 1. The profit distribution table of 2017 is attached hereto as Attachment 4 (page 36). 2. Proposed cash dividend distributed to shareholders is NT$ 7,961,657,582 (NT$0.8 per share). In the event that, before the distribution record date, the cash dividend shall be calculated according to the distribution proportion under NT$ 1, for amount less than NT$ 1 shall be truncated. For the total add-up amount of distributed amount for less than NT$ 1, it is proposed that the Chairman be authorized to conduct adjustment. 3. The proposed dividend distribution ratio is affected and is required to be adjusted due to capital variations affecting the number of outstanding shares, it is proposed that the Chairman be fully authorized to handle such distribution. 4. Upon the approval of the shareholders meeting, it is proposed that the Chairman be authorized to resolve the distribution record date and other relevant matters. Resolution : 5

8 Discussion Items (Proposed by the Board of Directors) Proposal 1 : Amendment to the Articles of Incorporations of the Company. Review and discussion is respectfully requested. Explanation : 1. In order to accompany in reference to the operation plan of the Company, it is proposed to amend part of the clauses of Articles of Incorporations of the Company. 2. The revised comparative table are attached hereto as Attachment 5 (Page 37-39) Resolution : 6

9 (Proposed by the Board of Directors) Proposal 2: Proposal to process domestic capital increase by cash to issue common shares, to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Approval is respectfully requested. Explanation: To respond to the change of whole operation environment in the future, to enrich working capital, to repay bank loans, to intensify the Company s financial structure, to purchase material overseas, and to satisfy the Company s capital requirements for the long-term development, the Company proposes to conduct the fund-raising proposal within the limit of 0.95 billion (950,000,000) new shares through domestic capital increase by cash, offering of new shares by way of capital increase by cash for sponsoring issuance of GDR or by way of next proposal of capital increase by cash through private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds (the number of shares shall be calculated from beginning conversion price). It is proposed that the board of directors be authorized by the shareholders meeting to conduct the forgoing fundraising at suitable time by selection of one or collocation of two or more projects, and in one or in several installments according to market situations and capital requirement status of the Company, and in accordance with Articles of Incorporation, the related laws & regulations and the handling principles set forth as below. The main contents are described as follows: 1. The offering price: The offering price of domestic capital increase by cash through public fund raising will be decided according to the Autonomy Rules Governing Underwriter Members for Guidance of Offering and Issuance of Securities by Issuing Company of Taiwan Securities Association, and shall authorize the Chairman to decide with the underwriter together according to the market condition at the time of issuance. The offering price shall be submitted to the authority for records before issuance. The offering price shall be set by no less than the closing price of the Company s ordinary shares on Taiwan Stock Exchange Corporation on price determination date, 90% of the simple average closing price of the ordinary shares of the Company for either the one, three, or five business days before price determination date, after adjustment for any distribution of stock dividends and cash dividends. However, due to stock price fluctuation and security market change causing the actual price of each share lower than the face value, in order to raise fund smoothly and to improve long-term steady growth of the Company, it is necessary to decide such price. If the price of each share is lower than the face value, it is anticipated to cause the reduction of the capital reserve of the book or retain earning of the Company and will be made up according to actual operation situation in the future. Also, the offering price will be set according to the rules of the authority, after the effect of capital increase appears, the financial structure of the Company will be improved effectively and will benefit the Company s long-term development, and there shall be no unfavorable impact to the shareholders interest. 2. Subscription ratio of employees and original shareholders: Except for 10% ~ 15% of new shares issued after capital increase reserved for subscription by employees of the Company based on the offering price in accordance with Article 267 the of Company Act, it is proposed that the shareholders meeting to agree that the original shareholders will forfeit their right to subscription to the remaining new shares in accordance with Article 28-1 of Securities and Exchange Act, and all of the remaining new shares will be made public offering (domestic capital increase by cash) or/and to be offered to the public as the original securities for sponsoring issuance of GDR. The portion which employees had forfeited their rights to subscription or the portion left unsubscribed is proposed to authorize the 7

10 Chairperson to negotiate with specific person(s) to subscribe or to be included in the original securities for sponsoring issuance of GDR based on market requirements. 3. The sales method of the public offering of domestic capital increase by cash: it is proposed to authorize the board of directors to select by either method of book-building or public subscription. 4. Impact to the interest of the original shareholders: In relation to this domestic capital increase by cash and issuance of new shares by means of capital increase by cash for sponsoring issuance of GDR, the price determination method shall be conducted according to the relevant laws and regulations within the country and issuance market practice, therefore, the price determination method shall be deemed reasonable and will not cause major impact to the interest of the original shareholders. For common shares to be issued, if calculated under the limit of 0.95 billion shares, it is estimated that the new shares will be 9.55% of the common shares already issued by the Company and will not cause major dilution to the original shareholders interest. 5. The reason and reasonability of issuing the share lower than par value due to the change of market rather than adopting other methods to raise the funds: In consideration of the steady operation and the safety of the financial structure of the Company, it is more appropriate to use the fundraising vehicle in relation to share rather than pure debt. By raising fund through domestic capital increase by cash, offering of new shares by way of capital increase by cash for sponsoring issuance of GDR, not only there will be no expense on interest, it also may reduce the financial risk, improve the financial structure, increase the flexibility of the Company s financial deploy, and benefits the long-term development of the Company. Also, there should be no adverse effect to the interest of the shareholders. Therefore, such fundraising vehicle in relation to shares should have its reasonability. 6. The funds raised from capital increase by cash is proposed to be used enrich working capital, to repay bank loans, to intensify the Company s financial structure, to purchase material overseas, and to satisfy the Company s capital requirements for the long-term development, in one or several purposes for replenishing the operational funds and repayment of bank loans, and it is expected to be performed completely within three years after the accomplishment of the fund-raising, the implementation of this plan can intensify the competitiveness of the Company, promote the operation efficiency, and then will have positive support to shareholders equity. 7. It is proposed that shareholders meeting to authorize the board of directors to adjust, make and deal with the major contents of plans in relation to the capital increase by cash, including actual number of issued shares, actual subscription proportion reserved for the employees, actual offering price, record date, offering conditions, plan items, amount of fund-raising, fund usage and scheduled progress, the anticipated and possible efficiency accrued and other matters related to offering procedures. In future if it is necessary to make change due to change of laws and regulations, requirement to revision from the competent authority, operation assessment or objective environment, the chairperson will be granted the full authorization to dispose of such matters. 8. Other than the above scope of authorization, it is proposed that the shareholders meeting authorize the Chairperson or his designated person to approve and represent the Company to execute, negotiate, and change any and all related matters in relation to the issuance of securities. Resolution: 8

11 (Proposed by the Board of Directors) Proposal 3: Proposal to process capital increase in cash to conduct private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds. Approval is respectfully requested. Explanation: To respond to the change of whole operation environment in the future, to enrich working capital, to repay bank loans, to intensify the Company s financial structure, to purchase material overseas, and to satisfy the Company s capital requirements for the long-term development, the Company proposes to conduct the fund-raising proposal within the limit of 0.95 billion (950,000,000) new shares through private placement of ordinary share/preferred share capital increase by cash or private placement of foreign or domestic convertible corporate bonds(the number of shares shall be calculated from beginning conversion price) or by way of previors proposal of capital increase by cash through domestic capital increase by cash, offering of new shares by way of capital increase by cash for sponsoring issuance of GDR. It is proposed that the board of directors be authorized by the shareholders meeting to conduct the forgoing fundraising at suitable time by selection of one or collocation of two or more projects, and in one or in several installments according to market situations and capital requirement status of the Company, and in accordance with Articles of Incorporation, the related laws & regulations and the handling principles set forth as below. The main contents are described as follows: 1. The ground and reasonableness for setting the private placement price (1) The price per share fixed for privately placed ordinary shares issued this time shall not be lower than 80 percent of the reference price. The issuance price fixed for privately placed preferred shares, foreign or domestic convertible corporate bonds may not be lower than 80 percent of the theoretical price. (2) The reference price of this private placement of ordinary share or private placement of foreign or domestic convertible corporate bonds used in calculation and actual convert price shall be the simple average closing price of the common shares of the Company for either the 1, 3, or 5 business days before the price determination date or the simple average closing price of the common shares of the Company for the 30 business days before the price determination date, after adjustment for any distribution of stock dividends, cash dividends or capital reduction, whichever is higher. The price set for this private placement of convertible corporate price shall not lower than 80% of the reference price. The actual price is proposed that the shareholders meeting to authorize the board of director to prescribe according to relevant laws and regulations. (3) Within the scope of actual price determination date and actual private placement price not lower than percentage resolved by the shareholders meeting, the board of directors shall be authorized to decide according to the above price decision principle and depend on the situation of subscription by specific person or persons through negotiation and market situation. (4) The private placement pricing method is based on the rules prescribed under Directions for Public Companies Conducting Private Placements of Securities, and under the consideration of company s future development and strict limitation on transfer timing, object, amount, cannot be public listed within 3 years, poor liquidity, and other reasons, the pricing of this private placement is reasonable and shall not cause major effect to shareholders right. However, due to stock price fluctuation and security market change causing the actual price of each share lower than the face value, in order to raise fund smoothly and to improve long-term steady growth of the 9

12 Anticipated number of closings Company, it is necessary to decide such price. If the price of each share is lower than the face value, it is anticipated to cause the reduction of the capital reserve of the book or retain earning of the Company and will be made up according to actual operation situation in the future. Also, the offering price will be set according to the rules of the authority, after the effect of capital increase appears, the financial structure of the Company will be improved effectively and will benefit the Company s long-term development, and there shall be no unfavorable impact to the shareholders interest. 2. Methods for selecting specific person for private placement (1) The private placement shall be conducted according to related rules set forth under Article 43-6 of the Securities and Exchange Act and shall be limited only to strategic investors. (2) The placee will be strategic investors A.Method and purpose of choosing placee: For the needs of long term operation and business development of the Company, we will choose strategic investor who is able to assist our company in expanding business and product market, strengthening customer relationship, or promoting product development integration efficiency, or promoting our technology. B.Necessity: Strategic investors may promote our company s long term competitiveness and operation effectiveness, therefore, the necessity exists. C.Expected effectiveness: Through strategic investors experience, product technology, knowledge, brand reputation, marketing channel and other advantages, via strategic cooperation, product co-development, market integration, or business development cooperation and other methods, it is estimated to assist our company in reducing cost, enhancing products skills, enlarging sales market, and to promote our company s future operation and benefit. (3) Currently, we have not contact and negotiate with any specific place. 3. Reasons necessary to conduct private placement: (1) Reasons for not to adopt public fund raising: Considering the condition of capital market, issuing cost, timeliness and feasibility of fund raising through private placement, private placed securities shall not be transferred within 3 years, and other factors, it may ensure and strengthen a tighter long term cooperation relationship between strategic partners, therefore, it is necessary to adopt private placement for the capital increase this time. (2) Use of funds and estimated purpose of conducting private placement: This private placement of securities shall be conducted in three times separately within one year from the date of the resolution of the shareholders meeting, the use of funds and estimated purpose of conducting private placement of each separate private placement are stated as below: Shares (Thousand) Use of the funds 10 Anticipated benefits 1st 318,000 Established good corporate and To reduce operational risk, strategic partnership with enhance financial 2nd 316,000 domestic / foreign partner and structures and improve replenish operating capital for operational performance 3rd 316,000 long term operation requirement Within the limit of 950,000,000 new shares cash offering by private placement in one or in several installments.

13 4. There was no major change to management right within one year before the Board of Directors resolved to conduct this private placement. Also, if the amount of private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds (the number of shares shall be calculated from beginning conversion price) is within the limit of 0.95 billion (950,000,000) new shares, it is estimated that the new shares will be 9.55% of the ordinary shares already issued by the Company, and the place is limited to only strategic investors, it will positively assist our company s business development and will not cause major change to our company s management right. 5. Other items to be stated: Resolution: (1) For this private placement of securities, the board of directors shall be authorized, upon 3 years after the delivery date of private placement, to apply to TWSE for the issuance of consent letter conforming to the listing criteria, and continue to report to the authority for retroactive handling of public issuance and to apply for public listing and transaction. (2) For the issuance condition of the private placement preferred shares, please refer to the Articles of Incorporation of the Company. (3) For the Regulations related to Issuance and Conversion of Private Placement of Foreign or Domestic Corporate Bonds (Prescribed Temporarily), please refer to attachment 6 of this handbook (page 40-41) (4) It is proposed that shareholders meeting to authorize the board of directors to adjust, make and deal with the major contents of plans in relation to this private placement, including actual number of issued shares of private placement, selection of placees, record date, offering conditions, plan items, amount of fund-raising, fund usage and scheduled progress, the anticipated and possible efficiency accrued and other matters related to offering procedures. In future if it is necessary to make change due to change of laws and regulations, requirement to revision from the competent authority, operation assessment or objective environment, the board of directors will be granted the full authorization to dispose of such matters. (5) Other than the above scope of authorization, it is proposed that the shareholders meeting authorize the Chairperson or his designated person to approve and represent the Company to execute, negotiate, and change any and all related matters in relation to the issuance of securities of this private placement. 11

14 Extemporary Motion 12

15 Attachment 1 INNOLUX CORPORATION 2017 Operating Report Operating Report 2017 was a year in which the panel industry underwent drastic changes. In the first half of the year, the production cuts by Korean manufacturers and panels in short supply led to prosperity in terms of panel supply exceeding demand and rising prices. In the second half of the year, with the information of new production capacities emerging in Mainland China, the market anticipated an increase in panel supply as well as market price drops, resulting in a reversal of the upward price trend in the second half of the year and pressure from customers price adjustments. The company managed to achieve a fruitful operating performance in 2017 nonetheless, with annual consolidated sales revenue amounting to NT$329.2 billion, an annual increase of 15% and the after-tax net profit amounting to NT$ billion, hitting a record high on company profits at NT$3.72 EPS. With the new panel production capacity in China, the supply and demand of the panel market is expected to remain balanced in the short term, not likely causing significant impacts. However, impacts on the economic situation in the long run are inevitable. Therefore, the company has actively adjusted its business strategy towards new technology and new application fields, developing highend technological products, expanding new markets, and finding a blue ocean through qualitative and quantitative technological improvements, which are in the best interest of the company and its shareholders. In view of the future, our operation team and all of our employees will continue to endeavor, to concentrate, and to innovate for the best interest of our shareholders. 2. Result of Business Plan In 2017 our consolidated revenue was NT$ 329,174,401 thousands, which increased NT$42,085,124 thousands or 15% by compared with the 2016 yearly revenue of NT$ 287,089,277 thousands. In 2017 our annual profit after tax which belonged to mother company was NT$37,028,609 thousands, and the annual earnings per share is NT$ Budget Implementation No financial forecast disclosed for 2017, therefore not applicable to disclose budget implementation. 13

16 4. Financial Analysis from 2016 to 2017 Finacial structure analysis (%) Debt-paying ability Profitability Item Debt to Asset Ratio (%) Long-term Capital to property, plant and equipment (%) Current Ratio (%) Quick Ratio (%) Times Interest Earned (Times) Return on Assets (%) Return on Shareholders equity (%) Operating Income to Paid-in Capital Ratio (%) Pre-tax Income to Paid-in Capital Ratio (%) Net Margin (%) Basic after-tax EPS (NT$) Research and development Our R&D in display technology will continue to help our clients improve competitiveness, meet market demand, and be friendly to the environment. We believe the developing directions, including eco-friendly materials, low power consumption, high pixel, high saturation, ultra thin, narrow border, good dynamic performances, touch, wide viewing angle and service integration in all aspects, will achieve remarkable results. To enhance our overall competitiveness, we proactively developed new technique and new products such as high flexible IGZO AMOLED panel, Mini LED, MicroLED, touch point integration technique; wide color gamut monitor, middle-and-large-sized touch panel and we ve obtained substantial results. This helps us to stand out and keep our leading position in the keen competitive industry environment. Among the large-size TFT-LCD products, LCD TVs continue to be oriented towards larger sizes, energy saving, high image quality (4K, 8K), and narrow borders. The main appeal of LCD monitors lies in flexibility, gaming, and narrow borders, while laptop products are oriented towards the development trends of low power consumption, IGZO, narrow borders, and ultrathin technology, which are intended to urge consumers to upgrade their existing products. As for medium and small sizes, manufacturers have engaged in the research and development of AMOLED, flexible panels, and other next-generation technologies due to flourishing developments of smartphone applications and increasingly mature touch technology, making panels the product category with the greatest diversity of products and the fastest growing. Looking ahead to 2018, 18:9, flexible and special-shaped cutting will become the development trend of small and medium sized panels. President: Manager: Chief Accountant:

17 Attachment 2 Audit Committee Review Report The Board of Directors has duly submitted the 2017 operating report, financial statements, and table of profit distribution. The financial statements has been duly reviewed and approved by CPAs of PwC Taiwan with the issuance of Auditor s Report. The Audit Committee of the Company, have completed the audit and review, and had found nothing inconsistent with any of the above operating report, financial statements, and table of profit distribution. Therefore, I issue this audit report for acknowledgment in accordance with the Securities and Exchange Act and the Company Act. To General Shareholders Meeting of the Company in 2018 Chairman of the Audit Committee Chi-Chia Hsieh Date: May 7,

18 Attachment 3 REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors and Shareholders of INNOLUX CORPORATION AND SUBSIDIARIES Opinion We have audited the accompanying consolidated balance sheets of Innolux Corporation (the Company ) and its subsidiaries as at December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as at December 31, 2017 and 2016, 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 International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission. Basis for opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the Code ), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the 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, we do not provide a separate opinion on these matters. The key audit matters in relation to the financial statements for the year ended December 31, 2017 are outlined as follows: Inventory valuation Description The industry is characterized in its significant fluctuations closely in connection with the economic environment. As the technology evolves rapidly, the Group s existing products may become obsolete when the customers demand for new products or the Group fails to compete with the evolutionary production 16

19 approach. The abovementioned factors thus affect the sales amount ultimately. The Group has evaluated the inventory by taking into account of allowance, obsoleteness or trivial sales amount and the cost has been written down to the net realizable value. For details of inventory, please refer to Note 6(6). As the amounts of inventories are material, the types of inventories vary, and the estimation of net realizable value for individually obsolete or damaged inventories is dependent upon significant management judgement, we consider inventory valuation a key audit matter. How our audit addressed the matter We assessed whether the accounting policies on the provision for the loss on decline in value and obsoleteness of inventory are reasonable and in accordance with the accounting principles, as well as whether they are applied consistently. We examined inventory aging report and assessed the reasonableness of provision for the loss on slow-moving inventory. We also assessed the reasonableness of net realizable value and the appropriateness of valuation basis. Additions to property, plant and equipment Description The Group s capital expenditures increased with its operational growth. For details of property, plant and equipment, please refer to Notes 6(8) and (28). As the amount of property, plant and equipment is material, we identified the additions to property, plant and equipment a key audit matter. How our audit addressed the matter We assessed and tested the effectiveness of internal controls related to additions to property, plant and equipment, including sampling and checking purchase orders and invoices as to whether the transactions have been approved appropriately and the correctness of the recorded amounts. We also checked the related receipts or acceptance documents to ensure that additions are recognized in appropriate period. In addition, through sampling method, we conducted physical observation of certain assets to confirm that the purchased items exist. Valuation and impairment of goodwill and property, plant and equipment Description For details of the impairment valuation of goodwill and property, plant and equipment, please refer to Note 6(10). Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining whether goodwill and property, plant and equipment may be impaired, the recoverable amount of the cash generating unit is measured based on how assets are utilized, duration years of assets and projected income and expenses in the future. The estimate involves several assumptions such as determination of discount rates, expected growth rate and future financial projections. As these estimates are dependent upon significant management judgement, we consider management s assessment of impairment of goodwill and property, plant and equipment a key audit matter. How our audit addressed the matter We assessed the key assumptions used by management in estimating expected future cash flows, including the reasonableness of expected operating revenue, gross profit, changes in expenses, and the basic assumptions applied in expected future cash flows. We also examined the parameters of discount rates, including the risk-free rate of return on equity capital, the risk factor of the industry and the rate of return 17

20 on similar investments in the market. Other matter Parent company only financial reports We have audited and expressed an unqualified opinion on the parent company only financial statements of Innolux Co., Ltd. as at and for the years ended December 31, 2017 and Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, 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, including audit committee, 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 ROC GAAS 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 ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: A. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. B. 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. C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 18

21 D. 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. E. 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. F. 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 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. PricewaterhouseCoopers, Taiwan February 9, The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. 19

22 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars) Assets Notes December 31, 2017 December 31, 2016 Current Assets 1100 Cash and cash equivalents 6(1) $ 65,988,955 $ 35,384, Financial assets at fair value 6(2) through profit or loss - current 405,060 64, Accounts receivable, net 6(4)(5) 41,322,705 52,855, Accounts receivable, net - related 7 parties 17,727,082 11,599, Other receivables 7 1,212,164 2,034, X Inventory 6(6) 30,259,021 23,401, Prepayments 1,487,832 1,552, Other current assets 6(1) and 8 127, ,532 11XX Total current assets 158,529, ,998,131 Non-current assets 1510 Financial assets at fair value 6(2) through profit or loss - noncurrent 257, , Available-for-sale financial assets 6(3) - non-current 6,555,189 5,840, Investments accounted for under 6(7) equity method 1,491,139 1,517, Property, plant and equipment 6(8), 7 and 8 220,864, ,360, Investment property, net 6(9) 562, , Intangible assets 6(10) and 8 17,910,908 18,446, Deferred income tax assets 6(26) 6,348,761 14,698, Other non-current assets 6(8) and 8 2,337,806 1,794,222 15XX Total non-current assets 256,328, ,481,417 1XXX Total assets $ 414,858,758 $ 371,479,548 (Continued) 20

23 Liabilities and Equity INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars) Notes December 31, 2017 December 31, 2016 Current Liabilities 2100 Short-term borrowings 6(11) $ - $ 11,583, Financial liabilities at fair value 6(2) through profit or loss - current 52,500 1,190, Accounts payable 50,876,500 51,875, Accounts payable - related parties 7 2,565,010 5,120, Other payables 6(12) and 7 58,897,804 22,916, Current income tax liabilities 1,891,188 1,912, Provisions - current 6(16) and 9 5,460,862 3,765, Long-term liabilities, current 6(13) portion 10,951,114 16,381, Other current liabilities 1,199,194 1,420,652 21XX Total current liabilities 131,894, ,165,904 Non-current liabilities 2540 Long-term borrowings 6(13) 17,287,788 28,128, Deferred income tax liabilities 6(26) 734, , Other non-current liabilities 6(14) 617, ,843 25XX Total non-current liabilities 18,639,538 29,307,281 2XXX Total liabilities 150,533, ,473,185 Equity attributable to owners of the parent 3110 Share capital - common stock 6(17) 99,520,720 99,521, Capital surplus 6(18) 99,646,919 99,647,810 Retained earnings 6(19) 3310 Legal reserve 3,945,576 3,758, Special reserve 3,418, Unappropriated retained earnings 58,883,750 26,497, Other equity interest 6(20) ( 1,090,721) ( 3,418,804) 3XXX Total equity 264,325, ,006,363 3X2X Total liabilities and equity $ 414,858,758 $ 371,479,548 The accompanying notes are an integral part of these consolidated financial statements. 21

24 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars, except for earnings per share amounts) Items Notes Sales revenue 7 $ 329,174,401 $ 287,089, Operating costs 6(6)(24) and 7 ( 260,435,724) ( 261,000,786) 5900 Net operating margin 68,738,677 26,088,491 Operating expenses 6(24) 6100 Selling expenses ( 1,942,594) ( 2,301,561) 6200 General and administrative expenses ( 6,857,153) ( 6,241,602) 6300 Research and development expenses ( 12,916,721) ( 11,132,079) 6000 Total operating expenses ( 21,716,468) ( 19,675,242) 6900 Operating profit 47,022,209 6,413,249 Non-operating income and expenses 7010 Other income 6(21) 2,528,814 2,388, Other gains and losses 6(22) ( 154,188) ( 3,103,952) 7050 Finance costs 6(23) ( 730,500) ( 893,526) 7060 Share of profit/(loss) of associates and 6(7) joint ventures accounted for under equity method 274, , Total non-operating income and expenses 1,918,980 ( 1,421,129) 7900 Profit before income tax 48,941,189 4,992, Income tax expense 6(26) ( 11,912,580) ( 3,121,433) 8200 Profit for the period $ 37,028,609 $ 1,870,687 Other comprehensive (loss) income (net) Components of other comprehensive (loss) income that will not be reclassified to profit or loss 8311 Remeasurement of defined benefit obligations ($ 49,571) $ 44, Income tax relating to the components of other comprehensive income that will not be reclassified 8,427 ( 7,485) 8310 Components of other comprehensive (loss) income that will not be reclassified to profit or loss ( 41,144) 36,542 Components of other comprehensive 6(20) income (loss) that will be reclassified to profit or loss 8361 Financial statements translation differences of foreign operations ( 1,643,264) ( 5,708,026) 8362 Unrealized gain (loss) on valuation of available-for-sale financial assets 4,322,008 ( 339,384) 8370 Share of other comprehensive loss of associates and joint ventures accounted for under equity method ( 33,551) ( 27,676) 8399 Income tax relating to the components of 6(26) other comprehensive loss that will be reclassified ( 317,110) ( 113,457) 8360 Components of other comprehensive income (loss) that will be reclassified to profit or loss 2,328,083 ( 6,188,543) 8300 Other comprehensive income (loss) for the year, net of tax $ 2,286,939 ($ 6,152,001) 8500 Total comprehensive income (loss) for the year $ 39,315,548 ($ 4,281,314) Profit attributable to: 8610 Owners of the parent $ 37,028,609 $ 1,870,687 Other comprehensive income (loss) attributable to: 8710 Owners of the parent $ 39,315,548 ($ 4,281,314) Earnings per share (in dollars) 6(27) 9750 Basic earnings per share $ 3.72 $ Diluted earnings per share $ 3.63 $ 0.19 The accompanying notes are an integral part of these consolidated financial statements. 22

25 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars) Equity attributable to owners of the parent Retained Earnings Other Equity Interest Financial Notes Common stock Capital surplus Legal reserve Special reserve Unappropriate d earnings statements translation differences of foreign operations Unrealized gain (loss) on available-forsale financial assets Employee unearned compensation Total Balance at January 1 $ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 ($ 19,402 ) $ 232,264,723 Appropriations of 2015 earnings: 6(19) Legal reserve - - 1,081,560 - ( 1,081,560 ) Cash dividends ( 1,989,810 ) ( 1,989,810 ) Cancellation of restricted stock to employees ( 10,884 ) 10, Changes in restricted stock to employees - ( 4,068 ) , Compensation related to share-based payment 6(15) ,260 15,260 Recognition of change in equity of associates in proportion to the Group's ownership 6(18) - ( 2,570 ) ( 2,570 ) Profit for the year ,870, ,870,687 Other comprehensive loss for the year 6(20) ,542 ( 5,735,702 ) ( 452,841 ) - ( 6,152,001 ) Balance at December 31 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ - $ 226,006,363 Balance at January 1 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ - $ 226,006,363 Appropriations of 2016 earnings: 6(19) Legal reserve ,069 - ( 187,069 ) Special reserve ,418,804 ( 3,418,804 ) Cash dividends ( 995,204 ) ( 995,204 ) Cancellation of restricted stock to employees ( 768 ) Recognition of change in equity of associates in proportion to the Group's ownership 6(18) - ( 1,659 ) ( 1,659 ) Profit for the year ,028, ,028,609 Other comprehensive income for the year 6(20) ( 41,144 ) ( 1,676,815 ) 4,004,898-2,286,939 Balance at December 31 $ 99,520,720 $ 99,646,919 $ 3,945,576 $ 3,418,804 $ 58,883,750 ($ 5,717,223 ) $ 4,626,502 $ - $ 264,325,048 The accompanying notes are an integral part of these consolidated financial statements. 23