Stock code: Tatung Company Annual Meeting of Shareholders. Handbook

Transcription

1 Stock code: 2371 Tatung Company 2016 Annual Meeting of Shareholders Handbook Date: June 17, 2016

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3 Table of Contents I. Meeting Procedure II. Meeting Agenda Reports Ratification Discussion Questions and Motions III. Attachments Annual Business Report Audit Committee's Review Report Statement of Appropriation of Profit and Loss for The comparison table of the "Articles of incorporation of Tatung Company" before and after amendments IV. APPENDICES 1. Rules of Shareholders Meeting Articles of Incorporation The shareholding ratio by board of directors of the company ~1~

4 Tatung Company 2016 Annual Meeting of Shareholders Meeting Procedure I. Report of Shareholders Present at the Meeting II. III. IV. Meeting called to order Address by Chairman Reports V. Ratification VI. Discussion VII. Questions and Motions VIII. Adjournment ~2~

5 Tatung Company 2016 Annual Meeting of Shareholders Agenda Date: June 17, 2016 Time: 09:00 Place: 40, Chungshan N. Rd., 3rd Sec., Taipei, Taiwan (Tatung University - Shan-Chih Building 9 F) Section One Reports Items Item 1: 2015 Annual Business Report Item 2: Audit Committee's Review Report Item 3: Tatung Company's development plans for the New Design Building Item4: Tatung Company's report on strategies for investments in other enterprises in the future ( including cash investments, loans, and endorsements/guarantees,etc ), concrete measures taken to date, and execution results. Item 5: Tatung Company's report on measures taken and execution results regarding asset management and preservation of properties of Shan- Chih Asset Development Co., Ltd. (an affiliated company) Section Two Ratification Items Item 1: Resolution on ratification of the 2015 business report and financial statements. Item 2: Resolution on ratification of the appropriation of profit and loss for Section Three Discussion Items Item 1: Amendment of the Articles of Incorporation. Item 2: To release the directors from the non-competition restrictions. Section Four Questions and Motions Section Five Adjournment ~3~

6 Section One Reports Items Item 1: 2015 Annual Business Report Descriptions: 2015 Annual Business Report (Please refer to Attachment I, pages ) Item 2: Audit Committee's Review Report Descriptions: Audit Committee's Review Report (Please refer to Attachment II, page 35.) ~4~

7 Item 3: Tatung Company's development plans for the New Design Building. Descriptions: The development plan of the New Design Building: The New Design Building is located within the Company compound and will be incorporated into the overall development plan of Tatung Company. Until then, the New Design Building shall serve its function as it has been. Fire-fighting and safety check and building security check are exercised periodically to the building in accordance with the law to ensure its safety as well as maximize its utilization efficiency. ~5~

8 Item 4: Tatung Company's report on strategies for investments in other enterprises in the future (including cash investments, loans, and endorsements/guarantees,etc), concrete measures taken to date, and execution results. Descriptions: I. Core investment strategies: 1. The core investment strategies of Tatung Company will continue to focus on energy saving and carbon reduction, IoT intelligent systems as well as green energy and energy management. 2. In order to strengthen the Group's vertical integration, we raised capital to Tatung Medical & Healthcare Technologies Co., Ltd.; we founded Tatung Forever Energy Co., Ltd; and we also raised capital to Green Energy Technology Inc. through San Chih Semiconductor Co., Ltd. 3. The company has continued to reduce the non-core investments; the liquidation of Tatung(U.K.)Ltd. and Tatung Telecom Corporation has been completed in 2015; Tatung Wire and Cable Technology (Wujiang) Co., Ltd and Shan-Chih Wire and Cable Technology (Wujiang) Co., Ltd have also reduced their scales of operation and activated more of their assets. II. The management of Tatung Company and its subsidiaries for lending and endorsements/ guarantees: 1. Tatung Company and its subsidiaries have established"operational Procedures for Lending to Others" and"operational Procedures for Endorsements/Guarantees" in accordance with the"regulations Governing Lending of Funds and Making of Endorsements/Guarantees by Public Companies" which are promulgated by the authorities. Operation of Tatung Company and its subsidiaries were fully complied with the related procedures. 2. The information disclosure in both financial statements and announcement on MOPS for the amount of lending and amount of endorsements/ guarantees that were resolved by the Board of Directors of Tatung Company or its subsidiaries are complied with procedures regulated by the authorities. ~6~

9 Item 5: Tatung Company's report on measures taken and execution results regarding asset management and preservation of properties of Shan- Chih Asset Development Co., Ltd. (an affiliated company) Description: I. All the operations of lending, endorsements/ guarantees and asset acquirement disposal by Shan-Chih Asset Development Co. were complied with "Operational Procedures for Lending to Others", "Operational Procedures for Endorsements/ Guarantees" and "Operation Procedure for Asset Acquirement and Disposal". II. According to Tatung Company s "Operational Procedures for Supervision to Subsidiaries and Investment Companies", the audit results find that all kinds of operations of Shan-Chih Asset Development Co. were complied with its Operational Procedures. III. The statuses of asset management and preservationof Shan-Chih Asset DevelopmentCo. were reported to Tatung Company s Board of Directors quarterly. ~7~

10 Section Two Ratification Items Motion submitted for ratification (1) Case: Resolution on ratification of the 2015 business report and financial statements. Descriptions: I. The business report and financial statements of 2015 have satisfactorily been prepared and reviewed by the board of directors and duly audited by the audit committee. Please refer to page (Attachment I) II. Your ratification will be appreciated. Resolution: ~8~

11 Motion submitted for ratification (2) Case: Resolution on ratification of the appropriation of profit and loss for 2015 Descriptions: I. The proposal for the "Deficit Off-Setting Plan of Tatung Company in 2015" is submitted. (Please refer to Attachment III on page 36 ) The explanation is as follows: The 2015 net loss after tax was NT$3,075,015 thousand. Adding the reversal of special reserve and change in subsidiaries' ownership amounting to NT$52,907 thousand, and subtracting the change in share of associates and joint ventures accounted for using the equity method, other comprehensive loss, acquisition or disposal on subsidiary shares amounting to NT$78,160 thousand, the accumulated deficit yet to be compensated as of the yearend of 2015 was NT$3,100,268 thousand. The accumulated deficit of NT$3,100,268 thousand is compensated by the special reserve; therefore, the Company doesn't have any uncompensated accumulated deficits. The Company does not propose to pay any dividends for the year. II. Please acknowledge. Resolution: ~9~

12 Section Three Discussion Items Motion submitted for discussion (1): Case: Amendment of the Articles of Incorporation. Descriptions: I. In accordance with the company's business and the added 1 of Article 235 as well as the amended Articles 235 and 240 of the Company Act by the Presidential Order on May 20, 2015, Tatung Company is mandated to specify the employees' earnings in the articles of the corporation by making amendments to Articles 9, 24, and 28. II. For the comparison table on the articles of incorporation of Tatung Company before and after amendments, please refer to page 37 (Attachment IV). III. Please discuss and resolve. Resolution: ~10~

13 Motion submitted for discussion (2): Case: To release the directors from the non-competition restrictions. Descriptions: I. According to Article 1 Company Law, A director who does anything for himself or on behalf of another person that is within the scope of the company's business, shall explain to the meeting of shareholders the essential contents of such an act and secure its approval. II. For the purpose of assisting the company in expanding its business successfully and participating in the operations of reinvestments. The company intends to propose the lifting of the ban on the non-competition restrictions of Chairman Lin Wei-Shan's new concurrent positions. Please refer to the following table: Job Title Name New concurrent positions Products with the ban on the noncompetition restrictions to be lifted Chairman Lin Wei-Shan Vibrant Display Technology Co., Ltd. III. Please discuss and resolve. Resolution: TFT, TFT LCD, Color Filter, Glass Substrate ~11~

14 Section Four Questions and Motions Section Five Adjournment. ~12~

15 Attachment I Business Report of 2015 Tatung Business Report Affected by the global economy in 2015, while Tatung Company ("the Company") continues to engage in corporate and operational transformations, the overall operation failed to make profits due to losses in core businesses and investments. The Company however expects improvements with all the adjustments made and efforts put in over the years. Below is a report on the operation performance of core businesses and investments for year 2015 and the future plans of the Company. I Business Review Tatung 2015 consolidated revenue was NT$94.7 billion, the operation loss was NT$ 9.4 billion Tatung standalone revenue was NT$18.2 billion, operating loss was NT$0.97 billion, together with non-operating income from investments, the net loss after tax was NT$3.08 billion which was NT$1.35 loss per share. 1. Regardless of the declination in industrial appliance and system group businesses, crediting the efforts to reduction of costs and low-gross profit production lines, the overall gross margin remained close to that of the year before, although recognition of one-off loss was made during the process of adjusting the low-gross profit production which led to losses in core businesses. 2. Despite Green Energy Technologies' reduction of losses compared to year 2014, the recognition of profits of several overseas investment businesses from asset mobilization, and the profits earned by Elitegroup Computer Systems along with other investments, the losses in Chunghaw Picture Tubes increased compared to year 2014 which led to NT$1.43 billion net loss in investments in 2015, a comparatively larger difference from year 2014 in which investment profits were recognized Strategies for Core Business Carbon reduction has become a global trend and the corporate social responsibility of the Company. To be in line with this trend, all products of the Company are aimed to be designed and manufactured as energy-saving, with inverter function, highly efficient, and water-saving. The system solutions business will continue to develop its smart grid, IoT business, mechatronics system, and solar power system ~13~

16 Consumer BG: Based on the theme "Energy-Saving, Eco, and Health," the Consumer BG introduced and applied the IoT technologies into its product development of smart appliances and has received positive feedback from the market. The Consumer BG will develop differentiated and specially-designed energysaving appliances and promote such products and Tatung brand in each of the targeted markets through Taiwan's virtual-reality commerce channels and overseas subsidiaries in its respective local market. System BG: The System BG completed establishing the micro grid system in Pratas Islands and Peng-Hu Islands in accordance with the low carbon emission policy of the Taiwan government. The System BG has also been awarded the solar power system roofing projects by the New Taipei City Government and the Hsin-Chu County Government, and has become the leader in solar power system industry. Additionally, the System BG earned Japan's JET recognition on smart meters and successfully entered the Japanese market. Regarding international markets, System BC is planning to integrate solar power, smart grid, smart building solutions with micro grid, smart grid and solar power system and targeting the United States, Southeast Asia and newly developed countries as potential markets. For domestic market, System BC will follow the energy policy of the government and continue to develop solar power business and integrate ICT technology to develop cloud energy service system to provide customers with smart energy service while continue to improve the engineering management to ensure the System BG be the mainstay of the Company s revenue and profits. Power BG: The Power BG adjusted strategy in 2015 to remove low gross profit production line and relocate some manufacturing base to Tatung Thailand Co., Ltd for the purpose of reducing costs and entering the Southeast Asia market. The Power BG is also in the process of developing new energy-saving, highly efficient transformers and motor generators which are expected to enter mass production in With the adjustments on products and production line in 2016, the System BG expects to highly efficient and smart system solutions to provide more energy-saving and safer power and engineering products to expand the mark share in power plants, business buildings and public construction projects. II. Major investments : Major investments are described as below: 1. Chunghwa Pictures Tubes Co., Ltd (CPT) In the year of 2015, CPT kept focus on smart phones, car electronic panels ~14~

17 and other better margin products. While the industry is highly competitive, the deficit became bigger. Consequently, the 4th generation production line and production capability of CPT sold a 4th generation production line and phased out a 4.5 generation production line, for the purpose of enhancing the productiveness. In 2016, CPT will focusing on vehicle display, lean product portfolio, decrease the operation expenses and the cost. One of our subsidiaries, CPT Technology (Group) Co., Ltd. In Fujian, China, has implemented and offered private placement for the 6th generation production line. It s going to be an important milestone for CPT in 2016 and the next few years, and we look forward to improving the business by implementing and carrying out the operation strategies of enterprise transformation. 2. Green Energy Technologies (GET) In the year of 2015 the solar industry conditions showed constantly changes, but gradually become sturdy. Starting from the third season of 2015, the advantages of solar green energy and cost efficiency have emerged, the United Nations Climate Change Conference has announced its support on the clean energy policy, the demand for solar energy has increased in China, the US, and the emerging markets, the industry has shown an upturn in business, and the core business of GET wafer manufacturing made profit by the end of In 2015, GET will endeavor to turn loss into profit. 3. San Chih Assets Development Co., Ltd. (SCAD) The construction project, "Tatung Palace mansion", which has presold for 80%, had broken the ground in the end of November, The project has won the APIGBA Awards, and that s the main reason why it has good sales performance in such a recession period. The residential and commercial construction projects will be carried out in the nearly future after the planning has completed, for the purpose of achieving the best value for the construction. III. Enforcement of Corporate Governance Independent directors have helped to strengthen internal control systems, including revisions of Operation Procedures, reviews of investment strategies and executions, etc. The Compensation Committee has also established better linkage between performance KPI and the compensation system for directors and management teams. The management team has strengthened management in internal control and investment according to the above guidelines. IV. Refocus to create shareholders' value 1. Continuously reduce non-core investment portfolio: In 2015, we downsized the operation for Tatung Wire and Cable Technology (Wujiang) Co., Ltd and San Chih wire and Cable Technology (Wujiang) Co., Ltd and completed activating assets process. We will continue to downsize the ~15~

18 investments which cannot be improved. For those investments that cannot be improved or do not meet the company s mid- and long-term strategies, we will continue to look for the opportunities to merge, to bring to market, or to put into liquidation. 2. Vision and Strategy: In the future, we will keep on (1) strengthening the brand image of Tatung; (2) focusing on smart grid, smart IoT system, electronic system, and solar energy system; (3) activating assets; and (4) adjusting the investment portfolio. Looking into the future, we will expand global markets and improve margin rates for all companies in the Group. We re going to go all out for enhancing corporate value. The company transformation has shown initial success. We sincerely appreciate all shareholders continued support. We will expedite the Company's and Group's transformation to pass on the company spirit, to implement corporate social responsibility initiatives, and to enhance shareholders' value. Again, we appreciate all shareholders' continued support. Chairman: Supervisor: Accounting Supervisor: ~16~

19 Report of Independent Auditors English Translation of a Report Originally Issued in Chinese The Board of Directors and Shareholders Tatung Co., Ltd. We have audited the accompanying parent company only balance sheets of Tatung Co., Ltd. ( the Company ) as of December 31, 2015 and 2014, the related parent company only statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and These parent company only financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these parent company only financial statements based on our audits. Certain investments, which were accounted for under the equity method based on the financial statements of the investees, were audited by other auditors. Our audit insofar as it related to the investments amounted to NT$5,610,127 thousand and NT$6,255,066 thousand, which represented 8% and 9% of the total assets as of December 31, 2015 and 2014, respectively; and the related share of profits (losses) of subsidiaries, associates and joint ventures of NT$207,718 thousand and NT$289,860 thousand which represented (7)% and 87% of the income (loss) before income tax for the years ended December 31, 2015 and 2014, respectively; and the related share of other comprehensive income (loss) of subsidiaries, associates and joint ventures of NT$565 thousand and NT$235,359 thousand, which represented 0% and 25% of the total comprehensive income (loss) for the years ended December 31, 2015 and 2014, respectively; are based solely on the reports of the other auditors. We conducted our audits in accordance with Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China, which require that we plan and perform the audit to obtain reasonable assurance about whether the parent company only financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the parent company only financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall parent company only financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the parent company only financial statements referred to above present fairly, in all material respects, the financial position of Tatung Co., Ltd. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years ~17~

20 then ended December 31, 2015 and 2014, were in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers. Ernst & Young Taipei, Taiwan Republic of China March 23, 2016 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China on Taiwan 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 on Taiwan. ~18~

21 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2015 and 2014 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share) Contents Amount % Amount % Operating revenues $18,355, $21,386, Less: Sales returns (153,989) (1) (59,420) - Less: Sales allowances (50,593) - (31,271) - Net operating revenues 18,151, ,295, Operating cost (16,569,601) (91) (19,448,727) (91) Gross profit 1,581, ,846,739 9 Unrealized gross profit (66,148) - (113,661) (1) Realized gross profit 38,551-15,564 - Net operating profit 1,553, ,748,642 8 Operating expenses Sales and marketing (1,434,998) (8) (1,344,331) (6) General and administrative (451,091) (2) (616,206) (3) Research and development (634,151) (4) (662,830) (3) Total operating expense (2,520,240) (14) (2,623,367) (12) Operating loss (966,334) (5) (874,725) (4) Non-operating income and expense Other income 470, ,098 1 Other gains and (losses) (545,607) (3) (391,008) (2) Finance cost (600,275) (4) (724,696) (3) Share of (losses) or profits of subsidiaries, associates and joint ventures (1,432,357) (8) 2,017, Total non-operating (expense) and income (2,107,282) (12) 1,209,308 6 (Loss) Income before income tax (3,073,616) (17) 334,583 2 Income tax benefit (1,399) - 28,956 - Net (loss) income (3,075,015) (17) 363,539 2 Other comprehensive income (loss) Not to be reclassified to profit or loss in subsequent periods: Remeasurements of defined benefit plans 23,479 - (16,539) - Share of other comprehensive income (loss) of subsidiaries, (49,459) - 19,813 - associates and joint ventures accounted for using the equity method, not to be reclassified to profit or loss To be reclassified to profit or loss in subsequent periods: Unrealized gain (loss) from available-for-sale financial assets (143,924) (1) 1,284 - Share of other comprehensive income (loss) of subsidiaries, (506,039) (3) 920,850 4 associates and joint ventures accounted for using the equity method, to be reclassified to profit or loss Total of other comprehensive income, net of income tax (675,943) (4) 925,408 4 Total comprehensive income (loss) $(3,750,958) (21) $1,288,947 6 (Loss) Earnings per share Basic (loss) earnings per share (NT$) $(1.35) $0.16 Diluted (loss) earnings per share (NT$) $(1.35) $0.16 Chairman: Supervisor: Accounting Supervisor: ~19~

22 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS December 31, 2015 and December 31, 2014 Assets December 31, 2015 December 31, 2014 Contents Amount % Amount % Current assets Cash and cash equivalents $2,205,980 3 $2,805,241 4 Financial assets at fair value through profit or loss, current 24,200-67,040 - Available-for-sale financial assets, current 382, ,365 1 Financial assets in held-to-maturity, current 20, Financial assets carried at cost, current 29,238-29,238 - Debt instrument investments for which no active market exists, current 3,170, ,263 - Notes receivable, net 296, ,041 - Notes receivable - related parties, net 1,775-28,141 - Accounts receivable, net 2,448, ,819,050 4 Accounts receivable - related parties, net 1,996, ,104,888 3 Construction receivables 853, ,005,968 3 Other receivables 29,605-36,119 - Other receivables - related parties 1,224, ,340,352 2 Current tax assets 12,942-20,818 - Inventories 4,042, ,340,991 6 Prepayments 349, ,326 1 Total current assets 17,089, ,105, Non-current assets Available-for-sale financial assets, non-current 12,284-56,241 - Financial assets in held-to-maturity, non-current ,000 - Financial assets carried at cost, non-current Debt instrument investments for which no active market exists, non-current 30, Investments accounted for under the equity method 44,776, ,822, Property, plant and equipment 3,060, ,701,758 4 Intangible assets 72, ,370 - Deferred tax assets 510, ,959 1 Other non-current assets 228, ,058 - Deposit-out 219, ,026 - Long-term receivables 124, ,504 - Long-term receivables - related parties 3,007, ,387,576 3 Total non-current assets 52,042, ,327, Total assets $69,131, $71,433, Chairman: ~20~

23 (Expressed in Thousands of New Taiwan Dollars) Liabilities and Equity December 31, 2015 December 31, 2014 Contents Amount % Amount % Current liabilities Short-term loans $5,524,603 8 $6,539,705 9 Short-term notes and bills payable 549, ,744 1 Financial liabilities at fair value through profit or loss, current ,400 - Accounts payable 2,986, ,279,958 6 Accounts payable - related parties 285, ,944 1 Other payables 1,366, ,114,153 2 Other payables - related parties 49, ,648 - Provision, current 45,146-91,916 - Advanced receipts 187, ,365 - Current portion of long-term loans 3,321, ,885,579 3 Other current liabilities - others 27,378-32,790 - Total current liabilities 14,344, ,452, Non-current liabilities Long-term loans 17,932, ,184, Deferred tax liabilities 288, ,643 - Long-term deferred revenues 85, Net defined benefit liability 2,592, ,892,333 4 Deposits in 4,270-2,454 - Deferred credit for investments accounted for under the equity method 3,284, ,264,431 3 Total non-current libilities 24,187, ,614, Total liabilities 38,532, ,067, Total equity Capital stock Common stock 23,395, ,395, Capital reserve 785, ,641 1 Retained earnings - Legal Reserve 36, Special Reserve 10,047, ,975, Unappropriated earnings (Accumulated deficits) (3,100,268) (4) 160,587 - Total retained earnings 6,983, ,135, Other equities Exchange differences on translation of foreign operation 8, ,756 - Unrealized gain or loss on available-for-sale financial instruments 235, ,106 1 Non-current assets held for sale and equity directly associated (1,439) Total other equities 242, ,862 1 Treasury stock (806,870) (1) (806,870) (1) Total equity 30,599, ,366, Total liabilities and equity $69,131, $71,433, Supervisor: Accounting Supervisor: ~21~

24 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2015 and 2014 Retained Earnings Contents Capital Stock Capital Reserve Legal Reserve Special Reserve Balance as of January 1, 2014 $23,395,367 $767,970 $- $15,894,690 Special reserve used to cover accoumulated defitcits (5,919,690) Net income in Other comprehensive income (loss) in Total comprehensive income (loss) Change in subsidiaries' ownership - (17,329) - - Balance as of December 31, 2014 $23,395,367 $750,641 $- $9,975,000 Balance as of January 1, 2015 $23,395,367 $750,641 $- $9,975,000 Legal reserve ,354 - Special reserve ,233 Reversal of special reserve (52,180) Change in share of associates and joint ventures accounted for using the equity method - (747) - - Net loss in Other comprehensive income (loss) in Total comprehensive income (loss) Acquisition or disposal on subsidiary shares Change in subsidiaries' ownership - 35, Balance as of December 31, 2015 $23,395,367 $785,376 $36,354 $10,047,053 Chairman: ~22~

25 Retained Earnings Unappropriated Earnings/ (Accumulated deficits) Exchange Differences on Translation of Foreign Operation Other Capital Reserves Unrealized Gain or Loss on Financial Instruments (Expressed in Thousands of New Taiwan Dollars) Equity Related to Non-current Assets Held for Sale Treasury Stock Total $(5,919,690) $(188,770) $158,498 $- $(806,870) $33,301,195 5,919, , ,539 3, , , , , , , ,288,947 (206,226) (223,555) $160,587 $329,756 $562,106 $- $(806,870) $34,366,587 $160,587 $329,756 $562,106 $- $(806,870) $34,366,587 (36,354) (124,233) , (49,175) (49,922) (3,075,015) (3,075,015) (25,980) (321,665) (326,859) (1,439) - (675,943) (3,100,995) (321,665) (326,859) (1,439) - (3,750,958) (3,005) (2,760) ,209 $(3,100,268) $8,114 $235,469 $(1,439) $(806,870) $30,599,156 Supervisor: Accounting Supervisor: ~23~

26 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2015 and 2014 Contents January 1 to December 31, 2015 January 1 to December 31, 2014 Amount Amount Cash flows from operating activities: Net (loss) income before income tax $(3,073,616) $334,583 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation expense 489, ,341 Amortization expense 62,351 53,420 Allowance for long-term receivables 200, ,864 (Income) loss from financial asset or financial liability at fair value through profit or loss 10,449 (69,637) Finance costs 600, ,696 Interest income (42,669) (41,400) Dividends income (26,864) (42,283) Share of profit or loss of subsidiaries, associates and joint ventures 1,432,357 (2,017,914) Gain on disposal of property, plant and equipment (12,783) (2,236) Gain on disposal of investments (105,070) (41,777) Unrealized gains or losses 27,597 98,097 Changes in assets and liabilities from operating activities: Notes receivable 59,861 (2,843) Notes receivable - related parties 26,366 (24,679) Accounts receivable 370,570 (60,397) Accounts receivable - related parties (115,379) (598,124) Construction receivables 1,152, ,031 Other receivables 6,514 (16,285) Other receivables - related parties (272,280) (191,528) Inventory 298,032 (174,027) Prepayments 172,805 (212,605) Financial assets at fair value through profit or loss 19,153 49,567 Transfer of inventory into property, plant and equipment 1,582 78,289 Other non-current assets (70,936) (20,114) Long-term receivables (41,604) (66,776) Long-term receivables - related parties (14,098) 990,295 Accounts payable (1,293,211) 460,547 Accounts payable - related parties (116,328) (312,321) Other payables 259,371 (88,770) Other payables - related parties (93,443) 92,007 Provision, current (46,770) (39,736) Advanced receipts (162,072) 160,285 Other current liabilities - others (5,412) (2,623) Net defined benefit liability (276,003) (243,756) Long-term deferred revenues 85,000 - Cash used in operations (494,737) (126,809) Interest received 42,669 41,400 Dividend received 2,408,790 1,855,145 Interest paid (607,346) (684,001) Income taxes return (paid) 1,830 (584) Net cash provided by operating activities 1,351,206 1,085,151 Chairman: ~24~

27 Contents (Expressed in Thousands of New Taiwan Dollars) January 1 to December 31, 2015 January 1 to December 31, 2014 Amount Amount Cash flows from investing activities: Disposal of available-for-sale financial assets 9,693 43,594 Acquisition of investment in debt security with no active market (3,107,406) - Disposal of investment in debt security with no active market - 1,079,855 Disposal of financial assets carried at cost 23 - Acquisition of investments accounted for under the equity method (137,034) - Disposal of investments accounted for under the equity method 16,156 - Cash returns from capital reduction of investments accounted for under the equity method - 545,349 Acquisition of property, plant and equipment (909,285) (1,092,374) Disposal of property, plant and equipment 72,194 15,627 Increase in deposit-out (13,202) - Decrease in deposit-out - 6,586 Deacrease in other receivables-related parties 30, ,394 Acquisition of intangible assets (33,014) (71,690) Net cash (used in) generated from investing activities (4,071,299) 691,341 Cash flows from financing astivities: Increase in short-term loans - 762,478 Decrease in short-term loans (1,015,102) - Increase in short-term notes and bills payable 550, ,158 Decrease in short-term notes and bills payable (600,000) (630,000) Repayment for bonds - (4,372,470) Proceeds from long-term loans 7,319,822 7,015,161 Repayment for long-term loans (4,135,719) (6,140,282) Increase in deposits-in 1, Net cash generated from (used in) financing astivities 2,120,832 (2,764,292) Effects of exchange rate changes on cash and cash equivalents - - Net decrease in cash and cash equivalents (599,261) (987,800) Cash and cash equivalents at the beginning of periods 2,805,241 3,793,041 Cash and cash equivalents at the end of periods $2,205,980 $2,805,241 Supervisor: Accounting Supervisor: ~25~

28 Report of Independent Auditors English Translation of a Report Originally Issued in Chinese The Board of Directors and Shareholders We have audited the accompanying consolidated balance sheets of Tatung Co., Ltd. and its subsidiaries as of December 31, 2015 and 2014, the related consolidated statements of comprehensive income, and the related consolidated statements of changes in equity and cash flows for the years ended December 31, 2015 and These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on the consolidated financial statement based on our audits. Certain consolidated subsidiaries were audited by the other auditors. Our audit insofar as it related to the total assets amounted to NT$3,378,482 thousand and NT$3,712,148 thousand, which represented 2% and 2% of total consolidated assets as of December 31, 2015 and 2014, respectively; and the related net operation revenue amounted to NT$2,659,774 thousand and NT$2,293,717 thousand, which represented 3% and 2% of net consolidated operation revenue for the years ended December 31, 2015 and 2014, respectively; are based solely on the reports of the other auditors. In addition, certain investments, which were accounted for under the equity method based on the financial statements of the investees as of December 31, 2015 and 2014, were audited by the other auditors. Our audit insofar as it related to the related investment amounted to NT$4,543,167 thousand and NT$5,159,890 thousand, which represented 2% and 2% of the total consolidated assets as of December 31, 2015 and 2014, respectively, and the related shares of investment income (loss) from the associates and joint ventures amounted to NT$(25,936) thousand and NT$628,801 thousand, which represented 0% and (26)% of the consolidated net loss before income tax for the years ended December 31, 2015 and 2014, respectively; and the related share of other comprehensive income (loss) from the associates and joint ventures amounted to NT$691,897 thousand and NT$126,320 thousand, which represented (52)% and 5% of consolidated other comprehensive income (loss), net of tax, for the years ended December 31, 2015 and 2014, respectively; are based solely on the reports of the other auditors. We conducted our audits in accordance with Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China, which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by ~26~

29 management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tatung Co. and its subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years ended December 31, 2015 and 2014, were in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standards, interpretations developed by the International Financial Reporting Interpretations Committee which are endorsed by Financial Supervisory Commission of the Republic of China. We have also audited the parent company only financial statements of Tatung Co. as of and for the years ended December 31, 2015 and 2014, on which we have issued a modified unqualified opinion. Ernst & Young Taipei, Taiwan Republic of China March 23, 2016 Notice to Readers The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China on Taiwan 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 on Taiwan. ~27~

30 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2015 and December 31, 2014 Assets December 31, 2015 December 31, 2014 Contents Amount % Amount % Current assets Cash and cash equivalents $27,131, $30,140, Financial assets at fair value through profit or loss, current 2,362, ,168,532 1 Available-for-sale financial assets, current 394, ,530 - Financial assets in held-to-maturity, current 20, Financial assets carried at cost, current 29,238-29,238 - Debt instrument investments for which no active market exists, current 18,144, ,799,213 3 Notes receivable, net 644, ,004 - Accounts receivable, net 11,345, ,464,179 8 Accounts receivable - related parties, net 80, ,191 - Construction receivables 384,583-1,593,709 1 Other receivable 2,367, ,731,792 1 Other receivables - related parties 2,248-53,308 - Current tax asset 51,033-65,196 - Inventories 19,108, ,735, Prepayments 3,192, ,699,395 2 Non-current assets held for sale (net) 207,235-57,536 - Other current assets 1,494, ,889 - Total current assets 86,960, ,006, Non-current assets Financial assets at fair value through profit or loss, non-current ,646 - Available-for-sale financial assets, non-current 3,429, ,315,642 2 Financial assets in held-to-maturity, non-current ,000 - Financial assets carried at cost, non-current 329, ,163 - Debt instrument investments for which no active market exists, non-current 3,783, ,766,678 4 Investments accounted for under the equity method 6,586, ,386,011 3 Property, plant and equipment 77,800, ,205, Investment property, net 14,070, ,926,074 7 Intangible assets 1,792, ,113,480 1 Deferred tax assets 2,741, ,876,938 1 Other non-current assets 4,286, ,535,224 2 Long-term receivables 137, ,935 - Total non-current assets 114,957, ,820, Total assets $201,918, $213,827, Chairman: ~28~

31 (Expressed in Thousands of New Taiwan Dollars) Liabilities and Equity December 31, 2015 December 31, 2014 Contents Amount % Amount % Current liabilities Short-term loans $45,426, $39,656, Short-term notes and bills payable 1,607, ,759,166 3 Financial liabilities at fair value through profit or loss, current 932, ,846 - Notes payable 689, ,673 - Accounts payable 17,060, ,412, Accounts payable - related parties 17,853-18,033 - Other payables 9,696, ,292,393 4 Current tax liabilities 379, ,869 - Provision, current 116, ,033 - Advanced receipts 2,442, ,013,833 2 Current portion of bonds payable 600, ,000 - Current portion of long-term loans 23,498, ,730,713 5 Other current liabilities - others 1,549, ,542,168 1 Total current liabilities 104,017, ,801, Non-current liabilities Bonds payable ,000 - Long-term loans 35,285, ,570, Provision, non-current 499, ,128 - Deferred tax liabilities 7,072, ,745,505 4 Long-term payables 27,228-38,399 - Long-term deferred revenues 356, ,409 - Net defined benefit liability 5,186, ,687,737 3 Deposits in 510, ,509 - Deferred credit for investments accounted for under the equity method 19,970-21,547 - Other non-current liabilities, others 31, ,016 - Total non-current libilities 48,989, ,155, Total liabilities 153,006, ,956, Equity attributable to shareholders of the parent Capital stock Common stock 23,395, ,395, Capital reserve 785, ,641 - Retained earnings Legal reserve 36, Special reserve 10,047, ,975,000 5 Unappropriated earnings (Accumulated deficits) (3,100,268) (2) 160,587 - Total retained earnings 6,983, ,135,587 5 Other equities Exchange differences on translation of foreign operation 8, ,756 - Unrealized gain or loss on available-for-sale financial instruments 235, ,106 - Non-current assets held for sale and equity directly associated (1,439) Total other equities 242, ,862 - Treasury stock (806,870) - (806,870) - Equity attributable to shareholders of the parent 30,599, ,366, Non-controlling interests 18,312, ,503, Total equity 48,911, ,870, Total liabilities and equity $201,918, $213,827, Supervisor: Accounting Supervisor: ~29~

32 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD.AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2015 and 2014 Attributed to Equity Holders of the Parent Contents Capital Stock Capital Reserve Legal Reserve Retained Earnings Special Reserve Unappropriated Earnings Balance as of January 1, 2014 $23,395,367 $767,970 $- $15,894,690 $(5,919,690) Special reserve used to cover accoumulated defitcits (5,919,690) 5,919,690 Net Income (loss) in ,539 Other comprehensive income (loss) in ,274 Total comprehensive income (loss) ,813 Change in subsidiaries' ownersihp - (17,329) - - (206,226) Balance as of December 31, 2014 $23,395,367 $750,641 $- $9,975,000 $160,587 Balance as of January 1, 2015 $23,395,367 $750,641 $- $9,975,000 $160,587 Legal reserve ,354 - (36,354) Special reserve ,233 (124,233) Reversal of special reserve (52,180) 52,180 Change in share of other associates and joint ventures accounted for using the equity method - (747) - - (49,175) Net loss in (3,075,015) Other comprehensive income (loss) in (25,980) Total comprehensive income (loss) (3,100,995) Acquisition or disposal of subsidiary shares (3,005) Change in subsidiaries's ownership - 35, Changes in non-controlling interests Balance as of December 31, 2015 $23,395,367 $785,376 $36,354 $10,047,053 $(3,100,268) Chairman: ~30~

33 Exchange Differences on Translation of Foreign Operation Attributed to Equity Holders of the Parent Other Capital Reserves Unrealized Gain or Loss on Financial Instruments Equity Related to Non-current Assets Held for Sale Treasury Stock (Expressed in Thousands of New Taiwan Dollars) Total Non-controlling Interests Total Equity $(188,770) $158,498 $- $(806,870) $33,301,195 $28,948,525 $62,249, ,539 (3,350,588) (2,987,049) 518, , ,408 1,438,236 2,363, , , ,288,947 (1,912,352) (623,405) (223,555) 467, ,209 $329,756 $562,106 $- $(806,870) $34,366,587 $27,503,937 $61,870,524 $329,756 $562,106 $- $(806,870) $34,366,587 $27,503,937 $61,870, (49,922) - (49,922) (3,075,015) (7,719,504) (10,794,519) (321,665) (326,859) (1,439) - (675,943) (657,101) (1,333,044) (321,665) (326,859) (1,439) - (3,750,958) (8,376,605) (12,127,563) (2,760) - (2,760) ,209 99, , (914,297) (914,297) $8,114 $235,469 $(1,439) $(806,870) $30,599,156 $18,312,703 $48,911,859 Supervisor: Accounting Supervisor: ~31~

34 English Translations of Financial Statements Originally Issued in Chinese TATUNG CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2015 and 2014 Contents For the Year Ended December 31, 2015 Amount For the Year Ended December 31, 2014 Amount Cash flows from operating activities: Net loss before income tax $(9,658,966) $(2,405,164) Adjustments to reconcile consolidated net loss to net cash provided by operating activities: Depreciation expense 10,917,161 10,558,621 Amortization expense 454, ,416 Allowance for long-term receivables 200, ,864 Income from financial asset or financial liability at fair value through profit or loss (272,996) (220,810) Interest expenses 4,283,530 3,598,543 Interest income (921,594) (434,967) Dividends income (59,003) (65,267) Share of profit of associates and joint ventures (667,618) (622,182) Gain on disposal of property, plant and equipment (1,788,850) (172,838) Gain on disposal of investments (122,383) (419,229) Impairment loss on financial assets - 18,285 Impairment loss on non-financial assets 484, ,005 Changes in assets and liabilities from operating activities: Notes receivable (61,921) 126,809 Accounts receivable 4,118,785 (1,008,961) Accounts receivable - related parties 32,496 98,607 Construction receivables 1,209, ,430 Other receivables (include related parties) 86, ,042 Inventory 2,043,885 59,613 Prepayments 460,755 (547,300) Other current assets (1,249,735) 355,317 Acquisition of financial assets at fair value through profit or loss 110,452 (555,479) Other non-current assets 291,427 1,012,796 Notes payable 352, ,236 Accounts payable (3,223,704) 44,476 Accounts payable - related parties 14,039 (457,289) Other payables 482,045 (431,229) Provision (77,187) (57,378) Advanced receipts (1,571,262) (803,469) Financial liabilities at fair value through profit or loss 911 (199) Other current liabilities - others 7,037 (56,274) Net defined benefit liability (526,232) (519,810) Long-term deferred revenues 93,493 (2,776) Other liabilities (163,167) (740,701) Cash generated from operations 5,278,198 9,092,738 Interest received 474, ,162 Dividend received 54, ,661 Interest paid (4,269,825) (3,527,207) Income taxes paid (570,167) (776,896) Net cash provided by operating activities 966,774 5,804,458 Chairman: ~32~

35 Contents (Expressed in Thousands of New Taiwan Dollars) For the Year Ended December 31, 2015 Amount For the Year Ended December 31, 2014 Amount Cash flows from investing activities: Acquisition of available-for-sale financial assets (7,529) (242,293) Disposal of available-for-sale financial assets 197, ,899 Acquisition of investment in debt security with no active accounted (11,836,654) (18,387,215) Disposal of investment in debt security with no active accounted 5,214,023 10,508,760 Acquisition of financial assets carried at cost - (232,358) Disposal of financial assets carried at cost - 42,576 Acquisition of subsidiaries (deducted the cash received) (505,498) - Cash returns from capital reduction of investments accounted for under the equity method 4, ,348 Disposal of non-current assets held for sale 61, ,730 Acquisition of property, plant and equipment (6,386,992) (4,797,792) Disposal of property, plant and equipment 3,292,953 1,402,661 Acquisition of intangible assets (229,868) (466,134) Disposal of intangible assets 71,925 2,496 Acquisition of investment property (218,277) (1,628) Increase in long-term receivables (35,881) (27,404) Cash outflow from de-consolidation of subsidiaries (72,899) (94,814) Net cash used in investing activities (10,451,038) (10,913,168) Cash flows from financing astivities: Increase in short-term loans 5,461,872 - Decrease in short-term loans - (1,665,771) Increase in short-term notes and bills payable - 545,692 Decrease in short-term notes and bills payable (4,152,051) - Proceeds from issuance of bonds - 1,500,000 Repayment of bonds (600,000) (6,254,746) Proceeds from long-term loans 19,095,210 30,166,171 Repayment of long-term loans (12,689,779) (13,379,541) Increase in deposits-in 13, ,407 Increase in long-term payable - 38,185 Decrease in long-term payable (11,171) - Acquisition of shares of subsidiaries' equity - 138,457 Disposal of shares of subsidiaries' equity (not loss of control) 40, ,708 Change in non-controlling interests (737,875) (286,446) Net cash generated from financing astivities 6,420,456 11,649,116 Effects of exchange rate changes on cash and cash equivalents 54, ,771 Net (decrease) increase in cash and cash equivalents (3,008,824) 6,947,177 Cash and cash equivalents at the beginning of periods 30,140,282 23,193,105 Cash and cash equivalents at the end of periods $27,131,458 $30,140,282 Supervisor: Accounting Supervisor: ~33~