HANNSTAR DISPLAY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REVIEW REPORT OF INDEPENDENT ACCOUNTANTS SEPTEMBER 30, 2018 AND 2017 ------------------------------------------------------------------------------------------------------------------------------------ For the convenience of readers and for information purpose only, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail.
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE To the Board of Directors and Shareholders of Hannstar Co., Ltd. Introduction We have reviewed the accompanying consolidated balance sheets of Hannstar Display Corporation and its subsidiaries (the Group ) as of September 30, 2018 and 2017, and the related consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017, as well as the consolidated statements of changes in equity and of cash flows for the nine-month periods ended September 30, 2018 and 2017, and notes to the financial statements, including a summary of significant accounting policies. Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 Interim Financial Reporting as endorsed by the Financial Supervisory Commission. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews. Scope of Review Except as explained in the following paragraph, we conducted our reviews in accordance with the Statement of Auditing Standards No. 65 Review of Financial Information Performed by the Independent Auditor of the Entity in the Republic of China. A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express such an audit opinion. Basis for Qualified Conclusion As explained in Notes 4(3) and 6(7), we did not review the financial statements of certain insignificant consolidated subsidiaries, which statements reflect total assets (including investments accounted for under equity method) of NT$8,924,300 thousand and NT$8,361,411 thousand, constituting 18% and 17% of the consolidated total assets, and total liabilities of NT$1,826,703 thousand NT$2,287,535 thousand, constituting 24% and 31% ~1~
of the consolidated total liabilities as of September 30, 2018 and 2017, respectively, and total comprehensive income (including share of profit and other comprehensive income of associates and joint ventures accounted for under equity method) of NT($80,121) thousand, NT$74,247 thousand, NT$190,912 thousand and NT$218,438 thousand, constituting (18%), 3%, 8% and 4% of the consolidated total comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017, respectively. These amounts and the information disclosed in Note 13 were based solely on the unreviewed financial statements of these companies as of September 30, 2018 and 2017. Qualified Conclusion Except for the adjustments to the consolidated financial statements, if any, as might have been determined to be necessary had the financial statements of certain consolidated subsidiaries (including investments accounted for under equity method) been reviewed by independent accountants, that we might have become aware of had it not been for the situation described above, based on our reviews, nothing has come to our attention that causes us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Group as of September 30, 2018 and 2017, and of its consolidated financial performance for the three-month and nine-month periods then ended and its consolidated cash flows for the ninemonth periods then ended in accordance with the Regulations Governing the Preparations of Financial Reports by Securities Issuers and International Accounting Standard 34, Interim Financial Reporting as endorsed by the Financial Supervisory Commission. Chen, Chin-Chang For and on behalf of PricewaterhouseCoopers, Taiwan November 7, 2018 Lin, Chun-Yao ------------------------------------------------------------------------------------------------------------------------------------------------- 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. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation. ~2~
CONSOLIDATED BALANCE SHEETS YEARS ENDED SEPTEMBER 30 (The balance sheets as of September 30, 2018 and 2017 are reviewed, not audited) Assets Notes September 30, 2018 AMOUNT % December 31, 2017 AMOUNT % September 30, 2017 AMOUNT % Current assets 1100 Cash and cash equivalents 6(1) $ 4,087,666 8 $ 4,891,172 10 $ 5,134,257 11 1110 Financial assets at fair value 6(2) and 1136 through profit or loss - current 12(4) Current financial assets at 6(1)(4) 1,507-125,004-1,552 - amortised cost, net 13,320,344 26 - - - - 1150 Notes receivable, net 5,340-8,094-11,260-1170 Accounts receivable, net 6(5) and 12(4) 1,775,729 4 2,134,331 4 2,156,100 4 1180 Accounts receivable - related 7 and 12(4) parties 19,403-12,657-30,134-1200 Other receivables 1210 Other receivables - related 7 136,472-340,324 1 712,655 1 parties 918,931 2 515,458 1 518,250 1 130X Inventory 6(6) 1,244,879 2 1,099,215 2 1,295,884 3 1476 Other current financial assets 6(1) and 8 101,693-14,293,229 29 11,260,699 24 1479 Other current assets, others 427,038 1 304,787 1 300,914 1 11XX Current Assets 22,039,002 43 23,724,271 48 21,421,705 45 Non-current assets 1510 Financial assets at fair value through profit or loss - noncurrent 6(2) 14,346 - - - - - 1517 Financial assets at fair value through other comprehensive 6(3) income - non-current 1,154,029 2 - - - - 1523 Available-for-sale financial 12(4) assets - non-current - - 525,378 1 412,822 1 1535 Non-current Financial assets at 6(4) and 7 amortised cost, net 3,433,462 7 - - - - 1543 Financial assets carried at cost 12(4) - non-current - - 298,861-298,861 1 1546 Bond investments without 7 and 12(4) active markets - non-current - - 3,433,462 7 3,433,462 7 1550 Investments accounted for 6(7) under equity method 4,013,924 8 3,920,158 8 3,864,660 8 1600 Property, plant and equipment 6(8) and 8 18,097,693 36 15,586,698 31 16,422,862 34 1760 Investment property - net 6(9) 1,394,814 3 1,413,380 3 1,174,641 2 1780 Intangible assets 6(10) 396,789 1 367,948 1 394,887 1 1840 Deferred income tax assets 11,000-11,000-11,000-1915 Prepayments for business 6(24) facilities 129,748-510,612 1 281,344 1 1975 Non-current prepaid pension cost 63,107-62,348-76,822-1990 Other non-current assets, others 6(23) 60,689-62,813-63,442-15XX Non-current assets 28,769,601 57 26,192,658 52 26,434,803 55 1XXX Total assets $ 50,808,603 100 $ 49,916,929 100 $ 47,856,508 100 (Continued) ~3~
CONSOLIDATED BALANCE SHEETS YEARS ENDED SEPTEMBER 30 (The balance sheets as of September 30, 2018 and 2017 are reviewed, not audited) September 30, 2018 December 31, 2017 September 30, 2017 Liabilities and Equity Notes AMOUNT % AMOUNT % AMOUNT % Current liabilities 2100 Short-term borrowings 6(11) $ 612,346 1 $ 1,048,603 2 $ 1,185,472 2 2120 Financial liabilities at fair value 6(2) and through profit or loss - current 12(4) 12,145-3,529-8,290-2130 Current contract liabilities 12(5) 85,135 - - - - - 2150 Notes payable 48,999-53,245-36,200-2170 Accounts payable 2,147,620 4 2,238,509 5 2,319,188 5 2213 Payable on machinery and equipment 6(24) 1,447,980 3 862,802 2 801,169 2 2219 Other payables, others 6(12) 2,291,910 5 2,557,741 5 2,249,444 5 2220 Other payables - related parties 7 61,983-158,183-121,662-2230 Current income tax liabilities 559,675 1 241,887-249,513 1 2250 Provisions for liabilities - current 167,766 1 317,315 1 167,782-2399 Other current liabilities, others 74,088-175,924-171,051-21XX Current Liabilities 7,509,647 15 7,657,738 15 7,309,771 15 Non-current liabilities 2570 Deferred income tax liabilities 9,752-9,752-12,201-2600 Other non-current liabilities 5,091-9,471-6,804-25XX Non-current liabilities 14,843-19,223-19,005-2XXX Total Liabilities 7,524,490 15 7,676,961 15 7,328,776 15 Share capital 6(14) 3110 Share capital - common stock 32,339,339 64 32,339,339 65 32,339,339 68 Capital surplus 6(15) 3200 Capital surplus 842,099 1 842,099 2 842,099 2 Retained earnings 6(16) 3310 Legal reserve 1,609,021 3 938,151 2 938,151 2 3320 Special reserve 72,442-147,053-147,053-3350 Total unappropriated retained earnings 8,994,512 18 8,045,768 16 6,386,501 13 Other equity interest 3400 Other equity interest ( 573,300) ( 1) ( 72,442) - ( 125,411) - 3XXX Total equity 43,284,113 85 42,239,968 85 40,527,732 85 Significant contingent liabilities and unrecognised contract commitments 9 3X2X Total liabilities and equity $ 50,808,603 100 $ 49,916,929 100 $ 47,856,508 100 The accompanying notes are an integral part of these consolidated financial statements. ~4~
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited but reviewed) Three months ended September 30 Nine months ended September 30 2018 2017 2018 2017 Items Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % 4000 Sales revenue 6(17), 7 and 12(5) $ 4,101,646 100 $ 6,658,421 100 $ 13,676,101 100 $ 17,592,210 100 5000 Operating costs 6(6)(20) ( 3,312,465 )( 81)( 3,879,058)( 58)( 10,106,188)( 74)( 10,835,258)( 61) 5900 Net operating margin 789,181 19 2,779,363 42 3,569,913 26 6,756,952 39 5910 Unrealized loss from sales 7-363 - 1-444 - 5950 Net operating margin 789,188 19 2,779,726 42 3,569,914 26 6,757,396 39 Operating expenses 6(20) and 7 6100 Selling expenses ( 79,806 )( 2)( 144,178)( 2)( 280,937)( 2)( 473,676)( 3) 6200 General & administrative expenses ( 156,727 )( 3)( 212,229)( 3)( 549,862)( 4)( 659,041)( 4) 6300 Research and development expenses ( 202,128 )( 5)( 225,022)( 4)( 579,024)( 4)( 605,232)( 3) 6450 Impairment loss (impairment gain and reversal of impairment loss) determined in accordance with IFRS 9 ( 181 ) - - - 6,359 - - - 6000 Total operating expenses ( 438,842 )( 10)( 581,429)( 9)( 1,403,464)( 10)( 1,737,949)( 10) 6900 Operating profit 350,346 9 2,198,297 33 2,166,450 16 5,019,447 29 Non-operating income and expenses 7010 Other income 6(18) and 7 132,507 3 109,752 2 381,142 3 247,962 1 7020 Other gains and losses 6(19) 1,555 - ( 68,256)( 1)( 28,599) - 16,338-7050 Finance costs ( 8,837 ) - ( 16,656) - ( 35,336)( 1)( 75,569) - 7060 Share of loss of associates and joint ventures accounted for under equity method 6(7) 51,733 1 ( 55,188)( 1) 179,222 1 ( 35,611) - 7000 Total non-operating revenue and expenses 176,958 4 ( 30,348) - 496,429 3 153,120 1 7900 Profit before income tax 527,304 13 2,167,949 33 2,662,879 19 5,172,567 30 7950 Income tax expense 6(21) ( 54 ) - ( 113) - ( 433,760)( 3)( 135,172)( 1) 8200 Profit for the year $ 527,250 13 $ 2,167,836 33 $ 2,229,119 16 $ 5,037,395 29 (Continued) ~5~
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited but reviewed) Three months ended September 30 Nine months ended September 30 2018 2017 2018 2017 Items Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss 8316 Unrealised gains from investments in equity instruments 6(3) measured at fair value through other comprehensive income ($ 30,139 )( 1) $ - - $ 18,184 - $ - - 8320 Share of other comprehensive income of associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss ( 13,247 ) - - - 70,810 1 - - 8310 Components of other comprehensive income that will not be reclassified to profit or loss ( 43,386 )( 1) - - 88,994 1 - - Components of other comprehensive income that will be reclassified to profit or loss 8361 Financial statements translation differences of foreign operations ( 36,926 )( 1) 4,063-67,082 - ( 52,153) - 8362 Unrealized gain (loss) on valuation of available-for-sale 12(4) financial assets - - ( 1,789) - - - 565-8370 Share of other comprehensive income of associates and joint ventures accounted for uner equity method 655-21,556 - ( 5,536) - 73,230-8360 Components of other comprehensive income that will be reclassified to profit or loss ( 36,271 )( 1) 23,830-61,546-21,642-8300 Total other comprehensive income for the year ($ 79,657 )( 2) $ 23,830 - $ 150,540 1 $ 21,642-8500 Total comprehensive income for the year $ 447,593 11 $ 2,191,666 33 $ 2,379,659 17 $ 5,059,037 29 Profit (loss), attributable to: 8610 Owners of the parent $ 527,250 13 $ 2,167,836 33 $ 2,229,119 16 $ 5,037,395 29 Comprehensive income attributable to: 8710 Owners of the parent $ 447,593 11 $ 2,191,666 33 $ 2,379,659 17 $ 5,059,037 29 Basic earnings per share 6(22) 9750 Total basic earnings per share $ 0.16 $ 0.67 $ 0.69 $ 1.56 9850 Total diluted earnings per share $ 0.16 $ 0.66 $ 0.68 $ 1.53 The accompanying notes are an integral part of these consolidated financial statements. ~6~
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017 (Unaudited but reviewed) Notes Share capital - common stock Total capital surplus, additional paid-in capital Legal reserve Special reserve Equity attributable to owners of the parent Retained Earnings Other equity interest Total Unrealised gains (losses) from financial Total Financial assets measured at unappropriated statements fair value through retained earnings translation other (accumulated differences of comprehensive deficit) foreign operations income Unrealized gain or loss on availablefor-sale financial assets Hedging instrument gain (loss) on effective hedge of foreign operations net investment hedges Total equity For the nine-month period ended September 30, 2017 Balance at January 1, 2017 $ 32,339,339 $ 842,099 $ 621,594 $ 264,111 $ 3,165,572 $ 18,788 $ - $ 3,826 ($ 169,667 ) $ 37,085,662 Profit for the period/year - - - - 5,037,395 - - - - 5,037,395 Other comprehensive income(loss) - - - - - ( 60,321 ) - 81,963-21,642 Total comprehensive income - - - - 5,037,395 ( 60,321 ) - 81,963-5,059,037 Distribution of 2016 earnings 6(16) Legal reserve - - 316,557 - ( 316,557 ) - - - - - Reversal of special reserve - - - ( 117,058 ) 117,058 - - - - - Cash dividend paid - - - - ( 1,616,967 ) - - - - ( 1,616,967 ) Balance at September 30, 2017 $ 32,339,339 $ 842,099 $ 938,151 $ 147,053 $ 6,386,501 ($ 41,533 ) $ - $ 85,789 ($ 169,667 ) $ 40,527,732 For the nine-month period ended September 30, 2018 Balance at January 1, 2018 $ 32,339,339 $ 842,099 $ 938,151 $ 147,053 $ 8,045,768 ($ 84,878 ) $ - $ 182,103 ($ 169,667 ) $ 42,239,968 Retroactive application and retrospective restatement effect 12(4) - - - - 933,042 - ( 469,295 ) ( 182,103 ) - 281,644 Balance at January 1 after adjustments 32,339,339 842,099 938,151 147,053 8,978,810 ( 84,878 ) ( 469,295 ) - ( 169,667 ) 42,521,612 Profit for the period - - - - 2,229,119 - - - - 2,229,119 Other comprehensive income - - - - - 61,546 88,994 - - 150,540 Total comprehensive income - - - - 2,229,119 61,546 88,994 - - 2,379,659 Distribution of 2017 earnings 6(16) Legal reserve - - 670,870 - ( 670,870 ) - - - - - Reversal of special reserve - - - ( 74,611 ) 74,611 - - - - - Cash dividend paid - - - - ( 1,616,967 ) - - - - ( 1,616,967 ) Changes in equity of associates and joint ventures accounted for using equity method - - - - ( 191 ) - - - - ( 191 ) Balance at September 30, 2018 $ 32,339,339 $ 842,099 $ 1,609,021 $ 72,442 $ 8,994,512 ($ 23,332 ) ($ 380,301 ) $ - ($ 169,667 ) $ 43,284,113 The accompanying notes are an integral part of these consolidated financial statements. ~7~
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited but reviewed) Notes 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 2,662,879 $ 5,172,567 Adjustments Adjustments to reconcile profit (loss) Provision for doubtful accounts (reversal of allowance) 12(4) - ( 378 ) (Reversal) loss of allowance for doubtful accounts ( 6,359 ) - Depreciation 6(20) 1,455,039 1,771,014 Amortisation 6(20) 24,443 123,587 Interest expense 35,336 75,569 Interest income 6(18) ( 189,824 ) ( 156,212 ) Dividend income 6(18) ( 28,512 ) ( 19,959 ) Net (gain) loss on disposal of property, plant and equipment ( 52 ) 21,871 Net gain on disposal of non-current assets held for sale 6(19) - ( 315,333 ) Share of profit of associates and joint ventures accounted for 6(7) under equity method ( 179,222 ) 35,611 (Realised) unrealised loss (gain) - intercompany ( 1 ) ( 444 ) Changes in operating assets and liabilities Changes in operating assets Financial assets at fair value through profit or loss - current 123,497 3,601 Financial assets at fair value through profit or loss - noncurrent 9,953 - Notes receivable 2,754 ( 5,825 ) Accounts receivable 359,542 261,621 Accounts receivable from related parties ( 86 ) 11,166 Other receivables 254,988 158,009 Other receivables from related parties ( 54,348 ) ( 46,378 ) Inventory ( 145,664 ) ( 181,856 ) Other financial assets current 65,964 ( 5,235,089 ) Other current assets ( 122,251 ) ( 48,212 ) Prepaid pension cost ( 759 ) ( 855 ) Changes in operating liabilities Financial liabilities at fair value through profit or loss - current 8,616 ( 11,236 ) Provisions for liabilities - current ( 47,458 ) - Notes payable ( 4,246 ) ( 18,121 ) Accounts payable ( 90,889 ) 61,238 Accounts payable to related parties - ( 612 ) Other payables ( 135,502 ) 68,617 Other payables to related parties ( 96,200 ) 47,927 Provisions for liabilities - current ( 12 ) ( 1,176 ) Other current liabilities ( 118,780 ) ( 82,849 ) Other non-current liabilities ( 4,380 ) ( 3,103 ) Cash inflow generated from operations 3,778,466 1,684,760 Income tax paid ( 115,972 ) ( 3,640 ) Net cash flows from operating activities 3,662,494 1,681,120 (Continued) ~8~
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited but reviewed) Notes 2018 2017 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of non-current assets held for sale $ - $ 864,516 Acquisition of financial assets at fair value through other comprehensive income - non-current ( 25,594 ) - Acquisition of investments in debt instruments without active 7 market - ( 402,308 ) Decrease in current financial assets at amortised cost, net 805,228 - Acquisition of investments accounted for under equity method 6(7) ( 200,000 ) - Acquisition of property, plant and equipment 6(24) ( 3,026,915 ) ( 1,155,403 ) Proceeds from disposal of property, plant and equipment 1,338 18,230 Acquisition of intangible assets ( 194,359 ) ( 4,397 ) Other non-current assets 2,124 ( 11,361 ) Interest received 138,688 93,584 Dividends received 28,512 19,959 Net cash flows used in investing activities ( 2,470,978 ) ( 577,180 ) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short-term loans ( 432,047 ) ( 392,524 ) Repayment of long-term debt - ( 100,000 ) Interest paid ( 39,546 ) ( 89,751 ) Cash dividends paid 6(16) ( 1,616,967 ) ( 1,616,967 ) Net cash flows used in financing activities ( 2,088,560 ) ( 2,199,242 ) Effects of changes in exchange rates 93,538 19,582 Net decrease in cash and cash equivalents ( 803,506 ) ( 1,075,720 ) Cash and cash equivalents at beginning of period 4,891,172 6,209,977 Cash and cash equivalents at end of period $ 4,087,666 $ 5,134,257 The accompanying notes are an integral part of these consolidated financial statements. ~9~