HANNSTAR DISPLAY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REVIEW REPORT OF INDEPENDENT ACCOUNTANTS SEPTEMBER 30, 2017 AND 2016 ------------------------------------------------------------------------------------------------------------------------------------ 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 HannStar Display Corporation We have reviewed the accompanying consolidated balance sheets of HannStar Display Corporation and subsidiaries as of September 30, 2017 and 2016, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express a conclusion on these financial statements based on our reviews. Except as explained in the following paragraph, our reviews were made in accordance with the Generally Accepted Auditing Standard No. 36, Review of Financial Statements in the Republic of China. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As explained in Notes 4(3) and 6(8), we did not review the financial statements of certain insignificant consolidated subsidiaries and investments accounted for under equity method, which statements reflect total assets (including investments accounted for under equity method) of NT$8,361,411 thousand and NT$6,212,496 thousand, constituting 17% and 16% of the consolidated total assets, and total liabilities of NT$2,287,535 thousand and NT$2,782,900 thousand, constituting 31% and 42% of the consolidated total liabilities as of September 30, 2017 and 2016, 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$74,247 thousand, (NT$34,445) thousand, NT$218,438 thousand and (NT$136,840) thousand, constituting 3%, (1%), 4% and (21%) of the consolidated comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016, 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, 2017 and 2016. ~1~
Based on our reviews, except for the effect of such adjustments, if any, as might have been determined to be necessary had the financial statements of certain insignificant consolidated subsidiaries, investments accounted for under equity method and the information disclosed in Note 13 been reviewed by independent accountants, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the Rules Governing the Preparation of Financial Statements by Securities Issuers and IAS 34, Interim Financial Reporting as endorsed by the Financial Supervisory Commission (FSC). Chen, Chin Chang Lin, Chun-Yao For and on behalf of PricewaterhouseCoopers, Taiwan November 1, 2017 ------------------------------------------------------------------------------------------------------------------------------------------------- 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~
Current assets HANNSTAR DISPLAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (The consolidated balance sheets as of September 30, 2017 and 2016 are reviewed, not audited) September 30, 2017 December 31, 2016 September 30, 2016 Assets Notes AMOUNT % AMOUNT % AMOUNT % 1100 Cash and cash equivalents 6(1) $ 5,134,257 11 $ 6,209,977 14 $ 4,072,354 10 1110 Financial assets at fair value through profit or loss - current 6(2) 1,552-5,153-9,703-1150 Notes receivable, net 11,260-5,435-8,824-1170 Accounts receivable, net 6(6) 2,156,100 4 2,416,955 5 2,255,478 6 1180 Accounts receivable - related parties 7 30,134-41,300-79,163-1200 Other receivables 10 712,655 1 808,036 2 839,207 2 1210 Other receivables - related parties 7 518,250 1 471,872 1 454,347 1 130X Inventory 6(7) 1,295,884 3 1,114,028 2 1,240,096 3 1460 Non-current assets held for sale 6(12) - net - - 593,497 1 599,520 2 1476 Other current financial assets 6(1) and 8 11,260,699 23 6,025,610 14 2,971,015 7 1479 Other current assets 300,914 1 252,702 1 245,665 1 11XX Total current assets 21,421,705 45 17,944,565 40 12,775,372 32 Non-current assets 1523 Available-for-sale financial assets - non-current 1543 Financial assets carried at cost - non-current 1546 Bond investments without active markets - non-current 1550 Investments accounted for under equity method 6(3) 6(4) 6(5) and 7 6(8) 412,822 1 356,471 1 619,782 2 298,861 1 298,861 1 298,861 1 3,433,462 7 3,031,154 7 2,131,154 5 3,864,660 8 3,861,602 9 3,758,226 9 1600 Property, plant and equipment 6(9) and 8 16,422,862 34 17,076,610 38 18,325,194 46 1760 Investment property - net 6(10) 1,174,641 2 1,178,665 3 1,180,006 3 1780 Intangible assets 6(11) 394,887 1 534,965 1 564,476 2 1840 Deferred income tax assets 11,000-11,000-11,000-1915 Prepayments for business facilities 1975 Non-current prepaid pension 6(27) 281,344 1 119,143-148,921 - cost 76,822-75,967-96,682-1990 Other non-current assets 63,442-52,081-52,852-15XX Total non-current assets 26,434,803 55 26,596,519 60 27,187,154 68 1XXX Total assets $ 47,856,508 100 $ 44,541,084 100 $ 39,962,526 100 (Continued) ~3~
CONSOLIDATED BALANCE SHEETS (The consolidated balance sheets as of September 30, 2017 and 2016 are reviewed, not audited) September 30, 2017 Liabilities and Equity Notes AMOUNT % December 31, 2016 AMOUNT % September 30, 2016 AMOUNT % Current liabilities 2100 Short-term borrowings 6(13) $ 1,185,472 2 $ 1,592,178 4 $ 1,658,395 4 2120 Financial liabilities at fair value 6(2) through profit or loss - current 8,290-19,526-6,409-2150 Notes payable 36,200-54,321-31,445-2170 Accounts payable 2,319,188 5 2,257,950 5 2,189,672 6 2180 Accounts payable - related 7 parties - - 612-3,337-2213 Payable on machinery and 6(27) equipment 801,169 2 613,326 2 650,878 2 2219 Other payables 6(14) 2,249,444 5 2,180,827 5 1,681,016 4 2220 Other payables - related parties 7 121,662-73,735-3,046-2230 Current income tax liabilities 249,513 1 117,981-23,904-2250 Provisions for liabilities - current 167,782-168,958-169,219-2320 Long-term liabilities, current 6(15) portion - - 100,000 - - - 2399 Other current liabilities 171,051-253,900 1 241,616 1 21XX Total current liabilities 7,309,771 15 7,433,314 17 6,658,937 17 Non-current liabilities 2570 Deferred income tax liabilities 12,201-12,201-15,294-2600 Other non-current liabilities 6,804-9,907-7,166-25XX Total non-current liabilities 19,005-22,108-22,460-2XXX Total liabilities 7,328,776 15 7,455,422 17 6,681,397 17 Share capital 6(17) 3110 Share capital - common stock 32,339,339 68 32,339,339 73 32,339,339 81 Capital surplus 6(18) 3200 Capital surplus 842,099 2 842,099 1 842,099 2 Retained earnings 6(19) 3310 Legal reserve 938,151 2 621,594 1 621,594 1 3320 Special reserve 147,053-264,111 1 264,111 1 3350 Unappropriated retained earnings (accumulated deficit) 6,386,501 13 3,165,572 7 ( 138,246) - Other equity interest 3400 Other equity interest ( 125,411) - ( 147,053) - ( 647,768) ( 2) 3XXX Total equity 40,527,732 85 37,085,662 83 33,281,129 83 Significant contingent liabilites 9 and unrecognised contract commitments Significant disaster losses 10 Significant events after the 11 balance sheet date 3X2X Total liabilities and equity $ 47,856,508 100 $ 44,541,084 100 $ 39,962,526 100 The accompanying notes are an integral part of these consolidated financial statements. ~4~
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Expressed in thousands of New Taiwan dollars, except for earnings per share) (UNAUDITED) For the three-month periods ended September 30 For the nine-month periods ended September 30 2017 2016 2017 2016 Items Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % 4000 Sales revenue 6(20) and 7 $ 6,658,421 100 $ 6,961,475 100 $ 17,592,210 100 $ 14,581,370 100 5000 Operating costs 6(7)(23) and 7 ( 3,879,058 ) ( 58) ( 4,130,505) ( 59) ( 10,835,258) ( 61) ( 11,968,266) ( 82) 5900 Net operating margin 2,779,363 42 2,830,970 41 6,756,952 39 2,613,104 18 5910 Unrealized loss from sales 363-193 - 444-365 - 5950 Net operating margin 2,779,726 42 2,831,163 41 6,757,396 39 2,613,469 18 Operating expenses 6(23) and 7 6100 Selling expenses ( 144,178 ) ( 2) ( 132,691) ( 2) ( 473,676) ( 3) ( 398,459) ( 3) 6200 General and administrative expenses ( 212,229 ) ( 3) ( 162,122) ( 2) ( 659,041) ( 4) ( 535,896) ( 3) 6300 Research and development expenses ( 225,022 ) ( 4) ( 236,107) ( 4) ( 605,232) ( 3) ( 566,518) ( 4) 6000 Total operating expenses ( 581,429 ) ( 9) ( 530,920) ( 8) ( 1,737,949) ( 10) ( 1,500,873) ( 10) 6900 Operating profit 2,198,297 33 2,300,243 33 5,019,447 29 1,112,596 8 Non-operating income and expenses 7010 Other income 6(21) and 7 109,752 2 82,659 1 247,962 1 240,601 2 7020 Other gains and losses 6(22) ( 68,256 ) ( 1) ( 128,884) ( 2) 16,338 - ( 355,664) ( 3) 7050 Finance costs ( 16,656 ) - ( 17,438) - ( 75,569) - ( 46,959) - 7060 Share of profit/(loss) of associates and joint ventures accounted for under equity 6(8) method ( 55,188 ) ( 1) 116,271 2 ( 35,611) - ( 224,112) ( 2) 7000 Total non-operating income and expenses ( 30,348 ) - 52,608 1 153,120 1 ( 386,134) ( 3) 7900 Profit before income tax 2,167,949 33 2,352,851 34 5,172,567 30 726,462 5 7950 Income tax (expense) benefit 6(24) ( 113 ) - ( 517) - ( 135,172) ( 1) 1,527-8200 Profit for the period $ 2,167,836 33 $ 2,352,334 34 $ 5,037,395 29 $ 727,989 5 Other comprehensive income-net Components of other comprehensive income that will be reclassified to profit or loss 8361 Financial statements translation differences of foreign operations $ 4,063 - ( $ 56,608) ( 1) ( $ 52,153) - ( $ 116,242) ( 1) 8362 Unrealized gain (loss) on valuation of available-for-sale financial assets ( 1,789 ) - 3,825-565 - ( 50,729) - 8370 Share of other comprehensive income of associates and joint ventures accounted for under equity method 21,556-56,554 1 73,230-85,196-8360 Components of other comprehensive income that will be reclassified to profit or loss 23,830-3,771-21,642 - ( 81,775) ( 1) 8300 Total other comprehensive income (loss), net for the period $ 23,830 - $ 3,771 - $ 21,642 - ( $ 81,775) ( 1) 8500 Total comprehensive income for the period $ 2,191,666 33 $ 2,356,105 34 $ 5,059,037 29 $ 646,214 4 Profit attributable to: 8610 Owners of the parent $ 2,167,836 33 $ 2,352,334 34 $ 5,037,395 29 $ 727,989 5 Comprehensive income attributable to: 8710 Owners of the parent $ 2,191,666 33 $ 2,356,105 34 $ 5,059,037 29 $ 646,214 4 Earnings per share (in dollars) 6(25) 9750 Basic earnings per share $ 0.67 $ 0.73 $ 1.56 $ 0.23 9850 Diluted earnings per share $ 0.66 $ 0.73 $ 1.53 $ 0.23 The accompanying notes are an integral part of these consolidated financial statements. ~5~
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) Notes Share capital - common stock Total capital surplus, additional paidin capital Legal reserve Special reserve Equity attributable to owners of the parent Retained Earnings Other equity interest Total Financial unappropriated statements retained translation earnings differences of (accumulated foreign deficit) operations Unrealized gain or loss on available-forsale financial assets Other Total equity For the nine-month period ended September 30, 2016 Balance at January 1, 2016 $ 32,339,339 $ 842,099 $ 621,594 $ 264,111 ($ 861,399 ) $ 113,737 ($ 510,063 ) ($ 169,667 ) $ 32,639,751 Profit for the period - - - - 727,989 - - - 727,989 Other comprehensive income (loss) - - - - - ( 121,891 ) 40,116 - ( 81,775 ) Change in capital surplus from investments in associates accounted for using equity method - - - - ( 4,836 ) - - - ( 4,836 ) Balance at September 30, 2016 $ 32,339,339 $ 842,099 $ 621,594 $ 264,111 ($ 138,246 ) ($ 8,154 ) ($ 469,947 ) ($ 169,667 ) $ 33,281,129 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 Distribution of 2016 earnings 6(19) Legal reserve - - 316,557 - ( 316,557 ) - - - - Reversal of special reserve - - - ( 117,058 ) 117,058 - - - - Cash dividends paid - - - - ( 1,616,967 ) - - - ( 1,616,967 ) Profit for the period - - - - 5,037,395 - - - 5,037,395 Other comprehensive income (loss) - - - - - ( 60,321 ) 81,963-21,642 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 The accompanying notes are an integral part of these consolidated financial statements. ~6~
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the nine-month periods ended September 30 Notes 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 5,172,567 $ 726,462 Adjustments Adjustments to reconcile profit (loss) Reversal of allowance for doubtful accounts 6(6) ( 378 ) ( 37,742 ) Depreciation 6(9)(10) 1,771,014 2,365,336 Amortization 123,587 122,783 Interest expense 75,569 46,959 Interest income 6(21) ( 156,212 ) ( 66,313 ) Dividend income 6(21) ( 19,959 ) - Loss on disposal of property, plant and equipment 6(9) 21,871 4,008 (Gain) loss on disposal of non-current assets held for 6(22) sale ( 315,333 ) 40,527 Gain on disposal of investment accounted for using 6(8) equity method - ( 1,232 ) Impairment loss on financial assets 6(3) - 5,495 Loss on disposal of investment accounted for using 6(8) equity method 35,611 224,112 Unrealized loss intercompany ( 444 ) ( 365 ) Changes in operating assets and liabilities Changes in operating assets Financial assets at fair value through profit or losscurrent 3,601 ( 8,034 ) Notes receivable ( 5,825 ) 4,845 Accounts receivable 261,621 ( 347,054 ) Accounts receivable from related parties 11,166 79,611 Other receivables 158,009 ( 294,805 ) Other receivables from related parties ( 46,378 ) 167 Inventory ( 181,856 ) 734,126 Other current assets ( 48,212 ) ( 17,609 ) Other financial assets current ( 5,235,089 ) ( 1,792,496 ) Prepaid pension cost ( 855 ) ( 1,341 ) Changes in operating liabilities Financial liabilities at fair value through profit or loss - current ( 11,236 ) 6,291 Notes payable ( 18,121 ) 11,982 Accounts payable 61,238 ( 110,213 ) Accounts payable to related parties ( 612 ) ( 34,581 ) Other payables 68,617 151,375 Other payables to related parties 47,927 ( 987 ) Other current liabilities ( 82,849 ) 137,309 Provisions for liabilities - current ( 1,176 ) ( 684 ) Other non-current liabilities ( 3,103 ) ( 12,131 ) Cash inflow generated from operations 1,684,760 1,935,801 Tax paid ( 3,640 ) ( 6,874 ) Net cash flows from operating activities 1,681,120 1,928,927 (Continued) ~7~
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the nine-month periods ended September 30 Notes 2017 2016 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of non-current assets held for sale $ 864,516 $ 5,497 Acquisition of debt investments without active market 6(5) and 7 ( 402,308 ) - Increase in other receivables from related parties - ( 196,730 ) Acquisition of investments accounted for using equity method - ( 49,024 ) Acquisition of property, plant and equipment 6(27) ( 1,155,403 ) ( 1,537,892 ) Proceeds from disposal of property, plant and equipment 6(9) 18,230 13,568 Acquisition of intangible assets ( 4,397 ) ( 3,510 ) (Increase) decrease in other non-current assets ( 11,361 ) 4,292 Interest received 93,584 67,487 Dividends received 19,959 - Proceeds from disposal of investments accounted for using 6(8) equity method - 19,988 Net cash flows used in investing activities ( 577,180 ) ( 1,676,324 ) CASH FLOWS FROM FINANCING ACTIVITIES Decrease (increase) in short-term loans ( 392,524 ) 1,244,254 Repayment of long-term debt ( 100,000 ) ( 2,380,000 ) Increase in long-term loans - 700,000 Interest paid ( 89,751 ) ( 48,998 ) Cash dividends paid 6(19) ( 1,616,967 ) - Net cash flows used in financing activities ( 2,199,242 ) ( 484,744 ) Effects of changes in exchange rates 19,582 100,059 Net decrease in cash and cash equivalents ( 1,075,720 ) ( 132,082 ) Cash and cash equivalents at beginning of period 6,209,977 4,204,436 Cash and cash equivalents at end of period $ 5,134,257 $ 4,072,354 The accompanying notes are an integral part of these consolidated financial statements. ~8~