HTC — Interim / Quarterly Report 2017

May 9, 2017

HTC CORPORATION

1Q17 BUSINESS REVIEW

Peter Shen, CFO May 9th, 2017

DISCLAIMER STATEMENT

• • This presentation and release contain "forward-looking statements" which may include projections of future results of operations, financial condition or business prospects based on our own information and other sources.
• • Our actual results of operations, financial condition or business prospects may differ from those expressed or implied in these forward-looking statements for a variety of reasons, including but not limited to market demand, price fluctuations, competition, international economic conditions, supply chain issues, exchange rate fluctuations and other risks and factors beyond our control.
• • The forward-looking statements in this release reflect the current belief of HTC as of the date of this release. HTC undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such date.

EXECUTIVE SUMMARY

1Q17 Financial Highlights:

• • Revenue of NT\$14.5 billion with gross margin of 16.3%
• •Operating loss of NT\$2.4 billion with operating margin of -16.2%
• •Net loss after tax of NT\$2.0 billion, or -NT\$2.47 per share

Business Update

• • HTC's continued program of resource realignment and process streamlining resulted in a 20% operating expenses saving and an increase in gross margin of 16.3% over the quarter.
• • The HTC U Ultra and U Play premium smartphones were launched in January, boasting unique design, adaptive audio and new HTC Sense Companion AI features.
• • High demand was seen for the HTC VIVE Tracker, which was launched in January and enables developers to easily add functionality for a whole range of accessories into their VR experiences.
• • As part of the Dynamical Biomarkers Group, HTC's Health research division was awarded first finalist in the prestigious Qualcomm Tricorder XPRIZE to develop a medical diagnostics kit for remote regions.

REVENUES AND OPERATING PROFIT

GROSS AND OPERATING MARGINS

1Q 2017 P&L (CONSOLIDATED)

\$ N T b n	Q 1 1 6	Q 4 1 6	Q 1 1 7
R E V E N U E S	1 4 8	2 2 2	1 4. 5
G O S S O R P R F I T	1. 4	2 3	2. 4
O P E R A T I N G E X P E N S E	6. 2	5 9	4. 7
S A L E S M K T I N G	2 0	2 1	3 1.
S C R E E A R H D E V	3 0	2 7	2. 6
G E N E R A L A D M	1. 2	1. 1	0. 9
O P E R A T I N G P R O F I T	4 8 -	3 6 -	2. 4 -
N P B T	2 5 -	3 3 -	2. 0 -
N P A T 1	2 6 -	3 1 -	2. 0 -
G R O S S M A R G I N ( ) %	9 4 %	1 0. 5 %	6. 3 1 %
O P E R A T I N G M A R G I N ( % )	3 2 4 % -	1 6. 0 % -	1 6. 2 % -
\$ E P S 2 ( N T )	3 1 6 -	3 7 7 -	2. 4 7 -

1 Attributable to stockholders of parent company, excluding minority interest.

² EPS was calculated based on number of outstanding shares at that time.

1Q 2017 BALANCE SHEET (CONSOLIDATED)

\$ N T b n	M 3 6 1, 1 a r	D 3 6 1, 1 e c	M 3 1, 1 7 a r
T O T A L A S S E T S	1 1 9 2	1 0 3 1	9 2. 8
1 C h a s	4 1. 7	3 5 8	3 3. 1
A R	1 1. 5	1 6. 0	9. 0
I N V E N T O R Y	1 9 2	1 4 2	9 1 4.
O T H E R A S S E T S	4 6. 8	3 7. 1	3 8 5.
T O T A L L I A B I L I T I E S	5 7. 4	5 1. 3	4 4. 8
2 O Q T T A L E U I T Y	6 1. 8	5 1. 8	4 8. 0
3 M E T R I C S
S S S O S G D A Y A L E U T T A N D I N	1 1 1	8 0	9 6
I N V E N T O R Y T U R N O V E R D A Y S	1 4 9	9 2	3 1 7
D A Y S P A Y A B L E O U T S T A N D I N G	1 8 8	1 2 8	8 1 7

1. Includes time deposits with original maturities more than 3 months

2. Attributable to stockholders of parent company, excluding minority interest.

3. Financial metrics are calculated based on quarterly numbers, starting from 2Q 2012

CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars)

ASSETS Amount % Amount % Amount % CURRENT ASSETS Cash and cash equivalents (Note 6) \$ 26,565,598 29 \$ 30,080,217 29 \$ 39,031,628 33 Financial assets at fair value through profit or loss - current (Notes 7 and 31) 77,332 - 143,642 - 127,521 - Available-for-sale financial assets - current (Note 31) 236,144 - 199,344 - 249,575 - Derivative financial assets for hedging - current (Notes 8 and 31) - - - - 1,100 - Debt investments with no active market - current (Note 31) 7,582 - 8,067 - 8,069 - Trade receivables, net (Notes 11 and 32) 9,046,951 10 15,961,835 15 11,525,883 10 Other receivables (Note 11) 231,759 - 168,526 - 645,546 1 Current tax assets 137,458 - 184,817 - 172,703 - Inventories (Note 12) 14,923,347 16 14,163,571 14 19,210,735 16 Prepayments (Note 13) 1,593,590 2 1,833,499 2 3,726,028 3 Non-current assets held for sale (Note 14) 1,563,732 2 - - - - Other current financial assets (Notes 10 and 33) 6,576,255 7 5,750,450 6 2,684,493 2 Other current assets 70,367 - 68,414 - 76,504 - Total current assets 61,030,115 66 68,562,382 66 77,459,785 65 NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Note 31) 96 - 86 - 86 - Financial assets measured at cost - non-current (Notes 9 and 31) 3,266,107 3 3,363,736 3 3,330,763 3 Debt investments with no active market (Note 31) 29,570 - 25,009 - - - Investments accounted for using equity method (Note 16) 466,341 - 531,445 1 211,122 - Property, plant and equipment (Note 17) 11,712,682 13 12,025,496 12 14,943,270 13 Investment properties, net (Note 18) - - 1,527,001 1 1,680,709 2 Intangible assets (Note 19) 3,316,074 4 3,878,356 4 5,022,059 4 Deferred tax assets 8,996,321 10 8,957,876 9 8,735,824 7 Refundable deposits (Note 31) 1,360,583 1 1,501,480 1 1,617,463 1 Long-term receivables (Note 11) - - - - 1,472,529 1 Net defined benefit asset - non-current 45,231 - 40,439 - 81,201 - Other non-current assets (Note 13) 2,568,848 3 2,735,876 3 4,623,867 4 Total non-current assets 31,761,853 34 34,586,800 34 41,718,893 35 TOTAL \$ 92,791,968 100 \$ 103,149,182 100 \$ 119,178,678 100 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 20) \$ 2,756,560 3 \$ - - \$ - - Financial liabilities at fair value through profit or loss - current (Notes 7 and 31) 194,631 - 133,420 - 264,718 - Derivative financial liability for hedging - current (Notes 8 and 31) 12,110 - - - 3,309 - Note and trade payables (Notes 21 and 32) 21,109,467 23 26,247,728 26 25,778,172 22 Other payables (Notes 22 and 32) 13,569,654 15 18,348,734 18 21,597,135 18 Current tax liabilities 143,595 - 155,651 - 136,316 - Provisions - current (Note 23) 3,143,478 3 3,384,311 3 5,298,140 4 Other current liabilities (Notes 14 and 22) 3,747,735 4 3,004,432 3 3,032,395 3 Total current liabilities 44,677,230 48 51,274,276 50 56,110,185 47 NON-CURRENT LIABILITIES Deferred tax liabilities 85,823 - 81,294 - 79,057 - Guarantee deposits received (Note 31) 6,289 - 22,106 - 27,613 - Other non-current liabilities (Notes 14 and 22) - - - - 1,210,369 1	March 31, 2017 (Reviewed)		December 31, 2016 (Audited)		March 31, 2016 (Reviewed)

Total non-current liabilities	92,112	-	103,400	-	1,317,039	1
Total liabilities	44,769,342	48	51,377,676	50	57,427,224	48
EQUITY (Note 24)
Share capital - ordinary shares	8,219,042	9	8,220,087	8	8,276,415	7
Capital surplus	15,626,493	17	15,614,641	15	15,487,941	13
Retained earnings
Legal reserve	18,297,655	20	18,297,655	18	18,297,655	15
Unappropriated earnings	8,808,880	9	10,841,425	10	19,077,139	16
Other equity	(2,929,444)	(3)	(1,202,302)	(1)	612,304	1
Total equity	48,022,626	52	51,771,506	50	61,751,454	52
TOTAL	\$ 92,791,968	100	\$ 103,149,182	100	\$ 119,178,678	100

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

	For the Three Months Ended March 31
	2017		2016
	Amount	%	Amount	%
OPERATING REVENUES (Notes 25 and 32)	\$ 14,530,823	100	\$ 14,820,982	100
OPERATING COST (Notes 12, 26 and 32)	12,167,637	84	13,433,886	90
GROSS PROFIT	2,363,186	16	1,387,096	10
OPERATING EXPENSES (Notes 26 and 32) Selling and marketing General and administrative Research and development Total operating expenses	1,271,023 875,376 2,574,388 4,720,787	9 6 17 32	1,984,328 1,248,618 2,957,261 6,190,207	13 9 20 42
OPERATING LOSS	(2,357,601)	(16)	(4,803,111)	(32)
NON-OPERATING INCOME AND EXPENSES Other income (Note 26) Other gains and losses (Notes 8, 14 and 26) Finance costs Share of the profit or loss of associate and joint venture (Note 16)	272,189 81,531 (2,467) (34,392)	2 - - -	237,979 2,101,768 (4,235) (28,362)	1 14 - -
Total non-operating income and expenses	316,861	2	2,307,150	15
LOSS BEFORE INCOME TAX	(2,040,740)	(14)	(2,495,961)	(17)
INCOME TAX BENEFIT (EXPENSE) (Note 27)	8,195	-	(120,486)	(1)
LOSS FOR THE PERIOD	(2,032,545)	(14)	(2,616,447)	(18)
OTHER COMPREHENSIVE LOSS, NET OF INCOME TAX Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations	(1,805,815)	(12)	(434,730)	(3)
Unrealized gain (loss) on available-for-sale financial assets	50,044	-	(103,724)	-
Cash flow hedge	(12,882)	-	(2,627)	-

(Continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

	For the Three Months Ended March 31
	2017		2016
	Amount	%	Amount	%
Other comprehensive loss for the period, net of income tax	\$ (1,768,653)	(12)	\$ (541,081)	(3)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD	\$ (3,801,198)	(26)	\$ (3,157,528)	(21)
NET LOSS ATTRIBUTABLE TO Owners of the parent	\$ (2,032,545)	(14)	\$ (2,616,447)	(18)
TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO Owners of the parent	\$ (3,801,198)	(26)	\$ (3,157,528)	(21)
LOSS PER SHARE (Note 28) Basic	\$ (2.47)		\$ (3.16)

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

	For the Three Months Ended March 31
	2017	2016
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before income tax	\$ (2,040,740)	\$ (2,495,961)
Adjustments for:
Depreciation expense	275,763	520,531
Amortization expense	355,370	505,104
Finance costs	2,467	4,235
Interests income	(75,181)	(123,227)
Dividend income	(7,420)	(78,453)
Compensation cost of employee share-based payments	52,318	116,887
Share of the loss of associate and joint venture	34,392	28,362
Net loss (gain) on disposal of property, plant and equipment	129	(2,089,417)
Impairment loss on non-financial assets	1,385,920	471,594
Ineffective portion of cash flow hedges	(772)	(418)
Changes in operating assets and liabilities
Decrease in financial instruments held for trading	127,521	196,146
Decrease in trade receivables	6,914,884	6,993,065
Increase in other receivables	(59,561)	(171,290)
Increase in inventories	(2,145,696)	(558,692)
Decrease in prepayments	239,909	674,940
(Increase) decrease in other current assets	(1,953)	18,107
Decrease in other non-current assets	43,312	132,152
Decrease in note and trade payables	(5,138,261)	(3,820,213)
Decrease in other payables	(4,767,172)	(3,560,887)
Decrease in provisions	(240,833)	(694,118)
Decrease in other current liabilities	(644,940)	(657,368)
Increase in other operating liabilities	-	1,210,369
Cash used in operations	(5,690,544)	(3,378,552)
Interest received	71,509	100,982
Interest paid	(2,467)	(4,235)
Income tax paid	(12,612)	(174,064)
Net cash used in operating activities	(5,634,114)	(3,455,869)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire debt investment with no active market	(6,139)	-
Payments to acquire financial assets measured at cost	(68,372)	-
Proceeds from disposal of non-current assets held for sale	-	6,060,000
Payments for property, plant and equipment	(30,705)	(125,449)
Proceeds from disposal of property, plant and equipment	1,384	28,095
Increase in advance receipts - disposal of property	1,388,243	-
Increase in refundable deposits	-	(37,121)
Decrease in refundable deposits	140,897	- (Continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

	For the Three Months Ended March 31
	2017	2016
Payments for intangible assets (Increase) decrease in other current financial assets Dividends received	\$ - (825,805) 7,420	\$ (72,763) 1,415,797 23,537
Net cash generated from investing activities	606,923	7,292,096
CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Refund of guarantee deposits received Net cash generated from (used in) financing activities	2,756,560 (15,817) 2,740,743	- (2,546) (2,546)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(1,228,171)	(148,852)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(3,514,619)	3,684,829
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	30,080,217	35,346,799
CASH AND CASH EQUIVALENTS, END OF PERIOD	\$ 26,565,598	\$ 39,031,628

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)