HTC — Interim / Quarterly Report 2016

Feb 14, 2017

Peter Shen, CFO February14

th , 2017

HTC CORPORATION 4Q16 BUSINESS REVIEW

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

4Q16 Financial Highlights:

• Revenue of NT\$22.2 billion with gross margin of 10.5%
• Operating loss of NT\$3.6 billion with operating margin of -16.0%
• Net loss after tax of NT\$3.1 billion, or -NT\$3.77 per share

Business Update

• HTC saw robust sales performance in Q4, with quarterly revenue improving sequentially over 2016, while OPEX has been aggressively managed through enhanced resource realignment to deliver a 34% cost

• Q4 saw the global launch of the HTC 10 evo in November, while HTC Desire 10 pro and lifestyle edition

• reduction over the year.
• phones also entered select markets and have been well received.
• VIVE X accelerator program in Beijing, Taipei, and San Francisco, and the launch of VIVE studios.

• HTC continues to build the virtual reality ecosystem around HTC VIVE, with several events underlining the growing reach of the Vive platform, including opening the first VIVE-based arcade in Taipei, first demo days for

REVENUES AND OPERATING PROFIT

GROSS AND OPERATING MARGINS

4Q 2016 P&L (CONSOLIDATED)

NT\$bn	4Q 15	3Q 16	4Q 16
REVENUES	25.7	22.2	22.2
GROSS PROFIT	3.6	3.6	2.3
OPERATING EXPENSE	7.7	5.6	5.9
SALES MKTING.	3.5	2.2	2.1
RESEARCH DEV.	3.0	2.5	2.7
GENERAL ADM.	1.2	0.9	1.1
OPERATING PROFIT	-4.1	-2.0	-3.6
NPBT	-3.7	-1.8	-3.3
NPAT1	-3.4	-1.8	-3.1
GROSS MARGIN (%)	13.9%	16.1%	10.5%
OPERATING MARGIN (%)	-16.1%	-9.0%	-16.0%
EPS2 (NT\$)	-4.10	-2.18	-3.77

1 Attributable to stockholders of parent company, excluding minority interest. 2 EPS was calculated based on number of outstanding shares at that time.

4Q 2016 BALANCE SHEET (CONSOLIDATED)

Cash¹ TOTAL EQUITY² METRICS³

NT\$bn	Dec 31, 15	Sep 30, 16	Dec 31, 16
TOTAL ASSETS	129.4	111.7	103.1
Cash1	39.4	34.3	35.8
AR	18.5	17.6	16.0
INVENTORY	19.1	19.3	14.2
OTHER ASSETS	52.4	40.5	37.1
TOTAL LIABILITIES	64.6	56.7	51.3
TOTAL EQUITY2	64.8	55.0	51.8
METRICS3
DAYS SALES OUTSTANDING	74	76	80
INVENTORY TURNOVER DAYS	93	105	92
DAYS PAYABLE OUTSTANDING	122	139	128

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

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (UNAUDITED)(In Thousands of New Taiwan Dollars)

	De ber 31 cem ,	20 16	De ber 31 cem	20 15 ,		De ber 31 cem	20 16 ,	De ber 31 cem ,	20 15
	Am t oun	%	Am t oun	%		Am t oun	%	Am t oun	%
AS SE TS					LIA BIL ITI ES AN D E QU ITY
CU RR EN T A SS ET S					CU RR EN T L IAB ILIT IES
Ca sh and sh iva len ts ca equ	\$ 30 080 217 , ,	\$ 29	35 346 799 , ,	27	Fin ial liab iliti at f air val thr h p rof it o r lo \$ nt anc es ue oug ss - cu rre	133 420 ,	\$ -	36 544 ,	-
Fin ial fair lue th h p rof it o r lo ets at nt anc ass va rou g ss - cu rre	143 642 ,	-	95 493 ,	-	No nd de abl te a tra pay es	26 247 728 , ,	26	385 29 598 , ,	23
Av aila ble -fo le f ina nci al a ts - nt r-sa sse cu rre	3 199 44 ,	-	303 289 ,	-	Oth abl er pay es	18, 348 734 ,	18	276 24 993 , ,	19
De bt i ith ive ark stm ent act et - nt nve s w no m cu rre	8, 067	-	8, 266	-	Cu liab iliti nt t rre ax es	155 65 1 ,	-	163 252 ,	-
Tra de eiv abl t rec es, ne	15, 96 1, 835	15	948 18, 518 ,	14	Pro vis ion t s - cur ren	3, 384 31 1 ,	3	258 5, 992 ,	5
Oth eiv abl er rec es	168 526 ,	-	466 79 1 ,	1	Oth t lia bili ties er cur ren	3, 004 432 ,	3	763 3, 689 ,	3
Cu nt t ets rre ax ass	184 817 ,	-	212 033 ,	-	To tal t lia bili ties cur ren	276 51 274 , ,	50	478 64 473 , ,	50
Inv orie ent s	14, 163 57 1 ,	14	637 19, 123 ,	15
Pre nts pay me	1, 833 499 ,	2	968 4, 400 ,	4
fo No ent set s h eld le n-c urr as r sa	-	-	277 3, 768 ,	3	NO N-C S UR RE NT LIA BIL ITIE
Oth t fin ial ets er cur ren anc ass	5, 750 450 ,	6	290 4, 100 ,	3	De fer red lia bili ties tax	81 294 ,	-	97 35 1 ,	-
Oth t as set er cur ren s	68 414 ,	-	1 94 61 ,	-	Gu e d sits cei ved nte ara epo re	22 106 ,	-	159 30 ,	-
To tal t as set cur ren s	382 68 562 , ,	66	402 86 439 , ,	67	To tal nt l iab iliti non -cu rre es	400 103 ,	-	510 127 ,	-
NO N-C UR RE NT AS SE TS					T l lia bili ties ota	51 377 676	50	988 64 600
Av aila ble -fo le f ina nci al a ts - ent r-sa sse no n-c urr	8 6	-	75			, ,		, ,	50
Fin ial ets d a t co st - ent anc ass m eas ure no n-c urr	36 3, 3, 736	3	151 3, 396	-
De bt i ith ive ark stm ent act et - ent nve s w no m no n-c urr	009 25	-	,	3
Inv d fo ing uity eth od est nts nte me ac cou r us eq m	, 4 53 1, 45	1	- 237 240	-	EQ UIT Y
Pro lan nd ipm ty, t a ent per p equ	496 12, 025	12	, 130 15, 432	12	-
Inv est nt p ert ies t me rop , ne	, 1, 527 00 1 ,	1	, 489 1, 708 ,	1	Sh ital rdin sh are ca p - o ary are s	8, 220 087 ,	8	695 8, 318 ,	6
Inta ible set ng as s	3, 878 356 ,	4	444 5, 56 1,	4	Ca ital lus p su rp	15, 614 64 1 ,	15	853 15, 505 ,	12
De fer red tax set as s	8, 957 876 ,	9	322 8, 699 ,	7	Re tain ed nin ear gs
Re fun dab le d sits epo	1, 50 1, 480	1	342 1, 580 ,	1	Leg al r ese rve	18, 297 655 ,	18	655 18, 297 ,	14
Lon iva ble ter g- m r ece s	-	-	775 1, 488 ,	1	Un riat ed nin app rop ear gs	10, 84 1, 425	10	432 21 782 , ,	17
Ne t de fine d b fit a t - nt ene sse non -cu rre	439 40 ,	-	470 79 ,	-	Oth ity ( er equ	1, 202 302 ) ,	( 1)	415 1, 088 ,	1
Oth nt a ts er non -cu rre sse	2, 735 876 ,	3	246 4, 767 ,	4	Tre har asu ry s es	-	( -	) 200 955 ,	-
To tal nt a ts non -cu rre sse	800 34 586 , ,	34	1 42 953 68 , ,	33	T l eq uity ota	506 51 77 1, ,	50	095 64 792 , ,	50
TO TA L	\$ 182 103 149	\$ 100	129 393		\$ TO TA	103 149 182	\$	129 393
	, ,		083 , ,	100	L	, ,	100	083 , ,	100

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENT (UNAUDITED)(In Thousands of New Taiwan Dollars, Except Loss Per Share)

	Fo he Ye En de d De be r 3 1 r t ars ce m
		20 16	20 15
		Am nt ou	%		Am nt ou		%
O P E R A T I N G R E V E N U E S	\$	78 16 1, 15 8 ,	10 0	\$	12 1, 6 8 4, 23 1		10 0
O P E R A T I N G C O S T		6 8, 72 6, 5 6 7	8 8		4 9 9, 73 1, 12		8 2
G R O S S P R O F I T		9, 43 4, 5 9 1	12		7 21 9 5 3, 10 ,		18
O P E R A T I N G E X P E N S E S Se l l ing d m ket ing an ar Ge l a d a dm in istr ive at ne ra n Re h a d de lop nt se arc n ve me		8, 8 6 1, 75 8 4, 22 3, 6 9 7 10 9 5 7, 20 0 ,	11 6 14		17 45 2, 6 73 , 4, 9 75 9 6 4 , 16 13 72 7, 6 ,		15 4 11
To l o ing ta t p era ex p en se s		24 0 42 6 5 5 , ,	3 1		3 3 6, 15 6, 25		3 0
O G O S S P E R A T I N L	(	) 14 6 0 8, 0 6 4 ( ,	19 )	(	14 20 3, 14 6 ) ,	(	12 )
N O N- O P E R A T I N G I N C O M E A N D E X P E N S E S Ot he inc r om e Ot he ins d los r g a an se s F ina ts nc e c os S ha f t he f it o los f a iat d j int ntu re o p ro r s o sso c es an o ve re	( (	6 43 0 78 , 3, 44 8, 6 18 5, 29 8 ) ) 6 2, 28 2	1 4 - -	( ( (	9 28 0 3 6 , 2, 28 6, 6 5 9 ) 8, 12 3 ) ) 11 6 48 ,	(	1 2 ) - -
To l no ing inc d e ta t n-o p era om e a n xp en se s		4, 0 24 11 6 ,	5	(	) 1, 3 78 3 9 4 ,	(	) 1
L O S S B E F O R E I N C O M E T A X	(	) ( 10 5 8 3, 9 48 ,	) 14	(	) 15 5 8 1, 5 40 ,	(	) 13
I N C O M E T A X B E N E F I T	(	) 23 8 45 ,	-	(	) 48 47 2 ,		-
O S S O L F R T H E Y E A R	\$ (	10 5 6 0, 10 3 ) ( ,	14 )	\$ (	15 5 3 3, 0 6 8 ) ,	(	13 )
L O S S P E R S H A R E Ba ic s	( \$	) 12 .8 1		( \$	) 18 .79

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)(In Thousands of New Taiwan Dollars)

	Fo r th e Y En ded De be r 3 1 ea rs cem
		20 16	20 15
CA SH OW S F RO M O G A CT S FL PE RA TIN IVI TIE
Los s b efo inc e t re om ax	\$ (	\$ 10, 583 948 ) ( ,	15, 58 1, 54 0)
Ad jus s fo tm ent r:
De cia tio pre n e xpe nse s		1, 752 322 ,	2, 53 9, 046
Am iza tio ort n e xpe nse s		1, 639 51 6 ,	1, 95 6, 533
Ba d d ebt ex pe nse s		1, 175 179 ,	-
Fin ost anc e c s		5, 29 8	8, 123
Inte inc ts res om e	(	382 55 0) ( ,	41 9, 969 )
Div ide nd inc om e	(	1) ( 138 76 ,	) 352 074 ,
Co atio f e loy sha bas ed ost nts mp ens n c s o mp ee re- pay me		43 1, 99 6	55 0, 688
Sh of th rof it o r lo of oci nd jo int ate ntu are e p ss ass s a ve re		62 282 ,	11, 648
Ne ain dis al o f p lan nd uip t g ert t a nt on pos rop y, p eq me	(	1) ( 3, 196 38 ,	5) 8, 38
nsf of Tra rtie lan ts a nd uip nt t er pro pe s, p eq me o e xpe nse		-	8, 33 9
Ga in o ale of inv est nts n s me		( -	32 7)
Imp air los n-f ina nci al a nt ts me ses on no sse		2, 054 45 3 ,	4, 859 33 6 ,
Ch in o ing nd liab iliti rat set ang es pe as s a es
De in fina nci al i s h eld fo ad ing nst ent r tr cre ase rum		48 727 ,	181 171 ,
De in de eiv ab les tra cre ase rec		2, 85 7, 064	10, 62 1, 33 6
De in oth eiv ab les cre ase er rec		312 686 ,	112 713 ,
De ( inc se) in inv ori ent cre ase rea es		2, 918 20 8 ( ,	3, 85 0, 023 )
De in nts cre ase pre pay me		2, 56 7, 46 9	2, 225 138 ,
De in oth t a ts cre ase er cur ren sse		26 197 ,	4, 658
De in oth nt a ts cre ase er non -cu rre sse		1, 993 672 ,	2, 666 129 ,
De in nd de ab les not tra cre ase e a pay	(	7) ( 3, 35 0, 65	) 14, 204 958 ,
De in oth ab les cre ase er pay	(	5) ( 6, 574 40 ,	) 7, 108 608 ,
( De ) inc in p isio cre ase rea se rov ns	(	7) 2, 60 7, 94	151 079 ,
( De ) inc in o the lia bili ties ent cre ase rea se r c urr	(	685 33 1) ,	2, 54 6, 629
Ca sh d in tio use op era ns	(	9, 674 91 1) ( ,	13, 083 31 8) ,
Inte cei ved t re res		33 6, 626	334 30 9 ,
Inte aid t p res	(	5, 29 8) ( 275 92	8, 123 ) 295 35
Inc id e t om ax pa	(	7) ( , 619 51	1) , 052 48
Ne sh d in ting tivi ties t ca use op era ac	(	9, 0) ( ,	13, 3) ,

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)(In Thousands of New Taiwan Dollars)

	Fo r th e Y En ded De be r 3 1 ea rs cem
		20 16	20 15
CA SH FL OW S F RO M INV ES TIN G A CT IVI TIE S
Pa ire de bt inv ith ive ark ent s to est nt w act et ym ac qu me no m	(	) 24 548 ,	-
Pa ire fina nci al a red ent s to ts at st ym ac qu sse me asu co	(	) ( 203 283 ,	) 700 245 ,
Pro ds fro m d isp l of fin ial d a ets t co st cee osa anc ass m eas ure		-	32 7
Ac isit ion of iate qu as soc s	(	363 754 ) ( ,	16, 53 1)
Pro ds fro m d isp l of inv d f usi uity eth od est nts nte cee osa me ac cou or ng eq m		182 578 ,	-
Pro ds fro m d isp l of s h eld of le ent set cee osa no n-c urr as sa		6, 060 000 ,	-
Pa s fo lan nd uip ent ert t a nt ym r p rop y, p eq me	(	60 1, 42 7) (	98 7, 32 9)
Pro ds fro m d isp l of lan nd uip ert t a nt cee osa pr op y, p eq me		2, 935 283 ,	34 5, 464
Inc in r efu nda ble de its rea se pos		( -	1, 31 7, 602 )
De in ref und ab le d sits cre ase epo		78 862 ,	-
Pa s fo r in ible ent tan set ym g as s	(	75 45 5) ( ,	93 683 ) ,
Inc in o the fin ial ent ets rea se r c urr anc ass	(	1, 650 160 ) ( ,	3, 765 33 6) ,
Div ide nd eiv ed rec		83 844 ,	38 166 ,
Ne sh d f (u sed in) inv ing tivi ties t ca ate est ge ner rom ac		( 0 6, 42 1, 94	) 6, 49 6, 769
CA SH FL OW S F RO M FIN AN CIN G A CT IVI TIE S
Re fun d o f g de its eiv ed tee ua ran pos rec	(	) ( 8, 053	1) 13, 07
of e C Div ide nds id t th pa o o wn ers om pa ny		( -	314 636 ) ,
Bu bac k o f tr sh y- eas ury are s	(	) 43 6, 869 (	20 0, 955 )
Ne sh d in fin ing tivi ties t ca use anc ac	(	444 922 ) ( ,	528 662 ) ,
EF FE CT O F E XC HA NG E R AT E C HA NG ES O N C AS H A ND CA SH EQ UIV AL EN TS	(	1, 624 090 ) ( ,	31 8, 845 )
NE T D EC RE AS E I N C AS H A ND CA SH EQ UIV AL EN TS	(	5, 26 6, 582 ) (	20 39 6, 759 ) ,
CA SH AN D C AS H E QU IVA LE NT S, BE GIN NIN G O F T HE YE AR		799 35 34 6, ,	55 743 558 , ,
CA SH AN D C AS H E QU IVA LE NT S, EN D O F T HE YE AR	\$	30 080 21 7 , ,	\$ 35 34 6, 799 ,