LETTER TO SHAREHOLDERS
Dear Shareholders:
2007 was a remarkable year for Himax as our revenues and net income both came in at historical highs. In addition,
we have made a few strategic moves in both our display driver business and non-driver business, which we believe
have set a solid foundation for Himax to achieve the next level of growth in the long term.
As a result of our continued efforts in broadening our product offerings and innovations, servicing our customers, and
managing our costs, we generated revenue of US$918.2 million and net income of US$112.6 million in 2007. These
figures represent an astounding year-over-year growth of 23.3% and 49.7%, respectively.
Our acquisition of Wisepal, a display driver IC design company focusing on small-and medium-sized applications, was
officially closed on Feb. 1, 2007. This acquisition has accelerated Himax’s penetration into tier-one handset brands
and strengthened our position as one of the world’s leaders in the small-and medium-sized applications.
Capitalizing on our successes as a leading display driver supplier in the flat panel display industry, we continue to
invest heavily in non-driver products and have formed business alliances with leading players in the industry.
In the beginning of 2008, Chi Mei Optoelectronics, one of the world’s leading LCD panel manufacturers, and TPV
Technologies, the world’s largest LCD monitor manufacturer and the world’s largest LCD TV ODM, each took minority
ownership in Himax Media Solutions, a subsidiary of Himax. We believe that these strategic investments will provide
Himax Media Solutions with added competitive strength and further validate our strategy in the LCD TV and monitor
chipset space.
Separately, we’ve announced a strategic alliance with 3M, one of the worlds’ leading companies in optics technologies.
We plan to commercialize LCOS mobile projectors by combining each company’s proprietary technologies to deliver
a complete mobile projector solution to consumer electronics manufacturers. We believe the solution will be adopted
in various applications, making it among the preeminent mobile projector solutions in the marketplace.
Looking ahead, despite uncertainties in the worldwide economy, we remain fully committed to making Himax a world-
leading semiconductor solution provider for flat panel displays. The recent developments in Himax Media Solutions
and the strategic alliance with 3M are illustrations of our continued efforts toward that goal. We anticipate that these
strategic alliances and recent non-display driver innovations will provide added and future value to our shareholders
going forward.
To add further value to our shareholders, we completed a $50 million share repurchase program in February 2007
and announced another $40 million program in November 2007. In addition, we distributed a cash dividend of
$0.20 per share in October 2007 and $0.35 per share in June 2008, respectively.
In closing, circumstances in today’s financial markets make the challenges posed to the industry and Himax, particularly
difficult. With growth slowing and reduced consumer spending, we continue to seek novel innovation and opportunity
to expand our addressable markets. Thanks to the work and the dedication of our employees and the strength of
our technology and service which are key factors to bring us to where we are today, we are in a strong position to
overcome these challenges.
We thank you for your support.
Sincerely,
Jordan Wu
President and CEO
Himax Technologies, Inc.
1
ANNUAL REPORT TO SHAREHOLDRS
FOR THE YEAR 2007
CONTENTS
Special Note Regarding Forward-Looking Statements .......................................................
Selected Financial Data ........................................................................................................
Information on the Company ...............................................................................................
3
4
6
Operating and Financial Review and Prospects .................................................................
24
Directors, Senior Management and Employees ..................................................................
43
Major Shareholders and Related Party Transactions ..........................................................
52
Consolidated Financial Statements ......................................................................................
56
Corporate Information ...........................................................................................................
104
2
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. Although these forward-looking statements, which may include statements regarding our future results
of operations, financial condition, or business prospects, are based on our own information and information from other
sources we believe to be reliable, you should not place undue reliance on these forward-looking statements, which
apply only as of the date of this annual report. The words “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate”
and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements.
Our actual results of operations, financial condition or business prospects may differ materially from those expressed
or implied in these forward-looking statements for a variety of reasons, including, among other things and not limited
to, our anticipated growth strategies, our future business developments, results of operations and financial condition,
our ability to develop new products, the expected growth of the display driver markets, the expected growth of end-
use applications that use flat panel displays, particularly TFT-LCD panels, development of alternative flat panel display
technologies, and other factors. For a discussion of these risks and other factors, please see “Item 3.D. Key Information–
Risk Factors” of our 2007 20-F filing dated June 20, 2008.
3
SELECTED FINANCIAL DATA
The selected consolidated statement of income data and selected consolidated cash flow data for the years ended
December 31, 2005, 2006 and 2007 and the selected consolidated balance sheet data as of December 31, 2006 and
2007 are derived from our audited consolidated financial statements included herein, which were prepared in accordance
with U.S. GAAP. The selected consolidated balance sheet data as of December 31, 2003, 2004 and 2005 and the
selected consolidated statement of operations data and consolidated cash flow data for the years ended December
31, 2003 and 2004 have been derived from our audited consolidated financial statements that have not been included
herein and were prepared in accordance with U.S. GAAP. Our consolidated financial statements include the accounts
of Himax Technologies, Inc. and its subsidiaries as if we had been in existence for all years presented. As a result of
our reorganization, 100% of our outstanding ordinary shares immediately prior to our initial public offering were owned
by former shareholders of Himax Taiwan. In presenting our consolidated financial statements, the assets and liabilities,
revenues and expenses of Himax Taiwan and its subsidiaries are included in our consolidated financial statements at
their historical amounts for all periods presented. Our historical results do not necessarily indicate results expected for
any future periods. The selected financial and operating data set forth below should be read in conjunction with
“Operating and Financial Review and Prospects” and the consolidated financial statements and the notes to those
statements included herein.
Year Ended December 31,
2003
2004
2005
2006
2007
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues from third parties, net ........................
$ 29,050
$ 109,514 $ 217,420 $ 329,886
$ 371,267
Revenues from related parties, net ....................
102,793
190,759
322,784 $ 414,632
546,944
Costs and expenses(1):
Cost of revenues .................................................
100,102
235,973
419,380
601,565
716,163
Research and development ................................
21,077
24,021
41,278
60,655
General and administrative ..................................
Sales and marketing ............................................
Operating income ................................................
Net income (loss)(2) .............................................
Earnings (loss) per ordinary share(2) and per
ADS(3):
Basic ....................................................................
Diluted ..................................................................
Weighted-average number of shares used in
earnings per share computation:
4,614
2,669
3,381
(581)
(0.00)
(0.00)
$
$
$
$
$
$
$
$
73,906
14,903
9,334
4,654
2,742
6,784
4,762
9,762
6,970
32,883 $
68,000 $ 65,566
$ 103,905
36,000 $
61,558 $ 75,190
$ 112,596
0.21 $
0.21 $
0.35 $
0.34 $
0.39
0.39
$
$
0.57
0.57
Basic ....................................................................
116,617
169,320
176,105
192,475
196,862
Diluted ..................................................................
116,617
173,298
180,659
195,090
197,522
Cash dividends declared per ordinary
share(4) ............................................................
$
0.00
$
0.00 $
0.08 $
0.00
$
0.20
Note: (1) The amount of share-based compensation included in applicable costs and expenses categories is summarized as follows:
4
Year Ended December 31,
2003
2004
2005
2006
2007
(in thousands)
Cost of revenues ...................................
$
827
$
291 $
188 $
275
$
422
Research and development ..................
11,666
4,288
6,336
11,806
15,393
General and administrative ....................
Sales and marketing ..............................
2,124
1,349
721
537
848
1,241
1,444
1,625
2,182
2,324
Total ........................................................
$ 15,966
$
5,837 $
8,613 $ 15,150
$
20,321
In 2007, of the $20.3 million in share-based compensation, $14.4 million was settled in cash.
(2) Under the ROC Statute for Upgrading Industries, we are exempt from income taxes for income attributable to expanded
production capacity or newly developed technologies. If we had not been exempt from paying this income tax, net income
and basic and diluted earnings per share would have been $52.4 million, $0.30 and $0.29, respectively, for the year ended
December 31, 2005, $59.2 million, $0.31 and $0.30, respectively, for the year ended December 31, 2006, and $85.6 million,
$0.43, and $0.43, respectively, for the year ended December 31, 2007. A portion of these tax exemptions expires on March
31, 2009, December 31, 2010 and December 31, 2012, respectively.
(3) Each ADS represents one ordinary share.
(4)
In November 2005, we distributed a special cash dividend of approximately $0.075 per share in respect of our performance
prior to our initial public offering. This special cash dividend should not be considered representative of the dividends that
would be paid in any future periods or our dividend policy.
The following table presents our selected consolidated balance sheet data as of December 31, 2003, 2004, 2005, 2006
and 2007 and selected consolidated cash flow data for the years ended December 31, 2003, 2004, 2005, 2006 and
2007:
Year Ended December 31,
2003
2004
2005
2006
2007
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents(1) .............................
$
2,529
$
5,577 $
7,086 $ 109,753
$
94,780
Accounts receivable, net .....................................
Accounts receivable from related parties, net ...
Inventories ............................................................
Total current assets .............................................
Total assets ..........................................................
Accounts payable ................................................
Total current liabilities ..........................................
Total liabilities .......................................................
Ordinary shares ....................................................
12,543
22,893
21,088
88,245
96,159
22,901
43,613
43,870
17
27,016
39,129
54,092
80,259
112,767
88,682
69,587
116,850
194,902
105,004
101,341
116,550
144,414
300,056
466,715
538,272
157,770
327,239
518,794
652,762
38,649
52,157
52,246
18
105,801
120,407
147,221
160,784
153,279
185,599
160,784
153,471
190,364
18
19
19
Total stockholders’ equity (1) ..............................
52,289
104,860
165,831
363,927
451,309
Consolidated Cash Flow Data:
Net cash provided by (used in) operating
activities ...........................................................
(1,593)
(8,688)
12,464
29,696
77,162
Net cash provided by (used in) investing
activities ...........................................................
(28,915)
11,001
(25,363)
(8,927)
(25,019)
Net cash provided by (used in) financing
activities ...........................................................
30,341
735
14,404
81,886
(67,241)
Note: (1) Cash and cash equivalents at December 31, 2006 increased significantly as compared to December 31, 2005. This increase
was primarily due to net proceeds of $147.4 million received from our initial public offering in April 2006, which also caused
the increase in our stockholders' equity by the same amount.
5
INFORMATION ON THE COMPANY
History and Development of the Company
Himax Taiwan, our predecessor, was incorporated on June 12, 2001 as a limited liability company under the laws of
the ROC. On April 26, 2005, we established Himax Technologies Limited, an exempted company with limited liability
under the Companies Law Cap. 22 of the Cayman Islands, or the Companies Law, as a holding company to hold the
shares of Himax Taiwan in connection with our reorganization and share exchange. On October 14, 2005, Himax Taiwan
became our wholly owned subsidiary through a share exchange consummated pursuant to the ROC Business Mergers
and Acquisitions Law through which we acquired all of the issued and outstanding shares of Himax Taiwan, and we
issued ordinary shares to the shareholders of Himax Taiwan. Shareholders of Himax Taiwan received one of our ordinary
shares in exchange for one Himax Taiwan common share. The share exchange was unanimously approved by shareholders
of Himax Taiwan on June 10, 2005 with no dissenting shareholders and by the ROC Investment Commission on August
30, 2005 for our inbound investment in Taiwan, and on September 7, 2005 for our outbound investment outside of
Taiwan. We effected this reorganization and share exchange to comply with ROC laws, which prohibit a Taiwan
incorporated company not otherwise publicly listed in Taiwan from listing its shares on an overseas stock exchange.
Our reorganization enables us to maintain our operations through our Taiwan subsidiary, Himax Taiwan, while allowing
us to list our shares overseas through our holding company structure.
The common shares of Himax Taiwan were traded on the Emerging Stock Board from December 26, 2003 to August
10, 2005, under the stock code “3222.” Himax Taiwan’s common shares were delisted from the Emerging Stock Board
on August 11, 2005. As a result of our reorganization, Himax Taiwan is no longer a Taiwan public company, and its
common shares are no longer listed or traded on any trading markets.
On September 26, 2005, we changed our name to “Himax Technologies, Inc.,” and on October 17, 2005, Himax Taiwan
changed its name to "Himax Technologies Limited" upon the approval of shareholders of both companies and amendments
to the respective constitutive documents. We effected the name exchange in order to maintain continuity of operations
and marketing under the trade name “Himax Technologies, Inc.,” which had been previously used by Himax Taiwan.
In February 2007, we completed the acquisition of Wisepal, a driver IC company focusing on small and medium-sized
applications. This transaction further strengthened our competitive position in the small and medium-sized product
areas and broadened our supplier base, thereby securing additional foundry capacity, optimizing our foundry mix and
further diversifying our technology and product mix.
On October 12, 2007, we formed Himax Media Solutions, Inc., which oversees our TFT-LCD television and monitor
chipset business with a focus on expanding market share in the global TFT-LCD television and monitor chipset market.
Our principal executive offices are located at No. 26, Zih Lian Road, Fonghua Village, Sinshih Township, Tainan County
74445, Taiwan, Republic of China. Our telephone number at this address is +886 (6) 505-0880. Our registered office
in the Cayman Islands is located at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, Georgetown,
Grand Cayman, Cayman Islands. Our telephone number at this address is +(1-345) 949-1040. In addition, we have
regional offices in Hsinchu and Taipei, Taiwan; Suzhou, Foshan, Ningbo, Beijing, Shanghai and Shenzhen, China;
Yokohama and Matsusaka, Japan; Anyangsi Kyungkido, South Korea; and Irvine, California, USA.
Investor inquiries should be directed to our Investor Relations department, at +886-2-2370-3999 ext. 22618 or by email
to jessie_wang@himax.com.tw. Our website is www.himax.com.tw. The information contained on our website is not
part of this annual report. Our agent for service of process in the United States is Puglisi & Associates located at 850
Library Avenue, Suite 204, Newark, Delaware 19711.
6
Our ADSs have been listed on the Nasdaq Select Global Market since March 31, 2006. Our ordinary shares are not
listed or publicly traded on any trading markets.
Business Overview
We design, develop and market semiconductors that are critical components of flat panel displays. Our principal
products are display drivers for large-sized TFT-LCD panels, which are used in desktop monitors, notebook computers
and televisions, and display drivers for small and medium-sized TFT-LCD panels, which are used in mobile handsets
and consumer electronics products such as digital cameras, mobile gaming devices and car navigation displays. We
also offer display drivers for panels using OLED technology and LTPS technology. In addition, we are expanding our
product offerings to include non-driver products such as timing controllers, TFT-LCD television and monitor chipsets,
LCOS microdisplays, and power management ICs. Our customers are panel and television makers. We believe that our
leading design and engineering expertise, combined with our focus on customer service and close relationships with
semiconductor manufacturing service providers, has contributed to our success.
Industry Background
We operate in the flat panel display semiconductor industry. As our semiconductors are critical components of flat panel
displays, our industry is closely linked to the trends and developments of the flat panel display industry.
Flat Panel Display Semiconductors
Flat panel displays require different semiconductors depending upon the display technologies and the application. Some
of the most important ones include the following:
• Display Driver. The display driver receives image data from the timing controller and delivers precise analog
voltages or currents to create images on the display. The two main types of display drivers for a TFT-LCD panel
are gate drivers and source drivers. Gate drivers turn on the transistor within each pixel cell on the horizontal line
on the panel for data input at each row. Source drivers receive image data from the timing controller and generate
voltage that is applied to the liquid crystal within each pixel cell on the vertical line on the panel for data input
at each column. The combination determines the colors generated by each pixel. Typically multiple gate drivers
and source drivers are installed separately on the panel. However, for certain small and medium-sized applications,
gate drivers and source drivers are integrated into a single chip due to space and cost considerations. Large-sized
panels typically have higher resolution and require more display drivers than small and medium-sized panels.
• Timing Controller. The timing controller receives image data and converts the format for the source drivers' input.
The timing controller also generates controlling signals for gate and source drivers. Typically, the timing controller
is a discrete semiconductor in large-sized TFT-LCD panels. For certain small and medium-sized applications,
however, the timing controller may be integrated with display drivers.
• Scaler. For certain displays, a scaler is installed to magnify or shrink image data in order for the image to fill the
panel.
• Operational Amplifier. An operational amplifier supplies the reference voltage to source drivers in order to make
their output voltage uniform.
• Television Chipset. Television flat panel displays require chipsets that typically contain all or some of the following
components: an audio processor, analog interfaces, digital interfaces, a video processor, a channel receiver and
a digital television decoder. See “–Product–TFT-LCD Television and Monitor Semiconductor Solutions–TFT-LCD
Television and Monitor Chipsets” for a description of these components.
• Others. Flat panel displays also require multiple general purpose semiconductors such as memory, power converters
and inverters.
Characteristics of the Display Driver Market
Although we operate in several distinct segments of the flat panel display semiconductor industry, our principal products
are display drivers. Display drivers are critical components of flat panel displays. As a result, we believe that the
7
projected growth in the demand for flat panel displays will result in the growth in demand for display drivers. The display
driver market has specific characteristics, including those discussed below.
Concentration of Panel Manufacturers
The global TFT-LCD panel industry consists of a small number of manufacturers, substantially all of which are based
in Asia. In recent years, TFT-LCD panel manufacturers, in particular Taiwan- and Korea-based manufacturers, have
invested heavily to establish, construct and ramp up additional fab capacity. The capital intensive nature of the industry
often results in TFT-LCD panel manufacturers operating at a high level of capacity utilization in order to reduce unit
costs. This tends to create a temporary oversupply of panels, which reduces the average selling price of panels and
puts pricing pressure on display driver companies. Moreover, the concentration of panel manufacturers permits major
panel manufacturers to exert pricing pressure on display driver companies such as ours. The small number of panel
manufacturers intensifies this as display driver companies, in addition to seeking to expand their customer base, must
also focus on winning a larger percentage of such customers' display driver requirements.
Customization Requirements
Each panel display has a unique pixel design to meet its particular requirements. To optimize the panel’s performance,
display drivers have to be customized for each panel design. The most common customization requirement is for the
display driver company to optimize the gamma curve of each display driver for each panel design. Display driver
companies must work closely with their customers to develop semiconductors that meet their customers' specific
needs in order to optimize the performance of their products.
Mixed-Signal Design and High-Voltage CMOS Process Technology
Display drivers have specific design and manufacturing requirements that are not standard in the semiconductor
industry. Some display drivers require mixed-signal design since they combine both analog and digital devices on a
single semiconductor to process both analog signals and digital data. Manufacturing display drivers requires high-
voltage complementary metal oxide semiconductor, or CMOS, process technology operating at 10 to 18 volts for
source drivers and 10 to 45 volts for gate drivers, levels of voltage which are not standard in the semiconductor
industry. For display drivers, the driving voltage must be maintained under a very high degree of uniformity, which can
be difficult to achieve using standard CMOS process technology. However, manufacturing display drivers does not
require very small-geometry semiconductor processes. Typically, the manufacturing process for large panel display
drivers requires geometries between 0.13 micron and 1 micron because the physical dimensions of a high-voltage
device do not allow for the economical reduction in geometries below this range. We believe that there are a limited
number of fabs with high-voltage CMOS process technology that are capable of high-volume manufacturing of display
drivers.
Special Assembly and Testing Requirements
Manufacturing display drivers requires certain assembly and testing technologies and equipment that are not standard
for other semiconductors and are offered by a limited number of providers. The assembly of display drivers typically
uses either tape automated bonding, also known as TAB, or chip-on-glass, also known as COG, technologies. Display
drivers also require gold bumping, which is a process in which gold bumps are plated onto each wafer to connect the
die and the processed tape, in the case of TAB packages, and the glass, in the case of COG packages. TAB may utilize
tape carrier package, also known as TCP, or chip on film, also known as COF. The type of assembly used depends
on the panel manufacturer’s design, which is influenced by panel size and application and is typically determined by
the panel manufacturers. Display drivers for large-sized applications typically require TAB package types and, to a lesser
extent COG package types, whereas display drivers for mobile handsets and consumer electronics products typically
require COG packages. The testing of display drivers also requires special testers that can support high-channel and
high-voltage output semiconductors. Such testers are not standard in the semiconductor industry.
8
Supply Chain Management
The manufacturing of display drivers is a complex process and requires several manufacturing stages such as wafer
fabrication, gold bumping and assembly and testing, and the availability of materials such as the processed tape used
in TAB packaging. We refer to these manufacturing stages and material requirements collectively as the “supply chain.”
Panel manufacturers typically operate at high levels of capacity utilization and require a reliable supply of display drivers.
A shortage of display drivers, or a disruption to this supply, may disrupt panel manufacturers’ operations since
replacement supplies may not be available on a timely basis or at all, given the customization of display drivers. As a
result, a display driver company’s ability to deliver its products on a timely basis at the quality and quantity required
is critical to satisfying its existing customers and winning new ones. Such supply chain management is particularly
crucial to fabless display driver companies that do not have their own in-house manufacturing capacity. In the case
of display drivers, supply chain management is further complicated by the high-voltage CMOS process technology and
the special assembly and testing requirements that are not standard in the semiconductor industry. Access to this
capacity also depends in part on display driver companies having received assurances of demand for their products
since semiconductor manufacturing service providers require credible demand forecasts before allocating capacity
among customers and investing to expand their capacity to support growth.
Need for Higher Level of Integration
The small form factor of mobile handsets and certain consumer electronics products restricts the space for components.
Small and medium-sized panel applications typically require one or more source drivers, one or more gate drivers and
one timing controller, which can be installed as separate semiconductors or as an integrated single-chip driver.
Customers are increasingly demanding higher levels of integration in order to manufacture more compact panels,
simplify the module assembly process and reduce unit costs. Display driver companies must be able to offer highly
integrated chips that combine the source driver, gate driver and timing controller, as well as semiconductors such as
memory, power circuit and image processors, into a single chip. Due to the size restrictions and stringent power
consumption constraints of such display drivers, single-chip drivers are complex to design. For large-sized panel
applications, integration is both more difficult to achieve and less important since size and weight are less of a priority.
Products
We have four principal product lines:
• display drivers and timing controllers;
• TFT-LCD television and monitor semiconductor solutions;
• LCOS products; and
• power management ICs.
We commenced volume shipments of our first source and gate drivers for large-sized panels in July 2001 and have
developed a broad product portfolio of display drivers and timing controllers for use in large-sized TFT-LCD panels. We
commenced volume shipments of our first display drivers for use in consumer electronics applications in April 2002,
volume shipments of two-chip display drivers for mobile handsets in August 2003 and volume shipments of single-chip
display drivers for mobile handsets in August 2004. In September 2004, we commenced volume shipments of our first
television semiconductor solutions. We commenced shipping engineering samples of LCOS products in December
2003 and started volume shipment in June 2006. We commenced shipping engineering samples of power management
ICs in October 2006 and started volume shipments in January 2007.
Display Drivers and Timing Controllers
Display Driver Characteristics
Display drivers deliver precise analog voltages and currents that activate the pixels on panels. The following is a
summary of certain display driver characteristics and their relationship to panel performance.
9
• Resolution and Number of Channels. Resolution refers to the number of pixels per line multiplied by the number
of lines, which determines the level of fine detail within an image displayed on a panel. For example, a color display
screen with 1,024 x 768 pixels has 1,024 red columns, 1,024 green columns and 1,024 blue columns for a total
of 3,072 columns and 768 rows. The red, green and blue columns are commonly referred to as “RGB.” Therefore,
the display drivers need to drive 3,072 column outputs and 768 row outputs. The number of display drivers
required for each panel depends on the resolution. For example, an XGA (1,024 x 768 pixels) panel requires eight
384 channel source drivers (1,024 x 3 = 384 x 8) and three 256 channel gate drivers (768 = 256 x 3), while a
SXGA (1,280 x 1,024 pixels) panel requires ten 384 channel source drivers and four 256 channel gate drivers.
The number of display drivers required can be reduced by using drivers with a higher number of channels. For
example, a SXGA panel can have eight 480 channel source drivers or four 960 channel source drivers instead
of ten 384 channel source drivers. Thus, using display drivers with a higher number of channels can reduce the
number of display drivers required for each panel, although display drivers with a higher number of channels
typically have higher unit costs.
• Color Depth. Color depth is the number of colors that can be displayed on a screen, which is determined by the
number of shades of a color, also known as grayscale, that can be shown by the panel. For example, a 6-bit
source driver is capable of generating 26 x 26 x 26 = 218, or 262K colors, and similarly, an 8-bit source driver is
capable of generating 16 million colors. Typically, for TFT-LCD panels currently in commercial production, 262K
and 16 million colors are supported by 6-bit and 8-bit source drivers, respectively.
• Operational Voltage. A display driver operates with two voltages: the input voltage (which enables it to receive
signals from the timing controller) and the output voltage (which, in the case of source drivers, is applied to liquid
crystals and, in the case of gate drivers, is used to switch on the TFT device). Source drivers typically operate
at input voltages from 3.3 to 1.5 volts and output voltages between 10 to 18 volts. Gate drivers typically operate
at input voltages from 3.3 to 1.5 volts and output voltages from 10 to 45 volts. Lower input voltage saves power
and lowers electromagnetic interference, or EMI. Output voltage may be higher or lower depending on the
characteristics of the liquid crystal (or diode), in the case of source drivers, or TFT device, in the case of gate
drivers.
• Gamma Curve. The relationship between the light passing through a pixel and the voltage applied to it by the
source driver is nonlinear and is referred to as the “gamma curve” of the source driver. Different panel designs
and manufacturing processes require source drivers with different gamma curves. Display drivers need to adjust
the gamma curve to fit the pixel design. Due to the materials and processes used in manufacturing, panels may
contain certain imperfections which can be corrected by the gamma curve of the source driver, a process which
is generally known as “gamma correction.” For certain types of liquid crystal, the gamma curves for RGB cells
are significantly different and thus need to be independently corrected. Some advanced display drivers feature
three independent gamma curves for RGB cells.
• Driver Interface. Driver interface refers to the connection between the timing controller and display drivers. Display
drivers increasingly require higher bandwidth interface technology to address the larger data volume necessary for
video images. Panels used for higher data transmission applications such as televisions require more advanced
interface technology. The principal types of interface technologies are transistor-to-transistor logic, or TTL, reduced
swing differential signaling, or RSDS, and mini-low voltage differential signaling, or mini-LVDS. Among these, RSDS
and mini-LVDS were developed as low power, low noise and low amplitude methods for high-speed data
transmission using fewer copper wires and resulting in lower EMI. In 2005, we introduced two new display driver
interfaces: dual edge TTL, or DETTL, and turbo RSDS. DETTL enables the interface to function with lower power
(below 1.8V), thus reducing power consumption. Turbo RSDS is an upgraded version of RSDS which increases
the interface frequency from 85MHz to 135MHz, thus reducing the bus width and panel costs.
• Package Type. The assembly of display drivers typically uses TAB and COG package types. COF and TCP are
two types of TAB packages. Customers typically determine the package type required according to their specific
mechanical and electrical considerations. In general, display drivers for small-sized panels use COG package type
whereas display drivers for large-sized panels primarily use TAB package types and, to a lesser extent, COG
package types.
10
Large-Sized Applications
We provide source drivers, gate drivers and timing controllers for large-sized panels principally used in desktop monitors,
notebook computers and televisions. Display drivers used in large-sized applications feature different key characteristics,
depending on the end-use application. For display drivers for use in notebook computers, low power consumption is
a key feature due to the portability of notebook computers and the need for long battery life. For display drivers used
in desktop monitors, low cost is more desirable than low power consumption. For advanced televisions, display drivers
must meet the requirements of larger panels, such as higher data transmission rates, wider viewing angles, faster
response time, higher color depth and better image performance.
The table below sets forth the features of our products for large-sized applications:
Product
Features
TFT-LCD Source Drivers
• 384 to 1080 output channels
• 6-bit (262K colors), 8-bit (16 million colors) or 10-bit (1 billion colors)
• one gamma-type driver
• three gamma-type drivers (RGB independent gamma curve to enhance color image)
• output driver voltage ranging from 4.5V to 24V
• input logic voltage ranging from standard 3.3V to low power 1.5V
• low power consumption and low EMI
• supports TCP, COF and COG package types
• supports TTL, RSDS, mini-LVDS, DETTL, turbo RSDS and customized interface
technologies
TFT-LCD Gate Drivers
• 192 to 400 output channels
• output driving voltage ranging from 10 to 45V
• input logic voltage ranging from standard 3.3V to low power 1.5V
• low power consumption
• supports TCP, COF and COG package types
Timing Controllers
• product portfolio supports a wide range of resolutions, from VGA (640 x 480 pixels)
to Full HD (1,920 x 1,080 pixels)
• supports TTL, RSDS, mini-LVDS, DETTL, turbo RSDS and customized output interface
technologies
• input logic voltage ranging from standard 3.3V to low power 1.5V
• embedded overdrive function for television applications to improve response time
• supports TTL, LVDS and mini-LVDS input interface technologies
The industry trend for large-sized applications is towards low power consumption notebook computer display drivers,
low cost desktop monitor display drivers and display drivers that can support higher speed interface technologies, have
greater color depth and enhanced color through RGB independent gamma for use in advanced televisions.
In December 2007, we introduced Cascade Modulated Driver Interface, or CDMI, technology, a patented technology
for LED notebook panels, benefits of which include a thin and light form factor, lower material costs and lower power
consumption and supports a resolution of up to 1,920 x 1,200 pixels.
Mobile Handset Applications
We offer display drivers for mobile handset displays that combine source driver, gate driver and other functions into
a single chip in various display technologies, such as TFT-LCD, LTPS LCD and AMOLED. As mobile handsets become
smaller and more compact, customers are increasingly demanding smaller die sizes and higher levels of integration with
source driver, gate driver, timing controller, as well as more functional semiconductors such as memory, power circuit
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and image processors, integrated into a single chip. Moreover, mobile handsets must operate for long durations without
recharging the battery. Thus, display drivers with lower power consumption are desired and we integrated our proprietary
low power driving circuits and Content Adaptive Brightness Control, or CABC, into display drivers in order to extend
the battery life. Low cost is also an important feature as mobile handset manufacturers continue to reduce cost and
customers increasingly seek out cost-effective display drivers.
The following table summarizes the features of our products for mobile handsets:
Product
Features
TFT-LCD Drivers
• highly integrated single chip embedded with the source driver, gate driver, power
circuit, timing controller and memory
• product portfolio suitable for a wide range of resolutions, including QQVGA (128 x 160
pixels), QCIF (132 x 176 pixels), QCIF+ (176 x 220 pixels), QVGA (240 x 320 pixels),
WQVGA (240 x 480 pixels), HVGA (320 x 480 pixels) and a range of panel sizes from
1.5 to 3.2 inches in diagonal measurement
• supports 262K colors to 16 million colors
• supports RGB separated gamma adjustment
• supports CABC
• supports MDDI (Mobile Display Digital Interface) or MIPI (Mobile Industry Processor
Interface)
• input logic voltage ranging from standard 3.3V to low power 1.65V
• low power consumption and low EMI
• utilizes die shrink technology to reduce die size and cost
• slimmer die for compact module to fit smaller mobile handset designs
• application specific integrated circuits, or ASIC, can be designed to meet customized
requirements (e.g., drivers without memory or drivers without gate driver embedded
on the chip)
LTPS Drivers
• highly integrated single chip embedded with the source driver, power circuit, timing
controller and memory
• suitable for a wide range of resolutions, including from QQVGA (128 x 160) to WVGA
(864 x 480), and a range of panel sizes from 1.5 to 3.5 inches diagonally
• supports 262K colors to 16 million colors
• supports RGB separated gamma adjustment
• supports CABC
• supports CDP, MDDI, or MIPI
• input logic voltage ranging from standard 3.3V to low power 1.65V
• utilizes die shrink technology to reduce die size and cost
• slimmer die for compact module
• ASIC can be designed to meet customized requirements
(e.g., gate-less or multi-bank output driver)
The industry trend for mobile handset display drivers is towards display drivers that can support high-speed interfaces,
have greater color depth and enhanced image quality as mobile handsets increasingly incorporate multimedia functions.
Consumer Electronics Products
We offer source drivers, gate drivers, timing controllers and integrated drivers for consumer electronics products such
as digital cameras, digital video recorders, personal digital assistants, mobile gaming devices, portable DVD players and
car navigation displays. We offer an extensive line of display drivers covering different applications, interfaces and
channel output and levels of integration. Similar to mobile handsets, consumer electronics products are typically
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compact, battery-operated devices. Customers are increasingly demanding display drivers with smaller and more
compact die sizes and higher levels of integration with source driver, gate driver, timing controller, as well as more
functional semiconductors such as memory, power circuit and image processors, integrated into a single chip. Moreover,
display drivers with lower power consumption are desired in order to extend battery life.
The following table summarizes the features of our products used in consumer electronics products:
Product
Features
TFT-LCD Source Drivers
• 240 to 1200 output channels
• products for analog and digital interfaces
• supports 262K colors to 16 million colors
• input logic voltage ranging from standard 3.3V to low power 2.5V
• low power consumption and low EMI
TFT-LCD Gate Drivers
• 96 to 800 output channels
• input logic voltage ranging from standard 3.3V to low power 2.5V
• output driving voltage ranging from 10 to 40V
TFT-LCD Integrated Drivers • highly integrated single chip embedded with source driver, gate driver, timing controller
and power circuit
• resolutions include 480 x 240, 320RGB x 240, 480RGB x 272
• products for analog or digital interfaces
• low power consumption
• CABC function integrated for backlight power saving
Timing Controllers
• products for analog or digital interfaces
• supports various resolutions from 280 x 220 pixels to 1024 x 600 pixels
The industry trend for display drivers used in medium-sized consumer electronics products is towards higher channels
and for the timing controller to be integrated into the video processor. The trend of display drivers used in small-sized
consumer electronics products is towards single-chip solutions combining the source driver, gate driver, timing controller
and power circuit into a single chip.
TFT-LCD Television and Monitor Semiconductor Solutions
Himax Media Solutions, our subsidiary, provides TFT-LCD television and monitor semiconductor solutions. Set forth
below are the various semiconductor components that may be utilized in advanced televisions:
Analog Video
Signals
Digital Video/
Audio Signals
Analog TV
Signal
Digital TV
Signal
Analog Audio
Signals
Analog Interfaces
Digital Interfaces
–– –
Video processor
Panel
Analog Tuner
–
–
–
–
–
––––
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– – – – – – – – – – – – – –
–
–
– – – – – – – – – – – – – – – –
–
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
Channel Receiver
Digital Tuner
Video Signal Path
Audio Signal Path
– – – – – – – – – – – – – –
DTV Decoder
Audiooo Processor/
Amplifier
Speakers
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TFT-LCD Television and Monitor Chipsets
Television chipsets contain numerous components that process video and audio signals and thus enhance the image
and audio qualities of televisions. Advanced televisions typically require some or all of these components:
• Audio Processor/Amplifier. Demodulates, processes and amplifies sound from television signals.
• Analog Interfaces. Convert analog video signals into digital video signals. Video decoder and analog-to-digital
converter, or ADC, are included.
• Digital Interfaces. Receive digital signals via digital receivers. Digital visual interfaces, or DVI, and high-definition
multimedia interfaces, or HDMI, are included.
• Channel Receiver. Demodulates input signals so that the output becomes compressed bit stream data.
• DTV Decoder. Converts video and audio signals from compressed bit stream data into regular video and audio
signals.
• Video Processor. Performs the scaling function that magnifies or shrinks the image data in order to fit the panel’s
resolution; provides real-time processing for improved color and image quality; converts output video from an
interlaced format to a progressive format in order to eliminate jaggedness; and supports on-screen display and
real-time video format transformation.
We are developing all of the above components and have shipped our analog TV single-chip solutions in volume. Our
analog TV single-chip solutions are designed for use in advanced televisions as well as LCOS applications and our
product portfolio includes high-performance chips that target high-end segments as well as cost-effective chips which
target entry-level segments.
The following table summarizes the features of our video processors:
Product
Features
Analog TV single-chip solutions
• ideal for LCD TV, MFM TV and LCOS applications
• integrated with video decoder and 3D comb filter to support worldwide
NTSC, PAL and SECAM standards
• integrated with VBI Slicer for CC, V-Chip and Teletext functions
• integrated with TCON and Over-Drive for additional cost-down
• integrated with high performance scaler, de-interlancer, and ADC
• built-in HDMI and DVI Receiver
• built-in Himax 3rd generation video engine which supports variable dynamic
video enhancement features
• output resolutions range from 640 x 480 up to 1920 x 1080
LCOS Products
LCOS technology is beginning to migrate into the mass-production stage for some commercial applications and is
expected to be utilized in near-to-eye applications and mini-projectors. We design our LCOS products at our subsidiary,
Himax Display, which owns and operates a fab for the manufacture of such products. In January 2008, we announced
a strategic alliance with 3M, one of the world's leading companies in optics technology, to commercialize LCOS mobile
projectors by combining their proprietary technologies to deliver a complete mobile projection solution to consumer
electronics manufacturers. 3M developed, and is providing, a miniature LED projection engine that incorporates the
single-panel color filter type LCOS module of Himax Display.
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The following table sets forth the features of our LCOS products:
Product
Features
LCOS modules for near-to-eye,
• Color filter type: 0.38” 640 x 360 pixels (Q720P), 0.44” VGA and 0.59”
mini and mobile-projector
SVGA resolutions
applications
• Color sequential type: 0.38” VGA and 0.59” SVGA
• 8-bit (16 million colors)
• high reflectivity and greater than 100:1 contrast ratio
• low power consumption
LCOS modules for projection
• WXGA and Full HD resolutions
applications
• 8-bit (16 million colors)
• high reflectivity and greater than 1,000:1 contrast ratio
Power Management ICs
Himax Analogic, our subsidiary, has three major products: class-D audio amplifiers, step-up DC-to-DC switching
regulators, and white light LED drivers.
• Class-D Audio Amplifier. The audio amplifier receives audio signals from the audio processor and delivers the
amplified audio signals to speaker(s). The input audio signal is converted into a sequence of pulses with fixed
voltage. By means of a modulated pulse width and an external low-pass filter, the output audio signal will be
“reproduced,” but with larger amplitude. Since a class-D audio amplifier only switches between on and off instead
of operating in linear mode, there is a very small amount of power consumed by the amplifier. Therefore, high
power efficiency is a class-D audio amplifier’s major advantage. For those applications that are concerned about
power dissipation, a class-D audio amplifier is an appropriate choice.
Product
Features
2.5W/2W Mono/Stereo Class-D
• 3.3V to 5.5V input voltage range
Audio Amp for Portable Devices
• Gain setting by external resistors or DC voltage
• OCP/OTP/UVL
9W Stereo Class-D Audio
• 8.5V to 12.6V input voltage range
Amp for TVs and Monitors
• 4 fixed gain selections
• OCP/OT/UVL
• Step-up DC-to-DC Switching Regulator. A step-up DC-to-DC converter, also called a switching regulator, integrates
an error amplifier and a pulse width modulator (PWM) with a build-in n-channel power MOSFET (Metal-Oxide-
Semiconductor Field-Effect Transistor) to perform with high efficiency and fast transient response in order to
supply a higher voltage from a lower input voltage with an external inductor and diode. Electronic devices require
various specific working voltages on different applications. However, there is normally one or two common power
sources available. A step-up DC-to-DC converter plays an important role in supplying higher voltage from lower
input voltage to make an electronic device work normally. In other words, most electronic devices need a step-
up DC-to-DC converter as a stable working power supplier in various applications.
Product
Features
TFT-LCD Step-up DC-to-DC
• 2.6V to 5.5V input voltage range
Converter
• Max boost voltage: 24V
• Programmable switching frequency
• Programmable soft-start
TFT-LCD DC-to-DC Converter with
• 2.6V to 6.5V input voltage range
Operational Amplifiers
• 1.2MHz current-mode boost regulator
• Linear regulator controllers for gate driver power supply
• Built-in 14V, 2.4A, 160 mΩ MOSFET
• 5 high-performance operational amplifiers
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• White Light LED Driver. The LED driver provides sufficient voltage and current to light up LED diodes. Moreover,
in addition to turning LEDs on, the driver has to keep the brightness of LEDs uniform and stable. Therefore,
voltage boosting and current sensing are the core functional blocks of a white light LED driver.
Product
Features
WLED Driver for Small/Medium
• 2.5V to 6V input voltage range
Size Panels
• Built-in 1.3MHz step-up PWM converter
• Capable of driving up to 39 LEDs (13 strings of 3 LEDs)
• Support 200~25KHz PMM dimming control
WLED Driver for Notebook Panels
• 4.5V to 24V input voltage range
• Built-in 1.3MHz step-up PWM converter (max. boost voltage: 40V)
• 8 constant current source channels
• Capable of driving up to 11 LEDs in serial for each channel
Other Products and Services
We established Himax Imaging Inc., or Himax Imaging, in March 2007 to design, develop and market semiconductors
for CMOS image sensor applications. To date, Himax Imaging has not generated any revenues.
Core Technologies and Know-How
Driving System Technology. Through our collaboration with panel manufacturers, we have developed extensive knowledge
of circuit design, TFT-LCD driving systems, high-voltage processes and display systems, all of which are important to
the design of high-performance TFT-LCD display drivers. Our engineers have in-depth knowledge of the driving system
technology, which is the architecture for the interaction between the source driver, gate driver, timing controller and
power systems as well as other passive components. We believe that our understanding of the entire driving system
has strengthened our design capabilities. Our engineers are highly skilled in designing power efficient and compact
display drivers that enhance the performance of TFT-LCD. We are leveraging our know-how of display drivers and
driving system technology to develop display drivers for panels utilizing other technologies such as OLED.
High-Voltage CMOS Circuit Design. Unlike most other semiconductors, TFT-LCD display drivers require a high output
voltage of 10 to 45 volts. We have developed circuit design technologies using a high-voltage CMOS process that
enables us to produce high-yield, reliable and compact drivers for high-volume applications. Moreover, our technologies
enable us to keep the driving voltage at very high uniformity, which can be difficult to achieve when using standard
CMOS process technology.
High-Bandwidth Interfaces. In addition to high-voltage circuit design, TFT-LCD display drivers require high bandwidth
transmission for video signals. We have applied several high-speed interfaces, including TTL, RSDS, mini-LVDS, DETTL,
turbo RSDS and customized interfaces, in our display drivers. Moreover, we are developing additional driver interfaces
for special applications with optimized speed, lower EMI and higher system stability.
Die Shrink and Low Power Technologies. Our engineers are highly skilled in employing their knowledge of driving
technology and high-voltage CMOS circuit design to shrink the die size of our display drivers while leveraging their
understanding of driving technology and panel characteristics to design display drivers with low power consumption.
Die size is an important consideration for applications with size constraints. Smaller die size also reduces the cost of
the chip. Lower power consumption is important for many portable devices such as notebook computers, mobile
handsets and consumer electronics products.
Customers
Our customers for display drivers are primarily panel manufacturers and mobile device module manufacturers, who in
turn design and market their products to manufacturers of end-use products such as notebook computers, desktop
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monitors, televisions, mobile handsets and consumer electronics products. As of December 31, 2007, we sold our
products to more than 70 customers. In 2005, 2006 and 2007, CMO and its affiliates accounted for 58.9%, 55.0%
and 58.8% of our revenues, respectively; CPT and its affiliates accounted for 16.2%, 12.4% and 7.3% of our revenues,
respectively; and SVA-NEC and its affiliates accounted for 5.6%, 7.3% and 8.4% of our revenues, respectively. We
expect that sales to CMO, CPT and SVA-NEC and their affiliates will continue to account for a substantial majority of
our revenues in the near term.
Set forth below (in alphabetical order) are our ten largest customers (and their affiliates) based on revenues for the year
ended December 31, 2007:
• Chi Lin Technology Co., Ltd.
• Chi Mei Optoelectronics Corp.
• Chunghwa Picture Tubes, Ltd.
• Excel Asian Taiwan Co., Ltd.
• HannStar Display Corporation
• InnoLux Display Corporation
• Perfect Display Limited
• Samsung Electronics Taiwan Co., Ltd.
• Shanghai SVA-NEC Liquid Crystal Display
• TPO Displays Corporation
Our customers typically provide us with a long-term (twelve-month) forecast plus three-month rolling non-binding
forecasts and confirm orders with us one month ahead of scheduled delivery. In general, purchase orders are not
cancellable by either party, although from time to time we and our customers have agreed to amend the terms of such
orders.
Sales and Marketing
We focus our sales and marketing strategy on establishing business and technology relationships principally with TFT-
LCD panel manufacturers and increasingly also with panel manufacturers using LTPS or OLED technologies and also
with mobile display module and mobile handset manufacturers in order to work closely with them on future semiconductor
solutions that align with their product road maps. Our engineers collaborate with our customers’ engineers to create
products that comply with their specifications and provide a high level of performance at competitive prices. Our end
market for large-sized panels is concentrated around a limited number of major panel manufacturers. We have also
commenced marketing our products directly to mobile device manufacturers so that our products can be qualified for
their specifications and designed into their products.
We primarily sell our products through our direct sales teams located in Taiwan, China, South Korea and Japan. We
also have dedicated sales teams for certain of our most important current or prospective customers. We have sales
and technical support offices in Tainan, Taiwan. We have regional offices in Hsinchu and Taipei, Taiwan; Suzhou,
Shenzhen, Foshan and Ningbo China; Yokohama and Matsusaka, Japan; Anyangsi Kyungkido, South Korea; and Irvine,
California, USA, all in close proximity to our customers. For certain products or regions we may from time to time sell
our products through agents or distributors.
Our sales and marketing team possesses a high level of technical expertise and industry knowledge used to support
a lengthy and complex sales process. This includes a highly trained team of field applications engineers that provides
technical support and assistance to potential and existing customers in designing, testing and qualifying display
modules that incorporate our products. We believe that the depth and quality of this design support are key to
improving customers' time-to-market and maintaining a high level of customer satisfaction.
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Manufacturing
We are a fabless semiconductor company. We leverage our experience and engineering expertise to design high-
performance semiconductors and rely on semiconductor manufacturing service providers for wafer fabrication, gold
bumping, assembly and testing. We also rely on third-party suppliers of processed tape used in TAB packaging. We
engage foundries with high-voltage CMOS process technology for our display drivers and engage assembly and testing
houses that specialize in TAB and COG packages, thereby taking advantage of the economies of scale and the
specialization of such semiconductor manufacturing service providers. Our fabless model enables us to capture certain
financial and operational benefits, including reduced manufacturing personnel, capital expenditures, fixed assets and
fixed costs. It also gives us the flexibility to use the technology and service provider most suitable for any given product.
Manufacturing Stages
The diagram below sets forth the various stages in manufacturing display drivers according to the two different types
of assembly utilized: TAB or COG. The assembly type depends on the application of the panel and is determined by
our customers.
TAB
COG
Wafer Fabrication
Wafer Fabrication
Processed Tape
Tape Carrier
Chip on
Packaging
(TCP)
Film
(COF)
Gold Bumping
Chip Probe Testing
Inner-lead Bonding
Gold Bumping
Chip Probe Testing
Final Testing
COG Assembly Testing
Wafer Fabrication: Based on our design, the foundry provides us with fabricated wafers. Each fabricated wafer
contains many chips, each known as a die.
Gold Bumping: After the wafers are fabricated, they are delivered to gold bumping houses where gold bumps are
plated on each wafer. The gold bumping process uses thin film metal deposition, photolithography and electrical plating
technologies. The gold bumps are plated onto each wafer to connect the die to the processed tape, in the case of
TAB package, or the glass, in the case of COG package.
Chip Probe Testing: Each individual die is electrically tested, or probed, for defects. Dies that fail this test are
discarded.
Assembly and Testing: Our display drivers use two types of assembly technology: TAB or COG. Display drivers for
large-sized applications typically require TAB package types and to a lesser extent COG package types, whereas
display drivers for mobile handsets and consumer electronics products typically require COG package types.
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TAB Assembly
We use two types of TAB technologies: TCP and COF. TCP and COF packages are both made of processed tape that
is typically 35mm or 48mm wide, plated with copper foil and has a circuit formed within it. TCP and COF packages
differ, however, in terms of their chip connections. With TCP packages, a hole is punched through the processed tape
in the area of the chip, which is connected to a flying lead made of copper. In contrast, with COF packages, the lead
is mounted directly on the processed tape and there is no flying lead.
• Inner-Lead Bonding: The TCP and COF assembly process involves grinding the bumped wafers into their
required thickness and cutting the wafers into individual dies, or chips. An inner lead bonder machine connects
the chip to the printed circuit processed tape and the package is sealed with resin at high temperatures.
• Final Testing: The assembled display drivers are tested to ensure that they meet performance specifications.
Testing takes place on specialized equipment using software customized for each product.
COG Assembly
COG assembly connects display drivers directly to LCD panels without the need for processed tape. COG assembly
involves grinding the tested wafers into their required thickness and cutting the wafers into individual dies, or chips.
Each individual die is picked and placed into a chip tray and is then visually or auto-inspected for defects. The dies
are packed within a tray in an aluminum bag after completion of the inspection process.
Quality Assurance
We maintain a comprehensive quality assurance system. Using a variety of methods from conducting rigorous simulations
during the circuit design process to evaluating supplier performance at various stages of our products’ manufacturing
process, we seek to bring about improvements and achieve customer satisfaction. In addition to monitoring customer
satisfaction through regular reviews, we implement extensive supplier quality controls so that the products we outsource
achieve our high standards. Prior to engaging a third party as our supplier, we perform a series of audits on their
operations, and upon engagement, we hold frequent quality assurance meetings with our suppliers to evaluate such
factors as product quality, production costs, technological sophistication and timely delivery.
In November 2002, we received ISO 9001:2000 certification which was renewed in February 2008 and will expire in
February 2011. In February 2006, we received ISO 14001 certification which was renewed in March 2008 and will expire
in 2009. In addition, in March 2007, we received IECQ QC 080000 and OHSAS 18001 certifications which will expire
in 2010.
Semiconductor Manufacturing Service Providers and Suppliers
Through our relationships with leading foundries, assembly, gold bumping and testing houses and processed tape
suppliers, we believe we have established a supply chain that enables us to deliver high-quality products to our
customers in a timely manner.
Access to semiconductor manufacturing service providers is critical as display drivers require high-voltage CMOS
process technology and specialized assembly and testing services, all of which are different from industry standards.
We have historically obtained our foundry services from TSMC and Vanguard and have also recently established
relationships with Macronix, Lite-on, Chartered, UMC, Maxchip and Silicon. These are among a select number of
semiconductor manufacturers that provide high-voltage CMOS process technology required for manufacturing display
drivers. We engage assembly and testing houses that specialize in TAB and COG packages such as Chipbond
Technology Corporation, ChipMOS Technologies Inc., International Semiconductor Technology Ltd., and Siliconware
Precision Industries Co., Ltd.
We plan to strengthen our relationships with our existing semiconductor manufacturing service providers and diversify
our network of such service providers in order to ensure access to sufficient cost-competitive and high-quality
19
manufacturing capacity. We are selective in our choice of semiconductor manufacturing service providers. It takes a
substantial amount of time to qualify alternative foundries, gold bumping, assembly and testing houses for production.
As a result, we expect that we will continue to rely on limited number of semiconductor manufacturing service providers
for a substantial portion of our manufacturing requirements in the near future.
The table below sets forth (in alphabetical order) our principal semiconductor manufacturing service providers and
suppliers:
Wafer Fabrication
Gold Bumping
Chartered Semiconductor Manufacturing Ltd.
Chipbond Technology Corporation
Lite-on Semiconductor Corp.
Macronix International Co., Ltd.
ChipMOS Technologies Inc.
International Semiconductor Technology Ltd.
Maxchip Electronics Corp. (which was spun off from
Siliconware Precision Industries Co., Ltd.
Powerchip Semiconductor Corp. on April 1, 2008)
Silicon Manufacturing Partners Pte Ltd.
Taiwan Semiconductor Manufacturing Company Ltd.
United Microelectronics Corporation
Vanguard International Semiconductor Corporation
Processed Tape for TAB Packaging
Assembly and Testing
Hitachi Cable Asia, Ltd. Taipei Branch
Chipbond Technology Corporation
Mitsui Micro Circuits Taiwan Co., Ltd.
ChipMOS Technologies Inc.
Samsung Techwin Co., Ltd.
Simpal Electronics Co. Ltd.
International Semiconductor Technology Ltd.
Siliconware Precision Industries Co., Ltd.
Sumitomo Metal Mining Package Material Co., Ltd.
Chip Probe Testing
Ardentec Corporation
Chipbond Technology Corporation
ChipMOS Technologies Inc.
International Semiconductor Technology Ltd.
King Yuan Electronics Co., Ltd.
Siliconware Precision Industries Co., Ltd.
Intellectual Property
As of December 31, 2007, we held a total of 231 patents, including 134 in Taiwan, 66 in the United States, 16 in China,
11 in Korea and 4 in Japan. The expiration dates of our patents range from 2019 to 2027. We also have a total of
353 pending patent applications in Taiwan, 364 in the United States and 208 in other jurisdictions, including the PRC,
Japan, Korea and Europe. In addition, we have registered “Himax” and our logo as a trademark and service mark in
Taiwan, China and Japan and the United States.
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Competition
The markets for our products are, in general, intensely competitive, characterized by continuous technological change,
evolving industry standards, and declining average selling prices. We believe key factors that differentiate among the
competition in our industry include:
• customer relations;
• product performance;
• design customization;
• development time;
• product integration;
• technical services;
• manufacturing costs;
• supply chain management;
• economies of scale; and
• broad product portfolio.
We continually face intense competition from other fabless display driver companies, including Cheertek Incorporation,
DenMOS Technology Inc., Fitipower Integrated Technology, Inc., Ili Technology Corp., Leadis Technology, Inc., Novatek
Microelectronics Corp., Ltd., Orise Technology Co., Ltd., Raydium Semiconductor Corporation, Sitronix Technology Co.,
Ltd., SmartASIC Technology, Inc. and Solomon Systech Limited. We also face competition from integrated device
manufacturers, such as MagnaChip Semiconductor Ltd., Matsushita Electric Works, Ltd., NEC Electronics Corporation,
Oki Electric Industry Co. Ltd., Renesas Technology Corp., Seiko Epson Corporation and Toshiba Corporation, and panel
manufacturers with in-house semiconductor design capabilities, such as Samsung Electronics Co., Ltd. and Sharp
Corporation. The latter are both our competitors and customers.
Many of our competitors, some of which are affiliated or have established relationships with other panel manufacturers,
have longer operating histories, greater brand recognition and significantly greater financial, manufacturing, technological,
sales and marketing, human and other resources than we do. Additionally, we expect that as the flat panel semiconductor
industry expands, more companies may enter and compete in our markets.
Our television semiconductor solutions compete against solutions offered by a significant number of semiconductor
companies including Advanced Micro Devices, Inc., Broadcom Corporation, Huaya Microelecronics Inc., Mediatek
Corp., Micronas Semiconductor Holding AG, MStar Semiconductor, Inc., Novatek Microelectronics Corp., NXP
Semiconductor, Pixelworks Inc., Realtek Semiconductor Corp., STMicroelectronics, Sunplus Technology Co., Trident
Microsystems, Inc. and Zoran Corporation, among others, some of which focus solely on video processors or digital
TV solutions and others that offer a more diversified portfolio.
For LCOS products, we face competition primarily from Sony Corporation, Victor Company of Japan, Limited, also
known as JVC, Displaytech Inc., Texas Instruments Incorporated's digital light processing technology-based products
and Microvision, Inc.'s laser-based products in mini-projectors and mobile-projectors.
Insurance
We maintain insurance policies on our buildings, equipment and inventories covering property damage and damage due
to, among other events, fires, typhoons, earthquakes and floods. We maintain these insurance policies on our facilities
and on inland transit of inventories. Additionally, we maintain director and officer liability insurance. We do not have
insurance for business interruptions, nor do we have key person insurance.
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Environmental Matters
The business of semiconductor design does not cause any significant pollution. Himax Display maintains a facility for
our LCOS products where we have taken the necessary steps to obtain the appropriate permits and believe that we
are in compliance with the existing environmental laws and regulations in the ROC. We have entered into various
agreements with certain customers whereby we have agreed to indemnify them, and in certain cases, their customers,
for any claims made against them for hazardous material violations that are found in our products.
Organizational Structure
The following chart sets forth our corporate structure and ownership interest in each of our principal operating subsidiaries
and affiliates as of June 1, 2008.
Himax Organization Chart
Himax
Technologies, Inc.
43.96%
100.00%
100.00%
100.00%
100.00%
100.00%
Argo Limited
Himax
Imaging,
Inc.
Himax
Technologies
Limited
Himax
Technologies
Anyang Limited
Wisepal
Technologies,
Inc.
100.00%
100.00%
100.00%
Tellus Limited
Himax Imaging,
Corp (USA)
Himax Imaging,
Ltd.
100.00%
88.06%
73.73%
36.18%
Himax
Technologies
(Sanoa), Inc.
Himax Display
Inc.
Himax
Analogic Inc.
Himax Media
Solutions, Inc.
100.00%
100.00%
100.00%
Himax
Technologies
(Suzhou), Co.,
Ltd.
Himax
Technologies
(Shenzen), Co.,
Ltd.
Integrated
Microdisplays
Limited
22
The following table sets forth summary information for our subsidiaries as of June 1, 2008.
Subsidiary
Main Activities
Incorporation
Capital
Interest
$ (in millions)
Jurisdiction of
Total Paid-in
Our Ownership
Percentage of
Himax Technologies Limited
IC design and sales
ROC
Himax Technologies Anyang
Sales
South Korea
Limited
Wisepal Technologies, Inc.
IC design and sales
Himax Technologies
Investments
(Samoa), Inc.
Himax Technologies
Sales
(Suzhou) Co., Ltd.
Himax Technologies
Sales
(Shenzhen) Co., Ltd.
ROC
Samoa
PRC
PRC
Himax Display, Inc.
IC design, manufacturing
ROC
and sales
Integrated Microdisplays
IC design and sales
Hong Kong
Limited
Himax Analogic, Inc.
IC design and sales
ROC
Himax Imaging, Inc.
Investments
Cayman Islands
Himax Imaging Ltd.
IC design and sales
ROC
Himax Imaging Corp.
IC design and sales
California, USA
Argo Limited
Tellus Limited
Investments
Investments
Cayman Islands
Cayman Islands
Himax Media Solutions, Inc.
TFT-LCD television and
ROC
monitor chipset operations
81.9
0.5
9.9
2.5
1.0
1.5
23.2
1.1
11.2
9.5
2.1
4.3
9.0
9.0
34.2
100%
100%
100%
100%(1)
100%(1)
100%(1)
88.1%
100%(2)
73.7%
100%
100%
100%
100%
100%
80.1%(3)
(1) Indirectly, through our 100% ownership of Himax Technologies Limited.
(2) Indirectly, through our 88.1% ownership of Himax Display, Inc.
(3) Directly and indirectly, through our 100% ownership of Himax Technologies Limited which holds 36.2%.
Property, Plants and Equipment
In October 2006, we completed construction on and relocated our corporate headquarters to a 22,172 square meter
facility within the Tree Valley Industrial Park in Tainan, Taiwan. The facility houses our research and development,
engineering, sales and marketing, operations and general administrative staff. Construction for our new headquarters
commenced in the fourth quarter of 2005 and was completed in the fourth quarter of 2006. The total costs amounted
to approximately $25.8 million, of which approximately $10.2 million was for the land and approximately $15.6 million
was for the construction of the building and related facilities (which included architect fees, general contractor fees,
building materials, the purchase and installation of network, clean room, and office equipment and other fixtures). We
also lease office space in Taipei and Hsinchu, Taiwan; Suzhou, Shenzhen, Foshan, Beijing, Shanghai and Ningbo, China;
Yokohama and Matsusaka, Japan; Anyangsi Kyungkido, South Korea; and Irvine, California, USA. The lease contracts
may be renewed upon expiration. Himax Display, our subsidiary, owns and operates a fab with 3,040 square meters
of floor space in a building leased from CMO.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
23
OPERATING AND FINANCIAL REVIEW
AND PROSPECTS
Operating Results
Overview
We design, develop and market semiconductors that are critical components of flat panel displays. Our principal
products are display drivers used in desktop monitors, notebook computers, televisions, mobile handsets and consumer
electronics products such as digital cameras, mobile gaming devices and car navigation displays. We also offer display
drivers for panels utilizing OLED technology and LTPS technology. We have also expanded our product offerings to
include TFT-LCD television and monitor chipsets, as well as LCOS products and power management ICs. We primarily
sell our display drivers to TFT-LCD panel manufacturers and mobile device module manufacturers, and we sell our
television semiconductor solutions to television makers.
We commenced operations through our predecessor, Himax Taiwan, in June 2001. We must, among other things,
continue to expand and diversify our customer base, broaden our product portfolio, achieve additional design wins and
manage our costs to partially mitigate declining average selling prices in order to maintain our profitability. Moreover,
we must continue to address the challenges of being a growing technology company, including hiring and retaining
managerial, engineering, operational and financial personnel and implementing and improving our existing administrative,
financial and operations systems.
We are a fabless semiconductor company. We leverage our experience and engineering expertise to design high-
performance semiconductors and rely on third-party semiconductor manufacturing service providers for wafer fabrication,
gold bumping, assembly and testing. We are able to take advantage of the economies of scale and the specialization
of such semiconductor manufacturing service providers. Our fabless model enables us to capture certain financial and
operational benefits, including reduced manufacturing personnel, capital expenditures, fixed assets and fixed costs. It
also gives us the flexibility to use the technology and service providers that are the most suitable for any given product.
As our semiconductors are critical components of flat panel displays, our industry is closely linked to the trends and
developments of the flat panel display industry, in particular, the TFT-LCD panel segment. Substantially all of our
revenues in 2007 were derived from sales of display drivers that were eventually incorporated into TFT-LCD panels. We
expect display drivers for TFT-LCD panels to continue to be our primary products. The TFT-LCD panel industry is
intensely competitive and is vulnerable to cyclical market conditions. The average selling prices of TFT-LCD panels could
decline for numerous reasons, including the following: a surge in manufacturing capacity due to the ramping up of new
fabrication facilities; manufacturers operating at high levels of capacity utilization in order to reduce fixed costs per
panel; and lower-than-expected demand for end-use products that incorporate TFT-LCD panels. An oversupply of
large-sized TFT-LCD panels in 2006, resulted in downward pricing pressure on TFT-LCD panel manufacturers which,
in turn, resulted in similar downward pricing pressure on us. We could not sufficiently reduce costs to completely offset
such downward pricing pressure, and cannot assure you that we will be able to reduce costs to offset such downward
pricing pressure in the future. Moreover, during periods of declining average selling prices for TFT-LCD panels, TFT-LCD
panel manufacturers may decrease capacity utilization and sell fewer panels, which could depress demand for our
display drivers. As a result, the cyclicality of the TFT-LCD panel industry could adversely affect our revenues, cost of
revenues and results of operations.
Factors Affecting Our Performance
Our business, financial position and results of operations, as well as the period-to-period comparability of our financial
results, are significantly affected by a number of factors, some of which are beyond our control, including:
24
• average selling prices;
• unit shipments;
• product mix;
• design wins;
• cost of revenues and cost reductions;
• supply chain management;
• share-based compensation expenses; and
• signing bonuses.
Average Selling Prices
Our performance is affected by the selling prices of each of our products. We price our products based on several
factors, including manufacturing costs, life cycle stage of the product, competition, technical complexity of the product,
size of the purchase order and our relationship with the customer. We typically are able to charge the highest price
for a product when it is first introduced. Although from time to time we are able to raise our selling prices during times
of supply constraints, our average selling prices typically decline over a product’s life cycle, which may be offset by
changes in conditions in the semiconductor industry such as constraints in foundry capacity. The general trend in the
semiconductor industry is for the average selling prices of semiconductors to decline over a product's life cycle due
to competition, production efficiencies, emergence of substitutes and technological obsolescence. Our cost reduction
efforts also contribute to this decline in average selling prices. See “–Cost of Revenues and Cost Reductions.” Our
average selling prices are also affected by the cyclicality of the TFT-LCD panel industry. There have been industry
reports of a possible oversupply of TFT-LCD panels starting from the fourth quarter of 2008. Any downward pricing
pressure on TFT-LCD panel manufacturers could result in similar downward pricing pressure on us. During periods of
declining average selling prices for TFT-LCD panels, TFT-LCD panel manufacturers may also decrease capacity utilization
and sell fewer panels, which could depress demand for our display drivers. Our average selling prices are also affected
by the packaging type our customers choose as well as the level of product integration. However, the impact of
declining average selling prices on our profitability can be offset or mitigated to a certain extent by increased volume,
as lower prices may stimulate demand and thereby drive sales.
Unit Shipments
Our performance is also affected by the number of semiconductors we ship, or unit shipments. As our display drivers
are critical components of flat panel displays, our unit shipments depend on our customers’ panel shipments. Our unit
shipments have grown significantly since our inception primarily as a result of our increased market share with certain
major customers and their increased shipments of large-sized panels. We have also continued to expand our customer
base. Our growth in unit shipments also reflected the significant growth in the display driver market, as the demand
for display drivers grew significantly in recent years reflecting the strong demand for TFT-LCD panels.
Product Mix
The proportion of our revenues that is generated from the sale of different product types, also referred to as product
mix, also affects our average selling prices, revenues and profitability. Our products vary depending on, among other
things, the number of output channels, the level of integration and the package type. Variations in each of these
specifications could affect the average selling prices of such products. For example, the trend for display drivers for
use in large-sized panels is towards products with a higher number of channels, which typically command higher
average selling prices than traditional products with a lower number of channels. However, panels that use higher-
channel display drivers typically require fewer display drivers per panel. As a result, our profitability will be affected
adversely to the extent that the decrease in the number of display drivers required for each panel is not offset by
increased total unit shipments and/or higher average selling prices for display drivers with a higher number of channels.
The level of integration of our display drivers also affects average selling prices, as more highly integrated chips typically
have higher selling prices. Additionally, average selling prices are affected by changes in the package types used by
our customers. For example, the chip-on-glass package type typically has lower material costs because no processed
tape is required.
25
Design Wins
Achieving design wins is important to our business, and it affects our unit shipments. Design wins occur when a
customer incorporates our products into their product designs. There are numerous opportunities for design wins,
including when panel manufacturers:
• introduce new models to improve the cost and/or performance of their existing products or to expand their
product portfolio;
• establish new fabs and seek to qualify existing or new components suppliers; and
• replace existing display driver companies due to cost or performance reasons.
Design wins are not binding commitments by customers to purchase our products. However, we believe that achieving
design wins is an important performance indicator. Our customers typically devote substantial time and resources to
designing their products as well as qualifying their component suppliers and their products. Once our products have
been designed into a system, the customer may be reluctant to change its component suppliers due to the significant
costs and time associated with qualifying a new supplier or a replacement component. Therefore, we strive to work
closely with current and prospective customers in order to anticipate their requirements and product road maps and
achieve additional design wins.
Cost of Revenues and Cost Reductions
We strive to control our cost of revenues. Our cost of revenues as a percentage of total revenues for 2005, 2006 and
2007 were 77.6%, 80.8% and 78.0%, respectively. For the year ended December 31, 2007, as a percentage of Himax
Taiwan's total manufacturing costs, the cost of wafer fabrication was 49.9%, the cost of processed tape was 21.6%,
and the cost of assembly and testing was 26.8%. As a result, our ability to manage our wafer fabrication costs, costs
for processed tape and assembly and testing costs is critical to our performance. In addition, to mitigate declining
average selling prices, we aim to reduce unit costs by, among other things:
• improving product design (e.g., having smaller die size allows for a larger number of dies on each wafer, thereby
reducing the cost of each die);
• improving manufacturing yields through our close collaboration with our semiconductor manufacturing service
providers; and
• achieving better pricing from semiconductor manufacturing service providers and suppliers, reflecting our ability
to leverage our scale, volume requirements and close relationships as well as our strategy of sourcing from
multiple service providers and suppliers.
Supply Chain Management
Due to the competitive nature of the flat panel display industry and our customers’ need to maintain high capacity
utilization in order to reduce unit costs per panel, any delays in the delivery of our products could significantly disrupt
our customers' operations. To deliver our products on a timely basis and meet the quality standards and technical
specifications our customers require, we must have assurances of high-quality capacity from our semiconductor
manufacturing service providers. We therefore strive to manage our supply chain by maintaining close relationships with
our key semiconductor manufacturing service providers and strive to provide credible forecasts of capacity demand.
Any disruption to our supply chain could adversely affect our performance and could result in a loss of customers as
well as potentially damage our reputation.
Share-Based Compensation Expenses
Our results of operations have been affected by, and we expect our results of operations to continue to be affected
by, our share-based compensation expenses. Our share-based compensation expenses include charges taken relating
to grants of (i) nonvested shares to employees, (ii) treasury shares to employees and (iii) shares to non-employees. We
have since discontinued our practice of the above-mentioned share-based compensation.
We adopted a long-term incentive plan in October 2005 which permits the grant of options or RSUs to our employees
26
and non-employees where each unit represents one ordinary share. The actual awards will be determined by our
compensation committee. We recorded share-based compensation expenses under the long-term incentive plan totaling
2.8 million, 14.5 million and 20.1 million in 2005, 2006 and 2007, respectively. See “–Critical Accounting Policies and
Estimates-Share-Based Compensation Expenses.” Of the total share-based compensation expenses recognized, $0,
$0 and $14.4 million in 2005, 2006 and 2007, respectively, were settled in cash. We have applied SFAS No. 123
(revised 2004), Share-Based Payment, or SFAS No. 123R, to account for our share-based compensation plans. SFAS
No. 123R requires companies to measure and recognize compensation expense for all share-based payments at fair
value.
Set forth below is a summary of our historical share-based compensation plans as reflected in our consolidated financial
statements.
Nonvested Shares Issued to Employees. In June 2001, November 2001 and January 2002, Himax Taiwan granted
nonvested shares of common shares to certain employees for their future service. The shares vest five years after the
grant date. Employees leaving Himax Taiwan before completing the five-year service period would be required to sell
these shares back to Himax Taiwan at NT$1.00 ($0.03) per share. The forfeiture of such nonvested shares is limited
to the original number of shares granted and does not apply to the shares received for stock splits and dividends. Since
none of these shares has vested, we did not record a capital increase at the time the shares were issued. Share-based
compensation expenses in relation to these nonvested shares are recognized on a straight-line basis over the five-year
service period with a corresponding increase to stockholders’ equity. As of December 31, 2006, the total compensation
cost related to the actual number of nonvested shares that vested had been fully recognized.
Treasury Shares Issued to Employees. In 2002 and 2003, treasury shares were issued to employees with a three-year
vesting period. The forfeiture of treasury shares issued to employees is based on the original number of shares granted
and does not include the shares received for stock splits and dividends. We recognized the difference between the fair
value of these shares and the amount that an employee paid for treasury shares as share-based compensation
expenses on a straight-line basis over the three-year service period with a corresponding increase to stockholders’
equity. As of December 31, 2006, the total compensation cost related to the actual number of treasury shares that vest
has been fully recognized.
Restricted Share Units (RSUs). We adopted a long-term incentive plan in October 2005. We committed to pay a bonus
to our employees to settle the accrued bonus payable in respect of their service provided in 2004 and the ten months
ended October 31, 2005, which was satisfied through a grant of 990,220 RSUs on December 30, 2005. We accrued
share-based compensation expenses of approximately $4.1 million and $3.6 million in 2004 and the ten months ended
October 31, 2005, respectively, in connection with this commitment. All RSUs granted to employees as a bonus vested
immediately on the grant date. The share-based compensation expenses accrued represents the portion of compensation
to employees for their service in 2004 and the ten months ended October 31, 2005 and has been recorded as a liability
and compensation expense reflected in our results of operations for 2004 and the ten months ended October 31, 2005,
respectively.
We made an additional grant of 1,297,564 RSUs to our employees on December 30, 2005. The vesting schedule for
this RSU grant is as follows: 25% of the RSU grant vested immediately on the grant date, and a subsequent 25%
vested on each of September 30, 2006 and September 26, 2007, with the remainder vesting on September 30, 2008,
subject to certain forfeiture events.
We also made a grant of 20,000 RSUs to our independent directors on December 30, 2005. The vesting schedule for
this RSU grant is as follows: 25% of the RSU grant vested immediately on the grant date, and a subsequent 25%
vested on each of June 30, 2006 and 2007, with the remainder vesting on June 30, 2008, subject to certain forfeiture
events. No RSUs were granted to our independent directors in 2006 or 2007.
27
We made a grant of 3,798,808 RSUs to our employees on September 29, 2006. The vesting schedule for this RSU
grant is as follows: 47.29% of the RSU grant vested immediately on the grant date, and a subsequent 17.57% vested
on September 26, 2007, with the remainder vesting equally on each of September 30, 2008 and 2009, subject to
certain forfeiture events.
We made a grant of 6,694,411 RSUs to our employees on September 26, 2007. The vesting schedule for this RSU
grant is as follows: 54.55% of the RSU grant vested immediately and was settled by cash in the amount of $14.4 million
on the grant date, with the remainder vesting equally on each of September 30, 2008, 2009 and 2010, which will be
settled by our ordinary shares, subject to certain forfeiture events.
The amount of share-based compensation expense with regard to the RSUs granted to our directors and employees
on December 30, 2005 was determined based on an estimated fair value of $8.62 per ordinary share of the ordinary
shares underlying the RSUs. The fair value of our ordinary shares was determined based on a third-party valuation
conducted by an independent third-party appraiser. The amount of share-based compensation expense with regard to
the RSUs granted to our employees on September 29, 2006 and September 26, 2007 was $5.71 and $3.95 per
ordinary share, respectively, which was based on the trading price of our ADSs on that day.
RSUs issued in connection with the acquisition of Wisepal. We made a grant of 418,440 RSUs to former Wisepal
employees in exchange for the unvested stock options held by such employees in Wisepal. Wisepal’s unvested stock
option where each RSU represents one of our ordinary shares. The vesting schedule for this RSU grant is as follows:
30% of the RSUs granted vested immediately, and a subsequent 10% vested on September 30, 2007, with the
remaining 33% and 27% of the RSU grant vesting on each of September 30, 2008 and 2009, respectively. The vested
portion of the RSUs granted was included in the purchase cost of Wisepal while the unvested portion is treated as post-
combination compensation expense, the value of which amounted to $0.9 million
Determining the fair value of our ordinary shares prior to our initial public offering requires making complex and
subjective judgments regarding projected financial and operating results, our business risks, the liquidity of our shares
and our operating history and prospects. We used the discounted cash flow approach in conjunction with the market
value approach by assigning a different weight to each of the approaches to estimate the value of the Company when
the RSUs were granted. The discounted cash flow approach involves applying appropriate discount rates to estimated
cash flows that are based on earnings forecasts. The market value approach incorporates certain assumptions including
the market performance of comparable companies as well as our financial results and growth trends to derive our total
equity value. The assumptions used in deriving the fair value are consistent with our business plan. These assumptions
include: no material changes in the existing political, legal, fiscal and economic conditions in Taiwan; our ability to retain
competent management, key personnel and technical staff to support our ongoing operation; and no material deviation
in industry trends and market conditions from economic forecasts. These assumptions are inherently uncertain. The
risks associated with achieving our forecasts were assessed in selecting the appropriate discount rate. If a different
discount rate were used, the valuation and the amount of share-based compensation would have been different
because the fair value of the underlying ordinary shares for the RSUs granted would be different.
Signing Bonuses
To complement our share-based compensation scheme, Himax Taiwan adopted a signing bonus system for newly
recruited employees in the second half of 2006.
Employees are entitled to receive signing bonuses upon (i) the expiration of their probationary period and a satisfactory
review by their supervisor, and (ii) execution of a formal “retention and signing bonus agreement.” If an employee leaves
within 18 months (for any reason at all) of having commenced employment with Himax Taiwan, 100% of the signing
bonus will be returned. If an employee leaves after 18 months but prior to 36 months after commencing employment
with Himax Taiwan, 50% of the signing bonus will be returned.
28
We believe that under such a system, we will be better able to retain our employees. The system is applicable to all
newly recruited employees irrespective of their function or position and is based on a prescribed formula.
For the years ended December 31, 2006 and 2007, Himax Taiwan paid $3.4 million and $2.6 million, respectively, in
signing bonuses which was charged to earnings. Besides Himax Taiwan, signing bonuses were adopted by four
subsidiaries in 2007 and a total of $0.6 million was paid to certain employees of our subsidiaries.
Description of Certain Statements of Income Line Items
Revenues
We generate revenues primarily from sales of our display drivers. We have achieved significant revenue growth since
our inception, primarily due to a significant increase in unit shipments, partially offset by the general trend of declining
average selling prices of our products. Historically, we have generated revenues from sales of display drivers for large-
sized applications, display drivers for mobile handsets and display drivers for consumer electronics products. In addition,
our product portfolio includes operational amplifiers, timing controllers, TFT-LCD, television and monitor chipsets, LCOS
products for near-to-eye applications and mini-projectors, and power management ICs.
The following table sets forth, for the periods indicated, our revenues by amount and our revenues as a percentage
of revenues by each product line:
Year Ended December 31,
2005
2006
2007
Percentage
Percentage
Percentage
Amount
of Revenues
Amount
of Revenues
Amount
of Revenues
(in thousands, except percentages)
Display drivers for large-sized
applications ............................
$ 470,631
87.1%
$ 645,513
86.7%
$ 752,196
81.9%
Display drivers for mobile
handsets applications ............
31,123
5.8
52,160
7.0
75,704
8.2
Display drivers for consumer
electronics applications ..........
Others(1) ......................................
18,571
19,879
3.4
3.7
28,616
18,229
3.8
2.5
66,634
23,677
7.3
2.6
Total .............................................
$ 540,204
100.0%
$ 744,518
100.0%
$ 918,211
100.0%
Note: (1)
Includes, among other things, operational amplifiers, timing controllers, TFT-LCD television and monitor chipsets, and LCOS
products for near-to-eye applications and mini-projectors, and power management ICs.
A limited number of customers account for substantially all our revenues. We are seeking to diversify our customer base
and to reduce our reliance on any one customer. We began recognizing revenues from the sale of display drivers to
CPT and its affiliates in 2002 and began volume shipments to CPT and its affiliates in 2003. Accordingly, the percentage
of our revenues generated by sales to CMO and its affiliates has decreased gradually since 2002, with the exception
of 2007, when sales to CMO and its affiliates increased due to CMO's capacity expansion, which was higher than the
industry average. The table below sets forth, for the periods indicated, our revenues generated from our most significant
customers (including their respective affiliates) and such revenues as a percentage of our total revenues:
Year Ended December 31,
2005
2006
2007
Percentage
Percentage
Percentage
Amount
of Revenues
Amount
of Revenues
Amount
of Revenues
CMO and its affiliates .................
$ 318,008
58.9% $ 409,697
55.0% $ 539,737
58.8%
CPT and its affiliates ..................
SVA-NEC .....................................
87,534
30,360
Others .........................................
104,302
16.2%
5.6%
19.3%
92,561
54,272
12.4%
7.3%
66,694
76,774
7.3%
8.4%
187,988
25.3%
235,006
25.5%
Total .............................................
$ 540,204
100.0% $ 744,518
100.0% $ 918,211
100.0%
29
The global TFT-LCD panel market is highly concentrated, with only a limited number of TFT-LCD panel manufacturers
producing large-sized TFT-LCD panels in high volumes. We sell large-sized panel display drivers to many of these TFT-
LCD panel manufacturers. Our revenues, therefore, will depend on our ability to capture an increasingly larger percentage
of each panel manufacturer's display driver requirements.
We derive substantially all of our revenues from sales to Asia-based customers whose end products are sold worldwide.
In 2005, 2006 and 2007, approximately 89.4%, 81.4% and 85.5% of our revenues, respectively, were from customers
headquartered in Taiwan. We believe that substantially all of our revenues will continue to be from customers located
in Asia, where almost all of the TFT-LCD panel manufacturers and mobile device module manufacturers are located.
As a result of the regional customer concentration, we expect to continue to be particularly subject to economic and
political events and other developments that affect our customers in Asia. A substantial majority of our sales invoices
are denominated in U.S. dollars.
Costs and Expenses
Our costs and expenses consist of cost of revenues, research and development expenses, general and administrative
expenses, sales and marketing expenses and share-based compensation expenses.
Cost of Revenues
The principal items of our cost of revenues are:
• cost of wafer fabrication;
• cost of processed tape used in TAB packaging;
• cost of gold bumping, assembly and testing; and
• other costs and expenses.
We outsource the manufacturing of our semiconductors and semiconductor solutions to semiconductor manufacturing
service providers. The costs of wafer fabrication, gold bumping, assembly and testing depend on the availability of
capacity and demand for such services. The wafer fabrication industry, in particular, is highly cyclical, resulting in
fluctuations in the price of processed wafers depending on the available foundry capacity and the demand for foundry
services.
Research and Development Expenses
Research and development expenses consist primarily of research and development employee salaries, including
signing bonuses and related employee welfare costs, costs associated with prototype wafers, processed tape, mask
and tooling sets, depreciation on research and development equipment and acquisition-related charges. We believe that
we will need to continue to spend a significant amount on research and development in order to remain competitive.
We expect to continue increasing our spending on research and development in absolute dollar amounts in the future
as we continue to increase our research and development headcount and associated costs to pursue additional
product development opportunities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries of general and administrative employees, including
signing bonuses and related employee welfare costs, depreciation on buildings, office furniture and equipment, rent and
professional fees. We anticipate that our general and administrative expenses will increase in absolute dollar amounts
as we expand our operations, hire additional administrative personnel, incur depreciation expenses in connection with
our headquarters at the Tree Valley Industrial Park, and incur additional compliance costs required of a publicly listed
company in the United States.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of salaries of sales and marketing employees, including signing
bonuses and related employee welfare costs, travel expenses and product sample costs. We expect that our sales and
30
marketing expenses will increase in absolute dollar amounts over the next several years. However, we believe that as
we continue to achieve greater economies of scale and operating efficiencies, our sales and marketing expenses may
decline over time as a percentage of our revenues.
Share-Based Compensation Expenses
Our share-based compensation expenses consist of various forms of share-based compensation that we have historically
issued to our employees and consultants, as well as share-based compensation issued to employees, directors and
service providers under our 2005 long-term incentive plan. We allocate such share-based compensation expenses to
the applicable cost of revenues and expense categories as related services are performed. See note 15 to our
consolidated financial statements. Historically our share-based compensation practice comprised grants of (i) bonus
shares to employees, (ii) nonvested shares to employees, (iii) treasury shares to employees and (iv) shares to non-
employees. We committed to pay a bonus to our employees in respect of their services provided in 2004 and the ten
months ended October 31, 2005, which was satisfied through a grant of RSUs on December 30, 2005. We accrued
share-based compensation expenses of approximately $4.1 million and $3.6 million in 2004 and the ten months ended
October 31, 2005, respectively, in connection with this commitment. We also adopted a long-term incentive plan in
October 2005 which permits the grant of options or RSUs to our employees, directors and service providers. We
granted additional RSUs on December 30, 2005 to our employees and directors and again on September 29, 2006
and September 26, 2007 to our employees. Share-based compensation expenses recorded under the long-term
incentive plan totaled 2.8 million, 14.5 million and 20.1 million in 2005, 2006 and 2007, respectively. See “–Critical
Accounting Policies and Estimates–Share-Based Compensation” for further discussion of the accounting of such expenses.
Income Taxes
Since we and our direct and indirect subsidiaries are incorporated in different jurisdictions, we file separate income tax
returns. Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax. Additionally,
dividend payments made by us are not subject to withholding tax in the Cayman Islands. We recognize income taxes
at the applicable statutory rates in accordance with the jurisdictions where our subsidiaries are located and as adjusted
for certain items including accumulated losses carried forward, non-deductible expenses, research and development
tax credits, certain tax holidays, as well as changes in our deferred tax assets and liabilities.
ROC tax regulations require our ROC subsidiaries to pay an additional 10% tax on unappropriated earnings. ROC law
offers preferential tax treatments to industries that are encouraged by the ROC government. The ROC Statute for
Upgrading Industries entitles companies to tax credits for expenses relating to qualifying research and development and
personnel training expenses and purchases of qualifying machinery. This tax credit may be applied within a five-year
period. The amount from the tax credit that may be applied in any year (with the exception of the final year when the
remainder of the tax credit may be applied without limitation to the total amount of the income tax payable) is limited
to 50% of the income tax payable for that year. Under the ROC Statute for Upgrading Industries, Himax Taiwan,
Wisepal, Himax Display, Himax Analogic, Himax Media Solutions and Himax Imaging were granted tax credits by the
ROC Ministry of Finance at rates set at a certain percentage of the amount utilized in qualifying research and development
and personnel training expenses. The balance of unused investment tax credits totaled $9.4 million, $19.4 million and
$32.7 million as of December 31, 2005, 2006 and 2007, respectively. In addition, the ROC Statute for Upgrading
Industries provides to companies deemed to be operating in important or strategic industries a five-year tax exemption
for income attributable to expanded production capacity or newly developed technologies. Such expanded production
capacity or newly developed technologies must be funded in whole or in part from either the initial capital investment
made by a company’s shareholders, a subsequent capital increase or a capitalization of a company’s retained earnings.
As a result of this statute, income attributable to certain of Himax Taiwan’s expanded production capacity or newly
developed technologies is tax exempt for a period of five years, effective on April 1, 2004, January 1, 2006 and January
1, 2008 and expiring on March 31, 2009, December 31, 2010 and December 31, 2012, respectively. If we did not have
this tax exemption, net income and basic and diluted earnings per ordinary share would have been $85.6 million,
$0.43 and $0.43 for the year ended December 31, 2007, respectively.
31
Critical Accounting Policies and Estimates
We believe the following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.
Share-Based Compensation
Share-based compensation primarily consists of grants of nonvested or restricted shares of common stock, stock
options and RSUs issued to employees. We have applied SFAS No. 123R for our share-based compensation plans for
all periods since the incorporation of Himax Taiwan in 2001. The cost of employee services received in exchange for
share-based compensation is measured based on the grant-date fair value of the share-based instruments issued. The
cost of employee services is equal to the grant-date fair value of shares issued to employees and is recognized in
earnings over the service period. Share-based compensation expense estimates also take into account the number of
shares awarded that management believes will eventually vest. We adjust our estimate each period to reflect the current
estimate of forfeitures. As of December 31, 2007, we based our share-based compensation cost on an assumed
forfeiture rate of 11% per annum for awards granted under our long-term incentive plan. If actual forfeitures occur at
a lower rate, share-based compensation costs will increase in future periods.
When estimating the fair value of our ordinary shares prior to our initial public offering, we reviewed both internal and
external sources of information. The sources we used to determine the fair value of the underlying shares at the date
of measurement have been subjective in nature and based on, among other factors:
• our financial condition as of the date of grant;
• our financial and operating prospects at that time;
• for certain issuances in 2001 and early 2002, the price of new shares issued to unrelated third parties;
• for certain issuances in 2002, 2003 and 2004, an independent third-party retrospective analysis of the historical
value of our common shares, which utilized both a net asset-based methodology and market and peer group
comparables (including average price/earnings, enterprise value/sales, enterprise value/earnings before interest
and tax, and enterprise value/earnings before interest, tax, depreciation and amortization); and
• for our issuance of RSUs in 2005, an independent third-party analysis of the current and future value of our
ordinary shares, which utilized both discounted cash flow and market value approaches, using multiples such as
price/earnings, forward price/earnings, enterprise value/earnings before interest and tax, and forward enterprise
value/earnings before interest and tax.
Changes in any of these factors or assumptions could have resulted in different estimates of the fair value of our
common shares and the related amounts of share-based compensation.
Based on these factors, we estimated the fair value per share of nonvested shares issued to certain employees in June
2001, November 2001, and January 2002 at NT$4.02 ($0.116) per share and the fair value of 596,897 shares (adjusted
for stock splits) granted to two consultants in 2002 at $68,000. Similarly, we estimated the fair value per share of
employee bonus shares on the date of shareholder approval to be NT$39.44 ($1.15) per share and NT$67.13 ($1.96)
per share in 2003 and 2004, respectively. These employee bonus shares were issued in relation to employee services
provided in 2001, 2002 and 2003, respectively. We estimated the fair value of treasury shares issued to employees at
prices ranging from NT$15.32 ($0.46) per share to NT$19.93 ($0.58) per share in 2002 and NT$20.17 ($0.58) per share
to NT$52.10 ($1.54) per share in 2003. We estimated the fair value of the ordinary shares underlying the RSUs granted
to our directors and employees at $8.62 per share in 2005. For our issuance of RSUs in 2006 and 2007, the fair value
of the ordinary shares underlying the RSUs granted to our employees, was $5.71 and $3.95 per share, respectively,
which was the closing price of our ADSs on September 29, 2006 and September 26, 2007, respectively.
Allowance for Doubtful Accounts, Sales Returns and Discounts
We record a reduction to revenues and accounts receivable by establishing a sales discount and return allowance for
estimated sales discounts and product returns at the time revenues are recognized based primarily on historical
32
discount and return rates. However, if sales discount and product returns for a particular fiscal period exceed historical
rates, we may determine that additional sales discount and return allowances are required to properly reflect our
estimated remaining exposure for sales discounts and product returns. We evaluate our outstanding accounts receivable
on a monthly basis for collectibility purposes. In establishing the required allowance, we consider our historical collection
experience, current receivable aging and the current trend in the credit quality of our customers. The movement in the
allowance for doubtful accounts, sales returns and discounts for the years ended December 31, 2005, 2006 and 2007
is as follows:
Year
Beginning of Year
to expense
Amounts Utilized
End of Year
Balance at
Additions charged
Balance at
(in thousands)
December 31, 2005 .................
December 31, 2006 .................
December 31, 2007 .................
$
$
$
240
181
868
$
$
$
398
2,843
1,705
$
$
$
(457)
(2,156)
(2,080)
$
$
$
181
868
493
Inventory
Inventories are stated at the lower of cost or market value. Cost is determined using the weighted-average method.
For work-in-process and manufactured inventories, cost consists of the cost of raw materials (primarily fabricated
wafers and processed tape), direct labor and an appropriate proportion of production overheads. We also write down
excess and obsolete inventory to its estimated market value based upon estimations about future demand and market
conditions. If actual market conditions are less favorable than those projected by management, additional future
inventory write-downs may be required which could adversely affect our operating results. Once written down, inventories
are carried at this lower amount until sold or scrapped. If actual market conditions are more favorable, we may have
higher operating income when such products are sold. Sales to date of such products have not had a significant impact
on our operating income. The inventory write-downs for the years ended December 31, 2005, 2006 and 2007 was
approximately $927,000, $5.2 million and $14.8 million, respectively, and are included in cost of revenues in our
consolidated statements of income. The inventory write-down was particularly high in 2007 primarily due to excess
inventory issues related to shorter-than-expected product life cycle for certain products and the revision of certain
customer forecasts, which also partially contributed to decreased demand as customers shifted to more advanced
products.
Impairment of Long-Lived Assets
We routinely review our long-lived assets that are held and used for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. The determination of recoverability is based
on an estimate of undiscounted cash flows expected to result from the use of the asset and its eventual disposition.
The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating
performance, average selling prices, utilization rates and other factors. If the sum of the undiscounted cash flows
(excluding interest) is less than the carrying value, an impairment charge is recognized for the amount that the carrying
value of the asset exceeds its fair value, based on the best information available, including discounted cash flow
analysis. However, due to the cyclical nature of our industry and changes in our business strategy, market requirements,
or the needs of our customers, we may not always be in a position to accurately anticipate declines in the utility of
our equipment or acquired technology until they occur. We have not had any impairment charges on long-lived assets
during the period from December 31, 2003 to December 31, 2007.
Business Combinations
When we acquire businesses, we allocate the purchase price to tangible assets and liabilities and identifiable intangible
assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires
management to make significant estimates in determining the fair values of assets acquired and liabilities assumed,
especially with respect to intangible assets. These estimates are based on historical experience and information obtained
from the management of the acquired companies. These estimates can include, but are not limited to, the cash flows
33
that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the synergistic
benefits expected to be derived from the acquired business. These estimates are inherently uncertain and unpredictable.
In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such
estimates.
Goodwill
We review goodwill for impairment at least annually, and test for impairment between annual tests if an event occurs
or circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for goodwill
is done at a reporting unit level. The goodwill impairment test is a two-step test. Under the first step, the fair value
of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less
than its carrying value, an indication of goodwill impairment exists for the reporting unit and we perform step two of
the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying
amount of the reporting unit's goodwill over the implied fair value of that goodwill. The implied fair value of goodwill
is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in
accordance with SFAS No. 141, Business Combination. The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. We consider the enterprise as a whole to be the reporting unit for purposes of
evaluating goodwill impairment. Consequently, we determine the fair value of the reporting unit using the quoted market
price of our ordinary shares. Based on the annual impairment testing of goodwill, we concluded that there was no
impairment in 2007.
Product Warranty
Under our standard terms and conditions of sale, products sold are subject to a limited product quality warranty. We
may receive warranty claims outside the scope of the standard terms and conditions. We provide for the estimated
cost of product warranties at the time revenue is recognized based primarily on historical experience and any specifically
identified quality issues. The movement in accrued warranty costs for the years ended December 31, 2005, 2006 and
2007 is as follows:
Year
Beginning of Year
to expense
Amounts Utilized
End of Year
Balance at
Additions charged
Balance at
(in thousands)
December 31, 2005 ..................
December 31, 2006 ..................
December 31, 2007 ..................
$
$
$
507
545
630
$
$
$
1,415
2,101
799
$
$
$
(1,377)
(2,016)
(1,094)
$
$
$
545
630
335
Income Taxes
As part of the process of preparing our consolidated financial statements, our management is required to estimate
income taxes and tax bases of assets and liabilities for us and our subsidiaries. This process involves estimating current
tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and
accounting purposes and the amount of tax credits and tax loss carryforwards. These differences result in deferred tax
assets and liabilities, which are included in the consolidated balance sheets. Management must then assess the
likelihood that the deferred tax assets will be recovered from future taxable income, and, to the extent it believes that
recovery is not more likely than not, a valuation allowance is provided.
In assessing the ability to realize deferred tax assets, our management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets and
therefore the determination of the valuation allowance is dependent upon the generation of future taxable income by
the taxable entity during the periods in which those temporary differences become deductible. Management considers
the scheduled reversal of different liabilities, projected future taxable income, and tax planning strategies in determining
the valuation allowance.
34
Upon initial adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, on January
1, 2007, we recognize the effect of income tax positions only if those positions are more likely than not to be sustained.
We have to recognize income tax expenses when the possibility of tax adjustments made by the tax authority are
greater than 50% in the future period. Changes in income tax recognition or measurement of previous periods are
reflected in the period in which the change in judgment occurs.
Prior to the adoption of FIN 48, we recognized the effect of income tax positions only if such positions were probable
of being sustained. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax
expense. We have accrued tax liabilities or reduced deferred tax assets to address potential exposures involving
positions that are not considered to be more likely than not of being sustained based on the technical merits of the
tax position as filed. A reconciliation of the beginning and ending amounts of uncertain tax positions is as follows (in
thousands):
Balance on January 1, 2007 ..................................................................................................................
$
1,276
Increase related to prior year tax positions ...........................................................................................
Increase related to current year tax positions .......................................................................................
Balance on December 31, 2007 ............................................................................................................
503
2,189
3,968
Except for Himax Taiwan and Himax Technologies Anyang Limited (based in South Korea), or Himax Anyang, all other
subsidiaries have generated tax losses since inception and are not included in the consolidated tax filing with Himax
Taiwan. Valuation allowance of $3.3 million, $6.3 million and $12.3 million as of December 31, 2005, 2006 and 2007,
respectively, was provided to reduce their deferred tax assets (consisting primarily of operating loss carryforwards and
unused investment tax credits) to zero because management believes it is unlikely that these tax benefits will be
realized. The additional provision of valuation allowance recognized for the years ended December 31, 2005, 2006 and
2007 was $2.4 million, $3.0 million and $6.0 million, respectively, as a result of increases in deferred tax assets
originating in these years which we did not expect to realize.
Results of Operations
Our business has evolved rapidly and significantly since we commenced operations in 2001. Our limited operating
history makes the prediction of future operating results very difficult. We believe that period-to-period comparisons of
operating results should not be relied upon as indicative of future performance. On February 1, 2007, we acquired
100% of the outstanding ordinary shares of Wisepal. The results of Wisepal’s operations has been included in our
consolidated financial statements since that date. The following table sets forth a summary of our consolidated statements
of income as a percentage of revenues:
Year Ended December 31,
Revenues .....................................................................................
Costs and expenses:
Cost of revenues .........................................................................
Research and development ........................................................
General and administrative ..........................................................
Sales and marketing ....................................................................
Total costs and expenses ...........................................................
Operating income ........................................................................
Other non operating income .......................................................
Income tax expenses (benefit) ....................................................
Net income ..................................................................................
2005
100.0%
2006
100.0%
77.6
7.6
1.3
0.9
87.4
12.6
0.5
1.7
11.4
80.8
8.1
1.3
0.9
91.1
8.9
0.5
(0.7)
10.1
2007
100%
78.0
8.0
1.6
1.0
88.6
11.4
0.7
(0.2)
12.3
35
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenues. Our revenues increased 23.3% to $918.2 million in 2007 from $744.5 million in 2006. This increase was
primarily due to a 21.9% increase in unit shipments of display drivers for large-sized applications, partially offset by a
3.9% decrease in average selling prices of such products. This increase was also attributable to an increase of unit
shipments for display drivers for mobile handsets, but was partially offset by a 33.6% decrease in the average selling
prices of such products. The increase in unit shipments was primarily due to increased demand from our customers,
especially CMO and its affiliates, because they expanded their production capacity, as well as an increase in the
demand of large panel televisions in 2007. In general, the average selling prices of our display drivers decline from year
to year due to a combination of the pricing pressure we face from our customers, the general industry trend of declining
average selling prices of semiconductors over a product’s life cycle, and the introduction of newer, lower-cost display
drivers. The relatively small decrease in the average selling prices for display drivers for large-sized applications was
primarily due to product migration to higher channel display drivers, which generally have higher average selling prices,
and less downward pricing pressure from TFT-LCD makers in 2007.
Costs and Expenses. Costs and expenses increased 19.9% to $814.3 million in 2007 from $679.0 million in 2006. As
a percentage of revenues, costs and expenses decreased to 88.6% in 2007 compared to 91.1% in 2006.
Cost of Revenues. Cost of revenues increased 19.0% to $716.2 million in 2007 from $601.6 million in 2006. The
increase in cost of revenues was primarily due to an increase in unit shipments. The inventory write-down was
particularly high in 2007 primarily due to excess inventory issues related to shorter-than-expected product life cycle for
certain products and the revision of certain customer forecasts, which also partially contributed to decreased demand
as customers shifted to more advanced products. The inventory write-downs for the years ended December 31, 2006
and 2007 was approximately $5.2 million and $14.8 million, respectively. As a percentage of revenues, cost of revenues
decreased to 78.0% in 2007 from 80.8% in 2006. The decrease in cost of revenues as a percentage of revenues was
primarily due to (1) a change in product mix, as the percentage of revenues from sale of small and medium-sized display
drivers (which typically have higher gross margins) increased, and (2) through cost reduction efforts achieved by
improving designs and processes, increasing manufacturing yields and leveraging our scale, volume requirements and
close relationships with semiconductor manufacturing service providers and suppliers.
• Research and Development. Research and development expenses increased 21.8% to $73.9 million in 2007 from
$60.7 million in the 2006, primarily due to the increase in share-based compensation expenses, salary expenses,
and amortization. The increase in salary expenses was due to a 11.7% increase in headcount and higher average
salaries. The increase in share-based compensation expenses resulted from our increase in headcount and our
grant of RSUs to certain employees in 2007. The increase is also a result of the increase in the amortization of
intangible assets related to the Wisepal acquisition, and prepaid maintenance costs. The increase was partially
offset by a decrease in prototype wafer and processed tape costs.
• General and Administrative. General and administrative expenses increased 52.7% to $14.9 million in 2007 from
$9.8 million in 2006, primarily due to an increase in depreciation, share-based compensation expenses, salary
expenses and professional fees. The increase in depreciation was mainly the result of increased building and office
equipment depreciation at our Tainan headquarters; our new headquarters was completed in November 2006,
and a year's worth of depreciation was provided in 2007, while in 2006 depreciation was provided for two months
only. The increase in share-based compensation expenses resulted from our increase in headcount and our grant
of RSUs to certain employees in 2007. The increase in salary expenses was due to a 30.0% increase in headcount
and higher average salaries. The increase in general and administration expenses is also partially attributable to
the increase in patent filing fees.
• Sales and Marketing. Sales and marketing expenses increased 33.9% to $9.3 million from $7.0 million in 2006,
primarily due to an increase in salary, share-based compensation and amortization expenses. The increase in
salary expenses was due to a 33.3% increase in headcount. The increase in share-based compensation expenses
resulted from our increase in headcount and our grant of RSUs to certain employees in 2007. The increase in
sales and marketing expenses was also attributable to the amortization of intangible assets (customer relationships)
related to from the Wisepal acquisition.
36
Non-Operating Income (Loss). We had non-operating income of $5.7 million in 2007 compared to $3.9 million in 2006.
The primary component of our non-operating income is interest income amounting to $5.4 million and $5.9 million in
2007 and 2006, respectively. The increase in non-operating income in 2007 is primarily a result of a $1.5 million
impairment loss we recognized in 2006 for the write-off of our equity investment in LightMaster Systems Inc., which
filed for bankruptcy in 2006. We did not have any impairment loss in 2007.
Income Tax Expense (Benefit). We recognized an income tax benefit of $1.9 million in 2007 compared to an income
tax benefit of $5.4 million in 2006. Our effective income tax rate decreased from (7.8)% in 2006 to (1.7)% in 2007. The
decrease in income tax benefit is due to the additional accrual of tax expenses amounting to $3.9 million as a result
of the most recent assessment from the tax authority. The decrease is also partially due to the fact that the valuation
allowance provided for the deferred tax assets recognized in 2007 is $2.6 million higher than that provided in 2006.
For subsidiaries still in a tax loss position, a valuation allowance was provided to reduce their deferred tax assets to
zero as we do not expect these tax benefits will be realized. The decrease in income tax benefit was partially offset
by an increase in tax-exempted income, and an increase in investment tax credits compared to 2006.
Net Income. As a result of the foregoing, our net income increased to $112.6 million in 2007 from $75.2 million in 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Revenues. Our revenues increased 37.8% to $744.5 million in 2006 from $540.2 million in 2005. This increase was
primarily due to a 59.4% increase in unit shipments of display drivers for large-sized applications, partially offset by a
14.3% decrease in average selling prices of such products. This increase was also attributable to an increase of unit
shipments for display drivers for mobile handsets, which more than doubled, but was partially offset by a 24.0%
decrease in average selling prices of such products. The increase in unit shipments was primarily due to the increased
number of panels shipped by our customers as well as our increased market share with certain major customers. The
decrease in the average selling prices of our display drivers was primarily due to a combination of the pricing pressure
we faced from our customers, the general industry trend of declining average selling prices of semiconductors over a
product's life cycle, the introduction of newer, lower-cost display drivers, as well as our ability reduce per unit cost of
revenues in order to meet such pressure.
Costs and Expenses. Costs and expenses increased 43.8% to $679.0 million in 2006 from $472.2 million in 2005. As
a percentage of revenues, costs and expenses increased to 91.1% in 2006 compared to 87.4% in 2005.
• Cost of Revenues. Cost of revenues increased 43.4% to $601.6 million in 2006 from $419.4 million in 2005. The
increase in cost of revenues was primarily due to an increase in unit shipments. As a percentage of revenues,
cost of revenues increased to 80.8% in 2006 compared to 77.6% in 2005, primarily as a result of a decrease
in the average selling prices of our display drivers. We were able to partially offset such declines by decreasing
per unit costs associated with the manufacturing, assembly, testing and delivery of our products. This is a result
of our cost reduction efforts achieved by improving designs and processes, increasing manufacturing yields and
leveraging our scale of production, volume requirements and close relationships with semiconductor manufacturing
service providers and suppliers, as well as our strategy of sourcing from multiple service providers and suppliers
in order to obtain better pricing.
• Research and Development. Research and development expenses increased 46.9% to $60.7 million in 2006 from
$41.3 million in 2005, primarily due to the increase in share-based compensation expenses and salary expenses.
The increase in salary expenses was due to a 27.6% increase in headcount and higher average salaries. The
increase was also partially a result of increased mask costs and prototype wafer and processed tape costs
associated with an increased number of new products introduced. The increase in share-based compensation
expenses resulted from our increase in headcount and our grant of RSUs to certain employees in 2006.
• General and Administrative. General and administrative expenses increased 43.9% to $9.8 million in 2006 from
$6.8 million in 2005, primarily due to an increase in share-based compensation expenses and salary expenses.
The increase in share-based compensation expenses resulted from our grant of RSUs to certain employees in
37
2006. The increase in salary expenses was due to higher average salaries. This increase was also partially the
result of increased depreciation expense and fees relating to patent filings.
• Sales and Marketing. Sales and marketing expenses increased 46.4% to $7.0 million in 2006 from $4.8 million
in 2005, primarily due to an increase in salary expenses and share-based compensation expenses. The increase
in salary expenses was due to a 44.6% increase in headcount. The increase in share-based compensation
expenses also resulted from our increase in headcount and our grant of RSUs to certain employees in 2006. The
increase in sales and marketing expenses was also partially attributable to increased travel expenses resulting
from increased sales activity.
Non-Operating Income (Loss). We had non-operating income of $3.9 million in 2006 compared to $2.3 million in 2005,
primarily as a result of a significant increase in interest income due to higher cash balance on hand from the proceeds
of our initial public offering. This was partially offset by an impairment loss of $1.5 million recognized from our write-
off of our equity investment in LightMaster Systems Inc., which filed for bankruptcy in 2006.
Income Tax Expense (Benefit). We recognized an income tax benefit of $5.4 million in 2006 compared to an income
tax expense of $8.9 million in 2005. Our effective income tax rate decreased from 12.7% in 2005 to (7.8)% in 2006,
primarily due to an increase in tax-exempted income, non-deductible share-based compensation expenses, a tax
benefit from the distribution of the prior year’s income and an increase in investment tax credits compared to 2005,
partially offset by the effect of an enacted change in Taiwan’s tax laws in 2006 and the increase of valuation allowance
provided to reduce certain subsidiaries' deferred tax assets to zero.
Net Income. As a result of the foregoing, our net income increased to $75.2 million in 2006 from a net income of
$61.6 million in 2005.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
Year Ended December 31,
2005
2006
2007
(in thousands)
Net cash provided by operating activities .............................................. $
12,464
$
29,696
$
77,162
Net cash used in investing activities ......................................................
(25,363)
Net cash provided by (used in) financing activities ...............................
14,404
Net increase (decrease) in cash and cash equivalents .........................
Cash and cash equivalents at beginning of period ...............................
Cash and cash equivalents at end of period ........................................
1,509
5,577
7,086
(8,927)
81,886
102,667
7,086
109,753
(25,019)
(67,241)
(14,973)
109,753
94,780
Prior to being a public company, we financed our operations primarily through the issuance of shares in Himax Taiwan.
As of December 31, 2007, we had $94.8 million in cash and cash equivalents.
Operating Activities. Net cash provided by operating activities for the year ended December 31, 2007 was $77.2 million
compared to net cash provided by operating activities of $29.7 million for the year ended December 31, 2006. This
increase was primarily due to the increase in cash collected from customers, resulting from higher revenues and
comparable overall days sales outstanding in 2007 as in 2006. The increase in operating cash inflows was partially
offset by the increase in cash used to purchase raw materials (primarily fabricated wafer and processed tape) and to
pay assembly and testing process fees, which resulted from the increase in production. The increase in operating cash
inflow was also partially offset by RSUs granted that vested immediately on the grant date in September 2007 and
settled in cash, which amounted to $14.4 million, and by the net increase in operating expenditures such as salaries
and rent. Net cash provided by operating activities for the year ended December 31, 2006 was $29.7 million compared
to net cash provided by operating activities of $12.5 million for the year ended December 31, 2005. Net cash provided
38
by operating activities increased in 2006 primarily due to the increase in cash collected from customers, resulting from
higher revenues despite the extension of payment terms to certain of our customers in 2006. The increase in operating
cash inflows was partially offset by the increase in cash used to purchase raw materials (primarily fabricated wafer and
processed tape) and to pay assembly and testing process fees, which resulted from the increase in production. The
increase in operating cash inflows was also partially offset by the increase in payment of income tax by $4.5 million
and other operating expenditures in 2006.
Investing Activities. Net cash used in investing activities for the year ended December 31, 2007 was $25.0 million
compared to net cash used in investing activities of $8.9 million for the year ended December 31, 2006. This change
was primarily due to the release of restricted cash equivalents and marketable securities of $13.9 million in 2006, with
no corresponding release in 2007 and an increase in for available-for-sale marketable securities. Net cash used in
investing activities for the year ended December 31, 2006 was $8.9 million compared to net cash used in investing
activities of $25.4 million for the year ended December 31, 2005. This change was primarily due to a decrease in net
proceeds generated from the purchase and sale of available-for-sale marketable securities of $8.8 million, when
compared to the year ended December 31, 2005 and an increase in the purchase of property and equipment as a result
of the payment of construction costs in connection with our new headquarters in the Tree Valley Industrial Park. This
decrease was offset by the release of restricted cash equivalents and marketable securities of $27.7 million.
Financing Activities. Net cash used in financing activities for the year ended December 31, 2007 was $67.2 million
compared to net cash provided by financing activities of $81.9 million for the year ended December 31, 2006, primarily
due to the distribution of cash dividends in 2007 and proceeds received in our initial public offering in 2006, partially
offset by an increase in proceeds from the issuance of new shares by subsidiaries and an increase in net repayment
of short-term debt. Net cash provided by financing activities in the year ended December 31, 2006 was $81.9 million
compared to net cash provided by financing activities of $14.4 million in the year ended December 31, 2005, primarily
due to proceeds received in our initial public offering which was offset by the repayment of short-term debt and our
repurchase of ordinary shares.
Our liquidity could be negatively impacted by a decrease in demand for our products. Our products are subject to rapid
technological change, among other factors, which could result in revenue variability in future periods. Further, we expect
to continue increasing our headcount, especially in engineering and sales, to pursue growth opportunities and keep
pace with changes in technology. Should demand for our products slow down or fail to grow as expected, our
increased headcount would result in sustained losses and reductions in our cash balance. We have at times agreed
to extend the payment terms for certain of our customers. Other customers have also requested extension of payment
terms and we may grant such requests for extensions in the future. The extension of payment terms for our customers
could adversely affect our cash flow, liquidity and our operating results.
We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our
anticipated cash needs, including our cash needs for working capital and capital expenditures for the foreseeable future.
We may, however, require additional cash resources due to higher than expected growth in our business or other
changing business conditions or other future developments, including any investments or acquisitions we may decide
to pursue.
Research and Development
Our research and development efforts focus on improving and enhancing our core technologies and know-how relating
to semiconductor solutions for flat panel displays and advanced televisions with particular emphasis on our three major
product lines. Although a significant portion of the resources at our integrated circuit design center are invested in
advanced research for future products, we continue to invest in improving the performance and reducing the costs of
our existing products. Our application engineers, who provide on-system verification of semiconductors and product
specifications, and field application engineers, who provide on-site engineering support at our customers’ offices, work
39
closely with panel manufacturers to co-develop display solutions for their electronic devices. In 2005, 2006 and 2007,
we incurred research and development expenses of $41.3 million, $60.7 million and $73.9 million, respectively, representing
7.6%, 8.1% and 8.0% of our revenues, respectively.
Off-Balance Sheet Arrangements
As of December 31, 2007, we did not have any off-balance sheet guarantees, interest rate swap transactions or foreign
currency forwards. We do not engage in trading activities involving non-exchange traded contracts. Furthermore, as of
December 31, 2007, we did not have any interests in variable interest entities.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2007:
Payment Due by Period
Less than
More than
Total
1 year
1-3 years
3-5 years
5 years
Operating lease obligations ...................
1,069
Purchase obligations(1) ..........................
63,655
Other obligations(2) ................................
2,367
Total ........................................................
67,091
827
63,655
1,442
65,924
(in thousands)
242
–
925
1,167
–
–
–
–
–
–
–
–
Notes: (1)
Includes obligations for wafer fabrication, raw materials and supplies.
(2)
Includes obligations under license agreements and donations for laboratories commitments.
As of December 31, 2006 and 2007, we had entered into several contracts for the acquisition of equipment and
computer software and the construction of our new headquarters. Total contract prices amounted to $7.8 million and $0.9
million, respectively. As of December 31, 2006 and 2007, the remaining commitments were $2.8 million and $100,000,
respectively.
In August 2004, we entered into a license agreement for the use of certain central processing unit cores for product
development. In accordance with the agreement, we are required to pay a license fee based on the progress of the
project development and a royalty based on shipments. The initial license fee of $100,000 was charged to research
and development expense in 2004; no fees or royalties were paid in 2005. We also paid a license fee of $200,000 in
2006; however, no fees or royalties were paid in 2007.
In March 2005, we entered into a license agreement for the use of USB 2.0 relevant technology for product development.
In accordance with the agreement, we were required to pay an initial license fee based on the progress of the project
development and a royalty based on shipments. No license fee was paid in 2005. The license fee charged to research
and development expense in 2006 and 2007 was $10,000 and $250,000, respectively. In 2007, no royalty was paid.
In June 2007, we entered into a license agreement for the use of Analogix HDMI 1.3 receiver core relevant technology
for product development. In accordance with the agreement, we were required to pay an initial license fee based on
the progress of the project development and a royalty based on shipments. The license fee paid and charged to
research and development expense in 2007 was $0.5 million. In 2007, no royalty was paid.
We completed construction of our new headquarters located in the Tree Valley Industrial Park in 2006. The facility
occupies 22,172 square meters and houses our research and development, engineering, sales and marketing, operations
and general administrative staff. The land (31,800 square meters) is owned by us. The total costs were approximately
$25.8 million, of which approximately $10.2 million was for the land and approximately $15.6 million was for the
construction of the building and related facilities (which included architect fees, general contractor fees, building
40
materials, the purchase and installation of network, clean room, and office equipment and other fixtures). We have
already paid for the land and approximately $0.8 million, $9.7 million and $5.1 million of the construction costs were
paid in 2005, 2006 and 2007, respectively, and we have no further obligations regarding our new headquarters.
We also lease office and building space pursuant to operating lease arrangements with unrelated third parties. The lease
arrangement will expire gradually from 2008 to 2010. As of December 31, 2006 and 2007, deposits paid amounted
to $477,000 and $371,000, respectively, and were recorded as refundable deposit in the accompanying consolidated
balance sheets. As of December 31, 2007, future minimum lease payments under non-cancelable operating leases
totaled $827,000 in 2008, $226,000 in 2009 and $16,000 in 2010. Rental expenses for operating leases amounted
to $1.3 million, $1.8 million and $1.9 million in 2005, 2006 and 2007, respectively.
Our current corporate structure was established as a result of a share exchange between us and the former shareholders
of Himax Taiwan. The ROC Investment Commission approved the share exchange, subject to our satisfying several
undertakings we gave in connection with our application seeking approval of the share exchange: Himax Taiwan
submitted to the ROC Investment Commission its annual financial statements audited by a certified public accountant
and other relevant supporting documents in connection with the implementation of the above-mentioned undertakings
within four months after the end of each of 2005, 2006 and 2007. As of the date of this report we have satisfied our
ROC undertakings.
Under the ROC Labor Standard Law, we established a defined benefit plan and were required to make monthly
contributions to a pension fund in an amount equal to 2% of wages and salaries of our employees. Under the newly
effective ROC Labor Pension Act, beginning on July 1, 2005, we are required to make a monthly contribution for
employees that elect to participate in the new defined contribution plan of no less than 6% of the employee’s monthly
wages, to the employee’s individual pension fund account. Substantially all participants in the defined benefit plan have
elected to participate in the newly defined contribution plan. Participants’ accumulated benefits under the defined
benefit plan are not impacted by their election to change plans. We are required to make contributions to the defined
benefit plan until it is fully funded. As a result, our monthly contribution to the pension fund increased to $68,211 in
July 2005 compared to $15,646 in June 2005, and we expect to contribute at this increased rate in the future. Total
contributions to the new defined contribution plan in 2007 were $967,000 compared to $855,000 and $217,000 in
2006 and 2005, respectively. Total contributions to the defined benefit plan and the new defined contribution plan in
2007 were $1.3 million compared to $1.1 million and $412,000 in 2006 and 2005, respectively. This increase has not,
and is not expected to have, a material effect on our cash flows or results of operations.
Inflation
Inflation in Taiwan has not had a material impact on our results of operations in recent years. However, an increase
in inflation can lead to increases in our costs and lower our profit margins. According to the Directorate General of
Budget, Accounting and Statistics, Executive Yuan, ROC, the change of consumer price index in Taiwan was 2.3%,
0.6% and 1.8% in 2005, 2006 and 2007, respectively.
Recent Accounting Pronouncements
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement, or SFAS No. 157. SFAS No.
157 defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value measures. SFAS No. 157 is effective for fair
value measures already required or permitted by other standards for fiscal years beginning after November 15, 2007
(January 1, 2008 for us) and is to be applied prospectively. Subsequently in February 2008, FASB issued FASB Staff
Position (“FSP“) FAS 157-1 “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurement for Purposes of Lease Classification or Measurement under
Statement 13,” and FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-1 amends the scope
of SFAS No. 157 and other accounting standards that address fair value measurements for purpose of lease classification
41
or measurement under Statement 13. The FSP is effective on initial adoption of SFAS No. 157. FSP FAS 157-2 defers
the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis. Management does not expect the initial adoption of SFAS No. 157, FSP FAS 157-1 and FSP FAS 157-
2 will have a material impact on the Company’s consolidated financial statements.
In September 2006, the FASB issued SFAS Statement No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106, and 132(R), or SFAS No. 158. As
described in Note 2 (o), effective December 31, 2006, the Company adopted the recognition and disclosure provisions
of SFAS No. 158. SFAS No. 158 also requires plan assets and benefit obligations be measured as of the date of the
fiscal year-end statement of financial position with limited exceptions. The measurement provisions of SFAS No. 158
are effective for fiscal years ending after December 15, 2008, and will not be applied retroactively. The measurement
provisions of SFAS No. 158 are consistent with the Company’s current policies and management does not anticipate
that the adoption of the measurement provisions of SFAS No. 158 will have an impact on its consolidated financial
statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 or SFAS No. 159.
SFAS No. 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value that
are not currently required to be measured at fair value. If the fair value option is elected, changes in fair value would
be recorded in earnings at each subsequent reporting date. Management has elected not to adopt this optional
standard.
In December 2007, the FASB issued FASB Statement No. 141R, Business Combinations or SFAS No. 141R and FASB
Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51
or SFAS No. 160. SFAS No. 141R and 160 require most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests
(previously referred to as minority interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. Both Statements are effective for periods beginning on or after
December 15, 2008, and earlier adoption is prohibited. SFAS No. 141R will be applied to business combinations
occurring after the effective date. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including
any that arose before the effective date. The initial adoption of SFAS No. 160 is expected to result only in a reclassification
of our noncontrolling interest to shareholders’ equity.
42
DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES
Directors and Senior Management
Members of our board of directors may be elected by our directors or our shareholders. Our board of directors consists
of five directors, two of whom will be independent directors within the meaning of Rule 4200(a)(15) of the Nasdaq Stock
Market, Inc. Marketplace Rules, or the Nasdaq Rules, as amended from time to time. Other than Jordan Wu and Dr.
Biing-Seng Wu, who are brothers, there are no family relationships between any of our directors and executive officers.
The following table sets forth information regarding our directors and executive officers as of June 1, 2008. Our
directors and executive officers all assumed their respective positions at our company, Himax Technologies, Inc., after
our shareholders’ meeting and board meeting, which were both held on October 25, 2005. Unless otherwise indicated,
the positions or titles indicated in the table below refer to Himax Technologies, Inc.
Directors and Executive Officers
Age
Position/Title
Dr. Biing-Seng Wu .........................
Jordan Wu ......................................
Jung-Chun Lin ...............................
Dr. Chun-Yen Chang .....................
Yuan-Chuan Horng ........................
Chih-Chung Tsai .............................
Max Chan .......................................
Baker Bai ........................................
John Chou .....................................
Norman Hung .................................
50
47
59
70
56
52
41
50
49
50
Directors
Chairman of the Board
President, Chief Executive Officer and Director
Director
Director
Director
Chief Technology Officer, Senior Vice President
Chief Financial Officer
Vice President, Incubator System Design Center
Vice President, Quality & Reliability Assurance & Support Design Center
Vice President, Sales and Marketing
Dr. Biing-Seng Wu is the chairman of our board of directors. Dr. Wu is also the chairman of the board of directors of
Himax Taiwan, Himax Display, Himax Analogic and Himax Imaging. Prior to our reorganization in October 2005, Dr. Wu
served as president, chief executive officer and a director of Himax Taiwan and chairman, president and chief executive
officer of Himax Display. Dr. Wu is also a director of Himax Anyang and serves as a director, executive vice president
and chief technology officer of CMO, a TFT-LCD panel manufacturer, and a director of Chi Lin Technology Co., Ltd.,
an electronics manufacturing service provider, Chi Mei El Corp., an OLED company, and Nexgen Mediatech Inc., a TFT-
LCD television manufacturer. Dr. Wu has been active in the TFT-LCD panel industry for over 20 years and is a member
of the boards of the Taiwan TFT-LCD Association and the Society for Information Display. Prior to joining CMO in 1998,
Dr. Wu was senior director and plant director of Prime View International Co., Ltd,. a TFT-LCD panel manufacturer, from
1993 to 1997, and a manager of Thin Film Technology Development at the Electronics Research & Service Organization/
Industry Technology Research Institute, or ERSO/ITRI, of Taiwan. Dr. Wu holds a B.S. degree, an M.S. degree and a
Ph.D. degree in electrical engineering from National Cheng Kung University. Dr. Wu is the brother of Mr. Jordan Wu,
our president and chief executive officer.
Jordan Wu is our president and chief executive officer. Prior to our reorganization in October 2005, Mr. Wu served as
the chairman of the board of directors of Himax Taiwan, a position that he held since April 2003. Mr. Wu is also the
chairman of the board of directors of Wisepal, Himax Imaging, Himax Media Solutions, and Integrated Microdisplays
and a director of Himax Taiwan, Himax Display, Himax Analogic, Himax Technologies (Samoa), Inc., Himax Anyang,
Himax Technologies (Shenzhen) Co. Inc., Himax Technologies (Suzhou) Co., Inc., and Himax Imaging. Prior to joining
Himax Taiwan, Mr. Wu served as chief executive officer of TV Plus Technologies, Inc. and chief financial officer and
executive director of DVN Holdings Ltd. in Hong Kong. Prior to that, he was an investment banker at Merrill Lynch (Asia
43
Pacific) Limited, Barclays de Zoete Wedd (Asia) Limited and Baring Securities, based in Hong Kong and Taipei. Mr. Wu
holds a B.S. degree in mechanical engineering from National Taiwan University and an M.B.A. degree from the University
of Rochester. Mr. Wu is the brother of Dr. Biing-Seng Wu, our chairman.
Jung-Chun Lin is our director. He has also been a director of Himax Taiwan since June 2001, a director of Himax
Display since July 2004 and a director of Himax Analogic since July 2007. Mr. Lin also serves as a director, senior vice
president, chief financial officer and chief accounting officer of CMO and a senior vice president of Chi Mei Corporation.
Prior to joining CMO in 2000, Mr. Lin was vice president of Chi Mei Corporation and had been with Chi Mei Corporation
since 1971. Mr. Lin holds a B.S. degree in accounting from National ChengChi University.
Dr. Chun-Yen Chang is our director. Prior to our reorganization in October 2005, he served as a supervisor of Himax
Taiwan since December 2003. He was president of the National Chiao Tung University, or NCTU, of Taiwan from 1998
to 2006. Prior to that, he served as the director of the Microelectronics and Information Systems Research Center of
NCTU from 1996 to 1998 and as the dean of both the College of Electrical Engineering and Computer Science of NCTU
and the College of Engineering of NCTU from 1990 to 1994. Dr. Chang has been active in the semiconductor industry
for over 40 years. He is a fellow of the Institute of Electrical and Electronics Engineers, Inc., or IEEE, a foreign associate
of the National Academy of Engineering of the United States and a fellow of Academia Sinica of Taiwan. Dr. Chang
holds a B.S. degree in electrical engineering from National Cheng Kung University and an M.S. degree and a Ph.D.
degree in electrical engineering from National Chiao Tung University.
Yuan-Chuan Horng is our director. Prior to our reorganization in October 2005, Mr. Horng served as a director of Himax
Taiwan from August 2004 to October 2005. Mr. Horng is the general manager of the Finance Department of China Steel
Corporation, a position he has held since April 2000. He has held various accounting and finance positions at China
Steel Corporation for over 30 years. Mr. Horng holds a B.A. degree in economics from Soochow University.
Other Executive Officers
Chih-Chung Tsai is our chief technology officer and senior vice president. Mr. Tsai is also a director and chief technology
officer of Himax Taiwan, a director of Himax Display, Himax Anyang, Wisepal, Himax Analogic and Integrated Microdisplays.
Prior to joining Himax Taiwan, Mr. Tsai served as vice president of IC Design of Utron Technology from 1998 to 2001,
manager and director of the IC Division of Sunplus Technology from 1994 to 1998, director of the IC Design Division
of Silicon Integrated Systems Corp. from 1987 to 1993 and project leader at ERSO/ITRI from 1981 to 1987. Mr. Tsai
holds a B.S. degree and an M.S. degree in electrical engineering from National Chiao Tung University.
Max Chan is our chief financial officer. Mr. Chan is also the chief financial officer of Himax Taiwan. Mr. Chan is also
a supervisor of Wisepal, Himax Imaging and Himax Media Solutions. Prior to our reorganization in October 2005, Mr.
Chan served as director of the planning division of Himax Taiwan from June 2004 to October 2005. Prior to joining
Himax Taiwan, he was treasury manager of Intel Capital, the strategic investment division of Intel Corporation in Taiwan
from 2000 to 2004, senior associate of Credit Suisse First Boston Asia International (Cayman) Limited, Taiwan Branch
in 2000 and a manager of the Overseas Direct Investment Department of China Development Industrial Bank from 1992
to 2000. Mr. Chan holds a B.S. degree in civil engineering and an M.B.A. degree in finance from National Taiwan
University and an M.S. degree in business administration from the University of Illinois at Urbana-Champaign.
Baker Bai is our vice president in charge of the Incubator System Design Center, a director of Himax Taiwan and a
supervisor of Himax Display and Himax Anyang. Prior to joining Himax Taiwan in 2001, Mr. Bai served as the director
of the TFT Liquid Crystal Module Fab of CMO from 1998 to 2001, research and development manager of the Research
Center of Vate Technology Inc., a semiconductor testing house, from 1994 to 1998, and research and development
engineer at Chun Shan Technology Institute from 1983 to 1994. Mr. Bai holds a B.S. degree in electrical engineering
from National Cheng Kung University, an M.S. degree in electrical engineering from the University of Southern California
and an M.S. degree in electrical engineering from National Chiao Tung University.
44
John Chou is our vice president in charge of the Quality & Reliability Assurance & Support Design Center and also
serves as a president and director of Himax Media Solutions. Prior to joining Himax in 2005, Mr. Chou served as the
director of the Application and Marketing Department at Pyramis Corp., a subsidiary and the semiconductor arm of
Delta Electronics Inc., from August 2002 to April 2005. Mr. Chou was application manager at O2Micro, Inc., an
integrated circuit design house, from 1997 to 2002 and design engineer and project manager at Philips Lighting
Electronics from 1992 to 1996. Mr. Chou holds a B.S. degree in electrical engineering from National Cheng Kung
University and an M.S. degree in electrical engineering from California State University, Los Angeles.
Norman Hung is our vice president in charge of Sales and Marketing and also serves as a director of Wisepal and a
supervisor of Himax Analogic. From 2000 to 2006, Mr. Hung served as president of ZyDAS Technology Corp., a fabless
integrated circuit design house. From 1999 to 2000, he served as vice president of Sales and Marketing for HiMARK
Technology Inc., another fabless integrated circuit design house. Prior to that, from 1996 to 1998, Mr. Hung served
as Director of Sales and Marketing for Integrated Silicon Solution, Inc. He has also served in various Marketing positions
for Hewlett-Packard and Logitech. Mr. Hung holds a B.S. degree in electrical engineering from National Cheng Kung
University and an executive M.B.A. degree from National Chiao Tung University.
Compensation of Directors and Executive Officers
In the year ended December 31, 2007, the aggregate cash compensation that we paid to our executive officers was
approximately $0.5 million. The aggregate share-based compensation that we paid to our executive officers was
approximately $1.6 million. No executive officer is entitled to any severance benefits upon termination of his or her
employment with us.
In the year ended December 31, 2007, the aggregate cash compensation that we paid to our directors was approximately
$30,000. The aggregate share-based compensation that we paid to our directors was $43,100.
The following table summarizes the RSUs that we granted in 2007 to our directors and executive officers under our
2005 long-term incentive plan. See “Share-Based Compensation Plans” for more details regarding our RSU grants.
Name
Total RSUs Granted
Portion of RSUs
Portion of RSUs
Ordinary Shares
Ordinary Shares
Underlying Vested
Underlying Unvested
Dr. Biing-Seng Wu ........................................
Jordan Wu .....................................................
Jung-Chun Lin ..............................................
Dr. Chun-Yen Chang ....................................
Yuan-Chuan Horng .......................................
Chi-Chung Tsai ..............................................
Max Chan ......................................................
Baker Bai .......................................................
John Chou ....................................................
Norman Hung ................................................
Board Practices
General
91,765
105,724
0
0
0
105,724
40,508
50,640
73,636
57,212
22,941
26,431
0
0
0
26,431
10,127
12,660
18,409
14,303
68,824
79,293
0
0
0
79,293
30,381
37,980
55,227
42,909
Our board of directors consists of five directors, two of whom are independent directors within the meaning of Rule
4200(a)(15) of the Nasdaq Rules, as amended from time to time. We intend to follow home country practice that permits
our board of directors to have less than a majority of independent directors in lieu of complying with Rule 4350(c)(1)
of the Nasdaq Rules that require boards of U.S. companies to have a board of directors which is comprised of a
45
majority of independent directors. Moreover, we intend to follow home country practice that permits our independent
directors not to hold regularly scheduled meetings at which only independent directors are present in lieu of complying
with Rule 4350(c)(2).
Committees of the Board of Directors
To enhance our corporate governance, we have established three committees under the board of directors prior to the
closing of this offer: the audit committee, the compensation committee and the nominating and corporate governance
committee. We have adopted a charter for each of the three committees. Each committee’s members and functions
are described below.
Audit Committee. Our audit committee currently consists of Yuan-Chuan Horng and Dr. Chun-Yen Chang. Our board
of directors has determined that all of our audit committee members are “independent directors” within the meaning
of Rule 4200(a)(15) of the Nasdaq Rules and meet the criteria for independence set forth in Section 10A(m)(3)(B)(i) of
the Exchange Act. We intend to follow home country practice that permits an audit committee to contain two independent
directors in lieu of complying with Rule 4350(d) of the Nasdaq Rules that requires the audit committees of U.S.
companies to have a minimum of three independent directors. Our audit committee will oversee our accounting and
financial reporting processes and the audits of our financial statements. The audit committee will be responsible for,
among other things:
• selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be
performed by the independent auditors;
• reviewing with the independent auditors any audit problems or difficulties and management’s response;
• reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation SK under
the Securities Act;
• discussing the annual audited financial statements with management and the independent auditors;
• reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light
of material internal control deficiencies;
• annually reviewing and reassessing the adequacy of our audit committee charter;
• meeting separately and periodically with management and the independent auditors;
• reporting regularly to the board of directors; and
• such other matters that are specifically delegated to our audit committee by our board of directors from time to
time.
Compensation Committee. Our current compensation committee consists of Yuan-Chuan Horng, Dr. Chun-Yen Chang
and Jung-Chun Lin. Our compensation committee assists our board of directors in reviewing and approving the
compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief
executive officer may not be present at any committee meeting where his or her compensation is deliberated. We intend
to follow home country practice that permits a compensation committee to contain a director who does not meet the
definition of “independence” within the meaning of Rule 4200(a) (15) of the Nasdaq Rules. We intend to follow home
country practice in lieu of complying with Rule 4350(c)(3)(A)(ii) and (B)(ii) of the Nasdaq Rules which requires the
compensation committees of U.S. companies to be comprised solely of independent directors. The compensation
committee will be responsible for, among other things:
• reviewing and making recommendations to our board of directors regarding our compensation policies and forms
of compensation provided to our directors and officers;
• reviewing and determining bonuses for our officers and other employees;
• reviewing and determining share-based compensation for our directors, officers, employees and consultants;
• administering our equity incentive plans in accordance with the terms thereof; and
• such other matters that are specifically delegated to the compensation committee by our board of directors from
time to time.
46
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee assists the
board of directors in identifying individuals qualified to be members of our board of directors and in determining the
composition of the board and its committees. Our current nominating and corporate governance committee consists
of Yuan-Chuan Horng, Dr. Chun-Yen Chang and Jung-Chun Lin. We intend to follow home country practice that permits
a nominating committee to contain a director who does not meet the definition of “independence” within the meaning
of Rule 4200(a)(15) of the Nasdaq Rules. We intend to follow home country practice in lieu of complying with Rule 4350
(c)(4)(A)(ii) and (B)(ii) of the Nasdaq Rules that requires the nominating committees of U.S. companies be comprised
solely of independent directors. Our nominating and corporate governance committee will be responsible for, among
other things:
• identifying and recommending to our board of directors nominees for election or re-election, or for appointment
to fill any vacancy;
• reviewing annually with our board of directors the current composition of our board of directors in light of the
characteristics of independence, age, skills, experience and availability of service to us;
• reviewing the continued board membership of a director upon a significant change in such director’s principal
occupation;
• identifying and recommending to our board of directors the names of directors to serve as members of the audit
committee and the compensation committee, as well as the nominating and corporate governance committee
itself;
• advising the board periodically with respect to significant developments in the law and practice of corporate
governance as well as our compliance with applicable laws and regulations, and making recommendations to our
board of directors on all matters of corporate governance and on any corrective action to be taken; and
• monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and
effectiveness of our procedures to ensure proper compliance.
Terms of Directors and Officers
Under Cayman Islands law and our articles of association, our directors hold office until a successor has been duly
elected and qualified unless the director was appointed by the board of directors, in which case such director holds
office until the next annual meeting of shareholders at which time such director is eligible for re-election. Our directors
are subject to periodic retirement and re-election by shareholders in accordance with our articles of association,
resulting in their retirement and re-election at staggered intervals. At each annual general meeting, one-third of our
directors who are subject to retirement by rotation, or if their number is not a multiple of three, the nearest to one-third
but not exceeding one-third, retire from office. Any retiring director is eligible for reappointment. The chairman of our
board of directors will not be subject to retirement by rotation or be taken into account in determining the number of
directors to retire in each year. Under this formula, assuming five directors continue to serve on the board of directors,
one director will retire and be subject to re-election in each year beginning 2006, and until 2009, the term that each
director serves before he is subject to retirement by rotation will vary from one year to four years. Under our articles
of association, which director will retire at each annual general meeting will be determined as follows: (i) any director
who wishes to retire and not offer himself for re-election, (ii) if no director wishes to retire, the director who has been
longest in office since his last re-election or appointment, (iii) if two or more directors have served on the board the
longest, then as agreed among the directors themselves or as determined by lot. Beginning in 2010, assuming that
our board of directors consists of five directors, each director will serve a term of four years. All of our executive officers
are appointed by and serve at the discretion of our board of directors.
47
Employees
As of December 31, 2005, 2006 and 2007, we had 716, 924 and 1,050 employees, respectively. The following is a
breakdown of our employees by function as of December 31, 2007:
Function
Research and development(1) ............................................................................................................
Engineering and manufacturing(2) ......................................................................................................
Sales and marketing(3) .......................................................................................................................
General and administrative .................................................................................................................
Number
687
120
160
83
Total .............................................................................................................................................
1,050
Notes: (1)
Includes semiconductor design engineers, application engineers, assembly and testing engineers and quality control engineers.
(2)
Includes manufacturing personnel of Himax Display, our subsidiary focused on design and manufacturing of LCOS products
and liquid crystal injection services.
(3)
Includes field application engineers.
Share-Based Compensation Plans
Himax Technologies, Inc. 2005 Long-Term Incentive Plan
We adopted a long-term incentive plan in October 2005. The following description of the plan is intended to be a
summary and does not describe all provisions of the plan.
Purpose of the Plan. The purpose of the plan is to advance our interests and those of our shareholders by:
• providing the opportunity for our employees, directors and service providers to develop a sense of proprietorship
and personal involvement in our development and financial success and to devote their best efforts to our
business; and
• providing us with a means through which we may attract able individuals to become our employees or to serve
as our directors or service providers and providing us a means whereby those individuals, upon whom the
responsibilities of our successful administration and management are of importance, can acquire and maintain
share ownership, thereby strengthening their concern for our welfare.
Type of Awards. The plan provides for the grant of stock options and restricted share units.
Duration. Generally, the plan will terminate five years from the effective date of the plan. After the plan is terminated,
no awards may be granted, but any award previously granted will remain outstanding in accordance with the plan.
Administration. The plan is administered by the compensation committee of our board of directors or any other
committee designated by our board to administer the plan. Committee members will be appointed from time to time
by, and will serve at the discretion of, our board. The committee has full power and authority to interpret the terms
and intent of the plan or any agreement or document in connection with the plan, determine eligibility for awards and
adopt such rules, regulations, forms, instruments and guidelines for administering the plan. The committee may delegate
its duties or powers.
Number of Authorized Shares. We have authorized a maximum of 18,076,927 shares. As of the date of this annual
report, there were no stock options or restricted share units outstanding under the plan except as described under
“–Restricted Share Units.”
Eligibility and Participation. All of our employees, directors and service providers are eligible to participate in the plan.
The committee may select from all eligible individuals those individuals to whom awards will be granted and will
determine the nature of any and all terms permissible by law and the amount of each award.
Stock Options. The committee may grant options to participants in such number, upon such terms and at any time
48
as it determines. Each option grant will be evidenced by an award document that will specify the exercise price, the
maximum duration of the option, the number of shares to which the option pertains, conditions upon which the option
will become vested and exercisable and such other provisions which are not inconsistent with the plan.
The exercise price for each option will be:
• based on 100% of the fair market value of the shares on the date of grant;
• set at a premium to the fair market value of the shares on the day of grant; or
• indexed to the fair market value of the shares on the date of grant, with the committee determining the index.
The exercise price on the date of grant must be at least equal to 100% of the fair market value of the shares on the
date of grant.
Each option will expire at such time as the committee determines at the time of its grant; however, no option will be
exercisable later than the 10th anniversary of its grant date. Notwithstanding the foregoing, for options granted to
participants outside the United States, the committee can set options that have terms greater than ten years.
Options will be exercisable at such times and be subject to such terms and conditions as the committee approves.
A condition of the delivery of shares as to which an option will be exercised will be the payment of the exercise price.
Subject to any governing rules or regulations, as soon as practicable after receipt of written notification of exercise and
full payment, we will deliver to the participant evidence of book-entry shares or, upon his or her request, share
certificates in an appropriate amount based on the number of shares purchased under the option(s). The committee
may impose such restrictions on any shares acquired pursuant to the exercise of an option as it may deem advisable.
Each participant’s award document will set forth the extent to which he or she will have the right to exercise the options
following termination of his or her employment or services.
We have not yet granted any stock options under the plan.
Restricted Share Units. The committee may grant restricted share units to participants. Each grant will be evidenced
by an award document that will specify the period(s) of restriction, the number of restricted share units granted and
such other provisions as the committee determines.
Generally, restricted share units will become freely transferable after all conditions and restrictions applicable to such
shares have been satisfied or lapse and restricted share units will be paid in cash, shares, or a combination, as
determined by the committee.
The committee may impose such other conditions or restrictions on any restricted share units as it may deem advisable,
including a requirement that participants pay a stipulated purchase price for each restricted share unit, restrictions
based upon the achievement of specific performance goals and time-based restrictions on vesting.
A participant will have no voting rights with respect to any restricted share units.
Each award document will set forth the extent to which the participant will have the right to retain restricted share units
following termination of his or her employment or services.
We committed to pay a bonus to our employees to settle the accrued bonus payable in respect of their service provided
in 2004 and the ten months ended October 31, 2005, which was satisfied through a grant of 990,220 RSUs on
December 30, 2005. All RSUs granted to employees as a bonus vested immediately on the grant date.
49
We made an additional grant of 1,297,564 RSUs to our employees on December 30, 2005. The vesting schedule for
this RSU grant is as follows: 25% of the RSU grant vested immediately on the grant date, and a subsequent 25%
vested on each of September 30, 2006 and 2007, and with the remainder vesting September 30, 2008, subject to
certain forfeiture events.
We also made a grant of 20,000 RSUs to our independent directors on December 30, 2005. The vesting schedule for
this RSU grant is as follows: 25% of the RSU grant vested immediately on the grant date, and a subsequent 25%
vested on each of June 30, 2006 and 2007, and with the remainder vesting June 30, 2008, subject to certain forfeiture
events.
We made a grant of 3,798,808 RSUs to our employees on September 29, 2006. The vesting schedule for this RSU
grant is as follows: 47.29% of the RSU grant vested immediately on the grant date, and a subsequent 17.57% vested
on September 26, 2007, with the remainder vesting equally on each of September 30, 2008 and 2009, subject to
certain forfeiture events.
We made a grant of 6,694,411 RSUs to our employees on September 26, 2007. The vesting schedule for this RSU
grant is as follows: 54.55% of the RSU grant vested immediately and was settled by cash in the amount of $14.4 million
on the grant date, with the remainder vesting equally on each of September 30, 2008, 2009 and 2010, subject to
certain forfeiture events.
Dividend Equivalents. Any participant selected by the committee may be granted dividend equivalents based on the
dividends declared on shares that are subject to any award, to be credited as of dividend payment dates, during the
period between the date the award is granted and the date the award is exercised, vests, or expires, as determined
by the committee. Dividend equivalents will be converted to cash or additional shares by such formula and at such time
and subject to such limitations as determined by the committee.
Transferability of Awards. Generally, awards cannot be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Adjustments in Authorized Shares. In the event of any of the corporate events or transactions described in the plan,
to avoid any unintended enlargement or dilution of benefits, the committee has the sole discretion to substitute or adjust
the number and kind of shares that can be issued or otherwise delivered.
Forfeiture Events. The committee may specify in an award document that the participant's rights, payments and
benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence
of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an award.
If we are required to prepare an accounting restatement owing to our material noncompliance, as a result of misconduct,
with any financial reporting requirement under the securities laws, then if the participant is one of the individuals subject
to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, the participant will reimburse us the
amount of any payment in settlement of an award earned or accrued during the twelve-month period following the first
public issuance or filing with the SEC (whichever first occurred) of the financial document embodying such financial
reporting requirement.
Amendment and Termination. Subject to, and except as, provided in the plan, the committee has the sole discretion
to alter, amend, modify, suspend, or terminate the plan and any award document in whole or in part. Amendments
to the plan are subject to shareholder approval, to the extent required by law, or by stock exchange rules or regulations.
50
Share Ownership
The following table sets forth the beneficial ownership of our ordinary shares, as of June 1, 2008, by each of our
directors and executive officers.
Name
Number of Shares Owned
Percentage of Shares Owned
Dr. Biing-Seng Wu .............................................
Jordan Wu ..........................................................
Jung-Chun Lin ...................................................
Dr. Chun-Yen Chang .........................................
Yuan-Chuan Horng ............................................
Chih-Chung Tsai .................................................
Max Chan ...........................................................
Baker Bai ............................................................
John Chou .........................................................
Norman Hung .....................................................
* Less than 1%
32,093,786
11,432,594
–
797,307
455,552
2,948,243
68,936
2,297,134
47,642
33,328
16.81%
5.99%
–
*
*
1.54%
*
1.20%
*
*
None of our directors or executive officers has voting rights different from other shareholders.
51
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS
Major Shareholders
CMO is a major shareholder of ours. As of June 1, 2008, CMO beneficially owned 13.0% of our outstanding shares.
We have a close relationship with CMO, a leading TFT-LCD panel manufacturer based in Taiwan which is listed on the
Taiwan Stock Exchange. CMO’s primary focus is the manufacture of large-sized TFT-LCD panels for use in notebook
computers, desktop monitors and LCD televisions. Several of Himax Taiwan’s initial employees, including Dr. Biing-Seng
Wu, our chairman, were employees of CMO prior to the establishment of Himax Taiwan. CMO was Himax Taiwan’s
largest shareholder at the time of its incorporation and remains one of our largest external shareholders. CMO has also
been our largest customer since our inception. As of December 31, 2007, sales to CMO (together with its affiliates)
accounted for 58.8% of our revenues. Certain of our directors also hold key management positions at CMO. Jung-Chun
Lin, our director, holds the positions of director, vice president, chief financial officer and chief accounting officer at
CMO. Dr. Biing-Seng Wu, our chairman, is also a director, executive vice president and chief technology officer of CMO.
We also have entered into various transactions with CMO as further described below.
CMO has acquired our shares through various transactions. In June 2001, CMO acquired (1) 4,375,000 shares in
connection with its capital injection of NT$43,750,000, which is the equivalent of NT$10 per share, or the par value
of Himax Taiwan’s common shares and (2) 247,000 shares, 986,000 shares and 1,267,000 shares in June 2001,
November 2001 and January 2002, respectively, as consideration for 14 patents transferred to Himax Taiwan. In
October 2003, CMO acquired 5,258,420 shares in connection with its capital injection of NT$131,460,500, which is
the equivalent of NT$25 per share. In July 2002, September 2003 and September 2004, CMO acquired 2,750,000
shares, 2,082,753 shares and 7,856,356 shares, respectively, either as a result of stock splits or stock splits effected
in the form of dividends.
There have been no changes in our major shareholders or significant changes in the amount of shares CMO holds since
June 1, 2008.
The following table sets forth information known to us with respect to the beneficial ownership of our shares as of June 1,
2008, the most recent practicable date, by (1) each shareholder known by us to beneficially own more than 5% of our
shares and (2) all directors and executive officers as a group.
Name of Beneficial Owner
Beneficially Owned
Beneficially Owned
Number of Shares
Percentage of Shares
Dr. Biing-Seng Wu ............................................................
Jordan Wu .........................................................................
CMO ..................................................................................
All directors and executive officers as a group ...............
32,093,786
11,432,594
24,822,529
50,174,522
16.81%
5.99%
13.00%
26.28%
Based on publicly available information disclosed in the Schedule 13G filed on February 14, 2008, FMR LLC and its
affiliates, beneficially own a total of 23,985,887, or 12.39%, of our shares.
None of our major shareholders has voting rights different from other shareholders. We are not aware of any arrangement
that may, at a subsequent date, result in a change of control of our company.
As of June 1, 2008, 190,905,649 of our shares were outstanding. We believe that, of such shares, 96,138,297 shares
in the form of ADSs were held by approximately 9,727 holders in the United States as of June 1, 2008.
52
Related Party Transactions
CMO and Related Companies
CMO
We sell display drivers to CMO. We generated net sales to CMO in the amount of $317.0 million in 2005, $335.8 million
in 2006, and $281.8 million in 2007 and our receivables from these sales were $67.4 million, $81.6 million and $94.1
million as of December 31, 2005, 2006 and 2007, respectively.
We lease office space and equipment from CMO. Rent and utility expenses paid to CMO amounted to $0.6 million in
2005, $0.8 million in 2006 and $0.5 million in 2007.
Himax Display also provides liquid crystal injection services to CMO. Himax Display generated net sales of approximately
$45,000 in 2005 from CMO in connection with these services. Himax Display purchased liquid crystal from CMO, which
was used for Himax Display’s liquid crystal injection services, in amounts of $703,000, $81,500 and $11,600 in 2005,
2006 and 2007, respectively.
In February 2006 and March 2007, our board approved a donation of approximately $150,000 to Chi Mei Culture
Foundation, a non-profit organization affiliated with CMO, which is dedicated to the promotion of the arts and culture
in Taiwan.
Chi Mei Optoelectronics Japan Co., Ltd.
Chi Mei Optoelectronics Japan Co., Ltd., or CMO-Japan, (formerly named International Display Technology Co., Ltd.,
or IDTech) an affiliate of our company, is a privately held company 100% owned by CMO. Incorporated in Japan with
headquarters based in Yasu, Japan, IDTech has historically developed and manufactured large-sized, high-resolution
TFT-LCD panels and currently markets TFT-LCD panels for CMO. We sell display drivers to CMO-Japan. We generated
net sales to CMO-Japan in the amount of $0.3 million in 2005 and nil in 2006 and 2007. We had no receivables from
these sales as of December 31, 2006 and 2007.
Chi Mei Corporation
Chi Mei Corporation, or CMC, is a privately held company incorporated in Taiwan and is the largest shareholder of
CMO. CMC manufactures various products, including acrylonitrile butadiene styrene resins. We purchased consumable
and miscellaneous items from CMC in the amount of $48,000, $93,000 and $6,000 in 2005, 2006 and 2007, respectively.
NingBo Chi Mei Optoelectronics Ltd.
NingBo Chi Mei Optoelectronics Ltd., or CMO Ningbo, is a subsidiary of CMO. We sell display drivers to CMO Ningbo.
We generated net sales to CMO Ningbo in the amount of $0.7 million in 2005, $73.9 million in 2006 and $249.1 million
in 2007, and our receivables from these sales were $0.7 million, $33.9 million and $92.8 million as of December 31,
2005, 2006 and 2007, respectively.
Chi Lin Technology Co., Ltd.
We sell display drivers to Chi Lin Technology Co., Ltd., or Chi Lin Tech, a company controlled by CMC. Chi Lin Tech,
a publicly held Taiwanese company headquartered in Tainan, Taiwan, is engaged in the business of, among other things,
the sale of LCD-related parts and the repair and maintenance of TFT-LCD panels. We generated net sales to Chi Lin
Tech in the amount of $2.8 million, $3.0 million and $7.2 million in 2005, 2006 and 2007, respectively, and our
receivables from these sales was $1.2 million, $0.4 million and $1.0 million as of December 31, 2005, 2006 and 2007,
respectively.
TopSun Optoelectronics, Inc.
We sell display drivers to TopSun Optoelectronics Inc., or TopSun, whose board of directors is controlled by Chi Lin
Tech. On January 1, 2007, TopSun merged with Chi Lin Tech, with Chi Lin Tech being the surviving company. We
53
generated net sales to TopSun in the amount of $1.1 million in 2006, and our receivables from these sales were $1.2
million as of December 31, 2006. We did not generate net sales from TopSun prior to 2006.
Other Related Company
Jemitek Electronics Corp.
From June 2003 to November 2006, our chief executive officer was on the board of directors of Jemitek Electronics
Corp., or JEC. On March 1, 2007, JEC merged with InnoLux Display Corporation, with InnoLux Display Corporation
being the surviving company. We sell display drivers to JEC, a privately held Taiwanese company headquartered in
Taipei, Taiwan which designs and assembles small and medium-sized LCD panels for mobile phones and digital media
players. We also owned an equity interest in JEC beginning in June 2003, but disposed of all of our interest in October
2006. We generated net sales to JEC in the amount of $1.6 million and approximately $9,000 in 2005 and 2006,
respectively, and our receivables from these sales were $0.1 million and nil as of December 31, 2005 and 2006,
respectively. We did not generate any net sales to JEC in 2007 and did not have any receivables from them as of
December 31, 2007.
Litigation
On July 30, 2007, a class action was filed in the United States District Court for the Central District of California entitled
Vivian Oh v. Max Chan, CV07-04891-DDP. The suit was allegedly brought on behalf of purchasers of our ordinary
shares pursuant and/or traceable to our initial public offering on or about March 30, 2006. The complaint named our
Chief Financial Officer, Max Chan, as the sole defendant, alleging a breach of fiduciary duty and violations of Sections
11, 12(a)(2) and 15 of the Securities Act. The complaint sought damages in an unspecified amount, rescission of the
initial public offering, and attorney’s fees and costs. On August 30, 2007, a similar class action was filed in the same
court entitled Michael Pfeiffer v. Himax Technologies, Inc., Max Chan, and Jordan Wu, CV07-05468-JFW. The suit was
allegedly brought on behalf of purchasers of our ADSs issued in our initial public offering. The complaint named us,
our Chief Executive Officer, Jordan Wu, and our Chief Financial Officer, Max Chan, as defendants, alleging violations
of Sections 11 and 15 of the Securities Act. The complaint sought damages in an unspecified amount and attorney’s
fees and costs.
On October 3, 2007, the plaintiffs moved to consolidate the cases, appoint lead plaintiffs and approve lead plaintiffs’
selection of counsel. That motion was granted on February 5, 2008. Plaintiffs filed an amended complaint on February
25, 2008. The amended complaint again names as defendants us, Jordan Wu, and Max Chan, and adds Chairman
Biing-Seng Wu, director Jung-Chun Lin and CMO as defendants. The amended complaint alleges that defendants
violated Sections 11 and 15 of the Securities Act by failing to disclose certain facts related to CMO’s inventory. Plaintiffs
seek unspecified damages, attorney’s fees and expenses, and rescission of the initial public offering. We and the
individual defendants intend to defend against this case vigorously.
Dividends and Dividend Policy
Our dividend policy is to retain the majority, if not all, of our available funds and any future earnings for use in the
operation and growth of our business.
In November 2005, we distributed a special cash dividend to our shareholders in the amount of approximately
$13.6 million, or the equivalent of approximately $0.075 per share based on our total shares outstanding as of a certain
record date. This dividend was paid to our shareholders in respect of our performance prior to our initial public offering.
We decided to pay the dividend in cash instead of shares because our ordinary shares at the time of the dividend
payment were not listed on any stock exchange and therefore had limited liquidity. This dividend was approved by our
board of directors and was financed through a loan. In 2006, we did not distribute any dividends.
On October 30, 2007 we paid a cash dividend to our shareholders in the amount of approximately $39.7 million, or
the equivalent of US$0.20 per share based on our total shares outstanding as of October 5, 2007, the record date.
54
On May 27, 2008, we announced a cash dividend of US$0.35 per share that will be payable on June 27, 2008, based
on our total shares outstanding as of June 16, 2008, the record date.
The dividends distributed in 2005, 2006 and 2007 should not be considered representative of the dividends that would
be paid in any future periods or of our dividend policy.
Our board of directors has full discretion as to whether we will distribute dividends in the future. Even if our board of
directors decides to distribute dividends, the form, frequency and amount of such dividends will depend upon our future
operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other
factors as the board of directors may deem relevant.
Our ability to pay cash or stock dividends will depend, at least partially, upon the amount of distributions, if any,
received by us from our direct and indirect subsidiaries, which must comply with the laws and regulations of their
respective countries and respective articles of association. Since its inception in June 2001, Himax Taiwan has paid
stock dividends in an amount of 13,517,773 shares on September 1, 2003 and 42,976,372 shares on September 20,
2004 with respect to the fiscal years 2002 and 2003, respectively. However, Himax Taiwan has not paid cash dividends
in the past. In accordance with ROC laws and regulations and Himax Taiwan’s articles of incorporation, Himax Taiwan
is permitted to distribute dividends after allowances have been made for:
• payment of taxes;
• recovery of prior years’ deficits, if any;
• legal reserve (in an amount equal to 10% of annual net income after having deducted the above items until such
time as its legal reserve equals the amount of its total paid-in capital);
• special reserve based on relevant laws or regulations, or retained earnings, if necessary;
• dividends for preferred shares, if any; and
• cash or stock bonus to employees (in an amount less than 10% of annual net income) and remuneration for
directors and supervisor(s) (in an amount less than 2% of the annual net income); after having deducted the above
items, based on a resolution of the board of directors; if stock bonuses are paid to employees, the bonus may
also be appropriated to employees of subsidiaries under the board of directors’ approval.
Furthermore, if Himax Taiwan does not record any net income for any year as determined in accordance with generally
accepted accounting principles in Taiwan, it generally may not distribute dividends for that year.
Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit agreement, to the
same extent as holders of our ordinary shares, to the extent permitted by applicable law and regulations, less the fees
and expenses payable under the deposit agreement. Any dividend we declare will be distributed by the depositary bank
to the holders of our ADSs. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
55
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Stockholders
Himax Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Himax Technologies, Inc. (a Cayman Island Company) and
subsidiaries as of December 31, 2006 and 2007, and the related consolidated statements of income, comprehensive income,
stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financials statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Himax Technologies, Inc. and subsidiaries as of December 31, 2006 and 2007, and the results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U. S. generally
accepted accounting principles.
As described in the Notes 2 and 14 to the consolidated financial statements, the Company adopted the recognition and
disclosure provisions of Statements of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans, as of December 31, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Himax Technologies, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated June 16, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ KPMG Certified Public Accountants
Taipei, Taiwan (the Republic of China)
June 16, 2008
56
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2006 and 2007
(in thousands of US dollars)
December 31,
2006
2007
Assets
Current assets:
Cash and cash equivalents ........................................................................
$
109,753
Marketable securities available-for-sale .......................................................
Restricted cash equivalents and marketable securities ..............................
8,828
108
94,780
15,208
97
Accounts receivable, less allowance for doubtful accounts,
sales returns and discounts of $464 and $190 at
December 31, 2006 and 2007, respectively ..........................................
112,767
88,682
Accounts receivable from related parties, less allowance for
sales returns and discounts of $404 and $303 at
December 31, 2006 and 2007, respectively ..........................................
Inventories ...................................................................................................
Deferred income taxes ................................................................................
Prepaid expenses and other current assets ...............................................
116,850
101,341
6,744
10,324
194,902
116,550
12,684
15,369
Total current assets .........................................................................
466,715
538,272
Property, plant and equipment, net .............................................................
Deferred income taxes ...................................................................................
Goodwill ...........................................................................................................
Intangible assets, net .....................................................................................
Investments in non-marketable securities ....................................................
Refundable deposits and prepaid pension costs .......................................
38,895
11,405
–
393
817
569
52,079
Total assets ......................................................................................
$
518,794
46,180
20,714
26,878
12,721
7,138
859
114,490
652,762
See accompanying notes to consolidated financial statements.
57
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2006 and 2007
(in thousands of US dollars,
except share and per share data)
December 31,
2006
2007
Liabilities, Minority Interest and Stockholders’ Equity
Current liabilities:
Accounts payable .......................................................................................
$
120,407
147,221
Income tax payable .....................................................................................
Other accrued expenses and other current liabilities .................................
11,666
21,206
19,147
19,231
Total current liabilities ......................................................................
153,279
185,599
Accrued pension liabilities .............................................................................
Deferred income taxes ...................................................................................
Total liabilities ...................................................................................
Minority interest ..............................................................................................
192
–
153,471
1,396
218
4,547
190,364
11,089
Stockholders’ equity:
Ordinary shares, US$0.0001 par value, 500,000,000 shares authorized;
193,600,302 and 191,979,691 shares issued and outstanding at
December 31, 2006 and 2007, respectively ..........................................
19
19
Additional paid-in capital .............................................................................
221,666
235,894
Accumulated other comprehensive loss .....................................................
Unappropriated retained earnings ...............................................................
Total stockholders’ equity ...............................................................
(275)
142,517
363,927
(7)
215,403
451,309
Commitments and contingencies
Total liabilities, minority interest and stockholders’ equity ..........
$
518,794
652,762
58
See accompanying notes to consolidated financial statements.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2005, 2006 and 2007
(in thousands of US dollars, except per share data)
Year Ended December 31,
2005
2006
2007
Revenues
Revenues from third parties, net ...................................
$
217,420
Revenues from related parties, net ................................
Costs and expenses:
Cost of revenues ...........................................................
Research and development ...........................................
General and administrative .............................................
Sales and marketing ......................................................
Total costs and expenses ..................................
Operating income ..............................................................
Non operating income (loss):
Interest income ..............................................................
Gain on sale of marketable securities, net ....................
Other than temporary impairment loss on investments
in non-marketable securities .......................................
Foreign currency exchange gains (losses), net .............
Interest expense .............................................................
Other income, net ..........................................................
Earnings before income taxes and minority interest .....
Income tax expense (benefit) ................................
Income before minority interest .......................................
Minority interest, net of tax ...................................
Net income .........................................................................
Basic earnings per ordinary share .......................................
Diluted earnings per ordinary share ....................................
$
$
$
322,784
540,204
419,380
41,278
6,784
4,762
472,204
68,000
580
105
(129)
1,808
(125)
19
2,258
70,258
8,923
61,335
223
61,558
0.35
0.34
329,886
414,632
744,518
601,565
60,655
9,762
6,970
678,952
65,566
5,860
60
(1,500)
(341)
(311)
173
3,941
69,507
(5,446)
74,953
237
75,190
0.39
0.39
371,267
546,944
918,211
716,163
73,906
14,903
9,334
814,306
103,905
5,433
112
–
(319)
–
464
5,690
109,595
(1,860)
111,455
1,141
112,596
0.57
0.57
See accompanying notes to consolidated financial statements.
59
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2005, 2006 and 2007
Net income .........................................................................
$
61,558
75,190
112,596
(in thousands of US dollars)
Year Ended December 31,
2005
2006
2007
Other comprehensive income:
Unrealized gains on securities, not subject to income tax:
Unrealized holding gains on available-for-sale
marketable securities arising during the period ..........
Reclassification adjustment for realized gains included
in net income .............................................................
Foreign currency translation adjustments, net of
income tax of $3, $6 and $0 in 2005, 2006 and
2007, respectively ......................................................
Net unrecognized actuarial loss, net of tax of $22 ............
129
(105)
5
–
56
(60)
24
–
198
(112)
202
(20)
Comprehensive income .....................................................
$
61,587
75,210
112,864
60
See accompanying notes to consolidated financial statements.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended December 31, 2005, 2006 and 2007
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61
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2005, 2006 and 2007
(in thousands of US dollars)
Year Ended December 31,
2005
2006
2007
Cash flows from operating activities:
Net income ......................................................................................
$ 61,558
75,190
112,596
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................................................
Write-off of in-process research and development ......................
Share-based compensation expenses .........................................
Minority interest, net of tax ...........................................................
Loss on disposal of property, plant and equipment ....................
Gain on sales of subsidiary shares and investment in
non-marketable securities, net ................................................
Gain on sale of marketable securities, net ..................................
Impairment loss on investments in non-marketable securities .....
Deferred income taxes .................................................................
Inventories write downs ................................................................
Changes in operating assets and liabilities:
Accounts receivable .....................................................................
Accounts receivable from related parties .....................................
Inventories .....................................................................................
Prepaid expenses and other current assets ................................
Accounts payable .........................................................................
Income tax payable ......................................................................
Other accrued expenses and other current liabilities ...................
Net cash provided by operating activities .........................
Cash flows from investing activities:
3,613
–
8,613
(223)
–
(19)
(105)
129
(3,371)
927
(53,242)
(30,458)
(51,839)
(6,413)
67,152
10,852
5,290
12,464
5,221
10,260
–
15,150
(237)
36
(137)
(60)
1,500
(8,938)
5,165
(32,237)
(47,263)
(1,502)
749
14,606
(1,959)
4,412
29,696
1,600
5,895
(1,141)
223
(418)
(112)
–
(14,618)
14,824
25,971
(78,044)
(29,602)
(4,477)
26,232
7,481
492
77,162
Purchase of land, property and equipment .....................................
(14,733)
(17,829)
(18,998)
Proceeds from sale of property and equipment ..............................
–
–
9
Purchase of available-for-sale marketable securities ........................
(38,048)
(31,911)
(52,476)
Sales and maturities of available-for-sale marketable securities ......
42,028
27,128
Cash acquired in acquisition, net of cash paid ..............................
Proceeds from sale of subsidiary shares and investment in non-
marketable securities by Himax Technologies Limited .................
Purchase of investment in non-marketable securities .....................
Purchase of subsidiary shares from minority interest ......................
Refund from (increase in) refundable deposits ................................
Release (pledge) of restricted cash equivalents and marketable
–
51
–
(523)
(414)
17
1,142
(817)
(773)
171
46,303
6,161
562
(6,321)
(295)
25
securities .......................................................................................
Net cash used in investing activities ..................................
(13,724)
(25,363)
13,945
11
(8,927)
(25,019)
62
See accompanying notes to consolidated financial statements.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 2005, 2006 and 2007
(in thousands of US dollars)
Year Ended December 31,
2005
2006
2007
Cash flows from financing activities:
Distribution of cash dividends ..........................................................
$ (13,558)
–
(39,710)
Proceeds from initial public offering, net of issuance costs ............
–
147,408
–
Proceeds from issuance of new shares by subsidiaries .................
Payments to acquire ordinary shares for retirement ........................
866
–
676
11,814
(38,835)
(39,345)
Proceeds from borrowing of short-term debt ..................................
27,274
11,303
Repayment of short-term debt .........................................................
–
(38,577)
Repayment of long-term debt ..........................................................
(178)
(89)
–
–
–
Net cash provided by (used in) financing activities ..........
14,404
81,886
(67,241)
Effect of foreign currency exchange rate changes on cash and
cash equivalents ............................................................................
Net increase (decrease) in cash and cash equivalents ...................
Cash and cash equivalents at beginning of year ............................
4
1,509
5,577
12
125
102,667
(14,973)
7,086
109,753
Cash and cash equivalents at end of year ......................................
$
7,086
109,753
94,780
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ....................................................................................
Income taxes ..........................................................................
$
$
125
1,130
311
5,695
–
4,779
Supplemental disclosures of non-cash investing activities:
Fair value of ordinary shares issued by Himax Display, Inc. in
the acquisition of Integrated Microdisplays Limited ......................
$
–
538
–
See accompanying notes to consolidated financial statements.
63
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2006 and 2007
Note 1. Background, Principal Activities and Basis of Presentation
Background
Himax Technologies Limited (“Himax Taiwan”) was incorporated on June 12, 2001. On April 26, 2005, Himax Technologies,
Inc. was established as a new holding company in the Cayman Islands to hold the shares of Himax Taiwan in connection with
the reorganization and share exchange described below.
On June 10, 2005, Himax Taiwan’s shareholders resolved the exchange of shares between Himax Taiwan and Himax Technologies,
Inc. (the “Company”) pursuant to Republic of China (ROC) Business Mergers and Acquisitions Law. Upon obtaining all
necessary approvals from ROC authorities, the share exchange became effective on October 14, 2005, whereby all issued and
outstanding common shares of Himax Taiwan were exchanged with Himax Technologies, Inc.’s new shares at a 1:1 ratio. The
approval of the ROC Investment Commission is conditioned upon the satisfaction of certain undertakings the Company made
to the ROC Investment Commission, including undertakings relating to the Company’s plans to expand its investment in the
ROC as well as undertakings to submit certain documentation after the effectiveness of the share exchange. Refer to Note
22 (j) for further details. Upon completion of the share exchange, Himax Taiwan became Himax Technologies, Inc.’s directly
and wholly-owned subsidiary.
On April 4 and 13, 2006, the Company completed its initial public offering and sold 17,290,588 American Depositary Shares
(“ADSs”), representing 17,290,588 new ordinary shares, at an initial public offering price of US$8.55 per ADS after deducting
underwriting discounts and commissions. The Company received net proceeds, after deduction of the related offering costs,
in the amount of $147,408 thousand.
Since March 2006, the Company’s ordinary shares have been quoted on the NASDAQ Global Market under the symbol “HIMX.”
in the form of ADSs.
Principal Activities
Himax Technologies, Inc. and subsidiaries (collectively, the Company) designs, develops and markets semiconductors that are
critical components of flat panel displays. The Company’s principal products are display drivers for large-sized thin film
transistor liquid crystal displays (TFT-LCD) panels, which are used in desktop monitors, notebook computers and televisions,
and display drivers for small- and medium-sized TFT-LCD panels which are used in mobile handsets, and consumer electronics
products such as digital cameras, mobile gaming devices and car navigation displays. In addition, the Company has expanded
its product offering to include television semiconductor solutions, as well as liquid crystal on silicon (LCOS) products. The
Company’s customers are TFT-LCD panel manufacturers, LCD and mobile device module manufacturers and television makers.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Himax Technologies, Inc. and its subsidiaries as
if the Company had been in existence for all periods presented. As a result of the above-mentioned share exchange, all of
the outstanding ordinary shares of Himax Technologies, Inc. were owned by former shareholders of Himax Taiwan until the
Company's initial public offering. This transaction is a change in legal organization for which no change in accounting basis
is appropriate. Therefore, in presenting the consolidated financial statements of the Company, the assets and liabilities,
revenues and expenses of Himax Taiwan and its subsidiaries are included at their historical amounts for all periods presented.
The accompanying consolidated financial statements of the Company have been prepared in conformity with US generally
accepted accounting principles (“US GAAP”).
64
Note 2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts and operations of the Himax Technologies, Inc.,
and all its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates
and assumptions relating to the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting
period. Significant items subject to such estimates and assumptions include the useful lives of property, plant and
equipment and intangible assets, allowances for doubtful accounts and sales returns; the valuation of deferred income tax
assets, property, plant and equipment, inventory, potential impairment of marketable securities and other equity investments,
share-based compensation; reserves for employee benefit obligations, and income tax uncertainties and other contingencies.
Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time
of purchase to be cash equivalents. As of December 31, 2006 and 2007, the Company had $89,500 thousand and
$62,337 thousand of cash equivalents, respectively, consisting of NT$ and US dollar denominated time deposits with an
original maturity of less than three months. As of December 31, 2007, the Company had $97 thousand of negotiable
certificate of deposits with an original maturity of more than three months, which had been pledged as collateral.
(d) Marketable Securities
As of December 31, 2006 and 2007, all of the Company’s investments in debt and marketable equity securities are classified
as available-for-sale securities and are reported at fair value with changes in fair value, net of related taxes, excluded from
earnings and reported in other comprehensive income. Available-for-sale securities, which mature or are expected to be
sold in one year, are classified as current assets.
Declines in market value are charged against earnings at the time that a decline has been determined to be other than
temporary, which is based primarily on the financial condition of the issuer and the extent and length of time of the decline.
The cost of the securities sold is computed based on the moving average cost of each security held at the time of sale.
(e)
Inventories
Inventories primarily consist of raw materials, work-in-process and finished goods awaiting final assembly and test, and are
stated at the lower of cost or market value. Cost is determined using the weighted-average method. For work-in-process
and manufactured inventories, cost consists of the cost of raw materials (primarily fabricated wafer and processed tape),
direct labor and an appropriate proportion of production overheads. The Company also writes down excess and obsolete
inventory to its estimated market value based upon estimations about future demand and market conditions. If actual
market conditions are less favorable than those projected by management, additional future inventory write-down may be
required that could adversely affect the Company’s operating results. Once written down, inventories are carried at this lower
amount until sold or scrapped. If actual market conditions are more favorable, the Company may have higher operating
65
income when such products are sold. Sales to date of such products have not had a significant impact on the Company's
operating income.
(f)
Investments in Non-Marketable Securities
Non-marketable equity securities in which the Company does not have the ability to exercise significant influence over the
operating and financial policies of the investee are stated at cost. Dividends, if any, are recognized into earnings when
received.
An impairment of an investment in non-marketable securities that is deemed to be other-than-temporary results in a
reduction in its carrying amount to its estimated fair value. The resulting impairment loss is charged to earnings at that
time. To determine whether an impairment is other-than-temporary, management primarily considers the financial condition
of the investee, reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to
period end and forecasted performance of the investee.
(g) Property, Plant and Equipment
Property, plant and equipment consists primarily of land purchased in August 2005 as the construction site of the Company’s
new headquarters which was completed in November 2006, and machinery and equipment used in the design and
development of products, and is stated at cost. Depreciation on building and machinery and equipment commences when
the asset is ready for its intended use and is calculated on the straight-line method over the estimated useful lives of the
assets which range as follows: building 25 years, building improvements, 6 to 16 years, machinery and equipment, generally
three to six years. Leasehold improvements are amortized on a straight line basis over the shorter of the lease term or
the estimated useful life of the asset. Software is amortized on a straight line basis over estimated useful lives ranging from
two to five years.
(h) Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in connection
with the Company's acquisition of Wispal Technologies, Inc. in 2007. Goodwill is reviewed for impairment at least annually
in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. Impairment testing
for goodwill is done at a reporting unit level. The goodwill impairment test is a two-step test. Under the first step, the
fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit
is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the Company must
perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess
of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value
of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation,
in accordance with FASB Statement No. 141, Business Combinations. The residual fair value after this allocation is the
implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying value, step two
does not need to be performed. Management considers the enterprise as a whole to be the reporting unit for purpose
of evaluating goodwill impairment and consequently, determines the fair value of the reporting unit using the quoted market
price of the Company’s ordinary shares.
During 2007, management performed its annual impairment testing of goodwill and concluded that there was no impairment
in 2007.
66
( i )
Intangible Assets
Acquired intangible assets include patents, developed technology and customer relationships assets at December 31, 2006
and 2007. Intangible assets are amortized on a straight-line basis over their estimated useful lives; patents, five years,
developed technology, five to seven years and customer relationships, seven years.
( j ) Derivative Financial Instruments
All derivative financial instruments are recognized as either assets or liabilities and are reported at fair value at each balance
sheet date. As none of the derivative financial instruments meet all the conditions for hedge accounting, changes in the
fair value of derivative financial instruments are recognized in earnings and are included in other income (expense) in the
accompanying consolidated statements of income.
(k)
Impairment of Long-Lived Assets
The Company’s long-lived assets, which consist of property, plant and equipment and intangible assets subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount
of an asset to its estimated undiscounted future cash flows expected to be generated. If the carrying amount of an asset
exceeds such estimated cash flows, an impairment charge is recognized for the amount by which the carrying amount of
the asset exceeds its estimated fair value. Management generally determines fair value based on the estimated discounted
future cash flows expected to be generated by the asset.
( l ) Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has
been delivered, the price is fixed and determinable and collection is reasonably assured. The Company uses a binding
purchase order as evidence of an arrangement. The Company considers delivery to occur upon shipment provided title
and risk of loss has passed to the customer based on the shipping terms, which is generally when the product is shipped
to the customer from the Company’s facilities or the outsourced assembly and testing house. In some cases, title and risk
of loss does not pass to the customer when the product is received by them. In these cases, the Company recognizes
revenue at the time when title and risk of loss is transferred, assuming all other revenue recognition criteria have been
satisfied. These cases include several inventory locations where the Company manages inventory for its customers, some
of which inventory is at customer facilities. In such cases, revenue is not recognized when products are received at these
locations; rather, revenue is recognized when customers take the inventory from the location for their use.
The Company records a reduction to revenue and accounts receivable by establishing a sales discount and return allowance
for estimated sales discounts and product returns at the time revenue is recognized based primarily on historical discount
and return rates. However, if sales discount and product returns for a particular fiscal period exceed historical rates,
management may determine that additional sales discount and return allowances are required to properly reflect the
Company’s estimated remaining exposure for sales discounts and product returns.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and
therefore are excluded from revenues in the consolidated statements of income.
(m) Product Warranty
Under the Company’s standard terms and conditions of sale, products sold are subject to a limited product quality warranty.
67
The Company may receive warranty claims outside the scope of the standard terms and conditions. The Company provides
for the estimated cost of product warranties at the time revenue is recognized based primarily on historical experience and
any specifically identified quality issues.
(n) Research and Development and Advertising Costs
The Company’s research and development and advertising expenditures are charged to expense as incurred. Advertising
expenses for the years ended December 31, 2005, 2006 and 2007, were $29 thousand, $27 thousand and $8 thousand,
respectively.
The Company recognizes government grants to fund research and development expenditures as a reduction of research
and development expense in the accompanying consolidated statements of income based on the percentage of actual
qualifying expenditures incurred to date to the most recent estimate of total expenditures for which they are intended to
be compensated.
(o) Employee Retirement Plan
The Company has established an employee noncontributory defined benefit retirement plan (the “Defined Benefit Plan”)
covering full-time employees in the ROC.
The Company records annual amounts relating to its pension and postretirement plans based on calculations that incorporate
various actuarial and other assumptions including, discount rates, mortality, assumed rates of return, compensation increases,
and turnover rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions
based on current rates when it is appropriate to do so. The effect of modifications to those assumptions is recorded in
accumulated other comprehensive income beginning from the end of 2006 and amortized to net periodic cost over future
periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under
its plans are reasonable based on its experience and market conditions.
On December 31, 2006, the Company adopted the recognition and disclosure provisions of FASB Statement No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, or SFAS No. 158. SFAS No. 158
requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net asset
or liability and to recognize changes in that funded status in the year in which the changes occur through other comprehensive
income to the extent those changes are not included in the net periodic cost. SFAS No. 158 also eliminates the requirement
for Additional Minimum Pension Liability required under SFAS No. 87. This statement does not change the existing criteria
for measurement of periodic benefit costs, plan assets or benefit obligations.
The funded status reported on the balance sheet as of December 31, 2006 under SFAS No. 158 was measured as the
difference between the fair value of plan assets and the benefit obligation on a plan-by-plan basis. The incremental effect
of the initial adoption of SFAS No. 158 at December 31, 2006 was a reduction of accumulated other comprehensive income
of $331 thousand, which was applied as follows:
68
Before application
SFAS No. 158
After application
of SFAS No. 158
Adjustments
of SFAS No. 158
Refundable deposits and prepaid pension costs .......................
$
811
Deferred income taxes-noncurrent ..............................................
Total assets ............................................................................
Accrued pension liabilities ...........................................................
Minority interest ............................................................................
Accumulated other comprehensive income (loss), net of tax ...
Total stockholders’ equity .....................................................
Total stockholders’ equity and liabilities ...............................
11,307
518,938
–
1,401
56
364,258
518,938
(242)
98
(144)
192
(5)
(331)
(331)
(144)
569
11,405
518,794
192
1,396
(275)
363,927
518,794
The recognition provisions of SFAS No. 158 had no effect on the consolidated statements of income for the periods
presented. The adoption of SFAS No. 158 did not impact the Company's compliance with debt covenants or its cash
position.
The Company has adopted a defined contribution plan covering full-time employees in the ROC (the “Defined Contribution
Plan”) beginning July 1, 2005 pursuant to ROC Labor Pension Act. Pension cost for a period is determined based on the
contribution called for in that period. Substantially all participants in the Defined Benefit Plan have been provided the option
of continuing to participate in the Defined Benefit Plan, or to participate in the Defined Contribution Plan on a prospective
basis from July 1, 2005. Accumulated benefits attributed to participants that elect to change plans are not impacted by
their election.
(p)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the
financial statements and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Beginning with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, as of
January 1, 2007, the Company recognizes the effect of income tax positions only if those positions are more likely than
not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely
of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. Prior to the adoption of FIN 48, the Company recognized the effect of income tax positions only if such positions
were probable of being sustained. On January 1, 2007, the Company adopted FIN 48. As a result, management
conducted a comprehensive evaluation of its uncertain tax positions. Management concluded that it was not necessary
for the Company to recognize any adjustments as a result of the initial adoption of FIN 48. Further, the Company did not
recognize any interest or penalties related to unrecognized tax benefits in 2007.
(q) Foreign Currency Translation
The reporting currency of the Company is the United States dollar. The functional currency for the Company’s major
69
operations is the United States dollar. Accordingly, the assets and liabilities of subsidiaries whose functional currency is
other than the United States dollar are included in the consolidation by translating the assets and liabilities into the reporting
currency (the United States dollar) at the exchange rates applicable at the end of the reporting period. Equity accounts
are translated at historical rates. The statements of income and cash flows are translated at the average exchange rates
during the year. Translation gains or losses are accumulated as a separate component of stockholders’ equity in accumulated
other comprehensive income (loss). Foreign currency denominated monetary assets and liabilities are remeasured into
functional currency at end-of-period exchange rates. Non-monetary assets and liabilities, including inventories, prepaid
expenses and other current assets, property and equipment, other assets and equity, are remeasured at historical exchange
rates. Revenue and expenses are remeasured at average exchange rates in effect during each period. Gains or losses from
foreign currency remeasurement are included in other income (loss) in the accompanying consolidated statements of
income.
( r ) Earnings Per Share
Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of ordinary and diluted ordinary equivalent
shares outstanding during the period. Ordinary equivalent shares consist of nonvested shares and unvested treasury stock
issued to employees that are contingently returnable until lapse of the requisite service period, ordinary shares that are
contingently issuable upon the vesting of unvested restricted share units (RSUs) granted to employees and independent
directors and contingently issuable ordinary shares upon the achievement of specific milestones as of December 31, 2007
related to the acquisition of Wisepal Technologies, Inc.
Basic and diluted earnings per ordinary share have been calculated as follows:
Year December 31,
2005
2006
2007
Net income (in thousands) ..........................................................
$
61,558
75,190
112,596
Denominator for basic earnings per share:
Weighted average number of ordinary shares
outstanding (in thousands) ..............................................
Basic earnings per share ............................................................
176,105
0.35
192,475
0.39
196,862
0.57
Contingently returnable nonvested shares and unvested treasury stock issued to employees, contingently issuable ordinary
shares underlying the unvested RSUs granted to employees and independent directors and contingently issuable ordinary
shares related to acquisition are included in the calculation of diluted earnings per share based on treasury stock method.
In 2006, the unvested 590,401 RSUs which will vest during 2007 and 2008 were excluded from the diluted earnings per
share computation as their effect would be anti-dilutive. In 2007, the unvested 1,272,600 RSUs which will vest during 2008
and 2009 were excluded as their effect would be anti-dilutive.
70
Year December 31,
2005
2006
2007
Net income (in thousands) .........................................................
$
61,558
75,190
112,596
Denominator for diluted earnings per share:
Weighted average number of ordinary shares
outstanding (in thousands) ..............................................
176,105
192,475
196,862
Nonvested ordinary shares, RSUs and
contingent shares (in thousands) ....................................
4,554
180,659
Diluted earnings per share ..........................................................
$
0.34
2,615
195,090
0.39
660
197,522
0.57
(s) Share-Based Compensation
The Company has applied SFAS No.123 (revised 2004), Share-Based Payment, from its incorporation in June 2001 for its
share-based compensation plan. The cost of employee services received in exchange for share-based compensation is
measured based on the grant-date fair value of the share-based instruments issued. The cost of employee services is equal
to the grant-date fair value of shares issued to employees and is recognized in earnings over the service period. Compensation
cost also considers the number of awards management believes will eventually vest. As a result, compensation cost is
reduced by the estimated forfeitures. The estimate is adjusted each period to reflect the current estimate of forfeitures, and
finally, the actual number of awards that vest.
( t ) Sale of Newly Issued Subsidiary Shares
A gain resulting from the issuance of shares by a subsidiary to a third-party that reduces the Company’s percentage
ownership (“dilution gain”) is recognized as additional paid in capital in the Company’s consolidated statements of stockholders’
equity. For the year ended December 31, 2005, the Company recognized a dilution gain of $170 thousand and $52
thousand, respectively, resulting from the issuance to third parties of new shares (representing a 20.73 % interest) and the
issuance to employees of nonvested shares (representing a 6.60% interest) by Himax Analogic Inc. (“Himax Analogic”, a
consolidated subsidiary, formerly known as Amazion Electronics, Inc,) for cash proceeds of $866 thousand and for employees’
future service with a fair value of $392 thousand, respectively. For the year ended December 31, 2006, the Company
recognized a dilution gain of $178 thousand, resulting from the issuance to third parties of new shares (representing a
2.34 % interest) by Himax Display Inc. (“Himax Display”, a consolidated subsidiary) for cash proceeds of $676 thousand.
For the year ended December 31, 2007, the Company recognized a dilution gain of $319 thousand and $514 thousand,
resulting from the issuance to third parties of new shares (representing a 1.45 % and 6.38 % interest, respectively) by Himax
Display and Himax Analogic for cash proceeds of $1,217 thousand and $2,290 thousand, respectively.
(u) Recently Issued Accounting Pronouncements
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement, or SFAS No. 157. SFAS No. 157
defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value
measurements. The Statement does not require any new fair value measures. The Statement is effective for fair value
measures already required or permitted by other standards for fiscal years beginning after November 15, 2007 (January 1,
2008 for the Company) and is to be applied prospectively. Subsequently in February 2008, FASB issued FASB Staff
Position (“FSP”) FAS 157-1 “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurement for Purposes of Lease Classification or Measurement under Statement
13,” and FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-1 amends the scope of SFAS No.
71
157 and other accounting standards that address fair value measurements for purpose of lease classification or measurement
under Statement 13. The FSP is effective on initial adoption of Statement 157. FSP FAS 157-2 defers the effective date
of SFAS No. 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. Management
does not expect the initial adoption of SFAS No. 157, FSP FAS 157-1 and FSP FAS 157-2 will have a material impact on
the Company’s consolidated financial statements.
In September 2006, the FASB issued SFAS Statement No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans-an Amendment of FASB Statements No. 87, 88, 106, and 132 (R), or SFAS No. 158. As
described in Note 2 (o), effective December 31, 2006, the Company adopted the recognition and disclosure provisions of
SFAS No. 158. SFAS No. 158 also requires plan assets and benefit obligations be measured as of the date of its fiscal
year-end statement of financial position with limited exceptions. The measurement provisions of SFAS No. 158 are effective
for fiscal years ending after December 15, 2008, and will not be applied retrospectively. The measurement provisions of
SFAS No. 158 are consistent with the Company’s current policies and management does not anticipate that the adoption
of the measurement provisions of SFAS No. 158 will have an impact on its consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115 or SFAS No. 159. SFAS
No. 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value that are not
currently required to be measured at fair value. If the fair value option is elected, changes in fair value would be recorded
in earnings at each subsequent reporting date. SFAS No. 159 is effective for the Company’s 2008 fiscal year. Management
has elected not to adopt this standard.
In December 2007, the FASB issued FASB Statement No. 141R, Business Combinations or SFAS No. 141R and FASB
Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements- an amendment to ARB No. 51 or SFAS
No. 160. SFAS No. 141R and 160 require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired
in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as
minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling
interest holders. Both Statements are effective for periods beginning on or after December 15, 2008, and earlier adoption
is prohibited. SFAS No. 141R will be applied to by the Company to business combinations, if any, that occur after the
effective date. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before
the effective date. The initial adoption of SFAS No. 160 is expected to only result in a reclassification of the Company’s
noncontrolling interest to shareholders’ equity.
Note 3. Acquisition
On February 1, 2007, the Company acquired 100 percent of the outstanding ordinary shares of Wisepal Technologies, Inc.
(“Wisepal”). The results of Wisepal’s operations had been included in the Company’s consolidated financial statements since
that date. Wisepal is a display driver IC company primarily focuses on small-and medium-sized applications. As a result of
the acquisition, the Company is expected to diversify its product portfolio with more exposure towards small-and medium-sized
products. It also expects to be further strengthen the Company’s competitiveness in the display driver market with the addition
of technology resources.
The aggregate purchase price was $46,971 thousand, consisting of 6,090,114 shares of the Company’s ordinary shares
72
amounting to $43,021 thousand; 418,440 units of the Company’s RSUs amounting to $2,011 thousand in exchange for
Wisepal’s unvested stock option of which 127,283 units vested immediately on the acquisition date; other direct acquisition
cost of $252 thousand and a contingent consideration of 395,248 shares of the Company’s ordinary shares amounting to
$1,687 thousand to be issued to the former parent company of Wisepal at US$0.001 per share based on the purchase
agreement. The value of the Company’s ordinary shares and the vested portion of the RSUs issued was determined based
on the average market price of the Company’s ordinary shares over the 2-day period before and after the terms of the
acquisition were agreed to and announced. The value of the additional contingent ordinary shares to be issued was determined
based on the market price of the Company’s ordinary shares as of December 31, 2007.
The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
At February 1, 2007
(in thousands)
Cash .........................................................................................................................................................
$
Current assets, other than cash .............................................................................................................
Property and equipment ..........................................................................................................................
Intangible assets - in-process R&D ........................................................................................................
- others .......................................................................................................................
Goodwill ...................................................................................................................................................
Total assets acquired ........................................................................................................................
Current liabilities .......................................................................................................................................
Deferred income taxes ............................................................................................................................
Total liabilities assumed .....................................................................................................................
Net assets acquired ..........................................................................................................................
6,413
3,037
622
1,600
14,300
26,878
52,850
(1,332)
(4,547)
(5,879)
46,971
Acquired tangible assets were valued at estimates of their current fair values. The valuation of acquired intangible assets was
determined based on management’s estimates and consultation with an independent appraiser. Of the $15,900 thousand of
the acquired intangible assets, $1,600 thousand was assigned to in-process R&D assets that had not yet reached technological
feasibility and had no alternative future use and were written off at the date of acquisition in accordance with FASB Interpretation
No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method. Those write-
offs are included in research and development expenses in the accompanying consolidated statements of income. The
remaining acquired intangible assets, all of which will be amortized, have a weighted-average useful life of approximately 7
years. The intangible assets that make up that amount include core and developed technology of $6,200 thousand (7-year
weighted-average useful life) and customer relationships of $8,100 thousand (7-year weighted-average useful life). Himax paid
a premium for this acquisition because of expected synergistic benefits, including the assembled workforce, and to broaden
the supplier base to secure foundry capacity and optimize its foundry mix and further diversified its technology and product
mix. Goodwill is not expected to be deductible for tax purpose.
73
The following unaudited pro forma results of operations for the years end December 31, 2006 and 2007 are presented as
though the acquisition occurred at the beginning of the respective periods (dollars in thousand except per share amounts):
Net revenues .....................................................................................................................
Net income .......................................................................................................................
Diluted earnings per share ...............................................................................................
Note 4. Marketable Securities
Following is a summary of marketable securities as of December 31, 2006 and 2007:
For the years end December 31,
(unaudited)
2006
2007
(in thousands)
$
$
$
770,595
75,628
0.38
919,105
112,406
0.57
Time deposit with original maturities more
than three months ........................................
Open-ended bond fund .....................................
Total ....................................................................
Time deposit with original maturities more
than three months ........................................
Open-ended bond fund .....................................
Total ....................................................................
December 31, 2006
Amortized
Gross Unrealized Gross Unrealized
Cost
Gains
Losses
Market
Value
(in thousands)
$
$
$
$
522
8,277
8,799
–
29
29
–
–
–
522
8,306
8,828
December 31, 2007
Amortized
Gross Unrealized Gross Unrealized
Cost
Gains
Losses
Market
Value
(in thousands)
154
14,929
15,083
–
125
125
–
–
–
154
15,054
15,208
The Company’s portfolio of available for sale marketable securities by contractual maturity or the expected holding period as
of December 31, 2006 and 2007 is due in one year or less.
Information on sales of available for sale marketable securities for the years ended December 31, 2005, 2006 and 2007 is
summarized below.
Period
Proceeds
Gross
Gross
from sales
realized gains
realized losses
Year ended December 31, 2005 .....................................................
Year ended December 31, 2006 .....................................................
Year ended December 31, 2007 .....................................................
$
$
$
42,028
27,128
46,303
(in thousands)
105
60
112
–
–
–
74
At December 31, 2006, the Company had $108 thousand of restricted marketable securities, consisting of time deposits with
an original maturity of more than three months, which had been pledged as collateral for custom duty.
Note 5. Allowance for Doubtful Accounts, Sales Returns and Discounts
The activity in the allowance for doubtful accounts, sales returns and discounts for the years ended December 31, 2005, 2006
and 2007 follows:
Period
beginning of year
Addition
Balance at
Amounts
utilized
Balance at
end of year
For the year ended December 31, 2005 .........
For the year ended December 31, 2006 .........
For the year ended December 31, 2007 .........
$
$
$
240
181
868
(in thousands)
398
2,843
1,705
(457)
(2,156)
(2,080)
181
868
493
Note 6. Inventories
As of December 31, 2006 and 2007, inventories consisted of the following:
Finished goods .................................................................................................................
$
Work in process ...............................................................................................................
Raw materials ...................................................................................................................
Supplies ............................................................................................................................
Merchandise ......................................................................................................................
December 31,
2006
2007
(in thousands)
44,194
40,039
17,048
54
6
62,195
47,439
6,905
11
–
Note 7. Prepaid Expenses and Other Current Assets
$
101,341
116,550
December 31,
2006
2007
(in thousands)
Refundable business tax ..................................................................................................
$
Prepaid software maintenance fee ..................................................................................
Subsidy receivables ..........................................................................................................
Prepaid rental and others ................................................................................................
5,994
2,789
640
901
$
10,324
10,461
1,501
1,007
2,400
15,369
Note 8. Intangible Assets
December 31, 2006
Gross carrying Weighted average
Accumulated
amount
amortization period
amortization
Technology ........................................................................................
Patents ..............................................................................................
Total ...........................................................................................
$
$
139
358
497
(in thousands)
5 years
5 years
86
18
104
75
December 31, 2007
Gross carrying Weighted average
Accumulated
amount
amortization period
amortization
Technology ........................................................................................
$
Customer relationship .......................................................................
Patents ..............................................................................................
6,339
8,100
358
(in thousands)
7 years
7 years
5 years
Total ...........................................................................................
$
14,797
926
1,061
89
2,076
Amortization expense for the years ended December 31, 2005, 2006 and 2007, was $28 thousand, $45 thousand and
$1,972 thousand, respectively. Estimated amortization expense for the next five years is $2,140 thousand in 2008, $2,114
thousand in 2009 and 2010, $2,097 thousand in 2011, and $2,043 thousand in 2012.
Note 9. Property, Plant and Equipment
December 31,
2006
2007
(in thousands)
Land ..................................................................................................................................
$
Building and improvements ..............................................................................................
Machinery ..........................................................................................................................
Research and development equipment ...........................................................................
Software ............................................................................................................................
Office furniture and equipment ........................................................................................
Others ...............................................................................................................................
..........................................................................................................................................
Accumulated depreciation and amortization ...................................................................
Prepayment for purchases of equipment and software .................................................
10,154
12,967
6,744
8,611
5,149
2,478
4,150
50,253
(12,742)
1,384
$
38,895
10,154
16,413
6,366
12,144
7,496
4,575
3,970
61,118
(15,860)
922
46,180
Depreciation and amortization of these assets for 2005, 2006 and 2007, was $3,585 thousand, $5,176 thousand and $8,288
thousand, respectively.
Note 10. Investments in Non-marketable Securities
Following is a summary of such investments as of December 31, 2006 and 2007:
December 31,
2006
2007
(in thousands)
Chi Lin Technology Co. Ltd. ............................................................................................
$
817
Jetronics International Corp. ............................................................................................
C Company .......................................................................................................................
–
–
$
817
1,057
1,600
4,481
7,138
In 2006, the Company considered its investment in equity of LightMaster Systems, Inc. to be other than temporarily impaired
76
due to the bankruptcy case concerning LightMaster Systems, Inc. filed in July 2006. The carrying amount of $1,500 thousand
was fully written off with an impairment loss recognized in other non-operating loss in the accompanying consolidated statements
of income.
As of December 31, 2007, it was not practicable for the Company to estimate the fair value of its investment in equity of Chi
Lin Technology Co. Ltd. (on January 1, 2007, TopSun Optronics, Inc. merged with Chi Lin Technology Co. Ltd., Chi Lin
Technology Co. Ltd. was the surviving company), Jetronics International Corp., and C Company. However, there are no
identified events or changes in circumstance that may have significant adverse effects on the recoverability of the carrying value
of these investments.
Note 11. Other Accrued Expenses and Other Current Liabilities
December 31,
2006
2007
(in thousands)
Accrued payroll and related expenses ............................................................................
$
Accrued mask and mold fees .........................................................................................
Payable for purchases of equipment ...............................................................................
Accrued professional service fee .....................................................................................
Accrued warranty costs ...................................................................................................
Accrued commission ........................................................................................................
Accrued insurance, welfare expenses, etc. .....................................................................
3,441
3,282
4,317
1,202
630
1,836
6,498
$
21,206
4,099
6,020
1,257
1,179
335
64
6,277
19,231
The movement in accrued warranty costs for the years ended December 31, 2005, 2006 and 2007, is as follows:
Period
Balance at
Additions charged
Amounts
beginning of year
to expense
utilized
Balance at
end of year
Year ended December 31, 2005 ......................
Year ended December 31, 2006 ......................
Year ended December 31, 2007 ......................
$
$
$
507
545
630
Note 12. Short-term Debt
(in thousands)
1,415
2,101
799
(1,377)
(2,016)
(1,094)
545
630
335
As of December 31, 2005, short-term debt consisted of a $13,600 thousand loan, denominated in US dollars, and which has
a maturity date that had been extended to May 2, 2006. The remaining balance of short-term debt of approximately $13,674
thousand, is comprised of three separate loans in the amounts of NT$250,000 thousand ($7,596 thousand), NT$40,000
thousand ($1,216 thousand) and NT$160,000 thousand ($4,862 thousand), all of which are denominated in New Taiwan dollars
and which have maturity dates that have been extended to March 26, 2006, March 26, 2006 and March 27, 2006, respectively.
All short term debts had been fully paid off during 2006.
As of December 31, 2006 and 2007, unused credit lines amounted to $42,557 thousand and $57,919 thousand, respectively.
Note 13. Government Grant
The Company entered into several contracts with Industrial Development Bureau of Ministry of Economic Affairs (IDB of MOEA),
Department of Industrial Technology of Ministry of Economic Affairs (DOIT of MOEA) and the Administrative Bureau of Science-
77
Based Industrial Park (SBIP) during 2003, 2004, 2005 and 2007 for the development of certain new leading products or
technologies. Details of these contracts are summarized below:
Authority
Total Grant
Execution Period
Product Description
(in thousands)
IDB of MOEA
NT$ 22,700 (US$654)
September 2003 to
Mobile phone TFT driver IC
SBIP
3,800 (US$112)
October 2004 to
February 2005
July 2005
Application of LCOS
DOIT of MOEA
19,500 (US$610)
December 2004 to
Multimedia high
November 2005
definition TV SOC
DOIT of MOEA
7,000 (US$214)
September 2005 to
Mobile phone TFT single
DOIT of MOEA
22,670 (US$703)
August 2007 to July 2009
Display Port IC
December 2006
chip SOC
Government grants recognized by the Company as a reduction of research and development expense in the accompanying
consolidated statements of income in 2005, 2006 and 2007 were $381 thousand, $466 thousand and $108 thousand,
respectively.
Note 14. Retirement Plan
The Company has established the Defined Benefit Plan covering full-time employees in the ROC. In accordance with the
Defined Benefit Plan, employees are eligible for retirement or are required to retire after meeting certain age or service
requirements. Retirement benefits are based on years of service and the average salary for the six-month period before the
employee’s retirement. Each employee earns two months of salary for each of the first fifteen years of service, and one month
of salary for each year of service thereafter. The maximum retirement benefit is 45 months of salary. Retirement benefits are
paid to eligible participants on a lump-sum basis upon retirement.
Defined Benefit Plan assets consist entirely of a Pension Fund (the “Fund”) denominated solely in cash, as mandated by ROC
Labor Standard Law. The Company contributes an amount equal to 2% of wages and salaries paid every month to the Fund
(required by law). The Fund is administered by a pension fund monitoring committee (the “Committee”) and is deposited in
the Committee’s name in the Bank of Taiwan (formerly Central Trust of China which was acquired by Bank of Taiwan in 2007).
As discussed in note 2(o), effective December 31, 2006, the Company adopted the recognition and disclosure provisions of
SFAS No. 158. SFAS No. 158 requires companies to recognize the funded status of defined benefit pension and other
postretirement plans as a net asset or liability on its balance sheet. Actuarial gains and losses are generally amortized subject
to the corridor, over the average remaining service life of the Company’s active employee.
Beginning July 1, 2005, pursuant to the newly effective ROC Labor Pension Act, the Company is required to make a monthly
contribution for full-time employees in the ROC that elected to participate in the Defined Contribution Plan at a rate no less
than 6% of the employee’s monthly wages to the employees’ individual pension fund accounts at the ROC Bureau of Labor
Insurance. Expense recognized in 2005, 2006 and 2007, based on the contribution called for was $356 thousand, $883
thousand and $1,066 thousand, respectively.
Substantially all participants in the Defined Benefits Plan had elected to participate in the Defined Contribution Plan. The
78
transfer of participants to the Defined Contribution Plan did not have a material effect on the Company’s financial position or
results of operations. Participants’ accumulated benefits under the Defined Benefit Plan are not impacted by their election to
change the plans and their seniority remains regulated by ROC Labor Standard Law, such as the retirement criteria and the
amount payable. The Company is required to make contribution for the Defined Benefit Plan until it is fully funded. Pursuant
to relevant regulatory requirements, the Company expects to make a cash contribution of $398 thousand to its pension fund
maintained with the Bank of Taiwan and $1,734 thousand to the employees’ individual pension fund accounts at the ROC
Bureau of Labor Insurance in 2008.
The Company uses a measurement date of December 31, for the Defined Benefit Plan. The changes in projected benefit
obligation, plan assets and details of the funded status of the Plan are as follows:
December 31,
2006
2007
(in thousands)
Change in projected benefit obligation:
Benefit obligation at beginning of year .....................................................................
$
622
Acquisition from Wisepal ...........................................................................................
Service cost ................................................................................................................
Interest cost ................................................................................................................
Actuarial loss ..............................................................................................................
Benefit obligation at end of year ...............................................................................
Change in plan assets:
Fair value at beginning of year ..................................................................................
Acquisition from Wisepal ...........................................................................................
Actual return on plan assets .....................................................................................
Employer contribution ................................................................................................
Fair value at end of year ...........................................................................................
–
9
22
232
885
414
–
12
286
712
Funded status ......................................................................................................
$
(173)
885
56
3
26
120
1,090
712
46
22
349
1,129
39
December 31,
2006
2007
(in thousands)
Amounts recognized in the balance sheet consist of:
Prepaid pension costs ...............................................................................................
Accrued pension liabilities ..........................................................................................
Net amount recognized .......................................................................................
$
$
19
(192)
(173)
257
(218)
39
Amounts recognized in accumulated other comprehensive income was net actuarial loss of $331 thousand and $351 thousand
at December 31, 2006 and 2007, respectively.
The accumulated benefit obligation for the Defined Benefit Plan was $379 thousand and $407 thousand at December 31, 2006
and 2007, respectively. As of December 31, 2006 and 2007, no employee was eligible for retirement or was required to retire.
79
For the years ended December 31, 2005, 2006 and 2007, the net periodic pension cost consisted of the following:
Year Ended December 31,
2005
2006
2007
(in thousands)
Service cost .......................................................................................
$
Interest cost .......................................................................................
Expected return on plan assets .......................................................
Net amortization ................................................................................
Net periodic pension cost .................................................................
150
13
(6)
6
163
9
22
(18)
6
19
3
26
(20)
96
105
The net actuarial loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income
into net periodic benefit cost in 2008 is $30 thousand.
At December 31, 2006 and 2007, the weighted-average assumptions used in computing the benefit obligation are as follows:
December 31,
2007
2006
Himax Taiwan,
Himax Taiwan,
Himax Display & Himax Display & Wisepal & Himax
Himax Analogic
Himax Analogic
Media Solutions
Discount rate ....................................................................................
Rate of increase in compensation levels .........................................
2.75%
4.00%
3.00%
4.00%
3.00%
5.00%
For the years ended December 31, 2005, 2006 and 2007, the weighted average assumptions used in computing net periodic
benefit cost are as follows:
Year Ended December 31,
2005
2006
Himax Taiwan,
2007
Himax Taiwan,
Himax
Taiwan
Himax
Himax
Himax
Wisepal &
Display &
Display &
Display &
Himax Media
Himax Analogic Himax Analogic Himax Analogic
Solutions
Discount rate ...................................
3.50%
3.50%
2.75%
3.00%
3.00%
Rate of increase in
compensation levels ....................
4.00%
3.00%
4.00%
4.00%
5.00%
Expected long-term rate
of return on pension assets .......
3.50%
3.50%
2.75%
3.00%
3.00%
The Company determines the expected long-term rate of return on plan assets based on the yields of twenty year ROC central
government bonds and the historical long-term rate of return on the above mentioned Fund mandated by the ROC Labor
Standard Law.
80
Benefits payments to be paid during the next ten years are estimated as follows:
Amount
(in thousands)
2008
2009
2010
2011
2012
................................................................................................................................................
$
................................................................................................................................................
................................................................................................................................................
................................................................................................................................................
................................................................................................................................................
–
–
–
–
–
2013 ~ 2017 ................................................................................................................................................
242
Note 15. Share-Based Compensation
The amount of share-based compensation expenses included in applicable costs of sales and expense categories is summarized
as follows:
Cost of revenues ..............................................................................
$
Research and development .............................................................
General and administrative ...............................................................
Sales and marketing .........................................................................
$
(a) Employee Annual Bonus Plan
Year Ended December 31,
2005
2006
2007
(in thousands)
188
6,336
848
1,241
8,613
275
11,806
1,444
1,625
15,150
422
15,393
2,182
2,324
20,321
In June 2005, Himax Taiwan discontinued the employee stock bonus program with effect from December 31, 2004. Due
to a history of paying bonus based on annual operating results, the Company’s employees have developed an expectation
of receiving a bonus of some form. In order to meet such expectation and to retain and motivate employees, management
communicated to all employees that they would receive a competitive bonus for services rendered beginning in 2004 and
up to the effectiveness of a long-term incentive plan which was expected to be adopted after the completion of the share
exchange referred to in Note 1 and approval of the Company’s shareholders.
Based on a compensation package analysis with the Company’s primary domestic competitors, an annual bonus on top
of the cash compensation was accrued. The revised bonus plan allows the bonus to be paid in cash or shares. If a cash
payment is not made, the shares given will have the same value as the cash award. Employee compensation expense of
$4,141 thousand was accrued in 2004 relating to such bonus plan.
In order to settle the above mentioned accrued bonus payable, on December 27, 2005, pursuant to the authorization of
the Company’s shareholders and the delegation of the Company's board of directors, the Company’s compensation
committee approved a grant of 990,220 RSUs to employees for their service provided in 2004 and the ten months ended
October 31, 2005. All RSUs granted to employees as a bonus vested immediately on the grant date.
The amount of compensation expense from the annual bonus plan was determined based on the estimated fair value of
the ordinary shares underlying the RSUs granted on the date of grant, which was $8.62 per share.
81
The allocation of compensation expenses from the annual bonus plan is summarized as follows:
Year Ended December 31,
2005
2006
2007
(in thousands)
Cost of revenues ........................................................................
$
Research and development ........................................................
General and administrative .........................................................
Sales and marketing ...................................................................
98
3,215
454
628
....................................................................................................
$
4,395
–
–
–
–
–
–
–
–
–
–
(b) Long-term Incentive Plan
On October 25, 2005, the Company’s shareholders approved a long-term incentive plan. The plan permits the grants of
options or RSUs to the Company’s employees, directors and service providers where each unit of RSU represents one
ordinary share of the Company.
On December 30, 2005, the Company’s compensation committee made grants of 1,297,564 RSUs and 20,000 RSUs to
its employees and independent directors, respectively. The vesting schedule for the RSUs granted to employees is as
follows: 25% of the RSU grant vested immediately on the grant date, and a subsequent 25% will vest on each of September
30, 2006, 2007 and 2008, subject to certain forfeiture events. The vesting schedule for the RSUs granted to independent
directors is as follows: 25% of the RSU grant vested immediately on the grant date, and a subsequent 25% will vest on
each of June 30, 2006, 2007 and 2008, subject to certain forfeiture events.
On September 29, 2006, the Company’s compensation committee made grants of 3,798,808 RSUs to its employees. The
vesting schedule for the RSUs is as follows: 47.29% of the RSUs grant vested immediately on the grant date and a
subsequent 17.57% will vest on each of September 30, 2007, 2008 and 2009, subject to certain forfeiture events.
On September 26, 2007, the Company’s compensation committee made grants of 6,694,411 RSUs to its employees. The
vesting schedule for the RSUs is as follows: 54.55% of the RSUs grant vested immediately on the grant date which were
settled by cash amounting to $14,426 thousand, a subsequent 15.15% will vest on each of September 30, 2008, 2009
and 2010 which will be settled by the Company’s ordinary shares, subject to certain forfeiture events.
The amount of compensation expense from the long-term incentive plan was determined based on the estimated fair value
and the market price of the ordinary shares underlying the RSUs granted on the date of grant, which was $8.62 per share,
$5.71 per share and $3.95 per share on December 30, 2005, September 29, 2006 and September 26, 2007, respectively.
Management is primarily responsible for estimating the fair value of the Company’s ordinary shares underlying the RSUs
granted on December 30, 2005. When estimating fair value for such share prior to the Company's IPO, management
considers a number of factors, including contemporaneous valuations from an independent third-party appraiser. The share
valuation methodologies used include the discounted cash flow approach and the market value approach where a different
weight to each of the approaches is assigned to estimate the value of the Company when the RSUs were granted. The
discounted cash flow approach involves applying appropriate discount rates to estimated cash flows that are based on
earnings forecasts. The market value approach incorporates certain assumptions including the market performance of
comparable companies as well as the Company's financial results and business plan. These assumptions include: no
82
material changes in the existing political, legal, fiscal and economic conditions in Taiwan; the Company’s ability to retain
competent management, key personnel and technical staff to support its ongoing operations; and no material deviation in
industry trends and market conditions from economic forecasts.
In December 2007, due to the carve-out of television semiconductor solutions business to incorporate Himax Media
Solutions, Inc. (“Himax Media Solution”, a consolidated subsidiary), 145 employees were transferred from Himax Taiwan to
Himax Media solutions. 361,046 units of these employees’ unvested RSUs were cancelled in exchange for 3,416,714
nonvested shares of Himax Media Solutions’ ordinary share. See Note 15 (c) (iv) for further details of the modification of
award.
RSUs activity under the long-term incentive plan during the periods indicated is as follows:
Number of
Weighted
Underlying
Average Grant
Shares for RSUs
Date Fair Value
Balance at January 1, 2005 ......................................................................................
–
$
Granted .................................................................................................................
1,317,564
Vested ...................................................................................................................
Balance at December 31, 2005 ................................................................................
(329,395)
988,169
Granted .................................................................................................................
3,798,808
Vested ...................................................................................................................
(2,106,669)
Forfeited ................................................................................................................
(172,165)
Balance at December 31, 2006 ................................................................................
Granted .................................................................................................................
2,508,143
6,694,411
Vested ...................................................................................................................
(4,507,170)
Cancelled ..............................................................................................................
Forfeited ................................................................................................................
(361,046)
(680,949)
Balance at December 31, 2007 ................................................................................
3,653,389
–
8.62
8.62
8.62
5.71
6.14
7.19
6.39
3.95
4.46
3.98
5.27
4.75
As of December 31, 2007, the total compensation cost related to the unvested RSUs not yet recognized was $14,965
thousand. The weighted-average period over which it is expected to be recognized is 2.34 years.
The allocation of compensation expenses from the RSUs granted to employees and independent directors under the long-
term incentive plan is summarized as follows:
Year Ended December 31,
2005
2006
2007
(in thousands)
Cost of revenues ........................................................................
$
Research and development ........................................................
General and administrative .........................................................
Sales and marketing ...................................................................
62
2,080
262
436
$
2,840
264
11,263
1,392
1,554
14,473
422
15,164
2,182
2,323
20,091
(c) Nonvested Shares Issued to Employees
(i) In June 2001, November 2001 and January 2002, Himax Taiwan granted nonvested shares of common stock to certain
83
employees for their future service. The shares will vest five years after the grant date. If employees leave Himax Taiwan
before completing the five year service period, they must sell these shares back to Himax Taiwan at NT$1.00 (US$0.03)
per share.
Because the shares had not vested, the capital increase recorded when the shares were issued was fully offset by an equal
amount of deferred compensation expense. Compensation expense is recognized on a straight-line basis over the five-year
service period with a corresponding reduction of deferred compensation expense, resulting in a net increase in equity. The
Company recognized compensation expenses of $92 thousand and $70 thousand in 2005 and 2006, respectively. Such
compensation expense was recorded as research and development expenses in the accompanying consolidated statements
of income since the employees who received such nonvested shares were assigned to the research and development
department. The fair value of shares on grant date was estimated based on the then most recent price of new shares
issued to unrelated third parties, which was NT$4.02 (US$0.116) per share.
Nonvested share activity during the periods indicated is as follows:
Weighted
Number of
Average Grant
Shares
Date Fair Value
Balance at January 1, 2005 ......................................................................................
3,195,885
$
Forfeited ................................................................................................................
(2,487)
Balance at December 31, 2005 ................................................................................
3,193,398
Vested ...................................................................................................................
(3,193,398)
Balance at December 31, 2006 ................................................................................
–
0.116
0.116
0.116
0.116
–
The forfeiture of nonvested shares issued to employees is based on the original number of shares granted, not including
the shares issued pursuant to subsequent stock splits or dividends.
As of December 31, 2006, the total compensation cost related to the actual number of nonvested shares that vest has been
fully recognized.
(ii) In September 2005, Himax Analogic granted nonvested shares of its common stock to certain employees for their future
service. The shares will vest four years after the grant date. If employees leave Himax Analogic before completing the four
year service period, they must sell these shares back to Himax Analogic at NT$1.00 (US$0.03) per share. The Company
recognized compensation expenses of $33 thousand, $59 thousand, and $59 thousand in 2005, 2006, and 2007, respectively.
Such compensation expense was recorded as research and development expenses in the accompanying consolidated
statements of income with a corresponding increase to minority interest in the accompanying consolidated balance sheets.
The fair value of shares on grant date was estimated based on the then most recent price of new shares issued to unrelated
third parties, which was NT$10 (US$0.319) per share.
84
Nonvested share activity of this award during the period indicated is as follows:
Weighted
Number of
Average Grant
Shares
Date Fair Value
Balance at January 1, 2005 ......................................................................................
–
$
Granted .................................................................................................................
1,250,000
Forfeited ................................................................................................................
(445,000)
Balance at December 31, 2005 ................................................................................
Forfeited ................................................................................................................
Balance at December 31, 2006 ................................................................................
Forfeited ................................................................................................................
Balance at December 31, 2007 ................................................................................
805,000
(36,000)
769,000
(66,000)
703,000
–
0.319
0.319
0.319
0.319
0.319
0.319
0.319
As of December 31, 2007, the total compensation cost related to this award not yet recognized was $70 thousand. The
weighted-average period over which it is expected to be recognized is 1.54 years.
(iii) In September 2007, Himax Imaging Inc. (“Himax Imaging”, a consolidated subsidiary) granted nonvested shares of its
common stock to certain employees for their future service, and the employees must pay $0.15 per share. The shares will
vest four years after the grant date. If employees leave Himax Imaging before completing the four year service period, they
must sell these shares back to Himax Imaging at $0.15 per share. The Company recognized compensation expenses of
$56 thousand in 2007. Such compensation expense was recorded as research and development expenses in the
accompanying consolidated statements of income with a corresponding increase to minority interest in the accompanying
consolidated balance sheets. The fair value of shares on grant date was estimated based on the then most recent price
of new shares issued, which was US$0.33 per share.
Nonvested share activity of this award during the period indicated is as follows:
Weighted
Number of
Average Grant
Shares
Date Fair Value
Balance at January 1, 2007 ......................................................................................
–
$
Granted .................................................................................................................
Balance at December 31, 2007 ................................................................................
5,559,000
5,559,000
–
0.33
0.33
As of December 31, 2007, the total compensation cost related to this award not yet recognized was $967 thousand. The
weighted-average period over which it is expected to be recognized is 3.84 years.
(iv) As stated in Note 15 (b) above, in December 2007, Himax Media Solutions granted 3,416,714 nonvested shares of its
ordinary share to 145 employees transferred from Himax Taiwan to exchange for 361,046 units of these employees’
unvested RSUs. The modification of equity award incurred an incremental compensation cost of $148 thousand for the
excess of the fair value of the modified award issued over the fair value of the original unvested RSUs at the date of
modification. The Company then added incremental compensation cost to the remaining unrecognized compensation cost
of the original award at the date of modification and the total compensation cost are recognized as compensation expenses
ratably over the requisite service period of the modified award.
85
The fair value of the original unvested RSUs was determined based on the average market price of the Company’s ordinary
shares underlying the RSU at the modification dates occurred during the period from November 12, 2007 to November 16,
2007. The fair value of Himax Media Solutions' nonvested shares at the modification date was determined based on the
then most recent price of Himax Media Solutions’ new shares issued to unrelated third parties, which was NT$15
(US$0.464) per share.
The vesting schedule for the nonvested shares is as follows: 50% will vest on June 20, 2009 and the remaining 50% will
vest on December 20, 2010. The Company recognized compensation expenses of $14 thousand in 2007. Such compensation
expense was recorded as sales and marketing expense and research and development expenses in the accompanying
consolidated statements of income.
Nonvested share activity of this award during the period indicated is as follows:
Weighted
Number of
Average Grant
Shares
Date Fair Value
Balance at January 1, 2007 ......................................................................................
–
$
Granted .................................................................................................................
3,416,714
Forfeited ................................................................................................................
(18,000)
Balance at December 31, 2007 ................................................................................
3,398,714
–
0.464
0.464
0.464
As of December 31, 2007, the total compensation cost related to this award not yet recognized was $1,313 thousand. The
weighted-average period over which it is expected to be recognized is 2.97 years.
(d) Treasury Stock Issued to Employees
In 2002 and 2003, treasury shares were issued to employees with a three year vesting period. The excess of the fair value
of these common shares over any amount that an employee paid for treasury stock is recorded as deferred compensation
expense which is reflected as an offset to equity upon issuance of the treasury shares. Deferred compensation expense
is amortized to compensation expense on a straight-line basis over the three-year service period with a corresponding
increase to equity.
Management is primarily responsible for estimating the fair value of its share. When estimating fair value, management
considered a number of factors, including retrospective valuations from an independent third-party valuer. The estimated
grant date fair value per share in 2002 and 2003 range from NT$15.32 (US$0.459) to NT$19.93 (US$0.577) and NT$20.17
(US$0.583) to NT$52.10 (US$1.538), respectively.
Treasury stock activity during the periods indicated is as follows:
Weighted Average of
Excess of Grant Date
Fair Value over
Employee Payment
Number of
Shares
Balance at January 1, 2005 ......................................................................
7,185,668
$
Vested ...................................................................................................
(2,706,593)
Balance at December 31, 2005 ................................................................
4,479,075
Vested ...................................................................................................
(4,479,075)
Balance at December 31, 2006 ................................................................
–
0.597
0.356
0.743
0.743
–
86
The forfeiture of treasury stock issued to employees is based on the original number of shares granted, not including the
shares issued pursuant to subsequent stock splits or dividends.
The allocation of compensation expenses from the treasury stock issued to employees is summarized as follows:
Year Ended December 31,
2005
2006
2007
(in thousands)
Cost of revenues ........................................................................
$
Research and development ........................................................
General and administrative .........................................................
Sales and marketing ...................................................................
28
916
132
177
$
1,253
11
414
52
71
548
–
–
–
–
–
(e) RSUs issued in connection with the acquisition of Wisepal
As stated in Note 3, on February 1, 2007, the Company granted 418,440 units of RSUs in exchange for Wisepal’s unvested
stock option where each unit of RSU represents one ordinary share of the Company. 127,283 RSUs grant vested
immediately on the acquisition date and a subsequent 10%, 33% and 27% of the RSU grant will vest on each of September
30, 2007, 2008 and 2009, respectively, subject to certain forfeiture events. Vested portion of the RSUs grant was included
in the purchase cost of Wisepal while the unvested portion is treated as post-combination compensation expense. The
value of the unvested portion of the RSUs grant amounted to $945 thousand which was determined based on the market
price of the Company’s ordinary shares on the acquisition date. Such post-combination compensation expense is amortized
to compensation expense on a straight-line basis over the requisite service period. The Company recognized compensation
expenses of $94 thousand in 2007 which was recorded as research and development expenses in the accompanying
consolidated statements of income.
Number of
Weighted
Underlying
Average Grant
Shares for RSUs
Date Fair Value
Balance at January 1, 2007 ....................................................................................
–
$
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited ..............................................................................................................
Balance at December 31, 2007 ..............................................................................
418,440
(165,114)
(200,760)
52,566
–
7.064
7.064
7.064
7.064
As of December 31, 2007, the total compensation cost related to this award not yet recognized was $180 thousand. The
weighted-average period over which it is expected to be recognized is 1.75 years.
( f ) Employee stock options
On December 20, 2007, board of directors of Himax Media Solutions approved a plan to grant stock options to certain
employees. The plan authorizes grants to purchase up to 6,800,000 shares of Himax Media Solutions’ authorized but
unissued ordinary shares. The exercise price is NT$15 (US$0.464). All options under the plan have four-year terms and
50%, 25% and 25% of each grant will become exercisable subsequent to the second, third and fourth anniversary of the
grant date, respectively. The Company recognized compensation expenses of $7 thousand in 2007. Such compensation
expense was recorded as sales and marketing expense and research and development expenses in the accompanying
consolidated statements of income.
87
At December 31, 2007, there were 304,500 additional shares available for Himax Media Solutions’ grant under the plan.
The calculated value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model
that used the weighted average assumptions in the following table. Himax Media Solutions uses the simplified method to
estimate the expected term of the options as it does not have any historical share option exercise experience and the
exercise data relating to employees of other companies is not easily obtainable. Since Himax Media Solutions’ shares are
not publicly traded and its shares are rarely traded privately, expected volatility is computed based on the average historical
volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on
the interest rate of 10 years ROC central government bond at the time of grant.
Valuation assumptions:
Expected dividend yield .......................................................................................................................
Expected volatility .................................................................................................................................
Expected term (years) ..........................................................................................................................
2007
0%
39.94%
4.375
Risk-free interest rate ...........................................................................................................................
2.4776%
Stock option activity during the periods indicated is as follows:
Weighted
Weighted average
Number of
average
remaining
shares
exercise price
contractual term
Balance at December 20, 2007 ................................................
–
$
Granted .......................................................................................
6,495,500
Forfeited ......................................................................................
(5,000)
Balance at December 31, 2007 ................................................
6,490,500
–
0.464
0.464
0.464
–
4.375
4.375
4.375
The weighted average grant date calculated value of the options granted in 2007 was NT$3.09 (US$0.096). No option was
exercisable as of December 31, 2007.
Note 16. Stockholders’ Equity
(a) Share capital
On October 14, 2005, the shareholders of Himax Taiwan exchanged an aggregated of 180,769,264 common shares of
Himax Taiwan for an aggregate of 180,769,264 ordinary shares of Himax Technologies, Inc. Accordingly, as of October
14, 2005, Himax Technologies, Inc. has an authorized share capital of 500,000,000 ordinary shares with par value of
US$0.0001 per share, and 180,769,265 ordinary shares issued and outstanding. There was no change in the amount of
total stockholders’ equity as a result of this transaction.
In accordance with the Company’s board of director’s resolution on November 2, 2006, the Company repurchased 7,885,835
ADSs and 2,161,636 ADSs in 2006 and 2007, respectively from open market. On February 1, 2007, the Company
announced the completion of its share buyback program. In total, the Company has repurchased $50 million or 10,047,471
ADSs in the open market at an average price of US$4.98 per ADS.
In accordance with the Company’s board of director’s resolution on November 1, 2007, the Company authorized another
new share buyback program. The program allows the Company to repurchase up to $40 million of the Company’s ADSs
for retirement. The Company repurchased 6,569,108 ADSs in 2007.
88
(b) Earnings distribution
As a holding company, the major asset of the Company is the 100% ownership interest in Himax Taiwan. Dividends
received from the Company’s subsidiaries in Taiwan, if any, will be subjected to withholding tax under ROC law. The ability
of the Company’s subsidiaries to pay dividends, repay intercompany loans from the Company or make other distributions
to the Company may be restricted by the availability of funds, the terms of various credit arrangements entered into by the
Company's subsidiaries, as well as statutory and other legal restrictions. The Company’s subsidiaries in Taiwan are
generally not permitted to distribute dividends or to make any other distributions to shareholders for any year in which it
did not have either earnings or retained earnings (excluding reserve). In addition, before distributing a dividend to shareholders
following the end of a fiscal year, a Taiwan company must recover any past losses, pay all outstanding taxes and set aside
10% of its annual net income (less prior years' losses and outstanding taxes) as a legal reserve until the accumulated legal
reserve equals its paid-in capital, and may set aside a special reserve.
The legal and special reserve provided by Himax Taiwan as of December 31, 2006 and 2007 amounting to $14,178
thousand and $21,001 thousand, respectively.
Note 17. Income Taxes
Substantially all of the Company’s pre-tax income is derived from the operations in the ROC and substantially all of the
Company’s income tax expense (benefit) is incurred in the ROC.
An additional 10% corporate income tax will be assessed on undistributed income for the consolidated entities in the ROC,
but only to the extent such income is not distributed before the end of the following year. The 10% surtax is recorded in the
period the income is earned, and the reduction in the tax liability is recognized in the period the distribution to shareholders
is finalized. Prior to 2006, the tax effects of temporary differences were initially measured by using the undistributed tax rate
of 32.5%. Commencing from 2006, due to the enacted changes in ROC Income Tax Acts in May 2006 that revised the tax
base of the undistributed income surtax from “assessed taxable income, net of current tax” to “net income under ROC generally
accepted accounting principles (ROC GAAP) ”, the tax effects of temporary differences between ROC GAAP and tax base are
initially measured at the distributed tax rate of 25% and the tax effects of temporary differences between US GAAP and ROC
GAAP are initially measured at the revised undistributed tax rate of 31.8%.
In accordance with the ROC Statute for Upgrading Industries, the Company’s capital increase in 2003 and 2004 related to the
manufacturing of newly designed TFT-LCD driver was approved by the government authorities as a newly emerging, important
and strategic industry. The incremental income derived from selling the above new product is tax exempt for a period of five
years. The tax exemption period of the Company’s effective tax incentive as of December 31, 2007 are as follows:
Date of capital increase
Tax exemption period
September 1, 2003
October 29, 2003
September 20, 2004
April 1, 2004 ~ March 31, 2009
January 1, 2006 ~December 31, 2010
January 1, 2008 ~December 31, 2012
The aggregate basic and diluted earnings per share effect of such income tax exemption for the years ended December 31,
2005, 2006 and 2007, is a $0.05, $0.08 and $0.14, increase to earnings per share, respectively.
89
The components of income tax expense (benefit) are summarized as follows:
Current income tax expense ............................................................
Deferred income tax benefit .............................................................
Year Ended December 31,
2005
2006
2007
$
$
12,294
(3,371)
8,923
(in thousands)
3,492
(8,938)
(5,446)
12,770
(14,630)
(1,860)
The differences between expected income tax expense, computed based on the statutory undistributed income tax rate of
32.5%, 31.8% and 31.8% for 2005, 2006 and 2007, respectively, and the actual income tax expense (benefit) as reported in
the accompanying consolidated statements of income for the years ended December 31, 2005, 2006 and 2007 are summarized
as follows:
Year Ended December 31,
2005
2006
2007
(in thousands)
Expected income tax expense .........................................................
$
22,834
Tax-exempted income ......................................................................
(9,189)
Effect of difference between tax base of undistributed
income surtax with pre-tax income ...........................................
Adjustment for enacted change in tax laws ...................................
Impairment loss on investment in non-marketable securities ........
Nontaxable gains on sale of marketable securities ........................
Increase of investment tax credits ...................................................
Increase in valuation allowance .......................................................
Non deductible share-based compensation expenses ...................
Provision for uncertain tax position in connection with
share-based compensation expenses ........................................
Tax benefit resulting from distribution of prior year’s income ........
Foreign tax rate differential ...............................................................
Variance from audits of prior years’ income tax filings ..................
Others ...............................................................................................
–
–
–
(38)
(10,647)
2,421
2,799
124
–
83
(15)
551
Actual income tax expense (benefit) ...............................................
$
8,923
22,103
(16,012)
1,562
1,099
477
(67)
(15,216)
2,798
1,002
526
(789)
(1,796)
(873)
(260)
(5,446)
34,851
(27,018)
4,012
–
–
(168)
(20,048)
5,366
330
276
(689)
(1,690)
3,000
(82)
(1,860)
The adjustment for enacted change in tax laws includes adjustment to deferred tax assets and liabilities and the undistributed
income surtax of 2005 related to this change amounting to $686 thousand and $413 thousand, respectively. The enacted
changes in ROC Income Tax Acts in May 2006 affects the determination of the undistributed income surtax commencing from
2005 and related deferred income tax assets and liabilities existed as of the enactment date. The Company recognized the
impact of the change in 2006, the year of enactment of the tax law.
The amount of total income tax expense (benefit) allocated to continuing operations and the amounts separately allocated to
other items are summarized as follows:
90
Year Ended December 31,
2005
2006
2007
(in thousands)
Continuing operations .......................................................................
$
8,923
(5,446)
(1,860)
Charged directly to equity ................................................................
Other comprehensive income (loss) .................................................
–
3
(98)
3
–
16
Total income tax expense (benefit) ............................................
$
8,926
(5,541)
(1,844)
As of December 31, 2006 and 2007, the components of deferred income tax assets (liabilities) were as follows:
December 31,
2006
2007
(in thousands)
Deferred tax assets:
Inventory .....................................................................................................................
$
1,497
Capitalized expense for tax purpose ........................................................................
Accrued compensated absences ..............................................................................
Allowance for sales return, discounts and warranty ................................................
Unused investment tax credits ..................................................................................
Unused loss carry-forward .........................................................................................
Accrued pension cost ................................................................................................
Other ...........................................................................................................................
Total gross deferred tax assets ...........................................................................
Less: valuation allowance .................................................................................................
Net deferred tax assets .......................................................................................
Deferred tax liabilities:
Unrealized foreign exchange gain ..............................................................................
Foreign currency translation adjustments ..................................................................
Prepaid pension cost .................................................................................................
Acquired intangible assets .........................................................................................
Deferred revenue ........................................................................................................
Total gross deferred tax liabilities ........................................................................
85
88
328
19,420
3,094
98
13
24,623
(6,278)
18,345
125
6
65
–
–
196
Net deferred tax assets .......................................................................................
$
18,149
5,430
204
121
207
32,689
6,970
100
203
45,924
(12,300)
33,624
41
–
169
4,547
16
4,773
28,851
The valuation allowance for deferred tax assets as of January 1, 2005, 2006 and 2007 was $893 thousand, $3,314 thousand
and $6,278 thousand, respectively. The net change in the valuation allowance for the years ended December 31, 2005, 2006
and 2007, was an increase of $2,421 thousand, $2,964 thousand and $6,022 thousand, respectively. The change in 2006
and 2007 includes an increase of valuation allowance of $166 thousand and $656 thousand, respectively, which was provided
for the deferred tax assets attributable to the acquisition of Integrated Microdisplays Limited in October 2006 and Wisepal in
February 2007.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible and tax loss
91
carryforwards utilizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax assets, the Company
will need to generate future taxable income of approximately $110,534 thousand prior to the expiration of the net operating
loss carryforwards and investment tax credit carryforwards in 2011. Taxable income for the years ended December 31, 2006
and 2007 was $10,199 thousand and $25,043 thousand, respectively. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes
it is more likely than not that the Company will realize the benefits of the remaining deferred tax assets at December 31, 2007.
The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
As of December 31, 2006 and 2007, subsequent recognized tax benefits relating to the valuation allowance for deferred tax
assets will be allocated as follows:
Income tax benefit that would be reported
in the consolidated statement of income .................................................................
Goodwill and other noncurrent intangible assets ............................................................
December 31,
2006
2007
(in thousands)
$
$
6,112
166
6,278
11,478
822
12,300
Except for Himax Taiwan and Himax Anyang (Korea), all other subsidiaries of the Company have generated tax losses since
inception and are not included in the consolidated tax filing with Himax Taiwan, a valuation allowance of $6,278 thousand and
$12,300 thousand as of December 31, 2006 and 2007, respectively, was provided to reduce their deferred tax assets
(consisting primarily of operating loss carryforwards and unused investment tax credits) to zero because management believes
it is unlikely these tax benefits will be realized. The total tax loss carryforwards for these subsidiaries at December 31, 2007
was $27,555 thousand, which will expire if unused by 2012. The remaining investment tax credit for these subsidiaries at
December 31, 2007 was $5,843 thousand, which will expire if unused by 2011.
According to the Statute for Upgrading Industries, the purchase of machinery for the automation of production, expenditure
for research and development and training of professional personnel entitles the Company to tax credits. This credit may be
applied over a period of five years. The amount of the credit that may be applied in any year except the final year is limited
to 50% of the income tax payable for that year. There is no limitation on the amount of investment tax credit that may be
applied up to the amount of the tax actually payable in the final year.
As of December 31, 2007, all of the Company’s remaining investment tax credits of NT$1,060,100 thousand (US$32,689
thousand), which will expire if unused by 2011.
Himax Taiwan's income tax returns have been examined and assessed by the ROC tax authorities through 2005.
The Company had accrued tax liabilities or reduced deferred tax asset to address potential exposures involving positions that
could be challenged by taxing authorities. As of January 1, 2007, the amount of uncertain tax positions was $1,276 thousand.
As of December 31, 2007, the amount of uncertain tax positions $3,968 thousand.
92
A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):
Balance at January 1, 2007 ....................................................................................................................
$
Increase related to prior year tax positions ............................................................................................
Increase related to current year tax positions ........................................................................................
Balance at December 31, 2007 ..............................................................................................................
1,276
503
2,189
3,968
Included in the balance of total unrecognized tax benefits at December 31, 2007, are potential benefits of $3,968 thousand
that if recognized, would reduce the Company’s effective tax rate. The Company’s major taxing jurisdiction is Taiwan. The tax
years 2006 and 2007 remain open to examination by Taiwan tax jurisdictions. It is possible that the examination will result in
a positive or negative adjustment to the Company’s unrecognized tax positions within the next 12 months. The Company is
unable to estimate the range of the benefit or detriment as of December 31, 2007.
As part of the analysis completed, management determined that there were various FIN No. 48 implications to the compensation
expenses for RSU and investment tax credits that resulted in the establishment of an accrued liability pursuant to FIN No. 48
of $885 thousand on compensation expenses and a reduction of deferred tax assets of $3,083 thousand on certain investment
tax credit carryforwards.
Note 18. Derivative Financial Instruments
The Company operates in Taiwan and internationally, giving rise to exposure to changes in foreign currency exchanges rates.
The Company enters into foreign currency forward contracts to reduce such exposure. None of the Company’s derivatives
qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Accordingly,
the derivative instruments are recorded at fair value on the consolidated balance sheets with the change in fair value being
reflected immediately in earnings in the consolidated statements of income.
The Company did not hold any derivative financial instruments as of December 31, 2006 and 2007, respectively. The realized
gains (losses) resulting from foreign currency forward contracts were $108 thousand and ($611) thousand in 2005 and 2006,
respectively.
Note 19. Fair Value of Financial Instruments
The fair values of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their
carrying values due to their relatively short maturities. Marketable securities consisting of open-ended bond funds are reported
at fair value based on quoted market prices at the reporting date. Marketable securities consisting of time deposits with original
maturities more than three months is determined using the discounted present value of expected cash flows. The fair value
of investments in non-marketable securities has not been estimated as there are no identified events or changes in circumstances
that may have significant adverse effects on the carrying value of these investments, and it is not practicable to estimate their
fair values.
Note 20. Significant Concentrations
Financial instruments that currently subject the Company to concentrations of credit risk consist primarily of cash, cash
equivalents, marketable securities and accounts receivable. The Company places its cash primarily in checking and saving
accounts with reputable financial institutions. The Company has not experienced any material losses on deposits of the
Company's cash and cash equivalents. Marketable securities consist of time deposits with original maturities of greater than
93
three months and investments in an open-ended bond fund identified to fund current operations. All marketable securities are
classified as available-for-sale.
The Company derived substantially all of its revenues from sales of display drivers that are incorporated into TFT-LCD panels.
The TFT-LCD panel industry is intensely competitive and is vulnerable to cyclical market conditions and subject to price
fluctuations. The Company expects to be substantially dependent on sales to the TFT-LCD panel industry for the foreseeable
future.
The Company depends on two customers for a substantial majority of its revenues and the loss of, or a significant reduction
in orders from, either of them would significantly reduce the Company’s revenues and adversely impact the Company’s
operating results. The largest customer (CMO and its affiliates), a related party, accounted for approximately 58.9%, 55.0%
and 58.8%, respectively, of the Company's revenues in 2005, 2006 and 2007. The other (Chunghwa Picture Tubes and its
affiliates) accounted for 16.2%, 12.4% and 7.3%, respectively in 2005, 2006 and 2007. The largest customer represented more
than 10% of the Company’s accounts receivable balance at December 31, 2006 and 2007. CMO and its affiliates accounted
for approximately 50.3% and 68.4% of the Company’s accounts receivable balance at December 31, 2006 and 2007, respectively.
Moreover, the Company has at times agreed to extend the payment terms for certain of its customers. Other customers have
also requested extension of payment terms, and the Company may grant such requests for extension in the future. As a result,
a default by any such customer, a prolonged delay in the payment of accounts receivable, or the extension of payment terms
for the Company’s customers would adversely affect the Company’s cash flow, liquidity and operating results. The Company
performs ongoing credit evaluations of each customer and adjusts credit policy based upon payment history and the customer’s
credit worthiness, as determined by the review of their current credit information. See Notes 21 and 23 for additional information.
The Company focuses on design, development and marketing of its products and outsources all its semiconductor fabrication,
assembly and test. The Company primarily depends on eight foundries to manufacture its wafer, and any failure to obtain
sufficient foundry capacity or loss of any of the foundries it uses could significantly delay the Company's ability to ship its
products, cause the Company to lose revenues and damage the Company's customer relationships.
There are a limited number of companies which supply processed tape used to manufacture the Company’s semiconductor
products and therefore, from time to time, shortage of such processed tape may occur. If any of the Company’s suppliers
experience difficulties in delivering processed tape used in its products, the Company may not be able to locate alternative
sources in a timely manner. Moreover, if shortages of processed tape were to occur, the Company may incur additional costs
or be unable to ship its products to customers in a timely manner, which could harm the Company’s business customer
relationships and negatively impact its earnings.
A limited number of third-party assembly and testing houses assemble and test substantially all of the Company’s current
products. As a result, the Company does not directly control its product delivery schedule, assembly and testing costs and
quality assurance and control. If any of these assembly and testing houses experiences capacity constraints or financial
difficulties, or suffers any damage to its facilities, or if there is any other disruption of its assembly and testing capacity, the
Company may not be able to obtain alternative assembly and testing services in a timely manner. Because the amount of time
the Company usually takes to qualify assembly and testing houses, the Company could experience significant delays in product
shipments if it is required to find alternative sources. Any problems that the Company may encounter with the delivery, quality
or cost of its products could damage the Company's reputation and result in a loss of customers and orders.
94
Note 21. Related-party Transactions
(a) Name and relationship
Name of related parties
Relationship
Chi Mei Optoelectronics Corp. (CMO)
Shareholder represented on the Company’s Board of Directors;
the Company’s Chairman represented on CMO’s Board of Directors
Chi Mei Optoelectronics Japan, Co., Ltd .
Wholly owned subsidiary of CMO
(CMO-Japan, formerly named International Display
Technology Ltd. or ID Tech)
Jemitek Electronic Corp. (JEC)
The Company’s CEO represented on JEC’s Board of Directors until
November 2007. JEC was acquired by Innolux Display Incorporation
Chi Mei Corporation (CMC)
on March 1, 2007.
Major shareholder of CMO
NEXGEN Mediatech Inc. (NEXGEN)
CMC nominated more than half of the seats on NEXGEN’s Board
of Directors
Chi Mei Communication System, Inc. (CMCS)
CMC nominated more than half of the seats on CMCS’s
Chi Lin Technology Co., Ltd.(Chi Lin Tech)
CMC nominated more than half of the seats on
NingBo Chi Mei Optoelectronics Ltd. (CMO-NingBo)
The subsidiary of CMO
Chi Lin Tech’s Board of Directors
Board of Directors
Chi Mei EL Corporation (CMEL)
TopSun Optronics, Inc. (TopSun)
The subsidiary of CMO
Chi Lin Tech nominated more than half of the seats on TopSun’s Board
of Directors since September 2006. On January 1, 2007,
TopSun merged with Chi Lin Tech, Chi Lin Tech was the
surviving company
NanHai Chi Mei Optoelectronics Ltd. (CMO- NanHai)
The subsidiary of CMO
ChiHsin Electronics Corp. (ChiHsin)
Chi Mei Logistics Corp. (CMLC)
The subsidiary of CMO
The subsidiary of CMO
NingBo Chi Mei Logistics Corp. (CMLC-NingBo)
The subsidiary of CMO
(b) Significant transactions with related parties
( i ) Revenues and accounts receivable
Revenues from related parties are summarized as follows:
Year Ended December 31,
2005
2006
2007
(in thousands)
CMO ......................................................................................
$
317,012
CMO- NingBo ........................................................................
Chi Lin Tech ..........................................................................
CMO- NanHai ........................................................................
ChiHsin ..................................................................................
CMEL .....................................................................................
NEXGEN ................................................................................
TopSun ...................................................................................
JEC ........................................................................................
CMO- Japan ..........................................................................
721
2,841
–
–
–
370
–
1,565
275
335,797
73,898
2,985
–
–
2
805
1,136
9
–
281,766
249,117
7,162
7,141
1,499
214
45
–
–
–
$
322,784
414,632
546,944
95
A breakdown by product type for sales to CMO and its affiliates is summarized as follows:
Year Ended December 31,
2005
2006
2007
(in thousands)
Display driver for large-size applications ..............................
$
316,837
408,075
Display driver for consumer electronics applications ..........
Display driver for mobile handsets .......................................
6
–
Others ....................................................................................
1,165
$
318,008
484
8
1,130
409,697
536,610
1,434
771
922
539,737
The sales prices CMO receives are comparable to those offered to unrelated third parties.
The related accounts receivable resulting from the above sales as of December 31, 2006 and 2007, were as follows:
December 31,
2006
2007
(in thousands)
CMO ......................................................................................................................
$
CMO- NingBo ........................................................................................................
CMO- NanHai ........................................................................................................
ChiHsin ..................................................................................................................
Chi Lin Tech ..........................................................................................................
NEXGEN ................................................................................................................
TopSun ...................................................................................................................
CMEL .....................................................................................................................
81,610
33,923
–
–
444
117
1,158
2
Allowance for sales returns and discounts ..........................................................
117,254
(404)
$
116,850
94,069
92,779
5,732
1,574
1,049
2
–
–
195,205
(303)
194,902
The credit terms granted to CMO and its subsidiaries ranged form 60 days to 90 days, and the credit terms granted
to other related parties ranged from 30 days to 45 days. The credit terms offered to unrelated third parties ranged from
30 days to 120 days.
(ii) Purchases and accounts payable
Purchases from related parties are summarized as follows:
CMO ......................................................................................
$
CMC ......................................................................................
Chi Lin Tech ..........................................................................
$
Year Ended December 31,
2005
2006
2007
(in thousands)
703
9
31
743
82
–
7
89
12
12
–
24
The purchases had been full paid as of December 31, 2006 and 2007.
The terms of payment to related parties were approximately 30~60 days after receiving, comparable to that from third
parties.
96
(iii) Property transactions
In 2005, the Company purchased equipment amounting to $2 thousand from Chi Lin Tech. The purchase had been full
paid as of December 31, 2005.
(iv) Lease
The Company entered into a lease contract with CMO, CMLC and CMLC-NingBo for leasing office space and equipment.
For the years ended December 31, 2005, 2006 and 2007, the related rent and utility expenses resulting from the
aforementioned transactions amounted to $619 thousand, $759 thousand and $465 thousand, respectively, and were
recorded as cost of revenue and operating expenses in the accompanying consolidated statements of income. As of
December 31, 2006 and 2007, the related payables resulting from the aforementioned transactions amounted to $155
thousand and $111 thousand, respectively, and were recorded as other accrued expenses in the accompanying
consolidated balance sheets.
(v) Sales agent
The Company entered into sales agent contracts with CMO and CMCS. For the years ended December 31, 2005, the
sales commission resulting from such contracts amounted to $49 thousand. The sales commission expenses were
recorded as a deduction from revenue in the accompanying consolidated statements of income. No commission
expense occurred under such contracts in 2006 and 2007.
(vi) Others
In 2005, 2006 and 2007, the Company purchased consumable and miscellaneous items amounting to $78 thousand,
$159 thousand and $63 thousand, respectively, from CMO, CMC, Chi Lin Tech and NEXGEN, which were charged to
operating expense. As of December 31, 2006 and 2007, the related payables resulting from the aforementioned
transactions were $4 thousand and $1 thousand, respectively.
In 2005, 2006 and 2007, Chi Lin Tech provided IC bonding service on prototype panels for the Company’s research
activities for a fee of $43 thousand, $128 thousand and $113 thousand, respectively, which was charged to research
and development expense. As of December 31, 2006 and 2007, the related process fee payable resulting from the
aforementioned transactions was $38 thousand and $11 thousand, respectively.
Note 22. Commitments and Contingencies
(a) As of December 31, 2006 and 2007, amounts of outstanding letters of credit for the purchase machinery and equipment
and license agreement were $146 thousand and $150 thousand, respectively.
(b) As of December 31, 2006, and 2007 the Company had entered into several contracts for the acquisition of equipment
and computer software and the construction of its new headquarters. Total contract prices amounted to $7,806 thousand
and $877 thousand, respectively. As of December 31, 2006 and 2007, the remaining commitments were $2,816 thousand
and $100 thousand, respectively.
(c) The Company leases its office and buildings pursuant to operating lease arrangements with unrelated third parties. The
lease arrangement will expire gradually from 2008 to 2010. As of December 31, 2006 and 2007, deposits paid amounted
to $477 thousand and $371 thousand, respectively, and were recorded as refundable deposit in the accompanying
consolidated balance sheets.
97
As of December 31, 2007, future minimum lease payments under noncancelable operating leases are as follows:
Duration
January 1, 2008~December 31, 2008 ......................................................................................................
January 1, 2009~December 31, 2009 ......................................................................................................
January 1, 2010~December 31, 2010 ......................................................................................................
Amount
(in thousands)
$
$
827
226
16
1,069
Rental expense for operating leases amounted to $1,305 thousand, $1,763 thousand and $1,852 thousand in 2005, 2006
and 2007, respectively.
(d) The Company entered into several sales agent agreements commencing from 2003. Based on these agreements, the
Company shall pay commissions at the rates ranging from 0.6% to 5% of the sales to customers in the specific territory
or referred by agents as stipulated in these agreements. Total commissions incurred amounting to $4,478 thousand, $3,788
thousand and $535 thousand, respectively, in 2005, 2006 and 2007, respectively. The sales commission expenses were
recorded as a deduction from revenue in the accompanying consolidated statements of income.
(e)
In August of 2004, the Company entered into a license agreement for the use of certain central processing unit cores for
product development. In accordance with the agreement, the Company is required to pay an initial license fee based on
the three progresses of the project development and a royalty based on shipments. The license fee paid and charged to
research and development expense in 2006 was $200 thousand. No license fee occurred in 2005 and 2007. As of
December 31, 2007, no royalty occurred.
In March 2005, the Company entered into a license agreement for the use of USB 2.0 relevant technology for product
development. In accordance with the agreement, the Company is required to pay an initial license fee based on the
progress of the project development and a royalty based on shipments. No license fee occurred in 2005. The license fee
charged to research and development expense in 2006 and 2007 was $10 thousand and $250 thousand, respectively. As
of December 31, 2007, no royalty occurred.
In June 2007, the Company entered into a license agreement for the use of Analogix HDMI 1.3 receiver core relevant
technology for product development. In accordance with the agreement, the Company is required to pay an initial license
fee based on the progress of the project development and a royalty based on shipments. The license fee paid and charged
to research and development expense in 2007 was $500 thousand. As of December 31, 2007, no royalty occurred.
( f ) The company has entered into two agreements to provide donations for laboratories with two top local universities in
Taiwan. Total contributions amounted to NT$50.4 million ($1.6 million). As of December 31, 2007, the remaining commitments
were NT$38.6 million ($1.2 million).
(g) The Company from time to time is subject to claims regarding the proprietary use of certain technologies. Currently, the
Company is not aware of any such claims that it believes could have a material adverse effect on its financial position or
results of operations.
(h) Since Himax Taiwan is not a listed company, it will depend on Himax Technologies, Inc. to meet its equity financing
requirements in the future. Any capital contribution by Himax Technologies, Inc. to Himax Taiwan may require the approval
of the relevant ROC authorities. The Company may not be able to obtain any such approval in the future in a timely manner,
98
or at all. If Himax Taiwan is unable to receive the equity financing it requires, its ability to grow and fund its operations may
be materially and adversely affected.
( i ) The Company has entered into several wafer fabrication or assembly and testing service arrangements with service providers.
The Company may be obligated to make payments for purchase orders entered into pursuant to these arrangements.
( j ) The current corporate structure of the Company was established through a share exchange, which became effective on
October 14, 2005, between the Company and the former shareholders of Himax Taiwan. The ROC Investment Commission
(an agency under the administration of the ROC Ministry of Economic Affairs) approved the share exchange on September
7, 2005. In connection with the application seeking approval of the share exchange, the Company made the following
undertakings to expand its investment in the ROC, the approval of which was conditional upon the satisfaction of such
undertakings: (1) Himax Taiwan must purchase three hectares of land in connection with the construction of its new
headquarters in Tainan, Taiwan, (2) Himax Taiwan must increase the number of employees in the ROC to 430 employees,
475 employees and 520 employees by the end of 2005, 2006 and 2007, respectively, (3) Himax Taiwan must invest no
less than NT$800.0 million ($24.4 million), NT$900.0 million ($27.6 million) and NT$1.0 billion ($30.7 million) for research
and development in Taiwan in 2005, 2006 and 2007, respectively, which may be satisfied through cash-based compensation
paid to research and development personnel but not through non-cash share-based compensation and (4) Himax Taiwan
must submit to the ROC Investment Commission its annual financial statements audited by a certified public accountant
and other relevant supporting documents in connection with the implementation of the above-mentioned conditions within
four months after the end of each of 2005, 2006 and 2007.
If the Company does not satisfy the undertakings set by the ROC Investment Commission in approving the share exchange,
the ROC Investment Commission may revoke Himax Taiwan’s right to repatriate profits to the Company and/or its approval
of the share exchange, the occurrence of either of which would materially and adversely affect the Company’s business,
financial condition and results of operations and decrease the value of the Company’s American depositary shares (ADSs).
The material adverse consequences include: (1) difficulty in obtaining approval for additional investments in Himax Taiwan,
(2) restrictions on transfer of net proceeds of overseas offerings, (3) limitation on ability to raise capital through the Company
and (4) the loss of certain protections under the status as a foreign-invested company under the ROC Statute for Investment
by Foreign Nationals, including the protection from expropriation of Himax Taiwan’s assets.
Before distributing a dividend to the Company, Himax Taiwan must recover any accumulated losses in prior years, pay all
outstanding taxes and set aside 10% of its annual net income as a legal reserve until the accumulated legal reserve equals
Himax Taiwan’s paid-in capital. Refer to Note 16 (b) of the Company’s consolidated financial statements for further details.
However, if the Company does not satisfy the undertakings with the ROC Investment Commission, the ROC Investment
Commission may deny Himax Taiwan’s right to repatriate dividends to the Company. Himax Taiwan’s ability to make
advances or repay intercompany loans with terms of less than one year to the Company will not be restricted as such
activities are not subject to the ROC Investment Commission’s approval.
The ROC Investment Commission has the right (at its discretion) to revoke its approval of the share exchange based on
the undertakings described above. Prior to the ROC Investment Commission exercising its discretionary right to revoke its
approval of the share exchange or Himax Taiwan’s right to repatriate profits to the Company, in practice the Company and
Himax Taiwan would be notified and given an opportunity to be heard. There are no promulgated rules or regulations setting
forth the factors that the ROC Investment Commission would consider in exercising its discretion. Each case is determined
individually. Should the approval be revoked, the Company and Himax Taiwan would be entitled to appeal such decision
99
to the Committee of Appeal of the ROC Ministry of Economic Affairs and/or initiate court proceedings to reverse such
decision. A revocation by the ROC Investment Commission would not (1) invalidate the effectiveness of the share exchange
pursuant to which the Company’s ownership structure was established, (2) limit Himax Taiwan’s ability to issue equity or
debt securities or incur debt or (3) otherwise restrict Himax Taiwan’s operations (other than as set out in the undertakings).
In August 2005, the Company purchased 3.18 hectares of land for an aggregate purchase price of approximately NT$325.8
million ($10.2 million) which satisfied the first condition. Himax Taiwan had 549 employees, 664 employees and 569
employees as of December 31, 2005, 2006 and 2007, respectively, and had spent NT$1,012 million ($30.9 million),
NT$1,394 million ($42.8 million) and NT$1,859 million ($56.5 million) in research and development expenditures in 2005,
2006 and 2007, respectively. Therefore, as of December 31, 2005, 2006 and 2007, the Company had satisfied the 2005,
2006 and 2007 undertakings the Company made with the ROC Investment Commission.
(k) On July 30, 2007, a purported class action lawsuit was filed in the United States District Court for the Central District of
California against the Company’s Chief Financial Officer alleging breach of fiduciary duty and violations of Sections 11, 12
(a) (2) and 15 of the Securities Act of 1933. On August 30, 2007, a similar class action lawsuit was filed in the same court
against the Company, its Chief Executive Officer and its Chief Financial Officer, alleging violations of Sections 11 and 15
of the Securities Act of 1933. On February 5, 2008, the court consolidated the two actions. The consolidated complaint
added as defendants certain of the Company’s directors, as well as Chi Mei Optoelectronics Corporation (“CMO”), seeking
unspecified damages on behalf of purchasers of the Company's stock pursuant and/or traceable to the Company’s initial
public offering in March 2006. The Plaintiffs claim that defendants violated U.S. securities laws because the registration
statement associated with the IPO contained material misrepresentations and/or omissions related to CMO’s inventory level
prior to the IPO. The Company filed a Motion to dismiss the lawsuit on March 20, 2008, which is still pending.
Subject to certain limitations, and pursuant to its Articles of Association, the Company is indemnifying its Chief Executive
Officer and Chief Financial Officer in connection with this lawsuit. The Company and the individual defendants believe that
the claims are not meritorious and intend to defend against this lawsuit vigorously. Nevertheless, the litigation is in its
preliminary stages and the Company cannot predict its outcome. An adverse outcome in the litigation, if it occurred, could
have a material adverse effect on the Company’s results of operations. As of December 31, 2007, no provision for loss
has been recognized in the Company’s consolidated financial statements because at this stage the likelihood of an unfavorable
outcome is not considered probable and the amount of loss, if any, is not estimable.
Note 23. Segment Information
The Company is engaged in the design, development and marketing of semiconductors for flat panel displays. Based on the
Company’s internal organization structure and its internal reporting, management has determined that the Company does not
have any operating segments as that term is defined in SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information.
Revenues from the Company's major product lines are summarized as follow:
Year Ended December 31,
2005
2006
2007
Display drivers for large-size applications .......................................
$
470,631
Display drivers for mobile handset applications ..............................
Display drivers for consumer electronics applications ....................
Others ...............................................................................................
31,123
18,571
19,879
$
540,204
(in thousands)
645,513
52,160
28,616
18,229
744,518
752,196
75,704
66,634
23,677
918,211
100
The following tables summarize information pertaining to the Company’s revenues from customers in different geographic region
(based on customer’s headquarter location):
Year Ended December 31,
2005
2006
2007
Taiwan ...............................................................................................
$
482,991
Other Asia Pacific (China, Korea and Japan) .................................
Europe (Netherlands and France) ....................................................
57,213
–
$
540,204
(in thousands)
605,924
138,287
307
744,518
785,334
132,687
190
918,211
The carrying value of the company's tangible long-lived assets are located in the following countries:
December 31,
2006
2007
(in thousands)
Taiwan ...............................................................................................................................
$
38,681
45,379
China ...............................................................................................................................
U.S.
...............................................................................................................................
Korea ...............................................................................................................................
208
–
6
574
219
8
$
38,895
46,180
Revenues from significant customers, those representing 10% or more of total revenue for the respective periods, are summarized
as follows:
CMO and its affiliates, a related party ............................................
Chunghwa Picture Tubes and its affiliates ......................................
Year Ended December 31,
2005
2006
2007
$
$
318,008
87,534
405,542
(in thousands)
409,697
92,561
502,258
539,737
66,694
606,431
Accounts receivable from significant customers, those representing 10% or more of total accounts receivable for the respective
periods, is summarized as follows:
CMO and its affiliates, a related party ............................................................................
Chunghwa Picture Tubes and its affiliates ......................................................................
December 31,
2006
2007
(in thousands)
$
$
115,535
33,846
149,381
194,154
24,138
218,292
Note 24. Subsequent Events
(a) Ordinary share buybacks
In January and March 2008, the Company repurchased 1,074,042 ADSs from the open market for total cash consideration
of $4,653 thousand. The Company has repurchased $33 million or 7,643,150 ADSs in the open market at an average price
of US$4.32 per ADS as of May 30, 2008. The repurchased ADSs and their underling ordinary shares were then cancelled,
thereby reducing approximately 7.6 million shares or 4% of the Company’s issued and outstanding ordinary shares in 2008.
101
(b) Dilution of ownership stakes in Himax Media Solutions
On January 3, 2008, the Company recognized a dilution gain of $2,045 thousand, resulting from the issuance of 18,096
thousands new shares of common stock (representing a 19.9% interest) by Himax Media Solutions to CMO, a related party,
TPV Technology Limited (“TPV”) and other third parties for cash proceeds of $8,402 thousand. After the transaction, the
Company still retains a controlling financial interest in Himax Media Solutions.
(c) Declaration of cash dividend
On May 27, 2008, the Company announced that the board of directors declared a cash dividend of US$0.35 per ordinary
share of the Company. The dividend will be payable on June 27, 2008.
Note 25. Himax Technologies, Inc. (the Parent Company only)
As a holding company, dividends received from the Company’s subsidiaries in Taiwan, if any, will be subjected to withholding
tax under ROC law as well as statutory and other legal restrictions. The current corporate structure of the Company was
established as a result of a share exchange between the Company and the former shareholders of Himax Taiwan. The ROC
Investment Commission has approved the share exchange, subject to the certain conditions as disclosed in the first paragraph
of Note 22 ( j ). If the Company were unable to satisfy any of the conditions imposed by ROC Investment Commission, the
ROC Investment Commission may revoke the Company's right to repatriation of profits to be distributed by Himax Taiwan or
rescind its approval of the share exchange pursuant to which the Company's ownership structure was established.
As of December 31, 2007, the amount of restricted net assets of Himax Taiwan, which may not be transferred to the Company
in the forms of cash dividends by Himax Taiwan if the Company were unable to satisfy any of the conditions imposed by ROC
Investment Commission was $366,608 thousand.
The Company believes that the above-mentioned restrictions of the ROC Investment Commission represent a limitation on
distribution of assets from its subsidiary to the Company, therefore, the condensed separate financial information of the Parent
Company only, as if the Parent Company had been in existence for all periods, are presented as follows:
Condensed Balance Sheets
December 31,
2006
2007
(in thousands)
Cash and cash equivalents ..............................................................................................
$
Other current assets .........................................................................................................
Investment in non-marketable securities .........................................................................
Investments in subsidiaries ..............................................................................................
Total assets .......................................................................................................................
Liabilities ............................................................................................................................
Total stockholders’ equity ................................................................................................
Total liabilities and stockholder's equity ..........................................................................
$
$
$
95,591
31,013
–
238,648
365,252
1,325
363,927
365,252
18,588
1,109
1,600
430,700
451,997
688
451,309
451,997
The Parent Company had no long-term obligations or guarantees as of December 31, 2006 and 2007.
102
Condensed Statements of Income
Year Ended December 31,
2005
2006
2007
(in thousands)
Revenues ..........................................................................................
$
Costs and expenses ........................................................................
Operating income (loss) ..............................................................
Equity in earnings from subsidiaries ................................................
Other non operating income (loss) ..................................................
Earnings before income taxes ....................................................
Income tax ........................................................................................
–
(77)
(77)
61,733
(98)
61,558
–
Net Income .................................................................................
$
61,558
–
–
–
69,435
5,755
75,190
–
75,190
–
(683)
(683)
107,583
5,696
112,596
–
112,596
Condensed Statements of Cash Flows
Year Ended December 31,
2005
2006
2007
(in thousands)
Cash flows from operating activities:
Net income .......................................................................................
$
61,558
75,190
112,596
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Share-based compensation expense ...............................................
–
–
5
Equity in earnings from subsidiaries ................................................
(61,733)
(69,435)
(107,583)
Changes in operating assets and liabilities:
Other current assets ...................................................................
Other accrued expenses and other current liabilities ...............
Net cash provided by (used in) operating activities ..................
Net cash used in investing activities ...............................................
Cash flows from financing activities:
Distribution of special cash dividends .......................................
Proceeds from borrowings (repayments) of short-term debt .........
Proceeds from initial public offering, net of issuance costs ..........
Acquisitions of ordinary shares for retirement ...........................
Net cash provided by (used in) financing activities ..................
Net increase (decrease) in cash and cash equivalents ..................
Cash and cash equivalents at beginning of year ...........................
Cash and cash equivalent at end of year ......................................
$
–
133
(42)
–
(13,558)
13,600
–
–
42
–
–
–
(5,789)
1,192
1,158
(540)
21,674
(499)
26,193
(24,141)
–
(39,710)
(13,600)
147,408
(38,835)
94,973
95,591
–
95,591
–
–
(39,345)
(79,055)
(77,003)
95,591
18,588
103
Corporate Information
Board of Directors
Investor Information
Chairman
Dr. Biing-Seng Wu
Directors
Jordan Wu
Jung-Chun Lin
Dr. Chun-Yen Chang
Yuan-Chuan Horng
Senior Management
Jordan Wu
Chief Executive Officer
Max Chan
Chief Financial Officer
Shareholder Services for
American Depositary Shares (ADSs)
Deutsche Bank Trust Company Americas
60 Wall Street
New York, NY 10005
Stock Listings
The company’s common stock trades on the
NASDAQ National Market under the symbol “HIMX”
Independent Auditors
KPMG Certified Public Accountants
Investor Contacts
Jessie Wang
Investor Relations
Himax Technologies, Inc.
Chih-Chung Tsai
10F, No1, XiangYang Road, Taipei 10046, Taiwan
Chief Technology Officer, Senior VP
jessie_wang@himax.com.tw
Baker Bai
Incubator System Design Center, VP
John Chou
Joseph Villalta
The Ruth Group
757 Third Avenue
New York, NY 10017
Quality & Reliability Assurance and Support
+1-646-536-7003
Design Center, VP
jvillalta@theruthgroup.com
Norman Hong
Sales and Marketing, VP
Corporate Headquarters
Himax Technologies, Inc.
No.26, Zih Lian Road, Fonghua Village,
Sinshih Township, Taiana County 74445, Taiwan
Tel:+886-6-505-0880
Fax:+886-6-507-0000
104