Drive for better vision
2011 Annual Report
Dear Shareholders,
2011 was a year of transition for Himax as we made significant progress in expanding our sales and
customer base for our small and medium-sized driver IC and non-driver businesses. The small-medium
driver segment has become our single largest revenue contributor, overtaking the large panel driver
business. Revenues from the non-driver businesses exceeded 10% of total revenues in 2011, also the first
time in our history. Seeing strong fundamentals across many of our product lines, we are confident that we
are in a position to deliver positive revenue and earnings growth in 2012.
Our 2011 revenues totaled $633 million, representing a slight 1.5% decline from the previous year due to
the drop-off in the large-panel driver category. This was mainly because of our loss of market share in one
of our major customers who decided to diversify their driver IC supply base. However, we see significant
growth opportunities in China, where panel manufacturers are aggressively expanding their large panel
capacity.
Small and medium-sized drivers grew strongly in 2011, thanks mainly to phenomenal demand in
smartphones, which tend to require better displays and thus higher end driver ICs. We enjoy a strong
position in the smartphone sector as a result of our leading technologies, competitive products and solid
customer base. We expect the strong growth momentum for small and medium-sized drivers to continue
into 2012, driven by growing markets such as smartphones, tablets and displays used in the automotive
industry.
Non-driver product sales increased even further in 2011 with several product segments experiencing
significant shipment and revenue growth from last year. 2011 marked the first year we mass-produced
several of our non-driver products, including touch panel controllers, CMOS image sensors, wafer-level
optics, and integrated power management ICs. We are confident that the pace of growth in our non-driver
sales will continue into 2012 and beyond.
Among non-driver products, CMOS image sensor is, and will continue to be, a fast-growing area for us.
2011 was the year when we put our name clearly on the map. With additional new sensor products in the
pipeline, we have significantly strengthened our product portfolio, which positions us well to penetrate
new markets and customers.
We expect our touch panel controller business to be the next growth engine in our non-driver products.
Having successfully shipped meaningful volumes to a leading smartphone brand in 2011, Himax has
been awarded multiple new projects with that same customer. We have also won new projects with other
smartphone clients. We will leverage our leading market share in the small-and-medium panel drivers
and solid customer base we have built over the years to further the long term success in this fast-growing
market.
Our shipments for LCOS panels last year were derived largely from cellphone-embedded pico projectors
sold in emerging markets. We are switching our focus for the LCOS product line into certain innovative
applications which are different from pico projector. While we do not anticipate significant sales volume
from LCOS products in 2012, we believe these developing applications will augment Himax’s long-term
growth and further diversify our revenue streams.
We equally witnessed very strong sales growth for our LED driver and power management IC products
in 2011. We have added new customers and project opportunities in 2012 as a result of our outstanding
product performance and robust product quality reported by our customers.
Finally, we repositioned our TV and monitor chipset businesses at the end of 2011 by shifting our focus
from mainstream TV and monitor chipsets to higher margin ASIC services and IP licensing. Soon after we
announced the strategic repositioning, we signed major contracts with several tier-1 customers, showing
an early but encouraging sign for the success of the new strategy.
1
With all these growth opportunities, we believe 2012 would be an inflection point as we grow both top
and bottom lines. We also expect to further diversify our portfolio and reduce our reliance on the large
panel driver business.
I will close by reiterating our commitment to maximizing shareholder value. We have a strong financial
position, which gives us tremendous flexibility to grow our Company while returning excess capital to
shareholders. We recently declared a cash dividend of $0.063 per ADS, or $0.0315 per ordinary share.
Additionally, as of June 30, 2012, we have completed $12.3 million of the $25.0 million share repurchase
program authorized in June 2011. Our approach to allocating capital reflects the Board’s confidence in our
short and long-term business outlook.
We thank you for your support and we will continue to expand our product offerings, develop new
technologies and deliver the growth you have come to expect from Himax Technologies.
Sincerely,
Jordan Wu
President and CEO
Himax Technologies, Inc.
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 20-F/A
(Mark one)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ________________
Commission file number: 000-51847
HIMAX TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
CAYMAN ISLANDS
(Jurisdiction of incorporation or organization)
NO. 26, ZIH LIAN ROAD
SINSHIH DISTRICT, TAINAN CITY 74148
TAIWAN, REPUBLIC OF CHINA
(Address of principal executive offices)
Jackie Chang
Chief Financial Officer
Telephone: +886-2-2370-3999
E-mail: jackie_chang@himax.com.tw
Facsimile: +886-2-2314-0877
10F, No. 1, Xiangyang Road
Taipei 10046
Taiwan, Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant t Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Ordinary Shares, par value $0.3 per ordinary share
The Nasdaq Global Select Market Inc.*
* Not for trading, but only in connection with the listing on the Nasdaq Global Select Market, Inc. of
American Depositary Shares representing such Ordinary Shares
3
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of
the close of the period covered by the annual report. 349,279,556 Ordinary Shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
U.S. GAAP
Standards Board
Other
International Financial Reporting Standards as issued by the International Accounting
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow. Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No
4
TABLE OF CONTENTS
_________________________
Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..................................................7
CERTAIN CONVENTIONS..........................................................................................................................7
PART I............................................................................................................................................................9
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..............................9
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE................................................................9
ITEM 3. KEY INFORMATION.....................................................................................................................9
3.A. Selected Financial Data...................................................................................................................9
3.B. Capitalization and Indebtedness.....................................................................................................11
3.C. Reason for the Offer and Use of Proceeds......................................................................................11
3.D. Risk Factors....................................................................................................................................11
ITEM 4. INFORMATION ON THE COMPANY........................................................................................34
4.A. History and Development of the Company....................................................................................34
4.B. Business Overview.........................................................................................................................36
4.C. Organizational Structure................................................................................................................58
4.D. Property, Plants and Equipment.....................................................................................................60
ITEM 4A. UNRESOLVED STAFF COMMENTS......................................................................................60
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS................................................60
5.A. Operating Results...........................................................................................................................60
5.B. Liquidity and Capital Resources....................................................................................................79
5.C. Research and Development............................................................................................................80
5.D. Trend Information..........................................................................................................................81
5.E. Off-Balance Sheet Arrangements...................................................................................................81
5.F. Tabular Disclosure of Contractual Obligations...............................................................................81
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................................................83
6.A. Directors and Senior Management.................................................................................................83
6.B. Compensation of Directors and Executive Officers.......................................................................85
6.C. Board Practices...............................................................................................................................85
6.D. Employees......................................................................................................................................88
6.E. Share Ownership............................................................................................................................91
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................................91
7.A. Major Shareholders........................................................................................................................91
7.B. Related Party Transactions.............................................................................................................92
7.C. Interests of Experts and Counsel....................................................................................................93
ITEM 8. FINANCIAL INFORMATION.....................................................................................................93
8.A. Consolidated Statements and Other Financial Information............................................................93
8.B. Significant Changes........................................................................................................................95
ITEM 9. THE OFFER AND LISTING.........................................................................................................95
9.A. Offer and Listing Details...............................................................................................................95
9.B. Plan of Distribution........................................................................................................................96
9.C. Markets..........................................................................................................................................96
9.D. Selling Shareholders......................................................................................................................96
9.E. Dilution..........................................................................................................................................96
9.F. Expenses of the Issue......................................................................................................................96
ITEM 10. ADDITIONAL INFORMATION.................................................................................................96
10.A. Share Capital................................................................................................................................96
10.B. Memorandum and Articles of Association...................................................................................96
10.C. Material Contracts........................................................................................................................97
10.D. Exchange Controls.......................................................................................................................97
10.E. Taxation........................................................................................................................................97
10.F. Dividends and Paying Agents. ..................................................................................................100
10.G. Statement by Experts.................................................................................................................100
10.H. Documents on Display...............................................................................................................100
10.I. Subsidiary Information................................................................................................................101
5
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............101
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........................101
12.A. Debt Securities...........................................................................................................................101
12.B. Warrants and Rights....................................................................................................................101
12.C. Other Securities..........................................................................................................................101
12.D. American Depositary Shares......................................................................................................101
PART II.............................................................................................................................................104
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................................104
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS...............................................................................................................................104
ITEM 15. CONTROLS AND PROCEDURES..........................................................................................104
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.....................................................................107
ITEM 16B. CODE OF ETHICS.................................................................................................................107
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................................................107
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.........108
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS.......................................................................................................................108
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT...........................................109
ITEM 16G. CORPORATE GOVERNANCE.............................................................................................109
PART III.....................................................................................................................................................110
ITEM 17. FINANCIAL STATEMENTS....................................................................................................110
ITEM 18. FINANCIAL STATEMENTS....................................................................................................110
ITEM 19. EXHIBITS.................................................................................................................................111
6
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 and our customers’ future business developments,
results of operations and financial condition, our ability to develop new products, the future growth and
pricing trend of the display driver markets, the future growth of end-use applications that use flat panel
displays, particularly TFT-LCD panels, development of alternative flat panel display technologies, market
acceptance and competitiveness of the driver and non-driver products developed by us, our ability to
protect intellectual property, changes in customer relations and preference, shortage in supply of key
components, our ability to collect accounts receivable and manage inventory, changes in economic and
financial market conditions, and other factors. For a discussion of these risks and other factors, please see
“Item 3.D. Key Information—Risk Factors.”
CERTAIN CONVENTIONS
Unless otherwise indicated, all translations from U.S. dollars to NT dollars in this annual report were
made at a rate of $1.00 to NT$30.27, the exchange rates set forth in the H.10 weekly statistical release of
the Federal Reserve System of the United States (the “Federal Reserve Board”) on December 30, 2011.
No representation is made that the NT dollar amounts referred to herein could have been or could be
converted into U.S. dollars at any particular rate or at all. On April 20, 2012, the noon buying rate was
$1.00 to NT$29.45. Any discrepancies in any table between totals and sums of the amounts listed are due
to rounding.
Unless otherwise indicated, in this annual report,
• the terms “we,” “us,” “our company,” “our,” and “Himax” refer to Himax Technologies, Inc., its
predecessor entities and subsidiaries;
• the term “Himax Taiwan” refers to Himax Technologies Limited, our wholly owned subsidiary in
Taiwan and our predecessor;
• “shares” or “ordinary shares” refers to our ordinary shares, par value $0.3 per share;
• “RSUs” refers to restricted share units;
• “ADSs” refers to our American depositary shares, each of which represents two ordinary shares;
• “ADRs” refers to the American depositary receipts that evidence our ADSs;
• “TDRs” refers to our proposed Taiwan depositary receipts to be listed on the Taiwan Stock
Exchange upon the successful completion of our Taiwan listing plan;
• “ROC” or “Taiwan” refers to the island of Taiwan and other areas under the effective control of the
Republic of China;
• “PRC” or “China” for purposes of this annual report refers to the People’s Republic of China,
excluding Taiwan and the special administrative regions of Hong Kong and Macau;
7
• “AMOLED” refers to active matrix organic light-emitting diode;
• “CMOS” refers to complementary metal oxide semiconductor;
• “IC” refers to integrated circuit;
• “LCOS” refers to liquid crystal on silicon;
• “LED” refers to light-emitting diode;
• “LTPS” refers to low temperature poly silicon;
• “OLED” refers to organic light-emitting diode;
• “TFT-LCD” refers to amorphous silicon thin film transistor liquid crystal display, or “a-Si TFT-
LCD;”
• “processed tape” refers to polyimide tape plated with copper foil that has a circuit formed within it,
which is used in tape-automated bonding packaging;
• “semiconductor manufacturing service providers” refers to third-party wafer fabrication foundries,
gold bumping houses and assembly and testing houses;
• “large-sized panels” refers to panels that are typically above ten inches in diagonal measurement;
• “small and medium-sized panels” refers to panels that are typically around ten inches or less in
diagonal measurement;
• all references to “New Taiwan dollars,” “NT dollars” and “NT$” are to the legal currency of the
ROC; and
• all references to “dollars,” “U.S. dollars” and “$” are to the legal currency of the United States.
On August 10, 2009, we effected: (i) a stock split in the form of a stock dividend of 5,999 ordinary
shares for each ordinary share held by shareholders of record, followed by a consolidation of every
3,000 ordinary shares into one ordinary share; (ii) a change of the par value of our ordinary shares from
$0.0001 each to $0.3 each; and (iii) a change in our ADS ratio from one ADS representing one ordinary
share to one ADS representing two ordinary shares. See “Item 7.A. Major Shareholders and Related Party
Transactions—Major Shareholders” for more information. Unless otherwise indicated, all shares, per
share and share equity data in this annual report have been retroactively adjusted to reflect the effect of the
stock split and the change in par value for all periods presented.
8
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A.Selected Financial Data
The selected consolidated statement of income data and selected consolidated cash flow data for the
years ended December 31, 2009, 2010 and 2011 and the selected consolidated balance sheet data as of
December 31, 2010 and 2011 are derived from our audited consolidated financial statements included
herein, which were prepared in accordance with U.S. GAAP. The selected consolidated statement of
income data and selected consolidated cash flow data for the years ended December 31, 2007 and 2008
and the selected consolidated balance sheet data as of December 31, 2007, 2008 and 2009 are derived
from our audited consolidated financial statements that have not been included herein and were prepared
in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any
future periods. The selected financial data set forth below should be read in conjunction with “Item 5.
Operating and Financial Review and Prospects” and the consolidated financial statements and the notes to
those statements included herein.
Year Ended December 31,
2007
2008
2009
2010
2011
(in thousands, except per share data)
Consolidated Statement of Income Data:
Revenues from third parties, net.............................
Revenues from related parties, net..........................
Costs and expenses(1):
Cost of revenues......................................................
Research and development.....................................
General and administrative.....................................
(Recovery of) bad debt expense..............................
Sales and marketing................................................
$ 371,267 $ 312,336 $ 245,075 $ 304,068 $ 374,788
546,944 520,463 447,306 338,624 258,233
716,163 628,693 550,556 507,647 507,449
73,906 87,574
71,364 76,426 79,042
14,903 19,353 16,346 18,770 17,095
-
218 (8,788) (1,541)
9,334 11,692 10,360 13,279 14,368
25,305
Operating income...................................................
$ 103,905 $ 60,182 $ 43,537 $ 35,358 $ 16,608
Net income(2)...........................................................
Net income attributable to Himax
stockholders......................................................
$ 111,455 $ 72,724 $ 35,810 $ 29,066 $ 9,507
$ 112,596 $ 76,381 $ 39,650 $ 33,206 $ 10,706
Earnings per ordinary share attributable to Himax
stockholders(2):
Basic.......................................................................
Diluted....................................................................
Earnings per ADS attributable to Himax
stockholders:
Basic........................................................................
Diluted....................................................................
Weighted-average number of ordinary shares used
in earnings per share computation:
Basic.......................................................................
$ 0.29 $ 0.20 $ 0.11 $ 0.09 $ 0.03
$ 0.29 $ 0.20 $ 0.11 $ 0.09 $ 0.03
$ 0.57 $ 0.40 $ 0.21 $ 0.19 $ 0.06
$ 0.57 $ 0.40 $ 0.21 $ 0.19 $ 0.06
393,725 383,229 369,652 355,037 353,771
9
Diluted....................................................................
Weighted-average number of ADS equivalent
used in earnings per share computation:
Basic.......................................................................
Diluted....................................................................
Cash dividends declared per ordinary share(3)........
Cash dividends declared per ADS..........................
Year Ended December 31,
2007
2008
2009
(in thousands, except per share data)
2010
2011
395,043 383,753 370,229 355,690 353,827
196,863 191,615 184,826 177,518 176,886
197,522 191,877 185,115 177,845 176,914
0.060
$ 0.100 $ 0.175 $ 0.150 $ 0.125 $
0.120
$ 0.200 $ 0.350 $ 0.300 $ 0.250 $
Note : (1) The amount of share-based compensation included in applicable costs and expenses categories
is summarized as follows:
Year Ended December 31,
2007
2008
2009
(in thousands)
2010
2011
Cost of revenues....................................
Research and development...................
General and administrative...................
Sales and marketing.............................
Total......................................................
$ 422 $ 435 $ 264 $ 240 $
124
15,393 15,861 10,936 8,803 5,062
2,182 2,813 1,959 1,525 872
1,005
2,324
7,063
$ 20,321 $ 21,800 $ 15,061 $ 12,181 $
1,902 1,613
2,691
Of the $20.3 million, $21.8 million, $15.1 million, $12.2 million and $7.1 million in share-
based compensation in 2007, 2008, 2009, 2010 and 2011, $14.4 million, $12.7 million, $6.5
million, $5.9 million and $2.9 million were settled in cash, respectively.
(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. The effect of such
tax exemption on our historical results was an increase on net income and basic and diluted earnings
per share attributable to our stockholders of $27.1 million, $0.07 and $0.07, respectively, for the
year ended December 31, 2007, $25.2 million, $0.07 and $0.07, respectively, for the year ended
December 31, 2008, $9.4 million, $0.03 and $0.03, respectively, for the year ended December 31,
2009, $3.6 million, $0.01 and $0.01, respectively, for the year ended December 31, 2010 and $0.8
million, $0.002 and $0.002, respectively, for the year ended December 31, 2011. A portion of these
tax exemptions expired or will expire on March 31, 2009, December 31, 2010, December 31, 2012
and December 31, 2013.
(3) The above cash dividends should not be considered representative of the dividends that would
be paid in any future periods or our dividend policy. See “Item 8.A.8. Financial Information—
Dividends and Dividend Policy” for more information on our dividends and our dividend
policy.
2007
2008
As of December 31,
2009
(in thousands)
2010
2011
Consolidated Balance Sheet Data:
Cash and cash equivalents......................................
Accounts receivable, net........................................
Accounts receivable from related parties, net.......
Inventories.............................................................
Total current assets.................................................
Total assets..............................................................
Accounts payable...................................................
Total current liabilities...........................................
Total liabilities.......................................................
$ 94,780 $ 135,200 $ 110,924 $ 96,842 $ 106,164
88,682 51,029 64,496 80,212 101,280
194,902 104,477 138,172 95,964 79,833
116,550
67,768 117,988 112,985
538,272 434,650 423,797 485,924 515,709
652,762 565,548 550,448 619,620 644,978
53,720 88,079 115,922 134,353
147,221
90,143 120,651 205,748 245,360
185,048
126,376 212,644 249,920
95,542
190,364
96,921
10
Ordinary shares......................................................
Total equity.............................................................
Consolidated Cash Flow Data:
Net cash provided by operating activities..............
Net cash used in investing activities(1)...................
Net cash used in financing activities(1)...................
Year Ended December 31,
2007
2008
2009
(in thousands)
2010
2011
$ 115,188 $ 114,072 $ 107,404 $ 106,153 $ 107,010
462,398 470,006
424,072 406,976 395,058
$ 77,162 $ 136,500 $ 73,630 $ 57,631 $ 43,448
(25,286) (21,810) (7,541) (17,599) (10,197)
(66,974) (74,304) (90,779) (54,195) (24,015)
Note : (1) Certain amounts in 2010 have been reclassified to conform to 2011 presentation.
Exchange Rate Information
The following table sets forth the average, high, low and period-end noon buying rates between NT
dollars and U.S. dollars for the periods indicated. For periods prior to January 1, 2009, the exchange rates
reflected the noon buying rate for cable transfers in NT dollars as certified for customs purposes by the
Federal Reserve Bank of New York. For periods after January 1, 2009, the exchange rates reflect the
exchange rates set forth in the H.10 statistical release of the Federal Reserve Board.
Period
2007.......................................................................
2008.......................................................................
2009.......................................................................
2010.......................................................................
2011
October.............................................................
November.........................................................
December.........................................................
2012
January..............................................................
February............................................................
March................................................................
April(through April 20).....................................
Average(1)
Noon Buying Rate
Low
High
(NT dollars per U.S. dollar)
Period-end
32.82
31.51
32.96
31.50
29.42
30.26
30.22
30.25
29.99
29.53
29.52
29.49
33.41
33.55
35.21
32.43
30.67
30.67
30.43
30.38
30.28
29.649
29.61
29.55
32.26 32.43
29.99 32.76
31.95 31.95
29.14 29.14
28.50 30.27
29.86 29.91
30.02 30.31
30.10 30.27
29.61 29.61
29.37 29.37
29.37 29.50
29.45 29.45
Note : (1) Annual averages are calculated by averaging month-end rates for the relevant year. Monthly
averages are calculated by averaging daily rates for the relevant period.
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reason for the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
Risks Relating to Our Financial Condition and Business
11
We generate a substantial majority of our revenues from Chimei Innolux Corporation, which is the
surviving entity following the merger of three of our customers. Any loss of or a significant reduction
in Chimei Innolux Corporation’s sales could materially and adversely affect our operating results.
Chimei Innolux Corporation, or Chimei Innolux, is our key customer. Chimei Innolux, formally known
as Innolux Display Corporation, or Innolux, underwent a merger with Chi Mei Optoelectronics Corp.,
or CMO, and TPO Displays Corporation, or TPO, in March 2010, which have all been our customers. In
2011, Chimei Innolux, together with its affiliates, accounted for approximately 40.8% of our revenues. As
significant of our revenues have been generated from Chimei Innolux, we expect our results of operations
and financial condition to continue to be significantly linked to the success and purchase policy of Chimei
Innolux. Chimei Innolux has been adversely affected by the impact of the global economic downturn in
recent years. Any loss of or a sharp reduction in Chimei Innolux’s sales could have a significant negative
impact on our business and results of operations. In 2010 and 2011, our sales of large-sized panels, for
which Chimei Innolux is our major customer, declined by approximately 25.7% and 26.2%, respectively,
primarily due to Chimei Innolux’s change of purchase policy to diversify its display driver supply base.
We cannot assure you that the purchase policy of Chimei Innolux will not change further to reduce our
sales in the future. In addition, if Chimei Innolux seeks lower prices from us, our business and financial
results could be materially and adversely affected. Moreover, our relationship with Chimei Innolux may
not be as close as our prior relationship with CMO because none of our executive officers hold a director
or officer position at Chimei Innolux after the merger. Our sales to Chimei Innolux are made pursuant
to standard purchase orders rather than long-term contracts. Therefore, Chimei Innolux may cancel or
reduce orders more readily than if we had long-term purchase commitments from it. In the event of a
cancellation, postponement, or reduction of an order, we would likely not be able to reduce operating
expenses sufficiently so as to minimize the impact of the lost revenues. Alternatively, we may have excess
inventory that we cannot sell, which would harm our operating results. We expect our reliance on sales to
Chimei Innolux to continue in the foreseeable future. Therefore, our operating results will likely continue
to depend on sales to Chimei Innolux, as well as on the ability of Chimei Innolux to sell products that
incorporate our products.
Our suppliers may have increasing bargaining power as a result of industry consolidation, which
could result in an increase in our average unit cost and a decrease in our profit margin.
There has been an increased level of industry consolidation among our suppliers in recent years.
In January 2010, Chartered Semiconductor Manufacturing Ltd., one of our foundry service providers,
merged with Globalfoundries, one of the world’s largest semiconductor foundries. In April 2010,
Chipbond Technology Corporation, or Chipbond, merged with International Semiconductor Technology
Ltd., or IST, which have both been among our principal providers of gold bumping, assembly and testing
and chip probe testing services. Such merger and acquisition activities will likely increase the size and
market power of the relevant suppliers and reduce the number of suppliers we could use. In addition,
Siliconware Precision Industries Co., Ltd. closed its gold bumping manufacturing service in July 2010.
Samsung Techwin Co., Ltd and Mitsui Micro Circuits Taiwan Co., Ltd will close COF packages business
after June 2012. Such industry change could further reduced the number of suppliers for gold bumping
and COF packages services that we could use. Therefore, suppliers could be in a better position to bargain
for higher prices for their services and products, which could result in an increase in our average unit
cost. Moreover, as gold is a crucial raw material in the gold bumping process, the increasing price of gold
could result in an increase in our average unit cost and a decrease in our profit margin. If we are unable
to transfer any increase in average unit cost to our customers by selling at higher prices, our gross margin
would decrease and our results of operations could be adversely affected.
The global economic downturn and financial crisis could negatively affect our business, results of
operations and financial condition.
The global economic downturn and financial crisis that have been affecting global business, banking
and financial sectors in recent years have also been affecting the semiconductor market. Our customers
have reduced or delayed purchases of our products and may continue to alter their purchasing activities
in response to economic uncertainty, weak consumer spending, concern about the stability of markets
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and lack of credit, among other factors. In addition, there could be a number of knock-on effects from
such turmoil on our business, including insolvency of key suppliers resulting in product delays, inability
of customers to obtain credit to finance purchases of our products or customer insolvencies, and other
counterparty failures. Current uncertainty in global economic conditions also poses a risk to the overall
economy that could impact our ability to manage commercial relationships with our customers and
suppliers. Our revenues are susceptible to unexpected changes in global market conditions. If the severe
global economic conditions continue or worsen, our results of operations and financial condition may be
materially and adversely affected.
We derive substantially all of our net revenues from sales to the TFT-LCD panel industry, which
is highly cyclical and subject to price fluctuations. Such cyclicality and price fluctuations could
negatively impact our business or results of operations.
In 2010 and 2011, 91.8% and 87.3% of our revenues, respectively, were attributable to display drivers
that were incorporated into TFT-LCD panels. We expect to continue to substantially depend on sales to the
TFT-LCD panel industry for the foreseeable future. The TFT-LCD panel industry is intensely competitive
and is vulnerable to cyclical market conditions. The average selling prices of TFT-LCD panels generally
decline with time as a result of, among other factors, capacity ramp-up, technological advancements and
cost reduction. The average selling prices of TFT-LCD panels could further decline for numerous reasons,
including but not limited to the following:
lower-than-expected demand for end-use products that incorporate TFT-LCD panels;
a surge in manufacturing capacity due to the ramping up of new fabrication facilities and/or
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improvements in production yields; and
• manufacturers operating at high levels of capacity utilization in order to reduce fixed costs per
panel.
The TFT-LCD panel industry is volatile and difficult to predict. Beginning in the second half of 2008,
as a result of the severe economic downturn, the TFT-LCD panel industry suffered from an over-supply
and a decrease in the average selling price of TFT-LCD panels. Such environment continued as we
entered 2009, resulting in significant downward pricing pressure on our products. There was a rebound in
demand for TFT-LCD panels in the second quarter of 2009, but the growth in output of TFT-LCD panels
has been limited by the shortage of certain components for TFT-LCD panels. In the first half of 2010, due
to rush orders from customers, supply of display drivers became very tight, especially for wafer foundry
and processed tape. TFT-LCD panel manufacturers began to significantly increase their orders for certain
components for TFT-LCD panels because of concerns about component shortage. As a result, the TFT-
LCD panel industry suffered again from an over-supply in the second half of 2010 as the end demand did
not pick up as expected, which negatively affected our sales to the TFT-LCD panel industry. Moreover, the
9.0 magnitude earthquake and tsunami in Japan in March 2011 could materially and adversely impact the
supply chain for the TFT-LCD industry. Japan has played an important role in supplying chemicals, raw
materials, semiconductors and other products to both the TFT-LCD panel industry and the semiconductor
industry. Any shortage of any materials or components for our products or our customers’ products could
reduce our sales or decrease demand for our products.
In addition, the merger of certain of our major customers, including CMO, Innolux and TPO, could
result in an increase in their bargaining power and therefore subject us to additional downward pricing
pressure. We cannot assure you that in such periods in which we experience significant downward pricing
pressure, we could sufficiently reduce costs to completely offset the loss of revenues. In addition, a severe
and prolonged industry downturn could also result in higher risks in relation to the collectability of our
accounts receivable, the marketability and valuation of our inventories, the impairment of our tangible and
intangible assets, and the stability of our supply chain. As a result, the cyclicality of the TFT-LCD panel
industry could adversely affect our revenues, cost of revenues and results of operations.
The concentration of our accounts receivable and the extension of payment terms for certain of our
customers exposes us to increased credit risk and could harm our operating results and cash flows.
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As of December 31, 2011, our accounts receivable less allowance for sales returns and discounts from
Chimei Innolux and its affiliates were $79.8 million, which represented approximately 44.1% of our total
accounts receivable less allowance for doubtful accounts, sales returns and discounts. The concentration of
our accounts receivable exposes us to increased credit risk. For example, in 2008, we incurred significant
bad debt expense in relation to one of our largest customers Shanghai SVA-NEC Liquid Crystal Display
Co. Ltd., or SVA-NEC, which represented more than 10% of our total accounts receivable outstanding as
of December 31, 2008. In addition, we have at times agreed to extend the payment terms for certain of our
third-party and related party customers. We may also agree to requests for the extension of payment terms
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 our customers could adversely affect our cash flow,
liquidity and our operating results.
Our customers may experience a decline in profitability or may not be profitable at all, which could
adversely affect our results of operations and financial condition.
The TFT-LCD panel industry is highly competitive. TFT-LCD panel manufacturers, including our
customers, experience significant pressure on prices and profit margins, due largely to growing industry
capacity and fluctuations in demand for TFT-LCD panels. Some TFT-LCD panel manufacturers have
greater access to capital or greater production, research and development, intellectual property, marketing
or other resources than our customers, who may not be able to compete successfully and sustain their
market positions. In addition, our customers’ business performance may fluctuate significantly due to a
number of factors, many of which are beyond their control, including:
consumer demand and the general economic conditions;
the cyclical nature of both the TFT-LCD industry, including fluctuations in average selling prices,
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and its downstream industries;
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TFT-LCD panel manufacturers;
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the speed at which TFT-LCD panel manufacturers expand production capacity;
brand companies’ continued need for original equipment manufacturing services provided by
access to raw materials, components, equipment and utilities on a timely and economical basis;
technological changes;
the rescheduling and cancellation of large orders;
access to funding on satisfactory terms; and
fluctuations in the currencies of TFT-LCD panels exporting countries against the U.S. dollar.
Unfavorable changes in any of the above factors may seriously harm our customers’ business, financial
condition and results of operations. In such cases, our customers may seek to cut down their cost of
components, including our products, since components generally account for a significant portion of
the cost of TFT-LCD panels. Therefore, changes in our customers’ profitability would likely affect their
demand for our products and our ability to sell our products at desirable prices. For example, beginning
in the middle of 2008, our customers generally experienced significant pressure on or a significant
decline in prices and profit margins and therefore exerted strong downward pricing pressure on us as their
supplier. Our customers continued to operate in a challenging business environment in recent years and
may experience a further decline in profitability or may not be profitable at all. Moreover, the aggressive
expansion plans for next generation fabs in China proposed by several TFT-LCD panel manufacturers
might significantly increase the output of TFT-LCD panels if all of the plans are implemented in the next
few years, which could result in decline in the average selling prices of TFT-LCD panels. In addition,
the antitrust lawsuits in the U.S. and the European Union against several TFT-LCD panel manufacturers
have materially and adversely affected the profitability of certain of our customers. This could adversely
affect our profit margin, significantly reduce our profits and materially affect our results of operations and
financial condition.
Our strategy of expanding our product offerings to non-driver products may not be successful.
We have devoted, and intend to continue to devote, financial and management resources to the
development, manufacturing and marketing of non-driver products, including, among others, timing
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controllers, touch controller ICs, TFT-LCD television and monitor chipsets, LCOS pico-projector
solutions, power ICs, CMOS image sensors, and wafer level optics products.
We believe end products utilizing LCOS technology could potentially be a large market. LCOS
technology, however, is at a relatively early stage of commercialization and has a relatively immature
supply chain. Therefore we cannot assure you that there will be market acceptance of these LCOS
products, or that our strategic alliance with 3M or Wingtech Group for LCOS mobile projectors will
be successful. We also believe there are potential market opportunities for our CMOS image sensors.
However, there has been a recent shortage in the supply of wafers to produce CMOS image sensors
because the trend for higher resolution camera modules requires a larger amount of wafers to produce
higher resolution CMOS image sensors. As we rely primarily on third-party foundries to supply wafers
and we currently do not have any long-term supply arrangements with any third-party foundries, we
cannot assure you that we can acquire sufficient wafer capacity to fulfill customers’ orders.
Developing and commercializing each of our non-driver products requires a significant amount
of management, engineering and monetary resources. For example, we have established certain in-
house facilities for key manufacturing process of our non-driver products including LCOS projector
solutions and wafer-level optics. Moreover, we will be subject to ramp-up expenses in the early stage
of mass production of our non-driver products. Numerous uncertainties exist in developing new
products and we cannot assure you that we will be able to develop our non-driver products successfully.
We may underestimate the amount of capital, personnel and other resources required to develop and
commercialize our non-driver products, which may affect the success of our growth strategy. In addition,
if we are unsuccessful in expanding our product offerings to non-driver products, it may negatively affect
our reputation and the status of our brand in our other markets. The failure or delay in the development,
production or commercialization of any of our non-driver products, the occurrence of any product defects
or design flaws, or the low market acceptance of or demand for either our products or the end devices
using our products may adversely affect our results of operations and growth prospects.
Technological innovation may reduce the number of display drivers typically required for each
panel, thereby reducing the number of display drivers we are able to sell per panel. If such a
reduction in demand is not offset by the general growth of the industry, growth in our market share
or an increase in our average selling prices, our revenues may decline.
Except for certain small-sized panels, multiple display drivers are typically required for each panel to
function. In order to reduce costs, TFT-LCD panel manufacturers generally seek to have display drivers
with higher channel counts and new panel designs to reduce the number of display drivers required for
each panel. We have been developing such innovative and cost-effective display driver solutions in order
to grow our market share, attract additional customers, increase our average selling prices and capture
new design wins. However, we cannot assure you that we will successfully achieve these goals. If we
fail to do so and the number of display drivers typically required per panel decreases thereby reducing
our unit shipments, our revenues may decline. Recently, TFT-LCD panel manufacturers have developed
several panel designs to reduce the usage of display drivers, including gate in panel, or GIP, amorphous
silicon gate, or ASG, or simply gateless designs, which integrate the gate driver function onto the glass
and eliminate the need for gate drivers, as well as dual gate and triple gate panel designs, which would
largely reduce the usage of source drivers. If such designs or technologies become widely adopted,
demand for our display drivers may decrease significantly, which would adversely and materially affect
our results of operations.
We face numerous challenges relating to our growth.
The scope and complexity of our business has grown significantly since our inception. Our growth
has placed, and will continue to place, a strain on our management, personnel, systems and resources.
If we are unable to manage our growth effectively, we may not be able to take advantage of market
opportunities, execute our business plan or respond to competitive pressures. To successfully manage our
growth, we believe we must effectively:
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hire, train, integrate, retain and manage additional qualified engineers, senior managers, sales
expand our accounting and internal audit team, including hiring additional personnel with U.S.
implement additional, and improve existing, administrative and operations systems, procedures
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and marketing personnel and information technology personnel;
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and controls;
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GAAP and internal control expertise;
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• manage multiple relationships with semiconductor manufacturing service providers, customers,
suppliers and certain other third parties; and
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controllers, touch controller ICs, TFT-LCD television and monitor chipsets, LCOS projector
solutions, power ICs, CMOS image sensors and wafer level optics products.
continue to develop and commercialize non-driver products, including, among others, timing
continue to expand and upgrade our design and product development capabilities;
Moreover, if our allocation of resources does not correspond with future demand for particular
products, we could miss market opportunities, and our business and financial results could be materially
and adversely affected. Therefore, we cannot assure you that we will be able to manage our growth
effectively in the future.
Our quarterly revenues and operating results are difficult to predict, and if we do not meet quarterly
financial expectations, our ADS price will likely decline.
Our quarterly revenues and operating results are difficult to predict. They have fluctuated in the past
from quarter to quarter and may continue to do so in the future. Our operating results may in some
quarters fall below market expectations, likely causing our ADS price to decline. Our quarterly revenues
and operating results may fluctuate because of many factors, including:
our ability to successfully design, develop and introduce in a timely manner new or enhanced
our ability to accurately forecast shipments, average selling prices, cost of revenues, operating
changes in the relative mix in the unit shipments of our products, which may have significantly
our ability to transfer any increase in unit costs to our customers;
our ability to accurately perform various tests, estimations and projections, including with
changes in share-based compensation;
the loss of one or more of our key customers;
decreases in the average selling prices of our products;
our accumulation and write-down of inventory;
the relative unpredictability in the volume and timing of customer orders;
shortages of other components used in the manufacture of TFT-LCD panels;
the risk of cancellation or deferral of customer orders in anticipation of our new products or
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expenses, non-operating income/loss, foreign currency exchange rates, and tax rates;
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respect to the write-down on slow or obsolete inventories, the impairment of long-lived assets,
the collectibility of accounts receivable, and the realizability of deferred tax assets;
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products acceptable to our customers;
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different average selling prices and cost of revenues as a percentage of revenues;
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product enhancements, or due to a reduction in demand of our customers’ end product;
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economic growth and consumer spending and the unease in the Middle East;
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changes in our payment terms with our customers and our suppliers;
our ability to negotiate favorable prices with customers and suppliers;
our ability to hedge foreign exchange risks;
changes in the available capacity of semiconductor manufacturing service providers;
the rate at which new markets emerge for new products under development;
the evolution of industry standards and technologies;
product obsolescence and our ability to manage product transitions;
increase in cost of revenues due to inflation;
our involvement in litigation or other types of disputes;
changes in general economic conditions, especially the impact of the global financial crisis on
changes in our tax exemptions, transfer pricing policy and applicable income tax regulations; and
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natural disasters, particularly earthquakes and typhoons, or outbreaks of disease affecting
countries where we conduct our business or where our products are manufactured, assembled or
tested.
The factors listed above are difficult to foresee, and along with other factors, could seriously harm
our business. We anticipate the rate of new orders may vary significantly from quarter to quarter.
Our operating expenses and inventory levels are based on our expectations of future revenues, and
our operating expenses are relatively fixed in the short term. Consequently, if anticipated sales and
shipments in any quarter do not occur as expected, operating expenses and inventory levels could be
disproportionately high, and our operating results for that quarter and, potentially, future quarters may
be negatively impacted. Any shortfall in our revenues would directly impact our business. Our operating
results are volatile and difficult to predict; therefore, you should not rely on the operating results of any
one quarter as indicative of our future performance. Our operating results in future quarters may fall
below the expectations of securities analysts and investors. In this event, our ADS price may decline
significantly.
Our close relationship with Chimei Innolux could limit our potential to do business with Chimei
Innolux’s competitors, which may cause us to lose opportunities to grow our business and expand
our customer base.
Chimei Innolux, the successor of CMO after its merger with Innolux and TPO, is one of our largest
shareholders. Chimei Innolux or, prior to the merger, CMO has been our largest customer since our
inception. We expect to continue to maintain various contractual and other relationships with Chimei
Innolux and its affiliates. Our close relationship with Chimei Innolux could limit our potential to do
business with Chimei Innolux’s competitors or other TFT-LCD panel manufacturers, who may perceive
that granting business to us could benefit Chimei Innolux. Our close relationship with Chimei Innolux
may result in losing business opportunities or may prevent us from taking advantage of opportunities to
grow our business and expand our customer base.
An adverse change to our relationship with Chimei Innolux could have a material adverse effect on
our business.
Chimei Innolux is one of our largest shareholders, beneficially owning approximately 14.9% of our
outstanding shares as of March 31, 2012. Chimei Innolux is also our largest customer, which, together
with its affiliates, accounted for approximately 40.8% of our revenues in 2011. Our engineers work
closely with Chimei Innolux’s engineers to design display drivers and other semiconductors used by
Chimei Innolux and its affiliates or their customers. We have entered into various transactions with Chimei
Innolux or CMO and its affiliates in the past, and we expect to continue to do so in the future. See “Item 7.B.
Major Shareholders and Related Party Transactions—Related Party Transactions.” If our relationship with
Chimei Innolux deteriorates for any reason, our business could be materially and adversely affected.
The strategic relationships between certain of our competitors and their customers and the
development of in-house capabilities by TFT-LCD panel manufacturers may limit our ability to
expand our customer base and our growth prospects.
Certain of our competitors have established or may establish strategic or strong relationships with TFT-
LCD panel manufacturers that are also our existing or potential customers. Marketing our display drivers
to such TFT-LCD panel manufacturers that have established relationships with our competitors may be
difficult. Moreover, several TFT-LCD panel manufacturers have in-house design capabilities and therefore
may not need to source semiconductor products from us. If our customers successfully develop in-house
capabilities to design and develop semiconductors that can substitute our products, they would likely
reduce or stop purchasing our products. In addition, we also face challenges in attracting new customers
for our new products. To sell new products, we will likely need to target new market segments and new
customers with whom we do not have current relationships, which may require different strategies and
may present difficulties that we have not encountered before. Therefore, failure to broaden our customer
base and attract new customers may limit our growth prospects.
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We depend primarily on nine foundries to manufacture our wafers, and any failure to obtain sufficient
foundry capacity or loss of any of the foundries we use could significantly delay our ability to ship our
products, causing us to lose revenues and damage our customer relationships.
Access to foundry capacity is crucial to our business because we do not manufacture our own wafers,
instead relying primarily on nine third-party foundries. The ability of a foundry to manufacture our
semiconductor products is limited by its available capacity. Access to capacity is especially important due
to the limited availability of the high-voltage CMOS process technology required for the manufacture
of wafers used in display drivers. Moreover, Japanese integrated device manufacturer companies may
outsource their semiconductor manufacturing to foundries outside Japan. This could result in tightness
in the foundry supply available to us and affect our ability to acquire sufficient capacity. As we currently
do not have any long-term supply arrangements with any third-party foundries to guarantee us access to
a certain level of foundry capacity, if the primary third-party foundries that we rely upon are not able to
meet our required capacity, or if our business relationships with these foundries are adversely affected, we
would not be able to obtain the required capacity from these foundries to meet any increasing demand for
our products and would have to seek alternative foundries, which may not be available on commercially
reasonable terms, or at all, or which may expose us to risks associated with qualifying new foundries, as
further discussed below. Our results of operations and business prospects could be adversely affected as a
result of the foregoing.
We place wafer orders on the basis of our customers’ purchase orders and sales forecasts; however,
any of the foundries we use can allocate capacity to other foundry customers and reduce deliveries to us
on short notice. It could be that other foundry customers are larger and better financed than we are, or have
supply agreements or better relationships with the foundries we use, and could induce these foundries
to reallocate our capacity to them. The loss of any of the foundries we use or any shortfall in available
foundry capacity could impair our ability to secure processed wafers, which could significantly delay our
ability to ship our products, causing a loss of revenues and damages in our customer relationships.
The recent fluctuations in the prices of certain metals, chemicals and gasoline and the recent volatility
of foreign exchange rates may have increased costs for foundries and semiconductor service providers.
This increase in costs could limit their ability to continue to make the research and development
investments needed to keep up with technological advances. Any increase in costs for foundries and
semiconductor service providers we use could lead to an increase in our unit costs or could limit our
ability to lower our unit costs. We cannot assure you that we will be able to continue to reduce our costs
and maintain our profit margins.
Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and Vanguard International
Semiconductor Corporation, or Vanguard, historically manufactured substantially all of our wafers in the
early years since our inception. In order to diversify our foundry sources, we have also used Macronix
International Co., Ltd., or Macronix, Lite-on Semiconductor Corp., or Lite-on, Globalfoundries Singapore
Pte., Ltd. (formerly Chartered Semiconductor Manufacturing Ltd.), or Globalfoundries Singapore,
United Microelectronics Corporation, or UMC, Maxchip Electronics Corp., or Maxchip, Semiconductor
Manufacturing International Corporation, or SMIC, and Shanghai Hua Hong NEC Electronics Company,
Ltd., or HHNEC, to manufacture a portion of our products. As a result of outsourcing the manufacturing
of our wafers, we face several significant risks, including:
failure to secure necessary manufacturing capacity, or being able to obtain required capacity only
risks of our proprietary information leaking to our competitors through the foundries we use;
limited control over delivery schedules, quality assurance and control, manufacturing yields and
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at higher costs;
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production costs;
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dynamic random access memory, or DRAM, companies.
the unavailability of, or potential delays in obtaining access to, key process technologies; and
financial risks of certain of our foundry suppliers, including those that are owned by ailing
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In addition, in order to manufacture our display drivers used in TFT-LCD panels, we require foundries
with high-voltage manufacturing process capacity. Of the limited number of foundries that offer this
capability, some are owned by integrated device manufacturers which are also our competitors. As a
result, our dependence on high-voltage foundries presents the following additional risks:
potential capacity constraints faced by the limited number of high-voltage foundries and the lack
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of investment in new and existing high-voltage foundries;
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voltage foundries; and
price increases.
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difficulty in attaining consistently high manufacturing yields from high-voltage foundries;
delay and time required (approximately one year) to qualify and ramp up production at new high
As a result of these risks, we may be required to use foundries with which we have no established
relationships, which could expose us to potentially unfavorable pricing, unsatisfactory quality or
insufficient capacity allocation. Moreover, the scarcity and importance of high-voltage foundry capacity
may necessitate us making investments in foundries in order to secure capacity, which would require us to
substantially increase our capital outlays and possibly raise additional capital, which may not be available
to us on satisfactory terms, if at all.
Shortages of processed tape used in the manufacturing of our products, increased costs of
manufacturing such tape, or the loss of one of our suppliers of such tape may increase our costs or
limit our revenues and impair our ability to ship our products on time.
There are a limited number of companies which supply the processed tape used to manufacture our
semiconductor products, and we do not have binding long-term supply arrangements with processed
tape suppliers that would guarantee us access to processed tape. Therefore, from time to time, shortages
of such processed tape may occur. The supply of processed tape had been tight in the first half of 2010,
as certain of our processed tape suppliers either closed or reduced the production of processed tape.
Moreover, Japan, which has been leading in the production and supply of processed tape, was negatively
affected by the earthquake and tsunami in March 2011, leading to a decrease in the production of
processed tape. The shortages of processed type was gradually resolved in the second half of 2011. If
any of the processed tape suppliers we rely upon experience difficulties in delivering processed tape
or are unable to meet the prices, quality or services that we require, or if our business relationships
with these suppliers weaken or deteriorate, we may not be able to locate alternative sources in a timely
manner. Therefore, if shortages of processed tape were to occur, or if the costs of manufacturing such tape
increases, we would incur additional costs or be unable to ship our products to our customers in a timely
fashion, all of which could harm our business and our customer relationships and negatively impact our
earnings. As a result of these risks, we may also be required to use processed tape suppliers with which we
have no established relationships, which could expose us to potentially unfavorable pricing, unsatisfactory
quality or insufficient capacity allocation. Moreover, the scarcity and importance of processed tape may
necessitate us making investments in processed tape suppliers in order to secure adequate supply, which
would require us to substantially increase our capital outlays and possibly raise additional capital, which
may not be available to us on satisfactory terms, if at all.
The loss of, or our inability to secure sufficient capacity from, any of our third-party assembly and
testing houses at reasonable and competitive prices could disrupt our shipments, harm our customer
relationships and reduce our sales.
Access to third-party assembly and testing capacity is critical to our business because we do not have
in-house assembly and testing capabilities for commercial production and instead rely on third-party
service providers. Access to these services is especially important to our business because display drivers
require specialized assembly and testing services. A limited number of third-party assembly and testing
houses assemble and test substantially all of our current products. There has been an increased level
of industry consolidation among our suppliers in recent years. Therefore, suppliers could be in a better
position to bargain for higher prices for their services and products, which could result in an increase
in our average unit cost. See also “—Our suppliers may have increasing bargaining power as a result of
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industry consolidation, which could result in an increase in our average unit cost and a decrease in our
profit margin.” We do not have binding long-term supply arrangements with assembly and testing service
providers that guarantee us access to our required capacity. If the primary assembly and testing service
providers that we rely upon are not able to meet our requirements in price, quality, and service, or if our
business relationships with these service providers were adversely affected, we would not be able to
obtain the required capacity from such providers and would have to seek alternative providers, which may
not be available on commercially reasonable terms, or at all. As a result, we do not directly control our
product delivery schedules, assembly and testing costs and quality assurance and control. If any of these
third-party assembly and testing houses experiences capacity constraints, financial difficulties, suffers any
damage to its facilities or if there is any disruption of its assembly and testing capacity, we may not be
able to obtain alternative assembly and testing services in a timely manner. Because of the amount of time
we usually take to qualify assembly and testing houses, we may experience significant delays in product
shipments if we are required to find alternative sources. Any problems that we may encounter with the
delivery, quality or cost of our products could damage our reputation and result in a loss of customers and
orders.
As a result of these risks, we may be required to use assembly and testing service providers with
which we have no established relationships, which could expose us to potentially unfavorable pricing,
unsatisfactory quality or insufficient capacity allocation. Moreover, the scarcity and importance of
assembly and testing services may necessitate us making investments in assembly and testing service
providers in order to secure capacity, which would require us to substantially increase our capital outlays
and possibly raise additional capital, which may not be available to us on satisfactory terms, if at all.
Shortages of other key components for our customers’ products could decrease demand for our
products.
Shortages of components and other materials that are critical to the design and manufacture of our
customers’ products may limit our sales. These components and other materials include, but are not
limited to, color filters, backlight modules, polarizers, printed circuit boards and glass substrates. In the
past, companies that use our products in their production have experienced delays in the availability
of key components from other suppliers. For example, in 2009, some TFT-LCD panel manufacturers
experienced a shortage of certain components, notably glass substrates, while demand for TFT-LCD
panels rebounded in the second quarter of 2009. The supply of glass substrates, backlight modules,
polarizers, power ICs, among other things, has also been tight since the first quarter of 2010. Moreover,
the earthquake and tsunami in Japan in March 2011 has resulted in disruption in certain manicuring sites
and limitation on electricity, which could materially and adversely affect the production and supply of
certain key components of TFT-LCD panels, such as Anisotropic Conductive Film and Triacetyl Cellulose
Film. In addition, component manufacturers may not be able to increase or maintain their component
supply because of labor shortage in China or otherwise, and may shut down certain of their capacity from
time to time because of weak demand, which may increase the instability of timely delivery and the risk
of shortage of components. Such shortages of components and other materials critical to the design and
manufacture of our customers’ products may cause a slowdown in demand for our products, resulting in a
decrease in our sales and adversely affecting our results of operations. In addition, as a result of uncertain
demand conditions, our customers may hesitate to build inventory on hand and tend to release orders on
short notice.
We rely on the services of our key personnel, and if we are unable to retain our current key personnel
and hire additional personnel, our ability to design, develop and successfully market our products
could be harmed.
We rely upon the continued service and performance of a relatively small number of key personnel,
including certain engineering, technical and senior management personnel. In particular, our engineers and
other key technical personnel are critical to our future technological and product innovations. Competition
for highly skilled engineers and other key technical personnel is intense in the semiconductor industry
in general and in Taiwan’s flat panel semiconductor industry in particular. Moreover, our future success
depends on the expansion of our senior management team and the retention of key employees such as
20
Jordan Wu, our president and chief executive officer; Dr. Biing-Seng Wu, our chairman; and Chih-
Chung Tsai, our chief technology officer. We rely on these individuals to manage our company, develop
and execute our business strategies and manage our relationships with key suppliers and customers. Any
of our key employees could leave our company with little or no prior notice. They could also leave our
company to work with a competitor. In addition, we do not have “key person” life insurance policies
covering any of our employees. The loss of any of our key personnel or our inability to attract or retain
qualified personnel, whether engineers and others, could delay the development and introduction of new
products and would have an adverse effect on our ability to sell our products as well as on our overall
business and growth prospects. We may also incur increased operating expenses and be required to divert
the attention of other senior executives away from their original duties to recruiting replacements for key
personnel.
If we fail to forecast customer demand accurately, we may have excess or insufficient inventory,
which may increase our operating costs and harm our business.
The lead time required by the semiconductor manufacturing service providers that we use to
manufacture our products is typically longer than the lead time that our customers provide for delivery of
our products to them. Therefore, to ensure availability of our products for our customers, we will typically
ask our semiconductor manufacturing service providers to start manufacturing our products based on
forecasts provided by our customers in advance of receiving their purchase orders. However, these
forecasts are not binding purchase commitments, and we do not recognize revenues from these products
until they are shipped to customers. Moreover, for the convenience of our customers, we may agree to
ship our inventory to warehouses located near our customers, so that our products can be delivered to
these customers more quickly. We may from time to time agree that title and risk of loss do not pass to
our customer until the customer requests delivery of our products from such warehouses. In such cases,
we will not recognize revenues from these products until the title and risk of loss have passed to our
customers based on the shipping terms, which is generally when they are delivered to our customers
from these warehouses. As a result, we incur inventory and manufacturing costs in advance of anticipated
revenues.
The anticipated demand for our products may not materialize; therefore, manufacturing based on
customer forecasts exposes us to risks of high inventory carrying costs, increased product obsolescence,
and erosion of the products’ market value. For example, some of our customers might overstate their
forecasts because of concerns that their semiconductor suppliers cannot deliver on their rush orders. If
we overestimate demand for our display drivers or if purchase orders are cancelled or shipments delayed,
we may incur excess inventory that we cannot sell, or may have to sell at low profit margins or even at
a loss, which would harm our financial results. Conversely, if we underestimate demand, we may not
have sufficient inventory and may lose market share and damage customer relationships, which also
could harm our business. Obtaining additional supply in the face of product shortages may be costly or
impossible, particularly in the short term, which could prevent us from fulfilling orders. These inventory
risks are exacerbated by the high level of customization of our products, which limits our ability to sell
excess inventory to other customers.
If we do not achieve additional design wins in the future, our ability to grow will be limited.
Our future success depends on our current and prospective customers’ designing our products into
their products. To achieve design wins, we must design and deliver cost-effective, innovative, reliable and
integrated products that are customized for our customers’ needs. Once a supplier’s products have been
designed into a system, the panel manufacturer may be reluctant to change its source of components due
to the significant costs and time associated with qualifying a new supplier. Accordingly, our failure to
obtain additional design wins with panel manufacturers and to successfully design, develop and introduce
new products and product enhancements could harm our business, financial condition and results of
operations.
A design win is not a binding commitment by a customer to purchase our products and may not
result in large volume orders of our products. Rather, it is a decision by a customer to use our products
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in the design process of that customer’s products. Customers can choose at any time to stop using our
products in their designs or product development efforts. Moreover, even if our products were chosen to
be incorporated into a customer’s products, our ability to generate significant revenues from that customer
would depend on the commercial success of those products. Thus, a design win may not necessarily
generate significant revenues if our customers’ products are not commercially successful.
Some of our semiconductor products are manufactured at only one foundry. If any foundry is
unable to provide the capacity we need, does not deliver in a timely manner or the quality or pricing
terms are not acceptable to us, we may experience delays in shipping our products or have to incur
additional costs, which could damage our customer relationships and result in reduced revenues and
higher costs and expenses.
Although we use several foundries for different semiconductor products, certain of our products are
manufactured at only one of these foundries. If any one of the foundries that we use for a specific product
is unable to provide us with our required capacity, does not deliver in a timely manner or the quality or
pricing terms are not acceptable to us, we could experience significant delays in receiving the product
being manufactured for us by that foundry or incur additional costs to obtain substitutes. Also, if any of
the foundries that we use experience financial difficulties or insolvency risks due to the impact of the
global economic turmoil or any company-specific reasons or otherwise, if their operations are damaged
or if there is any other disruption of their foundry operations, we may not be able to qualify an alternative
foundry in a timely manner. If we choose to use a new foundry or process technology for a particular
semiconductor product, we believe that it will take us several quarters to qualify the new foundry or
process before we can begin shipping such products. If we cannot qualify a new foundry in a timely
manner, we may experience a significant interruption in our supply of the affected products, which could
reduce our revenues, increase our costs and expenses and damage our customer relationships.
Our products are complex and may require modifications to resolve undetected errors or failures in
order for them to function with panels at the desired specifications, which could lead to higher costs,
a loss of customers or a delay in market acceptance of our products.
Our products are highly complex and may contain undetected errors or failures when first introduced
or as new versions are released. If our products are delivered with errors or defects, we could incur
additional development, repair or replacement costs, and our credibility and the market acceptance of our
products could be harmed. Defects could also lead to liability for defective products and lawsuits against
us or our customers. We have agreed to indemnify some of our customers under some circumstances
against liability from defects in our products. A successful product liability claim could require us to make
significant damage payments.
Our display drivers comprise part of a complex panel manufactured by our customers. Our display
drivers must operate according to specifications with the other components used by our customers in the
panel manufacturing process. For example, during the panel manufacturing process, our display drivers
are attached to the panel glass and must interoperate with the glass efficiently. If other components fail to
operate efficiently with our display drivers, we may be required to incur additional development time and
costs to improve the interoperability of our display drivers with the other components.
Our highly integrated products are difficult to manufacture without defects. The existence of defects
in our products could increase our costs, decrease our sales and damage our customer relationships
and our reputation.
The manufacture of our products is a complex process, and it is often difficult for semiconductor
foundries to manufacture our products completely without defects. Minor deviations in the manufacturing
process can cause substantial decreases in yield and quality. In particular, some of our products are highly
integrated and incorporate mixed analog and digital signal processing and embedded memory technology,
and this complexity makes it even more difficult to manufacture without defects.
The ability to manufacture products of acceptable quality depends on both product design and
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manufacturing process technology. Defective products can be caused by design, defective materials or
component parts, or manufacturing difficulties. Thus, quality problems can be identified only by analyzing
and testing our display drivers in a system after they have been manufactured. The difficulty in identifying
defects is compounded by the uniqueness of the process technology used in each of the semiconductor
foundries with which we have subcontracted to manufacture our products. Difficulties in achieving
defect-free products due to the increasing complexity of display drivers and the panel system surrounding
them may result in an increase in our costs and expenses and delays in the availability of our products.
In addition, if the foundries that we use fail to deliver products of satisfactory quality in the volume and
at the price required, we will be unable to meet our customers’ demand for our products or to sell those
products at an acceptable profit margin, which could adversely affect our sales and margins and damage
our customer relationships and our reputation.
We do not have long-term purchase commitments from our customers, which may result in
significant uncertainty and volatility with respect to our revenues and could materially and adversely
affect our results of operations and financial condition.
We do not have long-term purchase commitments from our customers; our sales are made on the
basis of individual purchase orders. Our customers may also cancel or defer purchase orders. Our
customers’ purchase orders may vary significantly from period to period, and it is difficult to forecast
future order quantities. In addition, changes in our customers’ business may adversely affect the quantity
of purchase orders that we receive. For example, if the merger of CMO, Innolux and TPO results in the
discontinuation of a large number of our design-win projects or the discontinuation of those design-win
projects with large sales quantities, we could be required to write off a substantial amount of inventory
prepared based on forecasts provided by any of these customers. In the past, some of our customers
have also significantly lowered their capacity utilization rates, reduced or canceled their orders of our
products, and requested higher-than-usual price concession from us. We cannot assure you that any of our
customers will continue to place orders with us in the future at the same level as in prior periods. We also
cannot assure you that the volume of our customers’ orders will be consistent with our expectations when
we plan our expenditures. Our results of operations and financial condition may thus be materially and
adversely affected.
Potential conflicts of interest with Chimei Innolux may affect our sales decisions and allocations.
We have a close relationship with Chimei Innolux, the successor of CMO after its merger with Innolux
and TPO in March 2010. Chimei Innolux is currently one of our largest shareholders. Chimei Innolux or,
prior to the merger, CMO has also been our largest customer since our inception. In addition, Mr. Tien-
Jen Lin, our director, is the Special Assistant to General Manager in Chimei Innolux. We cannot assure
you that our close relationship with Chimei Innolux and the resulting potential conflicts of interest will
not affect our sales decisions or allocations or that potential conflicts of interest with respect to Chimei
Innolux will be resolved in our favor.
Our corporate actions are substantially controlled by officers, directors, principal shareholders
and affiliated entities who may take actions that are not in, or may conflict with, our or our public
shareholders’ interests.
As of March 31, 2012, Jordan Wu and Dr. Biing-Seng Wu (who are brothers) beneficially owned
approximately 8.2% and 20.7% of our ordinary shares, respectively, and Chimei Innolux beneficially
owned approximately 14.9% of our ordinary shares. For information relating to the beneficial ownership
of our ordinary shares, see “Item 7.A. Major Shareholders and Related Party Transactions—Major
Shareholders.” These shareholders, acting together, could exert substantial influence over matters
requiring approval by our shareholders, including electing directors and approving mergers or other
business combination transactions. This concentration of ownership may also discourage, delay or prevent
a change in control of our company, which could deprive our shareholders of an opportunity to receive a
premium for their shares as part of a sale of our company and might reduce the price of our ADSs. Actions
may be taken even if they were opposed by our other shareholders.
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Assertions against us by third parties for infringement of their intellectual property rights could
result in significant costs and cause our operating results to suffer.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property
rights and positions, which results in protracted and expensive litigation for many companies. We have
received, and expect to continue to receive, notices of infringement of third-party intellectual property
rights. We may receive claims from various industry participants alleging infringement of their patents,
trade secrets or other intellectual property rights in the future. Any lawsuit resulting from such allegations
could subject us to significant liability for damages and invalidate our proprietary rights. These lawsuits,
regardless of their success, would likely be time-consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property litigation also could force us to do one
or more of the following:
stop selling products or using technology or manufacturing processes that contain the allegedly
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infringing intellectual property;
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commercially reasonable terms or at all; and
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non-infringing intellectual property, which may not be possible.
pay damages to the party claiming infringement;
attempt to obtain a license for the relevant intellectual property, which may not be available on
attempt to redesign those products that contain the allegedly infringing intellectual property with
The outcome of a dispute may result in our need to develop non-infringing technology or enter into
royalty or licensing agreements. We have agreed to indemnify certain customers for certain claims of
infringement arising out of the sale of our products. Any intellectual property litigation could have a
material adverse effect on our business, operating results or financial condition.
Our ability to compete will be harmed if we are unable to protect our intellectual property rights
adequately.
We believe that the protection of our intellectual property rights is, and will continue to be, important
to the success of our business. We rely primarily on a combination of patent, trademark, trade secret
and copyright laws and contractual restrictions to protect our intellectual property. These afford only
limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to obtain, copy or use information that we regard as proprietary, such as product design and
manufacturing process expertise. As of March 31, 2012, we and our subsidiaries had 473 U.S. patent
applications pending, 835 Taiwan patent applications pending and 370 patent applications pending in
other jurisdictions, including the PRC, Japan, Korea and Europe. Our pending patent applications and
any future applications may not result in issued patents or may not be sufficiently broad to protect our
proprietary technologies. Moreover, policing any unauthorized use of our products is difficult and costly,
and we cannot be certain that the measures which we have implemented will prevent misappropriation or
unauthorized use of our technologies, particularly in foreign jurisdictions where the laws may not protect
our proprietary rights as fully as the laws of the United States do. Others may independently develop
substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual
property. Our failure to protect our intellectual property effectively could harm our business.
Any future class action suit or other legal actions against us may have an adverse effect on our
financial condition and operating results.
We were previously subject to a class action complaint, filed in the United States District Court for
the Central District of California, for alleged violations of U.S. federal securities laws. The lawsuit
asserted claims against us, our Chief Executive Officer Jordan Wu, our former Chief Financial Officer
Max Chan, certain of our directors, as well as CMO, for allegedly failing to disclose in our initial public
offering registration statement and prospectus certain information concerning CMO’s inventory level
prior to our initial public offering. We have successfully settled the dispute and paid a settlement of $1.2
million, pursuant to a settlement agreement approved by the court in September 2009. However, we may
be subject to other legal actions, including potential future class action suits. The outcome of any future
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litigation proceedings is uncertain. Regardless of merit, litigation and other preparations undertaken to
defend a legal action can be costly and may divert the attention of our management. We could also incur
substantial monetary liabilities, which may have an adverse effect on our financial condition and operating
results.
We may undertake acquisitions or investments to expand our business that may pose risks to
our business and dilute the ownership of our existing shareholders, and we may not realize the
anticipated benefits of these acquisitions or investments.
As part of our growth and product diversification strategy, we will continue to evaluate opportunities
to acquire or invest in other businesses, intellectual property or technologies that would complement our
current offerings, expand the breadth of markets we can address or enhance our technical capabilities.
For example, in November 2010, our subsidiary, Himax Display, Inc., or Himax Display, entered into
definitive agreements with Spatial Photonics, Inc., or Spatial Photonics, a Delaware corporation engaged
in the business of manufacturing and production of large-sized display panels, to subscribe for certain
Series D-1 Preferred Stock with an equity interest of 15.4% in Spatial Photonics. On October 27, 2011,
Himax Display had exercised an option exercisable on or before October 31, 2011, to acquire all of
the remaining outstanding shares of capital stock of Spatial Photonics in exchange for certain number
of common stock of Himax Display; however, the acquisition of Spatial Photonics is subject to the
examination of and approval from the Investment Commission of the Ministry of Economic Affairs
of the ROC, or the ROC Investment Commission, we cannot assure when and if we can obtain such
approval, unless such approval is obtained, the acquisition of Spatial Photonics will not be completed.
Spatial Photonics incurred a significant loss in 2010 primarily as a result of a large amount of labor
and research and development expenses but only a small amount of revenue as it is still in the product
development stage. We cannot assure you that we will be able to realize the benefits we anticipate from
acquiring Spatial Photonics. To the extent we exercise the option to acquire a controlling stake in Spatial
Photonics and consolidate its accounts into our consolidated financial statements, if Spatial Photonics
continues to incur significant expenditures and losses in the future, our financial condition and results of
operations will be materially and adversely affected. Acquisitions or investments that we have completed
or potentially may make in the future, including our acquisition of Spatial Photonics, entail a number of
risks that could materially and adversely affect our business, operating and financial results, including:
problems integrating the acquired operations, technologies or products into our existing business
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and products;
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perations;
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•
•
•
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company;
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•
•
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assets; and
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diversion of management’s time and attention from our core business;
adverse effects of losses of the acquired target upon our financial condition and results of
adverse effects on existing business relationships with customers;
the need for financial resources above our planned investment levels;
dilution of share ownership of current shareholders under share swap transactions;
failures in realizing anticipated synergies;
difficulties in retaining business relationships with suppliers and customers of the acquired
risks associated with entering markets in which we lack experience;
potential loss of key employees of the acquired company;
potential write-offs of acquired assets;
potential expenses related to the depreciation of tangible assets and amortization of intangible
potential impairment charges related to the goodwill acquired.
Our failure to address these risks successfully may have a material adverse effect on our financial
condition and results of operations. Any such acquisition or investment may require a significant amount
of capital investment, which would decrease the amount of cash available for working capital or capital
expenditures. In addition, if we use our equity securities to pay for acquisitions, the value of our ADSs
25
and the underlying ordinary shares may be diluted. If we borrow funds to finance acquisitions, such debt
instruments may contain restrictive covenants that can, among other things, restrict us from distributing
dividends.
Risks Relating to Our Industry
The average selling prices of our products could decrease rapidly, which may negatively impact our
revenues and operating results
The price of each semiconductor product typically declines over its product life cycle, reflecting
product obsolescence, decreased demand as customers shift to more advanced products, decreased unit
costs due to advanced designs or improved manufacturing yields, and increased competition as more
semiconductor suppliers are able to offer similar products. We may experience substantial period-to-
period fluctuations in future operating results if our average selling prices decline. We may reduce the
average unit price of our products in response to competitive pricing pressures, new product introductions
by us or our competitors and other factors. The TFT-LCD panel market is highly cost sensitive, which
may result in declining average selling prices of the components comprising TFT-LCD panels. We expect
that these factors will create downward pressure on our average selling prices and operating results. To
maintain acceptable operating results, we will need to develop and introduce new products and product
enhancements on a timely basis and continue to reduce our costs. If we are unable to offset any reductions
in our average selling prices by increasing our sales volumes and corresponding production cost
reductions, or if we fail to develop and introduce new products and enhancements on a timely basis, our
revenues and operating results will suffer.
The semiconductor industry, in particular semiconductors used in flat panel displays, is highly
competitive, and we cannot assure that we will be able to compete successfully against our
competitors.
The semiconductor industry, in particular semiconductors used in flat panel displays, is highly
competitive. Increased competition may result in pricing pressure, reduced profitability and loss of market
share, any of which could seriously harm our revenues and results of operations. Competition principally
occurs at the design stage, where a customer evaluates alternative design solutions that require display
drivers. We continually face intense competition from fabless display driver companies as well as from
integrated device manufacturers. Some of our competitors have substantially greater financial and other
resources than we do with which to pursue engineering, manufacturing, marketing and distribution of
their products. As a result, they may be able to respond more quickly to changing customer demands or
devote greater resources to the development, promotion and sales of their products than we can. Some of
our competitors have manufacturing capabilities as well as in-house design operations that may give them
significant advantages such as more research and development resources and the ability to attract highly
skilled engineers. Furthermore, some of our competitors are affiliated with, or are subsidiaries of, our
panel manufacturer customers. These relationships may also give our competitors significant advantages
such as early access to product roadmaps and design-in priorities, which would allow them to respond
more quickly to changing customer demands and achieve more design-wins than we can. In addition, even
competitors with no such strategic associations with panel manufacturers may resort to price competition
to maintain their market share, which may impose pricing pressures on us, reduce our profitability or
decrease our market share. We cannot assure you that we will be able to increase or maintain our revenues
and market share, or compete successfully against our current or future competitors in the semiconductor
industry.
We may be adversely affected by the cyclicality of the semiconductor industry.
The semiconductor industry is highly cyclical and is characterized by constant and rapid technological
change, product obsolescence and price erosion, evolving standards, short product life cycles and
wide fluctuations in product supply and demand. The semiconductor industry has, from time to time,
experienced significant downturns, often connected with, or in anticipation of, maturing product cycles
of both semiconductor companies’ and their customers’ products and declines in general economic
26
conditions. These downturns have been characterized by diminished product demand, production
overcapacity, high inventory levels and accelerated erosion of average selling prices. Any future downturn
may reduce our revenues and result in our having excess inventory. Furthermore, any upturn in the
semiconductor industry could result in increased competition for access to limited third-party foundry,
assembly and testing capacity. Failure to gain access to foundry, assembly and testing capacity could
impair our ability to secure the supply of products that we need, which could significantly delay our
ability to ship our products, cause a loss of revenues and damage our customer relationships.
We have a lengthy and expensive design-to-mass production cycle.
The cycle time from the design stage to mass production for display drivers is long and requires
the investment of significant resources with each potential customer without any guarantee of sales.
Our design-to-mass production cycle typically begins with a three to twelve-month semiconductor
development stage and test period followed by a three to twelve-month end product development period
by customers. This fairly lengthy cycle creates the risk that we may incur significant expenses but will be
unable to realize meaningful sales. Moreover, prior to mass production, customers may decide to cancel
the projects or change production specifications, resulting in sudden changes in our product specifications,
further causing increased production time and costs. Failure to meet such specifications may delay the
launch of our products.
Our business could be materially and adversely affected if we fail to anticipate changes in evolving
industry standards, fail to achieve and maintain technological leadership in our industry or fail to
develop and introduce new and enhanced products.
Our products are generally based on industry standards, which are continually evolving. The
emergence of new industry standards could render our products or those of our customers unmarketable
or obsolete and may require us to incur substantial unanticipated costs to comply with any such new
standards. Likewise, the components used in the TFT-LCD panel industry are constantly changing
with increased demand for improved features. Moreover, our past sales and profitability have resulted,
to a significant extent, from our ability to anticipate changes in technology and industry standards
and to develop and introduce new and enhanced products in a timely fashion. If we do not anticipate
these changes in technologies and rapidly develop and introduce new and innovative technologies, we
may not be able to provide advanced display semiconductors on competitive terms, and some of our
customers may buy products from our competitors instead of from us. Our continued ability to adapt to
such changes and anticipate future standards will be a significant factor in maintaining or improving our
competitive position and our growth prospects. We cannot assure you that we will be able to anticipate
evolving industry standards, successfully complete the design of our new products, have these products
manufactured at acceptable manufacturing yields, or obtain significant purchase orders for these products
to meet new standards or technologies. If we fail to anticipate changes in technology and to introduce new
products that achieve market acceptance, our business and results of operations could be materially and
adversely affected.
Risks Relating to Our Holding Company Structure
Our ability to receive dividends and other payments or funds from our subsidiaries may be restricted
by commercial, statutory and legal restrictions, and thereby materially and adversely affect our
ability to grow, fund investments, make acquisitions, pay dividends and otherwise fund and conduct
our business.
We are a holding company and our assets consist mainly of our 100% ownership interest in Himax
Taiwan. We receive cash from Himax Taiwan through intercompany borrowings. Himax Taiwan has
not paid us cash dividends in the past. Nonetheless, dividends and interest on shareholder loans that we
receive from our subsidiaries in Taiwan, if any, will be subject to withholding tax under ROC law. The
ability of our subsidiaries to provide us with loans, pay dividends, repay any shareholder loans from
us or make other distributions to us is restricted by, among other things, the availability of funds, the
terms of various credit arrangements entered into by our subsidiaries, as well as statutory and other legal
27
restrictions. In addition, while we have registered with the Central Bank of the ROC (Taiwan), or the
Central Bank of ROC, for outward/inward remittance that would allow our subsidiaries located in Taiwan
to provide us with loans, pay dividends, repay any shareholder loans from us or make other distributions
to us, we cannot assure you that the relevant regulations will not change and that the ability of our
subsidiaries to do so will not be restricted in the future. A Taiwan company is 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 reserves). In addition, before distributing a dividend
to shareholders following the end of a fiscal year, the 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.
Any limitation on dividend payments by our subsidiaries could materially and adversely affect our
ability to grow, finance capital expenditures, make acquisitions, pay dividends, and otherwise fund and
conduct our business.
Our ability to make further investments in Himax Taiwan may be dependent on regulatory approvals.
If Himax Taiwan is unable to receive the equity financing that it requires, its ability to grow and fund
its operations may be materially and adversely affected.
Since Himax Taiwan is not a listed company, it generally depends on us to meet its equity financing
requirements. Any capital contribution by us to Himax Taiwan may require the approval of the relevant
ROC authorities such as the ROC Investment Commission. We may not be able to obtain any such
approval in the future in a timely manner, or at all. If Himax Taiwan is unable to receive the equity
financing that it requires, its ability to grow and fund its operations may be materially and adversely
affected.
Political, Geographical and Economic Risks
Due to the location of our operations in Taiwan, we and many of our semiconductor manufacturing
service providers, suppliers and customers are vulnerable to natural disasters and other events
outside of our control, which may seriously disrupt our operations.
Most of our operations, and the operations of many of our semiconductor manufacturing service
providers, suppliers and customers are located in Taiwan, which is vulnerable to natural disasters, in
particular, earthquakes and typhoons. Our principal foundries and assembly and testing houses upon
which we have relied to manufacture substantially all of our display drivers are located in Taiwan. In
2011, 62.4% of our revenues were derived from customers headquartered in Taiwan. As a result of this
geographic concentration, disruption of operations at our facilities or the facilities of our semiconductor
manufacturing service providers, suppliers and customers for any reason, including work stoppages,
power outages, water supply shortages, fire, typhoons, earthquakes, contagious diseases or other natural
disasters, could cause delays in production and shipments of our products. Any delays or disruptions
could result in our customers seeking to source products from our competitors. Shortages or suspension of
power supplies have occasionally occurred and have disrupted our operations. The occurrence of a power
outage in the future could seriously hurt our business.
The manufacturing processes of TFT-LCD panels require a substantial amount of water and, as a
result, the production operations of TFT-LCD panels may be seriously disrupted by water shortages. Our
customers may encounter droughts in areas where most of their current or future manufacturing sites are
located. If a drought were to occur and our customers or the authorities were unable to source water from
alternative sources in sufficient quantities, our customers may be required to shut down temporarily or to
substantially reduce the operations of their fabs, which would seriously affect demand for our products.
The occurrence of any of these events in the future could adversely affect our business.
Disruptions in Taiwan’s political environment could negatively affect our business and the market
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price of our ADSs
Our principal executive offices and a substantial amount of our assets are located in Taiwan, and a
substantial portion of our revenues is derived from our operations in Taiwan. Accordingly, our business,
financial condition and results of operations and the market price of our ADSs may be affected by changes
in ROC governmental policies, taxation, inflation or interest rates, and by social instability and diplomatic
and social developments in or affecting Taiwan that are outside of our control.
Taiwan has a unique international political status. Since 1949, Taiwan and the PRC have been
separately governed. The government of the PRC claims that it is the sole government in China and that
Taiwan is part of China. Although significant economic and cultural relations have been established during
recent years between Taiwan and the PRC, the PRC government has refused to renounce the possibility
that it may at some point use force to gain control over Taiwan. Furthermore, the PRC government
adopted an anti-secession law relating to Taiwan. Relations between the ROC and the PRC governments
have been strained in recent years for a variety of reasons, including the PRC government’s position on
the “One China” policy and tensions concerning arms sales to Taiwan by the United States government.
Any tension between the ROC and the PRC, or between the United States and the PRC, could materially
and adversely affect the market prices of our ADSs.
Fluctuations in exchange rates could result in foreign exchange losses and affect our results of
operations.
Our functional and reporting currency is U.S. dollars. In 2011, more than 99.0% of our revenues and
cost of revenues were denominated in U.S. dollars. However, we have foreign currency exposure and are
primarily affected by fluctuations in exchange rates between the U.S. dollar and the NT dollar. This is
because a significant portion of our operating expenses (including for research and development, general
and administrative, and sales and marketing expenses) are denominated in NT dollars and we maintain
a portion of our cash in NT dollars for local working capital purposes. For example, in December 2011,
approximately 64.6% of our operating expenses were denominated in NT dollars, with a small percentage
denominated in Japanese Yen, Korean Won and Chinese Renminbi, and the majority of the remainder
in U.S. dollars. Moreover, there are tax-related assets and liabilities on our balance sheet which are
denominated in NT dollars. The current global economic crisis may cause increased volatility in exchange
rates. From time to time, we enter into forward contracts to hedge our foreign currency exposure, but we
cannot assure you that this will adequately protect us against the risk of exchange rate fluctuations and
reduce the impact of potential foreign exchange losses. Any significant fluctuation to our disadvantage in
exchange rates would have an adverse effect on our results of operations and financial condition.
Changes in ROC tax laws would likely increase our tax expenditures and decrease our net income.
Pursuant to the ROC Statute for Upgrading Industries, which expired at the end of 2009, companies
were entitled to tax credits for expenses relating to qualifying research and development, personnel
training and purchases of qualifying machinery. The tax credits could be applied within a five-year period.
The amount of tax credit that could be applied in any year is limited to 50% of the income tax payable for
that 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). Besides, Himax Taiwan after a three year holding period
was entitled the tax credits of twenty percent of the price paid for the acquisition of shares originally
issued by ROC domestic companies that are newly emerging, important and strategic industries. The
credit also could be applied of the income tax payable over a period of five years. Under the ROC Statute
for Upgrading Industries, Himax Taiwan was 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 $55.3 million, $55.0 million and
$39.4 million as of December 31, 2009, 2010 and 2011, respectively. On May 12, 2010, the Statute for
Industrial Innovation was promulgated in the ROC, which became effective on the same date except for
the provision relating to tax incentives which went into effect retroactively on January 1, 2010. Compared
to the ROC Statute for Upgrading Industries, the Statute for Industrial Innovation provides for a smaller
amount of tax credits. The Statute for Industrial Innovation entitles companies to tax credits for qualifying
29
research and development expenses related to innovation activities but limits the amount of tax credit to
only up to 15% of the total research and development expenditure for the current year, subject to a cap
of 30% of the income tax payable for the current year. Therefore, the amount of tax credits that could
be applied under the ROC Statute for Upgrading Industries and the Statute for Industrial Innovation is
limited at 50% of the income tax payable. Moreover, any unused tax credits provided under the Statute for
Industrial Innovation may not be carried forward. As a result, the tax credits that we received decreased
significantly to $3.7 million in 2010 and $1.7 million in 2011 compared to $13.8 million in 2009.
In addition, unlike the ROC Statute for Upgrading Industries, the Statute for Industrial Innovation
no longer provides to companies deemed to be operating in important or strategic industries any tax
exemption for income attributable to expanded production capacity or newly developed technologies.
Pursuant to the ROC Statute for Upgrading Industries, beginning April 1, 2004, January 1, 2006 and
January 1, 2008, Himax Taiwan became entitled to three preferential tax treatments, each for a period
of five years, which expired or will expire on March 31, 2009, December 31, 2010 and December 31,
2012, respectively, and beginning January 1, 2009, Himax Semiconductor also became entitled to one
preferential tax treatment for a period of five years, which will expire on December 31, 2013. As a result
of these preferential tax treatments, income attributable to certain of our expanded production capacity
or newly developed technologies has been tax exempt for the relevant periods. The effect of such tax
exemption under the ROC Statute for Upgrading Industries was an increase on net income and basic and
diluted earnings per share attributable to our stockholders of $9.4 million, $0.03 and $0.03, respectively,
for the year ended December 31, 2009, $3.6 million, $0.01 and $0.01, respectively, for the year ended
December 31, 2010 and $0.8 million, $0.002 and $0.002, respectively, for the year ended December 31,
2011. While the ROC Statute for Upgrading Industries expired at the end of 2009, under a grandfather
clause we can continue to enjoy the five-year tax holiday since the relevant investment plans were
approved by the ROC tax authority before the expiration of the Statute. However, as the tax exemptions
that expired on March 31, 2009 and December 31, 2010 accounted for a substantial portion of our total
tax-exempted income under the ROC Statute for Upgrading Industries, our income tax expenses have
increased significantly in 2009 and 2010 and may increase further in the future.
We face risks related to health epidemics and outbreaks of contagious diseases, including H1N1
influenza, H5N1 influenza and Severe Acute Respiratory Syndrome, or SARS.
In recent years, there have been reports of outbreaks of a highly pathogenic influenza caused by the
H1N1 virus, as well as an influenza caused by the H5N1 virus, in certain regions of Asia and other parts of
the world. An outbreak of such contagious diseases in the human population could result in a widespread
health crisis that could adversely affect the economies and financial markets of many countries,
particularly in Asia. Additionally, a recurrence of SARS, a highly contagious form of atypical pneumonia,
similar to the occurrence in 2003 which affected the PRC, Hong Kong, Taiwan, Singapore, Vietnam
and certain other countries, would also have similar adverse effects. Since all of our operations and
substantially all of our customers and suppliers are based in Asia (mainly Taiwan), an outbreak of H1N1
influenza, H5N1 influenza, SARS or other contagious diseases in Asia or elsewhere, or the perception that
such an outbreak could occur, and the measures taken by the governments of countries affected, including
the ROC and the PRC, could adversely affect our business, financial condition or results of operations.
Risks Relating to Our ADSs and Our Trading Market
The market price for our ADSs is volatile.
The market price for our ADSs is volatile and has ranged from a low of $0.97 to a high of $2.69 on the
Nasdaq Global Select Market in 2011.
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The market price is subject to wide fluctuations in response to various factors, including the following:
actual or anticipated fluctuations in our quarterly operating results;
changes in financial estimates by securities research analysts;
conditions in the TFT-LCD panel market;
changes in the economic performance or market valuations of other display semiconductor
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companies;
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joint ventures or capital commitments;
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ADSs.
announcements by us or our competitors of new products, acquisitions, strategic partnerships,
the addition or departure of key personnel;
fluctuations in exchange rates between the U.S. dollar and the NT dollar;
litigation related to our intellectual property and shareholders’ lawsuit; and
the release of lock-up or other transfer restrictions on our outstanding ADSs or sales of additional
In addition, as a result of the worldwide financial crisis, global stock markets have experienced
extreme price and volume fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons which may not be directly related to their operating
performance, including but not limited to events such as tax-loss selling, mutual fund redemptions, hedge
fund redemptions and margin calls. These market fluctuations may also materially and adversely affect the
market price of our ADSs.
Future sales or perceived sales of securities by us, our executive officers, directors or major
shareholders may hurt the price of our ADSs.
The market price of our ADSs could decline as a result of sales of ADSs or shares or the perception that
these sales could occur. As of March 31, 2012, we had 340,255,988 outstanding shares and a significant
number of our shares were beneficially owned by certain major shareholders, including our directors
and executive officers. See “Item 7.A. Major Shareholders and Related Party Transactions—Major
Shareholders.” If we, our executive officers, directors or our shareholders sell ADSs or shares, the market
price for our shares or ADSs could decline. Future sales, or the perception of future sales, of ADSs or
shares by us, our executive officers, directors or existing shareholders could cause the market price of our
ADSs to decline.
The level of investor interest and trading in our ADSs could be affected by the lack of coverage by
securities research analysts and the lack of investor relations activities.
We are currently only listed in the U.S. Investor interest in us may not be as strong as in U.S.
companies or Taiwan companies that are listed in Taiwan both because we may not be adequately covered
by securities research analyst reports and because of the lack of investor relations activities. The lack of
coverage could negatively impact investor interest and the level of trading in our ADSs.
Although publicly traded, the trading market in our ADSs has been substantially less liquid than the
average stock quoted on the Nasdaq Global Select Market, and this low trading volume may adversely
affect the price of our ADSs.
Although our ADSs are traded on the Nasdaq Global Select Market, the trading volume of our ADSs
has generally been very low. Reported average daily trading volume in our ADSs was approximately
639,132 ADSs for the three months ended March 31, 2012 compared to approximately 293,055 ADSs
for the year ended December 31, 2011. In addition, during the periods between November 8, 2007 and
July 31, 2008, between November 17, 2008 and September 7, 2010 and between June 22, 2011 and
April 25, 2012, we repurchased a total of approximately $33.1 million of our ADSs (approximately 7.7
million ADSs), a total of approximately $50.0 million of our ADSs (approximately 19.3 million ADSs)
and a total of approximately $11.4 million of our ADSs (approximately 8.4 million ADSs), respectively,
from the open market pursuant to three authorized share buyback programs. The repurchased ADSs and
their underlying ordinary shares with respect to these three periods reduced the number of our ordinary
31
shares otherwise outstanding by approximately 7.9%, 9.9% and 4.7%, respectively. Such share buyback
programs or future share repurchases could negatively impact the average trading volume of our ADSs.
Limited trading volume will subject our ADSs to greater price volatility and may make it difficult for you
to buy or sell your ADSs at a price that is attractive to you.
You may not have the same voting rights as the holders of our ordinary shares and may not receive
voting materials sufficiently in advance to be able to exercise your right to vote.
Except as described in the deposit agreement, holders of our ADSs will not be able to exercise voting
rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will
appoint the depositary or its nominee as their representative to exercise the voting rights attaching to
the shares represented by the ADSs. In certain circumstances, however, the depositary shall refrain from
voting and any voting instructions received from ADS holders shall lapse. Furthermore, in certain other
circumstances, the depositary will give us a discretionary proxy to vote shares evidenced by ADSs.
You may not receive voting materials sufficiently in advance to instruct the depositary to vote, and it is
possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not
have the opportunity to exercise a right to vote.
You may not be able to participate in rights offerings and may experience dilution of your holdings
as a result.
We may from time to time distribute rights to our shareholders, including rights to acquire our
securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS
holders unless both the rights and the underlying securities to be distributed to ADS holders are either
registered under the Securities Act, or exempt from registration under the Securities Act with respect to all
holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights
or underlying securities or to endeavor to cause such a registration statement to be declared effective. In
addition, we may not be able to take advantage of any exemptions from registration under the Securities
Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may
experience dilution in their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the
depositary may close its transfer books at any time or from time to time whenever it deems expedient in
connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or
register transfers of ADSs generally when our books or the books of the depositary are closed, or at any
time if we or the depositary deem it necessary or advisable to do so because of any requirement of law,
any government, governmental body, commission, or any securities exchange on which our ADSs or our
ordinary shares are listed, or under any provision of the deposit agreement or provisions of, or governing,
the deposited securities or any meeting of our shareholders, or for any other reason.
We currently follow home country practice in lieu of complying with certain requirements of the
Nasdaq Stock Market LLC. This may afford less protection to holders of our ordinary shares and
ADSs.
Rule 5605 of the Marketplace Rules of the Nasdaq Stock Market LLC, or the Nasdaq Rules, requires
listed companies to have, among others, a board of directors comprised of a majority of independent
directors, the holding of regularly scheduled meetings at which only independent directors are present, a
compensation committee, if any, comprised solely of independent directors, and a nominations committee,
if any, comprised solely of independent directors. As a foreign private issuer, however, we are permitted
to, and we do, follow home country practice in lieu of the above requirements. See “Item 6.C. Directors,
Senior Management and Employees—Board Practices” and “Item 16G. Corporate Governance” for more
information on the significant differences between our corporate governance practices and those followed
by U.S. companies under the Nasdaq Rules. As a result, we have fewer board members exercising
independent judgment, and there may be a decreased level of board oversight on the management of our
32
company. The board members who are not independent may also cause a merger, consolidation, change of
control or other transactions or actions without the consent of the independent directors, which may lead
to a conflict with the interest of holders of our ordinary shares and ADSs. Holders of our ordinary shares
and ADSs may therefore be afforded less protection.
Your ability to protect your rights through the United States federal courts may be limited, because
we are incorporated under Cayman Islands law, conduct a substantial portion of our operations in
Taiwan, and all of our directors and officers reside outside the United States.
We are incorporated in the Cayman Islands. A substantial portion of our operations is conducted in
Taiwan through Himax Taiwan, our wholly owned subsidiary, and substantially all of our assets are
located in Taiwan. All of our directors and officers reside outside the United States, and a substantial
portion of the assets of those persons is located outside the United States. As a result, it may be difficult
or impossible for you to bring an action against us or against these individuals in the United States in the
event that you believe that your rights have been infringed under the securities laws or otherwise. Even if
you are successful in bringing an action of this kind, the laws of the Cayman Islands and of Taiwan may
render you unable to enforce a United States judgment against our assets or the assets of our directors
and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United
States, although a final and conclusive judgment in the federal or state courts of the United States under
which a sum of money is payable, other than a sum payable in respect of multiple damages, taxes, or other
charges of a like nature or in respect of a fine or other penalty, may be subject to enforcement proceedings
as debt in the courts of the Cayman Islands under the common law doctrine of obligation, provided
that (a) such federal or state courts of the United States had proper jurisdiction over the parties subject
to such judgment; (b) such federal or state courts of the United States did not contravene the rules of
natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement
of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible
evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the
Cayman Islands; and (f) there is due compliance with the correct procedures under the laws of the Cayman
Islands.
As a result of all of the above, our public shareholders may have more difficulty in protecting their
interests through actions against our management, directors or major shareholders than shareholders of a
corporation incorporated in a jurisdiction in the United States would.
You may face difficulties in protecting your interests as a shareholder because judicial precedents
regarding shareholders’ rights are more limited under Cayman Islands law than under U.S. law, and
because Cayman Islands law generally provides less protection to shareholders than U.S. law.
Our corporate affairs are governed by our memorandum and articles of association, the Companies
Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, or the Cayman Islands
Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action
against directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us
under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The
common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the
Cayman Islands as well as from English common law, which has persuasive, but not binding, authority
on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of
our directors under Cayman Islands law are not as clearly established as they would be under statutes or
judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less
developed body of securities law than the United States. In addition, some U.S. states, such as Delaware,
have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
For example, the Cayman Islands Companies Law differs from laws applicable to United States
corporations and their shareholders in certain material respects which may affect shareholders’ rights and
shareholders’ access to information. These differences under the Cayman Islands Companies Law (as
compared to Delaware law) include, though are not limited to, the following:
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directors who are interested in a transaction do not have a statutory duty to disclose such interest
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and there are no provisions under the Cayman Islands Companies Law which render such
director liable to the company for any profit realized pursuant to such transaction. Our articles
of association, however, contain provisions that require our directors to disclose their interest in
a transaction;
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approved by the Grand Court of the Cayman Islands;
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Islands court except in certain exceptional circumstances; and
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shareholders do not have the right to bring business before a meeting or call a meeting.
dissenting shareholders do not have comparable appraisal rights if a scheme of arrangement is
unless otherwise provided under the memorandum and articles of association of the company,
shareholders may not be able to bring class action or derivative action suits before a Cayman
Moreover, certain of these differences in corporate law, including, for example, the fact that
shareholders do not have the right to call a meeting or bring business to a meeting, may have anti-
takeover effects, which could discourage, delay, or prevent the merger or acquisition of our company by
means of a tender offer, a proxy contest or otherwise, which a shareholder may have considered in its
best interest, and prevent the removal of incumbent officers and directors.
As a result of all of the above, public shareholders may have more difficulty in protecting their
interests in the face of actions taken by management, members of the board of directors or controlling
shareholders than they would have as public shareholders of a U.S. company.
Investor confidence and the market price of our ADSs may be adversely impacted if we or our
independent registered public accountants conclude that our internal controls over financial
reporting are not effective.
The Securities and Exchange Commission, or the SEC, as directed by Section 404 of the Sarbanes-
Oxley Act of 2002, adopted rules requiring public companies to include in their Annual Report on Form
10-K or Form 20-F, as the case may be, a report of management on the company’s internal controls over
financial reporting that contains an assessment by management of the effectiveness of the company’s
internal controls over financial reporting. In addition, the company’s independent registered public
accounting firm must report on the company’s internal control over financial reporting. Our management
may conclude that our internal controls over financial reporting are not effective. Moreover, even if
our management does conclude that our internal controls over financial reporting are effective, if our
independent registered public accounting firm is not satisfied with our internal controls, the level at which
our controls are documented, designed, operated or reviewed, or if our independent registered public
accounting firm interprets the requirements, rules or regulations differently from us, then it may conclude
that our internal controls over financial reporting are not effective. Furthermore, during the course of
the evaluation, documentation and attestation, we may identify deficiencies that we may not be able to
remedy in a timely manner. If we fail to achieve and maintain the adequacy of our internal controls, we
may not be able to conclude that we have effective internal controls, on an ongoing basis, over financial
reporting in accordance with the Sarbanes-Oxley Act. Furthermore, effective internal controls over
financial reporting are necessary for us to produce reliable financial reports and are important to help
prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial
reporting could result in the loss of investor confidence in the reliability of our financial statements,
which in turn could harm our business and negatively impact the trading price of our ADSs. In addition,
we have incurred considerable costs and used significant management time and other resources in our
effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
ITEM 4. INFORMATION ON THE COMPANY
4.A. 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 Cayman Islands Companies Law as a holding company to
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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, or currently known as Himax
Semiconductor, Inc., a fabless semiconductor company focusing on the development of LTPS TFT-LCD
drivers for small and medium-sized applications. This transaction strengthened our competitive position
in the small and medium-sized product areas and further diversified our technology and product offerings.
From time to time, we have also made minority investments in various companies for strategic purposes
in the ordinary course of business.
In March 2007, we established Himax Imaging, Inc., or Himax Imaging, which develops and markets
CMOS image sensors with an initial focus on camera applications used in cell phones and notebook
computers.
In October 2007, we formed Himax Media Solutions, Inc., or Himax Media Solutions, 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. In January 2008, Himax Media Solutions issued
shares representing an interest of 19.9% in total to CMO, TPV Technology Limited, the world’s largest
LCD monitor manufacturer and LCD TV ODM, and individuals including certain employees of CMO,
TPV Technology Limited, Himax Media Solutions and Himax Taiwan.
On August 10, 2009, we effected: (i) a stock split in the form of a stock dividend of 5,999 ordinary
shares for each ordinary share held by shareholders of record, followed by a consolidation of every 3,000
ordinary shares into one ordinary share; (ii) a change of the par value of our ordinary shares from $0.0001
each to $0.3 each; and (iii) a change in our ADS ratio from one ADS representing one ordinary share to
one ADS representing two ordinary shares.
In November 2009, we filed a listing application with the Taiwan Stock Exchange to list our ordinary
shares on its main board. We aborted such primary listing plan in May 2010 and are currently preparing
an alternative application to list TDRs on the Taiwan Stock Exchange. See “Item 9.C. The Offer and
Listing—Markets.”
In November 2010, our subsidiary, Himax Display, entered into definitive agreements with Spatial
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Photonics, a Delaware corporation engaged in the business of manufacturing and production of large-
sized display panels, to subscribe for certain Series D-1 Preferred Stock with an equity interest of 15.4%
in Spatial Photonics for a cash consideration of $6.5 million. On October 27, 2011, Himax Display
had exercised an option, exercisable on or before October 31, 2011, to acquire all of the remaining
outstanding shares of capital stock of Spatial Photonics in exchange for 7.37% of the common stock of
Himax Display, calculated on a fully diluted basis, in accordance with various milestone events; however,
the acquisition of Spatial Photonics is still subject to the examination of and approval from the Investment
Commission of the Ministry of Economic Affairs of the ROC, or the ROC Investment Commission,
unless such approval is obtained, the acquisition of Spatial Photonics will not be completed.
Our capital expenditures were incurred primarily in connection with purchase of property and
equipment. Our capital expenditures totaled $10.6 million, $7.2 million and $18.9 million in 2009,
2010 and 2011, respectively. These capital expenditures were funded from our operating cash flow. For
additional information on our capital expenditures, see Item “5.B. Operating and Financial Review and
Prospects—Liquidity and Capital Resources.”
Our principal executive offices are located at No. 26, Zih Lian Road, Sinshih District, Tainan City
74148, 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 Cricket Square, Hutchins Drive, P.O. Box 2681,
Grand Cayman KY1-1111, Cayman Islands. Our telephone number at this address is +1-345-945-3901.
In addition, we have offices in Hsinchu and Taipei, Taiwan; Foshan, Fuqing, Ningbo, Beijing, Shanghai,
Shenzhen and Suzhou, China; Yokohama and Matsusaka, Japan; Cheonan, South Korea; and Irvine,
California, USA.
Investor inquiries should be directed to our Investor Relations department, at +886-2-2370-3999 ext.
22320 or by email to penny_lin@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.
Our ADSs have been listed on the Nasdaq Global Select Market since March 31, 2006. Our ordinary
shares are not listed or publicly traded on any trading markets.
4.B. 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 primarily used
in desktop monitors, notebook computers and televisions, and display drivers for small and medium-
sized TFT-LCD panels, which are primarily used in mobile handsets and consumer electronics products
such as tablet PCs, netbook computers (typically ten inches or below in diagonal measurement), digital
cameras, mobile gaming devices, portable DVD players, digital photo frame 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, touch
controller ICs, TFT-LCD television and monitor chipsets, LCOS projector solutions, power ICs, CMOS
image sensors and wafer level optics products. For display drivers and display-related products, our
customers are panel manufacturers, agents or distributors, module manufacturers and assembly houses.
We also work with camera module manufacturers, optical engine manufacturers, television system
manufacturers for various non-driver products. 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 mainly operate in the flat panel display semiconductor industry. As the majority of our revenues
derive from products that are critical components of flat panel displays, such as display drivers, timing
controllers, scalers, power ICs and other semiconductor products, our industry is closely linked to the
trends and developments of the flat panel display industry.
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Flat Panel Display Semiconductors
Flat panel displays require different semiconductors depending upon the display technologies and the
applications. 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.
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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.
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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.
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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 “—Products—TFT-LCD
Television and Monitor Semiconductor Solutions—TFT-LCD Television and Monitor Chipsets”
for a description of these components.
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Power IC. Power ICs include certain drivers, amplifiers, DC to DC converters and other
semiconductors designed to enhance power management, such as voltage regulation, voltage
boosting and battery management.
• 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. 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- , Korea-
and China-based manufacturers, have invested or are planning to invest 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 component companies including display driver companies. Moreover, the
37
concentration of panel manufacturers permits major panel manufacturers to exert pricing pressure on
display driver companies such as us. 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 CMOS process technology operating typically at 4.5
to 24 volts for source drivers and 10 to 50 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 0.11
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.
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
38
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 several principal product lines:
•
display drivers and timing controllers;
•
touch controller ICs,
•
TFT-LCD television and monitor semiconductor solutions;
•
LCOS products;
•
power ICs;
• CMOS image sensors; and
• wafer level optics products.
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 shipments in June 2006. We commenced shipping engineering samples of power ICs in
October 2006 and started volume shipments in January 2007. We commenced small quantity commercial
shipments of our CMOS image sensor products in April 2009 and started volume shipments in August
2010. We commenced small quantity commercial shipments of our wafer level optics products in
December 2009. We commenced small quantity commercial shipments of our touch controller products in
December 2010.
Display Drivers and Timing Controllers
39
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.
•
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 of the panel and the number of channels per display driver.
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 full HD (1,920 x
1,080 pixels) panel requires eight 720 channel source drivers and four 270 channel gate drivers.
The number of display drivers required can be reduced by using drivers with a higher number
of channels. For example, a full HD panel can have six 960 channel source drivers instead of
eight 720 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, 16 million and 1 billion colors
are supported by 6-bit, 8-bit and 10-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 1.8 volts and
output voltages ranging to 24 volts. Gate drivers typically operate at input voltages from 3.3 to
1.8 volts and output voltages ranging from 10 to 50 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, mini-low voltage differential signaling, or mini-LVDS, and
point-to-point high speed interface. Among these, RSDS, mini-LVDS and point-to-point interface
40
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. Moreover, there are some
panel manufacturers developing their proprietary point-to-point interfaces, such as embedded
panel interface, or EPI, and advanced intra-panel interface, or AIPI,
•
Package Type. The assembly of display drivers typically uses TAB and COG package
types. COF and TCP are two types of TAB packages, of which COF packages have become
predominantly used in recent years. Customers typically determine the package type required
according to their specifi c 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.
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 example, the industry
trend for large-sized applications is generally toward super high channel, low power consumption,
low cost, thin and light form factor, touch function, higher data transmission rate and higher driving
capabilities. Higher speed interface technologies are also key for 240Hz TV. Greater color depth,
enhanced color through RGB independent gamma and 3D display are particularly important for advanced
televisions and certain monitors.
In December 2007, we introduced the cascade modulated driver interface, or CDMI, technology, a
patented technology for LED notebook panels, benefi ts of which include a thin and light form factor and
lower power consumption and supports a resolution of up to 1,920 x 1,200 pixels.
In February 2009, we introduced timing controllers with the content adaptive brightness control, or
CABC, technology. CABC technology controls backlight brightness intelligently by analyzing the content
displayed to save power and enhance the contrast level while maintaining vivid display quality. Our
algorithm enables a smooth adjustment in backlight brightness even when the content changes swiftly.
The table below sets forth the features of our products for large-sized applications:
Product
Features
TFT-LCD Source Drivers
• 384 to 1,032 output channels
• 6-bit (262K colors), 8-bit (16 million colors) or 10-bit (1 billion colors)
• one gamma-type driver
• two gamma-type driver to improve display quality
• three gamma-type drivers (RGB independent gamma curve to enhance
color image)
• output driver voltage ranging from to 24V
• input logic voltage ranging from standard 3.3V to low power 1.8V and
support half VDDA
• low power consumption and low EMI
• support TCP, COF and COG package types
• support TTL, RSDS, mini-LVDS (up to 480MHz), cascade modulated
driver interface, or CMDI, point-to-point high speed interface and
customized interface technologies
• support dual gate and triple gate panel designs
TFT-LCD Gate Drivers
• 192 to 1600 output channels
• output driving voltage ranging to 50V
• input logic voltage ranging from standard 3.3V to low power 1.8V
41
Product
Features
• low power consumption
• support TCP, COF and COG package types
• support dual gate and triple gate panel designs
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 and 1,920 x 1,200 pixels)
• support TTL, RSDS, mini-LVDS, DETTL, turbo RSDS, CMDI,
point-to-point high speed interface and customized output interface
technologies
• input logic voltage ranging from standard 3.3V to low power 1.2V
• embedded overdrive function to improve response time
• support CABC to save power and color engine to enhance color and
sharpness
• support TTL, LVDS and DisplayPort input interface technologies
• support dual gate and triple gate panel designs
Mobile Handset Applications
We offer display drivers for mobile handset displays that combine source driver, gate driver, timing
controller, frame buffer and DC to DC circuits into a single chip in various display technologies, such as
TFT-LCD, LTPS and AMOLED. As mobile handset prices remain competitive, mobile display module
manufacturers continue to reduce cost and seek to source cost-effective display drivers. By designing a
fi ner channel pitch that features cost effi cient processes, we have offered a smaller chip size and endeavor
to provide handset display driver products with fewer external components to reduce the cost of materials
for our customers.
The industry trend for mobile handset display drivers is generally toward display drivers that can
support high-speed interfaces and have greater color depth and enhanced image quality as multimedia
functions are increasingly incorporated into mobile handsets. In addition, the ability for mobile handsets
to operate for long durations without recharging the battery is of high value. Thus, display drivers with
lower power consumption are desired. We integrated our proprietary low power driving circuits and
CABC technology into display drivers in order to extend the battery life.
With new software platforms providing better access to the Internet, smartphones have gained greater
popularity among consumers and enjoyed higher growth in recent years. This has also contributed
to higher demand for mobile handset displays that have a larger size and higher resolution. In 2010,
we offered innovative handset display driver products by providing one of the leading amorphous
silicon WVGA (480 x 864 pixels) display drivers in the market. We have recently continued to update
new products for this mainstream smartphone segment with new features, such as color enhancement
technology and 3D data processing capability. Meanwhile, we have developed advanced single chip
LTPS display drivers, which are able to achieve higher resolutions such as HD720 (720 x 1280 pixels) or
WXGA (800 x 1280 pixels).
The following table summarizes the features of our products for mobile handsets:
Product
Mobile Handset
Display Drivers
Features
• highly integrated single chip embedded with the source driver, gate driver, power
circuit, timing controller and memory
• suitable for a wide range of resolutions from QQVGA (128 x 160 pixels) to
WXGA (800 x 1280 pixels)
• support 65K, 262K colors and up to 16 million colors
• support RGB separated gamma adjustment
• support CABC
• support color enhancement features including saturation, brightness, and
sharpness enhancement
42
Product
Features
• support MDDI and MIPI interfaces
• low power consumption and low EMI
• fewer external components to reduce costs
• slimmer die for compact module to fi t smaller mobile handset designs
• application specific integrated circuits, or ASIC, can be designed to meet
customized requirements(e.g., drivers without memory, GIP drivers without gate
driver, LTPS drivers, or AMOLED drivers.)
Consumer Electronics Products
We offer source drivers, gate drivers, timing controllers and integrated drivers for consumer electronics
products such as tablet PC, netbook computers, digital cameras, digital video recorders, personal digital
assistants, mobile gaming devices, portable DVD players, electronic book readers, or E-readers, digital
photo frames 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 compact, battery-operated devices. Customers are increasingly
demanding display drivers with smaller and more compact die sizes and higher levels of integration with
the source driver, gate driver, timing controller, as well as more functional semiconductors such as power
circuit and touch controller, into a single chip.
The industry trend for display drivers used in medium-sized consumer electronics products is toward
higher channels and the integration of timing controllers with display drivers. The trend of display drivers
used in small-sized consumer electronics products is toward single-chip solutions combining the source
driver, gate driver, timing controller and power circuit into a single chip.
In 2009, we introduced our new electro-phoretic display solutions, including HX8701 (gate driver)
and HX8702 (source driver), for use in E-reader devices.
In 2011, we introduce our new point to point display solution ,including HX8288 (source driver) and
HX8896 (timing controller), for use in tablet PC ; and this solution is also suitable for other slim type
display application such as Ultrabook .
The following table summarizes the features of our products used in consumer electronics products:
Product
TFT-LCD
Source Drivers
Features
• 240 to 1,440 output channels
• products for analog and digital interfaces
• support 262K colors to 16.7 million colors
• input logic voltage ranging from standard 3.3V to low power 2.3V
• low power consumption and low EMI
TFT-LCD
Gate Drivers
• 96 to 1,600 output channels
• input logic voltage ranging from standard 3.3V to low power 2.3V
• 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 WVGA (846 x 480 pixels), SVGA (800 x 600
pixels),WSVGA (1,024 x 600 pixels) and WXGA (1,280 x 800 pixels)
• products for analog or digital interfaces
43
Product
Features
• low power consumption
• CABC function integrated for backlight power saving
Timing Controllers
• products for digital interfaces/high speed interface
• products for Tablet/Netbook/Ultrabook
• support various resolutions from 1024x600 pixels to 1920 x1200 pixels
Touch Controller ICs
We offer touch controller solutions for capacitive touch panels. Our touch controller solutions are
suitable for electronic devices employing touch panel screens of up to 11”, such as smartphones, mobile
internet devices and tablet PCs. In the third quarter of 2011, we commenced shipping capacitive touch
controller ICs to a worldwide brand smartphone and tablet customers.
Our capacitive touch controller possesses certain innovations and merits. It could support sensing
and tracking of up to ten points. Its embedded micro-controller, single chip solution and no external
components contribute to reducing cost for flexible product design. Its calibration mechanism can
meet strict validation requirements of leading smart phone brands. Our touch controller’s proprietary
sensing circuits and algorithms could also enhance noise immunity capability and enable touch panels
to work without shielding layer or to work on one glass structure, which contributes to simplifying the
manufacturing process and reducing cost for touch panels.
The following table summarizes the features of our touch controller products:
Product
Capacitive Touch
Controller
Features
• complete single chip touch controller solutions for handheld devices, supporting
smartphones (up to 5”), MIDs (up to 8”), or tablet PCs (up to 11”)
• real multi-point capability support of up to 10 points
• mass production with GG, GFF and one glass without shielding layer
• approved LCD and AC noise immunity
• minimum components: simple, neat, and fl exible mechanical design
TFT-LCD Television and Monitor Semiconductor Solutions
Himax Media Solutions, our subsidiary, provides TFT-LCD television and monitor semiconductor
solutions.
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. Digital and analog televisions typically require some
or all of these components:
•
•
Audio Processor/Amplifi er. Demodulates, processes and amplifi es 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-defi nition 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.
44
•
Video Processor. Performs the scaling function that magnifi es or shrinks the image data in order
to fi t 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 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
Analog TV Single-
Chip Solutions
Features
• ideal for LCD TV, multi-function monitor TV, LCOS and plasma display panel
applications
• integrated with high performance ADC, scaler and de-interlacer
• built-in HDMI receiver and USB on-the-go, or USB OTG
• integrated with video decoder and 3D comb fi lter to support worldwide National
Television System Committee, or NTSC, phase alternating line, or PAL, and
sequential color with memory, or SECAM, standards
• integrated with vertical blanking interval slicer for closed caption, viewer-control
chip and teletext functions
• built-in Himax 5th generation video engine which supports variable dynamic
video enhancement features
• built-in analog audio demodulator, audio processor and surround integrated high
speed microprocessor control unit, or MCU
• integrated with timing control for additional cost-down
• output resolutions range from 640 x 480 pixels up to 1,920 x 1,080 pixels
The following table summarizes the features of our monitor scaler solutions:
Product
Monitor Scaler
Integrated
Solutions
Features
• ideal for monitor applications
• integrated with high performance ADC and scaler
• built-in HDMI 1.4a and DVI receiver
• built-in audio digital-to-analog converter
• built-in high performance color engine
• integrated high speed MCU
• integrated with timing control for additional cost-down
• input/output resolutions range from 640 x 480 pixels up to 1,920 x 1,080 pixels
• integrated 2D to 3D convert
• integrated 3D format conversion
In December 2009, we announced the introduction of infi nity color technology, or iCT, an innovative
and proprietary image processing technology which enables signifi cant power saving for TFT-LCD panels
while enhancing image quality. TFT-LCD backlight, whether by using cold cathode fluorescent lamps
or LEDs, typically maintains a constant brightness at all times, regardless of the displayed images. A
commonly adopted technique in saving backlight power is CABC which dynamically adjusts the backlight
and the contents. While this digital approach is able to save panel power, it leads to a loss in gray scales
while adjusting the gamma curve, therefore resulting in a less satisfactory image quality. In contrast, iCT
is an innovative mixed-mode image processing technology, which not only enhances image quality but
also saves signifi cant panel power.
45
In February 2010, we unveiled the innovative 2D to 3D conversion solution which can convert
2D images into the 3D format in real time. This compact solution can be implemented in a number of
hardware platforms, such as notebook personal computers and televisions. Our algorithm utilizes human
visual perception characteristics, which not only reveals more 3D details but may also offer a more
comfortable and enjoyable viewing experience.
The following table summarizes the features of our iCT and 2D to 3D conversion solutions:
Product
Power-Saving
iCT Solutions
Features
• built-in single/dual path 8/10-bit LVDS receiver
• support up to 1920x1080@75HZ resolution
• built-in single/dual path 6/8-bit RSDS transmitter for low power consumption
and low EMI
• built-in single/dual 8/10-bit LVDS transmitter
• built-in single/dual 6/8-bit 3/6-pair mini-LVDS transmitter
• support polarity 1 or 1+2 line inversion mode and dual-gate/Z-inversion panel
structure
• embedded aging generator for simplifying TFT-LCD panel dynamic burn-in test
• support low color shift, initial download from electrically-erasable programmable
read-only memory, or EEPROM
• support serial bus programming from scaler to select up to 4 different initial
download value settings (depend on the size of EEPROM)
• embedded 3D color engine, 10-bit gamma correction look-up table
• programmable sRGB matrix coeffi cients
• embedded dynamic analog gamma control, dynamic exposure adaptation
control, CABC and over drive
• support up to external 20+1-channel gamma buffer with 10-bit resolution control
by 2-wire serial bus
2D to 3D
Conversion
Solutions
• convert 2D video sequence to 3D video sequence for 3D display
• enable virtual 3D experience on 2D display based on human 3D perception
characteristics
• use human perception based processing with better performance and fewer side
effects
• support 2D bypass mode, 2D to 3D converter mode and 3D bypass mode
• support a wide range of display formatting and interface, including LVDS and
TTL
• support anaglyph, pattern retarder or micro-retarder and glassless multi-view 3D
display
• confi gurable stereoscopic density; support in-front-of-screen, behind-the-screen
and on-the-screen confi gurations
• support resolutions up to full HD
• enable integration into existing TV, monitor, portable DVD, digital photo frame
and other 3D display devices
• support top-and-bottom, frame packing, side-by-side (full) and side-by-side (half)
3D formats
• support dual LVDS, front/back quad LVDS, non-front/back quad LVDS and left/
right parallel quad LVDS for output format
• support 8-bit/10-bit LVDS for both input and output format
In the fourth quarter of 2011, we developed new business region on IP and ASIC service. It is a brand
new model based on our core technology of video display and High Speed Transmission. There are 3D
Video and Image Compression/Decompression IP, 2D convert to 3D IP and Technology Licensing, High
Speed Transmission and High Performance Video ADC Silicon IP (SIP) Licensing.
46
LCOS Products
Himax Display, our subsidiary, has contributed our micro display products lines: Color-fl iter LCOS
and Color-sequential LCOS.
Himax Display is the world leader in LCOS industry, which occupies over 75% of LCOS market share.
Himax Display is the only LCOS company, who owned a mass production ready liquid crystal assembly
line, and we have produced and shipped over 1M units from this ISO certifi ed line. Our customers use our
product in various applications: pico-projector, embedded projector into different applications (cell phone,
camcorder), communication, toy projector, and head-mounted-display.
Both technologies have their own merits for different applications in resolution, power consumption,
size, cost, optical engine design, and image quality. We provide a rich products family for customers to
choose for different applications, since each products have their own most important parameters to select.
Himax Display provides CHOICES to customers. The following table shows certain details of our products:
LCOS
Microdisplays
Color-Filter LCOS
Microdisplays
Color-Sequential LCOS
Microdisplays
Size and Resolution
Applications
• 0.28” (320 x 240 pixels)QVGA
• toy projectors / embedded
• 0.38” (640 x 360 pixels)nHD
• entry-level video
projectors
• 0.44” (640 x 480 pixels)VGA
• 0.59” (800 x 600 pixels)SVGA
• Customized design
projectors
• versatile projectors
• multimedia projectors
• specialized
• 0.22” (640 x 360 pixels)nHD
• toy projectors / embedded
• 0.28” (852 x 480 pixels)WVGA
• 0.38” (640 x 480 pixels)VGA
• 0.37” (800 x 600 pixels)SVGA
• 0.37” (1366 x 768 pixels)WXGA
• 0.45” (1024 x 768 pixels)XGA
• Customized design
projectors
• embedded projectors
• versatile projectors
• multimedia projectors
• multimedia projectors
• multimedia projectors
• specialized
Power ICs
Himax Analogic, Inc., or Himax Analogic, our subsidiary, has two major product lines: power
management ICs and LED drivers.
Power Management ICs
A power management IC integrates several power components to fulfi ll system power requirements.
It may include step-up or step-down pulse width modulation, or PWM, DC-to-DC converters, low-
dropout regulators, or LDO regulators, voltage detectors, operational amplifi ers, level shifters, or other
components. For panel module applications, a power management IC provides a reliable and precise
voltage for source drivers, gate drivers, timing controllers, and panel cells. Moreover, its built-in over-
temperature and over-current protections help prevent components from being damaged under certain
abnormal conditions. As integrating an increasing number of components into a power management IC is
likely to be a continuing trend, we believe power management ICs will continue to be critical components
of a TFT-LCD panel module.
47
Product
Features
Integrated Multi-Channel Power
Solutions for Notebooks
• built-in power MOSFET
• step-up PWM converter
• charge pump regulator
• LDO regulator
• voltage detector
• gate pulse modulator
• Vcom operational amplifi er
• with/without LED drivers
• smart PWM control
Integrated Multi-Channel Power
Solutions for Monitors
• built-in power MOSFET
• step-up PWM converter
• HV LDO regulator
• voltage detector
• gate pulse modulator
• programmable Vcom voltage / Vcom operational amplifi er
• level shifter
Integrated Multi-Channel Power
Solutions for TVs
• built-in power MOSFET
• step-up PWM converter
• step-down PWM converter
• charge pump regulator
• HV LDO regulator
• voltage detector
• gate pulse modulator
• Vcom operational amplifi er
• I2C programmable
• level shifter
LED Drivers
The LED driver provides suffi cient 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 LED driver.
Product
Features
WLED Drivers for NB
• 4.5V to 24V input voltage range
• built-in 1.3MHz step-up PWM converter (max. boost voltage:
WLED Drivers for LED MNT
40V)
• 8 constant current source channels
• capable of driving up to 10 LEDs in serial for each channel
• 5V to 33V input voltage range
• built-in 2MHz step-up PWM controller
• 8 constant current source channels
• up to 60mA per channel
• 60V sustainable voltage for LED pins
• capable of driving up to 16 LEDs in serial for each channel
WLED Drivers for LED TV
• 8V to 40V input voltage range
• 4/8-channel current sinks
• up to 150mA per channel
• 65V sustainable voltage for LED pins
48
CMOS Image Sensor Products
Our CMOS image sensor products are designed primarily for camera-equipped mobile devices such
as mobile phones and notebook computers with a focus on low light image and video quality. The CMOS
image sensor product line is developed by our subsidiary, Himax Imaging. With the product launch of 3
mega pixel, 2 mega pixel and VGA system-on-chip sensors products in 2009, we have secured customer
designs in both mobile phones and notebook applications and moved these products into production phase.
We continue to expand our product portfolio with the successful introduction of a 1/6” 1.3 mega pixel, a
1/6” HD, and a 1/5” format 2.0 mega pixel system-on-chip sensors. Based on new pixel architecture, a
1/4” 5 mega pixel and a smaller 1/9” HD sensor will be designed and go for production this year. Besides
products in mobile devices, we also develop the specialized sensors for automobile and surveillance.
Almost all of our CMOS image sensors feature the BrightSenseTM technology to achieve a better signal-
to-noise ratio in the low light or video mode without a decreasing frame rate or increasing power
consumption. Firstly embedded in our new 2.0 mega pixel sensor, ClearViewTM technology provides the
optical restoration engine to enhance the optical performance. In automobile and surveillance product line,
ClearSenseTM technology extends the dynamic range by special pixel and readout. We are committed to
being a key player in this business with investments in experienced human resources, an effi cient supply
chain, and strategic technology developments and partnerships to further increase the performance and
features of small and specially designed pixel sensors.
The following table sets forth the features of our CMOS image sensor products:
Product
3.4MP BrightSenseTM
Color Image Sensor
2.0MP ClearViewTM
Color Image Sensor
Features
• 1/4” format color type
• QXGA resolution at 15 frames per second, support for 720p
HD and D1 resolution at 30 frames per second
• ClearVisionTM 80dB enhanced dynamic range mode compatible
with standard color processing
• on-chip 4-channel lens correction, defect removal
• 1/5” format color type
• ClearViewTM boosts optical performance by lens compensation
• UXGA YUV output at 15 frames per second, 720p HD
resolution at 30 frames per second
• color processing pipeline including lens correction, defect
correction, color de-mosaic, color correction, gamma control,
saturation/hue adjustment, edge enhancement
• multiple video formats including YUV422, RGB565, and
ITU656
2.0MP BrightSenseTM
System on Chip
• 1/5” format color type
• UXGA resolution at 18 frames per second, 720p HD resolution
HD 720p ClearViewTM
System on Chip
at 30 frames per second
• on-chip 4-channel lens correction, defect removal
• low noise, low power consumption
• 1/6” format with high sensitivity
• ClearViewTM boosts optical performance by lens compensation
• 720p HD resolution at 30 frames per second
• color processing pipeline including lens shading correction,
defect correction, edge enhancement, exposure control with
backlight compensation, color de-mosaic, color correction,
gamma control, and saturation/hue adjustment.
• 10 bit parallel video data port and 1-lane MIPI CSI2 outputs
RAW8/10, YUV422, RGB565/555/444
49
Product
Features
1.3MP ClearSenseTM
EDR Color Image Sensor
• 1/4” format with ultra high sensitivity
• ClearSenseTM achieves higher dynamic range in color up to
84dB with on-chip tone mapping
• 800p and 720p resolution at 30 frames per second
• FlexiTM engine automatically controls dynamic range, exposure,
gain, and white balance to balance color fi delity and contrast
• color processing pipeline including lens shading correction,
defect correction, edge enhancement, color interpolation and
correction, gamma control and saturation/hue adjustment.
• anti-blooming and dark sun cancellation
• build-in low dropout regulator and power on reset
• 10 bit parallel video data port supports RAW, YUV422, and
RGB565/555/444
1.3MP BrightSenseTM
System on Chip
• 1/6” format color type
• SXGA resolution at 20 frames per second, 720p HD resolution
at 30 frames per second
• color processing pipeline with dynamic adjustments based on
luminance and light color temperature
• low noise, low power consumption
VGA BrightSenseTM
System on Chip
• 1/10” format color type
• VGA YUV output at 30 frames per second, QVGA at 60 frames
per second
• color processing pipeline including lens correction, defect
correction, color de-mosaic, color correction, gamma control,
saturation/hue adjustment, edge enhancement
• automatic low light and frame rate control
• multiple video formats including YUV422, RGB565, and
ITU656
Wafer Level Optics Products
Wafer level optics are optical products manufactured using semiconductor process on wafers. This
innovative approach enables wafer level optics to feature small-form factor and high temperature
resistance, making the SMT refl ow process possible. We offer entire optical solution for customers who
need compact and easily handling optical products on their electronic devices.
Combining traditional optical lens design, precise mold control and semiconductor manufacturing
expertise, our VGA WLO products have been widely adopted by tier-1 camera module makers and mobile
phone brands. The double-side manufacture process makes the lens structure more reductive and achieves
better performance. With the innovative process and specifi c structure, our WLO let camera module reach
good performance and make it easy to use.
The following table sets forth the features of our wafer level optics products:
Product
Features
CIF 1elements wafer level lens
• for 1/13” CIF CIS (3.0μm pixel pitch)
• one-element and two-surface design for cost-competitive
market
• double-side manufacture process
• already in mass production
50
Product
Features
VGA 1 element wafer level lens
• for 1/11” VGA CIS (2.0μm pixel pitch)
• one-element and two-surface design for cost-competitive
market
• double-side manufacture process
• already in mass production
VGA 1 elements wafer level lens
• for 1/13” VGA CIS (1.75μm pixel pitch)
• one-element and two-surface design for cost-competitive
market
• double-side manufacture process
• already in mass production
1.3M 2 elements wafer level lens
• for 1/9” 1.3M/HD CIS (1.4μm pixel pitch)
• two-element and four-surface design for cost-competitive
market
• double-side manufacture process
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 effi cient 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 3.3 to 50 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 diffi cult 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, MIPI and other 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
51
manufacturers, who in turn design and market their products to manufacturers of end-use products such as
notebook computers, desktop monitors, televisions, mobile handsets and consumer electronics products.
We may sell our products through agents or distributors for certain products or in certain regions. As of
December 31, 2011, we sold our products to more than 200 customers. In 2009, 2010 and 2011, Chimei
Innolux, including CMO, Innolux and TPO, and its affiliates, combined with Innolux and TPO before the
merger, accounted for 67.5%, 52.8 % and 40.8% of our revenues, respectively. We expect that sales to
Chimei Innolux and their respective affiliates, among other large customers, 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, 2011:
Chimei Innolux Corporation
Chunghwa Picture Tubes, Ltd.
Excel Asian Taiwan Co., Ltd.
HannStar Display Corporation
Happiness Commercial Co., Limited
Hefei Boe Optoelectronics Technology Co., Ltd.
Perfect Display Limited
Samsung Electronics Taiwan Co., Ltd.
Shanghai Tianma Microelectronics
Truly Semiconductors Ltd.
Certain of our customers provide us with a long-term (twelve-month) forecast plus three-month rolling
non-binding forecasts and confirm orders in about 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 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 also market
our products directly to monitor, notebook and 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; and Foshan, Fuging, and
Ningbo, China. We have offices in Hsinchu and Taipei, Taiwan; Hefei, Beijing, Shanghai, Shenzhen and
Suzhou, China; Yokohama and Matsusaka, Japan; Cheonan, South Korea; and Irvine, California, USA,
all in close proximity to our customers. For certain products or regions we may 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 product
managers and field applications engineers. Our team is equipped with extensive strategic marketing
experience and strong capability to identify market trends. We also provide 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.
52
Manufacturing
We operate primarily in a fabless business model that utilizes substantially third-party foundry and
assembly and testing capabilities. 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 largely 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 primarily fabless model enables us to capture certain fi nancial and
operational benefi ts, including reduced manufacturing personnel, capital expenditures, fi xed assets and
fi xed costs. It also gives us the fl exibility to use the technology and service providers that are the most
suitable for any given product.
We operate a small fab under Himax Display primarily for performing certain manufacturing
processes for our LCOS microdisplays. Moreover, in order to further meet customers’ demand for higher
quality, lower cost, and faster time-to-market, we have established an in-house color fi lter facility under
Himax Taiwan, which commenced small-scale shipments in 2010. The color fi lter line is a critical and
unique process for our proprietary single-panel color LCOS microdisplays. An in-house color fi lter facility
enhances the competitiveness of our LCOS products and creates value for our customers. In addition, we
have established an in-house wafer level optics facility under Himax Taiwan for the key process of our
wafer level optics products, which commenced small-scale shipments in December 2009.
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 primarily on the
application and design of the panel and is determined by our customers.
TAB
COG
Wafer Fabrication
Wafer Fabrication
Processed Tape
Tape Carrier
Packaging
(TCP)
Chip on
Flim
(COF)
Gold Bumping
Chip Probe Testing
Inner-lead
Bonding
Final
Testing
Gold Bumping
Chip Probe Testing
COG Assembly and
Testing
53
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.
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. In recent years, COF packages have become predominantly used in TAB
technology.
•
•
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 certification, which was renewed in February 2011 and will
54
expire in February 2014. In February 2006, we received ISO 14001 certification, which was renewed
in February 2012 and will expire in February 2015. In addition, in March 2007, we received IECQ QC
080000 certification, which was renewed in March 2010 and will expire in March 2013, and OHSAS
18001 certifi cation, which was renewed in February 2012 and will expire in February 2015.
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 obtained our foundry services from TSMC, Vanguard,
Macronix, Lite-on, Globalfoundries Singapore, SMIC and Maxchip in the past few years and have
also recently established relationships with UMC and HHNEC. 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, ChipMOS Technologies Inc, Chipmore Technology Co., Ltd and Nepes
Corporation.
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 suffi cient cost-
competitive and high-quality 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 buming, 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
Globalfoundries Singapore Pte., Ltd. (formerly
Chartered Semiconductor Manufacturing Ltd.)
Lite-on Semiconductor Corp.
Macronix International Co., Ltd.
Maxchip Electronics Corp.
Shanghai Hua Hong NEC Electronics Company, Ltd.
Semiconductor Manufacturing International Corporation
Taiwan Semiconductor Manufacturing Company Limited
United Microelectronics Corporation
Vanguard International Semiconductor Corporation
Chipbond Technology Corporation(1)
Chipmore Technology Co., Ltd.
ChipMOS Technologies Inc.
LB Semicon Inc.
Nepes Corporation
55
Processed Tape for TAB Packaging
Assembly and Testing
Mitsui Micro Circuits Taiwan Co., Ltd.
Samsung Techwin Co., Ltd.
Simpal Electronics Co., Ltd.
Sumitomo Metal Mining Package Material Co., Ltd.
LG Innotek Co., Ltd.
Stemco, Ltd.
Ardentec Corporation
Advanced Semiconductor Engineering Inc.
Chipbond Technology Corporation(1)
Chipmore Technology Co., Ltd.
ChipMOS Technologies Inc.
Nepes Corporation
Global Testing Corporation
Greatek Electronics Inc.
Jiangsu Changjiang Electronics Technology Co., Ltd
King Yuan Electronics Co., Ltd.
Orient Semiconductor Electronics
Siliconware Precision Industries Co., Ltd.
Taiwan IC Packaging Corporation
Chip Probe Testing
Ardentec Corporation
Chipbond Technology Corporation(1)
Chipmore Technology Co., Ltd.
ChipMOS Technologies Inc.
Nepes Corporation
Global Testing Corporation
Greatek Electronics Inc.
King Yuan Electronics Co., Ltd.
Note : (1) Chipbond Technology Corporation and International Semiconductor Technology Ltd. were
both among our principal providers of gold bumping, assembly and testing and chip probe testing
services in 2009. These two companies merged on April 1, 2010. Chipbond is the surviving
company following the merger.
Intellectual Property
As of March 31, 2012, we held a total of 1,396 patents, including 493 in Taiwan, 505 in the United
States, 359 in China, and 39 in others. The expiration dates of our patents range from 2019 to 2030. We
also have a total of 835 pending patent applications in Taiwan, 473 in the United States and 370 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, Europe, Singapore, Korea and Japan and the
United States.
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:
•
•
•
•
•
•
• manufacturing costs;
customer relations;
product performance;
design customization;
development time;
product integration;
technical services;
56
•
•
•
•
supply chain management;
timely delivery;
economies of scale; and
broad product portfolio.
We continually face intense competition from fabless display driver companies, including DongBu
Electronics, Fitipower Integrated Technology, Inc., Ili Technology Corp., Lusem Co., Ltd, Novatek
Microelectronics Corp., Orise Technology Co., Ltd., Raydium Semiconductor Corporation, Sitronix
Technology Co., Ltd., Silicon Works Co. Ltd. and Solomon Systech Limited. We also face competition
from integrated device manufacturers, such as MagnaChip Semiconductor Ltd., Panasonic Corporation,
NEC Electronics Corporation, Renesas Technology Corp., Seiko Epson Corporation, Toshiba Corporation,
Sanyo Electric Co., Ltd. and Rohm Co., Ltd. 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.
For touch controller ICs, we compete with worldwide suppliers, such as Atmel Corp., Cypress
Semiconductor Corp. and Synpatics Inc.
Our monitor semiconductor solutions compete against solutions offered by a significant number of
semiconductor companies including MStar Semiconductor, Inc., Novatek Microelectronics Corp., NXP
Semiconductor, Realtek Semiconductor Corp.,. For 2D to 3D conversion solutions, we face competition
from Mediatek Corp. and MStar Semiconductor, Inc.
For LCOS products, we face competition primarily from digital lighting processing, or DLP,
projectors incorporating Texas Instruments Incorporated’s digital light processing technology. We also
face competition from a few other mobile projector technologies, including Micron Technology (which
acquired Displaytech Inc. in 2009 for its color-sequential ferroelectric liquid crystal on silicon, or FLCOS,
projectors), OmniVision (which acquired Aurora Systems in 2010), Syndiant Inc. and Microvision, Inc., a
company providing laser-scanning projector solutions.
For power ICs, we face competition from Taiwan companies including Richtek Technology
Corporation, Global Mixed-mode Technology Inc. and Advanced Analog Technology, Inc. We also
compete with worldwide suppliers such as Maxim Integrated Products, Inc., Texas Instruments
Incorporated and Rohm Co., Ltd.
For CMOS image sensor products, we face competition primarily from Aptina Imaging Corporation,
Omnivision Technologies Inc., Samsung Electronics Co. Ltd., Sony Corporation and STMicroelectronics.
For wafer level optics products, we face competition primarily from Visera Technologies Company
Ltd., Heptagon, Anteryon, Nemotek Technologies and Q-Technology Ltd.
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 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.
57
Environmental Matters
The business of semiconductor design does not cause any significant pollution. Himax Taiwan
maintains a color fi lter facility and a wafer level optics facility and 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.
4.C. Organizational Structure
The following chart sets forth our corporate structure and ownership interest in each of our principal
operating subsidiaries and affi liates as of March 31, 2012.
Himax Technologies, Inc.
44.0%
100.0%
100%
100.0%
100.0%
100.0%
Argo Limited
Himax Imaging, Inc.
Himax Technologies
Limited
Himax
Technologies
Korea Ltd.,
Himax
Semiconductor,
Inc.
100.0%
100.0%
80.4%
Tellus Limited
Himax
Imaging Corp.
Himax
Imaging, Ltd.
7.9%
88.0%
75.1%
100%
100.0%
34.3%
Himax
Display, Inc.
Himax Analogic, Inc.
Himax
Technologies
(Samoa), Inc.
Harvest
Investment
Limited
100.0%
Integrated
Microdisplays
Limited(Hong Kong)
100.0%
100.0%
100.0%
Himax Display
US Corp.
Himax
Technologies
(Suzhou)Co., Ltd.
Himax
Technologies
(Shenzhen)Co., Ltd.
Himax Media
Solutions, Inc.
100.0%
Himax Media
Solution(Hong Kong)
Limited
58
The following table sets forth summary information for our subsidiaries as of March 31, 2012.
Subsidiary
Main Activities
Jurisdiction of
Incorporation
Total Paid-in
Capital
Percentage of
Our Ownership
Interest
Himax Technologies Limited
IC design and sales
ROC
Sales
South Korea
$ (in millions)
56.0
0.5
100.0%
100.0%
IC design and sales
ROC
11.4
100.0%
Himax Technologies Korea
Ltd. (formerly Himax
Technologies Anyang
Limited)
Himax Semiconductor,
Inc. (formerly Wisepal
Technologies, Inc.)
Himax Technologies
(Samoa), Inc.
Himax Technologies
(Suzhou) Co., Ltd.
Himax Technologies
(Shenzhen) Co., Ltd.
Himax Display, Inc.
Investments
Samoa
Sales
Sales
PRC
PRC
IC design,
manufacturing and sales
ROC
3.0
1.0
2.0
39.1
0.7
Integrated Microdisplays
Limited
IC design and sales
Hong Kong
Himax Display US Corp.
Investments
Delaware, USA
0.0(9)
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
California, USA
Argo Limited
Investments
Cayman Islands
Tellus Limited
Investments
Cayman Islands
Himax Media Solutions, Inc.
TFT-LCD television
and monitor chipset
operations
ROC
13.3
18.5
25.9
8.2
9.0
9.0
13.2
100.0%(1)
100.0%(2)
100.0%(2)
88.0%(1)
88.0%(3)
88.0%(3)
75.1%(1)
100.0%
88.3%(4)
100.0%(5)
100.0%
100.0%(6)
78.3%(7)
Himax Media Solutions
(Hong Kong) Limited
Investments
Hong Kong
0.0(10)
78.3%(8)
Harvest Investment Limited
Investments
ROC
1.6
100.0%(1)
59
(1) Indirectly, through our 100.0% ownership of Himax Technologies Limited.
(2) Indirectly, through our 100.0% ownership of Himax Technologies (Samoa), Inc.
(3) Indirectly, through our 88.0% ownership of Himax Display, Inc.
(4) Indirectly, as to 80.4% through our 100.0% ownership of Himax Imaging, Inc. and as to 7.9% through
our 100.0% ownership of Himax Technologies Limited.
(5) Indirectly, through our 100.0% ownership of Himax Imaging, Inc.
(6) Indirectly, through our 100.0% ownership of Argo Limited.
(7) Directly, as to 44.0%, and indirectly, as to 34.3% through our 100.0% ownership of Himax
Technologies Limited.
(8) Indirectly, through our 78.3% ownership of Himax Media Solutions, Inc.
(9) Total paid-in capital is US$1.
(10)Total paid-in capital is HK$10,000.
4.D. Property, Plants and Equipment
Our corporate headquarters are located at 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 of the facility was completed in
October 2006, and the total land and construction costs amounted to approximately $25.8 million.
We also lease office space in Taipei and Hsinchu, Taiwan; Suzhou, Shenzhen, Foshan, Fuqing, Beijing,
Shanghai and Ningbo, China; Yokohama and Matsusaka, Japan; Cheonan, South Korea; and Irvine,
California, USA. In June 2008, we completed the relocation of the Taipei offices of our company, Himax
Media Solutions and Himax Analogic. The lease contracts may be renewed upon expiration.
We have established under Himax Taiwan an in-house wafer level optics facility for the key process
of our products, with 1,171 square meters of floor space in a building leased from Chimei Innolux, which
commenced small-scale shipments in December 2009. We have also rebuilt certain facilities for LCOS
and wafer level optics products located at our headquarters in Tainan, Taiwan. In addition, Himax Taiwan
owns and operates a fab with 1,431 square meters of floor space in a building leased from Chimei Innolux
in Tainan, where it established an in-house color filter facility. The color filter line is a critical and unique
process for our proprietary single-panel color LCOS microdisplays. An in-house color filter facility
enhances the competitiveness of our LCOS products and creates value for our customers.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
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 tablet PCs,
netbook computers, digital cameras, mobile gaming devices, portable DVD players, digital photo frame
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, touch controller ICs, TFT-LCD television and monitor chipsets, LCOS projector
solutions, power ICs, CMOS image sensors, wafer level optics products, infinitely color technology and
2D to 3D conversion solutions. For display drivers and display-related products, our customers are panel
manufacturers, agents or distributors, module manufacturers and assembly houses. We also work with
camera module manufacturers, optical engine manufacturers, television system manufacturers for various
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non-driver products.
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 operate primarily in a fabless business model that utilizes substantially third-party foundry and
assembly and testing capabilities. We leverage our experience and engineering expertise to design high-
performance semiconductors and rely largely 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
primarily 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. The majority of our revenues in 2011 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, which could in turn result in downward pricing pressure on our products. See “Item 3.D. Key
Information—Risk Factors—Risks Relating to Our Financial Condition and Business—We derive
substantially all of our net revenues from sales to the TFT-LCD panel industry, which is highly cyclical
and subject to price fluctuations. Such cyclicality and price fluctuations could negatively impact our
business or 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:
•
•
•
•
•
•
•
•
•
average selling prices;
unit shipments;
product mix;
design wins;
cost of revenues and cost reductions;
supply chain management;
share-based compensation expenses;
signing bonuses; and
tax credits and exemptions.
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
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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. 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. For example, in the second half of 2008, as a result of the severe economic
downturn and the weakening of consumer spending, there was an over-supply of large-sized TFT-LCD
panels. Many TFT-LCD panel manufacturers experienced a decrease in prices of large-sized TFT-LCD
panels and reduced capacity utilization significantly, which in turn resulted in strong downward pricing
pressure on and a decrease in demand for our products, particularly in late 2008 and early 2009. While
there was a rebound in demand for TFT-LCD panels in the second quarter of 2009, the growth in output
of TFT-LCD panels has been limited by the shortage of certain components for TFT-LCD panels. Our
product pricing remained weak in 2009. In the second half of 2010, the TFT-LCD panel industry suffered
again from an over-supply due to a high inventory level built up previously, which significantly decreased
our sales to the TFT-LCD panel industry. In the second half of 2011, the demand of TFT-LCD panels
was affected by the uncertain global economic conditions by lowering capacity utilization for large panel
products. Because the demand was lower than originally anticipated, ASP pressure arose for large-sized
applications during the traditional peak season. In addition, our average selling prices are affected by the
size and bargaining power of our customers. The merger of CMO, Innolux and TPO could negatively
affect our ability to maintain, if not raise, our selling prices. Besides, as new China panel makers emerged
in the market place and have continued to expand their capacity, China panel makers’ bargaining power
will increase accordingly. 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 might be offset or mitigated to a certain extent by increased volume, as lower prices
may then 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 primarily on
our customers’ panel shipments among other factors. Our unit shipments have grown since our inception
primarily as a result of our increased market share with certain major customers and their increased
shipments of panels. Our growth in unit shipments also reflected the demand for higher resolution panels
which typically require more display drivers. However, the development of higher channel display drivers
or new technologies, if successful, could potentially reduce the number of display drivers required for
each panel while achieving the same resolution. If such technologies become commercially available, the
market for our display drivers will be reduced and we could experience a decline in revenue and profit.
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 display driver
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 toward 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
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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. Moreover, our different
non-driver products vary in average selling prices and costs. The proportion of non-driver business would
also affect our financial position and results of operations.
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, but not limited to, 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 in
2009, 2010 and 2011 was 79.5%, 79.0% and 80.2%, respectively. In 2011, as a percentage of Himax
Taiwan’s total manufacturing costs, the cost of wafer fabrication was 52.4%, the cost of processed tape
was 7.9%, and the cost of assembly and testing was 39.2%. Our cost of revenues may increase as a result
of an increase in raw material prices, any failure to obtain sufficient foundry, assembly or testing capacity
or any shortage of processed tape or failure to improve the factory utilization rate or production yield.
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 a diversified pool of 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. The foundry and processed tape
supply are expected to be tight in 2011. Any disruption to our supply chain could adversely affect our
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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, which consist of charges taken relating to grants
of mainly RSUs as well as nonvested shares to employees.
We adopted two long-term incentive plans in October 2005 and September 2011, respectively, which
permit the grant of options or RSUs to our employees and non-employees where each unit represents
two ordinary shares. The actual awards will be determined by our compensation committee. We recorded
share-based compensation expenses under the long-term incentive plan totaling $14.1 million, $11.5
million and $6.8 million in 2009, 2010 and 2011, respectively. See “—Critical Accounting Policies and
Estimates—Share-Based Compensation Expenses.” Of the total share-based compensation expenses
recognized, $6.5 million, $5.9 million and $2.9 million in 2009, 2010 and 2011, respectively, were settled
in cash. We have applied Accounting Standards Codification, or ASC, ASC 718, Compensation—Stock
Compensation, to account for our share-based compensation plans. ASC 718 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 for the years ended
December 31, 2009, 2010 and 2011 as reflected in our consolidated financial statements.
Restricted Share Units (RSUs). We adopted two long-term incentive plans in October 2005 and
September 2011, respectively.
We made grants of 7,108,675 RSUs to our employees on September 29, 2008. The vesting schedule
for such RSU grants is as follows: 60.64% of the RSU grants vested immediately and was settled by
cash in the amount of $12.7 million on the grant date, with the remainder vesting equally on each of
September 30, 2009, 2010 and 2011, which has been or will be settled by our ordinary shares, subject to
certain forfeiture events.
We made grants of 3,577,686 RSUs to our employees on September 28, 2009. The vesting schedule
for such RSU grants is as follows: 55.96% of the RSU grants vested immediately and was settled by cash
in the amount of $6.5 million on the grant date, with the remainder vesting equally on each of September
30, 2010, 2011 and 2012, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 3,488,952 RSUs to our employees on September 28, 2010. The vesting schedule
for such RSU grants is as follows: 68.11% of the RSU grants vested immediately and was settled by cash
in the amount of $5.9 million on the grant date, with the remainder vesting equally on each of September
30, 2011, 2012 and 2013, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 2,727,278 RSUs to our employees on September 28, 2011. The vesting schedule
for such RSU grants is as follows: 97.36% of the RSU grants vested immediately and was settled by cash
in the amount of $2.9 million on the grant date, with the remainder vesting equally on each of September
30, 2012, 2013 and 2014, 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 employees
on September 28, 2009, September 28, 2010 and September 28, 2011 was $3.25, $2.47 and $1.10 per
ADS, respectively, which was based on the trading price of our ADSs on that day.
A portion of the RSUs were granted in 2005 before our initial public offering and vested in 2008.
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 our company when the RSUs were granted. The discounted
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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.
Due to the impact of the global economic downturn, the signing bonus program was cancelled since
2009 by Himax Taiwan and its six subsidiaries that adopted such program. Currently, signing bonuses are
only awarded to certain employees on a case-by-case basis.
In 2009, 2010 and 2011, Himax Taiwan paid $0.5 million, nil and $0.6 million, respectively, in
signing bonuses which were charged to earnings. Besides Himax Taiwan, signing bonuses were adopted
by six subsidiaries in 2009, 2010 and 2011, and a total of $0.4 million, $0.1 million and $0.07 million,
respectively, were paid to certain employees of our subsidiaries.
Tax Credits and Exemptions
Our results of operations have been affected by, and we expect our results of operations to continue to
be affected by, tax credits and income tax exemptions available to us.
The ROC Statute for Upgrading Industries, which expired at the end of 2009, entitled companies to
tax credits for expenses relating to qualifying research and development, personnel training and purchases
of qualifying machinery. The tax credits could be applied within a five-year period. The amount of tax
credit that could be applied in any year is limited to 50% of the income tax payable for that 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). Under the ROC Statute for Upgrading Industries, Himax Taiwan
was 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, personnel training expenses, purchases of qualifying
machinery and investments in the newly emerging, important and strategic industries. The balance of
unused investment tax credits totaled $55.3 million, $55.0 million and $39.4 million as of December
31, 2009, 2010 and 2011, respectively. On May 12, 2010, the Statute for Industrial Innovation was
promulgated in the ROC, which became effective on the same date except for the provision relating to
tax incentives which went into effect retroactively on January 1, 2010. Compared to the ROC Statute
for Upgrading Industries, the Statute for Industrial Innovation provides for a smaller amount of tax
credits. The Statute for Industrial Innovation entitles companies to tax credits for qualifying research and
development expenses related to innovation activities but limits the amount of tax credit to only up to
15% of the total research and development expenditure for the current year, subject to a cap of 30% of the
income tax payable for the current year. Therefore, the amount of tax credits that could be applied under
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the ROC Statute for Upgrading Industries and the Statute for Industrial Innovation is limited at 50% of the
income tax payable. Moreover, any unused tax credits provided under the Statute for Industrial Innovation
may not be carried forward. As a result, the tax credits that we received decreased significantly to $3.7
million in 2010 and $1.7 million in 2011 compared to $13.8 million in 2009.
The ROC Statute for Upgrading Industries provided 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 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. In addition,
beginning January 1, 2009, Himax Semiconductor has also become entitled to a five-year tax exemption
expiring on December 31, 2013. While the ROC Statute for Upgrading Industries expired at the end of
2009, under a grandfather clause we can continue to enjoy the five-year tax holiday since the relevant
investment plans were approved by the ROC tax authority before the expiration of the Statute. The effect
of such tax exemption was an increase on net income and basic and diluted earnings per share attributable
to our stockholders of $9.4 million, $0.03 and $0.03, respectively, for the year ended December 31, 2009
and $3.6 million, $0.01 and $0.01, respectively, for the year ended December 31, 2010 and $0.8 million,
$0.002 and $0.002 for the year ended December 31, 2011. As the tax exemptions that expired on March
31, 2009 and December 31, 2010 account for a substantial portion of our total tax-exempted income under
the ROC Statute for Upgrading Industries, our income tax expenses had increased significantly in 2009
and 2010 and may continue to increase significantly in the future. No such tax exemption is provided for
under the newly adopted Statute for Industrial Innovation.
Description of Certain Statements of Income Line Items
Revenues
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, touch controller ICs, TFT-LCD
television and monitor chipsets, LCOS projector solutions, power ICs, CMOS image sensors and wafer
level optics products.
Display drivers for large-sized applications have been the largest source of revenues for us, but
we expect display drivers for mobile handsets applications, display drivers for consumer electronics
applications and other non-driver products to increase in revenue contribution in the future. Our revenues
generated from sales of display drivers for large-sized applications decreased in 2010 and 2011 both in
absolute amount and as a percentage of our total revenues, primarily due to the significant decrease in
sales to Chimei Innolux, or prior to the merger, CMO as a result of the impact of the global economic
downturn in 2009 and the change of purchase policy by Chimei Innolux to diversify its display driver
supply base in 2010. Our revenues generated from sales of each of display drivers for mobile handsets
applications, display drivers for consumer electronics applications and other non-driver products increased
in 2010 and 2011 both in absolute amount and as a percentage of our total revenues, primarily due to our
increased market share for certain products, the larger market size for certain applications and a wider
market adoption for some non-driver products.
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:
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Year Ended December 31,
2009
2010
2011
Percentage
of
Revenues
Amount
Percentage
of
Revenues
Amount
Percentage
of
Revenues
Amount
(in thousands, except percentages)
Display drivers for large-sized
applications........................................
Display drivers for mobile handsets
applications........................................
Display drivers for consumer
electronics applications......................
Others(1)...............................................
$ 493,513 71.3% $ 366,492 57.0% $ 270,372 42.7%
69,081 10.0 119,623 18.6 169,248 26.8
83,527 12.1 103,942 16.2 112,836 17.8
46,260 6.6 52,635 8.2 80,565 12.7
Total ...................................................
$ 692,381 100.0% $ 642,692 100.0% $ 633,021 100.0%
Note : (1) Includes, among other things, timing controllers, touch controller ICs, TFT-LCD television and
monitor chipsets, LCOS projector solutions, power ICs, CMOS image sensors, wafer level optics
products and 2D to 3D conversion solutions.
A limited number of customers account for substantially all our revenues. Chimei Innolux and its
affiliates, which takes into account the effect of merger of CMO, Innolux and TPO in March 2010,
accounted for 67.5%, 52.8% and 40.8% of our revenues in 2009, 2010 and 2011, respectively. Revenues
generated from sales to Chimei Innolux and its affiliates are $467,388 thousand, $339,220 thousand and
$258,156 thousand in 2009, 2010, and 2011, respectively. In 2010 and 2011, sales to Chimei Innolux
and its affiliates further decreased significantly both in absolute amount and as a percentage of our total
revenues, primarily due to the change of purchase policy by Chimei Innolux to diversify its display driver
supply base.
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 2009, 2010 and 2011, approximately 79.2%, 76.7% and 62.4%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, bad debt expense, sales and marketing expenses and share-based compensation
expenses.
Cost of Revenues
The principal items of our cost of revenues are:
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•
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 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. As a percentage of revenues,
our research and development expenses in 2009, 2010 and 2011 were 10.3%, 11.9% and 12.4%,
respectively.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries of general and administrative
employees, including 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, incur
professional fees for filing patent applications and incur additional compliance costs required of a publicly
listed company in the United States.
Bad Debt Expense
We evaluate our outstanding accounts receivable on a monthly basis for collectability 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. In 2009, we recognized bad debt
expense of $0.2 million. In 2010 and 2011, we recognized net recoveries of previously considered
doubtful accounts from SVA-NEC of $8.8 million and $1.5 million, respectively.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of salaries of sales and marketing employees,
including related employee welfare costs, amortization expenses for the acquired intangible assets related
to the acquisition of Wisepal in 2007, travel expenses and product sample costs. We expect that our sales
and 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
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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 and 2011 long-term incentive plans.
We allocate such share-based compensation expenses to the applicable cost of revenues and expense
categories as related services are performed. See note 14 to our consolidated financial statements. Under
the long-term incentive plan, we granted RSUs on December 30, 2005 to our employees and directors and
again on September 29, 2006, September 26, 2007, September 29, 2008, September 28, 2009, September
28, 2010 and September 28, 2011 to our employees. Share-based compensation expenses recorded under
the long-term incentive plan totaled $14.1 million, $11.5 million and $6.8 million in 2009, 2010 and 2011,
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.
Our effective income tax rate was 18.1% in 2009, 17.6% in 2010 and 43.4% in 2011, respectively.
ROC law offers preferential tax treatments to industries that are encouraged by the ROC government.
The ROC Statute for Upgrading Industries, which expired at the end of 2009, entitled companies to tax
credits for expenses relating to qualifying research and development and personnel training expenses,
purchases of qualifying machinery and investments in the newly emerging, important and strategic
industries. The tax credits could be applied within a five-year period. The amount from the tax credit that
could 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, Himax
Semiconductor, Himax Display, Himax Analogic, Himax Media Solutions and Himax Imaging, Ltd. 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 $55.3 million, $55.0 million and $39.4 million as of December 31, 2009,
2010 and 2011, respectively. On May 12, 2010, the Statute for Industrial Innovation was promulgated
in the ROC, which became effective on the same date except for the provision relating to tax incentives
which went into effect retroactively on January 1, 2010. Compared to the ROC Statute for Upgrading
Industries, the Statute for Industrial Innovation provides for a smaller amount of tax credits. The Statute
for Industrial Innovation entitles companies to tax credits for qualifying research and development
expenses related to innovation activities but limits the amount of tax credit to only up to 15% of the total
research and development expenditure for the current year, subject to a cap of 30% of the income tax
payable for the current year. Therefore, the amount of tax credits that could be applied under the ROC
Statute for Upgrading Industries and the Statute for Industrial Innovation is limited at 50% of the income
tax payable. Moreover, any unused tax credits provided under the Statute for Industrial Innovation may
not be carried forward. As a result, the tax credits that we received decreased significantly to $3.7 million
in 2010 and $1.7 million in 2011 compared to $13.8 million in 2009.
Under the ROC Statute for Upgrading Industries and the applicable grandfather clause, income
attributable to certain of Himax Taiwan’s expanded production capacity 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. In addition, beginning January 1, 2009, Himax
Semiconductor is also entitled to a five-year tax exemption expiring on December 31, 2013. Based on the
ROC statutory income tax rate of 17%, the effect of these tax exemptions on net income and basic and
diluted earnings per ordinary share attributable to our stockholders for the year ended December 31, 2010
had been an increase of $3.6 million, $0.01 and $0.01, respectively, and $0.8 million, $0.002 and $0.002
69
for the year ended December 31, 2011, respectively. The tax exemptions that expired on March 31, 2009
and December 31, 2010 account for a substantial proportion of our total tax-exempted income under the
ROC Statute for Upgrading Industries. No such tax exemption is provided for under the newly adopted
Statute for Industrial Innovation.
Our higher effective tax rate in 2011 resulted primarily from two reasons. One, our Taiwan subsidiaries,
other than Himax Taiwan, that incurred net operating losses and had provided full valuation allowance for
deferred tax assets. Another factor that led to our higher effective tax rate was the NT dollar depreciation
against the US dollar during 2011. Since our reporting currency is US dollar, a substantial majority of our
taxes incur in Taiwan on the tax basis of NT dollar. More deferred taxes liabilities recognized by Himax
Taiwan in 2011 because if we settling the monetary assets or liabilities at USD that would result in taxable
income.
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 ASC 718 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 for each period to reflect the current estimate of
forfeitures. As of December 31, 2011, we based our share-based compensation cost on an assumed
forfeiture rate of 8.73% per annum for RSUs issued in 2008, 11.15% per annum for RSUs issued in 2009,
and 14.13% per annum for RSUs issued in 2010 under our long-term incentive plan. If actual forfeitures
occur at a lower rate, share-based compensation costs will increase in future periods.
For our issuance of RSUs in 2009, 2010 and 2011, the fair value of the ordinary shares underlying the
RSUs granted to our employees was $3.25, $2.47 and $1.10 per share, respectively, which was the closing
price of our ADSs on September 28, 2009, 2010 and 2011, 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 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. In 2008, we recognized a valuation
allowance of $25.3 million for the probable credit loss relating to SVA-NEC. Since around September
2008, SVA-NEC has delayed paying a large portion of our accounts receivable outstanding from them.
Subsequently, in late February 2009, it was reported that SVA Group, the ultimate parent company of
SVA-NEC, was in financial distress, and in late March 2009, the Shanghai municipal government set up
a conservatorship committee to assist in SVA Group’s restructuring. While we recovered $8.8 million and
$1.5 million from SVA-NEC in 2010 and 2011, respectively, we believe it is probable that we would not
be able to collect any of our remaining accounts receivable outstanding from SVA-NEC.
70
The movement in the allowance for doubtful accounts, sales returns and discounts for the years ended
December 31, 2009, 2010 and 2011 are as follows:
Allowance for doubtful accounts
Year
Balance at
Beginning
of Year
Charges
(credits) to
earnings
Amounts
Utilized
Balance at
End of
Year
(in thousands)
December 31, 2009........................................................
December 31, 2010........................................................
December 31, 2011........................................................
$ 25,297 $ 218 $ - $ 25,515
$ 25,515 $ (8,788) $ - $ 16,727
$ 16,727 $ (1,541) $ - $ 15,186
Allowance for sales returns and discounts
Year
Balance at
Beginning
of Year
Additions
Charged to
Expense
Amounts
Utilized
Balance at
End of
Year
(in thousands)
December 31, 2009........................................................
December 31, 2010........................................................
December 31, 2011........................................................
$ 162 $ 2,391 $ (1,583) $ 970
$ 970 $ 4,551 $ (4,930) $ 591
$ 591 $ 3,385 $ (3,191) $ 785
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
gross margin when such products are sold. Sales to date of such products have not had a significant
impact on our gross margin. The inventory write-downs in 2009, 2010 and 2011 were approximately
$13.6 million, $10.6 million, and $9.1 million, respectively, and were included in cost of revenues in our
consolidated statements of income.
Impairment of Long-Lived Assets, Excluding Goodwill
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. Prior to evaluating goodwill for
impairment, we evaluated the Company’s long-lived assets for impairment. For each significant asset
group, we determined that the undiscounted cash flows expected to result from the use of the asset group
significantly exceeded their respective carrying amounts. Consequently, we have not recognized any
71
impairment charges on long-lived assets during the period from December 31, 2009 to December 31,
2011.
Goodwill
We evaluate 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 ASC 805 Business Combination. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill.
In 2009 and 2010, we consider the enterprise as a whole to be a single reporting unit for purposes
of testing goodwill for impairment. The adjusted market value of the Company, based on the quoted
market price of the Company’s shares and including a reasonable control premium, was in excess of the
Company’s equity book value on the date of first step of the assessment in 2009 and 2010. Therefore, we
concluded that the Company’s goodwill was not impaired in 2009 and 2010.
Since January 2011, we changed our internal reporting such that we now have two operating, which
are also reportable segments. We have determined that we have five reporting units, however, all of the
goodwill has been assigned to Driver IC reporting unit, which is also an operating segment. Therefore,
only Driver IC reporting unit need to be tested for goodwill impairment.
For Driver IC reporting unit in 2011, we compared the carrying value of Driver IC reporting unit,
inclusive of assigned goodwill, to its respective fair value—step 1 of the two-step impairment test.
We use the discounted cash flow (DCF) method to determine the fair value of each reporting unit. We
engaged an independent external service provider to assist us in estimating the fair value of each reporting
unit. In conducting the DCF valuation, we incorporate the use of projected financial information and
discount rate that are developed using market participant based assumptions. The cash-flow projections
are based on five-year financial forecasts that include revenue projections, which are based on business
plan and considered industry trends, capital spending trends, and investment in working capital to support
anticipated revenue growth. The selected discount rate considers the risk and nature of the respective
reporting unit’s cash flows and the rates of return market participants would require to invest their capital
in our reporting units. We used a discount rate based on our weighted average cost of capital, which was
23.0% for Driver IC reporting unit and 30.1% and 35.1% for other reporting units as of October 31, 2011.
In order to determine the reasonableness of the fair values of the reporting units, we performed a
reconciliation of the aggregate fair values of the reporting units to our market capitalization based on the
quoted market price of our ordinary shares, adjusted for an appropriate control premium. In determining
an appropriate control premium, we referenced the FactSet MergerStat database and Standard Industrial
Classification (SIC) Code 367X to identify comparable merger and acquisition transactions effected in
2011 prior to October 31, 2011. Within the 4 compared and observed semiconductor industry transactions,
the control premiums ranged from 57.9% to 175.3%. The average observed control premium was
approximately 94.3%.
Based on our assessment, the estimated fair value of the Driver IC reporting unit exceeded its carrying
amount by 7.6% at October 31, 2011 and therefore we concluded that goodwill was not impaired in 2011.
However, our conclusion could change in the future if our quoted market price falls further below our net
book value per share or if market conditions change with respect to control premiums paid for companies
of our size and business nature.
72
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, 2009, 2010 and 2011 is as follows:
Year
Balance at
Beginning
of Year
Additions
(Reversal)
Charged to
Expense
Amounts
Utilized
Balance at
End of
Year
(in thousands)
December 31, 2009........................................................
December 31, 2010........................................................
December 31, 2011........................................................
$ 249 $ 2,920 $ (2,490) $ 679
$ 679 $ 3,772 $ (3,772) $ 679
$ 679 $ (321) $ (280) $ 78
The significant decrease in provisions for product warranty costs and amount utilized for the year
ended December 31, 2011 were due primarily to a decrease in actual warranty claims.
Income Taxes
According to ROC Income Tax Act, dividends distributed by Taiwan Company to its foreign
shareholders are subject to R.O.C. withholding tax, currently at the rate of 20%, on the amount of the
distribution in the case of cash dividends or on the par value of the ordinary shares in the case of stock
dividends. However, a 10% R.O.C. retained earnings tax paid by Taiwan Company on its undistributed
after-tax earnings, if any, would provide a credit of up to 10% of the gross amount of any dividends
declared out of those earnings that would reduce the 20% R.O.C. tax imposed on those distributions. This
additional tax cannot be provided a tax credit to mitigate the double taxation by us.
As of December 31, 2010 and 2011, we have not provided for income taxes on the undistributed
earnings of approximately $454.5 million and $467.7 million, respectively, of our foreign subsidiaries
since we have specific plans to reinvest these earnings indefinitely. The undistributed earnings in our
foreign subsidiaries are majorly from Himax Taiwan which approximately $454.3 million and $467.3
million as of December 31, 2010 and 2011, respectively. We intend to use accumulated and future
earnings of Himax Taiwan to expand operations in Taiwan.
However, a deferred tax liability will be recognized when the Company can no longer demonstrate that
it plans to indefinitely reinvest these undistributed earnings. It is not practicable to estimate the amount of
additional taxes that might be payable on such undistributed earnings.
We are a holding company located in the Cayman Islands and generally paid dividends and repurchased
outstanding shares in past few years. In respond these activities; we receive cash from bank loan and
Himax Taiwan through intercompany borrowings instead of dividends distribution by Himax Taiwan. At
December 31, 2010 and 2011, the amount of cash and cash equivalents and investments in marketable
securities available-for-sale held by Himax Taiwan were $86.8 million and $85.6 million, respectively,
which are not available to fund our ultimate parent company’s activities unless the cash is repatriated.
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.
73
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.
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.
A reconciliation of the beginning and ending amounts of uncertain tax positions is as follows:
Year Ended December 31,
2009
2010
(in thousands)
2011
Balance at beginning of year..................................
Increase related to prior year tax positions.............
Decrease related to prior year tax positions...........
Increase related to current year tax positions.........
Effect of exchange rate change...............................
Balance at end of year............................................
$ 5,718 $
- - -
- (2,295) (6,759)
2,587 133 -
145 604 (5)
6,892 $ 128
$
8,450 $
8,450 $ 6,892
Except for Himax Taiwan, Himax Technologies Korea Ltd. (based in South Korea), or Himax Korea,
Himax Technologies (Suzhou) Co., Ltd., Himax Technologies (Shenzhen) Co., Ltd., and Himax Imaging
Corp., most of subsidiaries have generated tax losses since their inception and are not included in the
consolidated tax filing with Himax Taiwan or other subsidiaries with taxable income. Valuation allowance
of $28.4 million, $31.6 million and $31.9 million as of December 31, 2009, 2010 and 2011, respectively,
were 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. An additional valuation allowance of $11.3 million and $3.3 million as of December 31,
2010 and 2011, respectively, was provided to reduce Himax Taiwan’s deferred tax assets related to unused
investment tax credits.
Segment Reporting
We use the management approach in determining reportable operating segments. The management
approach considers the internal organization and reporting used by the our chief operating decision maker
(CODM) for making operating decisions, allocating resources and assessing performance as the source for
determining the Company's reportable segments.
Our CODM has been identified as the Chief Executive Officer, who regularly reviews operating results
to make decisions about allocating resources and assessing performance for us.
Prior to fiscal year 2011, based on the Company’s internal organization structure and its internal
reporting, management determined that the Company did not have any operating segments as that term is
defined in ASC 280 (SFAS No. 131), “Segments Reporting”.
Since January 2011, the management changed our internal organization structure and internal reporting.
Consequently, the management has determined that we have two operating segments, Driver IC and Non-
driver products, which are also reportable segments. This basis of segmentation is applied retrospectively
to present segment information for 2009 and 2010.
74
The CODM assesses the performance of the operating segments based on segment sales and segment
profit and loss. There are no intersegment sales in the segment revenues reported to the CODM. Segment
profit and loss is determined on a basis that is consistent with how we report operating income (loss) in
our consolidated statements of operations. Segment profit (loss) excludes income taxes, interest income
and expense, foreign currency exchange gains and losses, equity in the earnings (losses) of affiliates, gains
and losses on valuations of financial instruments and sales of investment securities, and other income and
expenses.
Consolidated 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. The following table sets forth a summary of our consolidated statements of income as a
percentage of revenues:
Year Ended December 31,
2009
2010
2011
Revenues................................................................
Costs and expenses:
Cost of revenues..............................................
Research and development.............................
General and administrative.............................
(Recovery of) bad debt expense......................
Sales and marketing........................................
Total costs and expenses........................................
Operating income...................................................
Non-operating income (loss)..................................
Income tax expense................................................
Net income.............................................................
Net loss attributable to noncontrolling interests.....
Net income attributable to Himax stockholders.....
100.0% 100.0% 100.0%
80.2
79.5 79.0
12.4
10.3 11.9
2.4 2.9
2.7
- (1.4) (0.2)
1.5 2.1 2.3
93.7 94.5 97.4
6.3 5.5 2.6
- - -
1.1 1.0 1.1
5.2 4.5 1.5
0.6 0.6 0.2
5.7 5.2 1.7
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues. Our revenues decreased 1.5 % to $633.0 million in 2011 from $642.7 million in 2010. This
decrease was attributable mainly to a 26.2% decrease in revenues from display drivers for large-sized
applications to $270.4 million in 2011 from $366.5 million in 2010 primarily as a result of a significant
decrease in sales to Chimei Innolux due to the change of purchase policy by Chimei Innolux to diversify
its display driver supply base in 2011. The decrease was partially offset by a 26.2% increase in revenues
from display drivers for mobile handset and consumer electronics applications to $282.1 million in 2011
from $223.6 million in 2010, and a 53.1% increase in revenues from non-driver products to $80.6 million
in 2011 from $52.6 million in 2010. Our average selling prices decreased 2.3% in 2011 primarily as a
result of the downward pricing pressure from TFT-LCD panel manufacturers in 2011 and changes in
product mix. Such impact on our revenues was partially offset by a 28.1% increase in our unit shipments
of our display drivers for mobile handsets applications, display drivers for consumer electronics
applications and other non-driver products as a result of our increased market share for certain products,
the larger market size for certain applications and a wider market adoption for some non-driver products.
Costs and Expenses. Costs and expenses increased 1.5% to $616.4 million in 2011 from $607.3 million
in 2010. As a percentage of revenues, costs and expenses increased to 97.4% in 2011 compared to 94.5%
in 2010.
•
Cost of Revenues. Cost of revenues decreased to $507.4 million in 2011 from $507.6 million in
2010. The minor decrease in cost of revenues was due primarily to a 0.80% decrease in average
unit cost, partially offset by a 0.77% increase in unit shipments, as compared to 2010. As a
75
percentage of revenues, cost of revenues decreased to 80.2% in 2011 from 79.0% in 2010.
•
•
•
•
Research and Development. Research and development expenses increased 3.4% to $79.0
million in 2011 from $76.4 million in 2010. This increase was primarily attributable to increases
in salary expenses and outsourcing process expenses. The increase was partially offset by
decrease in research and development material expenses. The increase in salary expenses was
due primarily to a larger headcount of research and development staff and higher average
salaries.
General and Administrative. General and administrative expenses decreased 8.9% to $17.1
million in 2011 from $18.8 million in 2010, primarily as a result of a decreased in depreciation
expenses and professional fees. The decrease in depreciation expenses was due primarily to the
changed of allocation base for the headquarter’s depreciation. The decrease in professional fees
was due primarily to decreasing certain expenses relating to our Taiwan listing application with
the Taiwan Stock Exchange on its main board and the lawyer’s fees for investment assessment in
2010.
Recovery of Bad Debt Expense. We recognized net recoveries of previously considered doubtful
accounts from SVA-NEC of $1.5 million in 2011 and $8.8 million in 2010.
Sales and Marketing. Sales and marketing expenses increased 8.2% to $14.4 million in 2011
from $13.3 million in 2010, primarily as a result of an increase in salary expenses. The increase
in salary expenses was due primarily to a larger headcount of sales and marketing staff and
higher average salaries.
Non-Operating Income (Loss), net. We had a net non-operating income of $0.2 million in 2011
compared to net non-operating loss of $64,000 in 2010. Our foreign currency exchange gains increased to
$0.5 million in 2011 from exchange loss $0.9 million in 2010, primarily for the net liability denominated
in NT dollar due to the weaker NT dollar against the US dollar in 2011. Our interest expense increased to
$0.5 million from $0.2 million in 2010 because we obtained bank loans in 2011 to fund our investment
in subsidiary and dividend distribution. Our other losses increased to $0.4 million in 2011 from other
incomes $0.5 million in 2010, primarily as a result of unrealized losses on conversion option in 2011.
Income Tax Expense. Our income tax expense increased 17.2% to $7.3 million in 2011 from $6.2
million in 2010. Our effective income tax rate increased from 17.6 % in 2010 to 43.4% in 2011. This
change in our effective income tax rate was mainly attributable to the increased in taxable income
due to the weaker NT dollar against the US dollar in 2011, the additional valuation allowance
provided in 2011 to reduce Himax Taiwan’s deferred tax assets related to unused investment tax
credits and net operating loss carryforwards at certain loss making subsidiaries.
Net Income. As a result of the foregoing, our net income decreased to $9.5 million in 2011 from
$29.1 million in 2010 and net income attributable to Himax stockholders decreased to $10.7 million
in 2011 from $33.2 million in 2010.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues. Our revenues decreased 7.2% to $642.7 million in 2010 from $692.4 million in 2009. This
decrease was attributable mainly to a 25.7% decrease in revenues from display drivers for large-sized
applications to $366.5 million in 2010 from $493.5 million in 2009 primarily as a result of a significant
decrease in sales to Chimei Innolux due to the change of purchase policy by Chimei Innolux to diversify
its display driver supply base in 2010. The decrease was partially offset by a 73.2% increase in revenues
from display drivers for mobile handset applications to $119.6 million in 2010 from $69.1 million in
2009, a 24.4% increase in revenues from display drivers for consumer electronics applications to $103.9
million in 2010 from $83.5 million in 2009, and a 13.8% increase in revenues from non-driver products
to $52.6 million in 2010 from $46.3 million in 2009. Our average selling prices decreased 7.5% in 2010
primarily as a result of the downward pricing pressure from TFT-LCD panel manufacturers in 2010 and
76
changes in product mix, which was partially offset by the impact of tight capacity of the TFT-LCD panel
industry on prices in the first half of 2010. Such impact on our revenues was partially offset by a 52.8%
increase in our unit shipments of our display drivers for mobile handsets applications, display drivers for
consumer electronics applications and other non-driver products as a result of our increased market share
for certain products, the larger market size for certain applications and a wider market adoption for some
non-driver products.
Costs and Expenses. Costs and expenses decreased 6.4% to $607.3 million in 2010 from $648.8
million in 2009. As a percentage of revenues, costs and expenses increased to 94.5% in 2010 compared to
93.7% in 2009.
• Cost of Revenues. Cost of revenues decreased 7.8% to $507.6 million in 2010 from $550.6
million in 2009. The decrease in cost of revenues was due primarily to a 8.1% decrease in
average unit cost, partially offset by a 0.3% increase in unit shipments, as compared to 2009. The
decrease in average unit cost was attributable primarily to changes in product mix, our efforts
to control cost through optimizing our supplier mix, improving design processes, increasing
manufacturing yields and leveraging our scale and close relationship with semiconductor
manufacturing service providers and suppliers. As a percentage of revenues, cost of revenues
decreased to 79.0% in 2010 from 79.5% in 2009.
•
Research and Development. Research and development expenses increased 7.1% to $76.4
million in 2010 from $71.4 million in 2009. This increase was primarily attributable to increases
in salary expenses, mask and mold expenses, verification expenses, and wafer, tape and other
related expenses. The increase in salary expenses was due primarily to a larger headcount of
research and development staff and higher average salaries. Our mask and mold expenses,
inspection expenses and wafer, tape and other related expenses increased primarily as a result of
our continued efforts in increasing research and development expenditures.
• General and Administrative. General and administrative expenses increased 14.8% to $18.8
million in 2010 from $16.3 million in 2009, primarily as a result of an increase in salary
expenses, professional fees and employee welfare expenses. The increase in salary expenses
was due primarily to a larger headcount of general and administrative staff and higher average
salaries. The increase in professional fees was due primarily to increasing patent filing fees and
certain expenses relating to our listing application with the Taiwan Stock Exchange on its main
board in 2010.
•
•
Recovery of Bad Debt Expense. We recognized a recovery of previously considered doubtful
accounts from SVA-NEC of $8.8 million in 2010, compared to bad debt expense of $0.2 million
in 2009.
Sales and Marketing. Sales and marketing expenses increased 28.2% to $13.3 million in 2010
from $10.4 million in 2009, primarily as a result of an increase in salary expenses and travelling
expenses. The increase in salary expenses was due primarily to a larger headcount of sales and
marketing staff and higher average salaries.
Non-Operating Income (Loss), net. We had a net non-operating loss of $64,000 in 2010 compared to
net non-operating income of $0.2 million in 2009. Our interest income decreased to $0.6 million in 2010
from $0.8 million in 2009 due to a decrease in our cash available. We had a net gain on sale of marketable
securities of $0.3 million in 2010 compared to a net loss on sale of marketable securities of $0.1 million in
2009 primarily because of the stronger NT dollar, in which the marketable securities were denominated,
against the US dollar in 2010. The loss in our equity method investees increased to $0.4 million in 2010
from $0.1 million in 2009, primarily as a result of our investment in a new investee in 2010, whose
operation is still in loss. Our foreign currency exchange losses increased to $0.9 million in 2010 from
$0.5 million in 2009, primarily for the net liability denominated in NT dollar due to the stronger NT
dollar against the US dollar in 2010. Our interest expense increased to $0.2 million from $3,000 in 2009
because we obtained bank loans in 2010 to fund our investment in subsidiaries and dividend distribution.
77
Our other incomes increased to $0.5 million in 2010 from $0.1 million in 2009, primarily as a result of
unrealized gains on conversion option in 2010.
Income Tax Expense. Our income tax expense decreased 21.3% to $6.2 million in 2010 from $7.9
million in 2009. Our effective income tax rate decreased from 18.1% in 2009 to 17.6% in 2010. This
change in our effective income tax rate was mainly attributable to a reduction of the ROC income tax rate
from 25% to 17% with effect from January 1, 2010 and the decrease in taxable income due to the stronger
NT dollar against the US dollar in 2010, which was partially offset by an increase in income tax expense
in 2010 as a result of the additional valuation allowance provided in 2010 to reduce Himax Taiwan’s
deferred tax assets related to unused investment tax credits and the decrease in investment tax credits
under the newly adopted Statute for Industrial Innovation.
Net Income. As a result of the foregoing, our net income decreased 18.8% to $29.1 million in 2010
from $35.8 million in 2009 and net income attributable to Himax stockholders decreased 16.3% to $33.2
million in 2010 from $39.7 million in 2009.
Segment Reporting
We use the management approach in determining reportable operating segments. The management
approach considers the internal organization and reporting used by the our chief operating decision maker
(CODM) for making operating decisions, allocating resources and assessing performance as the source
for determining the Company's reportable segments.
Our CODM has been identified as the Chief Executive Officer, who regularly reviews operating results
to make decisions about allocating resources and assessing performance for us.
Prior to fiscal year 2011, based on the Company’s internal organization structure and its internal
reporting, management determined that the Company did not have any operating segments as that term is
defined in ASC 280 (SFAS No. 131), “Segments Reporting”.
Since January 2011, the management changed our internal organization structure and internal
reporting. Consequently, the management has determined that we have two operating segments, Driver
IC and Non-driver products, which are also reportable segments. This basis of segmentation is applied
retrospectively to present segment information for 2009 and 2010.
The CODM assesses the performance of the operating segments based on segment sales and segment
profit and loss. There are no intersegment sales in the segment revenues reported to the CODM. Segment
profit and loss is determined on a basis that is consistent with how we report operating income (loss) in
our consolidated statements of operations. Segment profit (loss) excludes income taxes, interest income
and expense, foreign currency exchange gains and losses, equity in the earnings (losses) of affiliates, gains
and losses on valuations of financial instruments and sales of investment securities, and other income and
expenses.
The following table sets forth the revenues and operation results by segments for the periods indicated:
Year Ended December 31,
2009
2010
(in thousands)
2011
552,456
$ 646,121 590,057
46,260 52,635 80,565
$ 692,381 642,692 633,021
71,035
54,815 38,401
$
(27,498) (19,457) (21,793)
35,358 16,608
$
43,537
Segment Revenues
Driver IC
Non-Driver Products
Total
Segment profit (loss)
Driver IC
Non-Driver Products
Total
78
Driver IC segment
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues. Our revenues from Driver IC segment decreased 6.4% to $552.5 million in 2011 from $590.1
million in 2010. This decrease was attributable to 3.1% decrease in our average selling price and 3.3%
decrease in unit shipments of our driver IC products.
Segment profit. Profit from Driver IC segment decreased 29.9% to $38.4 million in 2011 from $54.8
million in 2010. This decrease was primarily attributable to decrease in revenues and partially offset by a
0.9% decrease in average unit cost and a 2.7% decrease in operating expenses, as compared to 2010.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues. Our revenues from Driver IC segment decreased 8.7% to $590.1 million in 2010 from $646.1
million in 2009. This decrease was attributable to 8.1% decrease in our average selling price and 0.6%
decrease in unit shipments of our driver IC products.
Segment profit. Profit from Driver IC segment decreased 22.8% to $54.8 million in 2010 from $71.0
million in 2009. This decrease was mainly attributable to decrease in revenues and partially offset by a 6.5%
decrease in average unit cost and a 6.2% decrease in operating expenses, as compared to 2009.
Non-Driver Products segment
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues. Our revenues from Non-Driver Products segment increase 53.1% to $80.6 million in 2011
from $52.6 million in 2010. This increase was attributable mainly to 54.4% increase in unit shipments of
our non-driver products.
Segment loss. Loss from Non-Driver Products segment increased 12.0% to $21.8 million in 2011 from
$19.5 million in 2010. This increase was attributable to 31.8% increase in operating expenses and partially
offset by increase in revenues and a 2.1% decrease in average unit cost, as compared to 2010. This
increase in operating expenses was primarily attributable to increases in salary expenses and outsourcing
process expenses for R&D.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues. Our revenues from Non-Driver Products segment increase 13.8% to $52.6 million in 2010
from $46.3 million in 2009. This increase was attributable mainly to 14.5% increase in unit shipments of
our non-driver products.
Segment loss. Loss from Non-Driver Products segment decreased 29.2% to $19.5 million in 2010
from $27.5 million in 2009. This decrease was attributable to increase in revenues and a 27.3% decrease
in average unit cost and partially offset by increase in operating expenses, as compared to 2009. This
increase in operating expenses was primarily attributable to increases in salary expenses, mask and mold
expenses, wafer, tape and other related expenses.
5.B. Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
79
Year Ended December 31,
2009
2010
(in thousands)
2011
Net cash provided by operating activities.............
Net cash used in investing activities(1)...................
Net cash used in financing activities(1)................
Net increase (decrease) in cash and cash
equivalents.............................................................
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period...........
$ 73,630 57,631
43,448
(7,541) (17,599) (10,197)
(90,779) (54,195) (24,015)
(24,276) (14,082) 9,322
110,924 96,842
110,924 96,842 106,164
135,200
Note : (1) Certain amounts in 2010 have been reclassified to conform to 2011 presentation.
Operating Activities. Net cash provided by operating activities in 2011 was $43.4 million compared
to $57.6 million in 2010. This decrease in net cash provided by operating activities in 2011 was due
primarily to a decrease in cash collected from customers in 2011 compared to 2010, an increase in cash
used in 2011 to pay for operating expense, a decrease in recovery of bad debt expense in 2011 and
partially offset by a decrease in cash used for raw materials, assembly and testing process fees in 2011
compared to 2010. Net cash provided by operating activities in 2010 was $57.6 million compared to $73.6
million in 2009. This decrease in net cash provided by operating activities in 2010 was due primarily to an
increase in cash used in 2010 to pay for raw materials, assembly and testing process fees as compared to
2009, partially offset by an increase in cash collected from customers.
Investing Activities. Net cash used in investing activities in 2011 was $10.2 million compared to $17.6
million in 2010. This decrease in net cash used in investing activities in 2011 was due primarily to a
decrease in purchasing of investment securities and available-for-sale marketable securities and partially
offset by an increase in cash used for property and equipment in 2011 compared to 2010. Net cash used in
investing activities in 2010 was $17.6 million compared to $7.5 million in 2009. This increase in net cash
used in investing activities in 2010 was due primarily to an increase in purchase of investment securities.
Financing Activities. Net cash used in financing activities in 2011 was $24.0 million compared to $54.2
million in 2010. This change was due primarily to a decrease in payments to acquire ordinary shares and a
decrease in distribution of cash dividends. Net cash used in financing activities in 2010 was $54.2 million
compared to $90.8 million in 2009. This change was due primarily to a decrease in payments to acquire
ordinary shares for retirement, and a decrease in distribution of cash dividends.
Our capital expenditures were incurred primarily in connection with purchase of property and
equipment. Our capital expenditures totaled $10.6 million, $7.2 million and $18.9 million in 2009, 2010
and 2011, respectively. We will continue to make capital expenditures to meet the expected growth of our
operations. We believe that our working capital is sufficient for our present requirements.
5.C. Research and Development
Our research and development efforts focus on improving and enhancing our core technologies and
know-how relating to the semiconductor solutions we offer to the flat panel display industry. In particular,
we have committed a significant portion of our resources to the research and development of non-driver
products because we believe in the long-term business prospects of such products and are committed
to continuing to diversify our product portfolio. 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 or factories, work
closely with panel manufacturers to co-develop display solutions for their electronic devices. In 2009,
2010 and 2011, we incurred research and development expenses of $71.4 million, $76.4 million and $79.0
million, respectively, representing 10.3%, 11.9% and 12.4% of our revenues, respectively.
80
5.D. Trend Information
LED TVs, 3D TVs, smartphones and tablet PCs are the major themes for the large and small and
medium-sized panels. There will be more and more similar products on the market. In 2011, we lost share
in large panel drivers, because one of our major customers continued to diversify their driver IC supply
base. However, we are confident that our competitiveness in this segment remains strong and we will
continue to drive toward winning more market share in this account and others. In 2011, we did gain share
in the large panel sector in China where there are relatively new panel makers emerging in the market
place with aggressive capacity expansion plans. Besides, we also benefited from our gains in small and
medium size panels, especially in the smartphone. We were also able to grow our small and medium-
sized driver businesses and significantly expand our market share there. The market for smaller size panel
manufacturing is a lot more fragmented with a much larger number of customers participating in the
market space. The fact that we were able to achieve outstanding performance in this area in 2011 was a
strong indication of our continued competitiveness in the driver IC industry. We are currently in a strong
position in the smart phone sector with leading technologies, competitive products and good customer
line-up. The growth momentum is expected to continue in 2012 with strong demand coming from both
Chinese and international brand customers. However, continued strong growth momentum in smart phone
market has attracted more competitors to enter in this segment. Increased competition in smart phone
segment may result in pricing pressure and loss of market share.
The potential expansion plans for next generation fabs in China proposed by several TFT-LCD
panel manufacturers might significantly increase the output of the TFT-LCD panels if all of the plans
are implemented in the following years. Although these capacity expansions offer attractive new driver
business opportunities, they might also cause over-supply for TFT-LCD panels at the same time. Besides,
as new China panel makers have continued to expand their capacity, their bargaining power will increase
due to larger size and result in more ASP pressure.
For more trend information, see “Item 5.A. Operating and Financial Review and Prospects—Operating
Results.”
5.E. Off-Balance Sheet Arrangements
As of December 31, 2011, 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, 2011, we did not have any interests in variable interest
entities.
5.F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2011:
81
Payment Due by Period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
(in thousands)
Operating lease obligations...................
Purchase obligations(1)...........................
Other obligations(2) ...............................
Total.......................................................
4,440
108,717
816
113,973
1,303 1,446
380 1,311
108,717 - - -
296 368 152 -
1,311
110,316 1,814 532
Notes : (1) Includes obligations for purchase of equipment, computer software and machinery and wafer
fabrication, raw material, supplies, assembly and testing services.
(2) Includes obligations under license agreements.
We lease office and building space pursuant to operating lease arrangements with unrelated third
parties. In 2009, 2010 and 2011, rental expenses for operating leases amounted to $1.1 million, $1.2
million and $1.2 million, respectively. The lease arrangements will expire gradually from 2012 to 2016.
As of December 31, 2011, we agreed to make future minimum lease payments of $1.1 million, $0.6
million, $0.4 million, $21,000 and $1,000 in 2012, 2013, 2014, 2015 and 2016, respectively, under non-
cancelable operating leases.
We have, from time to time, entered into contracts for the acquisition of equipment and computer
software. As of December 31, 2011, the remaining commitments under such contracts were $2.4 million.
These outstanding contracts had a total contract value of $8.2 million.
Pursuant to several wafer fabrication or assembly and testing service arrangements we entered into
with service providers, we may be obligated to make payments for purchase orders made under such
arrangements. As of December 31, 2011, our contractual obligations pursuant to such arrangements
amounted to approximately $77.4 million.
We have also agreed to donate a total of NT$55.4 million ($1.7 million) to two top local universities in
Taiwan for development of their laboratories in 5 years. In 2011, we paid NT$12.0 million ($0.4 million).
As of December 31, 2011, we had paid all the donations.
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 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 new 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. Total contributions to the new defined contribution plan in 2011 were $1.8 million compared
to $1.5 million and $1.3 million in 2010 and 2009, respectively. Total contributions to the defined benefit
plan and the new defined contribution plan in 2011 were $1.9 million compared to $1.7 million and $1.5
million in 2010 and 2009, respectively. Such changes in contributions have not, and are 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 (0.9)%, 1.0% and 1.4% in 2009, 2010 and 2011, respectively.
82
Recent Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about
offsetting and related arrangements to enable users of financial statements to understand the effect of
those arrangements on its financial position, and to allow investors to better compare financial statements
prepared under U.S. GAAP with financial statements prepared under International Financial Reporting
Standards (IFRS). The new standards are effective for annual periods beginning January 1, 2013, and
interim periods within those annual periods. Retrospective application is required. Management will
implement the provisions of ASU 2011-11 as of January 1, 2013.
In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350):
Testing Goodwill for Impairment. This ASU permits an entity to make a qualitative assessment of whether
it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying
the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment
test. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted. Management will implement the
provisions of ASU 2011-08 as of January 1, 2012.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. 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 seven directors, three of whom are independent directors within the meaning of Rule
5605(a)(2) of the Nasdaq Rules. 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 March 31, 2012. 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...............................................
Tien-Jen Lin............................................
Chih-Chung Tsai.....................................
Dr. Chun-Yen Chang..............................
Dr. Yan-Kuin Su.....................................
Yuan-Chuan Horng ...............................
Jackie Chang..........................................
Norman Hung........................................
54
51
49
56
74
63
60
52
54
Chairman of the Board
President, Chief Executive Officer and Director
Director
Director, Chief Technology Officer, Senior Vice President
Director
Director
Director
Chief Financial Officer
Vice President, Sales and Marketing
Directors
Dr. Biing-Seng Wu is the chairman of our board of directors. Prior to our reorganization in October
2005, Dr. Wu served as president, chief executive officer and a director of Himax Taiwan. Dr. Wu also
served as the vice chairman of the board of directors of CMO prior to its merger with Innolux and TPO.
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, chief executive officer and director. Prior to our reorganization in October
83
2005, Mr. Wu served as the chairman of the board of directors of Himax Taiwan, a position that he held
since April 2003. 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 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.
Tien-Jen Lin is our director. Mr. Lin is the Special Assistant to General Manager in Chimei Innolux.
Mr. Lin has extensive experience and broad knowledge in the TFT-LCD industry. Prior to the current
position, he has held various positions in the field of TFT-LCD panel product design and market
development. Mr. Lin holds a B.S. degree and an M.S. degree in electrical engineering from National
Taiwan University.
Chih-Chung Tsai is our director, chief technology officer and senior vice president. 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.
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 NCTU.
Dr. Yan-Kuin Su is our director. He is currently the president of Kun Shan University and also a
professor of Department of Electrical Engineering, National Cheng Kung University since 1983. He is
also a fellow of the Institute of Electrical and Electronics Engineers, Inc. Dr. Su holds a B.S. degree and
an M.S. degree and a Ph.D. degree in Electrical Engineering of National Cheng Kung University.
Yuan-Chuan Horng is our director. He is currently the assistant vice president of the Finance Division
of China Steel Corporation since October 2011. Prior to our reorganization in October 2005, Mr. Horng
served as a director of Himax Taiwan from August 2004 to October 2005. Mr. Horng was 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
Jackie Chang is our chief financial officer. Before joining Himax, Mrs. Chang served as the CFO of
Castlink Corporation and VP of Finance and Operations for PlayHut, Inc. Prior to joining PlayHut, Ms.
Chang was General Manager -Treasury Control for Nissan North America. She held several positions
in Nissan North America during from 1994 to 2006 including finance, treasury planning, operations and
accounting. She had worked at Nissan JV in China from 2003 to 2006 where she implemented IFRS and
SAP successfully. She holds a BBA in accounting from the National Chung-Hsing University in Taiwan
and an MBA in Finance from Memphis State University.
Norman Hung is our vice president in charge of Sales and Marketing and also serves as a supervisor
of Himax Analogic and Himax Media Solutions. From 2000 to 2006, Mr. Hung served as president of
84
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.
6.B. Compensation of Directors and Executive Officers
For the year ended December 31, 2011, the aggregate cash compensation that we paid to our executive
officers was approximately $0.6 million. The aggregate share-based compensation that we paid to our
executive officers was approximately $0.6 million. In 2011, our executive officers voluntarily either
reduced the number of RSUs to be granted proposed by the compensation committee to $1 or contribute
half of their RSUs to the share-based compensation pool which were then reallocated to compensate other
employees. The goal is to provide competitive compensation to our employees. No executive officer is
entitled to any severance benefits upon termination of his or her employment with us.
For the year ended December 31, 2011, the aggregate cash compensation that we paid to our
independent directors was approximately $120,000. The aggregate share-based compensation that we
paid to our independent directors was nil.
The following table summarizes the RSUs that we granted in 2011 to our directors and executive
officers under our 2011 long-term incentive plan. Each unit of RSU represents two ordinary shares
after effected on August 10, 2009. See “Item 6.D. Directors, Senior Management and Employees—
Employees––Share-Based Compensation Plans” for more details regarding our RSU grants.
Name
Dr. Biing-Seng Wu......................................................
Jordan Wu....................................................................
Tien-Jen Lin.................................................................
Chih-Chung Tsai..........................................................
Dr. Chun-Yen Chang....................................................
Dr. Yan-Kuin Su...........................................................
Yuan-Chuan Horng......................................................
Jackie Chang(1)..............................................................
Jessica Pan(2).................................................................
Norman Hung...............................................................
Total RSUs
Granted
Ordinary Shares
Underlying
Vested
Portion of RSUs
Ordinary Shares
Underlying
Unvested Portion
of RSUs
1
1
-
1
-
-
-
-
-
2
-
2
-
-
-
2
-
-
-
-
-
-
-
-
13,905 21,818 5,992
21,818 14,546
18,182
(1) Jackie Chang was appointed as our Chief Financial Officer, with effect from January 20, 2012.
(2) Jessica Pan was appointed as our Acting Chief Financial Officer, with effect from October 1, 2010 and
relinquished from January 20, 2012.
6.C. Board Practices
General
Our board of directors consists of seven directors, three of whom are independent directors within the
meaning of Rule 5605(a)(2) of the Nasdaq Rules. 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
5605(b)(1) of the Nasdaq Rules that require boards of U.S. companies to have a board of directors which
is comprised of a majority of independent directors. Moreover, we intend to follow home country practice
85
that permits our independent directors not to hold regularly scheduled meetings at which only independent
directors are present in lieu of complying with Rule 5605(b)(2).
Committees of the Board of Directors
To enhance our corporate governance, we have established three committees under the board of
directors: 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, Dr. Chun-Yen
Chang and Dr. Yan-Kuin Su. Our board of directors has determined that all of our audit committee
members are “independent directors” within the meaning of Rule 5605(a)(2) of the Nasdaq Rules
and meet the criteria for independence set forth in Section 10A(m)(3)(B)(i) of the Exchange Act. 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.
Yan-Kuin Su, Dr. Chun-Yen Chang and Tien-Jen 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 5605(a)(2) of the Nasdaq Rules. We intend to follow home
country practice in lieu of complying with Rule 5605(d)(1)(B) and (2)(B) 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;
86
•
•
•
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.
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, Dr. Yan-Kuin
Su and Tien-Jen Lin. We intend to follow home country practice that permits a nominations committee
to contain a director who does not meet the definition of “independence” within the meaning of Rule
5605(a)(2) of the Nasdaq Rules. We intend to follow home country practice in lieu of complying with
Rule 5605(e)(1)(B) of the Nasdaq Rules that requires the nominations 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, each of our directors holds office until a
successor has been duly elected or appointed, except where any director was appointed by the board of
directors to fill vacancy on the board of directors or as an addition to the existing board, such director
shall hold office until the next annual general 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 are subject to retirement by rotation,
or if their number is not a multiple of three, the number nearest to one-third but not exceeding one-
third shall retire from office. Any retiring director is eligible for re-election. The chairman of our board
of directors and/or the managing director 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
seven directors continue to serve on the board of directors, two directors will retire and be subject to re-
election in each year beginning in 2010. Under our articles of association, which director will retire at
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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, and (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 continue to consist of seven directors, the term of each director (other
than the chairman) will not exceed three years. All of our executive officers are appointed by our board of
directors.
6.D. Employees
As of December 31, 2009, 2010 and 2011, we had 1,229, 1,341 and 1,423 employees, respectively.
The following is a breakdown of our employees by function as of December 31, 2011:
Function
Research and development (1)............................................................................................................
Engineering and manufacturing (2).....................................................................................................
Sales and marketing (3).......................................................................................................................
General and administrative...............................................................................................................
Total..................................................................................................................................................
Number
874
246
210
93
1,423
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 and 2011 Long-Term Incentive Plan
We adopted two long-term incentive plans in October 2005 and September 2011. 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
88
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 36,153,854 shares in 2005 plan
and 20,000,000 shares in 2011 plan to be issued under the plan. 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 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
89
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 made grants of 7,108,675 RSUs to our employees on September 29, 2008. The vesting schedule
for such RSU grants is as follows: 60.64% of the RSU grants vested immediately and was settled by cash
in the amount of $12.7 million on the grant date, with the remainder vesting equally on each of September
30, 2009, 2010 and 2011, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 3,577,686 RSUs to our employees on September 28, 2009. The vesting schedule
for such RSU grants is as follows: 55.96% of the RSU grants vested immediately and was settled by cash
in the amount of $6.5 million on the grant date, with the remainder vesting equally on each of September
30, 2010, 2011 and 2012, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 3,488,952 RSUs to our employees on September 28, 2010. The vesting schedule
for such RSU grants is as follows: 68.11% of the RSU grants vested immediately and was settled by cash
in the amount of $5.9 million on the grant date, with the remainder vesting equally on each of September
30, 2011, 2012 and 2013, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 2,727,278 RSUs to our employees on September 28, 2011. The vesting schedule
for such RSU grants is as follows: 97.36% of the RSU grants vested immediately and was settled by cash
in the amount of $2.9 million on the grant date, with the remainder vesting equally on each of September
30, 2012, 2013 and 2014, which will be settled by our ordinary shares, 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, provided that unvested RSUs
are currently not entitled to dividend equivalents. 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
90
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.
6.E. Share Ownership
The following table sets forth the beneficial ownership of our ordinary shares, as of March 31, 2012,
by each of our directors and executive officers.
Name
Number of Shares Owned
Percentage of Shares Owned
Dr. Biing-Seng Wu..........................................
Jordan Wu.......................................................
Tien-Jen Lin....................................................
Chih-Chung Tsai.............................................
Dr. Chun-Yen Chang.......................................
Dr. Yan-Kuin Su..............................................
Yuan-Chuan Horng..........................................
Jackie Chang...................................................
Norman Hung..................................................
70,600,512
27,776,840
-
7,035,062
1,668,068
-
916,104
-
366,222
20.7%
8.2%
-
2.1%
0.5%
-
0.3%
-
0.1%
None of our directors or executive officers has voting rights different from other shareholders.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
On August 10, 2009, we effected certain changes in our capital stock structure in order to meet the
Taiwan Stock Exchange’s primary listing requirement that the par value of shares be NT$10 or $0.3 per
share and in order to increase the number of outstanding ordinary shares to be listed on the Taiwan Stock
Exchange. In particular, we increased our authorized share capital from $50,000 (divided into 500,000,000
shares of par value $0.0001 each) to $300,000,000 (divided into 3,000,000,000,000 shares of par value
$0.0001 each) and distributed 5,999 bonus shares for each share of par value $0.0001 held by shareholders
of record as of August 7, 2009. These were followed by a consolidation of every 3,000 shares of par value
$0.0001 each into one ordinary share of par value $0.3 each. As a result, the number of ordinary shares
outstanding was doubled and each of our ordinary shares had a par value of $0.3.
In connection with the above changes, we also changed our ADS ratio effective August 10, 2009 from
one ADS representing one ordinary share to one ADS representing two ordinary shares. Such change
in ADS ratio was intended to adjust for the net dilutive effect due to the bonus shares distribution and
the shares consolidation so that each ADS would represent the same percentage ownership in our share
capital immediately before and after the above changes. The number of ADSs also remained the same
immediately before and after the above changes.
As of March 31, 2012, 340,255,988 of our shares were outstanding. We believe that, of such shares,
152,169,956 shares in the form of ADSs were held by approximately 11,081 holders in the United States
as of March 31, 2012.
The following table sets forth information known to us with respect to the beneficial ownership of
our shares as of March 31, 2012, the most recent practicable date, by (i) each shareholder known by us to
beneficially own more than 5% of our shares and (ii) all directors and executive officers as a group.
91
Name of Beneficial Owner
Number of Shares
Beneficially Owned
Percentage of Shares
Beneficially Owned
Dr. Biing-Seng Wu..........................................
Chimei Innolux(1).............................................
Jordan Wu.......................................................
All directors and executive officers as a
group...............................................................
70,600,512
50,799,506
27,776,840
108,362,808
20.7%
14.9%
8.2%
31.8%
Note : (1) As of March 31, 2012, Chimei Innolux also beneficially owns an equity interest of
approximately 6.6% in our subsidiary Himax Media Solutions.
We have a close relationship with Chimei Innolux, one of our major shareholders and a leading TFT-
LCD panel manufacturer based in Taiwan and listed on the Taiwan Stock Exchange. Chimei Innolux’s
primary focus is the manufacture of large-sized TFT-LCD panels for use in notebook computers, desktop
monitors and LCD televisions. Chimei Innolux was formerly known as Innolux and is the surviving entity
following the completion of the merger of CMO, Innolux, and TPO on March 18, 2010. Several of Himax
Taiwan’s initial employees, including Dr. Biing-Seng Wu, our chairman, were former employees of
CMO. CMO was Himax Taiwan’s largest shareholder at the time of its incorporation, and Chimei Innolux
currently is one of our largest shareholders. Chimei Innolux or CMO has also been our largest customer
since our inception. In 2011, sales to Chimei Innolux (together with its affiliates), accounted for 40.8% of
our revenues. Certain of our directors also held or hold key management positions at Chimei Innolux or,
CMO or its affiliates prior to the merger. Mr. Tien-Jen Lin, our director, served as the Special Assistant to
General Manager in Chimei Innolux. Prior to the merger, Mr. Jung-Chun Lin, our former director, was the
senior vice president of finance and administration of CMO and Dr. Biing-Seng Wu, our chairman, was
the vice chairman of the board of directors of CMO. After the merger, Mr. Jung-Chun Lin and Dr. Biing-
Seng Wu no longer hold positions in Chimei Innolux. We also have entered into various transactions with
Chimei Innolux, or CMO prior to the merger, and its affiliates as further described below.
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.
7.B. Related Party Transactions
Chimei Innolux and Related Companies
Chimei Innolux
We sold display drivers to Chimei Innolux. We generated net sales to Chimei Innolux in the amount of
$55.6 million in 2011. Our receivables from such sales were $17.7 million as of December 31, 2011.
We lease office space, facilities and inventory locations from Chimei Innolux and certain of its
subsidiaries. Rent and utility expenses resulting from such leases in 2011 were $0.7 million. The related
payables as of December 31, 2011 were $0.3 million. As of December 31, 2011, we agreed to make future
minimum lease payments of $2.2 million in aggregate under non-cancelable operating leases with these
related parties.
In 2011, we purchased consumable and miscellaneous items amounting to $0.3 million from Chimei
Innolux and other related parties. The related payables as of December 31, 2011 were $9,000.
CMO-NingBo
CMO-NingBo is a subsidiary of Chimei Innolux. We sell display drivers to CMO-NingBo. We
92
generated net sales to CMO-NingBo in the amount of $123.9 million in 2011. Our receivables from such
sales were $34.0 million as of December 31, 2011.
CMO-NanHai
CMO-NanHai is a subsidiary of Chimei Innolux. We sell display drivers to CMO-NanHai. We
generated net sales to CMO-NanHai in the amount of $41.2 million in 2011. Our receivables from such
sales were $17.0 million as of December 31, 2011.
NingBo Chi Hsin Electronics Ltd.
NingBo Chi Hsin Electronics Ltd., or Chi Hsin-NingBo, is a subsidiary of Chimei Innolux. We sell
display drivers for certain audio and visual and mobile applications to Chi Hsin-NingBo. We generated
net sales to Chi Hsin-NingBo in the amount of $16.8 million in 2011. Our receivables from such sales
were $4.0 million as of December 31, 2011.
NingBo Chi Mei Electronics Ltd.
NingBo Chi Mei Electronics Ltd., or CME-NingBo, is a subsidiary of Chimei Innolux. We sell display
drivers for large-sized applications to CME-NingBo. We generated net sales to CME-NingBo in the
amount of $18.9 million in 2011, and our receivables from these sales were approximately $6.6 million as
of December 31, 2011.
7.C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
8.A.1. See “Item 18. Financial Statements” for our audited consolidated financial statements.
8.A.2. See “Item 18. Financial Statements” for our audited consolidated financial statements, which
cover the last three financial years.
8.A.3. See page F-1 for the report of our independent registered public accounting firm.
8.A.4. Not applicable.
8.A.5. Not applicable.
8.A.6. See Note 21 to our audited consolidated financial statements included in “Item 18. Financial
Statements.”
8.A.7. 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 former 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-
93
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 former 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, our former 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.
On January 22, 2009, we entered into a settlement agreement to settle the class action lawsuit, which
must be approved by the court, following notice to members of the settlement class. The court issued
an order of preliminary approval on April 23, 2009 and issued an order on September 24, 2009 granting
final approval of the settlement agreement. The settlement resulted in a dismissal of all claims against us
and the other defendants. In entering into the settlement agreement, the defendants explicitly denied any
liability or wrongdoing of any kind. The amount of the settlement is $1.2 million, which was fully covered
by our insurance carrier.
8.A.8. Dividends and Dividend Policy
Subject to the Cayman Islands Companies Law, we may declare dividends in any currency, but no
dividend may be declared in excess of the amount recommended by our board of directors. Whether our
board of directors recommends any dividends and the form, frequency and amount of dividends, if any,
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.
On June 27, 2008, we paid a cash dividend in the amount of $66.8 million, or the equivalent of $0.350
per ADS. In 2009, we paid a cash dividend on June 29, 2009 in the amount of $55.5 million, or the
equivalent of $0.300 per ADS, and distributed a stock dividend on August 10, 2009 of 5,999 ordinary
shares of par value $0.0001 for each ordinary share of par value $0.0001 held by shareholders of record
as of August 7, 2009. On August 13, 2010, we paid a cash dividend in the amount of $44.1 million, or the
equivalent of $0.250 per ADS. On July 20, 2011, we paid a cash dividend in the amount of $21.2 million,
or the equivalent of $0.120 per ADS. For more information on the stock dividend distribution, see “Item
7.A. Major Shareholders and Related Party Transactions—Major Shareholders.” The dividends for any
of these years should not be considered representative of the dividends that would be paid in any future
periods or of our dividend policy.
Our ability to pay cash or stock dividends will depend, at least partially, upon the amount of funds
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. We receive cash from Himax
Taiwan through intercompany borrowings. Himax Taiwan has not paid us 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;
94
•
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.
8.B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes
since the date of the annual financial statements.
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
Our ADSs have been quoted on the Nasdaq Global Select Market under the symbol “HIMX” since
March 31, 2006. The table below sets forth, for the periods indicated, the high and low market prices
and the average daily volume of trading activity on the Nasdaq Global Select Market for the shares
represented by ADSs.
High
Low
Average Daily Trading Volume
(in thousand of ADSs)
2006 (from March 31)................
2007...........................................
2008...........................................
2009
2010...........................................
First quarter...........................
Second quarter.......................
Third quarter..........................
Fourth quarter........................
2011
First quarter...........................
Second quarter.......................
Third quarter..........................
Fourth quarter........................
November..............................
December..............................
2012
First quarter...........................
January...................................
February.................................
March.....................................
April(through April 20)..........
$9.45
6.15
6.29
3.97
3.28
3.20
3.28
3.10
2.50
2.69
2.69
2.56
2.20
1.20
1.15
1.09
2.34
1.49
1.84
2.34
2.45
$4.21
3.53
1.00
1.32
2.00
2.72
2.66
2.30
2.00
0.97
2.17
1.71
1.10
0.97
1.02
0.98
0.99
0.99
1.36
1.60
1.89
813.4
741.1
590.1
529.6
297.0
270.5
369.2
243.8
304.3
293.1
240.7
140.9
241.7
548.4
540.5
597.0
639.1
735.5
715.3
481.9
341.1
95
9.B. Plan of Distribution
Not applicable.
9.C. Markets
The principal trading market for our shares is the Nasdaq Global Select Market, on which our shares
are traded in the form of ADSs.
In November 2009, we filed a listing application with the Taiwan Stock Exchange to list our ordinary
shares on its main board, which was subsequently aborted in May 2010. Pursuant to the amendments
to the Criteria Governing the Offering and Issuance of Securities by Foreign Issuers in Taiwan, which
went into effect on May 19, 2010, we have become eligible to list TDRs on the Taiwan Stock Exchange.
A major benefit of TDR listing for us, as opposed to primary listing, is that we would likely incur lower
maintenance costs of listing in Taiwan because of the limited additional compliance requirements. We
are currently preparing an application to list TDRs on the Taiwan Stock Exchange as an alternative to our
aborted primary listing plan.
9.D. Selling Shareholders
Not applicable.
9.E. Dilution
Not applicable.
9.F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
Our shareholders previously adopted the Amended and Restated Memorandum of Association on
September 26, 2005 by a special resolution passed by the sole shareholder of our company and the
Amended and Restated Articles of Association at an extraordinary shareholder meeting held on October
25, 2005, both of which were filed as an exhibit to our registration statement on Form F-1 (file no. 333-
132372) with the SEC on March 13, 2006.
On August 6, 2009, our shareholders adopted the Second Amended and Restated Memorandum and
Articles of Association at our annual general meeting which became effective on August 10, 2009 and
were filed as exhibits to our current report on Form 6-K with the SEC on July 13, 2009. These were
adopted primarily in connection with our proposed Taiwan listing to meet the Taiwan Stock Exchange’s
primary listing requirement concerning protection of material shareholders rights under ROC’s Company
Act and Securities Exchange Act. At the same time, our shareholders also adopted the Third Amended
and Restated Memorandum and Articles of Association, which were filed as an exhibit to our annual
report on Form 20-F for the fiscal year ended December 31, 2009 with the SEC on June 3, 2010 and are
substantially the same as the Amended and Restated Memorandum and Articles of Association of our
company except that our authorized share capital is stated to be $300,000,000 divided into 1,000,000,000
shares of nominal or par value of $0.3 each, on the condition that it shall become effective if the
96
application made by our company to list its ordinary shares on the Taiwan Stock Exchange is rejected or
aborted. On May 20, 2010, the Third Amended and Restated Memorandum and Articles of Association
became effective as a result of the abortion of our primary listing application to the Taiwan Stock
Exchange.
We incorporate by reference into this annual report the description of our Amended and Restated
Memorandum and Articles of Association (except for provisions relating to our authorized share capital)
contained in our F-1 registration statement (File No. 333-132372) filed with the SEC on March 13,
2006. Such description sets forth a summary of certain provisions of our memorandum and articles of
association as currently in effect, which is qualified in its entirety by reference to the full text of the Third
Amended and Restated Memorandum and Articles of Association. As of the date of this annual report, our
authorized share capital is $300,000,000 divided into 1,000,000,000 shares of nominal or par value of $0.3
each.
10.C. Material Contracts
For a summary of any material contract entered into by us outside of the ordinary course of business
during the last two years, see "Item 4A. History and Development of the Company" for more information
on our subsidiary, Himax Display, to acquire all of the outstanding shares of capital stock of Spatial
Photonics in exchange for certain number of common stock of Himax Display.
10.D. Exchange Controls
We have extracted from publicly available documents the information presented in this section.
The information below may be applicable because our wholly owned operating subsidiary, Himax
Technologies Limited, is incorporated in the ROC. Please note that citizens of the PRC and entities
organized in the PRC are subject to special ROC laws, rules and regulations, which are not discussed in
this section.
The ROC’s Foreign Exchange Control Statute and regulations provide that all foreign exchange
transactions must be executed by banks designated to handle foreign exchange transactions by the Central
Bank of ROC. There is an annual limit on the amount of currency a Taiwanese entity may convert into, or
out of, NT dollars other than for trade purposes. Current regulations favor trade-related foreign exchange
transactions.
With regard to inward and outward remittances, approval by the Central Bank of ROC is generally
required for any conversion exceeding, in aggregate in each calendar year, $50 million (or its equivalent)
for companies and $5 million (or its equivalent) for Taiwanese and resident foreign individuals. A
requirement is also imposed on all private enterprises to report all medium- and long-term foreign debt
with the Central Bank of ROC.
In addition, a foreign person without an alien resident card or an unrecognized foreign entity may
remit to and from Taiwan foreign currencies of up to $100,000 per remittance if required documentation
is provided to ROC authorities. This limit applies only to remittances involving a conversion between NT
dollars and U.S. dollars or other foreign currencies.
10.E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits,
income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There
are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for
stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of
the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange
control regulations or currency restrictions in the Cayman Islands.
97
We have, pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands,
obtained an undertaking from the Governor-in-Council that:
(a) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income or
gains or appreciations shall apply to us or our operations;
(b) the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on
our ordinary shares, debentures or other obligations.
The undertaking that we have obtained is for a period of 20 years from May 3, 2005.
United States Federal Income Taxation
The following is a description of the material U.S. federal income tax consequences to the U.S.
Holders described below of owning and disposing of ordinary shares or ADSs, but it does not purport
to be a comprehensive description of all tax considerations that may be relevant to a particular person’s
decision to hold the securities. This discussion applies only to a U.S. Holder that holds ordinary shares or
ADSs as capital assets for tax purposes. In addition, it does not describe all of the tax consequences that
may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax
consequences and tax consequences applicable to U.S. Holders subject to special rules, such as:
•
certain financial institutions;
•
dealers or traders in securities who use a mark-to-market method of tax accounting;
•
persons holding ordinary shares or ADSs as part of a hedging transaction, straddle, wash sale,
conversion transaction or integrated transaction or persons entering into a constructive sale with
respect to the ordinary shares or ADSs;
•
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
•
entities classified as partnerships for U.S. federal income tax purposes;
•
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;
•
persons that own or are deemed to own ten percent or more of our voting stock;
•
•
persons who acquired our ordinary shares or ADSs pursuant to the exercise of an employee stock
option or otherwise as compensation; or
persons holding ordinary shares or ADSs in connection with a trade or business conducted
outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds ordinary
shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status
of the partner and the activities of the partnership. Partnerships holding ordinary shares or ADSs and
partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax
consequences of holding and disposing of the ordinary shares or ADSs.
This discussion is based on the Internal Revenue Code of 1986, as amended, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the
date hereof. These laws are subject to change, possibly on a retroactive basis. It is also based in part on
representations by the depositary and assumes that each obligation under the deposit agreement and any
related agreement will be performed in accordance with its terms. Please consult your own tax adviser
concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of
98
ordinary shares or ADSs in your particular circumstances.
As used herein, a “U.S. Holder” is a beneficial owner of ordinary shares or ADSs that is, for U.S.
federal tax purposes: (i) a citizen or resident of the United States; (ii) a corporation, or other entity taxable
as a corporation, created or organized in or under the laws of the United States or any political subdivision
thereof; or (iii) an estate or trust the income of which is subject to U.S. federal income taxation regardless
of its source.
In general, a U.S. Holder of ADSs will be treated for U.S. federal income tax purposes as the owner of
the underlying ordinary shares represented by those ADSs. Accordingly, no gain or loss will be recognized
if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.
The U.S. Treasury has expressed concerns that parties to whom American depositary shares are
released before delivery of shares to the depositary (“pre-release”) may be taking actions that are
inconsistent with the claiming of foreign tax credits for U.S. holders of American depositary shares.
Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below,
applicable to dividends received by certain non-corporate U.S. holders. Accordingly, the availability of
the reduced tax rate for dividends received by certain non-corporate U.S. Holders, described below, could
be affected by actions taken by parties to whom ADSs are pre-released.
This discussion assumes that we are not, and will not become, a passive foreign investment company (as
discussed below).
Taxation of Distributions
Distributions received by U.S. Holders with respect to the ordinary shares or ADSs, other than
certain pro rata distributions of ordinary shares, will constitute foreign-source dividend income for U.S.
federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as
determined in accordance with U.S. federal income tax principles. We do not expect to maintain records
of earnings and profits in accordance with U.S. federal income tax principles, and therefore it is expected
that distributions will generally be reported to U.S. Holders as dividends. Subject to applicable limitations
and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid by qualified
foreign corporations to certain non-corporate U.S. Holders in taxable years beginning before January 1,
2013 may be taxable at favorable rates, up to a maximum rate of 15%. A foreign corporation is treated
as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on a
securities market in the United States, such as the Nasdaq Global Select Market, where our ADSs are
traded. Our ordinary shares are not traded on a securities market in the United States. Non-corporate U.S.
Holders of our ordinary shares or ADSs should consult their own tax advisers regarding their eligibility
for taxation at such favorable rates and whether they are subject to any special rules that limit their ability
to be taxed at such favorable rates. Corporate U.S. Holders will not be entitled to claim the dividends-
received deduction with respect to dividends paid by us.
Sale and Other Disposition of Ordinary Shares or ADSs
A U.S. Holder will generally recognize U.S.-source capital gain or loss for U.S. federal income tax
purposes on the sale or other disposition of ordinary shares or ADSs, which will be long-term capital
gain or loss if the ordinary shares or ADSs were held for more than one year. The amount of gain or loss
will be equal to the difference between the amount realized on the sale or other disposition and the U.S.
Holder’s tax basis in the ordinary shares or ADSs.
Passive Foreign Investment Company Rules
We believe that we were not a passive foreign investment company (a “PFIC”) for U.S. federal income
tax purposes for our taxable year ended December 31, 2011.
In general, a non-U.S. company will be a PFIC for U.S. federal income tax purposes for any taxable
99
year in which (i) 75% or more of its gross income consists of passive income (such as dividends, interest,
rents and royalties) or (ii) 50% or more of the average quarterly value of its assets consists of assets that
produce, or are held for the production of, passive income. As PFIC status depends upon the composition
of our income and assets and the market value of our assets (including, among other things, any equity
investments in less than 25%-owned entities) from time to time, there can be no assurance that we will not
be a PFIC for any taxable year.
If we were a PFIC for any taxable year during which a U.S. Holder held ordinary shares or ADSs,
certain adverse U.S. federal income tax rules would apply on a sale or other disposition (including a
pledge) of ordinary shares or ADSs by the U.S. Holder. In general, under those rules, gain recognized by
the U.S. Holder on a sale or other disposition of ordinary shares or ADSs would be allocated ratably over
the U.S. Holder’s holding period for the ordinary shares or ADSs. The amounts allocated to the taxable
year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to tax at the highest rate in
effect for individuals or corporations, as appropriate for that taxable year, and an interest charge would be
imposed on the tax attributable to such allocated amounts. Similar rules would apply to any distribution
in respect of ordinary shares or ADSs to the extent in excess of 125% of the average of the annual
distributions on ordinary shares or ADSs received by the U.S. Holder during the preceding three years
or the U.S. Holder’s holding period, whichever is shorter. Certain elections may be available that would
result in alternative treatments (such as mark-to-market treatment) of the ordinary shares or ADSs. U.S.
Holders should consult their tax advisers to determine whether any of these elections would be available
and, if so, what the consequences of the alternative treatments would be in their particular circumstances.
In addition, if we were a PFIC in a taxable year in which we pay a dividend or in the prior taxable year,
the 15% dividend rate discussed above with respect to dividends received by certain non-corporate U.S.
Holders would not apply.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain
U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to
backup withholding, unless the U.S. Holder is an exempt recipient or, in the case of backup withholding,
the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to
backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S.
Holder to a refund, provided that the required information is timely furnished to the Internal Revenue
Service.
For taxable years beginning after March 18, 2010, new legislation requires certain U.S. Holders who
are individuals to report information relating to interests held in stock of a non-U.S. person, subject to
certain exceptions (including an exception for stock held in custodial accounts maintained by a U.S.
financial institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of
this legislation on their ownership and disposition of ordinary shares or ADSs.
10.F. Dividends and Paying Agents
Not applicable.
10.G. Statement by Experts
Not applicable.
10.H. Documents on Display
It is possible to read and copy documents referred to in this annual report that have been filed with the
SEC at the SEC’s public reference rooms in Washington, D.C., New York and Chicago, Illinois. Please
100
call the SEC at 1-800-SEC-0330 for further information on the reference rooms.
10.I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to interest rate risk for changes in interest rates is limited to the
interest income generated by our cash deposited with banks.
Foreign Exchange Risk. The U.S. dollar is our reporting currency. The U.S. dollar is also the
functional currency for the majority of our operations. In 2011, more than 99.0% of our sales and
cost of revenues were denominated in U.S. dollars. However, in December 2011, approximately
64.6% of our operating expenses were denominated in NT dollars, with a small percentage
denominated in Japanese Yen, Korean Won and Chinese Renminbi, and the majority of the remainder
denominated in U.S. dollars. We anticipate that we will continue to conduct substantially all of our
sales in U.S. dollars. We do not believe that we have a material currency risk with regard to the NT
dollar. We believe the majority of any potential adverse foreign currency exchange impacts on our
operating assets may be offset by a potential favorable foreign currency exchange impact on our
operating liabilities. From time to time we have engaged in, and may continue to engage in, forward
contracts to hedge against our foreign currency exposure.
As of December 31, 2011, no foreign currency exchange contracts are outstanding.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
Not applicable.
12.B. Warrants and Rights
Not applicable.
12.C. Other Securities
Not applicable.
12.D. American Depositary Shares
Fees and Charges Payable by ADS Holders
To any person to whom ADSs are issued or to whom a distribution is made in respect of ADS
distributions pursuant to stock dividends or other free distributions of stock, bonus distributions,
stock splits, rights distributions or other distributions, and for each surrender of ADSs for cancellation
and withdrawal of deposited securities including cash distributions made pursuant to a cancellation
or withdrawal, the fee in each case is a fee not in excess of $5.00 for each 100 ADSs, or any portion
thereof, issued or surrendered. The depositary also charges a fee not in excess of $2.00 per 100 ADSs
for distribution of cash proceeds pursuant to a cash dividend (so long as the charging of such fee is not
prohibited by any exchange upon which the ADSs are listed), sale of rights and other entitlements not
made pursuant to a cancellation or withdrawal or otherwise. The depositary may also charge an annual
fee of $0.02 or less per ADS for the operation and maintenance costs in administering the facility,
provided, however, that if the depositary imposes such fee, such fee, combined with any fee imposed
for the distribution of cash proceeds pursuant to a cash dividend, shall not exceed $0.02 per ADS in any
calendar year. In addition, holders, beneficial owners, persons depositing shares and persons surrendering
101
ADSs for cancellation and withdrawal of deposited securities will be required to pay the following:
•
taxes and other governmental charges incurred by the depositary or the custodian on any ADSs
or underlying shares, including any applicable interest and penalties thereon, and any stock
transfer or other taxes and other governmental charges;
•
cable, telex, facsimile and electronic transmission and delivery expenses
•
•
•
•
transfer or registration fees for the registration of transfer of shares or other deposited securities
with any applicable registrar in connection with the deposit or withdrawal of deposited securities
and transfer of shares or other deposited securities to or from the name of the custodian, the
depositary or any nominees upon the making of deposits and withdrawals;
expenses and charges of the depositary in connection with the conversion of foreign currency
into U.S. dollars;
fees and expenses incurred by the depositary in connection with compliance with exchange
control regulations and other regulatory requirements applicable to the shares, deposited
securities, ADSs and ADRs;
fees and expenses incurred by the depositary in connection with the delivery of the deposited
securities, including any fees of a central depository for securities in the local market, where
applicable; and
•
any other additional fees, charges, costs or expenses that may be incurred by the depositary from
time to time.
In the case of cash distributions, fees and charges of, and expenses incurred by, the depositary and
taxes, duties or other governmental charges required to be withheld by the depositary, the custodian or
our company are generally deducted from the cash being distributed. Service fees may be collected from
holders of ADSs in a manner determined by the depositary with respect to ADSs registered in the name
of investors (whether certificated or in book-entry form) and ADSs held in brokerage and custodian
accounts (via The Depository Trust and Clearing Corporation, or DTC). In the case of distributions other
than cash (i.e., stock dividends, rights, etc.), the depositary charges the applicable ADS record date holder
concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether
certificated or in book-entry form), the depositary sends invoices to the applicable record date ADS
holders.
In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary may, if
permitted by the settlement systems provided by DTC, collect the fees through such settlement systems
(whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians
holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC
accounts in such case may in turn charge their clients’ accounts the amount of the service fees paid to the
depositary.
If any tax or other governmental charge shall become payable by the depositary or the custodian
with respect to any ADSs, ADRs or deposited securities, such tax or other governmental charge shall be
payable by the holders and beneficial owners of ADSs to the depositary. The depositary, the custodian or
our company may withhold or deduct from any distributions made in respect of deposited securities and
may sell, by public or private sale, for the account of the holder and/or beneficial owner any or all of the
deposited securities and apply such distributions and sale proceeds in payment of such taxes (including
applicable interest and penalties) or charges, with the holder and the beneficial owner thereof remaining
fully liable for any deficiency. The custodian may refuse the deposit of shares, and the depositary may
refuse to issue ADSs, to deliver ADRs, register the transfer, split-up or combination of ADSs and the
withdrawal of deposited securities, until payment in full of such tax, charge, penalty or interest is received.
102
Fees and Other Payments from the Depositary to Us
In October 2011, we received a payment of $0.4 million netting of 30% withholding tax from the
depositary relating to the ADR program, which was intended to cover certain of our expenses incurred in
relation to the ADR program for the year, including:
•
legal, audit and other fees incurred in connection with preparation of Form 20-F and annual
reports and ongoing SEC compliance and listing requirements;
•
director and officer insurance;
•
stock exchange listing fees;
•
non-deal roadshow expenses;
•
costs incurred by financial printer and share certificate printer;
•
postage for communications to ADR holders;
•
costs of retaining third party public relations, investor relations, and/or corporate communications
advisory firms in the U.S.; and
•
costs incurred in connection with participation in retail investor shows and capital markets days.
103
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and chief financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end
of the period covered by this report, have concluded that based on the evaluation of these controls and
procedures required by Rule 13a-15(b) of the Exchange Act, our disclosure controls and procedures were
effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP.
Our internal control over financial reporting includes those policies and procedures that:
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets;
provide reasonable assurance that our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with U.S. GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and our
directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of internal control effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management, with the participation of our chief executive and chief financial officers, assessed the
effectiveness of our internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) as of December 31, 2011 based on the criteria set forth in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on the assessment, our management believes that our internal control over financial reporting was
effective as of December 31, 2011.
KPMG, an independent registered public accounting firm, has issued an audit report on the effectiveness
of our internal control over financial reporting as of December 31, 2011, which is included below:
104
105
106
Changes in Internal Control Over Financial Reporting
In 2011, no change in our internal control over financial reporting has occurred during the period
covered by this annual report that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Yuan-Chuan Horng is an audit committee financial expert,
as that term is defined in Item 16A(b) of Form 20-F, and is independent for the purposes of Rule 5605(a)(2)
of the Nasdaq Rules and Rule 10A-3 of the Exchange Act.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics that applies to our directors,
officers and employees, including our principal executive officer, principal financial officer, principal
accounting officer or controller and any other persons who perform similar functions for us. We will
provide a copy of our code of business conduct and ethics without charge upon written request to:
Himax Technologies, Inc.
Human Resources Department
No. 26, Zih Lian Road, Tree Valley Park
Sinshih District, Tainan City 74148
Taiwan, Republic of China
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KPMG, our independent registered public accounting firm, began serving as our auditor upon the
formation of our company in 2001.
Our audit committee is responsible for the oversight of KPMG’s work. The policy of our audit
committee is to pre-approve all audit and non-audit services provided by KPMG, including audit services,
audit-related services, tax services and other services.
We paid the following fees for professional services to KPMG for the years ended December 31, 2010
and 2011.
Services
Year ended December 31,
2010
2011
Audit Fees(1)......................................................................................
All Other Fees(2)................................................................................
Tax Fees(3).........................................................................................
Total...........................................................................................
$ 936,000
3,300
1,700
$ 941,000
$ 716,000
14,00
-
$ 730,000
Note : (1) Audit Fees. This category includes the audit of our annual financial statements and internal
control over financial reporting, review of quarterly financial statements, services that are
normally provided by the independent auditors in connection with statutory and regulatory filings
or engagements for those fiscal years and Taiwan listing program. This category also includes
statutory audits required by the Tax Bureau of the ROC.
(2) All Other Fees. This category consists of fees for the preparation of transfer pricing reports.
(3) Tax Fees. This category consists of fees for general tax planning and advice.
107
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
On November 1, 2007, our board of directors authorized a share buyback program allowing us
to repurchase up to $40.0 million of our ADSs in the open market or through privately negotiated
transactions. We concluded this share buyback program in the first quarter of 2008 and repurchased a total
of approximately $33.1 million of our ADSs (equivalent to approximately 7.7 million ADSs) from the
open market.
On November 14, 2008, our board of directors authorized another share buyback program allowing
us to repurchase up to $50.0 million of our ADSs in the open market or through privately negotiated
transactions. We concluded this share buyback program in the third quarter of 2010 and repurchased a
total of approximately $50.0 million of our ADSs (approximately 19.3 million ADSs) under this program
from the open market.
In April 2011, the Companies Law of the Cayman Islands was amended to permit treasury shares if
so approved by the board and to the extent that the articles do not prohibit treasury shares. Therefore, we
would hold the treasury shares not been cancelled used for settle future employees awards.
On June 20, 2011, our board of directors authorized another share buyback program allowing us
to repurchase up to $25.0 million of our ADSs in the open market or through privately negotiated
transactions. As of March 31, 2012, we had repurchased a total of approximately $13.8 million of our
ADSs (approximately 8.3 million ADSs) under this program from the open market.
The following table sets forth information regarding transactions completed under the two share
buyback programs for each of the specified periods.
Period
(a) Total
Number
of ADSs
Purchased
(b) Average
Price Paid
per ADS
(c) Total
Number
of ADSs
Purchased
as Part of
Publicly
Announced
Plans or
Programs
(d)
Approximate
Dollar Value
of ADSs That
May Yet Be
Purchased
Under the
Plans or
Programs
2007 Share Buyback Program:
November 8, 2007 to November 30, 2007...............
December 1, 2007 to December 31, 2007................
January 1, 2008 to January 31, 2008........................
March 1, 2008 to March 18, 2008...........................
July 1, 2008 to July 17, 2008..................................
3,973,514
2,595,594
849,914
224,128
21,300
$ 4.38
4.23
$
4.24
$
4.67
$
4.21
$
3,973,514
6,569,108
7,419,022
7,643,150
7,664,450
$ 22,612,902
$ 11,633,090
$ 8,025,902
$ 6,980,313
$ 6,890,632
2008 Share Buyback Program:
November 17, 2008 to November 30, 2008.............
December 1, 2008 to December 31, 2008................
January 1, 2009 to January 31, 2009.......................
February 1, 2009 to February 28, 2009....................
March 1, 2009 to March 31, 2009...........................
April 1, 2009 to April 30, 2009...............................
May 1, 2009 to May 18, 2009.................................
July 8, 2009 to July 31, 2009..................................
August 3, 2009 to August 31, 2009..........................
561,411
1,807,680
1,243,903
928,621
643,884
1,580,525
734,939
979,039
1,734,252
$
$
$
$
$
$
$
$
$
1.52
1.35
1.58
1.70
2.12
2.73
2.67
3.63
3.41
561,411
2,369,091
3,612,994
4,541,615
5,185,499
6,766,024
7,500,963
8,480,002
10,214,254
$ 49,144,319
$ 46,695,254
$ 44,728,654
$ 43,152,903
$ 41,785,487
$ 37,466,191
$ 35,501,073
$ 31,946,031
$ 26,029,399
108
(c) Total
Number
of ADSs
Purchased
as Part of
Publicly
Announced
Plans or
Programs
(d)
Approximate
Dollar Value
of ADSs That
May Yet Be
Purchased
Under the
Plans or
Programs
(a) Total
Number
of ADSs
Purchased
(b) Average
Price Paid
per ADS
1,403,787
1,574,538
1,482,205
819,558
280,237
752,978
207,150
780,239
234,007
362,497
1,092,118
144,800
30,847
263,836
640,417
472,179
676,186
939,440
744,305
2,451,652
1,873,787
186,345
120,968
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3.36
2.99
2.44
2.91
2.95
2.90
2.99
2.81
2.98
2.96
2.43
2.42
2.14
1.95
1.49
1.24
1.08
1.07
1.02
1.31
1.61
1.75
1.96
11,618,041
13,192,579
14,674,784
15,494,342
15,774,579
16,527,557
16,734,707
17,514,946
17,748,953
18,111,450
19,203,568
19,348,368
$ 21,306,237
$ 16,590,908
$ 12,978,152
$ 10,597,029
$ 9,769,423
$ 7,586,933
$ 6,967,341
$ 4,772,512
$ 4,074,515
$ 3,002,786
$ 350,516
$ 25
30,847
294,683
935,100
1,407,279
2,083,465
3,022,905
3,767,210
6,218,862
8,092,649
8,278,994
8,399,962
$ 24,934,056
$ 24,418,694
$ 23,465,611
$ 22,881,401
$ 22,151,317
$ 21,147,684
$ 20,391,248
$ 17,185,592
$ 14,172,391
$ 13,847,214
$ 13,610,673
Period
September 1, 2009 to September 29, 2009..............
October 1, 2009 to October 30, 2009 .....................
November 2, 2009 to November 30, 2009..............
December 2, 2009 to December 31, 2009...............
January 22, 2010 to January 29, 2010....................
February 1, 2010 to February 26, 2010...................
March 2, 2010 to March 19, 2010..........................
May 5, 2010 to May 25, 2010................................
June 2, 2010 to June 30, 2010 .................................
July 1, 2010 to July 26, 2010..................................
August 5, 2010 to August 31, 2010.........................
September 1, 2010 to September 7, 2010................
2011 Share Buyback Program:
June 22, 2011 to June 30, 2011...............................
July 1, 2011 to July 29, 2011..................................
August 3, 2011 to August 31, 2011..........................
September 1, 2011 to September 30, 2011..............
October 3, 2011 to October 31, 2011 .....................
November 1, 2011 to November 30, 2011..............
December 1, 2011 to December 30, 2011................
January 3, 2012 to January 31, 2012.......................
February 1, 2012 to February 27, 2012...................
March 6, 2012 to March 30, 2012...........................
April 3, 2012 to April 25, 2012...............................
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
The Nasdaq Rules provide that foreign private issuers may follow home country practice in lieu of the
corporate governance requirements of the Nasdaq Stock Market LLC, subject to certain exceptions and
requirements and except to the extent that such exemptions would be contrary to U.S. federal securities
laws and regulations. The significant differences between our corporate governance practices and those
followed by U.S. companies under the Nasdaq Rules are summarized as follows:
• We follow home country practice that permits our board of directors to have less than a majority
of independent directors within the meaning of Rule 5605(a)(2) of the Nasdaq Rules, in lieu of
complying with Rule 5605(b)(1) of the Nasdaq Rules that require boards of U.S. companies to
have a board of directors which is comprised of a majority of independent directors.
• We 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 5605(b)(2).
• We follow home country practice that permits a compensation committee to contain a director
109
who does not meet the definition of “independence” within the meaning of Rule 5605(a)(2)
of the Nasdaq Rules, in lieu of complying with Rule 5605(d)(1)(B) and (2)(B) of the Nasdaq
Rules which requires the compensation committees of U.S. companies to be comprised solely of
independent directors.
• We follow home country practice that permits a nominations committee to contain a director who
does not meet the definition of “independence” within the meaning of Rule 5605(a)(2) of the
Nasdaq Rules, in lieu of complying with Rule 5605(e)(1)(B) of the Nasdaq Rules that requires
the nominations committees of U.S. companies be comprised solely of independent directors.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements and the report thereon by the independent auditors listed below
are attached hereto as follows:
(a) Report of Independent Registered Public Accounting Firm dated April 26, 2012.
(b) Consolidated Balance Sheets of the Company and subsidiaries as of December 31, 2010 and 2011.
(c) Consolidated Statements of Income of the Company and subsidiaries for the years ended
December 31, 2009, 2010 and 2011.
(d) Consolidated Statements of Comprehensive Income of the Company and subsidiaries for the years
ended December 31, 2009, 2010 and 2011.
(e) Consolidated Statements of Equity of the Company and subsidiaries for the years ended December
31, 2009, 2010 and 2011.
(f) Consolidated Statements of Cash Flows of the Company and subsidiaries for the years ended
December 31, 2009, 2010 and 2011.
(g) Notes to Consolidated Financial Statements of the Company and subsidiaries.
110
ITEM 19. EXHIBITS
Exhibit Number
Description of Document
1.1
2.1
2.2
2.3
2.4
2.5
2.6
2.7
4.1
4.2
Third Amended and Restated Memorandum and Articles of Association of the
Registrant, as currently in effect. (Incorporated by reference to Exhibit 1.1 from
our Annual Report on Form 20-F (file no. 000-51847) filed with the Securities
and Exchange Commission on June 3, 2010.)
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3).
Registrant’s Specimen Certificate for Ordinary Shares. (Incorporated by
reference to Exhibit 4.2 from our Registration Statement on Form F-1 (file no.
333-132372) filed with the Securities and Exchange Commission on March 13,
2006.)
Form of Deposit Agreement among the Registrant, the depositary and holders of
the American depositary receipts. (Incorporated by reference to Exhibit (a) from
our Registration Statement on Form F-6 (file no. 333-132383) filed with the
Securities and Exchange Commission on March 13, 2006.)
Form of Amendment No.1 to Deposit Agreement among the Registrant and the
depositary. (Incorporated by reference to Exhibit (a)(2) from our Post Effective
Amendment No. 1 to Form F-6 (file no. 333-132383) filed with the Securities
and Exchange Commission on August 6, 2009.)
Share Exchange Agreement dated June 16, 2005 between Himax Technologies,
Inc. and Himax Technologies Limited. (Incorporated by reference to Exhibit 4.4
from our Registration Statement on Form F-1 (file no. 333-132372) filed with
the Securities and Exchange Commission on March 13, 2006.)
Letter of the ROC Investment Commission, Ministry of Economic Affairs
dated August 30, 2005 relating to the approval of Himax Technologies, Inc.’s
inbound investment in Taiwan. (Incorporated by reference to Exhibit 4.5 from
our Registration Statement on Form F-1 (file no. 333-132372) filed with the
Securities and Exchange Commission on March 13, 2006.)
Letter of the ROC Investment Commission, Ministry of Economic Affairs dated
September 7, 2005 relating to the approval of Himax Technologies Limited’s
outbound investment outside of Taiwan. (Incorporated by reference to Exhibit 4.6
from our Registration Statement on Form F-1 (file no. 333-132372) filed with
the Securities and Exchange Commission on March 13, 2006.)
Himax Technologies, Inc. 2005 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.1 from our Registration Statement on Form F-1 (file no.
333-132372) filed with the Securities and Exchange Commission on March 13,
2006.)
Plant Facility Service Agreement dated April 22, 2010 between Himax Display,
Inc. and Chi Mei Innolux Corporation. (Incorporated by reference to Exhibit
4.2 from our Annual Report on Form 20-F (file no. 000-51847) filed with the
Securities and Exchange Commission on June 3, 2010.)
111
Exhibit Number
Description of Document
4.3*
8.1
12.1
12.2
13.1
15.1
Agreement and Plan of Merger dated November 8, 2010 among Himax Display,
Inc., Spatial Photonics, Inc. and Wen Hsieh.
List of Subsidiaries.
Certification of Jordan Wu, President and Chief Executive Officer of Himax
Technologies, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Jessica Pan, Acting Chief Financial Officer of Himax
Technologies, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Consent of KPMG, Independent Registered Public Accounting Firm.
* Confidential treatment has been requested for portions of this exhibit.
112
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant
certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized.
HIMAX TECHNOLOGIES, INC.
By: /s/ Jordan Wu
Name:
Title:
Jordan Wu
President and Chief Executive Officer
Date: April 30, 2012
113
HIMAX TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm..................................................................
Consolidated Balance Sheets as of December 31, 2010 and 2011.........................................................
Consolidated Statements of Income for the Years Ended December 31, 2009, 2010 and 2011.............
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2009, 2010
and 2011.............................................................................................................................................
Consolidated Statements of Equity for the Years Ended December 31, 2009, 2010, and 2011.............
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2010 and 2011......
Notes to Consolidated Financial Statements..........................................................................................
Page
F-2
F-3
F-5
F-6
F-7
F-10
F-12
114
Exhibit 8.1
Himax Technologies, Inc.
List of Subsidiaries
Jurisdiction of
Incorporation
Percentage of
Our Ownership
Interest
Subsidiary
Himax Technologies Limited
Himax Technologies Korea Ltd. (formerly Himax
Technologies Anyang Limited)
Himax Semiconductor, Inc. (formerly Wisepal
Technologies, Inc.)
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou) Co., Ltd.
Himax Technologies (Shenzhen) Co., Ltd.
Himax Display, Inc.
Integrated Microdisplays Limited
Himax Analogic, Inc.
Himax Imaging, Inc.
Himax Imaging, Ltd.
Himax Imaging Corp.
Argo Limited
Tellus Limited
Himax Media Solutions, Inc.
ROC
South Korea
ROC
Samoa
PRC
PRC
ROC
Hong Kong
ROC
Cayman Islands
ROC
California, USA
Cayman Islands
Cayman Islands
ROC
100.0%
100.0%
100.0%
100.0%(1)
100.0%(2)
100.0%(2)
88.0%(1)
88.0%(3)
75.1%(1)
100.0%
88.3%(4)
100.0%(5)
100.0%
100.0%(6)
78.3%(7)
78.3%(8)
100.0%(1)
Himax Media Solutions (Hong Kong) Limited
Hong Kong
Harvest Investment Limited
ROC
(1) Indirectly, through our 100.0% ownership of Himax Technologies Limited.
(2) Indirectly, through our 100.0% ownership of Himax Technologies (Samoa), Inc.
(3) Indirectly, through our 88.0% ownership of Himax Display, Inc.
(4) Indirectly, as to 80.4% through our 100.0% ownership of Himax Imaging, Inc. and as to 7.9%
through our 100.0% ownership of Himax Technologies Limited.
(5) Indirectly, through our 100.0% ownership of Himax Imaging, Inc.
(6) Indirectly, through our 100.0% ownership of Argo Limited.
(7) Directly, as to 44.0%, and indirectly, as to 34.3% through our 100.0% ownership of Himax
Technologies Limited.
(8) Indirectly, through our 78.3% ownership of Himax Media Solutions, Inc.
115
Exhibit 12.1
I, Jordan Wu, certify that:
Certification
1. I have reviewed this annual report on Form 20-F of Himax Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the company’s auditors and the audit committee of the
company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the company’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the company’s internal control over financial reporting.
Date: April 30, 2012
116
By: /s/ Jordan Wu
Name:
Title:
Jordan Wu
President and Chief Executive Officer
Exhibit 12.2
I, Jackie Chang, certify that:
Certification
1. I have reviewed this annual report on Form 20-F of Himax Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the company’s auditors and the audit committee of the
company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the company’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the company’s internal control over financial reporting.
Date: April 30, 2012
By: /s/ Jackie Chang
Name:
Title:
Jackie Chang
Chief Financial Officer
117
Exhibit 13.1
Certification
Date: April 30, 2012
The certification set forth below is being submitted to the Securities and Exchange Commission in
connection with the Annual Report on Form 20-F for the year ended December 31, 2011 (the “Report”)
for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of
1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Jordan Wu, the President and Chief Executive Officer of Himax Technologies, Inc., and Jackie Chang,
the Chief Financial Officer of Himax Technologies, Inc., each certifies that, to the best of his knowledge:
1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Himax Technologies, Inc.
By: /s/ Jordan Wu
Name:
Title:
Jordan Wu
President and Chief Executive Officer
By: /s/ Jackie Chang
Name:
Title:
Jackie Chang
Chief Financial Officer
118
119
F - 1
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2009, 2010 and 2011
(With Report of Independent Registered
Public Accounting Firm Thereon)
F - 2
F - 3
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2010 and 2011
(in thousands of US dollars)
December 31,
2010
2011
Assets
Current assets:
Cash and cash equivalents
Investments in marketable securities available-for-sale
$
Accounts receivable, less allowance for doubtful accounts,
sales returns and discounts of $17,180 and $15,888 at
December 31, 2010 and 2011, respectively
Accounts receivable from related parties, less allowance for
sales returns and discounts of $138 and $83 at December
31, 2010 and 2011, respectively
Inventories
Deferred income taxes
Restricted cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Investment securities, including securities measured at fair
value of $5,196 and $5,080 at December 31, 2010 and
2011, respectively
Equity method investments
Property, plant and equipment, net
Deferred income taxes
Goodwill
Intangible assets, net
Restricted marketable securities
Other assets
Total assets
$
96,842
8,632
80,212
95,964
117,988
11,977
58,500
15,809
485,924
24,622
869
47,561
24,729
26,846
6,674
172
2,223
133,696
619,620
See accompanying notes to consolidated fi nancial statements.
106,164
165
101,280
79,833
112,985
16,217
84,200
14,865
515,709
24,506
439
57,150
13,649
26,846
4,494
1,266
919
129,269
644,978
F - 4
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2010 and 2011
(in thousands of US dollars, except share and per share data)
December 31,
2010
2011
Liabilities and Equity
Current liabilities:
Short-term debt
Accounts payable
Income taxes payable
Deferred income taxes
Other accrued expenses and other current liabilities
Total current liabilities
Income taxes payable
Accrued pension liabilities
Deferred income taxes
Other liabilities
Total liabilities
Equity
Himax Technologies, Inc. stockholders’ equity:
Ordinary shares, US$0.3 par value, 1,000,000,000
shares authorized; 353,842,764 shares issued and
outstanding at December 31, 2010; 356,699,482
shares issued and 349,279,556 shares outstanding
at December 31, 2011
Additional paid-in capital
Treasury shares, at cost (nil and 7,419,926 ordinary
shares at December 31, 2010 and December 31,
2011, respectively)
Accumulated other comprehensive income
Unappropriated retained earnings
Total Himax Technologies, Inc. stockholders’ equity
Noncontrolling interests
Total equity
Commitments and contingencies
Total liabilities and equity
$
57,000
115,922
9,125
96
23,605
205,748
133
168
1,215
5,380
212,644
106,153
100,291
-
1,204
198,230
405,878
1,098
406,976
$
619,620
See accompanying notes to consolidated fi nancial statements.
84,200
134,353
3,644
-
23,163
245,360
-
319
836
3,405
249,920
107,010
103,051
(4,502)
166
187,712
393,437
1,621
395,058
644,978
F - 5
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2009, 2010 and 2011
(in thousands of US dollars, except per share data)
Revenues
Revenues from third parties, net
Revenues from related parties, net
Costs and expenses:
Cost of revenues
Research and development
General and administrative
(Recovery of ) bad debt expense
Sales and marketing
Total costs and expenses
Year Ended December 31,
2009
2010
2011
$ 245,075
447,306
692,381
550,556
71,364
16,346
218
10,360
648,844
304,068
338,624
642,692
507,647
76,426
18,770
(8,788)
13,279
607,334
374,788
258,233
633,021
507,449
79,042
17,095
(1,541)
14,368
616,413
Operating income
43,537
35,358
16,608
Non operating income (loss):
Interest income
Gain (losses) on sale of marketable securities, net
Equity in losses of equity method investees
Foreign currency exchange gains (losses), net
Interest expense
Other income (loss), net
Earnings before income taxes
Income tax expense
Net income
Net loss attributable to noncontrolling interests
Net income attributable to Himax Technologies, Inc.
766
(87)
(89)
(510)
(3)
111
188
43,725
7,915
35,810
3,840
607
296
(410)
(899)
(182)
524
(64)
35,294
6,228
29,066
4,140
556
350
(349)
466
(455)
(368)
200
16,808
7,301
9,507
1,199
stockholders
$ 39,650
33,206
10,706
Basic earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
Diluted earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
Basic earnings per ADS attributable to Himax Technologies, Inc.
stockholders
Diluted earnings per ADS attributable to Himax Technologies,
Inc. stockholders
$ 0.11
$ 0.11
$ 0.21
$ 0.21
0.09
0.09
0.19
0.19
0.03
0.03
0.06
0.06
See accompanying notes to consolidated fi nancial statements.
F - 6
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2009, 2010 and 2011
(in thousands of US dollars)
Net income
Other comprehensive income:
Unrealized gains (losses) on securities, not subject to income tax:
Unrealized holding gains (losses) on available-for-sale
marketable securities arising during the period
Reclassifi cation adjustment for realized losses (gains)
included in net income
Foreign currency translation adjustments, not subject to income tax
Net unrecognized actuarial loss, net of tax of $(18), $(54) and
$(125) in 2009, 2010 and 2011, respectively
Comprehensive income
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to Himax Technologies,
Year Ended December 31,
2009
2010
2011
$ 35,810
29,066
9,507
(193)
1,511
87
463
(22)
36,145
3,823
(296)
210
(203)
30,288
4,118
(305)
(350)
128
(573)
8,407
1,261
9,668
Inc. stockholders
$ 39,968
34,406
See accompanying notes to consolidated fi nancial statements.
F - 7
S
E
I
R
A
I
D
I
S
B
U
S
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F - 10
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2009, 2010 and 2011
(in thousands of US dollars)
Cash fl ows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Bad debt expense
Share-based compensation expenses
Loss on disposal of property and equipment
Gain on disposal of equity method investment
Loss (gain) on disposal of marketable securities, net
Unrealized loss (gain) on conversion option
Interest income from amortization of discount on
investment in corporate bonds
Equity in losses of equity method investees
Deferred income tax expense
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 taxes payable
Other accrued expenses and other current liabilities
Other liabilities
Net cash provided by operating activities
Cash fl ows from investing activities:
Purchase of property and equipment
Proceeds from disposal of property and equipment
Purchase of available-for-sale marketable securities
Disposal of available-for-sale marketable securities
Disposal of equity method investment
Purchase of investment securities
Purchase of equity method investments
Refund from (increase in) refundable deposits
Increase in other assets
Pledge of restricted cash, cash equivalents and marketable
securities
Purchase of intangible assets
Net cash used in investing activities
Year Ended December 31,
2009
2010
2011
$ 35,810
29,066
9,507
13,795
218
8,553
43
-
87
-
-
89
1,448
13,622
(13,686)
(33,685)
14,401
(2,300)
34,360
(880)
2,452
(697)
73,630
(10,592)
25
(34,248)
39,263
-
-
(663)
(217)
(7)
(1,002)
(100)
(7,541)
13,626
-
6,311
34
-
(296)
(320)
(52)
410
4,481
10,557
(14,782)
41,306
(60,777)
(1,590)
27,843
(5,793)
4,767
2,840
57,631
(7,172)
-
(34,976)
33,443
-
(7,524)
(906)
298
(684)
12,795
-
4,190
121
(313)
(350)
934
(170)
349
6,492
9,138
(21,068)
16,181
(4,135)
951
18,431
(5,616)
(2,092)
(1,897)
43,448
(18,859)
7
(17,490)
25,834
371
-
-
34
-
(78)
-
(17,599)
(94)
-
(10,197)
See accompanying notes to consolidated fi nancial statements.
F - 11
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 2009, 2010 and 2011
(in thousands of US dollars)
Year Ended December 31,
2009
2010
2011
Cash fl ows from fi nancing activities:
Distribution of cash dividends
Proceeds from disposal of subsidiary shares to
noncontrolling interests by Himax Technologies Limited
Proceeds from disposal of subsidiary shares to
noncontrolling interests by Himax Imaging, Inc.
Purchase of subsidiary shares from noncontrolling interests
Pledge of restricted cash, cash equivalents and marketable
securities (for borrowing of short-term debt)
Proceeds from issuance of new shares by subsidiaries
Payments to repurchase ordinary shares
Proceeds from borrowing of short-term debt
Repayment of short-term debt
Net cash used in fi nancing activities
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
Cash and cash equivalents at end of year
Supplemental disclosures of cash fl ow information:
Cash paid during the year for:
Interest
Income taxes
$ (55,496)
(44,097)
(21,224)
529
-
(243)
-
1,027
(36,596)
80,000
(80,000)
(90,779)
414
(24,276)
135,200
110,924
1,011
-
(207)
(57,500)
353
(10,755)
217,000
(160,000)
(54,195)
81
(14,082)
110,924
96,842
17
3,224
(1,958)
(26,700)
53
(4,627)
277,200
(250,000)
(24,015)
86
9,322
96,842
106,164
3
7,652
170
8,329
490
6,326
See accompanying notes to consolidated fi nancial statements.
F - 12
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2010 and 2011
Note 1. Background, Principal Activities and Basis of Presentation
Background
Himax Technologies, Inc. is a holding company located in the Cayman Islands. Following is general
information about Himax Technologies, Inc.’s subsidiaries:
Subsidiary
Main activities
Jurisdiction of
Incorporation
Percentage of
Ownership
December 31,
2010
2011
Himax Technologies Limited
Himax Technologies Korea Ltd. (formerly
Himax Technologies Anyang Limited)
Himax Semiconductor, Inc. (formerly
Wisepal Technologies, Inc.)
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou), Co., Ltd.
Himax Technologies (Shenzhen), Co., Ltd.
Himax Display, Inc.
Integrated Microdisplays Limited
Himax Display US Corp.
Himax Analogic, Inc.
Himax Imaging, Inc.
Himax Imaging, Ltd.
Himax Imaging Corp.
Argo Limited
Tellus Limited
Himax Media Solutions, Inc.
Himax Media Solutions (Hong Kong)
Limited
Harvest Investment Limited
IC design and sales
Sales
ROC
South Korea
100.00%
100.00%
100.00%
100.00%
IC design and sales
ROC
100.00%
100.00%
Investments
Sales
Sales
IC design,
manufacturing and
sales
IC design and sales
Investments
IC design and sales
Investments
IC design and sales
IC design
Investments
Investments
TFT-LCD television
and monitor chipset
operations
Investments
Samoa
PRC
PRC
ROC
Hong Kong
Delaware, USA
ROC
Cayman Islands
ROC
California, USA
Cayman Islands
Cayman Islands
ROC
100.00%
100.00%
100.00%
87.96%
87.96%
-
75.11%
93.37%
93.37%
93.37%
100.00%
100.00%
78.11%
100.00%
100.00%
100.00%
88.02%
88.02%
88.02%
75.10%
100.00%
89.69%
100.00%
100.00%
100.00%
78.25%
Hong Kong
78.11%
78.25%
Investments
ROC
100.00%
100.00%
F - 13
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements(Continued)
December 31, 2008, 2009 and 2010
Since March 2006, Himax Technologies, Inc.’s ordinary shares have been quoted on the NASDAQ Global
Market under the symbol “HIMX” in the form of ADSs and two ordinary shares represent one ADS effect
from August 10, 2009. See Note15 (a) as further described.
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 tablet PCs, netbook computers (with a display size of typically less than 10 inches), digital
cameras, mobile gaming devices, portable DVD players, digital photo frame and car navigation displays.
The Company also offers display drivers for panels using OLED technology and LTPS technology. In
addition, the Company is expanding its product offerings to include non-driver products such as timing
controllers, touch controller ICs, TFT-LCD television and monitor chipsets, LCOS projector solutions,
power management ICs, CMOS image sensors, wafer level optics products, infi nitely color technology
and 2D to 3D conversion solutions. The Company’s customers are TFT-LCD panel manufacturers, mobile
device module manufacturers and television makers.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in
conformity with US generally accepted accounting principles (“US GAAP”).
Note 2. Summary of Signifi cant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated fi nancial statements include the accounts and operations of the
Himax Technologies, Inc. and all of its majority owned subsidiaries. All signifi cant 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. Actual results could differ from those estimates. 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 derivatives, deferred
income tax assets, property, plant and equipment, inventory, share-based compensation and
potential impairment of intangible assets, goodwill, marketable securities and other investment
securities and liabilities for employee benefi t obligations, and income tax uncertainties and other
contingencies.
F - 14
(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, 2010 and 2011,
the Company had $77,500 thousand and $72,000 thousand of cash equivalents, respectively, in US
dollar denominated time deposits with original maturities of less than three months. As of December
31, 2011, cash in the amount of $40,200 thousand and time deposits in the amount of $44,000
thousand had been pledged as collateral for short term debts which would be released within one
year and are therefore excluded from cash and cash equivalents for purposes of the consolidated
statements of cash fl ows.
(d) Investment Securities
Investment securities as of December 31, 2010 and 2011 consist of investments in marketable
securities, investments in non-marketable equity securities and corporate bond. All of the Company’s
investments in debt and marketable equity securities are classifi ed as available-for-sale securities and
are reported at fair value.
Available-for-sale securities, which mature or are expected to be sold in one year, are classified
as current assets. Unrealized holding gains and losses, net of related taxes on available for sale
securities are excluded from earnings and reported as a separate component of equity in accumulated
other comprehensive income (loss) until realized. Realized gains and losses from the sale of
available for sale securities are determined on a specifi c identifi cation basis.
Conversion option in the Company’s investment in corporate convertible bonds are separated from
the corporate bonds and accounted for separately as the economic characteristics and risks of the
corporate bonds and the conversion options are not closely related, a separate instrument with the
same terms as the conversion options would meet the defi nition of a derivative, and the combined
instrument is not measured at fair value. Changes in the fair value of the separated conversion
options are recognized immediately in earnings.
Premiums and discounts on the corporate bonds are amortized over the life of the bonds as an
adjustment to yield using the effective interest method and are included in the interest income in the
accompanying consolidated statements of income.
The cost of the securities sold is computed based on the moving average cost of each security held at
the time of sale.
As of December 31, 2010 and 2011, the Company had $172 thousand and $1,266 thousand,
respectively, of restricted marketable securities, consisting of negotiable certifi cate of deposits and
New Taiwan dollar (NT$) and US dollar denominated time deposits with original maturities of
more than three months, which had been pledged as collateral for customs duties and guarantees for
government grants.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (included in FASB ASC Topic 320, Investments—Debt and
Equity Securities), which amends the recognition guidance for other-than-temporary impairments
(OTTI) of debt securities and expands the financial statement disclosures for OTTI on debt and
equity securities. When an other-than-temporary impairment has occurred, the amount of the other-
than-temporary impairment recognized in earnings depends on whether a company intends to
sell the security or more likely than not will be required to sell the security before recovery of its
amortized cost basis less any current-period credit loss. If a company intends to sell the security or
more likely than not will be required to sell the security before recovery of its amortized cost basis
less any current-period credit loss, the other-than-temporary impairment is recognized in earnings
equal to the entire difference between the investment’s amortized cost basis and its fair value at the
balance sheet date. If a company does not intend to sell the security and it is not more likely than
F - 15
not that a company will be required to sell the security before recovery of its amortized cost basis
less any current-period credit loss, the other-than-temporary impairment is separated into the amount
representing the credit loss and the amount related to all other factors. The amount of the total other-
than-temporary impairment related to the credit loss is recognized in earnings. The amount of the
total other-than-temporary impairment related to other factors is recognized in other comprehensive
income, net of applicable income taxes.
The Company adopted the FSP in 2009, which had no impact on the Company’s consolidated
earnings or consolidated fi nancial position.
Investments in non-marketable equity securities in which the Company does not have the ability to
exercise signifi cant infl uence over the operating and fi nancial policies of the investee are stated at
cost. Dividends, if any, are recognized into earnings when received.
Equity investments in entities where the Company has the ability to exercise signifi cant infl uence
over the operating and financial policy decisions of the investee, but does not have a controlling
fi nancial interest in the investee, are accounted for using the equity method. The Company’s share
of the net income or net loss of an investee is recognized in earnings from the date the signifi cant
infl uence commences until the date that signifi cant infl uence ceases. The difference between the cost
of an investment and the amount of underlying equity in net assets of an investee at investment date
was amortized over useful life of related assets.
A decline in value of a security below cost that is deemed to be other than temporary a result in an
impairment to reduce the carrying amount to fair value. To determine whether any impairment is
other-than-temporary, management considers all available information relevant to the collectability
of the security, including past events, current conditions, and reasonable and supportable forecasts,
when developing estimates of cash fl ows to be collected. Evidence considered in this assessment
includes the reasons for the impairment, the severity and duration of the impairment, changes
in value subsequent to year-end, forecasted performance of the investee, and the general market
condition in the geographic area or industry the investee operates in.
(e) Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided based on a review of collectability of accounts
receivable on a monthly basis. In establishing the required allowance, management considers the
historical collection experience, current receivable aging and the current trend in the credit quality
of the Company’s customers. Management reviews its allowance for doubtful accounts quarterly.
Account balance is charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
(f)
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 inventories
to their 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 income when such
products are sold. Sales to date of such products have not had a signifi cant impact on the Company’s
operating income.
F - 16
(g) Property, Plant and Equipment
Property, plant and equipment consists primarily of land purchased as the construction site of the
Company’s new headquarters, 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 related assets which range as follows: building 25 years, building
improvements 4 to 16 years, machinery 4 to 6 years, research and development equipment 4 to 6
years, offi ce furniture and equipment 3 to 7 years, others 2 to 10 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 the estimated useful lives ranging from 2 to
6 years.
(h) Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired
in the business combination of the Company’s acquisition of Himax Semiconductor, Inc. (formerly
Wisepal Technologies, Inc.) in 2007 that are not individually identifi ed and separately recognized.
Goodwill is reviewed for impairment at least annually. Impairment testing for goodwill is done
at a reporting unit level. A reporting unit is an operating segment or one level below an operating
segment (also known as a component). A component of an operating segment is a reporting unit
if the component constitutes a business for which discrete financial information is available, and
segment management regularly reviews the operating results of that component.
The goodwill impairment test is a two-step test. Under the fi rst 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 ASC 805 (SFAS 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.
In 2009 and 2010, management determined that the Company in essence only had one reporting unit
for purposes of testing goodwill for impairment, which was the enterprise as a whole. Management
performs the annual impairment review of goodwill at October 31, and when a triggering event
occurs between annual impairment tests. Consequently, the market value based on the quoted market
price of the Company’s shares was excess of the Company’s equity book value on the date of fi rst
step of the assessment in 2009 and 2010. Therefore, management concluded that the Company’s
goodwill was not impaired in 2009 and 2010.
As further described in Note 2(s) below, in 2011 the Company changed its internal reporting such
that the Company now has two operating, which are also reportable segments. The Company has
determined that three of the components in Segment Driver IC are economically similar and is
deemed a single reporting unit. As a result, the Company has fi ve reporting units which are Driver
IC, LCOS micro-displays, CMOS image sensors and wafer level optics, Chipsets for TVs and
Monitors, and Others.
Management assigned the Company’s assets and liabilities to each reporting unit based on either
specific identification or by using judgment for the remaining assets and liabilities that are not
specifi c to a reporting unit. Goodwill has been assigned solely to Driver IC reporting unit because on
that reporting unit is expected to benefi t from the synergies of the business combination. Therefore,
only Driver IC reporting unit is tested for goodwill impairment.
F - 17
For Driver IC reporting unit in 2011, management compared the carrying value of Driver IC reporting
unit, inclusive of assigned goodwill, to its respective fair value—step 1 of the two-step impairment
test.
The discounted cash fl ow (DCF) method is used by management in applying the income approach to
determine the fair value of each of the Company’s reporting units. Signifi cant assumptions inherent
in the valuation method for goodwill are employed and included, but are not limited to, prospective
fi nancial information, terminal value, and discount rates.
When performing income approach for each reporting unit, the Company incorporates the use of
projected fi nancial information and a discount rate that are developed using market participant based
assumptions. The cash-flow projections are based on five-year financial forecasts developed by
management that include revenue projections, capital spending trends, and investment in working
capital to support anticipated revenue growth, which are regularly and reviewed by management. The
selected discount rate considers the risk and nature of the respective reporting unit’s cash fl ows and
the rates of return market participants would require to invest their capital in reporting units.
In order to determine the reasonableness of the fair values of the reporting units, management
performed a reconciliation of the aggregate fair values of the reporting units to the Company’s
market capitalization based on the quoted market price of Himax’s ordinary shares, adjusted for an
appropriate control premium. Management believes the control premium represents the additional
amount that a buyer would be willing to pay to obtain a controlling voting interest in the Company as
a result of the ability to take advantage of synergies and other benefi ts. To determine an appropriate
control premium, references were made to recent and comparable merger and acquisition transactions
in the SIC code 367X- Semiconductors and Related Technology industry.
Based on management’s assessments, the estimated fair value of the Driver IC reporting unit
exceeded its carrying amount at October 31, 2011. Therefore, management concluded that goodwill
was not impaired, and step two of the goodwill impairment test under FASB ASC Topic 350 was not
necessary. In addition, no triggering events occurred between annual impairment test dates.
(i) Intangible Assets
Acquired intangible assets include patents, developed technology and customer relationship assets
at December 31, 2010 and 2011. Intangible assets are amortized on a straight-line basis over
the following estimated useful lives: patents 5 to 15 years, technology 5 to 7 years and customer
relationship 7 years.
(j) 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 fl ows expected to be generated. If the carrying amount of an asset
exceeds such estimated cash fl ows, 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 fl ows expected to be generated by the asset.
(k) Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of an arrangement
exists, the product has been delivered, the price is fi xed and determinable and collection is reasonably
assured. The Company uses a binding purchase order as evidence of an arrangement. Management
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
F - 18
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 satisfi ed. These cases include several inventory locations where the
Company manages inventories for its customers, some of which inventories are 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 inventories 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 fi scal period exceed historical rates, management may determine
that additional sales discount and return allowances are required to properly refl ect 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.
(l) Product Warranty
Under the Company’s standard terms and conditions of sale, products sold are subject to a limited
product quality warranty. 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 specifi cally identifi ed
quality issues.
(m) 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, 2009, 2010 and 2011, were $21
thousand, $161 thousand and $59 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.
(n) Employee Retirement Plan
The Company has established an employee noncontributory defined benefit retirement plan (the
“Defi ned Benefi t Plan”) covering full-time employees in the ROC which were hired by the Company
before January 1, 2005.
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. Management 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 modifi cations to those assumptions is recorded in
accumulated other comprehensive income and amortized to net periodic cost over future periods using
the corridor method. Management believes that the assumptions utilized in recording its obligations
under its plans are reasonable based on its experience and market conditions.
The Company adopted the measurement date provisions of ASC 715 (SFAS No. 158), Compensation-
Retirement Benefi ts, as of December 31, 2008 which required plan assets and benefi t obligations be
measured as of the date of the Company’s fi scal year-end statement of fi nancial position which are
consistent with the Company’s prior policies and the adoption of the measurement provisions of ASC
F - 19
715 (SFAS No. 158) did not impact the consolidated fi nancial statements.
The Company has adopted a defi ned contribution plan covering full-time employees in the ROC (the
“Defi ned 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 Defi ned Benefi t Plan have been provided the option of continuing to participate
in the Defi ned Benefi t Plan, or to participate in the Defi ned Contribution Plan on a prospective basis
from July 1, 2005. Accumulated benefi ts attributed to participants that elect to change plans are not
impacted by their election.
(o) 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 carry-forward. 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.
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 refl ected
in the period in which the change in judgment occurs. The Company records interest and penalties
related to unrecognized tax benefi ts as income tax expense in the consolidated statement of income.
(p) Foreign Currency Translation and Foreign Currency Transactions
The reporting currency of the Company is the United States dollar. The functional currency for the
Company and its major operating subsidiaries 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 fl ows are translated at the average
exchange rates during the year. Translation gains or losses are accumulated as a separate component
of equity in accumulated other comprehensive income (loss).
(q) Earnings Per Ordinary Share
Basic earnings per ordinary share is computed using the weighted average number of ordinary shares
outstanding during the period. Diluted earnings per ordinary share is computed using the weighted
average number of ordinary and diluted ordinary equivalent shares outstanding during the period.
Ordinary equivalent shares are ordinary shares that are contingently issuable upon the vesting of
unvested restricted share units (RSUs) granted to employees.
F - 20
Basic and diluted earnings per ordinary share have been calculated as follows:
Year Ended December 31,
2009
2010
2011
Net income attributable to Himax Technologies, Inc.
stockholders (in thousands)
$ 39,650
33,206
10,706
Denominator for basic earnings per ordinary share:
Weighted average number of ordinary shares outstanding
(in thousands)
369,652
355,037
353,771
Basic earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
$ 0.11
0.09
0.03
Contingently issuable ordinary shares underlying the unvested RSUs granted to employees are included
in the calculation of diluted earnings per ordinary share based on treasury stock method. In 2009, the
unvested 612,313 RSUs (represents 1,224,626 ordinary shares) which will vest in 2010 were excluded
as their effect would be anti-dilutive. In 2011, the unvested 437,029 RSUs (represents 874,058 ordinary
shares) which will vest in 2012 were excluded as their effect would be anti-dilutive.
Net income attributable to Himax Technologies, Inc.
stockholders (in thousands)
Denominator for diluted earnings per ordinary share:
Weighted average number of ordinary shares outstanding
(in thousands)
Unvested RSUs (in thousands)
Year Ended December 31,
2009
2010
2011
$ 39,650
33,206
10,706
369,652
577
370,229
355,037
653
355,690
353,771
56
353,827
Diluted earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
$ 0.11
0.09
0.03
(r) Share-Based Compensation
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 refl ect the current estimate of forfeitures, and fi nally, the actual number of
awards that vest.
(s) Segment Reporting
The Company uses the management approach in determining reportable operating segments. The
management approach considers the internal organization and reporting used by the Company's
chief operating decision maker for making operating decisions, allocating resources and assessing
performance as the source for determining the Company's reportable segments.
The Company’s chief operating decision maker (“CODM”) has been identifi ed as the Chief Executive
Offi cer, who regularly reviews operating results to make decisions about allocating resources and
assessing performance for the Company.
F - 21
Prior to fiscal year 2011, based on the Company’s internal organization structure and its internal
reporting, management determined that the Company did not have any operating segments as that
term is defi ned in ASC 280 (SFAS No. 131), “Segments Reporting”.
Since January 2011, management changed the Company’s internal organization structure and its
internal reporting. Consequently, management has determined that the Company now has two
operating segments, Driver IC and Non-driver products, which are also reportable segments. This
basis of segmentation is applied retrospectively to present segment information for 2009 and 2010.
The CODM assesses the performance of the operating segments based on segment sales and segment
profit and loss. There are no intersegment sales in the segment revenues reported to the CODM.
Segment profi t and loss is determined on a basis that is consistent with how the Company reports
operating income (loss) in its consolidated statements of operations. Segment profi t (loss) excludes
income taxes, interest income and expense, foreign currency exchange gains and losses, equity in
the earnings (losses) of affi liates, gains and losses on valuations of fi nancial instruments and sales of
investment securities, and other income and expenses.
The Company does not report segment asset information to the Company’s CODM. Consequently,
no asset information by segment is presented.
(t) Noncontrolling Interests
Non-controlling interests are classified in the consolidated statements of income as part of
consolidated net income and the accumulated amount of non-controlling interests as part of equity in
the consolidated balance sheets. If a change in ownership of a consolidated subsidiary results in loss
of control and deconsolidation, any retained ownership interests are re-measured with the gain or loss
reported in net earnings.
The effects of changes in the Company’s ownership interests in its subsidiaries on Himax
Technologies, Inc. equity are set forth as follows:
Year Ended December 31,
2009
2010
2011
Net income attributable to Himax Technologies, Inc.
stockholders
$ 39,650
33,206
10,706
Transfers (to) from the noncontrolling interests:
Increase (decrease) in Himax Technologies, Inc.’s paid-
in capital for sale of shares of Himax Display, Himax
Analogic and Himax Media Solutions
Increase in Himax Technologies, Inc.’s paid-in capital for
new shares issued by Himax Display, and Himax Media
Solutions
Decrease in Himax Technologies, Inc.’s paid-in capital
for purchase of new shares issued by Himax Analogic
Net transfers from noncontrolling interests
Change from net income attributable to Himax Technologies,
Inc. stockholders and transfers from noncontrolling
interests
285
35
(242)
78
652
(382)
-
-
-
652
-
(382)
$ 39,728
33,858
10,324
F - 22
(u) Fair Value Measurements
Fair value is defi ned as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The fair values of
cash, cash equivalents, accounts receivable, restricted cash and cash equivalents, short-term debt,
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 are determined using the discounted present
value of expected cash fl ows. The fair value of the corporate straight bonds was initially determined
by subtracting the fair value of the embedded conversion option from the fair value of the combined
instrument. The embedded conversion options and the subsequent measurement of the corporate
straight bond are reported at fair value based on discounting estimated future cash fl ows based on
the terms and maturity of each instrument and using market interest rates for a similar instrument
at the reporting date. Fair values refl ect the credit risk of the instrument and include adjustments to
take account of the credit risk of the Company and counterparty when appropriate. The fair value
of equity method investments and cost method investments have not been estimated as there are no
identifi ed events or changes in circumstances that may have signifi cant adverse effects on the carrying
value of these investments, and it is not practicable to estimate their fair values.
A fair value hierarchy exists that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements
involving signifi cant unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy are as follows:
(i) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access at the measurement date.
(ii) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly.
(iii) Level 3 inputs are unobservable inputs for the asset or liability.
The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on
the lowest level input that is signifi cant to the fair value measurement in its entirety.
(v) Recently Issued Accounting Standards
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about
offsetting and related arrangements to enable users of fi nancial statements to understand the effect
of those arrangements on its financial position, and to allow investors to better compare financial
statements prepared under U.S. GAAP with financial statements prepared under International
Financial Reporting Standards (IFRS). The new standards are effective for annual periods beginning
January 1, 2013, and interim periods within those annual periods. Retrospective application is
required. The Company will implement the provisions of ASU 2011-11 as of January 1, 2013.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. Under this ASU, an entity will have the option to present the components
of net income and comprehensive income in either one or two consecutive financial statements.
The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the
statement of changes in equity. An entity should apply the ASU retrospectively. In December
2011, the FASB decided to defer the effective date of those changes in ASU 2011-05 that relate
only to the presentation of reclassifi cation adjustments in the statement of income by issuing ASU
2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to
F - 23
the Presentation of Reclassifi cations of Items Out of Accumulated Other Comprehensive income in
Accounting Standards Update 2011-05. The Company already presents a separate statement of other
comprehensive income following the statement of income.
Reclassifi cations
Certain prior year amounts have been reclassifi ed to conform to the current year presentation.
Note 3. Investments in Marketable Securities Available-for sale
Following is a summary of marketable securities as of December 31, 2010 and 2011:
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, 2010
Aggregate
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregate
Market
Value
(in thousands)
$ 150
7,995
$ 8,145
21
466
487
-
-
-
171
8,461
8,632
December 31, 2011
Aggregate
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregate
Market
Value
(in thousands)
$ 150
-
$ 150
15
-
15
-
-
-
165
-
165
The Company’s portfolio of available for sale marketable securities by contractual maturity or the expected
holding period as of December 31, 2010 and 2011 is due in one year or less.
Information on sales of available for sale marketable securities for the years ended December 31, 2009,
2010 and 2011 is summarized below.
Period
Year ended December 31, 2009
Year ended December 31, 2010
Year ended December 31, 2011
Proceeds
from sales
$ 39,263
$ 33,443
$ 25,834
Gross
realized
gains
(in thousands)
179
326
420
Gross
realized
losses
(266)
(30)
(70)
F - 24
Note 4. 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, 2009, 2010 and 2011 follows:
Allowance for doubtful accounts
Period
Balance at
beginning
of year
Charges
(credits) to
earnings
Amounts
utilized
Balance at
end of
year
(in thousands)
For the year ended December 31, 2009
For the year ended December 31, 2010
For the year ended December 31, 2011
$ 25,297
$ 25,515
$ 16,727
218
(8,788)
(1,541)
-
-
-
25,515
16,727
15,186
Allowance for sales returns and discounts
Period
Balance at
beginning
of year
For the year ended December 31, 2009
For the year ended December 31, 2010
For the year ended December 31, 2011
$ 162
$ 970
$ 591
Note 5. Equity Method Investments
Additions
Amounts
utilized
(in thousands)
2,391
4,551
3,385
(1,583)
(4,930)
(3,191)
Balance at
end of
year
970
591
785
As of December 31, 2010 and 2011, equity method investments consisted of the following:
December 31,
2010
2011
Amount
Holding
%
Amount
Holding
%
Hangzhou Crystal Display Technology Co., Ltd.
Create Electronic Optical Co., Ltd.
$ 125
744
$ 869
30.00
21.11
-
439
439
-
21.11
Investments accounted for under the equity method consist of Hangzhou Crystal Display Technology Co.,
Ltd. (Crystal, newly incorporated in May, 2009) that were purchased in June 2009 and Create Electronic
Optical Co., Ltd. (C.E.O.) that were purchased in March 2010. Crystal is LCOS project module company
and C.E.O. is a camera module supplier.
The Company disposed of Crystal equity to its other shareholders in June 2011 and resulted in $ 313
thousand gain on disposal of Crystal, which was presented in other income in the accompanying
consolidated statement of income.
At investment date, the difference between the carrying amount of the Company’s investment in C.E.O.
and the underlying equity in the net assets of C.E.O. was $370 thousand which was resulting from C.E.O.’s
identifiable intangible assets and was amortized over 3 years. At the December 31, 2011, the excess
of cost of such investment in C.E.O. over the Company’s share of the net assets of C.E.O. was $162
thousand.
As of December 31, 2011, it was not practicable for management to estimate the fair value of the
F - 25
Company’s investments in C.E.O. due to the lack of quoted market price and the inability to estimate the
fair value without incurring excessive costs. However, management identifi ed no events or changes in
circumstance that may signifi cantly affect the Company’s ability on recovering the carrying values of the
investment.
Note 6. Inventories
As of December 31, 2010 and 2011, inventories consisted of the following:
Finished goods
Work in process
Raw materials
Supplies
December 31,
2010
2011
(in thousands)
$ 38,709
66,271
12,987
21
$ 117,988
30,703
57,737
24,505
40
112,985
Inventory write-downs were $13,622 thousand, $10,557 thousand and $9,138 thousand for the years
ended December 31, 2009, 2010 and 2011, respectively, and are included in cost of revenues.
Note 7. Intangible Assets, Other than Goodwill
Technology
Customer relationship
Patents
Total
Technology
Customer relationship
Patents
Total
December 31, 2010
Weighted
average
amortization
period
(in thousands)
7 years
7 years
6 years
December 31, 2011
Weighted
average
amortization
period
(in thousands)
7 years
7 years
6 years
Gross
carrying
amount
$ 6,339
8,100
842
$ 15,281
Gross
carrying
amount
$ 6,339
8,100
842
$ 15,281
Accumulated
amortization
3,609
4,532
466
8,607
Accumulated
amortization
4,495
5,689
603
10,787
Amortization expense for the years ended December 31, 2009, 2010 and 2011, was $2,193 thousand,
$2,198 thousand and $2,180 thousand, respectively. Estimated amortization expense for the next five
years is $2,126 thousand in 2012 and 2013, $177 thousand in 2014, and $7 thousand in 2015 and 2016.
Note 8. Property, Plant and Equipment
Land
Building and improvements
Machinery
Research and development equipment
Software
Offi ce furniture and equipment
Others
Accumulated depreciation and amortization
Prepayment for purchases of land and equipment
F - 26
December 31,
2010
2011
(in thousands)
$ 10,154
17,199
21,195
16,484
10,267
6,463
10,029
91,791
(45,582)
1,352
$ 47,561
10,154
17,737
27,213
17,393
10,047
7,281
9,881
99,706
(53,594)
11,038
57,150
Depreciation and amortization of these assets for the years ended December 31, 2009, 2010 and
2011, was $11,602 thousand, $11,428 thousand and $10,615 thousand, respectively.
Note 9. Investment securities, including securities measured at fair value
(a) Investments in Non-marketable Equity Securities
Following is a summary of such investments which are accounted for using the cost method
as of December 31, 2010 and 2011:
Chi Lin Optoelectronics Co., Ltd.
Chi Lin Technology Co. Ltd.
Jetronics International Corp.
C Company
Spatial Photonics, Inc.
eTurboTouch Technology Inc.
Oculon Optoelectronics Inc.
Shinyoptics Corp.
December 31,
2010
2011
(in thousands)
$ 1,057
-
1,600
8,962
6,500
715
309
283
$ 19,426
625
432
1,600
8,962
6,500
715
309
283
19,426
On July 25, 2011, Chi Lin Technology Co. Ltd. was split into Chi Lin Optoelectronics Co.,
Ltd. and Chi Lin Technology Co. Ltd.. Chi Lin Technology Co. Ltd. was renamed as Chi
Lin Optoelectronics Co., Ltd..
As of December 31, 2011, it was not practicable for management to estimate the fair values
of the Company’s investments in equity listed above due to the lack of quoted market price
and the inability to estimate the fair value without incurring excessive costs. However,
management identifi ed no events or changes in circumstance that may signifi cantly affect the
Company’s ability on recovering the carrying values of these investments.
(b) Investments in corporate convertible bonds
On August 10, 2010, the Company purchased 1,620,000 units of the corporate convertible
F - 27
bonds issued by Chang Wah Electromaterials Inc. (“CWE”). The bonds have embedded
conversion options which the Company can require CWE to settle the bonds during the
period from September 11, 2010 to July 31, 2015 by converting each unit of bond into
0.6020 common shares of CWE. The embedded conversion options were separated from
the corporate bonds and accounted for separately. The corporate bonds were recorded as
available-for sale security and the separated convertible option was recorded as other assets
in the accompanying consolidated balance sheets.
Following is a summary of the corporate bonds as of December 31, 2010 and 2011:
December 31, 2010
Aggregate
Cost
Gross
Unrealized
gains
Discount
amortization
Aggregate
market
Value
(in thousands)
Corporate bond-available for sale
$ 4,365
779
52
5,196
December 31, 2011
Aggregate
Cost
Gross
Unrealized
gains
Discount
amortization
Aggregate
market
Value
(in thousands)
Corporate bond-available for sale
$ 4,365
596
119
5,080
Following is a summary of the separated conversion options as of December 31, 2010 and
2011:
Conversion option
$ 684
320
-
1,004
December 31, 2010
Aggregate
Cost
Gross unrealized
gains
losses
Fair
Value
(in thousands)
Conversion option
$ 684
-
510
174
Aggregate
Cost
December 31, 2011
Gross unrealized
gains
losses
(in thousands)
Fair
Value
Note 10. Other Accrued Expenses and Other Current Liabilities
Accrued mask, mold fees and other expenses for RD
Payable for purchases of equipment
Accrued software maintenance
Accrued payroll and related expenses
Accrued professional service fee
Accrued warranty costs
Accrued insurance, welfare expenses, etc.
F - 28
December 31,
2010
2011
(in thousands)
$ 7,080
739
1,700
3,356
1,438
679
8,613
$ 23,605
8,211
2,276
1,830
3,837
1,210
78
5,721
23,163
The movement in accrued warranty costs for the years ended December 31, 2009, 2010 and 2011 is as
follows:
Period
Balance at
beginning
of year
Additions
(reversal)
charged to
expense
Amounts
utilized
Balance at
end of
year
Year ended December 31, 2009
Year ended December 31, 2010
Year ended December 31, 2011
$
$
$
249
679
679
(in thousands)
2,920
3,772
(321)
(2,490)
(3,772)
(280)
679
679
78
Note 11. Short-Term Debts
Short-term debts are bank loans with interest rates per annum that ranged from 0.45% to 0.70%, and cash
and cash equivalents in the form of time deposits of totaling $84,200 thousand are pledged as collateral.
As of December 31, 2011, unused credit lines amounted to $119,242 thousand, which expire between
February 2012 and September 2012. Among which, $2,000 thousand expired in February 2012.
Note 12. Government Grants
The Company entered into several contracts with Department of Industrial Technology of Ministry of
Economic Affairs (DOIT of MOEA) and Institute for Information Industry (III) during 2009, 2010 and
2011 primarily for the development of certain new leading products or technologies. Details of these
contracts are summarized below:
Authority
Total Grant
Execution Period
Product Description
(in thousands)
DOIT of MOEA
DOIT of MOEA
NT$ 22,670 (US$703)
30,240 (US$919)
August 2007 to July 2009
October 2008 to September 2010
Display Port IC
Multi-standard Decoder iDTV
III
III
III
III
SOC
1,860 (US$57)
March 2009 to November 2009
Himax Headquarter Excellent
Program (I)
4,340 (US$140)
January 2010 to November 2011
Himax Headquarter Excellent
Program (II)
18,700 (US$582)
January 2010 to December 2011
LCOS Projector Development
23,220 (US$770)
June 2011 to February 2013
CMOS Development Program
Program
F - 29
Government grants recognized by the Company as a reduction of research and development expense and
general and administrative expense in the accompanying consolidated statements of income in 2009, 2010
and 2011 were $534 thousand, $819 thousand and $688 thousand, respectively.
Note 13. Retirement Plan
The Company has established a Defi ned Benefi t Plan covering full-time employees in the ROC which
were hired by the Company before January 1, 2005. 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 benefi ts 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
fi rst fi fteen years of service, and one month of salary for each year of service thereafter. The maximum
retirement benefi t is 45 months of salary. Retirement benefi ts are paid to eligible participants on a lump-
sum basis upon retirement.
Defi ned Benefi t 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.
The Company’s pension fund is managed by a government-established institution with minimum return
guaranteed by government and the fund asset is treated as cash category.
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
Defi ned 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 2009,
2010 and 2011, based on the contribution called for was $1,354 thousand, $1,507 thousand and $1,801
thousand, respectively.
Substantially all participants in the Defined Benefits Plan had elected to participate in the Defined
Contribution Plan. The transfer of participants to the Defi ned Contribution Plan did not have a material
effect on the Company’s fi nancial position or results of operations. Participants’ accumulated benefi ts
under the Defi ned Benefi t 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 $134
thousand to its pension fund maintained with the Bank of Taiwan and $1,882 thousand to the employees’
individual pension fund accounts at the ROC Bureau of Labor Insurance in 2012.
The Company uses a measurement date of December 31, for the Defi ned Benefi t Plan. The changes in
projected benefi t obligation, plan assets and details of the funded status of the Plan are as follows:
F - 30
Change in projected benefi t obligation:
Benefi t obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Benefi t obligation at end of year
Change in plan assets:
Fair value at beginning of year
Actual return on plan assets
Employer contribution
Fair value at end of year
Funded status
Amounts recognized in the balance sheet consist of:
Prepaid pension costs
Accrued pension liabilities
Net amount recognized
December 31,
2010
2011
(in thousands)
$ 1,332
-
29
352
1,713
1,869
31
276
2,176
$ 463
$ 631
(168)
$ 463
1,713
-
33
679
2,425
2,176
27
102
2,305
(120)
198
(318)
(120)
Amounts recognized in accumulated other comprehensive income was net actuarial loss of $465 thousand,
$668 thousand and $1,241 thousand at December 31, 2009, 2010 and 2011, respectively.
The accumulated benefi t obligation for the Defi ned Benefi t Plan was $603 thousand and $687 thousand at
December 31, 2010 and 2011, respectively. As of December 31, 2010 and 2011, no employee was eligible
for retirement or was required to retire.
For the years ended December 31, 2009, 2010 and 2011, the net periodic pension cost consisted of the
following:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Net periodic pension cost
Year Ended December 31,
2009
2010
2011
$ -
31
(40)
25
$ 16
(in thousands)
-
29
(43)
27
13
-
33
(44)
36
25
The net actuarial loss for the defi ned benefi t pension plan that will be amortized from accumulated other
comprehensive income into net periodic benefi t cost in 2012 is $69 thousand.
F - 31
At December 31, 2010 and 2011, the weighted-average assumptions used in computing the benefit
obligation are as follows:
Discount rate
Rate of increase in compensation levels
December 31,
2010
2011
2.00%
4.00%
2.00%
5.00%
For the years ended December 31, 2009, 2010 and 2011, the weighted average assumptions used in
computing net periodic benefi t cost are as follows:
Year Ended December 31,
2009
2010
Whole
2011
Discount rate
Rate of increase in compensation levels
Expected long-term rate of return on
pension assets
2.25%
4.00%
2.25%
2.00%
4.00%
2.00%
2.00%
5.00%
2.00%
Management determines the discount rate and expected long-term rate of return on plan assets based on
the yields of twenty year ROC central government bonds which is in line with the respective employees
remaining service period and the historical long-term rate of return on the above mentioned Fund
mandated by the ROC Labor Standard Law.
The benefi ts expected to be paid from the defi ned benefi t pension plan is $64 thousand in 2016 and $198
thousand from 2017 to 2021, and no benefi ts payments to be paid during the years from 2012 to 2015 and
from 2017 to 2020.
Note 14. 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) Long-term Incentive Plan
Year Ended December 31,
2009
2010
2011
$ 264
10,936
1,959
1,902
$ 15,061
(in thousands)
240
8,803
1,525
1,613
12,181
124
5,062
872
1,005
7,063
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 two ordinary shares of the Company (after
recapitalization effected on August 10, 2009). The 2005 plan was terminated in October 2010.
F - 32
On September 29, 2006, the Company’s compensation committee made grants of 3,798,808
RSUs to the Company’s 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% that vested 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 the Company’s employees. The vesting schedule for the RSUs is as follows: 54.55%
of the RSUs grant vested immediately on the grant date which was settled by cash amounting to
$14,426 thousand, a subsequent 15.15% that vested on each of September 30, 2008, 2009 and
2010 which will be settled by the Company’s ordinary shares, subject to certain forfeiture events.
On September 29, 2008, the Company’s compensation committee made grants of 7,108,675
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows: 60.64%
of the RSUs grant vested immediately on the grant date which was settled by cash amounting to
$12,714 thousand, a subsequent 13.12% will vest on each of September 30, 2009, 2010 and 2011
which will be settled by the Company’s ordinary shares, subject to certain forfeiture events.
On September 28, 2009, the Company’s compensation committee made grants of 3,577,686
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows: 55.96%
of the RSUs grant vested immediately on the grant date which was settled by cash amounting to
$6,508 thousand, a subsequent 14.68% will vest on each of September 30, 2010, 2011 and 2012
which will be settled by the Company’s ordinary shares, subject to certain forfeiture events.
On September 28, 2010, the Company’s compensation committee made grants of 3,488,952
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows: 68.11%
of the RSUs grant vested immediately on the grant date which was settled by cash amounting to
$5,870 thousand, a subsequent 10.63% will vest on each of September 30, 2011, 2012 and 2013
which will be settled by the Company’s ordinary shares, subject to certain forfeiture events.
On September 7, 2011, the Company’s shareholders approved another long-term incentive plan.
The 2011 plan permits the grants of options or RSUs to the Company’s employees, directors and
service providers where each unit of RSU represents two ordinary shares of the Company.
On September 28, 2011, the Company’s compensation committee made grants of 2,727,278
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows: 97.36%
of the RSUs grant vested immediately on the grant date which was settled by cash amounting to
$2,873 thousand, a subsequent 0.88% will vest on each of September 30, 2012, 2013 and 2014
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 ADS (one ADS represents two ordinary
shares) underlying the RSUs granted on the date of grant, which were $5.71 per ADS, $3.95
per ADS, $2.95 per ADS, $3.25 per ADS, $2.47 per ADS and $1.1 per ADS on September 29,
2006, September 26, 2007, September 29, 2008, September 28, 2009, September 28, 2010 and
September 28, 2011, respectively.
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 14 (b)(iii) for further details of the
modifi cation of award.
F - 33
RSUs activity under the long-term incentive plan during the periods indicated is as follows:
Balance at January 1, 2009
Granted
Vested
Forfeited
Balance at December 31, 2009
Granted
Vested
Forfeited
Balance at December 31, 2010
Granted
Vested
Forfeited
Balance at December 31, 2011
Number of
Underlying
Shares for RSUs
Weighted Average
Grant Date Fair Value
4,536,295
3,577,686
(4,014,338)
(261,891)
3,837,752
3,488,952
(4,145,854)
(492,468)
2,688,382
2,727,278
(4,096,965)
(146,307)
1,172,388
$ 3.54
3.25
3.58
3.57
3.23
2.47
2.84
3.10
2.87
1.10
1.74
2.87
2.68
As of December 31, 2011, the total compensation cost related to the unvested RSUs not yet recognized
was $2,286 thousand. The weighted-average period over which it is expected to be recognized is 1.44
years.
As of December 31, 2011, the 1,100,105 and 72,283 unvested RSUs were outstanding under 2005 plan
and 2011 plan, respectively.
In 2010 and 2011, the Company settled RSUs releases with newly issued shares of ordinary shares were
3,538,632 shares and 2,971,212 shares, respectively.
The allocation of compensation expenses from the RSUs granted to employees and independent directors
under the long-term incentive plan is summarized as follows:
Cost of revenues
Research and development
General and administrative
Sales and marketing
(b) Nonvested Shares Issued to Employees
Year Ended December 31,
2009
2010
2011
$ 264
10,078
1,938
1,853
$ 14,133
(in thousands)
240
8,153
1,505
1,587
11,485
124
4,790
863
996
6,773
(i) In September 2005, Himax Analogic granted nonvested shares of its ordinary shares to
certain employees for their future service. The shares vested over four years after the
grant date. The Company recognized compensation expenses of $15 thousand in 2009.
Such compensation expense was recorded as research and development expenses in
the accompanying consolidated statements of income with a corresponding increase to
noncontrolling interests 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.
F - 34
Nonvested share activity of this award during the period indicated is as follows:
Balance at December 31, 2009
Forfeited
Vested
Balance at December 31, 2009
Number of
Shares
Weighted Average
Grant Date Fair Value
673,000
(15,000)
(658,000)
-
$ 0.319
0.319
0.319
-
As of December 31, 2009, the total compensation cost related to this award has been fully
recognized.
(ii) During September 2007 to December 2010, Himax Imaging Inc. (“Imaging Cayman”, a
consolidated subsidiary) granted nonvested shares of its ordinary shares to certain employees
for their future service, and the employees must pay $0.15 or $0.3 (employees hired after
March 1, 2009) per share. The shares vest over four years after the grant date. If employees
leave Himax Imaging before completing the four year service period, they would sell these
shares back to Himax Imaging at their original purchase price. On January 1, 2011, 5,346,777
unvested ordinary shares of Imaging Cayman were cancelled in exchange for 1,939,490
unvested ordinary shares of Himax Imaging Ltd. (“Imaging Taiwan”, a consolidated
subsidiary) by per ordinary share of Imaging Cayman in exchange for 0.36274 ordinary share
of Imaging Taiwan. The plan will continue to vest according to the original vesting schedule.
In 2009 and 2010, Company recognized compensation expenses of $340 thousand, $355
thousand with the fair value of shares of Imaging Cayman on grant date based on the then
most recent price of new shares issued, which was US$0.33 per share.
During 2011, Imaging Cayman granted nonvested shares of Imaging Taiwan’s ordinary shares to
certain employees for their future service, and the employees must pay NT$30 ($1.03) per share.
The shares vest over one year or three years after the grant date. If employees leave Himax
Imaging before completing the service period, Himax Imaging should have the option to buy the
vested shares back or not at employees’ original purchase price.
In 2011, the Company recognized compensation expenses of $71 thousand which was
determined based on the estimated fair value of the ordinary shares of Imaging Taiwan on the
date of grant, which was NT$21 (US$0.72) per share. Such compensation expense was recorded
as research and development expenses, general and administrative expense and sales and
marketing expense in the accompanying consolidated statements of income with a corresponding
increase to noncontrolling interests in the accompanying consolidated balance sheets. The
fair value of ordinary shares was determined based on a third-party valuation conducted by an
independent third-party appraiser.
F - 35
Nonvested share activity of this award for Imaging Cayman during the period indicated is as follows:
Balance at January 1, 2009
Granted
Vested
Forfeited
Balance at December 31, 2009
Granted
Vested
Forfeited
Balance at December 31, 2010
Cancelled
Balance at December 31, 2011
Number of
Shares
Weighted Average
Grant Date Fair Value
4,570,771
2,253,000
(903,882)
(271,000)
5,648,889
1,380,000
(868,390)
(813,722)
5,346,777
(5,346,777)
-
$ 0.33
0.33
0.33
0.33
0.33
0.33
0.33
0.33
0.33
0.33
-
Nonvested share activity of this award for Imaging Taiwan during the period indicated is as follows:
Balance at January 1, 2011
Granted
Vested
Forfeited
Balance at December 31, 2011
Number of
Shares
Weighted Average
Grant Date Fair Value
1,939,490
567,689
(601,129)
(28,971)
1,877,079
$ 0.72
0.72
0.72
0.72
0.72
As of December 31, 2011, the total compensation cost related to this award not yet recognized was $68
thousand. The weighted-average period over which it is expected to be recognized is 1.76 years.
(iii) As stated in Note 14 (a) above, in December 2007, Himax Media Solutions granted 3,416,714
non-vested shares of its ordinary shares 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 modifi ed 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 modifi cation and the total
compensation cost are recognized as compensation expenses ratably over the requisite service
period of the modifi ed award.
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 modifi cation dates occurred during
the period from November 12, 2007 to November 16, 2007. The fair value of Himax Media
Solutions’ non-vested shares at the modifi cation 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 non-vested 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 $432 thousand and $161 thousand in 2009 and 2010, respectively.
Such compensation expense was recorded as sales and marketing expense and research and
development expenses in the accompanying consolidated statements of income.
F - 36
Nonvested share activity of this award during the period indicated is as follows:
Balance at January 1, 2009
Vested
Forfeited
Balance at December 31, 2009
Vested
Forfeited
Balance at December 31, 2010
Number of
Shares
Weighted Average
Grant Date Fair Value
3,022,525
(1,432,000)
(469,525)
1,121,000
(988,000)
(133,000)
-
$ 0.464
0.464
0.464
0.464
0.464
0.464
-
As of December 31, 2010, the total compensation cost related to this award has been fully
recognized.
(c) Employee stock options
On December 20, 2007 and October 20, 2009, board of directors of Himax Media Solutions
approved two plans, the 2007 plan and the 2009 plan, respectively, to grant stock options to
certain employees. These two plans authorize grants to purchase up to 6,800,000 shares and
2,300,000 shares, respectively, of Himax Media Solutions’ authorized but unissued ordinary
shares. The exercise price was NT$15 (US$0.464) and NT$10 (US$0.311), respectively.
On November 29, 2011, Himax Media Solutions’ general shareholders’ meeting approved a
capital reduction plan to offset its loss by a ratio of 75% and effected on December 12, 2011.
Concurrently with the capital reduction plan, the exercise price was changed to NT$60(US$1.856)
and NT$40(US$1.244), respectively.
All options under these plans 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 $141 thousand, $180 thousand
and $219 thousand in 2009, 2010 and 2011, respectively. Such compensation expense was
recorded as sales and marketing expense, general and administrative expense and research and
development expenses in the accompanying consolidated statements of income.
At December 31, 2011, there were 304,500 and 1,000 additional shares available for Himax
Media Solutions’ grant under the 2007 plan and the 2009 plan, respectively. 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 suffi cient 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 rates for the expected term of the options are based on the interest rate of 10 years and
5 years ROC central government bond at the time of grant for the 2007 plan and the 2009 plan,
respectively.
2007
2009
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
0%
39.94%
4.375
2.4776%
0%
51.52%
4.375
2%
F - 37
Number of shares and related data have been retroactively adjusted to refl ect the effect of Himax Media
Solutions’ capital reduction. A summary of stock options activity during the periods indicated is as
follows:
Balance at January 1, 2009
Granted
Exercised
Forfeited
Balance at December 31, 2009
Granted
Exercised
Forfeited
Balance at December 31, 2010
Granted
Exercised
Forfeited
Balance at December 31, 2011
Exercisable at December 31, 2011
Number of
shares
Weighted
average
exercise price
1,416,875
574,750
-
(298,375)
1,693,250
-
-
(249,375)
1,443,875
444,500
-
(346,813)
1,541,562
1,347,188
$ 1.856
1.244
-
1.784
1.664
-
-
1.680
1.660
1.834
-
1.717
1.696
1.761
Weighted
average
remaining
contractual
term
3.375
2.826
2.452
1.803
The weighted average grant date calculated value of the options granted in 2007 and 2009 were
NT$21.6608 (US$0.672) and NT$5.2 (US$0.160), respectively.
Note 15. Equity
(a) Share capital
On August 6, 2009, the Company’s annual general shareholders’ meeting approved a
recapitalization plan as below:
(i) Increase of authorized share capital: to increase the authorized share capital of the Company
from US$50 thousand divided into 500,000 thousand shares of par value US$0.0001 each to
US$300,000 thousand divided into 3,000,000,000 thousand shares of par value US$0.0001
each.
(ii) Distribution of stock dividends: distribute 5,999 shares of stock dividend for each ordinary
share then outstanding as of August 7, 2009 from the additional paid-in capital account.
(iii) Shares consolidation: immediately following the issuance of stock dividend, every three
thousand issued and unissued shares of par value US$0.0001 each are consolidated into one
ordinary share of US$0.3 par value each.
(iv) Change of par value: change the par value of ordinary shares from US$0.0001 per share to
US$0.3 per share effect from August 10, 2009.
Concurrently with the recapitalization plan, the ADS was changed to have one ADS represent
two ordinary shares, as compared to the previous ratio of one ADS represents one ordinary share.
As a result of the ADS ratio change, the percentage ownership of the Company’s share capital
represented by each ADS, immediately before and after the recapitalization plan, will remain
unchanged.
F - 38
In accordance with the Company’s board of director’s resolution on November 14, 2008, the
Company authorized another new share buyback program. The program allows the Company to
repurchase up to $50 million of the Company’s ADSs for retirement. The Company repurchased
2,369,091 ADSs, 13,125,251 ADSs and 3,854,026 ADSs in 2008, 2009 and 2010, respectively,
from open market. In total, the Company has repurchased $50 million or 19,348,368 ADSs in the
open market at an average price of US$2.58 per ADS.
In accordance with the Company’s board of director’s resolution on June 20, 2011, the Company
authorized another new share buyback program. The program allows the Company to repurchase
up to $25 million of the Company’s ADSs.
In April 2011, the Companies Law of the Cayman Islands was amended to permit treasury shares
if so approved by the board and to the extent that the articles do not prohibit treasury shares.
Therefore, the Company would hold the treasury shares not been cancelled used for settle future
employees awards.
The Company repurchased $4.6 million or 3,767,210 ADSs in the open market at an average
price of US$1.23 per ADS in 2011. Among which, 3,709,963 ADSs was held by the Company as
of December 31, 2011.
(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 fi scal 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 accumulated legal and special reserve provided by Himax Taiwan as of December 31, 2010
and 2011 amounting to $45,638 thousand and $47,297 thousand, respectively.
Note 16. Income Taxes
Substantially all of the Company’s earnings from continuing operations before income taxes is derived
from the operations in the ROC and, therefore, substantially all of the Company’s income tax expense
(benefi t) attributable to income from continuing operations is incurred in the ROC.
In May 2009, the ROC government promulgated an amendment of the Income Tax Act. According to the
amendment, the income tax rate of Taiwan profi t-seeking enterprises reduced to 20% from 25%, effective
in 2010. In June 2010, the ROC government re-promulgated an amendment of the Income Tax Act, the
income tax rate of profi t-seeking enterprises reduced to 17% from 20% which retroactively effective from
January 1, 2010. The Company had calculated the deferred tax assets and liabilities in accordance with
the amended law and adjusted the resulting difference as income tax benefi t or expense. Effective January
1, 2006, an alternative minimum tax (“AMT”) in accordance with the Income Basic Tax Act (“IBTA”) is
calculated.
An additional 10% corporate income tax is assessed on undistributed income for the entities in the
ROC, but only to the extent such income is not distributed or set aside as legal reserve before the end
F - 39
of the following year. The 10% surtax is recorded in the period the income is earned, and the reduction
in the surtax liability is recognized in the period the distribution to shareholders or the setting aside of
legal reserve is fi nalized in the following year. The tax base of the undistributed income surtax is “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 20%,
17% and 17% for December 31, 2009, 2010 and 2011, respectively. The tax effects of temporary
differences that arise from the difference between US GAAP and ROC GAAP are measured at the
undistributed tax rate of 27.2%, 24.47% and 24.47% for December 31, 2009, 2010 and 2011, respectively.
In accordance with the ROC Statute for Upgrading Industries, Himax Taiwan’s capital increase in
2003 and 2004 and Himax Semiconductor’s newly incorporated investment in 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 fi ve years.
The Company is entitled to the following tax exemptions:
Date of investment
Tax exemption period
Himax Taiwan:
September 1, 2003
October 29, 2003
September 20, 2004
Himax Semiconductor:
August 26, 2004
April 1, 2004-March 31, 2009
January 1, 2006-December 31, 2010
January 1, 2008-December 31, 2012
January 1, 2009-December 31, 2013
The income before income taxes for domestic and foreign entities is as follows:
Taiwan operations
US operations
China operations
Korea operations
Others
Year Ended December 31,
2009
2010
2011
$ 45,160
39
(215)
(75)
(1,184)
$ 43,725
(in thousands)
38,235
(55)
157
177
(3,220)
35,294
17,210
151
1,293
32
(1,878)
16,808
The components of the income tax expense attributable to income from continuing operations before taxes
for the years ended December 31, 2009, 2010 and 2011 consist of the following:
Current:
Taiwan operations
US operations
China operations
Korea operations
Others
Total current
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 6,407
26
34
-
-
6,467
1,589
33
112
12
1
1,747
2,005
104
120
5
-
2,234
Deferred:
Taiwan operations
US operations
China operations
Korea operations
Others
Total deferred
Income tax expense
F - 40
Year Ended December 31,
2009
2010
2011
(in thousands)
1,443
12
1
(8)
-
1,448
$ 7,915
4,518
(30)
(15)
8
-
4,481
6,228
4,902
5
162
(2)
-
5,067
7,301
Since the Company is based in the Cayman Islands, a tax-free country, domestic tax on pretax income is
calculated at the Cayman Islands statutory rate of zero for each year.
The significant components of deferred income tax expense attributable to income from continuing
operations for the years ended December 31, 2009, 2010 and 2011 are as follows:
Year Ended December 31,
2009
2010
2011
(in thousands)
Deferred income tax expense (benefi t), exclusive of the effects
of other components listed below
$ (11,182)
(13,141)
1,085
Adjustments to deferred tax assets and liabilities for changes in
enacted tax laws and rates
Increase in the beginning-of-the-year balance of the valuation
allowance for deferred tax assets
5,224
3,144
(1)
7,406
$ 1,448
14,478
4,481
5,406
6,490
The differences between expected income tax expense, computed based on the ROC statutory income
tax rate of 25% in 2009 and 17% in 2010 and 2011, and the actual income tax expense as reported in the
accompanying consolidated statements of income for the years ended December 31, 2009, 2010 and 2011
are summarized as follows:
Expected income tax expense
Tax-exempted income
Tax on undistributed retained earnings
Tax benefi t resulting from setting aside legal reserve from prior
year’s income
Adjustment to deferred tax assets and liabilities for enacted
change in tax laws and rates
Investment loss from subsidiary decreased the capital for offset
the defi cit
Increase in investment tax credits
Increase in deferred tax asset valuation allowance
Non-deductible share-based compensation expenses
Provision for uncertain tax position in connection with share-
based compensation expenses
Decrease in unrecognized tax benefi ts related to prior year
uncertain tax positions, net of its impact to tax-exempted
income
Tax effect resulting from foreign entities’ monetary assets or
liabilities that are denominated in functional currency
Transaction gain or loss resulted from remeasuring deferred
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 10,931
(9,377)
5,816
6,000
(3,567)
1,643
2,857
(836)
3,424
(953)
(639)
(164)
5,224
3,144
(1)
-
(13,809)
8,450
458
-
(3,687)
12,408
178
(1,821)
(1,692)
6,823
589
416
133
-
-
-
(2,295)
(6,759)
(4,885)
6,677
1,211
foreign tax liabilities or assets
(1,016)
(3,392)
F - 41
Year Ended December 31,
2009
2010
2011
(in thousands)
Tax effect of the difference resulting from remeasuring foreign
entities’ nonmonetary assets
Foreign tax rate differential
Variance from audits of prior years’ income tax fi lings
Others
Actual income tax expense
691
1,184
(538)
438
$ 7,915
(1,043)
1,320
1,205
(295)
6,228
(4,627)
1,350
476
(206)
7,301
The basic and diluted earnings per ordinary share effect resulting from the income tax exemption for
the years ended December 31, 2009, 2010 and 2011, is a $0.03, $0.01 and nil, increase to earnings per
ordinary share, respectively.
The total income tax expense for the years ended December 31, 2009, 2010 and 2011 was allocated as
follows:
Income from continuing operations
Other comprehensive loss
Total income tax expense
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 7,915
(18)
$ 7,897
6,228
(54)
6,174
7,301
(125)
7,176
As of December 31, 2010 and 2011, the components of deferred income tax assets (liabilities) were as
follows:
Deferred tax assets:
Inventory
Allowance for doubtful accounts
Equity method investments
Capitalized expense for tax purposes
Accrued compensated absences
Allowance for sales return, discounts and warranty
Unused investment tax credits
Unused loss carry-forward
Unrealized foreign exchange loss
Accrued pension cost
Other
Total gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Unrealized foreign exchange gain
Prepaid pension cost
Acquired intangible assets
Property, plant and equipment
Deferred shared based compensation
Total gross deferred tax liabilities
Net deferred tax assets
December 31,
2010
2011
(in thousands)
$ 4,482
2,556
38
28
67
223
49,084
18,466
5,178
168
325
80,615
(42,906)
37,709
(293)
(360)
(1,541)
(31)
(89)
(2,314)
$ 35,395
4,219
2,303
-
13
88
147
39,393
20,919
135
296
308
67,821
(35,241)
32,580
(2,112)
(361)
(1,041)
(36)
-
(3,550)
29,030
F - 42
As of December 31, 2011, the Company has not provided for income taxes on the undistributed earnings
of approximately $467,662 thousand of its foreign subsidiaries since the Company has specifi c plans to
reinvest these earnings indefi nitely. A deferred tax liability will be recognized when the Company can no
longer demonstrate that it plans to indefi nitely reinvest these undistributed earnings. It is not practicable
to estimate the amount of additional taxes that might be payable on such undistributed earnings.
The valuation allowance for deferred tax assets as of January 1, 2009, 2010 and 2011 was $21,022
thousand, $28,428 thousand and $42,906 thousand, respectively. The net change in the valuation
allowance for the years ended December 31, 2009, 2010 and 2011, was an increase of $7,406 thousand,
$14,478 thousand and a decrease of $7,665 thousand, respectively. Effective January 1, 2009, any
recognition of tax benefi t related to changes in the valuation allowance for acquired deferred tax assets
should be recorded in the consolidated statements of income under ASC 805 (SFAS No. 141R), Business
Combination.
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 carry-forward utilizable. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. 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 benefi ts of the deferred
tax assets, net of the valuation allowance at December 31, 2011. 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 carry-forward period are reduced.
Each entity within the Company fi les separate standalone income tax return. Except for Himax Taiwan,
Himax Korea, Himax Technologies (Suzhou) Co., Ltd., Himax Technologies (Shenzhen) Co., Ltd., and
Himax Imaging Corp., most of other subsidiaries of the Company have generated tax losses since their
inception, therefore, a valuation allowance of $31,569 thousand and $31,905thousand as of December
31, 2010 and 2011, respectively, were provided to reduce their deferred tax assets (consisting primarily of
operating loss carry-forward and unused investment tax credits) to zero because management believes it
is unlikely that these tax benefi ts will be realized. The total tax loss carry-forward for these subsidiaries
at December 31, 2011 was $123,085 thousand, which will expire if unused by 2021. The total unused
investment tax credits for these subsidiaries at December 31, 2011 were $11,180 thousand, which will
expire if unused by 2013.
In addition, a valuation allowance of $11,337 thousands and $3,336 thousands as of December 31, 2010
and 2011, respectively, was provided to reduce Himax Taiwan’s deferred tax assets related to unused
investment tax credits.
As ROC Income Tax Acts has been amended in January 2009, the tax loss carry-forward in the preceding
ten years would be deducted from tax income. That amendment is effective for the Company beginning
2009 and extends the period of tax loss carry-forward for certain subsidiaries.
According to the ROC Statute for Upgrading Industries, expired on December 31, 2009, the purchase of
machinery for the automation of production, expenditure for research and development and training of
professional personnel, each occurring before December 31, 2009, entitles the Company to tax credits.
These credits may be applied over a period of fi ve years. The amount of the credit that may be applied
in any year, except the fi nal year, is limited to 50% of the income tax payable for that year. There is no
limitation on the utilization of the amount of investment tax credit to offset the income tax payable in
the fi nal year. Also, investments in shares originally issued by ROC domestic companies that are newly
emerging, important and strategic industries, entitles the Company after a three year holding period to a
tax credit of twenty percent of the price paid for the acquisition of such shares. The credit also may be
applied over a period of fi ve years.
F - 43
On May 12, 2010, the Statute for Industrial Innovation was promulgated in the ROC, which became
effective on the same date except for the provision relating to tax incentives which went into effect
retroactively on January 1, 2010. The Statute for Industrial Innovation entitles companies to investment
tax credits for research and development expenses related to innovation activities but limits the amount of
investment tax credit to only up to 15% of the total research and development expenditure for the current
year, subject to a cap of 30% of the income tax payable for the current year. Moreover, any unused
investment tax credits provided under the Statute for Industrial Innovation can not be carried forward.
As of December 31, 2011, all of the Company’s unused investment tax credits of NT$1,192,638 thousand
(US$39,393 thousand) reported for tax return purposes will expire if unused by 2013.
A reconciliation of the beginning and ending amount of unrecognized tax benefi ts is as follows:
Balance at beginning of year
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Effect of exchange rate change
Balance at end of year
For the year ended December 31,
2009
2010
2011
(in thousands)
$ 5,718
-
-
2,587
145
$ 8,450
8,450
-
(2,295)
133
604
6,892
6,892
-
(6,759)
-
(5)
128
Included in the balance of total unrecognized tax benefi ts at December 31, 2010 and 2011, are potential
benefits of $6,286 thousand and $128 thousand, respectively that if recognized, would reduce the
Company’s effective tax rate. No interest and penalties related to unrecognized tax benefi ts were recorded
by the Company for the years ended December 31, 2009, 2010 and 2011. The Company’s major taxing
jurisdiction is Taiwan. All Taiwan subsidiaries’ income tax returns have been examined and assessed by
the ROC tax authorities through 2009. The tax year 2010 remains open to examination by the ROC tax
authorities. Taiwanese entities are customarily examined by the tax authorities and it is possible that a
future examination will result in a positive or negative adjustment to the Company's unrecognized tax
benefi ts within the next 12 months; however, management is unable to estimate a range of the tax benefi ts
or detriment as of December 31, 2011.
Note 17. Fair Value Measurement
The following table presents the Company’s fi nancial assets and liabilities that are measured at fair value
on a recurring basis which were comprised of the following types of instruments at December 31, 2010
and 2011:
Assets:
Cash and cash equivalents:
Time deposits with original maturities
less than three months
Marketable securities available-for-sale:
Time deposit with original maturities
more than three months
Open-ended bond fund
Investment securities available-for-sale:
Corporate straight bonds
Restricted cash and cash equivalents :
Time deposits with original maturities
less than three months
Fair Value Measurements at
December 31, 2010 Using
Level
Leve2
Leve3
(in thousands)
$ 77,500
-
-
-
8,460
-
45,000
171
-
-
-
-
-
5,196
-
F - 44
Fair Value Measurements at
December 31, 2010 Using
Level
Leve2
Leve3
(in thousands)
-
-
1,004
-
$ 130,960
172
343
$ -
$ -
57,000
57,000
-
6,200
-
-
Fair Value Measurements at
December 31, 2011 Using
Level
Leve2
Leve3
(in thousands)
$ 72,000
-
-
44,000
-
165
-
-
-
-
-
-
5,080
-
174
-
$ 116,000
1,266
1,431
-
5,254
$ -
$ -
84,200
84,200
-
-
Other assets:
Embedded conversion option
Restricted marketable securities:
Time deposits with original maturities
of more than three months
Total
Liabilities:
Short-term debt
Total
Assets:
Cash and cash equivalents:
Time deposits with original maturities
less than three months
Marketable securities available-for-sale:
Time deposit with original maturities
more than three months
Investment securities available-for-sale:
Corporate straight bonds
Restricted cash and cash equivalents :
Time deposits with original maturities
less than three months
Other assets:
Embedded conversion option
Restricted marketable securities:
Time deposits with original maturities
of more than three months
Total
Liabilities:
Short-term debt
Total
Non-fi nancial assets such as goodwill, intangible assets, and property, plant, and equipment are measured
at fair value only when an impairment loss is recognized. No such impairments were recognized in 2009,
2010 and 2011.
There were no transfers between Level 1 and Level 2 of fair value hierarchy and no transfers into or out
of Level 3 fi nancial instruments during the year ended December 31, 2011.
F - 45
The following table summarizes changes in Level 3 assets and liabilities measured at fair value on a
recurring basis for the years ended December 31, 2010 and 2011:
Purchases, issuances, and settlements
Total unrealized gains included in earnings
Total unrealized gains included in other comprehensive
income, net
Balance at December 31, 2010
Total unrealized gains (losses) included in earnings
Total unrealized losses included in other comprehensive
income, net
Balance at December 31, 2011
The amount of total gains in 2010 included in earnings
attributable to the change in unrealized gains relating
to assets and liabilities still held December 31, 2010
The amount of total gains (losses) in 2011 included
in earnings attributable to the change in unrealized
gains (losses) relating to assets and liabilities still
held December 31, 2011
Corporate
straight
bonds
$ 4,365
52
779
5,196
67
(183)
$ 5,080
$ 52
Derivatives
Conversion
option
(in thousands)
Total
684
320
-
1,004
(830)
-
174
320
5,049
372
779
6,200
(763)
(183)
5,254
372
$ 67
(830)
(763)
The Company estimated the fair value for corporate straight bond and conversion option based on an
external expert’s valuation report. The calculated fair values are estimated by using Binomial Model.
The measure is based on signifi cant inputs that are not observable in the market, which are Level 3 inputs.
Key valuation assumptions include (a) a discount rate of 1.5985% and 1.4532% at December 31, 2010
and 2011, respectively, which are based on risk-free rates plus issuer’s risk premium for the expected
terms. The risk-free rate of 1.0485% and 0.9139% applied for the expected terms of 4.6 years and 3.6
years at December 31, 2010 and 2011, respectively, were derived from the yield rate of 2 years and 5
years ROC central government bond at the reporting date. The investee’s risk premium of 0.55% and
0.54% at December 31, 2010 and 2011, respectively, that are based on the risk premium of the unsecured
bank loan of the peer ; (b) an expected volatility of 40.71% and 40.78% at December 31, 2010 and 2011,
respectively, was used in the valuation of conversion option, which are based on the average historical
volatility of the issuer’s publicly traded shares.
Note 18. Signifi cant 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 fi nancial 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 three months, corporate
convertible bond and investments in open-ended bond fund identifi ed to fund current operations.
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 fl uctuations. Management expects the Company to be substantially
dependent on sales to the TFT-LCD panel industry for the foreseeable future.
The Company depends on its largest customer, CMO and its affiliates, which are a related party to
the Company, for majority of its revenues and the loss of, or a significant reduction in orders would
signifi cantly reduce the Company’s revenues and adversely impact the Company’s operating results. In
November 2009, CMO, Innolux Display Corporation, and TPO Displays Corporation agreed to conduct
a merger of the three companies. The merger transaction was completed on March 18, 2010. Innolux is
the surviving entity following the merger and is renamed Chimei Innolux Corporation, or CMI. CMO/
F - 46
CMI and its affiliates accounted for approximately 64.3%, 52.2% and 40.8%, respectively, of the
Company’s revenues in 2009, 2010 and 2011, and represented more than 10% of the Company’s total
accounts receivable balance at December 31, 2010 and 2011. CMO/CMI and its affi liates accounted
for approximately 54.3% and 44.1% of the Company’s total accounts receivable balance at December
31, 2010 and 2011, respectively. In addition, the Company had accounts receivable of $16.7 million
and $15.2 million outstanding from SVA-NEC as of December 31, 2010 and 2011. Since second half
of 2008, SVA-NEC has delayed paying a large portion of its outstanding accounts receivable. Due to
the increasing concern about SVA-NEC’s fi nancial condition, the Company recognized a provision for
doubtful accounts receivable of $25.3 million for the year ended December 31, 2008. Afterwards, the
Company recovered $8.6 million and $1.5 million in cash from SVA-NEC in October 2010 and March
2011, respectively. The allowance for doubtful accounts for SVA-NEC’s accounts receivable is $16.7
million and $15.2 million as of December 31, 2010 and 2011. 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. Management 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 19 and 21 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 nine foundries to
manufacture its wafer, and any failure to obtain suffi cient foundry capacity or loss of any of the foundries
it uses could signifi cantly 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 diffi culties 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
signifi cant delays in product shipments if it is required to fi nd 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.
Note 19. Related-party Transactions
(a) Name and relationship
Name of related parties
Relationship
Chimei Innolux Corporation (CMI)
Principal Owner (1)
Chi Mei Optoelectronics Corp. (CMO)
The Company’s Chairman represented on CMO’s
Board of Directors ,expired on March 18,
2010(1)
F - 47
Name of related parties
Relationship
Chi Mei Optoelectronics Japan, Co., Ltd.
Wholly owned subsidiary of CMI (2)
(CMO-Japan)
Chi Mei Corporation (CMC)
Major shareholder of CMI
NEXGEN Mediatech Inc. (NEXGEN)
Chi Lin Technology Co., Ltd. (Chi Lin Tech)
The Company’s Chairman represented on NEXGEN’s
Board of Directors, not included as related party
since July 2011
The Company’s Chairman represented on Chi Lin
Tech’s Board of Directors, not included as related
party since May 2011
NingBo Chi Mei Electronics Ltd. (CME-
The subsidiary of CMI (2)
NingBo)
NingBo Chi Mei Optoelectronics Ltd. (CMO-
The subsidiary of CMI (2)
NingBo)
Chi Mei EL Corporation (CMEL)
The subsidiary of CMI (2)
NanHai Chi Mei Optoelectronics Ltd. (CMO-
The subsidiary of CMI (2)
NanHai)
Chi Hsin Electronics Corp. (Chi Hsin)
The subsidiary of CMO, which merged with CMO on
May 31, 2009, CMO was the surviving company
Chi Mei Logistics Corp. (CMLC)
The subsidiary of CMI (2) , not included as related
NingBo Chi Mei Logistics Corp.
(CMLC-NingBo)
Foshan Chi Mei Logistics Ltd.
(CMLC-Foshan)
party since July 2011
The subsidiary of CMI (2)
The subsidiary of CMI (2)
Dongguan Chi Hsin Electronics Co., Ltd.
(Chi Hsin-Dongguan)
The subsidiary of CMI (2)
NingBo ChiHsin Electronics Ltd. (Chi Hsin-
The subsidiary of CMI (2)
NingBo)
Fulintec Science Engineering Co., Ltd.
The subsidiary of CMI (2), not included as related
(Fulintec)
party since May 2011
ShenZhen Nexgen Trading Co., Ltd. (ShenZhen
The subsidiary of NEXGEN, not included as related
Nexgen)
party since July 2011
TPO Displays Japan K.K. (TPO Japan)
The subsidiary of CMI, as related party since March
18, 2010
TPO Displays Hong Kong Limited (TPO Hong
The subsidiary of CMI, as related party since March
Kong)
18, 2010
F - 48
Name of related parties
Relationship
TPO Displays (Shanghai) Ltd. (TPO Shanghai)
The subsidiary of CMI, as related party since
March 18, 2010
TPO Displays (Nanjing) Ltd. (TPO-NJ)
The subsidiary of CMI, as related party since
March 18, 2010
Lakers Trading Ltd. (Lakers)
The subsidiary of CMI, as related party since
March 18, 2010
Contrel Technology Co., Ltd. (Contrel)
Related party in substance, not included as
related party since March 18, 2010
Ampower Technology Co., Ltd. (Ampower)
Related party in substance, not included as
Amlink (Shanghai) Ltd. (Amlink)
related party since March 18, 2010
Related party in substance, not included as
related party since March 18, 2010
Linklinear Development Co, Ltd. (LDC)
Related party in substance, not included as
Shinyoptics Corp. (Shinyoptics)
Hangzhou Crystal Display Technology Co., Ltd.
(Crystal)
related party since March 18, 2010
Equity method investee of the Company, not
included as related party since October 1,
2010
Equity method investee of the Company, not
included as related party since May 2011
(1) CMO, Innolux Display Corporation, and TPO Displays Corporation agreed to conduct
a merger of the three companies. The merger transaction was completed on March 18,
2010. Innolux is the surviving entity following the merger and is renamed Chimei Innolux
Corporation, or CMI.
(2) The entities are the subsidiary of CMO before March 18, 2010.
(b) Signifi cant transactions with related parties
(i) Revenues and accounts receivable
Revenues from related parties are summarized as follows:
CMO- NingBo
CMI
CMO- NanHai
Chi Hsin- NingBo
CMO
CME- NingBo
Others (individually below 5%)
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 230,299
-
86,612
23,789
101,569
-
5,037
$ 447,306
167,255
56,770
51,821
19,730
15,602
8,592
18,854
338,624
123,888
55,629
41,241
16,806
-
18,889
1,780
258,233
F - 49
A breakdown by product type for sales to CMO/CMI and its affi liates is summarized as follows:
Display driver for large-size applications
Display driver for consumer electronics applications
Display driver for mobile handsets
Others
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 417,099
25,542
1,487
1,117
$ 445,245
297,146
27,189
10,170
1,090
335,595
210,137
29,316
14,454
4,249
258,156
The sales prices CMO/CMI and its affi liates receive are comparable to those offered to unrelated third
parties.
The related accounts receivable resulting from the above sales as of December 31, 2010 and 2011, were
as follows:
CMO- NingBo
CMI
CMO- NanHai
Chi Hsin- NingBo
CME- NingBo
Others (individually below 5%)
Allowance for sales returns and discounts
December 31,
2010
2011
(in thousands)
$ 39,793
27,275
16,305
6,474
4,823
1,432
96,102
(138)
$ 95,964
33,981
17,690
17,019
4,038
6,629
559
79,916
(83)
79,833
The credit terms granted to CMO/CMI and its affi liates ranged from 90 days to 120 days, and the credit
terms granted to other related parties ranged from 45 days to 60 days. The credit terms offered to
unrelated third parties ranged from 30 days to 150 days.
(ii) Property transactions
In 2010, the Company purchased equipment amounting to $71 thousand from Fulintec,
respectively. The purchase transaction in 2010 had been full paid as of December 31, 2010.
(iii) Lease
The Company entered into several lease contracts with CMO, CMI, CMLC, CMLC-NingBo,
CMLC-Foshan and CMO-NanHai for leasing offi ce space, facilities and inventory locations.
For the years ended December 31, 2009, 2010 and 2011, the related rent and utility expenses
resulting from the aforementioned transactions amounted to $700 thousand, $1,119 thousand
and $705 thousand, respectively, and were recorded as cost of revenue and operating
expenses in the accompanying consolidated statements of income. As of December 31, 2010
and 2011, the related payables resulting from the aforementioned transactions amounted
to $362 thousand and $326 thousand, respectively, and were recorded as other accrued
expenses in the accompanying consolidated balance sheets.
F - 50
As of December 31, 2011, future minimum lease payments under non-cancelable operating leases with
related parties are as follows:
Duration
January 1, 2012~December 31, 2012
January 1, 2013~December 31, 2013
January 1, 2014~December 31, 2014
January 1, 2015~December 31, 2015
January 1, 2016~December 31, 2016
After January 1, 2017
(iv) Others
Amount
(in thousands)
$
$
192
191
179
179
179
1,311
2,231
In 2009, 2010 and 2011, the Company purchased consumable and miscellaneous items
amounting to $345 thousand, $449 thousand and $348 thousand, respectively, from CMO,
CMI, CMC, Chi Lin Tech, NEXGEN, CMEL, Chi Hsin, Contrel, Fulintec and LDC, which
were charged to cost of revenues and operating expenses. As of December 31, 2010 and
2011, the related payables resulting from the aforementioned transactions were nil and $9
thousand, respectively.
In 2009 and 2010, Chi Lin Tech provided IC bonding service on prototype panels for the
Company’s research activities for a fee of $43 thousand and $12 thousand, respectively,
which was charged to research and development expense. As of December 31, 2010, the
related process fee payables resulting from the aforementioned transactions had been full
paid.
Note 20. Commitments and Contingencies
(a) As of December 31, 2010, and 2011 the Company had entered into several contracts for the
acquisition of equipment and computer software. Total contract prices amounted to $8,825
thousand and $8,207 thousand, respectively. As of December 31, 2010 and 2011, the remaining
commitments were $7,715 thousand and $2,387 thousand, respectively.
(b) The Company leases its office and buildings pursuant to operating lease arrangements with
unrelated third parties. The lease arrangement will expire gradually from 2012 to 2016. As of
December 31, 2010 and 2011, deposits paid amounted to $535 thousand and $520 thousand,
respectively, and were recorded as refundable deposit in the accompanying consolidated balance
sheets.
As of December 31, 2011, future minimum lease payments under noncancelable operating leases are as
follows:
Duration
January 1, 2012~December 31, 2012
January 1, 2013~December 31, 2013
January 1, 2014~December 31, 2014
January 1, 2015~December 31, 2015
January 1, 2016~December 31, 2016
Amount
(in thousands)
$
$
1,111
663
413
21
1
2,209
Rental expense for operating leases with unrelated third parties amounted to $1,149 thousand, $1,229
thousand and $1,223 thousand in 2009, 2010 and 2011, respectively.
F - 51
(c) The Company entered into several sales agent agreements, based on these agreements, the
Company shall pay commissions at the rates ranging from 0.5% to 5% of the sales to customers
in the specifi c territory or referred by agents as stipulated in these agreements.
(d) In December 2011, the Company entered into a license agreement for the use of Crosstalk
relevant technology for product development. In accordance with the agreement, the Company
was required to pay an initial license fee based on the progress of the project development and a
royalty based on shipments. In 2011, no royalty was paid.
(e) The company has entered into two agreements to provide donations for laboratories with two
top local universities in Taiwan. The total donation amounts based on the modifi ed agreements
amounted to NT$55.4 million ($1.7 million). As of December 31, 2011, the company had paid
all the donations.
(f) The Company from time to time is subject to claims regarding the proprietary use of certain
technologies. Currently, management is not aware of any such claims that it believes could have
a material adverse effect on the Company’s fi nancial position or results of operations.
(g) Since Himax Taiwan is not a listed company, it will depend on Himax Technologies, Inc. to meet
its equity fi nancing 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, 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.
(h) 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. Contractual obligations resulted
from above arrangements approximate $106,419 thousand and $77,434 thousand as of December
31, 2010 and 2011, respectively.
(i) As of December 31, 2010 and 2011, Himax Display owned a 15.41% equity interest in Spatial
Photonics, Inc, which is accounted for using the cost method (see Note 9). On October 27, 2011,
Himax Display exercised an option to acquire all of the remaining outstanding shares of capital
stock of Spatial Photonics, Inc. in exchange for 7.37% of the ordinary shares of Himax Display,
calculated on a fully diluted basis, in accordance with various milestone events. However, the
acquisition of Spatial Photonics, Inc. is still subject to the examination of and approval from
the Investment Commission of the Ministry of Economic Affairs of the ROC. If and when such
approval is obtained, the Company will account for this acquisition of additional shares under
the purchase method and Spatial Photonics will become a wholly-owned subsidiary of Himax
Display.
(j) The Company is involved in various claims arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a material adverse
effect on the Company’s consolidated fi nancial position, results of operations, or liquidity.
F - 52
Note 21. Segment, Product and Geographic Information
Year Ended December 31, 2009
Driver IC
Non-driver
products
(in thousands)
Consolidated
Total
Segment revenues
$ 646,121
46,260
692,381
Segment profi t (loss)
Non operating income, net
Consolidated earnings before income taxes
$ 71,035
(27,498)
43,537
188
$ 43,725
Signifi cant noncash item:
Share based compensation
Depreciation and amortization
Segment revenues
Segment profi t (loss)
Non operating income, net
Consolidated earnings before income taxes
Signifi cant noncash item:
Share Based Compensation
Depreciation and amortization
Segment revenues
Segment profi t (loss)
Non operating loss, net
Consolidated earnings before income taxes
Signifi cant noncash item:
Share Based Compensation
Depreciation and amortization
$ 7,182
$ 10,110
1,371
3,685
8,553
13,795
Year Ended December 31, 2010
Driver IC
Non-driver
products
(in thousands)
Consolidated
Total
$ 590,057
$ 54,815
52,635
(19,457)
642,692
35,358
(64)
$ 35,294
$ 5,007
$ 10,074
1,304
3,552
6,311
13,626
Year Ended December 31, 2011
Driver IC
Non-driver
products
(in thousands)
Consolidated
Total
$ 552,456
$ 38,401
80,565
(21,793)
633,021
16,608
200
$ 16,808
$ 2,820
$ 7,849
1,370
4,946
4,190
12,795
Revenues from the Company’s major product lines are summarized as follow:
Display drivers for large-size applications
Display drivers for mobile handsets applications
Display drivers for consumer electronics applications
Others
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 493,513
69,081
83,527
46,260
$ 692,381
366,492
119,623
103,942
52,635
642,692
270,372
169,248
112,836
80,565
633,021
F - 53
The following tables summarize information pertaining to the Company’s revenues from customers in
different geographic region (based on customer’s headquarter location):
Taiwan
China
Other Asia Pacifi c (Korea and Japan)
Europe (Europe and America)
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 548,384
86,451
57,414
132
$ 692,381
492,687
112,845
37,121
39
642,692
395,228
209,216
27,738
839
633,021
The carrying values of the Company’s tangible long-lived assets are located in the following countries:
Taiwan
China
U.S.
Korea
December 31,
2010
2011
(in thousands)
$ 46,336
983
223
19
$ 47,561
56,185
822
132
11
57,150
For the years ended December 31, 2009, 2010 and 2011, revenues from a signifi cant customer, CMO/CMI
and its affi liates, a related party, which representing 10% or more of total revenue are $445,245 thousand,
$335,595 thousand, and $258,156 thousand, respectively.
Accounts receivable from significant customers, those representing 10% or more of total accounts
receivable for the respective periods, is summarized as follows:
CMI and its affi liates, a related party
SVA-NEC
December 31,
2010
2011
(in thousands)
$ 95,854
16,727
$ 112,581
79,916
15,186
95,102
As of December 31, 2010 and 2011, allowance for doubtful accounts, sales returns and discounts for those
accounts receivable was $16,865 thousand and $15,269 thousand, respectively.
Note 22. Himax Technologies, Inc. (the Parent Company only)
As a holding company, dividends received from Himax Technologies, Inc.’s subsidiaries in Taiwan, if any,
will be subjected to withholding tax under ROC law as well as statutory and other legal restrictions.
The condensed separate fi nancial information of Himax Technologies, Inc. is presented as follows:
Condensed Balance Sheets
Cash
Other current assets
Investment in non-marketable securities
Investments in subsidiaries
Total assets
Current liabilities
Short-term debt
Debt borrowing from a subsidiary
Total equity
Total liabilities and equity
Himax Technologies, Inc. had no guarantees as of December 31, 2010 and 2011.
Condensed Statements of Income
F - 54
December 31,
2010
2011
(in thousands)
$ 375
356
1,600
612,703
$ 615,034
$ 2,156
44,000
163,000
405,878
$ 615,034
584
1,146
1,600
628,528
631,858
3,921
65,200
169,300
393,437
631,858
Revenues
Costs and expenses
Operating loss
Equity in earnings from subsidiaries
Other non-operating loss
Earnings before income taxes
Income taxes
Net Income
Condensed Statements of Cash Flows
Cash fl ows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Share-based compensation expense
Equity in earnings from subsidiaries
Changes in operating assets and liabilities:
Other current assets
Other accrued expenses and other current liabilities
Net cash used in operating activities
Net cash used in investing activities
Cash fl ows from fi nancing activities:
Distribution of cash dividends
Proceeds from borrowing of short-term debt
Repayment of short-term debt
Proceeds from issue of RSUs from a subsidiary
Purchase of subsidiary shares from noncontrolling interests
Proceeds from debt from a subsidiary
Acquisitions of ordinary shares for retirement
Net cash provided by fi nancing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Year Ended December 31,
2009
2010
2011
(in thousands)
$
-
(1,080)
(1,080)
40,834
(104)
39,650
-
$ 39,650
-
(1,210)
(1,210)
36,427
(2,010)
33,207
1
33,206
-
(548)
(548)
13,433
(2,179)
10,706
-
10,706
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 39,650
33,206
10,706
24
(40,834)
(826)
654
(1,332)
(11,400)
(55,496)
80,000
(80,000)
6,598
-
95,400
(36,596)
9,906
(2,826)
2,903
$ 77
-
(36,427)
-
(13,433)
1,543
(2,542)
(4,220)
-
(44,097)
204,000
(160,000)
4,370
-
11,000
(10,755)
4,518
298
77
375
(790)
1,767
(1,750)
-
(21,224)
271,200
(250,000)
1,634
(1,324)
6,300
(4,627)
1,959
209
375
584
F - 55
Supplemental disclosures of cash fl ow information:
Interest paid during the year
Income taxes paid during the year
Note 23. Subsequent Event
Year Ended December 31,
2009
2010
2011
(in thousands)
$ 3
$ -
156
1
353
-
From January 1, 2012 to April 25, 2012, Himax Technologies, Inc. repurchased 4,632,752 ADSs
(representing 9,265,504 ordinary shares) from the open market for total cash consideration of $6,801
thousand. Since the inception of the buyback program, Himax Technologies, Inc. has repurchased $11.4
million or 8,399,962 ADSs (representing 16,799,924 ordinary shares or 4.7% of the issued and previously
outstanding ordinary shares) in the open market at an average price of US$1.36 per ADS as of April 25,
2012.
Corporate Information
Board of Directors
Chairman
Dr. Biing-Seng Wu
Directors
Jordan Wu
Tien-Jen Lin
Chih-Chung Tsai
Dr. Chun-Yen Chang
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Senior Management
Jordan Wu
President and Chief Executive Officer
Jackie Chang
Chief Financial Officer
Chih-Chung Tsai
Chief Technology Officer, Senior VP
Norman Hong
Sales and Marketing, VP
Corporate Headquarters
Himax Technologies, Inc.
No.26, Zilian Road, Xinshi Dist, Tainan City
74148, Taiwan
Tel:+886-6-505-0880
Fax:+886-6-507-0000
Investor Information
Shareholder Services for American
Depositary Shares (ADSs)
The Bank of New York Mellon
P.O. Box 358516
Pittsburgh, PA 15252-8516
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
Penny Lin / Jessica Huang
Investor Relations
Himax Technologies, Inc.
10F, No1, XiangYang Road, Taipei 10046,
Taiwan
penny_lin@himax.com.tw
jessica_huang@himax.com.tw
John Mattio
MZ North America
Suite 411, 1001 Avenue of the Americas
New York, NY 10018
+1-212-301-7130
john.mattio@mzgroup.us
NO.26, ZILIAN ROAD, XINSHI DIST,
TAINAN CITY 74148, TAIWAN
Tel : 886-6-505-0880
Fax : 886-6-507-0000
www.himax.com.tw