Dear Shareholders,
We are extremely happy to report that 2012 was a successful year for Himax Technologies on several fronts.
Sales increased over 16%, led by growth in our small-medium driver segment as well as our non-driver IC
business. We met or exceeded our quarterly sales, margin and EPS guidance in every quarter in 2012, an
accomplishment that illustrated the effectiveness of our processes and systems across our entire organization.
More importantly, we have increased our gross margin by over 330 basis points since the fourth quarter
2011. Based on the exciting new products we have introduced in the past several quarters and others we will
introduce throughout 2013, we are optimistic that we can expand our margins even further.
Our strong operational and financial results in 2012 reflect successful execution of our long term growth
strategies.
1. Increase sales of small and medium-sized drivers.
2. Invest in new products and new technologies, particularly in areas related to mobile devices.
3. Diversify our customers by end markets and geographies.
Small and medium-sized drivers generated impressive sales growth due primarily to demand of smart phones,
which tend to require better displays and thus higher end driver ICs. We enjoy a commanding position in
the smartphone sector as a result of our leading technologies, competitive products and growing base of tier
1 and “white box” customers. Sales of small and medium-sized drivers have become our largest product
segment, accounting for 44.6% of total sales in 2012. We expect further growth in this high margin product
segment in 2013.
We also had a terrific year in our non-driver product business. Coming off a successful 2011, we further
expanded our product portfolio and client base for our non-driver products, including timing controllers,
CMOS image sensors, wafer-level optics, touch panel controllers, LED driver ICs, integrated power
management ICs, ASIC service and LCOS microdisplays. Overall non-driver IC sales grew 28% in 2012,
representing approximately 14% of total sales.
We are making exciting progress in our non-driver products, which have been a focus of our company’s R&D
and investment for many years. We are particularly excited to see several of them have already garnered
interest by marquee and globally recognized end customers.
We intend to leverage our positive momentum to further improve our competitive position across all facets
of our company. It is imperative that we maintain our focus on developing great products and providing
exemplary customer service in each of the dynamic and competitive markets in which we compete. We are
excited about the opportunities we have in front of us and the strong position we are in to capitalize.
I will close by thanking all of our employees, customers, suppliers and shareholders for their continued
support. We have worked extremely hard to earn their trust and we intend to keep doing so by putting their
interests at the forefront of everything we do. Since the fourth quarter of 2011 through March 31, 2013, we
have delivered a solid return to our shareholders by paying $11 million in cash dividends; buying back $11.3
million of stock; and generating $752.6 million in price appreciation. We have maintained a strong balance
sheet, with no debt and over $158.9 million in cash and cash equivalents. We intend to deploy our capital
wisely and continue growing our company profitably, as we have done in the past several years.
I hope you have a deeper understanding of Himax Technologies and why we are more excited than ever
about our Company’s future. I thank you for your trust and support.
Sincerely,
Jordan Wu
President and CEO
Himax Technologies, Inc.
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
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 ________________
OR
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 to 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.*
*
2
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
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. 339,149,508 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
x
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
x
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
x
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
x
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
x
U.S. GAAP International Financial Reporting Standards as issued by the International Accounting
Standards Board Other
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
x
3
TABLE OF CONTENTS
PAGES
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN CONVENTIONS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
3.B. Capitalization and Indebtedness
3.C. Reason for the Offer and Use of Proceeds
3.D. Risk Factors
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
4.B. Business Overview
4.C. Organizational Structure
4.D. Property, Plant and Equipment
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
5.B. Liquidity and Capital Resources
5.C. Research and Development
5.D. Trend Information
5.E. Off-Balance-Sheet Arrangements
5.F. Tabular Disclosure of Contractual Obligations
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
6.B. Compensation of Directors and Executive Officers
6.C. Board Practices
6.D. Employees
6.E. Share Ownership
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
7.B. Related Party Transactions
7.C. Interests of Experts and Counsel
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
8.B. Significant Changes
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
9.B. Plan of Distribution
9.C. Markets
9.D. Selling Shareholders
9.E. Dilution
9.F. Expenses of the Issue
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
10.B. Memorandum and Articles of Association
10.C. Material Contracts
10.D. Exchange Controls
10.E. Taxation
10.F. Dividends and Paying Agents
10.G. Statement by Experts
10.H. Documents on Display
10.I. Subsidiary Information
4
6
6
8
8
8
8
8
11
11
11
36
36
37
63
66
66
66
66
85
86
86
87
87
88
88
90
90
92
96
96
96
97
98
98
98
100
100
100
101
101
101
101
101
101
101
101
102
102
102
105
105
105
105
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
12.B. Warrants and Rights
12.C. Other Securities
12.D. American Depositary Shares
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16. [RESERVED]
16.A. Audit Committee Financial Expert
16.B. Code of Ethics
16.C. Principal Accountant Fees and Services
16.D. Exemptions from the Listing Standards for Audit Committees
16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
16.F. Chang in Registrant’s Certified Accountant
16.G. Corporate Governance
16.H. Mine Safety Disclosure
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
106
106
106
106
106
106
109
109
109
109
111
111
111
111
112
112
113
113
113
113
113
113
115
5
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$29.05, 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 31, 2012. 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 19, 2013,the noon buying rate was $1.00 to
NT$29.77. 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;
“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;
6
“AMOLED” refers to active matrix organic light-emitting diode;
“ASIC” refers to application specific integrated circuit;
“CMOS” refers to complementary metal oxide semiconductor;
“head-mounted-display” refers to a display device, worn on the head or as part of a helmet, that
has a small display optic in front of one or each;
“IC” refers to integrated circuit;
“IGZO” refers to indium gallium zinc oxide;
“Innolux” refers to Innolux Corporation, its predecessor and consolidated subsidiaries, unless
the context otherwise requires;
“LCOS” refers to liquid crystal on silicon;
“LED” refers to light-emitting diode;
“LTPS” refers to low temperature poly silicon;
“MEMS” refers to micro-electro mechanical systems;
“OLED” refers to organic light-emitting diode;
“TFT-LCD” refers to amorphous silicon thin film transistor liquid crystal display, or “a-Si TFT-
LCD”;
“VGA” refers to Video Graphics Array;
“wafer level optics” are optical products manufactured using semiconductor process on wafers;
“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
7
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.
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, 2010, 2011 and 2012 and the selected consolidated balance sheet data as of December
31, 2011 and 2012 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, 2008 and 2009 and the selected
consolidated balance sheet data as of December 31, 2008, 2009 and 2010 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.
2008
Year Ended December 31, 2011
2009
2010
2011
(in thousands, except per share data)
2012
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
$ 312,336
520,463
$ 245,075
447,306
$ 304,068
338,624
$ 374,788
258,233
$ 485,281
251,974
628,693
87,574
19,353
25,305
11,692
550,556
71,364
16,346
218
10,360
507,647
76,426
18,770
(8,788)
13,279
507,449
79,042
17,095
(1,541)
14,368
566,700
70,913
17,139
-
15,443
Operating income
$ 60,182
$ 43,537
$ 35,358
$ 16,608
$ 67,060
Net income(2)
Net income attributable to
Himax stockholders
$ 72,724
$ 35,810
$ 29,066
$ 9,507
$ 50,138
$ 76,381
$ 39,650
$ 33,206
$ 10,706
$ 51,596
8
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
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
$ 0.20
$ 0.20
$ 0.11
$ 0.11
$ 0.09
$ 0.09
$ 0.03
$ 0.03
$ 0.15
$ 0.15
$ 0.40
$ 0.40
$ 0.21
$ 0.21
$ 0.19
$ 0.19
$ 0.06
$ 0.06
$ 0.30
$ 0.30
383,229
383,753
369,652
370,229
355,037
355,690
353,771
353,827
341,056
341,524
191,615
191,877
184,826
185,115
177,518
177,845
176,886
176,914
170,528
170,762
$ 0.175
$ 0.150
$ 0.125
$ 0.060
$ 0.032
$ 0.350
$ 0.300
$ 0.250
$ 0.120
$ 0.063
Note:
is summarized as follows:
(1) The amount of share-based compensation included in applicable costs and expenses categories
2008
2009
Year Ended December 31
2010
(in thousands)
2011
2012
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total
$ 435
15,861
2,813
2,691
$ 21,800
$ 264
10,936
1,959
1,902
$ 15,061
$ 240
8,803
1,525
1,613
$ 12,181
$ 124
5,062
872
1,005
$ 7,063
$ 176
5,625
1,191
1,230
$ 8,222
Of the $21.8 million, $15.1 million, $12.2 million, $7.1 million and $8.2 million in share-based
compensation in 2008, 2009, 2010, 2011 and 2012, $12.7 million, $6.5 million, $5.9 million, $2.9
million and $6.3 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 $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, $0.8
million, $0.002 and $0.002, respectively, for the year ended December 31, 2011 and $2.9 million, $0.01
and $0.01, respectively, for the year ended December 31, 2012. A portion of these tax exemptions
expired or will expire on March 31, 2009, December 31, 2010, December 31, 2012, December 31,
2013 and December 31, 2017.
(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.
9
2008
2009
As of December 31,
2010
(in thousands)
2011
2012
$ 135,200
51,029
$ 110,924
64,496
$ 96,842
80,212
$ 106,164
101,280
$ 138,737
135,747
104,477
96,921
434,650
565,548
53,720
90,143
95,542
114,072
470,006
138,172
67,768
423,797
550,448
88,079
120,651
126,376
107,404
424,072
95,964
117,988
485,924
619,620
115,922
205,748
212,644
106,153
406,976
79,833
112,985
515,709
644,978
134,353
245,360
249,920
107,010
395,058
73,258
116,671
567,088
674,598
135,546
242,117
246,440
107,010
428,158
2008
2009
Year Ended December 31,
2010
(in thousands)
2011
2012
$ 136,500
(21,810)
(74,304)
$ 73,630
(7,541)
(90,779)
$ 57,631
(17,599)
(54,195)
$ 43,448
(10,197)
(24,015)
$ 52,167
(695)
(18,931)
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
Ordinary shares
Total equity
Consolidated Cash Flow Data:
Net cash provided by operating
activities
Net cash used in investing activities
Net cash used in financing activities
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
2008
2009
2010
2011
2012
October
November
December
2013
January
February
March
April (through April 19)
Average(1)
Noon Buying Rate Low
High
Low
(NT dollars per U.S. dollar)
Period-end
31.51
32.96
31.39
29.42
29.47
29.24
29.11
29.04
33.58
35.21
32.43
30.67
30.28
29.31
29.26
29.10
29.99
31.95
29.14
28.50
28.96
29.15
28.96
29.00
32.76
31.95
29.14
30.27
29.05
29.20
29.07
29.05
29.10
29.63
29.74
29.91
29.54
29.73
29.88
30.06
28.93
29.52
29.63
29.77
29.54
29.67
29.81
29.77
(1) Annual averages are calculated by averaging month-end rates for the relevant year.
Note:
Monthly averages are calculated by averaging daily rates for the relevant period.
10
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
We generate a substantial majority of our revenues from Innolux, which is the surviving entity following
the merger of three of our customers. Any loss of or a significant reduction in Innolux’s sales could
materially and adversely affect our operating results.
Innolux, formally known as Chimei Innolux Corporation, is one of our key customers. Chimei Innolux
Corporation (then Innolux Display Corporation), underwent a merger with Chi Mei Optoelectronics Corp.,
or CMO, and TPO Displays Corporation, or TPO, in March 2010. All three of these entities have been our
customers. In 2012, Innolux, together with its affiliates, accounted for approximately 34.2% of our revenues.
As a significant portion of our revenues are generated from Innolux, we expect our results of operations
and financial condition to continue to be significantly linked to the success and purchase policy of Innolux.
Innolux has been adversely affected by the impact of the global economic downturn in recent years. Any loss
of or a sharp reduction in Innolux’s sales could have a significant negative impact on our business and results
of operations. In 2011 and 2012, our sales of large-sized panels, for which Innolux is our major customer,
declined by approximately 26.2% and increased by approximately 12.9%, respectively. The decline in 2011
was primarily due to Innolux’s change of purchase policy to diversify its display driver supply base. The
increase in 2012 was attributed to the growth from the Chinese panel makers in the China market where most
of the new buildings of panel capacity took place. We cannot assure you that the purchase policy of Innolux
will not change further and result in a reduction of our future sales. In addition, if Innolux seeks lower prices
from us, our business and financial results could be materially and adversely affected. We expect our reliance
on sales to Innolux to continue in the foreseeable future. Therefore, our operating results will likely continue
to depend on sales to Innolux, as well as on the ability of 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 chip-on flex, or packages business after June 2012.
Such industry change could further reduce the number of suppliers for gold bumping, COF packages services
and Tape 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, any increases in the 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.
11
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 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 over 80% 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 2011 and 2012, 87.3% and 86.0% 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 with the exception of the new high end and high resolution products. 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 industrial manufacturing capacity due to the ramping up of new fabrication
•
facilities and/or 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 oversupply 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 chain for 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 oversupply 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 materially and adversely impacted the supply chain for the TFT-LCD
industry. Japan has played and is expected to continue to play an important role in supplying chemicals, raw
materials, semiconductors and other products to both the TFT-LCD panel industry and the semiconductor
industry and any future adverse impacts to the Japanese TFT-LCD panel industry may negatively impact our
sales in Japan which could have a material adverse effect on our business or results of operations. In 2012,
there were no events such as those described above that negatively impacted the TFT-LCD panel industry;
however, we cannot assure you that such similar events will not occur in the future or there will not be any
future shortages of materials or components for our products or our customers’ products or a decrease in
demand for our products.
12
In addition, the merger of certain of our major customers, including CMO, Innolux and TPO in 2010,
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.
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 as we diversify our product portfolio
and because our non-driver products have higher gross margin than our driver products. Our non-driver
products include, among others, timing controllers, touch panel controllers, TFT-LCD television and monitor
semiconductor solutions, LCOS and MEMS microdisplays, power management ICs, CMOS image sensors,
and wafer level optics products.
We believe end products utilizing our LCOS technology could potentially be a large market. Although
we have made major progress toward commercialization of LCOS microdisplays for head-mounted-display,
it is at a relatively early stage as compared to other products and has a relatively immature supply chain.
Therefore it is difficult to project the success of the applications that use LCOS microdisplay products. We
also believe there are potential market opportunities for our CMOS image sensors. However, the demand
fluctuates and is very hard to predict. As we rely primarily on third-party foundries to supply wafers with at
least a 3-month lead time 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 products. We also plan to increase capital expenditure for the development and
manufacturing of non-driver products in the future. 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. We may
also overestimate the market potential of the end products that are utilizing or will utilize our non-driver
products, which may negatively impact our strategy for the development of non-driver products. 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.
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.
As of December 31, 2012, our accounts receivable less allowance for sales returns and discounts from
Innolux and its affiliates were $73.3 million, which represented approximately 35.1% 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, partly due to the severe
economic downturn, 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 18% of our total
13
accounts receivable outstanding as of December 31, 2008. During the second half of 2011, we agreed to
extend payment terms for one of our largest customers because at that time this customer experienced certain
financial difficulties. The receivables from this customer have since been paid and have stayed current during
2012 and we incurred no bad debt expenses. In addition, we have at times agreed to extend the payment
terms for certain of our third-party and related party customers. Other customers have also requested
extension of payment terms. We may also agree to grant such 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:
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•
•
consumer demand and the general economic conditions;
the cyclical nature of both the TFT-LCD industry, including fluctuations in average selling
prices, and its downstream industries;
the speed at which TFT-LCD panel manufacturers expand production capacity;
brand companies’ continued need for original equipment manufacturing services provided
by TFT-LCD panel manufacturers;
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.
Our customers continued to operate in a challenging business environment and may experience a decline
in profitability or may not be profitable at all. In addition, 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 a 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, which could, in turn, adversely affect our profit margin, significantly reduce our
profits and materially affect our results of operations and financial condition.
We depend on sales of display drivers used in TFT-LCD panels, and the limited potential for further
growth in both the market size of display drivers and the market share of our display drivers or the
absence of continued market acceptance of our display drivers could limit our growth in revenues or
harm our business.
14
In 2011 and 2012, we derived 87.3% and 86.0% of our revenues from the sale of display drivers used for
large-sized applications, mobile handset applications and consumer electronics applications, and we expect to
continue to derive a substantial portion of our revenues from these or related products. As the display drivers
industry and our display drivers business are relatively mature, there may be limited potential for the overall
display drivers market to grow and for us to further grow our market share, which could limit our future
growth in revenues. Failure to grow our unit shipments for display drivers, coupled with a general decline in
the average selling prices, could adversely and materially affect our results of operations. See also “—Risks
Relating to Our Industry—The average selling prices of our products could decrease rapidly, which may
negatively impact our revenues and operating results.” We expect to continue to derive a substantial portion
of our revenues from the sale of display drivers. Therefore, the continued market acceptance of our display
drivers is critical to our future success. Failure to grow or maintain our revenues generated from the sales
of display drivers could adversely and materially affect our results of operations and financial condition.
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:
•
•
•
hire, train, integrate, retain and manage additional qualified engineers, senior managers, sales and
marketing personnel, and information technology personnel;
implement additional, and improve existing, administrative and operations systems, procedures and
controls;
expand our accounting and internal audit team, including hiring additional personnel with U.S.
GAAP and internal control expertise;
•
continue to expand and upgrade our design and product development capabilities;
• manage multiple relationships with semiconductor manufacturing service providers, customers,
suppliers and certain other third parties; and
•
continue to develop and commercialize non-driver products, including, among others, timing
15
controllers, touch controller ICs, TFT-LCD television and monitor semiconductor solutions, LCOS
and MEMS microdisplays, power ICs, CMOS image sensors and wafer level optics products.
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 accurately forecast shipments, average selling prices, cost of revenues,
operating expenses, non-operating income/loss, foreign currency exchange rates, and tax rates;
our ability to transfer any increase in unit costs to our customers;
our ability to accurately perform various tests, estimations and projections, including with respect to
the write-down on slow or obsolete inventories, the impairment of long-
lived assets, the collectibility of accounts receivable, and the realization of deferred tax assets;
our ability to successfully design, develop and introduce in a timely manner new or enhanced
products acceptable to our customers;
changes in the relative mix in the unit shipments of our products, which may have significantly
different average selling prices and cost of revenues as a percentage of revenues;
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 product
enhancements, or due to a reduction in demand of our customers’ end product;
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;
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•
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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
economic growth and consumer spending, and the unease in the Middle East;
changes in our tax exemptions, transfer pricing policy and applicable income tax regulations; and
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 Innolux could limit our potential to do business with Innolux’s competitors,
which may cause us to lose opportunities to grow our business and expand our customer base.
Innolux, the successor of CMO after its merger with Innolux and TPO, is one of our largest shareholders.
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 Innolux and its affiliates. Our close
relationship with Innolux could limit our potential to do business with Innolux’s competitors or other
TFT-LCD panel manufacturers, who may perceive that granting business to us could benefit Innolux. Our
close relationship with 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.
If there were an adverse change to our relationship with Innolux or if Innolux were to reduce its
shareholding in us or cease to be our shareholder, our business could be materially and adversely
affected.
Innolux is one of our largest shareholders, beneficially owning approximately 15.0% of our outstanding
shares as of March 31, 2013, and also our largest customer, which, together with its affiliates, accounted for
approximately 34.2% of our revenues in 2012. Our engineers work closely with Innolux’s engineers to design
display drivers and other semiconductors used by Innolux and its affiliates or their customers. We have
entered into various transactions with 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.” Dr. Biing-Seng Wu, chairman of our board of directors, used to serve as the vice chairman of
the board of directors of CMO prior to its merger with the predecessor of Innolux and TPO. However, Dr.
Wu no longer serves on the board of director of Innolux and presently none of our executive officers holds a
director or officer position at Innolux. In addition, if Innolux reduces its shareholding of us or ceases to hold
our shares, our close relationship with it may also be impacted. If our relationship with Innolux deteriorates
for any reason, our business could be materially and adversely affected.
17
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 for 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.
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 to our customer relationships.
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
18
significant interruption in our supply of the affected products, which could reduce our revenues, increase our
costs and expenses, and damage 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, Powerchip Technology Corporation, or PSC, 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:
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•
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failure to secure necessary manufacturing capacity, or being able to obtain required capacity only at
higher costs;
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
production costs;
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 dynamic
random access memory, or DRAM, companies.
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:
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potential capacity constraints faced by the limited number of high-voltage foundries and the lack of
investment in new and existing high-voltage foundries;
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-
voltage foundries; and
•
price increases.
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.
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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. In the first half of 2010, the supply of processed tape has been tight and it is likely
that the shortage of processed tape may continue in 2011, as certain of our processed tape suppliers have
plans to either close or reduce 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, which led to a decrease in the production of processed tape. 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 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
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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 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. 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 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.
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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, which
could eventually lead to write-down of these excess inventory.
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 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.
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.
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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
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, including Innolux, our largest
customer; 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 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. In addition, changes in our customers’ business may adversely affect the quantity
of purchase orders that we receive. For example, Innolux, our key customer, changed its purchase policy
to diversify its display driver supply base, resulting in a decline in purchase from us. See also “—Risks
Relating to Our Financial Condition and Business—We generate a substantial majority of our revenues
from Innolux, which is the surviving entity following the merger of three of our customers. Any loss of or
a significant reduction in Innolux’s sales could materially and adversely affect our operating results.” The
reorganization of Innolux could result 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 concessions 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 Innolux may affect our sales decisions and allocations.
We have a close relationship with Innolux, the successor of CMO after its merger with Innolux and TPO
in March 2010. Innolux is currently one of our largest shareholders. 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 the General Manager in Innolux. We cannot assure you that our close relationship with
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 Innolux will be resolved in our favor.
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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, 2013, Jordan Wu and Dr. Biing-Seng Wu (who are brothers) beneficially owned
approximately 8.3% and 20.9% of our ordinary shares, respectively, and Innolux beneficially owned
approximately 15.0% 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.
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
infringing intellectual property;
•
pay damages to the party claiming infringement;
•
•
attempt to obtain a license for the relevant intellectual property, which may not be available on
commercially reasonable terms or at all; and
attempt to redesign those products that contain the allegedly infringing intellectual property with
non-infringing intellectual property, which may not be possible.
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, 2013, we and our subsidiaries had 297 U.S. patent applications pending, 735
Taiwan patent applications pending and 275 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
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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. 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.
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,
on July 3, 2012, our subsidiary, Himax Display, Inc., or Himax Display, acquired all of the outstanding
shares of capital stock of Spatial Photonics, Inc., or Spatial Photonics, a Delaware corporation engaged in the
business of manufacturing and production of high definition, high brightness, and high contrast projection
displays for business and consumer applications. We cannot assure you that we will be able to realize the
benefits we anticipate from acquiring Spatial Photonics. 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 and
products;
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 operations;
•
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 company;
•
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 assets;
and
• 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
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.
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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 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
26
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 restrictions. 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 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. 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. In addition, since Himax Taiwan is not a listed company, it will
depend on us to meet its equity financing requirements in the future. Any capital contribution by us to Himax
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Taiwan may require the approval of the relevant ROC authorities. 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
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 2012, 48.4% 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 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.
Our business is sensitive to global economic conditions. A severe or prolonged downturn in the global or Taiwan
economy could materially and adversely affect our business and our financial condition.
The global financial markets experienced significant disruptions in 2008 and the United States, Europe
and other economies went into recession. Since then, recovery has been uneven and the global economy
28
is facing new challenges, such as the escalation of the European sovereign debt crisis since 2011 and the
slowdown of the Chinese economy in 2012. It is unclear whether the European sovereign debt crisis will be
contained. There is considerable uncertainty over the long-term effects of the expansionary monetary and
fiscal policies that have been adopted by the central banks and financial authorities of some of the world's
leading economies. There have also been concerns over unrest in the Middle East and Africa, which have
resulted in volatility in oil and other markets, and over the possibility of a conflict involving Iran. There have
also been concerns about the tensions in the relationship between China and Japan and about North Korea's
nuclear program. Economic conditions in Taiwan are sensitive to global economic conditions. Any prolonged
slowdown in the global or Taiwanese economy may have a negative impact on our business, results of
operations and financial condition, and continued turbulence in the international markets may adversely
affect our ability to access the capital markets to meet liquidity needs.
A substantial portion of our sales are made to customers in the PRC, which may expose us to additional
political, regulatory, and economic risks.
We have been increasingly selling our products to customers in the PRC. In 2010, 2011 and 2012,
approximately 17.6%, 33.1% and 45.4% of our revenues, respectively, were from customers headquartered in
the PRC. We expect to continue to increase our sales to customers in the PRC in the near future. As a result
of this regional customer concentration, we expect to be particularly subject to economic and political events
and other developments that affect our customers in the PRC.
The PRC economy differs from the economies of most developed countries in many respects, including
the structure, level of government involvement, level of development, foreign exchange control and
allocation of resources. The PRC economy has been transitioning from a planned economy to a more market-
oriented economy and is growing rapidly. For the past two decades, the PRC government has implemented
economic reform measures emphasizing utilization of market forces in the development of the PRC economy
and also adjusted its macroeconomic control policies from time to time. These policies have led and may
continue to lead to changes in market conditions. Although we believe these reforms have had a positive
effect on the business of our customers in the PRC and consequently have benefited us, we cannot predict
whether changes in the PRC’s political, economic and social conditions, laws, regulations and policies will
have any adverse effect on our current or future customers in the PRC. In addition, the interpretation of PRC
laws and regulations involves uncertainties. We cannot assure you that changes in such laws and regulations,
or in their interpretation and enforcement, will not have a material adverse effect on the businesses and
operations of our customers in the PRC and consequently have a material adverse effect on our own business
and operations.
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 2012, 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 2012,
approximately 64% 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.
29
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 was 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 could be applied without limitation to the
total amount of the income tax). Himax Taiwan, after a three year holding period, was entitled to tax credits
of twenty percent of the price paid for the acquisition of shares originally issued by ROC domestic companies
invested in by Himax Taiwan that are newly emerging, important and strategic industries; provided that the
shareholders’ meeting of such ROC companies did not resolve to forfeit the shareholders’ tax credit benefit
in exchange for such ROC companies’ five-year tax holiday. The credit also could be applied to the income
tax payable over a period of five years. Under the ROC Statute for Upgrading Industries, Himax Taiwan
was granted tax credits 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 $55.0
million, $39.4 million and $22.8 million as of December 31, 2010, 2011 and 2012, 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 less 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. 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 $3.5 million in 2011 and $1.2 million in 2012 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, January 1, 2008 and
January 1, 2013, Himax Taiwan became entitled to four preferential tax treatments, each for a period of
five years, which expired or will expire on March 31, 2009, December 31, 2010, December 31, 2012 and
December 31, 2017, 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 $3.6 million, $0.01 and $0.01, respectively,
for the year ended December 31, 2010, $0.8 million, $0.002 and $0.002, respectively, for the year ended
December 31, 2011 and $2.9 million, $0.01 and $0.01, respectively, for the year ended December 31, 2012.
While the ROC Statute for Upgrading Industries expired at the end of 2009, under a grandfather clause we
have continued 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 increased significantly in 2009 and 2010
and may increase further in the future.
On January 1, 2006, an income basic tax (also known as alternative minimum tax, or (“AMT”) in
accordance with the ROC Income Basic Tax Act (“IBTA”) became effective. The AMT is a supplemental
tax which is payable if the income tax payable pursuant to the ROC Income Tax Act is below the minimum
amount prescribed under the IBTA. In August 2012, the AMT rate for business entities was amended from
10% to 12% effective from 2013. However, the AMT amendment is not expected to have a significant impact
on our financial statements.
On April 1, 2013, the ROC Finance Committee of the Legislative Yuan passed preliminary examination
30
on the draft amendment for anti-avoidance to establish Article 43-3 Controlled Foreign Corporation (“CFC”)
rules and Article 43-4 profit-seeking enterprises of resident status (“Resident Companies”) rules of the
Income Tax Act (“ITA”). Key aspects of the ITA draft amendment are described as follows:
(i) Effective starting January 1, 2015, a profit-seeking enterprise (“PSE”) that directly or indirectly owns
affiliated enterprises in low-tax jurisdictions outside the territory of the ROC shall recognize and
include its pro rata share of affiliated enterprises’ annual profits as investment income in its income
tax return for the year. Subsequent actual dividends and distributions from such affiliated enterprises
that were previously recognized as investment income will then not be subject to income taxation;
any surplus to previously recognized investment income shall be included as taxable income in the
allocated year. Low-tax jurisdictions are defined as countries where the PSE income tax rate is lower
than 30% of the income tax rate of the PSE in the ROC (the current rate is 17%) . (Article 43-3 CFC
rules); and
(ii) Effective starting January 1, 2015, if a PSE, such as our company, is incorporated based on foreign
legislation but its place of effective management (“PEM”) is maintained within the territory of the
ROC, the head office of such PSE will be determined to be within the territory of the ROC and profit-
seeking enterprise income tax shall be levied in accordance with the ITA and relevant tax regulations.
The aforementioned PEM refers to a place where substantive key management and commercial
decisions of an entity’s business and its operations are made. The relevant definition and provisions
shall be determined by the MOF. (Article 43-4 Resident Companies rule).
The ITA draft amendment is still in a preliminary form. At this time, it is unclear what the finalized form
of the ITA draft amendment would be, and accordingly, it is unclear what actual effect, if any, the ITA draft
amendment would have on our tax cost and net income. However, if the ITA draft amendment were finalized
in its current form, it would increase our tax cost and consequently decrease our net income from 2015
onwards.
We face risks related to health epidemics and outbreaks of contagious diseases, including H1N1
influenza, H5N1 influenza, H7N9 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, H5N1 virus and H7N9 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, H7N9 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 $0.99 to a high of $2.46 on the
NASDAQ Global Select Market in 2012.
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;
31
•
conditions in the TFT-LCD panel market;
•
•
changes in the economic performance or market valuations of other display semiconductor
companies;
announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint
ventures or capital commitments;
•
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
the release of lock-up or other transfer restrictions on our outstanding ADSs or sales of additional
ADSs.
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, 2013, we had 339,149,508 outstanding shares and a significant
number of our shares were beneficially owned by certain major shareholders such as Innolux, as well as 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 1,921,092
ADSs for the three months ended March 31, 2013 compared to approximately 337,283 ADSs for the year
ended December 31, 2012. 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 19, 2013, we
repurchased a total of approximately $33.1 million of our ADSs (approximately 7.7 million ADSs), a total of
32
approximately $50.0 million of our ADSs (approximately 19.3 million ADSs) and a total of approximately
$13.4 million of our ADSs (approximately 9.5 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 shares otherwise outstanding by
approximately 7.9%, 9.9% and 5.3%, 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
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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 company.
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.
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
34
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:
•
•
•
•
directors who are interested in a transaction do not have a statutory duty to disclose such interest 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;
dissenting shareholders do not have comparable appraisal rights if a scheme of arrangement is
approved by the Grand Court of the Cayman Islands;
shareholders may not be able to bring class action or derivative action suits before a Cayman Islands
court except in certain exceptional circumstances; and
unless otherwise provided under the memorandum and articles of association of the company,
shareholders do not have the right to bring business before a meeting or call a meeting.
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.
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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 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.
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.
In February 2007, we completed the acquisition of Wisepal, 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
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$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 July 2012, our subsidiary, Himax Display, completed the acquisition of Spatial Photonics, a Delaware
corporation engaged in the business of manufacturing and production of MEMS products.
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, Suzhou and
Hefei, China; Yokohama and Matsusaka, Japan; Cheonan and Suwon, South Korea; and Irvine, California,
and Sunnyvale, Delaware, 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.
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 frames, head-mounted-displays 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 semiconductor solutions, LCOS microdisplays 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, and television
system manufacturers for various non-driver products. We believe that our recognized 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.
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
37
determines the colors generated by each pixel. Typically multiple gate drivers and source drivers are
installed separately on the panel. However, for certain small and medium-sized applications, gate
drivers and source drivers are integrated into a single chip due to space and cost considerations.
Large-sized panels typically have higher resolution and require more display drivers than small and
medium-sized panels.
Timing Controller. The timing controller receives image data and converts the format for the source
drivers’ input. The timing controller also generates controlling signals for gate and source drivers.
Typically, the timing controller is a discrete semiconductor in large-sized TFT-LCD panels. For
certain small and medium-sized applications, however, the timing controller may be integrated with
display drivers.
Scaler. For certain displays, a scaler is installed to magnify or shrink image data in order for the
image to fill the panel.
•
•
• Operational Amplifier. An operational amplifier supplies the reference voltage to source drivers in
order to make their output voltage uniform.
•
•
Television Chipset. Television flat panel displays require chipsets that typically contain all or some
of the following components: an audio processor, analog interfaces, digital interfaces, a video
processor, a channel receiver and a digital television decoder. See “—Products—TFT-LCD
Television and Monitor Semiconductor Solutions—TFT-LCD Television and Monitor Chipsets” for
a description of these components.
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 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 exacerbates this situation 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
38
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 require 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 require 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 packages, 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 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,
39
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;
IP and ASIC service;
LCOS and MEMS products;
power ICs;
CMOS image sensor product; 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 and started
volume shipments in the third quarter of 2011. We commenced our IP and ASIC services in the fourth quarter
of 2011. We commenced small quantity commercial shipments of our touch controller products in December
2010 and started volume shipments in the fourth quarter of 2011.
Display Drivers and Timing Controllers
Display Driver Characteristics
Display drivers deliver precise analog voltages and currents that activate the pixels on panels. The
following is a summary of certain display driver characteristics and their relationship to panel performance.
•
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
40
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 from 7 up 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 i
ndependent 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 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 specific
mechanical and electrical considerations. In general, display drivers for small-sized panels use COG
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package types, 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 4Kx2K high-resolution 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, benefits of which include a thin and light form factor, lower
power consumption and support of 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.
42
The table below sets forth the features of our products for large-sized applications:
Features
Product
TFT-LCD Source Drivers
TFT-LCD Gate Drivers
Timing Controllers
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•
•
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•
•
•
•
•
•
•
•
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 driving voltage ranging from 7 up 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 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
192 to 1600 output channels
output driving voltage ranging from 10 up
to 50v
input logic voltage ranging from standard
3.3V to low power 1.8V
low power consumption
support COF and COG package types
support dual gate and triple gate panel designs
product portfolio supports a wide range of
resolutions, from VGA (640 x 480 pixels) to full
HD (1,920 x 1,080 pixels, 1,920 x 1,200 pixels
and 3840 x 2160)
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, eDP and V-by-one input
interface technologies
support dual-gate and triple-gate panel designs
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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 finer
channel pitch that features cost efficient 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, 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 content adaptive
brightness control, or 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 the past 2 years, we
offered innovative handset display driver products by providing advanced WVGA (480 x 864 pixels), qHD
(540 x 960 pixels), and HD720 (720 x 1280)/ WXGA (800 x 1280) display driver ICs. We have recently
continued to update new products for this mainstream smartphone segment with new features, such as color
enhancement and sun-light readability enhancement functions. Meanwhile, we believe we developed the
first HD720/WXGA display driver with compressed RAM technology, which we believe has led the industry
migration to smartphones with higher resolution displays and lower power consumption. We keep moving
forward to develop and provide next generation display driver ICs, such as FHD (1080 x 1920 pixel), with
higher resolution.
The following table summarizes the features of our products for mobile handsets:
Mobile Handset Display Drivers
Product
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•
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•
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•
•
•
•
•
•
•
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 FHD
(1080 x 1920 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
support MDDI and MIPI interfaces
low power consumption and low EMI
fewer external components to reduce costs
slimmer die for compact module to fit smaller
mobile handset designs
application specific integrated circuits, or
ASIC, can be designed to meet customized
requirements (e.g., drivers without memory,
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 PCs, 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 and timing controller, as well as more functional semiconductors such as power circuit and
touch controller, combined into a single chip.
The industry trend for display drivers used in medium-sized consumer electronics products is towards
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 introduced our new point-to-point display solution including HX8288 (source driver) and
HX8896 (timing controller), for use in tablet PCs, and this solution is also suitable for other slim display
applications such as Ultrabook .
In 2012, we developed our highly integrated display driver for low power, high resolution IGZO displays
used in tablet PCs.
The following table summarizes the features of our products used in consumer electronics products:
TFT-LCD Source Drivers
Product
TFT-LCD Gate Drivers
TFT-LCD Integrated Drivers
Timing Controllers
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•
•
•
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Features
240 to 1,536 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 1.8V
low power consumption and low EMI
96 to 1,600 output channels
input logic voltage ranging from standard
3.3V to low power 1.8V
output driving voltage ranging from 10 to 40V
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
low power consumption
CABC function integrated for backlight power
saving
products for digital interfaces/high speed
interface
products for Tablet/Netbook/Ultrabook
45
•
support various resolutions from 1024 x 600
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 customer.
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 auto 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 a single glass structure, which contributes to simplifying the manufacturing
process and reducing costs for touch panels.
The following table summarizes the features of our touch controller products:
Capacitive Touch Controller
Product
•
•
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
flexible mechanical design
TFT-LCD Television and Monitor Semiconductor Solutions
Himax Media Solutions, our subsidiary, provides TFT-LCD television and monitor semiconductor
solutions.
TFT-LCD Monitor Chipsets
The following table summarizes the features of our monitor scaler solutions:
Monitor Scaler Integrated Solutions
Product
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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 pixel.
integrated 2D to 3D conversion
integrated 3D format conversion
•
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•
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•
In addition to scaler solutions, we expanded the product offering of monitor chipset solutions in 2012
to unveil the innovative 2D to 3D conversion solution called RV2H and RVP3 for new 3D applications
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 3D portable applications including tablet and mobile phone, 3D
notebook personal computers, 3D digital photo frame, 3D projector and 3D converter box. This compact
solution has already been designed into products of a number of famous companies. 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 2D to 3D RVP3 and RV2H conversion solutions:
RVP3 2D to 3D Conversion Solutions
Product
RV2H 2D to 3D Conversion Solutions
Features
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3D Android: any 2D content can be in real time
convert to 3D video sequence cover in UI,
icons, video, photo and gaming
low power, small package, without CPU
computing power and cost effective
real 3D adjustable
•
• multi-views in 3D
•
support HDMI-1.4 3D formats and 2D
content converting to 2~9 views
auto scene mode detection
switchable between Portrait and Landscape
modes in 3D
switchable barrier 2D/3D control
resolution up to WUXGA - 1920 x 1200
3D conversion with elimination of jagged
edge effectively
inter-bridge between MIPI, LVDS and TTL
I2C programming interface
easily integrated into existing project
support HDMI 1.4 3D format input including
3D format
support 2D mode, 2D to 3D mode, 3D to 2D
mode and 3D bypass/converter mode
support resolution up to full HD with 10 bits
deep color
built-in de-interlace and scaler
built-in 2D to 3D engine
built-in Frame rate conversion which can
output 120 Hz frame rate
built-in 64 mega bits SDR chip
TTL interface supports up to 1920 x 1080 RGB
888 resolution
TTL interface supports up to 12 bits RGB/YUV
built-in 3D glass sync and L/R sync signal
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•
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•
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IP and ASIC Service
Video IP
In the fourth quarter of 2011, we developed a new business segment 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.
As an expert player in 3D image and display core technologies solutions, we develop and own unique
IPs of image and video applications. The high quality IPs, which are used in various popular multi-media
commercial products, can provide our licensees with differentiated products and advantage in time-to-market.
The features of IPs are summarized in the following table.
Real 3D Depth Controllable (R3D) IP
Product
•
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•
•
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Features
state-of-the-art real 3D depth controllable
technology for healthy and comfortable 3D
safe disparity angel is configurable and
can meet each country’s 3D regulation in
real 3D mode
precise disparity control for view synthesis
and parameters are configurable
support 3D fatigue warning
support various 3D Visual Protection modes
3D content accommodation error detection
and correction
easily integrated into existing Projector, TV,
•
Monitor, Box, DVD, and DPF system SoC
2D to 3D Conversion IP
Multi-view: 3D Glasses-free IP
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with 3D features
state-of-the-art 2D-to-3D conversion
algorithms for transforming any 2D video
content to 3D video sequence and supporting
different 3D display
support auto-scene detection and various
scene modes
precise disparity control for view synthesis
and parameters are configurable
Support configurable stereoscopic density
for both modes including in front of screen
call pulled and behind the screen call push
easily integrated into existing Projector, TV,
monitor, box, DVD, and DPF system SoC
with 3D features
state-of-the-art real 2D/3D depth generator
for multi-view controller
support multi-view (2~9 views) parallax
barrier and lenticular lens glasses-free 3D
displays based on perfect viewing angle
adjustment
both 2D content (one view) and real 3D content
(two views) can be synthesized for multi-view
display
precise disparity control for view synthesis
•
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•
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SunLight Readable IP
Super High Resolution IP
Embedded Visual Lossless Compression IP
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•
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•
•
•
•
•
•
•
•
•
•
and parameters are configurable
support configurable stereoscopic density
for both modes including in front of screen
call pulled and behind the screen call push
easily integrated into existing portable
DVD, DPF, Pad like, mobile system SoC
with 3D features
improve sunlight readability under bright
sunlight environment
smart contrast enhancement processing
for shadow, mid-tone and highlight grey
level respectively
pixel based contrast adjustment
adapt video content dynamically
support automatic adjustment based on ambient
light sensor input
support manual adjustment based on manual
enhancement level setting
no frame buffer is required
low power and compact architecture
high quality resolution up-conversion without
image blur or side-effect such as zigzag artifact
and ringing artifact
synthesize rich details with texture extraction
capability by database-free architecture
support various levels of reality enhance effect
any resolution up-conversion without arbitrary
ratio limitation
real-time single-frame conversion, no extra
external memory requirement
easily integrated into existing Projector, TV,
•
Monitor, Box, DVD, and Surveillance system
SoC with scaler functionality
•
•
•
•
•
•
proprietary technologies near lossless
compression for embedded frame buffer can
reduce bandwidth and power consumption for
SOC application
compression Ratio: 2x~3x
reduce image storage capacity and transmission
time
offer two color domain compression: YUV /
RGB
support real-time compress/decompress with
low latency delay for video processor
application
block-based / frame-based data access encode/
decode
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Silicon IP
We also develop and own unique IPs of high speed transmission. These silicon IPs are not only silicon
proven but also “product proven” and are used in various popular media commercial products. We provide
our licensees with unique, high quality and cost competitive silicon IPs to reduce risk and accelerate time-to-
market. The features of silicon IPs are summarized in the below table:
HDMI Transmitter and Receiver IP
Product
Mobile Industry Processor Interface (“MIPI”) and
Display Serial Interface (“DSI”) IP
VBO IP
ASIC Service
•
•
•
•
•
•
•
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Features
provide configurable HDMI digital
controllers and high-speed mixed signal
Physical Layer IP (“PHY”)
fully compliant with HDMI 1.4a
specifications and received the ATC
certification
fully compliant with the DSI version 1.01
support the physical adapter layer of the
D-PHY specification version 1.00
support both command and video modes
providing the greatest range of flexibility
fully compliant with the V-by-One® HS
Standard Version 1.3
provide configurable VBO digital controllers
and high-speed mixed signal PHY
designed for supporting high-speed video
data transmission between the host device
and display device, especially UltraHD TV
application
In 2012, we completed the ASIC project for Japan top TV makers with customized video processing chip.
The chip has LVDS TX/RX interfaces and specialized video processing technology.
The following table summarizes the features of our ASIC service:
ASIC Service
Product
•
•
Features
based on our video processor platform
solutions including video processor and
timing controller platform
support video input/output interfaces like
LVDS, HDMI, DVI, VBO, Display port,
MIPI, MHL, etc.
•
•
built-in 8/32- bit microprocessor
built-in video processing algorithm like
super-high resolution, sun-light readable,
•
•
50
MEMC, FRC, etc
•
built-in 3D feature technologies like 2D-to-
3D, Glasses-free 3D, 3D multi-view, 3D
visual protection, etc.
support 4K x 2K display
support advanced timing controller
technologies like smart contrast enhance,
local dimming, EVLC, and energy saving
LCOS and MEMS Products
Himax Display, our subsidiary, has contributed to our microdisplay products lines: Color-filter LCOS,
Color-sequential LCOS and MEMS.
Himax Display is the market leader of the LCOS industry based on market share in 2012. We believe
Himax Display is the only non-captive LCOS company that owned a mass production ready liquid crystal
assembly line. We have produced and shipped over 1.5 million units from this ISO certified line. Our
customers use our products in various applications such as pico-projector, embedded projector in different
applications (cell phone and camcorder), communication, toy projector, and head-mounted-display.
We believe Himax is among the few players, including Texas Instruments, in the market offering MEMS
microdisplay solutions.
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 product has its 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
MEMS
Power ICs
Size and Resolution
0.28” (320x240 pixels) QVGA
0.38” (640x360 pixels) nHD
0.44” (640x480 pixels) VGA
0.59” (800x600 pixels) SVGA
Customized design
0.22” (640 x 360 pixels) nHD
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
0.55” (1280 x 800 pixels) WXGA
•
•
•
•
•
•
•
•
•
•
•
•
•
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 fulfill 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 amplifiers, 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. The following table summarizes certain features of our power management IC products:
51
Product
Integrated Multi-Channel Power Solutions for
Notebooks
Features
built-in power MOSFET
•
step-up PWM converter
•
charge pump regulator
•
LDO regulator
•
voltage detector
•
•
gate pulse modulator
• Vcom operational amplifier
• with/without LED drivers
smart PWM control
•
Integrated Multi-Channel Power Solutions for
Monitors
Integrated Multi-Channel Power Solutions for TVs
built-in power MOSFET
step-up PWM converter
•
•
• HV LDO regulator
voltage detector
•
gate pulse modulator
•
programmable Vcom voltage / Vcom
•
operational amplifier
level shifter
•
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 amplifier
•
•
I2C programmable
level shifter
LED Drivers
The LED driver provides sufficient voltage and current to light up LED diodes. Moreover, in addition
to turning LEDs on, the driver has to keep the brightness of LEDs uniform and stable. Therefore, voltage
boosting and current sensing are the core functional blocks of a white LED driver. The following table
summarizes certain features of our LED drivers products:
WLED Drivers for NB
Product
WLED Drivers for LED MNT
•
•
•
•
•
•
•
•
•
•
Features
4.5V to 24V input voltage range
built-in 1.3MHz step-up PWM converter
(max. boost voltage: 40V)
8 constant current source channels
capable of driving up to 10 LEDs in serial
for each channel
5V to 33V input voltage range
built-in 2MHz step-up PWM controller
2/4/8 constant current source channels
up to 200mA 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 33V input voltage range
52
•
•
•
8-channel current sinks
up to 90mA per channel
60V sustainable voltage for LED pins
CMOS Image Sensor Products
Our CMOS image sensor products are designed primarily for camera-equipped mobile devices, such
as mobile phones, tablets 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 sensor 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 sensor. Based on new pixel architecture, a 1/4” 5 mega
pixel, a 1/3.2” 8 mega pixel and a smaller 1/9” HD sensor were designed and started phasing into production.
Thanks to backside illumination, or BSI technology, a high performance 1/6” Full HD sensor and a new 8
mega pixel sensor will be designed in 2013. Besides products in mobile devices, we also develop 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 lowlight or video mode without a decreasing
frame rate or increasing power consumption. Embedded in our new 2.0 mega pixel sensor, ClearViewTM
technology provides the optical restoration engine to enhance the optical performance. In the 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 CMOS image sensor business with investments in experienced
human resources, an efficient 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:
8MP Color Image Sensor
Product
5MP Color Image Sensor System on Chip
•
•
Features
1/3.2” format color type
8MP at 15 frames per second, support
1080p and 720p at 30 frames per second
advanced ADC architecture to keep
outstanding SNR
state-of-the-art ultra bright pixel
•
•
10 bit parallel video data port and 2-lane
MIPI CSI2 outputs RAW8/10, YUV422,
•
RGB565/555/444
•
•
1/4” format color type
5MP resolution at 15 frames per second
(with MJEG), support 720p HD at 30
frames per second and 1080 FHD at 15
frames per second
• VCM driver and MJEG engine embedded
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 2-lane
MIPI CSI2 outputs RAW8/10, YUV422,
RGB565/555/444
3.4MP BrightSenseTM Color Image Sensor
•
1/4” format color type
53
•
• 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
•
2.0MP ClearViewTM Color Image Sensor
2.0MP BrightSenseTM System on Chip
Product
HD 720p ClearViewTM System on Chip
•
•
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
demosaic, color correction, gamma control,
saturation/hue adjustment, and edge
enhancement
• multiple video formats including YUV422,
RGB565, and ITU656
Features
1/5” format color type
•
• UXGA resolution at 18 frames per second,
720p HD resolution at 30 frames per
second
on-chip 4-channel lens correction, defect
removal
low noise and 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,
1.3MP ClearSenseTM EDR Color Image Sensor
54
RGB565/555/444
•
•
•
•
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
1.3MP BrightSenseTM System on Chip
VGA BrightSenseTM System on Chip
balance to balance color fidelity 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
built-in low dropout regulator and power on
reset
10 bit parallel video data port supports
RAW, YUV422, and RGB565/555/444
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 and low power consumption
•
•
•
•
•
•
•
•
1/13” format color type
•
• VGA YUV output at 30 frames per second
•
color processing pipeline including lens
correction, defect correction, color
demosaic, color correction, gamma control,
saturation/hue adjustment, and edge
enhancement
automatic low light and frame rate control
1-lane MIPI CSI2 outputs RAW, YUV422,
RGB565/555/444
•
•
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 Surface-Mount Technology or SMT reflow process possible. We offer entire optical solutions for
customers who need compact and easy-to-handle optical products on their electronic devices.
Combining traditional optical lens design, precise mold control and semiconductor manufacturing
expertise, our VGA wafer level optics products have been 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 specific structure, our wafer level optics
products enhance the performance of camera modules.
Besides imaging lens, our technology is also adapted to form microstructure such as lens array and
lenticular for advanced application in digital optics field.
The following table sets forth the features of our wafer level optics products:
VGA 1 element wafer level lens
Product
Features
for 1/11” VGA CIS (2.0μm pixel pitch)
one-element and two-surface design for
cost-competitive market
double-side manufacture process
•
•
•
55
VGA 1 element wafer level lens
HD/1.3M 2 element wafer level lens
Lens array
•
•
•
•
•
•
•
•
•
•
•
already in mass production
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
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
customized lens array for various kinds of
applications
precise surface form
dimension of lens let could achieve as
small as 10μm
Core Technologies and Know-How
Driving System Technology. Through our collaboration with panel manufacturers, we have developed
extensive knowledge of circuit design, TFT-LCD driving systems, high-voltage processes and display
systems, all of which are important to the design of high-performance TFT-LCD display drivers. Our
engineers have in-depth knowledge of the driving system technology, which is the architecture for the
interaction between the source driver, gate driver, timing controller and power systems as well as other
passive components. We believe that our understanding of the entire driving system has strengthened our
design capabilities. Our engineers are highly skilled in designing power efficient and compact display drivers
that enhance the performance of TFT-LCD. We are leveraging our know-how of display drivers and driving
system technology to develop display drivers for panels utilizing other technologies such as OLED.
High-Voltage CMOS Circuit Design. Unlike most other semiconductors, TFT-LCD display drivers
require a high output voltage of 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 difficult to achieve when using standard CMOS process technology.
High-Bandwidth Interfaces. In addition to high-voltage circuit design, TFT-LCD display drivers require
high bandwidth transmission for video signals. We have applied several high-speed interfaces, including
transistor-transistor logic (“TTL”), Reduced Swing Differential Signaling (“RSDS”), mini low-voltage
differential signaling (“LVDS”), dual-edge TTL (“DETTL”), turbo Reduced Swing Differential Signaling
(“RSDS”), Mobile Industry Processor Interface (“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
56
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, 2012, we sold our products to more than 200 customers. In 2010, 2011 and 2012, Innolux,
including CMO, the predecessor of Innolux and TPO, and its affiliates, combined with the predecessor of
Innolux and TPO before the merger, accounted for 52.8%, 40.8% and 34.2% of our revenues, respectively;
customer A and its affiliates, accounted for 0.2%, 5.7% and 11.7% of our revenues, respectively.
Set forth below (in alphabetical order) are our ten largest customers (and their affiliates) based on
revenues for the year ended December 31, 2012:
BOE Technology Group Co., Ltd.
Chunghwa Picture Tubes, Ltd.
HannStar Display Corporation
Happiness Commercial Co., Limited
Innolux
Mitsudi (HK) Company
Perfect Display Limited
Shanghai Tianma Microelectronics
Truly Semiconductors Ltd.
Welltek Electronics (Hong Kong) Limited
Certain of our customers provide us with a long-term (twelve-month) forecast plus three-month rolling
non-binding forecasts and confirm orders 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
among 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 and Suwon, South Korea; and Irvine and Sunnyvale, California,
and Delaware, 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 a
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.
57
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 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.
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 filter facility under Himax Taiwan,
which commenced small-scale shipments in 2010. 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. 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
Water Fabrication
Water Fabrication
Processed Tape
Tape Carrier
Packaging
(TCP)
Chip on
Film
(COF)
Gold Bumping
Chip Probe Testing
Inner-lead
Bonding
Final
Testing
58
Gold Bumping
Chip Probe Testing
COG Assembly
and Testing
Wafer Fabrication: Based on our design, the foundry provides us with fabricated wafers. Each fabricated
wafer contains many chips, each known as a die.
Gold Bumping: After the wafers are fabricated, they are delivered to gold bumping houses where gold
bumps are plated on each wafer. The gold bumping process uses thin film metal deposition, photolithography
and electrical plating technologies. The gold bumps are plated onto each wafer to connect the die to the
processed tape, in the case of TAB package, or the glass, in the case of COG package.
Chip Probe Testing: Each 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. By 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
expire in February 2014. In February 2006, we received ISO 14001 certification, which was renewed in
59
January 2012 and will expire in January 2015. In addition, in March 2007, we received IECQ QC 080000
certification, which was renewed in March 2013 and will expire in March 2016, and OHSAS 18001
certification, which was renewed in January 2012 and will expire in January 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,
Globalfoundries Singapore, SMIC and Maxchip in the past few years and have also established relationships
with UMC, HHNEC and PSC.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 International trading company 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 sufficient 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 bumping,
assembly and testing houses for production. As a result, we expect that we will continue to rely on a 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
Globalfoundries Singapore Pte., Ltd.
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
Powerchip Technology Corporation
Gold Bumping
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
LB Semicon Co., Ltd.
Nepes Corporation
60
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
Chipmore International Trading Company 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 Ltd.
Siliconware Precision Industries Co., Ltd.
Taiwan IC Packaging Corporation
Micro Silicon Electronics Corp.
Chip Probe Testing
Ardentec Corporation
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
Nepes Corporation
Global Testing Corporation
Greatek Electronics Inc.
King Yuan Electronics Co., Ltd.
Micro Silicon Electronics Corp.
Intellectual Property
As of March 31, 2013, we held a total of 1,869 patents, including 660 in Taiwan, 708 in the United States,
446 in China, and 55 in other countries. The expiration dates of our patents range from 2019 to 2032. We
also have a total of 735 pending patent applications in Taiwan, 297 in the United States and 275 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 the competition in our industry include:
•
•
•
•
•
•
customer relations;
product performance;
design customization;
development time;
product integration;
technical services;
61
• manufacturing costs;
•
•
•
•
supply chain management;
timely delivery;
economies of scale; and
broad product portfolio.
We continually face intense competition from fabless display driver companies, including 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 whom 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 Synaptics Inc.
Our monitor semiconductor solutions compete against solutions offered by a significant number of
semiconductor companies including MStar Semiconductor, Inc., Novatek Microelectronics Corp., and
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 OmniVision, which acquired Aurora Systems
in 2010, Syndiant Inc. and Microvision, Inc., a company providing laser-scanning projector solutions. For
MEMS products, we face competition primarily from TI’s DLP and Epson 3LCD technology.
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 SK Hynix Inc.
For wafer level optics products, we face competition primarily from OmniVision, Heptagon, Anteryon,
NemotekTechnologies 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
62
insurance. We do not have insurance for business interruptions, nor do we have key person insurance.
Environmental Matters
The business of semiconductor design does not cause any significant pollution. Himax Taiwan maintains
a color filter 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 affiliates as of March 31, 2013.
63
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The following table sets forth summary information for our subsidiaries as of March 31, 2013.
Subsidiary
Main Activities
Jurisdiction of
Incorporation
Percentage of
Our Ownership
Interest
Himax Technologies Limited
Himax Technologies Korea Ltd.
Himax Semiconductor, Inc.
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou)
Co., Ltd.
Himax Technologies (Shenzhen)
Co., Ltd.
IC design and sales
Sales
IC design and sales
Investments
ROC
South Korea
ROC
Samoa
Sales
Sales
PRC
PRC
Himax Display, Inc.
Integrated Microdisplays Limited
Himax Display (USA) Inc.
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
Iris Optronics Co., Ltd.
Himax Technologies Japan Ltd.
LCOS and MEMS design,
manufacturing and sales
LCOS sales
MEMS design
IC design and sales
Investments
IC design and sales
IC design
Investments
Investments
TFT-LCD television
and monitor chipset
operations, ASIC service
and IP Licensing
Investments
Investments
E-paper manufacturing
and sales
Sales
ROC
Hong Kong
Delaware, USA
ROC
Cayman Islands
ROC
California, USA
Cayman Islands
Cayman Islands
100.0%
100.0%
100.0%
100.0%(1)
100.0%(2)
100.0%(2)
81.5%(1)
81.5%(3)
81.5%(3)
74.6%(1)
100.0%
87.6%(4)
100.0%(5)
100.0%
100.0%(6)
ROC
86.7%(7)
Hong Kong
ROC
ROC
86.7%(8)
100.0%(1)
21.7%(1)
Japan
100.0%
(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 81.5% ownership of Himax Display, Inc.
(4) Indirectly, as to 79.7% 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 22.0%, and indirectly, as to 64.7% through our 100.0% ownership of Himax
Technologies Limited.
(8) Indirectly, through our 86.7% ownership of Himax Media Solutions, Inc.
65
4.D. Property, Plant 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 and Suwon, South Korea; and
Irvine and Sunnyvale, California and Delaware, 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 Innolux, which commenced
small-scale shipments in December 2009. We have also expanded certain facilities for LCOS and wafer level
optics products to accommodate new customers and new applications 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 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 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 frames, head-mounted-displays 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 semiconductor solutions, LCOS microdisplays 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, and television system
manufacturers for various 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, maintain
our leading technology position, achieve additional design wins and manage our costs to partially mitigate
declining average selling prices and any other market risks 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.
66
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 with the exception of manufacturing of LCOS
microdisplay and wafer level optics products, which we manufacture through our own factories. We are
able to take advantage of the economies of scale and the specialization of our third-party 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. For LCOS microdisplay and wafer level optics products, our in-house factories enable
us to protect our proprietary technologies and manufacturing expertise in the effort to further expand these
businesses.
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 2012 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 over 80% 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.” The revenue expansion of our
non-driver products as well as TFT-LCD product trending toward high resolution and any other new product
introduction help to mitigate these risks.
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; 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
67
over a product’s life cycle, which may be offset by changes in conditions in the semiconductor industry such
as constraints in foundry capacity. The general trend in the semiconductor industry is for the average selling
prices of semiconductors to decline over a product’s life cycle due to competition, production efficiencies,
emergence of substitutes and technological obsolescence. Our cost reduction efforts also contribute to this
decline in average selling prices. See “—Cost of Revenues and Cost Reductions.”
Our average selling prices are also affected by the cyclicality of the TFT-LCD panel industry. 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, the predecessor of Innolux and TPO could negatively affect our ability to
maintain, if not raise, our selling prices. In addition, as new China panel makers emerge in the marketplace
and continue to expand their capacity, China panel makers’ bargaining power will increase accordingly,
negatively impacting our average selling price. Our average selling prices are also affected by the packaging
type our customers choose as well as the level of product integration. See “—Product Mix” below. Lastly,
competition level affects our average selling prices as well. For example, as competitors have started to enter
into the smartphone driver IC space and compete aggressively to get market share since the second quarter of
2012, average selling prices of smartphone driver IC for mid to low-end resolution have been under pressure
since then. 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 stimulate demand and thereby drive
sales and TFT-LCD panel products trending toward higher resolution which creates a higher barrier of entry,
less competition and higher profit margins.
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
68
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 adversely affected to the extent
that the decrease in the number of display drivers required for each panel is not offset by increased total
unit shipments and/or higher average selling prices for display drivers with a higher number of channels.
The level of integration of our display drivers also affects average selling prices, as more highly integrated
chips typically have higher selling prices. Additionally, average selling prices are affected by changes in
the package types used by our customers. For example, the chip-on-glass package type typically has lower
material costs because no processed tape is required. 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.
For the past three years, we have experienced operating losses from our non-driver business. This was partly
due to low sales volume during these periods that led to insufficient revenue to fully cover expenses such as
research and development and operating expenses. We expect; however, to ramp up the volume production
and sales of our non-driver products in the future and generate positive operation income from such non-
driver products. In addition, given that our non-driver products have higher gross margins and higher
growth potential than our driver products, we expect the overall profit margin across our product platform to
improve.
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 component 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 roadmaps 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 2010,
2011 and 2012 was 79.0%,80.2% and 76.9%, respectively. In 2012, as a percentage of Himax Taiwan’s total
manufacturing costs, the cost of wafer fabrication was 55.7%, the cost of processed tape was 8.0%, the cost
of assembly and testing was 35.8% and overhead was 0.5%. 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 our manufacturing 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);
69
•
•
improving manufacturing yields through our close collaboration with our semiconductor
manufacturing service providers and in our in-house manufacturing facilities; and
achieving better pricing from a diversified pool of semiconductor manufacturing service providers
and suppliers, reflecting our ability to leverage our scale, volume requirement 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 and seek for new manufacturing service providers in
case of any manufacturer’s capacity shortage. Any disruption to our supply chain could adversely affect our
performance and could result in a loss of customers as well as potentially damage our reputation.
Share-Based Compensation Expenses
Our results of operations have been affected by, and we expect our results of operations to continue to
be affected by, our share-based compensation expenses, which consist of charges taken relating to grants of
mainly RSUs as well as non-vested 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 $11.5 million, $6.8 million and $8.2
million in 2010, 2011 and 2012, respectively. See “—Critical Accounting Policies and Estimates—Share-
Based Compensation Expenses.” Of the total share-based compensation expenses recognized, $5.9 million,
$2.9 million and $6.3 million in 2010, 2011 and 2012, 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, 2010, 2011 and 2012 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 were 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 were 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 were settled by cash in the
70
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 were 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.
We made grants of 5,522,279 RSUs to our employees on September 26, 2012. The vesting schedule for
such RSU grants is as follows: 58.36% of the RSU grants vested immediately and were settled by cash in the
amount of $6.3 million on the grant date, with the remainder vesting equally on each of September 30, 2013,
2014 and 2015, 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, 2010, September 28, 2011 and September 26, 2012 was $2.47, $1.10 and $1.95 per ADS,
respectively, which was based on the trading price of our ADSs on that day.
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 was 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 could 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
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; provided that the shareholders’ meeting of such ROC companies invested in by Himax
Taiwan did not resolve to forfeit the shareholders’ tax credit benefit in exchange for such ROC companies’
five-years tax holiday. The balance of unused investment tax credits totaled $55.0 million, $39.4 million and
$22.8 million as of December 31, 2010, 2011 and 2012, 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 less 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. 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 $3.5 million in 2011 and $1.2 million in 2012 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 was
required to 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, January 1, 2008 and January 1, 2013 and
expiring on March 31, 2009, December 31, 2010, December 31, 2012 and December 31, 2017, respectively.
In addition, beginning January 1, 2009, Himax Semiconductor became entitled to a five-year tax exemption
71
expiring on December 31, 2013. While the ROC Statute for Upgrading Industries expired at the end of
2009, under a grandfather clause we have continued 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 $3.6 million, $0.01 and $0.01, respectively, for the year ended December 31, 2010,
$0.8 million, $0.002 and $0.002 for the year ended December 31, 2011 and $2.9 million, $0.01 and $0.01 for
the year ended December 31, 2012. 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 increased significantly in 2009 and 2010 as compared to
2008. It may continue to increase 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 semiconductor solutions, LCOS microdisplay solutions, power ICs, CMOS image sensors and wafer
level optics products, 2D to 3D conversion solutions, ASIC service and IP licensing.
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 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 Innolux to diversify its display driver supply base in 2010. However, our revenues generated from
sales of display drivers for large-sized applications increased in 2012 due to the increased sales to customers
in China. 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, 2011
and 2012, 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.
2010
Percentage
of
Revenues
Amount
Year Ended December 31
2011
Percentage
of
Revenues
Amount
2012
Percentage
of
Revenues
Amount
(in thousands, except percentages)
Display drivers for
large-sized plications
Display drivers for mobile
handsets applications
Display drivers for consumer
electronics applications
Others(1)
Total
$ 366,492
57.0 %
$ 270,372
42.7 %
$ 305,247
41.4 %
119,623
18.6
169,248
26.8
177,175
24.0
103,942
16.2
112,836
17.8
151,689
20.6
52,635
$ 642,692
8.2
100.0 %
80,565
$ 633,021
12.7
100.0 %
103,144
$ 737,255
14.0
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, 2D to 3D conversion solutions, ASIC service and IP licensing.
A limited number of customers account for substantially all our revenues. Innolux and its affiliates, which
72
take into account the effect of the merger of CMO, Innolux and TPO in March 2010, accounted for 52.8%,
40.8% and 34.2% of our revenues in 2010, 2011 and 2012, respectively. Sales to Innolux and its affiliates
further decreased both in absolute amount and as a percentage of our total revenues, primarily due to the
change of purchase policy by Innolux to diversify its display driver supply base and our increased sales to
China customers.
2010
Percentage
of
Revenues
Amount
Year Ended December 31
2011
Percentage
of
Revenues
Amount
2012
Percentage
of
Revenues
Amount
(in thousands, except percentages)
Innolux and its affiliates
Customer A and its affiliates
Others
Total
$ 339,220
1,516
301,956
$ 642,692
52.8 %
0.2
47.0
100.0 %
$ 258,156
35,908
338,957
$ 633,021
40.8 %
5.7
53.5
100.0 %
$ 251,974
86,069
399,212
$ 737,255
34.2 %
11.7
54.1
100.0 %
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. Our
sales to panel makers in China grew significantly in 2011 and 2012 due to the Chinese panel maker business
expansion which started in 2011. These sales have become a significant portion of our revenue.
We derive substantially all of our revenues from sales to Asia-based customers whose end products
are sold worldwide. In 2010, 2011 and 2012, approximately 76.7%, 62.4% and 48.4% of our revenues,
respectively, were from customers headquartered in Taiwan and approximately 17.6%, 33.1% and 45.4% of
our revenues, respectively, were from customers headquartered in China. 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 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:
•
•
•
•
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
73
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, masks,
molding 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 2010, 2011 and 2012 were 11.9%, 12.4% and 9.6%, 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 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 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 15 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, September
28, 2011 and September 26, 2012 to our employees. Share-based compensation expenses recorded under
the long-term incentive plan totaled $11.5 million, $6.8 million and $8.2 million in 2010, 2011 and 2012,
respectively. See“—Critical Accounting Policies and Estimates—Share-Based Compensation” for further
discussion of the accounting of such expenses.
Income Taxes
74
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 17.6% in 2010, 43.4% in 2011 and 23.9% in 2012, 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, personnel training expenses, purchases of
qualifying machinery and investments in the newly emerging, important and strategic industries; provided
that the shareholders’ meeting of such ROC companies did not resolve to forfeit the shareholders’ tax credit
benefit in exchange for such ROC companies’ five-year tax holiday. 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 could be applied without limitation to the total amount of the
income tax payable) was 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 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 $55.0 million, $39.4 million and $22.8 million as of December 31, 2010, 2011
and 2012, 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 less 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. 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 $3.5 million in 2011 and $1.2 million in 2012 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, January 1, 2008 and January 1, 2013 and expiring on
March 31, 2009, December 31, 2010, December 31, 2012 and December 31, 2017, 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 had been an
increase of $3.6 million, $0.01 and $0.01 for the year ended December 31, 2010, respectively, $0.8 million,
$0.002 and $0.002 for the year ended December 31, 2011, respectively, and $2.9 million, $0.01 and $0.01
for the year ended December 31, 2012, respectively. The tax exemptions that expired on March 31, 2009 and
December 31, 2010 accounted 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 was due to two reasons. One, our Taiwan subsidiaries, other than
Himax Taiwan, incurred net operating losses and provided full valuation allowance for deferred tax assets.
Another factor was the NT dollar’s depreciation against the U.S. dollar during 2011. While our reporting
currency is the U.S. dollar, a substantial majority of our taxes are incurred in Taiwan on the tax basis of the
NT dollar. More deferred tax liabilities were recognized by Himax Taiwan in 2011 because if we were to
settle the monetary assets or liabilities in U.S. dollars, it would have resulted in taxable income.
75
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 non-vested 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, 2012, we based our share-based compensation cost on an assumed forfeiture rate of 12.19%
per annum for RSUs issued in 2009, and 14.13% per annum for RSUs issued in 2010 and 2012 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 2010, 2011 and 2012, the fair value of the ordinary shares underlying the
RSUs granted to our employees was $2.47, $1.10 and $1.95 per share, respectively, which was the closing
price of our ADSs on September 28, 2010 and 2011 and September 26, 2012, 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 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 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.
The movement in the allowance for doubtful accounts, sales returns and discounts for the years ended
December 31, 2010, 2011 and 2012 are as follows:
Allowance for doubtful accounts
76
Year
2010
2011
2012
Year
2010
2011
2012
Balance at Beginning
of Year
Charges (credits) to
earnings
Amounts Utilized
Balance at End of Year
(in thousands)
$ 25,515
$ 16,727
$ 15,186
$ (8,788)
$ (1,541)
$
-
$ -
$ -
$ -
$ 16,727
$ 15,186
$ 15,186
Allowance for sales returns and discounts
Balance at Beginning
of Year
Charges (credits) to
earnings
Amounts Utilized
Balance at End of Year
$ 970
$ 591
$ 785
$ 4,551
$ 3,385
$ 7,386
$ (4,930)
$ (3,191)
$ (7,093)
$ 591
$ 785
$ 1,078
(in thousands)
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 2010, 2011 and 2012 were approximately $10.6 million, $9.1 million and $12.4
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 impairment charges on long-
lived assets during the period from December 31, 2010 to December 31, 2012.
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
77
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 2010, we considered 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 2010. Therefore, we concluded that the Company’s
goodwill was not impaired in 2010.
Since January 2011, we changed our internal reporting such that we now have two operating segments,
which are also reportable, segments. We have determined that we have five reporting units. However, all of
the goodwill has been assigned to the Driver IC reporting unit, which is also an operating segment. Therefore,
only the Driver IC reporting unit needs to be tested for goodwill impairment.
For the Driver IC reporting unit in 2011 and 2012, we compared the carrying value of the 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 a
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 our 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 the Driver IC reporting unit and 30.1% and 35.1% for other reporting units as of October 31, 2011 and
21.3% for the Driver IC reporting unit and 30.2% for other reporting units as of October 31, 2012.
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 and 2012 prior to October 31, 2011. Within the four 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% and 54.3% at October 31, 2011 and 2012, respectively and therefore we concluded that
goodwill was not impaired in 2011 and 2012. 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.
Goodwill also exists in our Non-Driver Products reportable segment as of December 31, 2012 as a result
of our acquisition of Spatial Photonics, Inc. during that year. The amount of such goodwill is immaterial.
Product Warranty
78
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, 2010, 2011 and 2012 is as follows:
Year
2010
2011
2012
Balance at Beginning
of Year
Charges (credits) to
earnings
Amounts Utilized
Balance at End of Year
(in thousands)
$ 679
$ 679
$ 78
$ 3,772
$ (321)
$ 856
$ (3,772)
$ (280)
$ (737)
$ 679
$ 78
$ 197
Income Taxes
According to the ROC Income Tax Act, dividends distributed by a Taiwan company to its foreign
shareholders are subject to ROC 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% ROC retained earnings tax paid by a 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% ROC tax imposed on those distributions.
As of December 31, 2011 and 2012, we have not provided for retained earnings tax on the undistributed
earnings of approximately $467.7 million and $536.5 million, respectively, of our Taiwanese subsidiaries
since we have specific plans to reinvest these earnings indefinitely. The undistributed earnings in our foreign
subsidiaries are mainly from Himax Taiwan totaling approximately $467.3 million and $514.9 million as
of December 31, 2011 and 2012, 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 Taiwanese company can no longer
demonstrate that it plans to reinvest indefinitely 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 have paid dividends and repurchased
outstanding shares. To fund such dividends and repurchases, in the past four years, we have received cash
from bank loans and from Himax Taiwan through intercompany borrowings instead of dividends distributed
by Himax Taiwan. At December 31, 2011 and 2012, the amount of cash and cash equivalents and investments
in marketable securities available-for-sale held by Himax Taiwan were $85.6 million and $119.3 million,
respectively, which are not available to fund our ultimate parent company’s activities unless the cash is
distributed.
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
treatments of items for tax and accounting purposes and the amount of tax credits and tax loss carry-forward.
These differences result in deferred tax assets and liabilities, which are included in the consolidated balance
sheets. Management must then assess the likelihood that the deferred tax assets will be recovered from future
taxable income, and, to the extent it believes that recovery is not more likely than not, a valuation allowance
is provided.
In assessing the ability to realize deferred tax assets, our management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets and therefore the determination of the valuation allowance are 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.
79
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 is 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:
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
$ 8,450
-
$ (2,295)
$ 133
$ 604
$ 6,892
2010
2012
Year Ended December 31
2011
(in thousands)
$ 6,892
-
$ (6,759)
-
$ (5)
$ 128
$ 128
$ 658
-
-
$ 5
$ 791
With the exception of 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 our 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
allowances of $31.6 million, $31.9 million and $30.5 million as of December 31, 2010, 2011 and 2012,
respectively, were provided to reduce their deferred tax assets (consisting primarily of operating loss carry-
forwards and unused investment tax credits) to zero because management believes it is unlikely that these tax
benefits will be realized. Additional valuation allowances of $3.3 million and $5.8 million as of December
31, 2011 and 2012, respectively, were 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 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.
Management of the Company has determined that we have two operating segments, Driver IC and Non-
driver products, which are also reportable segments.
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
The following table sets forth a summary of our consolidated statements of income as a percentage of
revenues:
80
Year Ended December 31
2011
2010
2012
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 %
79.0
11.9
2.9
(1.4)
2.1
94.5
5.5
-
1.0
4.5
0.6
5.2
80.2
12.4
2.7
(0.2)
2.3
97.4
2.6
-
1.1
1.5
0.2
1.7
76.9
9.6
2.3
-
2.1
90.9
9.1
(0.2)
2.1
6.8
0.2
7.0
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues. Our revenues increased by 16.5% to $737.3 million in 2012 from $633.0 million in 2011. The
growth was a result of increasing sales in all categories of products. This increase was attributable mainly
to a 16.6% increase in revenues from sales of display drivers for, mobile handsets and consumer electronics
applications to $328.9 million in 2012 from $282.1 million in 2011, primarily as a result of our expanding
reach to end customers in China, Korea and the U.S. The increase was also attributable to a 12.9% increase
in revenues from display drivers for large-sized applications to $305.2 million in 2012 from $270.4 million in
2011, mainly driven by sales to Chinese customers, which led to a gain in market share and a 28.0% increase
in revenues from non-driver products to $103.2 million in 2012 from $80.5 million in 2011. In 2012, our
average selling prices increased by 4.6%, primarily as a result of changes in our product mix, and our unit
shipments increased by 11.4% 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 by 8.7% to $670.2 million in 2012 from $616.4 million
in 2011. As a percentage of revenues, costs and expenses decreased to 90.9% in 2012 compared to 97.4% in
2011.
•
•
Cost of Revenues. Cost of revenues increased to $566.7 million in 2012 from $507.4 million
in 2011. The increase in cost of revenues was due primarily to an 11.4% increase in unit
shipments in 2012, as compared to 2011. Inventory write-downs, which are included in
cost of revenues, increased to $12.4 million in 2012 from $9.1 million in 2011 primarily due
to larger inventory write-downs as a result of unused inventory produced to meet projected
customer demand. As a percentage of revenues, cost of revenues decreased to 76.9% in
2012 from 80.2% in 2011. The significant margin improvement is primarily a result of
product diversification.
Research and Development. Research and development expenses decreased by 10.3%
to $70.9 million in 2012 from $79.0 million in 2011. This decrease was primarily attributable
to decreases in research and development material expenses and mask and mold
expenses. The decrease was partially offset by an increase in salary expenses (including
share-based compensation). The increase in salary expenses was due primarily to higher
average salaries.
• General and Administrative. General and administrative expenses increased slightly by
0.3% to $17.1 million in 2012 from $17.1 million in 2011, primarily as a result of increases
in salary expenses and welfare expense. The increase was partially offset by a decrease in
depreciation expenses. The decrease in depreciation expenses was due primarily to the
81
useful life of prior capitalized items gradually being expired in 2012.
•
•
Recovery of Bad Debt Expense. We recognized net recoveries of previously considered doubtful
accounts from SVA-NEC of nil in 2012 and $1.5 million in 2011.
Sales and Marketing. Sales and marketing expenses increased by 7.5% to $15.4 million in 2012 from
$14.4 million in 2011, primarily as a result of increases in salary expenses, sample expenses and
travelling expenses. The increase in salary expenses was due primarily to higher average salaries.
Non-Operating Income (Loss), net. We had a net non-operating loss of $1.2 million in 2012 compared to
net non-operating income of $0.2 million in 2011. We recognized a one-time impairment loss on investment
of $1.3 million in 2012. Our foreign currency exchange losses increased to $0.5 million in 2012 from an
exchange gain of $0.5 million in 2011, primarily due to the net liability denominated in NT dollars as a
result of the stronger NT dollar against the U.S. dollar in 2012. Our other income increased to $0.1 million
in 2012 from other losses of $0.4 million in 2011, primarily as a result of a decrease in unrealized losses on
conversion options in 2012.
Income Tax Expense. Our income tax expense increased by $8.4 million to $15.7 million in 2012 from
$7.3 million in 2011. Our effective income tax rate decreased to 23.9% from 43.4% in 2011. This change in
our effective income tax rate was primarily attributable to tax benefits for realized tax losses on investments
in subsidiaries due to capital reclassification to offset the accumulated deficit and tax benefits resulting from
changes in foreign currency exchange rates.
Net Income. As a result of the foregoing, our net income increased to $50.1 million in 2012 from $9.5
million in 2011 and net income attributable to Himax stockholders increased to $51.6 million in 2012 from
$10.7 million in 2011.
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 Innolux due to the change of purchase policy by 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 our product mix. Such impact on our
revenues was partially offset by a 28.1% increase in unit shipments of our display drivers for mobile handset
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. Inventory write-
downs, which are included in cost of revenues, decreased slightly to $9.1 million in 2011 from $10.6
million in 2010. As a 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
82
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 a 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 decrease in depreciation expenses and
professional fees. The decrease in depreciation expenses was due primarily to the change of
allocation base for the depreciation of our headquarters. 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 lawyers’ 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 an exchange loss of $0.9 million in 2010, primarily for the net liability denominated
in NT dollars due to the weaker NT dollar against the U.S. 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 income of
$0.5 million in 2010, primarily as a result of unrealized losses on conversion options 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 increase in taxable income due to the weaker NT
dollar against the U.S. 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 carry-forwards 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.
Segment Results
The following table sets forth the revenues and operating results for our reportable segments for the
periods indicated:
2010
Year Ended December 31,
2011
(in thousands)
2012
Segment Revenues
Driver IC
Non-Driver Products
Total
$ 590,057
$ 52,635
$ 642,692
$ 552,456
$ 80,565
$ 633,021
$ 634,111
$ 103,144
$ 737,255
83
2010
Year Ended December 31,
2011
(in thousands)
2012
$ 54,815
(19,457)
$
35,358
$
$ 38,401
(21,793)
$
16,608
$
$
$
$
83,883
(16,823)
67,060
Segment Operating Income (loss)
Driver IC
Non-Driver Products
Total
Driver IC Segment
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Segment revenues. Our revenues from the Driver IC segment increased by 14.8% to $634.1 million in
2012 from $552.5 million in 2011. This increase was attributable to a 9.8% increase in our average selling
price and a 4.6% increase in unit shipments of our driver IC products.
Segment operating income. Operating income from the Driver IC segment increased to $83.9 million in
2012 from $38.4 million in 2011. This increase was primarily attributable to an increase in revenues and
gross profit in 2012 as compared to 2011. As a percentage of segment revenues, segment operating income
increased to 13.2% in 2012 from 7.0% in 2011. The increase is a result of the product diversification and
more profit contribution generated from certain new products.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Segment revenues. Our revenues from the Driver IC segment decreased by 6.4% to $552.5 million in 2011
from $590.1 million in 2010. This decrease was attributable to a 3.1% decrease in our average selling price
and a 3.2% decrease in unit shipments of our driver IC products.
Segment operating income. Operating income from the Driver IC segment decreased to $38.4 million in
2011 from $54.8 million in 2010. This decrease was primarily attributable to a decrease in revenues, partially
offset by a 0.9% decrease in average unit cost and a 2.7% decrease in operating expenses, as compared to
2010. As a percentage of segment revenues, segment operating income decreased to 7.0% in 2011 from 9.3%
in 2010. This decrease was primarily due to smaller contribution from shipments of large-sized applications.
Non-Driver Products Segment
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Segment revenues. Our revenues from the Non-Driver Products segment increased by 28.0% to $103.2
million in 2012 from $80.6 million in 2011. This increase was attributable mainly to a 67.5% increase in unit
shipments of our non-driver products.
Segment operating loss. Operating loss from the Non-Driver Products segment decreased to $16.8 million
in 2012 from $21.8 million in 2011. Segment operating loss from Non-Driver Products as a percentage of its
segment revenues decreased to 16.3% in 2012 from 27.1% in 2011, primarily due to an increase in shipments
of WLO and controllers products and a decrease in research and development material expenses and mask
and mold expenses.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Segment revenues. Our revenues from the Non-Driver Products segment increased by 53.1% to $80.6
million in 2011 from $52.6 million in 2010. This increase was attributable mainly to a 54.4% increase in unit
shipments of our non-driver products.
Segment operating loss. Operating loss from the Non-Driver Products segment increased to $21.8 million
84
in 2011 from $19.5 million in 2010. Segment operating loss from Non-Driver Products as a percentage of its
segment revenue decreased to 27.1% in 2011 from 37.0% in 2010, primarily due to an increase in shipments
of CMOS products. This increase was attributable to a 31.8% increase in operating expenses, partially offset
by an 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 research and development.
5.B. Liquidity and Capital Resources
We need cash primarily for technology advancement, capacity expansion and working capital. We have
historically been able to meet our cash requirements through cash flow from operations.
As of December 31, 2012, we had total current assets of $567.1 million, total current liabilities of $242.1
million and cash and cash equivalents of $138.7 million. As of December 31, 2012, we had total short-
term debt of $73.0 million with equal amount of cash and time deposits as collateral and did not have any
outstanding long-term borrowings as of December 31, 2012. We believe that our working capital is sufficient
for our present requirements.
The following table sets forth a summary of our cash flows for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
period
Year Ended December 31
2011
2010
2012
$ 57,631
(17,599)
(54,195)
(14,082)
$ 43,448
(10,197)
(24,015)
9,322
$ 52,167
(695)
(18,931)
32,573
110,924
96,842
106,164
Cash and cash equivalents at end of period
96,842
106,164
138,737
Operating Activities. Net cash provided by operating activities in 2012 was $52.2 million compared to
$43.4 million in 2011. This increase in net cash provided by operating activities in 2012 was due primarily
to an increase in cash collected from customers in 2012 compared to 2011 and a decrease in cash paid for
income tax in 2012 compared to 2011, partially offset by an increase in cash used for raw materials, assembly
and testing process fees in 2012 compared to 2011.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 and a decrease in recovery of accounts receivable previously
written off in 2011, partially offset by a decrease in cash used for raw materials, assembly and testing process
fees in 2011 compared to 2010.
Investing Activities.Net cash used in investing activities in 2012 was $0.7 million compared to $10.2
million in 2011. This decrease in net cash used in investing activities in 2012 was due primarily to a decrease
in cash used for property and equipment in 2012 compared to 2011.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.
Financing Activities. Net cash used in financing activities in 2012 was $18.9 million compared to $24.0
million in 2011. This decrease was due primarily to a decrease in distribution of cash dividends and partially
offset by an increase in payments to repurchase ordinary shares.Net cash used in financing activities in
85
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.
Our liquidity could be negatively impacted by a decrease in demand for our products that are subject
to rapid technological change, among other factors, which could result in revenue variability in future
periods. In addition, we have at times agreed to extend the payment terms for certain of our customers. Other
customers have also requested extension of payment terms and we may grant such requests for extensions in
the future. The extension of payment terms for our customers could adversely affect our cash flow, liquidity
and our operating results. Our subsidiaries’ ability to distribute dividends and other payments to us may be
limited by ROC regulations. See “Risk Factors — Risks Related 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.”
Our capital expenditures were incurred primarily in connection with the purchase of property and
equipment. Our capital expenditures totaled $7.2 million, $18.9 million and $6.6 million in 2010, 2011
and 2012, 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 2010, 2011 and 2012, we
incurred research and development expenses of $76.4 million, $79.0 million and $70.9 million, respectively,
representing 11.9%, 12.4% and 9.6% of our revenues, respectively.
5.D. Trend Information
LED TVs, 3D TVs, smartphones and tablet PCs are the major themes for large, 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,
benefiting from the growth in the market in China, where most of the new buildings of panel capacity took
place, we gained share in the large panel sector and grew our large panel driver IC sales in 2012. In addition,
we also benefited from our gains in small and medium-sized panels, especially in smartphone and tablet
applications. Excluding feature phone sales, our small and medium-sized drivers grew over 50% year over
year. We were able to achieve such strong performance in this area in 2012 because we were able to expand
our reach to end customers across China, Korea and the U.S. However, continued growth momentum in the
smart phone market has attracted more competitors to this segment. Increased competition in the smart phone
segment may result in pricing pressure and loss of market share.
We also see the demand from our customers for high-resolution displays of all sizes of TFT-LCD panels
to provide better user experiences. As a leading player with a track record with top global brands in display
driver ICs, we are well-positioned to benefit from this trend in resolution upgrades. We have worked closely
with panel partners and also tier-one brand customers to develop next-generation high-resolution mobile
devices.
We are devoted to the development, manufacturing and marketing of non-driver products to diversify our
86
customer base and product portfolio. Our non-driver products delivered the strongest growth last year owing
to many new product launches and project wins. We expect that our non-driver businesses will continue to
account for an increasing percentage of our sales.
The potential 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 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. In addition, as new China panel
makers have continued to expand their capacity, their bargaining power will increase due to their 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, 2012, 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, 2012, 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, 2012:
Payment Due by Period
Total
Less than
1 year
Operating lease obligations
Purchase obligations(1)
Other obligations(2)
Total
5,009
157,626
1,817
164,452
1,898
157,626
755
160,279
1-3 years
(in thousands)
1,380
-
804
2,184
3-5 years
More than
5 years
552
-
258
810
1,179
-
-
1,179
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 and donations for laboratory commitments.
We lease office and building space pursuant to operating lease arrangements with unrelated third parties.
In 2010, 2011 and 2012, rental expenses for operating leases amounted to $1.2 million, $1.2 million and
$1.8 million, respectively. The lease arrangements will expire gradually from 2014 to 2017. As of December
31, 2012, we agreed to make future minimum lease payments of $1.7 million, $0.8 million, $0.2 million,
$0.1 million and $65,000 in 2013, 2014, 2015, 2016 and 2017, 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, 2012, the remaining commitments under such contracts were $13.9 million.
These outstanding contracts had a total contract value of $15.1 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, 2012, our contractual obligations pursuant to such arrangements amounted
to approximately $121.0 million.
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
87
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 2012 were $1.8 million compared to $1.8 million and $1.5
million in 2011 and 2010, respectively. Total contributions to the defined benefit plan and the new defined
contribution plan in 2012 were $2.0 million compared to $1.9 million and $1.7 million in 2011 and 2010,
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 the consumer
price index in Taiwan was 1.0%,1.4% and 1.9% in 2010, 2011 and 2012, respectively.
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, 2013. Unless otherwise indicated,
the positions or titles indicated in the table below refer to Himax Technologies, Inc.
Directors and Executive Officers
Dr. Biing-Seng Wu
Jordan Wu
Tien-Jen Lin
Chih-Chung Tsai
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Jackie Chang
Norman Hung
Directors
Age
55
52
50
57
64
61
61
53
55
Position/Title
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
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 the predecessor of 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
2005, Mr. Wu served as the chairman of the board of directors of Himax Taiwan, a position which he held
since April 2003. Prior to joining Himax Taiwan, Mr. Wu served as chief executive officer of TV Plus
88
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 the General Manager of Innolux. Mr. Lin
has extensive experience and broad knowledge in the TFT-LCD industry. Prior to his 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. Yan-Kuin Su is our director. He is currently the president of Kun Shan University and also a professor
in the Department of Electrical Engineering, National Cheng Kung University since 1983. He is 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 from National Cheng Kung University.
Yuan-Chuan Horng is our director. He has been 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 which he 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.
Hsiung-Ku Chen is our director. He has a B.S. degree in Physics from Fu-Jen University, an M.A. degree
in Physics from Temple University and a Ph.D. degree in Applied Physics from Oregon Graduate Center. Dr.
Chen specializes in areas including Thin Film Transistor Technology, Liquid Crystal Display Technology,
IC Process Technology and Patent Laws and Regulations, etc. He has dedicated himself to the researching
and performing practice of the TFT-LCD industry. From 1980 to 2002, Dr. Chen held various positions
including manager, director and special assistant of the director’s office in the Electronics Research &
Service Organization of the Industrial Technology Research Institute for over 20 years and was the leader
of many research projects during his tenure. Additionally, Dr. Chen was elected as Society of Information
Display, Taipei Chapter Director and Treasurer from 1992 to 1997 and as Taiwan TFT LCD Association
Secretary General from 2000 to 2002. Furthermore, Dr. Chen contributed his professional knowledge to
serve as a supervisor of Himax Technologies Limited from April 2003 to December 2003 and as a director
from December 2003 to October 2005. Dr. Chen was also the Special Assistant of the CEO Office at Etron
Technology, Inc. from 2005 to 2007. Currently, Dr. Chen serves as consultants in various organizations,
including Color Display Industry Promotion Office and the Intellectual Property Innovation Corporation.
Other Executive Officers
Jackie Chang is our chief financial officer. Before joining Himax, Ms. Chang served as the CFO of
Castlink Corporation and Tongxing International, as well as the 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 from 1994 to 2006 including finance, treasury planning,
operations and accounting. She 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.
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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 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, 2012, the aggregate cash compensation that we paid to our executive
officers was approximately $0.7 million. The aggregate share-based compensation that we paid to our
executive officers was approximately $0.4 million. No executive officer is entitled to any severance benefits
upon termination of his or her employment with us.
For the year ended December 31, 2012, 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 2012 to our directors and executive officers
under our 2011 long-term incentive plan. Each unit of RSU represents two ordinary shares as of 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
Total RSUs
Granted
Ordinary Shares Underlying
Vested Portion of RSUs
Ordinary Shares Underlying
Unvested Portion of RSUs
Dr. Biing-Seng Wu
Jordan Wu
Tien-Jen Lin
Chih-Chung Tsai
Hsiung-Ku Chen
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Jackie Chang
Norman Hung
140,717
140,717
-
140,717
-
-
-
48,757
75,469
70,358
70,358
-
70,358
-
-
-
24,378
37,734
211,076
211,076
-
211,076
-
-
-
73,136
113,204
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
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.
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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, Hsiung-Ku Chen 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, Hsiung-Ku Chen 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;
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
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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, Hsiung-Ku Chen, 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 which requires that 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 reelection,
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 a 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 our articles of association, which director will retire at each annual
general meeting will be determined as follows: (i) any director who wishes to retire and not offer himself
for re-election, (ii) if no director wishes to retire, the director who has been longest in office since his last
re-election or appointment, 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.
6.D. Employees
As of December 31, 2010, 2011 and 2012, we had 1,341, 1,423 and 1,431 employees,
respectively. The following is a breakdown of our employees by function as of December 31, 2012:
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Function
Research and development(1)
Engineering and manufacturing(2)
Sales and marketing(3)
General and administrative
Total
Number
870
206
247
108
1,431
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 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 issuance of 36,153,854 shares in the 2005
plan and 20,000,000 shares in the 2011 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.
93
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 date of grant; or
indexed to the fair market value of the shares on the date of grant, with the committee determining
the index.
The exercise price on the date of grant must be at least equal to 100% of the fair market value of the
shares on the date of grant.
Each option will expire at such time as the committee determines at the time of its grant; however, no
option will be exercisable later than the 10th anniversary of its grant date. Notwithstanding the foregoing,
for options granted to participants outside the United States, the committee can set options that have terms
greater than ten years.
Options will be exercisable at such times and be subject to such terms and conditions as the committee
approves. A condition of the delivery of shares as to which an option will be exercised will be the payment
of the exercise price. Subject to any governing rules or regulations, as soon as practicable after receipt of
written notification of exercise and full payment, we will deliver to the participant evidence of book-entry
shares or, upon his or her request, share certificates in an appropriate amount based on the number of shares
purchased under the option(s). The committee may impose such restrictions on any shares acquired pursuant
to the exercise of an option as it may deem advisable.
Each participant’s award document will set forth the extent to which he or she will have the right to
exercise the options following termination of his or her employment or services.
We have not yet granted any stock options under the plan.
Restricted Share Units. The committee may grant restricted share units to participants. Each grant will be
evidenced by an award document that will specify the period(s) of restriction, the number of restricted share
units granted and such other provisions as the committee determines.
Generally, restricted share units will become freely transferable after all conditions and restrictions
applicable to such shares have been satisfied or lapse and restricted share units will be paid in cash, shares or
a combination of the two, 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
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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.
We made grants of 5,522,279 RSUs to our employees on September 26, 2012. The vesting schedule for
such RSU grants is as follows: 58.36% of the RSU grants vested immediately and was settled by cash in the
amount of $6.3 million on the grant date, with the remainder vesting equally on each of September 30, 2013,
2014 and 2015, 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 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.
95
6.E. Share Ownership
The following table sets forth the beneficial ownership of our ordinary shares, as of March 31, 2013, by
each of our directors and executive officers.
Name
Dr. Biing-Seng Wu
Jordan Wu
Tien-Jen Lin
Chih-Chung Tsai
Hsiung-Ku Chen
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Jackie Chang
Norman Hung
Number of Shares Owned
71,049,528
28,110,756
-
7,065,902
-
-
916,104
-
397,122
Percentage of Shares Owned
20.9 %
8.3 %
-
2.1 %
-
-
0.3 %
-
0.1 %
None of our directors or executive officers has voting rights different from those of 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, 2013, 339,149,508 of our shares were outstanding. We believe that, of such shares,
147,463,282 shares in the form of ADSs were held by approximately 13,077 holders in the United States as
of March 31, 2013.
The following table sets forth information known to us with respect to the beneficial ownership of our
shares as of March 31, 2013, 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.
Name of Beneficial Owner
Dr. Biing-Seng Wu(1)
Innolux(2)
Jordan Wu(3)
Dalton Investment LLC(4)
All directors and executive officers as a group
Number of Shares
Beneficially Owned
71,049,528
50,799,506
28,110,756
20,618,718
107,539,412
Percentage of Shares
Beneficially Owned
20.9 %
15.0 %
8.3 %
6.1 %
31.7 %
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Note:
(1)
Dr. Biing-Seng Wu beneficially owns 46,365,451 ordinary shares and 23,529,677 ordinary shares
through Sanfair Asia Investments Ltd. and Chi-Duan Investment Co., Ltd, respectively, both
of which are investment companies controlled by Dr. Biing-Seng Wu, and may be deemed to
beneficially own 1,154,400 shares held by certain of his children. Accordingly, Dr. Biing-Seng
Wu may be deemed to beneficially own an aggregate of 71,049,528 ordinary shares, representing
approximately 20.9% of the outstanding ordinary shares.
(2)
Innolux directly owns 1,154,448 ordinary shares and beneficially owns 49,645,058 ordinary
shares through its wholly owned British Virgin Islands subsidiary, Leadtek Global Group Limited.
As of March 31, 2013, Innolux also beneficially owns an equity interest of approximately 3.3% in
our subsidiary Himax Media Solutions.
(3)
Jordan Wu beneficially owns 22,662,426 ordinary shares and 4,780,730 ordinary shares through
Arch Finance Ltd. and Shu Chuan Investment Co., Ltd, respectively, both of which are investment
companies controlled by Jordan Wu, and may be deemed to beneficially own 667,600 shares
held by certain of his children. Accordingly, Jordan Wu may be deemed to beneficially own an
aggregate of 28,110,756 ordinary shares, representing approximately 8.3% of the outstanding
ordinary shares.
(4)
According to the amendment to the Schedule 13G filed with the SEC on February 14, 2013,
Dalton Investment LLC, together with its affiliates, beneficially owned 20,618,718 of our shares,
some or all of which may include shares represented by our ADS, as of December 31, 2012.
We do not have further information with respect to any changes in Dalton Investment LLC’s
beneficial ownership of our shares subsequent to December 31, 2012.
We have a close relationship with Innolux, one of our major shareholders and a leading TFT-LCD panel
manufacturer based in Taiwan and listed on the Taiwan Stock Exchange. Innolux’s primary focus is the
manufacture of large-sized TFT-LCD panels for use in notebook computers, desktop monitors and LCD
televisions. 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 Innolux currently is one of our largest shareholders.
Innolux or CMO has also been our largest customer since our inception. In 2012, sales to Innolux(together
with its affiliates)accounted for 34.2% of our revenues. Certain of our directors also held or hold key
management positions at Innolux or CMO or its affiliates prior to the merger. Mr. Tien-Jen Lin, our director,
served as the Special Assistant to the General Manager at 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 Innolux. We also have entered into various
transactions with Innolux, or CMO prior to the merger, and its affiliates as further described below.
None of our major shareholders has voting rights different from those of 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
Innolux and Related Companies
Innolux
We sold display drivers to Innolux. We generated net sales to Innolux in the amount of $56.2 million in
2012. Our receivables from such sales were $17.3 million as of December 31, 2012.
We lease office space, facilities and inventory locations from Innolux and certain of its subsidiaries.
Rent and utility expenses resulting from such leases in 2012 were $0.8 million. The related payables as of
97
December 31, 2012 were $0.2 million. As of December 31, 2012, we agreed to make future minimum lease
payments of $2.1 million in aggregate under non-cancelable operating leases with these related parties.
In 2012, we purchased consumable and miscellaneous items amounting to $31,000 from Innolux and
other related parties. The related payables as of December 31, 2012 were nil.
CMO-NingBo
CMO-NingBo is a subsidiary of Innolux. We sell display drivers to CMO-NingBo. We generated net sales
to CMO-NingBo in the amount of $93.7 million in 2012. Our receivables from such sales were $31.4 million
as of December 31, 2012.
CMO-NanHai
CMO-NanHai is a subsidiary of Innolux. We sell display drivers to CMO-NanHai. We generated net sales
to CMO-NanHai in the amount of $63.4 million in 2012. Our receivables from such sales were $13.4 million
as of December 31, 2012.
NingBo Chi Hsin Electronics Ltd.
NingBo Chi Hsin Electronics Ltd., or Chi Hsin-NingBo, is a subsidiary of 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 $12.6 million in 2012. Our receivables from such sales were $3.2 million as
of December 31, 2012.
NingBo Chi Mei Electronics Ltd.
NingBo Chi Mei Electronics Ltd., or CME-NingBo, is a subsidiary of Innolux. We sell display drivers for
large-sized applications to CME-NingBo. We generated net sales to CME-NingBo in the amount of $21.7
million in 2012, and our receivables from these sales were approximately $5.9 million as of December 31,
2012.
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 22 to our audited consolidated financial statements included in “Item 18.
Financial Statements.”
8.A.7. Litigation
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We may be subject to legal proceedings, investigations and claims relating to the conduct of our business
from time to time. We may also initiate legal proceedings in order to protect our contractual and property
rights. However, as of the date of this annual report, we are not currently a party to, nor are we aware of, any
legal proceeding, investigation or claim which, in the opinion of our management, is likely to have a material
adverse effect on our business, financial condition or results of operations.
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. On July 25, 2012, we paid a cash dividend in the amount of $10.7 million, or the equivalent of
$0.063 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;
dividends for preferred shares, if any; and
cash or stock bonus to employees (in an amount no more than 10% of annual net income) and
remuneration for directors and supervisor(s) (in an amount no more 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
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agreement, to the same extent as holders of our ordinary shares, to the extent permitted by applicable laws
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 thousands of ADSs)
6.29
3.97
3.28
2.69
2.69
2.56
2.20
1.20
2.46
2.34
2.45
2.10
2.46
2.07
2.45
2.46
5.45
3.25
3.23
5.45
1.00
1.32
2.00
0.97
2.17
1.71
1.10
0.97
0.99
0.99
1.75
1.47
1.77
1.77
1.82
2.25
590.1
529.6
297.0
293.1
240.7
140.9
241.7
548.4
337.3
639.1
298.4
151.2
265.1
171.7
368.6
254.4
2.40
2.40
2.74
3.15
1,921.1
869.5
456.3
4,416.8
6.63
5.00
4,904.4
2008
2009
2010
2011
First quarter
Second quarter
Third quarter
Fourth quarter
2012
First quarter
Second quarter
Third quarter
Fourth quarter
October
November
December
2013
First quarter
January
February
March
April (through April
26)
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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.
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.
At our annual general meeting on August 6, 2009, our shareholders adopted the Second Amended and
Restated Memorandum and Articles of Association, 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 the 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 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
termination 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
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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, which acquired all of the outstanding shares of capital stock of Spatial
Photonics in exchange for a 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 Taiwan, 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 the 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 the 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 the 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 the 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.
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.
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United States Federal Income Taxation
The following is a description of 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 U.S. federal income tax purposes. This discussion does not address any aspect of the “Medicare
contributions tax” on “net investment income.” 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; 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 owns 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
owning 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. You should consult your tax adviser
concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of ordinary
shares or ADSs in your particular circumstances.
As used herein, a “U.S. Holder” is a person that is, for U.S. federal tax purposes, a beneficial owner
of ordinary shares or ADSs and is: (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
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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 preferred rates of tax, described below, applicable to dividends received
by certain non-corporate U.S. holders. Accordingly, the availability of the preferential tax rates 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 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. Dividends will be included in a U.S. Holder’s income
on the date of the U.S. Holder’s (or in the case of ADSs, the depository’s) receipt of the dividends. Subject
to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury,
certain dividends paid by qualified foreign corporations to certain non-corporate holders may be taxable at
preferential tax rates applicable to long-term capital gains. 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 tax advisers regarding their eligibility for taxation at such preferential
rates and whether they are subject to any special rules that limit their ability to be taxed at such preferential
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. Long-term capital gains of certain non-
corporate U.S. Holders may be taxable at preferential rates. 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. The deductibility of capital losses is subject to limitations.
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, 2012.
In general, a non-U.S. company will be a PFIC for U.S. federal income tax purposes for any taxable 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 (including cash). If a corporation owns at least 25% (by
value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as
owning its proportionate share of the 25%-owned subsidiary’s assets and receiving its proportionate share of
the 25%-owned subsidiary’s income. As PFIC status depends upon the composition of our income and assets
and the value of our assets from time to time (and the value of our assets may be determined, in part, based
on the market price of our shares and ADSs, which may fluctuate considerably from time to time given that
market prices of certain technology companies historically have been volatile), there can be no assurance that
we will not be a PFIC for any taxable year.
104
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 a
mark-to-market treatment of the 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.
If we were a PFIC in a taxable year in which we pay a dividend or in the prior taxable year, the
preferential tax rates discussed above with respect to dividends received by certain non-corporate U.S.
Holders would not apply.
In addition, if U.S. Holder owns ordinary shares or ADSs during any year in which we are a PFIC, the U.S.
Holder may be required to file certain information reports, containing such information as the U.S. Treasury
may require.
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.
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 call
the SEC at 1-800-SEC-0330 for further information on the reference rooms.
10.I. Subsidiary Information
Not applicable.
105
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to interest rate risk for changes in interest rates is primarily the interest
income generated by our cash deposited with banks. In addition, we are exposed to interest rate risks related
to bank borrowings with equal amounts of cash and time deposits pledged as collateral for the debt.
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 2012, more than 99.0% of our sales and cost of revenues were
denominated in U.S. dollars. However, in December 2012, approximately 64% 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, 2012, 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
106
Persons depositing or withdrawing
shares or ADS holders must pay:
$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
For:
Issuance of ADSs, including issuances resulting
from a distribution of shares or rights or other
property
Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminates
$.05 (or less) per ADS
Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if
securities distributed to you had been shares and the
shares had been deposited for the issuance of ADSs
Distribution of securities distributed to holders of
deposited securities which are distributed by the
depositary to ADS holders
$.05 (or less) per ADS per calendar year
Depositary services
Registration or transfer fees
Expenses of the depositary
Transfer and registration of shares on our share
register to or from the name of the depositary or its
agent when you deposit or withdraw shares
Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
converting foreign currency to U.S. dollars
Taxes and other governmental charges that the
depositary or custodian have to pay on any ADS or
share underlying an ADS, e.g., stock transfer taxes,
stamp duty or withholding taxes
As necessary
Any charges incurred by the depositary or its agents
for servicing the deposited securities
As necessary
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing
shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The
depositary collects fees for making distributions to investors by deducting those fees from the amounts
distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its
annual fee for depositary services by deduction from cash distributions or by directly billing investors or
charging the book-entry system accounts of participants acting for them. The depositary may collect any of
its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees.
The depositary may generally refuse to provide fee-attracting services until its fees for those services are
paid.
From time to time, the depositary may make payments to us to reimburse and/or share revenue from
the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating
to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its
duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that
are affiliates of the depositary and that may earn or share fees or commissions.
Fees and Other Payments from the Depositary to Us
In June 2012, 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
107
•
•
•
•
•
•
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.
Appointment of New Depositary Bank
On May 29, 2012, we appointed The Bank of New York Mellon as our new American depositary receipt
bank. Effective the same day, our ADR program was officially transferred to The Bank of New York Mellon
and the contract is to last for ten years.
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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 are 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, 2012 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, 2012.
109
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Himax Technologies, Inc.:
We have audited Himax Technologies, Inc.’s internal control over financial reporting as of December 31,
2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).Himax Technologies, Inc.’s management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s 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. Also, projections of any evaluation of 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.
In our opinion, Himax Technologies, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2012, based on criteria established in Internal Control -
Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Himax Technologies, Inc. and subsidiaries as of
December 31, 2011 and 2012, and the related consolidated statements of income, comprehensive income,
changes in equity and cash flows for each of the years in the three-year period ended December 31, 2012, and
our report dated April 26, 2013 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG
Taipei, Taiwan (the Republic of China)
April 26, 2013
110
Changes in Internal Control over Financial Reporting
In 2012, 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 16. [RESERVED]
16.A. 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.
16.B. 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
16.C. 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, 2011 and
2012.
Services
Audit Fees(1)
All Other Fees(2)
Tax Fees(3)
Total
Year ended December 31,
2011
2012
$ 716,000
14,000
-
$ 730,000
$ 735,000
4,000
2,000
$ 741,000
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. 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.
111
16.D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
16.E. 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 of directors and to the extent that the articles do not prohibit treasury shares.
Therefore, we would hold the treasury shares for 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, 2013, we had repurchased a total of approximately $13.4 million of our ADSs (approximately
9.5 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.
(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
2,451,652
$ 1.31
6,218,862
$ 17,185,592
1,873,787
$ 1.61
8,092,649
$ 14,172,391
186,345
120,968
$ 1.75
$ 1.96
8,278,994
8,399,962
$ 13,847,214
$ 13,610,673
Period
2012 Share Buyback Program:
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
May 7, 2012 to May 31, 2012
83,839
$ 1.99
8,483,801
$ 13,444,651
June 1, 2012 to June 28, 2012
399,340
$ 1.86
8,883,141
$ 12,703,233
July 12, 2012 to July 31, 2012
169,188
$ 1.55
9,052,329
$ 12,442,204
August 1, 2012 to August 29,
2012
112
45,416
$ 1.72
9,097,745
$ 12,364,315
September 4, 2012 to September 26,
2012
October 1, 2012 to October 25,
2012
November 1, 2012 to November 13,
2012
48,276
$ 1.92
9,146,021
$ 12,272,014
228,759
$ 1.94
9,374,780
$ 11,830,123
113,876
$ 1.94
9,488,656
$ 11,609,979
16.F. Chang in Registrant’s Certified Accountant
Not applicable.
16.G. 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
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 to be comprised solely of independent directors.
16.H. Mine Safety Disclosure
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
PART III
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, 2013.
113
(b) Consolidated Balance Sheets of the Company and subsidiaries as of December 31, 2011 and 2012.
(c) Consolidated Statements of Income of the Company and subsidiaries for the years ended December
31, 2010, 2011 and 2012.
(d) Consolidated Statements of Comprehensive Income of the Company and subsidiaries for the years
ended December 31, 2010, 2011 and 2012.
(e) Consolidated Statements of Changes in Equity of the Company and subsidiaries for the years ended
December 31, 2010, 2011 and 2012.
(f) Consolidated Statements of Cash Flows of the Company and subsidiaries for the years ended
December 31, 2010, 2011 and 2012.
(g) Notes to Consolidated Financial Statements of the Company and subsidiaries.
114
ITEM 19. EXHIBITS
Exhibit Number
Description of Document
1.1
2.1
2.2
2.3
4.1
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 Bank of New York Mellon, as
depositary, and holders of the American depositary receipts. (Incorporated by reference to
Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (file no. 333-181416)
filed with the Securities and Exchange Commission on May 15, 2012.)
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.)
4.2*
Agreement and Plan of Merger dated November 8, 2010 among Himax Display, Inc.,
Spatial Photonics, Inc. and Wen Hsieh.
8.1
12.1
12.2
13.1
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 Jackie Chang, Chief Financial Officer of Himax Technologies, Inc.,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
15.1
Consent of KPMG, Independent Registered Public Accounting Firm.
* Confidential treatment has been requested for portions of this exhibit.
115
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: Jordan Wu
Title: President and Chief Executive Officer
Date: April 30, 2013
116
HIMAX TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2011 and 2012
Consolidated Statements of Income for the Years Ended December 31, 2010, 2011 and
2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2010,
2011 and 2012
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2010, 2011
and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2011 and
2012
Notes to Consolidated Financial Statements
PAGE
F-1
F-2
F-4
F-5
F-6
F-9
F-11
117
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2010, 2011 and 2012
(With Report of Independent Registered
Public Accounting Firm Thereon)
118
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Himax Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Himax Technologies, Inc. (a Cayman
Island Company) and subsidiaries as of December 31, 2011 and 2012, and the related consolidated
statements of income, comprehensive income, changes in equity and cash flows for each of the years in the
three-year period ended December 31, 2012. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Himax Technologies, Inc. and subsidiaries as of December 31, 2011 and 2012,
and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2012, in conformity with U. S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Himax Technologies, Inc.’s internal control over financial reporting as of December 31,
2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 26, 2013
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
/S/ KPMG
Taipei, Taiwan (the Republic of China)
April 26, 2013
F-2
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2011 and 2012
(in thousands of US dollars)
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 $15,888 and $16,090 at December 31, 2011 and 2012, respectively
Accounts receivable from related parties, less allowance for sales returns and
discounts of $83 and $174 at December 31, 2011 and 2012, respectively
Inventories
Deferred income taxes
Restricted cash, cash equivalents and marketable securities
Prepaid expenses and other current assets
Total current assets
Investment securities, including securities measured at fair value of $5,080
and nil at December 31, 2011 and 2012
Equity method investments
Property, plant and equipment, net
Deferred income taxes
Goodwill
Other intangible assets, net
Restricted marketable securities
Other assets
Total assets
December 31,
2011
2012
$ 106,164
165
$ 138,737
172
101,280
135,747
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
73,258
116,671
15,374
74,100
13,029
567,088
12,688
283
52,609
4,303
28,138
8,143
173
1,173
107,510
$ 674,598
See accompanying notes to consolidated financial statements.
F-3
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2011 and 2012
(in thousands of US dollars, except share and per share data)
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:
December 31,
2011
2012
$ 84,200
134,353
3,644
-
23,163
245,360
-
319
836
3,405
249,920
$ 73,000
135,546
9,766
80
23,725
242,117
591
242
409
3,081
246,440
Ordinary shares, US$0.3 par value, 1,000,000,000 shares authorized;
356,699,482 shares issued and 349,279,556 shares and 339,149,508
shares outstanding at December 31, 2011 and December 31, 2012,
respectively
Additional paid-in capital
Treasury shares, at cost (7,419,926 shares and 17,549,974 shares at
December 31, 2011 and December 31, 2012, respectively)
Accumulated other comprehensive income (loss)
Unappropriated retained earnings
Total Himax Technologies, Inc. stockholders’ equity
Noncontrolling interests
Total equity
Commitments and contingencies
Total liabilities and equity
107,010
103,051
(4,502)
166
187,712
393,437
1,621
395,058
107,010
104,911
(12,469)
(137)
228,628
427,943
215
428,158
$ 644,978
674,598
See accompanying notes to consolidated financial statements.
F-4
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2010, 2011 and 2012
(in thousands of US dollars, except per share data)
Revenues:
Revenues from third parties, net
Revenues from related parties, net
Total 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
Year Ended December 31,
2010
2011
2012
$ 304,068
338,624
642,692
$ 374,788
258,233
633,021
$ 485,281
251,974
737,255
507,647
76,426
18,770
(8,788)
13,279
607,334
507,449
79,042
17,095
(1,541)
14,368
616,413
566,700
70,913
17,139
-
15,443
670,195
Operating income
35,358
16,608
67,060
Non operating income (loss):
Interest income
Gains on sale of marketable securities, net
Equity in losses of equity method investees
Impairment loss on investments
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.
stockholders
607
296
(410)
-
(899)
(182)
524
(64)
35,294
6,228
29,066
4,140
$ 33,206
556
350
(349)
-
466
(455)
(368)
200
16,808
7,301
9,507
1,199
10,706
317
648
(128)
(1,299)
(452)
(352)
92
(1,174)
65,886
15,748
50,138
1,458
51,596
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
$ 0.09
$ 0.03
$ 0.15
$ 0.09
$ 0.03
$ 0.15
$ 0.19
$ 0.06
$ 0.30
$ 0.19
$ 0.06
$ 0.30
See accompanying notes to consolidated financial statements.
F-5
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2010, 2011 and 2012
(in thousands of US dollars)
Net income
Other comprehensive income (loss):
Unrealized gains (losses) on securities, not subject
to income tax:
Unrealized holding gains (losses) on available-for-
sale marketable securities arising during the
period
Reclassification adjustment for realized losses
Year Ended December 31,
2010
$ - 29,066
2011
$ - 9,507
2012
$ - 50,138
1,511 -
(305) -
59 -
(gains) included in net income
(296) 1,215
(350) (655)
(648) (589)
Foreign currency translation adjustments, net of tax
of nil
Net unrecognized actuarial gain (loss), net of tax
of $(54), $(125) and $8 in 2010, 2011 and 2012,
respectively
Comprehensive income
Comprehensive loss attributable to
noncontrolling interests
Comprehensive income attributable to Himax
Technologies, Inc. stockholders
210
128
50
(203)
30,288
4,118
(573)
8,407
1,261
233
49,832
1,461
$ 34,406
$ 9,668
$ 51,293
See accompanying notes to consolidated financial statements.
F-6
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F-9
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2010, 2011 and 2012
(in thousands of US dollars)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Share-based compensation expenses
Loss on disposal of property and equipment
Gain on disposal of equity method
investment
Gain on disposal of marketable securities,
net
Unrealized loss (gain) on conversion option
Interest income from amortization of
discount on investment in corporate bonds
Impairment loss on investment
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 flows 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
Decrease (increase) in other assets
Pledge of restricted cash, cash equivalents and
marketable securities
Cash acquired in acquisition
Net cash used in investing activities
Year Ended December 31,
2010
2011
2010
$ 29,066
9,507
50,138
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)
(78)
-
(17,599)
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
-
(94)
-
(10,197)
13,299
1,936
36
-
(648)
(28)
(101)
1,299
128
8,851
12,418
(34,467)
6,591
(16,104)
1,421
1,192
6,711
(172)
(333)
52,167
(6,560)
1
(19,609)
25,043
-
(3)
-
(106)
-
(7)
546
(695)
F-10
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 2010, 2011 and 2012
(in thousands of US dollars)
Year Ended December 31,
2010
2011
2012
$ (44,097)
(21,224)
(10,680)
Cash flows from financing 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
Release (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 financing 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 flow information:
Cash paid during the year for:
1,011
-
17
3,224
(207)
(1,958)
(57,500)
353
(10,755)
217,000
(160,000)
(54,195)
81
(14,082)
110,924
$ 96,842
(26,700)
53
(4,627)
277,200
(250,000)
(24,015)
86
9,322
96,842
106,164
Interest
Income taxes
$ 170
$ 8,329
490
6,326
Supplemental disclosures of non-cash investing
activities:
Fair value of ordinary shares issued by Himax
Display, Inc. in the acquisition
$ -
-
See accompanying notes to consolidated financial statements.
97
436
(14)
11,200
116
(8,886)
304,000
(315,200)
(18,931)
32
32,573
106,164
138,737
352
456
270
F-11
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010, 2011 and 2012
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
Percentage of
Ownership December 31,
Jurisdiction of
Incorporation
2011
2012
Himax Technologies Limited
IC design and sales
ROC
100.00 %
100.00 %
Himax Technologies Korea Ltd.
Himax Semiconductor, Inc.
Sales
IC design and sales
South Korea
ROC
100.00 %
100.00 %
100.00 %
100.00 %
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou), Co.,
Ltd.
Himax Technologies (Shenzhen), Co.,
Ltd.
Himax Display, Inc.
Integrated Microdisplays Limited
Himax Display US Corp (1)
Himax Display (USA) Inc. (2)
Himax Analogic, Inc.
Investments
Sales
Sales
LCOS and
MEMS design,
manufacturing and
sales
LCOS sales
Investments
MEMS design
IC design and sales
Samoa
PRC
PRC
ROC
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
88.02 %
81.53 %
Hong Kong
Delaware, USA
Delaware, USA
ROC
88.02 %
88.02 %
-
75.10 %
81.53 %
-
81.53 %
74.60 %
Himax Imaging, Inc.
Himax Imaging, Ltd.
Himax Imaging Corp.
Argo Limited
Tellus Limited
Investments
IC design and sales
Cayman Islands
ROC
100.00 %
89.69 %
100.00 %
87.95 %
IC design
Investments
Investments
California, USA
Cayman Islands
Cayman Islands
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
F-12
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Percentage of
Ownership December 31,
Jurisdiction of
Incorporation
2011
2012
ROC
78.25 %
78.28 %
Subsidiary
Main activities
Himax Media Solutions, Inc.
TFT-LCD
television, monitor
chipset operations,
ASIC service and
IP licensing
Himax Media Solutions (Hong Kong)
Limited
Harvest Investment Limited
Iris Optronics Co., Ltd. (3)
Investments
Hong Kong
78.25 %
78.28 %
Investments
E-paper
manufacturing and
sales
ROC
ROC
100.00 %
-
100.00 %
22.22 %
(1) Himax Display US Corp., a holding company was newly incorporated in May 12, 2011, which was
wholly owned by Himax Display, Inc. and merged with Spatial Photonics, Inc. on July 3, 2012. (see
Note 3, “Acquisition”, for additional information)
(2) Spatial Photonics, Inc. has renamed as Himax Display (USA) Inc. on July 3, 2012.
(3) Iris Optronics Co., Ltd. (“Iris”) was newly incorporated on May 18, 2012 and the paid-in capital
was $153 thousand. The Company is initially able to exercise control over the daily operating and
financial decisions of Iris. As a result, Iris is included in the consolidated financial statements since
established date.
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 Note16 (a) as further described.
Principal Activities
Himax Technologies, Inc. and subsidiaries (collectively, the Company) is a fabless semiconductor solution
provider dedicated to display imaging processing technologies. The Company is a worldwide market leader
in display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital
cameras, car navigation, and many other consumer electronics devices. Additionally, the Company designs
and provides controllers for touch sensor displays, MEMS and LCOS microdisplays used in palm-size
projectors and head-mounted displays, LED driver ICs, power management ICs, scaler products for monitors
and projectors, tailor-made video processing IC solutions, IP licensing and ASIC services. The Company also
offers digital camera solutions, including CMOS image sensors and wafer level optics, which are used in a
wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security and
medical devices.
F-13
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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 Significant Accounting Policies
(a)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts and operations
of the Himax Technologies, Inc. and its majority owned subsidiaries and entities that it has
a controlling financial interest. All significant intercompany balances and transactions have
been eliminated in consolidatio.
(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, the fair value of acquired tangible and intangible assets, potential
impairment of intangible assets, goodwill, marketable securities and other investment
securities and liabilities for employee benefit obligations, and income tax uncertainties
and other contingencies. Management bases its estimates on historical experience and also
on assumptions that it believes are reasonable. Management assesses these estimates on a
regular basis; however, actual results could differ materially from those estimates.
(c)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity
of three months or less at the time of purchase to be cash equivalents. As of December
31, 2011 and 2012, the Company had $72,000 thousand and $45,000 thousand of cash
equivalents, respectively, in US dollar denominated time deposits with original maturities
of less than three months. As of December 31, 2011 and 2012, cash, including time deposits
in the amount of $84,200 thousand and $73,000 thousand, respectively, 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
flows.
F-14
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(d)
Investment Securities
Investment securities as of December 31, 2011 and 2012 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 classified 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 specific
identification 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 definition 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, 2011 and 2012, the Company had $1,266 thousand and $1,273
thousand, respectively, of restricted marketable securities, consisting of negotiable certificate
of deposits and New Taiwan dollar (NT$) 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.
Investments in non-marketable equity securities in which the Company does not have the
ability to exercise significant influence over the operating and financial policies of the
investee are stated at cost. Dividends, if any, are recognized into earnings when received.
F-15
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Equity investments in entities where the Company has the ability to exercise significant
influence over the operating and financial policy decisions of the investee, but does not have
a controlling financial 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 significant influence commences until the date that significant influence
ceases. The difference between the cost of an investment and the amount of underlyingequity
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 flows 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 significant impact on the Company’s operating
income.
F-16
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(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 2 to 6 years, office furniture and equipment 2 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 and Himax Display USA Inc. (formerly
Spatial Photonics, Inc.) in 2012, that are not individually identified and separately
recognized. Goodwill is reviewed for impairment at least annually. The Company tests
goodwill for impairment on the end day of October each fiscal year. Goodwill is also tested
for impairment between annual tests if an event occurs or circumstances change that would
more likely than not reduce the fair value of the reporting unit below its carrying amount.
In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which
provides an entity the option to perform a qualitative assessment to determine whether it is
more-likely-than-not that the fair value of a reporting unit is less than its carrying amount
prior to performing the two-step goodwill impairment test. If this is the case, the two-step
goodwill impairment test is required. If it is more-likely-than-not that the fair value of a
reporting is greater than its carrying amount, the two-step goodwill impairment test is not
required. The Company adopted this ASU in 2012.
When testing goodwill for impairment, management may accesses qualitative factors for
some or all of its reporting units to determine whether it is more likely than not (that is,
a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its
carrying amount, including goodwill. Alternatively, management may bypass this qualitative
assessment for some or all of its reporting units and perform step 1 of the two-step goodwill
impairment test, under the first step, the fair value of the reporting unit is compared with
its carrying value (including goodwill). If the fair value of the reporting unit is less than its
carrying value, an indication of goodwill impairment exists for the reporting unit and the
Company must perform step two of the impairment test (measurement). Under step two, an
impairment loss is recognized for any excess of the carrying amount of the reporting unit’s
goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is
determined by allocating the fair value of the reporting unit in a manner similar to a purchase
price allocation, in accordance with ASC 805, 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.
F-17
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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.
In 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 first step of the assessment in 2010. Therefore, management
concluded that the Company’s goodwill was not impaired in 2010.
In 2011, as further described in Note 2(s) below, the Company changed its internal reporting
such that the Company now has two operating segment, 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 five
reporting units which are Driver IC, Projection 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 specific to a reporting unit. Goodwill from acquisition of Himax Semiconductor,
Inc. has been assigned to Driver IC reporting unit and goodwill from acquisition of Himax
Display USA Inc. has been assigned to Projection displays reporting unit because on that
reporting units are expected to benefit from the synergies of the business combination.
For Projection displays reporting unit in 2012, management qualitatively assessed whether
it is more likely than not that the respective fair values of this reporting unit are less than its
carrying amount, including goodwill. Based on that assessment, management determined
that this condition, for this reporting unit, does not exist. As such, performing the first step of
the two-step test impairment test for this reporting unit was unnecessary.
For Driver IC reporting unit in 2011 and 2012, management compared the carrying value of
individual reporting unit, inclusive of assigned goodwill, to its respective fair value - step 1
of the two-step impairment test.
F-18
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The discounted cash flow (DCF) method is used by management in applying the income
approach to determine the fair value of each of the Company’s reporting units. Significant
assumptions inherent in the valuation method for goodwill are employed and included, but
are not limited to, prospective financial information, terminal value, and discount rates.
When performing income approach for each reporting unit, the Company incorporates the
use of projected financial 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 flows and the rates of return market participants
would require to investing 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 benefits. 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.
The following is a summary of activity in goodwill by reportable segment.
Balance, December 31, 2010
Balance, December 31, 2011
Balance, December 31, 2012
(i)
Other Intangible Assets
Driver IC
$ 26,846
$ 26,846
$ 26,846
Non-driver
products
Consolidated
Total
(in thousands)
-
-
1,292
26,846
26,846
28,138
Acquired intangible assets include patents, developed technology, customer relationship
assets and in-process research and development (IPR&D) acquired in a business combination
at December 31, 2011 and 2012. Intangible assets with a definite life 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.
F-19
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Under ASC Topic 805, IPR&D assets acquired in a business combination are recognized
as assets at the acquisition date at their acquisition-date fair value, rather than charged to
expense, regardless of whether they have an alternative future use. In addition, IPR&D assets
acquired in a business combination are to be accounted for as indefinite-lived intangible
assets until the project is completed or abandoned. Subsequent R&D costs associated with
the acquired IPR&D projects are charged to expense as incurred.
IPR&D has an indefinite life and is not amortized until completion and development of the
project at which time the IPR&D becomes an amortizable asset. If the related project is not
completed in a timely manner, the Company may have an impairment related to the IPR&D,
calculated as the excess of the asset's carrying value over its fair value.
(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 flows expected
to be generated. If the carrying amount of an asset exceeds such estimated cash flows, an
impairment charge is recognized for the amount by which the carrying amount of the asset
exceeds its estimated fair value. Management generally determines fair value based on the
estimated discounted future cash flows expected to be generated by the asset.
(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 fixed 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 Company’s facilities or the outsourced
assembly and testing house. In some cases, title and risk of loss does not pass to the customer
when the product is received by them. In these cases, the Company recognizes revenue at the
time when title and risk of loss is transferred, assuming all other revenue recognition criteria
have been satisfied. These cases include several inventory locations where the Company
manages 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.
F-20
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The Company records a reduction to revenue and accounts receivable by establishing a sales
discount and return allowance for estimated sales discounts and product returns at the time
revenue is recognized based primarily on historical discount and return rates. However,
if sales discount and product returns for a particular fiscal period exceed historical rates,
management may determine that additional sales discount and return allowances are required
to properly reflect the Company’s estimated remaining exposure for sales discounts and
product returns.
Sales taxes collected from customers and remitted to governmental authorities are accounted
for on a net basis and therefore are excluded from revenues in the consolidated statements of
income.
(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 specifically identified 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, 2010, 2011 and
2012, were $161 thousand, $59 thousand and $73 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 “Defined Benefit Plan”) covering full-time employees in the ROC which were hired by
the Company before January 1, 2005.
F-21
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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
modifications 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 has adopted a defined contribution plan covering full-time employees in the
ROC (the “Defined Contribution Plan”) beginning July 1, 2005 pursuant to ROC Labor
Pension Act. Pension cost for a period is determined based on the contribution called for in
that period. Substantially all participants in the Defined Benefit Plan have been provided
the option of continuing to participate in the Defined Benefit Plan, or to participate in the
Defined Contribution Plan on a prospective basis from July 1, 2005. Accumulated benefits
attributed to participants that elect to change plans are not impacted by their election.
(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 reflected in the period in which the change in judgment occurs. The
Company records interest and penalties related to unrecognized tax benefits as income tax
expense in the consolidated statement of income.
F-22
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(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 flows 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.
Basic and diluted earnings per ordinary share have been calculated as follows:
Year Ended December 31,
2011
2010
2012
Net income attributable to Himax Technologies, Inc.
stockholders (in thousands)
Denominator for basic earnings per ordinary share:
Weighted average number of ordinary shares
outstanding (in thousands)
Basic earnings per ordinary share attributable to
Himax Technologies, Inc. stockholders
$ 33,206
10,706
51,596
355,037
353,771
341,056
$ 0.09
0.03
0.15
F-23
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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 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.
Year Ended December 31,
2011
2012
2010
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)
Diluted earnings per ordinary share attributable to
Himax Technologies, Inc. stockholders
$ 33,206
10,706
51,596
355,037
653
355,690
353,771
56
353,827
341,056
468
341,524
$ 0.09
0.03
0.15
(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 reflect the
current estimate of forfeitures, and finally, 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 identified as the
Chief Executive Officer, who regularly reviews operating results to make decisions about
allocating resources and assessing performance for the Company.
F-24
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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
the Company reports operating income (loss) in its 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 Company does not report segment asset information to the Company’s CODM.
Consequently, no asset information by segment is presented.
(t)
Noncontrolling Interests
Noncontrolling interests are classified in the consolidated statements of income as part of
consolidated net income and the accumulated amount of noncontrolling 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,
2011
2012
2010
Net income attributable to Himax Technologies, Inc.
stockholders
Transfers (to) from the noncontrolling interests:
Increase (decrease) in Himax Technologies,
Inc.’s paid-in capital for sale of shares of
subsidiaries
Change from net income attributable to Himax
Technologies, Inc. stockholders and transfers from
noncontrolling interests
$ 33,206
10,706
51,596
652
(382)
501
$ 33,858
10,324
52,097
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(u)
Fair Value Measurements
F-25
Fair value is defined 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
flows. 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
flows based on the terms and maturity of each instrument and using market interest rates for
a similar instrument at the reporting date. Fair values reflect 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 identified events or changes in circumstances that
may have significant adverse effects on the carrying value of these investments, and it is not
practicable to estimate their fair values.
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 significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
(i)
(ii)
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.
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 significant to the fair value measurement in its entirety.
F-26
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(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 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. 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, the Company had the option
to present the components of net income and comprehensive income in either one or two
consecutive financial statements. The ASU eliminated the option in U.S. GAAP to present
other comprehensive income in the statement of changes in equity. 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 reclassification adjustments in the statement of income by issuing
ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications 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. Therefore, the adoption of ASU 2011-05 was not applicable to the Company.
Note 3. Acquisition
On July 3, 2012, the Company completed the acquisition of all of the outstanding common shares
of Spatial Photonics, Inc. (“SP”) to total consideration approximating $5.7 million that included
newly issued ordinary shares in Himax Display, Inc. and cash. Himax Display Inc. issued 6,762,537
ordinary shares valued at $270 thousand. The fair value of Himax Display Inc.’s ordinary shares was
determined using the assistance of an independent appraiser using the discounted cash flow method.
The Company’s previously held equity interests in SP was re-measured at fair value, which was
determined using the assistance of an independent appraiser using the equity value allocation method
at acquisition date. The re-measurement loss on the previously held equity interests in SP was $1,061
thousand which is included in other non-operating loss within “impairment loss on investment” in
the accompanying consolidated statements of income.
SP was then renamed as Himax Display (USA) Inc. (“HDI (USA)”). The results of HDI (USA)’s
operations have been included in the Company’s consolidated financial statements since that date.
The amounts of HDI (USA)’s revenues and losses included in the consolidated statements of income
from the acquisition date to the period ended December 31, 2012 were nil and $1,390 thousand,
respectively. HDI (USA) develops and manufactures high definition, high brightness, and high
contrast projection displays for business and consumer applications. As a result of the acquisition, the
Company is expected to diversify its projection product portfolio.
F-27
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The following table summarizes the consideration paid for HDI(USA) and the amounts of
estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.
Consideration:
Fair value of previously held equity interests
Fair value of Himax Display Inc.’s ordinary shares
Cash
Total consideration transferred
Acquisition related costs included in G&A expense
At July 3, 2012
(in thousands)
$ 5,439
270
3
5,712
$ 347
Recognized amounts of identifiable assets acquired and liabilities assumed:
Current asset
Property and equipment
Other assets
Intangible assets
Current liabilities
Other liabilities
Deferred income taxes
Total identifiable net assets acquired
Goodwill
$ 632
267
35
6,157
(78)
(1,610)
(983)
4,420
$ 1,292
Acquired tangible assets were valued at estimates of their current fair values. The valuation
of acquired intangible assets was determined based on management’s estimates and
consultation with an independent appraiser. The multi-period excess earnings method was
used in applying the income approach to determine the fair value of acquired intangible
assets. Significant assumptions inherent in the valuation method for acquired intangible
assets are employed and included, but are not limited to, prospective financial information,
terminal value, and discount rates. When performing the multi-period excess earnings
method for acquired intangible assets, the Company incorporates the use of projected
financial 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 flows and the rates of return market participants would require to
investing their capital in reporting units. The Company used a discount rate based on the
weighted average cost of capital, which was 22.0% for developed technology and 23.0% for
in-process R&D asset.
F-28
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Of the $6,157 thousand of the acquired intangible assets, $722 thousand was assigned
to in-process R&D asset that is capitalized as an indefinite-lived intangible asset until
completion or abandonment of the associated project. The remaining acquired intangible
assets, core and developed technology, will be amortized, have a weighted-average useful
life of approximately 7 years. Himax Display paid a premium for this acquisition because of
expected synergistic benefits, including diversified its technology and product mix. Goodwill
is not expected to be deductible for tax purpose.
The property and equipment was valued at the current replacement cost for similar capacity.
The replacement cost was estimated from the Company’s actual historical cost less estimated
accumulated depreciation.
The following unaudited pro forma results of operations for the years end December 31,
2011 and 2012 are presented as if the acquisition had been consummated on January 1, 2011,
(dollars in thousands except per share amounts):
For the years end
December 31,
(unaudited)
2011
2012
Net revenues
Net income attributable to Himax Technologies, Inc. stockholders
Basic and diluted earnings per share attributable to Himax
Technologies, Inc. stockholders
$ 633,177
$ 2,895
737,255
49,262
$ 0.01
0.14
The above unaudited pro forma information does not reflect any incremental direct costs,
including any restructuring charges to be recorded in connection with the acquisition, or
any potential cost savings that may result from the consolidation of certain operations of the
Company or HDI(USA). Accordingly, the unaudited pro forma financial information above
not necessarily indicative the actual results that would have occurred had the acquisition of
HDI (USA) been combined during the periods presented, nor is it necessarily indicative of
future consolidated results of operations
F-29
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Note 4. Investments in Marketable Securities Available-for sale
Following is a summary of marketable securities as of December 31, 2011 and 2012:
Time deposit with original maturities
more than three months
Time deposit with original maturities
more than three months
Aggregate
Cost
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Aggregate
Market
Value
$ 150
15
-
165
Aggregate
Cost
December 31, 2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Aggregate
Market
Value
$ 150
22
-
172
The Company’s portfolio of available for sale marketable securities by contractual maturity or the
expected holding period as of December 31, 2011 and 2012 is due in one year or less.
Information on sales of available for sale marketable securities for the years ended December 31,
2010, 2011 and 2012 is summarized below.
Period
Year 2010
Year 2011
Year 2012
Proceeds
from sales
$ 33,443
$ 25,834
$ 19,612
Gross
realized gains
(in thousands)
326
420
35
Gross
realized losses
(30)
(70)
(32)
Note 5. Allowance for Doubtful Accounts, Sales Returns and Discounts
The activity in the allowance for doubtful accounts, sales returns and discounts for the years ended
December 31, 2010, 2011 and 2012 follows:
Allowance for doubtful accounts
Period
Balance at
beginning of year
Charges
(credits) to earnings
Amounts
utilized
Balance at
end of year
(in thousands)
Year 2010
Year 2011
Year 2012
$ 25,515
$ 16,727
$ 15,186
(8,788)
(1,541)
-
-
-
-
16,727
15,186
15,186
F-30F-30
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Allowance for sales returns and discounts
Period
Balance at
beginning of year
Additions
Amounts
utilized
Balance at
end of year
Year 2010
Year 2011
Year 2012
$ 970
$ 591
$ 785
4,551
3,385
7,386
(4,930)
(3,191)
(7,093)
591
785
1,078
(in thousands)
Note 6. Equity Method Investments
As of December 31, 2011 and 2012, equity method investments consisted of the following:
December 31,
2011
2012
Amount
Holding %
Amount
Holding %
Create Electronic Optical Co., Ltd.
$ 439
21.11
283
21.11
The Company disposed of Hangzhou Crystal Display Technology Co., Ltd. equity to its
other shareholders in June 2011 and resulted in $313 thousand gain on disposal of the equity,
which was presented in other income in the accompanying consolidated statement of income.
Investment accounted for under the equity method is Create Electronic Optical Co., Ltd.
(C.E.O.), a camera module supplier. 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, 2012, 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 $34 thousand.
As of December 31, 2012, it was not practicable for management to estimate the fair value of
the 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 identified
no events or changes in circumstance that may significantly affect the Company’s ability on
recovering the carrying value of the investment.
F-31
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Note 7. Inventories
As of December 31, 2011 and 2012, inventories consisted of the following:
Finished goods
Work in process
Raw materials
Supplies
December 31,
2011
2012
(in thousands)
$ 30,703
57,737
24,505
40
$ 112,985
39,988
60,227
16,424
32
116,671
Inventory write-downs were $10,557 thousand, $9,138 thousand and $12,418 thousand for the years
ended December 31, 2010, 2011 and 2012, respectively, and are included in cost of revenues.
Note 8. Other Intangible Assests, Other than Goodwill
Gross
carrying
amount
December 31, 2011
Weighted
average
amortization
period
(in thousands)
Accumulated
amortization
6,339
8,100
842
15,281
7 years
7 years
6 years
4,495
5,689
603
10,787
Gross
carrying
amount
December 31, 2012
Weighted
average
amortization
period
(in thousands)
Accumulated
amortization
7 years
7 years
6 years
5,762
6,847
686
13,295
11,774
8,100
842
20,716
722
$
$
$
$
$
Amortized intangible assets:
Technology
Customer relationship
Patents
Total
Amortized intangible assets:
Technology
Customer relationship
Patents
Total
Unamortized intangible assets:
In-process research and development
F-32
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Amortization expense for the years ended December 31, 2010, 2011 and 2012, was $2,198 thousand,
$2,180 thousand and $2,508 thousand, respectively. Estimated amortization expense for the next
five years is $2,909 thousand in 2013, $953 thousand in 2014, and $783 thousand in 2015, 2016 and
2017.
Note 9. Property, Plant and Equipment
Land
Building and improvements
Machinery
Research and development equipment
Software
Office furniture and equipment
Others
Accumulated depreciation and amortization
Prepayment for purchases of land and equipment
2011
December 31,
(in thousands)
2012
$ 10,154
17,737
27,213
17,393
10,047
7,281
9,881
99,706
(53,594)
11,038
$ 57,150
14,328
17,740
31,494
18,020
10,540
7,681
17,282
117,085
(66,420)
1,944
$ 52,609
Depreciation and amortization of these assets for the years ended December 31, 2010, 2011 and
2012, were $11,428 thousand, $10,615 thousand and $10,791 thousand, respectively.
Note 10. 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, 2011 and 2012:
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.
2011
December 31,
(in thousands)
2012
$ 625
432
1,600
8,962
6,500
751
309
283
$ 19,426
$ 625
432
1,600
8,962
-
477
309
283
$ 12,688
F-33
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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.
On July 3, 2012, the Company acquired all of the remaining outstanding equity of Spatial
Photonics, Inc. Afterwards, Spatial Photonics, Inc. was one of the consolidated subsidiaries
and de-recognized from investment securities. See Note 3, “Acquisition”, as further
described.
In 2012, management considered the Company’s investment in equity of eTurboTouch
Technology Inc. was impaired as it did not believe that the investment carrying value would
be recovered due to the investee’s significant deterioration in the earnings performance.
Management believes that Company’s proportionate equity interest in the net book value
of investee as is the best estimate of the recoverable amount. As a result, the Company
recognized a $238 thousand impairment loss which is included in other non-operating loss
within “impairment loss on investment” in the accompanying consolidated statements of
income.
As of December 31, 2011 and 2012, 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 identified no events or changes in circumstance that may significantly
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
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. The Company sold the bonds in August
2012. Proceed from the sale of the bonds was $5,431 thousand and realized gains from the
sale included in “Gains on sale of marketable securities, net” was $645 thousand.
F-34
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Following is a summary of the corporate bonds as of December 31, 2011:
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, 2011:
December 31, 2012
Gross unrealized
Aggregate
Cost
gains
losses
(in thousands)
Fair
value
Conversion option
$ 684
-
510
174
Note 11. 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.
2011
December 31,
(in thousands)
2012
8,211
2,276
1,830
3,837
1,210
78
5,721
23,163
7,582
1,694
2,006
4,144
1,025
197
7,077
23,725
$
$
The movement in accrued warranty costs for the years ended December 31, 2010, 2011 and 2012 is
as follows:
Period
Balance at
beginning
of year
Additions
(reversal)
charged to
expense
Amounts
utilized
Balance at
end of year
(in thousands)
Year ended December 31, 2010
Year ended December 31, 2011
Year ended December 31, 2012
$ 679
$ 679
$ 78
3,772
(321)
856
(3,772)
(280)
(737)
679
78
197
F-35
Note 12. Short-Term Debt
In 2011 and 2012, short-term debt consisted of bank loans with interest rates per annum that ranged
from 0.45% to 0.70% and 0.42% to 0.57%, respectively, and cash totaling $84,200 thousand and
$73,000 thousand are pledged as collateral, respectively.
As of December 31, 2012, unused credit lines amounted to $167,988 thousand, which expire
between January 2013 and December 2013. Among which, $6,887 thousand expired in January
2013.
Note 13. Government Grants
The Company entered into several contracts with Department of Industrial Technology of Ministry
of Economic Affairs (DOIT of MOEA) and Institute for Information Industry (III) during 2010,
2011 and 2012 primarily for the development of certain new leading products or technologies.
Details of these contracts are summarized below:
Authority
Total Grant
(in thousands)
Execution Period
Product Description
DOIT of
MOEA
III
III
III
NT$ 30,240 (US$919)
4,340 (US$140)
18,700 (US$582)
23,220 (US$770)
October 2008 to September
2010
January 2010 to November
2011
January 2010 to December
2011
June 2011 to February 2013
Multi-standard Decoder iDTV
SOC
Himax Headquarter Excellent
Program (II)
LCOS Projector Development
Program
CMOS Development Program
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
2010, 2011 and 2012 were $819 thousand, $688 thousand and $216 thousand, respectively.
F-36
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Note 14. Retirement Plan
The Company has established a Defined Benefit 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 benefits are based on years of service and the average salary
for the six-month period before the employee’s retirement. Each employee earns two months of
salary for each of the first fifteen years of service, and one month of salary for each year of service
thereafter. The maximum retirement benefit is 45 months of salary. Retirement benefits are paid to
eligible participants on a lump-sum basis upon retirement.
Defined Benefit Plan assets consist entirely of a Pension Fund (the “Fund”) denominated solely in
cash, as mandated by ROC Labor Standard Law. The Company contributes an amount equal to 2%
of wages and salaries paid every month to the Fund (required by law). The Fund is administered by
a pension fund monitoring committee (the “Committee”) and is deposited in the Committee’s name
in the Bank of Taiwan.
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 Defined Contribution Plan at a rate no less than 6% of the employee’s monthly
wages to the employees’ individual pension fund accounts at the ROC Bureau of Labor Insurance.
Expense recognized in 2010, 2011 and 2012, based on the contribution called for was $1,507
thousand, $1,801 thousand and $1,844 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 Defined Contribution Plan did not
have a material effect on the Company’s financial position or results of operations. Participants’
accumulated benefits under the Defined Benefit Plan are not impacted by their election to change
the plans and their seniority remains regulated by ROC Labor Standard Law, such as the retirement
criteria and the amount payable. The Company is required to make contribution for the Defined
Benefit Plan until it is fully funded. Pursuant to relevant regulatory requirements, the Company
expects to make a cash contribution of $130 thousand to its pension fund maintained with the Bank
of Taiwan and $2,139 thousand to the employees’ individual pension fund accounts at the ROC
Bureau of Labor Insurance in 2013.
The Company established a defined contribution plan in the United States that qualifies under
Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees
who meet the service requirement. The Company’s contribution to the plan may be made at the
discretion of the board of directors. As now, no contributions have been made by the Company to
the plan.
F-37
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
All PRC employees participate in employee social security plans, including pension and
other welfare benefits, which are organized and administered by governmental authorities.
We have no other substantial commitments to employees. The premiums and welfare benefit
contributions that should be borne by our Company are calculated in accordance with relevant
PRC regulations, and are paid to the labor and social welfare authorities. Expenses recognized
based on this plan were $335 thousand, $517 thousand, and $606 thousand for the years ended
December 31, 2010, 2011 and 2012, respectively.
The Company uses a measurement date of December 31, for the Defined Benefit Plan. The
changes in projected benefit obligation, plan assets and details of the funded status of the Plan
are as follows:
Change in projected benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefit 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,
2011
2012
(in thousands)
$ 1,713
-
33
679
2,425
2,425
-
50
(141)
2,334
2,176
27
102
2,305
$ (120)
2,305
24
220
2,549
215
$ 198
(318)
$ (120)
457
(242)
215
Amounts recognized in accumulated other comprehensive income was net actuarial loss of
$668 thousand, $1,241 thousand and $1,008 thousand at December 31, 2010, 2011 and 2012,
respectively.
The accumulated benefit obligation for the Defined Benefit Plan was $687 thousand and $887
thousand at December 31, 2011 and 2012, respectively. As of December 31, 2011 and 2012, no
employee was eligible for retirement or was required to retire.
F-38
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
For the years ended December 31, 2010, 2011 and 2012, the net periodic pension cost consisted
of the following:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Net periodic pension cost
2010
2012
Year Ended December 31,
2011
(in thousands)
$ -
33
(44)
36
$ 25
$ -
50
(48)
69
$ 71
$ -
29
(43)
27
$ 13
The net actuarial loss for the defined benefit pension plan that will be amortized from
accumulated other comprehensive income into net periodic benefit cost in 2013 is $57 thousand.
At December 31, 2011 and 2012, the weighted-average assumptions used in computing the
benefit obligation are as follows:
December 31,
2011
2012
Discount rate
Rate of increase in compensation levels
2.00 %
5.00 %
1.75 %
4.00 %
For the years ended December 31, 2010, 2011 and 2012, the weighted average assumptions used
in computing net periodic benefit cost are as follows:
2010
December 31,
2011
whole
2012
Discount rate
Rate of increase in compensation levels
Expected long-term rate of return on pension assets
2.00 %
4.00 %
2.00 %
2.00 %
5.00 %
2.00 %
1.75 %
4.00 %
1.75 %
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 benefits expected to be paid from the defined benefit pension plan is $33 thousand in 2017
and $220 thousand from 2018 to 2022, and no benefits payments to be paid during the years
from 2013 to 2016.
F-39
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Note 15. Share-Based Compensation
The amount of share-based compensation expenses included in applicable costs of sales and
expense categories and related tax effects are summarized as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total compensation recognized in income
Income tax benefit
$ 240
8,803
1,525
1,613
$ 12,181
$ 2,127
124
5,062
872
1,005
7,063
818
176
5,625
1,191
1,230
8,222
1,886
(a)
Long-term Incentive Plan
On October 25, 2005, the Company’s shareholders approved a long-term incentive plan.
The plan permits the grants of options or RSUs to the Company’s employees, directors and
service providers where each unit of RSU represents two ordinary shares of the Company.
The 2005 plan was terminated in October 2010.
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.
F-40
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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.
On September 26, 2012, the Company’s compensation committee made grants of 5,522,279 RSUs
to the Company’s employees. The vesting schedule for the RSUs is as follows: 58.36% of the RSUs
grant vested immediately on the grant date which was settled by cash amounting to $6,286 thousand,
a subsequent 13.88% will vest on each of September 30, 2013, 2014 and 2015 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 $3.95 per ADS, $2.95 per ADS, $3.25
per ADS, $2.47 per ADS, $1.1 per ADS and $1.95 per ADS on September 26, 2007, September
29, 2008, September 28, 2009, September 28, 2010, September 28, 2011 and September 26, 2012,
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 non-vested shares of Himax Media
Solutions’ ordinary share. See Note 15 (b)(ii) for further details of the modification of award.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
RSUs activity under the long-term incentive plan during the periods indicated is as follows:
F-41
Balance at January 1, 2010
Granted
Vested
Forfeited
Balance at December 31, 2010
Granted
Vested
Forfeited
Balance at December 31, 2011
Granted
Vested
Forfeited
Balance at December 31, 2012
Number of
Underlying
Shares for RSUs
Weighted
Average Grant
Date Fair Value
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
5,522,279
(3,879,959)
(177,253)
2,637,455
$ 3.23
2.47
2.84
3.10
2.87
1.10
1.74
2.87
2.68
1.95
2.10
2.81
1.99
As of December 31, 2012, the total compensation cost related to the unvested RSUs not yet
recognized was $3,617 thousand. The weighted-average period over which it is expected to be
recognized is 2.51 years.
As of December 31, 2012, the 290,524 and 2,346,931 unvested RSUs were outstanding under 2005
plan and 2011 plan, respectively.
In 2011, the Company settled RSUs releases with newly issued shares of ordinary shares were
2,971,212 shares. In 2012, the Company settled RSUs release with shares buyback were 1,312,844
shares.
The allocation of compensation expenses and related tax effects from the RSUs granted to employees
under the long-term incentive plan are summarized as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total compensation from RSUs
Income tax benefit
$ 240
8,153
1,505
1,587
$ 11,485
$ 2,127
124
4,790
863
996
6,773
818
176
5,605
1,184
1,230
8,195
1,886
F-42
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(b)
Non-vested Shares Issued to Employees
(i) During September 2007 to December 2010, Himax Imaging Inc. (“Imaging Cayman”,
a consolidated subsidiary) granted non-vested 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 2010, Company recognized compensation
expenses of $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 non-vested 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 and 2012, the Company recognized compensation expenses
of $71 thousand and $14 thousand, respectively, which were 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.
Non-vested share activity of this award for Imaging Cayman during the period indicated
is as follows:
Balance at January 1, 2010
Granted
Vested
Forfeited
Balance at December 31, 2010
Cancelled
Balance at December 31, 2011
Number of
Shares
Weighted
Average Grant
Date Fair Value
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
-
F-43
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Non-vested 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
Vested
Forfeited
Balance at December 31, 2012
Number of
Shares
Weighted
Average Grant
Date Fair Value
1,939,490
567,689
(601,129)
(28,971)
1,877,079
(699,967)
(821,365)
355,747
$ 0.72
0.72
0.72
0.72
0.72
0.72
0.72
0.72
As of December 31, 2012, the total compensation cost related to this award not yet recognized
was $12 thousand. The weighted-average period over which it is expected to be recognized is
0.45 years.
(ii) As stated in Note 15 (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 modified award issued over the fair value of the original unvested RSUs at the date
of modification. The Company then added incremental compensation cost to the remaining
unrecognized compensation cost of the original award at the date of modification and the total
compensation cost are recognized as compensation expenses ratably over the requisite service
period of the modified award.
The fair value of the original unvested RSUs was determined based on the average market price
of the Company’s ordinary shares underlying the RSU at the modification dates occurred during
the period from November 12, 2007 to November 16, 2007. The fair value of Himax Media
Solutions’ non-vested shares at the modification date was determined based on the then most
recent price of Himax Media Solutions’ new shares issued to unrelated third parties, which was
NT$15 (US$0.464) per share.
F-44
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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 $161 thousand in 2010. Such compensation expense was recorded as sales and
marketing expense and research and development expenses in the accompanying consolidated
statements of income.
Non-vested share activity of this award during the period indicated is as follows:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Balance at January 1, 2010
Vested
Forfeited
Balance at December 31, 2010
1,121,000
(988,000)
(133,000)
-
$ 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
(i) 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 vesting period, 50%, 25% and 25% of each
grant will be vested subsequent to the second, third and fourth anniversary of the grant
date, respectively. The Company recognized compensation expenses of $180 thousand,
$219 thousand and $13 thousand in 2010, 2011 and 2012, 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.
F-45
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
At December 31, 2012, there was 1,000 additional shares available for Himax Media
Solutions’ grant under 2009 plan. The calculated value of each option award is estimated on
the date of grant using the Black-Scholes option-pricing model that used the weighted average
assumptions in the following table. Himax Media Solutions uses the simplified method to
estimate the expected term of the options as it does not have sufficient 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.
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
2007
2009
0 %
39.94 %
4.375
2.4776 %
0 %
51.52 %
4.375
2 %
Numbers of shares and related data have been retroactively adjusted to reflect the effect of
Himax Media Solutions’ capital reduction. A summary of stock options activity during the
periods indicated is as follows:
Number
of shares
1,693,250
-
-
(249,375)
1,443,875
444,500
-
(346,813)
1,541,562
9,750
-
(372,187)
1,179,125
1,101,938
Weighted
average
exercise
price
$ 1.664
-
-
1.680
1.660
1.834
-
1.717
1.696
1.856
-
1.721
1.690
1.721
Weighted
average
remaining
contractual
term
2.826
2.452
1.803
0.803
Balance at January 1, 2010
Granted
Exercised
Forfeited
Balance at December 31, 2010
Granted
Exercised
Forfeited
Balance at December 31, 2011
Granted
Exercised
Forfeited
Balance at December 31, 2012
Exercisable at December 31, 2012
F-46
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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.
(ii)
On July 1, 2012, board of directors of Imaging Cayman approved a plan to grant stock
options to certain employees. The plan authorizes grants to purchase up to 2,000,000 shares
of Imaging Taiwan’ issued ordinary shares held by Imaging Cayman. The exercise price was
NT$30 (US$1.004).
All options under this plan have four years contractual life and three years vesting period.
Based on the vesting schedule, 50% of the options vest one and half years after the date of
grant and 50% of the options vest three years after the date of grant. Because the exercise
price of the option is higher than the estimated fair value of Imaging Taiwan at the date of
grant, the calculated value of each option award estimated using the Black-Scholes option-
pricing model was nil.
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. Imaging Cayman uses the simplified method to estimate the expected term of the
options as it does not have sufficient historical share option exercise experience and the
exercise data relating to employees of other companies is not easily obtainable. Since
Imaging Taiwan’ 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 3 years ROC central government bond at the time of grant.
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
Stock option activity during the periods indicated is as follows:
2012
0 %
43.29 %
3.125
0.87 %
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term
Number
of shares
Balance at January 1, 2012
Granted
Exercised
Forfeited
Balance at December 31, 2012
-
1,115,000
-
(65,000)
1,050,000
$ -
1.004
-
1.004
1.004
3.5
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
F-47
Note 16. Equity
(a)
Share capital
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 $13.4 million or 9,488,656 ADSs in the open market at an
average price of US$1.41 per ADS as of December 31, 2012. Among which, 8,774,987 ADSs
was held by the Company as of December 31, 2012.
(b)
Earnings distribution
As a holding company, the major asset of the Company is the 100% ownership interest in
Himax Taiwan. Dividends received from the Company’s subsidiaries in Taiwan, if any, will
be subjected to withholding tax under ROC law. The ability of the Company’s subsidiaries
to pay dividends, repay intercompany loans from the Company or make other distributions
to the Company may be restricted by the availability of funds, the terms of various credit
arrangements entered into by the Company’s subsidiaries, as well as statutory and other legal
restrictions. The Company’s subsidiaries in Taiwan are generally not permitted to distribute
dividends or to make any other distributions to shareholders for any year in which it did not
have either earnings or retained earnings (excluding reserve). In addition, before distributing
a dividend to shareholders following the end of a fiscal year, a Taiwan company must recover
any past losses, pay all outstanding taxes and set aside 10% of its annual net income (less
prior years’ losses and outstanding taxes) as a legal reserve until the accumulated legal
reserve equals its paid-in capital, and may set aside a special reserve.
The accumulated legal and special reserve provided by Himax Taiwan as of December 31,
2011 and 2012 amounting to $47,297 thousand and $50,750 thousand, respectively.
F-48
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Note 17. Comprehensive Income
The components of accumulated other comprehensive loss, net of tax, are as follows:
Beginning balance,
January 1, 2011
Net current period change
Reclassification adjustments:
for gains (losses)
reclassified into income
Ending balance, December
31, 2011
Beginning balance, January 1,
2012
Net current period change
Reclassification
adjustments for gains
(losses) reclassified into
income
Ending balance, December
31, 2012
Foreign
currency
items
Unrealized
gains/
(losses) on
securities
Defined
Benefit
pension
plan
Accumulated
other
comprehensive
income
$ 610
128
1,236
(283)
(642)
(546)
1,204
(701)
-
(337)
-
(337)
$ 738
616
(1,188)
166
$ 738
52
616
59
(1,188)
234
166
345
-
(648)
-
(648)
$ 790
27
(954)
(137)
Note 18. 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 (benefit) attributable to income from continuing operations is incurred in the ROC.
Other foreign subsidiary companies calculated income tax in accordance with local tax law and
regulations.
The statutory tax rate applicable to the subsidiaries which located in the Republic of China is 17%
in 2010, 2011 and 2012. 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 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 finalized in the following year.
F-49
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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. Besides, Himax Taiwan’s
capital increase in 2009 related to the electronic parts and components manufacturing was
approved by the government authorities. The incremental income derived from selling
the above new product is tax exempt for a period of five years, however, there is limit tax
exemption $15,972 thousand (NT$463,823 thousand) for the tax exemption in 2009.
The Company is entitled to the following tax exemptions:
Date of investment
Tax exemption period
Himax Taiwan:
October 29, 2003
September 20, 2004
November 12, 2009
Himax Semiconductor:
August 26, 2004
January 1, 2006-December 31, 2010
January 1, 2008-December 31, 2012
January 1, 2013-December 31, 2017
January 1, 2009-December 31, 2013
Income (loss) before income taxes for domestic and foreign entities is as follows:
Taiwan operations
Cayman operations
US operations
China operations
Korea operations
2010
Year Ended December 31,
2011
(in thousands)
2012
$ 42,550
( 7,535)
(55)
157
177
$ 35,294
22,370
(7,038)
151
1,293
32
16,808
73,461
(7,395)
(1,597)
1,388
29
65,886
F-50
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The components of the income tax expense (benefit) attributable to income from continuing
operations before taxes for the years ended December 31, 2010, 2011 and 2012 consist of the
following:
Year Ended December 31,
2011
2010
(in thousands)
2012
Current:
Taiwan operations – based on statutory tax rate of 17%
Taiwan operations – 10% of surtax
$ (54)
1,643
(2,842)
3,424
US operations
China operations
Korea operations
Others
Total current
33
112
12
1
1,747
104
120
5
-
811
Deferred:
Taiwan operations - based on statutory tax rate of 17%
Taiwan operations – 10% of surtax
US operations
China operations
Korea operations
Others
Total deferred
Income tax expense
4,824
(306)
(30)
(15)
8
-
4,481
$ 6,228
6,468
(143)
5
162
(2)
-
6,490
7,301
755
5,277
162
699
3
1
6,897
9,789
(29)
(998)
89
-
-
8,851
15,748
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, 2010, 2011 and 2012 are as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
Deferred income tax expense (benefit), exclusive of the
effects of other components listed below
Adjustments to deferred tax assets and liabilities for
changes in enacted tax laws and rates
Tax benefits of operating loss carryforwards
Increase in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets
$ (13,141)
1,085
9,981
3,144
-
(1)
-
-
(1,130)
14,478
$ 4,481
5,406
6,490
-
8,851
F-51
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The applicable combined tax rate of 23.85% for an aggregate calculation of 17% expected
income tax and 10% undistributed earning surtax in 2010, 2011 and 2012.
The expected tax is computed based on the 17% rate only and the separate item of 10%
undistributed earnings surtax is immediately following the expected tax in the rate
reconciliation.
The differences between expected income tax expense, computed based on the ROC statutory
income tax rate of 17% to pretax income and the actual income tax expense as reported in the
accompanying consolidated statements of income for the years ended December 31, 2010,
2011 and 2012 are summarized as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
Expected income tax expense
Tax on undistributed retained earnings
Tax-exempted income
Tax benefit 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
Realized tax losses on investments in subsidiaries
due to capital reclassification to offset the
accumulated deficit
Increase in investment tax credits
Expired 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
Changes in unrecognized tax benefits related to
prior year uncertain tax positions, net of its
impact to tax-exempted income
Tax effect resulting from foreign currency matters
Foreign tax rate differential
Variance from audits of prior years’ income tax
filings
Others
Actual income tax expense
$ 6,000
1,643
(3,567)
2,857
3,424
(836)
11,201
5,277
(2,921)
(639)
(164)
(571)
3,144
(1)
-
-
(3,870)
183
12,408
(1,821)
(3,533)
1,841
6,823
(6,157)
(1,210)
5,302
6,319
178
589
53
133
-
-
(2,295)
(9,086)
1,320
(6,759)
3,160
1,350
658
(3,607)
1,415
1,205
(529)
$ 6,228
476
(105)
7,301
40
(51)
15,748
The basic and diluted earnings per ordinary share effect resulting from the income tax
exemption for the years ended December 31, 2010, 2011 and 2012, is a $0.01, nil and $0.01,
increase to earnings per ordinary share, respectively.
F-52
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The total income tax expense for the years ended December 31, 2010, 2011 and 2012 was
allocated as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
Income from continuing operations
Other comprehensive gain (loss)
Total income tax expense
$ 6,228
(54)
$ 6,174
7,301
(125)
7,176
15,748
8
15,756
As of December 31, 2011 and 2012, the components of deferred income tax assets (liabilities)
were as follows:
Deferred tax assets:
Inventory
Allowance for doubtful accounts
Unused investment tax credits
Unused loss carry-forward
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
Other
Total gross deferred tax liabilities
Net deferred tax assets
December 31,
2011
2012
(in thousands)
$ 4,219
2,303
39,393
20,919
987
67,821
(35,241)
32,580
5,538
2,270
22,835
26,388
1,992
59,023
(36,341)
22,682
(2,112)
(361)
(1,041)
(36)
(3,550)
$ 29,030
-
(401)
(3,015)
(78)
(3,494)
19,188
As of December 31, 2012, the Company has not provided for income taxes on the
undistributed earnings of approximately $536,452 thousand of its foreign subsidiaries since
the Company has specific plans to reinvest these earnings indefinitely. 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.
The valuation allowance for deferred tax assets as of January 1, 2010, 2011 and 2012 was
$28,428 thousand, $42,906 thousand and $35,241 thousand, respectively. The net change in the
valuation allowance for the years ended December 31, 2010, 2011 and 2012, was an increase
of $14,478 thousand, a decrease of $7,665 thousand and an increase of $1,100 thousand,
respectively.
F-53
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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
operating loss and tax credit carryforwards are available to be utilized. 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 benefits of the deferred tax assets, net of the valuation allowance at December 31,
2012. 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 files 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 $31,905
thousand and $30,541 thousand as of December 31, 2011 and 2012, 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 benefits will be realized.
In addition, a valuation allowance of $3,336 thousands and $5,800 thousands as of December
31, 2011 and 2012, 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 for Taiwan operations. That
amendment is effective for the Company beginning 2009 and extends the period of tax loss
carry-forward for certain subsidiaries.
As of December 31, 2012, the Company’s unused operating loss carryforwards were as
follows:
Deductible amount
Tax effect
Expiration year
(in thousands)
Taiwan operations
China operations
US operations
$ 138,080
1,807
6,236
$ 23,481
298
2,609
$ 26,388
2014~2022
2016~2020
2024~2032
F-54
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
According to the ROC Statute for Upgrading Industries, which 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
five years. The amount of the credit that may be applied in any year, except the final year, is
limited to 50% of the income tax payable for that year. There is no limitation on the utilization
of the amount of investment tax credit to offset the income tax payable in the final 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 five years.
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, 2012, all of the Company’s unused investment tax credits were as follows:
Taiwan operations
US operations
Tax effect
(in thousands)
$ 22,333
502
22,835
Expiration year
2013~2016
2020~2027
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
For the year ended December 31,
2012
2011
2010
(in thousands)
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
$ 8,450
-
(2,295)
133
604
$ 6,892
6,892
-
(6,759)
-
(5)
128
128
658
-
-
5
791
F-55
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Included in the balance of total unrecognized tax benefits at December 31, 2011 and 2012, are
potential benefits of $128 thousand and $791 thousand, respectively that if recognized, would
reduce the Company’s effective tax rate. No interest and penalties related to unrecognized tax
benefits were recorded by the Company for the years ended December 31, 2010, 2011 and 2012.
The Company’s major taxing jurisdiction is Taiwan. Except for Himax Taiwan and Himax
Semiconductor, all other Taiwan subsidiaries’ income tax returns have been examined and assessed
by the ROC tax authorities through 2010. The tax year of 2010 and 2011 for Himax Taiwan
and Himax Semiconductor and tax year of 2011 for other Taiwan subsidiaries are opening 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 benefits within the next 12 months; however, management is
unable to estimate a range of the tax benefits or detriment as of December 31, 2012.
Note 19. Fair Value Measurement
The following table presents the Company’s financial 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, 2011 and 2012:
Fair Value Measurements at
December 31, 2011 Using
Level 2
(in thousands)
Level 3
Level 1
Assets:
Cash and cash equivalents:
Time deposits with original maturities less
than three months
$ 72,000
-
-
Marketable securities available-for-sale:
Time deposit with original maturities more
than three months
-
165
-
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
Liabilities:
Short-term debt
Total
Total
-
-
5,080
44,000
-
-
-
-
174
-
$ 116,000
1,266
1,431
-
5,254
$ -
$ -
84,200
84,200
-
-
F-56
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Fair Value Measurements at
December 31, 2012 Using
Level 2
(in thousands)
Level 1
Level 3
Assets:
Cash and cash equivalents:
Time deposits with original maturities less
than three months
$ 45,000
-
-
Marketable securities available-for-sale:
Time deposit with original maturities more
than three months
Restricted marketable securities:
Time deposits with original maturities of
more than three months
Liabilities:
Short-term debt
Total
Total
-
172
-
-
$ 45,000
1,273
1,445
-
-
$ -
$ -
73,000
73,000
-
-
The following table presents fair value measurements of assets that are measured at fair value
on a nonrecurring basis at December 31, 2012 and the associated losses recognized in 2012 (nil
in 2011):
Fair Value Measurements at
Reporting Date Using
For the
Year
Ended
December
31, 2012
Impairment
Loss
December
31, 2012
Level 1
Level 2
(in thousands)
Level 3
Assets:
Investments in Non-
marketable Equity Securities-
eTurbo Touch Technology
Inc.
$
477
-
-
477
238
F-57
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The Company reviews the carrying values of financial assets carried at cost when impairment
indicators are present. For such financial assets that do not have a quoted market price,
management of the Company reviews the current operating performance of the investee based
on evaluation of the latest available financial statements, as well as changes in the industry and
market prospects based on publicly available information. The impairment charge recognized
in 2012 for the investment in eTurbo Touch Technology Inc was determined based on the
difference between the Company’s carrying value and the proportionate equity interest in the
net book value of investee at year end (which was managements best estimate of the amount to
be realized from this investment).
Non-financial 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 2010, 2011 and 2012. As stated in Note 2 (h) “Summary of Significant
Accounting Policy”-“Goodwill”, for Driver IC reporting unit in 2011 and 2012, the discounted
cash flow (DCF) method is used by management in applying the income approach to determine
the fair value of each of the Company’s reporting units. Significant assumptions inherent in the
valuation method for goodwill are employed and included, but are not limited to, prospective
financial information, terminal value, and discount rates.
The Company performed the fair value measurement, which is categorized in Level 3 as part of
the step 1 of the goodwill impairment test, for the Driver IC reporting unit. The Company used
a discount rate based on the weighted average cost of capital, which were 23.0% and 21.3%
for Driver IC reporting unit as of October 31, 2011 and 2012, respectively, and long-term
growth rate were (8)% and 1.1% for Driver IC reporting unit as of October 31, 2011 and 2012,
respectively.
Management determined that the fair values of Driver IC reporting unit were approximately
$367.4 million and $571.9 million, which exceeded its carrying amount by 7.6% and 54.3%, at
October 31, 2011 and 2012, respectively. Therefore, management concluded that goodwill was
not impaired and step 2 of the two-step goodwill impairment test was unnecessary.
There were no transfers between Level 1 and Level 2 of fair value hierarchy and no transfers
into or out of Level 3 financial instruments during the year ended December 31, 2011 and
2012.
F-58
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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, 2011:
Balance at January 1, 2011
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 (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
Derivatives-
Conversion
option
(in thousands)
$5,196
67
(183)
$5,080
1,004
(830)
-
174
Total
6,200
(763)
(183)
5,254
$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 significant inputs that are not observable
in the market, which are Level 3 inputs. Key valuation assumptions include (a) a discount
rate of 1.4532% at December 31, 2011, which are based on risk-free rates plus issuer’s risk
premium for the expected terms. The risk-free rate of 0.9139% applied for the expected terms
of 3.6 years at December 31, 2011, was 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 0.54%
at December 31, 2011, that is based on the risk premium of the unsecured bank loan of the
peer; (b) an expected volatility of 40.78% at December 31, 2011, was used in the valuation of
conversion option, which are based on the average historical volatility of the issuer’s publicly
traded shares.
Note 20. Significant Concentrations
Financial instruments that currently subject the Company to concentrations of credit risk consist
primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company
places its cash primarily in checking and saving accounts with reputable financial institutions. The
Company has not experienced any material losses on deposits of the Company’s cash and cash
equivalents. Marketable securities consist of time deposits with original maturities of greater than
three months, corporate convertible bond and investments in open-ended bond fund identified 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 fluctuations. Management expects the
Company to be substantially dependent on sales to the TFT-LCD panel industry for the foreseeable
future.
F-59
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The Company depends on two customers for majority of its revenues and the loss of, or
a significant reduction in orders would significantly reduce the Company’s revenues and
adversely impact the Company’s operating results. The largest customer, CMO and its
affiliates, which is a related party to the Company. 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. Later, CMI
is renamed as Innolux Corporation on January 1, 2013. CMO/CMI and its affiliates accounted
for approximately 52.2%, 40.8% and 34.2%, respectively, of the Company’s revenues in 2010,
2011 and 2012, and represented more than 10% of the Company’s total accounts receivable
balance at December 31, 2011 and 2012. CMI and its affiliates accounted for approximately
44.1% and 35.1% of the Company’s total accounts receivable balance at December 31, 2011
and 2012, respectively. The other customer, customer A and its affiliates, accounted for
approximately 0.2%, 5.7% and 11.7%, respectively, of the Company’s revenues in 2010, 2011
and 2012, and represented more than 10% of the Company’s total accounts receivable balance
at December 31, 2011 and 2012. Customer A and its affiliates accounted for approximately
10.3% and 14.0% of the Company’s total accounts receivable balance at December 31, 2011
and 2012, respectively. In addition, the Company had accounts receivable of $15.2 million
outstanding from SVA-NEC as of December 31, 2011 and 2012. 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 financial 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 $15.2 million as of December 31, 2011 and 2012. 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 21 and 22 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 sufficient foundry capacity
or loss of any of the foundries it uses could significantly delay the Company’s ability to
ship its products, cause the Company to lose revenues and damage the Company’s customer
relationships.
There are a limited number of companies which supply processed tape used to manufacture
the Company’s semiconductor products and therefore, from time to time, shortage of
such processed tape may occur. If any of the Company’s suppliers experience difficulties
in delivering processed tape used in its products, the Company may not be able to locate
alternative sources in a timely manner. Moreover, if shortages of processed tape were to
occur, the Company may incur additional costs or be unable to ship its products to customers
in a timely manner, which could harm the Company’s business customer relationships and
negatively impact its earnings.
F-60
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
A limited number of third-party assembly and testing houses assemble and test substantially
all of the Company’s current products. As a result, the Company does not directly control its
product delivery schedule, assembly and testing costs and quality assurance and control. If any
of these assembly and testing houses experiences capacity constraints or financial difficulties,
or suffers any damage to its facilities, or if there is any other disruption of its assembly and
testing capacity, the Company may not be able to obtain alternative assembly and testing
services in a timely manner. Because the amount of time the Company usually takes to qualify
assembly and testing houses, the Company could experience significant delays in product
shipments if it is required to find alternative sources. Any problems that the Company may
encounter with the delivery, quality or cost of its products could damage the Company’s
reputation and result in a loss of customers and orders.
Note 21. 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)
Chi Mei Optoelectronics Japan, Co.,
Ltd. (CMO-Japan)
NEXGEN Mediatech Inc. (NEXGEN)
Wholly owned subsidiary of CMI (2)
The Company’s Chairman represented on
NEXGEN’s Board of Directors, not included as
related party since July 2011
Chi Lin Technology Co., Ltd. (Chi Lin
Tech)
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-NingBo)
The subsidiary of CMI (2)
NingBo Chi Mei Optoelectronics Ltd.
(CMO-NingBo)
The subsidiary of CMI (2)
NanHai Chi Mei Optoelectronics Ltd.
(CMO- NanHai)
The subsidiary of CMI (2)
F-61
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Name of related parties
Relationship
Chi Mei Logistics Corp. (CMLC)
The subsidiary of CMI (2), not included as related
party since July 2011.
NingBo Chi Mei Logistics Corp.
(CMLC-NingBo)
The subsidiary of CMI (2)
Foshan Chi Mei Logistics Ltd. (CMLC-
Foshan)
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-NingBo)
The subsidiary of CMI (2)
Fulintec Science Engineering Co., Ltd.
(Fulintec)
The subsidiary of CMI (2), not included as related
party since May 2011
ShenZhen Nexgen Trading Co., Ltd.
(ShenZhen Nexgen)
The subsidiary of NEXGEN, not included as related
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 Kong)
The subsidiary of CMI, as related party since March
18, 2010
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
Ampower Technology Co., Ltd.
(Ampower)
Related party in substance, not included as related
party since March 18, 2010
Amlink (Shanghai) Ltd. (Amlink)
Related party in substance, not included as related
party since March 18, 2010
Shinyoptics Corp. (Shinyoptics)
Equity method investee of the Company, not
included as related party since October 1, 2010
Hangzhou Crystal Display Technology
Co., Ltd. (Crystal)
Equity method investee of the Company, not
included as related party since May 2011
F-62
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(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. On January 1, 2013, CMI changed its name as
Innolux Corporation.
(2)
The entities are the subsidiary of CMO before March 18, 2010.
(b)
Significant transactions with related parties
(i)
Revenues and accounts receivable
Revenues from related parties are summarized as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
CMO- NingBo
CMO- NanHai
CMI
CME- NingBo
Chi Hsin- NingBo
CMO
Others (individually below 5%)
$ 167,255
51,821
56,770
8,592
19,730
15,602
18,854
$ 338,624
123,888
41,241
55,629
18,889
16,806
-
1,780
258,233
93,664
63,375
56,221
21,673
12,637
-
4,404
251,974
A breakdown by product type for sales to CMO/CMI and its affiliates is summarized
as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
Display driver for large-size
applications
Display driver for consumer
electronics applications
Display driver for mobile handsets
Others
$ 297,146
210,137
190,963
27,189
10,170
1,090
$ 335,595
29,316
14,454
4,249
258,156
40,582
14,748
5,681
251,974
F-63
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
The sales prices with CMO/CMI and its affiliates are comparable to those offered to unrelated
third parties.
The related accounts receivable resulting from the above sales as of December 31, 2011 and
2012, were as follows:
December 31
2011
2012
(in thousands)
CMO- NingBo
CMI
CMO- NanHai
CME- NingBo
Chi Hsin- NingBo
Others (individually below 5%)
Allowance for sales returns and discounts
$ 33,981
17,690
17,019
6,629
4,038
559
79,916
(83)
$ 79,833
31,421
17,319
13,390
5,947
3,210
2,145
73,432
(174)
73,258
The credit terms granted to CMI and its affiliates ranged from 30 days to 120 days, and the
credit terms granted to other related parties ranged from 45 days to 90 days. The credit terms
offered to unrelated third parties ranged from 15 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 office space, facilities and inventory locations.
For the years ended December 31, 2010, 2011 and 2012, the related rent and utility expenses
resulting from the aforementioned transactions amounted to $1,119 thousand, $705 thousand
and $828 thousand, respectively, and were recorded as cost of revenue and operating expenses
in the accompanying consolidated statements of income. As of December 31, 2011 and
2012, the related payables resulting from the aforementioned transactions amounted to $326
thousand and $206 thousand, respectively, and were recorded as other accrued expenses in the
accompanying consolidated balance sheets.
F-64
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
As of December 31, 2012, future minimum lease payments under non-cancelable operating
leases with related parties are as follows:
Duration
January 1, 2013~December 31, 2013
January 1, 2014~December 31, 2014
January 1, 2015~December 31, 2015
January 1, 2016~December 31, 2016
January 1, 2017~December 31, 2017
After January 1, 2018
Amount
(in thousands)
$ 195
187
187
187
187
1,179
$ 2,122
(iv)
Others
In 2010, 2011 and 2012, the Company purchased consumable and miscellaneous items
amounting to $449 thousand, $348 thousand and $31 thousand, respectively, from CMI, CMO-
NanHai, CMLC-NingBo, Chi Lin Tech, NEXGEN, Fulintec and, which were charged to cost
of revenues and operating expenses. As of December 31, 2011 and 2012, the related payables
resulting from the aforementioned transactions were $9 thousand and nil, respectively.
In 2010, Chi Lin Tech provided IC bonding service on prototype panels for the Company’s
research activities for a fee of $12 thousand, which was charged to research and development
expense. The related process fee payables resulting from the aforementioned transactions had
been full paid in 2010.
Note 22.
Commitments and Contingencies
(a)
(b)
As of December 31, 2011, and 2012 the Company had entered into several contracts for
the acquisition of equipment and computer software. Total contract prices amounted to
$8,207 thousand and $15,126 thousand, respectively. As of December 31, 2011 and 2012,
the remaining commitments were $2,387 thousand and $13,876 thousand, respectively.
The Company leases certain offices and buildings pursuant to operating lease
arrangements with unrelated third parties. The lease arrangement will expire
gradually from 2014 to 2017. As of December 31, 2011 and 2012, deposits paid
amounted to $520 thousand and $683 thousand, respectively, and were recorded
as refundable deposit in the accompanying consolidated balance sheets.
F-65
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
As of December 31, 2012, future minimum lease payments under noncancelable operating
leases are as follows:
Duration
January 1, 2013~December 31, 2013
January 1, 2014~December 31, 2014
January 1, 2015~December 31, 2015
January 1, 2016~December 31, 2016
January 1, 2017~December 31, 2017
Amount
(in thousands)
$ 1,703
771
235
113
65
$ 2,887
(c)
(d)
(e)
(f)
(g)
Rental expense for operating leases with unrelated third parties amounted to $1,229 thousand,
$1,223 thousand and $1,812 thousand in 2010, 2011 and 2012, respectively.
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 specific territory or referred by agents as stipulated in these agreements.
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 and 2012, no royalty was paid.
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 financial position or results of operations.
Since Himax Taiwan is not a listed company, it will depend on Himax Technologies, Inc.
to meet its equity financing requirements in the future. Any capital contribution by Himax
Technologies, Inc. to Himax Taiwan may require the approval of the relevant ROC authorities.
The Company may not be able to obtain any such approval in the future in a timely manner, 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.
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 $77,434 thousand and $121,010 thousand as of
December 31, 2011 and 2012, respectively.
F-66
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
(h)
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 financial position, results of
operations, or liquidity.
Note 23. Segment, Product and Geographic Information
Year Ended December 31, 2010
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
Segment revenues
$ 590,057
52,635
642,692
Segment operating income (loss)
Non operating loss, net
Consolidated earnings before income taxes
Significant noncash item:
Share based compensation
Depreciation and amortization
$ 54,815
(19,457)
$ 5,007
$ 10,074
1,304
3,552
35,358
(64)
35,294
6,311
13,626
Year Ended December 31, 2011
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
Segment revenues
Segment operating income (loss)
Non operating income, net
Consolidated earnings before income taxes
Significant noncash item:
Share Based Compensation
Depreciation and amortization
$ 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
Year Ended December 31, 2012
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
Segment revenues
Segment operating income (loss)
Non operating loss, net
Consolidated earnings before income taxes
Significant noncash item:
Share Based Compensation
Depreciation and amortization
$ 634,111
$ 83,883
103,144
(16,823)
737,255
67,060
(1,174)
65,886
$ 1,612
$ 8,881
324
4,418
1,936
13,299
F-67
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Revenues from the Company’s major product lines are summarized as follow:
2010
Year Ended December 31,
2011
(in thousands)
2012
Display drivers for large-size applications
Display drivers for mobile handsets
applications
Display drivers for consumer electronics
applications
Others
$ 366,492
270,372
305,247
119,623
169,248
177,175
103,942
52,635
$ 642,692
112,836
80,565
633,021
151,689
103,144
737,255
The following tables summarize information pertaining to the Company’s revenues from
customers in different geographic region (based on customer’s headquarter location):
2010
Year Ended December 31,
2011
(in thousands)
2012
Taiwan
China
Other Asia Pacific (Korea and Japan)
Europe (Europe and America)
$ 492,687
112,845
37,121
39
$ 642,692
395,228
209,216
27,738
839
633,021
356,793
334,433
43,245
2,784
737,255
The carrying values of the Company’s tangible long-lived assets are located in the following
countries:
Taiwan
China
U.S.
Korea
December 31,
2011
2012
(in thousands)
$ 56,185
822
132
11
$ 57,150
51,519
744
330
16
52,609
F-68
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Revenues from significant customers, those representing 10% or more of total revenue for the
respective periods, are summarized as follows:
2010
Year Ended December 31,
2011
(in thousands)
2012
CMO/CMI and its affiliates, a related party
Customer A and its affiliates
$ 335,595
1,516
$ 337,111
258,156
35,908
294,064
251,974
86,069
338,043
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 affiliates, a related party
Customer A and its affiliates
December 31,
2011
2012
(in thousands)
$ 79,916
18,684
$ 98,600
73,432
29,198
102,630
As of December 31, 2011 and 2012, allowance for doubtful accounts, sales returns and
discounts for those accounts receivable was $178 thousand and $342 thousand, respectively.
Note 24. 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 financial information of Himax Technologies, Inc. is presented as
follows:
F-69
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
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
December 31,
2011
2012
(in thousands)
$ 584
1,146
1,600
628,528
$ 631,858
1,075
835
1,600
627,792
631,302
$ 3,921
65,200
169,300
393,437
$ 631,858
176
54,000
149,183
427,943
631,302
Himax Technologies, Inc. had no guarantees as of December 31, 2011 and 2012.
Condensed Statements of Income
Revenues
Costs and expenses
Operating loss
Equity in earnings from subsidiaries
Other non-operating loss
Earnings before income taxes
Income taxes expenses
Net Income
2010
Year Ended December 31,
2011
(in thousands)
-
(548)
(548)
13,433
(2,179)
10,706
-
10,706
$ -
(1,210)
(1,210)
36,427
(2,010)
33,207
(1)
$ 33,206
2012
-
(695)
(695)
54,929
(2,637)
51,597
(1)
51,596
F-70
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Condensed Statements of Comprehensive Income
2010
Year Ended December 31,
2011
(in thousands)
- 10,706
2012
$ - 33,206
- 51,596
Net income
Other comprehensive income (loss):
Unrealized gains (losses) on securities,
not subject to income tax:
Unrealized holding gains (losses) on
available-for-sale marketable
securities arising during
the period
1,511 -
(305) -
59 -
Reclassification adjustment for realized
losses (gains) included in net
income
Foreign currency translation
adjustments, not subject to
income tax
Net unrecognized actuarial gain (loss),
net of tax of $(54), $(125) and $8 in
2010, 2011 and 2012, respectively
Comprehensive income
(296) 1,215
(350) (655)
(648) (589)
210
128
50
(203)
$ 34,428
(573)
9,606
233
51,290
F-71
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2010, 2011 and 2012
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings from subsidiaries
Changes in operating assets and liabilities:
Other current assets
Other current liabilities
Net cash used in operating activities
Cash flows from financing activities:
Distribution of cash dividends
Proceeds from borrowing of short-term debt
Repayment of short-term debt
Investment returned from subsidiaries
Proceeds from issue of RSUs from a subsidiary
Purchase of subsidiary shares from
noncontrolling interests
Proceeds from (repayment of) debt from a
subsidiary
Acquisitions of ordinary shares for retirement
Net cash provided by financing activities
Net increase in cash
Cash at beginning of year
Cash at end of year
2010
Year Ended December 31,
2011
(in thousands)
10,706
$ 33,206
2012
51,596
(36,427)
(13,433)
(54,929)
1,543
(2,542)
(4,220)
(790)
1,767
(1,750)
311
1,637
(1,385)
(44,097)
204,000
(160,000)
-
4,370
(21,224)
271,200
(250,000)
-
1,634
(10,680)
266,000
(277,200)
56,836
1,306
-
(1,324)
-
11,000
(10,755)
4,518
298
77
$ 375
6,300
(4,627)
1,959
209
375
584
(25,500)
(8,886)
1,876
491
584
1,075
Supplemental disclosures of cash flow information:
Interest paid during the year
Income taxes paid during the year
$ 156
$ 1
353
-
264
1
Himax Technologies, Inc.
List of Subsidiaries
Exhibit 8.1
Subsidiary
Himax Technologies Limited
Himax Technologies Korea Ltd.
Himax Semiconductor, Inc.
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou) Co., Ltd.
Himax Technologies (Shenzhen) Co., Ltd.
Himax Display, Inc.
Integrated Microdisplays Limited
Himax Display (USA) Inc.
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
Iris Optronics Co., Ltd.
Himax Technologies Japan Ltd.
Jurisdiction of
Incorporation
ROC
South Korea
ROC
Samoa
PRC
PRC
ROC
Hong Kong
Delaware, USA
ROC
Cayman Islands
ROC
California, USA
Cayman Islands
Cayman Islands
ROC
Hong Kong
ROC
ROC
Japan
Percentage of
Our Ownership
Interest
100.0 %
100.0 %
100.0 %
100.0 %(1)
100.0 %(2)
100.0 %(2)
81.5 %(1)
81.5 %(3)
81.5 %(3)
74.6 %(1)
100.0 %
87.6 %(4)
100.0 %(5)
100.0 %
100.0 %(6)
86.7 %(7)
86.7 %(8)
100.0 %(1)
21.7 %(1)
100.0 %
(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 81.5% ownership of Himax Display, Inc.
(4)
Indirectly, as to 79.7% 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 22.0%, and indirectly, as to 64.7% through our 100.0% ownership of Himax
Technologies Limited.
(8)
Indirectly, through our 86.7% ownership of Himax Media Solutions, Inc.
190
Exhibit 12.1
I, Jordan Wu, certify that:
Certification
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Himax Technologies, Inc.;
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;
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;
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
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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, 2013
By:
/s/ Jordan Wu
Name: Jordan Wu
Title: President and Chief Executive Officer
192
Exhibit 12.2
I, Jackie Chang, certify that:
Certification
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Himax Technologies, Inc.;
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;
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;
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
193
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, 2013
By:
/s/ Jackie Chang
Name: Jackie Chang
Title: Chief Financial Officer
194
Certification
Exhibit 13.1
April 30, 2013
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, 2012 (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 or her 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: Jordan Wu
Title: President and Chief Executive Officer
By:
/s/ Jackie Chang
Name: Jackie Chang
Title: Chief Financial Officer
195
Consent of Independent Registered Public Accounting Firm
Exhibit 15.1
The Board of Directors
Himax Technologies, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-137585 and No. 333-
176863) on Form S-8 of Himax Technologies, Inc. and subsidiaries of our reports dated April 26, 2013, with
respect to the consolidated balance sheets of Himax Technologies, Inc. as of December 31, 2012 and 2011,
and the related consolidated statements of income, comprehensive income, changes in equity and cash flows
for each of the years in the three-year period ended December 31, 2012, and the effectiveness of internal
control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012
annual report on Form 20-F of Himax Technologies, Inc.
/s/ KPMG
Taipei, Taiwan (the Republic of China)
April 30, 2013
196
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
Corporate Information
Board of Directors
Chairman
Dr. Biing-Seng Wu
Directors
Jordan Wu
Chih-Chung Tsai
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Dr. Hsiung-Ku Chen
Senior Management
Jordan Wu
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
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