Dear Shareholders,
Our industry endured a difficult year in 2015 which posed challenges during a cycle of soft demand across
consumer electronics. Despite this, Himax remained committed to the execution of our long-term strategies.
While some of our competitors might have retreated, we continued to invest in new product categories and
technologies, and pave inroads into new markets. Particularly, our multi-year partnerships with leading
multinationals for AR/VR technologies advanced and hit inflection point in 2015. Seeing strong momentum
across all our major product lines, we are confident that we are in a position to deliver strong revenue and
earnings growth in 2016. I thank the team for their dedication and to our shareholders for their support in a
challenging environment. I will now highlight notable developments during 2015.
Our driver ICs for small and medium-sized displays, though still the largest source of revenue for the year,
experienced a decline. Notably, our shipment to a key Korean end-customer fell significantly as they replaced
a substantial portion of the use of a-Si TFT LCD displays in smartphones, for which we were the main IC
supplier, with ones using AMOLED technology. In addition, Chinese smartphone market suffered from
three slow quarters during 2015 and the tablet market was lackluster throughout the whole year. However,
we successfully mitigated these negative impacts by introducing new products to our leading Chinese
smartphone end customers and adding a new top-tier Chinese customer in the second half of 2015. We
remain one of the leading driver IC suppliers for small and medium-sized panel makers all across Taiwan,
Korea, China and Japan. Our customer base covers the vast majority of major mobile device end customers
worldwide. Our leadership in technology, including those forward-looking areas such as AMOLED display
drivers and in-cell TDDI, helped secure key design-wins in the second half of 2015, paving the way for a
promising year ahead.
For the large panel display driver business, we continued to see accelerating sales to Chinese customers and
further expanded our leading market share in the country. China’s aggressive TFT-LCD capacity expansion
and the higher in-sourcing demands from the local TV set makers, coupled with our leading technology and
market share, lifted our large panel segment into a high growth mode once again, despite continuous softness
in the worldwide IT market. We believe that Himax is uniquely positioned for a tailwind ride over China’s
panel capacity expansion and are confident that the large panel display driver business will generate solid
growth in the next few years.
The non-driver segment overall also experienced some slowdown in 2015 with the decline of the CMOS
image sensors business being the main reason behind the performance. However, LCOS, WLO and timing
controllers grew strongly during the year. Our LCOS and WLO business hit inflection in September 2015
with pilot production shipment made to a leading AR device customer. Having invested in the technologies
for over 15 years, we are uniquely positioned as the provider of choice for microdisplay and related optics
to enable AR devices. LCOS microdisplay and a highly customized optical system are to account for one of
the parts with the highest value in the bill-of-material of any AR products. LCOS and WLO are clearly still
the critical growth category in 2016, evidenced by increasing shipments and additional design engagements
with existing and new customers. Separately, we have also broken into the VR space with major design-wins
taking place toward the end of 2015. We stand to benefit from multi-billion dollar AR/VR industry. Lastly, the
introduction and mass shipment of our on-cell and pure in-cell products have led to fast customer additions
in our touch panel controller business in 2015. We believe that customer base expansion of our touch panel
controller business will continue into 2016 with greater contribution coming from TDDI products.
Looking ahead into 2016, we continue to stay focused on execution in the following key areas:
1.
2.
3.
Grow our large panel display driver business in China’s fast-expanding panel market where
we enjoy a long-standing leading market share by providing total solution and leading the charge
in new technology areas such as 8K TV and OLED display;
Capitalize on our strong position in small and medium panel display drivers to lead the market in
major new technologies trends including higher display resolution, AMOLED and in-cell TDDI;
Enlarge AR/VR sales through mass production for multiple AR/VR device customers and deepen
project engagements with leading players for future versions and applications.
1
We paid a cash dividend of 30 cents per ADS, totaling $51.4 million, in 2015, illustrating our strong
confidence in the business prospect. We continued to maintain a strong balance sheet with a healthy cash
position and no debt
I will close by thanking all of our employees, customers, suppliers and shareholders for your continued
support in Himax. We look forward to another year of growth and excitement in 2016.
Sincerely,
Jordan Wu
President and CEO
Himax Technologies, Inc.
2
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, 2015
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.*
*
Not for trading, but only in connection with the listing on the NASDAQ Global Select Market, Inc. of American Depositary Shares
representing such Ordinary Shares
3
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the
close of the period covered by the annual report. 343,815,424 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 has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). 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
Standards Board Other
International Financial Reporting Standards as issued by the International Accounting
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow. Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No
x
4
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
7
7
9
9
9
9
9
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
12
12
12
36
36
37
68
71
71
71
71
89
90
90
91
91
93
93
95
95
98
101
101
101
102
102
102
102
104
104
104
105
105
105
105
105
105
105
105
106
106
106
109
109
109
109
5
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. Change in Registrant’s Certifying Accountant
16.G. Corporate Governance
16.H. Mine Safety Disclosure
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
109
110
110
110
110
110
112
112
112
112
114
114
114
114
115
115
116
116
116
116
116
116
117
6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Although these forward-looking statements, which may include statements
regarding our future results of operations, financial condition, or business prospects, are based on our own
information and information from other sources we believe to be reliable, you should not place undue
reliance on these forward-looking statements, which apply only as of the date of this annual report. The
words “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate” and similar expressions, as they relate
to us, are intended to identify a number of these forward-looking statements. Our actual results of operations,
financial condition or business prospects may differ materially from those expressed or implied in these
forward-looking statements for a variety of reasons, including, among other things and not limited to, our
anticipated growth strategies, our and our customers’ future business developments, results of operations and
financial condition, our ability to develop new products, the future growth and pricing trend of the display
driver markets, the future growth of end-use applications that use flat panel displays, particularly TFT-LCD
panels, development of alternative flat panel display technologies, market acceptance and competitiveness
of the driver and non-driver products developed by us, our ability to protect intellectual property, changes
in customer relations and preference, shortage in supply of key components, our ability to collect accounts
receivable and manage inventory, changes in economic and financial market conditions, and other factors.
For a discussion of these risks and other factors, please see “Item 3.D. Key Information—Risk Factors.”
CERTAIN CONVENTIONS
Unless otherwise indicated, all translations from U.S. dollars to NT dollars in this annual report were
made at a rate of $1.00 to NT$32.79, 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, 2015. 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 8, 2016,the noon buying rate was $1.00 to NT$32.4.
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;
“AR” refers to the augmented reality;
“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;
“AMOLED” refers to active matrix organic light-emitting diode;
7
“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;
“VR” refers to the virtual reality;
“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
Shareholders” for more information. Unless otherwise indicated, all shares, per share and share equity data in
this annual report have been retroactively adjusted to reflect the effect of the stock split and the change in par
value for all periods presented.
8
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
The selected consolidated statement of income data and selected consolidated cash flow data for the years
ended December 31, 2013, 2014 and 2015 and the selected consolidated balance sheet data as of December
31, 2014 and 2015 are derived from our audited consolidated financial statements included herein, which are
presented 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, 2011 and 2012 and the selected consolidated
balance sheet data as of December 31, 2011, 2012 and 2013 are derived from our audited consolidated
financial statements that have not been included herein and are presented 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.
2011
Year Ended December 31,
2013
(in thousands, except per share data)
2012
2014
2015
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
Bad debt expense (recovery)
Sales and marketing
$ 374,788
258,233
$ 485,281
251,974
$ 684,184
86,555
$ 840,542
-
$ 691,789
-
507,449
79,042
17,095
(1,541
14,368
)
566,700
70,913
17,139
-
15,443
578,886
80,368
18,147
173
18,822
634,660
91,839
20,192
554
20,572
528,651
94,422
18,470
310
19,264
Operating income
$ 16,608
$ 67,060
$ 74,343
$ 72,725
$ 30,672
Net income(2)
Net income attributable to
Himax stockholders
$ 9,507
$ 50,138
$ 55,924
$ 63,903
$ 21,462
$ 10,706
$ 51,596
$ 61,476
$ 66,598
$ 25,195
9
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
$ 0.03
$ 0.03
$ 0.15
$ 0.15
$ 0.18
$ 0.18
$ 0.19
$ 0.19
$ 0.07
$ 0.07
$ 0.06
$ 0.06
$ 0.30
$ 0.30
$ 0.36
$ 0.36
$ 0.39
$ 0.39
$ 0.15
$ 0.15
353,771
353,827
341,056
341,524
340,423
343,618
342,190
343,997
343,570
344,132
176,886
176,914
170,528
170,762
170,211
171,809
171,095
171,999
171,785
172,066
Cash dividends declared per ordinary
share(3)
Cash dividends declared per ADS
$ 0.060
$ 0.032
$ 0.125
$ 0.135
$ 0.150
$ 0.120
$ 0.063
$ 0.250
$ 0.270
$ 0.300
(1) The amount of share-based compensation included in applicable costs and expenses categories
Note:
is summarized as follows:
2011
2012
Year Ended December 31,
2013
(in thousands)
2014
2015
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total
$ 124
5,062
872
1,005
$ 7,063
$ 176
5,625
1,191
1,230
$ 8,222
$ 235
6,705
1,308
1,425
$ 9,673
$ 121
7,610
1,688
1,847
$ 11,266
$ 110
4,289
865
1,010
$ 6,274
Of the $7.1 million, $8.2 million, $9.7 million, $11.3 million and $6.3 million in share-based
compensation in 2011, 2012, 2013, 2014 and 2015, $2.9 million, $6.3 million, $7.8 million, $9.3
million and $4.5 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 $0.8 million, $0.002 and $0.002,
respectively, for the year ended December 31, 2011, $2.9 million, $0.01 and $0.01, respectively,
for the year ended December 31, 2012, $2.4 million, $0.01 and $0.01, respectively, for the
year ended December 31, 2013, $2.8 million, $0.01 and $0.01, respectively, for the year ended
December 31, 2014 and $1.8 million, $0.01 and $0.01, respectively, for the year ended December
31, 2015. A portion of these tax exemptions expired or will expire on December 31, 2013 and
December 31, 2018.
(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.
10
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
Redeemable noncontrolling interest
Ordinary shares
Treasury shares, at cost
Total equity
2011
2012
As of December 31,
2013
(in thousands)
2014
2015
$ 106,164
101,280
$ 138,737
135,747
$ 127,320
200,725
$ 185,466
219,368
$ 129,829
177,198
79,833
112,985
515,709
644,978
134,353
245,360
249,920
-
107,010
(4,502)
395,058
73,258
116,671
567,088
674,598
135,546
242,117
246,440
-
107,010
(12,469)
428,158
-
177,399
639,657
759,327
151,290
303,833
307,112
3,656
107,010
)
(11,120
448,559
-
166,105
729,576
832,994
179,328
355,405
361,041
3,656
107,010
)
(10,144
468,297
-
171,374
697,835
802,337
124,423
352,730
357,340
3,656
107,010
)
(9,157
441,341
Note:
Himax Display, Inc., a consolidated subsidiary of our company, issued redeemable convertible preferred shares
to a non-controlling shareholder in 2013. The noncontrolling shareholder may, solely at its option, convert its
preferred shares at any time into ordinary shares of Himax Display, Inc. on a one to one basis. The redeemable
noncontrolling interest was originally recognized on the balance sheet at fair value. Each reporting period,
the redeemable noncontrolling interest is presented at the greater of its carrying amount or redemption value.
Changes in value from period to period are charged to Himax stockholders on our consolidated balance sheets.
2011
2012
Year Ended December 31,
2013
(in thousands)
2014
2015
Consolidated Cash Flow Data:
Net cash provided by operating
activities
Net cash provided by (used in)
investing activities
Net cash used in financing activities
$ 43,448
$ 52,167
$ 51,123
$ 93,719
$ 22,529
(10,197
)
)
(24,015
(695
)
)
(18,931
(30,525
)
)
(32,103
10,644
)
(46,204
(28,342
)
)
(49,608
Note:
More detail explanation, please see “ Item 5.B. Liquidity and Capital Resources."
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. The exchange rates reflect the exchange rates set forth in
the H.10 statistical release of the Federal Reserve Board.
Period
2011
2012
2013
2014
2015
October
November
December
2016
January
February
March
April (through April 8)
Average(1)
29.42
29.47
29.73
30.38
31.80
32.44
32.61
32.79
33.43
33.24
32.59
32.38
Noon Buying Rate
Low
High
(NT dollars per U.S. dollar)
30.67
30.28
30.20
31.80
32.98
32.81
32.87
33.01
28.50
28.96
28.93
29.85
30.64
31.92
32.43
32.53
Period-end
30.27
29.05
29.83
31.60
32.79
32.46
32.53
32.79
33.74
33.51
33.09
32.44
33.14
32.95
32.16
32.26
33.43
33.22
32.18
32.40
11
(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.
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
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. Chipbond further merged with Simpal Electronics Co., Ltd. in 2014 for more chip-on-flex
capacity and vertical integration. 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 under a simpler
supplier chain. 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. both exited
the chip-on film business in 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.
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 the majority 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.
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In 2014 and 2015, 80.0% and 81.0% 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. 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. During 2012 and 2014, there were no events such as those described above that negatively
impacted the TFT-LCD panel industry; on the contrary, smartphone boom in developed markets and in China
generated great demand of small and medium sized panels, helping the TFT-LCD panel business to gradually
recover. However, 2015 was a more challenging year for the TFT-LCD industry due to macro uncertainties
and soft demand across the consumer electronics sectors. 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.
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 and we
have made major progress toward commercialization of LCOS microdisplays for head-mounted-display. On
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top of that, we have seen supply chain maturing throughout the years with a growing number of significant
players investing in microdisplay reference designs. Our LCOS microdisplay business hit inflection point in
September 2015 with pilot production shipment made to a major customer. Since then, we have increased
shipments of our LCOS products to some industry heavyweights and secured additional design engagements
with current and new customers. Some of our major customers have already announced product launches
in 2016. While most customers don’t expect big volume for their early generation products, we have been
working with many of them for future generation devices. We are also seeing constant additions of new
customers using our LCOS for a variety of new applications. We believe that Himax stands to benefit from
our customers’ successful commercialization of their new products due to our unique position as the provider
of choice for microdisplay and related optics. Nevertheless, these product categories are at a relatively early
stage as compared to other products and it 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. Although it seems relatively challenging for us
to gain significant market share, and our 8MP and 13MP CMOS image sensors not ramping as planned due to
the lack of Phase Detection Auto Focus (PDAF) resulted in our CMOS image sensor business decline in 2015
and represents a risk for us, we have completed our 8 mega and 13 mega pixels high end product offerings
and remain one of the market share leaders in notebook application. We will continue penetrating into non-
mobile multimedia applications such as auto and surveillance, and launch new series of smart sensors. We
continue to believe that CMOS image sensors represent significant growth potential for the Company. 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 microdisplay 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, 2015, our accounts receivable less allowance for sales returns and discounts from
Innolux and its affiliates were $39.1 million, which represented approximately 22.1% 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. Moreover, we have at times agreed to extend the
payment terms for certain of our 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.
14
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.
In 2014 and 2015, we derived 80.0% and 81.0% 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.
15
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
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
16
below market expectations, likely causing our ADS price to decline. Our quarterly revenues and operating
results may fluctuate because of many factors, including:
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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;
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
17
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natural disasters, particularly earthquakes and typhoons, or outbreaks of disease affecting countries
where we conduct our business or where our products are manufactured, assembled or tested.
The factors listed above are difficult to foresee, and along with other factors, could seriously harm our
business. We anticipate the rate of new orders may vary significantly from quarter to quarter. Our operating
expenses and inventory levels are based on our expectations of future revenues, and our operating expenses
are relatively fixed in the short term. Consequently, if anticipated sales and shipments in any quarter do
not occur as expected, operating expenses and inventory levels could be disproportionately high, and our
operating results for that quarter and, potentially, future quarters may be negatively impacted. Any shortfall
in our revenues would directly impact our business. Our operating results are volatile and difficult to
predict; therefore, you should not rely on the operating results of any one quarter as indicative of our future
performance. Our operating results in future quarters may fall below the expectations of securities analysts
and investors. In this event, our ADS price may decline significantly.
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 ten 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 ten 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
18
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
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, Shanghai Hua Hong NEC Electronics Company,
Ltd., or HHNEC, and SK Hynix 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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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;
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difficulty in attaining consistently high manufacturing yields from high-voltage foundries;
delay and time required (approximately one year) to qualify and ramp up production at new high-
voltage foundries; and
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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.
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. 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
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services in a timely manner. Because of the amount of time we usually take to qualify assembly and testing
houses, we may experience significant delays in product shipments if we are required to find alternative
sources. Any problems that we may encounter with the delivery, quality or cost of our products could damage
our reputation and result in a loss of customers and orders.
As a result of these risks, we may be required to use assembly and testing service providers with which we
have no established relationships, which could expose us to potentially unfavorable pricing, unsatisfactory
quality or insufficient capacity allocation. Moreover, the scarcity and importance of assembly and testing
services may necessitate us making investments in assembly and testing service providers in order to secure
capacity, which would require us to substantially increase our capital outlays and possibly raise additional
capital, which may not be available to us on satisfactory terms, if at all.
Shortages of 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
21
provided by our customers in advance of receiving their purchase orders. However, these forecasts are
not binding purchase commitments, and we do not recognize revenues from these products until they are
shipped to customers. Moreover, for the convenience of our customers, we may agree to ship our inventory
to warehouses located near our customers, so that our products can be delivered to these customers more
quickly. We may from time to time agree that title and risk of loss do not pass to our customer until the
customer requests delivery of our products from such warehouses. In such cases, we will not recognize
revenues from these products until the title and risk of loss have passed to our customers based on the
shipping terms, which is generally when they are delivered to our customers from these warehouses. As a
result, we incur inventory and manufacturing costs in advance of anticipated revenues.
The anticipated demand for our products may not materialize; therefore, manufacturing based on customer
forecasts exposes us to risks of high inventory carrying costs, increased product obsolescence, and erosion of
the products’ market value. For example, some of our customers might overstate their forecasts because of
concerns that their semiconductor suppliers cannot deliver on their rush orders. If we overestimate demand
for our products 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
22
drivers must operate according to specifications with the other components used by our customers in the
panel manufacturing process. For example, during the panel manufacturing process, our display drivers are
attached to the panel glass and must interoperate with the glass efficiently. If other components fail to operate
efficiently with our display drivers, we may be required to incur additional development time and costs to
improve the interoperability of our display drivers with the other components.
Our highly integrated products are difficult to manufacture without defects. The existence of defects in
our products could increase our costs, decrease our sales and damage our customer relationships and our
reputation.
The manufacture of our products is a complex process, and it is often difficult for semiconductor
foundries to manufacture our products completely without defects. Minor deviations in the manufacturing
process can cause substantial decreases in yield and quality. In particular, some of our products are highly
integrated and incorporate mixed analog and digital signal processing and embedded memory technology,
and this complexity makes it even more difficult to manufacture without defects.
The ability to manufacture products of acceptable quality depends on both product design and
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, once changed its purchase policy
to diversify its display driver supply base, resulting in a decline in purchase from us. 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.
Our corporate actions are substantially controlled by officers, directors 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, 2016, Jordan Wu and Dr. Biing-Seng Wu (who are brothers) beneficially owned
approximately 8.2% and 20.7% of our ordinary shares, respectively. For information relating to the beneficial
23
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, 2016, we and our subsidiaries had 116 U.S. patent applications pending, 140
Taiwan patent applications pending and 255 patent applications pending in other jurisdictions, including the
PRC, Japan, Korea and Europe. Our pending patent applications and any future applications may not result
in issued patents or may not be sufficiently broad to protect our proprietary technologies. Moreover, policing
any unauthorized use of our products is difficult and costly, and we cannot be certain that the measures which
we have implemented will prevent misappropriation or unauthorized use of our technologies, particularly in
foreign jurisdictions where the laws may not protect our proprietary rights as fully as the laws of the United
States. 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.
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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.
New regulations related to conflict minerals could increase our costs and limit the supply of certain
metals used in our products.
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended,
or the Dodd-Frank Act, in August 2012 the SEC promulgated final rules regarding annual disclosures by
public companies of their use of certain minerals and metals, known as “conflict minerals,” which are defined
25
as cassiterite, columbite-tantalite, gold, wolframite or their derivatives and other minerals determined by
the U.S. government to be financing conflict in the Democratic Republic of Congo and adjoining countries.
These new rules will require us to ascertain and disclose the origin of some of the raw materials that we use.
Initial disclosures were required no later than May 31, 2014, with subsequent disclosures required no later
than May 31 of each following year. Currently, such conflict is not determinable in our case and we cannot
assure you that no conflict minerals identified under the conflict minerals rules issued by the SEC are not
used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins
of these minerals and metals used in our products through the due diligence procedure that we implement,
which may harm our reputation. In that event, we may also face difficulties in satisfying customers who
require that all of the components of our products are certified as conflict mineral free. There will be costs
associated with complying with these disclosure requirements, including costs for diligence to determine
the sources of conflict minerals used in our products and other potential changes to products, processes or
sources of supply as a consequence of such verification activities. The implementation of these rules and
our compliance procedures could adversely affect the sourcing, supply, and pricing of materials used in our
products. As there may be only a limited number of suppliers offering “conflict free” minerals, we cannot
be sure that we will be able to obtain necessary “conflict free” minerals from such suppliers in sufficient
quantities or at competitive prices.
System security risks, data protection breaches or unexpected system outage or failures could impact
our business.
Our computer systems and networks are vulnerable to damage or interruption from earthquakes, fires,
power loss, telecommunications failures, cyber-attacks, computer viruses or other attempts to harm our
computer system and networks. The reliability and security of our information technology infrastructure and
software, and our ability to expand and continually update technologies in response to our changing needs
and cybersecurity threats, is critical to our business. In recent years, there are increasing and evolving risks
to cybersecurity and privacy, including criminal hackers, state-sponsored intrusions, industrial espionage,
employee malfeasance and human or technological error. Cyber attacks could result in a loss of our
intellectual property, the release of commercially sensitive information, the misappropriation of confidential
information of our employees, customers or suppliers and the interruption of our business. Failures to protect
the privacy of employees, customers or suppliers confidential data against breaches of network security
could result in the loss of existing or potential customers, other financial loss, and damage to our reputation.
In addition, the cost and operational consequences of responding to breaches and implementing remediation
measures could be significant.
Some of our data centers are located in areas with a risk of major earthquakes. Our data centers are
also subject to break-ins and sabotage. Our disaster recovery planning cannot account for all eventualities.
Consequently, the occurrence of a natural disaster or other unanticipated problems at our data centers could
result in loss of production capabilities and lengthy interruptions in our service, which could harm our
relationship with our customers and suppliers.
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
26
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
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.
27
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
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 2015, 36.8% 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
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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.
On February 6, 2016, the 6.4 magnitude earthquake hit Tainan area. Fortunately, the Company's
headquarters and the in-house manufacturing facilities for LCOS and WLO products, both located in Tainan,
were little affected. Since most of our operations and our customers and suppliers are based mainly in
Taiwan, the natural disasters could adversely affect our business, financial condition or results of operations.
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, the recovery has been uneven and the global economy
is facing new challenges, such as the escalation of the European sovereign debt crisis since 2011, the
slowdown of the Chinese economy since 2011, China stock market crash in 2015, and volatility in oil
prices and currency. 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
29
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 2013, 2014 and 2015,
approximately 52.0%, 51.9% and 53.9% 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 2015, more than 99% 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 majority 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 2015, approximately
56% 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, while our reporting currency is the US dollar, the vast majority of our taxes are incurred in Taiwan
on the basis of our NT dollar book, which is the required reporting currency for the Taiwan tax authorities.
NT dollar depreciation resulted in foreign exchange gains for our US dollar assets and therefore higher
income tax in Taiwan. On the other hand, our income tax will be lower if the NT dollar appreciates against
the US dollar. For example, we recognized $5.6 million and $3.6 million of income tax charge to reflect the
NT dollar depreciation against the US dollar in 2014 and 2015, respectively. Any significant fluctuation to
our disadvantage in exchange rates would have an adverse effect on our results of operations and financial
condition.
Changes in ROC tax laws would likely increase our tax expenditures and decrease our net income.
Pursuant to the ROC Statute for Upgrading Industries, which expired at the end of 2009, companies were
entitled to tax credits for expenses relating to qualifying research and development, personnel training and
purchases of qualifying machinery. The tax credits could be applied within a five-year period. 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
30
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 qualifying 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. Based on the amendments to the above,
effective from January 1, 2016 to December 31, 2019, if companies choose to extend the tax credits to three
years, the tax credit rate will be 10% of the total qualifying research and development expenditure for the
current year and subject to a cap of 30% of the income tax payable for each year. However, the amendment is
not expected to have a significant impact on our results of operations and financial condition.
In addition, unlike the ROC Statute for Upgrading Industries, the Statute for Industrial Innovation no
longer provides 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 January 1, 2008 and January 1, 2014, Himax Taiwan became
entitled to five preferential tax treatments, each for a period of five years, which expired or will expire on
December 31, 2012 and December 31, 2018, respectively, and beginning January 1, 2009 and January 1,
2014, Himax Semiconductor also became entitled to two preferential tax treatments, each for a period of
five years, which expired or will expire on December 31, 2013 and December 31, 2018. 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 $2.4 million, $0.01 and $0.01, respectively, for the year ended
December 31, 2013, $2.8 million, $0.01 and $0.01, respectively, for the year ended December 31, 2014 and
$1.8 million, $0.01 and $0.01, respectively, for the year ended December 31, 2015. 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.
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 ROC 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
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
31
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 2016
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 $5.65 to a high of $9.49 on the
NASDAQ Global Select Market in 2015.
The market price is subject to wide fluctuations in response to various factors, including the following:
•
actual or anticipated fluctuations in our quarterly operating results;
•
changes in financial estimates by securities research analysts;
•
conditions in the TFT-LCD panel market;
•
•
changes in the economic performance or market valuations of other display semiconductor
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
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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, 2016, we had 343,815,424 outstanding shares and a significant
number of our shares were beneficially owned by certain major shareholders such as our directors and
executive officers. See “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders.
”If we, our executive officers, or 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.
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.
Your ability to protect your rights through the United States federal courts may be limited, because we
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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
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;
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•
•
•
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.
On August 10, 2009, we effected:(i) a stock split in the form of a stock dividend of 5,999 ordinary shares
for each ordinary share held by shareholders of record, followed by a consolidation of every 3,000 ordinary
shares into one ordinary share;(ii) a change of the par value of our ordinary shares from $0.0001 each to
$0.3 each; and (iii) a change in our ADS ratio from one ADS representing one ordinary share to one ADS
representing two ordinary shares.
In July 2012, our subsidiary, Himax Display, completed the acquisition of Spatial Photonics, currently
known as Himax Display (USA) Inc., a Delaware corporation engaged in the business of manufacturing and
production of MEMS products.
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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,
Wuhan, Fuzhou, Hefei, Qingdao and Xiamen, China; Tokyo, Japan; Cheonan and Suwon, South Korea; and
Irvine and Campbell, California, USA.
Investor inquiries should be directed to our Investor Relations department, at +886-2-2370-3999 ext.
22320 or by email to penny_lin@himax.com.tw. Our website is www.himax.com.tw. The information
contained on our website is not part of this annual report. Our agent for service of process in the United
States is Puglisi & Associates located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.
4.B. Business Overview
We are a fabless semiconductor solution provider dedicated to display imaging processing technologies.
We are 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, we design and provide controllers for touch sensor displays, LCOS micro-displays
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 and silicon IPs. We also offer
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. 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
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
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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.
Touch controller IC. For touch screen applications, touch controller ICs enable touch interfaces, such
as capacitive touch panels, to identify, qualify and track user’s contacts with precision and sensibility.
• 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
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.
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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,
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
39
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:
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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.
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Resolution and Number of Channels. Resolution refers to the number of pixels per line multiplied by
the number of lines, which determines the level of fine detail within an image displayed on a panel.
For example, a color display screen with 1,024 x 768 pixels has 1,024 red columns, 1,024 green
columns and 1,024 blue columns for a total of 3,072 columns and 768 rows. The red, green and blue
columns are commonly referred to as “RGB.” Therefore, the display drivers need to drive 3,072
column outputs and 768 row outputs. The number of display drivers required for each panel depends
on the resolution of the panel and the number of channels per display driver. For example, an XGA
40
(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.
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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 gray scale, 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 18 volts. Gate drivers typically operate at input voltages from 3.3 to 1.8 volts
and output voltages ranging from 10 to 50 volts. Lower input voltage saves power and lowers
electromagnetic interference, or EMI. Output voltage may be higher or lower depending on the
characteristics of the liquid crystal (or diode), in the case of source drivers, or TFT device, in the case
of gate drivers.
• Gamma Curve. The relationship between the light passing through a pixel and the voltage applied
to it by the source driver is nonlinear and is referred to as the “gamma curve” of the source driver.
Different panel designs and manufacturing processes require source drivers with different gamma
curves. Display drivers need to adjust the gamma curve to fit the pixel design. Due to the materials
and processes used in manufacturing, panels may contain certain imperfections which can be
corrected by the gamma curve of the source driver, a process which is generally known as “gamma
correction.” For certain types of liquid crystal, the gamma curves for RGB cells are significantly
different and thus need to be independently corrected. Some advanced display drivers feature three
independent gamma curves for RGB cells.
• Driver Interface. Driver interface refers to the connection between the timing controller and display
drivers. Display drivers increasingly require higher bandwidth interface technology to address the
larger data volume necessary for video images. Panels used for higher data transmission applications,
such as televisions, require more advanced interface technology. The principal types of interface
technologies are transistor-to-transistor logic, or TTL, reduced swing differential signaling, or RSDS,
mini-low voltage differential signaling, or mini-LVDS, and point-to-point high speed interface.
Among these, RSDS, mini-LVDS and point-to-point interface 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, USI-T, iSP and CMPI.
•
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
package types, whereas display drivers for large-sized panels primarily use TAB package types and,
to a lesser extent, COG package types.
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Large-Sized Applications
We provide source drivers, gate drivers, PMIC, P-gamma OP 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.
For new notebook interface, our eDP 1.1 and eDP 1.2 timing controllers began mass production in 2011
and 2012 respectively. Our eDP 1.3 timing controller entered mass production in 2013 and was also adopted
in the world’s lightest notebook by our top-tier notebook brand customer. In 2015, we launched ultra-
low power consumption eDP 1.4 timing controller that pairs with Nvidia G-Sync and AMD FreeSync™
technologies for graphic cards to process 3D graphics on ultra-high resolution displays in tablets, notebooks
and monitors applications.
In December 2010, Himax introduced programmable gamma OP with VCOM to provide reference
voltages in TFT-LCD panels. Mass production of this product started in the second half of 2012.
Programmable gamma OP is an individual component from driver IC and contains 8 to 16 programmable 10-
bit DAC outputs and 1 to 2 voltage reference for VCOM. The VCOM reference voltage has its own 10-bit
DAC and an amplifier to guarantee stable voltage when critical levels and patterns are displayed. Each DAC
can be programmed separately by a 10-bit word to 1024 values.
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The table below sets forth the features of our products for large-sized applications:
Product
TFT-LCD Source Drivers
TFT-LCD Gate Drivers
Timing Controllers
Programmable Gamma OP
Features
384 to 1,446 output channels
6-bit (262K colors), 8-bit (16 million colors) or 10-bit (1 billion
colors)
one gamma-type driver
two gamma-type driver to improve display quality
three gamma-type drivers (RGB independent gamma curve to
enhance color image)
output driving voltage ranging from 7 up to 18V
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 and UHD (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
embedded overdrive function to improve response time
support CABC to save power and color engine to enhance color
and sharpness
support TTL, LVDS, eDP , G-sync, MIPI and V-by-one input
interface technologies
support dual-gate, triple-gate, GOA (gate on array) and RGBW
panel designs
support armophas silicon, IGZO and LTPS panel
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8 to 16 channel gamma buffer outputs
channel VCOM buffer outpu
Internal non-volatile memory
2 gamma bank selection, setting time < 3uS
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• Analog power supply voltage: 9.0V to 20.0V
• Digital power supply voltage: 2.7V to 3.6V
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Peak current on gamma channels: 200mA
Peak current on VCOM channel: 400mA
Programmable VCOM limit
12C speed up to 1MHz
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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.
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 few years, we offered innovative handset display driver products by providing
FWVGA (480 x 864), qHD (540 x 960), HD720 (720 x 1280)/ WXGA (800 x 1280), (1080 x 1920) and
up to QHD (1440 x 2560) display driver ICs. We have recently continued to update new products for this
mainstream smartphone segment with lower cost and new features, such as color enhancement and sun-light
readability enhancement functions. Few years ago, 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. In 2013, we further applied the memory
compression concept and developed frame buffer compression together with industrial leading AP (application
processor) partners to reduce data transmission bandwidth between the AP and display driver IC of Himax. In
2015, we keep moving forward to develop new technologies and led the display industry with next generation
display driver ICs, such as a-si FHD (1080 x 1920), AMOLED ASICs for HD and FHD and LTPS QHD
(1440 x 2560) with sub-pixel rendering technologies. Himax also developed its first HD720 single chip touch
display integrated circuit (TDIC) for advanced in-cell touch display panel. The following table summarizes
the features of our products for mobile handsets:
Product
Mobile Handset Display Drivers
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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 QHD (1440 x 2560 pixels)
support up to 16 million colors
support RGB separated gamma adjustment
support CABC
support color enhancement features including saturation,
brightness, and sharpness enhancement
support MIPI interface
support RAM-less, 1/2 RAM, or 1/3 RAM compression
technologies
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 for LCD or AMOLED
touch display integrated circuit (TDIC) for advanced in-cell
touch display
Consumer Electronics Products
We offer source drivers, gate drivers, timing controllers and integrated drivers for consumer electronics
products. We provide an extensive line of display drivers covering different substrates such as a-TFT,
LTPS, AMOLED, and IGZO with multiple interfaces, channel outputs and levels of integration options.
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.
We developed our highly integrated display driver for low power, high resolution a-Si TFT LCD, LTPS,
IGZO, and AMOLED displays used in tablet PCs, digital still camera, and other consumer electronics
displays.
The following table summarizes the features of our products used in consumer electronics products:
Product
TFT-LCD Source Drivers
TFT-LCD Gate Drivers
TFT-LCD Integrated Drivers
AMOLED integrated Driver
Timing Controllers
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Features
240 to 1,920 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), WXGA (1,280 x 800
pixels), and WUXGA(1920 x 1200 pixels)
products for digital interfaces and high speed serial interface
low power consumption
CABC function integrated for backlight power saving
highly integrated single chip embedded with source driver and
timing controller for LTPS and power circuit
support various resolutions from WVGA(480x800 pixels) to FHD
products for digital interfaces/high speed interface
products for Tablet/Netbook/Ultrabook
support various resolutions from 1,024x600 pixels to 2560 x1600
pixels
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Automotive Display Applications
We offer source drivers, gate drivers, timing controllers and integrated drivers for the fast ramping
automotive display applications, such as instrument cluster display(ICD), center information display(CID),
head-up display(HUD), rear seat entertainment display(RSE) and rearview mirror display.
The automotive display drivers can support various display resolutions to meet the customized needs
of automotive display, including resolution and dimension. Meanwhile, the automotive display drivers can
support higher output driving voltage for higher contrast ratio and faster liquid crystal response in automotive
display applications.
The following table summarizes the features of our products used in automotive display applications:
Product
TFT-LCD Source Drivers
TFT-LCD Gate Drivers
TFT-LCD Integrated Drivers
Timing Controllers
Touch Controller ICs
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Features
642 to 1,920 output channels
6-bit (262K colors), 8-bit (16.7 million colors)
support RSDS, mini-LVDS interfaces
output driving voltage ranging up to 15V
support COG package type
100 to 1,600 output channels
output driving voltage ranging up to 40V
support COG package type
highly integrated chip embedded with source driver, timing
controller and power circuit
support RGB, LVDS input interfaces
support resolution up to FHD with cascaded chips
source driver output driving voltage ranging up to ±6.6V
support COG package type
support LVDS input interface
support RSDS, mini-LVDS output interfaces
support various resolutions up to FHD
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 13”, 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 customer. In 2013, we expanded our customers list to a lot more well-
known smartphone and tablet PC brand customers.
Our capacitive touch controller possesses certain innovations and merits. It could support sensing and
tracking of up to ten points. Its embedded micro-controller single chip solution contributes 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 sensor pattern, 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.
In 2015, we grew shipments of our touch controller product line with successful design-wins from several
smartphone and tablet end brands. We continue to gain market share in out-cell and on-cell touch panel
controller markets. Meanwhile, our technological capabilities endorsed by highly recognized end brands
also caught the attention of leading in-cell panel makers. They have engaged us in the development of touch-
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display integrated circuit (TDIC) as a key strategic partner rather than just a display driver IC supplier.
We developed our first HD720 TDIC in 2014 and FHD TDIC in 2015 for these tier one in-cell touch panel
makers. The following table summarizes the features of our touch controller products:
Product
Capacitive Touch Controller
Features
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complete single chip touch controller solutions for handheld
devices, supporting smartphones, tablet PCs, and laptop PCs
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real multi-point capability support of up to 10 points
• mass production with GG, GFF and one glass solution
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(“OGS”) without shielding layer
support ultra low cost one layer multi-touch (OLM) solution
on GF, GG, OGS, or On-cell touch sensors
support advanced functions such as passive stylus, glove,
proximity sensor replacement, etc
• minimum components: simple, neat, and flexible mechanical
•
design
touch-display integrated circuit (TDIC) for advanced in-cell
touch display
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:
Product
Monitor Scaler Integrated Solutions
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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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• G5 1A and 1A1D can use the same PCB and reduce PCBA
cost
• G5 1A1D can resolve YCbCr color problem of DVI
In addition to scaler solutions, we expanded the product offering of monitor chipset solutions in 2013 to
unveil the innovative 2D to 3D conversion solutions including RV2H and RV5 Pro. RV2H targets 2D-to-3D
video conversion for projector application, and RV5 Pro targets at new 3D applications which can convert
2D/3D images into the 3D glasses-free in real time. This compact solution can be implemented in a number
of hardware platforms, such as 3D Glasses-free TV, Monitor, Digital signage, DPF, Amusement machine and
Portable DVD. This compact solution has already been designed into products of a number of leading players
in the industry. Our algorithm utilizes human visual perception characteristics, which not only reveals more
3D details but also offers a more comfortable and enjoyable viewing experiences.
The following table summarizes the features of our current RV2H conversion and new RV5 Pro solutions:
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RV5 Pro 3D Glasses-free Solutions
Product
RV2H 2D to 3D Conversion Solutions
Features
support multi-view (2~9 views) parallax barrier
and lenticular lens for 3D auto-stereo glasses-
free displays
the state-of-the-art real 2D as well as 3D depth
generator for multi-view controller
synthesized 2D content (one view) and real 3D
content (two views) for multi-view display
configurable precise disparity control for view
synthesis and 3D parameters
support auto disparity control mechanism to
optimize parallax
support universal 3D output formatter D
support Anchor point for position adjustment
support all 3D format conversion including
2D+Z and 4/8/9 tiled image to 3D multi-view
display (A02 version)
support display resolution up to 1920x1200 for
LVDS interface and WXGA for TTL interface
inter-bridge between MIPI, LVDS and TTL
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 reaching 120Hz
frame rate output
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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Except for scalers and 2D to 3D solutions, we also extended the HDMI2.0 chipset product offerings in
2015 to meet the trend of high speed interface adoption. Below are two major and most recent HDMI2.0 to
Vx1 bridge products.
Product
4Kx2K HDMI2.0 to Vx1 Simple Bridge HX6308
Solutions
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Features
support 1 HDMI 2.0 ports and is combo with
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MHL 2.0 receiver
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support HDMI 2.0 YCbCr 420/422/444 UHD
60Hz input
support MHL 2.0 up to FHD 60Hz input
support HDCP 2.2
support HDMI 1.4 YCbCr 422/444 input
support HDMI CEC 1.4
support 1.4b 3D bypass
support output8-lane V-by-One HS Standard
Version 1.4
support up to 3.75Gbps/lane data rate, up to
Product
Features
4Kx2K HDMI2.0 to Vx1 Bridge HX6310 Solutions
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8-lane, color depth 6-/8-/10-bit
support Himax Advanced Color Engine –
professional AC Edition
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embedded test pattern generator
embedded hue/saturation, brightness/
contrast, sharpness adjustment function
embedded CABC (Content Adaptive
Backlight Control)
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audio processor
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built-in 7.1 channel audio PCM sample
rate converter (SRC) to 48KHz
I2S interface support up to 192K Fs
7.1ch PCM and HD audio non-PCM
output
support OSD Generator and Display
high performance 32-bit RISC CPU, with SPI
flash interface
support dithering function
support Slave I2C programming interface
support 2 HDMI 2.0 ports and one of them is
combo with MHL 2.0 receiver
support HDMI 2.0 YCbCr 420/422/444 UHD
60Hz input
support MHL 2.0 up to FHD 60Hz input
support HDCP 2.2
support HDMI 1.4 YCbCr 422/444 input
support HDMI CEC 1.4
support 1.4b 3D format
support output 8-lane V-by-One HS Standard
Version 1.4
support up to 3.75Gbps/lane data rate, up to
8-lane, color depth 6-/8-/10-bit
support Himax Advanced Color Engine –
professional AC Edition
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embedded test pattern generator
embedded hue/saturation, brightness/
contrast, sharpness adjustment function
embedded CABC (Content Adaptive
Backlight Control)
embedded 1D gamma correction LUT
(Look-Up Table)
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audio processor
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built-in 7.1 channel audio PCM sample
rate converter (SRC) to 48KHz
built-in audio delay up to 100ms for
Lip Sync (Not for SPDIF)
I2S interface support up to 192K Fs
7.1ch PCM and HD audio non-PCM
output
built-in sound effect: EQ, Triple Bass,
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Product
Features
L/R Balance and Volume control
built-in 2-ch audio DAC
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support UHD display for identification of 3D
L/R frame and SG 3D out
support major frame rate conversion
support OSD Generator and Display
high performance 32-bit RISC CPU, with SPI
flash interface
support dithering function
support Slave I2C programming interface
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•
Based on our extensive experiences in providing TCON ASIC services, we expanded 4Kx2K 120 Hz
TCON product offerings as well as application oriented TCON, i.e., HDMI2.0 TCON and MEMC TCON,
in 2014 to meet market demand of highly integrated TCON with video processing functions embedded. We
have listed one major TCON product below as an example.
Similarly, leveraging our projector and goggle application ASIC services experiences, we started to
provide projector and goggle ASSP products to enrich this application segment. Below is one major product
under development.
4Kx2K 120Hz TCON HX6750 Solutions
Product
50
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Features
support V-by-One HS standard version 1.4
•
support up to 4Gbps/lane data rate, up
to 16-lane, color depth 6/8/10/12-bit
support lane swap function
support channel de-skew for high skew
tolerance
up to 4K2K(4096x2160)@120Hz
reduced blanking resolution
•
•
•
support mini-LVDS TX interface
•
•
support 6/8-bit 8-port, 6-pair
support mini-LVDS transmitter at a
maximum clock rate up to 400MHz
support 6/8/12/24-port 1/2-pair, 8-bit
support scramble function ,8bit mode
support up to 2.0G bps/pair
support run length coding
support CHDS TX interface
•
•
•
•
embedded local dimming function with PWM/
SPI/I2C interface for LED backlight controller
support Vx1 3D L/R frame identification
support 4K1K ,4K0.5k resolution for 3D only
support VBI (Vertical Blanking Insertion)
function
embedded with aging generator for simplifying
TFT LCD panel dynamic burn-in test
support POL 1, 1+2n, 2, 2+2n (n=1 ~ 8) line,
column inversion
support z-inversion panel structure
support 1D1G,1D2G,2D2G data mapping
support dithering function
support 5K2K/5K3K 60HZ
support 8K4K 120Hz by 4-chip
support 8k4K 60Hz by 2-chip
Product
HDMI2.0/MHL2.1 to Dual display bridge Solutions
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Features
support 2K2K 240Hz by 2-chip
support 4K2K 120Hz by 1-chip
support 10k4k 60Hz by 4-chip (without OD)
support demura function
support spread spectrum clock generator
built-in MCU with SPI flash interface
support Slave I2C programming interface
support internal oscillator or external crystal
source input
support HDMI 2.0 and MHL 2.1 combo
receiver
support HDMI 2.0 YCbCr 4:2:0/4:2:2/4:4:4
UHD 60Hz input
support HDMI 1.4 YCbCr 4:2:2/4:4:4 input
support MHL 2.1 up to FHD 60Hz input
support HDCP 2.2Support CHDS TX interface
integrate 1-channel 10Bits Dual LVDS TX
LVDS lane clock rate up to 80MHz
integrate 2-channel 4-Lanes MIPI DSI TX
support maximum resolution up to 2560x1600
flexible output control timing to be compliant
with various panels
audio processor
•
built-in audio mute for pop noise
rejection
I2S/TDM interface support up to 192K
Fs 7.1ch LPCM and HD audio non-
PCM output
•
• Video processor
•
•
•
•
•
•
•
built-in 512-tap poly phase FIR filter
based scaling engine
support brightness, contrast, hue,
saturation adjustment
embedded 10-bit gamma look-up table
embedded Test Pattern Generator for
16 kinds of patterns
embedded 10-bit dithering engine
embedded Himax 2D to 3D real time
conversion
support 3D Side-By-Side Half to 2D
Conversion
•
•
•
•
•
•
•
support OSD generator and display
built-in PLL to generate clock from single
24.576MHz crystal
spread spectrum controller for EMI
suppression, the SSC modulation rate is about
33 to 100KHz and the range is 0.1% step until
3%
embedded test pattern generator for
simplifying panel dynamic burn-in test
built-in 32-Bits RISC CPU up to 98.304MHz
support 2-wires JTAG interface for CPU SW
51
Product
Features
debugging
embedded SPI flash (support mode3) interface
with ISP capability
embedded EDID and user data
built-in 16-bit timer/counter x 4
built-in Full duplex UART x 2
built-in Watch Dog Timer x 1
programmable GPIO with interrupt trigger,
which can be assigned independent
Built-in I2C slave for host control
Built-in interrupt output and Built-in 2 channel
master I2C and SPI
•
•
•
•
•
•
•
•
IP and ASIC Service
From the fourth quarter of 2011, Himax Media Solutions, our subsidiary, 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. For video display related, we offer 3D Video and Image Compression/
Decompression IP, Super High Resolution IP, MEMC IP, Noise Reduction and SunLight Readable IP and
Technology Licensing. For High Speed Transmission related, we offer HDMI, V-by-One HS, LVDS, eDP,
MIPI and High Performance Video ADC Silicon IP (SIP) Licensing. For ASIC service, it is based on a
integrated and verified design platform of video display and High Speed Transmission IPs to enable a time-
to-market Specification-to-Chip ASIC service.
Video IP
As an expert player in 2D/3D image and display core technologies solutions, we develop and own unique
IPs of image and video applications. The high quality IPs, 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
•
•
•
•
•
•
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
52
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
Product
Features
•
•
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
Motion Estimation and Motion Compensation
(“MEMC”) IP
•
•
•
including efficient motion estimation, motion
compensation, and film mode detection engines
to implement dejudder and halo reduction
support 2D & 3D MEMC glasses-free 3D
displays based on perfect viewing angle
adjustment
support video format: (1) Max. horizontal size:
2048, (2) Max. vertical size: 1200, (3) Min.
horizontal size: 640, (4) Min. vertical size: 480,
(5) 3D structure supported and (6) 10 bits color
depth
video processing engine features: (1) Search
range: +/-192(H) and +/-40(V), (2) De-judder
and halo-reduction, (3) Auto film mode
detection(3:2 and 2:2), (4) FRUC: 24 to120, 24_
to 30, 24_to 60, 60_to 120, 50_to 100, 25_
to 100 and (5) Demo mode: left/right or top/
bottom split FRUC using frame repetition
easily integrated into existing portable DVD,
DPF, Pad like, mobile system SoC with 3D
features
•
•
SunLight Readable IP
Super High Resolution IP
•
•
•
•
•
•
•
•
•
•
•
•
•
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
53
Product
Features
easily integrated into existing Projector, TV,
•
Monitor, Box, DVD, and Surveillance system
SoC with scaler functionality
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
Embedded Visual Lossless Compression IP
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
eDP IP
54
Features
•
provide configurable HDMI digital
controllers and high-speed mixed signal
Physical Layer IP (“PHY”)
•
fully compliant with HDMI 1.4a/HDMI 2.0
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 1.4
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
fully support eDP v1.3/v1.4 compliant
support data rate: 5.4G/ 2.7Gbps or 1.62Gbps
per lane
Low power design for mobile application
Product
ADC IP
ASIC Service
Features
•
•
•
8-bit, 210MHz analog IP which is suitable for analog R/G/B
or Y/Pb/Pr signal input from PC or consumer product
includes three 210 MHz ADCs with gain and offset control
the supply power for the design is 3.3V while a 1.2V supply is
required in the interface between 3.3V and 1.2V digital
From 2012, we had successfully completed several ASIC service projects for Japan top TV, Project and
HMD makers with advanced and high performance customized video processing chip. All of these chips
are implemented with Himax Media Solutions’ proprietary video process platform that includes our video
process display IP and high speed transmission IPs. The process nodes adopted for these ASIC are usually
40nm, 55nm and even 28nm processes. From 2013, Himax Media Solutions also release a Hi-TCON
platform that aims at high integrated and high performance TV/Monitor/Tablet/Mobile video processer
TCON market. Hi-TCON offers a single chip solution of the state-of-art video core and Himax volume-
production-proven TCON core.
The following table summarizes the features of our ASIC service:
Product
ASIC Service
•
•
•
Features
based on our video processor and Hi-TCON 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,
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/ 5K x 2K/ 8K x 4K 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, Front-Lit™ LCOS and MEMS.
The latest development of Front-Lit™ LCOS enables an ultra-compact and extremely power-efficient
optical engine by consolidating LED illumination system and the polarization beam splitter (PBS) and
integrating them into the micro display module itself. Front-Lit™ LCOS enables a much simplified optical
engine design and assembly process and successfully lowered customers’ manufacturing time and costs.
Himax Display is the market leader of the LCOS industry based on market share since 2012 with
the whole product line patented by the Company. 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 2.0 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 AR/VR product.
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:
55
Color-Filter LCOS Microdisplays
Product
Color-Sequential LCOS Microdisplays
Front-Lit™ Color Filter LCOS
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
0.22” (640 x 360 pixels) nHD
Customized design
0.55” (1280 x 800 pixels) WXGA
•
•
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•
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•
•
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•
•
•
•
•
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:
Product
Integrated Multi-Channel Power Solutions for
Notebooks
Integrated Multi-Channel Power Solutions for
Monitors
56
Features
built-in power MOSFET
•
step-up PWM converter
•
charge pump regulator
•
LDO regulator
•
voltage detector
•
gate pulse modulator
•
• Vcom operational amplifier
•
•
I2C programmable
low frame rate control for power saving
solution
built-in power MOSFET
step-up PWM converter
•
•
• HV LDO regulator
voltage detector
•
Product
Features
•
•
•
gate pulse modulator
programmable Vcom voltage / Vcom
operational amplifier
level shifter
Integrated Multi-Channel Power Solutions for TVs
built-in power MOSFET
step-up PWM converter
step-down PWM converter
charge pump regulator
•
•
•
•
• HV LDO regulator
voltage detector
•
gate pulse modulator
•
• Vcom operational amplifier
•
•
• with programmable gamma o
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
WLED Drivers for LED TV
LED Drivers for lighting
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
I2C programmable setting
smart PWM dimming control
50V sustainable voltage for LED pins
capable of driving up to 14 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
90V HV sustainable voltage for LED pins
capable of driving up to 25 LEDs in serial
for each channel
8V to 33V input voltage range
8-channel current sinks
up to 90mA per channel
60V sustainable voltage for LED pins
up to 700mA per channel with outside current
sink MOSFET
universal input range
no flicker
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
57
Product
Features
ultra low current ripple
•
• OCC for PF
• Dimmable
CMOS Image Sensor Products
Our CMOS image sensor products are designed firstly for camera-equipped mobile devices, such as
mobile phones, tablets and notebook computers, with a focus on low light image and video quality. Based on
the technologies and IP we developed, our product lines have been expanded to surveillance, automotive, and
emerging applications in computer vision.
The CMOS image sensor product lines are developed by our subsidiary, Himax Imaging. With the
product launch of 1/4” 8 mega pixel and 1/3” 13 mega pixel in 2015, we’ve expanded our sensor portfolio
to a complete sensor family from VGA to 13MP. In addition to using the most advanced pixel technology
(ViviSense2TM) to deliver best image quality, our latest 8 and 13 mega also selectively embedded several
important features to the end customers including Phase Detection Auto Focus (PDAF), ultra low power
consumption, alternating line and alternating frame High Dynamic Range(HDR), high speed MIPI, and
frame synchronization function to enable multiple camera. 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 some of our sensors,
ClearViewTMtechnology 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:
13MP ViviSense2TM Color Image Sensor
Product
8MP ViviSense2TM Color Image Sensor
8MP UltraSenseTM Color Image Sensor
5MP ViviSenseTM Color Image Sensor
58
•
•
•
Features
1/3.06” format color type
Phase Detection Auto Focus (PDAF) support
13MP at 30 frames per second, support 1080p
and 720p at 60 frames per second
• High dynamic range supported by alternating
•
•
•
•
•
•
•
•
•
row and alternating frame approaches
Low power consumption
4-lane MIPI CSI2 outputs
1/4” format color type
8MP at 30 frames per second over 2-lane or
4-lane MIPI CSI2
Phase Detection Auto Focus (PDAF) support
Low power consumption
Frame-Sync control for multiple camera system
BSI in 1/3.2” format color type
8MP at 30 frames per second, support 1080p
and 720p at 30 frames per second
• High dynamic range supported by alternating
row and alternating frame approaches
Low power consumption
10 bit parallel video data port and 4-lane MIPI
CSI2 outputs RAW8/10 and RGB565/555/444
1/4” format color type
5MP resolution at 30 frames per second,
•
•
•
•
Product
2.0MP ClearViewTM Color Image Sensor
Features
support 720p HD at 83 frames per second and
1080 FHD at 56 frames per second
Compact die size design to support small
modules
10 bit parallel video data port and 2-lane MIPI
CSI2 outputs RAW8/10, RGB565/555/444
1” format color type
ClearViewTM boosts optical performance by
lens compensation
•
•
•
•
• UXGA YUV output at 15 frames per second,
•
720p HD resolution at 30 frames per second
Color processing pipeline including lens
correction, defect correction, color de-mosaic,
color correction, gamma control, saturation/hue
adjustment, and edge enhancement
• Multiple video formats including YUV422,
RGB565, and ITU656
HD 1080p UltraSenseTM Color
•
1/6” format with high sensitivity
Image Sensor
HD 720p UltraSenseTM System on Chip
VGA BrightSenseTM System on Chip
1080p HD resolution at 60 frames per second
Low power consumption
•
•
• Alternating frame support for HDR.
•
•
2-lane MIPI CSI2 outputs
Frame-Sync control for multiple camera system
•
•
•
•
1/6” format with high sensitivity
ClearViewTM boosts optical performance by
lens compensation
720p HD resolution at 30 frames per second
Color processing pipeline including lens
shading correction, defect correction, edge
enhancement, exposure control with
backlight compensation, color de-mosaic,
color correction, gamma control, and
saturation/hue adjustment.
•
10 bit parallel video data port and 1-lane
MIPI CSI2 outputs RAW8/10, YUV422,
RGB565/555/444
1/13” format color type
•
• VGA YUV output at 30 frames per second
Color processing pipeline including lens
•
correction, defect correction, color de-mosaic,
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
1.3MP ClearSenseTM EDR Color Image Sensor for
Automotive and Surveillance
•
•
1/4” format with ultra high sensitivity
ClearSenseTM achieves higher dynamic range in
color up to 84dB with on-chip tone mapping
59
Product
•
•
•
Features
800p and 720p resolution at 30 frames per
second
FlexiTM engine automatically controls
dynamic range, exposure, gain, and white
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
•
NTSC/PAL WVGA Color Image System on Chip for
Automotive and Surveillance
• High sensitivity, low noise VGA sensor
operating up to 60FPS
• Visible and near infrared sensitivity
• Operation up to 105ºC
• Ultra-compact automotive package
• Advanced defect correction with built-in
•
temperature sensor
Embedded ISP with programmable automatic
exposure and white balance
• Optical alignment pixel with crop and zoom to
•
native resolution
4Kb OTP for sensor initialization, module
storage, and overlay setting
• Multi-color static overlay engine
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 WLO lens with integrated Diffractive Optical Element (DOE) is the best solution for next
generation for 3D sensing, 3D reconstruction and gesture applications. With the innovative process and
specific structure, our wafer level optics products provide small form factor and compact module size to be
easily integrated into consumer products such as AR/VR devices.
Our WLO technology is also adapted to form microstructure such as lens array, DOE and lenticular for
advanced applications in digital and computational imaging fields. These technologies stand in a unique
position to integral optical design, semiconductor manufacturing process, and compact packaging service,
which are rarely covered by one single company. Deeply rooted in core wafer level optics technologies, we
provide highly customized optical solutions to many tier 1 customers in the mobile device and wearable
front.
The following table sets forth the features of our wafer level optics products:
60
Product
VGA 1 element wafer level lens
VGA 1 element wafer level lens
HD/1.3M 2 element wafer level lens
Array Lens
Diffractive Optical Element (DOE)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Features
for 1/11” VGA CIS (2.0μm pixel pitch)
one-element and two-surface design for
cost-competitive market
double-side manufacture process
already in mass production
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
4*4 Array lens, co-developing with multiple
tier-one partners, provide many and varied
imaging effects such as stereo, re-focusing,
super resolution and perspective shift
2*2 Array lens, a cost effective solution for
array camera with innovative sensing and
depth math capabilities Micro lens array
provides custom solution for light field camera.
for 3D sensing, 3D reconstruction, gesture and
illumination control
integral collimator lens and DOE to provide
the smallest form factor
provide customized solution for specific
application
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
61
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
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, 2015, we sold our products to more than 200 customers. In 2013, 2014 and 2015, Innolux
and its affiliates, accounted for 22.6%, 19.6% and 21.1% of our revenues, respectively; customer A and its
affiliates, accounted for 16.9%, 18.1% and 20.1% 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, 2015:
AU Optronics Corp.
BOE Technology Group Co., Ltd.
Chunghwa Picture Tubes, Ltd.
Excel Asian Taiwan Co., Ltd.
Innolux Corporation
Perfect Display Limited
Shanghai Tianma Microelectronics
Shenzhen China Star Optoelectronics Technology Co., Ltd.
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, panel manufacturers using LTPS or OLED, or Oxide
technologies, mobile display module and mobile device manufacturers and camera module houses 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 and also create customized features for
end brand customers. 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.
Furthermore, we extend our business development with system and ODM companies by using strategic ASIC
business model to not only develop ASIC product based on customer specification but also jointly research
and develop new technologies to meet customers' future product demand. Besides, we will form a strategic
62
partnership with tier-1 customers for our LCOS microdisplays to penetrate into an emerging market. We
believe we need this closed relationship with our customers to create a new application eco system.
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 offices in Tainan, Hsinchu, Taipei, Taiwan; and Shenzen and Suzhou, China. We have other sales
and technical support offices in Hefei, Beijing, Shanghai, Fuzhou, Foshan, Fuging, Ningbo, Wuhan, Qindao
and Xiamen, China; Tokyo, Japan; Cheonan and Suwon, South Korea; and Irvine and Campbell, California,
USA, all in close proximity to our customers. For certain products or regions, we may sell our products
through agents or distributors.
Our sales and marketing team possesses a high level of technical expertise and industry knowledge used
to support a lengthy and complex sales process. This includes a highly trained team of product managers
and field applications engineers. Our team is equipped with extensive strategic marketing experience and a
strong capability to identify market trends. We also provide technical support and assistance to potential and
existing customers in system/SoC architecture, designing, testing and qualifying display modules, camera
modules and end application systems that incorporate our products and ASICs. 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.
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 fab under Himax Display primarily for performing manufacturing processes for our LCOS
microdisplays. Moreover, for better integration, we also established an in-house color filter facility under
Himax Taiwan, which commenced shipments from 2010. This in-house facility provides color filter for
CMOS image sensor products with over 50 million optics shipment record to tier-1 customers and LCOS
products. 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.
63
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
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
64
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 2014 and will
expire in February 2017. In February 2006, we received ISO 14001 certification, which was renewed in
January 2015 and will expire in January 2018. 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 2015 and will expire in January 2018.
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, PSC and SK Hynix. 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, Chipmore
International trading company Ltd., ChipMOS Technologies Inc., Nepes Corporation and King Yuan
Electronics Co., Ltd.
We plan to strengthen our relationships with our existing semiconductor manufacturing service providers
and diversify our network of such service providers in order to ensure access to sufficient cost-competitive
and high-quality 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.
65
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.
Powerchip Technology Corporation
Semiconductor Manufacturing International
Corporation
Shanghai Hua Hong NEC Electronics Company, Ltd.
SK Hynix
Taiwan Semiconductor Manufacturing Company
Limited
United Microelectronics Corporation
Vanguard International Semiconductor Corporation
Gold Bumping
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
LB Semicon Co., Ltd.
Nepes Corporation
Union Semi Conductor Co., Ltd.
Processed Tape for TAB Packaging
Assembly and Testing
Ardentec Corporation
Advanced Semiconductor Engineering Inc.
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
Global Testing Corporation
Greatek Electronics Inc.
Jiangsu Changjiang Electronics Technology Co., Ltd.
King Yuan Electronics Co., Ltd.
Micro Silicon Electronics Corp.
Nepes Corporation
Orient Semiconductor Electronics Ltd.
Siliconware Precision Industries Co., Ltd.
Taiwan IC Packaging Corporation
JMC Electronics Co., Ltd.
LG Innotek Co., Ltd.
Stem Co., Ltd.
Chip Probe Testing
Ardentec Corporation
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
Global Testing Corporation
Greatek Electronics Inc.
King Yuan Electronics Co., Ltd.
Micro Silicon Electronics Corp.
Nepes Corporation
Intellectual Property
As of March 31, 2016, we held a total of 2,819 patents, including 1,277 in Taiwan, 925 in the United
States, 551 in China, and 66 in other countries. The expiration dates of our patents range from 2019 to 2034.
We also have a total of 140 pending patent applications in Taiwan, 116 in the United States and 255 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.
66
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;
• 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., FocalTech Systems Co., Ltd., Ili Technology Corp., Lusem Co., Ltd, Novatek
Microelectronics Corp., 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., Synaptics Inc, FocalTech Systems Limited and Shenzhen Huiding Technology Co.,
Ltd.
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 from a few other mobile projector technologies, including
OmniVision, which acquired Aurora Systems in 2010, Syndiant Inc., Kopin Corporation Inc. and Microvision
Inc., a company providing laser-scanning projector solutions. For MEMS products, we face competition
67
primarily from TI’s DLP, Epson’s 3LCD technology, eMagin, MicroOLED and Sony.
For power ICs, we face competition from Taiwan companies including Richtek Technology Corporation,
Global Mixed-mode Technology Inc., Advanced Analog Technology, Inc and On-Bright Electronics Co.
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 OmniVision Technologies Inc.,
Samsung Electronics Co. Ltd. and Sony Corporation.
For wafer level optics products, we face competition primarily from Heptagon, OmniVision, Anteryon,
Nemotek Technologies and Q-Technology Ltd.
Insurance
We maintain insurance policies on our buildings, equipment and inventories covering property damage
and damage due to, among other events, fires, typhoons, earthquakes and floods. We maintain these insurance
policies on our facilities and on transit of inventories. Additionally, we maintain director and officer liability
insurance. We do not have insurance for business interruptions, nor do we have key person insurance.
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, 2016.
68
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69
The following table sets forth summary information for our subsidiaries as of March 31, 2016.
Subsidiary
Main Activities
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.
Himax Media Solutions, Inc.
Harvest Investment Limited
Himax Technologies Japan Ltd.
Himax Semiconductor (Hong Kong)
Limited
Liqxtal Technology Inc.
IC design and sales
IC design and sales
IC design and sales
Investments
Sales and technical support
Sales and technical support
LCOS and MEMS design,
manufacturing and sales
LCOS sales
LCOS and MEMS design,
sales and technical support
IC design and sales
Investments
IC design and sales
IC design
TFT-LCD television
and monitor chipset
operations, ASIC service
and IP Licensing
Investments
Sales
Investments
Jurisdiction of
Incorporation
Percentage of
Our Ownership
Interest
ROC
South Korea
ROC
Samoa
PRC
PRC
ROC
100.0%
100.0%
100.0%
100.0%(1)
100.0%(2)
100.0%(2)
81.8%(1)
Hong Kong
California, USA
81.8%(3)
81.8%(3)
ROC
Cayman Islands
ROC
California, USA
ROC
98.6%(1)
100.0%
93.6%(4)
93.6%(5)
99.2%(6)
ROC
Japan
Hong Kong
100.0%(1)
100.0%
100.0%
LC Lens design and sales
ROC
64.0%(1)
(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 81.8% ownership of Himax Display, Inc.
(4) Indirectly, as to 42.1% through our 100.0% ownership of Himax Imaging, Inc. and as to 51.5% through
our 100.0% ownership of Himax Technologies Limited.
(5) Indirectly, through our 93.6% ownership of Himax Imaging, Ltd.
(6) Directly, as to 22.0%, and indirectly, as to 77.2% through our 100.0% ownership of Himax Technologies
Limited.
70
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, Ningbo and Wuhan, China; Tokyo, Japan; Cheonan and Suwon, South Korea; and Irvine and
Campbell, California, USA. In June 2008, we completed the relocation of the Taipei offices of our company,
Himax Media Solutions and Himax Analogic. The lease contracts may be renewed upon expiration.
We have established under Himax Taiwan an in-house wafer level optics facility for the key process of our
products, with 1,171 square meters of floor space in a building leased from Innolux, which already produced
and shipped over 50 million optics to tier-1 customer from 2010. 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 that commenced shipments from 2010. This in-house facility provides color filter for CMOS image
sensor and LCOS products. 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 color-
filter LCOS microdisplays 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 are fabless semiconductor solution provider dedicated to display imaging processing technologies. We
are 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, we design and provide controllers for touch sensor displays, LCOS micro-displays 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 and silicon IPs. We also offer 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. 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.
We operate primarily in a fabless business model that utilizes substantially third-party foundry and
71
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 2015 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 the majority 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
over a product’s life cycle, which may be offset by changes in conditions in the semiconductor industry such
72
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. From 2011 to 2014, smartphone and tablet boom across the world created impressive demand
of TFT-LCD panels. The phenomenal smartphone market growth naturally invited intense competition in the
driver IC space, especially in the lower-end segments, resulting in severe ASP pressure. In the second half of
2015, over-supply issue happened to the large-sized TFT-LCD panel industry again. As high inventory level
was built up in the first half of 2015 along with new capacity ramp from China panel makers, ASP pressure
became intense as a result. 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.
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Product Mix
The proportion of our revenues that is generated from the sale of different product types, also referred
to as product mix, also affects our average selling prices, revenues and profitability. Our display driver
products vary depending on, among other things, the number of output channels, the level of integration
and the package type. Variations in each of these specifications could affect the average selling prices of
such products. For example, the trend for display drivers for use in large-sized panels is toward products
with a higher number of channels, which typically command higher average selling prices than traditional
products with a lower number of channels. However, panels that use higher-channel display drivers typically
require fewer display drivers per panel. As a result, our profitability will be 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 2013,
2014 and 2015 was 75.1%, 75.5% and 76.4%, respectively. In 2015, as a percentage of Himax Taiwan’s total
manufacturing costs, the cost of wafer fabrication was 49.9%, the cost of processed tape was 9.5%, the cost
of assembly and testing was 39.9% and overhead was 0.7%. 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
74
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);
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.
Restricted Share Units (RSUs). 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. The 2005 plan was terminated in October 2010. We recognized share-based compensation
expenses under the long-term incentive plan totaling $9.7 million, $11.3 million and $6.2 million in 2013,
2014 and 2015, respectively. See “—Critical Accounting Policies and Estimates—Share-Based Compensation
Expenses.” Of the total share-based compensation expenses recognized, $7.8 million, $9.3 million and $4.5
million in 2013, 2014 and 2015, respectively, were settled in cash. We 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, 2013, 2014 and 2015 as reflected in our consolidated financial statements.
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
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.
75
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.
We made grants of 867,771 RSUs to our employees on September 26, 2013. The vesting schedule for
such RSU grants is as follows: 88.90% of the RSU grants vested immediately and were settled by cash in the
amount of $7.8 million on the grant date, with the remainder vesting equally on each of September 30, 2014,
2015 and 2016, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 1,219,791 RSUs to our employees on September 26, 2014. The vesting schedule for
such RSU grants is as follows: 82.57% of the RSU grants vested immediately and were settled by cash in the
amount of $9.3 million on the grant date, with the remainder vesting equally on each of September 30, 2015,
2016 and 2017, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 597,596 RSUs to our employees on September 25, 2015. The vesting schedule for
such RSU grants is as follows: 94.15% of the RSU grants vested immediately and were settled by cash in the
amount of $4.5 million on the grant date, with the remainder vesting equally on each of September 30, 2016,
2017 and 2018, 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 26, 2013, September 26, 2014 and September 25, 2015 was $10.15, $9.27 and $7.92 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 did not resolve to
forfeit the shareholders’ tax credit benefit in exchange for such ROC companies’ five-years tax holiday. All
remaining tax credits under this program were utilized by December 31, 2015.
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 qualifying 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. All tax credits
generated under this program have been utilized.
Based on the amendments to the above, effective from January 1, 2016 to December 31, 2019, if
companies choose to extend the tax credits to three years, the tax credit rate will be 10% of the total
qualifying research and development expenditure for the current year and subject to a cap of 30% of the
income tax payable for each year.
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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 January 1, 2008 and January 1, 2014 and expired or will expire on
December 31, 2012 and December 31, 2018, respectively. In addition, beginning January 1, 2009 and
January 1, 2014, Himax Semiconductor became entitled to two five-year tax exemption expired or will
expire on December 31, 2013 and December 31, 2018, respectively. 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 $2.4 million, $0.01 and $0.01, respectively, for the year ended
December 31, 2013, $2.8 million, $0.01 and $0.01, respectively, for the year ended December 31, 2014 and
$1.8 million, $0.01 and $0.01, respectively, for the year ended December 31, 2015. 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, wafer
level optics products, ASIC service and IP licensing.
Our revenues generated from sales of display drivers for large-sized applications decreased in 2013 and
2014 both in absolute amount and as a percentage of our total revenues, primarily due to the significant
decrease in sales to Innolux as a result of the impact of the change of purchase policy by Innolux to diversify
its display driver supply base from 2010 and the impact of the global economic downturn in 2013. Revenues
generated from sales of display drivers for large-sized applications decreased slightly in 2015. Notably, TV
application grew over 20% year-over-year, the highest growth since 2011. Such strength was originated from
our focus in China starting 2012 as we bet on China’s long term prospect and sought to diversify customer
base. 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 2013 and
2014, 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. However, in 2015, display drivers for
mobile handsets applications declined mainly due to our key Korean end-customer’s decision to substantially
increase the portion of AMOLED panels in their smartphone portfolio and the weak smartphone sales in
China. In addition, in 2015, the decline of worldwide tablet market resulted in the revenue decrease of
display drivers for consumer electronics application despite strong growth of display drivers for automotive
applications.
The following table sets forth, for the periods indicated, our revenues by amount and our revenues as a
percentage of revenues by each product line:
77
2013
Percentage
of
Revenues
Amount
Year Ended December 31,
2014
Percentage
of
Revenues
Amount
2015
Percentage
of
Revenues
Amount
(in thousands, except percentages)
Display drivers for
large-sized applications
Display drivers for mobile
handsets applications
Display drivers for consumer
electronics applications
Others(1)
Total
$ 228,927
29.7
$ 226,087
26.9
$ 224,423
32.4
232,019
30.1
238,467
28.4
170,705
24.7
183,554
126,239
$ 770,739
23.8
16.4
100.0
207,514
168,474
$ 840,542
24.7
20.0
100.0
165,271
131,390
$ 691,789
23.9
19.0
100.0
Note:
(1)
Includes, among other things, timing controllers, touch controller ICs, TFT-LCD television
and monitor chipsets, LCOS projector solutions, power management IC, CMOS image
sensors, programmable gamma OP, wafer level optics products, scaler, NRE incomes, ASIC
service and IP licensing.
A limited number of customers account for substantially all our revenues. Innolux and its affiliates
accounted for 22.6%, 19.6% and 21.1% of our revenues in 2013, 2014 and 2015, 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.
2013
Percentage
of
Revenues
Amount
Year Ended December 31,
2014
Percentage
of
Revenues
Amount
2015
Percentage
of
Revenues
Amount
(in thousands, except percentages)
Innolux and its affiliates
Customer A and its affiliates
Others
Total
$ 173,976
130,259
466,504
$ 770,739
22.6
16.9
60.5
100.0
$ 164,552
152,105
523,885
$ 840,542
19.6
18.1
62.3
100.0
$ 146,209
138,801
406,779
$ 691,789
21.1
20.1
58.8
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 2013, 2014 and 2015 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 2013, 2014 and 2015, approximately 36.8%, 36.9% and 36.8% of our revenues,
respectively, were from customers headquartered in Taiwan and approximately 52.0%, 51.9% and 53.9% 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.
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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
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 2013, 2014 and 2015 were 10.4%, 10.9% and 13.6%, 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 the increase in office equipment, 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 2013, 2014 and 2015, we recognized bad
debt expense of $0.2 million, $0.6 million and $0.3 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
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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, and the 2005
plan was terminated in October 2010. 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, September 26, 2012, September 26, 2013,
September 26, 2014 and September 25, 2015 to our employees. Share-based compensation expenses recorded
under the long-term incentive plan totaled $9.7 million, $11.3 million and $6.2 million in 2013, 2014 and
2015, respectively. See“—Critical Accounting Policies and Estimates—Share-Based Compensation” for
further discussion of the accounting of such expenses.
Income Taxes
Since we and our direct and indirect subsidiaries are incorporated in different jurisdictions, we file
separate income tax returns. Under the current laws of the Cayman Islands, we are not subject to income
or capital gains tax. Additionally, dividend payments made by us are not subject to withholding tax in
the Cayman Islands. We recognize income taxes at the applicable statutory rates in accordance with the
jurisdictions where our subsidiaries are located and as adjusted for certain items including accumulated losses
carried forward, non-deductible expenses, research and development tax credits, certain tax holidays, as well
as changes in our deferred tax assets and liabilities.
Our effective income tax rate was 25.8% in 2013, 25.3% in 2014 and 34.7% in 2015, 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. All remaining tax
credits under this program were utilized by December 31, 2015.
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 qualifying 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. All tax credits
80
generated under this program have been utilized.
Based on the amendments to the above, effective from January 1, 2016 to December 31, 2019, if
companies choose to extend the tax credits to three years, the tax credit rate will be 10% of the total
qualifying research and development expenditure for the current year and subject to a cap of 30% of the
income tax payable for each year.
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 January 1, 2008 and January 1, 2014 and expired or will expire on December 31, 2012
and December 31, 2018, respectively. In addition, beginning January 1, 2009 and January 1, 2014, Himax
Semiconductor is also entitled to two five-year tax exemption expired or will expire on December 31, 2013
and December 31, 2018, respectively. 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 $2.4 million, $0.01 and $0.01 for the year ended December 31, 2013,
respectively, $2.8 million, $0.01 and $0.01 for the year ended December 31, 2014, respectively, and $1.8
million, $0.01 and $0.01 for the year ended December 31, 2015, respectively. No such tax exemption is
provided for under the newly adopted Statute for Industrial Innovation.
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. 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, 2015, we based our share-
based compensation cost on an assumed forfeiture rate of 6.2% per annum for RSUs issued in 2013 and 7.1%
per annum for RSUs issued in 2014, respectively, 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 2013, 2014 and 2015, the fair value of the ordinary shares underlying the
RSUs granted to our employees was $10.15, $9.27 and $7.92 per share, respectively, which was the closing
price of our ADSs on September 26, 2013, September 26, 2014 and September 25, 2015, respectively.
Allowance for Doubtful Accounts, Sales Returns and Discounts
We reduce our revenues and accounts receivable 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. In December 2014, SVA NEC was
declared bankrupt by the court and we would not be able to collect any of our remaining accounts receivable
outstanding from SVA-NEC. Consequently, this receivable was written off and the related valuation
81
allowance was reversed in 2014.
The movement in the allowance for doubtful accounts, sales returns and discounts for the years ended
December 31, 2013, 2014 and 2015 are as follows:
Allowance for doubtful accounts
Year
2013
2014
2015
Balance at Beginning
of Year
Charges to earnings
Amounts Utilized
Balance at End of Year
(in thousands)
$
$
$
15,186
15,359
727
$
$
$
173
554
310
$
$
$
-
(15,186)
(262)
$
$
$
15,359
727
775
Allowance for sales returns and discounts
Year
2013
2014
2015
Balance at Beginning
of Year
Additions
Amounts Utilized
Balance at End of Year
$
$
$
1,078
929
868
$
$
$
(in thousands)
7,272
5,168
8,887
$
$
$
(7,421)
(5,229)
(8,982)
$
$
$
929
868
773
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 2013, 2014 and 2015 were approximately $10.8 million, $8.2 million and $9.8
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 CMOS image sensors and Projection displays
these two asset groups, we determined that the undiscounted cash flows expected to result from the use of the
asset groups significantly exceeded their respective carrying amounts. The undiscounted cash flow exceed
its carrying amount were 69%, 66% and 197% for CMOS image sensors asset group as of December 31,
82
2013, 2014 and 2015, respectively. The undiscounted cash flow exceed its carrying amount were 45%, 28%
and 450% for Projection displays asset group as of December 31, 2013, 2014 and 2015, respectively. No
triggering events that would indicate potential impairment occurred for the other significant asset groups
for the last three years. Consequently, we have not recognized any impairment charges on long-lived assets
during the period from December 31, 2013 to December 31, 2015.
Goodwill
We evaluate goodwill for impairment at least annually, and test for impairment between annual tests if
an event occurs or circumstances change that would indicate that the carrying amount may be impaired.
Impairment testing for goodwill is done at a reporting unit level. The goodwill impairment test is a two-step
test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including
goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill
impairment exists for the reporting unit and we perform step two of the impairment test (measurement).
Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting
unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined
by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The
residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
We have two operating segments, which are also reportable segments. We have determined that we have
four reporting units. However, most of the goodwill has been assigned to the Driver IC reporting unit, which
is also an operating segment. Goodwill also exists in our Non-Driver Products reportable segment as of
December 31, 2013, 2014 and 2015. The amount of such goodwill is immaterial.
For Driver IC reporting unit and Projection displays reporting unit in 2013, 2014 and 2015, management
elected to use the option to perform a qualitative assessment to determine whether it is more-likely-than-
not that the fair value of these reporting units are less than their respective carrying amounts. Based on such
qualitative assessments, management determined that it was not more-likely-than-not that the fair value of
these reporting units are less than their respective carrying amounts. As such, performing the next step of the
test impairment test for these reporting units was unnecessary. However, our conclusion could change in the
future if market conditions change with respect to these reporting units.
Product Warranty
Under our standard terms and conditions of sale, products sold are subject to a limited product quality
warranty. We may receive warranty claims outside the scope of the standard terms and conditions. We
provide for the estimated cost of product warranties at the time revenue is recognized based primarily
on historical experience and any specifically identified quality issues. In 2015, the expenses for warranty
increased for more product quality issues. The movement in accrued warranty costs for the years ended
December 31, 2013, 2014 and 2015 is as follows:
Year
2013
2014
2015
Balance at Beginning
of Year
Additions Charged
to Expense
Amounts Utilized
Balance at End of Year
$ 197
$ 121
$ 103
$
$
$
(in thousands)
364
355
1,121
$
$
$
(440)
(373)
(997)
$
$
$
121
103
227
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
83
of those earnings that would reduce the 20% ROC tax imposed on those distributions.
As of December 31, 2014 and 2015, we have not provided for retained earnings tax on the undistributed
earnings of approximately $626.6 million and $620.4 million, respectively, of our 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 $587.4 million and $579.5 million as of December 31,
2014 and 2015, 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. This amount becomes
taxable when we execute other investments, share buybacks or shareholder dividends to be funded by cash
distribution by our foreign subsidiaries. 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 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, 2014 and 2015, the amount of cash and cash equivalents and investments
in marketable securities available-for-sale held by Himax Taiwan were $120.7 million and $59.6 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.
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:
2013
Year Ended December 31,
2014
(in thousands)
2015
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
Settlements
Lapse of statute of limitations
Balance at end of year
84
)
$
791
-
(184
-
(93
(31
483
$
)
)
$
483
368
-
-
-
(63
)
788
$
$
788
292
-
630
(368
(7
1,335
$
)
)
With the exception of Himax Taiwan, Himax Semiconductor, Himax Technologies Korea Ltd., or Himax
Korea, Himax Technologies Japan Ltd., 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 for regular tax of $28.1 million, $29.8 million and $32.4 million
as of December 31, 2013, 2014 and 2015, respectively, and valuation allowances for undistributed earnings
tax of $10.2 million, $11.2 million and $11.9 million as of December 31, 2013, 2014 and 2015, 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.
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:
Revenues
Costs and expenses:
Cost of revenues
Research and development
General and administrative
Bad debt expense
Sales and marketing
Total costs and expenses
Operating income
Non-operating income, net
Income tax expense
Net income
Net loss attributable to noncontrolling interests
Net income attributable to Himax stockholders
Year Ended December 31,
2013
2014
2015
100.0
%
100.0
%
100.0
%
75.1
10.4
2.4
-
2.4
90.3
9.7
0.1
2.5
7.3
0.7
8.0
75.5
10.9
2.4
-
2.5
91.3
8.7
1.5
2.6
7.6
0.3
7.9
76.4
13.6
2.7
-
2.8
95.5
4.5
0.3
1.7
3.1
0.5
3.6
85
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenues. Our revenues decreased by 17.7% to $691.8 million in 2015 from $840.5 million in 2014. This
decrease was attributable mainly to a 24.7% decrease in revenues from display drivers for mobile handsets
and consumer electronics applications to $336.0 million in 2015 from $446.0 million in 2014, primarily as a
result of our key Korean end-customer replaced the use of LCD displays by AMOLED in their smartphone
product and the weak smartphone sales in China. The decrease was also attributable to a 22.0% decrease in
revenues from non-driver products to $131.4 million in 2015 from $168.4 million in 2014. CMOS image
sensors’ decline was the main reason. Additionaly, the large-sized applications declined 0.7% in revenues in
2015. Our average selling prices decreased by 4.7%, primarily due to pricing pressure from Driver IC, and
our unit shipments decreased by 13.7% in 2015.
Costs and Expenses. Costs and expenses decreased by 13.9% to $661.1 million in 2015 from $767.8
million in 2014. As a percentage of revenues, costs and expenses increased to 95.5% in 2015 compared to
91.3% in 2014.
•
•
Cost of Revenues. Cost of revenues decreased to $528.7 million in 2015 from $634.7 million in
2014. The decrease in cost of revenues was due primarily to a 13.7% decrease in unit shipments
in 2015, as compared to 2014. Inventory write-downs, which are included in cost of revenues,
increased slightly to $9.8 million in 2015 from $8.2 million in 2014. As a percentage of revenues,
cost of revenues increased to 76.4% in 2015 from 75.5% in 2014. The margin decreased is primarily
a result of pricing pressures passed on to driver IC vendors from cost sensitive panel makers, which
was partially offset by higher development income from our LCOS and WLO products.
Research and Development. Research and development expenses increased by 2.8% to $94.4 million
in 2015 from $91.8 million in 2014. This increase was primarily attributable to increases in salary
expenses and tape-out expense to capture the increasing business opportunities. 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 by 8.5% to $18.5
million in 2015 from $20.2 million in 2014, primarily as a result of decreases in salary expenses. The
decrease in salary expenses was due primarily to a lower headcount of general and administrative
staff and lower RSU compensation.
•
•
Bad Debt Expense. We recognized bad debt expense of $0.3 million and $0.6 million in 2015 and
2014, respectively.
Sales and Marketing.Sales and marketing expenses decreased by 6.4% to $19.3 million in 2015 from
$20.6 million in 2014, primarily as a result of decreases in travelling expenses and sample expenses.
Non-Operating Income, net. We had net non-operating income of $2.2 million in 2015 compared to $12.8
million in 2014. We recognized gain on disposal of investments, net of $2.0 million and $10.5 million in
2015 and 2014, respectively. Besides, we recognized valuation gain on financial instruments of $1.3 million
in 2014.
Income Tax Expense. Our income tax expense decreased to $11.4 million in 2015 from $21.6 million
in 2014. However, our effective income tax rate increased to 34.7% from 25.3% in 2014. The increase in
our effective income tax rate was primarily attributable to the increase in the deferred tax asset valuation
allowance in 2015 compared to 2014 for operating losses at certain subsidiaries for which realization of those
tax benefits is unlikely.
Net Income. As a result of the foregoing, our net income decreased to $21.5 million in 2015 from $63.9
million in 2014 and net income attributable to Himax stockholders decreased to $25.2 million in 2015 from
$66.6 million in 2014.
86
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues. Our revenues increased by 9.1% to $840.5 million in 2014 from $770.7 million in 2013. The
growth was a result of our customer diversification improved substantially. This increase was attributable
mainly to a 33.5% increase in revenues from non-driver products to $168.4 million in 2014 from $126.2
million in 2013, primarily as a result of strong growth from Touch controller, CMOS image sensor, Timing
controller, LCOS microdisplay ICs and ASIC service. The increase was also attributable to a 7.3% increase
in revenues from sales of display drivers for mobile handsets and consumer electronics applications to
$446.0 million in 2014 from $415.6 million in 2013. The increase was partially offset by a 1.2% decrease in
revenues from large-sized applications to $226.1 million in 2014 from $228.9 million in 2013, primarily due
to the soft global demand for monitors and notebooks markets. In 2014, our average selling prices decreased
by 3.8%, primarily due to pricing pressure from Driver IC, and our unit shipments increased by 13.4% 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 10.3% to $767.8 million in 2014 from $696.4
million in 2013. As a percentage of revenues, costs and expenses increased to 91.3% in 2014 compared to
90.3% in 2013.
•
•
Cost of Revenues. Cost of revenues increased to $634.7 million in 2014 from $578.9 million in
2013. The increase in cost of revenues was due primarily to a 13.4% increase in unit shipments
in 2014, as compared to 2013. Inventory write-downs, which are included in cost of
revenues, decreased slightly to $8.2 million in 2014 from $10.8 million in 2013.
As a percentage of revenues, cost of revenues increased to 75.5% in 2014 from 75.1% in 2013. The
margin decreased is primarily a result of higher shipment of older generation CMOS image sensors
and foundry capacity constraint, which were largely offset by growing demand from 4K TV and
NRE income from ASIC, LCOS and WLO products.
Research and Development. Research and development expenses increased by 14.3% to $91.8
million in 2014 from $80.4 million in 2013. This increase was primarily attributable to increases
in salary expenses, research and development material expenses and depreciation expense to
capture the increasing business opportunities. 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 increased by 11.3% to $20.2
million in 2014 from $18.1 million in 2013, primarily as a result of increases in
salary expenses. The increase in salary expenses was due primarily to a larger headcount of general
and administrative staff and higher average salaries.
•
•
Bad Debt Expense. We recognized bad debt expense of $0.6 million and $0.2 million in 2014 and
2013, respectively.
Sales and Marketing. Sales and marketing expenses increased by 9.3% to $20.6 million in 2014
from $18.8 million in 2013, primarily as a result of increases in salary expenses and travelling
expenses. The increase in salary expenses was due primarily to a larger headcount of sales
and marketing staff and higher average salaries.
Non-Operating Income, net. We had net non-operating income of $12.8 million in 2014 compared to a net
non-operating income of $1.1 million in 2013. We recognized gain on disposal of investments, net of $10.5
million and valuation gain on financial instruments of $1.3 million in 2014.
Income Tax Expense. Our income tax expense increased to $21.6 million in 2014 from $19.5 million in
2013. Our effective income tax rate decreased to 25.3% from 25.8% in 2013. This change in our effective
income tax rate was primarily attributable to tax benefits recognized from investment tax credits, which was
87
partially offset by changes in foreign currency exchange rates.
Net Income. As a result of the foregoing, our net income increased to $63.9 million in 2014 from $55.9
million in 2013 and net income attributable to Himax stockholders increased to $66.6 million in 2014 from
$61.5 million in 2013.
Segment Results
The following table sets forth the revenues and operating results for our reportable segments for the
periods indicated:
2013
Year Ended December 31,
2014
(in thousands)
2015
Segment Revenues
Driver IC
Non-Driver Products
Total
$
$
644,500
126,239
770,739
$
$
672,068
168,474
840,542
$
$
560,399
131,390
691,789
Segment Operating Income (loss)
Driver IC
Non-Driver Products
Total
$
$
Driver IC Segment
2013
Year Ended December 31,
2014
(in thousands)
2015
89,162
(14,819
74,343
)
$
$
92,290
)
(19,565
72,725
$
$
59,506
(28,834
30,672
)
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Segment revenues. Our revenues from the Driver IC segment decreased by 16.6% to $560.4 million
in 2015 from $672.1 million in 2014. The decrease was mainly from the decrease in display drivers for
mobile handsets application and consumer electronics application. This decrease was attributable to a 13.0%
decrease in unit shipments of our driver IC products and a 4.2% decrease in our average selling price.
Segment operating income. Operating income from the Driver IC segment decreased to $59.5 million in
2015 from $92.3 million in 2014. This decrease was primarily attributable to a decrease in revenues in 2015
as compared to 2014. As a percentage of segment revenues, segment operating income decreased to 10.6% in
2015 from 13.7% in 2014.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Segment revenues. Our revenues from the Driver IC segment increased by 4.3% to $672.1 million in 2014
from $644.5 million in 2013. This increase was attributable to a 10.2% increase in unit shipments of our
driver IC products and partially offset by a 5.4% decrease in our average selling price.
Segment operating income. Operating income from the Driver IC segment increased to $92.3 million
in 2014 from $89.2 million in 2013. This increase was primarily attributable to a decrease in operating
expense in 2014 as compared to 2013. As a percentage of segment revenues, segment operating income little
decreased to 13.7% in 2014 from 13.8% in 2013.
Non-Driver Products Segment
88
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Segment revenues. Our revenues from the Non-Driver Products segment decreased by 22.0% to $131.4
million in 2015 from $168.4 million in 2014. CMOS image sensors’ decline was the main reason. This
decrease was attributable mainly to a 16.1% decrease in unit shipments of our non-driver products.
Segment operating loss. Operating loss from the Non-Driver Products segment increased to $28.8 million
in 2015 from $19.6 million in 2014. The operating loss increases was attributable mainly to decrease in
revenues.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Segment revenues. Our revenues from the Non-Driver Products segment increased by 33.5% to $168.4
million in 2014 from $126.2 million in 2013. This increase was attributable mainly to a 26.5% increase in
unit shipments of our non-driver products.
Segment operating loss. Operating loss from the Non-Driver Products segment increased to $19.6 million
in 2014 from $14.8 million in 2013. The operating loss increases was attributable mainly to increasing R&D
expense to capture new business opportunities.
5.B. Liquidity and Capital Resources
We need cash primarily for technology advancement, capacity expansion, paying dividend and working
capital. We have historically been able to meet our cash requirements through cash flow from operations and
borrowings to pay dividend.
As of December 31, 2015, we had total current assets of $697.8 million, total current liabilities of $352.7
million and cash and cash equivalents of $129.8 million. As of December 31, 2015, we had total short
term debt of $180.0 million with equal amount of cash and time deposits as collateral and did not have
any outstanding long-term borrowings. 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:
Year Ended December 31,
2014
2015
2013
Net cash provided by operating activities
Net cash provided by (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
Cash and cash equivalents at end of period
$
$
51,123
(30,525
)
)
(32,103
(11,417
)
138,737
127,320
$
)
93,719
10,644
(46,204
58,146
127,320
185,466
)
)
)
22,529
(28,342
(49,608
(55,637
185,466
129,829
Operating Activities. Net cash provided by operating activities in 2015 was $22.5 million compared to
$93.7 million in 2014. This decrease in net cash provided by operating activities in 2015 was due primarily to
an increase in cash used for raw materials, assembly, testing process fees and inventories in 2015 compared
to 2014, partially offset by an increase in cash collected from customers in 2015 compared to 2014 as we
had a relatively high accounts receivable balance at the beginning of year. Net cash provided by operating
activities in 2014 was $93.7 million compared to $51.1 million in 2013. This increase in net cash provided
by operating activities in 2014 was due primarily to a decrease in cash used for raw materials, assembly and
testing process fees in 2014 compared to 2013, partially offset by a decrease in cash collected from customers
and an increase in cash paid for income tax in 2014 compared to 2013.
89
Investing Activities. Net cash used in investing activities in 2015 was $28.3 million compared to net
cash provided by investing activities $10.6 million in 2014. This decrease in net cash provided by investing
activities in 2015 was due primarily to a decrease in cash provided by disposal of investments to $1.7 million
from $19.7 million in 2014 and an increase in cash used for purchasing of investment securities in 2015
compared to 2014. Net cash provided by investing activities in 2014 was $10.6 million compared to net cash
used in investing activities $30.5 million in 2013. This increase in net cash provided by investing activities in
2014 was due primarily to an increase in cash provided by disposal of investments to $19.7 million from nil
in 2013, a decrease in cash used for property and equipment to $10.9 million from $18.4 million in 2013 and
a decrease in purchasing of investment securities in 2014 compared to 2013.
Financing Activities. Net cash used in financing activities in 2015 was $49.6 million compared to $46.2
million in 2014. This increase was due primarily to an increase in distribution of cash dividends and partially
offset by an increase of $1.5 million proceeds from issuance of new shares by subsidiaries. Net cash used
in financing activities in 2014 was $46.2 million compared to $32.1 million in 2013. This increase was
due primarily to a decrease in proceeds from issuance of new shares by subsidiaries and an increase 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 $18.4 million, $10.9 million and $10.0 million in 2013, 2014
and 2015, 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 2013, 2014 and 2015, we
incurred research and development expenses of $80.4 million, $91.8 million and $94.4 million, respectively,
representing 10.4%, 10.9% and 13.6% of our revenues, respectively.
5.D. Trend Information
4K TVs, TFT TVs, smartphones and tablet PCs migrating toward high resolutions, and automotive
applications are the main themes for large, small and medium-sized panels. There will be more and more
similar products in the market where driver IC accounts for higher value content than before. Since 2012,
we began to benefit from the rapid growth of smartphones and tablets and Chinese panel makers’ capacity
expansion. Business rebounded strongly as years of investment in customer and product mix change came to
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fruition. We gained share in markets of all panel sizes. Large panel driver ICs resumed growth and showed
continuous momentum thanks to strong shipments to both existing and new customers with 4K TV demand
particularly robust. On the small and medium sized front, sales hit historical high in the last quarter of 2014,
signaling our dominant market share in this competitive segment. Although small and medium-sized panel
display drivers suffered temporary setback in 2015 due to Korean customer’s strategic change of increasing
the portion of AMOLED panels in their smartphone portfolio, weak China smartphone sales and softness
of global tablet market, we remain the leading supplier of small and medium-sized driver IC for panel
makers and module houses across Taiwan, Korea, China and Japan. As our smartphone end customers have
recaptured the market with refreshed marketing strategies, new model launches and better grasp of internet
sales channels and with our latest addition of a major brand customer, we believe that we are well-positioned
to grow again. We also believe the adoption of 4G network should rise in China which will stimulate
demand in 2016. Furthermore, AMOLED driver ICs and TDDI will be the critical future growth engines
of small panel driver IC business. Our end customers include influential names in China, Korea, and the
U.S. However, continued growth momentum in the smartphone market has attracted more competitors and
unavoidable pricing pressure.
We also see the demand from our customers for high-resolution displays of all sizes of TFT-LCD panels to
provide better user experiences. We believe FHD is quickly becoming the new mainstream display resolution
for smartphones, replacing HD720. As the 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 migration. 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
customer base and product portfolio to offer total solutions of image processing and human interface related
technologies in addition to our driver IC products. The non-driver category is our most exciting long-term
growth engine and a differentiator for the Company. Our non-driver products delivered the strongest growth
in 2014 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 CES Show January 2016 showcased the fast-growing, multi-billion dollar AR/VR sector under
development. Participants included leading multinationals in the gaming, search, mobile, social media,
military and consumer industries. Having invested in the technologies for over 15 years, Himax is uniquely
positioned as the provider of choice for microdisplay and related optics to enable AR.
It is expected that Chinese panel makers will further expand their TFT-LCD and AMOLED capacity
in the next few years. The significant increase in output offers attractive driver ICs business opportunities.
However, we would like to caution that this might lead to over-supply in panels and growing bargaining
power of Chinese panel makers at the same time, potentially resulting in more severe 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, 2015, 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, 2015, 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, 2015:
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Payment Due by Period
Total
Less than
1 year
Short-term debt
Operating lease obligations
Purchase obligations(1)
Other obligations(2)
Total
180,000
4,620
156,166
3,433
344,219
180,000
1,901
156,166
2,201
340,268
1-3 years
(in thousands)
-
1,767
-
1,232
2,999
3-5 years
More than
5 years
-
405
-
-
405
-
547
-
-
547
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.
As of December 31, 2015, the short-term debt consisted of bank loans with interest rates per annum
that ranged from 0.32% to 0.45%, and cash, cash equivalents and marketable securities totaling $180,000
thousand are pledged as collateral.
We lease office and building space pursuant to operating lease arrangements with unrelated third parties.
In 2013, 2014 and 2015, rental expenses for operating leases amounted to $2.7 million, $2.1 million and $2.1
million, respectively. The lease arrangements will expire gradually from 2016 to 2024. As of December 31,
2015, we agreed to make future minimum lease payments of $1.9 million, $1.3 million, $0.4 million, $0.2
million and $0.2 million in 2016, 2017, 2018, 2019 and 2020, 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, 2015, the remaining commitments under such contracts were $4.1 million.
These outstanding contracts had a total contract value of $5.4 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, 2015, our contractual obligations pursuant to such arrangements amounted
to approximately $95.2 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
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 2015 were $2.5 million compared to $2.3 million and $2.1
million in 2014 and 2013, respectively. Total contributions to the defined benefit plan and the new defined
contribution plan in 2015 were $2.5 million compared to $2.4 million and $2.1 million in 2014 and 2013,
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 0.8%, 1.2% and -0.3% in 2013, 2014 and 2015, respectively.
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Recent Accounting Pronouncements
In July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11 related to simplifying
the measurement of inventory. The ASU requires an entity to measure inventory as the lower of cost and net
realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update are
effective for fiscal years beginning after December 15, 2016 and should be applied prospectively with earlier
application permitted. The Company adopted this ASU on January 1, 2016 and expected there is no material
impact on our consolidated financial statements after the adoption.
In November 2015, the FASB issued ASU 2015-17 related to balance sheet classification of deferred
taxes. The ASU requires that deferred tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. The amendments in this Update are effective for fiscal years beginning after
December 15, 2016 and earlier application is permitted. The amendments in this Update may be applied
either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.
The Company expects to adopt this ASU on January 1, 2017 and prior periods will not be retrospectively
adjusted.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC
Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and
disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach,
classifying leases as either finance or operating leases based on the principle of whether or not the lease
is effectively a financed purchase by the lessee. This classification will determine whether lease expense
is recognized based on an effective interest method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a
term of greater than twelve months regardless of classification. Leases with a term of twelve months or less
will be accounted for similar to existing guidance for operating leases. The standard is effective for annual
and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The
Company is currently evaluating the method of adoption and the impact of adopting ASU 2016-02 on its
results of operations, cash flows and financial position.
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 five 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, 2016. 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
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Chih-Chung Tsai
Jackie Chang
Norman Hung
Directors
Age
58
55
67
64
64
60
56
58
Position/Title
Chairman of the Board
President, Chief Executive Officer and Director
Director
Director
Director
Chief Technology Officer, Senior Vice President
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,
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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
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.
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. Prior to our reorganization in October 2005, Mr. Horng served as
a director of Himax Taiwan from August 2004 to October 2005. Mr. Horng is currently the vice president
of the Finance Division of China Steel Corporation since June 2014. Mr. Horng held various positions
including general manager, assistant vice president and vice president in the Finance Division of China Steel
Corporation Group 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. Dr. Chen had served as consultants in various organizations, including
Color Display Industry Promotion Office and the Intellectual Property Innovation Corporation. Currently, Dr.
Chen serves as consultant of Color Imaging Industry Promotion Office.
Other Executive Officers
Chih-Chung Tsai is our 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.
Jackie Chang is our chief financial officer. Before joining Himax, Ms. Chang served as the CFO of
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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.
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, 2015, the aggregate cash compensation that we paid to our executive
officers was approximately $1.0 million. The aggregate share-based compensation that we paid to our
executive officers was approximately $0.6 million. In 2015, our executive officers voluntarily reduced the
number of RSUs to be granted proposed by the compensation committee to $1 and then compensate other
employees. The goal is to provide competitive compensation to our employees. No executive officer is
entitled to any severance benefits upon termination of his or her employment with us.
For the year ended December 31, 2015, the aggregate cash compensation that we paid to our independent
directors was approximately $135,000. The aggregate share-based compensation that we paid to our
independent directors was nil.
The following table summarizes the RSUs and cash award that we granted in 2015 to our directors and
executive officers under our 2011 long-term incentive plan. Each unit of RSU represents two ordinary shares.
See “Item 6.D. Directors, Senior Management and Employees—Employees––Share-Based Compensation
Plans” for more details regarding our RSU grants.
Total RSUs
Granted
Total Cash
Award Granted
(in thousands)
Ordinary Shares
Underlying Vested
Portion of RSUs
Name
Ordinary Shares
Underlying
Unvested Portion
of RSUs
Unvested Portion
of cash award
(in thousands)
Dr. Biing-Seng Wu
Jordan Wu
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Chih-Chung Tsai
Jackie Chang
Norman Hung
-
-
-
-
-
-
5,682
1,578
-
-
-
-
-
-
-
38
-
-
-
-
-
-
3,030
3,156
-
-
-
-
-
-
8,334
-
-
-
-
-
-
-
-
38
6.C. Board Practices
General
Our board of directors consists of five directors, three of whom are independent directors within the
meaning of Rule 5605(a)(2) of the Nasdaq Rules. We intend to comply with Rule 5605(b)(1) of the Nasdaq
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Rules that require boards of U.S. companies to have a board of directors which is comprised of a majority of
independent directors. 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.
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, and Hsiung-Ku Chen. 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 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;
96
•
•
•
reviewing and determining share-based compensation for our directors, officers, employees and
consultants;
administering our equity incentive plans in accordance with the terms thereof; and
such other matters that are specifically delegated to the compensation committee by our board of
directors from time to time.
Nominating and Corporate Governance Committee. Our nominating and corporate governance
committee assists the board of directors in identifying individuals qualified to be members of our board of
directors and in determining the composition of the board and its committees. Our current nominating and
corporate governance committee consists of Yuan-Chuan Horng, Hsiung-Ku Chen, and Dr. Yan-Kuin Su.
We intend to follow 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.
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6.D. Employees
As of December 31, 2013, 2014 and 2015, we had 1,638, 1,772 and 1,885 employees, respectively. The
following is a breakdown of our employees by function as of December 31, 2015:
Function
Research and development(1)
Engineering and manufacturing(2)
Sales and marketing(3)
General and administrative
Total
Number
1,073
376
310
126
1,885
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 WLO and LCOS products.
(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, however, the 2005 plan
was terminated in October 2010. 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, and the 2005 plan was terminated in October 2010. As of the
date of this annual report, there were no stock options or restricted share units outstanding under the plan
98
except as described under “—Restricted Share Units.”
Eligibility and Participation. All of our employees, directors and service providers are eligible to
participate in the plan. The committee may select from all eligible individuals those individuals to whom
awards will be granted and will determine the nature of any and all terms permissible by law and the amount
of each award.
Stock Options. The committee may grant options to participants in such number, upon such terms and
at any time as it determines. Each option grant will be evidenced by an award document that will specify
the exercise price, the maximum duration of the option, the number of shares to which the option pertains,
conditions upon which the option will become vested and exercisable and such other provisions which are
not inconsistent with the plan.
The exercise price for each option will be:
•
•
•
based on 100% of the fair market value of the shares on the date of grant;
set at a premium to the fair market value of the shares on the 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.
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A participant will have no voting rights with respect to any restricted share units.
Each award document will set forth the extent to which the participant will have the right to retain
restricted share units following termination of his or her employment or services.
We made grants of 7,108,675 RSUs to our employees on September 29, 2008. The vesting schedule for
such RSU grants is as follows: 60.64% of the RSU grants vested immediately and was settled by cash in
the amount of $12.7 million on the grant date, with the remainder vesting equally on each of September 30,
2009, 2010 and 2011, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 3,577,686 RSUs to our employees on September 28, 2009. The vesting schedule for
such RSU grants is as follows: 55.96% of the RSU grants vested immediately and was settled by cash in the
amount of $6.5 million on the grant date, with the remainder vesting equally on each of September 30, 2010,
2011 and 2012, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 3,488,952 RSUs to our employees on September 28, 2010. The vesting schedule for
such RSU grants is as follows: 68.11% of the RSU grants vested immediately and was settled by cash in the
amount of $5.9 million on the grant date, with the remainder vesting equally on each of September 30, 2011,
2012 and 2013, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 2,727,278 RSUs to our employees on September 28, 2011. The vesting schedule for
such RSU grants is as follows: 97.36% of the RSU grants vested immediately and was settled by cash in the
amount of $2.9 million on the grant date, with the remainder vesting equally on each of September 30, 2012,
2013 and 2014, which will be settled by our ordinary shares, subject to certain forfeiture events.
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.
We made grants of 867,771 RSUs to our employees on September 26, 2013. The vesting schedule for
such RSU grants is as follows: 88.90% of the RSU grants vested immediately and was settled by cash in the
amount of $7.8 million on the grant date, with the remainder vesting equally on each of September 30, 2014,
2015 and 2016, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 1,219,791 RSUs to our employees on September 26, 2014. The vesting schedule for
such RSU grants is as follows: 82.57% of the RSU grants vested immediately and was settled by cash in the
amount of $9.3 million on the grant date, with the remainder vesting equally on each of September 30, 2015,
2016 and 2017, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 597,596 RSUs to our employees on September 25, 2015. The vesting schedule for
such RSU grants is as follows: 94.15% of the RSU grants vested immediately and were settled by cash in the
amount of $4.5 million on the grant date, with the remainder vesting equally on each of September 30, 2016,
2017 and 2018, 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.
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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.
6.E. Share Ownership
The following table sets forth the beneficial ownership of our ordinary shares, as of March 31, 2016, by
each of our directors and executive officers.
Name
Dr. Biing-Seng Wu
Jordan Wu
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Chih-Chung Tsai
Jackie Chang
Norman Hung
Number of Shares Owned
71,278,284
28,339,512
-
916,104
-
7,308,172
-
528,930
Percentage of Shares Owned
20.7 %
8.2 %
-
0.3 %
-
2.1 %
-
0.2 %
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
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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, 2016, 343,815,424 of our shares were outstanding. We believe that, of such shares,
215,148,802 shares in the form of ADSs were held by approximately 31,595 holders in the United States as
of March 31, 2016.
The following table sets forth information known to us with respect to the beneficial ownership of our
shares as of March 31, 2016, 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)
Jordan Wu(2)
All directors and executive officers as a group
Number of Shares
Beneficially Owned
71,278,284
28,339,512
108,371,002
Percentage of Shares
Beneficially Owned
20.7 %
8.2 %
31.5 %
Note:
(1)
Dr. Biing-Seng Wu directly owns 228,756 ordinary shares. Dr. Biing-Seng Wu beneficially owns
51,009,690 ordinary shares and 20,039,838 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. Accordingly, Dr. Biing-Seng Wu may be deemed to beneficially
own an aggregate of 71,278,284 ordinary shares, representing approximately 20.7% of the
outstanding ordinary shares.
(2)
Jordan Wu directly owns 158,398 ordinary shares. Jordan Wu beneficially owns 9,243,994
ordinary shares and 1,780,730 ordinary shares through Arch Finance Ltd. and Shu Chuan
Investment Co., Ltd, respectively, both of which are investment companies controlled by Jordan
Wu. In addition, Jordan Wu together with his wife may be attributed beneficial ownership of
17,156,390 Shares held in trust for the benefit of their children. Jordan Wu therefore may be
deemed to have shared power to vote or dispose of 28,181,114 Shares. Accordingly, Jordan Wu
may be deemed to beneficially own an aggregate of 28,339,512 ordinary shares, representing
approximately 8.2% of the outstanding ordinary shares.
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
On June 19, 2013, Innolux disposed of its entire holding shares of ours, so that Innolux ceased to be our
shareholder and Innolux and its affiliates was not a related party since that day. We have no related party
transactions in 2014 and 2015, respectively.
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,
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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
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. On July 31, 2013, we paid a cash dividend in the amount of $42.4 million, or the equivalent of $0.250
per ADS. On July 23, 2014, we paid a cash dividend in the amount of $46.0 million, or the equivalent of $0.270
per ADS. On July 8, 2015, we paid a cash dividend in the amount of $51.4 million, or the equivalent of
$0.300 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
amended ROC Company Act and regulations and Himax Taiwan’s amended 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);
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•
•
special reserve based on relevant laws or regulations, or retained earnings, if necessary;
dividends for preferred shares, if any; and
Furthermore, if Himax Taiwan does not generate any net income for any year as determined in accordance
with generally accepted accounting principles in Taiwan, it generally may not distribute dividends for that
year.
Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit
agreement, to the same extent as holders of our ordinary shares, to the extent permitted by applicable 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)
2.69
2.46
15.23
16.15
16.15
12.19
10.45
10.20
9.49
9.49
8.99
8.755
8.99
8.04
7.85
8.99
0.97
0.99
2.40
5.70
11.22
5.89
5.70
6.39
5.65
6.27
5.85
5.65
5.77
5.77
5.92
7.31
293.1
337.3
6,410.8
5,923.9
7,847.8
6,222.4
5,360.3
4,359.9
2,591.1
3,382.6
2,738.6
2,040.1
2,242.6
2,019.3
2,238.0
2,470.0
12.00
8.68
10.06
12.00
11.41
6.26
6.26
7.305
9.53
10.36
2,818.0
2,458.8
2,198.1
3,691.9
2,398.8
2011
2012
2013
2014
First quarter
Second quarter
Third quarter
Fourth quarter
2015
First quarter
Second quarter
Third quarter
Fourth quarter
October
November
December
2016
First quarter
January
February
March
April (through April 8)
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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
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Restated Memorandum and Articles of Association. As of the date of this annual report, our authorized share
capital is $300,000,000 divided into 1,000,000,000 shares of nominal or par value of $0.3 each.
10.C. Material Contracts
We are not currently, and have not been in the last two years, party to any material contract, other than
contracts entered into the ordinary course of business.
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.
United States Federal Income Taxation
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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
before delivery of shares to the depositary (“pre-release”) may be taking actions that are inconsistent with the
107
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, 2015.
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.
108
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.
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
109
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 2015, more than 99% of our sales and cost of revenues were
denominated in U.S. dollars. However, in December 2015, approximately 56% 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, 2015, 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
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
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
110
Expenses of the depositary
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 2015, we received a payment of $0.5 million netting of 30% withholding tax from the depositary
relating to the ADR program, which was intended to cover certain of our expenses incurred in relation to the
ADR program for the year, including:
•
•
•
•
•
•
•
legal, audit and other fees incurred in connection with preparation of Form 20-F and annual
reports and ongoing SEC compliance and listing requirements;
director and officer insurance;
stock exchange listing fees;
non-deal roadshow expenses;
costs incurred by financial printer and share certificate printer;
postage for communications to ADR holders;
costs of retaining third-party public relations, investor relations and/or corporate communications
advisory firms in the U.S.; and
•
costs incurred in connection with participation in retail investor shows and capital markets days.
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.
111
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, 2015 based on the criteria set forth in Internal Control – Integrated Framework
(2013) 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, 2015.
112
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, 2015, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2015, based on criteria established in Internal Control -
Integrated Framework (2013) 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, 2014 and 2015, 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, 2015, and
our report dated April 13, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG
Taipei, Taiwan (the Republic of China)
April 13, 2016
113
Changes in Internal Control over Financial Reporting
In 2015, 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 independent 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, 2014
and 2015.
Services
Audit Fees(1)
Tax Fees(2)
All Other Fees(3)
Total
Year ended December 31,
2014
2015
$ 757,000
-
13,000
$ 770,000
$ 740,000
6,000
17,000
$ 763,000
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)
Tax fees. This category consists of fees for tax consulting.
(3)
All Other Fees. This category consists of fees for the preparation of transfer pricing reports
and audit of conflict mineral report.
114
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, 2016, 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 2011 share buyback
programs for each of the specified periods.
Period
2011 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
June 1, 2012 to June 28, 2012
July 12, 2012 to July 31, 2012
August 1, 2012 to August 29,
2012
September 4, 2012 to September 26,
2012
October 1, 2012 to October 25,
2012
November 1, 2012 to November 13,
2012
(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
186,345
120,968
83,839
399,340
169,188
$ 1.61
$ 1.75
$ 1.96
$ 1.99
$ 1.86
$ 1.55
8,092,649
8,278,994
8,399,962
8,483,801
8,883,141
9,052,329
$ 14,172,391
$ 13,847,214
$ 13,610,673
$ 13,444,651
$ 12,703,233
$ 12,442,204
45,416
$ 1.72
9,097,745
$ 12,364,315
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
115
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 independent directors not to hold regularly
scheduled meetings at which only independent directors are present in lieu of complying with Rule
5605(b)(2).
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 our independent registered public
accounting firm listed below are attached hereto as follows:
(a) Report of Independent Registered Public Accounting Firm.
(b) Consolidated Balance Sheets as of December 31, 2014 and 2015.
(c) Consolidated Statements of Income for the years ended December 31, 2013, 2014 and 2015.
(d) Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2014
and 2015.
(e) Consolidated Statements of Changes in Equity for the years ended December 31, 2013, 2014 and
2015.
(f) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 2015.
(g) Notes to Consolidated Financial Statements.
116
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. 2011 Long-Term Incentive Plan. (Incorporated herein by
reference to Exhibit 99.3 to the Registrant’s report of foreign private issuer on Form 6-k
filed on July 18, 2011.)
4.2*
Agreement and Plan of Merger dated November 8, 2010 among Himax Display, Inc.,
Spatial Photonics, Inc. and Wen Hsieh. (Incorporated herein by reference to Exhibit 4.3
from our Annual Report on Form 20-F (file no. 000-51847) filed with the Securities and
Exchange Commission on May 20, 2011.)
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.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
* Confidential treatment has been requested for portions of this exhibit.
117
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 13, 2016
118
HIMAX TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2015
Consolidated Statements of Income for the Years Ended December 31, 2013, 2014 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013,
2014 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2013, 2014
and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2014 and
2015
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-4
F-5
F-6
F-9
F-11
119
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2013, 2014 and 2015
(With Report of Independent Registered
Public Accounting Firm Thereon)
120
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. (the “Company”)
and subsidiaries as of December 31, 2014 and 2015, 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, 2015. 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 statement 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, 2014 and 2015,
and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2015, 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, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April
13, 2016 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 13, 2016
F-2
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2014 and 2015
(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 $1,595 and $1,548 at December 31, 2014 and 2015,
respectively
Inventories
Deferred income taxes
Restricted cash, cash equivalents and marketable securities
Prepaid expenses and other current assets
Total current assets
Investment in non-marketable equity securities
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,
2014
2015
$ 185,466
2,377
129,829
18,511
219,368
166,105
7,740
130,179
18,341
729,576
11,211
102
57,271
477
28,138
4,281
158
1,780
103,418
$ 832,994
177,198
171,374
3,306
180,442
17,175
697,835
11,211
3,648
54,461
871
28,138
4,161
121
1,891
104,502
802,337
See accompanying notes to consolidated financial statements.
F-3
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2014 and 2015
(in thousands of US dollars, except share and per share data)
Liabilities, Redeemable noncontrolling interest 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
Redeemable noncontrolling interest
Equity
Himax Technologies, Inc. stockholders’ equity:
Ordinary shares, US$0.3 par value, 1,000,000,000 shares authorized;
356,699,482 shares issued; and 342,425,144 shares and 343,815,424
shares outstanding at December 31, 2014 and 2015, respectively
Additional paid-in capital
Treasury shares, at cost (14,274,338 shares and 12,884,058 shares at
December 31, 2014 and 2015, respectively)
Accumulated other comprehensive loss
Unappropriated retained earnings
Total Himax Technologies, Inc. stockholders’ equity
Noncontrolling interests
Total equity
Commitments and contingencies
December 31,
2014
2015
$ 130,000
179,328
19,050
35
26,992
355,405
720
224
162
4,530
361,041
180,000
124,423
12,139
138
36,030
352,730
1,148
1,063
123
2,276
357,340
3,656
3,656
107,010
107,808
107,010
105,355
(10,144)
(316)
268,266
472,624
(4,327)
468,297
(9,157)
(1,879)
237,375
438,704
2,637
441,341
Total liabilities, redeemable noncontrolling interest and equity
$ 832,994
802,337
See accompanying notes to consolidated financial statements.
F-4
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2013, 2014 and 2015
(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
Bad debt expense
Sales and marketing
Total costs and expenses
Year Ended December 31,
2013
2014
2015
$ 684,184
86,555
770,739
840,542
-
840,542
691,789
-
691,789
578,886
80,368
18,147
173
18,822
696,396
634,660
91,839
20,192
554
20,572
767,817
528,651
94,422
18,470
310
19,264
661,117
Operating income
74,343
72,725
30,672
Non operating income (loss):
Interest income
Gains (losses) on sale of securities, net
Equity in losses of equity method investees
Valuation gain on financial instruments
Impairment loss on investments
Foreign currency exchange gains (losses), net
Interest expense
Other income, net
Earnings before income taxes
Income tax expense
Net income
Net loss attributable to noncontrolling interests
Net income attributable to Himax Technologies, Inc.
stockholders
527
(8)
(122)
160
-
643
(401)
258
1,057
75,400
19,476
55,924
5,552
728
10,471
(80)
1,255
(309)
1,077
(518)
145
12,769
85,494
21,591
63,903
2,695
710
1,993
(77)
-
-
(43)
(514)
126
2,195
32,867
11,405
21,462
3,733
$ 61,476
66,598
25,195
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
$ 0.18
0.19
0.07
$ 0.18
0.19
0.07
$ 0.36
0.39
0.15
$ 0.36
0.39
0.15
See accompanying notes to consolidated financial statements.
F-5
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2013, 2014 and 2015
(in thousands of US dollars)
Net income
Other comprehensive income (loss):
Unrealized losses on securities, not subject to
income tax:
Unrealized holding losses on available-for-sale
marketable securities arising during the period
Reclassification adjustment for realized losses
(gains) included in net income
Foreign currency translation adjustments, net of tax
of nil
Net unrecognized actuarial gain (loss), net of tax
of $(99), $43 and $(168) in 2013, 2014 and 2015,
respectively
Comprehensive income
Comprehensive loss attributable to
noncontrolling interests
Comprehensive income attributable to Himax
Technologies, Inc. stockholders
Year Ended December 31,
2013
$ 55,924
2014
63,903
2015
21,462
(4)
(2)
(294)
(12)
8
(33)
31
(71)
(223)
161
(169)
(573)
(401)
55,680
5,521
281
64,013
(778)
19,817
2,681
3,815
$ 61,201
66,694
23,632
See accompanying notes to consolidated financial statements.
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S
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2014 and 2015
(in thousands of US dollars)
F-9
Year Ended December 31,
2014
2013
2015
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Bad debt expense
Share-based compensation expenses
Loss (gain) on disposals of property and equipment
Gain on disposals of equity method investment
Gain on disposals of investment securities, net
Loss (gain) on disposals of marketable securities, net
Impairment loss on investment
Equity in losses of equity method investees
Valuation gain on financial instruments
Issuance of new shares by subsidiary for royalties
Deferred income tax expense
Inventories write downs
Changes in:
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:
Purchases of property, plant and equipment
Proceeds from disposals of property and equipment
Purchases of available-for-sale marketable securities
Proceeds from disposals of available-for-sale
marketable securities
Purchases of investment securities
Proceeds from disposals of investment securities
Proceeds from capital reduction of investment
Purchase of equity method investment
Proceeds from disposals of equity method investment
Repayments of refundable deposits, net
Releases (pledges) of restricted cash, cash
equivalents and marketable securities
Cash received from the acquisition of Liqxtal,
net of cash paid of $1,780
Cash increase (decrease) resulting from change
in consolidated entity
Net cash provided by (used in) investing activities
$ 55,924
63,903
21,462
14,309
173
1,840
88
(54)
-
8
-
122
(160)
49
7,409
10,759
(65,106)
73,267
(71,488)
(1,857)
15,744
7,055
2,812
229
51,123
(18,412)
-
(22,410)
21,792
(9,189)
-
-
-
-
(541)
14,592
554
1,929
(2)
-
(10,502)
31
309
80
(1,255)
-
3,816
8,198
(19,211)
-
3,096
1,053
28,038
2,357
(3,262)
(5)
93,719
(10,931)
1
(23,766)
22,021
-
19,691
1,168
-
-
(237)
14,164
310
1,818
(2)
(88)
(1,682)
(223)
-
77
-
-
4,148
9,785
41,656
-
(15,054)
2,067
(54,905)
(6,475)
5,987
(516)
22,529
(9,982)
8
(63,051)
46,720
-
1,682
-
(3,708)
179
(304)
(1,761)
2,697
(227)
-
-
(4)
(30,525)
-
10,644
341
-
(28,342)
See accompanying notes to consolidated financial statements.
F-10
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 2013, 2014 and 2015
(in thousands of US dollars)
Year Ended December 31,
2013
2014
2015
Cash flows from financing activities:
Payments of cash dividends
Excess tax benefits from share-based compensation
Proceeds from disposals of subsidiary shares to
noncontrolling interests by Himax Technologies
Limited
Proceeds from disposals of subsidiary shares to
noncontrolling interests by Himax Imaging, Inc.
Purchases of subsidiary shares from noncontrolling
interests
Pledges of restricted cash, cash equivalents and
marketable securities (for borrowing of short-
term debt)
Proceeds from issuances of new shares by subsidiaries
Proceeds from short-term debt
Repayments 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:
Interest
Income taxes
Supplemental disclosures of investing activities
affecting both cash and non-cash items:
Purchase of property, plant and equipment
Decrease (increase) in payable for purchases of
equipment and asset retirement obligations
Cash paid
$ (42,394)
1,271
-
64
(896)
(32,500)
9,852
352,320
(319,820)
(32,103)
88
(11,417)
138,737
$ 127,320
$ 401
$ 3,272
$ 19,607
(1,195)
$ 18,412
(46,042)
1,232
(51,364)
771
83
38
(1,515)
(24,500)
-
417,500
(393,000)
(46,204)
(13)
58,146
127,320
185,466
592
13,311
10,385
546
10,931
-
22
(503)
(50,000)
1,466
412,303
(362,303)
(49,608)
(216)
(55,637)
185,466
129,829
516
12,505
10,567
(585)
9,982
See accompanying notes to consolidated financial statements.
F-11
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2013, 2014 and 2015
Note 1. Background, Principal Activities and Basis of Presentation
Background
Himax Technologies, Inc. is a holding company located in the Cayman Islands. Following is general
information about Himax Technologies, Inc.’s subsidiaries:
Subsidiary
Main activities
Jurisdiction of
Incorporation
Percentage of
Ownership December 31,
2014
2015
Himax Technologies Limited
Himax Technologies Korea Ltd.
Himax Technologies Japan Ltd.
Himax Semiconductor, Inc.
Himax Semiconductor (Hong Kong)
Limited (1)
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.
IC design and sales
IC design and sales
Sales
IC design and sales
Investments
ROC
South Korea
Japan
ROC
Hong Kong
Samoa
PRC
PRC
ROC
Investments
Sales and technical
support
Sales and technical
support
LCOS and
MEMS design,
manufacturing and
sales
LCOS design
LCOS and MEMS
design, sales and
technical support
IC design and sales
Investments
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
76.65 %
81.80 %
Hong Kong
California, USA
76.65 %
76.65 %
81.80 %
81.80 %
ROC
Cayman Islands
83.18 %
100.00 %
98.61 %
100.00 %
F-12
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Subsidiary
Main activities
Himax Imaging, Ltd.
Himax Imaging Corp.
Argo Limited (2)
Tellus Limited (2)
Himax Media Solutions, Inc.
Himax Media Solutions (Hong Kong)
Limited (2)
Harvest Investment Limited
Iris Optronics Co., Ltd. (3)
Liqxtal Technology Inc. (4)
Jurisdiction of
Incorporation
ROC
California, USA
Cayman Islands
Cayman Islands
ROC
Percentage of
Ownership December 31,
2014
2015
87.95 %
87.95 %
93.65 %
93.65 %
-
-
-
-
98.85 %
99.21 %
Hong Kong
-
-
IC design and sales
IC design
Investments
Investments
TFT-LCD
television, monitor
chipset operations,
ASIC service and
IP licensing
Investments
Investments
E-paper
manufacturing and
sales
LC Lens design
and sales
ROC
ROC
ROC
100.00 %
-
100.00 %
-
-
64.00 %
(1)
Himax Semiconductor (Hong Kong) Limited was newly incorporated on January 6, 2014, which is
wholly owned by Himax Technologies, Inc.
(2)
Argo Limited, Tellus Limited and Himax Media Solutions (Hong Kong) Limited were deregistered
and dissolved on July 29, 2014, July 29, 2014 and October 25, 2013, respectively.
(3)
Iris Optronics Co., Ltd. (“Iris”) was incorporated on May 18, 2012. The Company initially had a
controlling financial interest in Iris because it had a majority voting interest at Iris board of directors.
As a result, Iris was included in the Company’s consolidated financial statements since that date.
On October 7, 2013, the Company no longer had a majority voting interest at Iris board of directors
level, but still has the ability to exercise significant influence over the operating and financial policies
of Iris. Therefore, the Company ceased consolidating Iris in its consolidated financial statements
and now accounts for its investment in Iris using the equity method. The Company re-measured its
investment in Iris at fair value due to the change in control and recognized a re-measurement gain.
(4)
Liqxtal Technology Inc. (“Liqxtal”) was incorporated on September 21, 2011. On November 16,
2015, the Company invested $1,780 thousand in Liqxtal and acquired a 64.00% shareholding.
Therefore, Liqxtal is included in the Company’s consolidated financial statements. See Note 3,
“Acquisition”, for additional information.
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.
F-13
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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,
LCOS micro-displays 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 and silicon IPs. 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.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in
conformity with U.S. 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 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 consolidation.
(b)
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires
management to make estimates and assumptions relating to the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. Significant items
subject to such estimates and assumptions include the useful lives of property, plant and
equipment and intangible assets; allowances for doubtful accounts and sales returns; the fair
value of financial instruments, the recoverability of deferred income tax assets, property,
plant and equipment, inventory; indefinite reinvestment of subsidiaries’ earnings; the fair
value of 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
F-14
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
three months or less at the time of purchase to be cash equivalents. As of December 31, 2014
and 2015, the Company had $39,619 thousand and $5,918 thousand of cash equivalents,
respectively, in Chinese Renminbi, New Taiwan dollar (NT$) and US dollar denominated
time deposits with original maturities of less than three months. As of December 31,
2014 and 2015, cash and time deposits in the amount of $130,000 thousand and $180,000
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.
(d)
Investment Securities
Investment securities as of December 31, 2014 and 2015 consist of investments in marketable
securities and investments in non-marketable equity securities. All of the Company’s
investments in marketable 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.
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, 2014 and 2015, the Company had $337 thousand and $563 thousand,
respectively, of restricted marketable securities, consisting of negotiable certificate of
deposits and NT dollar 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.
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 underlying equity in
net assets of an investee at investment date is allocated to related assets which are amortized
over their useful lives. Any unallocated difference is treated as investor-level goodwill and is
not amortized.
A decline in value of a security below cost that is deemed to be other than temporary will
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
F-15
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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.
(g)
Property, Plant and Equipment
Property, plant and equipment consists primarily of land purchased as the construction
site of the Company’s 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 10 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,
F-16
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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.
Management may 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 unit
is greater than its carrying amount, the two-step goodwill impairment test is not required.
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. 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
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.
As further described in Note 2(s) below, the Company determined that the Company has two
operating segments, which are also reportable segments. The Company has determined that
three of the components in Segment Driver IC are economically similar and are aggregately
deemed as a single reporting unit. As a result, the Company has four reporting units which
are Driver IC, Projection displays, CMOS image sensors, 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 those
reporting units are expected to benefit from the synergies of the business combinations.
For Driver IC reporting unit and Projection displays reporting unit in 2013, 2014 and 2015,
management qualitatively assessed whether it is more likely than not that the respective
fair values of these reporting units are less than their carrying amounts, including goodwill.
Based on that assessment, management determined that this condition, for these reporting
F-17
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
units, does not exist. As such, performing the first step of the two-step test impairment test
for these reporting units was unnecessary.
As of December 31, 2013, 2014 and 2015, goodwill in Segment Driver IC and Segment Non-
driver products was $26,846 thousand and $1,292 thousand, respectively.
(i)
Other Intangible Assets
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, 2014 and 2015. These intangible assets are amortized on a straight-line
basis over the following estimated useful lives: patents 5 to 15 years, technology 5 to 7 years
and customer relationship 7 years.
However, IPR&D assets, which are acquired in a business combination, are initially
accounted for as indefinite-lived intangible assets until the project is completed at which
time they become amortizable assets. Subsequent R&D costs associated with the acquired
IPR&D projects are charged to expense as incurred. The project is completed in July 2015
and therefore the Company began to amortize the IPR&D assets on a straight-line basis over
the estimated useful lives of 7 years.
(j)
Impairment of Long-Lived Assets
The Company’s long-lived assets, which consist of property, plant and equipment and
intangible assets subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is assessed by a comparison of
the carrying amount of an asset to its estimated undiscounted future cash 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-18
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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, 2013, 2014 and
2015, were $15 thousand, $9 thousand and $7 thousand, respectively.
The Company recognizes government grants to fund research and development expenditures
as a reduction of research and development expense in the 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.
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
F-19
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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 to reduce
deferred tax assets to the amount more likely than not to 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 percent 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.
(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:
F-20
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Year Ended December 31,
2014
2013
2015
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
$ 61,476
66,598
25,195
340,423
342,190
343,570
$ 0.18
0.19
0.07
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.
Year Ended December 31,
2014
2015
2013
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
$ 61,476
66,598
25,195
340,423
3,195
343,618
342,190
1,807
343,997
343,570
562
344,132
$ 0.18
0.19
0.07
(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.
F-21
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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.
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:
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
Decrease in Himax Technologies, Inc.’s paid-in
capital and retained earnings for purchase of
shares of subsidiaries
Change from net income attributable to Himax
Technologies, Inc. stockholders and transfers from
noncontrolling interests
2013
Year Ended December 31,
2014
(in thousands)
2015
$ 61,476
66,598
25,195
(1,455)
131
32
(1,006)
(1,144)
(1,036)
$ 59,015
65,585
24,191
F-22
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
(u)
Fair Value Measurements
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 time deposits with original maturities more than three months are determined using
the discounted present value of expected cash flows. 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.
(v)
Recently Issued Accounting Standard Update
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”
(Topic 606) regarding the accounting for and disclosures of revenue recognition, with an
effective date for annual and interim periods beginning after December 15, 2016. This
update provides a single comprehensive model for accounting for revenue from contracts
with customers. The model requires that revenue recognized reflect the actual consideration
to which the entity expects to be entitled in exchange for the goods or services defined in the
contract, including in situations with multiple performance obligations. In July 2015, the
FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral
of the Effective Date” which deferred the effective date, of the previously issued revenue
recognition guidance, by one year. The guidance will be effective for annual and interim
periods beginning after December 15, 2017. The guidance permits companies to either apply
the requirements retrospectively to all prior periods presented, or apply the requirements in
the year of adoption, through cumulative adjustment. The Company is currently evaluating
the effect that this guidance may have on its consolidated financial statements. The
Company has not yet determined the effect of adoption at this time nor has it selected a
transition method. The Company expects the assessment to be completed at the end of 2017.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Note 3. Acquisition
F-23
On November 16, 2015, the Company infused cash of $1,780 thousand into Liqxtal in exchange
for 64 percent of the outstanding common shares of Liqxtal. Acquisition costs, which are charged
to expense as incurred, were insignificant. The results of Liqxtal’s operations have been included in
the Company’s consolidated financial statements since that date. The amounts of Liqxtal’s revenues
and losses included in the consolidated statements of income from the acquisition date to the period
ended December 31, 2015 were nil and $30 thousand, respectively. Liqxtal mainly develops the
technology on Liquid Crystal Lens (“LC Lens”). As a result of the acquisition, the Company is
expected to further strengthen the Company’s competitiveness in the head-mounted displays with the
addition of technology resources.
The following table summarizes the amounts of estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition.
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash
Current assets, other than cash
Intangible assets
Current liabilities
Deferred income tax liabilities
Total identifiable net assets acquired
Noncontrolling interests
Total consideration paid
At November
16, 2015
(in thousands)
$ 2,121
57
732
(5)
(124)
2,781
(1,001)
$ 1,780
The fair value of acquired intangible assets and noncontrolling interests were determined based on
management’s estimates. The intangible assets were core and developed technology and will be
amortized based on a weighted-average useful life of 7 years.
The following unaudited pro forma results of operations for the years end December 31, 2014 and
2015 are presented as if the acquisition had been consummated on January 1, 2014, (dollars in
thousands except per share amounts):
For the years end
December 31,
(unaudited)
2014
2015
Net revenues
Net income attributable to Himax Technologies, Inc. stockholders
Basic and diluted earnings per share attributable to Himax
Technologies, Inc. stockholders
$ 840,542
$ 66,517
691,789
25,128
$ 0.19
0.07
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 Liqxtal.
Accordingly, the unaudited pro forma financial information above not necessarily indicative the
actual results that would have occurred had the acquisition of Liqxtal been combined during the
periods presented, nor is it necessarily indicative of future consolidated results of operations.
F-24
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Note 4. Investments in Marketable Securities Available-for-Sale
Following is a summary of marketable securities as of December 31, 2014 and 2015:
Time deposit with original maturities
more than three months
Money market fund
Total
Time deposit with original maturities
more than three months
Money market fund
Total
December 31, 2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Aggregate
Market
Value
8
7
15
-
-
-
158
2,219
2,377
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Aggregate
Market
Value
2
18
20
(120)
(179)
(299)
5,428
13,083
18,511
Aggregate
Cost
$ 150
2,212
$ 2,362
Aggregate
Cost
$ 5,546
13,244
$ 18,790
The Company’s portfolio of available for sale marketable securities by contractual maturity or the
expected holding period as of December 31, 2014 and 2015 is due in one year or less.
Information on sales of available for sale marketable securities for the years ended December 31,
2013, 2014 and 2015 is summarized below.
Period
Year 2013
Year 2014
Year 2015
Proceeds
from sales
Gross
realized gains
(in thousands)
Gross
realized losses
$ 21,792
$ 22,021
$ 46,720
17
15
261
(25)
(46)
(38)
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, 2013, 2014 and 2015 is as follows:
Allowance for doubtful accounts
Period
Balance at
beginning of year
Charges
to earnings
Amounts
utilized
Balance at
end of year
(in thousands)
Year 2013
Year 2014
Year 2015
$ 15,186
$ 15,359
$ 727
173
554
310
-
(15,186)
(262)
15,359
727
775
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
F-25
Allowance for sales returns and discounts
Period
Balance at
beginning of year
Additions
Amounts
utilized
Balance at
end of year
Year 2013
Year 2014
Year 2015
$ 1,078
$ 929
$ 868
7,272
5,168
8,887
(7,421)
(5,229)
(8,982)
929
868
773
(in thousands)
Note 6. Equity Method Investments
As of December 31, 2014 and 2015, equity method investments consisted of the following:
December 31,
2014
2015
Amount
Holding %
Amount
Holding %
Viewsil Microelectronics (Kunshan)
Limited
Create Electronic Optical Co., Ltd.
Iris (See Note 1)
$ -
92
10
$ 102
(in thousands)
-
3,629
21.11
6.41
-
19
3,648
49.00
-
1.98
Viewsil Microelectronics (Kunshan) Limited (“Viewsil”) mainly engaged in IC design and sales
and was purchased in March 2015. At investment date, the difference between the carrying amount
of the Company’s investment in Viewsil and the underlying equity in the net assets of Viewsil was
$1,897 thousand which represents investor level goodwill. For the year ended December 31, 2015,
the Company’s equity in losses of Viewsil was $71 thousand.
The Company sold the investments in Create Electronic Optical Co., Ltd. in January 2015 for
proceeds of $179 thousand and recognized gain on sale of securities of $88 thousand, which is
included in “Gains (losses) on sale of securities, net”.
As described in Note 1, Iris was deconsolidated at October 7, 2013, and a re-measurement gain of $54
thousand was recognized in “Other income, net”.
As of December 31, 2015, it was not practicable for management to estimate the fair values of the
Company’s investments in Viewsil and Iris due to the lack of quoted market price and the inability
to estimate the fair values 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.
F-26
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Note 7. Inventories
As of December 31, 2014 and 2015, inventories consisted of the following:
Finished goods
Work in process
Raw materials
Supplies
December 31,
2014
2015
(in thousands)
$ 54,302
71,086
40,689
28
$ 166,105
58,337
60,632
52,337
68
171,374
Inventory write-downs were $10,759 thousand, $8,198 thousand and $9,785 thousand for the years
ended December 31, 2013, 2014 and 2015, respectively, and are included in cost of revenues.
Note 8. Other Intangible Assests, Other than Goodwill
Gross
carrying
amount
December 31, 2014
Weighted
average
amortization
period
(in thousands)
Accumulated
amortization
Amortized intangible assets:
Technology
Customer relationship
Patents
Total
Unamortized intangible assets:
In-process research and development
$ 11,774
8,100
842
$ 20,716
$ 722
7 years
7 years
6 years
8,281
8,100
776
17,157
Gross
carrying
amount
December 31, 2015
Weighted
average
amortization
period
(in thousands)
Accumulated
amortization
$ 13,228
8,100
842
$ 22,170
7 years
7 years
6 years
9,126
8,100
783
18,009
Amortized intangible assets:
Technology
Customer relationship
Patents
Total
Amortization expense for the years ended December 31, 2013, 2014 and 2015 was $2,909 thousand,
$953 thousand and $852 thousand, respectively. Estimated amortization expense for the next five
years is $991 thousand in 2016, 2017 and 2018, $602 thousand in 2019, and $214 thousand in 2020.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
F-27
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
2014
December 31,
(in thousands)
2015
$ 14,328
18,582
41,154
25,155
12,537
9,968
23,516
145,240
(89,090)
1,121
$ 57,271
14,328
22,460
42,770
25,949
13,260
10,655
24,793
154,215
(101,373)
1,619
54,461
Depreciation and amortization of these assets for the years ended December 31, 2013, 2014 and 2015
were $11,400 thousand, $13,639 thousand and $13,312 thousand, respectively.
Note 10. 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, 2014 and 2015:
Chi Lin Optoelectronics Co., Ltd.
Chi Lin Technology Co. Ltd.
Jetronics International Corp.
C Company
eTurboTouch Technology Inc.
Oculon Optoelectronics Inc.
Shinyoptics Corp.
2014
December 31,
(in thousands)
2015
$ 625
432
432
8,962
477
-
283
$ 11,211
625
432
432
8,962
477
-
283
11,211
Jetronics International Corp. reduced its capital and returned $1,168 thousand to the Company in
October 2014.
The Company sold the investments in S Company in March 2014 for proceeds of $4,948 thousand
and recognized loss on sale of securities of $241 thousand for the year ended December 31, 2014,
which is included in “Gains (losses) on sale of securities, net”. The Company sold the investments
in L Company in May 2014 for total proceeds of $16,425 thousand, of which $14,743 thousand
received in May 2014 and $1,682 thousand received in May 2015, and recognized gain on sale of
securities of $10,743 thousand and $1,682 thousand for the years ended December 31, 2014 and
2015, respectively, which is included in “Gains (losses) on sale of securities, net”.
In 2014, management considered the Company’s investment in equity of Oculon Optoelectronics
Inc. was impaired as it did not believe that the investment carrying value would be recovered due
to the investee’ significant deterioration in the earnings performance. Management believes that
Company’s proportionate equity interest in the net book value of the investee is the best estimate of
the recoverable amount. As a result, the Company recognized impairment loss of $309 thousand
F-28
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
for the year ended December 31, 2014, which is included in “impairment loss on investment”.
Oculon Optoelectronics Inc. was liquidated in January 2016.
As of December 31, 2014 and 2015, except for the above impaired investments, the fair values
of the Company’s investments in non-marketable equity securities were not estimated because
management did not identify events or changes in circumstance that may significantly affect the
Company’s ability on recovering the carrying values of these investments, and it was not practicable
for management to estimate the fair values of these investments due to the lack of quoted market
price and the inability to estimate the fair value without incurring excessive costs.
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
Sales received in advance
Accrued warranty costs
Accrued insurance, welfare expenses, etc.
2014
December 31,
(in thousands)
2015
8,911
2,359
1,930
6,455
970
368
103
5,896
26,992
9,217
2,950
1,750
7,780
1,066
3,655
227
9,385
36,030
$
$
The movement in accrued warranty costs for the years ended December 31, 2013, 2014 and 2015 is
as follows:
Period
Balance at
beginning
of year
Additions
charged to
expense
Amounts
utilized
Balance at
end of year
(in thousands)
Year 2013
Year 2014
Year 2015
$ 197
$ 121
$ 103
364
355
1,121
(440)
(373)
(997)
121
103
227
Note 12. Short-Term Debt
In 2014 and 2015, short-term debt consisted of bank loans with interest rates per annum that ranged
from 0.32% to 0.45%, and cash, cash equivalents and marketable securities totaling $130,000
thousand and $180,000 thousand are pledged as collateral, respectively.
As of December 31, 2015, unused credit lines amounted to $217,153 thousand and will expire
between February 2016 and November 2016. Among which, $23,000 thousand will expire in
February 2016.
Note 13. Government Grants
The Company entered into several contracts with Institute for Information Industry (III) during
2013, 2014 and 2015 primarily for the development of certain new leading products or technologies.
Details of these contracts are summarized below:
F-29
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Authority
Total Grant
(in thousands)
Execution Period
Product Description
III
III
III
III
NT$
23,220 (US$770)
June 2011 to February 2013
CMOS Development Program
72,000 (US$2,416)
January 2013 to June 2014
MEMS Development Program
27,500 (US$923)
April 2013 to December
2014
Wafer-Level Lens
Development Program
135,000 (US$4,265)
August 2014 to July 2017
LCOS Display Module
Development Program
Government grants recognized by the Company as a reduction of research and development expense
in the consolidated statements of income in 2013, 2014 and 2015 were $2,011 thousand, $1,879
thousand and $1,508 thousand, respectively.
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 2013, 2014 and 2015, based on the contribution called for was $2,091
thousand, $2,304 thousand and $2,455 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
F-30
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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 $115 thousand to its pension fund maintained with the Bank
of Taiwan and $2,828 thousand to the employees’ individual pension fund accounts at the ROC
Bureau of Labor Insurance in 2016.
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.
All PRC employees participate in employee social security plans, including pension and other
welfare benefits, which are organized and administered by governmental authorities. The
Company has no other substantial commitments to employees. The premiums and welfare benefit
contributions that should be borne by the 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 $778 thousand, $1,012 thousand, and $1,445 thousand for the years ended December
31, 2013, 2014 and 2015, 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)
Effect of foreign currency rate changes
Benefit obligation at end of year
Change in plan assets:
Fair value at beginning of year
Actual return on plan assets
Employer contribution
Effect of foreign currency rate changes
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,
2014
2015
(in thousands)
$ 2,883
-
64
(157)
(171)
2,619
2,619
-
61
1,097
(242)
3,535
2,679
59
122
(155)
2,705
$ 86
2,705
70
119
(91)
2,803
(732)
$ 310
(224)
$ 86
331
(1,063)
(732)
F-31
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Amounts recognized in accumulated other comprehensive income was net actuarial loss of
$1,409 thousand, $1,128 thousand and $1,906 thousand at December 31, 2013, 2014 and 2015,
respectively.
The accumulated benefit obligation for the Defined Benefit Plan was $1,033 thousand and $1,211
thousand at December 31, 2014 and 2015, respectively. As of December 31, 2014 and 2015, no
employee was eligible for retirement or was required to retire.
For the years ended December 31, 2013, 2014 and 2015, the net periodic pension cost consisted
of the following:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Net periodic pension cost
2013
2015
Year Ended December 31,
2014
(in thousands)
-
64
(52)
74
86
-
61
(54)
59
66
$ -
39
(44)
58
$ 53
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 2016 is $97 thousand.
At December 31, 2014 and 2015, the weighted-average assumptions used in computing the
benefit obligation are as follows:
December 31,
2014
2015
Discount rate
Rate of increase in compensation levels
2.25 %
4.00 %
2.00 %
5.00 %
For the years ended December 31, 2013, 2014 and 2015, the weighted average assumptions used
in computing net periodic benefit cost are as follows:
2013
Year Ended December 31,
2014
whole
2015
Discount rate
Rate of increase in compensation levels
Expected long-term rate of return on pension assets
2.25 %
5.00 %
2.00 %
2.25 %
4.00 %
2.25 %
2.00 %
5.00 %
2.00 %
Management determines the discount rate and expected long-term rate of return on plan assets
based on the yields of twenty year ROC central government bonds which is in line with the
respective employees remaining service period and the historical long-term rate of return on the
above mentioned Fund mandated by the ROC Labor Standard Law.
The benefits expected to be paid from the defined benefit pension plan is $30 thousand in 2017, $94
thousand in 2018, $35 thousand in 2020 and $544 thousand from 2021 to 2025, and no benefits
payment to be paid in 2016 and 2019.
F-32
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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:
2013
Year Ended December 31,
2014
(in thousands)
2015
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total compensation recognized in income
Income tax benefit
$ 235
6,705
1,308
1,425
$ 9,673
$ 2,170
121
7,610
1,688
1,847
11,266
2,437
110
4,289
865
1,010
6,274
1,342
(a)
Long-term Incentive Plan
On October 25, 2005 and September 7, 2011, the Company’s shareholders approved a long-
term incentive plan, respectively. Both plans permit 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 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 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.
On September 26, 2013, the Company’s compensation committee made grants of 867,771
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
88.90% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $7,833 thousand, a subsequent 3.70% will vest on each of September 30, 2014,
2015 and 2016 which will be settled by the Company’s ordinary shares, subject to certain
F-33
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
forfeiture events.
On September 26, 2014, the Company’s compensation committee made grants of 1,219,791
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
82.57% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $9,337 thousand, a subsequent 5.81% will vest on each of September 30, 2015,
2016 and 2017 which will be settled by the Company’s ordinary shares, subject to certain
forfeiture events.
On September 25, 2015, the Company’s compensation committee made grants of 597,596
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
94.15% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $4,456 thousand, a subsequent 1.95% will vest on each of September 30, 2016,
2017 and 2018 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 $2.47 per
ADS, $1.1 per ADS, $1.95 per ADS, $10.15 per ADS, $9.27 per ADS and $7.92 per ADS
on September 28, 2010, September 28, 2011, September 26, 2012, September 26, 2013,
September 26, 2014 and September 25, 2015, respectively.
RSUs activity under the long-term incentive plan during the periods indicated is as follows:
Balance at January 1, 2013
Granted
Vested
Forfeited
Balance at December 31, 2013
Granted
Vested
Forfeited
Balance at December 31, 2014
Granted
Vested
Forfeited
Balance at December 31, 2015
Number of
Underlying
Shares for RSUs
Weighted
Average Grant
Date Fair Value
2,637,455
867,771
(1,719,273)
(274,730)
1,511,223
1,219,791
(1,694,872)
(72,136)
964,006
597,596
(1,257,803)
(99,792)
204,007
$ 1.99
10.15
5.70
1.92
2.47
9.27
6.44
2.06
4.11
7.92
5.19
2.94
9.17
As of December 31, 2015, the total compensation cost related to the unvested RSUs not yet
recognized was $1,421 thousand. The weighted-average period over which it is expected to
be recognized is 1.77 years.
As of December 31, 2015, all 204,007 unvested RSUs were outstanding under 2011 plan.
F-34
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
In 2013, 2014 and 2015, the Company settled RSUs release with shares buyback of 1,899,910
shares, 1,375,726 shares and 1,390,280 shares, respectively.
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:
2013
Year Ended December 31,
2014
(in thousands)
2015
$ 235
6,686
1,307
1,425
$ 9,653
$ 2,170
121
7,610
1,688
1,847
11,266
2,437
87
4,249
855
1,006
6,197
1,342
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total compensation from RSUs
Income tax benefit
(b)
Non-vested Shares Issued to Employees
From 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.
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
has the option to buy the vested shares back at employees’ original purchase price. In
2013 and 2014, the Company recognized compensation expenses of $9 thousand and $0.3
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
and general and administrative expenses in the consolidated statements of income with a
corresponding increase to noncontrolling interests in the 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 Taiwan during the period indicated is as
follows:
F-35
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Balance at January 1, 2013
Vested
Forfeited
Balance at December 31, 2013
Vested
Forfeited
Balance at December 31, 2014
Number of
Shares
Weighted
Average Grant
Date Fair Value
355,747
(181,448)
(143,160)
31,139
(31,139)
-
-
$ 0.72
0.72
0.72
0.72
0.72
-
-
As of December 31, 2014, the total compensation cost related to this award was 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 $11
thousand in 2013. Such compensation expense was recorded as sales and marketing
expenses, general and administrative expense and research and development expenses
in the consolidated statements of income. There was no income tax benefit realized in
the consolidated statements of income for employee stock options for the year ended
December 31, 2013.
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.
F-36
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
2007 plan
2009 plan
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
Weighted
average
exercise
price
Balance at January 1, 2013
Granted
Exercised
Forfeited
Balance at December 31, 2013
Granted
Exercised
Forfeited
Balance at December 31, 2014
Granted
Exercised
Forfeited
Balance at December 31, 2015
1,179,125
-
-
(890,625)
288,500
-
-
(11,250)
277,250
-
-
(277,250)
-
$ 1.690
-
-
1.834
1.244
-
-
1.244
1.244
-
-
1.244
-
Weighted
average
remaining
contractual
term
1.5
1.83
0.83
-
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 and July 1, 2013, board of directors of Imaging Cayman approved a
plan to grant stock options, the 2012 plan and the 2013 plan, respectively, to certain
employees. These two plans authorize grants to purchase up to 2,000,000 shares and
430,000 shares, respectively, of Imaging Taiwan’ issued ordinary shares held by Imaging
Cayman. The exercise price was NT$30 (US$1.004) and NT$30 (US$1), respectively.
The 2012 plan has 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. The 2013 plan has three
years contractual life and two years vesting period. Based on the vesting schedule, 50%
of the options vest half years after the date of grant and 50% of the options vest two
years after the date of grant. Because the exercise price of the options are 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.
F-37
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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
2012 plan
2013 plan
0 %
43.29 %
3.125
0.87 %
0 %
39.50 %
2.125
0.85 %
Stock option activity during the periods indicated is as follows:
Weighted
average
exercise
price
Number
of shares
Balance at January 1, 2013
Granted
Exercised
Forfeited
Balance at December 31, 2013
Granted
Exercised
Forfeited
Balance at December 31, 2014
Granted
Exercised
Forfeited
Balance at December 31, 2015
Exercisable at December 31, 2015
1,050,000
425,000
-
(75,000)
1,400,000
-
-
(90,000)
1,310,000
-
-
(85,000)
1,225,000
1,225,000
$ 1.004
1.000
-
1.004
1.003
-
-
1.002
1.003
-
-
1.003
1.003
1.003
Weighted
average
remaining
contractual
term
3.5
2.5
1.5
0.5
(iii) On October 6, 2015, board of directors of Himax Display approved a plan to grant stock
options, the 2015 plan, to certain employees. This plan authorizes grants to purchase
up to 2,528,000 shares of Himax Display’ authorized but unissued ordinary shares. The
exercise price was NT$65 (US$1.986).
The 2015 plan has 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
F-38
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
grant and 50% of the options vest three years after the date of grant. The Company
recognized compensation expenses of $77 thousand in 2015. Such compensation
expense was recorded as cost of revenues, sales and marketing expenses, general and
administrative expense and research and development expenses in the consolidated
statements of income. There was no income tax benefit realized in the consolidated
statements of income for employee stock options for the year ended December 31, 2015.
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 Display 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 Display’ shares are not publicly traded and its shares are
rarely traded privately, expected volatility is computed based on the average historical
volatility of similar entities with publicly traded shares. The risk-free rate for the
expected term of the options is based on the interest rates of 2 years and 5 years ROC
central government bond at the time of grant.
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
2015 plan
0 %
33.52 %
3.125
0.65 %
Stock option activity during the periods indicated is as follows:
Weighted
average
exercise
price
Number
of shares
Weighted
average
remaining
contractual
term
Balance at January 1, 2015
Granted
Exercised
Forfeited
Balance at December 31, 2015
Exercisable at December 31, 2015
-
2,025,000
-
-
2,025,000
-
$ -
1.986
-
-
1.986
-
3.75
F-39
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Note 16. Equity
(a)
Share capital
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, 2015. Among which, 6,442,029
ADSs were held by the Company as of December 31, 2015.
(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,
2014 and 2015 amounted to $58,959 thousand and $66,354 thousand, respectively.
F-40
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Note 17. Comprehensive Income
The components of accumulated other comprehensive loss, net of tax, are as follows:
Foreign
currency
items
Unrealized
gains/
(losses) on
securities
Defined
benefit
pension
plan
(in thousands)
Accumulated
other
comprehensive
income (loss)
$ 951
23
(1,386)
(412)
(170)
(33)
268
65
-
$ 781
$ 781
31
21
21
-
(1,118)
(1,118)
31
(316)
(316)
(573)
(63)
(731)
(1,367)
-
$ 208
(196)
(238)
-
(1,849)
(196)
(1,879)
Beginning balance, January 1, 2014
Other comprehensive income
(loss) before reclassifications
Reclassification adjustments for
losses (gains) reclassified into
income, net of tax of nil
Ending balance, December 31, 2014
Beginning balance, January 1, 2015
Other comprehensive income
(loss) before reclassifications
Reclassification adjustments for
losses (gains) reclassified into
income, net of tax of nil
Ending balance, December 31, 2015
Reclassification adjustments for losses (gains) reclassified into income were presented in “Gains
(losses) on sale of marketable securities, net” in the consolidated statements of income.
Note 18. Income Taxes
Substantially all of the Company’s taxable income from continuing operations 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 located in the ROC is 17%. 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.
In accordance with the ROC Statute for Upgrading Industries, Himax Taiwan’s capital increase in
June 2009 as well as Himax Semiconductor’s newly incorporated investment in August 2004 and
October 2009 related to the manufacturing of a newly designed TFT-LCD driver and were approved
F-41
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
by the government authorities for income tax exemptions as a result of investing in a newly
emerging, important and strategic industry. Himax Taiwan’s capital increase in November 2009
related to the electronic parts and components manufacturing was approved by the government
authorities for income tax exemptions. The incremental income derived from selling the above new
product is tax-exempt for a period of five years.
The Company is entitled to the following income tax exemptions:
Date of investment
Tax exemption period
Himax Taiwan:
June 5, 2009
November 12, 2009
Himax Semiconductor:
August 26, 2004
October 9, 2009
January 1, 2014-December 31, 2018
January 1, 2014-December 31, 2018
January 1, 2009-December 31, 2013
January 1, 2014-December 31, 2018
The income tax exemption resulted in an income tax benefit of $2,392 thousand, $2,843 thousand
and $1,759 thousand and the increase to basic and diluted earnings per ordinary share effect
resulting from the income tax exemption is $0.01, $0.01 and $0.01 for the years ended December
31, 2013, 2014 and 2015, respectively.
Income (loss) before income taxes for domestic and foreign entities is as follows:
Taiwan operations
Cayman operations
US operations
China operations
Korea operations
Japan operations
2013
Year Ended December 31,
2014
(in thousands)
2015
$ 77,130
(57)
(2,251)
506
55
17
$ 75,400
69,532
16,996
(2,248)
1,105
91
18
85,494
28,349
4,363
(719)
825
33
16
32,867
The components of the income tax expense (benefit) attributable to income from continuing
operations before taxes for the years ended December 31, 2013, 2014 and 2015 consist of the
following:
F-42
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Year Ended December 31,
2013
2014
(in thousands)
2015
Current:
Taiwan operations – based on statutory tax rate of 17%
Taiwan operations – 10% of surtax
Cayman operations
US operations
China operations
Korea operations
Japan operations
Total current income tax expense
$ 5,126
6,497
-
156
270
11
7
12,067
8,928
8,398
-
83
347
12
7
17,775
1,467
5,405
-
24
338
17
6
7,257
Deferred:
Taiwan operations - based on statutory tax rate of 17%
Taiwan operations - 10% of surtax
US operations
China operations
Korea operations
Total deferred income tax expense
Income tax expense
6,593
853
4
(36)
(5)
7,409
$ 19,476
3,633
186
3
(2)
(4)
3,816
21,591
4,527
(287)
(18)
(68)
(6)
4,148
11,405
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, 2013, 2014 and 2015 are as follows:
2013
Year Ended December 31,
2014
(in thousands)
2015
Deferred income tax expense (benefit), exclusive of the
effects of other components listed below
Tax expenses of unrealized foreign exchange gain
Tax expenses (benefits) of allowance for doubtful
accounts
Tax expenses of used investment tax credits
Tax expenses (benefits) of advanced share-based
compensation deductions
$ (669)
46
732
2,142
15
5,985
(57)
1,431
(546)
512
2,304
3,337
2,032
$ 7,409
(432)
3,816
(1,459)
4,148
The applicable combined tax rate was 23.85%, consisting of an aggregate calculation of the
17% regular income tax and the 10% undistributed earning surtax.
The differences between expected income tax expense, computed based on the ROC statutory
income tax rate of 17% of earnings before income taxes and the actual income tax expense
as reported in the consolidated statements of income for the years ended December 31, 2013,
2014 and 2015 are summarized as follows:
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
F-43
2013
Year Ended December 31,
2014
(in thousands)
2015
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
Realized tax losses on investments in subsidiaries
due to capital reduction to offset the
accumulated deficit
Increase in investment tax credits
Increase in deferred tax asset valuation allowance
Changes in unrecognized tax benefits related to
prior year tax positions, net of its impact to tax-
exempted income
Tax effect resulting from foreign currency matters
Foreign tax rate differential
Variance from audits, amendments and
examinations of prior years’ income tax filings
Others
Actual income tax expense
$ 12,818
4,700
(2,392)
14,534
6,814
(2,843)
5,587
3,011
(1,759)
(558)
(651)
(839)
-
-
3,146
(489)
(4,525)
4,038
(2,157)
(4,242)
6,640
(215)
2,278
612
305
5,593
(2,143)
915
3,583
(454)
(1,376)
463
$ 19,476
37
921
21,591
793
327
11,405
The amount of income tax expense (benefit) for the years ended December 31, 2013, 2014 and
2015 was allocated as follows:
2013
Year Ended December 31,
2014
(in thousands)
2015
Income from continuing operations
Other comprehensive gain (loss)
Excess tax benefits allocated to additional paid-in
capital from share-based compensation
$ 19,476
(99)
21,591
43
11,405
(168)
(1,271)
$ 18,106
(1,232)
20,402
(771)
10,466
As of December 31, 2014 and 2015, the components of deferred income tax assets (liabilities)
were as follows:
F-44
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
December 31,
2014
2015
(in thousands)
Deferred tax assets:
Inventory
Allowance for doubtful accounts
Unused investment tax credits
Unused loss carryforward-regular tax
Unused loss carryforward-undistributed earnings tax
Other
Total gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Unrealized foreign exchange gain
Advanced share-based compensation deductions
Prepaid pension cost
Acquired intangible assets
Other
Total gross deferred tax liabilities
Net deferred tax assets
$ 5,860
2,342
4,665
29,369
11,223
1,604
55,063
(40,966)
14,097
5,262
49
1,328
32,098
11,861
2,484
53,082
(44,320)
8,762
(2,193)
(1,600)
(414)
(1,806)
(64)
(6,077)
$ 8,020
(2,709)
(141)
(413)
(1,573)
(10)
(4,846)
3,916
As of December 31, 2015, the Company has not provided for income taxes on the undistributed
earnings of approximately $620,390 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. This amount becomes taxable when the ultimate parent company,
Himax Technologies, Inc., executes other investments, share buybacks or shareholder dividends
to be funded by cash distribution by its foreign subsidiaries. It is not practicable to estimate the
amount of additional taxes that might be payable on such undistributed earnings because of the
complexities of the hypothetical calculation.
The activity in the valuation allowance for deferred tax assets for the years ended December
31, 2013, 2014 and 2015 follows:
Balance at
beginning
of year
Additions-
Charges to
earnings
Period
Deductions-
Charges to
earnings
(in thousands)
Expirations
and
Forfeitures
Others
(Note)
Balance at
end of year
Year 2013
Year 2014
Year 2015
$ 44,995
$ 38,347
$ 40,966
4,698
5,445
6,640
(1,552)
(1,407)
-
(10,183)
(187)
(2,141)
389
(1,232)
(1,145)
38,347
40,966
44,320
Note: Others represent the effect resulting from exchange rates and changes in consolidated
entities.
F-45
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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; however, the Company is not relying on
significant tax-planning strategies. Over half of the deferred tax assets recognized net of the
valuation allowance are dependent upon the projected future taxable income. 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, 2015. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
Each entity within the Company files separate standalone income tax return. Except for Himax
Taiwan, Himax Semiconductor, Himax Korea, Himax Japan, 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 $40,966 thousand and $44,320 thousand as of December 31, 2014 and
2015, respectively, was provided to reduce their deferred tax assets (consisting primarily of
operating loss carryforward and unused investment tax credits) to zero because management
believes it is unlikely that these tax benefits will be realized. For the year ended December
31, 2013, 2014 and 2015, Himax Media Solution, Inc. realized a tax benefit of $143 thousand,
$1,221 thousand and nil, respectively, related an unused loss carryforward that was previously
offset by a valuation allowance.
Under ROC Income Tax Acts, the tax loss carryforward in the preceding ten years is available
to be deducted from tax income for Taiwan operations. The statutory losses would be deducted
for undistributed earnings tax and were not subject to expiration for Taiwan operations.
As of December 31, 2015, the Company’s unused operating loss carryforward for regular tax
were as follows:
Deductible amount
Tax effect
Expiration year
(in thousands)
Taiwan operations
Hong Kong operations
US operations
$ 78,349
87,634
1,811
9,084
$ 13,319
14,898
299
3,582
$ 32,098
2016~2020
2021~2025
Indefinitely
2024~2035
F-46
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
According to the ROC Statute for Upgrading Industries, which expired on December 31, 2009,
investments in shares originally issued by ROC domestic companies that belong to newly
emerging, important and strategic industries, entitles the Company after a three-year holding
period to an income tax credit of twenty percent of the price paid for the acquisition of such
shares. These credits may be applied over a period of five years. The amount of the tax 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. All remaining tax credits under this
program were utilized by December 31, 2015.
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 income 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 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 cannot be carried forward. Based on
the amendments to the Statute for Industrial Innovation, effective from January 1, 2016 to
December 31, 2019, if the Company chooses to extend the tax credits to three years, the tax
credit rate will be 10% of the total research and development expenditure for the current year
and subject to a cap of 30% of the income tax payable for each year. The investment tax
credits generated were nil, $4,525 thousand and $4,242 thousand for the years ended December
31, 2013, 2014 and 2015, respectively. All tax credits generated under this program have been
utilized.
As of December 31, 2015, all of the Company’s unused investment tax credits were as follows:
Tax effect
(in thousands)
Expiration year
US operations
$ 1,328
2020~2034
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
For the year ended December 31,
2015
2014
2013
(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
Settlements
Lapse of statute of limitations
Balance at end of year
$ 791
-
(184)
-
(93)
(31)
$ 483
483
368
-
-
-
(63)
788
788
292
-
630
(368)
(7)
1,335
F-47
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Included in the balance of total unrecognized tax benefits at December 31, 2014 and 2015, are
potential benefits of $788 thousand and $1,335 thousand, respectively that if recognized, would
reduce the Company’s effective tax rate. The interest and penalties related to unrecognized tax
benefits recorded by the Company were nil, $110 thousand and nil for the years ended December
31, 2013, 2014 and 2015, respectively, and were recognized as a component of income tax expense.
As of December 31, 2014 and 2015, the accrued interest and penalties were $110 thousand and
$106 thousand, respectively. Interest and penalties are not included in the tabular roll-forward of
unrecognized tax benefits above.
The Company’s major taxing jurisdiction is Taiwan. All Taiwan subsidiaries’ income tax returns
have been examined and assessed by the ROC tax authorities through 2013. The income tax returns
of 2014 for all Taiwan subsidiaries are open to examination by the ROC tax authorities. Taiwanese
entities are customarily examined by the tax authorities and it is possible that a future examination
will result in a positive or negative adjustment to the Company's unrecognized tax benefits within
the next 12 months; however, management is unable to estimate a range of the tax benefits or
detriment as of December 31, 2015.
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, 2014 and 2015:
Fair Value Measurements at
December 31, 2014 Using
Level 2
(in thousands)
Level 3
Level 1
Assets:
Cash and cash equivalents:
Time deposits with original maturities less
than three months
Marketable securities available-for-sale:
Time deposit with original maturities more
than three months
Money market fund
Restricted marketable securities :
Time deposits with original maturities of
more than three months
Liabilities:
Short-term debt
Total
Total
$ 39,619
-
-
-
2,219
158
-
-
-
-
$ 41,838
337
495
-
-
$ -
$ -
130,000
130,000
-
-
F-48
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Fair Value Measurements at
December 31, 2015 Using
Level 2
(in thousands)
Level 1
Level 3
Assets:
Cash and cash equivalents:
Time deposits with original maturities less
than three months
Marketable securities available-for-sale:
Time deposit with original maturities more
than three months
Money market fund
Restricted marketable securities:
Time deposits with original maturities of
more than three months
Liabilities:
Short-term debt
Total
Total
$ 5,918
-
-
-
13,083
5,428
-
-
-
-
$ 19,001
563
5,991
-
-
$ -
$ -
180,000
180,000
-
-
The following table presents fair value measurements of assets that are measured at fair value
on a nonrecurring basis at December 31, 2014 and the associated losses recognized in 2014 (nil
in 2013 and 2015):
Fair Value Measurements at
Reporting Date Using
For the
Year
Ended
December
31, 2014
Impairment
Loss
December
31, 2014
Level 1
Level 2
(in thousands)
Level 3
Assets:
Investments in Non-
marketable Equity
Securities- Oculon
Optoelectronics Inc.
$
-
-
-
-
309
F-49
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
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 2014 for
the investment in Oculon Optoelectronics Inc. was determined based on the difference between
the Company’s carrying value and the proportionate equity interest in the net book value of the
investee at year end (which was management’s 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 2013, 2014 and 2015.
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, 2013, 2014 and 2015.
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, 2013, 2014 and 2015:
Balance at January 1, 2013
Liability for warrant obligation
Unrealized gain for change in the fair value of the warrant included in
earnings
Balance at December 31, 2013
Gain for expiration of the warrant included in earnings
Balance at December 31, 2014
Balance at December 31, 2015
The amount of total gain in 2013 included in earnings attributable to
the change in unrealized gain relating to assets and liabilities still held
at December 31, 2013
Warrant
obligation
(in thousands)
$
$
$
$
$
-
1,415
(160)
1,255
(1,255)
-
-
160
The Company estimated the fair value for warrant obligation 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 risk free rate of 0.58% for the expected terms of 0.81 years is
derived from the yield rate of 1 years Zero-Coupon ROC central government bond at the reporting
date; (b) an expected volatility of 46.35%, which is based on the average historical volatility of the
comparative companies’ 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
F-50
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
places its cash primarily in checking and saving accounts with reputable financial institutions.
Marketable securities are time deposits with original maturities of greater than three months. The
Company has not experienced any material losses on deposits of the Company’s cash and cash
equivalents and marketable securities.
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.
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 Company’s sales to these two customers as a
percentage of revenues are as follows:
Year Ended December 31,
2014
2013
2015
INX and its affiliates, not a related party since June 19, 2013
Customer A and its affiliates
22.6 %
16.9 %
19.6 %
18.1 %
21.1 %
20.1 %
The percentage of the Company’s accounts receivable accounted by customers, those representing
more than 10% of total accounts receivable balance, is summarized as follows:
December 31,
2014
2015
INX and its affiliates, not a related party since June 19, 2013
Customer A and its affiliates
26.7 %
21.9 %
22.2 %
22.8 %
In addition, 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.
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 ten 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
F-51
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
manner. Moreover, if shortages of processed tape were to occur, the Company may incur additional
costs or be unable to ship its products to customers in a timely manner, which could harm the
Company’s business customer relationships and negatively impact its earnings.
A limited number of third-party assembly and testing houses assemble and test substantially all of
the Company’s current products. As a result, the Company does not directly control its product
delivery schedule, assembly and testing costs and quality assurance and control. If any of these
assembly and testing houses experiences capacity constraints or financial difficulties, or suffers any
damage to its facilities, or if there is any other disruption of its assembly and testing capacity, the
Company may not be able to obtain alternative assembly and testing services in a timely manner.
Because the amount of time the Company usually takes to qualify assembly and testing houses,
the Company could experience significant delays in product shipments if it is required to find
alternative sources. Any problems that the Company may encounter with the delivery, quality or
cost of its products could damage the Company’s reputation and result in a loss of customers and
orders.
Note 21. Related-party Transactions
(a) Name and relationship
Name of related parties
Relationship
Innolux Corporation (INX)
Principal Owner, not included as related party since
June 19, 2013 (1)
Chi Mei Optoelectronics Japan, Co., Ltd.
(CMO-Japan)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
NingBo Innolux Optoelectronics Ltd.
(INXO-NingBo)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
NingBo Innolux Technology Ltd.
(INXT-NingBo)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
Foshan Innolux Optoelectronics Ltd.
(INXO-Foshan)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
NingBo Innolux Logistics Ltd. (INXL-
NingBo)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
Foshan Innolux Logistics Ltd. (INXL-
Foshan)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
NingBo Innolux Display Ltd. (INXD-
NingBo)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
TPO Displays (Shanghai) Ltd. (TPO
Shanghai)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
TPO Displays (Nanjing) Ltd. (TPO-NJ)
The subsidiary of INX, not included as related party
since June 19, 2013 (1)
F-52
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
(1)
Chimei Innolux Corporation (CMI), NingBo Chi Mei Electronics Ltd. (CME-NingBo),
NingBo Chi Mei Optoelectronics Ltd. (CMO-NingBo), NanHai Chi Mei Optoelectronics
Ltd. (CMO-NanHai), NingBo Chi Mei Logistics Corp. (CMLC-NingBo), Foshan
Chi Mei Logistics Ltd. (CMLC-Foshan) and NingBo ChiHsin Electronics Ltd. (Chi
Hsin-NingBo) changed their names to Innolux Corporation (INX), NingBo Innolux
Optoelectronics Ltd. (INXO-NingBo), NingBo Innolux Technology Ltd. (INXT-
NingBo), Foshan Innolux Optoelectronics Ltd. (INXO-Foshan), NingBo Innolux
Logistics Ltd. (INXL-NingBo), Foshan Innolux Logistics Ltd. (INXL-Foshan) and
NingBo Innolux Display Ltd. (INXD-NingBo), respectively. On June 19, 2013,
INX disposed of its entire holding shares of the Company, so that INX ceased to be
the Company’s shareholder and INX and its affiliates was not a related party to the
Company since that day. The related transactions were disclosed as of June 19, 2013.
(b) Significant transactions with related parties
(i)
Revenues
Revenues from related parties for the year ended December 31, 2013 are summarized as
follows:
INXT- NingBo
INX
INXO- Foshan
INXO- NingBo
TPO Shanghai
INXD- NingBo
Others (individually below 5%)
Amount
(in thousands)
$ 32,045
26,695
10,564
6,416
5,632
2,534
2,669
$ 86,555
A breakdown by product type for sales to INX and its affiliates for the year ended
December 31, 2013 is summarized as follows:
Display driver for large-size applications
Display driver for consumer electronics applications
Display driver for mobile handsets
Others
Amount
(in thousands)
$ 54,813
24,965
1,863
4,914
$ 86,555
The sales prices with INX and its affiliates are comparable to those offered to unrelated
third parties.
F-53
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
(ii)
Lease
The Company entered into several lease contracts with INX, INXL-NingBo, INXL-
Foshan and INXO-Foshan for leasing office space, facilities and inventory locations.
For the years ended December 31, 2013, the related rent and utility expenses resulting
from the aforementioned transactions amounted to $373 thousand and were recorded as
cost of revenue and operating expenses in the consolidated statements of income.
(iii)
Others
In 2013, the Company purchased consumable and miscellaneous items amounting to $8
thousand from INX, which was charged to cost of revenues and operating expenses.
Note 22.
Commitments and Contingencies
(a)
(b)
As of December 31, 2014 and 2015 the Company had entered into several contracts for
the acquisition of equipment and computer software. Total contract prices amounted to
$3,807 thousand and $5,355 thousand, respectively. As of December 31, 2014 and 2015,
the remaining commitments were $3,087 thousand and $4,086 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 2016 to 2024. As of December 31, 2014 and 2015, deposits paid
amounted to $986 thousand and $1,256 thousand, respectively, and were recorded
as refundable deposit in the consolidated balance sheets.
As of December 31, 2015, future minimum lease payments under noncancelable
operating leases are as follows:
Duration
January 1, 2016~December 31, 2016
January 1, 2017~December 31, 2017
January 1, 2018~December 31, 2018
January 1, 2019~December 31, 2019
January 1, 2020~December 31, 2020
January 1, 2021~December 31, 2024
Amount
(in thousands)
$ 1,901
1,329
438
234
171
547
4,620
$
Rental expense for operating leases with unrelated third parties amounted to $2,652
thousand, $2,126 thousand and $2,082 thousand in 2013, 2014 and 2015, respectively.
(c)
The Company entered into several sales agent agreements. Based on these agreements,
the Company shall pay commissions at the rates ranging from 0.5% to 2% of the sales to
customers in the specific territory or referred by agents as stipulated in these agreements.
(d)
The Company from time to time is subject to claims regarding the proprietary use of
F-54
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
(e)
(f)
(g)
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
resulting from above arrangements approximate $153,422 thousand and $95,210
thousand as of December 31, 2014 and 2015, respectively.
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. As of December 31, 2015, management is not aware of any
pending litigation against the Company.
Note 23. Redeemable Noncontrolling Interest
During 2013, Himax Display, Inc., a consolidated subsidiary of the Company, issued redeemable
convertible preferred shares to a non-controlling shareholder. The noncontrolling shareholder
may, solely at its option, convert their preferred shares at any time into ordinary shares of
Himax Display, Inc. on a one to one basis. Additionally, Himax Display, Inc. provided the
noncontrolling shareholder with a liquidation preference and redemption feature and also issued
the noncontrolling shareholder a warrant to purchase additional preferred shares of Himax
Display, Inc, within one year from the original investment closing date. The Company recognized
an initial liability at fair value for the warrant obligation at the date of issuance and changes
in the fair value of the warrant are recognized in earnings. The warrant expired in October
2014. Valuation gains on the warrant obligation were $160 thousand, $1,255 thousand and nil
for the years ended December 31, 2013, 2014 and 2015, respectively. See Note 19 for further
explanation. Consequently, the convertible preferred shares of Himax Display, Inc. are presented
as redeemable noncontrolling interest on the Company’s consolidated balance sheet.
The redeemable noncontrolling interest was originally recognized on the balance sheet at fair
value. Each reporting period, the redeemable noncontrolling interest is presented at the greater
of its carrying amount or redemption value. Changes in value from period to period are charged
to Himax stockholders on our consolidated balance sheets. As of December 31, 2014 and 2015,
the aggregate value of the redeemable noncontrolling interest was $3,656 thousand. Net loss
attributable to the redeemable noncontrolling interest was $125 thousand, $430 thousand and $617
thousand for the years ended December 31, 2013, 2014 and 2015, respectively.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Note 24. Segment, Product and Geographic Information
F-55
Year Ended December 31, 2013
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 items:
Share Based Compensation
Depreciation and amortization
$ 644,500
$ 89,162
126,239
(14,819)
770,739
74,343
1,057
$ 75,400
$ 1,359
$ 7,564
481
6,745
1,840
14,309
Year Ended December 31, 2014
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
$ 672,068
$ 92,290
168,474
(19,565)
840,542
72,725
12,769
$ 85,494
$ 1,341
$ 3,449
588
11,143
1,929
14,592
Year Ended December 31, 2015
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
$ 560,399
$ 59,506
131,390
(28,834)
691,789
30,672
2,195
$ 32,867
$ 1,206
$ 3,591
612
10,573
1,818
14,164
F-56
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Revenues from the Company’s major product lines are summarized as follow:
2013
Year Ended December 31,
2014
(in thousands)
2015
Display drivers for large-size applications
Display drivers for mobile handsets applications
Display drivers for consumer electronics applications
Others
$ 228,927
232,019
183,554
126,239
$ 770,739
226,087
238,467
207,514
168,474
840,542
224,423
170,705
165,271
131,390
691,789
The following tables summarize information pertaining to the Company’s revenues from
customers in different geographic region (based on customer’s headquarter location):
2013
Year Ended December 31,
2014
(in thousands)
2015
Taiwan
China
Other Asia Pacific (Korea and Japan)
Europe and America
$ 283,989
400,501
84,695
1,554
$ 770,739
310,191
436,462
88,047
5,842
840,542
254,763
372,538
53,053
11,435
691,789
The carrying values of the Company’s tangible long-lived assets are located in the following
countries:
Taiwan
China
U.S.
Japan
Korea
December 31,
2014
2015
(in thousands)
$ 56,128
951
114
42
36
$ 57,271
53,413
914
63
32
39
54,461
F-57
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Revenues from significant customers, those representing 10% or more of total revenue for the
respective periods, are summarized as follows:
2013
Year Ended December 31,
2014
(in thousands)
2015
Driver IC segment:
INX and its affiliates, not a related party
since June 19, 2013
Customer A and its affiliates
Non-driver products segment:
INX and its affiliates, not a related party
since June 19, 2013
Customer A and its affiliates
$ 159,103
117,793
$ 276,896
$ 14,873
12,466
$ 27,339
145,015
133,649
278,664
19,537
18,456
37,993
126,953
116,456
243,409
19,256
22,345
41,601
Accounts receivable from significant customers, those representing 10% or more of total
accounts receivable for the respective periods, is summarized as follows:
December 31,
2014
2015
(in thousands)
INX and its affiliates, not a related party since June 19, 2013
Customer A and its affiliates
$ 58,530
47,944
$ 106,474
39,311
40,488
79,799
As of December 31, 2014 and 2015, allowance for sales returns and discounts for those
accounts receivable was $422 thousand and $348 thousand, respectively.
Note 25. 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-58
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Condensed Balance Sheets
Cash
Investments in marketable securities available-for-sale
Other current assets
Investment in non-marketable securities
Investments in subsidiaries and affiliates
Total assets
Current liabilities
Short-term debt
Debt borrowing from a subsidiary
Total equity
Total liabilities and equity
December 31,
2014
2015
(in thousands)
$
372
-
1,688
432
725,974
$ 728,466
1,536
4,505
1,467
432
737,561
745,501
$
227
111,000
144,615
472,624
$ 728,466
384
161,000
145,413
438,704
745,501
Himax Technologies, Inc. had no guarantees as of December 31, 2014 and 2015.
Condensed Statements of Income
2013
Year ended December 31,
2014
(in thousands)
2015
Revenues
Costs and expenses
Operating income (loss)
Equity in earnings from subsidiaries and affiliates
Gain on sale of investment securities
Other non-operating income
Earnings before income taxes
Income taxes expenses
Net income
$
-
-
-
(248)
248
59,402
-
1,826
61,476
-
$ 61,476
525
(525)
49,656
10,743
6,724
66,598
-
66,598
460
(460)
20,820
1,682
3,153
25,195
-
25,195
F-59
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Condensed Statements of Comprehensive Income
Net income
Other comprehensive income (loss):
Unrealized losses on securities, not
subject to income tax:
Unrealized holding losses on
available-for-sale marketable
securities arising during
the period
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 $(99), $43
and $(168) in 2013, 2014 and
2015, respectively
Comprehensive income
2013
Year Ended December 31,
2014
(in thousands)
2015
$ 61,476
66,598
25,195
(4)
(2)
(259)
(12)
(33)
(63)
8
31
(196)
161
(170)
(573)
(432)
$ 61,201
268
66,694
(731)
23,632
F-60
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2013, 2014 and 2015
Condensed Statements of Cash Flows
2013
Year Ended December 31,
2014
(in thousands)
2015
Cash flows from operating activities:
$
Net income
Adjustments to reconcile net income to net cash used in
operating activities:
Equity in earnings from subsidiaries and
affiliates
Gain on sale of investment securities
Changes in:
Other current assets
Other current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available-for-sale marketable
securities
Purchases of investment securities
Disposals of investment securities
Purchases of equity method investments
Proceeds from capital reduction of investments
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Distribution of cash dividends
Proceeds from short-term debt
Repayment of short-term debt
Investment returned from subsidiaries
Proceeds from issue of RSUs from subsidiaries
Proceeds from (repayment of) debt from a subsidiary
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosures of cash flow information:
Interest paid during the year
Income taxes paid during the year
$
$
$
61,476
66,598
25,195
(59,402)
-
(49,656)
(10,743)
(20,820)
(1,682)
(77)
57
2,054
-
(4,000)
-
(60)
-
(4,060)
(42,394)
295,320
(262,820)
-
9,212
1,881
1,199
(807)
1,075
268
(775)
(5)
5,419
-
-
14,743
-
1,168
15,911
(46,042)
370,500
(346,000)
11
6,754
(6,449)
(21,226)
104
268
372
221
157
3,071
(4,625)
-
1,682
(3,708)
-
(6,651)
(51,364)
351,000
(301,000)
-
5,311
797
4,744
1,164
372
1,536
301
-
431
-
453
-
HIMAX TECHNOLOGIES, Inc.
List of Subsidiaries
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.
Himax Media Solutions, Inc.
Harvest Investment Limited
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
ROC
ROC
Japan
Himax Semiconductor (Hong Kong) Limited
Hong Kong
Liqxtal Technology Inc.
ROC
Exhibit 8.1
Percentage of
Our Ownership
Interest
100.0%
100.0%
100.0%
100.0%(1)
100.0%(2)
100.0%(2)
81.8%(1)
81.8%(3)
81.8%(3)
98.6%(1)
100.0%
93.6%(4)
93.6%(5)
99.2%(6)
100.0%(1)
100.0%
100.0%
64.0%(1)
(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 81.8% ownership of Himax Display, Inc.
(4) Indirectly, as to 42.1% through our 100.0% ownership of Himax Imaging, Inc. and as to 51.5%
through our 100.0% ownership of Himax Technologies Limited.
(5) Indirectly, through our 93.6% ownership of Himax Imaging, Ltd.
(6) Directly, as to 22.0%, and indirectly, as to 77.2% through our 100.0% ownership of Himax
Technologies Limited.
181
Exhibit 12.1
Certification
I, Jordan Wu, certify that:
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
182
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 13, 2016
By: /s/ Jordan Wu
Name: Jordan Wu
Title: President and Chief Executive Officer
183
Exhibit 12.2
Certification
I, Jackie Chang, certify that:
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
184
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 13, 2016
By: /s/ Jackie Chang
Name: Jackie Chang
Title: Chief Financial Officer
185
Certification
Exhibit 13.1
April 13, 2016
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, 2015 (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
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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 statements (No. 333-137585 and No. 333-
176863) on Form S-8 and the registration statements (No. 333-188253 and No. 333-189052) on Form
F-3 of Himax Technologies, Inc. and subsidiaries of our reports dated April 13, 2016, with respect to the
consolidated balance sheets of Himax Technologies, Inc. as of December 31, 2014 and 2015, 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, 2015, and the effectiveness of internal control over
financial reporting as of December 31, 2015, which reports appear in the December 31, 2015 annual report
on Form 20-F of Himax Technologies, Inc.
/s/ KPMG
Taipei, Taiwan (the Republic of China)
April 13, 2016
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Corporate Information
Board of Directors
Investor Information
Chairman
Dr. Biing-Seng Wu
Directors
Jordan Wu
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
Shareholder Services for American Depositary
Shares (ADSs)
The Bank of New York Mellon
P.O. Box 358516
Pittsburgh, PA 15252-8516
Stock Listings
The company’s common stock trades on the
NASDAQ National Market under the symbol
“HIMX”
Independent Auditors
KPMG Certified Public Accountants
Investor Contacts
Penny Lin / Jessica Huang
Investor Relations
Himax Technologies, Inc.
10F, No1, XiangYang Road, Taipei 10046, Taiwan
penny_lin@himax.com.tw
jessica_huang@himax.com.tw
John Mattio
Founder and CEO
Lamnia International, LLC.
Tel: +1 (203) 885 -1099
Email: jmattio@lamniaintl.com
188