Washington, D.C. 20549
(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:
* Not
for trading, but only in connection with the listing on the NASDAQ Global Select Market, Inc. of American Depositary Shares representing
such Ordinary Shares
Securities registered or to be registered
pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s
class the period covered by the annual report. 344,207,492 Ordinary Shares.
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated
filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check
one):
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
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.”
Unless otherwise indicated, all translations
from U.S. dollars to NT dollars in this annual report were made at a rate of $1.00 to NT$29.64, 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 29, 2017. 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 March 23, 2018, the noon buying rate was $1.00 to NT$29.18. Any discrepancies
in any table between totals and sums of the amounts listed are due to rounding.
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 $0.3 per share;
“ADSs” refers to
our American depositary shares, each of which represents two ordinary shares;
“ROC” or “Taiwan”
refers to the island of Taiwan and other areas under the effective control of the Republic of China;
“PRC” or “China”
for purposes of this annual report refers to the People’s Republic of China, excluding Taiwan and the special administrative
regions of Hong Kong and Macau;
“head-mounted-display”
refers to a display device, worn on the head or as part of a helmet, that has a small display optic in front of one or each;
“IFRS” refers to
The International Financial Reporting Standards as issued by the International Accounting Standards Board;
“Innolux” refers
to Innolux Corporation, its predecessor and consolidated subsidiaries, unless the context otherwise requires;
“TFT-LCD” refers
to amorphous silicon thin film transistor liquid crystal display, or “a-Si TFT-LCD”;
“wafer level optics”
or “WLO” are optical products manufactured using semiconductor process on wafers;
“processed tape”
refers to polyimide tape plated with copper foil that has a circuit formed within it, which is used in tape-automated bonding packaging;
“semiconductor manufacturing
service providers” refers to third-party wafer fabrication foundries, gold bumping houses, and assembly and testing houses;
“large-sized panels”
refers to panels that are typically above ten inches in diagonal measurement;
“small and medium-sized
panels” refers to panels that are typically around ten inches or less in diagonal measurement;
all references to “New
Taiwan dollars,”“NT dollars” and “NT$” 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.
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, 2015, 2016 and 2017 and the selected consolidated
balance sheet data as of December 31, 2016 and 2017 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, 2013 and 2014 and the selected consolidated balance sheet data as of December 31,
2013, 2014 and 2015 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.
Beginning on January 1, 2018, we have decided
to discontinue reporting under U.S. GAAP and instead to report our financial statements using IFRS, including our annual reports
on Form 20-F for the year ending December 31, 2018 and thereafter.
The selected financial data set forth below
should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the consolidated financial
statements and the notes to those statements included herein.
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands, except per share data)
|
|
Consolidated Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from third parties, net
|
|
$
|
684,184
|
|
|
$
|
840,542
|
|
|
$
|
691,789
|
|
|
$
|
802,917
|
|
|
$
|
685,167
|
|
Revenues from related parties, net
|
|
|
86,555
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Costs and expenses
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
578,886
|
|
|
|
634,660
|
|
|
|
528,651
|
|
|
|
608,605
|
|
|
|
518,142
|
|
Research and development
|
|
|
80,368
|
|
|
|
91,839
|
|
|
|
94,422
|
|
|
|
95,820
|
|
|
|
117,757
|
|
General and administrative
|
|
|
18,147
|
|
|
|
20,192
|
|
|
|
18,470
|
|
|
|
20,119
|
|
|
|
20,614
|
|
Bad debt expense
|
|
|
173
|
|
|
|
554
|
|
|
|
310
|
|
|
|
620
|
|
|
|
155
|
|
Sales and marketing
|
|
|
18,822
|
|
|
|
20,572
|
|
|
|
19,264
|
|
|
|
18,518
|
|
|
|
20,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
74,343
|
|
|
$
|
72,725
|
|
|
$
|
30,672
|
|
|
$
|
59,235
|
|
|
$
|
8,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(2)
|
|
$
|
55,924
|
|
|
$
|
63,903
|
|
|
$
|
21,462
|
|
|
$
|
48,747
|
|
|
$
|
25,818
|
|
Net income attributable to Himax stockholders
|
|
$
|
61,476
|
|
|
$
|
66,598
|
|
|
$
|
25,195
|
|
|
$
|
50,912
|
|
|
$
|
27,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share attributable to Himax stockholders
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.18
|
|
|
$
|
0.19
|
|
|
$
|
0.07
|
|
|
$
|
0.15
|
|
|
$
|
0.08
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.19
|
|
|
$
|
0.07
|
|
|
$
|
0.15
|
|
|
$
|
0.08
|
|
Earnings per ADS attributable to Himax stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
|
$
|
0.39
|
|
|
$
|
0.15
|
|
|
$
|
0.30
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.39
|
|
|
$
|
0.15
|
|
|
$
|
0.30
|
|
|
$
|
0.16
|
|
Weighted-average number of ordinary shares used in earnings per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
340,423
|
|
|
|
342,190
|
|
|
|
343,570
|
|
|
|
344,655
|
|
|
|
344,849
|
|
Diluted
|
|
|
343,618
|
|
|
|
343,997
|
|
|
|
344,132
|
|
|
|
344,724
|
|
|
|
344,903
|
|
Weighted-average number of ADS equivalent used in earnings per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
170,211
|
|
|
|
171,095
|
|
|
|
171,785
|
|
|
|
172,327
|
|
|
|
172,425
|
|
Diluted
|
|
|
171,809
|
|
|
|
171,999
|
|
|
|
172,066
|
|
|
|
172,362
|
|
|
|
172,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per ordinary share
(3)
|
|
$
|
0.125
|
|
|
$
|
0.135
|
|
|
$
|
0.150
|
|
|
$
|
0.065
|
|
|
$
|
0.120
|
|
Cash dividends declared per ADS
|
|
$
|
0.250
|
|
|
$
|
0.270
|
|
|
$
|
0.300
|
|
|
$
|
0.130
|
|
|
$
|
0.240
|
|
Note:
|
(1)
|
The amount of share-based compensation included in applicable costs and expenses categories is summarized as follows:
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Cost of revenues
|
|
$
|
235
|
|
|
$
|
121
|
|
|
$
|
110
|
|
|
$
|
224
|
|
|
$
|
204
|
|
Research and development
|
|
|
6,705
|
|
|
|
7,610
|
|
|
|
4,289
|
|
|
|
7,586
|
|
|
|
5,234
|
|
General and administrative
|
|
|
1,308
|
|
|
|
1,688
|
|
|
|
865
|
|
|
|
1,210
|
|
|
|
865
|
|
Sales and marketing
|
|
|
1,425
|
|
|
|
1,847
|
|
|
|
1,010
|
|
|
|
1,389
|
|
|
|
942
|
|
Total
|
|
$
|
9,673
|
|
|
$
|
11,266
|
|
|
$
|
6,274
|
|
|
$
|
10,409
|
|
|
$
|
7,245
|
|
Of the $9.7 million, $11.3 million,
$6.3 million, $10.4 million and $7.2 million in share-based compensation in 2013, 2014, 2015, 2016 and 2017, $7.8 million, $9.3
million, $4.5 million, $9.2 million and $6.1 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 $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, $1.8 million,
$0.01 and $0.01, respectively, for the year ended December 31, 2015, $3.9 million, $0.01 and $0.01, respectively, for the year
ended December 31, 2016 and $0.5 million, $0.002 and $0.002, respectively, for the year ended December 31, 2017. 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.
|
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
127,320
|
|
|
$
|
185,466
|
|
|
$
|
129,829
|
|
|
$
|
184,452
|
|
|
$
|
138,023
|
|
Accounts receivable, net
|
|
|
200,725
|
|
|
|
219,368
|
|
|
|
177,198
|
|
|
|
190,998
|
|
|
|
187,571
|
|
Inventories
|
|
|
177,399
|
|
|
|
166,105
|
|
|
|
171,374
|
|
|
|
149,748
|
|
|
|
135,200
|
|
Total current assets
|
|
|
639,657
|
|
|
|
729,576
|
|
|
|
697,835
|
|
|
|
702,965
|
|
|
|
661,418
|
|
Total assets
|
|
|
759,327
|
|
|
|
832,994
|
|
|
|
802,337
|
|
|
|
799,634
|
|
|
|
802,055
|
|
Accounts payable
|
|
|
151,290
|
|
|
|
179,328
|
|
|
|
124,423
|
|
|
|
142,269
|
|
|
|
139,933
|
|
Total current liabilities
|
|
|
303,833
|
|
|
|
355,405
|
|
|
|
352,730
|
|
|
|
324,746
|
|
|
|
337,199
|
|
Total liabilities
|
|
|
307,112
|
|
|
|
361,041
|
|
|
|
357,340
|
|
|
|
327,827
|
|
|
|
343,486
|
|
Redeemable noncontrolling interest
|
|
|
3,656
|
|
|
|
3,656
|
|
|
|
3,656
|
|
|
|
3,656
|
|
|
|
3,656
|
|
Ordinary shares
|
|
|
107,010
|
|
|
|
107,010
|
|
|
|
107,010
|
|
|
|
107,010
|
|
|
|
107,010
|
|
Treasury shares, at cost
|
|
|
(11,120
|
)
|
|
|
(10,144
|
)
|
|
|
(9,157
|
)
|
|
|
(9,020
|
)
|
|
|
(8,878
|
)
|
Total equity
|
|
|
448,559
|
|
|
|
468,297
|
|
|
|
441,341
|
|
|
|
468,151
|
|
|
|
454,913
|
|
|
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.
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Consolidated Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
51,123
|
|
|
$
|
93,719
|
|
|
$
|
22,529
|
|
|
$
|
84,672
|
|
|
$
|
29,393
|
|
Net cash provided by (used in) investing activities
|
|
|
(30,525
|
)
|
|
|
10,644
|
|
|
|
(28,342
|
)
|
|
|
(7,127
|
)
|
|
|
(35,088
|
)
|
Net cash used in financing activities
|
|
|
(32,103
|
)
|
|
|
(46,204
|
)
|
|
|
(49,608
|
)
|
|
|
(22,715
|
)
|
|
|
(41,214
|
)
|
|
Note:
|
More detail explanation, please see “Item 5.B.
Operating and Financial Review and Prospects—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.
|
|
Noon Buying Rate
|
|
|
|
Average
(1)
|
|
|
High
|
|
|
Low
|
|
|
Period-end
|
|
|
|
(NT dollars per U.S. dollar)
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
29.73
|
|
|
|
30.20
|
|
|
|
28.93
|
|
|
|
29.83
|
|
2014
|
|
|
30.38
|
|
|
|
31.80
|
|
|
|
29.85
|
|
|
|
31.60
|
|
2015
|
|
|
31.80
|
|
|
|
32.98
|
|
|
|
30.64
|
|
|
|
32.79
|
|
2016
|
|
|
32.22
|
|
|
|
33.43
|
|
|
|
31.27
|
|
|
|
32.40
|
|
2017
|
|
|
30.27
|
|
|
|
31.19
|
|
|
|
29.64
|
|
|
|
29.64
|
|
October
|
|
|
30.25
|
|
|
|
30.44
|
|
|
|
30.12
|
|
|
|
30.12
|
|
November
|
|
|
30.08
|
|
|
|
30.21
|
|
|
|
29.97
|
|
|
|
29.98
|
|
December
|
|
|
29.95
|
|
|
|
30.05
|
|
|
|
29.64
|
|
|
|
29.64
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
29.40
|
|
|
|
29.61
|
|
|
|
29.05
|
|
|
|
29.16
|
|
February
|
|
|
29.25
|
|
|
|
29.42
|
|
|
|
29.03
|
|
|
|
29.32
|
|
March(through March 23)
|
|
|
29.22
|
|
|
|
29.35
|
|
|
|
29.13
|
|
|
|
29.18
|
|
Note:
|
(1)
|
Annual averages are calculated by averaging month-end rates for the relevant year. Monthly averages are calculated by averaging daily rates for the relevant period.
|
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reason for the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
Risks Relating to Our Financial Condition and Business
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. Chipbond Technology Corporation, or Chipbond, 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.
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.
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.
In 2016 and 2017, 80.0% and 77.3% of our
revenues, respectively, were attributable to display drivers that were incorporated into TFT-LCD panels. We expect to continue
to substantially depend on sales to the TFT-LCD panel industry for the foreseeable future. The TFT-LCD panel industry is intensely
competitive and is vulnerable to cyclical market conditions. The average selling prices of TFT-LCD panels generally decline with
time as a result of, among other factors, capacity ramp-up, technological advancements and cost reduction 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 2014, 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 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 already launched
their products in 2016. At present, our main focus areas for LCOS business are AR goggle devices and head-up-displays (HUD) for
automotive, while AR will take a few years to fully realize its market potential. We continue to see heavyweight companies allocating
major R&D resources and budgets to bring the new products into the market. Currently, Tier 1 companies and start-up companies
are investing heavily to develop the ecosystem — applications, software, OS, firmware, system electronics, and optics. With
all these investments, we will see an ecosystem build up within the next few years; the AR market will then be in an acceleration
mode. 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 committed to providing the best technology to support them in the effort. 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 they have 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 new market opportunities
for our CMOS image sensors. Although it seems relatively challenging for us to gain significant market share in conventional RGB
camera, we do think there are various interesting and different applications in imaging. On top of our legacy products in laptop
and multimedia, we’ve launched two computer vision sensor product lines, i.e., near infrared (“NIR”) sensor and
Always-on-Sensor (“AoS”). NIR sensor is the key building stone for passive as well as active computer vision system.
With the special design in pixel architecture and materials, our NIR sensor provides industry leading Quantum Efficiency (“QE”)
to absorb NIR signal. In the collaboration with our partners in structured light, NIR plays an important role in the receiver.
AoS, on the other hand, is an IoT sensor which consumes only several micro watt to do people detection, eye ball tracking, and
other cool features. New sensor architectures, readout, pixel, and the corresponding slim algorithms are integrated together to
contribute the always-on feature. Given that the two new exciting product lines just hit the market, it’s still quite new
to the industry. To build up the competition barrier, we’re also devoted ourselves and pour a lot of resources into making
the product lines more mature. As a result, these two new products take time to bear some fruits.
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 processes 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 of 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, 2017, our accounts receivable
less allowance for sales returns and discounts from Customer A and its affiliates were $60.7 million, which represented approximately
32.4% 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 extensions of payment terms. We may also agree to grant such requests
for the extension of payment terms in the future. As a result, a default by any such customer, a prolonged delay in the payment
of accounts receivable or the extension of payment terms for our customers could adversely affect our cash flow, liquidity and
our operating results.
Our customers may experience a decline
in profitability or may not be profitable at all, which could adversely affect our results of operations and financial condition.
The TFT-LCD panel industry is highly competitive.
TFT-LCD panel manufacturers, including our customers, experience significant pressure on prices and profit margins, due largely
to growing industry capacity and fluctuations in demand for TFT-LCD panels. Some TFT-LCD panel manufacturers have greater access
to capital or greater production, research and development, intellectual property, marketing or other resources than our customers,
who may not be able to compete successfully and sustain their market positions. In addition, our customers’ business performance
may fluctuate significantly due to a number of factors, many of which are beyond their control, including:
|
·
|
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;
|
|
·
|
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 2016 and 2017, we derived 80.0% and
77.3% of our revenues from the sale of display drivers used for large-sized applications, mobile handset applications and consumer
electronics applications, and we expect to continue to derive a substantial portion of our revenues from these or related products.
As the display drivers industry and our display drivers business are relatively mature, there may be limited potential for the
overall display drivers market to grow and for us to further grow our market share, which could limit our future growth in revenues.
Failure to grow our unit shipments for display drivers, coupled with a general decline in the average selling prices, could adversely
and materially affect our results of operations. See also “—Risks Relating to Our Industry—The average selling
prices of our products could decrease rapidly, which may negatively impact our revenues and operating results.” We expect
to continue to derive a substantial portion of our revenues from the sale of display drivers. Therefore, the continued market acceptance
of our display drivers is critical to our future success. Failure to grow or maintain our revenues generated from the sales of
display drivers could adversely and materially affect our results of operations and financial condition.
Technological innovation may reduce the
number of display drivers typically required for each panel, thereby reducing the number of display drivers we are able to sell
per panel. If such a reduction in demand is not offset by the general growth of the industry, growth in our market share or an
increase in our average selling prices, our revenues may decline.
With the high penetration rate of smartphones,
growth of the market has been slowing down in the past two years. LCD display and its driver IC in smartphone application is getting
more commoditized with lower ASP. Meanwhile, addressable market size of conventional smartphone DDIC is eroded gradually by AMOLED
and in-cell display, which used to be emerging technologies but have ramped up with significant adoption rate. Being one of the
leading DDIC suppliers, Himax also has been devoted to development activities for AMOLED DDIC and in-cell TDDIs. Nevertheless,
AMOLED display and IC industry has been dominated by Korean companies, and Himax TDDI went through the learning curve in 2016 and
just started to ramp-up in 2017.
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, IFRS 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 below market expectations, likely causing our ADS price to decline. Our quarterly revenues
and operating results may fluctuate because of many factors, including:
|
·
|
our ability to accurately forecast shipments, average selling prices, cost of revenues, operating expenses, non-operating income/loss,
foreign currency exchange rates, and effective income 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;
|
|
·
|
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
|
|
·
|
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 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:
|
·
|
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:
|
·
|
potential capacity constraints faced by the limited number of high-voltage foundries and the lack of investment in new and
existing high-voltage foundries;
|
|
·
|
difficulty in attaining consistently high manufacturing yields from high-voltage foundries;
|
|
·
|
delay and time required (approximately one year) to qualify and ramp up production at new high-voltage foundries; and
|
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 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, and
Dr. Biing-Seng Wu, our chairman. 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 key personnel or our inability to attract or retain qualified
personnel, whether engineers or others, could delay the development and introduction of new products and would have an adverse
effect on our ability to sell our products as well as on our overall business and growth prospects. We may also incur increased
operating expenses and be required to divert the attention of other senior executives away from their original duties to recruiting
replacements for key personnel.
If we fail to forecast customer demand
accurately, we may have excess or insufficient inventory, which may increase our operating costs and harm our business.
The lead time required by the semiconductor
manufacturing service providers that we use to manufacture our products is typically longer than the lead time that our customers
provide for delivery of our products to them. Therefore, to ensure availability of our products for our customers, we will typically
ask our semiconductor manufacturing service providers to start manufacturing our products based on forecasts provided by our customers
in advance of receiving their purchase orders. However, these forecasts are not binding purchase commitments, and we do not recognize
revenues from these products until they are shipped to customers. Moreover, for the convenience of our customers, we may agree
to ship our inventory to warehouses located near our customers, so that our products can be delivered to these customers more quickly.
We may from time to time agree that title and risk of loss do not pass to our customer until the customer requests delivery of
our products from such warehouses. In such cases, we will not recognize revenues from these products until the title and risk of
loss have passed to our customers based on the shipping terms, which is generally when they are delivered to our customers from
these warehouses. As a result, we incur inventory and manufacturing costs in advance of anticipated revenues.
The anticipated demand for our products
may not materialize; therefore, manufacturing based on customer forecasts exposes us to risks of high inventory carrying costs,
increased product obsolescence, and erosion of the products’ market value. For example, some of our customers might overstate
their forecasts because of concerns that their semiconductor suppliers cannot deliver on their rush orders. If we overestimate
demand for our 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 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; 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. 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 February 28, 2018, Jordan Wu and
Dr. Biing-Seng Wu (who are brothers) beneficially owned approximately 2.1% and 20.7% of our ordinary shares, respectively. For
information relating to the beneficial ownership of our ordinary shares, see “Item 7.A. Major Shareholders and Related Party
Transactions—Major Shareholders.” These shareholders, acting together, could exert substantial influence over matters
requiring approval by our shareholders, including electing directors and approving mergers or other business combination transactions.
This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our
shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price
of our ADSs. Actions may be taken even if they were opposed by our other shareholders.
Assertions against us by third parties
for infringement of their intellectual property rights could result in significant costs and cause our operating results to suffer.
The semiconductor industry is characterized
by vigorous protection and pursuit of intellectual property rights and positions, which results in protracted and expensive litigation
for many companies. We have received, and expect to continue to receive, notices of infringement of third-party intellectual property
rights. We may receive claims from various industry participants alleging infringement of their patents, trade secrets or other
intellectual property rights in the future. Any lawsuit resulting from such allegations could subject us to significant liability
for damages and invalidate our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming
and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation also could
force us to do one or more of the following:
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stop selling products or using technology or manufacturing processes that contain the allegedly infringing intellectual property;
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pay damages to the party claiming infringement;
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attempt to obtain a license for the relevant intellectual property, which may not be available on commercially reasonable terms
or at all; and
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attempt to redesign those products that contain the allegedly infringing intellectual property with non-infringing intellectual
property, which may not be possible.
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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 February 28, 2018,
we and our subsidiaries had 113 U.S. patent applications pending, 93 Taiwan patent applications pending and 227 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.
We may undertake acquisitions or investments
to expand our business that may pose risks to our business and dilute the ownership of our existing shareholders, and we may not
realize the anticipated benefits of these acquisitions or investments.
As part of our growth and product diversification
strategy, we will continue to evaluate opportunities to acquire or invest in other businesses, intellectual property or technologies
that would complement our current offerings, expand the breadth of markets we can address or enhance our technical capabilities.
For example, in February 2018, our subsidiary, Himax IGI Precision Ltd., or Himax IGI, acquired certain advanced nano 3D masters
manufacturing assets and related intellectual property and business from a US-based technology company. The advanced nano 3D manufacturing
masters are primarily used in imprinting or stamping replication process to fabricate devices such as diffractive optical element
(DOE), diffuser, collimator lens and micro lens array. The acquisition brings Himax the very upstream master tooling capability
to supplement the company’s world leading WLO technology, which is critical in its efforts to offer 3D sensing total solutions.
We cannot assure you that we will be able to realize the benefits we anticipate from acquiring nano 3D master business. Acquisitions
or investments that we have completed or potentially may make in the future entail a number of risks that could materially and
adversely affect our business, operating and financial results, including:
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problems integrating the acquired operations, technologies or products into our existing business and products;
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diversion of management’s time and attention from our core business;
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adverse effects of losses of the acquired target upon our financial condition and results of operations;
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adverse effects on existing business relationships with customers;
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the need for financial resources above our planned investment levels;
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dilution of share ownership of current shareholders under share swap transactions;
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failures in realizing anticipated synergies;
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difficulties in retaining business relationships with suppliers and customers of the acquired company;
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risks associated with entering markets in which we lack experience;
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potential loss of key employees of the acquired company;
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potential write-offs of acquired assets;
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potential expenses related to the depreciation of tangible assets and amortization of intangible assets; and
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potential impairment charges related to the goodwill acquired.
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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 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 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 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.
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 2017, 25.8% 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 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 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 2015, 2016 and 2017, approximately 53.9%, 63.2% and 61.5% 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 2017, 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 2017, approximately 65% 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.
However, the subsidiaries located in the R.O.C. adopted Taiwan-IFRS and hereafter changed their functional currency of the tax
basis of assets and liabilities from NT dollar to U.S. dollar since year 2016. Accordingly, these subsidiaries are now having a
U.S. dollar dominated tax basis and U.S. GAAP functional currency, which significantly decreases the income tax effect from the
fluctuations in exchange rates between the U.S. dollar and the NT dollar.
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 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, 2014, Himax Taiwan and Himax Semiconductor became entitled
to preferential tax treatment, for a period of five years, which will expire on 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 $1.8 million, $0.01 and $0.01, respectively,
for the year ended December 31, 2015, $3.9 million, $0.01 and $0.01, respectively, for the year ended December 31, 2016, and $0.5
million, $0.002 and $0.002, respectively, for the year ended December 31, 2017. 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 July 12, 2016, the ROC Legislative Yuan
passed the third reading of anti-avoidance to establish Article 43-3 Controlled Foreign Company (“CFC”) rules and Article
43-4 Place of Effective Management (“PEM”) rules of the Income Tax Act (“ITA”). Detailed introduction of
the CFC and PEM rules are described as follows:
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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 70% of the income tax rate of the PSE in the ROC (the statutory income tax rate is
20% from January 1, 2018). (Article 43-3 CFC rules); and
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(ii)
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A PSE is incorporated based on foreign legislation but its place of effective management (PEM) is maintained within the territory
of the ROC, the head office of such PSE will be determined to be within the territory of the ROC and profit-seeking enterprise
income tax shall be levied in accordance with the ITA and relevant tax regulations. The aforementioned PEM refers to a place where
substantive key management and commercial decisions of an entity’s business and its operations are made. (Article 43-4 PEM
rule).
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According to the legislative intent, the
CFC and PEM rules, in principle, will not be put into force immediately, but will wait until the China-Taiwan Cross-Strait Tax
Agreement is effectuated, the OECD’s Common Reporting and Due Diligence Standard (“CRS”) for the automatic exchange
of information of financial accounts is widely implemented internationally, and the relevant bylaws of the CFC and PEM rules have
been adequately enacted and properly advocated. The date of implementation will be determined by the Executive Yuan and is expected
to be in 2018 at the earliest. Additionally, dividend payments made by us are not subject to withholding tax in the Cayman Islands.
However, if the relevant bylaws of the PEM rules have been adequately enacted and properly advocated, we may be determined to be
within the territory of the ROC and our income tax shall be levied in accordance with the Income Tax Act and relevant tax regulations.
Therefore, dividend payments made by us would be subject to withholding tax in the ROC.
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 $4.88 to a high of $13.95 on the NASDAQ Global Select Market in 2017.
The market price is subject to wide fluctuations
in response to various factors, including the following:
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actual or anticipated fluctuations in our quarterly operating results;
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changes in financial estimates by securities research analysts;
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changes in the expectation of our non-driver product launch timing, forecast and estimates;
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conditions in the TFT-LCD panel market;
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changes in the economic performance or market valuations of other display semiconductor companies;
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announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;
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the addition or departure of key personnel;
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fluctuations in exchange rates between the U.S. dollar and the NT dollar;
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litigation related to our intellectual property; and
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the release of lock-up or other transfer restrictions on our outstanding ADSs or sales of additional ADSs.
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In addition, as a result of the worldwide
financial crisis, global stock markets have experienced extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons which may not be directly related to their operating
performance, including but not limited to events such as tax-loss selling, mutual fund redemptions, hedge fund redemptions and
margin calls. These market fluctuations may also materially and adversely affect the market price of our ADSs.
Future
sales or perceived sales of securities by us, our executive officers, directors or major
shareholders may hurt the
price of our ADSs.
The market price of our ADSs could decline
as a result of sales of ADSs or shares or the perception that these sales could occur. As of February 28, 2018, we had 344,207,492
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 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:
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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;
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shareholders may not be able to bring class action or derivative action suits before a Cayman Islands court except in certain
exceptional circumstances; and
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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.
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Moreover, certain of these differences
in corporate law, including, for example, the fact that shareholders do not have the right to call a meeting or bring business
to a meeting, may have anti-takeover effects, which could discourage, delay, or prevent the merger or acquisition of our company
by means of a tender offer, a proxy contest or otherwise, which a shareholder may have considered in its best interest, and prevent
the removal of incumbent officers and directors.
As a result of all of the above, public
shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the
board of directors or controlling shareholders than they would have as public shareholders of a U.S. company.
Investor confidence and the market price
of our ADSs may be adversely impacted if we or our independent registered public accountants conclude that our internal controls
over financial reporting are not effective.
The Securities and Exchange Commission,
or the SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include in
their Annual Report on Form 10-K or Form 20-F, as the case may be, a report of management on the company’s internal controls
over financial reporting that contains an assessment by management of the effectiveness of the company’s internal controls
over financial reporting. In addition, the company’s independent registered public accounting firm must report on the company’s
internal control over financial reporting. Our management may conclude that our internal controls over financial reporting are
not effective. Moreover, even if our management does conclude that our internal controls over financial reporting are effective,
if our independent registered public accounting firm is not satisfied with our internal controls, the level at which our controls
are documented, designed, operated or reviewed, or if our independent registered public accounting firm interprets the requirements,
rules or regulations differently from us, then it may conclude that our internal controls over financial reporting are not effective.
Furthermore, during the course of the evaluation, documentation and attestation, we may identify deficiencies that we may not be
able to remedy in a timely manner. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able
to conclude that we have effective internal controls, on an ongoing basis, over financial reporting in accordance with the Sarbanes-Oxley
Act. Furthermore, effective internal controls over financial reporting are necessary for us to produce reliable financial reports
and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial
reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm
our business and negatively impact the trading price of our ADSs. In addition, we have incurred considerable costs and used significant
management time and other resources in our effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Himax Taiwan, our predecessor, was incorporated
on June 12, 2001 as a limited liability company under the laws of the ROC. On April 26, 2005, we established Himax Technologies
Limited, an exempted company with limited liability under the Cayman Islands Companies Law, as a holding company to 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.
On September 26, 2005, we changed our name
to “Himax Technologies, Inc.,” and on October 17, 2005, Himax Taiwan changed its name to “Himax Technologies
Limited” upon the approval of shareholders of both companies and amendments to the respective constitutive documents. We
effected the name exchange in order to maintain continuity of operations and marketing under the trade name “Himax Technologies,
Inc.,” which had been previously used by Himax Taiwan.
Our ADSs have been listed on the NASDAQ
Global Select Market since March 31, 2006. Our ordinary shares are not listed or publicly traded on any trading markets.
In February 2007, we completed the acquisition
of Wisepal, currently known as Himax Semiconductor, Inc., a fabless semiconductor company focusing on the development of LTPS TFT-LCD
drivers for small and medium-sized applications. This transaction strengthened our competitive position in the small and medium-sized
product areas and further diversified our technology and product offerings. From time to time, we have also made minority investments
in various companies for strategic purposes in the ordinary course of business.
In March 2007, we established Himax Imaging,
Inc., or Himax Imaging, which develops and markets CMOS image sensors with an initial focus on camera applications used in cell
phones and notebook computers.
In 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.
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, Hefei, Qingdao, Chongqing, Xi’an
and Xiamen, China; Tokyo, Japan; Asan-si and Bundang-gu, South Korea; and Irvine and Campbell, California, Minneapolis, Minnesota,
USA.
Investor inquiries should be directed
to our Investor Relations department, at +886-2-2370-3999 ext. 22202 or by email to
ophelia_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, virtual reality (VR) devices
and many other consumer electronics devices. Additionally, we design and provide controllers for touch sensor displays, in-cell
Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management ICs, scaler products for monitors
and projectors, tailor-made video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality (AR) devices
and head-up displays (HUD) for automotive. We also offer digital camera solutions, including CMOS image sensors and wafer level
optics for AR devices, 3D sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet,
laptop, TV, PC camera, automobile, security, medical devices and Internet of Things. 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:
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Display Driver.
The display driver receives image data from the timing controller and delivers precise analog voltages
or currents to create images on the display. The two main types of display drivers for a TFT-LCD panel are gate drivers and source
drivers. Gate drivers turn on the transistor within each pixel cell on the horizontal line on the panel for data input at each
row. Source drivers receive image data from the timing controller and generate voltage that is applied to the liquid crystal within
each pixel cell on the vertical line on the panel for data input at each column. The combination determines the colors generated
by each pixel. Typically multiple gate drivers and source drivers are installed separately on the panel. However, for certain small
and medium-sized applications, gate drivers and source drivers are integrated into a single chip due to space and cost considerations.
Large-sized panels typically have higher resolution and require more display drivers than small and medium-sized panels.
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Timing Controller.
The timing controller receives image data and converts the format for the source drivers’ input.
The timing controller also generates controlling signals for gate and source drivers. Typically, the timing controller is a discrete
semiconductor in large-sized TFT-LCD panels. For certain small and medium-sized applications, however, the timing controller may
be integrated with display drivers.
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Scaler
. For certain displays, a scaler is installed to magnify or shrink image data in order for the image to fill the
panel.
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Operational Amplifier.
An operational amplifier supplies the reference voltage to source drivers in order to make their
output voltage uniform.
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Television Chipset
. Television flat panel displays require chipsets that typically contain all or some of the following
components: an audio processor, analog interfaces, digital interfaces, a video processor, a channel receiver and a digital television
decoder. See “—Products—TFT-LCD Television and Monitor Semiconductor Solutions—TFT-LCD Monitor Chipsets”
for a description of these components.
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Power IC.
Power ICs include certain drivers, amplifiers, DC to DC converters and other semiconductors designed to enhance
power management, such as voltage regulation, voltage boosting and battery management.
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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.
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Others. Flat panel
displays also require multiple general purpose semiconductors such as memory, power converters and
inverters.
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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.
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 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. Lastly, as our TFT-LCD panel customers had
turned to pure in-cell TDDI panel development for thinner display designs, we have developed a series of single chip touch display
driver integrated circuit (TDDI) for advanced in-cell touch display panel.
Products and Solutions
We have several principal product lines:
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·
|
display drivers and timing controllers;
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|
·
|
TFT-LCD television and monitor semiconductor solutions;
|
|
·
|
LCOS and MEMS products;
|
|
·
|
CMOS image sensor products;
|
|
·
|
wafer level optics products; and
|
|
·
|
3D sensing total solutions.
|
Display Drivers and Timing Controllers
Display Driver Characteristics
Display drivers deliver precise analog
voltages and currents that activate the pixels on panels. The following is a summary of certain display driver characteristics
and their relationship to panel performance.
|
·
|
Resolution and Number of Channels.
Resolution refers to the number of pixels per line multiplied by the number of lines,
which determines the level of fine detail within an image displayed on a panel. For example, a color display screen with 1,024
x 768 pixels has 1,024 red columns, 1,024 green columns and 1,024 blue columns for a total of 3,072 columns and 768 rows. The red,
green and blue columns are commonly referred to as “RGB.” Therefore, the display drivers need to drive 3,072 column
outputs and 768 row outputs. The number of display drivers required for each panel depends on the resolution of the panel and the
number of channels per display driver. For example, an XGA (1,024 x 768 pixels) panel requires eight 384-channel source drivers
(1,024 x 3 = 384 x 8) and three 256-channel gate drivers (768 = 256 x 3), while a full HD (1,920 x 1,080 pixels) panel requires
eight 720-channel source drivers and four 270-channel gate drivers. The number of display drivers required can be reduced by using
drivers with a higher number of channels. For example, a full HD panel can have six 960-channel source drivers instead of eight
720-channel source drivers. Thus, using display drivers with a higher number of channels can reduce the number of display drivers
required for each panel, although display drivers with a higher number of channels typically have higher unit costs.
|
|
·
|
Color Depth.
Color depth is the number of colors that can be displayed on a screen, which is determined by the number
of shades of a color, also known as gray scale, that can be shown by the panel. For example, a 6-bit source driver is capable of
generating 2
6
x 2
6
x 2
6
= 2
18
, 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.
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|
·
|
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.
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|
·
|
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, CEDS, CHPL, CDPI and CMPI.
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|
·
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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 and 8K high-resolution TVs. Greater color depth, enhanced color through RGB independent gamma
and 3D display, are particularly important for advanced televisions and certain monitors.
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 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. These technological
innovations were successfully adopted by various tier-one system customers in the following year. In 2017, our eDP timing controller
that supports 4K UHD notebook began mass production. Eyeing on the growing gaming hardware and HDR market, we will advance our
solutions to provide the best user experience in 2018.
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.
The table below sets forth the features
of our products for large-sized applications:
Product
|
|
Features
|
TFT-LCD Source Drivers
|
|
·
384
to 1920 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 400MHz), cascade modulated driver interface, or CMDI, point-to-point high speed interface and customized
interface technologies
·
support
dual gate and triple gate panel designs
|
TFT-LCD Gate Drivers
|
|
·
192
to 1600 output channels
·
output
driving voltage ranging 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
|
Timing Controllers
|
|
·
product
portfolio supports a wide range of resolutions, from VGA (640 x 480 pixels) to full HD, UHD and 8K4K (1,920 x 1,080 pixels, 1,920
x 1,200 pixels, 3840 x 2160 and 7680 x 4320)
·
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
amorphous silicon, IGZO and LTPS panel
|
Programmable Gamma OP
|
|
·
8 to 16 channel gamma buffer outputs
·
channel
VCOM buffer output
·
Internal
non-volatile memory
·
2
gamma bank selection, setting time < 3uS
·
Analog
power supply voltage: 9.0V to 20.0V
·
Digital
power supply voltage: 2.7V to 3.6V
|
|
|
·
Peak
current on gamma channels: 200mA
·
Peak
current on VCOM channel: 400mA
·
Programmable
VCOM limit
·
12C
speed up to 1MHz
|
Electronic Paper Display Applications
We offer display driver for the Electronic
Paper Display (EPD) applications, such as reading & writing device, Electronic Shelf Label (ESL) and Signage Display.
The Electronic Paper Display (EPD) drivers can support various display resolutions to meet the customized needs of applications.
The following table summarizes the features
of our Electronic Paper Display (EPD) solutions:
Product
|
|
Features
|
Electronic Paper Display (EPD)
Source Drivers
|
|
·
Features
320 to 1920 output channels
·
output
driving voltage ranging from 15 up to 50v
·
input
logic voltage ranging from standard 3.3V to low power 1.8V
·
low
power consumption and low EMI
·
support
TTL, mini-LVDS cascade modulated driver interface, or point-to-point high speed interface and customized interface technologies
·
support
COF and COG package types
|
Electronic Paper Display (EPD)
Gate Drivers
|
|
·
100
to 840 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
|
Electronic Paper Display (EPD)
Integrated Drivers
|
|
·
Highly
integrated chip embedded with source driver, timing controller and power circuit
·
source
driver output driving voltage ranging up to 30V
·
Support
COG package types
|
Mobile Handset, Tablet and Consumer Electronics
Applications
We offer display drivers for mobile handset,
tablet PC and consumer electronics (“CE”) displays that combine source driver, gate driver, timing controller, DC to
DC circuits , and optional frame buffer into a single chip or cascades chips in various display technologies, such as TFT-LCD,
LTPS and AMOLED.
Smartphones and tablet PCs 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), WSVGA (1024 x 600), HD720 (720 x 1280)/ WXGA (800 x 1280), FHD (1080
x 1920) / WUXGA(1200 x 1920) and up to QHD (1440 x 2560) / WQXGA (1600x2560) display driver ICs. We have recently continued to
update new products for this mainstream smartphone and tablet PC segment with lower cost and new features, such as color enhancement
and sun-light readability enhancement functions. A 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 developed 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. In 2016,
Himax developed a series of single chip touch display driver integrated circuit (TDDI) for advanced in-cell touch display panel.
Himax started the shipments of in-cell TDDI for some smartphones in 2016 and extended TDDI applications to tablet PCs in 2017.
Smartphone display had a dramatic change in terms of aspect ratio, instead of resolution, in 2017. Though display resolution of
entry smartphones kept moving up from WVGA or qHD to HD, high-end smartphone display may be stuck at FHD or QHD since it’s
pixel per inch is good enough for normal consumers’ daily use. OEMs start to seek for differentiation with 18:9 or even wider
aspect ratio, full front displays. Himax has designed conventional 16:9 HD and FHD DDICs capable of supporting 18:9 or wider HD+/FHD+
displays and achieved a number of design-wins with leading Chinese smartphone brands. As in-cell TDDI, featuring thinner display,
slimmer border, and better visual quality, has been getting popular, we re-invented a new generation of TDDIs supporting COG and
COF for 18:9 or wider aspect ratio with interlaced output pins, which makes the bottom border of the in-cell touch display even
smaller to gain higher display to body ratio. Our new generation FHD+ TDDI with COG and COF are in design-in stage with a number
of leading Chinese smartphone brands and panel makers. While COG TDDI offers cost effective slim bezel design, TDDI with COF package
can enable super-slim bezel design for premium smartphone models. We expect small volume shipment in the first half of 2018 with
accelerating volume in the second half of 2018. We believe new generation TDDI will have significant contribution for our small
panel business starting 2018.
The following table summarizes the features
of our products for mobile handsets:
Product
|
|
Features
|
Mobile Handset Display Drivers
|
|
·
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 for smartphone application and LVDS for CE applications
·
support
RAM-less 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 driver integrated circuit (TDDI) for advanced in-cell touch display
·
extending
from 16:9 to 18:9 or wider aspect ratio
·
COG
and COF solutions for super slim bottom border
|
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 GIP panel and non-GIP panel, a-TFT panel
and LTPS panel. 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 automotive Timing Controller can support Local Dimming function
for the goal of higher contrast ration and reduction thermal in automotive display applications.
The following table summarizes the features
of our products used in automotive display applications:
Product
|
|
Features
|
TFT-LCD Source Drivers
|
|
·
642
to 1,920 output channels
·
6-bit
(262K colors), 8-bit (16.7 million colors)
·
support
RSDS, mini-LVDS, Point-to-Point interfaces
·
output
driving voltage ranging up to 15V
·
support
COG package type
|
Product
|
|
Features
|
TFT-LCD Gate Drivers
|
|
·
100
to 1,600 output channels
·
output
driving voltage ranging up to 40V
·
support
COG package type
|
TFT-LCD Integrated Drivers
|
|
·
highly
integrated chip embedded with source driver, timing controller and power circuit
·
support
RGB, LVDS input interfaces
·
support
Single Gate, Dual Gate, Triple Gate panel structure
·
support
GIP panel (a-TFT GIP or LTPS GIP) and non-GIP panel
·
support
resolution up to 2880RBx1080 with cascaded chips
·
source
driver output driving voltage ranging up to
±
6.6V
or 16V
·
support
Fail Detect Function, including CRC Function
·
support
COG package type
|
Timing Controllers
|
|
·
support
LVDS, eDP 1.2 input interface
·
support
RSDS, mini-LVDS, Point-to-Point output interfaces
·
support
Single Gate, Dual Gate, Triple Gate panel structure
·
support
GIP panel (a-TFT GIP or LTPS GIP) and non-GIP panel
·
support
various resolutions up to 4K1K(ICD) or 3K2K(CID)
·
support
Local Dimming Function
·
support
Fail Detect Function, including CRC Function
|
Touch Controller ICs
We offer touch controller solutions for
capacitive touch panels. Our touch controller solutions are suitable for electronic devices employing touch panel screens of up
to 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. With sophisticated designed hardware and firmware supporting hybrid sensing combining
merits of self capacitance and mutual capacitance, Himax’s touch controller could support out-cell and on-cell with various
sensor patterns and stack-ups.
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-display
driver integrated circuit (TDDI) as a key strategic partner rather than just a display driver IC supplier. We have developed a
series of TDDI in 2015 and 2016 for these tier one in-cell touch panel makers and started mass production in smartphone brands.
We also expect to start the mass production of our TDDI in tablet PC soon. In-cell TDDI, featuring thinner display, slimmer border,
and better visual quality, has become the mainstream technology. Over time we will expand our TDDI solutions to replace discrete
DDIC and touch controller IC.
The following table summarizes the features
of our touch controller products:
Product
|
|
Features
|
Capacitive Touch Controller
|
|
·
complete
single chip touch controller solutions for handheld devices, supporting smartphones, tablet PCs, and laptop PCs
·
real
multi-point capability support of up to 10 points
·
mass
production with GG, GFF and one glass solution (“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
driver integrated circuit (TDDI) for advanced in-cell touch display
·
extending
from 16:9 to 18:9 or wider aspect ratio
·
COG
and COF solutions for super slim bottom border
|
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
|
|
Features
|
Monitor Scaler Integrated Solutions
|
|
·
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
·
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:
Product
|
|
Features
|
RV2H 2D to 3D Conversion Solutions
|
|
·
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
|
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 the most recent HDMI2.0 to Vx1 bridge products.
Product
|
|
Features
|
4Kx2K HDMI2.0 to Vx1 Simple Bridge HX6308 Solutions
|
|
·
support
1 HDMI 2.0 ports and 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 bypass
·
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
·
embedded
test pattern generator
·
embedded
hue/saturation, brightness/contrast, sharpness adjustment function
·
embedded
CABC (Content Adaptive Backlight Control)
·
audio
processor
·
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
|
Product
|
|
Features
|
4Kx2K HDMI2.0 to Vx1 Bridge HX6310 Solutions
|
|
·
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
·
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)
·
audio
processor
·
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, L/R Balance and Volume control
·
built-in
2-ch audio DAC
·
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
|
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 RGBW IP Technology Licensing.
For High Speed Transmission related, we offer HDMI, V-by-One HS Silicon IP (SIP) Licensing. For ASIC service, it is based on an
integrated and verified design platform of depth sensing and High Speed Transmission IPs to enable a time-to-market Specification-to-Chip
ASIC service.
Video IP
As an expert player in image and display
core technologies solutions, we develop and own unique IPs of image and video applications. The high quality IP, used in various
products, can provide our licensees with differentiated products and advantage in time-to-market. The features of IPs are summarized
in the following table:
Product
|
|
Features
|
RGBW IP
|
|
·
Supporting,
RGBW gray-level transform from RGB input, RGBW color enhancement and sub-pixel rendering.
·
Support
color temperature adjustment
·
Support
consistent color temperature
·
Support
consistency of Gamma
·
Support
16 bytes of sub-pixel permutation
·
Support
resolution: 3840x2160 @ 60Hz
·
Support
bit depths
·
Input
RGB30 per pixel
·
Output
30bit per pixel (3-channel data, whose representation depends on sub-pixel permutation configuration)
·
No
SRAM for line buffer
|
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:
Product
|
|
Features
|
HDMI Receiver IP
|
|
·
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
|
VBO Transmitter and Receiver IP
|
|
·
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
|
ASIC
Service
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
chips. 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 2016, Himax Media Solutions also developed the depth sensing technology that aims 3D sensing and AR/VR markets.
On the other hand, the low power Convolution Neural Network (CNN) accelerator platform is also developed for the emerging ultra-low-power
Computer Vision market.
The following table summarizes the features
of our ASIC service:
Product
|
|
Features
|
ASIC Service
|
|
·
Well
established ASIC development platform, based on our unique video processor and image processing technologies.
·
offer
a wide variety of video interface IPs, like LVDS, HDMI, DVI, V-by-one, 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
·
Depth
sensing algorithm and hardware accelerator for 3D sensing and AR/VR applications
·
Low
power Convolution Neural Network (CNN) algorithm and hardware accelerator for Computer Vision market
·
Ultra
low power controller design for Always-on image sensing applications
|
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,
communication, toy projector, AR glasses, HUD for automotive and HUD for motorcycle.
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:
Product
|
|
Size and Resolution
|
Color-Filter LCOS Microdisplays
|
|
·
0.28”
(320x240 pixels) QVGA
·
0.38”
(640x360 pixels) nHD
·
0.44”
(640x480 pixels) VGA
·
0.59”
(800x600 pixels) SVGA
·
Customized
design
|
Color-Sequential LCOS Microdisplays
|
|
·
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
|
Front-Lit™ Color Filter LCOS
|
|
·
0.22”
(640 x 360 pixels) nHD
·
Customized
design
|
|
|
|
MEMS
|
|
·
0.55” (1280 x 800 pixels) WXGA
|
Power ICs
Himax Analogic, Inc., or Himax Analogic,
our subsidiary, provides TFT-LCD television, monitor and notebooks power management solutions.
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, p-gamma OP, 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
|
|
Features
|
Integrated Multi-Channel Power Solutions for Notebooks
|
|
·
built-in
power MOSFET
·
step-up
PWM converter
·
charge
pump regulator
·
LDO
regulator
·
voltage
detector
·
gate
pulse modulator
·
Vcom
operational amplifier
·
2ch
programmable gamma voltage with operational amplifier
·
I2C
programmable
·
low
frame rate control for power saving solution
|
Integrated Multi-Channel Power Solutions for Monitors
|
|
·
built-in
power MOSFET
·
step-up
PWM converter
·
HV
LDO regulator
·
voltage
detector
·
gate
pulse modulator
·
programmable
Vcom voltage / Vcom operational amplifier
·
programmable
gamma voltage with 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
·
I2C
programmable
·
level
shifter
·
programmable
gamma voltage with operational amplifier
|
Level shifter
TFT-LCD panel manufacturers have developed
panel designs to reduce the usage of display drivers, like gateless designs, which integrate the gate driver function onto the
glass but needed level shifter. All level shifter channels feature the same input circuitry and are compatible with the standard
logic-level signals generated by timing controllers in typical applications. The level shifter converts the timing-controller (TCON)
logic-level signals to the high-level signals needed by the GOA (gate on array) display. The output circuitry has been designed
to achieve high rise and fall times when driving the capacitive loads typically encountered in TFT-LCD display applications.
Product
|
|
Features
|
16- channel level shifter for dual gate GOA TFT-LCD
|
|
·
support
two kinds of T-con input signals
·
up
to 10clock channel output
·
2
channel STV
·
2
channel LC
·
2
discharge channel
·
support
charge sharing function
·
reset
function
·
OTP
/ SCP
|
CMOS Image Sensor Products
The CMOS image sensor products are developed
by our subsidiary, Himax Imaging. The products were 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 various applications. In early 2016, we decided to re-shape our strategies and put more
focuses on the following three domains: ultra low power computer vision- Always-On Sensor (“AoS”), Near Infrared (“NIR”)
sensor, and big pixel BSI sensors in automotive and surveillance.
Given that IoT applications bring a lot
of demand and applications of ultra low power computer vision, we're developing the eyes for IoT. With our super low power AoS,
we’ve already collaborated with algorithm and processor partners to build up a people detection camera system called WiseEye
running in approximately 2.5mW. The WiseEye can be used in different kinds of applications, including smart office, smart building,
surveillance, robotics, etc. In addition to developing the AoS product to drive the power as low as possible, we’re also
devoted ourselves in designing the industrial leading pixel with higher near infrared Quantum Efficiency (“QE”) to
support the new generate 3D depth camera. 5MP UltraSense
2
is our 1
st
product in NIR sensor product line with
QE over 50% in 850nm and around 35% in 940nm. Its superior performance hugely helps to lower the system power and enhances the
system performance. With the high QE in NIR band, we open the doors to building more sensor and camera systems for machine vision.
Regarding the conventional color sensors, we put the resource in more specialized and customized big pixel sensors for automotive
and surveillance with higher value to the customers by providing unique features like better sensitivity in low light, high dynamic
range, slim embedded ISP, etc.
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:
Product
|
|
Features
|
13MP ViviSense2
TM
Color Image Sensor
|
|
·
1/3.06”
format color type
·
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
|
8MP ViviSense2
TM
Color Image Sensor
|
|
·
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
|
8MP UltraSense
TM
Color Image Sensor
|
|
·
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
|
Product
|
|
Features
|
5MP ViviSense
TM
Color Image Sensor
|
|
·
1/4”
format color type
·
5MP
resolution at 30 frames per second, support 720p HD at 83 frames per second and 1080 FHD at 56 frames per second
·
Compact
die size design to support small modules
·
4-lane
MIPI CSI2 outputs RAW8/10
|
5MP UltraSense 2
TM
NIR Sensor tailored for 3D Sensing
|
|
·
1/2.6”
format color type with high sensitivity BSI pixel
·
5MP
resolution at 45 frames per second, support QHD video at 60 frames per second
·
Compact
die size design to support small modules
·
4x
NIR sensitivity at 940nm
·
4-lane
MIPI CSI2 outputs RAW8/10
|
2.0MP ClearView
TM
Color Image Sensor
|
|
·
1/5”
format color type
·
UXGA
YUV output at 30 frames per second, 720p HD resolution at 60 frames per second
·
1-lane
MIPI CSI2 outputs RAW8/10
|
HD 1080p UltraSense
TM
Color Image Sensor
|
|
·
1/6”
format with high sensitivity BSI pixel
·
1080p
HD resolution at 60 frames per second
·
Low
power consumption
·
Alternating
frame support for HDR
·
Provide
2x2 RGB-IR option
·
2-lane
MIPI CSI2 outputs
·
Frame-Sync
control for multiple camera system
|
HD 720p UltraSense
TM
NIR Sensor tailored for 3D Sensing
|
|
·
1/6.5”
format with high sensitivity BSI pixel
·
720p
HD resolution at 60 frames per second
·
Low
power consumption
·
Support
Intel SSC function on MIPI I/F
·
4x
NIR sensitivity at 940nm
·
1-lane
MIPI CSI2 outputs RAW8/10
|
HD 720p UltraSense 2
TM
Color Image Sensor
|
|
·
1/9”
format with high sensitivity BSI pixel
·
720p
HD resolution at 30 frames per second
·
Low
power consumption
·
Support
LED-sync for Microsoft Windows Hello
·
1-lane
MIPI CSI2 outputs RAW8/10
|
VGA BrightSense
TM
System
on Chip
|
|
·
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 ClearSense
TM
EDR Color Image Sensor embedded with image processor for Surveillance
|
|
·
1/4”
format with ultra high sensitivity
·
ClearSense
TM
achieves higher dynamic range in color up to 84dB with on-chip tone mapping
·
800p
and 720p resolution at 30 frames per second
·
Flexi
TM
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
|
Product
|
|
Features
|
1.2MP UltraSense 2
TM
Color Image Sensor embedded with image processor for Automotive
|
|
·
1/4”
format with ultra high sensitivity
·
Ultrasense
2
TM
BSI pixel offers higher sensitivity for low light condition
·
Operation
up to 105ºC
·
960p
and 720p resolution at 30 frames per second
·
Color
processing pipeline including lens shading correction, defect correction, edge enhancement, color interpolation and correction,
gamma control, and saturation/hue adjustment
·
Dynamic
Range Optimizer offers best dynamic range of video
·
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 embedded with image processor 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
|
Ultra Low Power CMOS Color Image System for Machine Vision and Detection
|
|
·
High
sensitivity, low noise 1/11” 320x320 image area
·
Under
2.5mW at QVGA 30fps and 1mW at QQVGA 15fps
·
Embedded
auto-exposure and motion detection
·
NeoPac
and CSP package
·
Parallel
8bits, 4bits and 1bit data output
|
Wafer Level Optics Products
Wafer level optics are optical products
manufactured using semiconductor process on wafers. This innovative approach enables wafer level optics to manufacture micro/nano
optics structure and high temperature resistance, making the compatible 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 waveguide, refractive optics and diffractive
optical element (DOE) is the best solution for next generation computational imaging module for 2D/3D illumination and 3D dot projector,
which can be applied to 3D face recognition, 3D sensing, 3D reconstruction, and gesture control. 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 smartphones, AR/VR devices, and other mobile devices.
Our WLO technology is also adapted to form
microstructure such as lens array, DOE and lenticular lens 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 and high volume manufacturing to many tier 1 customers in the AR/VR, mobile device and wearable front.
The following table sets forth the features
of our wafer level optics products:
Product
|
|
Features
|
Refractive Optical Lens
|
|
·
for
Micro Lens Array(MLA) illumination diffuser, lighting control, flux illumination lens, collimation lens, and compact size camera
lens
·
provide
multi-layer solution including optical AR coating, IR-cutting filter coating, aspheric surface
·
double-side
manufacture process
·
already
in mass production
|
Diffractive Optical Element (DOE)
|
|
·
computational
imaging, flux illumination , dot projector for 3D sensing, 3D reconstruction, gesture and illumination control
·
using
WLO process to integral multi-layers DOE and refractive lens
·
provide
customized solution for specific application
|
Near Infrared(NIR) Projector Module
|
|
·
dot
projector module solution for computer vision , 3D sensing, 3D reconstruction, gesture and illumination control
·
integral
NIR Laser (830/850/940nm), optical system(refractive+ diffractive lens) and high precise active alignment assembly solution to
provide the smallest form factor
·
Module
design for smartphone and other mobile devices
·
provide
customized module solution for different application
|
3D Sensing Total Solutions
3D sensing can have a wide range of applications
across smartphone, IoT, automotive, AR/VR, robotics, etc. We are very excited about the growth prospects it represents and believe
3D sensing will be our biggest long term growth engine. SLiM™ (Structured Light Imaging Module), our structured light based
3D sensing total solutions, which we announced jointly with Qualcomm in August 2017, brings together Qualcomm’s industry
leading 3D algorithm with Himax’s cutting-edge design and manufacturing capabilities in optics and NIR sensors as well as
our unique know-how in 3D sensing system integration. The Qualcomm/Himax solution is by far the best performing 3D sensing and
face recognition total solution available for the Android smartphone market right now.
A total solution approach is essential
for most of the Android OEMs because it substantially reduces the customer’s integration complexity to a minimum. The majority
of the key technologies inside the SLiM
TM
total solution is developed and supplied by Himax ourselves. These critical
technologies include, on the projector end, DOE and collimator utilizing our world leading WLO technology, a tailor-made laser
driver IC, and high precision active alignment for the projector assembly; and on the receiver end, a high efficiency near-infrared
CMOS image sensor. Last but not least, Himax also developed an ASIC by incorporating Qualcomm’s algorithm for 3D depth map
generation. The fact that all of these critical components are developed in-house puts us in a unique leading position. It represents
a very high barrier of entry for any potential competition and a much higher ASP and profit margin for us.
The Qualcomm/Himax solution is by far the
highest quality 3D sensing total solution available for the Android market right now. It has the industry’s best performance
in all of dimension, 3D depth accuracy, indoor/outdoor sensitivity and power consumption. It passes the toughest eye safety standards
with a proprietary glass broken detection mechanism to safeguard the user from any potential harm. Furthermore, we are the only
solution to offer face recognition for secure online payment, a must-have feature for high end smartphones of the future. We are
working with multiple tier-1 smartphone makers to launch 3D sensing on their premium smartphones.
Our SLiM™ solution is now
ready for mass production. We have already achieved pretty satisfactory production yields in our internal pilot production.
Given that SLiM is a highly integrated solution with ASPs much higher than those of individual components, by the time we
start making shipment, it will be a major growth contributor to our top and bottom lines.
Wafer Level Optics Products
WLO is one of the key technologies enabling
3D sensing, AR goggle devices, and many other applications. At present, 3D sensing is the top priority of our WLO business. Levering
on our exceptional design know-how and mass production experience in WLO technology, we are able to produce the world’s most
compact optics required of 3D sensing while achieving superior performance.
CMOS Image Sensor
Our NIR sensor is a critical part in the
structured light 3D sensing total solution. Our NIR sensors’ overall performance is far ahead of those of our peers in 3D
sensing applications. We currently offer low noise HD, or 1 megapixel, and 5.5 megapixel NIR sensors and are planning to add more
to further enrich our product portfolio. Our NIR sensors deliver superior quantum efficiency in the NIR range, especially over
940nm band which is critical for outdoor applications.
ASIC
One of the critical elements of our 3D
sensing total solution is an ASIC for 3D depth map generation. We are able to develop the ASIC thanks to our unique in-house capability
in developing video ASICs for customers. Equipped with the ASIC, our 3D sensing total solution can substantially reduce the power
consumed while processing 3D sensing, enhance personal data security, accelerate the 3D depth map generation, and free up a smartphone’s
processor for other applications. We view this unique capability as a significant competitive advantage. It has been and will continue
to be one of our key drivers in the success of our 3D sensing total solution.
Active Alignment
With much experience in optical assembly
for AR and VR devices, our factory has developed a system to do active alignment for tiny components. From the incoming quality
check, assembly process, and testing, all steps are monitored and checked. The precision assembly capability gives us very good
foundation to do the optical assembly for DOE, WLO, and laser.
Laser Driver
Based on our expertise in projector, optics,
and driver, we have designed a special Glass Broken Detection (“GBD”) mechanism on our projector. With the support
from laser driver, it can cease the laser to prevent users from being exposed to higher power laser energy.
The following table sets forth the features
of our 3D sensing total solutions:
Product
|
|
Features
|
SLiM
TM
total solution
|
|
·
Dot
projector: More than 33,000 invisible dots, the highest in the industry, projected onto object to build the most sophisticated
3D depth map among all structured light solutions
·
Depth
map accuracy: Error rate of < 1% within the entire operation range of 20cm-100cm
·
Face
recognition: Enabled by the most sophisticated 3D depth data to build unique facial map that can be used for instant unlock and
secure online payment
·
Indoor/outdoor
sensitivity: Superior sensing capability even under total darkness or bright sunlight
·
Eye
safety: Certified for IEC 60825 Class 1, the international laser product standard which governs laser product safety under all
conditions of normal use with naked eyes
·
Glass
broken detection: Patented glass broken detection mechanism in the dot projector whereby laser is shut down instantaneously in
the event of broken glass in the projector
·
Power
consumption: Less than 400mW for projector, sensor and depth decoding combined, making it the lowest power consuming 3D sensing
device by far among all structured light solutions
·
Module
size: the smallest structured light solution in the market, ideal for embedded and mobile device integration
|
In an attempt to accelerate the adoption
of 3D sensing for Android phones, in addition to SLiM™, we are also working on stereoscopic type 3D sensing as a lower cost
alternative. Unlike SLiM™ which utilizes structure light to generate 3D, stereoscopic type uses two cameras to replicate
3D vision in nature, augmented by coded light for image depth enhancement. Both types of solutions offered by Himax operate on
active NIR light source with high sensitivity NIR sensors, thus working well even under extreme brightness or total darkness. For
3D sensing purposes, structure light approach offers better depth precision than stereoscopic type but the cost is also higher.
By introducing stereoscopic 3D sensing, we aim to bring down the cost of 3D sensing so that it can be afforded by mass market smartphone
models. We are pleased to report that development of stereoscopic 3D sensing total solution for face recognition and 3D features
has been under way. Similar to our experience
in SLiM™, we are working with some of the most prominent ecosystem partners in developing our stereoscopic 3D total solution.
We will update progress in due course. While lower cost compared to structure light, stereoscopic 3D will still represent a much
higher ASP and better gross margin potential for us.
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.
3D Technologies.
Several
technologies in Himax are integrated together to form our 3D solution. First, wafer level imprinted technology is used to design
and manufacture DOE and WLO. Then, the totally new design CMOS sensor architecture and process gives the industry leading NIR Quantum
Efficiency (QE) sensors which are specially designed for 3D applications. Our expertise in precision assembly in optics as well
as ASIC and driver design additionally helps us to provide a more complete solution to our customers.
High-Bandwidth Interfaces.
In
addition to high-voltage circuit design, TFT-LCD display drivers require high bandwidth transmission for video signals. We have
applied several high-speed interfaces, including transistor-transistor logic (“TTL”), Reduced Swing Differential Signaling
(“RSDS”), mini low-voltage differential signaling (“LVDS”), dual-edge TTL (“DETTL”), turbo
Reduced Swing Differential Signaling (“RSDS”), Mobile Industry Processor Interface (“MIPI”)and other customized
interfaces, in our display drivers. Moreover, we are developing additional driver interfaces for special applications with optimized
speed, lower EMI and higher system stability.
Die Shrink and LowPower 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, 2017, we sold our products
to more than 200 customers. Our ten largest customers together accounted for approximately 74.3%, 76.4% and 75.3% of our revenues
in 2015, 2016 and 2017, respectively. In 2015, 2016 and 2017, our two largest customers accounted for 10% or more of our net revenue:
customer A and its affiliates, accounted for 20.1%, 22.4% and 25.8% of our revenues, respectively; customer B and its affiliates,
accounted for 21.1%, 15.2% and 15.5% of our revenues, respectively.
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.
Additionally, we will form a strategic partnership with tier-1 customers for our LCOS microdisplays to penetrate into an emerging
market. We believe we need this close 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, Fuqing, Ningbo, Wuhan, Qindao, Chongqing,
Xi’an and Xiamen, China; Tokyo, Japan; Asan-si and Bundang-gu, 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
WLO 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.
Wafer Fabrication
: Based
on our design, the foundry provides us with fabricated wafers. Each fabricated wafer contains many chips, each known as a die.
Gold Bumping
: After the wafers
are fabricated, they are delivered to gold bumping houses where gold bumps are plated on each wafer. The gold bumping process uses
thin film metal deposition, photolithography and electrical plating technologies. The gold bumps are plated onto each wafer to
connect the die to the processed tape, in the case of TAB package, or the glass, in the case of COG package.
Chip Probe Testing
: Each
die is electrically tested, or probed, for defects. Dies that fail this test are discarded.
Assembly and Testing
: Our
display drivers use two types of assembly technology: TAB or COG. Display drivers for large-sized applications typically require
TAB package types and to a lesser extent COG package types, whereas display drivers for mobile handsets and consumer electronics
products typically require COG package types.
TAB Assembly
We use two types of TAB technologies: TCP
and COF. TCP and COF packages are both made of processed tape that is typically 35mm or 48mm wide, plated with copper foil and
has a circuit formed within it. TCP and COF packages differ, however, in terms of their chip connections. With TCP packages, a
hole is punched through the processed tape in the area of the chip, which is connected to a flying lead made of copper. By contrast,
with COF packages, the lead is mounted directly on the processed tape and there is no flying lead. In recent years, COF packages
have become predominantly used in TAB technology.
|
·
|
Inner-Lead Bonding
: The TCP and COF assembly process involves grinding the bumped wafers into their required thickness
and cutting the wafers into individual dies, or chips. An inner lead bonder machine connects the chip to the printed circuit processed
tape and the package is sealed with resin at high temperatures.
|
|
·
|
Final Testing
: The assembled display drivers are tested to ensure that they meet performance specifications. Testing
takes place on specialized equipment using software customized for each product.
|
COG Assembly
COG assembly connects display drivers directly
to LCD panels without the need for processed tape. COG assembly involves grinding the tested wafers into their required thickness
and cutting the wafers into individual dies, or chips. Each individual die is picked and placed into a chip tray and is then visually
or auto-inspected for defects. The dies are packed within a tray in an aluminum bag after completion of the inspection process.
Quality Assurance
We maintain a comprehensive quality assurance
system. Using a variety of methods, from conducting rigorous simulations during the circuit design process to evaluating supplier
performance at various stages of our products’ manufacturing process, we seek to bring about improvements and achieve customer
satisfaction. In addition to monitoring customer satisfaction through regular reviews, we implement extensive supplier quality
controls so that the products we outsource achieve our high standards. Prior to engaging a third party as our supplier, we perform
a series of audits on their operations, and upon engagement, we hold frequent quality assurance meetings with our suppliers to
evaluate such factors as product quality, production costs, technological sophistication and timely delivery.
In November 2002, we received ISO 9001
certification, which was renewed in February 2017 and will expire in September 2018. In February 2006, we received ISO 14001 certification,
which was renewed in December 2017 and will expire in December 2020. In addition, in March 2007, we received IECQ QC 080000 certification,
which was renewed in March 2016 and will expire in March 2019, and OHSAS 18001 certification, which was renewed in December 2017
and will expire in January 2021.
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.
The table below sets forth (in alphabetical
order) our principal semiconductor manufacturing service providers and suppliers:
Wafer Fabrication
|
|
Gold Bumping
|
Globalfoundries Singapore Pte., Ltd.
|
|
Chipbond Technology Corporation
|
Macronix International Co., Ltd.
|
|
Chipmore International Trading Company Ltd.
|
Maxchip Electronics Corp.
|
|
ChipMOS Technologies Inc.
|
Powerchip Technology Corporation
|
|
LB Semicon Co., Ltd.
|
Semiconductor Manufacturing International Corporation
|
|
Nepes Corporation
|
Shanghai Hua Hong NEC Electronics Company, Ltd.
|
|
Union Semi Conductor Co., Ltd.
|
SK Hynix
|
|
|
Taiwan Semiconductor Manufacturing Company Limited
|
|
|
United Microelectronics Corporation
|
|
|
Vanguard International Semiconductor Corporation
|
|
|
Processed Tape for TAB Packaging
|
|
Assembly and Testing
|
JMC Electronics Co., Ltd.
|
|
Ardentec Corporation
|
LG Innotek Co., Ltd.
|
|
Advanced Semiconductor Engineering Inc.
|
Stemco., Ltd.
|
|
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.
|
|
|
Taiwan IC Packaging Corporation
|
|
|
|
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 February 28, 2018, we held a total
of 2,990 patents, including 1,356 in Taiwan, 939 in the United States, 619 in China, and 76 in other countries. The expiration
dates of our patents range from 2019 to 2038. We also have a total of 93 pending patent applications in Taiwan, 113 in the United
States and 227 in other jurisdictions, including the PRC, Japan, Korea and Europe. In addition, we have registered “Himax”
and our logo as a trademark and service mark in Taiwan, China, Europe, Singapore, Korea and Japan and the United States.
Competition
The markets for our products are, in general,
intensely competitive, characterized by continuous technological change, evolving industry standards, and declining average selling
prices. We believe key factors that differentiate the competition in our industry include:
|
·
|
supply chain management;
|
|
·
|
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., Novatek Microelectronics
Corp., Raydium Semiconductor Corporation, Sitronix Technology Co., Ltd., Silicon Works Co. Ltd., and Synaptics Incorporated. We
also face competition from integrated device manufacturers, such as Rohm Co., Ltd.
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 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 microdisplay products, we face
competition from OmniVision, Jasper, Citizen, Syndiant, Kopin, Compound Photonics and RAONTECH. We also compete with alternative
microdsiplay technology providers such as Texas Instruments with DLP, Sony with Micro OLED and Bosch with scanning mirror.
For power ICs, we face competition from
Taiwan companies including 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, our focus
is on machine vision. Competition in this space is primarily from OmniVision Technologies Inc. and Sony Corporation.
For wafer level optics products, we face
competition primarily from Heptagon that was acquired by ams AG.
For 3D sensing, the Qualcomm/Himax solution
is by far the best performing 3D sensing and face recognition total solution available for the Android smartphone market right
now. Himax is the only one to provide the one-stop solution though there are more companies jumping into the game. ams AG will
be the main competitor we face in the worldwide while Orbbec and Mantis Vision will be the competitors in China.
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 February 28, 2018.
The following table sets forth summary
information for our subsidiaries as of February 28, 2018.
Subsidiary
|
|
Main Activities
|
|
Jurisdiction of
Incorporation
|
|
Percentage of
Our Ownership
Interest
|
|
|
|
|
|
|
|
|
|
Himax Technologies Limited
|
|
IC design and sales
|
|
ROC
|
|
|
100.0
|
%
|
Himax Technologies Korea Ltd.
|
|
IC design and sales
|
|
South Korea
|
|
|
100.0
|
%
|
Himax Semiconductor, Inc.
|
|
IC design and sales
|
|
ROC
|
|
|
100.0
|
%
(1)
|
Himax Technologies (Samoa), Inc.
|
|
Investments
|
|
Samoa
|
|
|
100.0
|
%
(1)
|
Himax Technologies (Suzhou) Co., Ltd.
|
|
Sales and technical support
|
|
PRC
|
|
|
100.0
|
%
(2)
|
Himax Technologies (Shenzhen) Co., Ltd.
|
|
Sales and technical support
|
|
PRC
|
|
|
100.0
|
%
(2)
|
Himax Display, Inc.
|
|
LCOS and MEMS design, manufacturing and sales
|
|
ROC
|
|
|
82.7
|
%
(1)
|
Integrated Microdisplays Limited
|
|
LCOS design
|
|
Hong Kong
|
|
|
82.7
|
%
(3)
|
Himax Display (USA) Inc.
|
|
LCOS and MEMS design, sales and technical support
|
|
Delaware, USA
|
|
|
82.7
|
%
(3)
|
Himax Analogic, Inc.
|
|
IC design and sales
|
|
ROC
|
|
|
98.6
|
%
(1)
|
Himax Imaging, Inc.
|
|
Investments
|
|
Cayman Islands
|
|
|
100.0
|
%
|
Himax Imaging, Ltd.
|
|
IC design and sales
|
|
ROC
|
|
|
93.7
|
%
(1)
|
Himax Imaging Corp.
|
|
IC design
|
|
California, USA
|
|
|
93.7
|
%
(4)
|
Himax Media Solutions, Inc.
|
|
TFT-LCD television and monitor chipset operations, ASIC service and IP Licensing
|
|
ROC
|
|
|
99.2
|
%
(1)
|
Harvest Investment Limited
|
|
Investments
|
|
ROC
|
|
|
100.0
|
%
(1)
|
Himax Technologies Japan Ltd.
|
|
Sales
|
|
Japan
|
|
|
100.0
|
%
|
Himax Semiconductor (Hong Kong) Limited
|
|
Investments
|
|
Hong Kong
|
|
|
100.0
|
%
|
Liqxtal Technology Inc.
|
|
LC Lens design and sales
|
|
ROC
|
|
|
64.0
|
%
(1)
|
Himax IGI Precision Ltd.
|
|
3D micro and nano structure mastering and prototype replication
|
|
Delaware, USA
|
|
|
100.0
|
%
(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
82.7% ownership of Himax Display, Inc.
(4) Indirectly, through our
93.7% ownership of Himax Imaging, Ltd.
4.D. Property, Plants and Equipment
Our corporate headquarters are located
at a 22,172 square meter facility within the Tree Valley Industrial Park in Tainan, Taiwan. The facility houses our research and
development, engineering, sales and marketing, operations and general administrative staff.
We also lease office space in Taipei, Hsinchu
and Tainan, Taiwan; Suzhou, Shenzhen, Foshan, Beijing, Shanghai, Ningbo, Wuhan, Hefei, Xiamen, Chongqing, China; Tokyo, Japan;
Asan-si and Bundang-gu, South Korea; and Irvine and Campbell, California, Minneapolis, Minnesota, USA. The lease contracts may
be renewed upon expiration.
We have established under Himax Taiwan
an in-house WLO 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 WLO 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.
We began construction of our new building
in March 2017, located nearby the current headquarters. In 2017, our significantly higher than usual capital expenditures of $39.8
million included the construction of a new building and facility $18.5 million, WLO product line $16.3 million and others $5 million.
The construction of a new building, located nearby the current headquarters, will house additional 8” glass WLO capacity,
the new active alignment equipment needed for our SLiM™ 3D sensing solutions and provide extra office space. The construction
of the new building has been completed on schedule. In 2017, we announced a capex plan of $80 million (Phase I capital expansion),
covering land, new building, facilities and clean room, which is on top of our regular capex and an unprecedented move in our history
given our fabless nature. The Phase I capital expansion includes the construction of a new building, an increase of WLO capacity
for the anchor customer and an initial monthly capacity of 2 million units for SLiM solution. In February 2018, we announced an
increase to the Phase I budget from $80 million to $105 million. The addition of $25 million is primarily for enhanced manufacturing
automation and CIM infrastructure to achieve higher product yields and better production efficiency, an extra land of 1 hectare
and more clean room and office space for future expansion. The Phase I is being executed as scheduled. Of the $105 million budget,
$33 million has been paid out in 2017 with the remaining $72 million expected to be paid in 2018.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
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, automobile, virtual reality (VR) devices and
many other consumer electronics devices. Additionally, we design and provide controllers for touch sensor displays, in-cell Touch
and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management ICs, scaler products for monitors
and projectors, tailor-made video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality (AR) devices
and head-up displays (HUD) for automotive. We also offer digital camera solutions, including CMOS image sensors and wafer level
optics for AR devices, 3D sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet,
laptop, TV, PC camera, automobile, medical devices and Internet of Things. 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 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 2017 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;
|
|
·
|
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 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.”
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 issues 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 the first half of 2016, our large-sized display drivers suffered from another ASP erosion due to the
oversupply in large-sized TFT-LCD panel industry. Large-sized display drivers and small and medium-sized panel driver
business also experienced ASP erosion in 2017. In addition, our average selling prices are affected by the size and
bargaining power of our customers. The merger of CMO, the predecessor of Innolux and TPO could negatively affect our ability
to maintain, if not raise, our selling prices. In addition, as new China panel makers emerge in the marketplace and continue
to expand their capacity, China panel makers’ bargaining power will increase accordingly, negatively impacting
our average selling price. Our average selling prices are also affected by the packaging type our customers choose as well as
the level of product integration. See “—Product Mix” below. Lastly, competition level affects our
average selling prices as well. For example, as competitors have started to enter into the smartphone driver IC space
and compete aggressively to get market share since the second quarter of 2012, average selling prices of smartphone driver IC
for mid to low-end resolution have been under pressure since then. However, the impact of declining average selling prices
on our profitability might be offset or mitigated to a certain extent by increased volume as lower prices may stimulate
demand and thereby drive sales and TFT-LCD panel products trending toward higher resolution which creates a higher barrier
of entry, less competition and higher profit margins.
Unit Shipments
Our performance is also affected by the
number of semiconductors we ship, or unit shipments. As our display drivers are critical components of flat panel displays, our
unit shipments depend primarily on our customers’ panel shipments among other factors. Our unit shipments have grown since
our inception primarily as a result of our increased market share with certain major customers and their increased shipments of
panels. Our growth in unit shipments also reflected the demand for higher resolution panels which typically require more display
drivers. However, the development of higher channel display drivers or new technologies, if successful, could potentially reduce
the number of display drivers required for each panel while achieving the same resolution. If such technologies become commercially
available, the market for our display drivers will be reduced and we could experience a decline in revenue and profit.
Product Mix
The proportion of our revenues that is
generated from the sale of different product types, also referred to as product mix, also affects our average selling prices, revenues
and profitability. Our display driver products vary depending on, among other things, the number of output channels, the level
of integration and the package type. Variations in each of these specifications could affect the average selling prices of such
products. For example, the trend for display drivers for use in large-sized panels is toward products 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 2015, 2016 and 2017 was 76.4%, 75.8% and 75.6%, respectively. In 2017,
as a percentage of Himax Taiwan’s total manufacturing costs, the cost of wafer fabrication was 47.6%, the cost of processed
tape was 9.9%, the cost of assembly and testing was 41.7% and overhead was 0.8%. Our cost of revenues may increase as a result
of an increase in raw material prices, any failure to obtain sufficient foundry, assembly or testing capacity or any shortage of
processed tape or failure to improve our manufacturing utilization rate or production yield. As a result, our ability to manage
our wafer fabrication costs, costs for processed tape, and assembly and testing costs is critical to our performance. In addition,
to mitigate declining average selling prices, we aim to reduce unit costs by, among other things:
|
·
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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 requirements and close relationships as well as our strategy of sourcing from multiple
service providers and suppliers.
|
Supply Chain Management
Due to the competitive nature of the flat
panel display industry and our customers’ need to maintain high capacity utilization in order to reduce unit costs per panel,
any delays in the delivery of our products could significantly disrupt our customers’ operations. To deliver our products
on a timely basis and meet the quality standards and technical specifications our customers require, we must have assurances of
high-quality capacity from our semiconductor manufacturing service providers. We therefore strive to manage our supply chain by
maintaining close relationships with our key semiconductor manufacturing service providers and strive to provide credible forecasts
of capacity demand 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 $6.2 million, $10.1 million and $6.9 million in 2015, 2016 and 2017, respectively. See “—Critical
Accounting Policies and Estimates—Share-Based Compensation Expenses.” Of the total share-based compensation expenses
recognized, $4.5 million, $9.2 million and $6.1 million in 2015, 2016 and 2017, 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, 2015, 2016 and 2017 as reflected in our consolidated financial
statements.
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.
We made grants of 1,208,785 RSUs to our
employees on September 28, 2016. The vesting schedule for such RSU grants is as follows: 91.93% of the RSU grants vested immediately
and were settled by cash in the amount of $9.2 million on the grant date, with the remainder vesting equally on each of September
30, 2017, 2018 and 2019, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 580,235 RSUs to our employees
on September 29, 2017. The vesting schedule for such RSU grants is as follows: 96.91% of the RSU grants vested immediately and
were settled by cash in the amount of $6.1 million on the grant date, with the remainder vesting equally on each of September 30,
2018, 2019 and 2020, 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 25, 2015, September 28, 2016 and September 29,
2017 was $7.92, $8.30 and $10.93 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.
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.
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.
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, 2014 and will expire on December 31, 2018. In addition, beginning January 1, 2014, Himax Semiconductor became entitled to a
five-year tax exemption that will expire on December 31, 2018. 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 $1.8 million, $0.01 and $0.01, respectively,
for the year ended December 31, 2015, $3.9 million, $0.01 and $0.01, respectively, for the year ended December 31, 2016 and $0.5
million, $0.002 and $0.002, respectively, for the year ended December 31, 2017. 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.
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. Revenues from large-sized application increased 21.6% in 2016. The
strong year-over-year growth originated from our focus in China starting in 2012 and our efforts to achieve a more
diversified customer base by adding new customers in Taiwan, China and Korea. Revenues from large-sized application decreased
17.6% in 2017. The year-over-year decline was mainly due to phase-out of certain customers’ old models and the misses
in certain customers’ new design-in activities at the end of the fourth quarter of 2016 and the first quarter of 2017.
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 decrease in revenue of display drivers for
consumer electronics application despite strong growth of display drivers for automotive applications. In 2016, display
drivers for mobile handsets applications rebounded well, reflecting our leading position in the Chinese smartphone market
where demand was stimulated by the rising adoption of 4G network and our end brand customers performed strongly in 2016. In
2017, display drivers for mobile handsets applications declined around 40.7% mainly due to the increasing adoption of TDDI
solutions where we had a relatively slow start. Our non-driver products experienced tremendous growth during 2016, primarily
driven by the LCOS and WLO businesses due to shipments to one of our leading AR device customers. Non-driver products
decreased 3.6% year-over-year in 2017. This decline was primarily due to discontinuation of LCOS and WLO shipments to a major
AR customer. Nevertheless, the Company’s WLO business hit inflection in the middle of 2017 when it began mass shipment
to an anchor customer.
The following table sets forth, for the
periods indicated, our revenues by amount and our revenues as a percentage of revenues by each product line:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percentage
of
Revenues
|
|
|
Amount
|
|
|
Percentage
of
Revenues
|
|
|
Amount
|
|
|
Percentage
of
Revenues
|
|
|
|
(in thousands, except percentages)
|
|
Display drivers for large-sized applications
|
|
$
|
224,423
|
|
|
|
32.4
|
|
|
$
|
272,906
|
|
|
|
34.0
|
|
|
$
|
224,798
|
|
|
|
32.8
|
|
Display drivers for mobile handsets applications
|
|
|
170,705
|
|
|
|
24.7
|
|
|
|
191,845
|
|
|
|
23.9
|
|
|
|
113,591
|
|
|
|
16.6
|
|
Display drivers for consumer electronics applications
|
|
|
165,271
|
|
|
|
23.9
|
|
|
|
177,114
|
|
|
|
22.1
|
|
|
|
191,458
|
|
|
|
27.9
|
|
Others
(1)
|
|
|
131,390
|
|
|
|
19.0
|
|
|
|
161,052
|
|
|
|
20.0
|
|
|
|
155,320
|
|
|
|
22.7
|
|
Total
|
|
$
|
691,789
|
|
|
|
100.0
|
|
|
$
|
802,917
|
|
|
|
100.0
|
|
|
$
|
685,167
|
|
|
|
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. For example, Customer A and its affiliates accounted for 20.1%, 22.4% and 25.8% of our revenues
in 2015, 2016 and 2017, respectively. Customer B and its affiliates accounted for 21.1%, 15.2% and 15.5% of our revenues in 2015,
2016 and 2017, respectively.
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percentage
of
Revenues
|
|
|
Amount
|
|
|
Percentage
of
Revenues
|
|
|
Amount
|
|
|
Percentage
of
Revenues
|
|
|
|
(in thousands, except percentages)
|
|
Customer A and its affiliates
|
|
$
|
138,801
|
|
|
|
20.1
|
|
|
$
|
180,015
|
|
|
|
22.4
|
|
|
$
|
176,728
|
|
|
|
25.8
|
|
Customer B and its affiliates
|
|
|
146,209
|
|
|
|
21.1
|
|
|
|
121,972
|
|
|
|
15.2
|
|
|
|
106,380
|
|
|
|
15.5
|
|
Others
|
|
|
406,779
|
|
|
|
58.8
|
|
|
|
500,930
|
|
|
|
62.4
|
|
|
|
402,059
|
|
|
|
58.7
|
|
Total
|
|
$
|
691,789
|
|
|
|
100.0
|
|
|
$
|
802,917
|
|
|
|
100.0
|
|
|
$
|
685,167
|
|
|
|
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 2015, 2016 and 2017 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 2015, 2016 and 2017, approximately 36.8%, 24.9% and
25.8% of our revenues, respectively, were from customers headquartered in Taiwan and approximately 53.9%, 63.2% and 61.5% of our
revenues, respectively, were from customers headquartered in China. We believe that substantially all of our revenues will continue
to be from customers located in Asia, where almost all of the TFT-LCD panel manufacturers and mobile device module manufacturers
are located. As a result of the regional customer concentration, we expect to continue to be subject to economic and political
events and other developments that affect our customers in Asia. A substantial majority of our sales invoices are denominated in
U.S. dollars.
Costs and Expenses
Our costs and expenses consist of cost
of revenues, research and development expenses, general and administrative expenses, bad debt expense, sales and marketing expenses
and share-based compensation expenses.
Cost of Revenues
The principal items of our cost of revenues
are:
|
·
|
cost of wafer fabrication;
|
|
·
|
cost of processed tape used in TAB packaging;
|
|
·
|
cost of gold bumping, assembly and testing; and
|
|
·
|
other costs and expenses.
|
We outsource the manufacturing of our semiconductors
and semiconductor solutions to semiconductor manufacturing service providers. The costs of wafer fabrication, gold bumping, assembly
and testing depend on the availability of capacity and demand for such services. The wafer fabrication industry, in particular,
is 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 and depreciation on research and development equipment. 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 2015, 2016 and 2017 were 13.6%, 11.9% and 17.2%, 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 new building, 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 an appropriate allowance for doubtful accounts, we consider our
historical collection experience, current receivable aging and the current trend in the credit quality of our customers. In 2015,
2016 and 2017, we recognized bad debt expense of $0.3 million, $0.6 million and $0.2 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, 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, September 25, 2015, September 28, 2016 and September 29, 2017 to our employees. Share-based compensation expenses
recorded under the long-term incentive plan totaled $6.2 million, $10.1 million and $6.9 million in 2015, 2016 and 2017, 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. However, if the relevant bylaws of the PEM rules have been adequately enacted and properly advocated, we
may be determined to be within the territory of the ROC and our income tax shall be levied in accordance with the Income Tax Act
and relevant tax regulations. Therefore, dividend payments made by us would be subject to withholding tax in the ROC. 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 34.7%
in 2015, 18.0% in 2016 and 14.9% in 2017.
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 was 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.
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.
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, 2014 and will expire on December 31, 2018. In addition, beginning January
1, 2014, Himax Semiconductor is also entitled to a five-year tax exemption that will expire on December 31, 2018. 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 $1.8 million, $0.01 and $0.01 for the year ended December 31, 2015,
respectively, $3.9 million, $0.01 and $0.01 for the year ended December 31, 2016, respectively and $0.5 million, $0.002 and $0.002
for the year ended December 31, 2017, respectively. No such tax exemption is provided for under the newly adopted Statute for Industrial
Innovation.
According to the amendments to the “Income
Tax Act” enacted by the office of the President of the ROC on February 7, 2018, an increase in the statutory income tax rate
from 17% to 20% and decrease in the undistributed earning tax from 10% to 5% are effective from January 1, 2018. This increase
does not affect the amounts of the current or deferred taxes recognized for the year ended December 31, 2017. However, it will
affect the Company’s current tax expense in the future, and deferred taxes will be remeasured in 2018, the period of enactment.
The applicable combined tax rate for Taiwan will change from 23.85% to 23.44%, consisting of an aggregate calculation of the 20%
statutory income tax, and the 5% undistributed earning tax.
On December 22, 2017, the U.S. President
Trump signed into law H.R. 1, known as the “Tax Cuts and Jobs Act” that significantly changes the United States federal
income tax system. Among a number of significant changes to the current United States federal income tax rules, the Tax Cuts and
Jobs Act reduces the marginal United States corporate income tax rate from 35% to 21%, limits the deduction for net interest expense,
shifts the United States toward a more territorial tax system, and imposes new taxes to combat erosion of the United States federal
income tax base. The Company does not expect the Tax Cuts and Jobs Act to have a material effect on the Company’s results
of operations.
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 in accordance with U.S. GAAP.
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, 2017, we based our share-based compensation cost on an assumed forfeiture rate of 0% per annum for RSUs issued
in 2015, 1.8% per annum for RSUs issued in 2016 and 0% per annum for RSUs issued in 2017, 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 2015, 2016
and 2017, the fair value of the ordinary shares underlying the RSUs granted to our employees was $7.92, $8.30 and $10.93 per unit,
respectively, which was the closing price of our ADSs on September 25, 2015, September 28, 2016 and September 29, 2017, 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 an appropriate allowance for doubtful accounts, we consider our
historical collection experience, current receivable aging and the current trend in the credit quality of our customers. In 2016
and 2017, the allowance and related charge to earnings for sales returns and discounts increased for product quality issues. The
allowance and related charge to earnings for doubtful accounts increased primarily due to a customer under reorganization in 2016.
The movement in the allowance for doubtful accounts, sales returns and discounts for the years ended December 31, 2015, 2016 and
2017 are as follows:
Allowance for doubtful accounts
Year
|
|
Balance at
Beginning
of Year
|
|
|
Charges to
earnings
|
|
|
Amounts
Utilized
|
|
|
Balance at
End of Year
|
|
|
|
(in thousands)
|
|
2015
|
|
$
|
727
|
|
|
$
|
310
|
|
|
$
|
(262
|
)
|
|
$
|
775
|
|
2016
|
|
$
|
775
|
|
|
$
|
620
|
|
|
$
|
-
|
|
|
$
|
1,395
|
|
2017
|
|
$
|
1,395
|
|
|
$
|
155
|
|
|
$
|
(1,550
|
)
|
|
$
|
-
|
|
Allowance for sales returns and discounts
Year
|
|
Balance at
Beginning
of Year
|
|
|
Charges to
earnings
|
|
|
Amounts
Utilized
|
|
|
Balance at
End of Year
|
|
|
|
(in thousands)
|
|
2015
|
|
$
|
868
|
|
|
$
|
8,887
|
|
|
$
|
(8,982
|
)
|
|
$
|
773
|
|
2016
|
|
$
|
773
|
|
|
$
|
10,624
|
|
|
$
|
(9,861
|
)
|
|
$
|
1,536
|
|
2017
|
|
$
|
1,536
|
|
|
$
|
8,720
|
|
|
$
|
(9,053
|
)
|
|
$
|
1,203
|
|
Inventory
Inventories are stated at the lower of
cost and net realizable 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 2015, 2016 and 2017 were approximately $9.8 million, $23.3 million and $12.3 million, respectively, and were included
in cost of revenues in our consolidated statements of income. The inventory write-downs amount in 2016 was related to certain aged
inventories of traditional human vision CMOS image sensors and driver IC products. Earlier in 2016, we decided to focus our CIS
business on smart sensor, machine vision segments, as opposed to the traditional human vision segments. As part of this new strategic
direction, we made a decision to expedite the sales of some aged inventories of human vision sensors. We believe it is appropriate
that we write-down the inventory in 2016, as we anticipate the need to offer discounted prices to accelerate the sales of some
products and, for some other products where the potential revenues do not justify the efforts, stop the sales all together.
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. Although we have the recurring losses in non-Driver product segment, we remain positive on the long-term prospect of
our non-Driver product segment, judging by the expanding customer list that covers some of the world’s biggest tech names,
and the busy engineering activities going on with such customers. Prior to evaluating goodwill for impairment, we evaluated the
Company’s long-lived assets for impairment. For CMOS image sensors and WLO these two asset groups, the undiscounted expected
cash flows significantly exceeded the carrying amounts for CMOS image sensors and WLO asset group as of December 31, 2015, 2016
and 2017, 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 January 1, 2015 to December 31, 2017.
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, 2015, 2016 and 2017. The amount of such goodwill is immaterial.
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. However, customers asked to return the product when product quality issues happened, which resulted
in less product warranty claims from 2016. The movement in accrued warranty costs for the years ended December 31, 2015, 2016 and
2017 is as follows:
Year
|
|
Balance at
Beginning
of Year
|
|
|
Additions
Charged to
Expense
|
|
|
Amount
Utilized
|
|
|
Balance at
End of Year
|
|
|
|
(in thousands)
|
|
2015
|
|
$
|
103
|
|
|
$
|
1,121
|
|
|
$
|
(997
|
)
|
|
$
|
227
|
|
2016
|
|
$
|
227
|
|
|
$
|
11
|
|
|
$
|
(190
|
)
|
|
$
|
48
|
|
2017
|
|
$
|
48
|
|
|
$
|
146
|
|
|
$
|
(154
|
)
|
|
$
|
40
|
|
Income Taxes
According to the amendments to the Income
Tax Act enacted by the office of the President of the ROC on February 7, 2018, effective starting from January 1, 2018, dividends
distributed by a Taiwan company to its foreign shareholders are subject to ROC withholding tax, the rate increased from 20% to
21%, 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. The surtax rate for undistributed earnings will be reduced from 10% to 5%. However, surtax paid on undistributed
earnings can no longer be used to offset against the withholding tax imposed on the dividend distributed to foreign shareholders.
As of December 31, 2017, we have not provided
for retained earnings tax on the undistributed earnings of approximately $594.5 million 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 $593.8 million as of December 31, 2017. 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, 2016 and 2017, the amount of cash and cash equivalents and investments in marketable securities
available-for-sale held by Himax Taiwan were $105.9 million and $80.1 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:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Balance at beginning of year
|
|
$
|
788
|
|
|
$
|
1,335
|
|
|
$
|
1,052
|
|
Increase related to prior year tax positions
|
|
|
292
|
|
|
|
-
|
|
|
|
384
|
|
Decrease related to prior year tax positions
|
|
|
-
|
|
|
|
(292
|
)
|
|
|
(641
|
)
|
Increase related to current year tax positions
|
|
|
630
|
|
|
|
-
|
|
|
|
-
|
|
Settlements
|
|
|
(368
|
)
|
|
|
-
|
|
|
|
-
|
|
Lapse of statute of limitations
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(41
|
)
|
Effect of exchange rate change
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
Balance at end of year
|
|
$
|
1,335
|
|
|
$
|
1,052
|
|
|
$
|
754
|
|
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 $32.4 million, $36.5 million and $41.0 million as of December 31, 2015, 2016 and 2017, respectively,
and valuation allowances for undistributed earnings tax of $11.9 million, $14.7 million and $17.9 million as of December 31, 2015,
2016 and 2017, respectively, were provided to reduce their deferred tax assets (consisting primarily of operating loss carryforwards
and unused tax credit carryforwards) 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:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
76.4
|
|
|
|
75.8
|
|
|
|
75.6
|
|
Research and development
|
|
|
13.6
|
|
|
|
11.9
|
|
|
|
17.2
|
|
General and administrative
|
|
|
2.7
|
|
|
|
2.5
|
|
|
|
3.0
|
|
Sales and marketing
|
|
|
2.8
|
|
|
|
2.4
|
|
|
|
3.0
|
|
Total costs and expenses
|
|
|
95.5
|
|
|
|
92.6
|
|
|
|
98.8
|
|
Operating income
|
|
|
4.5
|
|
|
|
7.4
|
|
|
|
1.2
|
|
Non-operating income, net
|
|
|
0.3
|
|
|
|
-
|
|
|
|
3.2
|
|
Income tax expense
|
|
|
1.7
|
|
|
|
1.3
|
|
|
|
0.6
|
|
Net income
|
|
|
3.1
|
|
|
|
6.1
|
|
|
|
3.8
|
|
Net loss attributable to noncontrolling interests
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.3
|
|
Net income attributable to Himax stockholders
|
|
|
3.6
|
|
|
|
6.3
|
|
|
|
4.1
|
|
Year Ended December 31, 2017 Compared to Year Ended December
31, 2016
Revenues
. Our revenues decreased
by 14.7% to $685.2 million in 2017 from $802.9 million in 2016. The decrease was attributable mainly to a 40.8% decrease in revenues
from display drivers for mobile handsets to $113.6 million in 2017 from $191.8 million in 2016, caused by weak sentiment in the
China market and the increasing adoption of TDDI solutions where we had a relatively slow start. The display drivers for large-sized
applications also recorded a 17.6% decrease to $224.8 million in 2017 from $272.9 million in 2016, primarily was caused by phase-out
of certain customers’ old models and the misses in certain customers’ new design-in activities at the end of the fourth
quarter of 2016 and the first quarter of 2017. Additionally, a 3.6% decrease in revenues from non-driver products to $155.3 million
in 2017 from $161.0 million in 2016, due to the discontinuation of LCOS and WLO shipments to one of major AR device customers who
decided to end the product’s production. Our average selling prices decreased by 4.7%, primarily due to the decrease from
non-driver products, and our unit shipments decreased by 10.5% as a result of the decrease in our core driver IC business during
2017.
Costs and Expenses.
Costs and expenses
decreased by 9.0% to $677.0 million in 2017 from $743.7 million in 2016. As a percentage of revenues, costs and expenses increased
to 98.8% in 2017 compared to 92.6% in 2016.
|
·
|
Cost of Revenues.
Cost of revenues decreased to $518.1 million in 2017 from $608.6 million in 2016. The decrease in
cost of revenues was due primarily to a 10.5% decrease in unit shipments in 2017, as compared to 2016. Inventory write-downs, which
are included in cost of revenues, significantly decreased to $12.3 million in 2017 from $23.3 million in 2016. The inventory write-downs
amount in 2016 was related to certain aged inventories of traditional human vision CMOS image sensors and driver IC products. Earlier
in 2016, we decided to focus our CIS business on smart sensor, machine vision segments, as opposed to the traditional human vision
segments. As part of this new strategic direction, we made a decision to expedite the sales of some aged inventories of human vision
sensors. We believe it is appropriate that we write-down the inventory in 2016, as we anticipate the need to offer discounted prices
to accelerate the sales of some products and, for some other products where the potential revenues do not justify the efforts,
stop the sales all together. As a percentage of revenues, cost of revenues decreased to 75.6% in 2017 from 75.8% in 2016.
|
|
·
|
Research and Development.
Research and development expenses increased by 22.9% to $117.8 million in 2017 from $95.8
million in 2016. This increase was primarily attributable to increases in salary expenses $6.7 million and tape-out expense $12.0
million to capture the increasing business opportunities. The increase in salary expenses was due primarily to a larger headcount
of research and development staff, higher average salaries and NT dollar appreciation.
|
|
·
|
General and Administrative.
General and administrative expenses increased by 2.5% to $20.6 million in 2017 from $20.1
million in 2016, primarily as a result of increases in professional fee.
|
|
·
|
Sales and Marketing.
Sales and marketing expenses increased by 9.9% to $20.3 million in 2017 from $18.5 million in 2016,
primarily resulting from increases in salary expenses. The increase in salary expenses was due primarily to larger headcount of
sales and marketing staff and higher average salaries.
|
Non-Operating Income, net.
We had
net non-operating income of $22.2 million in 2017 compared to $0.2 million in 2016. We recognized gain on sale of securities, net
of $23.2 million, among which, $23.0 million from disposal of non-marketable equity security, but offset by foreign currency exchange
losses, net of $1.5 million in 2017.
Income Tax Expense.
Our income tax
expense decreased to $4.5 million in 2017 from $10.7 million in 2016. Our effective income tax rate decreased to 14.9% from 18.0%
in 2016. The decrease in our effective income tax rate was primarily attributable to the lower withholding tax rate on gain on
disposal of non-marketable equity security $23.0 million in 2017.
Net Income.
As a result of the foregoing,
our net income decreased to $25.8 million in 2017 from $48.7 million in 2016 and net income attributable to Himax stockholders
decreased to $28.0 million in 2017 from $50.9 million in 2016.
Year Ended December 31, 2016 Compared to Year Ended December
31, 2015
Revenues
. Our revenues increased
by 16.1% to $802.9 million in 2016 from $691.8 million in 2015. The growth was from our driver and non-driver products, both of
which performed strongly. This increase was attributable mainly to a 21.6% increase in revenues from display drivers for the large-sized
applications to $272.9 million in 2016 from $224.4 million in 2015, primarily originated from the Company’s focus in China
starting in 2012 and its efforts to achieve a more diversified customer base by adding new customers in Taiwan, China and Korea.
This increase was also attributable mainly to a 9.8% increase in revenues from display drivers for mobile handsets and consumer
electronics applications to $369.0 million in 2016 from $336.0 million in 2015. Contributing to this growth was the strong momentum
in driver ICs for smartphone and automotive applications. Additionaly, a 22.6% increase in revenues from non-driver products to
$161.0 million in 2016 from $131.4 million in 2015, due to higher LCOS and WLO shipments to a major AR customer in 2016, also contributed
to the revenues growth. Our average selling prices increased by 3.8%, primarily due to the contribution from non-driver products,
and our unit shipments increased by 11.8% as a result of the increased market share in our core driver IC business and tremendous
growth experienced on our non-driver products during 2016.
Costs and Expenses.
Costs and expenses
increased by 12.5% to $743.7 million in 2016 from $661.1 million in 2015. As a percentage of revenues, costs and expenses decreased
to 92.6% in 2016 compared to 95.5% in 2015.
|
·
|
Cost of Revenues.
Cost of revenues increased to $608.6 million in 2016 from $528.7 million in 2015. The increase in
cost of revenues was due primarily to an 11.8% increase in unit shipments in 2016, as compared to 2015. Inventory write-downs,
which are included in cost of revenues, significantly increased to $23.3 million in 2016 from $9.8 million in 2015. The inventory
write-downs amount in 2016 was related to certain aged inventories of traditional human vision CMOS image sensors and driver IC
products. Earlier in 2016, we decided to focus our CIS business on smart sensor, machine vision segments, as opposed to the traditional
human vision segments. As part of this new strategic direction, we made a decision to expedite the sales of some aged inventories
of human vision sensors. We believe it is appropriate that we write-down the inventory in 2016, as we anticipate the need to offer
discounted prices to accelerate the sales of some products and, for some other products where the potential revenues do not justify
the efforts, stop the sales all together. As a percentage of revenues, cost of revenues decreased to 75.8% in 2016 from 76.4% in
2015. The gross margin increased was primarily due to a more favorable product mix in display drivers for mobile handsets and consumer
electronics applications, increased LCOS and WLO shipments for AR applications and certain engineering fees from AR/VR new project
engagements, which was partially offset by the aforementioned inventory write-down.
|
|
·
|
Research and Development.
Research and development expenses increased by 1.5% to $95.8 million in 2016 from $94.4 million
in 2015. This increase was primarily attributable to increases in salary expenses but partially offset by decreased tape-out expense.
The increase in salary expenses was due primarily to a larger headcount of research and development staff, higher average salaries
and higher RSU compensation.
|
|
·
|
General and Administrative.
General and administrative expenses increased by 8.9% to $20.1 million in 2016 from $18.5
million in 2015, primarily as a result of increases in salary expenses. The increase in salary expenses was due to higher average
salaries and higher RSU compensation.
|
|
·
|
Sales and Marketing.
Sales and marketing expenses decreased by 3.9% to $18.5 million in 2016 from $19.3 million in 2015,
primarily as a result of decreases in salary expenses. The decrease in salary expenses was due primarily to lower headcount of
sales and marketing staff and partially offset by higher RSU compensation.
|
Non-Operating Income, net.
We had
net non-operating income of $0.2 million in 2016 compared to $2.2 million in 2015. We recognized interest income and dividend income
of $1.2 million and $0.7 million, respectively in 2016, but offset by equity in losses of equity method investees and interest
expense of $1.3 million and $0.6 million, respectively in 2016. Further, we recognized gain on disposal of investments, net of
$2.0 million in 2015.
Income Tax Expense.
Our income tax
expense decreased to $10.7 million in 2016 from $11.4 million in 2015. Our effective income tax rate decreased to 18.0% from 34.7%
in 2015. The decrease in our effective income tax rate was primarily attributable to the appreciated NT dollar against the U.S.
dollar in 2016 compared to 2015. However, the depreciated NT dollar against the U.S. dollar in 2015 compared to 2014.
Net Income
. As a result of the foregoing,
our net income increased to $48.7 million in 2016 from $21.5 million in 2015 and net income attributable to Himax stockholders
increased to $50.9 million in 2016 from $25.2 million in 2015.
Segment Results
The following table sets forth the revenues
and operating results for our reportable segments for the periods indicated:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Segment Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Driver IC
|
|
$
|
560,399
|
|
|
$
|
641,865
|
|
|
$
|
529,847
|
|
Non-Driver Products
|
|
|
131,390
|
|
|
|
161,052
|
|
|
|
155,320
|
|
Total
|
|
$
|
691,789
|
|
|
$
|
802,917
|
|
|
$
|
685,167
|
|
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Segment Operating Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Driver IC
|
|
$
|
59,506
|
|
|
$
|
92,010
|
|
|
$
|
43,021
|
|
Non-Driver Products
|
|
|
(28,834
|
)
|
|
|
(32,775
|
)
|
|
|
(34,871
|
)
|
Total
|
|
$
|
30,672
|
|
|
$
|
59,235
|
|
|
$
|
8,150
|
|
Driver IC Segment
Year Ended December 31, 2017 Compared to Year Ended December
31, 2016
Segment revenues
. Our revenues from
the Driver IC segment decreased by 17.5% to $529.9 million in 2017 from $641.9 million in 2016. The decrease was mainly from the
decrease in display drivers for mobile handsets application and large-sized application. This decrease was attributable to a 14.3%
decrease in unit shipments of our driver IC products and a 3.7% decrease in our average selling price.
Segment operating income.
Operating
income from the Driver IC segment decreased to $43.0 million in 2017 from $92.0 million in 2016. This decrease was primarily attributable
to a decrease in revenues in 2017 as compared to 2016. As a percentage of segment revenues, segment operating income decreased
to 8.1% in 2017 from 14.3% in 2016. This decrease was attributable to the increase in the operating expense for the Driver IC year-over-year.
Year Ended December 31, 2016 Compared to Year Ended December
31, 2015
Segment revenues
. Our revenues from
the Driver IC segment increased by 14.5% to $641.9 million in 2016 from $560.4 million in 2015. The increase was from all the driver
product lines for large-size applications, mobile handsets application and consumer electronics application. The growth was attributable
mainly to a 21.6% increase in revenues from display drivers for the large-sized applications, originated from the Company’s
focus in China starting in 2012 and its efforts to achieve a more diversified customer base by adding new customers in Taiwan,
China and Korea. This increase was attributable to an 18.2% increase in unit shipments of our driver IC products but partially
offset by a 3.1% decrease in our average selling price.
Segment operating income.
Operating
income from the Driver IC segment increased to $92.0 million in 2016 from $59.5 million in 2015. This increase was primarily attributable
to an increase in revenues in 2016 as compared to 2015. As a percentage of segment revenues, segment operating income increased
to 14.3% in 2016 from 10.6% in 2015. The increase was mainly from improved gross margin due to a more favorable product mix.
Non-Driver Products Segment
Year Ended December 31, 2017 Compared to Year Ended December
31, 2016
Segment revenues.
Our revenues from
the Non-Driver Products segment decreased by 3.6% to $155.3 million in 2017 from $161.0 million in 2016. The decline was due to
the discontinuation of LCOS and WLO shipments to one of our major AR device customers who decided to end the product’s production.
This decrease was attributable mainly to a 11.5% decrease in average selling price of our non-driver products.
Segment operating loss.
Operating
loss from the Non-Driver Products segment increased to $34.9 million in 2017 from $32.8 million in 2016. The operating loss increases
was attributable mainly to the decrease in revenues and increase in operating expense.
Year Ended December 31, 2016 Compared to Year Ended December
31, 2015
Segment revenues.
Our revenues from
the Non-Driver Products segment increased by 22.6% to $161.0 million in 2016 from $131.4 million in 2015. This growth was primarily
due to higher LCOS and WLO shipments to a major AR customer in 2016. This increase was attributable mainly to a 39.4% increase
in average selling price of our non-driver products.
Segment operating loss.
Operating
loss from the Non-Driver Products segment increased to $32.8 million in 2016 from $28.8 million in 2015. The operating loss increases
was attributable mainly to the above-mentioned inventory write-downs related to certain aged inventories of traditional human vision
CMOS image sensors.
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, 2017, we had total current
assets of $661.4 million, total current liabilities of $337.2 million and cash and cash equivalents of $138.0 million. As of December
31, 2017, we had total short-term debt of $147.0 million with equal amounts 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,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
22,529
|
|
|
$
|
84,672
|
|
|
$
|
29,393
|
|
Net cash used in investing activities
|
|
|
(28,342
|
)
|
|
|
(7,127
|
)
|
|
|
(35,088
|
)
|
Net cash used in financing activities
|
|
|
(49,608
|
)
|
|
|
(22,715
|
)
|
|
|
(41,214
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(55,637
|
)
|
|
|
54,623
|
|
|
|
(46,429
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
185,466
|
|
|
|
129,829
|
|
|
|
184,452
|
|
Cash and cash equivalents at end of period
|
|
|
129,829
|
|
|
|
184,452
|
|
|
|
138,023
|
|
Operating Activities
. Net cash provided
by operating activities in 2017 was $29.4 million compared to $84.7 million in 2016. This decrease in net cash provided by operating
activities in 2017 was due to lower net profit, an increase in cash used for raw materials, assembly, testing process fees in 2017
compared to 2016, partially offset by an increase in cash collected from customers in 2017 compared to 2016 as we had a relatively
high accounts receivable balance at the beginning of year. Net cash provided by operating activities in 2016 was $84.7 million
compared to $22.5 million in 2015. This increase in net cash provided by operating activities in 2016 was due primarily to improved
profitability, a decrease in cash used for raw materials, assembly, testing process fees and inventories in 2016 compared to 2015,
partially offset by a decrease in cash collected from customers in 2016 compared to 2015 as we had a relatively high accounts receivable
balance at the end of year.
Investing Activities
. Net cash used
in investing activities in 2017 was $35.1 million compared to $7.1 million in 2016. This increase in net cash used in investing
activities was due primarily to an increase in cash used for purchasing of property, plant and equipment in 2017 compared to 2016,
an increase in cash used for purchasing of equity method investment, but offset by an increase in cash provided by disposal of
investment in non-marketable equity securities in 2017 compared to 2016. Net cash used in investing activities in 2016 was $7.1
million compared to $28.3 million in 2015. This decrease in net cash used in investing activities in 2016 was due primarily to
a decrease in cash used for purchasing of investment securities in 2016 compared to 2015 but offset by an increase in cash used
for other receivable from related parties in 2016 compared to 2015.
Financing Activities
. Net cash used
in financing activities in 2017 was $41.2 million compared to $22.7 million in 2016. This increase was due primarily to an increase
in distribution of cash dividends. Net cash used in financing activities in 2016 was $22.7 million compared to $49.6 million in
2015. This decrease was due primarily to a decrease in distribution of cash dividends.
Our liquidity could be negatively impacted
by a decrease in demand for our products that are subject to rapid technological change, among other factors, which could result
in revenue variability in future periods. In addition, we have at times agreed to extend the payment terms for certain of our customers.
Other customers have also requested extension of payment terms and we may grant such requests for extensions in the future. The
extension of payment terms for our customers could adversely affect our cash flow, liquidity and our operating results. Our subsidiaries’
ability to distribute dividends and other payments to us may be limited by ROC regulations. See “Risk Factors — Risks
Related to Our Holding Company Structure — Our ability to receive dividends and other payments or funds from our subsidiaries
may be restricted by commercial, statutory and legal restrictions, and thereby materially and adversely affect our ability to grow,
fund investments, make acquisitions, pay dividends and otherwise fund and conduct our business.”
Our capital expenditures were incurred
primarily in connection with the purchase of property and equipment. Our capital expenditures totaled $10.0 million, $7.9 million
and $39.8 million in 2015, 2016 and 2017, respectively. In 2017, our significantly higher than usual capital expenditures of $39.8
million included the construction of a new building and facility $18.5 million, WLO product line $16.3 million and others $5 million.
The construction of a new building, located nearby the current headquarters, will house additional 8” glass WLO capacity,
the new active alignment equipment needed for our SLiM™ 3D sensing solutions and provide extra office space. The construction
of the new building has been completed on schedule. In 2017, we announced a capex plan of $80 million (Phase I capital expansion),
covering land, new building, facilities and clean room, which is on top of our regular capex and an unprecedented move in our history
given our fabless nature. The Phase I capital expansion includes the construction of a new building, an increase of WLO capacity
for the anchor customer and an initial monthly capacity of 2 million units for SLiM solution. In February 2018, we announced increasing
the Phase I budget from $80 million to $105 million. The addition of $25 million is primarily for enhanced manufacturing automation
and CIM infrastructure to achieve higher product yields and better production efficiency, an extra land of 1 hectare and more clean
room and office space for future expansion. The Phase I is being executed as scheduled. Of the $105 million budget, $33 million
has been paid out in 2017 with the remaining $72 million expected to be paid in 2018.
The capex budget will be funded through our internal resources
and banking facilities, if so needed. 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 2015, 2016 and 2017, we incurred research and development expenses
of $94.4 million, $95.8 million and $117.8 million, respectively, representing 13.6%, 11.9% and 17.2% of our revenues, respectively.
5.D. Trend Information
Looking into 2018, the Company’s
major growth engines will be, for large panel segment, China panel makers’ increase in capacity, for small panel segment,
in-cell TDDI for smartphone and driver ICs for automotive applications, and last but not the least for non-driver areas, increasing
WLO revenue, and commencement of 3D sensing total solution shipment. 3D sensing will be Himax’s biggest long term growth
engine consequently creating a more favorable product mix for Himax.
Large display driver IC business experienced
a strong growth momentum in the second half of 2017 as 4K TV penetration was still on the rise globally and China continued to
ramp brand new advanced generation LCD fabs. Being a market leader in large display driver IC business, Himax will benefit from
such capacity expansion. With the 2020 Tokyo Olympics approaching, the ecosystem for super-high-resolution TV is being established,
hoping to catch the business opportunity arising from the 8K program broadcast at the event. At CES in 2018, major TV manufacturers
have unveiled their 8K TV with Himax solutions inside. Himax will continue working with major panel makers for the development
of next generation 8K TVs.
Our small and medium-sized driver sales
recorded a year-over-year decline in 2017 due to overall smartphone market weakness, largely caused by the increasing adoption
of TDDI solutions where we had a relatively slow start. Himax has secured numerous TDDI design-wins for HD+ and FHD+ projects with
top-tier names. We are confident that our TDDI solutions and display driver IC business will accelerate in 2018. On the high
side, our new generation FHD+ TDDI with COF (chip on film) package is in design-in stage with a number of leading Chinese smartphone
brands and panel makers. TDDI with COF package can enable super-slim bezel design for premium smartphone models. Himax expects
small volume shipment in the first half with accelerating volume in the second half of 2018. Our driver IC business is also expanding
into new areas such as smart home assistant segment. Such activities should help to cause a future rebound in sales momentum.
The non-driver category has been our most
exciting growth area and a differentiator for the Company. 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. Our non-driver products delivered the strongest growth in 2014 owing
to many new product launches and project wins. During 2016, our non-driver businesses experienced tremendous growth, primarily
driven by the LCOS and WLO businesses due to shipments to one of our leading AR device customers. Additionally, our WLO business
hit inflection in the middle of 2017 when we began mass shipment to an anchor customer.
While 3D sensing can have a wide range
of applications across smartphone, IoT, automotive, AR/VR, robotics, etc., our current target market is primarily the smartphone.
SLiM™ (Structured Light Imaging Module), our turn-key total solution, has already achieved the performance, size, power
consumption, and costs suitable for smartphones. We believe our total solution approach in 3D sensing will help reduces the customer’s
integration complexity to a minimum and is essential for most of the Android OEMs. Himax SLiM
TM
total solution is now
ready for mass production. We are working with multiple tier-1 Android smartphone makers to launch 3D sensing on their
premium smartphones.
The CES Show in January 2018 showcased
the fast-growing, multi-billion dollar AR/VR sector under development. Many companies, be the top name multinationals or new start-ups,
are investing heavily to develop the ecosystem — applications, software, operating system, system electronics, and optics.
With all these investments, we believe the AR goggle market will be back in an accelerating mode again. 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 for Himax. 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, 2017, 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, 2017, 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, 2017:
|
|
Payment Due by Period
|
|
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5
years
|
|
|
More than
5 years
|
|
|
|
(in thousands)
|
|
Short-term debt
|
|
|
147,000
|
|
|
|
147,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating lease obligations
|
|
|
3,241
|
|
|
|
1,122
|
|
|
|
1,265
|
|
|
|
616
|
|
|
|
238
|
|
Purchase obligations
(1)
|
|
|
282,478
|
|
|
|
282,478
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other obligations
(2)
|
|
|
538
|
|
|
|
370
|
|
|
|
168
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
433,257
|
|
|
|
430,970
|
|
|
|
1,433
|
|
|
|
616
|
|
|
|
238
|
|
Notes:
|
(1)
|
Includes obligations for construction of new building, 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, 2017, the short-term
debt consisted of bank loans with interest rates per annum that ranged from 0.35% to 0.58%, and cash and marketable securities
totaling $147,000 thousand are pledged as collateral.
We lease office and building space pursuant
to operating lease arrangements with unrelated third parties. In 2015, 2016 and 2017, rental expenses for operating leases amounted
to $2.1 million, $2.1 million and $2.2 million, respectively. The lease arrangements will expire gradually from 2018 to 2024. As
of December 31, 2017, we agreed to make future minimum lease payments of $1.1 million, $0.8 million, $0.5 million, $0.3 million
and $0.3 million in 2018, 2019, 2020, 2021 and 2022, respectively, under non-cancelable operating leases.
We have, from time to time, entered into
contracts for the acquisition of building, equipment and computer software and construction of new building. As of December 31,
2017, the remaining commitments under such contracts were $40.8 million. These outstanding contracts had a total contract value
of $60.6 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. Due to the current market is facing a capacity shortage of wafer fabrication, the Company
has increased its placing of purchase orders to meet the sufficient capacity supply from foundries for year 2018. As of December
31, 2017, our contractual obligations pursuant to such arrangements amounted to approximately $193.4 million expected to be consumed
to third quarter of 2018.
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 2017 were $3.4 million compared to $2.8 million
and $2.5 million in 2016 and 2015, respectively. Total contributions to the defined benefit plan and the new defined contribution
plan in 2017 were $3.4 million compared to $2.8 million and $2.5 million in 2016 and 2015, 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 changes
of the consumer price index in Taiwan were -0.3%, 1.4% and 0.6% in 2015, 2016 and 2017, respectively.
Recent Accounting Pronouncements
For further information about
recently adopted accounting standard updates and recently issued accounting standard updates in accordance with U.S. GAAP, see
notes 2(v) and 2(w), respectively, to our consolidated financial statements.
Beginning January 1, 2018,
we adopted International Financial Reporting Standards (“IFRS”) issued by the International Accounting
Standards Board (“IASB”) to prepare our consolidated financial statements and to discontinue the use of U.S. GAAP
financial reporting. Upon adoption of IFRS in 2018, we will also report comparative financial statements prepared
in accordance with IFRS as of and for the year ended December 31, 2017, including applicable transition disclosures. We do
not expect the transition from U.S. GAAP to IFRS to have any significant impact on the consolidated financial statements. In
reaching this conclusion, we also considered in its assessment the expected impact on future periods of recently
issued IFRS accounting standards with mandatory future adoption dates.
IFRS 15 Revenue from Contracts
with Customers establishes a comprehensive framework for determining whether, how much and when revenue is recognized, and is effective
for annual reporting periods beginning on or after January 1, 2018. IFRS 15 has the similar nature with Topic 606. We
will adopt IFRS 15 from January 1, 2018 under the Cumulative effect method, and have determined the adoption of IFRS 15 will not
have a significant impact on its consolidated financial statements.
IFRS 9 Financial Instruments includes
guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating
impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition
and derecognition of financial instruments from IAS 39, and is effective for annual reporting periods beginning on or after January
1, 2018. IFRS 9 has the similar nature with ASU 2016-01. As of December 31, 2017, we had $10,879 thousand reported as
investment in marketable securities available-for-sale, that will be reclassified to financial assets at amortized cost and financial
assets at Fair Value Through Profit or Loss (FVTPL) at amounts of $10,358 thousand and $521 thousand, respectively, on January
1, 2018 in accordance with IFRS 9.
IFRS 16 Leases establishes a single,
on balance-sheet lease accounting model for lessees, and is effective for annual reporting periods beginning on or after January
1, 2019. IFRS 16 has the similar nature with ASU 2016-02. As of December 31, 2017, we are in the process of assessing the
effects that adoption will have on our consolidated financial statements prepared in accordance with IFRS.
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 February 28, 2018. Unless otherwise indicated, the positions or titles indicated
in the table below refer to Himax Technologies, Inc.
Directors and Executive Officers
|
|
Age
|
|
Position/Title
|
Dr. Biing-Seng Wu
|
|
60
|
|
Chairman of the Board
|
Jordan Wu
|
|
57
|
|
President, Chief Executive Officer and Director
|
Dr. Yan-Kuin Su
|
|
69
|
|
Director
|
Yuan-Chuan Horng
|
|
66
|
|
Director
|
Hsiung-Ku Chen
|
|
66
|
|
Director
|
Jackie Chang
|
|
58
|
|
Chief Financial Officer
|
Norman Hung
|
|
60
|
|
Vice President, Sales and Marketing
|
Directors
Dr. Biing-Seng Wu
is the chairman
of our board of directors. Prior to our reorganization in October 2005, Dr. Wu served as president, chief executive officer and
a director of Himax Taiwan. Dr. Wu also served as the vice chairman of the board of directors of CMO prior to its merger with 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 and retired in 2011. Dr. Su is devoted to the field of research in semiconductor engineering and
devices, optoelectronic devices, and microwave device and integrated circuits. He is a fellow of the Institute of Electrical and
Electronics Engineers, or IEEE. 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 has retired from the position of the vice president of the Finance Division of China Steel Corporation effective November
30, 2016. 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 Imaging
Industry Promotion Office and the Intellectual Property Innovation Corporation. Currently, Dr. Chen serves as consultant of
Color Display Industry Promotion Office.
Other Executive Officers
Jackie Chang
is our chief financial
officer. Before joining Himax, Ms. Chang served as the CFO of Castlink Corporation and Tongxing International, as well as the VP
of Finance and Operations for PlayHut, Inc. Prior to joining PlayHut, Ms. Chang was General Manager –Treasury Control for
Nissan North America. She held several positions in Nissan North America from 1994 to 2006 including finance, treasury planning,
operations and accounting. She worked at Nissan JV in China from 2003 to 2006, where she implemented IFRS and SAP successfully.
She holds a BBA in accounting from the National Chung-Hsing University in Taiwan and an MBA in Finance from Memphis State University.
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, 2017, the
aggregate cash compensation that we paid to our executive officers was approximately $0.8 million. The aggregate share-based compensation
that we paid to our executive officers was approximately $0.2 million. In 2017, 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, 2017, 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 2017 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.
Name
|
|
Total RSUs
Granted
|
|
|
Total Cash
Award
Granted
(in thousands)
|
|
|
Ordinary Shares
Underlying Vested
Portion of RSUs
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Jackie Chang
|
|
|
2,784
|
|
|
|
-
|
|
|
|
2,196
|
|
|
|
3,372
|
|
|
|
-
|
|
Norman Hung
|
|
|
1,098
|
|
|
|
23
|
|
|
|
2,196
|
|
|
|
-
|
|
|
|
23
|
|
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 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;
|
|
·
|
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 re-election, or for appointment to fill any
vacancy;
|
|
·
|
reviewing annually with our board of directors the current composition of our board of directors in light of the characteristics
of independence, age, skills, experience and availability of service to us;
|
|
·
|
reviewing the continued board membership of a director upon a significant change in such director’s principal occupation;
|
|
·
|
identifying and recommending to our board of directors the names of directors to serve as members of the audit committee and
the compensation committee, as well as the nominating and corporate governance committee itself;
|
|
·
|
advising the board periodically with respect to significant developments in the law and practice of corporate governance as
well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters
of corporate governance and on any corrective action to be taken; and
|
|
·
|
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our
procedures to ensure proper compliance.
|
Terms of Directors and Officers
Under Cayman Islands law and our articles
of association, each of our directors holds office until a successor has been duly elected or appointed, except where any director
was appointed by the board of directors to fill a vacancy on the board of directors or as an addition to the existing board, such
director shall hold office until the next annual general meeting of shareholders at which time such director is eligible for re-election.
Our directors are subject to periodic retirement and re-election by shareholders in accordance with our articles of association,
resulting in their retirement and re-election at staggered intervals. At each annual general meeting, one-third of our directors
are subject to retirement by rotation, or if their number is not a multiple of three, the number nearest to one-third but not exceeding
one-third shall retire from office. Any retiring director is eligible for re-election. The chairman of our board of directors and/or
the managing director will not be subject to retirement by rotation or be taken into account in determining the number of directors
to retire in each year. Under our articles of association, which director will retire at each annual general meeting will be determined
as follows: (i) any director who wishes to retire and not offer himself for re-election, (ii) if no director wishes to retire,
the director who has been longest in office since his last re-election or appointment, and (iii) if two or more directors have
served on the board the longest, then as agreed among the directors themselves or as determined by lot.
6.D. Employees
As of December 31, 2015, 2016 and 2017,
we had 1,885, 2,125 and 2,190 employees, respectively. The following is a breakdown of our employees by function as of December
31, 2017:
Function
|
|
Number
|
|
Research and development
(1)
|
|
|
1,363
|
|
Engineering and manufacturing
(2)
|
|
|
372
|
|
Sales and marketing
(3)
|
|
|
315
|
|
General and administrative
|
|
|
140
|
|
Total
|
|
|
2,190
|
|
Notes:
|
(1)
|
Includes semiconductor design engineers, application engineers, assembly and testing engineers and quality control engineers.
|
|
(2)
|
Includes manufacturing personnel of Himax Taiwan and
Himax Display, our subsidiaries 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. But, the 2011 Plan was amended and restated by extending its duration
for three (3) years to September 6, 2019, which was approved by our shareholders at the annual general meeting held on August 31,
2016. 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 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 10
th
anniversary
of its grant date. Notwithstanding the foregoing, for options granted to participants outside the United States, the committee
can set options that have terms greater than ten years.
Options will be exercisable at such times
and be subject to such terms and conditions as the committee approves. A condition of the delivery of shares as to which an option
will be exercised will be the payment of the exercise price. Subject to any governing rules or regulations, as soon as practicable
after receipt of written notification of exercise and full payment, we will deliver to the participant evidence of book-entry shares
or, upon his or her request, share certificates in an appropriate amount based on the number of shares purchased under the option(s).
The committee may impose such restrictions on any shares acquired pursuant to the exercise of an option as it may deem advisable.
Each participant’s award document
will set forth the extent to which he or she will have the right to exercise the options following termination of his or her employment
or services.
We have not yet granted any stock options
under the plan.
Restricted Share Units.
The committee
may grant restricted share units to participants. Each grant will be evidenced by an award document that will specify the period(s)
of restriction, the number of restricted share units granted and such other provisions as the committee determines.
Generally, restricted share units will
become freely transferable after all conditions and restrictions applicable to such shares have been satisfied or lapse and restricted
share units will be paid in cash, shares or a combination of the two, as determined by the committee.
The committee may impose such other conditions
or restrictions on any restricted share units as it may deem advisable, including a requirement that participants pay a stipulated
purchase price for each restricted share unit, restrictions based upon the achievement of specific performance goals and time-based
restrictions on vesting.
A participant will have no voting rights
with respect to any restricted share units.
Each award document will set forth the
extent to which the participant will have the right to retain restricted share units following termination of his or her employment
or services.
We made grants of 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.
We made grants of 1,208,785 RSUs to our
employees on September 28, 2016. The vesting schedule for such RSU grants is as follows: 91.93% of the RSU grants vested immediately
and were settled by cash in the amount of $9.2 million on the grant date, with the remainder vesting equally on each of September
30, 2017, 2018 and 2019, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 580,235 RSUs to our employees
on September 29, 2017. The vesting schedule for such RSU grants is as follows: 96.91% of the RSU grants vested immediately and
were settled by cash in the amount of $6.1 million on the grant date, with the remainder vesting equally on each of September 30,
2018, 2019 and 2020, which will be settled by our ordinary shares, subject to certain forfeiture events.
Dividend Equivalents.
Any participant
selected by the committee may be granted dividend equivalents based on the dividends declared on shares that are subject to any
award, to be credited as of dividend payment dates, during the period between the date the award is granted and the date the award
is exercised, vests or expires, as determined by the committee, provided that unvested RSUs are currently not entitled to dividend
equivalents. Dividend equivalents will be converted to cash or additional shares by such formula and at such time and subject to
such limitations as determined by the committee.
Transferability of Awards.
Generally,
awards cannot be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws
of descent and distribution.
Adjustments in Authorized Shares.
In
the event of any of the corporate events or transactions described in the plan, to avoid any unintended enlargement or dilution
of benefits, the committee has the sole discretion to substitute or adjust the number and kind of shares that can be issued or
otherwise delivered.
Forfeiture Events.
The committee
may specify in an award document that the participant’s rights, payments and benefits with respect to an award will be subject
to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise
applicable vesting or performance conditions of an award.
If we are required to prepare an accounting
restatement owing to our material noncompliance, as a result of misconduct, with any financial reporting requirement under the
securities laws, then if the participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley
Act of 2002, the participant will reimburse us the amount of any payment in settlement of an award earned or accrued during the
twelve-month period following the first public issuance or filing with the SEC (whichever first occurred) of the financial document
embodying such financial reporting requirement.
Amendment and Termination.
Subject
to, and except as, provided in the plan, the committee has the sole discretion to alter, amend, modify, suspend, or terminate the
plan and any award document in whole or in part. Amendments to the plan are subject to shareholder approval, to the extent required
by law, or by stock exchange rules or regulations.
6.E. Share Ownership
The following table sets forth the beneficial
ownership of our ordinary shares, as of February 28, 2018, by each of our directors and executive officers.
Name
|
|
Number of Shares Owned
|
|
|
Percentage of Shares
Owned
|
|
Dr. Biing-Seng Wu
|
|
|
71,364,850
|
|
|
|
20.7
|
%
|
Jordan Wu
|
|
|
7,306,065
|
|
|
|
2.1
|
%
|
Dr. Yan-Kuin Su
|
|
|
-
|
|
|
|
-
|
|
Yuan-Chuan Horng
|
|
|
916,104
|
|
|
|
0.3
|
%
|
Hsiung-Ku Chen
|
|
|
-
|
|
|
|
-
|
|
Jackie Chang
|
|
|
23,234
|
|
|
|
-
|
|
Norman Hung
|
|
|
528,930
|
|
|
|
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 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 February 28, 2018, 344,207,492 of
our shares were outstanding. We believe that, of such shares, 216,129,688
shares
in the form of ADSs were held by approximately
48,238
holders as
of
February 28, 2018
.
The following table sets forth information
known to us with respect to the beneficial ownership of our shares as of February 28, 2018, 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
|
|
Number of Shares
Beneficially Owned
|
|
|
Percentage of
Shares
Beneficially Owned
|
|
Dr. Biing-Seng Wu
(1)
|
|
|
71,364,850
|
|
|
|
20.7
|
%
|
FMR LLC
(2)
|
|
|
34,419,525
|
|
|
|
9.99
|
%
|
Whei-Lan Teng
(3)
|
|
|
21,135,720
|
|
|
|
6.14
|
%
|
All directors and executive officers as a group
(4)
|
|
|
80,139,183
|
|
|
|
23.3
|
%
|
Note:
|
(1)
|
Dr. Biing-Seng Wu directly owns 315,322 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 71,364,850 ordinary shares, representing approximately 20.7% of the outstanding ordinary shares.
|
|
(2)
|
According to the Schedule 13G filed with the SEC on February
13, 2018, FMR LLC, together with its affiliates, beneficially owned 34,419,525 of our shares, some or all of which may include
shares represented by our ADS, as of December 31, 2017. We do not have further information with respect to any changes in FMR
LLC’s beneficial ownership of our shares subsequent to December 31, 2017.
|
|
(3)
|
Whei-Lan
Teng directly owns 1,335,548 ordinary shares. Whei-Lan Teng beneficially owns 2,643,782 ordinary shares through Renmar Finance
Limited, which is an investment company controlled by Whei-Lan Teng. In addition, Whei-Lan Teng, may be attributed beneficial
ownership of 17,156,390 ordinary shares held in trust by Corenmar Investment Limited for the benefit of her children. Whei-Lan
Teng therefore may be deemed to have shared power to vote or dispose of 21,135,720 ordinary shares. Accordingly, Whei-Lan Teng
may be deemed to beneficially own an aggregate of 21,135,720 ordinary shares, representing approximately 6.14% of the outstanding
ordinary shares.
|
|
(4)
|
The percentage of shares beneficially owned by all directors
and executive officers as a group decreased to 23.3% as of February 28, 2018 from 29.4% as of March 31, 2017. The decrease was
from Jordan Wu’s beneficial ownership decreasing to 2.1% as of February 28, 2018 from 8.3% as of March 31, 2017, resulting
from marriage dissolution between Jordan Wu and his wife on May 9, 2017.
|
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
Viewsil Technology Limited (VST)
VST is a subsidiary of our equity method
investee, Viewsil Microelectronics (Kunshan) Limited. In 2016 and 2017, we purchased raw materials and components from VST amounting
to $0.6 million and $0.5 million, respectively. As of December 31, 2016 and 2017, the related payables resulting from the aforementioned
transaction were $0.6 million and nil, respectively. Additionally, as of December 31, 2016 and 2017, we made an interest free loan
of $7.2 million and $2.8 million, respectively, to VST for short-term funding needs. The loan is repayable on demand and the Company
expects it will be repaid in full during 2018.
We
may consider
providing further future loans to VST.
Viewsil
Microelectronics
(Kunshan)Limited
(Viewsil)
Viewsil is an equity method investee of
the Company. In 2017, Viewsil provided technical service on a new source driver chip and integrated circuit module for the Company’s
research activities for a fee of $2.2 million, which was charged to research and development expense. As of December 31, 2017,
the related payables have not yet been paid.
Emza Visual Sense Ltd. (Emza)
Emza is an equity method investee of the
Company. We made an interest free loan of $0.5 million to Emza for short-term funding needs. The loan is repayable on demand and
the Company expects it will be repaid in full during 2018. We may consider providing further future loans to Emza.
7.C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
8.A.1.
See
“Item 18. Financial Statements” for our audited consolidated financial statements.
8.A.2.
See “Item 18.
Financial Statements” for our audited consolidated financial statements, which cover the last three financial years.
8.A.3.
See page F-1 for the
report of our independent registered public accounting firm.
8.A.4.
Not applicable.
8.A.5.
Not applicable.
8.A.6.
See Note 22 to our
audited consolidated financial statements included in “Item 18. Financial Statements.”
8.A.7. Litigation
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. On August 3, 2016, we paid a cash dividend in the amount of $22.3 million, or the equivalent of $0.130 per ADS.
On August 14, 2017, we paid a cash dividend in the amount of $41.3 million, or the equivalent of $0.240 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:
|
·
|
recovery of prior years’ deficits, if any;
|
|
·
|
legal reserve (in an amount equal to 10% of annual net income after having deducted the above items until such time as its
legal reserve equals the amount of its total paid-in capital) ;
|
|
·
|
special reserve based on relevant laws or regulations, or retained earnings, if necessary;
|
|
·
|
dividends for preferred shares, if any; and
|
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)
|
|
2013
|
|
|
15.23
|
|
|
|
2.40
|
|
|
|
6,410.8
|
|
2014
|
|
|
16.15
|
|
|
|
5.70
|
|
|
|
5,923.9
|
|
2015
|
|
|
9.49
|
|
|
|
5.65
|
|
|
|
2,591.1
|
|
2016
|
|
|
12.00
|
|
|
|
5.85
|
|
|
|
3,210.1
|
|
First quarter
|
|
|
12.00
|
|
|
|
6.26
|
|
|
|
2,818.0
|
|
Second quarter
|
|
|
11.50
|
|
|
|
8.11
|
|
|
|
3,092.5
|
|
Third quarter
|
|
|
10.95
|
|
|
|
7.26
|
|
|
|
3,433.0
|
|
Fourth quarter
|
|
|
9.17
|
|
|
|
5.85
|
|
|
|
3,482.8
|
|
2017
|
|
|
13.95
|
|
|
|
4.88
|
|
|
|
5,285.1
|
|
First quarter
|
|
|
9.68
|
|
|
|
4.88
|
|
|
|
4,838.7
|
|
Second quarter
|
|
|
9.48
|
|
|
|
6.4
|
|
|
|
4,572.1
|
|
Third quarter
|
|
|
11.97
|
|
|
|
7.5
|
|
|
|
5,291.2
|
|
Fourth quarter
|
|
|
13.95
|
|
|
|
9
|
|
|
|
6,431.4
|
|
October
|
|
|
11.5
|
|
|
|
9
|
|
|
|
6,740.7
|
|
November
|
|
|
13.95
|
|
|
|
9.72
|
|
|
|
6,605.0
|
|
December
|
|
|
13.79
|
|
|
|
9.72
|
|
|
|
5,909.0
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
10.98
|
|
|
|
8.01
|
|
|
|
5,188.5
|
|
February
|
|
|
8.8799
|
|
|
|
7.4
|
|
|
|
4,094.1
|
|
March(through March 23)
|
|
|
8.43
|
|
|
|
6.61
|
|
|
|
3.686.1
|
|
9.B. Plan of Distribution
Not applicable.
9.C. Markets
The principal trading market for our shares
is the NASDAQ Global Select Market, on which our shares are traded in the form of ADSs.
9.D. Selling Shareholders
Not applicable.
9.E. Dilution
Not applicable.
9.F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
Our shareholders previously adopted the
Amended and Restated Memorandum of Association on September 26, 2005 by a special resolution passed by the sole shareholder of
our company and the Amended and Restated Articles of Association at an extraordinary shareholder meeting held on October 25, 2005,
both of which were filed as an exhibit to our registration statement on Form F-1 (file no. 333-132372) with the SEC on March 13,
2006.
At our annual general meeting on August
6, 2009, our shareholders adopted the Second Amended and Restated Memorandum and Articles of Association, which became effective
on August 10, 2009 and were filed as exhibits to our current report on Form 6-K with the SEC on July 13, 2009. These were adopted
primarily in connection with our proposed Taiwan listing to meet the Taiwan Stock Exchange’s primary listing requirement
concerning protection of material shareholders’ rights under the ROC’s Company Act and Securities Exchange Act. At
the same time, our shareholders also adopted the Third Amended and Restated Memorandum and Articles of Association, which were
filed as an exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2009 with the SEC on June 3, 2010
and are substantially the same as the Amended and Restated Memorandum and Articles of Association of our company except that our
authorized share capital is stated to be $300,000,000 divided into 1,000,000,000 shares of nominal or par value of $0.3 each, on
the condition that it shall become effective if the application made by our company to list its ordinary shares on the Taiwan Stock
Exchange is rejected or aborted. On May 20, 2010, the Third Amended and Restated Memorandum and Articles of Association became
effective as a result of the termination of our primary listing application to the Taiwan Stock Exchange.
We incorporate by reference into this annual
report the description of our Amended and Restated Memorandum and Articles of Association (except for provisions relating to our
authorized share capital) contained in our F-1 registration statement (File No. 333-132372) filed with the SEC on March 13, 2006.
Such description sets forth a summary of certain provisions of our memorandum and articles of association as currently in effect,
which is qualified in its entirety by reference to the full text of the Third Amended and Restated Memorandum and Articles of Association.
As of the date of this annual report, our authorized share 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
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 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, 2017.
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.
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 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 2017,
more than 99% of our sales and cost of revenues were denominated in U.S. dollars. However, in December 2017, approximately 65%
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, 2017, 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:
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For:
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$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
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Issuance of ADSs, including
issuances resulting from a distribution of shares or rights or other property
Cancellation of ADSs for the
purpose of withdrawal, including if the deposit agreement terminates
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$.05 (or less) per ADS
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Any cash distribution to ADS holders
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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
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Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
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$.05 (or less) per ADS per calendar year
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Depositary services
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Registration or transfer fees
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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
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Expenses of the depositary
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Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)converting foreign currency to U.S. dollars
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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
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As necessary
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Any charges incurred by the depositary or its agents for servicing the deposited securities
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As necessary
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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 2017, we received payments of $1.2 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:
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legal, audit and other fees incurred in connection with preparation of Form 20-F and annual reports and ongoing SEC compliance
and listing requirements;
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director and officer insurance;
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stock exchange listing fees;
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non-deal roadshow expenses;
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costs incurred by financial printer and share certificate printer;
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postage for communications to ADR holders;
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costs of retaining third-party public relations, investor relations and/or corporate communications advisory firms in the U.S.;
and
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costs incurred in connection with participation in retail investor shows and capital markets days.
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Appointment of New Depositary Bank
On July 14, 2017, we appointed JPMorgan
Chase Bank, N.A. as our new American depositary receipt bank. Effective the same day, our ADR program was officially transferred
to JPMorgan Chase Bank, N.A. and the contract is to last for ten years.
Notes to Consolidated Financial Statements
December 31, 2015, 2016 and 2017
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Note 1.
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Background, Principal Activities and Basis of Presentation
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Background
Himax Technologies, Inc. is a
holding company located in the Cayman Islands. Following is general information about Himax Technologies, Inc.’s subsidiaries:
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Jurisdiction of
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Percentage of
Ownership
December 31,
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Subsidiary
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Main activities
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Incorporation
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2016
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2017
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Himax Technologies Limited
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IC design and sales
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ROC
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100.00
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%
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100.00
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%
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Himax Technologies Korea Ltd.
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IC design and sales
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South Korea
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100.00
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%
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100.00
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%
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Himax Technologies Japan Ltd.
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Sales
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Japan
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100.00
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%
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100.00
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%
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Himax Semiconductor, Inc.
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IC design and sales
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ROC
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100.00
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%
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100.00
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%
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Himax Semiconductor (Hong Kong) Limited
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Investments
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Hong Kong
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100.00
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%
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100.00
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%
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Himax Technologies (Samoa), Inc.
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Investments
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Samoa
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100.00
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%
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100.00
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%
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Himax Technologies (Suzhou), Co., Ltd.
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Sales and technical support
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PRC
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100.00
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%
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100.00
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%
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Himax Technologies (Shenzhen), Co., Ltd.
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Sales and technical support
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PRC
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100.00
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%
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100.00
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%
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Himax Display, Inc.
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LCOS and MEMS design, manufacturing and sales
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ROC
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82.55
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%
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82.72
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%
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Integrated Microdisplays Limited
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LCOS design
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Hong Kong
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82.55
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%
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82.72
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%
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Himax Display (USA) Inc.
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LCOS and MEMS design, sales and technical support
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Delaware, USA
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82.55
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%
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82.72
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%
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Himax Analogic, Inc.
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IC design and sales
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ROC
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98.62
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%
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98.62
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%
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Himax Imaging, Inc.
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Investments
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Cayman Islands
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100.00
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%
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100.00
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%
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HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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Jurisdiction of
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Percentage of
Ownership
December 31,
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Subsidiary
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Main activities
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Incorporation
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2016
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2017
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Himax Imaging, Ltd.
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IC design and sales
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ROC
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93.84
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%
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93.72
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%
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Himax Imaging Corp.
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IC design
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California, USA
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93.84
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%
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93.72
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%
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Himax Media Solutions, Inc.
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TFT-LCD television, monitor chipset operations, ASIC service and IP licensing
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ROC
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99.21
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%
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99.22
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%
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Harvest Investment Limited
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Investments
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ROC
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100.00
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%
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100.00
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%
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Liqxtal Technology Inc.
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LC Lens design and sales
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ROC
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64.00
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%
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64.00
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%
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Himax IGI Precision Ltd. (*)
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3D micro and nano structure mastering and prototype replication
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Delaware, USA
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-
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100.00
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%
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(*) Himax
IGI Precision Ltd. was newly incorporated on December 14, 2017, which is wholly owned by Himax Technologies Limited and injected
capital in February 2018.
Since March 2006, Himax Technologies,
Inc.’s ordinary shares have been quoted on the NASDAQ Global Select Market under the symbol “HIMX” in the form
of ADSs and two ordinary shares represent one ADS with effect from August 10, 2009.
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, virtual reality (VR) devices and many other consumer electronics devices. Additionally,
the Company designs and provides controllers for touch sensor displays, in-cell Touch and Display Driver Integration (TDDI) single-chip
solutions, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions,
silicon IPs and LCOS micro-displays for augmented reality (AR) devices and head-up displays (HUD) for automotive. The Company also
offers digital camera solutions, including CMOS image sensors and Wafer Level Optics (WLO) for AR devices, 3D sensing and machine
vision, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security,
medical devices and Internet of Things.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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”).
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Note 2.
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Summary of Significant Accounting Policies
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(a)
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Principles of Consolidation
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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.
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; the recoverability of deferred tax assets, property, plant and equipmentand inventory; indefinite reinvestment
of subsidiaries’ earnings; potential impairment of intangible assets, goodwill 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.
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(c)
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Cash and Cash Equivalents
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The
Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase
to be cash equivalents. As of December 31, 2016 and 2017, the Company had $13,055 thousand and $22,559 thousand of cash equivalents,
respectively, in Chinese
Renminbi and
US dollar denominated time deposits with original
maturities of less than three months. As of December 31, 2016 and 2017, cash and time deposits in the amount of $138,000 thousand
and $147,000 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.
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(d)
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Investment Securities
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Investment securities as of December
31, 2016 and 2017 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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, 2016 and 2017,
the Company had $324 thousand and $470 thousand, respectively, of restricted marketable securities in NT 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 invest
ee 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 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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(e)
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Allowance for Doubtful Accounts
|
A
n
allowance for doubtful accounts is provided based on a review of collectability of accounts receivable on a monthly basis. In establishing
an appropriate allowance for doubtful accounts, 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.
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 and
net realizable 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, building 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. Except for the following paragraph, depreciation is primarily 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 3 to 8 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 10 years.
During the year 2017, certain
new machinery and equipment have been acquired for specific project. The depreciation on these new
assets is calculated on Fixed-Percentage-on-Declining-Base Method basis over the estimated useful lives of 3 years. The Company
thinks that method would most closely reflect the expected pattern of consumption of the future economic benefits embodied in those
assets.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
Goodwill is an asset representing
the future economic benefits arising from other assets acquired in the business combination of the Company’s acquisition
of Himax Semiconductor, Inc. (formerly Wisepal Technologies, Inc.) in 2007 and Himax Display (USA) Inc. (formerly Spatial Photonics,
Inc.) in 2012, that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually.
The Company tests goodwill for impairment on the end day of October each fiscal year. Goodwill is also tested for impairment between
annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting
unit below its carrying amount.
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, WLO, CMOS image sensors, and Others.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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 WLO reporting unit because
those reporting units are expected to benefit from the synergies of the business combinations.
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 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, 2016 and 2017,
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 and developed technology acquired in a business combination at December 31, 2016 and 2017. These intangible assets are
amortized on a straight-line basis over the following estimated useful lives: patents 15 years and technology 7 years.
|
(j)
|
Impairment of Long-Lived Assets
|
The
Company’s long-lived assets, which consist of property, plant and equipment and intan
gible 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 estim
ated discounted future cash flows
expected to be generated by the asset.
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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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.
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, 2015, 2016 and 2017, were $7 thousand, $16 thousand and $20 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 in
tended 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 July 1, 2005.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The Company records annual amounts
relating to its pension and postretirement plans based on calculations that incorporate various actuarial and other assumptions
including discount rates, mortality, assumed rates of return, compensation increases, and turnover rates. Management reviews its
assumptions on an annual basis and makes modifications to the assumptions based on current rates when it is appropriate to do so.
The effect of modifications to those assumptions is recorded in accumulated other comprehensive income and amortized to net periodic
cost over future periods using the corridor method. Management believes that the assumptions utilized in recording its obligations
under its plans are reasonable based on its experience and market conditions.
The
Company has adopted a defined contribution plan covering full-time employees in the ROC
(the “Defined Contribution
Plan”) beginning July 1, 2005 pursuant to ROC Labor Pension Act. Pension cost for a period is determined based on the contribution
called for in that period. Substantially all participants in the Defined Benefit Plan have been provided the option of continuing
to participate in the Defined Benefit Plan, or to participate in the Defined Contribution Plan on a prospective basis from July
1, 2005. Accumulated benefits attributed to participants that elect to change plans are not impacted by their election.
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-forwards. 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).
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
(q)
|
Earnings Per Ordinary Share
|
Basic earnings per ordinary share
is computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per ordinary share
is computed using the weighted average number of ordinary and diluted ordinary equivalent shares outstanding during the period.
Ordinary equivalent shares are ordinary shares that are contingently issuable upon the vesting of unvested restricted share units
(RSUs) granted to employees.
Basic and diluted earnings per
ordinary share have been calculated as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Himax Technologies, Inc. stockholders (in thousands)
|
|
$
|
25,195
|
|
|
|
50,912
|
|
|
|
27,967
|
|
Denominator
for basic earnings per ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of ordinary shares outstanding (in thousands)
|
|
|
343,570
|
|
|
|
344,655
|
|
|
|
344,849
|
|
Basic
earnings per ordinary share attributable to Himax Technologies, Inc. stockholders
|
|
$
|
0.07
|
|
|
|
0.15
|
|
|
|
0.08
|
|
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,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Himax Technologies, Inc. stockholders (in thousands)
|
|
$
|
25,195
|
|
|
|
50,912
|
|
|
|
27,967
|
|
Denominator
for diluted earnings per ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of ordinary shares outstanding (in thousands)
|
|
|
343,570
|
|
|
|
344,655
|
|
|
|
344,849
|
|
Unvested
RSUs (in thousands)
|
|
|
562
|
|
|
|
69
|
|
|
|
54
|
|
|
|
|
344,132
|
|
|
|
344,724
|
|
|
|
344,903
|
|
Diluted
earnings per ordinary share attributable to Himax Technologies, Inc. stockholders
|
|
$
|
0.07
|
|
|
|
0.15
|
|
|
|
0.08
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
(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.
The Company uses the management
approach in determining reportable operating segments. The management approach considers the internal organization and reporting
used by the Company's chief operating decision maker for making operating decisions, allocating resources and assessing performance
as the source for determining the Company's reportable segments.
The
Company’s
chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer, who regularly reviews operating
results to make decisions about allocating resources and assessing performance for the Company.
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:
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Himax Technologies, Inc. stockholders
|
|
$
|
25,195
|
|
|
|
50,912
|
|
|
|
27,967
|
|
Transfers (to) from the noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Himax Technologies, Inc.’s paid-in capital for sale of shares of subsidiaries
|
|
|
32
|
|
|
|
9
|
|
|
|
5
|
|
Decrease in Himax Technologies, Inc.’s paid-in capital and retained earnings for purchase of shares of subsidiaries
|
|
|
(1,036
|
)
|
|
|
(229
|
)
|
|
|
(10
|
)
|
Change from net income attributable to Himax Technologies, Inc. stockholders and transfers from noncontrolling interests
|
|
$
|
24,191
|
|
|
|
50,692
|
|
|
|
27,962
|
|
|
(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)
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access at the measurement date.
|
|
(ii)
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly.
|
|
(iii)
|
Level 3 inputs are unobservable inputs for the asset or liability.
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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 Adopted Accounting Standard Update
|
In November 2015, the FASB issued
ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires all deferred tax assets and liabilities, and
related valuation allowances, to be classified as noncurrent on the Company’s consolidated balance sheets. ASU 2015-17 is
effective for the Company for annual periods in fiscal years beginning after December 15, 2016, and requires either prospective
or retrospective adoption. The Company adopted ASU 2015-17 on January 1, 2017 on a prospective basis, as reflected in the consolidated
financial statements.
|
(w)
|
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: Deferral of the Effective Date” which deferred the
effective date, of the previously issued revenue recognition guidance, by one year. The guidance, as amended, 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 has determined that the adoption of Topic 606 would not have a material impact on its
consolidated financial statements.
In January 2016, the
FASB issued ASU 2016-01 on classifying and measuring financial instruments, which requires that (i) all equity investments,
other than equity method investments, in unconsolidated entities generally be measured at fair value through earnings and
(ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific
credit risk be recognized separately in other comprehensive income. Additionally, it changes the disclosure requirements
for financial instruments. The new guidance is effective for the Company for annual periods in fiscal years beginning
after December 15, 2017. Early adoption is permitted for certain provisions. The guidance requires the Company to
apply prospectively in the year of adoption. The Company has determined that the adoption of ASU 2016-01 would not have a
material impact on its consolidated financial statements.
In February 2016, the FASB issued
ASU 2016-02 related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. ASU
2016-02 requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of
greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements.
ASU 2016-02 must be adopted using the modified retrospective approach. The guidance, as amended, will be effective for annual and
interim periods beginning after December 15, 2018. As of December 31, 2017, the Company is in the process of assessing the potential
effects that adoption would have on its consolidated financial statements.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
(x)
|
Financial Reporting after 2017
|
The Company has decided to report
its financial statements using International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) after December 31, 2017 and to discontinue the use of U.S. GAAP financial reporting.
Upon adoption of IFRS in 2018, the Company will also report comparative financial statements prepared in accordance with IFRS as
of and for the year ended December 31, 2017, including applicable transition disclosures. The Company does not expect the transition
from U.S. GAAP to IFRS to have any significant impact on the consolidated financial statements. In reaching this conclusion, the
Company also considered in its assessment the expected impact on future periods of recently issued IFRS accounting standards with
mandatory future adoption dates.
IFRS 15 Revenue from Contracts
with Customers establishes a comprehensive framework for determining whether, how much and when revenue is recognized, and is effective
for annual reporting periods beginning on or after January 1, 2018. IFRS 15 has the similar nature with Topic 606. The Company
will adopt IFRS 15 from January 1, 2018 under the Cumulative effect method, and has determined the adoption of IFRS 15 will not
have a significant impact on its consolidated financial statements.
IFRS 9 Financial Instruments includes
guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating
impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition
and derecognition of financial instruments from IAS 39, and is effective for annual reporting periods beginning on or after January
1, 2018. IFRS 9 has the similar nature with ASU 2016-01. As of December 31, 2017, the Company had $10,879 thousand reported as
investment in marketable securities available-for-sale, that will be reclassified to financial assets at amortized cost and financial
assets at Fair Value Through Profit or Loss (FVTPL) at amounts of $10,358 thousand and $521 thousand, respectively, on January
1, 2018 in accordance with IFRS 9.
IFRS 16 Leases establishes a single,
on balance-sheet lease accounting model for lessees, and is effective for annual reporting periods beginning on or after January
1, 2019. IFRS 16 has the similar nature with ASU 2016-02. As of December 31, 2017, the Company is in the process of assessing the
effects that adoption will have on its consolidated financial statements prepared in accordance with IFRS.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
On November 16, 2015, the Company
infused cash of $1,780 thousand into Liqxtal Technology Inc. (“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.
|
|
At
November 16,
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
Recognized
amounts of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
Cash
|
|
$
|
2,121
|
|
Current
assets, other than cash
|
|
|
57
|
|
Intangible
assets
|
|
|
732
|
|
Current
liabilities
|
|
|
(5
|
)
|
Deferred
income tax liabilities
|
|
|
(124
|
)
|
Total
identifiable net assets acquired
|
|
|
2,781
|
|
Noncontrolling
interests
|
|
|
(1,001
|
)
|
Total
consideration paid
|
|
$
|
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 year ended December 31, 2015 were presented as if the acquisition had
been consummated at the beginning of 2015 (dollars in thousands except per share amounts):
|
|
For the year ended
December 31, 2015
(unaudited)
|
|
|
|
|
|
Net revenues
|
|
$
|
691,789
|
|
Net income attributable to Himax Technologies, Inc. stockholders
|
|
$
|
25,128
|
|
Basic and diluted earnings per ordinary share attributable to Himax Technologies, Inc. stockholders
|
|
$
|
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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
Note 4.
|
Investments in Marketable Securities Available-for-Sale
|
Following is a summary of marketable
securities as of December 31, 2016 and 2017:
|
|
December
31, 2016
|
|
|
|
Aggregate
|
|
|
Gross
Unrealized
|
|
|
Gross
Unrealized
|
|
|
Aggregate
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Time
deposit with original maturities more than three months
|
|
$
|
5,539
|
|
|
|
-
|
|
|
|
(399
|
)
|
|
|
5,140
|
|
Money
market fund
|
|
|
4,968
|
|
|
|
49
|
|
|
|
-
|
|
|
|
5,017
|
|
Total
|
|
$
|
10,507
|
|
|
|
49
|
|
|
|
(399
|
)
|
|
|
10,157
|
|
|
|
December 31, 2017
|
|
|
|
Aggregate
|
|
|
Gross
Unrealized
|
|
|
Gross
Unrealized
|
|
|
A
ggregate
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Time deposit with original maturities more than three months
|
|
$
|
10,434
|
|
|
|
-
|
|
|
|
(76
|
)
|
|
|
10,358
|
|
Money market fund
|
|
|
473
|
|
|
|
48
|
|
|
|
-
|
|
|
|
521
|
|
Total
|
|
$
|
10,907
|
|
|
|
48
|
|
|
|
(76
|
)
|
|
|
10,879
|
|
The Company’s portfolio
of available for sale marketable securities by contractual maturity or the expected holding period as of December 31, 2016 and
2017 is due in one year or less.
Information on sales of available
for sale marketable securities for the years ended December 31, 2015, 2016 and 2017 is summarized below.
Period
|
|
Proceeds
from sales
|
|
|
Gross
realized
gains
|
|
|
Gross
realized
losses
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Year 2015
|
|
$
|
46,720
|
|
|
|
261
|
|
|
|
(38
|
)
|
Year 2016
|
|
$
|
38,532
|
|
|
|
137
|
|
|
|
(127
|
)
|
Year 2017
|
|
$
|
47,119
|
|
|
|
204
|
|
|
|
(16
|
)
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
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, 2015, 2016 and 2017 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 2015
|
|
$
|
727
|
|
|
|
310
|
|
|
|
(262
|
)
|
|
|
775
|
|
Year 2016
|
|
$
|
775
|
|
|
|
620
|
|
|
|
-
|
|
|
|
1,395
|
|
Year 2017
|
|
$
|
1,395
|
|
|
|
155
|
|
|
|
(1,550
|
)
|
|
|
-
|
|
Allowance for sales returns
and discounts
Period
|
|
Balance
at
beginning
of
year
|
|
|
Charges
to
earnings
|
|
|
Amounts
utilized
|
|
|
Balance
at
end
of year
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 2015
|
|
$
|
868
|
|
|
|
8,887
|
|
|
|
(8,982
|
)
|
|
|
773
|
|
Year 2016
|
|
$
|
773
|
|
|
|
10,624
|
|
|
|
(9,861
|
)
|
|
|
1,536
|
|
Year 2017
|
|
$
|
1,536
|
|
|
|
8,720
|
|
|
|
(9,053
|
)
|
|
|
1,203
|
|
|
Note 6.
|
Equity Method Investments
|
As of December 31, 2016 and
2017, equity method investments consisted of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
Amount
|
|
|
Holding
%
|
|
|
Amount
|
|
|
Holding
%
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Viewsil Microelectronics (Kunshan) Limited
|
|
$
|
2,318
|
|
|
|
49.00
|
|
|
|
2,214
|
|
|
|
49.00
|
|
Iris Optronics Co., Ltd.
|
|
|
44
|
|
|
|
2.06
|
|
|
|
30
|
|
|
|
2.06
|
|
Kneron Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
6,598
|
|
|
|
27.65
|
|
Emza Visual Sense Ltd.
|
|
|
-
|
|
|
|
-
|
|
|
|
1,802
|
|
|
|
45.10
|
|
Ganzin Technology Corp.
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
28.93
|
|
|
|
$
|
2,362
|
|
|
|
|
|
|
|
10,739
|
|
|
|
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
Viewsil Microelectronics (Kunshan)
Limited (“Viewsil”) mainly engaged in IC design and sales and was purchased in March 2015. As of December 31, 2016
and 2017, 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 years ended December 31, 2015,
2016 and 2017, the Company’s equity in losses of Viewsil was $71 thousand, $1,266 thousand and $173 thousand, respectively.
Kneron Inc. (“Kneron”)
mainly engaged in artificial intelligence chip made and was purchased with original investment amount of $6,850 thousand in November
2017. At investment date, the difference between the carrying amount of the Company’s investment in Kneron and the underlying
equity in the net assets of Kneron was $3,636 thousand which was resulting from Kneron’s identifiable intangible assets and
is being amortized over 7 years. As of December 31, 2017, the excess of cost of such investment in Kneron over the Company’s
share of the net assets of Kneron was $3,571 thousand. For the year ended December 31, 2017, the Company’s equity in losses
of Kneron was $252 thousand.
Emza Visual Sense Ltd. (“Emza”)
is mainly engaged in develops of visual sensors and efficient machine vision algorithm. It was purchased in April 2017 with an
original investment amount of $2,230 thousand together with an additional investment amount of $270 thousand through conversion
of equal amount of debts from Emza which occurred in 2016. At investment date, the difference between the carrying amount of the
Company’s investment in Emza and the underlying equity in the net assets of Emza was $1,719 thousand which was resulting
from Emza’s identifiable intangible assets and is being amortized over 7 years. As of December 31, 2017, the excess of cost
of such investment in Emza over the Company’s share of the net assets of Emza was $1,535 thousand. For the year ended December
31, 2017, the Company’s equity in losses of Emza was $757 thousand.
Ganzin Technology Corp. mainly
engaged in eye tracking chip and module and was purchased with original investment amount of $95 thousand in December 2017.
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 on sale of securities, net”.
As of December 31, 2017, it
was not practicable for management to estimate the fair values of the Company’s investments 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
As of December 31, 2016 and 2017,
inventories consisted of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
54,357
|
|
|
|
46,365
|
|
Work in process
|
|
|
57,076
|
|
|
|
54,084
|
|
Raw materials
|
|
|
38,273
|
|
|
|
34,220
|
|
Supplies
|
|
|
42
|
|
|
|
531
|
|
|
|
$
|
149,748
|
|
|
|
135,200
|
|
Inventory write-downs were $9,785
thousand, $23,342 thousand and $12,298 thousand for the years ended December 31, 2015, 2016 and 2017, respectively, and are included
in cost of revenues.
|
Note 8.
|
Other Intangible Assets, Other than Goodwill
|
|
|
December
31, 2016
|
|
|
|
Gross
carrying
amount
|
|
|
Weighted
average
amortization
period
|
|
Accumulated
amortization
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
6,889
|
|
|
7 years
|
|
|
3,771
|
|
Patents
|
|
|
100
|
|
|
15 years
|
|
|
48
|
|
Total
|
|
$
|
6,989
|
|
|
|
|
|
3,819
|
|
|
|
December
31, 2017
|
|
|
|
Gross
carrying
amount
|
|
|
Weighted
average
amortization
period
|
|
Accumulated
amortization
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
6,889
|
|
|
7 years
|
|
|
4,756
|
|
Patents
|
|
|
100
|
|
|
15 years
|
|
|
54
|
|
Total
|
|
$
|
6,989
|
|
|
|
|
|
4,810
|
|
Amortization expense for the years
ended December 31, 2015, 2016 and 2017 was $852 thousand, $991 thousand and $991 thousand, respectively. Estimated amortization
expense for the next five years is $991 thousand in 2018, $603 thousand in 2019, $214 thousand in 2020 and 2021, and $145 thousand
in 2022.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
Note 9.
|
Property, Plant and Equipment
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
14,328
|
|
|
|
14,328
|
|
Building and improvements
|
|
|
22,821
|
|
|
|
24,944
|
|
Machinery
|
|
|
42,687
|
|
|
|
54,262
|
|
Research and development
equipment
|
|
|
26,695
|
|
|
|
35,180
|
|
Software
|
|
|
12,902
|
|
|
|
10,484
|
|
Office furniture
and equipment
|
|
|
11,210
|
|
|
|
11,694
|
|
Others
|
|
|
27,269
|
|
|
|
29,158
|
|
|
|
|
157,912
|
|
|
|
180,050
|
|
Accumulated depreciation
and amortization
|
|
|
(111,915
|
)
|
|
|
(122,148
|
)
|
Prepayment
for purchases of land, building and equipment
|
|
|
2,175
|
|
|
|
28,771
|
|
|
|
$
|
48,172
|
|
|
|
86,673
|
|
Depreciation and amortization
of these assets for the years ended December 31, 2015, 2016 and 2017 were $13,312 thousand, $12,765 thousand and $15,689 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, 2016 and 2017:
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Chi Lin Optoelectronics Co., Ltd.
|
|
$
|
488
|
|
|
|
356
|
|
Chi Lin Technology Co., Ltd.
|
|
|
432
|
|
|
|
406
|
|
C Company
|
|
|
8,962
|
|
|
|
-
|
|
TIEF Fund, L. P.
|
|
|
1,600
|
|
|
|
1,600
|
|
eTurboTouch Technology Inc.
|
|
|
477
|
|
|
|
477
|
|
Shinyoptics Corp.
|
|
|
283
|
|
|
|
283
|
|
|
|
$
|
12,242
|
|
|
|
3,122
|
|
Chi Lin Optoelectronics Co.,
Ltd. reduced its capital and returned $137 thousand and $132 thousand to the Company in December 2016 and September 2017, respectively.
Chi Lin Technology Co., Ltd. reduced its capital and returned $26 thousand to the Company in December 2017, which is booked as
“Prepaid expenses and other current assets”. Jetronics International Corp. reduced its capital and returned $431 thousand
to the Company in June 2016. Jetronics International Corp. was liquidated in September 2016.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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. The Company recognized gain on sale of securities of $1,682 thousand for the year ended December 31, 2015,
which is included in “Gains (losses) on sale of securities, net”.
The Company sold the investments
in C Company in December 2017 for proceeds of $32,000 thousand, of which $10,000 thousand received in December 2017 and the balance
of $22,000 thousand is booked as “Prepaid expenses and other current assets”. The Company recognized a gain on sale
of securities of $23,038 thousand and withholding tax of $2,304 thousand for the year ended December 31, 2017, which is included
in “Gains on sale of securities, net” and “Income taxes payable”, respectively. The Company received the
balance of $22,000 thousand before the end of January 2018.
As of December 31, 2016 and
2017, 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
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Accrued mask, mold fees and other expenses for RD
|
|
$
|
7,503
|
|
|
|
8,816
|
|
Payable for purchases of building and equipment
|
|
|
1,615
|
|
|
|
10,726
|
|
Accrued software maintenance
|
|
|
891
|
|
|
|
1,004
|
|
Accrued payroll and related expenses
|
|
|
6,958
|
|
|
|
9,461
|
|
Accrued professional service fee
|
|
|
923
|
|
|
|
1,050
|
|
Sales received in advance
|
|
|
1,193
|
|
|
|
603
|
|
Accrued warranty costs
|
|
|
48
|
|
|
|
40
|
|
Accrued insurance, welfare expenses, etc.
|
|
|
10,590
|
|
|
|
9,568
|
|
|
|
$
|
29,721
|
|
|
|
41,268
|
|
The movement in accrued warranty
costs for the years ended December 31, 2015, 2016 and 2017 is as follows:
Period
|
|
Balance
at
beginning
of
year
|
|
|
Additions
charged to
expense
|
|
|
Amounts
utilized
|
|
|
Balance
at
end
of
year
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 2015
|
|
$
|
103
|
|
|
|
1,121
|
|
|
|
(997
|
)
|
|
|
227
|
|
Year 2016
|
|
$
|
227
|
|
|
|
11
|
|
|
|
(190
|
)
|
|
|
48
|
|
Year 2017
|
|
$
|
48
|
|
|
|
146
|
|
|
|
(154
|
)
|
|
|
40
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
In 2015, 2016 and 2017, short-term
debt consisted of bank loans with interest rates per annum that ranged from 0.32% to 0.45%, 0.32% to 0.55% and 0.35% to 0.58%,
respectively, and as of December 31, 2016 and 2017, cash, cash equivalents and marketable securities totaling $138,000 thousand
and $147,000 thousand are pledged as collateral, respectively.
As of December 31, 2017, unused
credit lines amounted to $238,695 thousand and will expire between March 2018 and January 2019. Among which, $672 thousand will
expire in March 2018, and $176,000 thousand belonging to the holding companies need to be secured with equal amount of cash, cash
equivalents or marketable securities.
|
Note 13.
|
Government Grants
|
The Company entered into several
contracts with Institute for Information Industry (III) during 2015, 2016 and 2017 primarily for the development of certain new
leading products or technologies. Details of these contracts are summarized below:
Authority
|
|
|
|
Total
Grant
|
|
Execution
Period
|
|
Product
Description
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
III
|
|
NT$
|
|
72,000
|
(US$2,416)
|
|
January 2013 to June 2014
|
|
MEMS Development Program
|
III
|
|
|
|
27,500
|
(US$923)
|
|
April 2013 to December 2014
|
|
Wafer-Level Lens Development Program
|
III
|
|
|
|
135,000
|
(US$4,265)
|
|
August 2014 to July 2017
|
|
LCOS Display Module Development Program
|
III
|
|
|
|
10,000
|
(US$336)
|
|
January 2017 to December 2018
|
|
Electronic control of large aperture liquid crystal
lens technology in the wisdom glasses platform
|
Government grants recognized
by the Company as a reduction of research and development expense in the consolidated statements of income in 2015, 2016 and 2017
were $1,508 thousand, $1,431 thousand and $717 thousand, respectively.
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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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 2015,
2016 and 2017, based on the contribution called for was $2,455 thousand, $2,827 thousand and $3,367 thousand, respectively.
Substantially all participants
in the Defined Benefits Plan had elected to participate in the Defined Contribution Plan. The transfer of participants to the Defined
Contribution Plan did not have a material effect on the Company’s financial position or results of operations. Participants’
accumulated benefits under the Defined Benefit Plan are not impacted by their election to change the plans and their seniority
remains regulated by ROC Labor Standard Law, such as the retirement criteria and the amount payable. The Company is required to
make contribution for the Defined Benefit Plan until it is fully funded. Pursuant to relevant regulatory requirements, the Company
expects to make a cash contribution of $136 thousand to its pension fund maintained with the Bank of Taiwan and $3,955 thousand
to the employees’ individual pension fund accounts at the ROC Bureau of Labor Insurance in 2018.
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 $1,445 thousand, $1,371 thousand, and $1,523 thousand for the
years ended December 31, 2015, 2016 and 2017, respectively.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The Company uses a measurement
date of December 31 for the Defined Benefit Plan. The changes in projected benefit obligation, plan assets and details of the funded
status of the Plan are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,535
|
|
|
|
3,868
|
|
Service cost
|
|
|
16
|
|
|
|
16
|
|
Interest cost
|
|
|
72
|
|
|
|
72
|
|
Actuarial loss
|
|
|
31
|
|
|
|
76
|
|
Effect of foreign currency rate changes
|
|
|
214
|
|
|
|
326
|
|
Benefit obligation at end of year
|
|
|
3,868
|
|
|
|
4,358
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
|
2,803
|
|
|
|
2,992
|
|
Actual return on plan assets
|
|
|
21
|
|
|
|
32
|
|
Employer contribution
|
|
|
124
|
|
|
|
133
|
|
Effect of foreign currency rate changes
|
|
|
44
|
|
|
|
253
|
|
Fair value at end of year
|
|
|
2,992
|
|
|
|
3,410
|
|
Funded status
|
|
$
|
(876
|
)
|
|
|
(948
|
)
|
Amounts recognized in the balance sheet consist of:
|
|
|
|
|
|
|
|
|
Prepaid pension costs
|
|
$
|
188
|
|
|
|
204
|
|
Accrued pension liabilities
|
|
|
(1,064
|
)
|
|
|
(1,152
|
)
|
Net amount recognized
|
|
$
|
(876
|
)
|
|
|
(948
|
)
|
Amounts recognized in accumulated
other comprehensive loss was net actuarial loss of $1,906 thousand, $1,905 thousand and $2,055 thousand at December 31, 2015, 2016
and 2017, respectively.
The accumulated benefit obligation
for the Defined Benefit Plan was $1,332 thousand and $1,548 thousand at December 31, 2016 and 2017, respectively. As of December
31, 2016 and 2017, no employee was eligible for retirement or was required to retire.
For the years ended December
31, 2015, 2016 and 2017, the net periodic pension cost consisted of the following:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
-
|
|
|
|
16
|
|
|
|
16
|
|
Interest cost
|
|
|
61
|
|
|
|
72
|
|
|
|
72
|
|
Expected return on plan assets
|
|
|
(54
|
)
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Net amortization
|
|
|
59
|
|
|
|
99
|
|
|
|
106
|
|
Net periodic pension cost
|
|
$
|
66
|
|
|
|
135
|
|
|
|
142
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The net actuarial loss for
the defined benefit pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost
in 2018 is $111 thousand.
At December 31, 2016 and 2017,
the weighted-average assumptions used in computing the benefit obligation are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
1.80
|
%
|
|
|
1.60
|
%
|
Rate of increase in compensation levels
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
For the years ended December 31,
2015, 2016 and 2017, the weighted average assumptions used in computing net periodic benefit cost are as follows:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
Whole
|
|
|
|
|
|
Discount rate
|
|
|
2.00
|
%
|
|
|
1.80
|
%
|
|
|
1.60
|
%
|
Rate of increase in compensation levels
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Expected long-term rate of return on pension assets
|
|
|
2.00
|
%
|
|
|
1.80
|
%
|
|
|
1.60
|
%
|
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 $75 thousand in 2018, $23 thousand in 2019, $36 thousand in 2020, $15 thousand in
2021, $466 thousand in 2022 and $1,461 thousand from 2023 to 2027.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
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:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
110
|
|
|
|
224
|
|
|
|
204
|
|
Research and development
|
|
|
4,289
|
|
|
|
7,586
|
|
|
|
5,234
|
|
General and administrative
|
|
|
865
|
|
|
|
1,210
|
|
|
|
865
|
|
Sales and marketing
|
|
|
1,010
|
|
|
|
1,389
|
|
|
|
942
|
|
Total compensation recognized in income
|
|
$
|
6,274
|
|
|
|
10,409
|
|
|
|
7,245
|
|
Income tax benefit
|
|
$
|
1,342
|
|
|
|
2,164
|
|
|
|
1,540
|
|
The above income tax benefit
excludes excess tax benefits and deficiencies. For the year ended December 31, 2016, the tax deficiency was $142 thousand.
|
(a)
|
Long-term Incentive Plan
|
On September 7, 2011, the Company’s
shareholders approved a long-term incentive plan. The plan permits the grants of options or RSUs to the Company’s employees,
directors and service providers where each unit of RSU represents two ordinary shares of the Company.
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 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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.
On September 28, 2016, the Company’s
compensation committee made grants of 1,208,785 RSUs to the Company’s employees. The vesting schedule for the RSUs is as
follows: 91.93% of the RSUs grant vested immediately on the grant date which was settled by cash amounting to $9,223 thousand,
a subsequent 2.69% will vest on each of September 30, 2017, 2018 and 2019 which will be settled by the Company’s ordinary
shares, subject to certain forfeiture events.
On September 29, 2017, the Company’s
compensation committee made grants of 580,235 RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
96.91% of the RSUs grant vested immediately on the grant date which was settled by cash amounting to $6,147 thousand, a subsequent
1.03% will vest on each of September 30, 2018, 2019 and 2020 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 $1.95 per ADS, $10.15 per ADS, $9.27 per ADS,
$7.92 per ADS, $8.30 per ADS and $10.93 per ADS on September 26, 2012, September 26, 2013, September 26, 2014, September 25, 2015,
September 28, 2016 and September 29, 2017, respectively.
RSUs activity under the long-term
incentive plan during the periods indicated is as follows:
|
|
Number of
Underlying
Shares for
RSUs
|
|
|
Weighted
Average Grant
Date
Fair Value
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
|
964,006
|
|
|
$
|
4.11
|
|
Granted
|
|
|
597,596
|
|
|
|
7.92
|
|
Vested
|
|
|
(1,257,803
|
)
|
|
|
5.19
|
|
Forfeited
|
|
|
(99,792
|
)
|
|
|
2.94
|
|
Balance at December 31, 2015
|
|
|
204,007
|
|
|
|
9.17
|
|
Granted
|
|
|
1,208,785
|
|
|
|
8.30
|
|
Vested
|
|
|
(1,207,241
|
)
|
|
|
8.39
|
|
Forfeited
|
|
|
(23,063
|
)
|
|
|
9.04
|
|
Balance at December 31, 2016
|
|
|
182,488
|
|
|
|
8.60
|
|
Granted
|
|
|
580,235
|
|
|
|
10.93
|
|
Vested
|
|
|
(662,368
|
)
|
|
|
10.62
|
|
Forfeited
|
|
|
(7,755
|
)
|
|
|
8.77
|
|
Balance at December 31, 2017
|
|
|
92,600
|
|
|
|
8.77
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
As of December 31, 2017, the total
compensation cost related to the unvested RSUs not yet recognized was $740 thousand. The weighted-average period over which it
is expected to be recognized is 1.83 years.
In 2015, 2016 and 2017, the Company
settled RSUs release with shares buyback of 1,390,280 shares, 191,994 shares and 200,074 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:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
87
|
|
|
|
132
|
|
|
|
112
|
|
Research and development
|
|
|
4,249
|
|
|
|
7,423
|
|
|
|
5,071
|
|
General and administrative
|
|
|
855
|
|
|
|
1,174
|
|
|
|
828
|
|
Sales and marketing
|
|
|
1,006
|
|
|
|
1,373
|
|
|
|
927
|
|
Total compensation from RSUs
|
|
$
|
6,197
|
|
|
|
10,102
|
|
|
|
6,938
|
|
Income tax benefit
|
|
$
|
1,342
|
|
|
|
2,164
|
|
|
|
1,540
|
|
|
(b)
|
Employee stock options
|
|
(i)
|
On July 1, 2012, July 1, 2013 and January 1, 2016, board of directors of Imaging Cayman approved
a plan to grant stock options, the 2012 plan, the 2013 plan and the 2016 plan, respectively, to certain employees. These three
plans authorize grants to purchase up to 2,000,000 shares, 430,000 shares and 1,760,000 shares, respectively, of Imaging Taiwan’
issued ordinary shares held by Imaging Cayman. The exercise price was NT$30 (US$1.004), NT$30 (US$1) and NT$30 (US$0.9139), respectively.
Himax Taiwan obtained all Imaging Taiwan’ issued ordinary shares previously held by Imaging Cayman in March, 2017, in a re-organization
of entities under common control, whereby Himax Taiwan assumed the obligation to sell Imaging Taiwan’ ordinary shares once
employees exercised the options for the 2016 plan.
|
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. The 2016 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. Because the exercise price of the options are higher than the estimated fair value of Imaging Taiwan
shares at the date of grant, the calculated value of each option award estimated using the Black-Scholes option-pricing model was
nil.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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 rates of 2 years and 5 years ROC central government bond at the time
of grant.
|
|
2012 plan
|
|
|
2013 plan
|
|
|
2016 plan
|
|
Valuation assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
43.29
|
%
|
|
|
39.50
|
%
|
|
|
38.04
|
%
|
Expected term (years)
|
|
|
3.125
|
|
|
|
2.125
|
|
|
|
3.125
|
|
Risk-free interest rate
|
|
|
0.87
|
%
|
|
|
0.85
|
%
|
|
|
0.50
|
%
|
Stock option activity during
the periods indicated is as follows:
|
|
Number
of shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
|
1,310,000
|
|
|
$
|
1.003
|
|
|
|
1.5
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(85,000
|
)
|
|
|
1.003
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1,225,000
|
|
|
|
1.003
|
|
|
|
0.5
|
|
Granted
|
|
|
631,000
|
|
|
|
0.9139
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(1,240,000
|
)
|
|
|
1.002
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
616,000
|
|
|
|
0.9139
|
|
|
|
3.0
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(35,000
|
)
|
|
|
0.9139
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
581,000
|
|
|
|
0.9139
|
|
|
|
2.0
|
|
Exercisable at December 31, 2017
|
|
|
290,500
|
|
|
|
0.9139
|
|
|
|
|
|
|
(ii)
|
On January 1, 2016, board of directors of Imaging Taiwan approved a plan to grant stock options,
the 2016 plan, to certain employees. This plan authorizes grants to purchase up to 2,040,000 shares of Imaging Taiwan’ authorized
but unissued ordinary shares. The exercise price was NT$30 (US$0.9139).
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The 2016 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. Because the exercise price of the options are
higher than the estimated fair value of Imaging Taiwan shares at the date of grant, the calculated value of each option award estimated
using the Black-Scholes option-pricing model was nil.
The calculated value of each
option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions
in the following table. Imaging Taiwan 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 rates of 2 years and 5 years ROC central government bond at the time
of grant.
|
|
2016 plan
|
|
Valuation assumptions:
|
|
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
38.04
|
%
|
Expected term (years)
|
|
|
3.125
|
|
Risk-free interest rate
|
|
|
0.50
|
%
|
Stock option activity during
the periods indicated is as follows:
|
|
Number
of shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
1,925,000
|
|
|
|
0.9139
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(128,000
|
)
|
|
|
0.9139
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1,797,000
|
|
|
|
0.9139
|
|
|
|
3.0
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
(115,000
|
)
|
|
|
0.9139
|
|
|
|
|
|
Forfeited
|
|
|
(173,000
|
)
|
|
|
0.9139
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
1,509,000
|
|
|
|
0.9139
|
|
|
|
2.0
|
|
Exercisable at December 31, 2017
|
|
|
697,000
|
|
|
|
0.9139
|
|
|
|
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
(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 grant and 50% of the options vest three years after the date of grant. The Company recognized compensation expenses
of $77 thousand, $307 thousand and $307 thousand in 2015, 2016 and 2017, respectively. 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 years ended December 31, 2015, 2016 and 2017.
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.
|
|
2015 plan
|
|
Valuation assumptions:
|
|
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
33.52
|
%
|
Expected term (years)
|
|
|
3.125
|
|
Risk-free interest rate
|
|
|
0.65
|
%
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
Stock option activity during
the periods indicated is as follows:
|
|
Number
of shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
2,025,000
|
|
|
|
1.986
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
2,025,000
|
|
|
|
1.986
|
|
|
|
3.75
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(32,000
|
)
|
|
|
1.986
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1,993,000
|
|
|
|
1.986
|
|
|
|
2.75
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(50,000
|
)
|
|
|
1.986
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
1,943,000
|
|
|
|
1.986
|
|
|
|
1.75
|
|
Exercisable at December 31, 2017
|
|
|
971,500
|
|
|
|
1.986
|
|
|
|
|
|
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.
12,491,990 treasury shares were held by the Company as of December 31, 2017.
|
(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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The accumulated legal and special
reserve provided by Himax Taiwan as of December 31, 2016 and 2017 amounted to $71,447 thousand and $78,386 thousand, respectively.
|
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
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January
1, 2016
|
|
$
|
208
|
|
|
|
(238
|
)
|
|
|
(1,849
|
)
|
|
|
(1,879
|
)
|
Other comprehensive
income (loss) before reclassifications
|
|
|
(479
|
)
|
|
|
(118
|
)
|
|
|
6
|
|
|
|
(591
|
)
|
Reclassification
adjustments for losses reclassified into income, net of tax of nil
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Ending balance, December 31, 2016
|
|
|
(271
|
)
|
|
|
(353
|
)
|
|
|
(1,843
|
)
|
|
|
(2,467
|
)
|
Other comprehensive
income (loss) before reclassifications
|
|
|
862
|
|
|
|
466
|
|
|
|
(138
|
)
|
|
|
1,190
|
|
Reclassification
adjustments for gains reclassified into income, net of tax of nil
|
|
|
-
|
|
|
|
(153
|
)
|
|
|
-
|
|
|
|
(153
|
)
|
Ending balance,
December 31, 2017
|
|
$
|
591
|
|
|
|
(40
|
)
|
|
|
(1,981
|
)
|
|
|
(1,430
|
)
|
Reclassification adjustments for losses (gains) reclassified
into income were presented in
“
Gains on sale of securities,
net
”
in the consolidated statements of income.
The Company is incorporated in
the Cayman Islands, a tax-free country; accordingly, pretax income generated by the group parent company is not subject to local
income tax. Substantially all of the Company’s taxable income 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 calculate 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 earnings 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
In accordance with the ROC Statute
for Upgrading Industries, Himax Taiwan’s capital increase in June 2009 as well as Himax Semiconductor’s capital increase
in October 2009 related to the manufacturing of a newly designed TFT-LCD driver were approved 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 also 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
|
|
January 1, 2014-December 31, 2018
|
November 12, 2009
|
|
January 1, 2014-December 31, 2018
|
Himax Semiconductor:
|
|
|
October 9, 2009
|
|
January 1, 2014-December 31, 2018
|
The income tax exemption resulted
in an income tax benefit of $1,759 thousand, $3,922 thousand and $548 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 $0.002 for the years ended December 31, 2015,
2016 and 2017, respectively.
Income (loss) before income
taxes for domestic and foreign entities is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan operations
|
|
$
|
28,349
|
|
|
|
63,347
|
|
|
|
10,333
|
|
Cayman operations
|
|
|
4,363
|
|
|
|
(4,569
|
)
|
|
|
(2,843
|
)
|
Samoa operations
|
|
|
-
|
|
|
|
-
|
|
|
|
22,938
|
|
US operations
|
|
|
(719
|
)
|
|
|
(842
|
)
|
|
|
(947
|
)
|
China operations
|
|
|
825
|
|
|
|
1,336
|
|
|
|
659
|
|
Korea operations
|
|
|
33
|
|
|
|
124
|
|
|
|
179
|
|
Japan operations
|
|
|
16
|
|
|
|
22
|
|
|
|
19
|
|
|
|
$
|
32,867
|
|
|
|
59,418
|
|
|
|
30,338
|
|
The components
of income tax expense (benefit) attributable to continuing operations for the years ended December 31, 2015, 2016 and 2017 consist
of the following:
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Taiwan operations – based
on statutory tax rate of 17%
|
|
$
|
1,467
|
|
|
|
6,451
|
|
|
|
2,416
|
|
Taiwan operations
– 10% of surtax
|
|
|
5,405
|
|
|
|
5,733
|
|
|
|
1,020
|
|
Samoa operation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,304
|
|
US operations
|
|
|
24
|
|
|
|
107
|
|
|
|
37
|
|
China operations
|
|
|
338
|
|
|
|
308
|
|
|
|
280
|
|
Korea operations
|
|
|
17
|
|
|
|
43
|
|
|
|
57
|
|
Japan operations
|
|
|
6
|
|
|
|
7
|
|
|
|
7
|
|
Total current tax
expense
|
|
|
7,257
|
|
|
|
12,649
|
|
|
|
6,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan operations – based on statutory
tax rate of 17%
|
|
|
4,527
|
|
|
|
(2,033
|
)
|
|
|
(1,592
|
)
|
Taiwan operations – 10% of surtax
|
|
|
(287
|
)
|
|
|
(1
|
)
|
|
|
119
|
|
US operations
|
|
|
(18
|
)
|
|
|
10
|
|
|
|
(22
|
)
|
China operations
|
|
|
(68
|
)
|
|
|
61
|
|
|
|
(90
|
)
|
Korea operations
|
|
|
(6
|
)
|
|
|
(15
|
)
|
|
|
(16
|
)
|
Total deferred tax
expense (benefit)
|
|
|
4,148
|
|
|
|
(1,978
|
)
|
|
|
(1,601
|
)
|
Income tax expense
|
|
$
|
11,405
|
|
|
|
10,671
|
|
|
|
4,520
|
|
The significant components
of deferred tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 2015, 2016
and 2017 are as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Deferred
income tax expense (benefit), exclusive of the effects of other components listed below
|
|
$
|
(546
|
)
|
|
|
(405
|
)
|
|
|
116
|
|
Tax expenses (benefits)
of unrealized foreign exchange gain
|
|
|
512
|
|
|
|
(1,569
|
)
|
|
|
(1,110
|
)
|
Tax expenses (benefits)
of allowance for doubtful accounts
|
|
|
2,304
|
|
|
|
(4
|
)
|
|
|
11
|
|
Tax expenses (benefits)
of used (unused) tax credits
|
|
|
3,337
|
|
|
|
-
|
|
|
|
(618
|
)
|
Tax
benefits of advanced share-based compensation deductions
|
|
|
(1,459
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
4,148
|
|
|
|
(1,978
|
)
|
|
|
(1,601
|
)
|
The applicable combined tax rate
for Taiwan was 23.85%, consisting of an aggregate calculation of the 17% statutory income tax, the 10% undistributed earning tax,
and how the taxes interact with each other.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
According to the amendments to
the “Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018,
an increase in the statutory income tax rate from 17% to 20% and decrease in the undistributed earning tax from 10% to 5% are effective
from January 1, 2018. This increase does not affect the amounts of the current or deferred taxes recognized for the year ended
December 31, 2017. However, it will affect the Company’s current tax expense in the future, and deferred taxes will be remeasured
in 2018, the period of enactment. If the new tax rates were to be applied in measuring deferred taxes for temporary differences
and operating loss carryforwards recognized on December 31, 2017, the deferred tax assets and deferred tax liabilities would increase
by $1,195 thousand and $2 thousand, respectively. And the applicable combined tax rate for Taiwan will become 23.44%, consisting
of an aggregate calculation of the 20% statutory income tax, and the 5% undistributed earning tax.
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, 2015, 2016 and 2017 are summarized
as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense
|
|
$
|
5,587
|
|
|
|
10,101
|
|
|
|
5,158
|
|
Tax on undistributed
earnings
|
|
|
3,011
|
|
|
|
3,111
|
|
|
|
(1,181
|
)
|
Tax-exempt income
|
|
|
(1,759
|
)
|
|
|
(3,922
|
)
|
|
|
(548
|
)
|
Tax benefit resulting
from setting aside legal reserve from prior year’s income
|
|
|
(839
|
)
|
|
|
(541
|
)
|
|
|
(686
|
)
|
Realized tax losses
on investments in subsidiaries due to capital reduction to offset the accumulated deficit
|
|
|
(2,157
|
)
|
|
|
-
|
|
|
|
-
|
|
Increase in tax credits
|
|
|
(4,242
|
)
|
|
|
(4,970
|
)
|
|
|
(3,919
|
)
|
Increase in deferred tax asset valuation allowance
|
|
|
6,640
|
|
|
|
6,802
|
|
|
|
5,822
|
|
Capital gain Tax
|
|
|
-
|
|
|
|
-
|
|
|
|
2,304
|
|
Changes in unrecognized
tax benefits related to prior year tax positions, net of its impact to tax-exempted income
|
|
|
915
|
|
|
|
(294
|
)
|
|
|
(298
|
)
|
Tax effect resulting
from foreign currency matters(*)
|
|
|
3,583
|
|
|
|
(1,598
|
)
|
|
|
-
|
|
Foreign tax rate
differential
|
|
|
(454
|
)
|
|
|
1,339
|
|
|
|
(2,565
|
)
|
Variance from audits,
amendments and examinations of prior years’ income tax filings
|
|
|
793
|
|
|
|
69
|
|
|
|
462
|
|
Others
|
|
|
327
|
|
|
|
574
|
|
|
|
(29
|
)
|
Actual
income tax expense
|
|
$
|
11,405
|
|
|
|
10,671
|
|
|
|
4,520
|
|
(*) The subsidiaries located in
the R.O.C. changed their functional currency of the tax basis of assets and liabilities from NT dollar to U.S. dollar. Accordingly
these subsidiaries are now having a U.S. dollar dominated tax basis and U.S. GAAP functional currency.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The amount of income tax expense
(benefit) for the years ended December 31, 2015, 2016 and 2017 was allocated as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
11,405
|
|
|
|
10,671
|
|
|
|
4,520
|
|
Other comprehensive income (loss)
|
|
|
(168
|
)
|
|
|
6
|
|
|
|
(25
|
)
|
Excess tax benefits
allocated to additional paid-in capital from share-based compensation
|
|
|
(771
|
)
|
|
|
-
|
|
|
|
-
|
|
Retained
earnings for previously unrecognized excess tax benefits
|
|
|
-
|
|
|
|
(141
|
)
|
|
|
-
|
|
|
|
$
|
10,466
|
|
|
|
10,536
|
|
|
|
4,495
|
|
As of December 31, 2016 and 2017,
the components of deferred income tax assets (liabilities) were as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
7,305
|
|
|
|
6,639
|
|
Tax
credit carryforwards
|
|
|
1,328
|
|
|
|
2,178
|
|
Operating
loss carryforward-statutory tax
|
|
|
34,341
|
|
|
|
38,264
|
|
Operating
loss carryforward-undistributed earnings tax
|
|
|
14,695
|
|
|
|
17,930
|
|
Other
|
|
|
2,425
|
|
|
|
2,646
|
|
Total
gross deferred tax assets
|
|
|
60,094
|
|
|
|
67,657
|
|
Less:
valuation allowance
|
|
|
(51,242
|
)
|
|
|
(58,943
|
)
|
Net
deferred tax assets
|
|
|
8,852
|
|
|
|
8,714
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized
foreign exchange gain
|
|
|
(1,181
|
)
|
|
|
(29
|
)
|
Prepaid
pension cost
|
|
|
(417
|
)
|
|
|
(450
|
)
|
Acquired
intangible assets
|
|
|
(1,178
|
)
|
|
|
(572
|
)
|
Other
|
|
|
(46
|
)
|
|
|
(7
|
)
|
Total
gross deferred tax liabilities
|
|
|
(2,822
|
)
|
|
|
(1,058
|
)
|
Net
deferred tax assets
|
|
$
|
6,030
|
|
|
|
7,656
|
|
As of December 31, 2017, the Company
has not provided for income taxes on undistributed earnings of approximately $594,471 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
The activity in the valuation
allowance for deferred tax assets for the years ended December 31, 2015, 2016 and 2017 follows:
Period
|
|
Balance
at
beginning
of year
|
|
|
Additions
Charges to
earnings
|
|
|
Deductions-
Credits to
earnings
|
|
|
Expirations
and
Forfeitures
|
|
|
Others
(Note)
|
|
|
Balance
at
end of year
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 2015
|
|
$
|
40,966
|
|
|
|
6,640
|
|
|
|
-
|
|
|
|
(2,141
|
)
|
|
|
(1,145
|
)
|
|
|
44,320
|
|
Year 2016
|
|
$
|
44,320
|
|
|
|
7,077
|
|
|
|
(275
|
)
|
|
|
(998
|
)
|
|
|
1,118
|
|
|
|
51,242
|
|
Year 2017
|
|
$
|
51,242
|
|
|
|
6,153
|
|
|
|
(331
|
)
|
|
|
(1,481
|
)
|
|
|
3,360
|
|
|
|
58,943
|
|
Note:
Others represent the effect resulting from exchange rates and changes in consolidated entities.
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, 2017. 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 $51,242 thousand and $58,943 thousand as of
December 31, 2016 and 2017, respectively, was provided to reduce their deferred tax assets (consisting primarily of operating loss
carryforwards and unused tax credit carryforwards) to zero because management believes it is unlikely that these tax benefits will
be realized. For the year ended December 31, 2015, 2016 and 2017, Himax Media Solutions, Inc. realized a tax benefit of nil, $275
thousand and $331 thousand, 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
As of December
31, 2017, the Company’s unused operating loss carryforward for statutory tax were as follows:
|
|
Deductible
amount
|
|
|
Tax
effect
|
|
|
Expiration
year
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan operations
|
|
$
|
104,276
|
|
|
$
|
17,727
|
|
|
2018~2022
|
|
|
|
104,125
|
|
|
|
17,701
|
|
|
2023~2027
|
Hong Kong operations
|
|
|
1,798
|
|
|
|
297
|
|
|
Indefinitely
|
US operations
|
|
|
9,329
|
|
|
|
2,539
|
|
|
2024~2037
|
|
|
|
|
|
|
$
|
38,264
|
|
|
|
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.
The Statute for Industrial Innovation
entitles companies to tax credits for research and development expenses related to innovation activities but limits the amount
of tax credits 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 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 tax credits generated were $4,242 thousand, $4,970 thousand and $4,557 thousand for the years ended December 31, 2015, 2016
and 2017, respectively. For the year ended December 31, 2015, 2016 and 2017, tax credits generated under this program have been
utilized $4,242 thousand, $4,970 thousand and $3,939 thousand, respectively.
As of December 31, 2017, all of
the Company’s unused tax credits were as follows:
|
|
Tax
effect
|
|
|
Expiration
year
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Taiwan operation
|
|
$
|
618
|
|
|
2018~2019
|
US operations
|
|
|
1,560
|
|
|
2020~2034
|
|
|
$
|
2,178
|
|
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
788
|
|
|
|
1,335
|
|
|
|
1,052
|
|
Increase related to prior year tax positions
|
|
|
292
|
|
|
|
-
|
|
|
|
384
|
|
Decrease related to prior year tax positions
|
|
|
-
|
|
|
|
(292
|
)
|
|
|
(641
|
)
|
Increase related to current year tax positions
|
|
|
630
|
|
|
|
-
|
|
|
|
-
|
|
Settlements
|
|
|
(368
|
)
|
|
|
-
|
|
|
|
-
|
|
Lapse of statute of limitations
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(41
|
)
|
Effect of exchange rate change
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
Balance at end of year
|
|
$
|
1,335
|
|
|
|
1,052
|
|
|
|
754
|
|
Included in the balance of total
unrecognized tax benefits at December 31, 2016 and 2017, are potential benefits of $1,052 thousand and $754 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 for the years ended December 31, 2015, 2016 and 2017, respectively. As of December 31,
2016 and 2017, the accrued interest and penalties were $108 thousand and $117 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 2015. The income tax returns of 2016 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, 2017.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
Note 19.
|
Fair Value Measurements
|
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, 2016 and 2017:
|
|
Fair
Value Measurements at
December
31, 2016 Using
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
with original maturities less than three months
|
|
$
|
13,055
|
|
|
|
-
|
|
|
|
-
|
|
Marketable securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposit with
original maturities more than three months
|
|
|
-
|
|
|
|
5,140
|
|
|
|
-
|
|
Money market fund
|
|
|
5,017
|
|
|
|
-
|
|
|
|
-
|
|
Restricted marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits with original maturities of more than three months
|
|
|
-
|
|
|
|
324
|
|
|
|
-
|
|
Total
|
|
$
|
18,072
|
|
|
|
5,464
|
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
-
|
|
|
|
138,000
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
|
138,000
|
|
|
|
-
|
|
|
|
Fair
Value Measurements at
December
31, 2017 Using
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
with original maturities less than three months
|
|
$
|
22,559
|
|
|
|
-
|
|
|
|
-
|
|
Marketable securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposit with
original maturities more than three months
|
|
|
-
|
|
|
|
10,358
|
|
|
|
-
|
|
Money market fund
|
|
|
521
|
|
|
|
-
|
|
|
|
-
|
|
Restricted marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits with original maturities of more than three months
|
|
|
-
|
|
|
|
470
|
|
|
|
-
|
|
Total
|
|
$
|
23,080
|
|
|
|
10,828
|
|
|
|
-
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
|
Fair
Value Measurements at
December
31, 2017 Using
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(in thousands)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
-
|
|
|
|
147,000
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
|
147,000
|
|
|
|
-
|
|
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 2015, 2016 and 2017.
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 years ended
December 31, 2015, 2016 and 2017.
|
Note 20.
|
Significant Concentrations
|
Financial instruments that currently
subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts
receivable. The Company places its cash primarily in checking and saving accounts with reputable financial institutions. 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,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Customer A and its affiliates
|
|
|
20.1
|
%
|
|
|
22.4
|
%
|
|
|
25.8
|
%
|
Customer B and its affiliates
|
|
|
21.1
|
%
|
|
|
15.2
|
%
|
|
|
15.5
|
%
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
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,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
Customer A and its affiliates
|
|
|
29.2
|
%
|
|
|
32.6
|
%
|
Customer B and its affiliates
|
|
|
19.3
|
%
|
|
|
15.5
|
%
|
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 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.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
Note 21.
|
Related-party Transactions
|
|
(a)
|
Name and relationship
|
Name of related parties
|
|
Relationship
|
|
|
|
Viewsil Microelectronics (Kunshan) Limited (Viewsil)
|
|
Equity method investee of the Company
|
Viewsil Technology Limited (VST)
|
|
The subsidiary of Viewsil
|
Emza Visual Sense Ltd. (Emza)
|
|
Equity method investee of the Company
|
|
(b)
|
Significant transactions with related parties
|
|
(i)
|
Purchases and accounts payable
|
Purchases of raw materials and
components from VST were $576 thousand and $522 thousand for the years ended December 31, 2016 and 2017, respectively. As of December
31, 2016 and 2017, the related payables resulting from the aforementioned transaction were $576 thousand and nil, respectively.
The purchase prices and payment terms to related parties were incomparable to that from third parties due to no similar transaction.
|
(ii)
|
The Company made an interest-free loan to VST and Emza
for their short-term funding needs, is summarized as follows:
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
VST
|
|
$
|
7,150
|
|
|
|
2,750
|
|
Emza
|
|
|
-
|
|
|
|
500
|
|
|
|
$
|
7,150
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
The
loan is repayable on demand and the Company expects it will be repaid in full during 2018. The Company may consider providing further
future loans to VST and
Emza
.
|
(iii)
|
In 2017,
Viewsil
provided technical service on new source driver chip and integrated circuit module for the Company’s
research activities for a fee of $2,200 thousand, which was charged to research and development expense. As of December 31, 2017,
the related process fee payables resulting from the aforementioned transactions have not yet been paid.
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
Note 22.
|
Commitments and Contingencies
|
|
(a)
|
As of December 31, 2016 and 2017 the Company had entered into several contracts for the acquisition
of building, equipment and computer software. Total contract prices amounted to $5,153 thousand and $60,573 thousand, respectively.
As of December 31, 2016 and 2017, the remaining commitments were $3,760 thousand and $40,814 thousand, respectively.
|
|
(b)
|
The Company leases certain offices and buildings pursuant to operating lease arrangements with
third parties. The lease arrangement will expire gradually from 2018 to 2024. As of December 31, 2016 and 2017, deposits paid amounted
to $1,091 thousand and $1,230 thousand, respectively, and were recorded as refundable deposit in the consolidated balance sheets.
|
As of December 31, 2017, future
minimum lease payments under noncancelable operating leases are as follows:
Duration
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
|
|
|
January 1, 2018~December 31, 2018
|
|
$
|
1,122
|
|
January 1, 2019~December 31, 2019
|
|
|
753
|
|
January 1, 2020~December 31, 2020
|
|
|
512
|
|
January 1, 2021~December 31, 2021
|
|
|
318
|
|
January 1, 2022~December 31, 2022
|
|
|
298
|
|
January 1, 2023~December 31, 2024
|
|
|
238
|
|
|
|
$
|
3,241
|
|
Rental expense for operating leases
with third parties amounted to $2,082 thousand, $2,148 thousand and $2,189 thousand in 2015, 2016 and 2017, 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 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.
|
|
(e)
|
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.
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
(f)
|
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.
Due to the current market is facing a capacity shortage of wafer fabrication, the Company has increased its placing of purchase
orders to meet the sufficient capacity supply from foundries for year 2018. Contractual obligations resulting from above arrangements
approximate $89,179 thousand and $193,446 thousand as of December 31, 2016 and 2017, respectively.
|
|
(g)
|
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, 2017, 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 warrant expired in October 2014. 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, 2016 and 2017, the aggregate value of the redeemable noncontrolling
interest was $3,656 thousand. Net loss attributable to the redeemable noncontrolling interest was $617 thousand, $143 thousand
and $313 thousand for the years ended December 31, 2015, 2016 and 2017, respectively.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
Note 24.
|
Segment, Product and Geographic Information
|
|
|
Year
Ended December 31, 2015
|
|
|
|
Driver
IC
|
|
|
Non-
driver
products
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
560,399
|
|
|
|
131,390
|
|
|
|
691,789
|
|
Segment
operating income (loss)
|
|
$
|
59,506
|
|
|
|
(28,834
|
)
|
|
|
30,672
|
|
Non
operating income, net
|
|
|
|
|
|
|
|
|
|
|
2,195
|
|
Consolidated
earnings before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
32,867
|
|
Significant noncash
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Based Compensation
|
|
$
|
1,206
|
|
|
|
612
|
|
|
|
1,818
|
|
Depreciation
and amortization
|
|
$
|
3,591
|
|
|
|
10,573
|
|
|
|
14,164
|
|
|
|
Year
Ended December 31, 2016
|
|
|
|
Driver
IC
|
|
|
Non-
driver
products
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
641,865
|
|
|
|
161,052
|
|
|
|
802,917
|
|
Segment
operating income (loss)
|
|
$
|
92,010
|
|
|
|
(32,775
|
)
|
|
|
59,235
|
|
Non
operating income, net
|
|
|
|
|
|
|
|
|
|
|
183
|
|
Consolidated
earnings before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
59,418
|
|
Significant
noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Based Compensation
|
|
$
|
542
|
|
|
|
644
|
|
|
|
1,186
|
|
Depreciation
and amortization
|
|
$
|
3,685
|
|
|
|
10,071
|
|
|
|
13,756
|
|
|
|
Year
Ended December 31, 2017
|
|
|
|
Driver
IC
|
|
|
Non-
driver
products
|
|
|
Consolidated
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues
|
|
$
|
529,847
|
|
|
|
155,320
|
|
|
|
685,167
|
|
Segment
operating income (loss)
|
|
$
|
43,021
|
|
|
|
(34,871
|
)
|
|
|
8,150
|
|
Non
operating income, net
|
|
|
|
|
|
|
|
|
|
|
22,188
|
|
Consolidated
earnings before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
30,338
|
|
Significant
noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Based Compensation
|
|
$
|
365
|
|
|
|
733
|
|
|
|
1,098
|
|
Depreciation
and amortization
|
|
$
|
4,940
|
|
|
|
11,740
|
|
|
|
16,680
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
Revenues from the Company’s
major product lines are summarized as follow:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Display drivers for large-size applications
|
|
$
|
224,423
|
|
|
|
272,906
|
|
|
|
224,798
|
|
Display drivers for mobile handsets applications
|
|
|
170,705
|
|
|
|
191,845
|
|
|
|
113,591
|
|
Display drivers for consumer electronics applications
|
|
|
165,271
|
|
|
|
177,114
|
|
|
|
191,458
|
|
Others
|
|
|
131,390
|
|
|
|
161,052
|
|
|
|
155,320
|
|
|
|
$
|
691,789
|
|
|
|
802,917
|
|
|
|
685,167
|
|
The following tables summarize
information pertaining to the Company’s revenues from customers in different geographic region (based on customer’s
headquarter location):
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
$
|
372,538
|
|
|
|
507,470
|
|
|
|
421,208
|
|
Taiwan
|
|
|
254,763
|
|
|
|
199,985
|
|
|
|
176,951
|
|
Other Asia Pacific (Philippines, Korea and Japan)
|
|
|
53,053
|
|
|
|
54,159
|
|
|
|
67,779
|
|
Europe and America
|
|
|
11,435
|
|
|
|
41,303
|
|
|
|
19,229
|
|
|
|
$
|
691,789
|
|
|
|
802,917
|
|
|
|
685,167
|
|
The carrying values of the
Company’s tangible long-lived assets are located in the following countries:
|
|
December
31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
47,144
|
|
|
|
85,808
|
|
China
|
|
|
767
|
|
|
|
663
|
|
U.S.
|
|
|
61
|
|
|
|
33
|
|
Japan
|
|
|
21
|
|
|
|
19
|
|
Korea
|
|
|
179
|
|
|
|
150
|
|
|
|
$
|
48,172
|
|
|
|
86,673
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
Revenues from significant customers,
those representing 10% or more of total revenue for the respective periods, are summarized as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Driver IC segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A and its affiliates
|
|
$
|
116,456
|
|
|
|
152,142
|
|
|
|
147,961
|
|
Customer B and its
affiliates
|
|
|
126,953
|
|
|
|
113,300
|
|
|
|
102,493
|
|
|
|
$
|
243,409
|
|
|
|
265,442
|
|
|
|
250,454
|
|
Non-driver products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A and
its affiliates
|
|
$
|
22,345
|
|
|
|
27,873
|
|
|
|
28,767
|
|
Customer
B and its affiliates
|
|
|
19,256
|
|
|
|
8,672
|
|
|
|
3,887
|
|
|
|
$
|
41,601
|
|
|
|
36,545
|
|
|
|
32,654
|
|
Accounts receivable from significant
customers, those representing 10% or more of total accounts receivable for the respective periods, is summarized as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Customer
A and its affiliates
|
|
$
|
55,681
|
|
|
|
61,100
|
|
Customer
B and its affiliates
|
|
|
36,849
|
|
|
|
29,008
|
|
|
|
$
|
92,530
|
|
|
|
90,108
|
|
As of December 31, 2016 and 2017,
allowance for sales returns and discounts for those accounts receivable was $745 thousand and $578 thousand, respectively.
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
|
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:
Condensed Balance Sheets
|
|
December
31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
759
|
|
|
|
1,362
|
|
Investments
in marketable securities available-for-sale
|
|
|
4,399
|
|
|
|
4,881
|
|
Other
receivable from related party
|
|
|
7,150
|
|
|
|
2,751
|
|
Other
current assets
|
|
|
976
|
|
|
|
498
|
|
Investments
in subsidiaries and affiliates
|
|
|
727,903
|
|
|
|
753,315
|
|
Total
assets
|
|
$
|
741,187
|
|
|
|
762,807
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
284
|
|
|
|
235
|
|
Short-term
debt
|
|
|
119,000
|
|
|
|
147,000
|
|
Debt
borrowing from a subsidiary
|
|
|
154,170
|
|
|
|
158,924
|
|
Total
equity
|
|
|
467,733
|
|
|
|
456,648
|
|
Total
liabilities and equity
|
|
$
|
741,187
|
|
|
|
762,807
|
|
Himax Technologies, Inc. had no
guarantees as of December 31, 2016 and 2017.
Condensed Statements of Income
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Costs
and expenses
|
|
|
460
|
|
|
|
330
|
|
|
|
236
|
|
Operating
loss
|
|
|
(460
|
)
|
|
|
(330
|
)
|
|
|
(236
|
)
|
Equity in earnings from
subsidiaries and affiliates
|
|
|
20,820
|
|
|
|
55,191
|
|
|
|
30,355
|
|
Gain on sale of securities
|
|
|
1,682
|
|
|
|
-
|
|
|
|
-
|
|
Other
non-operating income (loss)
|
|
|
3,153
|
|
|
|
(3,949
|
)
|
|
|
(2,152
|
)
|
Earnings
before income taxes
|
|
|
25,195
|
|
|
|
50,912
|
|
|
|
27,967
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income
|
|
$
|
25,195
|
|
|
|
50,912
|
|
|
|
27,967
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015,
2016 and 2017
Condensed Statements of
Comprehensive Income
|
|
Year Ended December
31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
|
|
|
|
25,195
|
|
|
|
|
|
|
|
50,912
|
|
|
|
|
|
|
|
27,967
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities, not subject to income tax:
|
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
313
|
|
Unrealized holding gains (losses) on available-for-sale marketable securities arising during the period
|
|
|
(63
|
)
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
466
|
|
|
|
|
|
Reclassification adjustment for realized losses (gains) included in net income
|
|
|
(196
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
Foreign currency translation adjustments, net of income tax of nil
|
|
|
|
|
|
|
(573
|
)
|
|
|
|
|
|
|
(479
|
)
|
|
|
|
|
|
|
862
|
|
Net unrecognized actuarial gain (loss), net of income tax of $(168), $6 and $(25) in 2015, 2016 and 2017, respectively
|
|
|
|
|
|
|
(731
|
)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
(138
|
)
|
Comprehensive income
|
|
$
|
|
|
|
|
23,632
|
|
|
|
|
|
|
|
50,324
|
|
|
|
|
|
|
|
29,004
|
|
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
December 31, 2015, 2016 and 2017
Condensed Statements of
Cash Flows
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
25,195
|
|
|
|
50,912
|
|
|
|
27,967
|
|
Adjustments to reconcile
net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings from subsidiaries and
affiliates
|
|
|
(20,820
|
)
|
|
|
(55,191
|
)
|
|
|
(30,355
|
)
|
Gain on disposals of
investment non-marketable equity securities, net
|
|
|
(1,682
|
)
|
|
|
-
|
|
|
|
-
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
221
|
|
|
|
491
|
|
|
|
478
|
|
Other
current liabilities
|
|
|
157
|
|
|
|
(100
|
)
|
|
|
(49
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
3,071
|
|
|
|
(3,888
|
)
|
|
|
(1,959
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale marketable
securities
|
|
|
(4,625
|
)
|
|
|
(173
|
)
|
|
|
(158
|
)
|
Proceeds from disposals
of investment in non-marketable equity securities
|
|
|
1,682
|
|
|
|
-
|
|
|
|
-
|
|
Purchases of equity method investment
|
|
|
(3,708
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from disposals of equity method investment
|
|
|
-
|
|
|
|
64,513
|
|
|
|
4,825
|
|
Proceeds from capital reduction of investment
|
|
|
-
|
|
|
|
431
|
|
|
|
1,150
|
|
Cash
received from (paid for) loan made to related party
|
|
|
-
|
|
|
|
(7,150
|
)
|
|
|
4,400
|
|
Net cash provided by (used
in) investing activities
|
|
|
(6,651
|
)
|
|
|
57,621
|
|
|
|
10,217
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of cash dividends
|
|
|
(51,364
|
)
|
|
|
(22,348
|
)
|
|
|
(41,281
|
)
|
Proceeds from short-term debt
|
|
|
351,000
|
|
|
|
192,000
|
|
|
|
151,000
|
|
Repayment of short-term debt
|
|
|
(301,000
|
)
|
|
|
(234,000
|
)
|
|
|
(123,000
|
)
|
Proceeds from issue of RSUs from subsidiaries
|
|
|
5,311
|
|
|
|
1,081
|
|
|
|
872
|
|
Proceeds from debt from a subsidiary
|
|
|
375,572
|
|
|
|
367,667
|
|
|
|
201,849
|
|
Repayment of debt from
a subsidiary
|
|
|
(374,775
|
)
|
|
|
(358,910
|
)
|
|
|
(197,095
|
)
|
Net cash provided by
(used in) financing activities
|
|
|
4,744
|
|
|
|
(54,510
|
)
|
|
|
(7,655
|
)
|
Net increase (decrease) in cash
|
|
|
1,164
|
|
|
|
(777
|
)
|
|
|
603
|
|
Cash at beginning of year
|
|
|
372
|
|
|
|
1,536
|
|
|
|
759
|
|
Cash at end of year
|
|
$
|
1,536
|
|
|
|
759
|
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid during the year
|
|
$
|
453
|
|
|
|
563
|
|
|
|
547
|
|
Income
taxes paid during the year
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|