FORM
6-K
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Report
of Foreign Issuer
Pursuant
to Rule 13a-16 or 15d-16
of
the Securities Exchange Act of 1934
For
the
month of August, 2007
Commission
File Number: 000-51847
Himax
Technologies, Inc.
(Translation
of registrant’s name into English)
No.26,
Zih
Lian Road, Fonghua Village,
Sinshih Township,
Tainan County
744,
Taiwan,
Republic of China
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F:
|
Form
20-F
|
X
|
Form
40-F
|
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1):
|
Yes
|
No
|
X
|
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7):
|
Yes
|
No
|
X
|
Indicate
by check mark whether by furnishing the information contained in this Form,
the
Registrant is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
|
Yes
|
No
|
X
|
If
“Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
Himax
Technologies, Inc.
|
Exhibit
|
|
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99.1
|
Himax
Technologies, Inc. Notice of Annual General Meeting of
Members
|
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99.2
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Himax
Technologies, Inc. Proxy Statement
|
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99.3
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Himax
Technologies, Inc. 2006 Annual
Report
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
HIMAX
TECHNOLOGIES, INC.
|
|
|
By:
|
/s/
Max
Chan
|
|
Name:
Max Chan
|
|
|
Title:
Chief Financial Officer
|
|
Date:
August 6th, 2007
EXHIBIT
99.1
Deutsche
Bank Trust Company Americas
Trust
and
Securities Services
Global
Equity Services
|
DEPOSITARY
RECEIPTS
|
August
6, 2007
|
Depositary's
Notice of Annual General Meeting of Shareholders of Himax Technologies,
Inc.:
|
Issue:
|
Himax
Technologies, Inc. / Cusip 43289P106
|
|
Country:
|
Cayman
Islands
|
|
Meeting
Details:
|
Annual General
Meeting of Shareholders of Himax Technologies ,Inc. on August 22,
2007
at the Incubator of Tainan Science Park, Room B101
(International Conference Hall) No. 12, Nanke 2nd
Road, Tainan
Science Park, Tainan County, Taiwan 9:00 a.m. (Local
Time).
|
|
Meeting
Agenda:
|
The
Company's Notice of Meeting including the Agenda and the
Proxy Statement are
attached
|
|
Voting
Deadline:
|
On
or before August 17, 2007 at 3:00 PM (New York City
time)
|
|
ADR
Record Date:
|
June
25, 2006
|
|
Ordinary:
ADR ratio
|
1
Ordinary Shares: 1 ADR
|
In
accordance with
section
4.8 of
the
Deposit Agreement between Holders of American
Depositary
Receipts
(ADRs)
representing Deposited
Shares of
Himax
Technologies, Inc. (the
“Company”),
Holders of
Himax
Technologies,
Inc. ADRs
are hereby notified of the
Company’s
Annual
General
Meeting of Shareholders.
event
a
demand for vote by poll is not timely made in accordance with the provisions
of
this Section 4.8, the Depositary shall refrain from voting and any voting
instructions received from Holders shall lapse and the Depositary will not
represent any Deposited Securities for the purposes of establishing a quorum
accordingly. Voting instructions may be given only in respect of a number of
American Depositary Shares representing an integral number of Shares or other
Deposited Securities.
Upon
the
timely receipt of written instructions of a Holder on or before the ADS Record
Date of voting instructions in the manner specified by the Depositary, the
Depositary shall endeavor, insofar as practicable and permitted under applicable
law, the provisions of this Deposit Agreement, the Company’s Articles of
Association and the provisions of or governing the Deposited Securities, and
provided that the Company has, pursuant to its undertaking set forth under
this
Section 4.8, caused the duly-appointed chairman at such meeting to demand a
vote
by way of poll with respect to each resolution (in accordance with Article
66(a)
of the Company’s Articles of Association), to vote or cause an officer of the
Company duly appointed as representative of the Depositary or such other
duly-appointed person as the Depositary has validly appointed as proxy
(“Authorized Representative”) to vote the Shares and/or other
Deposited Securities (in person or by proxy) represented by American Depositary
Shares evidenced by such Receipt in accordance with such voting
instructions.
In
the
event that the Depositary i) timely receives voting instructions from a Holder
which fail to specify the manner in which the Depositary is to vote the
Deposited Securities represented by such Holder’s ADSs or ii) if no instructions
are received by the Depositary from a Holder with respect to any of the
Deposited Securities represented by the ADSs evidenced by such Holder’s ADRs on
or before the ADS Record Date established by the Depositary for such purpose,
the Depositary shall (unless otherwise specified in the notice distributed
to
Holders) deem such Holder to have instructed the Depositary to give a
discretionary proxy to a person designated by the Company with respect to such
Deposited Securities and the Depositary shall give a discretionary proxy to
a
person designated by the Company to vote such Deposited Securities, provided,
however, that no such instruction shall be deemed given and no such
discretionary proxy shall be given with respect to any matter as to which the
Company informs the Depositary (and the Company agrees to provide such
information as promptly as practicable in writing, if applicable) that (x)
the
Company does not wish to give such proxy, (y) the Company is aware or should
reasonably be aware that substantial opposition exists from Holders against
the
outcome for which the person designated by the Company would otherwise vote
or
(z) the outcome for which the person designated by the Company would otherwise
vote would materially and adversely affect the rights of holders of Shares,
provided, further, that the Company will have no liability to any Holder or
Beneficial Owner resulting from such notification.
The
Company hereby undertakes for the benefit of the Holders, and in accordance
with
Article 66(a) of the Company’s Articles of Association, to procure that the
duly-appointed chairman of any such meeting timely make a demand for a vote
by
poll with respect to any resolution for which the Depositary has received and
is
entitled to exercise voting instructions on behalf of the Holders.
In
the
event that the Company does not timely procure the demand for a vote by poll
with respect to any resolution in accordance with the above paragraph, and
no
other Member (as defined in the Company’s Articles of Association) in person or
by proxy has validly and timely demanded a vote on the basis of a poll,
including the Depositary to the extent it is lawfully entitled to do the same,
the Depositary shall refrain from voting and any voting instructions received
from Holders shall lapse without further liability on the part of the
Depositary.
Neither
the Depositary nor the Custodian shall, under any circumstances exercise any
discretion as to voting, and neither the Depositary nor the Custodian shall
vote, or attempt to exercise the right to vote, the Shares or other Deposited
Securities represented by ADSs except
pursuant
to and in accordance with such written instructions from Holders, including
the
deemed instruction to the Depositary to give a discretionary proxy to a person
designated by the Company. Notwithstanding anything else contained
herein, the Depositary shall, if so requested in writing by the Company,
represent all Deposited Securities (whether or not voting instructions have
been
received in respect of such Deposited Securities from Holders as of the ADS
Record Date) for the sole purpose of establishing a quorum at a meeting of
shareholders but only to the extent that the duly-appointed chairman or other
Member (as defined in the Company’s Articles of Association) in person or by
proxy has validly and timely procured the demand for a vote by poll with respect
to any resolution for which voting instructions have been solicited from
Holders.
There
can
be no assurance that Holders or Beneficial Owners generally or any Holder or
Beneficial Owner in particular will receive the notice described above with
sufficient time to enable the Holder to return voting instructions to the
Depositary in a timely manner.
Notwithstanding
the above, save for applicable provisions of the law of the Cayman Islands,
and
in accordance with the terms of Section 5.3, the Depositary shall not be liable
for any failure to carry out any instructions to vote any of the Deposited
Securities.
For
Further Information, contact:
Daniel
Belean
Deutsche
Bank - Depositary Receipts
212
250 6612 (Tel)
212
797 0327 (fax)
EXHIBIT
99.2
PROXY
STATEMENT
This
Proxy
Statement is being furnished pursuant to the Proxy Form for the Annual General
Meeting (“AGM”) of Himax Technologies, Inc. (“Himax” or the “Company”) to be
held on August 22, 2007 at 9:00 a.m. (Taiwan time).
I. SHAREHOLDER
ADOPTION OF THE COMPANY’S 2006 AUDITED ACCOUNTS AND FINANCIAL
REPORT
The
Company seeks shareholder adoption of the Company’s 2006 audited accounts (the
“Audited Accounts”), which have been prepared under United States Generally
Accepted Accounting Principles, in respect of the financial year ended December
31, 2006. Along with the Audited Accounts, the Company seeks shareholder
adoption of the report of the auditors in respect of the same financial period
(the “Reports of the Auditors”). A copy of each of the Company’s Audited
Accounts and the Reports of the Auditors is included in the enclosed 2006
Himax
Annual Report.
Adoption
of this proposal requires the affirmative vote of a majority of the votes
cast
at the AGM by the shareholders entitled to vote thereon.
The
Board of Directors of the Company (the “Board of Directors”) recommends a vote
FOR this proposal.
II. RETIREMENT
AND RE-ELECTION OF YUAN-CHUAN HORNG AS A DIRECTOR
Yuan-Chuan
Horng will properly retire from his directorship position at Himax to be
eligible for re-election pursuant to the Articles of Association of Himax,
and
he has offered himself for re-election as a Director of Himax. A
retiring Director shall be eligible for re-election.
Yuan-Chuan
Horng has
been the independent director of Himax
since our reorganization
in October
2005. Prior
to our reorganization in October
2005, Mr. Horng served as a director of Himax Taiwan
from August 2004 to October 2005, Mr.
Horng is the general manger of the Finance Department of China Steel
Corporation, a position he
has held since April 2000. He has held various accounting and finance positions
as China Steel Corporation for over 30 years. Mr. Horng holds a B.A. degree
in
economics from Soochow University.
The
affirmative vote of a majority of the votes cast at the AGM by the shareholders
entitled to vote thereon is required for the election of Yuan-Chuan Horng
as a
director of Himax.
The
Board of Directors recommends a vote FOR this proposal.
III.
SHAREHOLDER
APPROVAL OF AMENDMENTS TO ARTICLE 152 AND 154 OF THE ARTICLES OF ASSOCIATION
OF
HIMAX
Articles
152 and 154 of the Articles of Association of Himax Technologies, Inc. shall
be
amended in the following manner as marked:
|
152.
|
Subject
to Articles 153 and 154, a
printed copy of the Directors’ report, accompanied by the balance sheet
and profit and loss account, including every document required
by law to
be annexed thereto, made up to the end of the applicable financial
year
and containing a summary of the assets and liabilities of the Company
under convenient heads and a statement of income and expenditure,
together
with a copy of the Auditors’ report, shall be sent to each person entitled
thereto at least ten (10) days before the date of the general meeting
and
|
|
|
laid
before the Company at the annual general meeting held in accordance
with
Article 56 provided that this Article shall not require a copy
of those
documents to be sent to any person whose address the Company
is not aware
or to more than one of the joint holders of any shares or
debentures.
|
|
154.
|
The
requirement to send to a person referred to in Article 152 the
documents
referred to in that article or a summary financial report in accordance
with Article 153 shall be deemed satisfied where, in accordance
with all
applicable Statutes, rules and regulations, including, without
limitation,
the rules of the Designated Stock Exchange, the Company publishes
copies
of the documents referred to in Article 152 and, if applicable,
a summary
financial report complying with Article 153, on the Company’s computer
network or in any other permitted manner (including by sending
any form of
electronic communication)
|
The
affirmative vote of a majority of the votes cast at the AGM by the shareholders
entitled to vote thereon is required for the amendments to article 152 and
154
of the Articles of Association of Himax.
The
Board of Directors recommends a vote FOR this proposal.
OTHER
MATTERS
As
of the
date of this Proxy Statement, Himax does not intend to present and has not
been
informed that any other person intends to present any business not specified
in
this Proxy Statement for action at the meeting.
Shareholders
are urged to sign the enclosed proxy form and to return it
promptly. Proxies will be voted in accordance with shareholders’
directions. Signing the proxy form does not affect a shareholder’s right to vote
in person at the meeting, and the proxy may be revoked prior to its exercise
by
appropriate notice to the undersigned. If no directions are given, proxies
will
be voted for the (1) adoption of Himax’s 2006 Audited Accounts and Financial
Reports, (2) re-election of Mr. Yuan-Chuan Horng as a Director and (3) approval
of amendments to Article 152 and 154 of the Articles of Association of
Himax.
|
Himax
Technologies, Inc.
|
||
|
By:
|
/s/ Jordan Wu | |
|
Name:
|
Jordan
Wu
|
|
|
Title:
|
Director
|
|
2
EXHIBIT
99.3
LETTER
TO SHAREHOLDERS
Dear
Shareholders:
2006
was a
remarkable year for Himax as we completed our IPO at NASDAQ and our revenues
and
net income both came in at historical highs. Despite a challenging environment
faced by the TFT-LCD industry, Himax continues to successfully establish
a solid
position in the display driver business. Himax is significantly leveraged
to
unit growth projected for the flat panel display markets, driven by demand
for
products such as LCD TVs, LCD monitors, notebook computers and various small-and
medium-sized applications. We are well positioned to remain a leading
semiconductor solution provider for the flat panel display
industry.
Our
IPO at the end of March 2006 was in-line with our growth plan, as it not
only
strengthened our balance sheet but also served as a global branding event.
Himax
enjoys leading supplier position at several global flat panel makers and
continues to expand our customer base. We will continue to execute
our growth plan while working to increase shareholder value.
As
one of the top display driver suppliers in the TFT-LCD industry, Himax has
a
solid track record of share gains in the global large panel display drivers
segment. According to iSuppli, Himax ended 2006 with 18.9% share in large
panel
display driver revenue globally. While we have accomplished a great deal
in the
past, we believe that the greatest opportunities lie ahead of us.
We
also continue to strengthen our market position in the small- and medium-sized
display driver business as we benefit from the addition of new customers
and
increase in demand as more small- and medium-sized LCD panel applications
are
introduced. Further, we expect to benefit from local driver IC sourcing by
Taiwanese panel makers as smaller fabs were reallocated from the production
of
TV and PC-related panels to small- and medium-sized panels.
In
August we announced the acquisition of Wisepal Technologies. This transaction,
valued at $44 million, resulted in an immediate addition of approximately
6.2
million shares, representing approximately 3.1% of our enlarged share capital.
We are very pleased with the progress of integration of both companies so
far.
We believe the acquisition will greatly strengthen our position in the small-
and medium-sized applications.
Our
first share buyback program was announced to the market on November 2nd.
Since
then, approximately 10 million of the company’s American Depository Shares were
repurchased from the open market for a total of $50 million. The repurchased
ADSs and their underlying ordinary shares had been cancelled, thereby reducing
approximately 5% of Himax’s issued and outstanding shares.
Looking
ahead, we
expect a healthier TFT-LCD environment as our panel customers are looking
to
manage their capacity utilization and maintain inventories at a level where
they
support real demand. Also, with the adoption of high definition format for
LCD
TVs and the introduction of new panel products such as wide screen monitors
and
digital photo frames, new demand is created and we believe Himax will be
one of
the major beneficiaries of the TFT LCD up-cycle.
In
summary, the dedication of our employees and the strength of our technology
and
service have put Himax in a strong position. The industry continues to face
a
challenging period and we are doing our best to work through it. We see strong
revenue growth and stable margins supporting a positive trade as the industry
tightens. We thank you for your support, and we will continue to drive for
excellence and strive to achieve the growth you have come to
expect.
Sincerely,
Jordan
Wu
President
and
CEO
Himax
Technologies,
Inc.
1
ANNUAL
REPORT TO SHAREHOLDERS FOR THE YEAR 2006
|
Contents
|
|
|
Special
Note
Regarding Forward-Looking Statements
|
3
|
|
Selected
Financial Data
|
4
|
|
Information
on
the Company
|
6
|
|
Business
Overview
|
8
|
|
Critical
Accounting Policies and Estimates
|
24
|
|
Operating
Results
|
28
|
|
Directors,
Senior Management and Employees
|
36
|
|
Consolidated
Financial Statements
|
43
|
|
Corporate
Information
|
87
|
2
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
annual report
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. Although these forward-looking statements, which
may
include statements regarding our future results of operations, financial
condition, or business prospects, are based on our own information and
information from other sources we believe to be reliable, you should not
place
undue reliance on these forward-looking statements, which apply only as of
the
date of this annual report. The words “anticipate,” “believe,” “expect,”
“intend,” “plan,” “estimate” and similar expressions, as they relate to us, are
intended to identify a number of these forward-looking statements. Our actual
results of operations, financial condition or business prospects may differ
materially from those expressed or implied in these forward-looking statements
for a variety of reasons, including, among other things and not limited to,
our
anticipated growth strategies, our future business developments, results
of
operations and financial condition, our ability to develop new products,
the
expected growth of the display driver markets, the expected growth of end-use
applications that use flat panel displays, particularly TFT-LCD panels,
development of alternative flat panel display technologies, other
factors.
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.
3
SELECTED
FINANCIAL DATA
The
selected consolidated statement of income data and consolidated cash flow
data
for the years ended December 31, 2004, 2005 and 2006 and the selected
consolidated balance sheet data as of December 31, 2005 and 2006 are derived
from our consolidated financial statements included herein, which have been
audited by KPMG Certified Public Accountants, or KPMG, and were prepared
in
accordance with U.S. GAAP. The selected consolidated balance sheet data as
of
December 31, 2002, 2003 and 2004 and the selected consolidated statement
of
operations data and consolidated cash flow data for the years ended December
31,
2002 and 2003 have been derived from our consolidated financial statements
that
have not been included herein but have been audited by KPMG and were prepared
in
accordance with U.S. GAAP. Our consolidated financial statements include
the
accounts of Himax Technologies, Inc. and its subsidiaries as if we had been
in
existence for all years presented. As a result of our reorganization, 100%
of
our outstanding ordinary shares immediately prior to our initial public offering
were owned by former shareholders of Himax Taiwan. In presenting our
consolidated financial statements, the assets and liabilities, revenues and
expenses of Himax Taiwan and its subsidiaries are included in our consolidated
financial statements at their historical amounts for all periods presented.
Our
historical results do not necessarily indicate results expected for any future
periods. The selected financial and operating data set forth below should
be
read in conjunction with the consolidated financial statements and the notes
to
those statements included herein.
|
Year
Ended
December 31,
|
||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||
|
(in
thousands,
except per share data)
|
||||||||||||||||||||
|
Consolidated
Statements of Income Data:
|
||||||||||||||||||||
|
Revenues,
net
|
$ |
56,478
|
$ |
131,843
|
$ | 300,273 | $ |
540,204
|
$ |
744,518
|
||||||||||
|
Costs
and
expenses(1):
|
||||||||||||||||||||
|
Cost
of
revenues
|
45,313
|
100,102
|
235,973
|
419,380
|
601,565
|
|||||||||||||||
|
Research
and
development
|
7,800
|
21,077
|
24,021
|
41,278
|
60,655
|
|||||||||||||||
|
General
and
administrative
|
1,489
|
4,614
|
4,654
|
6,784
|
9,762
|
|||||||||||||||
|
Sales
and
marketing
|
884
|
2,669
|
2,742
|
4,762
|
6,970
|
|||||||||||||||
|
Operating
income
|
992
|
3,381
|
32,883
|
68,000
|
65,566
|
|||||||||||||||
|
Net
income
(loss)(2)
|
$ |
513
|
$ | (581 | ) | $ |
36,000
|
$ |
61,558
|
$ |
75,190
|
|||||||||
|
Earnings
(loss) per ordinary share(2) and per
|
||||||||||||||||||||
|
ADS(3):
|
||||||||||||||||||||
|
Basic
|
$ |
0.00
|
$ | (0.00 | ) | $ |
0.21
|
$ |
0.35
|
$ |
0.39
|
|||||||||
|
Diluted
|
$ |
0.00
|
$ | (0.00 | ) | $ |
0.21
|
$ |
0.34
|
$ |
0.39
|
|||||||||
|
Weighted-average
number of shares used in
|
||||||||||||||||||||
|
earnings
per
share computation:
|
||||||||||||||||||||
|
Basic
|
103,276
|
116,617
|
169,320
|
176,105
|
192,475
|
|||||||||||||||
|
Diluted
|
104,739
|
116,617
|
173,298
|
180,659
|
195,090
|
|||||||||||||||
|
Cash
dividends
declared per ordinary
|
||||||||||||||||||||
|
share(4)
|
$ |
0.00
|
$ |
0.00
|
$ |
0.00
|
$ |
0.08
|
$ |
0.00
|
||||||||||
Note:
(1) The amount of share-based compensation included in applicable costs and
expenses categories is summarized as follows:
4
|
Year
Ended
December 31,
|
||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Cost
of
revenues
|
$ |
172
|
$ |
827
|
$ |
291
|
$ |
188
|
$ |
275
|
||||||||||
|
Research
and
development
|
3,057
|
11,666
|
4,288
|
6,336
|
11,806
|
|||||||||||||||
|
General
and
administrative
|
353
|
2,124
|
721
|
848
|
1,444
|
|||||||||||||||
|
Sales
and
marketing
|
348
|
1,349
|
537
|
1,241
|
1,625
|
|||||||||||||||
|
Total
|
$ |
3,930
|
$ |
15,966
|
$ |
5,837
|
$ |
8,613
|
$ |
15,150
|
||||||||||
|
(2)
|
Under
the ROC
Statute for Upgrading Industries, we are exempt from income taxes
for
income attributable to expanded production capacity or newly developed
technologies. If we had not been exempt from paying this income
tax, net
income and basic and diluted earnings per share would have been
$29.7
million, $0.18 and $0.17, respectively, for the year ended December
31,
2004, $52.4 million, $0.30 and $0.29, respectively, for the year
ended
December 31, 2005 and $59.2 million, $0.31 and $0.30, respectively,
for
the year ended December 31, 2006. A portion of this tax exemption
expires
on March 31, 2009 and the remainder on December 31,
2010.
|
|
(3)
|
Each
ADS
represents one ordinary share.
|
|
(4)
|
In
November 2005, we distributed a special cash dividend of approximately
$0.08 per share in respect of our performance prior to our initial
public
offering. This special cash dividend should not be considered
representative of the dividends that would be paid in any future
periods
or our dividend policy.
|
The
following table presents our selected consolidated balance sheet data as
of
December 31, 2002, 2003, 2004, 2005 and 2006 and selected consolidated cash
flow
data for the years ended December 31, 2002, 2003, 2004, 2005 and
2006:
|
As
of December
31,
|
||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Consolidated
Balance Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash
equivalents(1)
|
$ |
2,697
|
$ |
2,529
|
$ |
5,577
|
$ |
7,086
|
$ |
109,753
|
||||||||||
|
Accounts
receivable, net
|
1,637
|
12,543
|
27,016
|
80,259
|
112,767
|
|||||||||||||||
|
Accounts
receivable from related parties, net
|
4,786
|
22,893
|
39,129
|
69,587
|
116,850
|
|||||||||||||||
|
Inventories
|
12,056
|
21,088
|
54,092
|
105,004
|
101,341
|
|||||||||||||||
|
Total
current
assets
|
26,885
|
88,245
|
144,414
|
300,056
|
466,715
|
|||||||||||||||
|
Total
assets
|
29,423
|
96,159
|
157,770
|
327,239
|
518,794
|
|||||||||||||||
|
Accounts
payable
|
5,803
|
22,901
|
38,649
|
105,801
|
120,407
|
|||||||||||||||
|
Total
current
liabilities
|
11,750
|
43,613
|
52,157
|
160,784
|
153,279
|
|||||||||||||||
|
Total
liabilities
|
11,975
|
43,870
|
52,246
|
160,784
|
153,471
|
|||||||||||||||
|
Ordinary
Shares
|
11
|
17
|
18
|
18
|
19
|
|||||||||||||||
|
Total
stockholders’ equity (5)
|
17,448
|
52,289
|
104,860
|
165,831
|
363,927
|
|||||||||||||||
|
Consolidated
Cash Flow Data:
|
||||||||||||||||||||
|
Net
cash
provided by (used in) operating activities
|
(3,884 | ) | (1,593 | ) | (8,688 | ) |
12,464
|
29,696
|
||||||||||||
|
Net
cash
provided by (used in) investing activities
|
(7,130 | ) | (28,915 | ) |
11,001
|
(25,363 | ) | (8,927 | ) | |||||||||||
|
Net
cash
provided by financing activities
|
11,644
|
30,341
|
735
|
14,404
|
81,886
|
|||||||||||||||
|
Effect
of
exchange rate changes on cash and
|
||||||||||||||||||||
|
cash
equivalents
|
–
|
–
|
–
|
4
|
12
|
|||||||||||||||
|
Net
increase
(decrease) in cash and
|
||||||||||||||||||||
|
cash
equivalents
|
630
|
(167 | ) |
3,048
|
1,509
|
102,667
|
||||||||||||||
Note:
(1) Cash and cash equivalents at December 31, 2006 increased significantly
as
compared to December 31, 2005. This increase was primarily due to net proceeds
of $147.4 million received from our initial public offering in April 2006
which
also caused the increase in our stockholders equity by the same
amount.
5
INFORMATION
ON THE COMPANY
History
and
Development of the Company
Himax
Taiwan, our
predecessor, was incorporated on June 12, 2001 as a limited liability company
under the laws of the ROC. On April 26, 2005, we established Himax Technologies
Limited, an exempted company with limited liability under the Companies Law
Cap.
22 of the Cayman Islands, or the Companies Law, as a holding company to hold
the
shares of Himax Taiwan in connection with our reorganization and share exchange.
On October 14, 2005, Himax Taiwan became our wholly owned subsidiary through
a
share exchange consummated pursuant to the ROC Business Mergers and Acquisitions
Law through which we acquired all of the issued and outstanding shares of
Himax
Taiwan, and we issued ordinary shares to the shareholders of Himax Taiwan.
Shareholders of Himax Taiwan received one of our ordinary shares in exchange
for
one Himax Taiwan common share. The share exchange was unanimously approved
by
shareholders of Himax Taiwan on June 10, 2005 with no dissenting shareholders
and by the ROC Investment Commission on August 30, 2005 for our inbound
investment in Taiwan, and on September 7, 2005 for our outbound investment
outside of Taiwan. Acquisition of our ordinary shares by non-ROC shareholders
of
Himax Taiwan is not subject to the approval of the ROC Investment Commission.
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.
Pursuant
to the
approval letters from the ROC Investment Commission, we and Himax Taiwan
have to
comply with certain documentation requirements in order to evidence the
satisfaction of our undertakings. On November 24, 2005, Himax Taiwan submitted
to the ROC Investment Commission (1) the status report confirming the completion
of the share exchange, (2) the shareholders' notice setting the record date
of
the share exchange and (3) the shareholders register maintained by our
registrar. In addition, on December 5, 2005, Himax Taiwan submitted to the
ROC
Investment Commission its latest corporate registration card issued by the
ROC
Ministry of Economic Affairs. We have also submitted Himax Taiwan’s
2005 and 2006 audited financials as support for our satisfaction of the various
undertakings and expect to submit Himax Taiwan’s 2007 audited financials in
2008. We do not anticipate any difficulties in providing the required
documentation to the ROC Investment Commission and expect that any further
required documents (if any) will be submitted on a timely basis in satisfaction
of our obligations under the relevant approval letter.
The
common shares of Himax Taiwan were traded on the Emerging Stock Board from
December 26, 2003 to August 10, 2005, under the stock code “3222.” Himax
Taiwan’s common shares were delisted from the Emerging Stock Board on August 11,
2005. As a result of our reorganization, Himax Taiwan is no longer a Taiwan
public company, and its common shares are no longer listed or traded on any
trading markets.
On
September 26, 2005, we changed our name to “Himax Technologies, Inc.,” and on
October 17, 2005 Himax Taiwan changed its name to “Himax Technologies Limited”
upon the approval of shareholders of both companies and amendments to the
respective constitutive documents. We effected the name exchange in order
to
maintain continuity of operations and marketing under the trade name “Himax
Technologies, Inc.,” which had been previously used by Himax
Taiwan.
6
On
Feb 1, 2007, we acquired Wisepal Technologies, Inc. (“Wisepal”) and we believe
this acquisition will strengethen our small- and medium-sized product
offerings.
Our
principal executive offices are located at No. 26, Zih Lian Road, Fonghua
Village, Sinshih Township, Tainan County 74445, Taiwan, Republic of China.
Our
telephone number at this address is +886 (6) 505-0880. Our registered office
in
the Cayman Islands is located at Century Yard, Cricket Square, Hutchins Drive,
P.O. Box 2681 GT, Georgetown, Grand Cayman, Cayman Islands. Our telephone
number
at this address is +(1-345) 949-1040. In addition, we have regional offices
in
Hsinchu and Taipei, Taiwan; Suzhou and Shenzhen, China; Yokohama, Japan;
Anyangsi Kyungkido, South Korea; and Irvine, California, USA.
Investor
inquiries
should be directed to us at the address and telephone number of our principal
executive offices set forth above. 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.
We
closed our initial public offering on April 4, 2006 and our ADSs have been
listed on the Nasdaq Global Market since March
31, 2006. Our
ordinary shares are not listed or publicly traded on any trading
markets.
7
BUSINESS
OVERVIEW
We
design, develop and market semiconductors that are critical components of
flat
panel displays. Our principal products are display drivers for large-sized
TFT-LCD panels, which are used in desktop monitors, notebook computers and
televisions, and display drivers for small- and medium-sized TFT-LCD panels,
which are used in mobile handsets and consumer electronics products such
as
digital cameras, mobile gaming devices and car navigation displays. We also
offer display drivers for panels using OLED technology and LTPS technology.
In
addition, we are expanding our product offering to include television
semiconductor solutions, as well as LCOS products. Our customers are panel
and
television makers. We believe that our leading design and engineering expertise,
combined with our focus on customer service and close relationships with
semiconductor manufacturing service providers, has contributed to our
success.
Industry
Background
We
operate in the flat panel display semiconductor industry. As our semiconductors
are critical components of flat panel displays, our industry is closely linked
to the trends and developments of the flat panel display industry.
Flat
Panel
Display Semiconductors
Flat
panel displays
require different semiconductors depending upon the display technologies
and the
application.
Some of
the most important ones include the following:
|
•
|
Display
Driver. The display driver receives image data from the timing
controller and delivers precise analog voltages or currents to
create
images on the display. The two main types of display drivers for
a TFT-LCD
panel are gate drivers and source drivers. Gate drivers turn on
the
transistor within each pixel cell on the horizontal line on the
panel for
data input at each row. Source drivers receive image data from
the timing
controller and generate voltage that is applied to the liquid crystal
within each pixel cell on the vertical line on the panel for data
input at
each column. The combination determines the colors generated by
each
pixel. Typically multiple gate drivers and source drivers are installed
separately on the panel. However, for certain small- and medium-sized
applications, gate drivers and source drivers are integrated into
a single
chip due to space and cost considerations. Large-sized
panels typically have higher resolution and require more display
drivers
than small- and medium-sized
panels.
|
|
•
|
Timing
Controller. The timing controller receives image data and converts
the format for the source drivers’ input. The timing controller also
generates controlling signals for gate and source drivers. Typically
the
timing controller is a discrete semiconductor in large-sized TFT-LCD
panels. For certain small- and medium-sized applications, however,
the
timing controller may be integrated with display
drivers.
|
|
|
|
•
|
Scaler.
For certain displays, a scaler is installed to magnify or
shrink
image data in order for the image to fill the
panel.
|
|
•
|
Operational
Amplifier. An operational amplifier supplies the reference voltage to
source drivers in order to make their output voltage
uniform.
|
|
•
|
Television
Chipset. Television flat panel displays require chipsets that
typically contain all or some of the following components: an audio
processor, analog interfaces, digital interfaces, a video processor,
a
channel receiver and a digital television decoder. See
“-Products-Television
|
8
|
Semiconductor
Solutions-Television Chipsets” for a description of these
components.
|
|
•
|
Others.
Flat panel displays also require multiple general purpose
semiconductors such as memory, power converters and
inverters.
|
Characteristics
of the Display Driver Market
Although
we operate
in several distinct segments of the flat panel display semiconductor industry,
our principal products are display drivers. Display drivers are critical
components of flat panel displays. As a result, we believe that the projected
growth in the demand for flat panel displays will result in the growth in
demand
for display drivers. The display driver market has specific characteristics,
including those discussed below.
Concentration
of
Panel Manufacturers
The
global TFT-LCD panel industry consists of a small number of manufacturers,
substantially all of which are based in Asia. In recent years, TFT-LCD panel
manufacturers, in particular Taiwan- and Korea-based manufacturers, have
invested heavily to establish, construct and ramp up additional fab capacity.
The capital intensive nature of the industry often results in TFT-LCD panel
manufacturers operating at a high level of capacity utilization in order
to
reduce unit costs. This tends to create a temporary oversupply of panels,
which
reduces the average selling price of panels and puts pricing pressure on
display
driver companies. Moreover, the concentration of panel manufacturers permits
major panel manufacturers to exert pricing pressure on display driver companies
such as us. The small number of panel manufacturers intensifies this as display
driver companies, in addition to seeking to expand their customer base, must
also focus on winning a larger percentage of such customers’ display driver
requirements.
Customization
Requirements
Each
panel display
has a unique pixel design to meet its particular requirements. To optimize
the
panel's performance, display drivers have to be customized for each panel
design. The most common customization requirement is for the display driver
company to optimize the gamma curve of each display driver for each panel
design. Display driver companies must work closely with their customers to
develop semiconductors that meet their customers’ specific needs in order to
optimize the performance of their products.
Mixed-Signal
Design and High-Voltage CMOS Process Technology
Display
drivers have
specific design and manufacturing requirements that are not standard in the
semiconductor industry. Some display drivers require mixed-signal design
since
they combine both analog and digital devices on a single semiconductor to
process both analog signals and digital data. Manufacturing display drivers
typically requires high-voltage complementary metal oxide semiconductor,
or
CMOS, process technology operating at 10 to 18 volts for source drivers and
10
to 45 volts for gate drivers, levels of voltage which are not standard in
the
semiconductor industry. For display drivers, the driving voltage must be
maintained under a very high degree of uniformity, which can be difficult
to
achieve using standard CMOS process technology. However, manufacturing display
drivers does not require very small-geometry semiconductor processes. Typically,
the manufacturing process for large panel display drivers requires geometries
between 0.13 micron and 1 micron because the physical dimensions of a
high-voltage device do not allow for the economical reduction in geometries
below this range. We believe that there are a limited number of fabs with
high-voltage CMOS process technology that are capable of high-volume
manufacturing of display drivers.
Special
Assembly
and Testing Requirements
Manufacturing
display drivers requires certain assembly and testing technologies and equipment
that are not standard for other semiconductors and are offered by a limited
number of providers. The assembly of display drivers typically uses either
tape
automated bonding, also known as TAB, or chip-on-glass, also known as COG,
technologies. Display drivers also require gold bumping, which is a process
in
which gold bumps are plated onto each wafer to connect the die and the processed
tape, in the case of TAB packages, and the glass, in the case of COG packages.
TAB may utilize
9
tape
carrier
package, also known as TCP, or chip on film, also known as COF. The type
of
assembly used depends on the panel manufacturer's design which is influenced
by
panel size and application and is typically determined by the panel
manufacturers. Display drivers for large-sized applications typically require
TAB package types and, to a lesser extent COG package types, whereas display
drivers for mobile handsets and consumer electronics products typically require
COG packages. The testing of display drivers also requires special testers
that
can support high-channel and high-voltage output semiconductors. Such testers
are not standard in the semiconductor industry.
Supply
Chain
Management
The
manufacturing of display drivers is a complex process and requires several
manufacturing stages such as wafer fabrication, gold bumping and assembly
and
testing, and the availability of materials such as the processed tape used
in
TAB packaging. We refer to these manufacturing stages and material requirements
collectively as the “supply chain.” Panel manufacturers typically operate at
high levels of capacity utilization and require a reliable supply of display
drivers. A shortage of display drivers, or a disruption to this supply, may
disrupt panel manufacturers’ operations since replacement supplies may not be
available on a timely basis or at all, given the customization of display
drivers. As a result, a display driver company’s ability to deliver its products
on a timely basis at the quality and quantity required is critical to satisfying
its existing customers and winning new ones. Such supply chain management
is
particularly crucial to fabless display driver companies that do not have
their
own in-house manufacturing capacity. In the case of display drivers, supply
chain management is further complicated by the high-voltage CMOS process
technology and the special assembly and testing requirements that are not
standard in the semiconductor industry. Access to this capacity also depends
in
part on display driver companies having received assurances of demand for
their
products since semiconductor manufacturing service providers require credible
demand forecasts before allocating capacity among customers and investing
to
expand their capacity to support growth.
Need
for Higher
Level of Integration
The
small form factor of mobile handsets and certain consumer electronics products
restricts the space for components. Small- and medium-sized panel applications
typically require one or more source drivers, one or more gate drivers and
one
timing controller, which can be installed as separate semiconductors or as
an
integrated single-chip driver. Customers are increasingly demanding higher
levels of integration in order to manufacture more compact panels, simplify
the
module assembly process and reduce unit costs. Display driver companies must
be
able to offer highly integrated chips that combine the source driver, gate
driver and timing controller, as well as semiconductors such as memory, power
circuit and image processors, into a single chip. Due to the size restrictions
and stringent power consumption constraints of such display drivers, single-chip
drivers are complex to design. For large-sized panel applications, integration
is both more difficult to achieve and less important since size and weight
are
less of a priority.
Products
We
have three principal product lines:
|
•
|
display
drivers and timing controllers;
|
|
•
|
television
semiconductor solutions; and
|
|
•
|
LCOS
products.
|
We
commenced volume shipments of our first source and gate driver for large-sized
panels in July 2001 and have developed a broad product portfolio of display
drivers and timing controllers for use in large-sized TFT-LCD panels. We
commenced volume shipments of our first display drivers for use in
consumer
10
electronics
applications in April 2002, volume shipments of two-chip display drivers
for
mobile handsets in August 2003 and volume shipments of single-chip display
drivers for mobile handsets in August 2004. In September 2004, we commenced
volume shipments of our first television semiconductor solutions. We commenced
shipping engineering samples of LCOS products in December 2003 and started
volume shipment in June 2006.
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. For example, an XGA (1,024 x 768 pixels) panel requires
eight
384 channel source drivers (1,024 x 3 = 384 x 8) and three 256
channel
gate drivers (768 = 256 x 3), while a SXGA (1,280 x 1,024 pixels)
panel
requires ten 384 channel source drivers and four 256 channel gate
drivers.
The
number of display drivers required can be reduced by using drivers
with a
higher number of channels. For example, a SXGA panel can have eight
480
channel source drivers or four 960 channel source drivers instead
of ten
384 channel source drivers. Thus, using display drivers with a
higher
number of channels can reduce the number of display drivers required
for
each panel, although display drivers with a higher number of channels
typically have higher unit
costs.
|
|
•
|
Color
Depth. Color depth is the number of colors that can be displayed
on a
screen, which is determined by the number of shades of a color,
also known
as grayscale, that can be shown by the panel. For example, a 6-bit
source
driver is capable of generating 26 x
26 x
26 =
218,
or 262K
colors, and similarly, an 8-bit source driver is capable of generating
16
million colors. Typically, for TFT-LCD panels currently in commercial
production, 262K and 16 million colors are supported by 6-bit and
8-bit
source drivers, respectively.
|
|
•
|
Operational
Voltage. A display driver operates with two voltages: the input
voltage (which enables it to receive signals from the timing controller)
and the output voltage (which, in the case of source drivers, is
applied
to liquid crystals and, in the case of gate drivers, is used to
switch on
the TFT device). Source drivers typically operate at input voltages
from
3.3 to 1.5 volts and output voltages between 10 to 18 volts. Gate
drivers
typically operate at input voltages from 3.3 to 1.5 volts and output
voltages from 10 to 45 volts. Lower input voltage saves power and
lowers
electromagnetic interference, or EMI. Output voltage may be higher
or
lower depending on the characteristics of the liquid crystal (or
diode),
in the case of source drivers, or TFT device, in the case of gate
drivers.
|
|
•
|
Gamma
Curve. The relationship between the light passing through a pixel
and
the voltage applied to it by the source driver is nonlinear and
is
referred to as the “gamma curve” of the source driver. Different panel
designs and manufacturing processes require source drivers with
different
gamma curves. Display drivers need to adjust the gamma curve to
fit the
pixel design. Due to the materials and processes used in manufacturing,
panels may contain certain imperfections which can be corrected
by the
gamma curve of the source driver, a process which is generally
known as
“gamma correction.” For certain types of liquid crystal, the gamma curves
for RGB cells are significantly different and thus need to be
independently corrected. Some advanced display drivers feature
three
independent gamma curves for RGB
cells.
|
|
•
|
Driver
Interface. Driver interface refers to the connection between the
timing controller and display drivers. Display drivers increasingly
require higher bandwidth interface technology to address the larger
data
volume necessary for video images. Panels used for higher data
transmission applications such as televisions require more advanced
interface technology. The principal types of interface technologies
are
transistor-to-transistor logic, or TTL,
reduced
|
11
|
swing
differential signaling, or RSDS, and mini low voltage differential
signaling, or mini-LVDS. Among these, RSDS and mini-LVDS were developed
as
low power, low noise and low amplitude method for high-speed data
transmission using fewer copper wires and resulting in lower EMI.
In 2005,
we introduced two new display driver interfaces: dual edge TTL,
or DETTL,
and turbo RSDS. DETTL enables the interface to function with lower
power
(below 1.8V), thus reducing power consumption. Turbo RSDS is an
upgraded
version of RSDS which increases the interface frequency from 85MHz
to
135MHz, thus reducing the bus width and panel
costs.
|
|
•
|
Package
Type. The assembly of display drivers typically uses TAB and COG
package types. COF and TCP are two types of TAB packages. Customers
typically determine the package type required according to their
specific
mechanical and electrical considerations. In general, display drivers
for
small-sized panels use COG package type whereas display drivers
for
large-sized panels primarily use TAB package types and to a lesser
extent
COG package types.
|
Large-Sized
Applications
We
provide source drivers, gate drivers and timing controllers for large-sized
panels principally used in desktop monitors, notebook computers and televisions.
Display drivers used in large-sized applications feature different key
characteristics, depending on the end-use application. For display drivers
for
use in notebook computers, low power consumption is a key feature due to
the
portability of notebook computers and the need for long battery life. For
display drivers used in desktop monitors, low cost is more desirable than
low
power consumption. For advanced televisions, display drivers must meet the
requirements of larger panels, such as higher data transmission rates, wider
viewing angles, faster response time, higher color depth and better image
performance.
The
table below sets forth the features of our products for large-sized
applications:
|
Product
|
Features
|
|
TFT-LCD
Source
Drivers
|
• 384
to 960
output channels
• 6-bit
(262K
colors), 8-bit (16 million colors) or 10-bit (1 billion
colors)
• one
gamma-type
driver
• three
gamma-type drivers (RGB independent gamma curve to enhance color
image)
• output
driver
voltage ranging from 4.5V to 18V
• input
logic
voltage ranging from standard 3.3V to low power 1.5V
• low
power
consumption and low EMI
• supports
TCP,
COF and COG package types
• supports
TTL,
RSDS, mini-LVDS, DETTL, turbo RSDS and customized interface
technologies
|
|
TFT-LCD
Gate
Drivers
|
• 192
to 400
output channels
• output
driving
voltage ranging from 10 to 45V
• input
logic
voltage ranging from standard 3.3V to low power 1.5V
• low
power
consumption
• supports
TCP,
COF and COG package types
|
|
Timing
Controllers
|
• product
portfolio supports a wide range of resolutions, from VGA (640 x
480
pixels) to Full HD (1,920 x 1,080 pixels)
• supports
TTL,
RSDS, mini-LVDS, DETTL, turbo RSDS and customized output interface
technologies
• input
logic
voltage ranging from standard 3.3V to low power 1.5V
• embedded
overdrive function for television applications to improve response
time
• supports
TTL,
LVDS and mini-LVDS input interface technologies
|
12
The
industry trend for large-sized applications is towards low power consumption
notebook computer display drivers, low cost desktop monitor display drivers
and
display drivers that can support higher speed interface technologies, have
greater color depth and enhanced color through RGB independent gamma for
use in
advanced televisions.
Mobile
Handset
Applications
We
offer display drivers for mobile handset displays that combine source driver,
gate driver and other functions into a single chip. As mobile handsets become
smaller and more compact, customers are increasingly demanding smaller die
sizes
and higher levels of integration with source driver, gate driver, timing
controller, as well as more functional semiconductors such as memory, power
circuit and image processors, integrated into a single chip. Moreover, mobile
handsets must operate for long durations without recharging the battery.
Thus,
display drivers with lower power consumption are desired in order to extend
the
battery life. Low cost is also an important feature as mobile handset
manufacturers continue to reduce cost and customers increasingly seek out
cost-effective display drivers.
The
following table summarizes the features of our products for mobile
handsets:
|
Product
|
Features
|
|
TFT-LCD
Drivers
|
• highly
integrated single chip embedded with the source driver, gate driver,
power
circuit, timing controller and memory
• product
portfolio suitable for a wide range of resolutions including QQVGA
(128 x
160 pixels), QCIF (132 x 176 pixels), QCIF+ (176 x 220 pixels),
QVGA (240
x 320 pixels), WQVGA (240 x 480 pixels) and a range of panel sizes
from
1.5 to 3.2 inches in diagonal measurement
• supports
262K
colors to 16 million colors
• input
logic
voltage ranging from standard 3.3V to low power 1.65V
• low
power
consumption and low EMI
• utilizes
die
shrink technology to reduce die size and cost
• slimmer
die
for compact module to fit smaller mobile handset designs
• application
specific integrated circuits, or ASIC, can be designed to meet
customized
requirements (e.g. drivers without memory or drivers without gate
driver
embedded on the chip)
|
|
LTPS
Drivers
|
• highly
integrated single chip embedded with the source driver, power circuit,
timing controller and memory
• supports
262K
colors to 16 million colors
• input
logic
voltage ranging from standard 3.3V to low power 1.65V
• utilizes
die
shrink technology to reduce die size and cost
• slimmer
die
for compact module
• ASIC
can be
designed to meet customized requirements (e.g. gate-less or multi-bank
output driver)
|
The
industry trend for mobile handset display drivers is towards display drivers
that can support high-speed interfaces, have
greater color
depth and enhanced image quality as mobile handsets increasingly incorporate
multimedia functions.
Consumer
Electronics Products
We
offer source drivers, gate drivers, timing controllers and integrated drivers
for consumer electronics products like digital cameras, digital video recorders,
personal digital assistants, mobile gaming devices, portable DVD players
and car
navigation displays. We offer an extensive line of display drivers covering
different applications, interfaces and channel output and levels of integration.
Similar to mobile handsets, consumer electronics products are typically compact,
battery-operated devices. Customers are increasingly demanding display drivers
with smaller and more compact die sizes and higher levels of integration
with
source driver, gate driver, timing controller, as well as more
13
functional
semiconductors such as memory, power circuit and image processors, integrated
into a single chip. Moreover, display drivers with lower power consumption
are
desired in order to extend the battery life.
The
following table summarizes the features of our products used in consumer
electronics products:
|
Product
|
Features
|
|
TFT-LCD
Source
Drivers
|
• 240
to 1200
output channels
• products
for
analog and digital interfaces
• supports
262K
colors to 16 million colors
• input
logic
voltage ranging from standard 3.3V to low power 2.5V
• low
power
consumption and low EMI
|
|
TFT-LCD
Gate
Drivers
|
• 96
to 800
output channels
• input
logic
voltage ranging from standard 3.3V to low power 2.5V
• output
driving
voltage ranging from 10 to 40V
|
|
TFT-LCD
Integrated Drivers
|
• highly
integrated single chip embedded with source driver, gate driver,
timing
controller and power circuit
• products
for
analog or digital interfaces
|
|
Timing
Controllers
|
• products
for
analog or digital interfaces
• supports
various resolutions from 280 x 220 pixels to 800 x 600 pixels
|
The
industry trend for display drivers used in medium-sized consumer electronics
products is towards higher channels and for the timing controller to be
integrated into the video processor. The trend of display drivers used in
small-sized consumer electronics products is towards single-chip solutions
combining source driver, gate driver, timing controller and power circuit
into a
single chip.
Television
Semiconductor Solutions
We
provide television semiconductor solutions specifically designed to meet
the
requirements of advanced television
systems.
Set
forth below are the various semiconductor components that may be utilized
in
advanced televisions:
14
Television
Chipsets
Television
chipsets
contain numerous components that process video and audio signals and thus
enhance the image
and
audio qualities of televisions. Advanced televisions typically require some
or
all of these components:
|
•
|
Audio
Processor/Amplifier. Demodulates, processes and amplifies sound from
television signals.
|
|
•
|
Analog
Interfaces. Convert analog video signals into digital video signals.
Video decoder and analog-to-digital converter (ADC) are
included.
|
|
•
|
Digital
Interfaces. Receive digital signals via digital receivers. Digital
visual interfaces (DVI) and high-definition multimedia interfaces
(HDMI)
are included.
|
|
•
|
Channel
Receiver. Demodulates input signals so that the output becomes
compressed bit stream data.
|
|
•
|
DTV
Decoder. Converts video and audio signals from compressed bit stream
data into regular video and audio
signals.
|
|
•
|
Video
Processor. Performs the scaling function that magnifies or shrinks
the image data in order to fit the panel's resolution; provides
real-time
processing for improved color and image quality; converts output
video
from an interlaced format to a progressive format in order to eliminate
jaggedness; and supports on-screen display and real-time video
format
transformation.
|
We
are developing all of the above components and have shipped our analog TV
single-chip solutions in volume. Our analog TV single-chip solutions are
designed for use in advanced televisions as well as LCOS applications and
our
product portfolio includes high-performance chips which target high-end segments
as well as cost-effective chips which target entry-level segments.
The
following table summarizes the features of our analog TV single-chip
solutions:
|
Product
|
Features
|
|
Analog
TV
single-chip solutions
|
• ideal
for LCD
TV, MFM TV and LCOS applications
• integrated
with video decoder and 3D comb filter to support worldwide NTSC,
PAL and
SECAM standards
• integrated
with VBI Slicer for CC, V-Chip and Teletext functions
• integrated
with TCON and Over-Drive for additional cost-down
• integrated
with high performance scaler, de-interlancer, and ADC
• built-in
HDMI
and DVI Receiver
• built-in
Himax
3rd generation video engine which supports variable dynamic video
enhancement features
• output
resolutions range from 640 x 480 up to 1920 x 1080
|
Television
Tuner
Modules
We
offer a variety of digital and analog television tuner modules. We are highly
skilled in designing compact, high-performance tuner modules that integrate
semiconductors and other components on the system board. The semiconductors
and
components are purchased from third-party suppliers and are assembled by
third-party electronics manufacturing service providers. We design our
television tuner modules in an advanced, coil-free architecture to provide
slim
and small tuners.
Our
tuners are suitable for most of the world’s signal transmission standards,
including: Digital Video Broadcast-Terrestrial, also known as DVB-T, the
digital
television standard (depending on the bandwidth) in Taiwan, Australia and
Europe; Advanced Television System Committee, or ATSC, the digital television
standard in the United States and Canada; National Television System Committee,
or NTSC, the analog television standard in the United States, Canada, Japan,
the
Philippines, Taiwan and South Korea; Phase Alternating Line, or PAL, the
analog
television standard in Western Europe, Australia, Hong Kong and China; and
Systeme Electronique Couleur Avec Memoire, or SECAM, the analog television
standard in France, Russia and Eastern Europe.
15
The
following table sets forth the features of our television tuner
modules:
|
Product
|
Features
|
|
|
Digital
Television Tuner Modules
|
· DVB-T
tuners
for 6MHz bandwidth (for use in Taiwan), 7MHz bandwidth (for use
in
Australia) and 8MHz bandwidth (for use in Europe)
|
|
|
· ATSC
RF tuners
with NTSC function
|
||
|
· lower
power RF
tuners
|
||
|
Analog
Television Tuner Modules
|
· global
tuner
combining NTSC, PAL and SECAM television standards and FM radio
tuner
|
|
|
· low
power
off-air tuner combining NTSC and PAL television standards and
FM radio
tuner
|
||
|
· mobile
analog
tuner combining NTSC television standards and FM radio
tuner
|
||
|
· slim
design to
save space
|
LCOS
Products
LCOS
technology is
beginning to migrate into the mass-production stage for some commercial
applications and is expected to be utilized in near-to-eye applications,
rear
projection televisions and mini-projectors. We design our LCOS products at
our
subsidiary, Himax Display, which owns and operates a fab for the manufacture
of
such products.
The
following table sets forth the features of our LCOS products:
|
Product
|
Features
|
|
|
LCOS
Modules
for Near-to-eye, Mini- and and Mobile-projector
Applications
|
· 640
x 360
pixels (Q720P), VGA and SVGA resolutions
|
|
|
· 8-bit
(16
million colors)
|
||
|
· high
reflectivity and greater than 100:1 contrast ratio
|
||
|
· low
power
consumption
|
||
|
LCOS
Modules
for Projection Applications
|
· WXGA
and Full
HD resolutions
|
|
|
· 8-bit
(16
million colors)
|
||
|
· high
reflectivity and greater than 1,000:1 contrast
ratio
|
Other
Products and Services
We
established Himax
Analogic Inc., or Himax Analogic, (formerly Amazion Electronics Inc.) in
July
2004 to design, develop and market semiconductors for power management
applications. To date, Himax Analogic has generated $2,475 in revenues from
such
products. We also offer liquid crystal injection services through our subsidiary
Himax Display. In 2006, Himax Display generated $4.2 million in revenues
from
such services.
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.
16
High-Voltage
CMOS Circuit Design. Unlike most other semiconductors, TFT-LCD
display drivers typically require a high output voltage of 10 to 45 volts.
We
have developed circuit design technologies using a high-voltage CMOS process
that enables us to produce high-yield, reliable and compact drivers for
high-volume applications. Moreover, our technologies enable us to keep the
driving voltage at very high uniformity, which can be difficult to achieve
when
using standard CMOS process technology.
High-Bandwidth
Interfaces. In addition to high-voltage circuit design, TFT-LCD
display drivers require high bandwidth transmission for video signals. We
have
applied several high-speed interfaces, including TTL, RSDS, mini-LVDS, DETTL,
turbo RSDS and customized interfaces, in our display drivers. Moreover, we
are
developing additional driver interfaces for special applications with optimized
speed, lower EMI and higher system stability.
Die
Shrink and Low-Power Technologies. Our engineers are highly
skilled in employing their knowledge of driving technology and high-voltage
CMOS
circuit design to shrink the die size of our display drivers while leveraging
their understanding of driving technology and panel characteristics to design
display drivers with low power consumption. Die size is an important
consideration for applications with size constraints. Smaller die size also
reduces the cost of the chip. Lower power consumption is important for many
portable devices such as notebook computers, mobile handsets and consumer
electronics products.
Customers
Our
direct 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.
As of
December 31, 2006, we sold our products to more than 50 customers. In 2004,
2005
and 2006, CMO and its affiliates accounted for 63.2%, 58.9%, and 55.0% of
our
revenues, respectively, while CPT and its affiliates accounted for 19.5%,
16.2%,
and 12.4% of our revenues, respectively, in the same periods. We expect that
sales to CMO and CPT and their affiliates will continue to account for a
substantial majority of our revenues in the near term.
Set
forth below (in alphabetical order) are our ten largest customers (and their
affiliates) based on revenues for the year ended December 31, 2006:
|
·
|
Chi
Mei Optoelectronics Corp.
|
|
·
|
Chunghwa
Picture
Tubes
|
|
·
|
Funai
Electric
Co., Ltd.
|
|
·
|
HannStar
Display
Corporation
|
|
·
|
InnoLux
Display
Corporation
|
|
·
|
Optrex
Corporation
|
|
·
|
Perfect
Display
Limited
|
|
·
|
Samsung
Electronics Taiwan Co.,
Ltd.
|
|
·
|
Shanghai
SVA-NEC Liquid Crystal
Display
|
|
·
|
TPO
Displays
Corporation
|
Our
customers typically provide us with a long-term (12 month) forecast plus
three-month rolling non-binding forecasts and confirm orders with us one
month
ahead of scheduled delivery. In general, purchase orders are not cancellable
by
either party, although from time to time we and our customers have agreed
to
amend the terms of such orders.
Sales
and
Marketing
We
focus our sales and marketing strategy on establishing business and technology
relationships principally with TFT-LCD panel manufacturers and increasingly
also
with panel manufacturers using LTPS or OLED technologies and also with mobile
display module and mobile handset manufacturers in order to work closely
with
them on future semiconductor
17
solutions
that align
with their product roadmaps. Our engineers collaborate with our customers’
engineers to create products that comply with their specifications and provide
a
high level of performance at competitive prices. Our end market for large-sized
panels is concentrated around a limited number of major panel manufacturers.
We
have also commenced marketing our products directly to mobile device
manufacturers so that our products can be qualified for their specifications
and
designed into their products.
We
primarily sell our products through our direct sales team located in Taiwan,
China, South Korea and Japan. We also have dedicated sales teams for certain
of
our most important current or prospective customers. We have sales and technical
support offices in Tainan, Taipei and Hsinchu in Taiwan, in Suzhou and Shenzhen,
China, in Anyangsi Kyungkido, South Korea and in Yokohama, Japan, all in
close
proximity to our customers. For certain products or regions we may from time
to
time sell our products through agents or distributors.
Our
sales and marketing team possesses a high level of technical expertise and
industry knowledge used to support a lengthy and complex sales process. This
includes a highly trained team of field applications engineers that provides
technical support and assistance to potential and existing customers in
designing, testing and qualifying display modules that incorporate our products.
We believe that the depth and quality of this design support are key to
improving customers’ time-to-market and maintaining a high level of customer
satisfaction.
Manufacturing
We
are a fabless semiconductor company. We leverage our experience and engineering
expertise to design high-performance semiconductors and rely on semiconductor
manufacturing service providers for wafer fabrication, gold bumping, assembly
and testing. We also rely on third-party suppliers of processed tape used
in TAB
packaging. We engage foundries with high-voltage CMOS process technology
for our
display drivers and with assembly and testing houses that specialize in TAB
and
COG packages, thereby taking advantage of the economies of scale and the
specialization of such semiconductor manufacturing service providers. Our
fabless model enables us to capture certain financial and operational benefits,
including reduced manufacturing personnel, capital expenditures, fixed assets
and fixed costs. It also gives us the flexibility to use the technology and
service provider most suitable for any given product.
18
Manufacturing
Stages
The
diagram below sets forth the various stages in manufacturing display drivers
according to the two different types of assembly utilized: TAB or COG. The
assembly type depends on the application of the panel and is determined by
our
customers.
Wafer
Fabrication: Based on our design, the
foundry provides us with fabricated wafers. Each fabricated wafer contains
many
chips, each known as a die.
Gold
Bumping: After the wafers are fabricated,
they are delivered to gold bumping houses where gold bumps are plated on
each
wafer. The gold bumping process uses thin film metal deposition,
photolithography and electrical plating technologies. The gold bumps are
plated
onto each wafer to connect the die to the processed tape, in the case of
TAB
package, or the glass, in the case of COG package.
Chip
Probe Testing: Each individual die is
electrically tested, or probed, for defects. Dies that fail this test are
discarded.
Assembly
and Testing: Our display drivers use two
types of assembly technology: TAB or COG. Display drivers for large-sized
applications typically require TAB package types and to a lesser extent COG
package types, whereas display drivers for mobile handsets and consumer
electronics products typically require COG package types.
TAB
Assembly
We
use two types of TAB technologies: TCP and COF. TCP and COF packages are
both
made of processed tape that is typically 35mm or 48mm wide, plated with copper
foil and has a circuit formed within it. TCP and COF packages differ, however,
in terms of their chip connections. With TCP packages, a hole is punched
through
the processed tape in the area of the chip, which is connected to a flying
lead
made of copper. In contrast, with COF packages, the lead is mounted directly
on
the processed tape and there is no flying lead.
|
·
|
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.
|
19
|
·
|
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 suppliers, evaluating such factors
as
product quality, production costs, technological sophistication and timely
delivery.
In
November 2002, we received ISO 9001:2000 certification which was renewed
in
February 2005 and will expire in January 2008. In addition, in March 2007,
we
received IECQ QC 080000 certification which will expire in 2010.
Semiconductor
Manufacturing Service Providers and Suppliers
Through
our
relationships with leading foundries, assembly, gold bumping and testing
houses
and processed tape suppliers, we believe we have established a supply chain
that
enables us to timely deliver high-quality products to our
customers.
Access
to
semiconductor manufacturing service providers is critical as display drivers
typically require high-voltage CMOS process technology and specialized assembly
and testing services, all of which are different from industry standards.
We
have historically obtained our foundry services from TSMC and Vanguard and
have
also recently established relationships with Macronix, Lite-on, Chartered,
UMC,
and Powerchip. These are among a select number of
semiconductor manufacturers that provide high-voltage CMOS process technology
required for manufacturing display drivers. We engage assembly and testing
houses that specialize in TAB and COG packages such as Chipbond Technology
Corporation, ChipMOS Technologies Inc., International Semiconductor Technology
Ltd., and Siliconware Precision Industries Co., Ltd.
We
plan to strengthen our relationships with our existing semiconductor
manufacturing service providers and diversify our network of such service
providers in order to ensure access to sufficient cost-competitive and
high-quality manufacturing capacity. We are selective in our choice of
semiconductor manufacturing service providers. It takes a substantial amount
of
time to qualify alternative foundries, gold bumping, assembly and testing
houses
for production. As a result, we expect that we will continue to rely on limited
number of semiconductor manufacturing service providers for a substantial
portion of our manufacturing requirements in the near future.
20
The
table below sets forth (in alphabetical order) our principal semiconductor
manufacturing service providers and suppliers:
|
Wafer
Fabrication
|
Gold
Bumping
|
|
|
Chartered
Semiconductor Manufacturing Ltd.
|
Chipbond
Technology Corporation
|
|
|
Lite-on
Semiconductor Corp.
|
ChipMOS
Technologies Inc.
|
|
|
Macronix
International Co., Ltd.
|
International
Semiconductor Technology Ltd.
|
|
|
Powerchip
Semiconductor Corp.
|
||
|
Taiwan
Semiconductor Manufacturing Company
|
||
|
United
Microelectronics Corporation
|
||
|
Vanguard
International Semiconductor Corporation
|
|
Processed
Tape for TAB Packaging
|
Assembly
and Testing
|
|
|
CASIO
Micronics Co., Ltd.
|
Chipbond
Technology Corporation
|
|
|
Hitachi
Cable,
Ltd.
|
ChipMOS
Technologies Inc.
|
|
|
Mitsui
Mining
& Smelting Co., Ltd.
|
International
Semiconductor Technology Ltd.
|
|
|
Samsung
Techwin Co. Ltd.
|
Siliconware
Precision Industries Co., Ltd.
|
|
|
Stemco.,
Ltd
|
||
|
Sumitomo
Metal
Mining Package Material Co., Ltd.
|
|
Chip
Probe Testing
|
|
|
Ardentec
Corporation
|
|
|
Chipbond
Technology Corporation
|
|
|
ChipMOS
Technologies Inc.
|
|
|
International
Semiconductor Technology Ltd.
|
|
|
King
Yuan
Electronics Co., Ltd
|
|
|
Siliconware
Precision Industries Co., Ltd.
|
Intellectual
Property
As
of December 31, 2006, we held a total of 148 patents, including 100 in Taiwan,
32 in the United States, 9 in China, 6 in Korea and 1 in Japan. The expiration
dates of our patents range from 2019 to 2026. We also have a total of 217
pending patent applications in Taiwan, 177 in the United States and 134 in
other
jurisdictions, including the PRC, Japan, Korea and Europe. In addition, we
have
registered “Himax” and our logo as a trademark and service mark in Taiwan, China
and Japan and the United States.
Competition
The
markets for our products are, in general, intensely competitive, characterized
by continuous technological change, evolving industry standards, and declining
average selling prices. We believe key factors that differentiate among the
competition in our industry include:
|
·
|
customer
relations;
|
|
·
|
product
performance;
|
|
·
|
design
customization;
|
|
·
|
development
time;
|
|
·
|
product
integration;
|
|
·
|
technical
services;
|
|
·
|
manufacturing
costs;
|
|
·
|
supply
chain
management;
|
|
·
|
economies
of
scale; and
|
|
·
|
broad
product
portfolio.
|
21
We
continually face intense competition from other fabless display driver
companies, including Cheertek Incorporation, DenMOS Technology Inc., Fitipower
Integrated Technology, Inc., Ili Technology Corp., Leadis Technology, Inc.,
Novatek Microelectronics Corp., Ltd., Orise Technology Co., Ltd., Raydium
Semiconductor Corporation, Sitronix Technology Co., Ltd., SmartASIC Technology,
Inc. and Solomon Systech Limited. We also face competition from integrated
device manufacturers, such as MagnaChip Semiconductor Ltd., Matsushita Electric
Works, Ltd., NEC Electronics Corporation, Oki Electric Industry Co. Ltd.,
Renesas Technology Corp., Seiko Epson Corporation and Toshiba Corporation,
and
panel manufacturers with in-house semiconductor design capabilities, such
as
Samsung Electronics Co., Ltd. and Sharp Corporation. The latter are both
our
competitors and customers.
Many
of our
competitors, some of which are affiliated or have established relationships
with
other panel manufacturers, have longer operating histories, greater brand
recognition and significantly greater financial, manufacturing, technological,
sales and marketing, human and other resources than us. Additionally, we
expect
that as the flat panel semiconductor industry expands, more companies may
enter
and compete in our markets.
Our
television semiconductor solutions compete against solutions offered by a
significant number of semiconductor companies including Advanced Micro Devices,
Inc., Broadcom Corporation, Genesis Microchip, Inc., Mediatek Corp., Micronas
Semiconductor Holding AG, MStar Semiconductor, Inc., NXP Semiconductor,
Pixelworks Inc., STMicroelectronics, Trident Microsystems, Inc. and Zoran
Corporation, among others, some of which focus solely on video processors
or
digital TV solutions and others that offer a more diversified
portfolio.
For
LCOS products, we face competition
primarily
from Sony Corporation,
Victor Company of Japan,
Limited, also known as JVC, Displaytech
Inc., Texas Instruments Incorporated’s
digital
light processing
technology-based
products and
Microvision,
Inc.’s laser-based
products in mini-projectors
and mobile-projectors.
Insurance
We
maintain insurance policies on our buildings, equipment and inventories covering
property damage and damage due to, among other events, fires, typhoons,
earthquakes and floods. We maintain these insurance policies on our facilities
and on inland transit of inventories. Additionally, we also 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
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.
22
Organizational
Structure
The
following chart sets forth our corporate structure and ownership interest
in
each of our principal operating subsidiaries and affiliates as of June 1,
2007.
Property,
Plants and Equipment
In
October 2006, we completed construction on and relocated our corporate
headquarters to a 22,172 square meter facility within the Tree Valley Industrial
Park in Tainan, Taiwan. The facility houses our research and development,
engineering, sales and marketing, operations and general administrative staff.
Construction for our new headquarters commenced in the fourth quarter of
2005
and was completed in the fourth quarter of 2006. The total costs amounted
to
approximately $25.7 million, of which approximately $10.2 million was for
the
land and approximately $15.5 million was for the construction of the building
and related facilities (which included architect fees, general contractor
fees,
building materials, the purchase and installation of network, clean room,
and
office equipment and other fixtures). We also lease office space in Taipei
and
Hsinchu, Taiwan; Suzhou and Shenzhen, China; Yokohama, Japan; Anyangsi
Kyungkido, South Korea; and Irvine, California, USA. The lease contracts
may be
renewed upon expiration. Himax Display, our subsidiary, owns and operates
a fab
with 3,040 square meters of floor space in a building leased from
CMO.
Litigation
We
are not involved in any litigation or other legal matters which could reasonably
be expected to, if decided adversely to us, have a material adverse impact
on
our business or operations.
23
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We
believe the following critical accounting policies
affect our more significant judgements and estimates used in the preparation
of
our consolidated financial statements.
Share-Based
Compensation
As
of December 31, 2006, we have not issued any stock options to employees or
others. Share-based compensation primarily consists of grants of nonvested
or
restricted shares of common stock and RSUs issued to employees. We have applied
SFAS No. 123R for our share-based compensation plans for all periods since
the
incorporation of Himax Taiwan in 2001. The cost of employee services received
in
exchange for share-based compensation is measured based on the grant-date
fair
value of the share-based instruments issued. The cost of employee services
is
equal to the grant-date fair value of shares issued to employees and is
recognized in earnings over the service period. Share-based compensation
expense
estimates also take into account the number of shares awarded that management
believes will eventually vest. We adjust our estimate each period to reflect
the
current estimate of forfeitures.
As of December 31,
2006, we based our share-based compensation cost on an
assumed forfeiture rate of 5.3% per annum. If actual forfeitures occur at
a
lower rate, share-based compensation costs will increase in future
periods.
When
estimating the
fair value of our ordinary shares prior to our initial public offering, we
reviewed both internal and external sources of information. The sources we
used
to determine the fair value of the underlying shares at the date of measurement
have been subjective in nature and based on, among other factors:
|
·
|
our
financial
condition as of the date of grant;
|
|
·
|
our
financial
and operating prospects at that
time;
|
|
·
|
for
certain
issuances in 2001 and early 2002, the price of new shares issued
to
unrelated third parties;
|
|
·
|
for
certain
issuances in 2002, 2003 and 2004, an independent third-party retrospective
analysis of the historical value of our common shares, which utilized
both
a net asset based methodology and market and peer group comparables
(including average price/earnings, enterprise value/sales, enterprise
value/earnings before interest and tax, and enterprise value/earnings
before interest, tax, depreciation and amortization);
and
|
|
·
|
for
our
issuance of RSUs in 2005, an independent third-party analysis of
the
current and future value of our ordinary shares, which utilized
both
discounted cashflow and market value approaches, using multiples
such as
price/earnings, forward price/earnings, enterprise value/earnings
before
interest and tax, and forward enterprise value/earnings before
interest
and tax.
|
Changes
in any of
these factors or assumptions could have resulted in different estimates of
the
fair value of our common shares and the related amounts of share-based
compensation.
Based
on these
factors, we estimated the fair value per share of nonvested shares issued
to
certain employees in June 2001, November 2001, and January 2002 at NT$4.02
($0.116) per share and the fair value of 596,897 shares (adjusted for stock
splits) granted to two consultants in 2002 at $68,000.
24
Similarly,
we
estimated the fair value per share of employee bonus shares on the date of
shareholder approval to be NT$39.44 ($1.15) per share and NT$67.13 ($1.96)
per
share in 2003 and 2004, respectively. These employee bonus shares were issued
in
relation to employee services provided in 2001, 2002 and 2003, respectively.
We
estimated the fair value of treasury shares issued to employees at prices
ranging from NT$15.32 ($0.46) per share to NT$19.93 ($0.58) per share in
2002
and NT$20.17 ($0.58) per share to NT$52.10 ($1.54) per share in 2003. We
estimated the fair value of the ordinary shares underlying the RSUs granted
to
our directors and employees at $8.62 per share in 2005. For our issuance
of RSUs
in 2006, the fair value of the ordinary shares underlying the RSUs granted
to
our employees, was $5.71 per share, which was the closing price of our ADSs
on
September 29, 2006.
Allowance
for
Doubtful Accounts, Sales Returns and Discounts
We
record a reduction to revenues and accounts receivable by establishing a
sales
discount and return allowance for estimated sales discounts and product returns
at the time revenues are recognized based primarily on historical discount
and
return rates. However, if sales discount and product returns for a particular
fiscal period exceed historical rates, we may determine that additional sales
discount and return allowances are required to properly reflect our estimated
remaining exposure for sales discounts and product returns. We evaluate our
outstanding accounts receivable on a monthly basis for collectibility purposes.
In establishing the required allowance, we consider our historical collection
experience, current receivable aging and the current trend in the credit
quality
of our customers. The movement in the allowance for doubtful accounts, sales
returns and discounts for the years ended December 31, 2004, 2005 and 2006
is as
follows:
|
Year
|
Balance
at
Beginning
of
Year
|
Addition
|
Amounts
Utilized
|
Balance
at
End
of
Year
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
December
31,
2004
|
$ |
28
|
$ |
1,022
|
$ | (810 | ) | $ |
240
|
|||||||
|
December
31,
2005
|
$ |
240
|
$ |
398
|
$ | (457 | ) | $ |
181
|
|||||||
|
December
31,
2006
|
$ |
181
|
$ |
2,843
|
$ | (2,156 | ) | $ |
868
|
|||||||
Inventory
Inventories
are
stated at the lower of cost or market value. Cost is determined using the
weighted-average method. For work-in-process and manufactured inventories,
cost
consists of the cost of raw materials (primarily fabricated wafers and processed
tape), direct labor and an appropriate proportion of production overheads.
We
also write down excess and obsolete inventory to its estimated market value
based upon estimations about future demand and market conditions. If actual
market conditions are less favorable than those projected by management,
additional future inventory write-down may be required that could adversely
affect our operating results. Once written down, inventories are carried
at this
lower amount until sold or scrapped. If actual market conditions are more
favorable, we may have higher operating income when such products are sold.
Sales to date of such products have not had a significant impact on our
operating income. The inventory write-down for the years ended December 31,
2004, 2005 and 2006 was approximately $847,000, $927,000 and, $5.2 million,
respectively, and are included in cost of revenues in our consolidated
statements of income. The inventory write-down was particularly high
in 2006 primarily due to a higher volume base, broader product offerings
and
more severe market fluctuations.
Impairment
of
Long-Lived Assets
We
routinely review our long-lived assets, other than goodwill and indefinite
life
intangibles 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
25
recognized
for the
amount that the carrying value of the asset exceeds its fair value, based
on the
best information available, including discounted cash flow analysis. However,
due to the cyclical nature of our industry and changes in our business strategy,
market requirements, or the needs of our customers, we may not always be
in a
position to accurately anticipate declines in the utility of our equipment
or
acquired technology until they occur. We have not had any impairment charges
on
long-lived assets other than goodwill and indefinite life intangibles during
the
period from December 31, 2002 to December 31, 2006.
Goodwill
We
review goodwill for impairment at least annually, and test for impairment
between annual tests if an event occurs or circumstances change that would
indicate that the carrying amount may be impaired. Impairment testing
for goodwill is done at a reporting unit level. The goodwill
impairment test is a two-step test. Under the first step, the fair
value of the reporting unit is compared with its carrying value (including
goodwill). If the fair value of the reporting unit is less than its
carrying value, an indication of goodwill impairment exists for the reporting
unit and we perform step two of the impairment test
(measurement). Under step two, an impairment loss is recognized for
any excess of the carrying amount of the reporting unit’s goodwill over the
implied fair value of that goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit
in a
manner similar to a purchase price allocation, in accordance with SFAS No.
141,
Business Combination. The residual fair value after this
allocation is the implied fair value of the reporting unit
goodwill. We consider the enterprise as a whole to be the reporting
unit for purposes of evaluating goodwill impairment. Consequently, we
determine the fair value of the reporting unit using the quoted market price
of
our ordinary shares.
Product
Warranty
Under
our standard
terms and conditions of sale, products sold are subject to a limited product
quality warranty. The stated limited warranty period is 60 days. We may receive
warranty claims outside the scope of the standard terms and conditions. We
provide for the estimated cost of product warranties at the time revenue
is
recognized based primarily on historical experience and any specifically
identified quality issues. The movement in accrued warranty costs for the
years
ended December 31, 2004, 2005 and 2006 is as follows:
|
Year
|
Balance
at
Beginning
of
Year
|
Addition
|
Amount
Utilized
|
Balance
at
End
of
Year
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
December
31,
2004
|
$ |
—
|
$ |
960
|
$ |
453
|
$ |
507
|
||||||||
|
December
31,
2005
|
$ |
507
|
$ |
1,415
|
$ | (1,377 | ) | $ |
545
|
|||||||
|
December
31,
2006
|
$ |
545
|
$ |
2,101
|
$ | (2,016 | ) | $ |
630
|
|||||||
Income
Taxes
As
part of the process of preparing our consolidated financial statements,
management is required to estimate income taxes and tax bases of assets and
liabilities for us and our subsidiaries. This process involves estimating
current tax exposure together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes and the
amount
of tax credits and tax loss carryforwards. These differences result in deferred
tax assets and liabilities, which are included in the consolidated balance
sheets. Management must then assess the likelihood that the deferred tax
assets
will be recovered from future taxable income, and, to the extent it believes
that recovery is not more likely than not, a valuation allowance is
provided.
26
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 and
therefore the determination of the valuation allowance is dependent upon
the
generation of future taxable income by the taxable entity during the periods
in
which those temporary differences become deductible. Management considers
the
scheduled reversal of different liabilities, projected future taxable income,
and tax planning strategies in determining the valuation allowance.
Except
for Himax
Taiwan, all of our other subsidiaries have generated tax losses since inception
and are not included in the consolidated tax filing with Himax Taiwan, a
valuation allowance of $893,000, $3.3 million and $6.3 million as of December
31, 2004, 2005 and 2006, respectively, was provided to reduce their deferred
tax
assets (consisting primarily of operating loss carryforwards and unused
investment tax credits) to zero because management believes it is unlikely
that
these tax benefits will be realized. The net change in valuation allowance
for
the years ended December 31, 2004, 2005 and 2006 was an increase of $882,000,
$2.4 million, and $3.0 million, respectively, as a result of increases in
deferred tax assets which we do not expect to realize.
27
OPERATING
RESULTS
Results
of
Operations
Our
business has evolved rapidly and significantly since we commenced operations
in
2001. Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of
operating results should not be relied upon as indicative of future performance.
The following table sets forth a summary of our consolidated statements of
income as a percentage of revenues:
|
Year
Ended
December
31,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
Revenues
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Costs
and
expenses:
|
||||||||||||
|
Cost
of
revenues
|
78.6
|
77.6
|
80.8
|
|||||||||
|
Research
and
development
|
8.0
|
7.6
|
8.1
|
|||||||||
|
General
and
administrative
|
1.5
|
1.3
|
1.3
|
|||||||||
|
Sales
and
marketing
|
0.9
|
0.9
|
0.9
|
|||||||||
|
Total
costs
and expenses
|
89.0
|
87.4
|
91.1
|
|||||||||
|
Operating
income
|
11.0
|
12.6
|
8.9
|
|||||||||
|
Other
non
operating income
|
0.4
|
0.5
|
0.5
|
|||||||||
|
Income
tax
expenses (benefit)
|
(0.6 | ) |
1.7
|
(0.7 | ) | |||||||
|
Net
income
|
12.0
|
11.4
|
10.1
|
|||||||||
Year
Ended
December 31, 2006 Compared to Year Ended December 31,
2005.
Revenues.
Our revenues increased 37.8% to $744.5 million in 2006 from $540.2 million
in
2005. This increase was primarily due to a 59.4% increase in unit shipments
of
display drivers for large-sized applications, partially offset by a 14.3
%
decrease in average selling prices of such products. This increase was also
attributable to an increase of unit shipments for display drivers for mobile
handsets, which more than doubled, but was partially offset by a 24.0% decrease
in average selling prices of such products. The increase in unit
shipments was primarily due to the increased number of panels shipped by
our
customers as well as our increased market share with certain major
customers. The decrease in the average selling prices of
our display drivers was primarily due to a combination of the pricing pressure
we faced from our customers, the general industry trend of declining average
selling prices of semiconductors over a product’s life cycle, the introduction
of newer, lower-cost display drivers, as well as our ability to reduce per
unit
cost of revenues in order to meet such pressure. Revenues from related parties
increased 28.4% to $414.6 million in 2006 from $322.8 million in 2005 as
a
result of increased unit shipments to CMO (and its affiliates) and other
related
parties. However, revenues from related parties as a percentage of
our revenues decreased from 59.8% in 2005 to 55.7% in 2006 as our sales to
other
customers continued to grow, reflecting our effort in diversifying our customer
base and reducing our reliance on any one customer.
Costs
and
Expenses. Costs and expenses increased 43.8% to $679.0 million in 2006 from
$472.2 million in 2005. As a percentage of revenues, costs and expenses
increased to 91.1% in 2006 compared to 87.4% in 2005.
28
|
·
|
Cost
of
Revenues. Cost of revenues increased 43.4% to $601.6 million in 2006
from $419.4 million in 2005. The increase in cost of revenues was
primarily due to an increase in unit shipments. As a percentage
of revenues, cost of revenues increased to 80.8% in 2006 compared
to 77.6%
in 2005, primarily as a result of a decrease in average selling
prices of
our display drivers. We were able to partially offset such declines
by
decreasing per unit costs associated with the manufacturing, assembly,
testing and delivery of our products. This is a result of our cost
reduction efforts achieved by improving designs and processes,
increasing
manufacturing yields and leveraging our scale, volume requirements
and
close relationships with semiconductor manufacturing service providers
and
suppliers, as well as our strategy of sourcing from multiple service
providers and suppliers in order to obtain better
pricing.
|
|
·
|
Research
and Development. Research and development expenses increased 47.0% to
$60.7 million in the 2006 from $41.3 million in the 2005, primarily
due to
the increase in share-based compensation expenses and salary expenses.
The
increase in salary expenses was due to a 27.6% increase in headcount
and
higher average salaries. The increase was also partially a result
of
increased mask costs and prototype wafer and processed tape costs
associated with an increased number of new products
introduced. The increase in share-based compensation expenses
resulted from our increase in headcount and our grant of RSUs to
certain
employees in 2006.
|
|
·
|
General
and Administrative. General and administrative expenses increased
44.1% to $9.8 million in 2006 from $6.8 million in 2005, primarily
due to
an increase in share-based compensation expenses and salary expenses.
The
increase in share-based compensation expenses resulted from our
grant of
RSUs to certain employees in 2006. The increase in salary
expenses was due to higher average salaries. This increase was
also partially the result of increased depreciation expense and
fees
relating to patent filings.
|
|
·
|
Sales
and
Marketing. Sales and marketing expenses increased 45.8% to $7.0
million in 2006 from $4.8 million in 2005, primarily due to an
increase in
salary expenses and share-based compensation expenses. The increase
in
salary expenses was due to a 44.6% increase in headcount. The increase
in
share-based compensation expenses also resulted from our increase
in
headcount and our grant of RSUs to certain employees in 2006. The
increase
in sales and marketing expenses was also partially attributable
to
increased travel expenses resulting from increased sales
activity.
|
Non-Operating
Income (Loss). We had non-operating income of $3.9 million in 2006 compared
to $2.3 million in 2005, primarily as a result of a significant increase
in
interest income due to higher cash balance on hand from the proceeds of our
initial public offering. This was partially offset by an impairment loss
of $1.5
million recognized from our write off of our equity investment in LightMaster
Systems Inc., which filed for bankruptcy in 2006.
Income
Tax
Expense (Benefit). We recognized an income tax benefit of $5.4 million in
2006 compared to an income tax expense of $8.9 million in 2005. Our effective
income tax rate decreased from 12.7% in 2005 to (7.8) % in 2006, primarily
due
to an increase in tax-exempted income, non-deductible share-based compensation
expenses, a tax benefit from the distribution of the prior year’s income and an
increase in investment tax credits compared to 2005, partially offset by
the
effect of an enacted change in Taiwan’s tax laws in 2006 and the increase of
valuation allowance provided to reduce certain subsidiaries’ deferred tax assets
to zero.
Net
Income.
As a result of the foregoing, our net income increased to $75.2 million
in
2006 from a net income of $61.6 million in 2005.
Year
Ended
December 31, 2005 Compared to Year Ended December 31, 2004
Revenues.
Our revenues increased 79.9% to $540.2 million in 2005 from $300.3 million
in
2004. This increase was primarily due to a 118.4% increase in unit shipments
of
display drivers for large-sized applications, partially offset by a 16.2%
decrease in average selling prices of such products. The increase in unit
shipments was primarily due to the increased number of panels shipped by
our
customers as well as our increased market share with certain major customers.
The decrease in the average selling prices of our display drivers was primarily
due to a combination of the
29
pricing
pressure we
faced from our customers, the general industry trend of declining average
selling prices of semiconductors over a product’s life cycle, the introduction
of newer, lower-cost display drivers for large-sized applications, as well
as
our ability to reduce per unit cost of revenues in order to meet such pressure.
Revenues from related parties increased 69.2% to $322.8 million in 2005 from
$190.8 million in 2004 as a result of increased unit shipments to CMO (and
its
affiliates) and other related parties. However, revenues from related parties
as
a percentage of our revenues decreased from 63.5% in 2004 to 59.8% in 2005
as
our sales to other customers continued to grow, reflecting our effort in
diversifying our customer base and reducing our reliance on any one
customer.
Costs
and
Expenses. Costs and expenses increased 76.6% to $472.2 million in 2005 from
$267.4 million in 2004. As a percentage of revenues, costs and expenses
decreased to 87.4% in 2005 compared to 89.0% in 2004.
|
·
|
Cost
of
Revenues. Cost of revenues increased 77.7% to $419.4 million in 2005
from $236.0 million in 2004. The increase in cost of revenues was
primarily due to an increase in unit shipments, partially offset
by a
slight decrease in per units costs associated with the manufacturing,
assembly, testing and delivery of our products. This is a result
of our
cost reduction efforts achieved by improving designs and processes,
increasing manufacturing yields and leveraging our scale, volume
requirements and close relationships with semiconductor manufacturing
service providers and suppliers, as well as our strategy of sourcing
from
multiple service providers and suppliers in order to obtain better
pricing.\
|
|
·
|
Research
and Development. Research and development expenses increased 72.0% to
$41.3 million in the 2005 from $24.0 million in 2004, primarily
due to the
increase in salary expenses and share-based compensation expenses.
The
increase in salary expenses was due to increased headcount and
higher
average salaries. The increase was also partially as a result of
increased
mask costs and prototype wafer and processed tape costs associated
with an
increased number of new products introduced. The increase in share-based
compensation expenses also resulted from our increase in headcount
and our
grant of RSUs to certain employees on December 30,
2005.
|
|
·
|
General
and Administrative. General and administrative expenses increased
45.8% to $6.8 million in 2005 from $4.7 million in 2004, primarily
due to
an increase in salary expenses. The increase in salary expenses
was due to
increased headcount and higher average salaries. The increase in
general
and administrative expenses also partially resulted from increased
costs
associated with increased management and other fees paid to our
security
company and increased fees relating to patent filings.
|
|
·
|
Sales
and
Marketing. Sales and marketing expenses increased 73.7% to $4.8
million in 2005 from $2.7 million in 2004, primarily due to an
increase in
salary expenses and share-based compensation expenses. The increase
in
salary expenses was due to a 76.6% increase in headcount and higher
average salaries. The increase in share-based compensation expenses
also
resulted from our increase in headcount and our grant of RSUs to
certain
employees on December 30, 2005. The increase in sales and marketing
expenses was also partially as a result of increased travel expenses
reflecting increased sales
activity.
|
Non-Operating
Income (Loss). We had a non-operating income of $2.3 million in 2005
compared to $1.3 million in 2004, primarily as a result of increases in both
foreign exchange gain and interest income as compared to 2004. Foreign exchange
gain increased due to the weakening of the NT dollar and Japanese yen relative
to the U.S. dollar. The significant increase in interest income was due to
the
higher cash balance on hand, which was primarily placed in higher yield U.S.
dollar denominated time deposits beginning in August 2005.
30
Income
Tax
Expense (Benefit). Income tax expenses increased to $8.9 million in 2005
compared to an income tax benefit of $1.8 million in 2004. Our effective
income
tax rate increased from (5.2%) in 2004 to 12.7% in 2005, primarily due to:
(a)
the increase of valuation allowance provided to reduce certain subsidiaries’
deferred tax assets to zero, (b) the increase of non-deductible share-based
compensation expenses and (c) the absence in 2005 of a tax benefit from the
distribution of the prior year’s income compared to 2004, which was partially
offset by more investment tax credits and tax exempted income as compared
to
2004.
Net
Income.
As a result of the foregoing, our net income increased to $61.6 million
in
2005 from a net income of $36.0 million in 2004.
Liquidity
and Capital Resources
The
following table sets forth a summary of our cash flows for the periods
indicated:
|
Year
Ended
December 31,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Net
cash
provided by (used in) operating activities
|
$ | (8,688 | ) | $ |
12,464
|
$ |
29,696
|
|||||
|
Net
cash
provided by (used in) investing activities
|
11,001
|
(25,363 | ) | (8,927 | ) | |||||||
|
Net
cash
provided by financing activities
|
735
|
14,404
|
81,886
|
|||||||||
|
Effect
of
exchange rate changes on cash and cash equivalents
|
¾
|
4
|
12
|
|||||||||
|
Net
increase
in cash
|
3,048
|
1,509
|
102,667
|
|||||||||
|
Cash
and cash
equivalents at beginning of period
|
2,529
|
5,577
|
7,086
|
|||||||||
|
Cash
and cash
equivalents at end of period
|
5,577
|
7,086
|
109,753
|
|||||||||
Prior
to being a
public company, we financed our operations primarily through the issuance
of
shares in Himax Taiwan. As of December 31, 2006, we had $109.8 million in
cash
and cash equivalents.
Operating
Activities. Net cash provided by operating activities for the year ended
December 31, 2006 was $29.7 million compared to net cash provided by operating
activities of $12.5 million for the year ended December 31, 2005. Net cash
provided by operating activities increased in 2006 primarily as a result
of an
increase in operating profit and accounts payable due to an increase in cost
of
revenues and other expenses, which was partially offset by an increase in
accounts receivables. The increase in accounts receivable was primarily a
result
of the increase in sales in 2006 and the extension of payment terms for certain
of our customers. Net cash provided by operating activities for the year
ended
December 31, 2005 was $12.5 million compared to net cash used in operating
activities of $8.7 million for the year ended December 31, 2004. Net cash
provided by operating activities increased in 2005 primarily as a result
of an
increase in operating profit and accounts payable due to the extension of
payment terms received from certain vendors, which was partially offset by
an
increase in accounts receivable. We negotiated an extension of payment terms
with two of our main third-party semiconductor manufacturing service providers
in order to better balance our cash flows with payment terms that we offer
our
customers. The increase in accounts receivable was primarily as a result
of the
significant increase in sales in the second half of 2005 and the extension
of
payment terms for certain of our customers in the fourth quarter of
2005.
Investing
Activities. Net cash used in investing activities in the year ended
December 31, 2006 was $8.9 million compared to net cash used in investing
activities of $25.4 million in the year ended December 31, 2005. This change
was
primarily due to a decrease in net proceeds generated from the purchase and
sale
of available-for-sale marketable securities of $8.8 million, when compared
to
the year ended December 31, 2005 and an increase in the purchase of property
and
equipment as a result of the payment of construction costs in connection
with
our new headquarters in the Tree Valley Industrial Park. This
decrease was offset by the release of restricted cash equivalents and marketable
securities of $27.7 million. Net cash used in investing activities in
the year ended December 31, 2005 was $25.4 million
31
compared
to net cash
provided by investing activities of $11.0 million in the year ended December
31,
2004. This change was primarily due to a decrease in net proceeds generated
from
the purchase and sale of available-for-sale marketable securities of $15.2
million, when compared to the year ended December 31, 2004, an increase in
the
purchase of property and equipment and a pledge of restricted cash equivalents
and marketable securities of $13.7 million.
Financing
Activities. Net cash provided by financing activities in the year ended
December 31, 2006 was $81.9 million compared to net cash provided by financing
activities of $14.4 million in the year ended December 31, 2005, primarily
due
to proceeds received in our initial public offering which was offset by the
repayment of short-term debt and our repurchase of ordinary
shares. Net cash provided by financing activities
in the year ended December 31, 2005 was $14.4 million compared to net cash
provided by financing activities of $0.7 million in the year ended December
31,
2004, primarily due to proceeds received from borrowings of short-term debt
and
the issuance of Himax Analogic’s shares, which was offset by a distribution of
special cash dividends and the repayment of long-term debt.
Our
liquidity could be adversely affected by our obligation to meet certain
conditions set by the ROC Investment Commission (including a requirement
to make
substantial investments in research and development) in connection with its
approval for the share exchange as further described below under “—Contractual
Obligations.”
Moreover,
our
liquidity could be negatively impacted by a decrease in demand for our products.
Our products are subject to rapid technological change, among other factors,
which could result in revenue variability in future periods. Further, we
expect
to continue increasing our headcount, especially for engineering and sales,
to
pursue growth opportunities and keep pace with changes in technology. Should
demand for our products slow down or fail to grow as expected, our increased
headcount would result in sustained losses and reductions in our cash balance.
We have at times agreed to extend the payment terms for certain of our
customers. Other customers have also requested extension of payment terms
and we
may grant such requests for extension in the future. The extension of payment
terms for our customers could adversely affect our cash flow, liquidity and
our
operating results.
Research
and Development
Our
research and development efforts focus on improving and enhancing our core
technologies and know-how relating to semiconductor solutions for flat panel
displays and advanced televisions with particular emphasis on our three major
product lines. Although a significant portion of the resources at our integrated
circuit design center are invested in advanced research for future products,
we
continue to invest in improving the performance and reducing the cost of
our
existing products. Our application engineers, who provide on-system verification
of semiconductors and product specifications, and field application engineers,
who provide on-site engineering support at our customers’ offices, work closely
with panel manufacturers to co-develop display solutions for their electronic
devices. In 2004, 2005 and 2006, we incurred research and development expenses
of $24.0 million, $41.3 million, and $60.7 million, respectively, representing
8.0%, 7.6%, and 8.1% of
our
revenues, respectively.
Off-Balance
Sheet Arrangements
As
of December 31, 2006, we did not have any off-balance sheet guarantees, interest
rate swap transactions or foreign currency forward contracts. We do not engage
in trading activities involving non-exchange traded contracts. Furthermore,
as
of December 31, 2006, we did not have any interests in variable interest
entities.
32
Tabular
Disclosure of Contractual Obligations
The
following table sets forth our contractual obligations as of December 31,
2006:
|
Payment
Due by
Period
|
||||||||||||||||||||
|
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Operating
lease obligations
|
1,476
|
864
|
612
|
—
|
—
|
|||||||||||||||
|
Purchase
obligations(1)
|
143,164
|
143,164
|
—
|
—
|
—
|
|||||||||||||||
|
Other
obligations(2)
|
31,217
|
31,217
|
—
|
—
|
—
|
|||||||||||||||
|
Total
|
175,857
|
175,245
|
612
|
—
|
—
|
|||||||||||||||
|
Notes:
|
(1)
|
Includes
obligations for wafer fabrication, raw materials and
supplies.
|
|
(2)
|
Includes
obligations under license agreements and investment obligations
required
by the ROC Investment Commission.
|
In
August 2004, we entered into a license agreement for the use of certain central
processing unit cores for product development. In accordance with the agreement,
we are required to pay a license fee based on the progress of the project
development and a royalty based on shipments. The initial license fee of
$100,000 was charged to research and development expense in 2004; no fees
or
royalties were paid in 2005. We also paid a license fee of $200,000
in 2006 and expect to pay $100,000 in 2007 under the agreement.
In
addition, we completed construction of our new headquarters located in the
Tree
Valley Industrial Park. The facility occupies 22,172 square meters and houses
our research and development, engineering, sales and marketing, operations
and
general administrative staff. The land (31,800 square meters) is owned by
us.
The total costs were approximately $25.7 million, of which approximately
$10.2
million was for the land and approximately $15.5 million was for the
construction of the building and related facilities (which included architect
fees, general contractor fees, building materials, the purchase and installation
of network, clean room, and office equipment and other fixtures). We have
already paid for the land and approximately $0.8 million and $9.7 million
of the
construction costs were paid in 2005 and 2006, respectively. We expect to
pay
the remaining $5.0 million of the construction costs in 2007 using cash on
hand
and cash flows generated from our operations.
Our
current corporate structure was established as a result of a share exchange
between us and the former shareholders of Himax Taiwan. The ROC Investment
Commission has approved the share exchange, subject to our satisfying the
following undertakings we gave in connection with our application seeking
approval of the share exchange: Himax Taiwan is required to (1) purchase
three
hectares of land in connection with the construction of its new headquarters
in
Tainan, Taiwan; (2) increase the number of Taiwanese employees to 430 employees,
475 employees and 520 employees by the end of 2005, 2006 and 2007, respectively;
and (3) invest no less than $24.4 million, $27.6 million and $30.7 million
for
research and development in Taiwan in 2005, 2006 and 2007, respectively.
The
required research and development expenditure may be satisfied through
cash-based compensation but cannot be satisfied through non-cash share-based
compensation. Himax Taiwan is required to submit to the ROC Investment
Commission its annual financial statements audited by a certified public
accountant and other relevant supporting documents in connection with the
implementation of the above-mentioned conditions within four months after
the
end of each of 2005, 2006 and 2007.
We
believe that the undertakings under the ROC Investment Commission approval
are
in line with our business plan. In August 2005, we purchased 3.18 hectares
of
land for an aggregate purchase price of approximately $10.2 million in
satisfaction of the first condition. As of December 31, 2005 and 2006, we
had
satisfied the conditions with respect to the Taiwan employees’ requirements with
549 and 664 Taiwan employees for 2005 and 2006, respectively, and Himax Taiwan
had spent approximately $30.9 million and $42.8 million in research and
development expenditures in
33
2005
and 2006,
respectively. With respect to 2007, we expect that we will spend an amount
at or
above the research and development expenditure requirements. We
intend to commit the necessary resources in both headcount and research and
development to support our plans for further growth and to ensure future
competitiveness. Our business plan for 2007 contemplates an increase
in headcount (mostly research and development personnel) and research and
development expenditure to improve and enhance our core technologies and
know-how. Based on our historical trend with respect to increases in
headcount and research and development expenditure, and our projected headcount
and research and development expenditure, we expect that the above-mentioned
requirements for 2007 will be satisfied.
Although
we intend
to discharge our undertakings to the ROC Investment Commission, we cannot
assure
you that we will be able to do so under all circumstances. To the extent
that we
experience no or negative revenue growth as a result of significant
company-specific or industry-wide events, we would be limited in our ability
to
adjust our headcount and research and development expenditures in response
to
those events. In this case, these undertakings would restrict our operational
flexibility and adversely affect our operating margins and results of
operations. See “Item 3.D. Risk Factors—Political, Geographical and Economic
Risks — If we failed to satisfy the undertakings we made to the ROC Investment
Commission in connection with our application seeking approval of the share
exchange, the ROC Investment Commission could take actions against us that
would
materially and adversely affect our business, financial condition and results
of
operations and decrease the value of our ADSs.”
Under
the ROC Labor
Standard Law, we established a defined benefit plan and were required to
make
monthly contributions to a pension fund in an amount equal to 2% of wages
and
salaries of our employees. Under the newly effective ROC Labor Pension Act,
beginning on July 1, 2005, we are required to make a monthly contribution
for
employees that elect to participate in the new defined contribution plan
of no
less than 6% of the employee’s monthly wages, to the employee’s individual
pension fund account. Substantially all participants in the defined benefit
plan
have elected to participate in the 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. As a result, our monthly contribution
to
the pension fund increased to $68,211 in July 2005 compared to $15,646 in
June
2005, and we expect to contribute at this increased rate in the future. Total
contributions to the new defined contribution plan in 2006 were $855,000
compared to $217,000 in 2005. Total contributions to the defined benefit
plan
and the new defined contribution plan in 2006 were $1.1 million compared
to
$412,000 in 2005. This increase has not, and is not expected to have,
a material effect on our cash flows or results of operations.
We
believe that our current cash and cash equivalents and cash flow from operations
will be sufficient to meet our anticipated cash needs, including our cash
needs
for working capital and capital expenditures for the foreseeable future.
We may,
however, require additional cash resources due to higher than expected growth
in
our business or other changing business conditions or other future developments,
including any investments or acquisitions we may decide to pursue.
Wisepal
Acquisition
We
announced that our board of directors had approved a letter of intent to
acquire
Wisepal Technologies, Inc. (“Wisepal”) on Aug 30, 2006 and closed the
deal on Feb 1, 2007. We acquired 100 percent of the outstanding
common stock of Wisepal at a value of approximately $45 million by a share
exchange. Please see footnotes of financial statements for
details.
Wisepal
is a display
driver IC company focused on small- and medium-sized
applications. Wisepal primarily supplies to TPO Displays Corp., whose
customers supply to global tier-one handset
manufacturers.
34
We
expect this
acquisition can allow us to
secure and
benefit from a closer partnership with a world-leading panel supplier and
with
handset suppliers.
Share
Buyback
On
November 2, 2006, our board of directors authorized a share buyback program
allowing us to repurchase up to $50.0 million of our ADSs in the open market
or
through privately negotiated transactions. We completed this share
buyback program in the first quarter of 2007 and repurchased a total of
approximately $50.0 million of our ADSs (equivalent to approximately 10 million
ADSs) from the open market. The repurchased ADSs and their underlying
ordinary shares have been cancelled, thereby reducing approximately 5% of
our
issued and outstanding shares.
The
following table sets forth information regarding transactions completed under
the share buyback program for each of the specified periods.
|
Period
|
(a)
Total
Number
of
Shares
Purchased
|
(b)
Average
Price
Paid
per
Share
|
(c)
Total
Number of
Shares
Purchased
as
Part
of
Publicly
Announced
Plans
or
Programs
|
(d)
Approximate
Dollar
Value
of
Shares
that
May
Yet
Be
Purchased
Under
the Plans
or
Programs
|
||||||||||||
|
November
9,
2006 to November 30, 2006
|
2,944,840
|
$ |
5.07
|
2,944,840
|
$ |
35,056,654
|
||||||||||
|
December
1,
2006 to December 31, 2006
|
4,940,995
|
$ |
4.96
|
7,885,835
|
$ |
10,540,210
|
||||||||||
|
January
1,
2007 to January 23, 2007
|
2,161,636
|
$ |
4.87
|
10,047,471
|
$ |
443
|
||||||||||
Inflation
Inflation
in Taiwan
has not had a material impact on our results of operations in recent years.
The
rate of inflation in Taiwan was 1.6%, 2.3%, and 0.6% in 2004, 2005 and 2006,
respectively.
35
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
Directors
and Senior Management
Members
of our board
of directors may be elected by our directors or our shareholders. Our board
of
directors consists of five directors, two of whom will be independent directors
within the meaning of Rule 4200(a)(15) of the Nasdaq Stock Market, Inc.
Marketplace Rules, or the Nasdaq Rules, as amended from time to time. Other
than
Jordan Wu and Dr. Biing-Seng Wu, who are brothers, there are no family
relationships between any of our directors and executive officers. The following
table sets forth information regarding our directors and executive officers
as
of June 1, 2007. Our directors and executive officers all assumed their
respective positions at our company, Himax Technologies, Inc., after our
shareholders’ meeting and board meeting, which were both held on October 25,
2005. Unless otherwise indicated, the positions or titles indicated in the
table
below refer to Himax Technologies, Inc.
|
Directors
and
Executive Officers
|
Age
|
Position/Title
|
||
|
Dr.
Biing-Seng
Wu
|
49
|
Chairman
of
the Board
|
||
|
Jordan
Wu
|
46
|
President,
Chief Executive Officer and Director
|
||
|
Jung-Chun
Lin
|
58
|
Director
|
||
|
Dr.
Chun-Yen
Chang
|
69
|
Director
|
||
|
Yuan-Chuan
Horng
|
55
|
Director
|
||
|
Chih-Chung
Tsai
|
51
|
Chief
Technology Officer, Senior Vice President
|
||
|
Max
Chan
|
40
|
Chief
Financial Officer
|
||
|
Baker
Bai
|
49
|
Vice
President, Incubator System Design Center
|
||
|
John
Chou
|
48
|
Vice
President, Quality & Reliability Assurance & Support Design
Center
|
||
|
Norman
Hung
|
49
|
Vice
President, Sales and Marketing
|
Directors
Dr.
Biing-Seng
Wu is the chairman of our board of directors. Dr. Wu is also the chairman
of the board of directors of Himax Taiwan, Himax Display, Himax Analogic
and
Himax Imaging Inc. Prior to our reorganization in October 2005, Dr. Wu served
as
president, chief executive officer and a director of Himax Taiwan and chairman,
president and chief executive officer of Himax Display. Dr. Wu is also a
director of Himax Anyang and serves as a director, executive vice president
and
chief technology officer of CMO, a TFT-LCD panel manufacturer, and a director
of
Chi Lin Technology Co., Ltd., an electronics manufacturing service provider,
Chi
Mei El Corp., an OLED company, and Nexgen Mediatech Inc., a TFT-LCD television
manufacturer. Dr. Wu has been active in the TFT-LCD panel industry for over
20
years and is a member of the boards of the Taiwan TFT-LCD Association and
the
Society for Information Display. Prior to joining CMO in 1998, Dr. Wu was
senior
director and plant director of Prime View International Co., Ltd. a TFT-LCD
panel manufacturer, from 1993 to 1997, and a manager of Thin Film Technology
Development at the Electronics Research & Service Organization/Industry
Technology Research Institute, or ERSO/ITRI, of Taiwan. Dr. Wu holds a B.S.
degree, an M.S. degree and a Ph.D. degree in electrical engineering from
National Cheng Kung University. Dr. Wu is the brother of Mr. Jordan Wu, our
president and chief executive officer.
Jordan
Wu
is our president and chief executive officer. Prior to our reorganization
in
October 2005, Mr.
36
Wu
served as the chairman of the board of directors of Himax Taiwan, a position
that he held since April 2003. Mr. Wu is also the chairman of the board of
directors of Wisepal and Integrated Microdisplays and a director of Himax
Taiwan, Himax Display, Himax Analogic, Himax Samoa, Himax Anyang, Himax
Shenzhen, Himax Suzhou and Himax Imaging Ltd. 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.
Jung-Chun
Lin is our director. He has also been a director of Himax Taiwan since
June
2001, a director of Himax Display and a supervisor of Himax Analogic since
July
2004. Mr. Lin also serves as a director, senior vice president, chief financial
officer and chief accounting officer of CMO and a senior vice president of
Chi
Mei Corporation. Prior to joining CMO in 2000, Mr. Lin was vice president
of Chi
Mei Corporation and had been with Chi Mei Corporation since 1971. Mr. Lin
holds
a B.S. degree in accounting from National ChengChi University.
Dr.
Chun-Yen
Chang is our director. Prior to our reorganization in October 2005, he
served as a supervisor of Himax Taiwan since December 2003. He was president
of
the National Chiao Tung University, or NCTU, of Taiwan from 1998 to 2006.
Prior
to that, he served as the director of the Microelectronics and Information
Systems Research Center of NCTU from 1996 to 1998 and as the dean of both
the
College of Electrical Engineering and Computer Science of NCTU and the College
of Engineering of NCTU from 1990 to 1994. Dr. Chang has been active in the
semiconductor industry for over 40 years. He is a fellow of the Institute
of
Electrical and Electronics Engineers, Inc., or IEEE, a foreign associate
of the
National Academy of Engineering of the United States and a fellow of Academia
Sinica of Taiwan. Dr. Chang holds a B.S. degree in electrical engineering
from
National Cheng Kung University and an M.S. degree and a Ph.D. degree in
electrical engineering from National Chiao Tung University.
Yuan-Chuan
Horng
is our director. Prior to our reorganization in October 2005, Mr. Horng
served as a director of Himax Taiwan from August 2004 to October 2005. Mr.
Horng
is the general manager of the Finance Department of China Steel Corporation,
a
position he has held since April 2000. He has held various accounting and
finance positions at China Steel Corporation for over 30 years. Mr. Horng
holds
a B.A. degree in economics from Soochow University.
Other
Executive Officers
Chih-Chung
Tsai is our chief technology officer and senior vice president. Mr. Tsai
is
also a director and chief technology officer of Himax Taiwan, a director
of
Himax Display, Himax Anyang, Wisepal and Integrated Microdisplays, and a
supervisor of Himax Analogic. Prior to joining Himax Taiwan, Mr. Tsai served
as
vice president of IC Design of Utron Technology from 1998 to 2001, director
of
the IC Division of Sunplus Technology from 1994 to 1998, director of the
IC
Design Division of Silicon Integrated Systems Corp. from 1987 to 1993 and
project leader at ERSO/ITRI from 1981 to 1987. Mr. Tsai holds a B.S. degree
and
an M.S. degree in electrical engineering from National Chiao Tung
University.
Max
Chan is
our chief financial officer. Mr. Chan is also the chief financial officer
of
Himax Taiwan. Mr. Chan is also a supervisor of Wisepal. Prior to our
reorganization in October 2005, Mr. Chan served as director of the planning
division of Himax Taiwan from June 2004 to October 2005. Prior to joining
Himax
Taiwan, he was treasury manager of Intel Capital, the strategic investment
division of Intel Corporation in Taiwan from 2000 to 2004, senior associate
of
Credit Suisse First Boston Asia International (Cayman) Limited, Taiwan Branch
in
2000 and a manager of the Overseas Direct Investment Department of China
Development Industrial Bank from 1992 to 2000. Mr. Chan holds a B.S. degree
in
civil engineering and an M.B.A. degree in finance from National Taiwan
University and an M.S. degree in business administration from the University
of
Illinois at Urbana-Champaign.
Baker
Bai
is our vice president in charge of the Incubator System Design Center, a
director of Himax Taiwan and Himax Analogic, and a supervisor of Himax Display
and Himax Anyang. Prior to joining Himax Taiwan in 2001, Mr. Bai served
37
as
the director of the TFT Liquid Crystal Module Fab of CMO from 1998 to 2001,
research and development manager of the Research Center of Vate Technology
Inc.,
a semiconductor testing house, from 1994 to 1998, and research and development
engineer at Chun Shan Technology Institute from 1983 to 1994. Mr. Bai holds
a
B.S. degree in electrical engineering from National Cheng Kung University,
an
M.S. degree in electrical engineering from the University of Southern California
and an M.S. degree in electrical engineering from National Chiao Tung
University.
John
Chou
is our vice president in charge of the Quality & Reliability Assurance &
Support Design Center and also serves as a director of Himax Analogic. Prior
to
joining Himax in 2005, Mr. Chou served as the director of the Application
and
Marketing Department at Pyramis Corp., a subsidiary and the semiconductor
arm of
Delta Electronics Inc., from August 2002 to April 2005. Mr. Chou was application
manager at O2Micro, Inc., an integrated circuit design house, from 1997 to
2002
and design engineer and project manager at Philips Lighting Electronics from
1992 to 1996. Mr. Chou holds a B.S. degree in electrical engineering from
National Cheng Kung University and an M.S. degree in electrical engineering
from
California State University, Los Angeles.
Norman
Hung
is our vice president in charge of Sales and Marketing and also serves as
a
director of Himax Analogic and Wisepal. From 2000 to 2006, Mr. Hung served
as
president of ZyDAS Technology Corp., a fabless integrated circuit design
house. From 1999 to 2000, he served as vice president of Sales and
Marketing for HiMARK Technology Inc., another fabless integrated circuit
design
house. Prior to that, from 1996 to 1998, Mr. Hung served as Director
of Sales and Marketing for Integrated Silicon Solution, Inc. He has
also served in various Marketing positions for Hewlett-Packard and
Logitech. Mr. Hung holds a B.S. degree in electrical engineering from
National Cheng Kung University and an executive M.B.A. degree from National
Chiao Tung University.
Compensation
of Directors and Executive Officers
In
the year ended December 31, 2006, the aggregate cash compensation that we
paid
to our executive officers was approximately $0.52 million. The aggregate
share-based compensation that we paid to our executive officers was
approximately $0.76 million. No executive officer is entitled to any severance
benefits upon termination of his or her employment with us.
In
the year ended December 31, 2006, the aggregate cash compensation that we
paid
to our directors was approximately $20,000. The aggregate share-based
compensation that we paid to our directors was $43,100.
The
following table summarizes the RSUs that we granted in 2006 to our directors
and
executive officers under our 2005 long-term incentive plan.
|
Name
|
Total
RSUs
Granted
|
Ordinary
Shares
Underlying
Vested
Portion
of
RSUs
|
Ordinary
Shares
Underlying
Unvested
Portion
of
RSUs
|
|||||||||
|
Dr.
Biing-Seng
Wu
|
30,188
|
7,547
|
22,641
|
|||||||||
|
Jordan
Wu
|
71,581
|
17,895
|
53,686
|
|||||||||
|
Jung-Chun
Lin
|
0
|
0
|
0
|
|||||||||
|
Dr.
Chun-Yen
Chang
|
0
|
0
|
0
|
|||||||||
|
Yuan-Chuan
Horng
|
0
|
0
|
0
|
|||||||||
|
Chi-Chung
Tsai
|
71,581
|
17,895
|
53,686
|
|||||||||
|
Max
Chan
|
23,872
|
5,968
|
17,904
|
|||||||||
|
Baker
Bai
|
43,441
|
10,860
|
32,581
|
|||||||||
|
John
Chou
|
38,747
|
22,500
|
16,247
|
|||||||||
|
Norman
Hung
|
37,672
|
11,667
|
26,005
|
|||||||||
38
Board
Practices
General
Our
board of directors consists of five directors, two of whom are independent
directors within the meaning of Rule 4200(a)(15) of the Nasdaq Stock Market,
Inc. Marketplace Rules, or the Nasdaq Rules, as amended from time to
time. We intend to follow home country practice
that permits our board of directors to have less than a majority of independent
directors in lieu of complying with Rule 4350(c)(1) of the Nasdaq Rules that
require boards of U.S. companies to have a board of directors comprised of
a
majority of independent directors. Moreover, we intend to follow home country
practice that permits our independent directors not to hold regularly scheduled
meetings at which only independent directors are present in lieu of complying
with Rule 4350(c)(2).
Committees
of the Board of Directors
To
enhance our corporate governance, we have established three committees under
the
board of directors prior to the closing of this offer: the audit committee,
the
compensation committee and the nominating and corporate governance committee.
We
have adopted a charter for each of the three committees. Each committee’s
members and functions are described below.
Audit
Committee. Our audit committee currently consists of Yuan-Chuan
Horng and Dr. Chun-Yen Chang. Our board of directors has determined that
all of
our audit committee members are “independent directors” within the meaning of
Rule 4200(a)(15) of the Nasdaq Rules and meet the criteria for independence
set
forth in Section 10A(m)(3)(B)(i) of the Exchange Act. We intend to follow
home
country practice that permits an audit committee to contain two independent
directors in lieu of complying with Rule 4350(d) of the Nasdaq Rules that
requires the audit committees of U.S. companies to have a minimum of three
independent directors. Our audit committee will oversee our accounting and
financial reporting processes and the audits of our financial statements.
The
audit committee will be responsible for, among other things:
|
·
|
selecting
the
independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent
auditors;
|
|
·
|
reviewing
with
the independent auditors any audit problems or difficulties and
management’s response;
|
|
·
|
reviewing
and
approving all proposed related party transactions, as defined in
Item 404
of Regulation SK under the Securities Act;
|
|
·
|
discussing
the
annual audited financial statements with management and the independent
auditors;
|
|
·
|
reviewing
major issues as to the adequacy of our internal controls and any
special
audit steps adopted in light of material internal control
deficiencies;
|
|
·
|
annually
reviewing and reassessing the adequacy of our audit committee
charter;
|
|
·
|
meeting
separately and periodically with management and the independent
auditors;
|
|
·
|
reporting
regularly to the board of directors; and
|
|
·
|
such
other
matters that are specifically delegated to our audit committee
by our
board of directors from time to
time.
|
Compensation
Committee. Our current compensation committee consists of
Yuan-Chuan Horng, Dr. Chun-Yen Chang and Jung-Chun Lin. Our compensation
committee assists our board of directors in reviewing and approving the
compensation structure, including all forms of compensation, relating to
our
directors and executive officers. Our chief executive officer may not be
present
at any committee meeting while his compensation is deliberated. We intend
to
follow home country practice that permits a compensation committee to contain
a
director that does not meet the definition of “independence” within the meaning
of Rule 4200(a) (15) of the Nasdaq Rules. We intend to follow home country
practice in lieu of complying with Rule 4350(c)(3)(A)(ii) and (B)(ii) of
the
Nasdaq Rules that 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:
39
|
·
|
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, Dr. Chun-Yen
Chang
and Jung-Chun Lin. We intend to follow home country practice that permits
a
nominating committee to contain a director that does not meet the definition
of
“independence” within the meaning of Rule 4200(a) (15) of the Nasdaq Rules. We
intend to follow home country practice in lieu of complying with Rule 4350(c)
(4) (A) (ii) and (B) (ii) of the Nasdaq Rules that requires the nominating
committees of U.S. companies be comprised solely of independent directors.
Our
nominating and corporate governance committee will be responsible for, among
other things:
|
·
|
identifying
and recommending to our board of directors nominees for election
or
re-election, or for appointment to fill any vacancy;
|
|
·
|
reviewing
annually with our board of directors the current composition of
our board
of directors in light of the characteristics of independence, age,
skills,
experience and availability of service to us;
|
|
·
|
reviewing
the
continued board membership of a director upon a significant change
in such
director’s principal occupation;
|
|
·
|
identifying
and recommending to our board of directors the names of directors
to serve
as members of the audit committee and the compensation committee,
as well
as the nominating and corporate governance committee
itself;
|
|
·
|
advising
the
board periodically with respect to significant developments in
the law and
practice of corporate governance as well as our compliance with
applicable
laws and regulations, and making recommendations to our board of
directors
on all matters of corporate governance and on any corrective action
to be
taken; and
|
|
·
|
monitoring
compliance with our code of business conduct and ethics, including
reviewing the adequacy and effectiveness of our procedures to ensure
proper compliance.
|
Terms
of
Directors and Officers
Under
Cayman Islands
law and our articles of association, our directors hold office until a successor
has been duly elected and qualified unless the director was appointed by
the
board of directors, in which case such director holds office until the next
annual meeting of shareholders at which time such director is eligible for
re-election. Our directors are subject to periodic retirement and re-election
by
shareholders in accordance with our articles of association, resulting in
their
retirement and re-election at staggered intervals. At each annual general
meeting, one-third of our directors who are subject to retirement by rotation,
or if their number is not a multiple of three, the nearest to one-third but
not
exceeding one-third, retire from office. Any retiring director is eligible
for
reappointment. The Chairman of our board of directors will not be subject
to
retirement by rotation or be taken into account in determining the number
of
directors to retire in each year. Under this formula, assuming five directors
continue to serve on the board of directors, one director will retire and
be
subject to re-election in each year beginning 2006, and until 2009, the term
that each director serves before he is subject to retirement by rotation
will
vary from one
40
year
to four years.
Under our articles of association, which director will retire at each annual
general meeting will be determined as follows: (i) any director who wishes
to
retire and not offer himself for re-election, (ii) if no director wishes
to
retire, the director who has been longest in office since his last re-election
or appointment, (iii) if two or more directors have served on the board the
longest, then as agreed among the directors themselves or as determined by
lot.
Beginning in 2010, assuming that our board of directors consists of five
directors, each director will serve a term of four years. All of our executive
officers are appointed by and serve at the discretion of our board of
directors.
Employees
As
of December 31, 2004, 2005 and 2006, we had 469, 716 and 924 employees,
respectively. The following is a breakdown of our employees by
function as of December 31, 2006:
|
Function
|
Number
|
|||
|
Research
and
development(1)
|
615
|
|||
|
Engineering
and manufacturing(2)
|
125
|
|||
|
Sales
and
marketing(3)
|
120
|
|||
|
General
and
administrative
|
64
|
|||
|
Total
|
924
|
|||
|
Notes:
|
(1)
|
Includes
semiconductor design engineers, application engineers, assembly
and
testing engineers and quality control engineers.
|
|
(2)
|
Includes
manufacturing personnel of Himax Display, our subsidiary focused
on design
and manufacturing of LCOS products and liquid crystal injection
services.
|
|
|
(3)
|
Includes
field
application engineers.
|
Share
Ownership
The
following table sets forth the beneficial ownership of our ordinary shares,
as
of June 1, 2007, by each of our directors and executive officers.
|
Name
|
Number of
Shares
Owned
|
Percentage
of Shares Owned
|
||||||
|
Dr.
Biing-Seng
Wu
|
31,578,765
|
15.98 | % | |||||
|
Jordan
Wu
|
10,906,363
|
5.52 | % | |||||
|
Jung-Chun
Lin
|
|
|
|
|
||||
|
Dr.
Chun-Yen
Chang
|
794,807
|
*
|
||||||
|
Yuan-Chuan
Horng
|
453,052
|
*
|
||||||
|
Chih-Chung
Tsai
|
2,922,012
|
1.48 | % | |||||
|
Max
Chan
|
61,247
|
*
|
||||||
|
Baker
Bai
|
2,281,364
|
1.15 | % | |||||
|
John
Chou
|
39,863
|
*
|
||||||
|
Norman
Hung
|
23,997
|
*
|
||||||
|
|
*
Less than
1%
|
|
|
None
of our
directors or executive officers has different voting rights from
other
shareholders.
|
Dividends
and Dividend Policy
Our
dividend policy is to retain most, if not all, of our available funds and
any
future earnings for use in the operation and growth of our
business.
In
November 2005, we distributed a special cash dividend to our shareholders
in the
amount of approximately $13.6 million, or the equivalent of approximately
$0.075
per share based on our total shares outstanding as of a certain record date.
This dividend was paid to our shareholders in respect of our performance
prior
to our initial public offering. We decided to pay the dividend in cash instead
of shares because our ordinary shares at the time of the dividend
payment
41
was
not listed on any stock exchange and therefore had limited liquidity. This
dividend was approved by our board of directors and was financed through
a loan.
This special dividend should not be considered representative of the dividends
that would be paid in any future periods or our dividend policy. In 2006,
we did
not distribute any dividends.
Our
board of directors has full discretion as to whether we will distribute
dividends in the future. Even if our board of directors decides to distribute
dividends, the form, frequency and amount of such dividends will depend upon
our
future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and other factors as the board
of
directors may deem relevant.
Our
ability to pay cash or stock dividends will depend upon the amount of
distributions, if any, received by us from our direct and indirect subsidiaries,
which must comply with the laws and regulations of their respective countries
and respective articles of association. Since its inception in June 2001,
Himax
Taiwan has paid stock dividends in an amount of 13,517,773 shares on September
1, 2003 and 42,976,372 shares on September 20, 2004 with respect to the fiscal
years 2002 and 2003, respectively. However, Himax Taiwan has not paid cash
dividends in the past. In accordance with ROC laws and regulations and Himax
Taiwan’s articles of incorporation, Himax Taiwan is permitted to distribute
dividends after allowances have been made for:
|
·
|
payment
of
taxes;
|
|
·
|
recovery
of
prior years’ deficits, if any;
|
|
·
|
legal
reserve
(in an amount equal to 10% of annual net income after having deducted
the
above items until such time as its legal reserve equals the amount
of its
total paid-in capital);
|
|
·
|
special
reserve based on relevant laws or regulations, or retained earnings,
if
necessary;
|
|
·
|
dividends
for
preferred shares, if any; and
|
|
·
|
cash
or stock
bonus to employees (in an amount less than 10% of annual net income)
and
remuneration for directors and supervisor(s) (in an amount less
than 2% of
the annual net income); after having deducted the above items,
based on a
resolution of the board of directors; if stock bonuses are paid
to
employees, the bonus may also be appropriated to employees of subsidiaries
under the board of directors’
approval.
|
Furthermore,
if
Himax Taiwan does not record any net income for any year as determined in
accordance with generally accepted accounting principles in Taiwan, it generally
may not distribute dividends for that year.
If
we are not able to satisfy our undertakings to the ROC Investment Commission,
Himax Taiwan may not be able to pay dividends to us, which may adversely
affect
your ability to receive dividends because we rely on Himax Taiwan and our
other
subsidiaries for dividend payments, if any, to our shareholders. If we failed
to
satisfy the undertakings we made to the ROC Investment Commission in connection
with our application seeking approval of the share exchange, the ROC Investment
Commission could take actions against us that would materially and adversely
affect our business, financial condition and results of operations and decrease
the value of our ADSs.
Any
dividend we declare will be paid to the holders of ADSs, subject to the terms
of
the deposit agreement, to the same extent as holders of our ordinary shares,
to
the extent permitted by applicable law and regulations, less the fees and
expenses payable under the deposit agreement. Any dividend we declare will
be
distributed by the depositary bank to the holders of our ADSs. Cash dividends
on
our ordinary shares, if any, will be paid in U.S. dollars.
42
●Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders
Himax
Technologies,
Inc.:
We
have audited the accompanying consolidated balance sheets of Himax Technologies,
Inc. (a Cayman Island Company) and subsidiaries as of December 31, 2005
and
2006, and the related consolidated statements of income, comprehensive
income,
stockholders’ equity and cash flows for each of the years in the three-year
period ended December 31, 2006. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financials
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatements. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Himax Technologies,
Inc. and subsidiaries as of December 31, 2005 and 2006, and the results
of their
operations and their cash flows for each of the years in the three-year
period
ended December 31, 2006, in conformity with U. S. generally accepted accounting
principles.
As
described in the Notes 2 and 13 to the consolidated financial statements,
the
Company adopted the recognition and disclosure provisions of Statements
of
Financial Accounting Standards No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, as of December 31,
2006.
/s/
KPMG Certified Public Accountants
Taipei,
Taiwan (the
Republic of China)
May
28, 2007
43
HIMAX
TECHNOLOGINES,
INC. AND SUBSIDIARIES
●Consolidated
Balance Sheets
December
31, 2005
and 2006
|
(in
thousands
of US dollars)
|
||||||||
|
December
31,
|
||||||||
|
2005
|
2006
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash
equivalents
|
$ |
7,086
|
109,753
|
|||||
|
Marketable
securities available-for-sale
|
3,989
|
8,828
|
||||||
|
Restricted
cash equivalents and marketable securities
|
14,053
|
108
|
||||||
|
Accounts
receivable, less allowance for doubtful accounts,
|
||||||||
|
sales
returns
and discounts of $80 and $464 at
|
||||||||
|
December
31,
2005 and 2006, respectively
|
80,259
|
112,767
|
||||||
|
Accounts
receivable from related parties, less allowance for
|
||||||||
|
sales
returns
and discounts of $101 and $404 at
|
||||||||
|
December
31,
2005 and 2006, respectively
|
69,587
|
116,850
|
||||||
|
Inventories
|
105,004
|
101,341
|
||||||
|
Deferred
income taxes
|
8,965
|
6,744
|
||||||
|
Prepaid
expenses and other current assets
|
11,113
|
10,324
|
||||||
|
Total
current assets
|
300,056
|
466,715
|
||||||
|
Property,
plant, and equipment, net
|
24,426
|
38,895
|
||||||
|
Deferred
income taxes
|
151
|
11,405
|
||||||
|
Intangible
assets, net
|
81
|
393
|
||||||
|
Investments
in non-marketable securities
|
1,813
|
817
|
||||||
|
Refundable
deposits and prepaid pension costs
|
712
|
569
|
||||||
|
27,183
|
52,079
|
|||||||
|
Total
assets
|
$ |
327,239
|
518,794
|
|||||
See
accompanying notes to consolidated financial
statements.
44
HIMAX
TECHNOLOGINES,
INC. AND SUBSIDIARIES
●Consolidated
Balance Sheets–continued
December
31, 2005
and 2006
|
(in
thousands
of US dollars,
except
share
and per share data)
|
||||||||
|
December
31,
|
||||||||
|
2005
|
2006
|
|||||||
|
Liabilities,
Minority Interest and Stockholders’ Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Short-term
debt
|
$ |
27,274
|
–
|
|||||
|
Current
portion of long-term debt
|
89
|
–
|
||||||
|
Accounts
payable
|
105,801
|
120,407
|
||||||
|
Income
tax
payable
|
13,625
|
11,666
|
||||||
|
Other
accrued
expenses and other current liabilities
|
13,995
|
21,206
|
||||||
|
Total
current liabilities
|
160,784
|
153,279
|
||||||
|
Accrued
pension liabilities
|
–
|
192
|
||||||
|
Total
liabilities
|
160,784
|
153,471
|
||||||
|
Minority
interest
|
624
|
1,396
|
||||||
|
Stockholders’
equity:
|
||||||||
|
Ordinary
share, US$0.0001 par value, 500,000,000 shares authorized;
|
||||||||
|
182,088,880
and 193,600,302 shares issued and outstanding at
|
||||||||
|
December
31,
2005 and 2006, respectively
|
18
|
19
|
||||||
|
Additional
paid-in capital
|
98,450
|
221,666
|
||||||
|
Accumulated
other comprehensive income (loss)
|
36
|
(275 | ) | |||||
|
Unappropriated
retained earnings
|
67,327
|
142,517
|
||||||
|
Total
stockholders equity
|
165,831
|
363,927
|
||||||
|
Commitments
and contingencies
|
||||||||
|
Total
liabilities, minority interest and stockholders
equity
|
$ |
327,239
|
518,794
|
|||||
See
accompanying notes to consolidated financial
statements. 45
HIMAX
TECHNOLOGINES,
INC. AND SUBSIDIARIES
●Consolidated
Statements of Income
Years
ended December
31, 2004, 2005 and 2006
|
(in
thousands
of US dollars, except per share data)
|
||||||||||||
|
Year
Ended December 31,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
Revenues
|
||||||||||||
|
Revenues
from
third parties, net
|
$ |
109,514
|
217,420
|
329,886
|
||||||||
|
Revenues
from
related parties, net
|
190,759
|
322,784
|
414,632
|
|||||||||
|
300,273
|
540,204
|
744,518
|
||||||||||
|
Costs
and expenses:
|
||||||||||||
|
Cost
of
revenues
|
235,973
|
419,380
|
601,565
|
|||||||||
|
Research
and
development
|
24,021
|
41,278
|
60,655
|
|||||||||
|
General
and
administrative
|
4,654
|
6,784
|
9,762
|
|||||||||
|
Sales
and
marketing
|
2,742
|
4,762
|
6,970
|
|||||||||
|
Total
costs and expenses
|
267,390
|
472,204
|
678,952
|
|||||||||
|
Operating
income
|
32,883
|
68,000
|
65,566
|
|||||||||
|
Non
operating income (loss):
|
||||||||||||
|
Interest
income
|
72
|
580
|
5,860
|
|
||||||||
|
Gain
on sale
of marketable securities, net
|
401
|
105
|
60
|
|||||||||
|
Other
than
temporary impairment loss on investments
|
||||||||||||
|
in
non-marketable securities
|
–
|
(129 | ) | (1,500 | ) | |||||||
|
Foreign
exchange gains (losses), net
|
847
|
1,808
|
(341 | ) | ||||||||
|
Interest
expense
|
(6 | ) | (125 | ) | (311 | ) | ||||||
|
Other
income,
net
|
5
|
19
|
173
|
|||||||||