Himax Technologies, Inc. Reports Third Quarter 2018 Financial Results and Provides Fourth Quarter 2018 Guidance

Company Exceeds Q3 2018 Revenue, Gross Margin and EPS Guidance and Met Its Pre-Announced Key Financial Results

Provides Q4 2018 Guidance Revenue to be around Flat to up 5.0% Sequentially, Gross Margin to be around 24.2% to 25.2%, IFRS EPS to be around 1.5 to 3.6 Cents

• Q3 revenue increased 3.9% QoQ to $188.4M, exceeding guidance of around flat from the last quarter
• Product sales: large driver ICs, 35.2% of revenue, up 9.4% QoQ; small and medium-sized driver ICs, 45.1% of revenue, down 4.8% QoQ; non-driver products, 19.7% of revenue, up 18.0% QoQ
• Q3 IFRS gross margin was 23.4%, up 40 bps sequentially due to improved product mix and exceeding guidance of around 22.5%
• Q3 IFRS earnings was $0.9M, or 0.5 cents per diluted ADS, higher than guidance of around -1.0 cent
• Q3 Non-IFRS earnings was $4.5M, or 2.6 cents per diluted ADS, higher than guidance of around 1.5 cents
• Expect 4Q18 TDDI revenue to double from 3Q18 due to ramping of new capacity to fulfill more customer orders from design-wins
• Expect 4Q18 WLO shipment to increase significantly sequentially, the overall 2018 shipment will increase considerably year-over-year
• 3D sensing adoption remains low for the Android smartphone makers due to the prevailing high hardware cost, long development lead time required for integration and the lack of killer applications which is limited to phone unlock and online payment 
• Reacting to Android smartphone makers’ lukewarm response, the Company is working on the next generation 3D sensing with an aim to leapfrog the market by providing high performance, easy to adopt and yet cost friendly total solutions, targeting most of the Android smartphone players
• Company remains positive on its long-term business outlook

TAINAN, Taiwan, Nov. 08, 2018 (GLOBE NEWSWIRE) — Himax Technologies, Inc. (Nasdaq: HIMX) (“Himax” or “Company”), a leading supplier and fabless manufacturer of display drivers and other semiconductor products, announced its financial results for the third quarter ended September 30, 2018.

The Company’s third quarter 2018 revenues, gross margin and EPS all exceeded guidance as it previously announced on October 5^th. The revenues increase in the quarter was attributed to greater-than-expected production outputs of the new foundries for both large display driver ICs and TDDI chips that allowed Himax to fulfill more customer orders.  As anticipated, its WLO shipment volume to an anchor customer also increased significantly against that of Q2 2018. Gross margin was 23.4%, up 40 basis points sequentially, outperforming the guidance by 90 basis points. A more favorable product mix and stronger-than-expected engineering fees from project engagements enhanced the gross margin.

“As indicated in the last earnings call, we are confident that we are moving out of the trough and will deliver better performance in the fourth quarter and next year. We are seeing solid growth momentum in the areas of TDDI, WLO and large display driver IC in the fourth quarter, despite the prevailing weak sentiment in the overall consumer electronics and in particular the smartphone market. Traditional discrete display driver for smartphone, however, will continue to decline in Q4 as it is being quickly replaced by TDDI and AMOLED as we mentioned repeatedly. The other area of decline in Q4 will be the display driver for tablet, a sector which is still experiencing weak market demand,” said Mr. Jordan Wu, President and Chief Executive Officer of Himax.

“We expect our large display driver IC business will grow sequentially benefiting from Chinese panel makers’ strong demand and our newly added foundry capacity to improve order fulfillment, despite the new emergence of an industry wide capacity constraint in large panel display driver’s packaging. For the small and medium-sized business, we expect our TDDI revenue of fourth quarter to double from the last quarter, attributed to the ramping of the new foundry capacity to fulfill more customer orders. We target to completely resolve our TDDI foundry capacity issue in the third quarter of next year. As expected, our traditional discrete driver IC sales into smartphone is set to decline by close to 50% sequentially in the fourth quarter as the market is being quickly replaced by TDDI and AMOLED. This segment will account for less than 5% of our total sales in the fourth quarter. Combining TDDI and discrete smartphone driver, our Q4 sales into the smartphone market is expected to grow more than 20% sequentially.”

“For the non-driver areas, we expect the WLO shipment for the fourth quarter will have a very significant sequential growth thanks to the customer’s large-scale adoption on more models. As to our 3D sensing business, we have participated in most of the smartphone OEMs’ ongoing 3D sensing projects covering all three types of technologies, namely structured light, active stereo camera (ASC) and time-of-flight, where we provide 3D sensing total solution or just the projector or optics inside the module, depending on the customers’ needs. By offering either the projector or critical optics, we are already collaborating with a small handful of smartphone names that have in-house capability to come up with their own customized 3D sensing solutions. We already have one such end customer using our technology for mass production with two more in the pipeline targeting 2019 product launch. For most Android smartphone makers who don’t have such in-house capability, however, we aim to provide total solution to enable their 3D sensing. At present, the 3D sensing adoption for this market remains low. The adoption is hindered primarily by the prevailing high hardware cost of 3D sensing, the long development lead time required to integrate it into the smartphone and the lack of killer applications. Instead of 3D sensing, most of the Android phone makers have chosen the lower cost finger print technology which can achieve similar phone unlock and online payment functions with somewhat compromised user experience. Reacting to their lukewarm response, we are working on the next generation 3D sensing with an aim to leapfrog the market by providing high performance, easy to adopt and yet cost friendly total solutions, targeting most of the Android smartphone players. We believe that 3D sensing will be widely used by more Android smartphone makers when the ecosystem is able to substantially lower the cost of adoption while offering easy to use, fully integrated total solutions, for which Himax is playing a key part,” said Mr. Jordan Wu.

Third Quarter 2018 Financial Results

The third quarter revenues of $188.4 million represented an increase of 3.9% sequentially and a decrease of 4.4% year-over-year. Gross margin was 23.4%, up 0.4% sequentially.  IFRS earnings per diluted ADS were 0.5 cents, higher than the guidance of -1.0 cent per diluted ADS. Non-IFRS earnings were 2.6 cents per diluted ADS, higher than guidance of around 1.5 cents.

Revenue from large display drivers was $66.3 million, up 9.4% sequentially, and up 20.6% year-over-year, driven by increasing 4K TV penetration and Chinese panel customers’ ramping of new LCD fabs. Large panel driver ICs accounted for 35.2% of the Company’s total revenues for the third quarter, compared to 33.4% in the second quarter of 2018 and 27.9% a year ago.

Revenue for small and medium-sized display drivers came in at $85.0 million, down 4.8% sequentially and down 2.6% year-over-year. The driver ICs for the segment accounted for 45.1% of total sales for the third quarter, as compared to 49.2% in the second quarter of 2018 and 44.2% a year ago. Sales into smartphones were down 30.5% sequentially, as opposed to 40% that the Company indicated in the last earnings call, due to better-than-expected TDDI production output in the early ramp of its new foundry. With the major addition of TDDI capacity available to the Company, Himax is very optimistic about the smartphone business growth in Q4 and next year.

Driver IC revenue for automotive applications recorded another historical quarter, up 18.3% sequentially and 55.4% year-over-year. The quarterly revenue reached $33.9 million, accounting for more than 22% of the Company’s driver IC revenue. Himax is happy with the strong momentum and its leading market position in this space.

Revenues from non-driver businesses were $37.1 million, up 18.0% sequentially but down 32.5% from last year. Non-driver products accounted for 19.7% of total revenues, as compared to 17.4% in the second quarter of 2018 and 27.9% a year ago. The sequential increase was mainly driven by the significantly higher WLO shipments to an anchor customer. The year-over-year decrease was due mainly to certain one-off customer reimbursement totaling $13.3 million booked in Q3 2017 in relation to the AR goggle business. The Company expects WLO shipments to continue to increase strongly in the fourth quarter and into 2019.  

IFRS gross margin for the third quarter was 23.4%, up 40 basis points from 23.0% in the second quarter of 2018 but down 210 basis points from the same period last year. The sequential increase was due mainly to improved product mix. The year-over-year decrease was, again, due to the one-off customer reimbursement mentioned above. The reimbursement accounted for 120 basis points in Q3 2017.

IFRS operating expenses were $43.4 million in the third quarter, up 5.0% from the preceding quarter and down 7.7% from a year ago. The sequential expense increase was caused by $3.8 million of RSU expense, offset by R&D and salary expenses reduction of $1.7 million. The year-over-year decrease was mainly a result of reduced RSU and R&D expenses. As an annual practice, Himax rewards employees with an annual bonus at the end of September which always leads to a substantial increase in the third quarter IFRS operating expenses compared to the other quarters of the year. This year, the RSU grant totaled $3.9 million, out of which $3.8 million was vested immediately and expensed in the third quarter. The remainder will be vested equally at the first, second, and third anniversaries of the grant date. The non-IFRS operating expenses for the third quarter were $38.8 million, down 5.3% from the previous quarter and down 3.6% from the same quarter 2017.

IFRS operating margin for the third quarter was 0.4%, down from 1.7% in the same period last year and little changed from 0.3% in the prior quarter.

Third quarter non-IFRS operating income was $5.4 million, or 2.9% of sales, down from 5.2% for the same period last year and up from 0.5% a quarter ago.

IFRS profit for the third quarter was $0.9 million, or 0.5 cents per diluted ADS, compared to $2.0 million, or 1.2 cents per diluted ADS, in the previous quarter and $3.6 million, or 2.1 cents per diluted ADS, a year ago. The year-over-year decrease was, again, due to the one-off customer reimbursement mentioned above.

Third quarter non-IFRS profit was $4.5 million, or 2.6 cents per diluted ADS, compared to $2.3 million, or 1.3 cents per diluted ADS last quarter and $8.9 million, or 5.2 cents per diluted ADS the same period last year.

Balance Sheet and Cash Flow

Himax had $102.9 million of cash, cash equivalents and other financial assets as of the end of September 2018, compared to $151.6 million at the same time last year and $126.7 million a quarter ago. The cash position dropped $23.8 million from last quarter due primarily to the dividend payout of $17.2M and capex of $8.2 million. On top of the above cash position, restricted deposit was $164.3 million at the end of the quarter, as compared to $147.0 million in the preceding quarter and $147.2 million a year ago. The increase is due to additional restricted cash deposit made to guarantee the dividend payment withdrawn from the banking facility in the quarter. The restricted deposit is mainly used to guarantee the Company’s short-term borrowings for the same amount.  

Himax’s inventories were $145.8 million as of September 30, 2018, up from $142.1 million a quarter ago and $130.1 million at the same time last year. Accounts receivable at the end of September 2018 were $187.6 million as compared to $183.2 million a year ago and $176.3 million last quarter. DSO was 96 days at the end of September 2018, as compared to 99 days a year ago and 93 days at end of the last quarter.

Net cash inflow from operating activities for the third quarter was $2.2 million as compared to an inflow of $16.9 million for the same period last year and an outflow of $2.8 million last quarter. The year over year variance is mainly due to inventory pre-build in reaction to foundry capacity shortage. We expect this will repeat in the fourth quarter.

Capital expenditures were $8.2 million in the third quarter versus $10.1 million a year ago and $17.7 million last quarter. The third quarter capex consisted mainly of ongoing payments for the new building’s construction, WLO capacity expansion and installation of active alignment equipment for Himax’s 3D sensing business.

Share Buyback Update

As of September 30, 2018, Himax had 172.1 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total ADS outstanding are 172.5 million.

2018 Investor Outreach and Conferences

Ms. Jackie Chang, CFO, Ms. Ophelia Lin, internal IR Deputy Director, Mr. Sky Wang, internal IR, and Mr. John Mattio, Himax’s US-based external IR, will maintain corporate access for shareholders and attend future investor conferences. If you are interested in speaking with the management, please contact Himax’s US or Taiwan-based investor relations contact at the numbers below.

Q4 2018 Outlook

The Company is confident that its moving out of the trough and will deliver better performance in the fourth quarter and next year. Himax is seeing solid growth momentum in the areas of TDDI, WLO and large display driver IC in the fourth quarter, despite the prevailing weak sentiment in the overall consumer electronics and in particular the smartphone market in the fourth quarter. Traditional discrete display driver for smartphone, however, will continue to decline in Q4 as it is being quickly replaced by TDDI and AMOLED as Himax mentioned repeatedly. The other area of decline in Q4 will be the display driver for tablet, a sector which is still experiencing weak market demand.

Comparing to the third quarter revenues, Himax expects a high single digit growth for large driver ICs; a low single digit decline for small and medium-sized driver IC and a low single digit growth for its non-driver IC business.

Display Driver IC Market
LDDIC
Large display driver IC business recorded high-single-digit growth in the third quarter due mainly to a few factors, namely, improved supply from the newly added foundry capacity, Himax’s Chinese panel customers’ ongoing capacity expansion, and shipment to a new panel customer who only started ramping up their first fab lately. The ramping of the Company’s new foundry was in good progress as more of its panel customers completed qualification with their customers for the new capacity. Looking into Q4, the Company is seeing continued strength in customer demands and it is able to improve the order fulfillment from last quarter, despite the new emergence of an industry-wide capacity constraint in relation to packaging of the large panel display driver IC.  With that, Himax expects large display driver business to increase by high single digit sequentially.

Looking into the future, many TV manufacturers are planning on introducing consumer-grade super high-end products with 8K resolution, which will benefit Himax’s large panel display driver as well as timing controller businesses. One of the Company’s industry leading customers will be launching a new 8K TV with Himax technology inside in early 2019 and the Company expects more to come from this and other customers in the future. Capitalizing on its 4K TV success, Himax is strongly positioned for this emerging high-end market opportunity.

SMDDIC
Himax was able to start mass production of TDDI at the new foundry earlier than the original schedule and achieved greater-than-expected output yield at the early stage of mass production. With the ramping of the new capacity, its constraint of TDDI shipment will be increasingly alleviated starting from the fourth quarter. The Company will be able to fulfill more customer orders from the design-wins it already achieved, thereby doubling the revenue of Q4 from the last quarter. With the new capacity’s continued ramping, Himax targets to completely resolve its foundry capacity issue in the third quarter of next year. For the time being when its capacity remains a constraint, Himax’s resources are prioritized for higher end FHD projects as they yield higher revenue and better margin with less competition.

TDDI penetration is expected to reach more than 30% in smartphone in 2019, representing a tremendous upside potential for Himax. Backed by the new foundry capacity and fast expanding design-win portfolio with tier 1 smartphone OEMs and leading panel makers, Himax is well positioned to win a major market share in this new space, repeating its historical success in the smartphone display driver IC business. The Company believes TDDI will be the biggest growth driver for its business in 2019. With higher ASP and better margin, TDDI chips will help improve Himax’s corporate sales and profit significantly in 2019.

As expected, Himax’s traditional discrete driver IC sales into smartphone is set to decline by close to 50% sequentially in the fourth quarter as the market is being quickly replaced by TDDI and AMOLED. This segment will account for less than 5% of our total sales in the fourth quarter.  Combining TDDI and discrete smartphone driver, the Company’s Q4 sales into the smartphone market is expected to grow more than 20% sequentially.

During the third quarter, the Company’s automotive business continued to perform well and recorded another historical high, delivering a 44.4% growth YOY through nine-month 2018. The demands for more sophisticated and higher performing displays are still rising with automakers. The Company’s technological prowess will continue to separate it from the rest as, for the next generation display for automotive, Himax is the leader in key technologies such as TDDI, AMOLED and local dimming timing controller. Q4 revenue in this segment is set to grow around low single digit sequentially as the Company continues to benefit from its design-wins which took place during the last few years.

Himax’s tablet and consumer electronics businesses are expected to decline by over 30% sequentially driven by weak overall market momentum. They account for less than 10% of its total sales in the fourth quarter.

For fourth-quarter small and medium-sized driver IC business, the company expects revenue to decrease by low single digit sequentially.

Non-Driver Product Categories
The non-driver IC business segment has been the Company’s most exciting growth area and a differentiator for Himax in the past few years.

3D Sensing Solutions
As a leader in 3D sensing, Himax has participated in most of the smartphone OEMs’ ongoing 3D sensing projects covering all three types of technologies, namely structured light, active stereo camera (ASC) and time-of-flight, where it provides 3D sensing total solution, or just the projector or optics inside the module, depending on the customers’ needs. By offering either the projector or critical optics, Himax has been collaborating with a small handful of smartphone names that have in-house capability to come up with their own customized 3D sensing solutions. Himax already has one such end customer using its technology for mass production with two more in the pipeline targeting 2019 product launch. For most Android smartphone makers who don’t have such in-house capability, however, the Company aims to provide total solution to enable their 3D sensing. At present, the 3D sensing adoption for this market remains low. The adoption is hindered primarily by the prevailing high hardware cost of 3D sensing and the long development lead time required for 3D sensing to integrate it into the smartphone and the lack of killer applications. Instead of 3D sensing, most of the Android phone makers have chosen the lower cost finger print technology which can achieve similar phone unlock and online payment functions with somewhat compromised user experience. Reacting to their lukewarm response, Himax is working on the next generation 3D sensing with an aim to leapfrog the market by providing high performance, easy to adopt and yet cost friendly total solutions, targeting most of the Android smartphone players. In addition, Himax is providing 3D sensing developer kit which is being used to develop applications over both smartphone and non-smartphone platforms. Himax believes that 3D sensing will be widely used by more Android smartphone makers when the ecosystem is able to substantially lower the cost of adoption while offering easy-to-use, fully-integrated total solutions, for which Himax is playing a key part.

The Company has mentioned previously that 3D sensing can have a wide range of applications beyond smartphone. While smartphone remains its top priority, the Company has started to explore business opportunities in various industries by leveraging its SLiM^TM 3D sensing total solution. Such industries are typically less sensitive to cost and always require a total solution. Himax recently announced collaboration with Kneron, an industry leader in edge-based artificial intelligence, to develop an AI-enabled 3D sensing security and surveillance solution is just an example of real world applications using its 3D sensing technology.

WLO
The fourth quarter will see another very significant sequential growth thanks to the customer’s large-scale adoption on more models. The overall 2018 shipment will increase considerably year-over-year. Meanwhile, Himax is encouraged by the progress of the ongoing R&D projects with the said customer for their next generation products centering around its exceptional design know-how and mass production expertise in WLO technology.

As the Company mentioned previously, it is already collaborating with a small handful of smartphone makers that have in-house capability to come up with their own customized 3D sensing solutions targeting 2019 product launch. For these customers, the Company provides full projectors or critical optics inside the 3D sensing module of which WLO optics is a major component.  

CAPEX
The Company announced the increase of the Phase I capital expenditure budget, which is on top of its regular capex for the IC design business, from $80 million to $105 million in early 2018. The majority of the Phase I investment goes to land and building, new equipment for the WLO anchor customer, and an initial capacity of 2 million units per month for 3D sensing. Of the Phase I capex of $105 million budget, $33 million has been paid out in 2017, followed by $38.6 million made in the first nine months of 2018.

As the Company mentioned in previous earnings calls, the capex budget will be funded through its internal resources and banking facilities. Himax has more than sufficient banking facilities with favorable cost for such capex budget.

CMOS Image Sensor
On CMOS image sensor business updates, Himax continues to make great progress with its two machine vision sensor product lines, namely, near infrared (“NIR”) sensor and Always-on-Sensor (“AoS^TM”). NIR sensor is a critical part for both of the Company’s structured light and ASC 3D sensing total solutions. On the AoS^TM product line, the joint offering of Emza and Himax technologies uniquely positions the Company to provide ultra-low power, smart imaging sensing total solutions, leveraging Himax’s industry leading super low power CIS and ASIC designs and Emza’s unique AI-based computer vision algorithm. The Company is pleased with the status of engagement with leading players in areas such as connected home, smart building and security, all of which new frontiers for Himax.

For traditional human vision segments, Himax sees strong demands in laptop and increasing shipment for multimedia applications such as car recorders, surveillance, drones, home appliances, and consumer electronics, among others.

LCOS
Himax’s main focus areas are AR goggle devices and head-up-displays (HUD) for automotive. While AR goggles will take a few years to fully realize its market potential, LCOS remains the technology of choice in this space. Himax’s technology leadership and proven manufacturing expertise have little competition, evidenced by the growing list of AR goggle device customers and ongoing engineering projects. In addition, the Company continues to make great progress in developing high-end holographic head-up displays for high-end automotive. One of its customers will demo its state-of-the-art HUD product with Himax LCOS inside at the 2019 CES. LCOS for both goggle device and HUD represents much higher ASP and gross margin for Himax. In the meantime, Himax is working with various OEMs to bring LCOS microdisplays to mini projectors with revenue contribution to start from 2019.

For non-driver IC business, Himax expects revenue to increase by low single digit sequentially in the fourth quarter, driven mainly by WLO shipment. 

A replay of the call will be available beginning two hours after the call through 11:30 a.m. US EST on November 15^th, 2018 (00:30 a.m. Taiwan time, November 16^th, 2018) on www.himax.com.tw and by telephone at +1 (855) 859-2056 (US Domestic) or +1 (404) 537-3406 (International). The conference ID number is 3755507. This call is being webcast by Nasdaq and can be accessed by clicking on this link or Himax’s website, where the webcast can be accessed through November 8^th, 2019. 

About Himax Technologies, Inc.

Himax Technologies, Inc. (NASDAQ:HIMX) is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Himax is a worldwide market leader in display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other consumer electronics devices. Additionally, Himax designs and provides controllers for touch sensor displays, in-cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality (AR) devices and heads-up displays (HUD) for automotive. The Company also offers digital camera solutions, including CMOS image sensors and wafer level optics for AR devices, 3D sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, medical devices and Internet of Things. Founded in 2001 and headquartered in Tainan, Taiwan, Himax currently employs around 2,200 people from three Taiwan-based offices in Tainan, Hsinchu and Taipei and country offices in China, Korea, Japan, Israel and the US. Himax has 2,983 patents granted and 493 patents pending approval worldwide as of September 30, 2018. Himax has retained its position as the leading display imaging processing semiconductor solution provider to consumer electronics brands worldwide.

http://www.himax.com.tw

Forward Looking Statements

Factors that could cause actual events or results to differ materially include, but not limited to general business and economic conditions and the state of the semiconductor industry; market acceptance and competitiveness of the driver and non-driver products developed by the Company; demand for end-use applications products; reliance on a small group of principal customers; the uncertainty of continued success in technological innovations; our ability to develop and protect our intellectual property; pricing pressures including declines in average selling prices; changes in customer order patterns; changes in estimated full-year effective tax rate; shortages in supply of key components; changes in environmental laws and regulations; exchange rate fluctuations; regulatory approvals for further investments in our subsidiaries; our ability to collect accounts receivable and manage inventory and other risks described from time to time in the Company’s SEC filings, including those risks identified in the section entitled “Risk Factors” in its Form 20-F for the year ended December 31, 2017 filed with the SEC, as may be amended.

Company Contacts:

Jackie Chang, CFO
Himax Technologies, Inc.
Tel: +886-2-2370-3999 Ext.22300
Or
US Tel: +1-949-585-9838 Ext.252
Fax: +886-2-2314-0877
Email: jackie_chang@himax.com.tw
www.himax.com.tw

Ophelia Lin, Investor Relations
Himax Technologies, Inc.
Tel: +886-2-2370-3999 Ext.22202
Fax: +886-2-2314-0877
Email: ophelia_lin@himax.com.tw
www.himax.com.tw

Sky Wang, Investor Relations
Himax Technologies, Inc.
US Tel: +1-949-585-9838 Ext.223
Fax: +1-312-445-3643
Email: sky_wang@himax.com.tw
www.himax.com.tw

Investor Relations – US Representative
John Mattio, President
Lamnia International
Tel: +1-203-885-1058
Email: jmattio@lamniaintl.com
www.lamniaintl.com

-Financial Tables-

Numbers do not add up due to rounding

(Continued)

(Concluded)

Notes to the reconciliation of the main differences:

A) Financial instruments

Under U.S. GAAP, investment securities consist of investments in marketable securities and investments in non-marketable equity securities. All of our investments in marketable securities are classified as available-for-sale securities and are reported at fair value. Investments in non-marketable equity securities in which we do not have the ability to exercise significant influence over the operating and financial policies of the investee are stated at cost.

Under IFRS, IFRS 9 Financial Instruments includes guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It is effective for annual reporting periods beginning on January 1, 2018. To better reflect the presentation of the consolidated statements of financial position as of September 30, 2018, we reclassified comparative period information as follows:

A-1)

As of September 30, 2017, we had $10,124 thousand reported as investments in marketable securities available-for-sale under U.S. GAAP, that were reclassified to financial assets at amortized cost and financial assets at fair value through profit or loss-current, at amounts of $9,473 thousand and $651 thousand, respectively, under IFRS.

A-2)

As of September 30, 2017, we had $12,110 thousand reported as investment in non-marketable equity securities under U.S. GAAP, that were reclassified to financial assets at fair value through profit or loss-noncurrent and financial assets at fair value through other comprehensive income at amounts of $10,562 thousand and $1,548 thousand, respectively, under IFRS.

A-3)

Under U.S. GAAP, we recognized redeemable convertible preferred shares which were issued to a non-controlling shareholder by Himax Display Inc., a consolidated subsidiary, as temporary equity. The redeemable convertible preferred shares were presented as redeemable noncontrolling interest and recognized at fair value.

Under IFRS, we recognized the above-mentioned redeemable convertible preferred shares as financial liability at amortized cost using effective interest method.

As of September 30, 2017, we had $3,656 thousand reported as redeemable noncontrolling interest under U.S. GAAP, that were reclassified to financial liability at amortized cost-noncurrent and recognized interest expense (finance costs) using effective interest method which decreased the retained earnings by $1,101 thousand. After the above adjustments, we had $4,757 thousand reported as financial liability at amortized cost-noncurrent under IFRS.

For the nine months and three months ended September 30, 2017, interest expense (finance costs) was adjusted for an increase of $233 thousand and $79 thousand, respectively.

B) Allowance of sales returns and discounts

Under U.S. GAAP, allowance of sales returns and discounts were recognized as a reduction in revenue in the year the related revenue is recognized based on historical experience. The corresponding allowance of sales returns and discounts was presented as a reduction in accounts receivable.

Under IFRS, the allowance of sales returns and discounts is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions.

As of September 30, 2017, the amounts reclassified from allowance of sales returns and discounts to provisions was $1,440 thousand.

C) Property, plant and equipment, net

Under U.S. GAAP, property, plant, and equipment typically consist of software and long-lived tangible assets used to create and distribute an entity’s products.

Under IFRS, property, plant and equipment are tangible items. Certain software that is not an integral part of the related hardware and prepayment for equipment not shipped to the factory are reclassified out from property, plant and equipment as they do not meet the definition of property, plant and equipment.

As of September 30, 2017, property, plant and equipment, net of $3,031 thousand were reclassified to other intangible assets, net and other non-current assets at amounts of $674 thousand and $2,357 thousand, respectively.

D) Deferred tax assets and liabilities

Under U.S. GAAP, for a particular tax-paying component of an entity and within a particular tax jurisdiction, all current / non-current deferred tax liabilities and assets are offset and presented as a single amount.

Under IFRS, deferred tax liabilities and assets are offset only if the entity has a legally enforceable right to offset current tax liabilities and assets.

As of September 30, 2017, the amounts reclassified from deferred tax assets to deferred tax liabilities was $1,274 thousand.

E) Income taxes payable

Under U.S. GAAP, income taxes payable are classified as current if cash payment is expected within 12 months; if not, the amount is classified as noncurrent.

Under IFRS, income taxes payable are classified as current unless an unconditional right to defer payment for a period greater than twelve months exists.

As of September 30, 2017, the amounts reclassified from other liabilities to income taxes payable was $526 thousand.

F) Employee benefits

Under U.S. GAAP, actuarial gains and losses arising in the period are recognized immediately in OCI and amortized from accumulated OCI into the profit or loss over the employees’ remaining service period.

Under IFRS, remeasurements of the net defined benefit liability (asset) are recognized in OCI and are not reclassified to profit or loss in a subsequent period.

As of September 30, 2017, net defined benefit assets included in other assets, net defined benefit liabilities, deferred tax assets and remeasurements of the net defined benefit liability or asset related to components of accumulated other comprehensive income were adjusted for a decrease of $90 thousand, $17 thousand, $57 thousand and an increase of $1,026 thousand, respectively.

G) Share-Based Compensation

Under U.S. GAAP, we recognized compensation expense by straight-line method and recognized excess tax benefits from share-based payments.

Under IFRS, we recognized compensation expense by graded vesting and there is no requirement of recognizing excess tax benefits under IFRS.

For the nine months and three months ended September 30, 2017, operating expense for share-based compensation was adjusted for a decrease of $51 thousand and $3 thousand, respectively.

H) Reconciliation of equity attributable to Himax from U.S. GAAP to IFRS summarized below: