Quarterly Report • Jul 29, 2009
Quarterly Report
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Infineon Technologies AG
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|---|---|
| Interim Group Management Report (Unaudited) | 1 |
| Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended June 30, 2008 and 2009: |
|
| Condensed Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2008 and 2009 |
19 |
| Condensed Consolidated Statements of Operations (Unaudited) for the nine months ended June 30, 2008 and 2009 |
20 |
| Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2008 and June 30, 2009 |
21 |
| Condensed Consolidated Statements of Income and Expense Recognized in Equity (Unaudited) for the nine months ended June 30, 2008 and 2009 |
22 |
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended June 30, 2008 and 2009 |
23 |
| Notes to the Unaudited Condensed Consolidated Financial Statements | 25 |
| Supplementary Information (Unaudited) | 53 |
This interim group management report should be read in conjunction with our condensed consolidated financial statements and other financial information included elsewhere in this report.
This interim group management report contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement.
The following were key developments in our business during the three and nine months ended June 30, 2009 and from the end of such period through the date of this quarterly report:
(1) We define Segment Result as operating income (loss) excluding asset impairments net of reversals, restructuring and other related closure costs, share-based compensation expense, acquisition-related amortization and gains (losses), gains (losses) on sales of assets, businesses, or interests in subsidiaries, and other income (expense), including litigation settlement costs. Gains (losses) on sales of assets, businesses, or interests in subsidiaries, include, among others, gains or losses that may be realized from potential sales of investments and activities.
of all of our operating segments decreased year-on-year primarily as a result of lower revenues and higher idle capacity cost which could only be partially offset by cost savings under our IFX10+ costreduction program.
During the 2008 fiscal year, we committed to a plan to dispose of Qimonda. As a consequence, the assets and liabilities of Qimonda have been reclassified as held for disposal in the condensed consolidated balance sheet as of September 30, 2008. The results of Qimonda are reported as discontinued operations in our condensed consolidated statements of operations for all periods presented. In the nine months ended June 30, 2008, loss from discontinued operations, net of income taxes, was e2,972 million, including Qimonda's negative results of e1,385 million and an after tax write-down of e1,587 million in order to remeasure Qimonda to its estimated fair value less costs to sell as of June 30, 2008. During the first nine months of the 2009 fiscal year, loss from discontinued operations, net of income taxes, totaled e399 million. This amount primarily reflected the realization of accumulated currency translation effects totaling e188 million and provisions and allowances of e206 million, adjusted by e3 million based on a current assessment as of June 30, 2009 compared to March 31, 2009, in connection with Qimonda's application to open insolvency proceedings. The realization of accumulated currency translation effects, which were previously recorded in equity, resulted mainly from Qimonda's sale of its interest in Inotera Memories Inc. ("Inotera") to Micron Technology, Inc. ("Micron") in November 2008 as well as the deconsolidation of Qimonda in the second quarter of the 2009 fiscal year. In light of Qimonda's insolvency proceedings, Infineon may face potential liabilities and allowances arising from the Qimonda business. The provisions and allowances recorded as of June 30, 2009 relate only to those matters which management believes are probable and can be estimated with reasonable accuracy at this time.
at book values amounted to e1,022 million. Total debt at nominal values amounted to e1,114 million as of June 30, 2009.
the rights offering is expected to occur on or about August 7, 2009. On July 10, 2009, we entered into an investment agreement. Accordingly, Admiral Participations (Luxembourg) S.à r.l., (the "Backstop Investor"), a subsidiary of a fund managed by Apollo Global Management LLC, has agreed to acquire all shares not subscribed for by our shareholders (and the fractional amount of up to e7,562,592, amounting to up to 3,781,296 new shares) (the "Investment Shares") in the rights offering up to a maximum of 30 percent minus one share of our equity and voting rights post execution of the offering at a subscription price of e2.15 per share. The obligation of the Backstop Investor to acquire the Investment Shares is subject to certain conditions precedent being met or waived by the Backstop Investor, including, but not limited to, applicable merger clearances, clearance by the German Ministry of Economy and Technology (Bundesministerium fu¨ r Wirtschaft und Technologie) pursuant to the German Foreign Trade Act (Außenwirtschaftsgesetz), which are expected to be received during the course of August 2009, and the appointment of one representative of the Backstop Investor, Mr. Manfred Puffer, by the competent court to the Supervisory Board, the resignation of Mr. Max Dietrich Kley, the current chairman of the Supervisory Board, as of September 30, 2009, the election of Mr. Manfred Puffer as chairman of the Supervisory Board as of October 1, 2009, and the nomination of another representative of the Backstop Investor, Mr. Gernot Lo¨hr, as member of the Supervisory Board to be appointed by the competent court subject to the resignation of the current chairman as member of the Supervisory Board taking effect. The Backstop Investor may, but is not required to, acquire Investment Shares if the number of Investment Shares available together with any shares to be acquired by the Backstop Investor through subscription rights purchased by the Backstop Investor, if any, does not allow the Backstop Investor to establish a participation in our equity capital and voting rights of at least 15 percent post execution of the offering. Should the Backstop Investor not purchase any new shares in the offering for any reason, we have to pay the Backstop Investor a lump sum of e21 million. If the Backstop Investor acquires a shareholding in the equity capital and voting rights of our company of 25 percent or less, we have to pay the Backstop Investor an amount equal to the sum of (i) e5.5 million plus (ii) an amount of e0.057 per share by which the shareholding of the Backstop Investor falls short of 25 percent plus one share.
We believe that the successful completion of the offering, resulting in gross proceeds of approximately e374 to e725 million, will strengthen our capital structure. In particular, assuming we are able to place all of the 337 million new shares, we plan to use approximately e570 million to repay the convertible subordinated notes due 2010 and the exchangeable subordinated notes due 2010, of which as of June 30, 2009, e570 million were outstanding.
| Three months ended June 30, |
Nine months ended June 30, |
||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | ||
| (g in millions) | |||||
| Revenue: | |||||
| Automotive | 311 | 206 | 945 | 601 | |
| Industrial & Multimarket | 279 | 221 | 846 | 648 | |
| Chip Card & Security | 113 | 82 | 350 | 253 | |
| Wireless Solutions (1) . . |
205 | 251 | 655 | 652 | |
| Wireline Communications (2). . |
108 | 84 | 316 | 251 | |
| Other Operating Segments (3) . |
25 | 1 | 148 | 11 | |
| Corporate and Eliminations (4) . . |
(12) | — | (92) | 6 | |
| Total | 1,029 | 845 | 3,168 | 2,422 |
(1) Includes revenues of e1 million for the three months ended June 30, 2008 and e9 million and e1 million for the nine months ended June 30, 2008 and 2009, respectively, from sales of wireless communication applications to Qimonda.
(2) On July 7, 2009, we entered into an asset purchase agreement to sell the Wireline Communications business, and such sale is expected to close in the fall of 2009.
(3) Includes revenues of e8 million for the three months ended June 30, 2008 and e78 million for the nine months ended June 30, 2008 from sales of wafers from Infineon's 200-millimeter facility in Dresden to Qimonda under a foundry agreement.
(4) Includes the elimination of revenues of e9 million for the three months ended June 30, 2008 and e87 million and e1 million for the nine months ended June 30, 2008 and 2009, respectively, since these sales were not part of the Qimonda disposal plan.
ramp its system-on-a-chip for the low-cost ADSL market. In the nine months ended June 30, 2009 revenues of our Wireline Communications segment decreased by 21 percent to e251 million, compared to e316 million in the nine months ended June 30, 2008. This decrease was mainly driven by a decline in the CPE and infrastructure business due to the economic slowdown.
• Other Operating segments — Revenues of other operating segments decreased by 96 percent from e25 million in the three months ended June 30, 2008, to e1 million in the three months ended June 30, 2009, and by 93 percent from e148 million in the nine months ended June 30, 2008, to e11 million in the nine months ended June 30, 2009. Revenues of other operating segments in the three and nine months ended June 30, 2008 comprised mainly revenues from sales of wafers from our 200-milimeter facility in Dresden to Qimonda under a foundry agreement, which revenues have been eliminated in the Corporate and Eliminations segment. Furthermore, revenues of other operating segments in the three and nine months ended June 30, 2008, included revenues from our hard disk drive ("HDD") business which we sold to LSI Corporation ("LSI") in April 2008.
| Three months ended June 30, |
Nine months ended | June 30, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |||||
| (g in millions, except percentages) | ||||||||
| Revenue: | ||||||||
| Germany | 217 | 21% | 147 | 17% | 677 | 21% | 462 | 19% |
| Other Europe. | 205 | 20% | 142 | 17% | 614 | 19% | 428 | 18% |
| North America | 122 | 12% | 110 | 13% | 404 | 13% | 274 | 11% |
| Asia/Pacific | 422 | 41% | 402 | 48% | 1,270 | 40% | 1,122 | 46% |
| Japan | 43 | 4% | 36 | 4% | 147 | 5% | 108 | 5% |
| Other. | 20 | 2% | 8 | 1% | 56 | 2% | 28 | 1% |
| Total | 1,029 | 100% | 845 | 100% | 3,168 | 100% | 2,422 | 100% |
The regional distribution of revenues in the three and nine months ended June 30, 2009 changed compared to the three and nine months ended June 30, 2008, primarily reflecting changes in the revenues of the segments. The shift in the regional distribution from Germany, other Europe, and North America to Asia/Pacific resulted primarily from the significant revenue decreases of our Automotive segment, whose customers are based largely in Germany, other Europe and North America. Furthermore, increased revenues of our Wireless Solutions segment in Asia/Pacific during the three and nine months ended June 30, 2009, compared to the three and nine months ended June 30, 2008, contributed to the changes in the regional distribution of revenues.
| Three months ended June 30, |
Nine months ended June 30, |
||||||
|---|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | ||||
| (g in millions, except percentages) | |||||||
| Cost of goods sold | 673 | 610 | 2,063 | 1,922 | |||
| Gross Profit | 356 | 235 | 1,105 | 500 | |||
| Percentage of revenues. | 35% | 28% | 35% | 21% |
Cost of goods sold decreased in the third quarter of the 2009 fiscal year by 9 percent, or e63 million, to e610 million, compared to e673 million in the third quarter of the 2008 fiscal year, and by 7 percent to e1,922 million in the nine months ended June 30, 2009, compared to e2,063 million in the nine months ended June 30, 2008. Our gross profit decreased from e356 million in the third quarter of the 2008 fiscal year to e235 million in the third quarter of the 2009 fiscal year, or as a percentage of revenues from 35 percent to 28 percent, respectively. As a percentage of revenues, gross profit increased in the Wireless Solutions segment and the Wireline Communications segment and decreased in the Automotive segment, the Industrial & Multimarket segment and the Chip Card & Security segment in the third quarter of the 2009 fiscal year compared to the same period of the previous fiscal year. As a percentage of revenue, our gross profit decreased from 35 percent in the nine months ended June 30, 2008 to 21 percent in the nine months ended June 30, 2009. This deterioration primarily resulted from lower sales volumes and higher idle capacity cost throughout all segments.
| Three months ended June 30, |
Nine months ended June 30, |
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|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |||
| (g in millions, except percentages) | ||||||
| Research and development | ||||||
| expenses | 169 | 125 | 520 | 396 | ||
| Percentage of revenues. | 16% | 15% | 16% | 16% |
Research and development expenses in the third quarter of the 2009 fiscal year decreased by 26 percent, or e44 million, to e125 million, compared to e169 million in the third quarter of the 2008 fiscal year, and by 24 percent to e396 million in the nine months ended June 30, 2009, compared to e520 million in the nine months ended June 30, 2008. This decrease resulted primarily from cost savings measures which were implemented under our IFX10+ cost-reduction program. Additionally, the reversal of bonus provisions and lower bonus and incentive expenses due to our current results contributed to the decrease in research and development expenses in the nine months ended June 30, 2009, compared to the same period of the previous fiscal year. As a percentage of revenues, research and development expenses in the nine months ended June 30, 2009, remained broadly unchanged at 16 percent compared to the nine months ended June 30, 2008, reflecting lower research and development expenses in line with lower revenues. In the three months ended June 30, 2009, research and development expenses as a percentage of revenue decreased slightly from 16 percent to 15 percent compared to the three months ended June 30, 2008, reflecting lower revenues and despite lower research and development expenses.
Research and development expenses decreased throughout all segments in the three and nine months ended June 30, 2009 compared to the three and nine months ended June 30, 2008, in particular in the Automotive segment and the Wireless Solutions segment, primarily as a result of implemented cost savings measures. As a percentage of revenues, research and development expenses decreased significantly in the Wireless Solutions segment, decreased slightly in the Wireline Communications segment and increased slightly in the Automotive segment, the Industrial & Multimarket segment and the Chip Card & Security segment in the nine months ended June 30, 2009. As a percentage of revenues, research and development expenses decreased significantly in the Wireless Solutions segment, decreased slightly in the Industrial & Multimarket segment, remained constant in the Chip Card & Security segment and increased slightly in the Wireline Communications segment and the Automotive segment in the three months ended June 30, 2009.
| Three months ended June 30, |
Nine months ended June 30, |
|||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |||
| (g in millions, except percentages) | ||||||
| Selling, General and Administrative | ||||||
| Expense | 145 | 108 | 415 | 330 | ||
| Percentage of revenues. | 14% | 13% | 13% | 14% |
Selling, general and administrative expenses decreased by e37 million, or 26 percent, and by e85 million, or 20 percent, in the three and nine months ended June 30, 2009 compared to the three and nine months ended June 30, 2008, respectively. These decreases primarily reflected cost savings as a result of our IFX10+ cost-reduction program. Additionally, the reversal of bonus provisions and lower bonus and incentive expenses due to our current results contributed to the decrease of selling, general and administrative expenses in the nine months ended June 30, 2009, compared to the same period of the previous fiscal year. As a percentage of revenues, selling, general and administrative expenses decreased slightly from 14 percent in the third quarter of the 2008 fiscal year to 13 percent in the third quarter of the 2009 fiscal year, and increased slightly from 13 percent in the nine months ended June 30, 2008 to 14 percent in the nine months ended June 30, 2009, primarily as a result of lower revenues in relation to lower selling, general and administrative expenses in absolute terms.
| Three months ended June 30, |
Nine months ended June 30, |
||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | ||
| (g in millions) | |||||
| Other operating income | 55 | 4 | 103 | 22 | |
| Other operating expense | (12) | (11) | (51) | (61) | |
| Financial income | 6 | 19 | 37 | 100 | |
| Financial expense | (37) | (31) | (125) | (119) | |
| Income from investments accounted for using the equity method, net |
1 | 2 | 3 | 5 |
Other operating income for the three and nine months ended June 30, 2009 decreased compared to the three and nine months ended June 30, 2008, by e51 million and e81 million, respectively. Included in other operating income for the three and nine months ended June 30, 2008 was a gain before income taxes of e39 million from the sale of our HDD business to LSI and a gain before income taxes of e4 million from the sale of other tangible assets. In addition, other operating income for the nine months ended June 30, 2008 included a gain before income taxes from the sale of 40 percent of our interest in Infineon Technologies Bipolar GmbH & Co. KG ("Bipolar") to Siemens AG of e32 million. Included in other operating income for the nine months ended June 30, 2009 were e10 million of payments received from the insolvency administrator of BenQ.
Other operating expense in the three months ended June 30, 2009 remained broadly unchanged compared to the three months ended June 30, 2008, and increased from e51 million in the nine months ended June 30, 2008 to e61 million in the nine months ended June 30, 2009. This increase primarily relates to a loss of e17 million, including post-closing adjustments in the third quarter of the 2009 fiscal year, from the sale of the business of our wholly-owned subsidiary Infineon Technologies SensoNor AS ("SensoNor") in March 2009. This was to some extent offset by lower restructuring expenses, partly due to reversals, in the nine months ended June 30, 2009. Other operating expense in the nine months ended June 30, 2008 also included an amount of e14 million allocated to purchased in-process research and development from the acquisition of the mobility product business of LSI because there was no future economic benefit from its use or disposal.
Financial income increased by e13 million and e63 million in the three and nine months ended June 30, 2009, respectively, compared to the three and nine months ended June 30, 2008. These increases primarily resulted from the e13 million and e61 million gain realized in the three and nine months ended March 31, 2009, respectively, from the repurchase of notional amounts of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010. In addition, gains from the valuation of interest rate swaps contributed to the increase of financial income during the three and nine months ended June 30, 2009.
Financial expense decreased in the three and nine months ended June 30, 2009 by e6 million each compared to the three and nine months ended June 30, 2008, respectively. The decrease in the three-month period reflected broadly unchanged interest expense and a decrease in other financial expense. The decrease in the nine-month period reflected decreases in interest expense and other financial expense of e11 million and e7 million, respectively, mainly due to lower interest rates and lower indebtedness, which were offset by higher valuation charges and losses on sales of financial assets mainly in the first quarter of the 2009 fiscal year.
Income from investments accounted for using the equity method, net for the periods presented, consisted of our share in the net income of Bipolar.
| Three months ended June 30, |
Nine months ended June 30, |
||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | ||
| (g in millions) | |||||
| Segment Result: | |||||
| Automotive. | 36 | (17) | 84 | (138) | |
| Industrial & Multimarket | 29 | 9 | 78 | 4 | |
| Chip Card & Security | 10 | 4 | 46 | (5) | |
| Wireless Solutions | (23) | 19 | (21) | (54) | |
| Wireline Communications (1) . |
5 | 7 | 12 | 10 | |
| Other Operating Segments | (4) | (1) | 3 | (5) | |
| Corporate and Eliminations | (1) | (13) | (3) | (16) | |
| Total | 52 | 8 | 199 | (204) |
(1) On July 7, 2009, Infineon entered into an asset purchase agreement to sell the Wireline Communications business, and such sale is expected to close in the fall of 2009.
Segment Result development for our operating segments was as follows:
IFX10+ cost-reduction program, short time work and unpaid leave measures and increased productivity only partially offset these effects.
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions) | ||||
| Total Segment Result | 52 | 8 | 199 | (204) |
| Adjustments: | ||||
| Asset impairments, net of reversals. |
(2) | 2 | — | 1 |
| Restructuring and other related closure costs |
(2) | 7 | (11) | 1 |
| Share-based compensation expense |
(1) | (1) | (4) | (2) |
| Acquisition-related amortization and losses |
(7) | (6) | (21) | (18) |
| Gains (losses) on sales of assets, businesses, or interests in |
||||
| subsidiaries | 45 | (1) | 59 | (18) |
| Other expense, net | — | (14) | — | (25) |
| Operating income (loss) . |
85 | (5) | 222 | (265) |
| Financial Income | 6 | 19 | 37 | 100 |
| Financial Expense | (37) | (31) | (125) | (119) |
| Income from investment accounted for using the equity method, |
||||
| net | 1 | 2 | 3 | 5 |
| Income (loss) from continuing operations before income tax |
55 | (15) | 137 | (279) |
The following table provides the reconciliation of the total Segment Result to our loss from continuing operations before income tax:
The results of Qimonda presented in the condensed consolidated statements of operations as discontinued operations consist of the following components:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 (1) | |
| (g in millions) | ||||
| Revenue | 384 | — | 1,309 | 314 |
| Costs and expenses | (645) | — | (2,659) | (867) |
| Reversal (write-down) of measurement to fair value less costs to sell |
(145) | — | (1,587) | 460 |
| Expenses resulting from Qimonda's application to open insolvency proceedings |
— | (3) | — | (206) |
| Losses resulting from the realization from accumulated losses related to unrecognized currency translation effects upon deconsolidation . |
— | — | — | (100) |
| Loss from discontinued operations, before income taxes |
(406) | (3) | (2,937) | (399) |
| Income tax expense. | (23) | — | (35) | — |
| Loss from discontinued operations, net of income taxes |
(429) | (3) | (2,972) | (399) |
(1) No further information concerning Qimonda's condensed consolidated statements of operations has been available for the period from January 1, 2009 to January 23, 2009, the date of the application to commence insolvency proceedings. As disclosed below, due to the write-down of Qimonda's net assets to zero as of September 30, 2008, the operating losses of Qimonda for the period from October 1, 2008 to January 23, 2009 did not affect our consolidated net income, but instead were eliminated via an offsetting partial reversal of previously recorded impairments. Therefore, while the amount of revenue and costs and expenses in the table above exclude amounts for the period from January 1, 2009 to January 23, 2009, the loss from discontinued operations, net of income taxes of e399 million is unaffected.
In the nine months ended June 30, 2008, loss from discontinued operations, net of income taxes, amounted to e2,972 million and included Qimonda's net loss as well as an after tax write-down of e1,587 million in order to remeasure Qimonda to its estimated fair value less costs to sell as of June 30, 2008. During the nine months ended June 30, 2009, loss from discontinued operations, net of income taxes, totaled e399 million. This amount was primarily composed of the realization of accumulated currency translation effects totaling e188 million and provisions and allowances of e206 million resulting from Qimonda's insolvency described above. The realization of accumulated currency translation effects, which were previously recorded in equity, resulted mainly from Qimonda's sale of its interest in Inotera to Micron in November 2008 and the deconsolidation of Qimonda in the second quarter of the 2009 fiscal year. As a result of the insolvency proceedings of Qimonda, we may face potential liabilities and allowances in connection with the Qimonda business, as described further below. The operating losses of Qimonda through deconsolidation, exclusive of depreciation, amortization and impairment of long-lived assets, in the three months ended December 31, 2008 were offset by a e460 million partial reversal of the write-downs recorded in the 2008 fiscal year to reduce the net assets of Qimonda to fair value less costs to sell of zero. Such reversal was recorded due to the fact that Infineon had neither the obligation nor the intention to provide additional equity capital to fund the operating losses of Qimonda.
As a result of the commencement of insolvency proceedings by Qimonda, we are exposed to potential liabilities arising in connection with the Qimonda business. Such potential liabilities include, among others, pending antitrust and securities law claims, potential claims for repayment of governmental subsidies, employee-related contingencies and purported unfair dismissal claims by employees of Qimonda North America. For pending antitrust and securities law claims, we are the named defendant and therefore potentially liable to third parties. Qimonda is required to indemnify us, in whole or in part, for any claim (including any related expenses) arising in connection with these pending antitrust and securities law claims. As a result of Qimonda's insolvency, it is very unlikely that Qimonda will be able to indemnify us for these losses. In addition, as a result of Qimonda's insolvency, Qimonda may not be in compliance with certain requirements of governmental subsidies received prior to the carve-out of Qimonda from Infineon. Depending on the actions of the insolvency administrator, repayment of some of these subsidies could be sought from us. In addition, in our capacity as a former general partner of Qimonda Dresden GmbH & Co oHG ("Qimonda Dresden"), we may also be held liable for certain employee-related contingencies in connection with the insolvency of Qimonda Dresden and certain subsidies received by Qimonda Dresden. Furthermore, we are subject to a pending lawsuit in Delaware in which the plaintiffs are seeking to hold us liable for the payment of severance and other benefits allegedly due by Qimonda North America in connection with the termination of employment in connection with Qimonda's insolvency. In addition, we may be subject to claims by the insolvency administrator under specific German insolvency laws for repayment of certain amounts received by us, as a Qimonda shareholder, for example, payments for intragroup services and supplies, during defined periods prior to the commencement of insolvency proceedings.
Furthermore, we may lose the right to use Qimonda's intellectual property rights under the contribution agreement between us and Qimonda if and to the extent this agreement was successfully voided or otherwise challenged. The insolvency of Qimonda may also subject us to other claims arising in connection with the liabilities, contracts, offers, uncompleted transactions, continuing obligations, risks, encumbrances and other liabilities contributed to Qimonda in connection with the carve-out of the Qimonda business, as it is unlikely that Qimonda will be able to fulfill its obligation to indemnify us against any such liabilities due to its insolvency.
We recorded aggregate provisions and allowances of e206 million as of June 30, 2009, adjusted by e3 million based on a current assessment as of June 30, 2009 compared to March 31, 2009, relating to the amounts which management believes are probable and can be estimated with reasonable accuracy at that time. The recorded provisions are primarily reflected within "Current provisions"; the remainder is recorded within "Long-term provisions". There can be no assurance that such provisions and allowances recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters. Any disclosure of amounts with respect to specific potential liabilities arising in connection with Qimonda's insolvency could seriously prejudice our position in these matters, and therefore no further information is provided in this regard. No reasonable estimated amount can be attributed at this time to those potential liabilities that may occur but which are currently not viewed to be probable.
In preparing our financial statements for the current and subsequent quarters, we will review the provisions and allowances with respect to these and any new potential liabilities to determine whether any adjustments should be made.
For the three and nine months ended June 30, 2009, we had a net loss of e23 million and e685 million, respectively, a decrease of 94 percent and 76 percent compared to e379 million and e2,863 million in the three and nine months ended June 30, 2008, respectively. In the three and nine months ended June 30, 2008, net loss was significantly impacted by the results from discontinued operations, net of income tax, of negative e429 million and negative e2,972 million, respectively, primarily due to Qimonda's net loss, which resulted from the deterioration in memory product prices and a weaker U.S. dollar, and consequently a significant decrease in Qimonda's gross profit and the write-down of e145 million and e1,587 million to remeasure Qimonda to its estimated current fair value less costs to sell, compared to negative e3 million and negative e399 million in the three and nine months ended June 30, 2009. Furthermore, for the three and nine months ended June 30, 2009, we realized a loss from continuing operations of e20 million and e286 million, respectively, compared to income from continuing operations of e50 million and e109 million in the three and nine months ended June 30, 2008, respectively, a decrease of e70 million and e395 million, respectively. This decline primarily reflected the decrease in revenues and higher idle capacity cost, which was partly offset by decreases in research and development expenses and selling, general and administrative expenses.
| As of | |||
|---|---|---|---|
| September 30, 2008 |
June 30, 2009 |
Change | |
| (g in millions, except percentages) | |||
| Current assets Thereof: Assets classified as held for |
4,648 | 2,048 | (56)% |
| disposal | 2,129 | 5 | (100)% |
| Non-current assets. | 2,334 | 1,989 | (15)% |
| Total assets | 6,982 | 4,037 | (42)% |
| Current liabilities Thereof: Liabilities associated with assets |
3,673 | 1,700 | (54)% |
| classified as held for disposal | 2,123 | — | (100)% |
| Non-current liabilities | 1,148 | 633 | (45)% |
| Total liabilities . |
4,821 | 2,333 | (52)% |
| Minority interests | 70 | 56 | (20)% |
| Total equity attributable to shareholders of Infineon Technologies AG |
2,091 | 1,648 | (21)% |
| Total equity | 2,161 | 1,704 | (21)% |
As of June 30, 2009, our current assets decreased by e2,600 million in comparison to September 30, 2008, which is primarily due to the decrease in assets held for disposal of e2,123 million as a result of the deconsolidation of Qimonda. The remaining decrease in current assets primarily related to a decrease of e303 million in trade and other receivables (e22 million in the three months ended June 30, 2009) and a decrease in inventories of e144 million (e22 million in the three months ended June 30, 2009). Trade and other receivables and inventories decreased as a result of lower revenues and successful working capital management. Furthermore, the receipt of e112 million from the German bank's deposit protection fund in the second and third quarter of the 2009 fiscal year and allowances for doubtful accounts recorded on receivables against Qimonda following Qimonda's application to commence insolvency proceedings contributed to the decrease in trade and other receivables.
Our gross cash position, consisting of cash and cash equivalents and available-for-sale financial assets, decreased slightly by e12 million to e871 million as of June 30, 2009, compared to e883 million as of September 30, 2008. The principal factors driving our gross cash position during the nine months ended June 30, 2009 were repurchases of notional amounts of e167 million and e78 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively, for an aggregate of e164 million in cash including transaction costs of e3 million, scheduled debt repayments of e101 million, and e106 million of cash outflows in connection with our IFX10+ cost-reduction program. This was partly offset by the gross proceeds of e182 million from the issuance of new convertible subordinated notes due 2014 with a notional amount of e196 million. In addition, the receipt of e112 million from the German bank's deposit protection fund and the contingent consideration of e13 million refunded from Texas Instruments Inc. due to the failure to achieve agreed revenue targets of the CPE business, which we acquired from Texas Instruments Inc. in the 2007 fiscal year, increased our gross cash position, which was partly offset by purchases of intangible assets and property, plant and equipment. With positive cash inflow from operating activities from continuing operations of e107 million, our gross cash position of e871 million as of June 30, 2009 was close to that of September 30, 2008 of e883 million.
Non-current assets decreased by e345 million as of June 30, 2009, compared to September 30, 2008. This decrease primarily resulted from a e299 million decrease in property, plant and equipment, net, mainly because capital expenditures during the nine months ended June 30, 2009 were lower than depreciation. Furthermore, the sale of the SensoNor business contributed to the decrease in property, plant and equipment. Additionally, goodwill and other intangible assets decreased by e20 million mainly due to the reduction of goodwill relating to the acquisition of the CPE business from Texas Instruments Inc. as a result of the refund of contingent consideration of e13 million. Other financial assets decreased by e19 million.
As of June 30, 2009, current liabilities decreased by e1,973 million compared to September 30, 2008, mainly due to the deconsolidation of Qimonda, resulting in a decrease of liabilities associated with assets classified as held for disposal of e2,123 million. Furthermore, we reclassified e487 million of our convertible subordinated notes due 2010 with notional amounts of e522 million from long-term debt into short-term debt and current maturities of long-term debt, as they mature in June 2010. Other changes in current liabilities related to a decrease in trade and other payables as of June 30, 2009 by e141 million compared to September 30, 2008, mainly resulting from lower trade accounts payables due to lower purchased services and lower capital expenditures. Also, other current liabilities decreased by e117 million, resulting from the decrease of employee-related liabilities, mainly due to payments of termination benefits from our IFX 10+ cost-reduction program and the reduction of liabilities for bonus payments.
Non-current liabilities decreased as of June 30, 2009, by e515 million compared to September 30, 2008, primarily due to the reclassification of e487 million of convertible subordinated notes due 2010 from long-term debt into short-term debt and current maturities of long-term debt. Furthermore, we repurchased notional amounts of e167 million and e78 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively, which decreased long-term debt accordingly. This decrease was partly offset by the issuance of new convertible subordinated notes due 2014 with a notional amount of e196 million, resulting in an increase of long-term debt by e143 million as of June 30, 2009, net of debt issuance cost, discount and the component recognized in equity as required by IFRS. Long-term provisions increased by e78 million, primarily for potential liabilities resulting from Qimonda's insolvency.
| Nine months ended June 30, |
||
|---|---|---|
| 2008 | 2009 | |
| (g in millions) | ||
| Net cash provided by operating activities from continuing operations |
305 | 107 |
| Net cash provided by (used in) investing activities from continuing operations |
(757) | 29 |
| Net cash used in financing activities from continuing operations | (211) | (105) |
| Net decrease in cash and cash equivalents from discontinued operations |
(223) | (427) |
| Net decrease in cash and cash equivalents . |
(886) | (396) |
Net cash provided by operating activities from continuing operations was e107 million for the nine months ended June 30, 2009, compared to e305 million for the nine months ended June 30, 2008, and reflected mainly the loss from continuing operations of e286 million, excluding non-cash charges for depreciation and amortization of e415 million, and e16 million resulting from the sale of the SensoNor business. Net cash provided by operating activities in the nine months ended June 30, 2009 included e10 million received from the German bank deposit protection fund, and was negatively impacted by changes in operating assets and liabilities of e19 million and interest paid of e46 million, and positively impacted by income taxes received of e15 million and interest received of e16 million.
Net cash provided by investing activities from continuing operations was e29 million for the nine months ended June 30, 2009, compared to e757 million of cash used in investing activities from continuing operations for the nine months ended June 30, 2008. This included e102 million principal amount received from the German bank deposit protection fund for cash deposits in the second and third quarters of the 2009 fiscal year and the refund of contingent consideration of e13 million from Texas Instruments Inc. due to the failure to achieve agreed revenue targets of the CPE business. Furthermore, net proceeds (sales less purchases) of e28 million from available-for-sale financial assets and the consideration of e4 million received from the sale of the SensoNor business contributed to cash provided by investing activities. We used e118 million for the purchases of property, plant and equipment, and intangible assets.
Net cash used in financing activities from continuing operations was e105 million for the nine months ended June 30, 2009, compared to e211 million for the nine months ended June 30, 2008. During the nine months ended June 30, 2009, we made principal repayments of long-term debt of e268 million, of which the majority related to the repurchase of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010 for an aggregate of e164 million in cash including transaction costs of e3 million. Additional debt repayments amounted to e101 million.
The net decrease in cash and cash equivalents from discontinued operations in the nine months ended June 30, 2009, consisted primarily of cash used in operating and financing activities of Qimonda in the aggregate amount of e408 million and e40 million, respectively. The net cash provided by investing activities from discontinued operations of e21 million consisted primarily of cash received by Qimonda in connection with the sale of Inotera to Micron in November 2008 for US\$400 million (approximately e296 million), partially offset by the cash and cash equivalents totaling e286 million of Qimonda as of January 23, 2009, the date Qimonda filed an application to commence insolvency proceedings.
Free cash flow from continuing operations, representing cash flows from operating and investing activities from continuing operations, excluding purchases or sales of available-for-sale financial assets, was positive e108 million for the nine months ended June 30, 2009, an improvement from negative e206 million for the nine months ended June 30, 2008. Free cash flow during the first nine months of the 2008 fiscal year included higher cash used in investing activities from continuing operations, due to the acquisition of the mobility products business from LSI, the acquisition of Primarion Inc., and higher capital expenditures, which were only partly offset by higher cash provided from operating activities from continuing operations. Free cash flow for the three and nine months ended June 30, 2009 included cash inflow of e17 million and e112 million from the German bank's deposit protection fund, respectively, and cash outflows for our IFX10+ cost-reduction program of e25 million and e106 million, respectively. Furthermore, capital expenditures for the three and nine months ended June 30, 2009 amounted to e27 million and e118 million, respectively, while depreciation and amortization for the three and nine months ended June 30, 2009 was e133 million and e415 million, respectively.
Since we hold a portion of our available monetary resources in the form of readily available-for-sale financial assets, and operate in a capital intensive industry, we report free cash flow to provide investors with a measure that can be used to evaluate changes in liquidity after taking capital expenditures into account. Free cash flow is not intended to represent the residual cash flow available for discretionary expenditures, since debt service requirements or other non-discretionary expenditures are not deducted. Free cash flow includes only amounts from continuing operations, and is determined as follows from the condensed consolidated statements of cash flows:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| Net cash provided by operating activities from continuing operations |
156 | 172 | 305 | 107 |
| Net cash provided by (used in) investing activities from continuing operations |
137 | (2) | (757) | 29 |
| Thereof: Net proceeds from (sales) purchases of available-for-sale financial assets |
(171) | (18) | 246 | (28) |
| Free cash flow | 122 | 152 | (206) | 108 |
Our gross cash position as of June 30, 2009, representing cash and cash equivalents and available-for-sale financial assets, decreased slightly to e871 million from e883 million as of September 30, 2008, primarily reflecting the net cash provided by operating activities and used in financing activities from continuing operations. Our net debt position as of June 30, 2009, defined as gross cash position less short and long-term debt, was e151 million, an improvement of e136 million from e287 million as of September 30, 2008, mainly reflecting net cash provided by operating activities and the effect on our net debt position of the repurchase of exchangeable subordinated notes due 2010 and convertible subordinated notes due 2010, net of accretion, and of the issuance new convertible subordinated notes due 2014.
Since we hold a portion of our available monetary resources in the form of readily available-for-sale financial assets, which for IFRS purposes are not considered to be "cash", we report our gross and net cash/(debt) positions to provide investors with an understanding of our overall liquidity. The gross and net cash/(debt) position is determined as follows from the condensed consolidated balance sheets, without adjustment to the IFRS amounts presented:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Cash and cash equivalents | 749 | 767 |
| Available-for-sale financial assets | 134 | 104 |
| Gross cash position | 883 | 871 |
| Less: Short-term debt and current maturities of long-term debt | 207 | 634 |
| Long-term debt. | 963 | 388 |
| Net cash/(debt) position | (287) | (151) |
Our net cash/(debt) position is an important measure for us, in light of our outstanding convertible subordinated notes due 2010 in the notional amount of e522 million and our outstanding exchangeable subordinated notes due 2010 in the notional amount of e48 million maturing in 2010. We believe that we will continue to be able to fund our normal business operations out of cash flow from operations. However, in an effort to obtain sufficient funds to repay the convertible subordinated notes and exchangeable subordinated notes due in 2010 and to solidify our balance sheet structure, we commenced a rights offering on July 16, 2009 of up to 337 million new shares that we are offering to our shareholders for subscription. The Backstop Investor has agreed to subscribe, at the subscription price of e2.15, for up to approximately 326 million new shares, not subscribed for by existing shareholders, if the Backstop Investor receives at least a minimum allocation of 15 percent of the increased share capital (see note 1 of our condensed consolidated financial statements for the three and nine months ended June 30, 2009).
The following table indicates the composition of our workforce by function and region at the dates shown:
| As of | ||||
|---|---|---|---|---|
| September 30, 2008 |
June 30, 2009 |
Change | ||
| (g in millions, except percentages) | ||||
| Function: | ||||
| Production | 19,358 | 16,976 | (12)% | |
| Research & Development | 6,273 | 5,947 | (5)% | |
| Sales & Marketing | 1,905 | 1,695 | (11)% | |
| Administrative. | 1,583 | 1,490 | (6)% | |
| Total | 29,119 | 26,108 | (10)% | |
| Region: | ||||
| Germany | 10,053 | 9,223 | (8)% | |
| Other Europe | 5,192 | 4,579 | (12)% | |
| North America | 821 | 723 | (12)% | |
| Asia/Pacific. | 12,897 | 11,441 | (11)% | |
| Japan | 156 | 142 | (9)% | |
| Total | 29,119 | 26,108 | (10)% |
During the nine months ended June 30, 2009, our workforce decreased in all functions and regions, primarily as a result of our IFX10+ cost-reduction program as well as a result of the sale of the SensoNor business.
In the second quarter of the 2009 calendar year, contractionary forces appeared to start to recede. Following a disappointing first calendar quarter, current economic data point to a return to modest growth at the global level. However, the recession is not over and the International Monetary Fund ("IMF") still forecasts the recovery to be sluggish. Accordingly, the IMF expects global activity to contract by 2.6 percent in 2009 and to expand by 1.7 percent in 2010, according to its July 2009 report. The forecasted 2010 growth rate is 0.7 percentage points higher than envisaged in the IMF's April 2009 World Economic Outlook.
For the global semiconductor market, monthly World Semiconductor Trade Statistics (WSTS) data indicate revenues (in U.S. dollar terms) to have improved in the second quarter of calendar year 2009 compared to the first quarter of calendar year 2009. Compared to the second quarter of the 2008 calendar year, global semiconductor market contraction was still in the double digits in the second quarter of the 2009 calendar year. For the 2009 calendar year, iSuppli Corporation currently projects a decline of 23 percent in worldwide semiconductor revenues. The latest forecasts of a range of reputable market research firms are between minus 12 percent (VLSI Research Inc.) and minus 23 percent (iSuppli Corporation). The projected 2010 growth rates from these organizations are in the range of plus 7 percent to plus 19 percent.
Reflecting the pending sale of the Wireline Communications business, we will classify this business as discontinued operations in our consolidated financial statements for the fiscal quarter and fiscal year ending September 30, 2009.
We expect our group revenues to grow in the fourth quarter compared to the third quarter – on a comparable basis, excluding the Wireline Communications segment. We expect the revenue increase to be driven in particular by the segments Automotive and Industrial & Multimarket.
We currently plan continued, but cautious increases in production levels in the fourth quarter of the 2009 fiscal year as we adapt capacity loadings to the improved demand. Together with the benefits of anticipated higher sales levels and continued tight cost control, we therefore expect Segment Result – on a comparable basis, excluding the Wireline Communications segment – to improve as well.
For the 2009 fiscal year, we now expect depreciation and amortization to exceed the previous forecast level of e500 million.
We are exposed to a number of risks as a result of the high volatility of the semiconductor business, its international orientation and its wide product range. Such risks include, but are not limited to, broader economic developments, including the duration and depth of the current economic downturn; trends in demand and prices for semiconductors generally and for our products in particular, as well as for the endproducts, such as automobiles and consumer electronics, that incorporate our products; the success of our development efforts, both alone and with partners; the success of our efforts to introduce new production processes at our facilities; the actions of competitors; the availability of funds, including for the re-financing of our indebtedness; the outcome of antitrust investigations and litigation matters; the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, the outcome of Qimonda's insolvency proceedings, including potential liabilities related to the Qimonda insolvency, including pending antitrust and related securities law claims, the potential repayment of governmental subsidies received, employee-related contingencies and other matters; as well as the other factors mentioned herein and those described in the prospectus relating to our pending rights offering (a form of which was approved by the German Federal Financial Supervisory Authority (BaFin) on July 16, 2009 and a form of which is contained in the registration statement on Form F-3 filed with the U.S. Securities and Exchange Commission on July 16, 2009) (the "Prospectus").
To minimize the negative impact of these risks, we continuously optimize our company-wide risk and opportunity management system. For more detailed information on risks and opportunities and their potential effect on our business, financial condition or results of operations, please refer to the "Risk Factors" section of our Prospectus.
| June 30, 2008 |
June 30, 2009 |
June 30, 2009 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Revenue | 1,029 | 845 | 1,185 |
| Cost of goods sold | (673) | (610) | (856) |
| Gross profit. | 356 | 235 | 329 |
| Research and development expenses | (169) | (125) | (175) |
| Selling, general and administrative expenses | (145) | (108) | (151) |
| Other operating income | 55 | 4 | 6 |
| Other operating expense | (12) | (11) | (16) |
| Operating income (loss) | 85 | (5) | (7) |
| Financial income | 6 | 19 | 27 |
| Financial expense | (37) | (31) | (44) |
| Income from investments accounted for using the | |||
| equity method, net | 1 | 2 | 3 |
| Income (loss) from continuing operations before income taxes |
55 | (15) | (21) |
| Income tax benefit (expense) | (5) | (5) | (7) |
| Income (loss) from continuing operations. | 50 | (20) | (28) |
| Loss from discontinued operations, net of income taxes. . | (429) | (3) | (4) |
| Net loss | (379) | (23) | (32) |
| Attributable to: | |||
| Minority interests | (87) | 1 | 1 |
| Shareholders of Infineon Technologies AG | (292) | (24) | (33) |
| Basic and diluted earnings (loss) per share attributable to shareholders of Infineon Technologies AG (in Euro): |
|||
| Basic and diluted earnings (loss) per share from continuing operations |
0.06 | (0.03) | (0.04) |
| Basic and diluted loss per share from discontinued operations |
(0.45) | — | — |
| Basic and diluted loss per share | (0.39) | (0.03) | (0.04) |
| June 30, 2008 |
June 30, 2009 |
June 30, 2009 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Revenue | 3,168 | 2,422 | 3,396 |
| Cost of goods sold. | (2,063) | (1,922) | (2,695) |
| Gross profit | 1,105 | 500 | 701 |
| Research and development expenses | (520) | (396) | (555) |
| Selling, general and administrative expenses | (415) | (330) | (463) |
| Other operating income | 103 | 22 | 31 |
| Other operating expense | (51) | (61) | (85) |
| Operating income (loss) | 222 | (265) | (371) |
| Financial income | 37 | 100 | 140 |
| Financial expense | (125) | (119) | (167) |
| Income from investments accounted for using the equity method, net |
3 | 5 | 7 |
| Income (loss) from continuing operations before income taxes |
137 | (279) | (391) |
| Income tax expense. | (28) | (7) | (10) |
| Income (loss) from continuing operations | 109 | (286) | (401) |
| Loss from discontinued operations, net of income taxes | (2,972) | (399) | (559) |
| Net loss | (2,863) | (685) | (960) |
| Attributable to: | |||
| Minority interests | (639) | (48) | (67) |
| Shareholders of Infineon Technologies AG | (2,224) | (637) | (893) |
| Basic and diluted earnings (loss) per share attributable to shareholders of Infineon Technologies AG (in Euro): |
|||
| Basic and diluted loss per share from continuing operations |
0.11 | (0.38) | (0.53) |
| Basic and diluted loss per share from discontinued operations |
(3.08) | (0.47) | (0.66) |
| Basic and diluted loss per share | (2.97) | (0.85) | (1.19) |
| September 30, 2008 |
June 30. 2009 |
June 30, 2009 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Assets: | |||
| Current assets: | |||
| Cash and cash equivalents | 749 | 767 | 1,075 |
| Available-for-sale financial assets | 134 | 104 | 146 |
| Trade and other receivables | 799 | 496 | 695 |
| Inventories | 665 | 521 | 730 |
| Income tax receivable | 29 | 13 | 18 |
| Other current financial assets | 19 | 29 | 41 |
| Other current assets | 124 | 113 | 159 |
| Assets classified as held for disposal | 2,129 | 5 | 7 |
| Total current assets | 4,648 | 2,048 | 2,871 |
| Property, plant and equipment | 1,310 | 1,011 | 1,417 |
| Goodwill and other intangible assets | 443 | 423 | 593 |
| Investments accounted for using the equity method. | 20 | 24 | 34 |
| Deferred tax assets | 400 | 396 | 555 |
| Other financial assets. | 133 | 114 | 160 |
| Other assets. | 28 | 21 | 30 |
| Total assets | 6,982 | 4,037 | 5,660 |
| Liabilities and equity: | |||
| Current liabilities: | |||
| Short-term debt and current maturities of long-term debt | 207 | 634 | 889 |
| Trade and other payables | 506 | 365 | 512 |
| Current provisions | 424 | 415 | 582 |
| Income tax payable. | 87 | 97 | 136 |
| Other current financial liabilities | 63 | 43 | 60 |
| Other current liabilities | 263 | 146 | 205 |
| Liabilities associated with assets classified as held for diposal. | 2,123 | — | — |
| Total current liabilities. | 3,673 | 1,700 | 2,384 |
| Long-term debt | 963 | 388 | 544 |
| Pension plans and similar commitments | 43 | 35 | 49 |
| Deferred tax liabilities. | 19 | 15 | 21 |
| Long-term provisions | 27 | 105 | 147 |
| Other financial liabilities | 20 | 6 | 8 |
| Other liabilities | 76 | 84 | 118 |
| Total liabilities | 4,821 | 2,333 | 3,271 |
| Equity: | |||
| Shareholders' equity: | |||
| Ordinary share capital | 1,499 | 1,499 | 2,102 |
| Additional paid-in capital | 6,008 | 6,041 | 8,469 |
| Accumulated deficit | (5,252) | (5,889) | (8,257) |
| Other components of equity | (164) | (3) | (4) |
| Total equity attributable to shareholders of Infineon Technologies AG | 2,091 | 1,648 | 2,310 |
| Minority interests | 70 | 56 | 79 |
| Total equity. | 2,161 | 1,704 | 2,389 |
| Total liabilities and equity | 6,982 | 4,037 | 5,660 |
| June 30, 2008 |
June 30, 2009 |
June 30 2009 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Net loss | (2,863) | (685) | (960) |
| Currency translation effects | (107) | 187 | 262 |
| Actuarial gains and losses on pension plans and similar commitments |
— | — | |
| Net change in fair value of available-for-sale financial assets |
(11) | 4 | 5 |
| Net change in fair value of cash flow hedges | 8 | 9 | 13 |
| Net loss recognized directly in equity, net of tax | (110) | 200 | 280 |
| Total income and expense recognized in equity. | (2,973) | (485) | (680) |
| Attributable to: | |||
| Minority interests | (663) | (9) | (13) |
| Shareholders of Infineon Technologies AG | (2,310) | (476) | (667) |
| June 30, 2008 |
June 30, 2009 |
June 30, 2009 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Net loss | (2,863) | (685) | (960) |
| Less: net loss from discontinued operations | 2,972 | 399 | 559 |
| Adjustments to reconcile net loss to cash provided by (used in) operating activities: | |||
| Net cash provided by (used in) operating activities | |||
| Depreciation and amortization | 429 | 415 | 582 |
| Provision for (recovery of) doubtful accounts. Write-down on inventory |
— — |
(2) — |
(3) — |
| (Losses) gains on sales of current available-for-sale financial assets | 1 | 2 | 3 |
| Losses (gains) on sales of businesses and interests in subsidiaries | (66) | 16 | 22 |
| Losses on disposals of property, plant, and equipment | 10 | 1 | 1 |
| Income from investments accounted for using the equity method | (3) | (5) | (7) |
| Impairment charges | — | (1) | (1) |
| Stock-based compensation | 4 | 2 | 3 |
| Deferred income taxes | — | (1) | (1) |
| Changes in operating assets and liabilities: | — | ||
| Trade and other receivables | 70 | 168 | 235 |
| Inventories | (99) | 147 | 206 |
| Other current assets | (48) | (20) | (28) |
| Trade and other payables | (109) | (130) | (182) |
| Provisions | (31) | (117) | (164) |
| Other current liabilities | 29 | (81) | (114) |
| Other assets and liabilities | 42 | 14 | 20 |
| Interest received | 25 | 16 | 22 |
| Interest paid. | (54) | (46) | (64) |
| Income tax received | (4) | 15 | 21 |
| Net cash provided by (used in) operating activities from continuing operations | 305 | 107 | 150 |
| Net cash used in operating activities from discontinued operations | (417) | (408) | (572) |
| Net cash used in operating activities | (112) | (301) | (422) |
| Cash flows from investing activities: | |||
| Purchases of available-for-sale financial assets | (577) | (30) | (42) |
| Proceeds from sales of available-for-sale financial assets. | 331 | 58 | 82 |
| Proceeds from sales of businesses and interests in subsidiaries | 97 | 4 | 6 |
| Business acquisitions, net of cash acquired | (353) | 13 | 18 |
| Purchases of intangible assets, and other assets | (37) | (36) | (51) |
| Purchases of property, plant and equipment | (227) | (82) | (115) |
| Proceeds from sales of property, plant and equipment, and other assets | 9 | 102 | 143 |
| Net cash provided by (used in) investing activities from continuing operations | (757) | 29 | 41 |
| Net cash used in investing activities from discontinued operations | (53) | 21 | 29 |
| Net cash used in investing activities | (810) | 50 | 70 |
| Cash flows from financing activities: | |||
| Net change in short-term debt | (68) | — | — |
| Net change in related party financial receivables and payables | (7) | (1) | (1) |
| Proceeds from issuance of long-term debt | 108 | 182 | 255 |
| Principal repayments of long-term debt | (164) | (268) | (376) |
| Change in restricted cash | — | (7) | (10) |
| Dividend payments to minority interests Capital contribution |
(80) — |
(6) (5) |
(8) (7) |
| Net cash used in financing activities from continuing operations | (211) | (105) | (147) |
| Net cash provided by financing activities from discontinued operations | 247 | (40) | (56) |
| Net cash provided by (used in) financing activities | 36 | (145) | (203) |
| Net decrease in cash and cash equivalents | (886) | (396) | (555) |
| Effect of foreign exchange rate changes on cash and cash equivalents | (16) | (7) | (10) |
| Cash and cash equivalents at beginning of period | 1,809 | 1,170 | 1,640 |
| Cash and cash equivalents at end of period | 907 | 767 | 1,075 |
| Less: Cash and cash equivalents at end of period from discontinued operations | 499 | — | — |
| Cash and cash equivalents at end of period from continuing operations | 408 | 767 | 1,075 |
Infineon Technologies AG and Subsidiaries Notes to the Condensed Consolidated Financial Statements Condensed Consolidated Changes in Equity (Unaudited) For the nine months ended June 30, 2008 and 2009 (in millions of euro, except for share data)
| Issued | Additional | Accumu | currency Foreign |
Unrealized gain (loss) |
Unrealized (loss) on gain |
shareholders Total equity attributable to |
||||
|---|---|---|---|---|---|---|---|---|---|---|
| Ordinary shares Shares |
Amount | paid-in capital |
deficit lated |
adjustment translation |
securities on |
cash flow hedge |
of Infineon AG |
interests Minority |
equity Total |
|
| Balance as of October 1, 2007. | 749,728,635 | 1,499 | 6,002 | (2,328) | (106) | (6) | (17) | 5,044 | 960 | 6,004 |
| Total income and expense recognized in equity | — | (2,224) | (84) | (9) | 7 | (2,310) | (663) | (2,973) | ||
| Issuance of ordinary shares: | ||||||||||
| Exercise of stock options | 13,450 | — | — | — | — | — | — | — | — | — |
| Share-based compensation. | — | — | 6 | — | — | — | — | 6 | — | 6 |
| Deferred compensation, net | — | — | — | — | — | — | — | — | — | — |
| Other changes in equity | — | — | (10) | — | — | — | — | (10) | (80) | (90) |
| Balance as of June 30, 2008 | 749,742,085 | 1,499 | 5,998 | (4,552) | (190) | (15) | (10) | 2,730 | 217 | 2,947 |
| Balance as of October 1, 2008. | 749,742,085 | 1,499 | 6,008 | (5,252) | (142) | (3) | (19) | 2,091 | 70 | 2,161 |
| Total income and expense recognized in equity | — | — | — | (637) | 148 | 4 | 9 | (476) | (9) | (485) |
| Issuance of ordinary shares: | ||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | — |
| Share-based compensation. | — | — | 2 | — | — | — | — | 2 | — | 2 |
| Deferred compensation, net | — | — | — | — | — | — | — | — | — | — |
| Other changes in equity | — | — | 31 | — | — | — | — | 31 | (5) | 26 |
| Balance as of June 30, 2009 | 749,742,085 | 1,499 | 6,041 | (5,889) | 6 | 1 | (10) | 1,648 | 56 | 1,704 |
Notes to the Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements of Infineon Technologies AG and its subsidiaries ("Infineon" or the "Company") as of and for the three and nine months ended June 30, 2008 and 2009, have been prepared in accordance with International Financial Reporting Standards ("IFRS") and its interpretations issued by the International Accounting Standards Board ("IASB"), and as adopted by the European Union ("EU"). The accompanying condensed consolidated financial statements also comply with IFRS as issued by the IASB. The accompanying condensed consolidated financial statements have been prepared in compliance with IAS 34 "Interim financial reporting". Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In addition, although the condensed consolidated balance sheet as of September 30, 2008 was derived from audited financial statements, it does not include all disclosures required by IFRS. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements prepared in accordance with IFRS, and as adopted by the EU as of and for the period ended September 30, 2008. The accounting policies applied in preparing the accompanying condensed consolidated financial statements are consistent with those for the year ended September 30, 2008 (see note 2).
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full fiscal year.
The preparation of the accompanying condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
All amounts herein are shown in Euro (or "e") except where otherwise stated. The accompanying condensed consolidated balance sheet as of June 30, 2009, and the condensed consolidated statements of operations for the three and nine months then ended, and the condensed consolidated statements of income and expense recognized in equity for the nine months then ended, as well as the condensed consolidated statement of cash flows for the nine months then ended are also presented in U.S. dollars ("\$"), solely for the convenience of the reader, at the rate of e1 = \$1.4020, the Federal Reserve noon buying rate on June 30, 2009.
Certain amounts in the prior period condensed consolidated financial statements and notes have been reclassified to conform to the current period presentation. Effective October 1, 2008, the Company reorganized its core business into five operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, Wireless Solutions, and Wireline Communications. On July 7, 2009, the Company entered into an asset purchase agreement to sell the Wireline Communications business, and such sale is expected to close in the fall of 2009.
Infineon can provide no assurance that, without additional equity or debt capital or other inflow of funds, it will have sufficient working capital during the next 12 months due to the convertible notes due 2010 outstanding in the nominal amount of e522 million and exchangeable notes due 2010 outstanding in the nominal amount of e48 million falling due in 2010.
Infineon believes that it will continue to be able to fund its normal business operations out of cash flow from operations. However, in an effort to obtain sufficient funds to repay the convertible notes and exchangeable notes due in 2010 and to solidify its balance sheet structure, Infineon announced the launch of a rights offering for up to 337 million shares in order to strengthen its capital structure. This offering relates to up to 337,000,000 new shares that Infineon is offering to its shareholders for subscription. Admiral Participations (Luxembourg) S.à r.l. (the "Backstop Investor"), a subsidiary of a fund managed by Apollo Global Management LLC ("Apollo") has, subject to receiving a minimum allocation conveying a stake of at least 15 percent of the increased share capital, agreed with Infineon to subscribe for up to
326,022,625 new shares at the subscription price. If persons exercising subscription rights subscribe to purchase 173,988,688 or more new shares, the Backstop Investor would not receive this minimum allocation and the backstop would not take effect unless the Backstop Investor waives the minimum allocation condition. If the backstop would not take effect (and assuming the Backstop Investor does not waive the condition), Infineon would receive gross issue proceeds of at least e374 million. If all 337,000,000 new shares are placed at the subscription price, the gross issue proceeds will be approximately e725 million.
If Infineon places the minimum number of 173,988,688 new shares, it will still be able to use part of its available cash to repay a portion of the outstanding nominal amount of, and accrued interest on, the convertible and exchangeable notes due in 2010, but may need to find alternative sources of funds to repay the remaining amounts due. These alternatives may include: new debt financing instruments such as loans provided or guaranteed by the governments of jurisdictions in which Infineon operates manufacturing facilities; portfolio measures, including asset sales; further internal cost and cash savings; and other corporate restructuring measures.
In September 2007, the IASB issued an amendment to IAS 1, "Presentation of Financial Statements". The revision is aimed at improving users' ability to analyze and compare the information given in financial statements. IAS 1 sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. The revised IAS 1 resulted in consequential amendments to other statements and interpretations. The revision of IAS 1 will be effective for the Company for the fiscal year beginning October 1, 2009, with early adoption permitted. The EU has endorsed the amendment to IAS 1. The Company is currently evaluating the potential effects of IAS 1.
In January 2008, the IASB published the amended standards IFRS 3, "Business Combinations", ("IFRS 3 (2008)") and IAS 27, "Consolidated and Separate Financial Statements" ("IAS 27 (2008)"). The standards have been endorsed by the EU.
IFRS 3 (2008) reconsiders the application of acquisition accounting for business combinations. Major changes relate to the measurement of non-controlling interests, the accounting for business combinations achieved in stages as well as the treatment of contingent consideration and acquisition-related costs. Based on the new standard, non-controlling interests may be measured at their fair value (full-goodwillmethodology) or at the proportional fair value of assets acquired and liabilities assumed. In business combinations achieved in stages, any previously held equity interest in the acquiree is remeasured to its acquisition date fair value. Any changes to contingent consideration classified as a liability at the acquisition date are recognized in profit and loss. Acquisition-related costs are expensed in the period incurred.
Major changes in relation to IAS 27 (2008) relate to the accounting for transactions which do not result in a change of control as well as for those leading to a loss of control. If there is no loss of control, transactions with non-controlling interests are accounted for as equity transactions not affecting profit and loss. At the date control is lost, any retained equity interests are remeasured to fair value. Based on the amended standard, non-controlling interests may show a deficit balance since both profits and losses are allocated to the shareholders based on their equity interests.
The amended standards are effective for business combinations for the Company for the fiscal year beginning October 1, 2009. The Company is currently evaluating the potential effects of IFRS 3 (2008) and IAS 27 (2008).
On July 31, 2007, the Company acquired Texas Instruments Inc.'s ("TI") DSL Customer Premises Equipment ("CPE") business for cash consideration of e45 million. The purchase price was subject to an upward or downward contingent consideration adjustment of up to \$16 million, based on negotiated revenue targets of the CPE business. Due to the failure to achieve the negotiated revenue targets of the CPE business during the nine months following the acquisition date, the cash consideration has been
Notes to the Unaudited Condensed Consolidated Financial Statements
adjusted downward by an amount of e13 million, and the amount of e13 million was reimbursed by TI. Accordingly, the Company allocated the adjustment of the purchase price to goodwill.
On October 24, 2007, the Company completed the acquisition of the mobility products business of LSI Corporation ("LSI") for cash consideration of e316 million (\$450 million) plus transaction costs. As part of the acquisition, an amount of e14 million was allocated to purchased in-process research and development based on discounted estimated future cash flows over the respective estimated useful life. During the three months ended December 31, 2007, this amount was expensed as other operating expense, because there was no future economic benefit from its use or disposal. The purchase price was subject to a contingent performance-based payment of up to \$50 million based on the relevant revenues in the measurement period following the completion of the transaction and ending December 31, 2008. Due to the lower revenues during the measurement period, no performance-based payment has been paid.
On April 28, 2008, the Company acquired Primarion Inc., Torrance, California ("Primarion") for cash consideration of e32 million (\$50 million) plus a contingent performance-based payment of up to \$30 million. The assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of acquisition. As a result of a lawsuit filed against Primarion subsequent to the acquisition, the Company reassessed the estimated fair value of the liabilities assumed. The adjustment resulted in a decrease of the net assets acquired by e4 million with a corresponding increase in goodwill. Due to the lower revenues during the measurement period, no performance-based payment has been paid.
On September 28, 2007, the Company entered into a joint venture agreement with Siemens AG ("Siemens"). Effective September 30, 2007, the Company contributed all assets and liabilities of its high power bipolar business (including licenses, patents, and front-end and back-end production assets) to a newly formed legal entity called Infineon Technologies Bipolar GmbH & Co. KG ("Bipolar") and Siemens subsequently acquired a 40 percent interest in Bipolar for e37 million. The transaction received regulatory approval and subsequently closed on November 30, 2007. As a result of the sale, the Company realized a gain before tax of e32 million which was recorded in other operating income during the fiscal year ended September 30, 2008. The joint venture agreement grants Siemens certain contractual participating rights which inhibit the Company from exercising control over Bipolar. Accordingly, the Company accounts for the retained interest in Bipolar under the equity method of accounting.
On April 25, 2008, the Company sold its hard disk drive ("HDD") business to LSI for cash consideration of e60 million (\$95 million). The HDD business designs, manufactures and markets semiconductors for HDD devices. The Company transferred its entire HDD activities, including customer relationships, as well as know-how to LSI, and granted LSI a license for intellectual property. The transaction did not entail the sale of significant assets or transfer of employees. As a result of this transaction, the Company realized a gain before tax of e39 million which was recorded in other operating income during the three months ended June 30, 2008.
During the 2008 fiscal year, the Company committed to a plan to dispose of Qimonda. As a consequence, the assets and liabilities of Qimonda were reclassified as held for disposal in the condensed consolidated balance sheet as of September 30, 2008. The results of Qimonda are reported as discontinued operations in the Company's condensed consolidated statements of operations for all periods presented. In addition, the Company recorded after tax write-downs totaling e1,475 million during the 2008 fiscal year. Pursuant to IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations", the recognition of depreciation and amortization expense and impairments of long-lived asset recorded by Qimonda ceased as of March 31, 2008.
On January 23, 2009, Qimonda and its wholly owned subsidiary Qimonda Dresden GmbH & Co. oHG ("Qimonda Dresden) filed an application at the Munich Local Court to commence insolvency proceedings.
As a result of this application, the Company deconsolidated Qimonda in accordance with IAS 27 "Consolidated and Separate Financial Statements" during the second quarter of the 2009 fiscal year. On April 1, 2009, the insolvency proceedings formally opened.
The results presented for Qimonda until deconsolidation are based on preliminary results provided by Qimonda prior to the filing by Qimonda and Qimonda Dresden for insolvency protection in the Munich Local Court on January 23, 2009, and were prepared on a going concern basis. Liquidation basis financial statements that would be required when the going concern assumption is not assured are not available from Qimonda. There can be no assurance that individually the assets and liabilities held for disposal would not be materially different if presented on a liquidation basis; however, as the net assets of Qimonda that are held for disposal are valued at the fair value less costs to sell, the net value presented in these condensed consolidated financial statements would not be impacted.
As a result of the deconsolidation, the Company recognized accumulated losses related to unrecognized currency translation effects related to Qimonda which are recorded in the Company's shareholders' equity in an amount of e100 million. The recognition of these accumulated losses has no impact on Infineon's shareholders' equity. As a result of the deconsolidation, the Company accounted for the retained interest in Qimonda of 77.5 percent as a financial asset, classified as an asset held for disposal.
Loss from discontinued operations, net of income taxes, for the nine months ended June 30, 2008, includes the results of Qimonda and the recorded after tax write-downs totaling e1,587 million, in order to remeasure Qimonda to its estimated fair value less costs to sell as of June 30, 2008. Loss from discontinued operations, net of income taxes recognized during the nine months ended June 30, 2009, includes primarily the realization of currency translation effects, not included in the disposal group, mainly from Qimonda's sale of its interest in Inotera Memories Inc. ("Inotera") to Micron Technology, Inc. ("Micron") of e88 million, the realization of accumulated losses related to unrecognized currency translation effects related to the deconsolidation of Qimonda in an amount of e100 million, and provisions and allowances of e206 million, adjusted by e3 million based on a current assessment as of June 30, 2009 compared to March 31, 2009, in connection with Qimonda's insolvency. While these amounts relate to the Qimonda business they are not included in the assets and liabilities classified as held for disposal. The operating losses of Qimonda until deconsolidation, exclusive of depreciation, amortization and impairment of long-lived assets, in the first quarter of the 2009 fiscal year were offset by a partial reversal of e460 million of the write-downs recorded in the 2008 fiscal year to reduce the net assets of Qimonda to fair value less costs to sell. Such reversal was recorded due to the fact that Infineon has neither the obligation nor the intention to provide additional equity capital to fund the operating losses of Qimonda.
As a result of the commencement of insolvency proceedings by Qimonda, Infineon is exposed to potential liabilities arising in connection with the Qimonda business. Such potential liabilities include, among others, pending antitrust and securities law claims, potential claims for repayment of governmental subsidies, employee-related contingencies and purported unfair dismissal claims by employees of Qimonda North America. For pending antitrust and securities law claims, Infineon is a named defendant and therefore potentially liable to third parties. Qimonda is required to indemnify Infineon, in whole or in part, for any claim (including any related expenses) arising in connection with these pending antitrust and securities law claims. As a result of Qimonda's insolvency, it is very unlikely that Qimonda will be able to indemnify Infineon for these losses. In addition, as a result of Qimonda's insolvency, Qimonda may not be in compliance with certain requirements of governmental subsidies received prior to the carve-out of Qimonda from Infineon. Depending on the actions of the insolvency administrator, repayment of some of these subsidies could be sought from Infineon. In addition, in its capacity as a former general partner of Qimonda Dresden, Infineon may also be held liable for certain employee-related contingencies in connection with the insolvency of Qimonda Dresden and certain subsidies received by Qimonda Dresden. Furthermore, Infineon is subject to a pending lawsuit in Delaware in which the plaintiffs are seeking to hold Infineon liable for the payment of severance and other benefits allegedly due by Qimonda North America in connection with the termination of employment in connection with Qimonda's insolvency. In addition, Infineon may be subject to claims by the insolvency administrator under specific German insolvency laws for repayment of certain amounts received by Infineon, as a Qimonda shareholder, for example, payments for intra-group services and supplies, during defined periods prior to the commencement of insolvency proceedings.
Furthermore, the Company may lose the right to use Qimonda's intellectual property rights under the contribution agreement between Infineon and Qimonda if and to the extent this agreement was successfully voided or otherwise challenged. The insolvency of Qimonda may also subject Infineon to other claims arising in connection with the liabilities, contracts, offers, uncompleted transactions, continuing obligations, risks, encumbrances and other liabilities contributed to Qimonda in connection with the carveout of the Qimonda business, as it is unlikely that Qimonda will be able to fulfill its obligation to indemnify Infineon against any such liabilities due to its insolvency.
The Company recorded aggregate provisions and allowances of e206 million as of June 30, 2009, adjusted by e3 million based on a current assessment as of June 30, 2009 compared to March 31, 2009, relating to the amounts which management believes are probable and can be estimated with reasonable accuracy at that time. The recorded provisions are primarily reflected within "Current provisions"; the remainder is recorded within "Long-term provisions". There can be no assurance that such provisions and allowances recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters. Any disclosure of amounts with respect to specific potential liabilities arising in connection with Qimonda's insolvency could seriously prejudice the Company's position in these matters, and therefore no further information is provided in this regard. No reasonable estimated amount can be attributed at this time to those potential liabilities that may occur but which are currently not viewed to be probable.
In preparing its financial statements for the current and subsequent quarters, Infineon will review the provisions and allowances with respect to these and any new potential liabilities to determine whether any adjustments should be made.
The results of Qimonda presented in the condensed consolidated statements of operations as discontinued operations consist of the following components:
| June 30, | Three months ended Nine months ended June 30, |
|||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 (1) | |||
| (g in millions) | ||||||
| Revenue | 384 | — | 1,309 | 314 | ||
| Costs and expenses | (645) | — | (2,659) | (867) | ||
| Reversal (write-down) of measurement to fair value less costs to sell |
(145) | — | (1,587) | 460 | ||
| Expenses resulting from Qimonda's application to open insolvency proceedings . |
— | (3) | — | (206) | ||
| Losses resulting from the realization from accumulated losses related to unrecognized currency translation effects upon deconsolidation |
— | — | — | (100) | ||
| Loss from discontinued operations, before income |
||||||
| taxes | (406) | (3) | (2,937) | (399) | ||
| Income tax expense | (23) | — | (35) | — | ||
| Loss from discontinued operations, net of income |
||||||
| taxes | (429) | (3) | (2,972) | (399) |
(1) No further information concerning Qimonda's condensed consolidated statements of operations has been available for the period from January 1, 2009 to January 23, 2009, the date of the application to commence insolvency proceedings. As disclosed above, due to the write down of Qimonda's net assets to zero as of September 30, 2008, the operating losses of Qimonda for the period from October 1, 2008 to January 23, 2009 did not affect the consolidated net income of the Company, but instead were eliminated via an offsetting partial reversal of previously recorded impairments. Therefore, while the amount of revenue and costs and expenses in the table above exclude amounts for the period from January 1, 2009 to January 23, 2009, the loss from discontinued operations, net of income taxes of e399 million is unaffected.
Assets and liabilities held for disposal as of September 30, 2008, are primarily composed of the book values of Qimonda's assets and liabilities. At September 30, 2008, and June 30, 2009, the carrying amounts of the major classes of assets and liabilities classified as held for disposal were as follows:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Cash and cash equivalents. | 421 | — |
| Trade accounts receivable, net | 255 | — |
| Inventories | 289 | — |
| Other current assets. | 376 | — |
| Property, plant and equipment, net | 2,059 | 5 |
| Goodwill and other intangibles | 76 | — |
| Investments accounted for using the equity method | 14 | — |
| Deferred tax assets | 59 | — |
| Other assets. | 55 | — |
| Subtotal | 3,604 | 5 |
| Write-down | (1,475) | — |
| Total assets classified as held for disposal | 2,129 | 5 |
| Short-term debt and current maturities of long-term debt | 346 | — |
| Trade accounts payable | 592 | — |
| Current provisions | 220 | — |
| Other current liabilities | 300 | — |
| Long-term debt. | 427 | — |
| Pension plans and similar commitments | 22 | — |
| Deferred tax liabilities | 16 | — |
| Long-term provisions | 25 | — |
| Other liabilities | 175 | — |
| Total liabilities associated with assets held for disposal | 2,123 | — |
| Amounts recognized directly in equity relating to assets and liabilities classified as held for disposal |
(158) | — |
During the 2003 fiscal year, the Company acquired SensoNor AS ("SensoNor") for total cash consideration of e34 million. SensoNor develops, produces and markets tire pressure and acceleration sensors. On March 4, 2009, the Company sold the business, including property, plant and equipment, inventories, and pension liabilities, and transferred employees to a newly formed company called SensoNor Technologies AS for cash consideration of e4 million and 1 share. In addition, the Company granted a license for intellectual property and entered into a supply agreement through December 2011. The total consideration received was allocated to the elements of the transaction on a relative fair value basis. As a result, the Company realized losses before tax of e17 million including post-closing adjustments in the third quarter of the 2009 fiscal year which was recorded in other operating expense, including a provision of e8 million which will be recognized over the term of the supply agreement. The Company has business agreements with the new company to ensure a continued supply of the components to the Company's tire pressure monitoring systems while the Company transfers production to its Villach site.
During the quarter ending June 30, 2009, the Company entered into a joint venture agreement with LS Industrial Systems to establish LS Power Semitech Co., Ltd.. The joint venture is expected to operate in Korea and elsewhere in Asia, and will focus on the development, production and marketing of molded
Notes to the Unaudited Condensed Consolidated Financial Statements
power modules for white good applications. LS Industrial Systems will hold 54 percent and the Company 46 percent of the joint venture. The joint venture will be launched in the fourth quarter of the 2009 fiscal year. Concurrent with the announcement of the joint venture agreement, the Company reclassified the molded module assets as assets held for sale and ceased the recognition of depreciation and amortization expense pursuant to IFRS 5.
To address rising risks in the current market environment, adverse currency trends and below benchmark margins, the Company implemented the IFX10+ cost-reduction program starting in the third quarter of the 2008 fiscal year resulting in restructuring charges of e172 million in the fourth quarter of the 2008 fiscal year. The IFX10+ program includes measured target areas including product portfolio management, manufacturing costs reduction, value chain optimization, process efficiency, reorganization of the Company's structure along its target markets, and reductions in workforce. Approximately 10 percent of the Infineon worldwide workforce is expected to be impacted by IFX10+. During the first quarter of the 2009 fiscal year, and in light of continuing adverse developments in general economic conditions and in the industry, the Company identified significant further cost savings in addition to those originally anticipated.
During the nine months ended June 30, 2008, charges of e11 million were recognized. During the three months ended June 30, 2009, the Company recorded a reversal of provisions in an amount of e7 million, resulting in an income of e1 million in the nine months ended June 30, 2009.
The development of the restructuring liability during the nine months ended June 30, 2009, was as follows:
| September 30, 2008 Liability |
Restructuring Charges, Net of Reversal |
Payments | June 30, 2009 Liability |
||||
|---|---|---|---|---|---|---|---|
| (g in millions) | |||||||
| Employee terminations | 179 | (1) | (114) | 64 | |||
| Other exit costs . |
10 | — | (9) | 1 | |||
| Total | 189 | (1) | (123) | 65 |
The amount of financial income is as follows for the three and nine months ended June 30, 2008 and 2009, respectively:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions) | ||||
| Interest income | 6 | 17 | 34 | 83 |
| Valuation changes and gains on sales |
— | — | 3 | — |
| Other financial income | — | 2 | — | 17 |
| Total | 6 | 19 | 37 | 100 |
Interest income for the three and nine months ended June 30, 2009, includes net gains before tax of e13 million and e61 million, respectively, as a result of the repurchased notional amounts of the subordinated exchangeable notes due 2010 and convertible subordinated notes due 2010 (see note 14).
Notes to the Unaudited Condensed Consolidated Financial Statements
The amount of financial expense is as follows for the three and nine months ended June 30, 2008 and 2009, respectively:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions) | ||||
| Interest expense | 30 | 29 | 104 | 93 |
| Valuation changes and losses | ||||
| (gains) on sales. | — | 1 | 13 | 25 |
| Other financial expense | 7 | 1 | 8 | 1 |
| Total | 37 | 31 | 125 | 119 |
Income (loss) from continuing operations before income taxes and income tax expense (benefit) are as follows:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions, except percentages) | ||||
| Income (loss) from continuing operations before income |
||||
| taxes | 55 | (15) | 137 | (279) |
| Income tax expense | 5 | 5 | 28 | 7 |
| Effective tax rate. | 11% | — | 21% | — |
In the three and nine months ended June 30, 2008 and 2009, the tax expense of the Company is affected by lower foreign tax rates, tax credits and the need for valuation allowances on deferred tax assets in certain jurisdictions.
Basic earnings (loss) per share ("EPS") is calculated by dividing net income (loss) by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is calculated by dividing net income by the sum of the weighted average number of ordinary shares outstanding plus all additional ordinary shares that would have been outstanding if potentially dilutive instruments or ordinary share equivalents had been issued.
Notes to the Unaudited Condensed Consolidated Financial Statements
The computation of basic and diluted EPS is as follows:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| Numerator (e in millions): |
||||
| Income (loss) from continuing operations Less: Portion attributable to minority |
50 | (20) | 109 | (286) |
| interests | (7) | (1) | (23) | — |
| Income (loss) from continuing operations attributable to shareholders of Infineon Technologies AG. |
43 | (21) | 86 | (286) |
| Loss from discontinued operations, net of income taxes |
(429) | (3) | (2,972) | (399) |
| Less: Portion attributable to minority interests |
94 | — | 662 | 48 |
| Loss from discontinued operations, net of income taxes attributable to shareholders of Infineon Technologies AG |
(335) | (3) | (2,356) | (351) |
| Net loss attributable to shareholders of Infineon Technologies AG |
(292) | (24) | (2,224) | (637) |
| Denominator (shares in millions): | ||||
| Weighted-average shares outstanding — basic and diluted . |
749.7 | 749.7 | 749.7 | 749.7 |
| Basic and diluted income (loss) per share (1): (in e) |
||||
| Income (loss) from continuing operations attributable to shareholders of Infineon Technologies AG |
0.06 | (0.03) | 0.11 | (0.38) |
| Loss from discontinued operations, net of tax attributable to shareholders of Infineon Technologies AG. |
(0.45) | — | (3.08) | (0.47) |
| Net loss attributable to shareholders of Infineon Technologies AG |
(0.39) | (0.03) | (2.97) | (0.85) |
(1) Quarterly earnings (loss) per share may not add up to year-to-date earnings (loss) per share due to rounding.
The weighted average of potentially dilutive instruments that were excluded from the diluted earnings (loss) per share computations, because the exercise price was greater than the average market price of the ordinary shares during the period or were otherwise not dilutive, includes 32.1 million and 21.8 million shares underlying employee stock options for the three months ended June 30, 2008 and 2009, respectively, and 34.2 million and 24.8 million shares underlying employee stock options for the nine months ended June 30, 2008 and 2009, respectively. Additionally, 64.5 million and 83.0 million ordinary shares issuable upon conversion of outstanding convertible subordinated notes during the three months ended June 30, 2008 and 2009, respectively, and 67.1 million and 65.9 million ordinary shares issuable upon conversion of outstanding convertible subordinated notes during the nine months ended June 30, 2008 and 2009, respectively, were not included in the computation of diluted earnings (loss) per share as their impact was not dilutive.
Notes to the Unaudited Condensed Consolidated Financial Statements
Trade accounts and other receivables consist of the following:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Third party — trade. | 590 | 474 |
| Associated and Related Companies | 28 | 5 |
| Trade accounts receivable, gross | 618 | 479 |
| Allowance for doubtful accounts | (29) | (61) |
| Trade accounts receivable, net | 589 | 418 |
| Grants receivable | 28 | 24 |
| License fees receivable. | 10 | 4 |
| Third party — financial and other receivables | 17 | 27 |
| Receivables from German bank's deposit protection fund | 121 | 10 |
| Associated and related companies financial and other | ||
| receivables | 22 | 1 |
| Employee receivables | 8 | 9 |
| Other receivables | 4 | 3 |
| Subtotal | 799 | 496 |
In June 2009, the Company received a partial payment of e17 million from the amounts classified as "Receivables from German bank's deposit protection fund". The remainder is expected to be paid in the 2009 fiscal year (see note 22).
Inventories consist of the following:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Raw materials and supplies | 59 | 49 |
| Work-in-process | 372 | 293 |
| Finished goods | 234 | 179 |
| Total inventories | 665 | 521 |
Trade and other payables consist of the following:
| September 30, 2008 |
June 30, 2009 |
||
|---|---|---|---|
| (g in millions) | |||
| Third party — trade. | 473 | 334 | |
| Related parties — trade | 15 | 22 | |
| Trade payables | 488 | 356 | |
| Related parties — financial and other payables. | 6 | 5 | |
| Other | 12 | 4 | |
| Total | 506 | 365 |
Notes to the Unaudited Condensed Consolidated Financial Statements
Provisions at September 30, 2008 and June 30, 2009 consist of the following:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Personnel costs | 347 | 207 |
| Warranties and licenses | 32 | 56 |
| Asset retirement obligations | 13 | 9 |
| Post-retirement benefits | 3 | 3 |
| Other | 56 | 245 |
| Total | 451 | 520 |
The total amounts of provisions are reflected in the consolidated balance sheets as of September 30, 2008 and June 30, 2009, respectively, as follows:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Current. | 424 | 415 |
| Non-current | 27 | 105 |
| Total | 451 | 520 |
Provisions for personnel costs relate to employee-related obligations and include, among others, costs of incentive and bonus payments, holiday and vacation payments, termination benefits, early retirement, service anniversary awards, other personnel costs and related social security payments.
Provisions for warranties and licenses mainly represent the estimated future cost of fulfilling contractual requirements associated with products sold.
Provisions for asset retirement obligations relate to certain items of property, plant and equipment. Such asset retirement obligations may arise due to attributable environmental clean-up costs and to costs primarily associated with the removal of leasehold improvements at the end of the lease term.
Other provisions comprise provisions for outstanding expenses, penalties for default or delay on contracts, conservation, and waste management, and for miscellaneous other liabilities. As of June 30, 2009, other provisions also include additional provisions resulting from the insolvency of Qimonda (see note 4).
Notes to the Unaudited Condensed Consolidated Financial Statements
Debt consists of the following:
| September 30, 2008 |
June 30, 2009 |
|
|---|---|---|
| (g in millions) | ||
| Short-term debt: | ||
| Loans payable to banks, weighted average rate 2.29% | 139 | 101 |
| Convertible subordinated notes, 5.0%, due 2010. | — | 487 |
| Current portion of long-term debt | 68 | 46 |
| Total short-term debt and current maturities | 207 | 634 |
| Long-term debt: | ||
| Convertible subordinated notes, 7.5%, due 2014. | — | 143 |
| Exchangeable subordinated notes, 1.375%, due 2010. | 193 | 45 |
| Convertible subordinated notes, 5.0%, due 2010. | 531 | — |
| Loans payable to banks: | ||
| Unsecured term loans, weighted average rate 2.82%, due | ||
| 2010 — 2013 | 217 | 179 |
| Secured term loans, weighted average rate 2.45%, due | ||
| 2011 | 2 | 1 |
| Notes payable to governmental entity, due 2010 | 20 | 20 |
| Total long-term debt | 963 | 388 |
Since September 30, 2008, the Company has continued to repurchase its convertible subordinated notes due 2010 and exchangeable subordinated notes due 2010. In particular, on May 5, 2009, the Company invited holders of the convertible notes due 2010 and exchangeable notes due 2010 to submit offers to sell their convertible subordinated notes due 2010 and exchangeable subordinated notes due 2010 to the Company. During the three and nine months ended June 30, 2009, the Company repurchased notional amounts of e38 million and e167 million, respectively, of its exchangeable subordinated notes due 2010 and e56 million and e78 million, respectively, of its convertible subordinated notes due 2010. The transactions resulted in net gains of e13 million and e61 million before tax and after related fees and expenses, which was recognized in interest income during the three and nine months ended June 30, 2009, respectively. The repurchases were made out of available cash.
On June 30, 2009, the outstanding nominal amount of the convertible notes due 2010 was e522 million, and the outstanding nominal amount of the exchangeable notes due 2010 was e48 million.
The execution of the currently ongoing capital increase of the Company will trigger a corresponding anti-dilution adjustment of the conversion ratio of the convertible notes due 2010.
On May 26, 2009, the Company (as guarantor), through its subsidiary Infineon Technologies Holding B.V., issued e196 million in new guaranteed subordinated convertible notes at a discount of 7.2 percent in an offering to institutional investors. The notes are convertible, at the option of the holders of the notes, into a maximum of 74.9 million ordinary shares of the Company, at a conversion price of e2.61 per share through maturity. The notes accrue interest at 7.5 percent per year. The principal of the notes is unsecured and ranks pari passu with all present and future unsecured subordinated obligations of the issuer. The coupons of the notes are secured and unsubordinated. The noteholders have a negative pledge relating to future capital market indebtedness and an early redemption option in the event of a change of control. The Company may redeem the convertible notes due 2014 after two and a half years at their nominal amount plus interest accrued thereon plus the present value of all remaining coupon payments until the maturity date, if the Company's closing share price exceeds 150 percent of the conversion price on 15 out of the previous 30 consecutive trading days. The notes are listed on the Open Market (Freiverkehr) of the Frankfurt Stock Exchange. The execution of the currently ongoing capital increase of the Company will trigger a corresponding anti-dilution adjustment of the conversion ratio of the notes.
Concurrently with the issuance of \$248 million in convertible notes due 2013 by Qimonda (as guarantor) through its subsidiary Qimonda Finance LLC (as issuer) on February 12, 2008, Infineon lent Credit Suisse International 20.7 million Qimonda American Depositary Shares ancillary to the placement of the convertible notes, which remained outstanding as of June 30, 2009.
The Company has established independent financing arrangements with several financial institutions, in the form of both short- and long-term credit facilities, which are available for anticipated funding purposes, as follows:
| Nature of Financial | As of June 30, 2009 | ||||
|---|---|---|---|---|---|
| Term | Institution Commitment |
Purpose/ intended use |
Aggregate facility |
Drawn (g in millions) |
Available |
| Short-term | firm commitment | working capital, guarantees |
500 | 101 | 399 |
| Short-term | no firm commitment |
working capital, cash management |
192 | — | 192 |
| Long-term (1) . . . |
firm commitment | project finance | 288 | 247 | 41 |
| Total. | 980 | 348 | 632 |
(1) Including current maturities.
In September 2004, the Company executed a \$400/e400 million syndicated credit facility with a fiveyear term, which was subsequently reduced to \$345/e300 million in August 2006. Currently an amount of \$70 million is outstanding under this facility. The facility becomes due in September 2009.
In May 2009, the Company and Infineon Technologies Holding B.V. (as original borrower and original guarantor, respectively) executed a e100 million revolving credit facility to be utilized by way of drawings of loans in Euro and any optional currency with a maturity of March 15, 2010. The credit facility is available for general corporate purposes and currently undrawn. The credit facility will partially replace currently available credit facilities after their expiry. It is unsecured with customary financial covenants, and drawings bear interest at market-related rates that are linked to the interest period of each loan plus a margin.
In June 2009 local financial institutions granted working capital and project loan facilities to Infineon Technologies (Wuxi) Co. Ltd. amounting to a total of \$141 million. These multi-year facilities are available for general corporate purposes and the expansion of manufacturing facilities in Wuxi, China, including intragroup asset transfers. There are currently no drawings outstanding under these facilities, which will be partially secured by an asset pledge.
A summary of the status of the Infineon stock option plans as of June 30, 2009, and changes during the nine months then ended is presented below (options in millions, exercise prices in Euro, intrinsic value in millions of Euro):
| Number of options |
Weighted average exercise price |
Weighted average remaining life (in years) |
Aggregated Intrinsic Value |
|
|---|---|---|---|---|
| Outstanding at September 30, 2008 | 33.2 | 12.30 | 2.28 | — |
| Granted. | 2.6 | 2.72 | ||
| Exercised | — | — | ||
| Forfeited and expired. | (10.5) | 17.08 | ||
| Outstanding at June 30, 2009 | 25.3 | 10.07 | 2.23 | — |
| Vested and expected to vest, net of | ||||
| estimated forfeitures at June 30, 2009 | 22.3 | 10.06 | 1.96 | — |
| Exercisable at June 30, 2009 | 19.2 | 9.86 | 1.71 | — |
Notes to the Unaudited Condensed Consolidated Financial Statements
The following weighted-average assumptions were used in the fair value calculation during the three months ended June 30, 2009:
| Three months ended June 30, 2009 |
|
|---|---|
| Weighted-average assumptions: | |
| Risk-free interest rate. | 1.88% |
| Expected volatility, underlying shares | 67% |
| Expected volatility, SOX index | 36% |
| Forfeiture rate, per year | 3.40% |
| Dividend yield | 0% |
| Expected life in years. | 3.20 |
| Weighted-average fair value per option at grant date in e . |
0.71 |
Options with an aggregate fair value of e26 million and e10 million vested during the nine months ended June 30, 2008 and 2009, respectively. Options with a total intrinsic value of e0 were exercised during the nine months ended June 30, 2008 and 2009.
Changes in the Company's unvested options during the nine months ended June 30, 2009, are summarized as follows (options in millions, fair values in Euro, intrinsic value in millions of Euro):
| Number of options |
Weighted average grant date fair value |
Weighted average remaining life (in years) |
Aggregated Intrinsic Value |
|
|---|---|---|---|---|
| Unvested at September 30, 2008 | 6.7 | 2.96 | 4.05 | — |
| Granted. | 2.6 | 0.71 | ||
| Vested. | (2.8) | 3.54 | ||
| Forfeited | (0.4) | 3.03 | ||
| Unvested at June 30, 2009 | 6.1 | 1.71 | 4.57 | — |
| Unvested options expected to vest . |
3.1 | 2.46 | 3.55 | — |
As of June 30, 2009, there was a total of e3 million in unrecognized compensation expense related to unvested stock options of Infineon, which is expected to be recognized over a weighted-average period of 1.47 years.
Share-based compensation expense was allocated as follows:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions) | ||||
| Compensation expense recognized: | ||||
| Cost of goods sold. | — | — | — | — |
| Selling, general and administrative expenses |
1 | 1 | 3 | 2 |
| Research and development expenses | — | — | 1 | — |
| Total share-based compensation expense. |
1 | 1 | 4 | 2 |
| Share-based compensation effect on basic and diluted loss per share in e . |
— | — | (0.01) | — |
No cash was received from stock option exercises during the nine months ended June 30, 2008 and 2009. The amount of share-based compensation expense which was capitalized and remained in inventories for the nine months ended June 30, 2008 and 2009, was immaterial. Share-based
Notes to the Unaudited Condensed Consolidated Financial Statements
compensation expense does not reflect any income tax benefits, since stock options are granted in tax jurisdictions where the expense is not deductible for tax purposes.
The changes in other components of equity for the nine months ended June 30, 2008 and 2009, are as follows:
| 2008 | 2009 | |||||
|---|---|---|---|---|---|---|
| Pretax | Tax Effect | Net | Pretax | Tax Effect | Net | |
| (g in millions) | ||||||
| Unrealized (losses) gains on securities: | ||||||
| Unrealized holding (losses) gains. | (4) | — | (4) | (9) | — | (9) |
| Reclassification adjustment for losses (gains) | ||||||
| included in net income or loss | (5) | — | (5) | 13 | — | 13 |
| Net unrealized (losses) gains | (9) | — | (9) | 4 | — | 4 |
| Unrealized gains on cash flow hedges . |
7 | — | 7 | 9 | — | 9 |
| Foreign currency translation adjustment | (84) | — | (84) | 148 | — | 148 |
| Other components of equity | (86) | — | (86) | 161 | — | 161 |
The Company has transactions in the normal course of business with Equity Method Investments and related persons such as Management and Supervisory Board members (collectively, "Related Parties"). The Company purchases certain of its raw materials, especially chipsets, from, and sells certain of its products to, Related Parties. Purchases and sales to Related Parties are generally based on market prices or manufacturing costs plus a mark-up.
Related Party receivables consist primarily of trade, financial, and other receivables from Equity Method Investments and related companies, and totalled e78 million and e6 million as of September 30, 2008 and June 30, 2009, respectively.
Related Party payables consist primarily of trade, financial, and other payables from Equity Method Investments, and totalled e21 million and e24 million as of September 30, 2008 and June 30, 2009, respectively.
Related Party receivables and payables as of September 30, 2008 and June 30, 2009, have been segregated first between amounts owed by or to companies in which the Company has an ownership interest, and second based on the underlying nature of the transactions. Trade receivables and payables include amounts for the purchase and sale of products and services. Financial and other receivables and payables represent amounts owed relating to loans and advances and accrue interest at interbank rates.
In the three months ended June 30, 2008 and 2009, sales to Related Parties totalled e1 million and e0, respectively, whereas purchases from Related Parties totalled e161 million and e18 million, respectively. In the nine months ended June 30, 2008 and 2009, sales to Related Parties totalled e1 million and e2 million, respectively, whereas purchases from Related Parties totalled e430 million and e77 million, respectively.
Information with respect to the Company's pension plans is presented for German ("Domestic") plans and non-German ("Foreign") plans.
Notes to the Unaudited Condensed Consolidated Financial Statements
The components of net periodic pension cost are as follows:
| Three months ended June 30, 2008 |
Three months ended June 30, 2009 |
||||
|---|---|---|---|---|---|
| Domestic plans |
Foreign plans |
Domestic plans |
Foreign plans |
||
| (g in millions) | |||||
| Service cost | (4) | (1) | (2) | — | |
| Interest cost | (4) | (1) | (5) | (2) | |
| Expected return on plan assets |
5 | 1 | 6 | 1 | |
| Curtailment gain recognized | — | — | — | — | |
| Net periodic pension cost | (3) | (1) | (1) | (1) |
| Nine months ended June 30, 2008 |
Nine months ended June 30, 2009 |
|||||
|---|---|---|---|---|---|---|
| Domestic plans |
Foreign plans |
Domestic plans |
Foreign plans |
|||
| (g in millions) | ||||||
| Service cost | (12) | (3) | (7) | (2) | ||
| Interest cost | (14) | (3) | (14) | (4) | ||
| Expected return on plan assets |
16 | 3 | 16 | 2 | ||
| Curtailment gain recognized | — | — | — | — | ||
| Net periodic pension cost | (10) | (3) | (3) | (4) |
The Company periodically enters into derivatives, including foreign currency forward and option contracts as well as interest rate swap agreements. The objective of these transactions is to reduce the impact of interest rate and exchange rate fluctuations on the Company's foreign currency denominated net future cash flows. The Company does not enter into derivatives for trading or speculative purposes. Gains and losses on derivative financial instruments are included in determining net loss, with those related to operations included primarily in cost of goods sold, and those related to financial activities included in other non-operating income (expense).
Notes to the Unaudited Condensed Consolidated Financial Statements
The Euro equivalent notional amounts in millions and fair values of the Company's derivative instruments are as follows:
| September 30, 2008 | June 30, 2009 | ||||
|---|---|---|---|---|---|
| Notional amount |
Fair value | Notional amount |
Fair value | ||
| (g in millions) | |||||
| Forward contracts sold: | |||||
| U.S. dollar | 213 | (5) | 271 | 12 | |
| Japanese yen | 5 | — | — | — | |
| Singapore dollar | 10 | — | — | — | |
| Malaysian ringgit | 3 | — | 1 | — | |
| Forward contracts purchased: | |||||
| U.S. dollar | 157 | (4) | 94 | (3) | |
| Japanese yen | 1 | — | 5 | — | |
| Singapore dollar | 29 | — | 15 | — | |
| Great Britain pound | 9 | — | 3 | — | |
| Malaysian ringgit | 52 | — | 35 | (2) | |
| Norwegian krone | 2 | — | — | — | |
| Currency Options sold: | |||||
| U.S. dollar | 177 | (5) | — | — | |
| Currency Options purchased: | |||||
| U.S. dollar | 163 | 1 | — | — | |
| Interest rate swaps | 500 | (1) | 500 | 15 | |
| Other | 77 | (1) | 24 | (9) | |
| Fair value, net. | (15) | 13 |
At September 30, 2008 and June 30, 2009, all derivative financial instruments are recorded at fair value. Foreign exchange gains (losses), net included gains of e19 million and e10 million for the three months ended June 30, 2008 and 2009, respectively, related to gains from foreign exchange transactions. Foreign exchange gains (losses), net included gains of e16 million and losses e19 million for the nine months ended June 30, 2008 and 2009, respectively, related to gains and losses from foreign exchange transactions on operating business and on hedging transactions.
The Company enters into derivative instruments, primarily foreign exchange forward contracts, to hedge significant anticipated U.S. dollar cash flows from operations. During the nine months ended June 30, 2009, the Company designated as cash flow hedges certain foreign exchange forward contracts and foreign exchange options related to highly probable forecasted sales denominated in U.S. dollars. The Company did not record any ineffectiveness for these hedges for the nine months ended June 30, 2009. However, it excluded differences between spot and forward rates and the time value from the assessment of hedge effectiveness and included this component of financial instruments' gain or loss as part of cost of goods sold. It is estimated that e3 million of the net gains recognized directly in other components of equity as of June 30, 2009, will be reclassified into earnings during the 2009 fiscal year. All foreign exchange derivatives designated as cash flow hedges held as of June 30, 2009, have maturities of four months or less. Foreign exchange derivatives entered into by the Company to offset exposure to anticipated cash flows that do not meet the requirements for applying hedge accounting are marked to market at each reporting period with unrealized gains and losses recognized in earnings. For the nine months ended June 30, 2008 and 2009, no gains or losses were reclassified from other components of equity as a result of the discontinuance of foreign currency cash flow hedges resulting from a determination that it was probable that the original forecasted transaction would not occur.
Notes to the Unaudited Condensed Consolidated Financial Statements
In September 2004, the Company entered into a plea agreement with the Antitrust Division of the U.S. Department of Justice ("DOJ") in connection with its investigation into alleged antitrust violations in the DRAM industry. Pursuant to this plea agreement, the Company agreed to plead guilty to a single count of conspiring with other unspecified DRAM manufacturers to fix the prices of DRAM products during certain periods of time between July 1, 1999 and June 15, 2002, and to pay a fine of \$160 million. The fine plus accrued interest is being paid in equal annual installments through 2009. The Company has a continuing obligation to cooperate with the DOJ in its ongoing investigation of other participants in the DRAM industry. The price-fixing charges related to DRAM sales to six Original Equipment Manufacturer ("OEM") customers that manufacture computers and servers. The Company has entered into settlement agreements with five of these OEM customers and is considering the possibility of a settlement with the remaining OEM customer, which purchased only a very small volume of DRAM products from the Company. The Company has secured individual settlements with eight direct customers in addition to those OEM customers. As of June 30, 2009, the final installment of e20 million of the DOJ settlement remained unpaid. Such amount was recorded in the consolidated balance sheet as other current financial liabilities.
Subsequent to the commencement of the DOJ investigation, a number of putative class action lawsuits were filed against the Company, its U.S. subsidiary Infineon Technologies North America Corp. ("IF North America") and other DRAM suppliers by direct customers, indirect customers and various U.S. state attorneys general, alleging price-fixing in violation of the Sherman Act and seeking treble damages in unspecified amounts, costs, attorneys' fees, and an injunction against the allegedly unlawful conduct. In September 2002, the Judicial Panel on Multi-District Litigation ordered that these federal cases be transferred to the U.S. District Court for the Northern District of California for coordinated or consolidated pre-trial proceedings as part of a Multi District Litigation ("MDL").
In September 2005, the Company and IF North America entered into a definitive settlement agreement with counsel for the class of direct U.S. purchasers of DRAM (granting an opportunity for individual class members to opt out of the settlement). In November 2006, court approved the settlement agreement and entered final judgment and dismissed the claims with prejudice. Six entities chose to opt out of the class action settlement of the direct customers and pursue individual lawsuits against the Company. Of these individual lawsuits, we have settled with Honeywell.
In April 2006, Unisys Corporation ("Unisys") filed a complaint against the Company and IF North America, among other DRAM suppliers, alleging state and federal claims for price-fixing and seeking recovery as both a direct and indirect purchaser of DRAM. The complaint was filed in the Northern District of California and has been related to the MDL proceeding described above. All defendants have filed joint motions for summary judgment and to exclude plaintiff's principal expert in the Unisys case. On March 31, 2009, the court issued an order denying these motions with respect to a related case filed by Sun Microsystems against DRAM suppliers other than the Company and IF North America, but no ruling has yet been issued with respect to the Unisys case. On October 29, 2008 the Company and IF North America filed a motion to disqualify counsel for plaintiffs for Unisys Corporation, and the other "opt-out" plaintiffs (other than DRAM Claims Liquidation Trust) as described below. On December 18, 2008, the court issued an order disqualifying counsel for those plaintiffs from prosecuting those cases against the Company and IF North America, and ordered that new counsel be substituted. New counsel has been substituted. No trial date has been scheduled in the Unisys case. No specified amount of damages has been asserted by the plaintiff in the complaint filed by Unisys and no reasonable estimated amount can be attributed at this time to the potential outcome of the claim.
In February and March 2007, four more cases were filed by All American Semiconductor, Inc., Edge Electronics, Inc., Jaco Electronics, Inc., and DRAM Claims Liquidation Trust, by its Trustee, Wells Fargo Bank, N.A. The All American Semiconductor complaint alleges claims for price-fixing under the Sherman Act. The Edge Electronics, Jaco Electronics and DRAM Claims Liquidation Trust complaints allege state and federal claims for price-fixing. All four cases were filed in the Northern District of California and have been related to the MDL described above. All defendants have filed joint motions for summary judgment and to exclude plaintiffs' principal expert in all of these cases. On March 31, 2009, the court issued an
order denying these motions with respect to a related case filed by Sun Microsystems against DRAM suppliers other than the Company and IF North America, but no ruling has yet been issued with respect to these opt-out cases. On December 18, 2008, the court issued an order disqualifying counsel for those plaintiffs (other than DRAM Claims Liquidation Trust), as described above. New counsel has been substituted. No specific amount of damages has been asserted by the plaintiffs and no reasonable estimated amount can be attributed at this time to the potential outcome of these claims.
Sixty-four additional cases were filed through October 2005 in numerous federal and state courts throughout the United States. Each of these state and federal cases (except for one relating to foreign purchasers, described below) purports to be on behalf of a class of individuals and entities who indirectly purchased DRAM in the United States during specified time periods commencing in or after 1999 (the Indirect U.S. Purchaser Class). The complaints variously allege violations of the Sherman Act, California's Cartwright Act, various other state laws, unfair competition law, and unjust enrichment and seek treble damages in generally unspecified amounts, restitution, costs, attorneys' fees and injunctions against the allegedly unlawful conduct.
The foreign purchaser's case referred to above was dismissed with prejudice and without leave to amend in March 2006; the plaintiffs appealed to the Ninth Circuit Court of Appeals. On August 14, 2008, the Ninth Circuit issued its decision affirming the dismissal of this action. Twenty-three of the state and federal court cases were subsequently ordered transferred to the U.S. District Court for the Northern District of California for coordinated and consolidated pretrial proceedings as part of the MDL proceeding described above. Nineteen of the 23 transferred cases are currently pending in the MDL litigation. The pending California state cases were coordinated and transferred to San Francisco County Superior Court for pre-trial proceedings. The plaintiffs in the indirect purchaser cases outside California agreed to stay proceedings in those cases in favor of proceedings on the indirect purchaser cases pending as part of the MDL pre-trial proceedings.
On January 29, 2008, the district court in the MDL indirect purchaser proceedings entered an order granting in part and denying in part the defendants' motion for judgment on the pleadings directed at several of the claims. Plaintiffs filed a Third Amended Complaint on February 27, 2008. On March 28, 2008, the court granted plaintiffs leave to immediately appeal its decision to the Court of Appeals for the Ninth Circuit. On June 26, 2008, the Ninth Circuit Court of Appeals issued an order agreeing to hear the appeal. Plaintiffs have agreed to a stay of further proceedings in the MDL indirect purchaser cases until the appeal is complete. Plaintiffs in various state court indirect purchaser actions outside of the MDL have moved to lift the stays that were previously in place. On March 3, 2009, the judge in the Arizona state court indirect purchaser action issued an order denying plaintiffs' motion to lift the stay. A hearing on plaintiffs' motion to lift the stay in the Minnesota state court indirect purchaser action was held on May 6, 2009. Plaintiffs also moved to lift the stay in the Wisconsin state court indirect purchaser action, but no ruling has yet been issued. Plaintiffs in the Arkansas state court indirect purchaser action have also filed a motion to lift the stay, and that motion has been scheduled for hearing on September 11, 2009. On July 9, 2009, a hearing was held, after which the Court entered an order lifting the stay on the Wisconsin state case, and ordered the parties to submit a proposed schedule for further proceedings by August 7, 2009. Before the initial stay order was entered, Infineon earlier filed a motion to dismiss the Wisconsin case against it based on lack of personal jurisdiction. That motion has not yet been heard, and the Company and IF North America, along with its co-defendants, filed an opposition on April 13, 2009.
In July 2006, the New York state attorney general filed an action in the U.S. District Court for the Southern District of New York against the Company, IF North America and several other DRAM manufacturers on behalf of New York governmental entities and New York consumers who purchased products containing DRAM beginning in 1998. The plaintiffs allege violations of state and federal antitrust laws arising out of the same allegations of DRAM price-fixing and artificial price inflation practices discussed above, and seek recovery of actual and treble damages in unspecified amounts, penalties, costs (including attorneys' fees) and injunctive and other equitable relief. In October 2006, this action was made part of the MDL proceeding described above. In July 2006, the attorneys general of Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin filed a lawsuit in the U.S. District Court for the Northern District of
California against the Company, IF North America and several other DRAM manufacturers on behalf of governmental entities, consumers and businesses in each of those states who purchased products containing DRAM beginning in 1998. In September 2006, the complaint was amended to add claims by the attorneys general of Kentucky, Maine, New Hampshire, North Carolina, the Northern Mariana Islands and Rhode Island. This action is based on state and federal law claims relating to the same alleged anticompetitive practices in the sale of DRAM and plaintiffs seek recovery of actual and treble damages in unspecified amounts, penalties, costs (including attorneys' fees) and injunctive and other relief. In October 2006, the Company joined the other defendants in filing motions to dismiss several of the claims alleged in these two actions. In August 2007, the court entered orders granting the motions in part and denying the motions in part. Amended complaints in both actions were filed on October 1, 2007. On April 15, 2008, the court issued two orders in the New York and multistate attorneys general cases on the defendants' motions to dismiss. The order in the New York action denied the defendants' motion to dismiss. The order in the multistate attorneys general case partly dismissed and partly granted the motion. On May 13, 2008, the Company answered the complaint by the State of New York and the multistate complaint. On September 15, 2008, the Company filed an amended answer to the multistate complaint. Between June 25, 2007 and December 31, 2008, the state attorneys general of eight states, Alaska, Delaware, Ohio, New Hampshire, Texas, Vermont, Kentucky and the Northern Mariana Islands filed requests for dismissal of their claims. Plaintiffs California and New Mexico filed a joint motion for class certification seeking to certify classes of all public entities within both states. On September 5, 2008, the Court entered an order denying both states' motions for class certification. On September 15, 2008, the New York State Attorney General filed a motion for judgment on the pleadings regarding certain defendants' affirmative defenses to New York's amended complaint. On January 5, 2009, the court denied the New York State Attorney General's motion for judgment on the pleadings, but in the alternative granted New York's request to reopen discovery concerning certain of defendants' affirmative defenses.
On October 3, 2008, approximately 95 California schools, political subdivisions and public agencies that were previously putative class members of the multistate attorney general complaint described above filed suit in California Superior Court against the Company, IF North America, and several other DRAM manufacturers alleging DRAM price-fixing and artificial price inflation in violation of California state antitrust and consumer protection laws arising out of the alleged practices described above. The plaintiffs seek recovery of actual and treble damages in unspecified amounts, restitution, costs (including attorneys' fees) and injunctive and other equitable relief. On June 16, 2009, the California Superior Court entered an order overruling defendants' demurrer to the California state court complaint and granting in part and denying in part defendants' motion to strike portions of the complaint.
No specified amount of damages has been asserted by the plaintiffs and no reasonable estimated amount can be attributed at this time to the potential outcome of the claims described above. In addition, certain of these matters are currently subject to mediation, pursuant to which the parties are prohibited from disclosing potential settlement amounts.
In April 2003, the Company received a request for information from the European Commission (the "Commission") to enable the Commission to assess the compatibility with the Commission's rules on competition of certain practices of which the Commission has become aware in the European market for DRAM products. Since February 2009, the company is subject to formal proceedings from the Commission. The Company is fully cooperating with the Commission in its investigation. Qimonda is obligated to indemnify Infineon for any fines ultimately imposed by the Commission in connection with these proceedings. Due to Qimonda's recent insolvency filing, however, it is unlikely that Qimonda will be able to indemnify Infineon against any such potential liabilities. The exact amount of potential fines cannot be predicted with certainty and, therefore, it is possible that any fine actually imposed on the Company by the Commission may be materially higher than the provision recorded therefore. Any disclosure of the Company's estimate of potential outcome could seriously prejudice the position of the Company in this case.
In May 2004, the Canadian Competition Bureau advised IF North America that it, its affiliates and present and past directors, officers and employees are among the targets of a formal inquiry into an alleged conspiracy to prevent or lessen competition unduly in the production, manufacture, sale or supply of DRAM, contrary to the Canadian Competition Act. No formal steps (such as subpoenas) have been taken by the Competition Bureau to date. The Company is fully cooperating with the Competition Bureau in its inquiry. No specified amount of damages has been asserted and no reasonable estimated amount can be attributed at this time to the potential outcome of the inquiries of the Canadian Competition Bureau.
Between December 2004 and February 2005, two putative class proceedings were filed in the Canadian province of Quebec, and one was filed in each of Ontario and British Columbia against the Company, IF North America and other DRAM manufacturers on behalf of all direct and indirect purchasers resident in Canada who purchased DRAM or products containing DRAM between July 1999 and June 2002, seeking damages, investigation and administration costs, as well as interest and legal costs. Plaintiffs primarily allege conspiracy to unduly restrain competition and to illegally fix the price of DRAM. No specified amount of damages has been asserted by the plaintiffs and no reasonable estimated amount can be attributed at this time to the potential outcome of the two putative class proceedings.
Between September and November 2004, seven securities class action complaints were filed against the Company and current or former officers in U.S. federal district courts, later consolidated in the Northern District of California, on behalf of a putative class of purchasers of the Company's publicly-traded securities who purchased them during the period from March 2000 to July 2004 (the "Securities Class Actions"). The consolidated amended complaint alleges violations of the U.S. securities laws and asserts that the defendants made materially false and misleading public statements about the Company's historical and projected financial results and competitive position because they did not disclose the Company's alleged participation in DRAM price-fixing activities and that, by fixing the price of DRAM, defendants manipulated the price of the Company's securities, thereby injuring its shareholders. The plaintiffs seek unspecified compensatory damages, interest, costs and attorneys' fees. On January 25, 2008, the court entered into an order granting in part and denying in part the defendants' motions to dismiss the Securities Class Action complaint. The court denied the motion to dismiss with respect to plaintiffs' claims under §§ 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934 and dismissed the claim under § 20A of the act with prejudice. On August 13, 2008 the court denied a motion for summary judgment brought by the Company based on the statute of limitations. On August 25, 2008, the Company filed a motion for judgment on the pleadings, or in the alternative, motion to dismiss for lack of subject matter jurisdiction, against foreign purchasers, i.e., proposed class members who are neither residents nor citizens of the United States who bought securities of the Company on an exchange outside the United States. On August 25, 2008, plaintiffs filed a motion for class certification. On March 6, 2009, the court denied the Company's motion to dismiss the claims asserted by the foreign purchasers, and granted plaintiffs' motion to certify a class of persons who acquired the Company's securities between March 13, 2000 and July 19, 2004, including foreign purchasers, who sold their securities after June 18, 2002. On March 19, 2009, the Company filed a petition with the Court of Appeals for the Ninth Circuit, requesting permission to immediately appeal the court's March 6, 2009 order granting class certification; the Ninth Circuit granted the petition on April 29, 2009. On May 14, 2009 the court issued an order staying the case pending resolution of the Company's appeal by the Ninth Circuit. No specified amount of damages has been asserted by the plaintiffs. These matters are currently subject to mediation, pursuant to which the parties are prohibited from disclosing potential settlement amounts.
The Company's directors' and officers' insurance carriers have denied coverage in the Securities Class Actions and the Company filed suit against the carriers in December 2005 and August 2006. The Company's claims against one D&O insurance carrier were finally dismissed in May 2007. The claim against the other insurance carrier is still pending.
On October 31, 2007, Wi-LAN Inc. filed suit in the U.S. District Court for the Eastern District of Texas against Westell Technologies, Inc. and 16 other defendants, including the Company and IF North America. The complaint alleges infringement of three U.S. patents by certain wireless products compliant with the IEEE 802.11 standards and certain ADSL products compliant with the ITU G.992 standards, in each case supplied by certain of the defendants. On April 1, 2008, the Court granted the Company's and other non-US defendant's stipulated motion to dismiss without prejudice with respect to such non-US defendants. On May 7, 2008, Wi-LAN and the Company settled their patent litigation pending in the U.S. District Court for the Eastern District of Texas by concluding license and patent acquisition agreements, and on May 18, 2008, Wi-LAN, IF North America and the Company filed an unopposed joint motion to dismiss with prejudice any and all claims and counterclaims in this action against one another.
In October 2007, CIF Licensing LLC, New Jersey, USA ("CIF"), a member of the General Electric Group, filed suit in the Civil Court of Du¨sseldorf, Germany against Deutsche Telekom AG ("DTAG") alleging infringement of four European patents in Germany by certain CPE-modems and ADSL-systems (the "CIF Suit"). DTAG has given third-party notice to its suppliers — which include customers of Infineon — to the effect that a declaratory judgment of patent infringement would be legally binding on the suppliers as to the facts established and certain estoppels. Since the end of 2007, various suppliers also gave third-party notice to their respective suppliers — including Infineon. On January 28, 2008, Infineon became a party in the suit on the side of DTAG. CIF then filed suit against Infineon alleging indirect infringement of one of the four European patents. DTAG, most of its suppliers and most of their suppliers have formed a joint defense group. Infineon is contractually obliged to indemnify and/or to pay damages to its customers upon different conditions and to different extents, depending on the terms of the specific contracts. By July 16, 2008, DTAG and all the parties who joined the CIF suit in Du¨sseldorf had filed their answer to the complaint. At the same time, DTAG, Ericsson AB, Texas Instruments Inc., Nokia Siemens Networks and the Company partly jointly and partly separately filed actions of invalidity before the Federal Patent Court in Munich with respect to all four patents. In March 2009, CIF filed its replies both with the Civil Court of Duesseldorf and the Federal Patent Court in Munich. DTAG and the parties who joined the lawsuit on the side of DTAG have responded by the end of May 2009 for Munich and must respond by September 28, 2009 for Duesseldorf. Oral arguments at the Civil Court of Duesseldorf are scheduled for December 1, 2009 regarding the one surviving patent; the court hearing for the three expired patents have been suspended and no new schedules have been set with respect thereto. In October 2008, CIF also filed suit in the Civil Court of Du¨sseldorf, Germany against Arcor GmbH &Co KG, ("Arcor"), Hansenet Telekommunikation GmbH, United Internet AG ("United Internet") (all three, "New Defendants") alleging infringement of the same four European patents. Oral arguments at the Civil Court of Duesseldorf for the suits against all New Defendants for the one surviving patent have also been scheduled for December 1, 2009. The New Defendants have partly given third-party notice to their suppliers. Alcatel has given Infineon third-party notice in the lawsuit against Arcor and AVM Computersysteme Vertriebs GmbH has given third-party notice in the lawsuit against United Internet.
On October 21, 2008, the Company learned that the European Commission had commenced an investigation involving the Company's Chip Card & Security business for alleged violations of antitrust laws. The investigation is in its very early stages, and the Company is assessing the facts and monitoring the situation carefully. No specified amount of damages has been asserted and no reasonable estimated amount can be attributed at this time to the potential outcome of this investigation.
On November 12, 2008, Volterra Semiconductor Corporation filed suit against Primarion, Inc., the Company and IF North America in the U.S District Court for the Northern District of California for alleged infringement of five U.S. patents by certain products offered by Primarion. On December 18, 2008, IF North America and Primarion filed an answer to the complaint denying any infringement and filed a counterclaim against Volterra Semiconductor Corporation alleging fraud on the U.S. Patent and Trademark Office and certain antitrust violations. The Company later joined in the answer and counterclaim. Primarion, the Company and IF North America also counterclaimed that the patents underlying Volterra's patent infringement claims are invalid. In February and March 2009 IF North America filed requests for reexamination at the US Patent and Trademark Office for all five patents asserted by Volterra. Thereafter, the U.S. Patent and Trademark Office ordered the re-examination of all five patents asserted by Volterra. On May 13, 2009, the parties to the litigation consented to having U.S. Magistrate Judge Joseph C. Spero conduct all further proceedings. On June 12, 2009, Judge Spero stayed the case on two of the patents
pending the completion of the re-examination proceedings as to those two patents. On July 10, 2009, Volterra filed motions for a preliminary injunction and for partial summary judgment of infringement based upon an assertion that Primarion's integrated power stage products infringe three claims of two patents and that Volterra has and will suffer irreparable harm. Primarion, IF North America and the Company deny that the Primarion products infringe the three claims or any other claims of the patents asserted in the litigation and deny that Volterra has or will suffer any irreparable harm. The hearing on the motions is currently set for September 18, 2009. No specified amount of damages has been asserted by the plaintiff and no reasonable estimated amount can be attributed at this time to the potential outcome of the Volterra claim.
On November 25, 2008, the Company, Infineon Technologies Austria AG and IF North America filed suit in the U.S. District Court for the District of Delaware against Fairchild Semiconductor International, Inc. and Fairchild Semiconductor Corporation regarding (1) a complaint for patent infringement by certain products of Fairchild and (2) a complaint for declaratory judgment of non-infringement and invalidity of certain patents of Fairchild against the allegation of infringement of those patents by certain products of Infineon. Fairchild has filed a counterclaim in Delaware for a declaratory judgment on (1) infringement by Infineon of those patents which are subject of Infineon's complaint for declaratory judgment and (2) noninfringement and invalidity of those patents which are the subject of Infineon's complaint for infringement. Fairchild Semiconductor Corporation has further filed another patent infringement suit against the Company and IF North America in the U.S. District Court for the District of Maine alleging that certain products of Infineon infringe on two more patents of Fairchild Semiconductor Corporation which are not part of the Delaware lawsuit. On January 22, 2009, IF North America answered the complaint filed by Fairchild Semiconductor Corporation with the District Court in Maine denying the claims of infringement and counterclaiming that the patents underlying Fairchild Semiconductor Corporation's patent infringement claims are invalid. No specified amount of damages has been asserted by the plaintiff and no reasonable estimated amount can be attributed at this time to the potential outcome of the counterclaim filed by Fairchild.
On April 24, 2009, former employees of Qimonda's subsidiaries in the United States filed a complaint in the U.S. Federal District Court in Delaware against the Company, IF North America and Qimonda AG, individually and on behalf of several putative classes of plaintiffs. The suit relates to the termination of the plaintiffs' employment in connection with Qimonda's insolvency and the payment of severance and other benefits allegedly due by Qimonda. The complaint seeks to "pierce the corporate veil" and to impose liability on the Company and IF North America under several theories. The Company is currently reviewing the complaint. The Company and IF North America have received an extension of time to answer the complaint (to mid-July 2009) in exchange for the agreement to accept service of process. No specified amount of damages has been asserted by the plaintiffs and no reasonable estimated amount can be attributed at this time to the potential outcome of the claim.
On April 24, 2009, Optimum Processing Solutions LLC ("OPS"), a Georgia limited liability company, filed a claim in the U.S. Federal District Court for the Northern District of Georgia against IF North America, Advanced Micro Devices, Inc., Freescale Semiconductor, Inc., Intel Corporation, International Business Machines Corporation, STMicroelectronics, Inc., Sun Microsystems, Inc. and Texas Instruments, Inc. The complaint alleges that certain microchips manufactured, used or offered for sale by IF North America and the other defendants infringe U.S. patent no. 5,117,497, allegedly held by the plaintiff. On July 10, 2009, IF North America and OPS settled the patent litigation claim. OPS filed an unopposed motion to dismiss with prejudice any and all claims in this action against IF North America.
On May 14, 2009, Gregory Bender filed suit in the U.S. District Court for the Northern District of California, against four companies, including IF North America. The complaint alleges infringement of one U.S. patent by certain electronic products having a buffered amplifier. The complaint has not yet been served on IF North America.
Provisions related to legal proceedings are recorded when it is probable that a liability has been incurred and the associated amount can be reasonably estimated. Where the estimated amount of loss is within a range of amounts and no amount within the range is a better estimate than any other amount, the
average amount is accrued. Under the contribution agreement in connection with the carve-out of the Qimonda business, Qimonda is required to indemnify the Company, in whole or in part, for any claim (including any related expenses) arising in connection with the liabilities, contracts, offers, uncompleted transactions, continuing obligations, risks, encumbrances and other liabilities the Company incurs in connection with the antitrust actions and the Securities Class Action described above. Due to Qimonda's recent insolvency filing, however, it is unlikely that Qimonda will be able to indemnify Infineon against any such potential liabilities. As of June 30, 2009, provisions totaling e95 million were recorded by the Company in connection with the European antitrust investigation, the securities class action complaints, and the direct and indirect purchaser litigation described above.
As additional information becomes available, the potential liability related to these matters will be reassessed and the estimates revised, if necessary. These accrued liabilities would be subject to change in the future based on new developments in each matter, or changes in circumstances, which could have a material adverse effect on the Company's financial condition and results of operations.
An adverse final resolution of the investigations or lawsuits described above could result in significant financial liability to, and other adverse effects on, the Company, which would have a material adverse effect on its results of operations, financial condition and cash flows. In each of these matters, the Company is continuously evaluating the merits of the respective claims and defending itself vigorously or seeking to arrive at alternative resolutions in the best interest of the Company, as it deems appropriate. Irrespective of the validity or the successful assertion of the claims described above, the Company could incur significant costs with respect to defending against or settling such claims, which could have a material adverse effect on its results of operations, financial condition and cash flows.
The Company is subject to various other lawsuits, legal actions, claims and proceedings related to products, patents, environmental matters, and other matters incidental to its businesses. The Company has accrued a liability for the estimated costs of adjudication of various asserted and unasserted claims existing as of the balance sheet date. Based upon information presently known to management, the Company does not believe that the ultimate resolution of such other pending matters will have a material adverse effect on the Company's financial position, although the final resolution of such matters could have a material adverse effect on the Company's results of operations or cash flows in the period of settlement.
On a group-wide basis the Company has guarantees outstanding to external parties of e79 million as of June 30, 2009. In addition, the Company, as parent company, has in certain customary circumstances guaranteed the settlement of certain of its consolidated subsidiaries' obligations to third parties. Such third party obligations are reflected as liabilities in the condensed consolidated financial statements by virtue of consolidation. As of June 30, 2009, such guarantees, principally relating to certain consolidated subsidiaries' third-party debt, aggregated e965 million, of which e766 million related to convertible and exchangeable notes issued.
The Company has received government grants and subsidies related to the construction and financing of certain of its production facilities. These amounts are recognized upon the attainment of specified criteria. Certain of these grants have been received contingent upon the Company maintaining compliance with certain project-related requirements for a specified period after receipt. The Company is committed to maintaining these requirements. Nevertheless, should such requirements not be met, as of June 30, 2009, a maximum of e37 million of these subsidies could be refundable. Such amount does not include any potential liabilities for Qimonda related subsidies (see note 4).
The Company has reported its operating segment and geographic information in accordance with IFRS 8 "Operating Segments".
Effective October 1, 2008, to better align the Company's business with its target markets, the Company reorganized its core business into five operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, Wireless Solutions, and Wireline Communications. On July 7, 2009, the
Company entered into an asset purchase agreement to sell the Wireline Communications segment, and such sale is expected to close in the fall of 2009 (see note 22). Further, certain of the Company's remaining activities for product lines sold, for which there are no continuing contractual commitments subsequent to the divestiture date, as well as new business activities, meet the IFRS 8 definition of an operating segment, but do not meet the requirements of a reportable segment as specified in IFRS 8. Accordingly, these segments are combined and disclosed in the "Other Operating Segments" category.
Other Operating Segments includes revenue and earnings that Infineon's 200-millimeter production facility in Dresden recorded from the sale of wafers to Qimonda under a foundry agreement, which was cancelled during the 2008 fiscal year. The Corporate and Eliminations segment reflects the elimination of these revenue and earnings.
The segments' results of operations of prior periods have been reclassified to be consistent with the current reporting structure and presentation, as well as to facilitate analysis of current and future operating segment information.
Each of the segments has two or three segment managers reporting directly to the Management Board, which has been collectively identified as the Chief Operating Decision Maker ("CODM"). The CODM makes decisions about resources to be allocated to the segments and assesses their performance using revenues and, effective October 1, 2008, Segment Result. The Company defines Segment Result as operating income (loss) excluding asset impairments, net of reversals, restructuring and other related closure costs, share-based compensation expense, acquisition-related amortization and gains (losses), gains (losses) on sales of assets, businesses, or interests in subsidiaries, and other income (expense), including litigation settlement costs. Gains (losses) on sales of assets, businesses, or interests in subsidiaries, include, among others, gains or losses that may be realized from potential sales of investments and activities. The Company's management uses Segment Result to establish budgets and operational goals, manage the Company's business and evaluate its performance. The Company reports Segment Profit because it believes that it provides investors with meaningful information about the operating performance of the Company and especially about the performance of its separate operating segments.
Information with respect to the Company's operating segments follows:
The Automotive segment designs, develops, manufactures and markets semiconductors for use in automotive applications. Together with its product portfolio, Infineon offers corresponding system knowhow and support to its customers.
The Industrial & Multimarket segment designs, develops, manufactures and markets semiconductors and complete system solutions primarily for use in industrial applications and in applications with customer-specific product requirements.
The Chip Card & Security segment designs, develops, manufactures and markets semiconductors and complete system solutions primarily for use in chip card and security applications.
The Wireless Solutions segment designs, develops, manufactures and markets a wide range of ICs, other semiconductors and complete system solutions for wireless communication applications.
The Wireline Communications segment designs, develops, manufactures and markets a wide range of ICs, other semiconductors and complete system solutions focused on wireline access applications. On
Notes to the Unaudited Condensed Consolidated Financial Statements
July 7, 2009, the Company entered into an asset purchase agreement to sell the Wireline Communications business, and such sale is expected to close in the fall of 2009 (see note 22).
The following tables present selected segment data:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions) | ||||
| Revenue: | ||||
| Automotive . |
311 | 206 | 945 | 601 |
| Industrial & Multimarket | 279 | 221 | 846 | 648 |
| Chip Card & Security | 113 | 82 | 350 | 253 |
| Wireless Solutions (1) . . |
205 | 251 | 655 | 652 |
| Wireline Communications (2) . . |
108 | 84 | 316 | 251 |
| Other Operating Segments (3) . . |
25 | 1 | 148 | 11 |
| Corporate and Eliminations (4) . . |
(12) | — | (92) | 6 |
| Total | 1,029 | 845 | 3,168 | 2,422 |
(1) Includes revenues of e1 million for the three months ended June 30, 2008 and e9 million and e1 million for the nine months ended June 30, 2008 and 2009, respectively, from sales of wireless communication applications to Qimonda.
(2) On July 7, 2009, the Company entered into an asset purchase agreement to sell the Wireline Communications business, and such sale is expected to close in the fall of 2009 (see note 22).
(3) Includes revenues of e8 million for the three months ended June 30, 2008 and e78 million for the nine months ended June 30, 2008 from sales of wafers from Infineon's 200-millimeter facility in Dresden to Qimonda under a foundry agreement.
(4) Includes the elimination of revenues of e9 million for the three months ended June 30, 2008 and e87 million and e1 million for the nine months ended June 30, 2008 and 2009, respectively, since these sales were not part of the Qimonda disposal plan.
| Three months ended June 30, |
Nine months ended June 30, |
||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | ||
| (g in millions) | |||||
| Segment Result: | |||||
| Automotive . |
36 | (17) | 84 | (138) | |
| Industrial & Multimarket | 29 | 9 | 78 | 4 | |
| Chip Card & Security | 10 | 4 | 46 | (5) | |
| Wireless Solutions | (23) | 19 | (21) | (54) | |
| Wireline Communications . |
5 | 7 | 12 | 10 | |
| Other Operating Segments | (4) | (1) | 3 | (5) | |
| Corporate and Eliminations | (1) | (13) | (3) | (16) | |
| Total | 52 | 8 | 199 | (204) |
The following is a summary of revenue by geographic area:
| Three months ended June 30, |
Nine months ended June 30, |
|||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| (g in millions) | ||||
| Revenue: | ||||
| Germany | 217 | 147 | 677 | 462 |
| Other Europe. | 205 | 142 | 614 | 428 |
| North America | 122 | 110 | 404 | 274 |
| Asia/Pacific | 422 | 402 | 1,270 | 1,122 |
| Japan | 43 | 36 | 147 | 108 |
| Other | 20 | 8 | 56 | 28 |
| Total | 1,029 | 845 | 3,168 | 2,422 |
Notes to the Unaudited Condensed Consolidated Financial Statements
Revenues from external customers are based on the customers' billing location. No single customer accounted for more than 10 percent of the Company's sales during the three or nine months ended June 30, 2008 or 2009.
The following table provides the reconciliation of Segment Result to the Company's loss before tax and discontinued operations:
| Three months ended June 30, |
Nine months ended June 30, |
||||
|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | ||
| (g in millions) | |||||
| Total Segment Result | 52 | 8 | 199 | (204) | |
| Adjusted: | |||||
| Asset impairments, net of reversals | (2) | 2 | — | 1 | |
| Restructuring charges, net of reversal and | |||||
| other related closure cost | (2) | 7 | (11) | 1 | |
| Share-based compensation expense | (1) | (1) | (4) | (2) | |
| Acquisition-related amortization and | |||||
| losses | (7) | (6) | (21) | (18) | |
| Gains (losses) on sales of assets, | |||||
| businesses, or interests in subsidiaries. | 45 | (1) | 59 | (18) | |
| Other expense, net | — | (14) | — | (25) | |
| Operating income (loss) | 85 | (5) | 222 | (265) | |
| Financial Income | 6 | 19 | 37 | 100 | |
| Financial Expense | (37) | (31) | (125) | (119) | |
| Income from investment accounted for using | |||||
| the equity method, net | 1 | 2 | 3 | 5 | |
| Income (loss) from continuing operations | |||||
| before income tax | 55 | (15) | 137 | (279) |
On July 6, the Company received an additional partial payment of e3 million from the amounts classified as "Receivables from German bank's deposit protection fund". The remainder is expected to be paid in the 2009 fiscal year.
On July 7, 2009, the Company entered into an asset purchase agreement to sell the Wireline Communications business for cash consideration of e250 million to a company affiliated with Golden Gate Private Equity. The majority of the purchase price is payable at closing, which is expected to occur in the fall of 2009, with e20 million of the purchase price being payable 9 months after the closing date. Infineon is selling the Wireline Communications business in order to focus on the further development of its main businesses, its strategy and strong position in the key areas of energy efficiency, security and communications, while at the same time further improving its balance sheet and strengthening its liquidity position. The sale of the Wireline Communications business will allow Infineon to concentrate on its four remaining operating segments.
On July 16, 2009, the Company announced the launch of a rights issue for up to 337 million shares, with a subscription price of e2.15 per share and a subscription period from July 20, 2009 through August 3, 2009. The new shares are being offered to its shareholders for subscription at a ratio of four new shares for every nine outstanding shares held. Settlement for the new shares subscribed for under the rights offering is expected to occur on or about August 7, 2009. On July 10, 2009, the Company entered into an investment agreement. Accordingly, Admiral Participations (Luxembourg) S.à r.l. (the "Backstop Investor"), a subsidiary of a fund managed by Apollo Global Management LLC ("Apollo"), has agreed to acquire all shares not subscribed for by the Company's shareholders (and the fractional amount of up to e7,562,592, amounting to up to 3,781,296 new shares) (the "Investment Shares") in the rights offering, up to a maximum of 30 percent minus one share of the Company's equity and voting rights post execution
of the offering at a subscription price of e2.15 per share. The obligation of the Backstop Investor to acquire the Investment Shares is subject to certain conditions precedent being met or waived by the Backstop Investor, including, but not limited to, applicable merger clearances, clearance by the German Ministry of Economy and Technology (Bundesministerium fu¨ r Wirtschaft und Technologie) pursuant to the German Foreign Trade Act (Außenwirtschaftsgesetz), which are expected to be received during the course of August 2009, and the appointment of one representative of the Backstop Investor, Mr. Manfred Puffer, by the competent court to the Supervisory Board, the resignation of Mr. Max Dietrich Kley, the current chairman of the Supervisory Board, as of September 30, 2009, the election of Mr. Manfred Puffer as chairman of the Supervisory Board as of October 1, 2009, and the nomination of another representative of the Backstop Investor, Mr. Gernot Lo¨hr, as member of the Supervisory Board to be appointed by the competent court subject to the resignation of the current chairman as member of the Supervisory Board taking effect. The Backstop Investor may, but is not required to, acquire Investment Shares if the number of Investment Shares available together with any shares to be acquired by the Backstop Investor through subscription rights purchased by the Backstop Investor, if any, does not allow the Backstop Investor to establish a participation in the Company's equity capital and voting rights of at least 15 percent post execution of the offering. Should the Backstop Investor not purchase any new shares in the offering for any reason, we have to pay the Backstop Investor a lump sum of e21 million. If the Backstop Investor acquires a shareholding in the equity capital and voting rights of our company of 25 percent or less, the Company has to pay the Backstop Investor an amount equal to the sum of (i) e5.5 million plus (ii) an amount of e0.057 per share by which the shareholding of the Backstop Investor falls short of 25 percent plus one share.
The Company believes that the successful completion of the offering, resulting in gross proceeds of approximately e374 to e725 million, will strengthen our capital structure. In particular, assuming the Company is able to place all of the 337 million new shares, it plans to use approximately e570 million to repay the convertible subordinated notes due 2010 and the exchangeable subordinated notes due 2010, of which as of June 30, 2009, e570 million were outstanding.
Most standard products are not ordered on a long-term, fixed-price contract basis due to changing market conditions. It is common industry practice to permit major customers to change the date on which products are delivered or to cancel existing orders. For these reasons, the Company believes that the backlog at any time of standard products is not a reliable indicator of future sales. Orders for customized products vary depending on customer needs and industry conditions, capacity and demand, while many customers request logistics agreements based on rolling forecasts. As a result, the Company does not place too much reliance on backlog to manage its business and does not use it to evaluate performance. Due to possible changes in customer delivery schedules, cancellation of orders and potential delays in product shipments, the Company's backlog as of any particular date may not be indicative of actual sales for any later period.
The Company has not declared or paid any dividend during the three and nine months ended June 30, 2008 or 2009.
As of June 30, 2009, the Company had 26,108 employees worldwide, including 5,947 engaged in research and development.
The Company's ordinary shares are listed on the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange (FSE) under the symbol "IFX". Effective March 23, 2009, as announced by Deutsche Bo¨ rse, the Company's shares were removed from the DAX index, by means of the fast-exit rule, because of the low market capitalization on the basis of the Company's free float, and have been listed in the TecDAX index since that date. On April 24, 2009, the Company voluntarily delisted from the New York Stock Exchange. The Company's American Depositary Shares currently trade over-the-counter on the OTCQX International market under the symbol "IFNNY".
Performance of the IFX shares since October 1, 2007 (based on Xetra daily closing prices) is as follows:
Infineon's share price performance and key data were as follows:
| Three months ended June 30, | Nine months ended June 30, | |||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | +/- in% | 2008 | 2009 | +/- in% | |
| IFX closing prices in Euro (Xetra) | ||||||
| Beginning of the period | 4.87 | 0.85 | (83)% | 11.95 | 4.05 | (66)% |
| High | 7.11 | 2.70 | (62)% | 11.95 | 4.12 | (66)% |
| Low | 4.57 | 0.85 | (81)% | 4.08 | 0.39 | (90)% |
| End of the period | 5.53 | 2.58 | (53)% | 5.53 | 2.58 | (53)% |
| IFX closing prices in U.S. dollars | ||||||
| (NYSE) Beginning of the period | 7.66 | 1.28 | (83)% | 17.13 | 5.44 | (68)% |
| High | 10.96 | 3.75 | (66)% | 17.13 | 5.44 | (68)% |
| Low | 7.20 | 1.28 | (82)% | 6.34 | 0.46 | (93)% |
| End of the period | 8.53 | 3.57 | (58)% | 8.53 | 3.57 | (58)% |
| Fiscal Period | Period end date | Results press release (preliminary) |
|---|---|---|
| Fiscal Year 2009 | September 30, 2009 | November 19, 2009 |
Publication date: July 29, 2009
Infineon Technologies AG Investor Relations Am Campeon 1-12 85579 Neubiberg/Munich, Germany
Phone: +49 89 234-26655 Fax: +49 89 234-9552987 E-Mail: [email protected]
Visit http://www.infineon.com/investor for an electronic version of this report and other information.
We face numerous risks incidental to our business, including both risks that are inherent to companies in the semiconductor industry, and operational, financial and regulatory risks that are unique to us. Risks relating to the semiconductor industry include the cyclical nature of the market, which suffers from periodic downturns and industry overcapacity. Our production-related risks include the need to match our production capacity with demand, and to avoid interruptions in manufacturing and supplies. We may be exposed to claims from others that we infringe their intellectual property rights or that we are liable for damages under warranties. We are the subject of governmental antitrust investigations and civil claims related to those antitrust investigations, including civil securities law claims. Financial risks include our need to have access to sufficient capital and governmental subsidies, and risks related to the resolution of Qimonda's insolvency proceedings and the liabilities we may face as a result of Qimonda's insolvency. Our regulatory risks include potential claims for environmental remediation. We face numerous risks due to the international nature of our business, including volatility in foreign countries and exchange rate fluctuations.
Following Qimonda's application to commence insolvency proceedings, the Company may be exposed to a number of significant liabilities relating to the Qimonda business, including pending antitrust and securities law claims, potential claims for repayment of governmental subsidies received, and employee-related contingencies.
These and other material risks that we face are described in detail in the "Risk Factors" section of our prospectus relating to our pending rights offering (a form of which was approved by the German Federal Financial Supervisory Authority (BaFin) on July 16, 2009 and a form of which is contained in the registration statement on Form F-3 filed with the U.S. Securities and Exchange Commission on July 16, 2009) (the "Prospectus"). A copy of our registration statement on Form F-3 is available at the Investor Relations section of our website http://www.infineon.com/investor, as well as on the SEC's website, http://www.sec.gov.
We encourage you to read the detailed description of the risks that we face in the Prospectus. The occurrence of one or more of the events described in the Risk Factors section of the Prospectus could have a material adverse effect on our Company and our results of operations, which could result in a drop in our share price.
This quarterly report includes forward-looking statements about the future of Infineon's business and the industry in which we operate. These include statements relating to general economic conditions, future developments in the world semiconductor market, our ability to manage our costs and to achieve our savings and growth targets, the resolution of Qimonda's insolvency proceedings and the liabilities we may face as a result of Qimonda's insolvency, the benefits of research and development alliances and activities, our planned levels of future investment, the introduction of new technology at our facilities, the continuing transitioning of our production processes to smaller structure sizes, and our continuing ability to offer commercially viable products.
These forward-looking statements are subject to a number of uncertainties, including broader economic developments, including the duration and depth of the current economic downturn; trends in demand and prices for semiconductors generally and for our products in particular, as well as for the endproducts, such as automobiles and consumer electronics, that incorporate our products; the success of our development efforts, both alone and with partners; the success of our efforts to introduce new production processes at our facilities; the actions of competitors; the availability of funds, including for the re-financing of our indebtedness; the outcome of antitrust investigations and litigation matters; and the outcome of Qimonda's insolvency proceedings; as well as the other factors mentioned in this press release and those described in the "Risk Factors" section of the Prospectus.
As a result, Infineon's actual results could differ materially from those contained in these forwardlooking statements. You are cautioned not to place undue reliance on these forward-looking statements. Infineon does not undertake any obligation to publicly update or revise any forward-looking statements in light of developments which differ from those anticipated.
Am Campeon 1 – 12, 85579 Neubiberg Quarterly Report of 3rd Quarter 2009 Printed in Germany
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