Quarterly Report • May 6, 2010
Quarterly Report
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Infineon Technologies AG
| Page | |
|---|---|
| Interim Group Management Report (Unaudited) | 1 |
| Condensed Consolidated Financial Statements (Unaudited) for the three and six months ended March 31, 2009 and 2010: |
|
| Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2009 and 2010 |
18 |
| Condensed Consolidated Statements of Operations (Unaudited) for the six months ended March 31, 2009 and 2010 |
19 |
| Condensed Consolidated Statements of Financial Position (Unaudited) as of September 30, 2009 and March 31, 2010 |
20 |
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the six months ended March 31, 2009 and 2010. |
21 |
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended March 31, 2009 and 2010 |
22 |
| Condensed Consolidated Statements of Changes in Equity (Unaudited) for the six months ended March 31, 2009 and 2010 |
23 |
| Notes to the Unaudited Condensed Consolidated Financial Statements | 24 |
| Responsibility Statement by the Management Board. | 43 |
| Review Report | 44 |
| Supplementary Information (Unaudited) | 45 |
This interim group management report should be read in conjunction with our unaudited 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.
On November 6, 2009, we closed the sale of the Wireline Communications business to Lantiq, affiliates of Golden Gate Private Equity Inc. ("Lantiq"). All assets and liabilities of the Wireline Communications business to be sold are presented as "Assets classified as held for sale" and "Liabilities classified as held for sale" in our condensed consolidated statements of financial position as of September 30, 2009 and March 31, 2010; the results of the Wireline Communications business and the gain on the sale are both presented as "Income (loss) from discontinued operations, net of income taxes" in our condensed consolidated statements of operations for all periods presented.
The following were key developments in our business during the three and six months ended March 31, 2010:
(1) We define Segment Result as operating income (loss) excluding asset impairments, net, restructuring charges and other related closure costs, net, share-based compensation expense, acquisition-related amortization and gains (losses), gains (losses) on disposals of assets, businesses, or interests in subsidiaries, and other income (expense), including litigation settlement costs.
e29 million). The Other Operating Segment Result was negative e8 million and Corporate and Elimination Segment Result was negative e4 million for the three months ended March 31, 2010, compared to negative e6 million and positive e2 million, respectively, for the three months ended March 31, 2009. Compared to the three months ended December 31, 2009, Automotive Segment Result increased by e14 million, Industrial & Multimarket Segment Result increased by e15 million, and Chip Card & Security Segment Result increased by e2 million, while Wireless Solutions Segment Result decreased by e8 million.
of the ALTIS joint venture in the amount of e88 million. During the six months ended March 31, 2010, we also repurchased notional amounts of e190 million of our convertible subordinated notes due June 2010 and repaid other debt in a net amount of e14 million. Overall, our net cash position, defined as gross cash position less short-term debt and long-term debt, increased to e995 million as of March 31, 2010, compared to e657 million as of September 30, 2009.
out new orders. In light of the dynamic revenue growth, fully loaded production facilities and planned development milestones, we currently plan investments in property, plant and equipment and intangible assets in our 2010 fiscal year to total more than e300 million, compared to e154 million in the 2009 fiscal year.
• We settled a patent infringement lawsuit with Fairchild Semiconductor International, Inc. ("Fairchild") in the three months ended December 31, 2009. We initiated the lawsuit in November 2008 in the U.S. District Court for the District of Delaware. The patents in the suit and counter suit related to super-junction power transistors, trench power MOSFETs and IGBT power transistors. The lawsuit has been settled through a broad patent cross license relating to semiconductor technology. As part of the agreement, Fairchild made payments to Infineon.
term strategic collaboration in the field of security controllers for chip card and security applications. Infineon will receive an ARMv6M and ARMv7M architecture license. With our own specialized ARM» architecture-compliant CPU cores, we will address the current and future needs of security markets in terms of hardware-based security, combined with the advantages of the industry's most widely licensed 32-bit CPU technology.
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Automotive | 189 | 316 | 395 | 595 |
| Industrial & Multimarket | 193 | 315 | 427 | 588 |
| Chip Card & Security | 80 | 99 | 171 | 182 |
| Wireless Solutions(1). | 204 | 267 | 401 | 537 |
| Other Operating Segments | 2 | 40 | 10 | 73 |
| Corporate and Eliminations(2) . . |
1 | (2) | 7 | 1 |
| Total. | 669 | 1,035 | 1,411 | 1,976 |
(1) Includes revenues of e1 million for the six months ended March 31, 2009 from sales of wireless communication applications to Qimonda.
(2) Includes the elimination of revenues of e1 million for the six months ended March 31, 2009 since these sales were not part of the Qimonda disposal plan.
Revenues for the three and six months ended March 31, 2009, were characterized by the worldwide economic and financial crisis, which affected all our operating segments. Due to the fast and general recovery of the economy in recent months, we have seen a recovery of the revenues of all our operating segments.
Industrial & Multimarket In the three months ended March 31, 2010, segment revenues were e315 million, an increase of e122 million or 63 percent compared to e193 million in the three months ended March 31, 2009. In the six months ended March 31, 2010, segment revenues increased by e161 million or 38 percent to e588 million, compared to e427 million in the six months ended March 31, 2009. These increases primarily resulted from higher demand for infrastructure products and higher end customer demand for computing, communications and industrial products.
Chip Card & Security In the three months ended March 31, 2010, segment revenues were e99 million, an increase of e19 million or 24 percent compared to e80 million in the three months ended March 31, 2009. In the six months ended March 31, 2010, segment revenues increased by e11 million or 6 percent to e182 million, compared to e171 million in the six months ended March 31, 2009. These increases were mainly driven by higher revenues from payment and mobile communication applications. The absolute and relative increase in revenues for the six-month period is lower than for the three-month period due to a positive one-time effect in the six months ended March 31, 2009 following the cancelation of a customer project.
| Three months ended March 31, |
Six months ended March 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |||||
| (g in millions, except percentages) | ||||||||
| Germany | 133 | 20% | 216 | 21% | 278 | 20% | 398 | 20% |
| Other Europe | 130 | 19% | 181 | 18% | 261 | 18% | 330 | 17% |
| North America | 62 | 10% | 169 | 16% | 153 | 11% | 366 | 18% |
| Asia/Pacific | 311 | 46% | 408 | 39% | 635 | 45% | 767 | 39% |
| Japan | 26 | 4% | 50 | 5% | 70 | 5% | 93 | 5% |
| Other. | 7 | 1% | 11 | 1% | 14 | 1% | 22 | 1% |
| Total | 669 | 100% | 1,035 | 100% | 1,411 | 100% | 1,976 | 100% |
The regional distribution of revenues in the three and six months ended March 31, 2010 was largely unchanged compared to the three and six months ended March 31, 2009, other than a shift between Asia/ Pacific and North America, which primarily reflects changes in the distribution channels of one major customer.
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions, except percentages) | |||||
| Cost of goods sold | 581 | 682 | 1,200 | 1,309 | |
| Percentage of revenue | 87% | 66% | 85% | 66% | |
| Gross profit. | 88 | 353 | 211 | 667 | |
| Percentage of revenue (gross margin) |
13% | 34% | 15% | 34% |
Cost of goods sold increased in the three months ended March 31, 2010 by 17 percent, or e101 million, to e682 million, compared to e581 million in the three months ended March 31, 2009, and by 9 percent to e1,309 million in the six months ended March 31, 2010, compared to e1,200 million in the six months ended March 31, 2009. Our gross profit increased from e88 million in the three months ended March 31, 2009, to e353 million in the three months ended March 31, 2010, or as a percentage of revenue from 13 percent to 34 percent, respectively. For the six months ended March 31, 2010, our gross profit was e667 million (representing 34 percent of revenues) an increase of e456 million compared to e211 million (representing 15 percent of revenues) for the six months ended March 31, 2009. These improvements primarily reflect higher sales revenues, the corresponding positive effects of higher factory loading resulting in lower idle capacity cost and the improved product mix portfolio. All operating segments showed improved gross margin in the three and six months ended March 31, 2010, compared to the three and six months ended March 31, 2009.
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions, except percentages) | ||||
| Research and development expenses | 110 | 136 | 242 | 266 |
| Percentage of revenue | 16% | 13% | 17% | 13% |
Research and development expenses totaled e136 million and e266 million in the three and six months ended March 31, 2010, respectively, a moderate increase of e26 million and e24 million compared to e110 million and e242 million in the three and six months ended March 31, 2009, respectively, reflecting higher research and development activities throughout all our operating segments and lower capitalized development cost. As a percentage of revenues, research and development expenses in the three and six months ended March 31, 2010 were 13 percent, compared to 16 percent and 17 percent for the three and six months ended March 31, 2009, respectively, reflecting the disproportionately high increase in revenues. As a percentage of revenues, research and development expenses decreased in the three and six months ended March 31, 2010, compared to the three and six months ended March 31, 2009, throughout all our operating segments.
| Three months ended March 31, |
Six months ended March 31, |
|||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |||
| (g in millions, except percentages) | ||||||
| Selling, general and administrative | ||||||
| expense | 100 | 115 | 203 | 221 | ||
| Percentage of revenue | 15% | 11% | 14% | 11% |
In absolute terms selling, general and administrative expenses increased by e15 million and e18 million, to e115 million and e221 million, in the three and six months ended March 31, 2010, respectively, compared to e100 million and e203 million in the three and six months ended March 31, 2009, respectively, primarily resulting from higher sales volumes. The increase in selling, general and administrative expenses, however, was lower than the increase in revenues, and therefore as a percentage of revenues, selling, general and administrative expenses decreased in the three and six months ended March 31, 2010 to 11 percent, compared to 15 percent and 14 percent for the three and six months ended March 31, 2009, respectively.
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions, except percentages) | |||||
| Other operating income | 15 | 3 | 18 | 9 | |
| Percentage of revenue | 2% | —% | 1% | —% | |
| Other operating expense | (39) | 4 | (50) | (92) | |
| Percentage of revenue | (6)% | —% | (4)% | (5)% |
Other operating income for the three months ended March 31, 2010 decreased by e12 million from e15 million in the three months ended March 31, 2009 to e3 million, and by e9 million from e18 million in the six months ended March 31, 2009 to e9 million in the six months ended March 31, 2010. Other operating income for the three and six months ended March 31, 2009 included e10 million from claims associated with the insolvency of BenQ. Included in other operating income for the six months ended March 31, 2010 is a gain of e3 million from the contribution of licenses and back-end equipment to our LS joint venture with LSIS.
Other operating expense for the three and six months ended March 31, 2010 are primarily impacted by the deconsolidation of ALTIS, described above, while other operating expense for the three and six months ended March 31, 2009 included a loss of e16 million we realized on the sale of the business of Infineon Technologies SensoNor AS ("SensoNor").
In the three and six months ended March 31, 2010 our operating income was e109 million and e97 million, respectively, and improved significantly compared to operating loss of e146 million and e266 million for the three and six months ended March 31, 2009, respectively, primarily reflecting improved results of our operating segments, and in spite of the negative impact on our operating results of the deconsolidation of ALTIS of e73 million in the six months ended March 31, 2010.
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Automotive | (65) | 51 | (121) | 88 |
| Industrial & Multimarket | (7) | 59 | (5) | 103 |
| Chip Card & Security | (8) | 3 | (9) | 4 |
| Wireless Solutions | (29) | 9 | (73) | 26 |
| Other Operating Segments | (6) | (8) | (8) | (13) |
| Corporate and Eliminations | 2 | (4) | (3) | (10) |
| Total. | (113) | 110 | (219) | 198 |
Segment Result development for our reporting segments was as follows:
Wireless Solutions Segment Result of the Wireless Solutions segment was e9 million in the three months ended March 31, 2010, an increase of e38 million from negative e29 million in the three months ended March 31, 2009. In the six months ended March 31, 2010, Segment Result increased by e99 million to e26 million, compared to negative e73 million in the six months ended March 31,
These increases are mainly driven by higher revenues, further productivity gains and increased capacity utilization resulting in lower idle capacity cost.
Other Operating Segments Segment Result of Other Operating Segments was negative e8 million and negative e13 million in the three and six months ended March 31, 2010, respectively, compared to negative e6 million and negative e8 million in the three and six months ended March 31, 2009, respectively. This deterioration primarily reflects those costs that remain with us after the sale of the Wireline Communications business, and which were previously allocated to the Wireline Communications segment.
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Total Segment Result. | (113) | 110 | (219) | 198 |
| Adjusted: | ||||
| Asset impairments, net | (1) | — | (1) | (4) |
| Restructuring charges, and other related closure cost, net |
(3) | — | (6) | — |
| Share-based compensation expense | (1) | — | (1) | — |
| Acquisition-related amortization and gains (losses) |
(5) | (5) | (11) | (11) |
| Gains (losses) on disposal of assets, businesses, or interests in subsidiaries, net |
(16) | (1) | (16) | 2 |
| Losses in connection with the deconsolidation of ALTIS |
— | 8 | — | (73) |
| Other expense, net. | (7) | (3) | (12) | (15) |
| Operating income (loss) | (146) | 109 | (266) | 97 |
The following table provides a reconciliation of Segment Result to our operating loss:
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions, except percentages) | |||||
| Financial income | 20 | 8 | 80 | 19 | |
| Percentage of revenue | 3% | 1% | 6% | 1% | |
| Financial expense | (31) | (30) | (87) | (68) | |
| Percentage of revenue | (5)% | (3)% | (6)% | (3)% |
In the three and six months ended March 31, 2010, financial income was e8 million and e19 million, respectively, representing a decrease of e12 million and e61 million compared to e20 million and e80 million in the three and six months ended March 31, 2009, respectively. Included in financial income for the three and six months ended March 31, 2009 are gains of e12 million and e48 million, respectively, from the repurchases of our exchangeable subordinated notes due August 2010 (which were fully redeemed in the fourth quarter of the 2009 fiscal year) and our convertible subordinated notes due June 2010. In addition, gains of e3 million and e15 million from the valuation of interest rate swaps are included in financial income in the three and six months ended March 31, 2009, respectively, while such gains are insignificant in the three and six months ended March 31, 2010.
In the three months ended March 31, 2010, financial expense in the amount of e30 million was almost unchanged compared to e31 million the three months ended March 31, 2009. In the six months ended March 31, 2010, financial expense amounted to e68 million, a decrease of e19 million compared to e87 million in the six months ended March 31, 2009. Losses on valuation changes and sales of availablefor-sale financial assets as a result of the financial crisis impacted financial expense by e24 million in the six months ended March 31, 2009, but had no effect in the six months ended March 31, 2010. The decrease in losses on valuation changes and sales of available-for-sale financial assets was partially offset by a loss of e5 million on the repurchase of subordinated convertible notes due June 2010 with notional amounts of e190 million in the six months ended March 31, 2010.
Income from investments accounted for using the equity method for the three and six months ended March 31, 2010 were e1 million and e2 million, respectively, a decrease from e2 million and e3 million for the three and six months ended March 31, 2009, respectively. This income consisted of our share in the net income of Infineon Technologies Bipolar GmbH & Co. KG ("Bipolar"), our equity method investment together with Siemens AG, and our share in the net income of our in November 2009 newly established joint venture LS with LSIS.
The results of Qimonda and of the Wireline Communications business are presented in the condensed consolidated statements of operations as discontinued operations for the three months and six months ended March 31, 2009 and 2010, and consist of the following components:
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Qimonda(1) | ||||
| Revenue | — | — | 314 | — |
| Costs and expenses. | — | — | (779) | — |
| Reversal of measurement to fair value less costs to sell |
— | — | 460 | — |
| Expenses resulting from Qimonda's application to open insolvency |
||||
| proceedings Losses resulting from the realization of accumulated losses related to unrecognized currency translation effects (primarily upon deconsolidation and Qimonda's sale |
(8) | (1) | (203) | (1) |
| of Inotera) | (100) | — | (188) | — |
| Loss before income taxes | (108) | (1) | (396) | (1) |
| Income tax expense | — | — | — | — |
| Qimonda's share of discontinued operations, net of income taxes. |
(108) | (1) | (396) | (1) |
| Wireline Communications Business | ||||
| Revenue | 79 | (1) | 167 | 31 |
| Costs and expenses. | (77) | — | (161) | (26) |
| Pre-tax income (loss) | 2 | (1) | 6 | 5 |
| Income tax expense | — | — | (1) | — |
| Income (loss) from operations | 2 | (1) | 5 | 5 |
| Pre-tax gain recognized on the sale of the Wireline Communications business |
— | — | — | 110 |
| Income tax expense on gain | — | — | — | (4) |
| Gain on the sale of the Wireline Communications business, net of income taxes |
— | — | — | 106 |
| Wireline Communications' share of discontinued operations, net of income taxes. |
2 | (1) | 5 | 111 |
| Income (Loss) from discontinued operations, net of income taxes. |
(106) | (2) | (391) | 110 |
(1) No further information concerning Qimonda's condensed consolidated statements of operations is available for the period from January 1, 2009 to January 23, 2009, the date of the application by Qimonda to commence insolvency proceedings. 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 amounts of revenue and costs and expenses in the table above exclude amounts for the period from January 1, 2009 to January 23, 2009, Qimonda's share of the loss from discontinued operations, net of income taxes of e396 million, is unaffected.
In the three and six months ended March 31, 2010, Qimonda had no significant impact on our results. Certain adjustments to individual provisions for contingent liabilities in connection with the insolvency of Qimonda were necessary to reflect current developments in these matters. However, the net impact of these adjustments on our condensed consolidated statements of operations was only negative e1 million. During the six months ended March 31, 2009, Qimonda-related amounts of e396 million included in loss from discontinued operations, net of income taxes, which consisted principally of the realization of accumulated foreign currency translation losses of e188 million and charges for provisions and allowances of e203 million in connection with Qimonda's insolvency. 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 the three months ended December 31, 2008, as well as the deconsolidation of Qimonda in the three months ended March 31, 2009. We recorded additional provisions and allowances of e195 million as of December 31, 2008 in connection with Qimonda's insolvency. In the three months ended March 31, 2009, we adjusted our initial recorded provisions and allowances by an additional e8 million. As a result of the commencement of insolvency proceedings by Qimonda we are exposed to certain potential liabilities in connection with the Qimonda business which are described in more detail in note 3 to our condensed consolidated financial statements for the three and six months ended March 31, 2009 and 2010. The operating losses of Qimonda, exclusive of depreciation, amortization and impairment of long-lived assets, in the first quarter of the 2009 fiscal year 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 cost to sell of zero.
In July 2009 we entered into a purchase agreement with Lantiq, pursuant to which we agreed to sell our Wireline Communications business, one of our segments. The majority of the purchase price was paid at closing in November 2009, in the amount of e223 million, with up to an additional e20 million of the purchase price being payable nine months after the closing date. We recognized an after-tax gain of e106 million at the closing of the sale. Certain current assets in the manufacturing supply chain at the date of closing could not yet be transferred to Lantiq and are presented as assets held for sale in the condensed consolidated statement of financial position at March 31, 2010. Prepayments in relation to those assets were recognized and are presented within liabilities classified as held for sale. We report the results of the Wireline Communications business, as well as the gain on the sale, as discontinued operations, net of income taxes, in our condensed consolidated statements of operations for all periods presented.
| As of | |||
|---|---|---|---|
| September 30, 2009 |
March 31, 2010 |
Change | |
| (g in millions, except percentages) | |||
| Current assets | 2,744 | 2,919 | 6% |
| therein: assets held for sale | 112 | 21 | (81)% |
| Non-current assets. | 1,862 | 1,754 | (6)% |
| Total assets | 4,606 | 4,673 | 1% |
| Current liabilities | 1,658 | 1,682 | 1% |
| Non-current liabilities | 615 | 567 | (8)% |
| Total liabilities | 2,273 | 2,249 | (1)% |
| Non-controlling interests | 60 | — | (100)% |
| Total equity attributable to shareholders of Infineon Technologies AG |
2,273 | 2,424 | 7% |
| Total equity | 2,333 | 2,424 | 4% |
As of March 31, 2010, our current assets increased by e175 million compared with September 30, 2009. This reflects primarily an increase of e160 million in our gross cash position, consisting of cash and cash equivalents and available-for-sale financial assets. Despite continued working capital management, inventories increased by e44 million, primarily driven by the ramp up of certain products at major mobile phone customers, and trade and other receivables increased by e43 million, primarily driven by the increase in revenues. These increases were partly offset by a decrease in assets classified as held for sale of e91 million. Our gross cash position in the six months ended March 31, 2010 increased from the net cash provided by operating activities as well as from e223 million of cash received from the sale of the Wireline Communications business. This was partly offset by the deconsolidation of the cash and cash equivalents of ALTIS of e88 million and repurchases of e190 million of notional amounts of our convertible subordinated notes due June 2010 and the repayment of e22 million — partly offset by e8 million of additional drawdowns — in other debt in the six months ended March 31, 2010. The decrease in assets classified as held for sale reflects the closing of the sale of our Wireline Communications business and transfer of the assets to Lantiq.
Non-current assets decreased by e108 million as of March 31, 2010 compared to September 30, 2009. This decrease primarily results from a e124 million decrease in property, plant and equipment, as capital expenditures during the first half of the 2010 fiscal year were lower than depreciation. Furthermore, the deconsolidation of ALTIS contributed to the decrease in property, plant and equipment. This decrease was partly offset by an increase in intangible assets due to capitalized development costs and investments accounted for using the equity method in connection with the formation of LS.
Total liabilities as of March 31, 2010 remained almost unchanged and amounted to e2,249 million compared to e2,273 million as of September 30, 2009. Current liabilities increased slightly by e24 million, while non-current liabilities decreased slightly by e48 million. The changes in current liabilities relate primarily to increases in trade and other payables by e97 million and in current provisions by e87 million, offset by decreases in short-term debt and current maturities of long-term debt of e143 million. The increase in trade and other payables results primarily from higher purchases of materials in light of higher production levels as a result of higher demand. Current provisions increased among others as a result of increases in provisions for warranties and increases in personnel provisions as well as provisions in connection with ALTIS. The decrease in short-term debt and current maturities of long-term debt is the result of repurchases of notional amounts of e190 million of our convertible subordinated notes due June 2010 and additional debt repayments of e22 million, partly offset by transfers of e38 million from long-term debt to short-term debt and the additional drawdown of e8 million in short-term debt. Other changes in current liabilities include the payment of the last installment of our settlement with the U.S Department of Justice ("DOJ"). The decrease in non-current liabilities as of March 31, 2010, compared to September 30, 2009 reflects, among other things, transfers of e38 million from long-term debt to short term debt.
Total equity as of March 31, 2010 increased by e91 million to e2,424 million compared to e2,333 million as of September 30, 2009. This increase reflects net income of e144 million and other comprehensive income of e7 million attributable to the shareholders of Infineon Technologies AG in the six months ended March 31, 2010, partly offset by the decrease in non-controlling interests of e60 million, primarily resulting from the deconsolidation of ALTIS with e61 million, offset by e1 million of net income attributable to noncontrolling interests.
Our condensed consolidated statements of cash flows show the sources and uses of cash and cash equivalents during the reported periods. They are of key importance for the evaluation of our financial position.
| Six months ended March 31, |
||
|---|---|---|
| 2009 | 2010 | |
| (g in millions) | ||
| Net cash provided by (used in) operating activities from continuing operations |
(83) | 329 |
| Net cash provided by (used in) investing activities from continuing operations |
20 | (522) |
| Net cash used in financing activities from continuing operations | (180) | (205) |
| Net increase (decrease) in cash and cash equivalents from discontinued operations |
(388) | 211 |
| Net decrease in cash and cash equivalents | (631) | (187) |
Net cash provided by operating activities from continuing operations was e329 million for the six months ended March 31, 2010, and reflected mainly income from continuing operations of e35 million, excluding non-cash charges for depreciation and amortization of e203 million and total losses from the deconsolidation of ALTIS of e73 million recognized during the six months ended March 31, 2010. Net cash provided by operating activities from continuing operations in the six months ended March 31, 2010 was also positively impacted by changes in operating assets and liabilities of e58 million due to continued tight working capital management, and negatively impacted by income taxes paid and interest paid, net in the total amount of e34 million.
Net cash used in investing activities from continuing operations was e522 million for the six months ended March 31, 2010, and primarily relates to the purchases of e375 million of available-for-sale financial assets and cash used for the purchases of property, plant and equipment, intangible assets and other assets in the total amount of e111 million, as well as decreases in cash and cash equivalents of e88 million as a result of the deconsolidation of ALTIS. This was partly offset by proceeds from sales of available-forsale financial assets of e27 million.
Net cash used in financing activities from continuing operations was e205 million and primarily relates to the repurchase of notional amounts of e190 million of our convertible subordinated notes due June 2010 and loan repayments in the net amount of e14 million in the six months ended March 31, 2010.
Net cash provided by discontinued operations amounted to e211 million for the six months ended March 31, 2010, primarily reflecting net cash provided by investing activities from discontinued operations of e220 million, which primarily relates to the cash received at the closing of the sale of our Wireline Communications business of e223 million in November 2009. Cash flow provided by operating activities from discontinued operations from the Wireline Communications business amounted to e33 million in the six months ended March 31, 2010 before the closing of the sale and subsequent net pay-outs of current liabilities, and was offset by payments made of e42 million with respect to potential liabilities in connection with the insolvency of Qimonda, including the last installment of the settlement with the DOJ during the first quarter of the 2010 fiscal year.
We define free cash flow as cash flow from operating and investing activities from continuing operations excluding purchases or sales of available-for-sale financial assets. 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:
| Six months ended March 31, |
||
|---|---|---|
| 2009 | 2010 | |
| (g in millions) | ||
| Net cash provided by (used in) operating activities from continuing operations |
(83) | 329 |
| Net cash provided by (used in) investing activities from continuing operations |
20 | (522) |
| Purchases (sales) of available-for-sale financial assets, net | (10) | 348 |
| Free cash flow | (73) | 155 |
Free cash flow was positive e155 million for the six months ended March 31, 2010, compared to negative e73 million for the six months ended March 31, 2009, an improvement of e228 million. Free cash flow during the six months ended March 31, 2010 reflects primarily the improved net cash provided by operating activities of positive e329 million compared to negative e83 million for the same period in the prior year, which was partly offset by the decrease in cash and cash equivalents of e88 million from the deconsolidation of ALTIS and higher net cash used in investing activities for investments in property, plant and equipment and intangible assets of e111 million compared to e89 million in the same period last year. The net cash used in investing activities for the six months ended March 31, 2010 also reflects net purchases of e348 million of available-for-sale financial assets, which are excluded from the free cash flow determination.
The following table presents our gross and net cash positions. 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 positions to provide investors with an understanding of our overall liquidity. The gross and net cash position is determined as follows from the condensed consolidated statements of financial position, without adjustment to the IFRS amounts presented:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Cash and cash equivalents | 1,414 | 1,228 |
| Available-for-sale financial assets. | 93 | 439 |
| Gross cash position | 1,507 | 1,667 |
| Less: Short-term debt and current maturities of long-term debt | 521 | 378 |
| Long-term debt | 329 | 294 |
| Net cash position | 657 | 995 |
Our gross cash position as of March 31, 2010, representing cash and cash equivalents and availablefor-sale financial assets, was e1,667 million, an increase from e1,507 million as of September 30, 2009. The increase of e160 million primarily reflects the positive cash flow from operating activities from continuing operations of e329 million and the cash received of e223 million from the sale of our Wireline Communications business, partly offset by a e88 million reduction in cash and cash equivalents resulting from the deconsolidation of ALTIS and investments in property, plant and equipment and intangible assets of e111 million. During the six months ended March 31, 2010, we also repurchased notional amounts of e190 million of our convertible subordinated notes due June 2010 and repaid other debt in a net amount of e14 million.
Our net cash position as of March 31, 2010, defined as gross cash position less short-term debt and current maturities of long-term debt, and long-term debt, increased to e995 million, compared to e657 million as of September 30, 2009, primarily reflecting the increase in free cash flow and proceeds from the sale of the Wireline Communications business described above.
With a combined Segment Result margin of 10.6 percent for the three months ended March 31, 2010, we have begun to meet the targets we set with our IFX10+ cost reduction and efficiency program back in the 2008 fiscal year. We will now make sure that we build on that foundation as we seek to reach similar or higher margins going forward.
As of March 31, 2010, our debt to equity ratio is 28 percent and our net cash position amounts to e995 million compared to a debt to equity ratio of 36 percent and a net cash position of e657 million as of September 30, 2009. This also demonstrates the progress we made in the six months ended March 31, 2010 and should give us a strong foundation to meet future obligations and achieve our strategic objectives.
The following table indicates the composition of our workforce by function and region at the dates shown:
| September 30, 2009 |
March 31, 2010 |
Change |
|---|---|---|
| 17,338 | 16,794 | (3)% |
| 5,971 | 5,510 | (8)% |
| 1,681 | 1,506 | (10)% |
| 1,474 | 1,406 | (5)% |
| 26,464 | 25,216 | (5)% |
| 9,160 | 8,730 | (5)% |
| 4,676 | 3,333 | (29)% |
| 687 | 628 | (9)% |
| 11,803 | 12,400 | 5% |
| 138 | 125 | (9)% |
| 26,464 | 25,216 | (5)% |
| As of |
During the first half of the 2010 fiscal year, Infineon's workforce decreased as a result of the sale of our Wireline Communications business and the deconsolidation of ALTIS. This decrease was partially offset by increases in employees as a result of higher capacity utilization in our factories, in particular in Asia/ Pacific.
The world economy continued to recover in the first quarter of the 2010 calendar year. It is expected that global economic growth in the 2010 calendar year will be above 3 percent, after a contraction of almost 2 percent in the 2009 calendar year.
The global economic recovery also positively affected the global semiconductor market in the first quarter of the 2010 calendar year. Overall, for the 2010 calendar year, market experts expect a strong increase in revenues and have repeatedly revised their revenue growth expectations upwards for the global semiconductor market. For the 2010 calendar year, iSuppli Corporation currently projects growth of 23 percent in worldwide semiconductor revenues. The latest forecasts of reputable market research firms range between plus 20 percent (Gartner, Inc.) and plus 28 percent (IC Insights, Inc.). In 2011, market research firms generally expect revenues will further rise in line with a growing world economy.
Assuming a U.S. dollar/Euro exchange rate of 1.40, we expect revenues for the third quarter of the 2010 fiscal year to increase by a high single-digit percentage sequentially. Third quarter combined Segment Result margin is anticipated to increase by between two and four percentage points compared to the second quarter.
The sequential increase in revenues is anticipated to be driven by the Wireless Solutions and Industrial & Multimarket segments, while revenues in the Automotive and Chip Card & Security segments are likely to stay at the same level as in the second quarter.
Given the results of the first half of the 2010 fiscal year and current visibility, we are again raising our guidance for the 2010 fiscal year as a whole.
We now expect full year revenues to grow by a high 30's percentage compared with the 2009 fiscal year, at an assumed U.S. dollar/Euro exchange rate of 1.40 for the second half of the 2010 fiscal year. We anticipate that the year-over-year increase will be generated by increases in revenues in all of the company's operating segments, mostly in the Automotive, Industrial & Multimarket, and Wireless Solutions segments, with lower revenue growth anticipated in the Chip Card & Security segment. Revenues in Other Operating Segments, mainly from product supply agreements with Lantiq, are still anticipated to total a low triple-digit million Euro amount.
We expect combined Segment Result in the 2010 fiscal year to improve considerably from the 2009 fiscal year, with combined Segment Result margin now anticipated to be more than ten percent.
In light of the dynamic revenue growth, fully loaded production facilities and planned development milestones, we anticipate that capital expenditures, including capitalized intangible assets, will now exceed e300 million for the 2010 fiscal year, compared to the previous 2010 guidance of up to e250 million and reported capital expenditures, including capitalized intangible assets, of e154 million in the 2009 fiscal year. As previously announced, depreciation and amortization is expected to decrease to approximately e400 million in the 2010 fiscal year compared to e513 million in the 2009 fiscal year.
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 sustainability of recent improvements in the market environment; trends in demand and prices for semiconductors generally and for our products in particular, as well as for the end-products, 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 continued availability of adequate funds; 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, employeerelated contingencies and other matters; as well as the other factors mentioned herein and those described in our Annual Report on Form 20-F for the fiscal year 2009.
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 our Annual Report on Form 20-F for the fiscal year 2009.
In February 2009, the Deutsche Pru¨fstelle fu¨ r Rechnungslegung e. V. ("DPR"), a German government-appointed private institution, began a routine review of Infineon's IFRS financial statements for the year ended September 30, 2008 (our first year of reporting under IFRS). In the course of this review, we have responded to the DPR's comments on a number of accounting issues with respect to our financial statements. In this regard, the only remaining concern raised by the DPR relates to our accounting for certain deferred tax assets as of September 30, 2008, particularly with respect to tax strategies and the forecasting period for the utilization of tax credits that formed the basis for a material portion of our deferred tax assets. We continue to maintain that our accounting for deferred tax assets is and was correct, and intend to maintain our position in our further discussions with the DPR. In the event that we are unable to reach an agreement with the DPR in this regard, the review in this matter would be continued by the German Federal Financial Supervisory Authority (Bundesanstalt fu¨ r Finanzdienstleistungsaufsicht, or "BaFin"). If the BaFin were to determine that our accounting for certain deferred tax assets should be changed, we may be required to adjust our opening accumulated deficit, to reflect a partial reduction of the deferred tax assets recorded. Such adjustment would reduce our total assets and shareholder's equity, but would have no impact on our statement of operations or available tax loss carry-forwards and tax effected credit carry-forwards, would require no cash expenditure, and would not result in a breach of any financial covenants under our outstanding lending facilities or bonds. Moreover, we believe that, in light of our anticipated future operating results, we will be able to utilize a significant portion of our unrecognized deferred tax assets in future periods. Consequently, we believe that the ultimate resolution of this matter will not have a material adverse impact on our operating results or cash position.
| March 31, 2009 |
March 31, 2010 |
March 31, 2010 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Revenue | 669 | 1,035 | 1,400 |
| Cost of goods sold | (581) | (682) | (923) |
| Gross profit | 88 | 353 | 477 |
| Research and development expenses | (110) | (136) | (184) |
| Selling, general and administrative expenses | (100) | (115) | (155) |
| Other operating income | 15 | 3 | 4 |
| Other operating expense | (39) | 4 | 5 |
| Operating income (loss) | (146) | 109 | 147 |
| Financial income | 20 | 8 | 11 |
| Financial expense | (31) | (30) | (40) |
| Income from investments accounted for using the equity method |
2 | 1 | 1 |
| Income (loss) from continuing operations before income taxes |
(155) | 88 | 119 |
| Income tax benefit (expense) | 3 | (7) | (9) |
| Income (loss) from continuing operations | (152) | 81 | 110 |
| Loss from discontinued operations, net of income taxes | (106) | (2) | (3) |
| Net income (loss). | (258) | 79 | 107 |
| Attributable to: | |||
| Non-controlling interests | (19) | — | — |
| Shareholders of Infineon Technologies AG | (239) | 79 | 107 |
| 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 |
(0.19) | 0.07 | 0.09 |
| Basic and diluted earnings (loss) per share from discontinued operations. |
(0.10) | — | — |
| Basic and diluted earnings (loss) per share | (0.29) | 0.07 | 0.09 |
| March 31, 2009 |
March 31, 2010 |
March 31, 2010 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Revenue | 1,411 | 1,976 | 2,673 |
| Cost of goods sold | (1,200) | (1,309) | (1,771) |
| Gross profit | 211 | 667 | 902 |
| Research and development expenses | (242) | (266) | (360) |
| Selling, general and administrative expenses | (203) | (221) | (299) |
| Other operating income | 18 | 9 | 12 |
| Other operating expense | (50) | (92) | (124) |
| Operating income (loss) | (266) | 97 | 131 |
| Financial income | 80 | 19 | 26 |
| Financial expense | (87) | (68) | (92) |
| Income from investments accounted for using the equity method |
3 | 2 | 3 |
| Income (loss) from continuing operations before income taxes |
(270) | 50 | 68 |
| Income tax expense | (1) | (15) | (21) |
| Income (loss) from continuing operations | (271) | 35 | 47 |
| Income (loss) from discontinued operations, net of income taxes |
(391) | 110 | 149 |
| Net income (loss). | (662) | 145 | 196 |
| Attributable to: | |||
| Non-controlling interests | (49) | 1 | 1 |
| Shareholders of Infineon Technologies AG | (613) | 144 | 195 |
| 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 |
(0.33) | 0.03 | 0.04 |
| Basic and diluted earnings (loss) per share from discontinued operations. |
(0.42) | 0.10 | 0.14 |
| Basic and diluted earnings (loss) per share | (0.75) | 0.13 | 0.18 |
| September 30, 2009 |
March 31, 2010 |
March 31, 2010 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Assets: | |||
| Current assets: | |||
| Cash and cash equivalents | 1,414 | 1,228 | 1,661 |
| Available-for-sale financial assets | 93 | 439 | 594 |
| Trade and other receivables | 514 | 557 | 753 |
| Inventories | 460 | 504 | 682 |
| Income tax receivable | 11 | 18 | 24 |
| Other current financial assets | 26 | 26 | 35 |
| Other current assets | 114 | 126 | 171 |
| Assets classified as held for sale | 112 | 21 | 28 |
| Total current assets | 2,744 | 2,919 | 3,948 |
| Property, plant and equipment | 928 | 804 | 1,088 |
| Goodwill and other intangible assets | 369 | 375 | 507 |
| Investments accounted for using the equity method. | 27 | 36 | 49 |
| Deferred tax assets | 396 | 400 | 541 |
| Other financial assets. | 124 | 121 | 164 |
| Other assets. | 18 | 18 | 24 |
| Total assets | 4,606 | 4,673 | 6,321 |
| Liabilities and equity: | |||
| Current liabilities: | |||
| Short-term debt and current maturities of long-term debt | 521 | 378 | 511 |
| Trade and other payables | 393 | 490 | 663 |
| Current provisions | 436 | 523 | 707 |
| Income tax payable | 102 | 113 | 153 |
| Other current financial liabilities | 50 | 38 | 51 |
| Other current liabilities | 147 | 124 | 168 |
| Liabilities classified as held for sale | 9 | 16 | 22 |
| Total current liabilities. | 1,658 | 1,682 | 2,275 |
| Long-term debt | 329 | 294 | 398 |
| Pension plans and similar commitments | 94 | 99 | 134 |
| Deferred tax liabilities. | 13 | 6 | 8 |
| Long-term provisions | 89 | 58 | 79 |
| Other financial liabilities | 5 | 4 | 5 |
| Other liabilities | 85 | 106 | 143 |
| Total liabilities | 2,273 | 2,249 | 3,042 |
| Equity: | |||
| Shareholders' equity: | |||
| Ordinary share capital | 2,173 | 2,173 | 2,939 |
| Additional paid-in capital | 6,048 | 6,048 | 8,181 |
| Accumulated deficit | (5,940) | (5,796) | (7,840) |
| Other components of equity | (8) | (1) | (1) |
| Total equity attributable to shareholders of Infineon | |||
| Technologies AG | 2,273 | 2,424 | 3,279 |
| Non-controlling interests | 60 | — | — |
| Total equity. | 2,333 | 2,424 | 3,279 |
| Total liabilities and equity | 4,606 | 4,673 | 6,321 |
| March 31, 2009 |
March 31, 2010 |
March 31, 2010 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Net income (loss) | (662) | 145 | 196 |
| Other comprehensive income | |||
| Currency translation effects | 196 | 11 | 15 |
| Net change in fair value of available-for-sale financial assets | 2 | 1 | 1 |
| Net change in fair value of cash flow hedges | 10 | (5) | (7) |
| Other comprehensive income | 208 | 7 | 9 |
| Total comprehensive income (loss) | (454) | 152 | 205 |
| Attributable to: | |||
| Non-controlling interests | (10) | 1 | 1 |
| Shareholders of Infineon Technologies AG | (444) | 151 | 204 |
| March 31, 2009 |
March 31, 2010 |
March 31 2010 |
|
|---|---|---|---|
| (g millions) | (g millions) | (\$ millions) | |
| Net income (loss) | (662) | 145 | 196 |
| Less: net loss (income) from discontinued operations | 391 | (110) | (149) |
| Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
|||
| Depreciation and amortization | 271 | 203 | 275 |
| Provision for (recovery of) doubtful accounts | (1) | 1 | 1 |
| Losses (gains) on sales of available-for-sale financial assets | — | (2) | (3) |
| Losses (gains) on sales of businesses and interests in subsidiaries | 16 | (3) | (4) |
| Losses in connection with the deconsolidation of ALTIS. | — | 73 | 99 |
| Losses (gains) on disposals of property, plant, and equipment, and other assets Income from investments accounted for using the equity method |
— (3) |
(2) (2) |
(3) (3) |
| Impairment charges. | 1 | 7 | 9 |
| Share-based compensation | 1 | — | — |
| Deferred income taxes | (1) | (5) | (7) |
| Changes in operating assets and liabilities: | |||
| Trade and other receivables | 150 | (67) | (91) |
| Inventories | 109 | (51) | (69) |
| Other current assets | (18) | (22) | (30) |
| Trade and other payables | (190) | 100 | 135 |
| Provisions | (105) | 36 | 49 |
| Other current liabilities. | (62) | 18 | 24 |
| Other assets and liabilities | (3) | 44 | 60 |
| Interest received | 15 | 5 | 7 |
| Interest paid Income tax received (paid) |
(11) 19 |
(18) (21) |
(24) (28) |
| Net cash provided by (used in) operating activities from continuing operations | (83) | 329 | 444 |
| Net cash provided by (used in) operating activities from discontinued operations. | (380) | (9) | (12) |
| Net cash provided by (used in) operating activities | (463) | 320 | 432 |
| Cash flows from investing activities: | |||
| Purchases of available-for-sale financial assets | — | (375) | (507) |
| Proceeds from sales of available-for-sale financial assets | 10 | 27 | 37 |
| Proceeds from sales of businesses and interests in subsidiaries Cash decrease from the deconsolidation of ALTIS |
4 — |
1 (88) |
1 (119) |
| Purchases of intangible assets, and other assets. | (21) | (35) | (47) |
| Purchases of property, plant and equipment | (68) | (76) | (103) |
| Proceeds from sales of property, plant and equipment, and other assets | 95 | 24 | 32 |
| Net cash provided by (used in) investing activities from continuing operations | 20 | (522) | (706) |
| Net cash provided by (used in) investing activities from discontinued operations | 32 | 220 | 298 |
| Net cash provided by (used in) investing activities. | 52 | (302) | (408) |
| Cash flows from financing activities: | |||
| Net change in short-term debt | 13 | 8 | 11 |
| Net change in related party financial receivables and payables | (1) | (1) | (1) |
| Proceeds from issuance of long-term debt | 1 | — | — |
| Principal repayments of long-term debt | (182) | (213) | (288) |
| Change in restricted cash | — | 1 | 1 |
| Dividend payments to minority interests | (6) | — | — |
| Capital contribution | (5) | — | — |
| Net cash provided by (used in) financing activities from continuing operations | (180) | (205) | (277) |
| Net cash provided by (used in) financing activities from discontinued operations | (40) | — | — |
| Net cash provided by (used in) financing activities | (220) | (205) | (277) |
| Net increase (decrease) in cash and cash equivalents | (631) | (187) | (253) |
| Effect of foreign exchange rate changes on cash and cash equivalents | (7) | 1 | 1 |
| Cash and cash equivalents at beginning of period Total cash and cash equivalents at end of period |
1,170 532 |
1,414 1,228 |
1,913 1,661 |
| Less: Cash and cash equivalents at end of period classified as held for sale | — | — | — |
| Cash and cash equivalents at end of period | 532 | 1,228 | 1,661 |
Infineon Technologies AG and Subsidiaries Condensed Consolidated Statements of Changes in Equity (Unaudited) For the six months ended March 31, 2009 and 2010 (in millions of euro, except for share data)
| Ordinary shares Issued |
Additional | currency Foreign |
Unrealized gain (loss) |
Unrealized gain (loss) on |
attributable to Total equity |
Non | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Amount | paid-in capital |
Accumulated deficit |
adjustment translation |
securities on |
cash flow hedge |
of Infineon AG shareholders |
controlling interests |
equity Total |
|
| Balance as of October 1, 2008 | 749,742,085 | 1,499 | 6,008 | (5,252) | (142) | (3) | (19) | 2,091 | 70 | 2,161 |
| Net loss | — | — | — | (613) | — | — | — | (613) | (49) | (662) |
| Other comprehensive income | — | — | — | — | 157 | 2 | 10 | 169 | 39 | 208 |
| Total comprehensive income for the period | — | — | — | (613) | 157 | 2 | 10 | (444) | (10) | (454) |
| Share-based compensation | — | — | 2 | — | — | — | — | 2 | — | 2 |
| Other changes in equity | — | — | (1) | — | — | — | — | (1) | (5) | (6) |
| Balance as of March 31, 2009 | 749,742,085 | 1,499 | 6,009 | (5,865) | 15 | (1) | (9) | 1,648 | 55 | 1,703 |
| Balance as of October 1, 2009 | 1,086,742,085 | 2,173 | 6,048 | (5,940) | 3 | 1 | (12) | 2,273 | 60 | 2,333 |
| Net income | — | — | — | 144 | — | — | — | 144 | 1 | 145 |
| Other comprehensive income | — | — | — | — | 11 | 1 | (5) | 7 | — | 7 |
| Total comprehensive income for the period | — | — | — | 144 | 11 | 1 | (5) | 151 | 1 | 152 |
| Deconsolidation of ALTIS | — | — | — | — | — | — | — | — | (61) | (61) |
| Balance as of March 31, 2010 | 1,086,742,085 | 2,173 | 6,048 | (5,796) | 14 | 2 | (17) | 2,424 | — | 2,424 |
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 six months ended March 31, 2009 and 2010, 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 and 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 statement of financial position as of September 30, 2009 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, as adopted by the EU, as of and for the period ended September 30, 2009. The accounting policies applied in preparing the accompanying condensed consolidated financial statements are consistent with those for the year ended September 30, 2009.
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. Negative amounts are presented in parentheses. The accompanying condensed consolidated statement of financial position as of March 31, 2010, and the condensed consolidated statements of operations, comprehensive income and cash flows for the three and six months then ended are also presented in U.S. dollars ("\$"), solely for the convenience of the reader, at the rate of e1 = \$1.3526, the Federal Reserve noon buying rate on March 31, 2010. The U.S. dollar convenience translation amounts have not been audited.
Certain amounts in the prior period condensed consolidated financial statements and notes have been reclassified to conform to the current period presentation.
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 Company adopted the amendment as of October 1, 2009. As a consequence the Company renamed the balance sheet "Statement of Financial Position" and introduced the new "Statement of Comprehensive Income", which presents all changes in comprehensive income including other comprehensive income and replaces the "Statement of Income and Expense recognized in Equity". Changes in equity are shown in a separate "Statement of Changes in Equity".
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.
Both standards have been applied since October 1, 2009.
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-goodwill methodology) 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.
In March 2009, the IASB issued "Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures)" which enhances disclosures about fair value measurements of financial instruments and liquidity risk. The amendment will be effective for the Company in its annual financial statements for the fiscal year ending September 30, 2010. The Company is evaluating the impact of the amended IFRS 7 on its financial statements. The EU endorsed the amendment to IFRS 7 in December 2009.
In June 2009, the IASB amended IFRS 2, "Share-based Payment", to clarify its scope and the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when that entity has no obligation to settle the share-based payment transaction. The amendment will be effective for fiscal years beginning on or after January 1, 2010. Therefore, for the Company, the amendment will be effective for its fiscal year beginning on October 1, 2010. The EU endorsed the amendment in March 2010. The new guidance is not expected to have a material impact on the Company's financial statements.
In November 2009 the IASB issued IFRS 9, "Financial Instruments", which prescribes the classification and measurement of financial assets and completes the first phase of the project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. IFRS 9 will be effective for fiscal years beginning on or after January 1, 2013 with earlier application permitted. Therefore, for the Company, the new standard will be effective for its fiscal year beginning on October 1, 2013. The EU has not yet endorsed the new standard. The Company is currently evaluating the impact of IFRS 9 on its financial statements.
During the quarter ended June 30, 2009, the Company entered into a joint venture agreement with LS Industrial Systems ("LSIS"), which closed on November 27, 2009, to establish the joint venture LS Power Semitech Co., Ltd. ("LS"). The joint venture is expected to operate in Korea and elsewhere in Asia, and will focus on the development, production and marketing of molded power modules for white goods applications. LSIS holds 54 percent and the Company holds 46 percent of LS. The Company contributed licenses of intellectual property as well as technology and process know-how for the Company's power module family CIPOSTM (Control Integrated Power System), and contributed existing CIPOSTM back-end manufacturing equipment to LS. The Company realized a gain of e3 million before tax from the contributions to LS which was recognized in other operating income in the three months ended December 31, 2009. The investment in the joint venture is accounted for using the equity method.
ALTIS Semiconductor S.N.C., Essonnes, France ("ALTIS") is a joint venture between the Company and International Business Machines Corporation, New York, USA ("IBM"), with each having equal voting representation. The Company fully consolidated ALTIS in accordance with IAS 27, "Consolidated and Separate Financial Statements" until December 2009.
Following the waiver of its option to acquire further voting shares in ALTIS from IBM (potential voting rights), the Company deconsolidated ALTIS in late December 2009. The assets and liabilities of ALTIS as well as the non-controlling interests in this previously consolidated subsidiary were derecognized, and the Company recorded its interest in ALTIS as an investment in an associated company at its fair value of zero. The investment in ALTIS is subsequently accounted for using the equity method.
Furthermore, in the 2009 calendar year the Company entered into several amendments to its agreements with IBM in respect of ALTIS, which modified the output and cost allocation of ALTIS and certain rights of the shareholders. Additionally, the product purchase agreement with ALTIS was extended through May 2010.
Upon deconsolidation, cash and cash equivalents decreased by e88 million and non-controlling interests by e61 million. The total operating loss initially recognized in connection with the deconsolidation amounted to e81 million, which was recognized in the three months ended December 31, 2009. In the three months ended March 31, 2010 the total operating loss recognized was reduced by e8 million as a result of adjustments to provisions, which results in total operating loss recognized in connection with the deconsolidation of ALTIS of e73 million, which is presented within other operating expense.
On January 23, 2009, Qimonda AG ("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 and Qimonda's subsidiaries 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. Formal insolvency proceedings have also been commenced by several additional subsidiaries of Qimonda in various jurisdictions. The final resolution of the insolvency proceedings, including the final disposition of the remaining assets and liabilities of Qimonda, cannot be predicted at this time. The Company faces certain contingent liabilities, and has made certain related provisions, in connection with the commencement of insolvency proceedings by Qimonda (see below).
During the six months ended March 31, 2009, Qimonda-related amounts of e396 million included in loss from discontinued operations, net of income taxes consisted principally of the realization of accumulated foreign currency translation losses of e188 million and charges for provisions and allowances of e203 million in connection with Qimonda's insolvency (see below). 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 the three months ended December 31, 2008 as well as the deconsolidation of Qimonda in the three months ended March 31, 2009. The Company recorded additional provisions and allowances of e195 million as of December 31, 2008 in connection with Qimonda's insolvency. In the three months ended March 31, 2009, the Company adjusted its initial recorded provisions and allowances by an additional e8 million. In the three and six months ended March 31, 2010, certain adjustments to individual provisions for contingent liabilities were necessary to reflect current developments in these matters, However, the net impact of these adjustments on the Company's condensed consolidated statements of operations was only negative e1 million in the three and six months ended March 31, 2010.
As a result of the commencement of insolvency proceedings by Qimonda, the Company is exposed to potential liabilities arising in connection with the Qimonda business, which include, among others, the following:
• The Company is a named defendant in certain pending antitrust and securities law claims. Qimonda is required to indemnify Infineon, in whole or in part, for such claims, including any related expenses. As a result of Qimonda's insolvency, however, the Company expects that Qimonda will
not be able to indemnify it for these claims. For more information on these pending antitrust and securities law claims and their potential impact on the Company, see note 15 ("Commitments and Contingencies — Litigation and Government Inquiries — Antitrust Litigation", "— Other Government Inquiries" and, "— Securities Litigation").
In addition to the matters described above, the Company may be subject to claims by the insolvency administrator under German insolvency laws for repayment of certain amounts received by the Company from Qimonda, such as payments for intra-group services and supplies, during defined periods prior to the commencement of insolvency proceedings. Depending on future developments in Qimonda's former operations in Portugal (Qimonda Portugal S.A., now operating as Nanium S.A.), there is a risk that claims could be made against the Company in connection with governmental subsidies received by Qimonda Portugal S.A. prior to the carve-out. No such claims have been made to date, and no reasonable estimated amount can be attributed at this time to the potential outcome of any such claims. The Company is in advanced negotiations with the government of Portugal and Nanium S.A. on a tripartite agreement to mitigate the risk. The insolvency of Qimonda may also subject the Company to other claims arising in connection with the 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 the Company expects that Qimonda will not be able to fulfill its obligation to indemnify Infineon against any such liabilities.
Moreover, the Company may lose rights and licenses (including its right to sublicense) to Qimonda's intellectual property to which it is entitled to under the contribution agreement in connection with the carveout of the Qimonda business due to the fact that the insolvency administrator has declared non-performance of this agreement. The Company is evaluating the scope of any potentially affected intellectual property, and is in negotiations with Qimonda's insolvency administrator regarding a potential settlement of this matter. At this time the Company is unable to provide any reasonable estimate of any potential costs in this regard.
During the six months ended March 31, 2010, the Company made total payments of e42 million in connection with certain of the matters described above. This amount included, among others, the final installment of e17 million in connection with the U.S. Department of Justice ("DoJ") antitrust settlement, certain payments in connection with employee-related matters, and the settlement with the last of the
Notes to the Unaudited Condensed Consolidated Financial Statements
U.S. DRAM purchasers who had chosen to opt out of the class action settlement (see note 15). Discussions are continuing with respect to certain additional employee-related matters.
As of September 30, 2009 and March 31, 2010, the Company recorded aggregate liabilities of e21 million and e7 million, respectively, and provisions of e163 million and e136 million, respectively, in connection with these matters. The recorded provisions are primarily reflected within "Current provisions", and the remainder is recorded within "Long-term provisions". The recorded provisions reflect the amount of those liabilities that management believes are probable and can be estimated with reasonable accuracy at that time. There can be no assurance that such provisions recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters. Disclosure of individual amounts with respect to these matters could seriously prejudice the Company's legal or negotiating position, and therefore have been omitted. No reasonable estimate can be made at this time related to those potential liabilities that may be incurred, but that are currently not viewed to be probable.
On July 7, 2009, the Company entered into a purchase agreement with Lantiq, affiliates of Golden Gate Private Equity Inc. ("Lantiq"), pursuant to which it agreed to sell the Wireline Communications business, one of the Company's segments. The majority of the purchase price was paid at closing on November 6, 2009, in the amount of e223 million, with up to an additional e20 million of the purchase price being payable nine months after the closing date. The Company recognized an after-tax gain of e106 million at the closing of the sale. Certain current assets in the manufacturing supply chain at the date of closing could not yet be transferred to Lantiq and are presented as assets held for sale in the condensed consolidated statement of financial position at March 31, 2010. Prepayments in relation to those assets were recognized and are presented within liabilities classified as held for sale.
As a result of the decision to dispose of the Wireline Communications business, the Company reclassified those assets and liabilities of its Wireline Communications business to be transferred to Lantiq as assets held for sale in the consolidated statement of financial position as of September 30, 2009, pursuant to IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations". The results of the Wireline Communications business as well as the gain on the sale are reported as discontinued operations, net of income taxes, in the Company's condensed consolidated statements of operations for all periods presented.
Assets and liabilities held for sale as of September 30, 2009 and March 31, 2010 are primarily composed of the book values of assets and liabilities to be transferred to Lantiq in connection with the sale of the Wireline Communications business. At September 30, 2009 and March 31, 2010, the carrying amounts of the major classes of assets and liabilities classified as held for sale were as follows:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Inventories | 43 | 19 |
| Other current assets | 2 | — |
| Property, plant and equipment, net | 9 | 2 |
| Goodwill and other intangibles | 58 | — |
| Total assets classified as held for sale | 112 | 21 |
| Current provisions | 6 | — |
| Other current liabilities | 2 | 16 |
| Pension plans and similar commitments | 1 | — |
| Total liabilities held for sale | 9 | 16 |
Notes to the Unaudited Condensed Consolidated Financial Statements
The results of Qimonda and of the Wireline Communication business presented in the condensed consolidated statements of operations as discontinued operations for the three and six months ended March 31, 2009 and 2010 consist of the following components:
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions) | |||||
| Qimonda(1) | |||||
| Revenue | — | — | 314 | — | |
| Costs and expenses | — | — | (779) | — | |
| Reversal of measurement to fair value less costs to | |||||
| sell | — | — | 460 | — | |
| Expenses resulting from Qimonda's application to open insolvency proceedings |
(8) | (1) | (203) | (1) | |
| Losses resulting from the realization of accumulated losses related to unrecognized currency translation effects (primarily upon deconsolidation |
|||||
| and Qimonda's sale of Inotera) | (100) | — | (188) | — | |
| Loss before income taxes. | (108) | (1) | (396) | (1) | |
| Income tax expense | — | — | — | — | |
| Qimonda's share of discontinued operations, net of income taxes |
(108) | (1) | (396) | (1) | |
| Wireline Communications Business | |||||
| Revenue | 79 | (1) | 167 | 31 | |
| Costs and expenses | (77) | — | (161) | (26) | |
| Pre-tax income (loss) | 2 | (1) | 6 | 5 | |
| Income tax expense | — | — | (1) | — | |
| Income (loss) from operations. | 2 | (1) | 5 | 5 | |
| Pre-tax gain recognized on the sale of the Wireline Communications business. |
— | — | — | 110 | |
| Income tax expense on gain | — | — | — | (4) | |
| Gain on the sale of the Wireline Communications business, net of income taxes |
— | — | — | 106 | |
| Wireline Communications' share of discontinued operations, net of income taxes |
2 | (1) | 5 | 111 | |
| Income (loss) from discontinued operations, net of income taxes |
(106) | (2) | (391) | 110 |
(1) No further information concerning Qimonda's condensed consolidated statements of operations is available for the period from January 1, 2009 to January 23, 2009, the date of the application by Qimonda to commence insolvency proceedings. 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 amounts of revenue and costs and expenses in the table above exclude amounts for the period from January 1, 2009 to January 23, 2009, Qimonda's share of the loss from discontinued operations, net of income taxes, of e396 million, is unaffected.
Notes to the Unaudited Condensed Consolidated Financial Statements
The amount of financial income is as follows for the three and six months ended March 31, 2009 and 2010, respectively:
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions) | |||||
| Interest income | 17 | 4 | 66 | 8 | |
| Valuation changes and gains on sales | — | — | — | 6 | |
| Other financial income | 3 | 4 | 14 | 5 | |
| Total | 20 | 8 | 80 | 19 |
Interest income for the three and six months ended March 31, 2009 includes gains before tax of e12 million and e48 million, respectively, as a result of the repurchase of convertible subordinated notes due in June 2010 and subordinated exchangeable notes due in August 2010. The latter were fully redeemed during the 2009 fiscal year.
The amount of financial expense is as follows for the three and six months ended March 31, 2009 and 2010, respectively:
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions) | |||||
| Interest expense | 28 | 29 | 63 | 59 | |
| Valuation changes and losses on sales | 3 | — | 24 | — | |
| Other financial expense | — | 1 | — | 9 | |
| Total | 31 | 30 | 87 | 68 |
Interest expense for the three and six months ended March 31, 2010 includes losses before tax of e3 million and e5 million, respectively, as a result of the repurchase of convertible subordinated notes due in June 2010.
Income (loss) from continuing operations before income taxes and income tax expense are as follows:
| Three months ended March 31, |
Six months ended March 31, |
||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | ||
| (g in millions, except percentages) | |||||
| Income (loss) from continuing operations before income taxes |
(155) | 88 | (270) | 50 | |
| Income tax expense. | 3 | (7) | (1) | (15) | |
| Effective tax rate | 2% | 9% | 0% | 30% |
In the three and six months ended March 31, 2009 and 2010, 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") are 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
Notes to the Unaudited Condensed Consolidated Financial Statements
ordinary shares that would have been outstanding if potentially dilutive instruments or ordinary share equivalents had been issued.
The computation of basic and diluted EPS is as follows:
| Three months ended | March 31, | Six months ended March 31, |
||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |||
| Numerator (e in millions): |
||||||
| Income (loss) from continuing operations attributable to shareholders of Infineon Technologies AG. |
(152) | 81 | (270) | 34 | ||
| Income (loss) from continuing operations attributable to non-controlling interests |
— | — | (1) | 1 | ||
| Income (loss) from continuing operations | (152) | 81 | (271) | 35 | ||
| Income (loss) from discontinued operations, net of income taxes attributable to shareholders of Infineon Technologies AG Income (loss) from discontinued operations, |
(87) | (2) | (343) | 110 | ||
| net of income taxes attributable to non controlling interests |
(19) | — | (48) | — | ||
| Income (loss) from discontinued operations, net of income taxes. |
(106) | (2) | (391) | 110 | ||
| Net income (loss) attributable to shareholders of Infineon Technologies AG |
(239) | 79 | (613) | 144 | ||
| Denominator (shares in millions): | ||||||
| Weighted-average shares outstanding — basic(1) |
813 | 1,087 | 813 | 1,087 | ||
| Weighted-average shares outstanding — diluted(1) |
813 | 1,171 | 813 | 1,087 | ||
| Basic and diluted earnings (losses) per share (in e) (2): |
||||||
| Earnings (losses) from continuing operations attributable to shareholders of Infineon Technologies AG. |
(0.19) | 0.07 | (0.33) | 0.03 | ||
| Earnings (losses) from discontinued operations, net of income taxes attributable to shareholders of Infineon Technologies AG. |
(0.10) | — | (0.42) | 0.10 | ||
| Earnings (losses) attributable to shareholders of Infineon Technologies AG |
(0.29) | 0.07 | (0.75) | 0.13 |
(1) Weighted-average shares outstanding — basic and diluted — for all periods have been adjusted in accordance with IAS 33.27 as a result of the capital increase completed in August 2009.
(2) 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 would have otherwise been anti-dilutive, includes 25.9 million and 16.1 million shares underlying employee stock options for the three months ended March 31, 2009 and 2010, respectively, and 28.4 million and 16.2 million shares underlying employee stock options for the six months ended March 31, 2009 and 2010, respectively. Additionally, 56.5 million and 40.6 million ordinary shares issuable upon conversion of outstanding convertible subordinated notes during the three months ended March 31, 2009 and 2010, respectively, and 57.4 million and 127.7 million ordinary shares issuable upon conversion of outstanding convertible subordinated notes during the six months ended March 31, 2009 and 2010, respectively, were not included in the computation of diluted earnings (loss) per share as their impact would have been anti-dilutive.
Notes to the Unaudited Condensed Consolidated Financial Statements
Trade and other receivables consist of the following:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Third party — trade | 488 | 526 |
| Related parties — trade | 3 | 3 |
| Trade accounts receivable, gross | 491 | 529 |
| Allowance for doubtful accounts | (42) | (45) |
| Trade accounts receivable, net | 449 | 484 |
| Grants receivable. | 30 | 34 |
| License fees receivable | 7 | 4 |
| Third party — financial and other receivables | 18 | 31 |
| Receivables from German banks' deposit protection fund | 1 | — |
| Employee receivables. | 6 | 2 |
| Other receivables. | 3 | 2 |
| Total. | 514 | 557 |
Inventories consist of the following:
| September 30, 2009 |
March 31, 2010 |
||
|---|---|---|---|
| (g in millions) | |||
| Raw materials and supplies | 47 | 55 | |
| Work-in-process | 259 | 315 | |
| Finished goods | 154 | 134 | |
| Total inventories | 460 | 504 |
Trade and other payables consist of the following:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Third party — trade | 373 | 456 |
| Related parties — trade | 11 | 28 |
| Trade payables | 384 | 484 |
| Related parties — financial and other payables. | 4 | 3 |
| Other payables | 5 | 3 |
| Total. | 393 | 490 |
Notes to the Unaudited Condensed Consolidated Financial Statements
Provisions consist of the following:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Personnel costs | 187 | 207 |
| Warranties and licenses. | 72 | 105 |
| Qimonda related | 163 | 136 |
| Other | 103 | 133 |
| Total. | 525 | 581 |
The total amounts of provisions are reflected in the condensed consolidated statements of financial position as of September 30, 2009 and March 31, 2010, respectively, as follows:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Current. | 436 | 523 |
| Non-current | 89 | 58 |
| Total. | 525 | 581 |
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.
Qimonda related provisions comprise provisions for potential liabilities in connection with the insolvency proceedings of Qimonda (see note 3).
Other provisions comprise provisions for outstanding expenses, penalties for default or delay on contracts, conservation and waste management, asset retirement obligations, onerous contracts, and for miscellaneous other liabilities.
Debt consists of the following:
| September 30, 2009 |
March 31, 2010 |
|
|---|---|---|
| (g in millions) | ||
| Short-term debt and current maturities of long-term debt: | ||
| Loans payable to banks, weighted average rate 1.6% | 51 | 60 |
| Convertible subordinated notes, 5.0%, due 2010 | 425 | 254 |
| Notes payable to governmental entity, due 2010 | — | 23 |
| Current portion of long-term debt | 45 | 41 |
| Total short-term debt and current maturities | 521 | 378 |
| Long-term debt: | ||
| Convertible subordinated notes, 7.5%, due 2014 | 145 | 149 |
| Unsecured term loans, weighted average rate 2.13%, due 2011-2013 | 164 | 145 |
| Notes payable to governmental entity, due 2010 | 20 | — |
| Total long-term debt . |
329 | 294 |
Short-term loans payable to banks consist primarily of borrowings under the terms of short-term borrowing arrangements.
During the three and six months ended March 31, 2010, the Company made cash repurchases of notional amounts of e142 million and e190 million, respectively, of its convertible subordinated notes due June 2010 which resulted in losses of e3 million and e5 million, respectively, before tax which was recognized in interest expense. At March 31, 2010, the outstanding notional amount of these convertible subordinated notes was e258 million.
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 various funding purposes.
| Nature of Financial | As of March 31, 2010 | ||||||
|---|---|---|---|---|---|---|---|
| Term | Institution Commitment |
Purpose/ intended use |
Aggregate facility |
Drawn (g in millions) |
Available | ||
| Short-term. | firm commitment | general corporate purposes, working capital, guarantees |
135 | 83 | 52 | ||
| Short-term. | no firm commitment | working capital, cash management |
124 | — | 124 | ||
| Long-term(1) | firm commitment | project finance | 230 | 187 | 43 | ||
| Total | 489 | 270 | 219 |
(1) Including current maturities.
The Company has transactions in the normal course of business with equity method investees and related companies (collectively, "Related Parties"). The Company has also transactions with members of key management personnel, such as Management and Supervisory Board members, solely related to compensation in connection with their employment.
The Company purchases certain of its raw materials from, and sells certain of its products to, Related Parties. Purchases from 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 totaled +e3 million as of each of September 30, 2009 and March 31, 2010+.
Related Party payables consist primarily of trade, financial, and other payables from equity method investments and related companies, and totaled e15 million and e31 million as of September 30, 2009 and March 31, 2010, respectively.
Related Party receivables and payables as of September 30, 2009 and March 31, 2010, 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 accrued interest at interbank rates.
In the three months ended March 31, 2009 and 2010, sales to Related Parties totaled e1 million and e9 million, respectively, while purchases from Related Parties totaled e19 million and e80 million, respectively. In the six months ended March 31, 2009 and 2010, sales to Related Parties totaled e2 million and e15 million, respectively, while purchases from Related Parties totaled e59 million and e119 million, respectively.
Information with respect to the Company's pension plans is presented for German ("Domestic") plans and non-German ("Foreign") plans.
The components of net periodic pension cost are as follows:
| Three months ended March 31, 2009 |
Three months ended March 31, 2010 |
|||||
|---|---|---|---|---|---|---|
| Domestic Foreign plans plans |
Domestic plans |
Foreign plans |
||||
| (g in millions) | ||||||
| Service cost | (3) | (1) | (2) | (1) | ||
| Interest cost | (4) | (1) | (4) | (1) | ||
| Expected return on plan assets | 5 | — | 4 | 1 | ||
| Curtailment gain recognized | 1 | — | — | — | ||
| Amortization of past service cost | — | — | (3) | — | ||
| Net periodic pension cost | (1) | (2) | (5) | (1) |
| Six months ended March 31, 2009 |
Six months ended March 31, 2010 |
|||
|---|---|---|---|---|
| Domestic plans |
Foreign plans |
Domestic plans |
Foreign plans |
|
| (g in millions) | ||||
| Service cost | (5) | (2) | (5) | (1) |
| Interest cost | (9) | (2) | (9) | (2) |
| Expected return on plan assets | 10 | — | 9 | 1 |
| Curtailment gain recognized | 2 | 1 | — | — |
| Amortization of past service cost | — | — | (3) | — |
| Net periodic pension cost | (2) | (3) | (8) | (2) |
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 (plus interest) in annual installments through 2009. The final installment of \$25 million plus interest (approximately e17 million) was paid in October 2009. The Company has agreed to continue cooperating 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 settled with the OEM customers. In addition to those OEM customers, the Company has settled with eight direct customers and six "opt out" plaintiffs described below.
Subsequent to the commencement of the DOJ investigation, a number of putative class action lawsuits were filed in U.S. federal courts against the Company, its U.S. subsidiary Infineon Technologies North America Corp. ("IF North America") and other DRAM suppliers by direct purchasers, indirect purchasers and various U.S. state attorneys general. The lawsuits allege price-fixing in violation of the Sherman Act and seek treble damages in unspecified amounts, costs, attorneys' fees, and an injunction against the allegedly unlawful conduct. In September 2002, these federal cases were transferred to the
Notes to the Unaudited Condensed Consolidated Financial Statements
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, the court approved the settlement agreement, entered final judgment and dismissed the claims with prejudice. Six entities chose to opt out of the class action settlement and pursue individual lawsuits against the Company and IF North America. The Company and IF North America have settled with all six plaintiffs.
Approximately sixty additional cases were filed through October 2005 in numerous federal and state courts throughout the U.S. These state and federal cases purport to be on behalf of a class of individuals and entities who indirectly purchased DRAM products in the U.S. during specified time periods commencing in or after 1999. 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.
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 twenty-three 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.
In January 2008, the district court in the MDL indirect purchaser proceedings granted in part and denied in part the defendants' motion for judgment on the pleadings directed at several of the claims. In June 2008, the Ninth Circuit Court of Appeals agreed to hear an appeal by the plaintiffs. 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. In March 2009, the judge in the Arizona state court action issued an order denying plaintiffs' motion to lift the stay. In December 2009, the judge in the Minnesota state court action issued an order denying plaintiffs' motion to lift the stay. In September 2009, the court in the Arkansas state action issued an order directing the parties to submit to mediation within ninety days, and granting plaintiffs' motion to lift the stay after the ninety day period. The parties subsequently conducted a mediation on December 7, 2009, but the case did not settle. In July 2009, the court in the Wisconsin state court indirect purchaser action issued an order lifting the stay in the Wisconsin state case. In October 2009, the court in the West Virginia state court indirect purchaser action issued an order lifting the stay in the West Virginia state case.
The state attorneys general of forty-one U.S. states and territories have filed various suits against the Company, IF North America and several other DRAM manufacturers on behalf of governmental entities and consumers in each of those states 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. The various suits filed by these attorneys general have been made part of the MDL proceeding described above. Between June 2007 and December 2008, the state attorneys general of eight states filed requests for dismissal of their claims.
In October 2008, approximately ninety-five California schools, political subdivisions and public agencies that were previously putative class members of the multistate attorneys 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. This suit is ongoing.
Infineon and the other defendants have reached a settlement agreement in principle with the indirect purchaser class plaintiffs, which may also cover the claims by some or all of the state attorneys general. The settlement is subject to documentation, agreement on certain terms, including allocation of any payments among various plaintiffs and state attorneys general, court approval, and other contingencies. The contemplated settlement amounts remain confidential at this stage due to mediation and settlement confidentiality.
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 reasonable estimated amount can be attributed at this time to the potential outcome of the putative class proceedings.
In April 2003, the Company received a request for information from the European Commission (the "Commission") regarding certain competitive practices of which the Commission has become aware in the European market for DRAM products. The Commission opened formal proceedings in February 2009. The Company is cooperating with the Commission in its investigation. Any disclosure of the Company's estimate of potential outcome could seriously prejudice the position of the Company in this investigation.
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 cooperating with the Competition Bureau in its inquiry. No reasonable estimated amount can be attributed at this time to the potential outcome of this inquiry.
In October 2008, the Company learned that the Commission had commenced an investigation involving the Company's Chip Card & Security business for alleged violations of antitrust laws. In September and October 2009, the Company and its French subsidiary received written requests for information from the Commission. The Company is cooperating with the Commission in answering the requests. No reasonable estimated amount can be attributed at this time to the potential outcome of this investigation.
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 investors that purchased the Company's publicly-traded securities from March 2000 to July 2004. 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. The complaint also alleges 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. In January 2008, the court denied a motion to dismiss with respect to plaintiffs' claims under sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934 and dismissed the claim under section 20A of the act with prejudice. In March 2009, the court granted plaintiffs' motion to certify a class of persons who acquired the Company's securities between March 2000 and July 2004, including foreign purchasers who sold their securities after June 2002. In April 2009, the Ninth Circuit Court of Appeals granted the Company's petition to immediately appeal the court's March 2009 order granting class certification. In May 2009, the court issued an order staying the case pending resolution of
Notes to the Unaudited Condensed Consolidated Financial Statements
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.
The Company's directors' and officers' insurance carriers have denied coverage in the securities class action described above 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.
In October 2007, CIF Licensing LLC ("CIF"), a member of the General Electric Group, filed suit in the Civil Court of Du¨sseldorf, Germany against Deutsche Telekom AG alleging infringement of four European patents in Germany by certain CPE-modems and ADSL-systems (the "CIF Suit"). Deutsche Telecom has notified its suppliers, which include customers of the Company, that a declaratory judgment of patent infringement would be legally binding on the suppliers. In January 2008, the Company joined the suit on the side of Deutsche Telecom. CIF then filed suit against the Company alleging indirect infringement of one of the four European patents. The Company is part of a joint defense group consisting of Deutsche Telecom, most of its suppliers and most of their respective suppliers. The Company is contractually obligated to indemnify and/or to pay damages to its customers under certain circumstances pursuant to its customer contracts. In July 2008, Deutsche Telecom, the Company and the other defendants filed actions contesting the validity of the four patents before the Federal Patent Court in Munich. In October 2008, CIF also filed suit in the Civil Court of Du¨sseldorf against Arcor GmbH &Co KG, Hansenet Telekommunikation GmbH and United Internet AG (all three, the "New Defendants") alleging infringement of the same four European patents. The New Defendants have notified their suppliers of the suit. The proceedings at the Civil Court in Du¨sseldorf have been stayed and the Company expects that they will only continue after resolution of the pending Federal Patent Court actions. No specified amount of damages has been asserted by CIF in these suits. The Federal Patent Court has scheduled court hearings for two of the four validity actions (June 30, 2010 and December 15, 2010). Any disclosure of the Company's estimate of potential outcomes, if such amounts could reasonably be estimated at this time, could seriously prejudice the position of the Company in these suits.
In November 2008, Volterra Semiconductor Corporation ("Volterra") filed suit against Primarion, Inc., the Company and IF North America (the "Defendants") in the U.S District Court for the Northern District of California for alleged infringement of five U.S. patents ("Patents") by certain products offered by Primarion. The Defendants denied any infringement and filed a counterclaim against Volterra alleging certain antitrust violations, fraud on the U.S. Patent and Trademark Office ("U.S. PTO") and that the Patents are invalid. The U.S. PTO granted the requested reexamination of all Patents. In June 2009, the court ordered a stay in the case regarding two of the Patents pending the completion of the reexamination proceedings. In July 2009, Volterra filed motions for a preliminary injunction and for partial summary judgment of infringement. In September 2009, the court initially issued a minute order granting Volterra's motion for a preliminary injunction and denying the motion for partial summary judgment without prejudice. On November 17, 2009, however, after another hearing, the court finally dismissed Volterra's motion for a preliminary injunction. The decision with reasons has not been published yet. A trial date has not been set yet. No specified amount of damages has been asserted by Volterra and no reasonable estimated amount can be attributed at this time to the potential outcome of the Volterra claim.
The patent dispute filed in November 2008 by the Company, Infineon Technologies Austria AG and IF North America in the U.S. District Court for the District of Delaware against Fairchild Semiconductor International, Inc. and Fairchild Semiconductor Corporation was settled as of December 23, 2009. The Company and Fairchild have entered into a patent cross license agreement. As part of the agreement, Fairchild made a payment of \$6 million and will pay royalties to Infineon.
In May 2009, Gregory Bender filed suit in the U.S. District Court for the Northern District of California, against four companies, including IF North America, alleging infringement of one U.S. patent by certain electronic products having a buffered amplifier. 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 this claim.
On February 22, 2010, Infineon brought actions against Elpida Memory Inc. ("Elpida") and several of its customers before the U.S. International Trade Commission (ITC), arguing that Elpida's DRAM products infringe four of Infineon's U.S. patents relating to general processing technology. The ITC formally opened the proceeding on March 23, 2010 (see note 17).
In April 2009, former employees of Qimonda's subsidiaries in the U.S. 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. 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.
The Company and its subsidiary Infineon Dresden are subject to lawsuits by approximately 80 former Infineon employees who were transferred to Qimonda or Qimonda Dresden as part of the carve-out of Qimonda and who seek to be re-employed by the Company. No reasonable estimated amount can be attributed at this time to the potential outcome of any such claims.
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 mid-point of the range is accrued. As of March 31, 2010, provisions 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. Provisions with respect to these matters 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, results of operations and cash flows.
An adverse final resolution of any 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 date of the statement of financial position. 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.
The Company faces certain contingent liabilities, and has made certain related provisions, in connection with the commencement of insolvency proceedings by Qimonda. As of September 30, 2009 and March 31, 2010, the Company recorded aggregate liabilities of e21 million and e7 million,
respectively, and provisions of e163 million and e136 million, respectively, in connection with these matters. The recorded provisions are primarily reflected within "Current provisions", and the remainder is recorded within "Long-term provisions". The recorded provisions reflect the amount of those liabilities that management believes are probable and can be estimated with reasonable accuracy at that time. There can be no assurance that such provisions recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters. For detailed information on these matters see note 3.
On a group-wide basis the Company has guarantees outstanding to external parties of e85 million as of March 31, 2010. 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 or will be reflected as liabilities in the consolidated financial statements by virtue of consolidation. As of March 31, 2010, such guarantees, principally relating to certain consolidated subsidiaries' third-party debt, aggregated e716 million, of which e454 million relates to convertible 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 March 31, 2010, a maximum of e23 million of these subsidies could be refundable. Such amount does not include any potential liabilities for Qimonda related subsidies (see note 3).
The Company reports its operating segment and geographic information in accordance with IFRS 8, "Operating Segments". The Company uses "Segment Result" as its performance measure in accordance with IFRS 8. See the consolidated financial statements for the year ended September 30, 2009 for the detailed definition of Segment Result.
The Company's core business is organized in four operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, and Wireless Solutions:
The Automotive segment designs, develops, manufactures and markets semiconductors for use in automotive applications. Together with its product portfolio, it offers corresponding system know-how 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 a wide range of security controllers and security memories for 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.
In July 2009, the Company entered into an asset purchase agreement to sell its Wireline Communications business, which closed in November 2009 (see note 3). Segment results for all periods
Notes to the Unaudited Condensed Consolidated Financial Statements
presented have been recast to be consistent with the current reporting structure and presentation, as well as to facilitate analysis of operating segment information.
The following table presents selected segment data:
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Revenue: | ||||
| Automotive | 189 | 316 | 395 | 595 |
| Industrial & Multimarket | 193 | 315 | 427 | 588 |
| Chip Card & Security | 80 | 99 | 171 | 182 |
| Wireless Solutions(1) | 204 | 267 | 401 | 537 |
| Other Operating Segments. | 2 | 40 | 10 | 73 |
| Corporate and Eliminations(2) | 1 | (2) | 7 | 1 |
| Total | 669 | 1,035 | 1,411 | 1,976 |
(1) Includes revenue of e1 million for the six months ended March 31, 2009 from sales of wireless communication applications to Qimonda.
(2) Includes the elimination of revenue of e1 million for the six months ended March 31, 2009 since these revenues were not part of the Qimonda disposal plan.
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Segment Result: | ||||
| Automotive | (65) | 51 | (121) | 88 |
| Industrial & Multimarket | (7) | 59 | (5) | 103 |
| Chip Card & Security | (8) | 3 | (9) | 4 |
| Wireless Solutions | (29) | 9 | (73) | 26 |
| Other Operating Segments. | (6) | (8) | (8) | (13) |
| Corporate and Eliminations | 2 | (4) | (3) | (10) |
| Total | (113) | 110 | (219) | 198 |
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table provides the reconciliation of Segment Result to the Company's income (loss) from continuing operations before income taxes:
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Total Segment Result | (113) | 110 | (219) | 198 |
| Adjusted: | ||||
| Asset impairments, net | (1) | — | (1) | (4) |
| Restructuring charges, and other related closure cost, net |
(3) | — | (6) | — |
| Share-based compensation expense | (1) | — | (1) | — |
| Acquisition-related amortization and losses |
(5) | (5) | (11) | (11) |
| Gains on disposal of assets, businesses, or interests in subsidiaries, net |
(16) | (1) | (16) | 2 |
| Losses in connection with the deconsolidation of ALTIS |
— | 8 | — | (73) |
| Other expense, net | (7) | (3) | (12) | (15) |
| Operating income (loss) | (146) | 109 | (266) | 97 |
| Financial income | 20 | 8 | 80 | 19 |
| Financial expense. | (31) | (30) | (87) | (68) |
| Income from investment accounted for using the equity method, net |
2 | 1 | 3 | 2 |
| Income (loss) from continuing operations before income taxes |
(155) | 88 | (270) | 50 |
The following is a summary of revenue by geographic area:
| Three months ended March 31, |
Six months ended March 31, |
|||
|---|---|---|---|---|
| 2009 | 2010 | 2009 | 2010 | |
| (g in millions) | ||||
| Revenue: | ||||
| Germany | 133 | 216 | 278 | 398 |
| Other Europe | 130 | 181 | 261 | 330 |
| North America | 62 | 169 | 153 | 366 |
| Asia/Pacific | 311 | 408 | 635 | 767 |
| Japan | 26 | 50 | 70 | 93 |
| Other | 7 | 11 | 14 | 22 |
| Total | 669 | 1,035 | 1,411 | 1,976 |
Revenues from external customers are based on the customers' billing location.
On April 2, 2010, in response to the actions brought by Infineon before the U.S. International Trade Commission (see note 15), Elpida filed two patent infringement suits against the Company and IF North America in the U.S. District Court for the Eastern District of Virginia. Infineon has not yet received service of process in such suits.
On or around April 14, 2010, the Canadian Competition Bureau advised the Company that it is discontinuing its inquiry into the allegations of anti-competitive activities in the DRAM industry (see note 15).
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year.
Neubiberg, May+5, 2010
Peter Bauer Prof. Dr. Hermann Eul
Dr. Reinhard Ploss Dr. Marco Schro¨ter
To the Supervisory Board of Infineon Technologies AG, Neubiberg:
We have reviewed the condensed interim consolidated financial statements — comprising the statement of financial position, the statement of operations, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity and selected explanatory notes together with the interim group management report of Infineon Technologies AG, for the period from October 1, 2009 to March 31, 2010 that are part of the semi annual financial report according to § 37 w WpHG ("Wertpapierhandelsgesetz": "German Securities Trading Act"). The preparation of the condensed interim consolidated financial statements in accordance with those IFRS applicable to interim financial reporting as adopted by the European Union (EU) and as issued by the International Accounting Standards Board (IASB), and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company's management. Our responsibility is to issue a report on the condensed interim consolidated financial statements and on the interim group management report based on our review.
We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftspru¨fer (IDW) under additional consideration of International Standards on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed interim consolidated financial statements have not been prepared, in material aspects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and as issued by the IASB, and that the interim group management report has not been prepared, in material aspects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor's report.
Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and as issued by the IASB, or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports.
Munich, May 3, 2010
KPMG AG Wirtschaftspru¨fungsgesellschaft
Kozikowski Kempf
Wirtschaftspru¨fer Wirtschaftspru¨fer
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 months ended March 31, 2009 or 2010.
As of March 31, 2010, the Company had 25,216 employees worldwide, including 5,510 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". On April 24, 2009, the Company voluntarily delisted from the New York Stock Exchange (NYSE). The Company's American Depositary Shares currently trade overthe-counter on the OTCQX International market under the symbol "IFNNY".
| Three months ended March 31, |
Six months ended March 31, |
|||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | +/ in % |
2009 | 2010 | +/ in % |
|
| IFX closing prices in Euro (Xetra) | ||||||
| Beginning of the period | 0.90 | 4.10 | 357% | 3.62 | 3.76 | 4% |
| High | 1.07 | 5.17 | 386% | 3.68 | 5.17 | 41% |
| Low. | 0.35 | 3.77 | 979% | 0.35 | 3.05 | 772% |
| End of the period | 0.78 | 5.14 | 561% | 0.78 | 5.14 | 561% |
| IFX closing prices in U.S. dollars (NYSE/OTCQX) |
||||||
| Beginning of the period | 1.31 | 5.88 | 348% | 5.31 | 5.22 | (2)% |
| High | 1.49 | 6.95 | 367% | 5.31 | 6.95 | 31% |
| Low. | 0.43 | 5.15 | 1111% | 0.43 | 4.38 | 930% |
| End of the period | 1.04 | 6.94 | 564% | 1.04 | 6.94 | 564% |
(1) On July 20, 2009, our shares began trading ex-rights, which rights related to the right to subscribe for shares in the rights offering we commenced on such date. The closing sales prices presented in this table are adjusted to reflect the price of our shares exrights.
| Fiscal Period | Period end date | Results press release (preliminary) |
|---|---|---|
| Third Quarter | June 30, 2010 | July 28, 2010 |
| Fiscal Year 2010 | September 30, 2010 | November 16, 2010 |
Publication date of the second quarterly report for the 2009/2010 fiscal year: +May 5, 2010
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 under the heading "Risks and Opportunities" in this unaudited Interim Group Management Report and in further detail in the "Risk Factors" section of our Annual Report on Form 20-F, which we have filed with the U.S. Securities and Exchange Commission. A copy of our most recent Form 20-F is available at the Investor Relations section of our website http://ww.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 this unaudited Interim Group Management Report and in our Form 20-F. The occurrence of one or more of the events described 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 cost 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 potential disposition of our ALTIS joint venture, the benefits of research and development alliances and activities, our planned levels of future investment, the introduction of new technology at our facilities, our continuing ability to offer commercially viable products, and our expected or projected future results.
These forward-looking statements are subject to a number of uncertainties, including broader economic developments, including the sustainability of recent improvements in the market environment; trends in demand and prices for semiconductors generally and for our products in particular, as well as for the end-products, 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 continued availability of adequate funds; the outcome of antitrust investigations and litigation matters; and the outcome of Qimonda's insolvency proceedings; as well as the other factors mentioned herein, including under the heading "Risks and Opportunities" in the unaudited Interim Group Management Report, and those described in the "Risk Factors" section of the Annual Report on Form 20-F, which we filed with the U.S. Securities and Exchange Commission on December 8, 2009.
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.
PUBLISHED BY INFINEON TECHNOLOGIES AG
Am Campeon 1 – 12, 85579 Neubiberg Quar terly Repor t of 2nd Quar ter 2010 Printed in Germany
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