SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

INFINEON TECHNOLOGIES AG

Am Campeon 1-12
D-85579 Neubiberg/Munich
Federal Republic of Germany
Tel: +49-89-234-0
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ      Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o     No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-___.

 

 

This Report on Form 6-K dated February 5, 2010, contains the quarterly report of Infineon Technologies AG for the Company’s first quarter of the 2010 fiscal year.

 

INFINEON TECHNOLOGIES AG

 

QUARTERLY REPORT
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2009

 

 

INDEX

 

 

This interim group management report should be read in conjunction with our condensed consolidated financial statements and other financial information included elsewhere in this report.

 

This interim group management report contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement.

 

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 December 31, 2009; 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 months ended December 31, 2009:

 

Financial Results

 

 

 

 ⁽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.

 

 

Corporate Activities

 

 

 

Revenue by Segment

 

 

 

 

Revenue by Region

 

 

The regional distribution of revenues in the first quarter of the 2010 and 2009 fiscal years, was largely unchanged, other than a shift between Asia/Pacific and North America, which primarily reflects changes in the distribution channels of one major customer.

 

Cost of Goods Sold and Gross Profit

 

 

Cost of goods sold increased in the first quarter of the 2010 fiscal year by 1 percent, or €8 million, to €627 million compared to €619 million in the first quarter of the 2009 fiscal year. Our gross profit increased from €123 million in the first quarter of the 2009 fiscal year to €314 million in the first quarter of the 2010 fiscal year or as a percentage of revenue from 17 percent to 33 percent, respectively. This improvement primarily reflects higher sales volumes and resulting lower idle capacity cost throughout all our operating segments. All operating segments showed improved gross margin in the first quarter of the 2010 fiscal year compared to the first quarter of the 2009 fiscal year.

 

Research and Development Expenses

 

 

In absolute terms, research and development expenses remained almost unchanged at €130 million in the first quarter of the 2010 fiscal year, compared to €132 million in the first quarter of the 2009 fiscal year. As a percentage of revenues, research and development expenses in the first quarter of the 2010 fiscal year, decreased to 14 percent, compared to 18 percent in the first quarter of the 2009 fiscal year, primarily reflecting the higher revenues in the later period.

 

Selling, General and Administrative Expense

 

 

In absolute terms selling, general and administrative expenses increased slightly and amounted to €106 million in the first quarter of the 2010 fiscal year compared to €103 million in the first quarter of the 2009 fiscal year. As a percentage of revenues, selling, general and administrative expenses in the first

quarter of the 2010 fiscal year decreased to 11 percent compared to 14 percent in first quarter of the 2009 fiscal year, reflecting the higher revenues in the later period.

 

Other Operating Income and Other Operating Expense

 

 

Other operating income for the first quarter of the 2010 fiscal year increased to €6 million compared to €3 million in the first quarter of the 2009 fiscal year. This increase primarily reflects the gain of €3 million from the contribution of licenses and back-end equipment to our LS joint venture with LSIS.

 

Other operating expense increased by €85 million, from €11 million in the first quarter of the 2009 fiscal year to €96 million in the first quarter of the 2010 fiscal year, primarily reflecting the loss of €81 million in connection with the deconsolidation of ALTIS as a subsidiary, described above.

 

Operating Loss

 

In the first quarter of the 2010 fiscal year, our operating loss was €12 million, compared to a loss of €120 million in the first quarter of the 2009 fiscal year, reflecting improved results of our operating segments, and in spite of the negative impact on our operating results of the deconsolidation of ALTIS of €81 million.

 

Segment Result

 

 

Segment Result development for our reporting segments was as follows:

 

 

 

The following table provides a reconciliation of Segment Result to our operating loss:

 

 

Financial Income and Financial Expense

 

 

In the first quarter of the 2010 fiscal year, financial income was €11 million, a decrease of €49 million compared to €60 million in the first quarter of the 2009 fiscal year. Included in financial income for the earlier quarter is a gain of €36 million from the repurchases of our exchangeable subordinated notes due 2010 which were fully redeemed in the fourth quarter of 2009 fiscal year and our convertible subordinated notes due 2010. Gains of €11 million from the valuation of interest rate swaps in the first quarter of the 2009 fiscal year and lower interest income in the first quarter of the 2010 fiscal year compared to the first quarter of the 2009 fiscal year also contributed to the decrease in financial income.

 

In the first quarter of the 2010 fiscal year, financial expense was €38 million, a decrease of €18 million compared to €56 million in the first quarter of the 2009 fiscal year, primarily reflecting lower interest expense as a result of lower indebtedness. Losses on valuation changes and sales of available-for-sale financial assets as a result of the financial crisis impacted financial expense by €21 million in the first quarter of the 2009 fiscal year, but had no effect in the later quarter. Included in financial expense for the first quarter of the 2010 fiscal year is a loss of €2 million on the repurchase of subordinated convertible notes due 2010 with notional amounts of €48 million and a book value of €46 million.

 

Income from Investments Accounted for Using the Equity Method

 

Income from investments accounted for using the equity method for the first quarter of the 2009 and 2010 fiscal years of €1 million each consisted of our share in the net income of Infineon Technologies Bipolar GmbH & Co. KG, our equity method investment together with Siemens AG.

Loss from Discontinued Operations, Net of Income Taxes

 

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 ended December 31, 2008 and 2009, and consist of the following components:

 

 

 

Qimonda

 

In the first quarter of the 2010 fiscal year, Qimonda had no impact on our results. During the first quarter of the 2009 fiscal year, loss from discontinued operations, net of income taxes attributable to Qimonda totaled €288 million. This amount was primarily composed of the realization of accumulated foreign currency translation losses from Qimonda’s sale of its interest in Inotera to Micron of €88 million and charges for provisions and allowances of €195 million resulting from Qimonda’s insolvency. 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 months ended December 31, 2008 and 2009. 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 €460 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.

Wireline Communications Business

 

On July 7, 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 on November 6, 2009, in the amount of €223 million, with up to an additional €20 million of the purchase price being payable nine months after the closing date. We recognized an after-tax gain of €106 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 December 31, 2009. 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.

 

Financial Condition

 

 

As of December 31, 2009, our current assets increased slightly by €84 million compared with September 30, 2009. This reflects primarily an increase of €175 million in cash and cash equivalents, which is partly offset by a decrease in assets classified as held for sale of €95 million. Cash and cash equivalents increased from the cash flow generated from operating activities and from the cash received from the sale of the Wireline Communications business of €223 million, partly offset by the deconsolidation of the cash and cash equivalents of ALTIS of €88 million and repurchases of €48 million of notional amounts of our convertible subordinated notes due 2010 and the repayment of €10 million in other debt. 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 €85 million as of December 31, 2009 compared to September 30, 2009. This decrease primarily results from a €87 million decrease in property, plant and equipment, as capital expenditures during the first quarter of the 2010 fiscal year were lower than depreciation. Furthermore, the deconsolidation of ALTIS contributed to the decrease in property, plant and equipment.

 

Total liabilities as of December 31, 2009 remained almost unchanged and amounted to €2,265 million compared to €2,273 million as of September 30, 2009. Current liabilities increased slightly by €29 million, while non-current liabilities decreased slightly by €37 million. The changes in current liabilities relate to increases in provisions for warranties resulting from the higher revenues and increases in provisions, also in connection with ALTIS, as well as to transfers from long-term debt to short term debt, offset by repurchases of notional amounts of €48 million in our convertible subordinated notes due 2010 and 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 December 31, 2009, compared to September 30, 2009, reflects, among other things, transfers of €20 million from long-term debt to short term debt.

 

The total equity as of December 31, 2009 remained substantially unchanged compared to September 30, 2009, as the net income of €66 million and other comprehensive income of €2 million in the first quarter of the 2010 fiscal year more than offset the decrease in non-controlling interests of €61 million resulting from the deconsolidation of ALTIS.

Liquidity

 

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.

 

Cash Flow

 

 

Cash flow from operating activities

 

Net cash provided by operating activities from continuing operations was €149 million for the first quarter of the 2010 fiscal year, and reflected mainly the loss from continuing operations of €46 million, excluding non-cash charges for depreciation and amortization of €106 million and losses from the deconsolidation of ALTIS of €81 million. Cash provided by operating activities in the first quarter of the 2010 fiscal year was also positively impacted by changes in operating assets and liabilities of €27 million, and negatively impacted by income taxes paid and interest paid, net in the total amount of €17 million.

 

Cash flow from investing activities

 

Net cash used in investing activities from continuing operations was €133 million for the first quarter of the 2010 fiscal year, and primarily relates to the decrease in cash and cash equivalents of €88 million from the deconsolidation of ALTIS as well as the cash used for the purchases of property, plant and equipment, intangible assets and other assets in total of €48 million, which were partly offset by proceeds from sales of available-for-sale financial assets of €2 million.

 

Cash flow from financing activities

 

Net cash used in financing activities from continuing operations was €60 million and primarily relates to the repurchase of notional amounts of €48 million of our convertible subordinated notes due 2010 and loan repayments of €10 million in the first quarter of the 2010 fiscal year.

 

Change in cash and cash equivalents from discontinued operations

 

Net cash provided by discontinued operations amounted to €218 million for the first quarter of the 2010 fiscal year, primarily reflecting net cash provided by investing activities from discontinued operations of €220 million, which primarily relates to the cash received at the closing of the sale of our Wireline Communications business of €223 million at November 6, 2009. Cash flow from operating activities from discontinued operations from the Wireline Communication business prior to the closing of the sale amounted to €39 million and was offset by the payments made of €41 million with respect to potential liabilities in connection with the insolvency of Qimonda, including the last installment of the settlement with the DOJ mentioned above during the first quarter of the 2010 fiscal year.

 

Free Cash Flow

 

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:

 

 

Free cash flow was positive €14 million for the first quarter of the 2010 fiscal year, compared to negative €44 million for the first quarter of the 2009 fiscal year, an improvement of €58 million. Free cash flow during the first quarter of the 2010 fiscal year reflects the improved net cash provided by operating activities of positive €149 million compared to negative €5 million for the same period in the prior year. This increase in net cash provided by operating activities was partly offset by higher net cash used in investing activities of €133 million in the first quarter of the 2010 fiscal year compared to €34 million for the same period in the prior year, primarily resulting from the decrease in cash of €88 million from the deconsolidation of ALTIS and slightly higher capital expenditures compared to the same period in the prior year.

 

Net Cash Position

 

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:

 

 

Our gross cash position as of December 31, 2009, representing cash and cash equivalents and available-for-sale financial assets, was €1,678 million, an increase from €1,507 million as of September 30, 2009. The increase of €171 million primarily reflects the positive cash flow from operating activities of continuing operations and the cash received from the sale of our Wireline Communications business of €223 million, partly offset by a €88 million reduction in cash resulting from the deconsolidation of ALTIS. During the first quarter of the 2010 fiscal year, we also repurchased notional amounts of €48 million with a book value of €46 million of our convertible subordinated notes due 2010 and repaid other debt in an amount of €10 million.

 

Our net cash position as of December 31, 2009, defined as gross cash position less short-term debt and current maturities of long-term debt, and long-term debt, increased to €874 million as of December 31, 2009, compared to €657 million as of September 30, 2009, primarily reflecting the increase in gross cash position described above and a reduction in total financial debt of €46 million. The reduction in debt relates to repurchases of convertible subordinated notes due 2010, net of accretion, as well as repayments of other debt.

Employees

 

The following table indicates the composition of our workforce by function and region at the dates shown:

 

 

During the first quarter 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.

 

Outlook

 

Industry Environment

 

In the fourth quarter of calendar year 2009, world economic growth (year-over-year) turned positive after four quarters of negative year-over-year growth. The world economy appears to have emerged from recession and the recovery process has begun. However, the recovery is expected to be slow, as financial markets remain impaired, stimulus measures will need to be withdrawn in the not too distant future, and households in countries that suffered asset-price declines are forced to rebuild savings while struggling with high unemployment (World Bank, January 2010).

 

Continued recovery in overall economy is expected to bring global semiconductor revenues back to positive growth in the 2010 calendar year. After contracting in calendar year 2009, analysts expect the global semiconductor market to expand in the double-digits in calendar year 2010. iSuppli Corporation, for example, currently forecasts that the overall market will increase (in U.S. dollar terms) by 15 percent, and Future Horizons expects a growth rate of at least 22 percent, while World Semiconductor Trade Statistics is more cautious with a growth rate projection of 12 percent.

 

Outlook for the second quarter of the 2010 fiscal year and updated outlook for the 2010 fiscal year

 

Outlook for the second quarter of the 2010 fiscal year

 

We expect revenues for the second quarter of the 2010 fiscal year to be approximately on the same level or, due to seasonality, down slightly compared to the first quarter of the 2010 fiscal year, resulting in another quarter with combined Segment Result margin of a high single-digit percentage.

 

Revenues in the segments Automotive, Industrial & Multimarket and Chip Card & Security are expected to increase compared to the first quarter of the 2010 fiscal year. Revenues in the Wireless Solutions segment are likely to decrease due to the seasonal slow-down which is typical after the Christmas season. This outlook is based on the assumption of a U.S. dollar/Euro exchange rate of 1.50.

Updated outlook for the 2010 fiscal year

 

Given strong first quarter results and second quarter outlook, we are raising our outlook for the 2010 fiscal year.

 

In light of the strong performance in the first half of the 2010 fiscal year, we now expect growth in revenues in excess of 20 percent for the 2010 fiscal year, at an assumed U.S. dollar/Euro exchange rate of 1.50. We still anticipate the year-over-year increase to be driven by increases in revenues in all of the company’s operating segments, particularly in the Automotive and Industrial & Multimarket segments, with lower revenue growth anticipated in the Wireless Solutions segment, and the lowest growth rate expected in the Chip Card & Security segment. Revenues in Other Operating Segments, mainly from product supply agreements with Lantiq, are now 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 a high single-digit percentage.

 

Driven by the dynamic growth in revenue and production levels, we anticipate that capital expenditures, including capitalized intangible assets, will be at the higher end of the previous guidance range of €220 million to €250 million for the 2010 fiscal year, compared to €154 million in the 2009 fiscal year. As announced last quarter, depreciation and amortization is expected to decrease to approximately €400 million in the 2010 fiscal year compared to €513 million in the 2009 fiscal year.

 

Risks and Opportunities

 

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, employee-related contingencies and other matters; as well as the other factors mentioned herein and those described in the Annual Report and the 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 and the Annual Report on Form 20-F for the fiscal year 2009.

Infineon Technologies AG and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
For the three months ended December 31, 2008 and 2009
(in millions, except for per share data)

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

Infineon Technologies AG and Subsidiaries
Condensed Consolidated Statements of Financial Position (Unaudited)
September 30, 2009 and December 31, 2009

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

Infineon Technologies AG and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
For the three months ended December 31, 2008 and 2009

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

Infineon Technologies AG and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three months ended December 31, 2008 and 2009

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

Infineon Technologies AG and Subsidiaries
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 months ended December 31, 2008 and 2009, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations issued by the International Accounting Standards Board (“IASB”), and as adopted by the European Union (“EU”). The accompanying condensed consolidated financial statements also comply with IFRS as issued by the IASB. The accompanying condensed consolidated financial statements have been prepared in compliance with IAS 34 “Interim Financial Reporting”. Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In addition, although the condensed consolidated 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, and 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 “€”) except where otherwise stated. Negative amounts are presented in parentheses. The accompanying condensed consolidated statement of financial position as of December 31, 2009, and the condensed consolidated statements of operations, comprehensive income and cash flows for the three months then ended are also presented in U.S. dollars (“$”), solely for the convenience of the reader, at the rate of €1 = $1.4332, the Federal Reserve noon buying rate on December 31, 2009. 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.

 

 

Standards and Interpretations adopted as of October 1, 2009

 

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 to “Statement of Financial Position” and introduced the new “Statement of Comprehensive Income”, which presents all changes in comprehensive income including other comprehensive income and replaced 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

 

Infineon Technologies AG and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements

 

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.

 

Standards and Interpretations Issued but Not Yet Adopted

 

In June 2007, the IASB issued IFRIC 13,“Customer Loyalty Programs”. The interpretation discusses the accounting for loyalty programs, whereby the entity provides customers with incentives to buy its goods or services. The interpretation is to be applied for fiscal years beginning on or after July 1, 2008. The EU endorsed the interpretation for fiscal years beginning on or after January 1, 2009. Although the Company uses volume or settlement discounting for its customers, it currently has no programs within the scope of IFRIC 13.

 

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 ended September 30, 2010. The Company is evaluating the impact of the amended IFRS 7 on its financial statements. The EU has not yet endorsed the amendment to IFRS 7.

 

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 has not yet endorsed the amendment. The new guidance is not expected to have a material impact on the Company’s financial statements.

 

 

Sale of Molded Module Assets and formation of the joint venture LS Power Semitech Co., Ltd.

 

During the quarter ending 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 into LS licenses of intellectual property as well as technology and process know-how for the Company’s power module family CIPOS^tm (Control Integrated Power System), and contributed existing CIPOS^tm back-end manufacturing equipment into LS. The Company realized a gain of €3 million before tax from the contributions into LS which is 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

 

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.

 

Infineon Technologies AG and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements

 

Following the waiver of its option to acquire further voting shares in ALTIS from IBM (potential voting rights) in late December 2009, the Company deconsolidated ALTIS. 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 €88 million and non-controlling interests by €61 million. The total operating loss recognized in connection with the deconsolidation amounts to €81 million, which is presented within other operating expense.

 

Qimonda — discontinued operations

 

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 first quarter of the 2009 fiscal year, Qimonda-related amounts included in loss from discontinued operations, net of income taxes consisted principally of the realization of accumulated foreign currency translation losses of €88 million, primarily from Qimonda’s sale of its interest in Inotera Memories Inc. (“Inotera”) to Micron Technology, Inc. and charges for provisions and allowances of €195 million in connection with Qimonda’s insolvency (see below). In the first quarter of the 2010 fiscal year, certain adjustments to individual provisions for contingent liabilities were necessary to reflect current developments in these matters. However, these adjustments had no net impact on the Company’s condensed consolidated statements of operations.

 

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:

 

 

Infineon Technologies AG and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements

 

 

 

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 operations in Portugal, 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 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 to Qimonda’s intellectual property to which it is entitled to under the contribution agreement in connection with the carve-out 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 unable to provide any reasonable estimate at this time of any potential costs in this regard.

 

During the first quarter of the 2010 fiscal year, the Company made total payments €41 million in connection with certain of the matters described above. This amount included, among others, the final installment of €17 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 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 December 31, 2009, the Company recorded aggregate liabilities of €21 million and €3 million, respectively, and provisions of €163 million and €139 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.

 

Sale of Wireline Communications Business — discontinued operations

 

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 €223 million, with up to an additional €20 million of the purchase price being payable nine months after the closing date. The Company recognized an after-tax gain of €106 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 December 31, 2009. Prepayments in relation to those assets were recognized and are presented within liabilities classified as held for sale.

 

Infineon Technologies AG and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements

 

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 classified as held for sale

 

Assets and liabilities held for sale as of September 30, 2009 and December 31, 2009 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 December 31, 2009, the carrying amounts of the major classes of assets and liabilities classified as held for sale were as follows:

 

 

Infineon Technologies AG and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements

 

Loss from discontinued operations, net of income taxes

 

The results of Qimonda and of the Wireline Communication business presented in the consolidated statements of operations as discontinued operations for the three months ended December 31, 2008 and 2009 consist of the following components: