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 contains the consolidated financial statements of Infineon Technologies AG prepared in accordance with International Financial Reporting Standards (“IFRS”) for the year ended September 30, 2008.

 

CONSOLIDATED FINANCIAL STATEMENTS AND

OPERATING AND FINANCIAL REVIEW 2008

INFINEON TECHNOLOGIES AG,

 

NEUBIBERG

 

 

Content

 

This discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and other financial information included elsewhere in this annual report. Our audited consolidated financial statements have been prepared on the basis of a number of assumptions more fully explained in Note 1 (Description of Business and General Information) and Note 2 (Summary of Significant Accounting Policies) to our audited consolidated financial statements appearing elsewhere in this annual report.

 

This report combines the operating and financial review of Infineon Technologies AG and subsidiaries (“Infineon” or “the Company”) with the operating and financial review of the stand-alone entity Infineon Technologies AG. Effective May 1, 2006, substantially all of the memory products-related assets and liabilities, operations and activities of the Company were contributed to Qimonda AG (“Qimonda”), a stand-alone legal company. References in these financial statements to “Infineon Logic” refer to the Company excluding Qimonda.

 

This operating and financial review 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. These factors include those identified under the heading “Risk Report” and elsewhere in this annual report.

 

We expressed our internal management objectives and operational targets for our segments in the 2007 and 2008 fiscal years in terms of accounting principles generally accepted in the United States of America (“U.S. GAAP”), since U.S. GAAP were considered our primary accounting principles for that period. For that reason, this discussion of the results of our operations sometimes refers to U.S. GAAP financial measures in addition to or in lieu of International Financial Reporting Standards (“IFRS”) measures. Our U.S. GAAP consolidated financial statements for the 2008 fiscal year has been published separately. Beginning with the first quarter of the 2009 fiscal year, we will only prepare our financial statements according to IFRS.

 

Overview of the 2008 Fiscal Year

 

In our 2008 fiscal year, which ended September 30, the global economy slowed substantially compared with our prior fiscal year. This slow-down was intensified by the deepening crisis in financial markets, by major corrections in housing markets in a number of major economies, and by surges in commodity prices. Global semiconductor market growth was in the low single-digits compared to market volume in the prior fiscal year.

 

The following were the key developments in our business during the 2008 fiscal year:

 

Financial Results

 

 

 

Corporate Activities:

 

 

 

 

 

 

 

 

 

 

 

Product and Technology Developments

 

 

Energy Efficiency

 

 

Security

 

 

Communications

 

 

 

Our Business

 

We design, develop, manufacture and market a broad range of semiconductors and complete system solutions used in a wide variety of microelectronic applications, including computer systems, telecommunications systems, consumer goods, automotive products, industrial automation and control systems, and chip card applications. Our products include standard commodity components, full-custom devices, semi-custom devices, and application-specific components for memory, analog, digital, and mixed-signal applications. We have operations, investments, and customers located mainly in Europe, Asia and North America.

 

During the 2008 fiscal year, our continuing core business was organized in two segments, our Automotive, Industrial & Multimarket segment and our Communication Solutions segment.

 

 

Effective October 1, 2008, to better align our business with our target markets, we reorganized our core business into five operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, Wireless Solutions, and Wireline Communications:

 

 

We have two additional segments for reporting purposes, our Other Operating Segments, which includes remaining activities for certain product lines that have been disposed of, and other business activities, and our Corporate and Eliminations segment, which contains items not allocated to our operating segments, such as certain corporate headquarters’ costs, strategic investments, unabsorbed excess capacity and restructuring costs.

 

In addition, we currently hold a 77.5 percent interest in Qimonda. Qimonda designs memory technologies and develops, manufactures, and markets a large variety of memory products on a module, component and chip level. During the second quarter of the 2008 fiscal year, we committed to a plan to dispose of Qimonda. As a result the assets and liabilities of Qimonda in the consolidated balance sheet as of September 30, 2008 are classified as “held for disposal”.

On December 21, 2008, we, the German Free State of Saxony, and Qimonda jointly announced a financing package for Qimonda. The package includes a €150 million loan from the German Free State of Saxony, a €100 million loan from a state bank in Portugal and a €75 million loan from us. In addition to this financing package, Qimonda has announced that it expects to receive guarantees totaling €280 million from the Federal Government of Germany and the Free State of Saxony. Based on such guarantees, Qimonda has announced that it is already in advanced negotiations regarding the financing of €150 million. The availability of the total financing package is contingent upon successful completion of the relevant state, federal and European Commission approval procedures as well as final agreement on the detailed terms and conditions of the transaction. See “— Recent Developments Related to Qimonda”.

 

The Semiconductor Industry and Factors that Impact Our Business

 

Our business and the semiconductor industry generally are highly cyclical and characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand. Although these factors affect all segments of our business, they are especially pronounced for Qimonda, are increasingly true for our Communication Solutions segment, and have historically had the least impact on our Automotive, Industrial & Multimarket segment.

 

Cyclicality

 

The industry’s cyclicality results from a complex set of factors, including, in particular, fluctuations in demand for the end products that use semiconductors and fluctuations in the manufacturing capacity available to produce semiconductors. This cyclicality is especially pronounced in the memory portion of the industry. Semiconductor manufacturing facilities (so-called fabrication facilities, or “fabs”) can take several years to plan, construct, and begin operations. Semiconductor manufacturers have in the past made capital investments in plant and equipment during periods of favorable market conditions, in response to anticipated demand growth for semiconductors. If more than one of these newly built fabs comes on-line at about the same time, the supply of chips to the market can be vastly increased. Without sustained growth in demand, this cycle has typically led to manufacturing over-capacity and oversupply of products, which in turn has led to sharp drops in semiconductor prices. When prices drop, manufacturers have in the past cut back on investing in new fabs. As demand for chips grows over time, without additional fabs coming on-line, prices tend to rise, leading to a new cycle of investment. The semiconductor industry has generally been slow to react to declines in demand, due to its capital-intensive nature and the need to make commitments for equipment purchases well in advance of planned expansion.

 

We attempt to mitigate the impact of cyclicality by investing in manufacturing capacities throughout the cycle and entering into alliances and foundry manufacturing arrangements that provide flexibility in responding to changes in the cycle.

 

Substantial Capital and R&D Expenditures

 

Semiconductor manufacturing is very capital-intensive. The manufacturing capacities that are essential to maintain a competitive cost position require large capital investments. The top 10 capital spenders in the industry, according to IC Insights, account for approximately 60 percent of the industry’s projected 2008 capital spending budgets. Manufacturing processes and product designs are based on leading-edge technologies that require considerable research and development expenditures. A high percentage of the cost of operating a fab is fixed; therefore, increases or decreases in capacity utilization can have a significant effect on profitability.

 

Because pricing, for DRAM products in particular, is market-driven and largely beyond our and Qimonda’s control, a key factor for Qimonda in achieving and maintaining profitability is to continually lower its per-unit costs by reducing total costs and by increasing unit production output through productivity improvements.

 

To reduce total costs, we and Qimonda each intend to share the costs of our respective research and development and manufacturing facilities with third parties, either by establishing alliances or through the use of foundry facilities for manufacturing. We believe that cooperation in alliances for R&D, as well as manufacturing and foundry partnerships, provide us with a number of important benefits, including the sharing of risks and costs, reductions in our own capital requirements, acquisitions of technical know-how, and access to additional production capacities. In our logic business, our principal alliances are with IBM, Chartered Semiconductor Manufacturing Ltd., Singapore (“Chartered Semiconductor”) and Samsung for

CMOS development and manufacturing at 65-nanometer, 45-nanometer, and 32-nanometer process technologies. Further, we have established foundry relationships with United Microelectronics Corporation, Taipei, Taiwan (“UMC”) for 130-nanometer and 90-nanometer manufacturing. In the backend field, in August 2008, we, STMicroelectronics NV and STATS ChipPAC Ltd. announced an agreement to jointly develop the next-generation of embedded Wafer-Level Ball Grid Array (“eWLB”) technology, based on our first-generation technology, for use in manufacturing future-generation semiconductor packages. This will build on our existing eWLB packaging technology, which we have licensed to our development partners. The new R&D effort, for which the resulting IP will be jointly owned by the three companies, will focus on using both sides of a reconstituted wafer to provide solutions for semiconductor devices with a higher integration level and a greater number of contact elements. In addition, Qimonda has established foundry relationships with partners in Asia, including Winbond Electronics Corp., Taichung, Taiwan (“Winbond”), to increase its manufacturing capacities, and therefore its potential revenues, without investing in additional manufacturing assets.

 

We expect to continue to increase unit production output through improvements in manufacturing, which is achieved by producing chips with smaller structure sizes (more bits per chip) and by producing more chips per silicon wafer (by using larger wafers). Currently, a substantial portion of our logic capacity is based on 130-nanometer structure sizes. Our 130-nanometer process technology, with up to eight layers of copper metallization, is in full production at several manufacturing sites, including our Dresden facility. Additional 130-nanometer process options have been developed to fulfill the needs of specialty applications. Our 90-nanometer logic technology is in production. We are currently qualifying
65-nanometer technology at several manufacturing partners and have begun to develop products based on 40-nanometer technology which are currently planned to be manufactured initially at one of our manufacturing partners.

 

About half of our fab capacity for logic products is used for the manufacture of power semiconductors used in automotive and industrial applications. We have manufacturing sites in Regensburg, Germany, in Villach, Austria and in Kulim, Malaysia. We continue to focus on innovation for power semiconductors, introducing power copper metallization and special processes to fabricate ever thinner wafers to optimize electrical resistance.

 

Technological Development and Competition

 

Sales prices per unit are volatile and generally decline over time due to technological developments and competitive pressure. Logic products generally have a certain degree of application specification. Although generally less volatile than those for commodity memory products, unit sales prices for logic products typically decline over time as technological developments occur. By contrast, DRAM products in particular, are to a large extent commodities. Since most specifications are standardized, customers can switch between suppliers on short notice. This leads to strong competition within the market, especially for standard DRAM products for PC applications, and causes manufacturers to pass cost savings on to their customers in an effort to gain market share.

 

We aim to offset the effects of declining unit sales prices on total net sales by optimizing product mix, by increasing unit sales volume and by continually reducing per-unit production costs. The growth in volume depends in part on productivity improvements in manufacturing. By moving to ever-smaller structure sizes, the number of functional elements has historically doubled approximately every two years. In the area of DRAM products, this trend, often referred to as Moore’s Law, has led to an average growth rate of bit-volumes of between 40 percent and 45 percent per year and, assuming constant costs per square inch of silicon, to an approximately 30 percent cost reduction per bit per year.

 

Seasonality

 

Our sales are affected by seasonal and cyclical influences, with sales historically strongest in our fourth fiscal quarter. These short cycles are influenced by longer cycles that are a response to innovative technical solutions from our customers that incorporate our products. The short-term and mid-term cyclicality of our sales reflects the supply and demand fluctuations for the products that contain our semiconductors. If anticipated sales or shipments do not occur when expected, expenses and inventory levels in a given quarter can be disproportionately high, and our results of operations for that quarter, and potentially for future quarters, may be adversely affected.

Product Development Cycles

 

For logic products, the cycle for test, evaluation and adoption of our products by customers before the start of volume production can range from several months to more than one year. Due to this lengthy cycle, we may experience significant delays from the time we incur expenses for R&D, marketing efforts, and investments in inventory, to the time we generate corresponding revenue, if any. Development cycles affect memory products to a lesser extent due to the higher degree of standardization for most memory products.

 

Acquisition and Divestiture Strategy

 

A key element of our core business strategy is to seek to reduce the time required to develop new technologies and products and bring them to market, and to optimize our existing product offerings, market coverage, engineering workforce, and technological capabilities. We plan to continue to evaluate strategic opportunities as they arise, including business combination transactions, strategic relationships, capital investments, and the purchase or sale of assets or businesses.

 

Intellectual Property

 

Due to the high-technology nature of the semiconductor industry, IP, meaning intangible assets relating to proprietary technology, is of significant importance. We do record assets on our balance sheet for self-developed IP. Costs for development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and we intend, and have sufficient resources, to complete development and use or sell the asset. The costs capitalized include the cost of materials, direct labor and directly attributable general overhead expenditures that serve to prepare the asset for use. Costs of research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. IP licensed from others or acquired through a business combination is also reflected on our balance sheet, and reduced through amortization over its expected useful life. The value of such acquired IP is often complex and difficult to estimate. We also derive modest revenues from the licensing of our IP, generally pursuant to cross licensing arrangements.

 

Challenges that Lie Ahead

 

Going forward, our success will remain highly dependent on our ability to stay at the leading edge of technology development, and to continue to optimize our product portfolio. We must achieve both objectives to ensure that we have the flexibility to react to fluctuations in market demand for different types of semiconductor products. We believe that the ability to offer and the flexibility to manufacture a broad portfolio of products will be increasingly important to our long-term success in many markets within the semiconductor industry. Establishing and maintaining advantageous technology, development and manufacturing alliances, including the use of third-party foundries, and continuing our efforts to broaden our product portfolio will make it easier for us to respond to changes in market conditions and to improve our financial performance.

 

Semiconductor Market Conditions in the 2008 Fiscal Year

 

According to WSTS, the global semiconductor market grew by 4 percent through the first nine months of the 2008 calendar year compared to the same period last year, following a growth rate of 3.2 percent in the 2007 calendar year. In November 2008, WSTS predicted a growth rate of 2 percent for the full 2008 calendar year. Sales in North America are expected to decrease by 8 percent and in Europe by 1 percent in the 2008 calendar year, according to WSTS. The semiconductor market in Asia/Pacific (excluding Japan) is expected to increase by 8 percent; the Japanese market is expected to grow by 1 percent. Sales of non-memory products (logic chips, analog, and discretes), which accounted for 81 percent of the entire market in the first nine months of the 2008 calendar year, are predicted to grow by 8 percent compared with the 2007 calendar year. Sales of memory products are predicted to decline by 15 percent compared with the 2007 calendar year.

Results of Operations

 

Results of Operations as a Percentage of Revenue

 

The following table presents the various line items in our consolidated statements of operations expressed as percentages of revenue.

 

 

 

 

Reorganization

 

Our organizational structure for the period through March 31, 2008 became effective on May 1, 2006, following the legal separation of our memory products business into the stand-alone legal company Qimonda. Effective March 31, 2008, the results of Qimonda are reported as discontinued operations in our consolidated statements of operations for all periods presented, and the assets and liabilities of Qimonda have been classified as held for disposal in the consolidated balance sheets as of September 30, 2008.

 

As a result, our company operated primarily in two operating segments during the 2008 fiscal year: Automotive, Industrial & Multimarket, and Communication Solutions. Further, certain our remaining activities for product lines sold, for which there are no continuing contractual commitments subsequent to the divestiture date, and new business activities also meet the IFRS 8, “Operating Segments”, definition of an operating segment, but do not meet the requirements of a reportable segment as specified in IFRS 8. Accordingly, these segments are combined and disclosed in the “Other Operating Segments” category pursuant to IFRS 8.

 

Following the completion of the Qimonda carve-out, certain corporate overhead expenses are no longer apportioned to Qimonda and are instead allocated to our logic segments. In addition, Other Operating Segments includes net sales and earnings that Infineon Logic’s 200-millimeter production facility in Dresden recorded from the sale of wafers to Qimonda under a foundry agreement, which was cancelled during the 2008 fiscal year. The Corporate and Eliminations segment reflects the elimination of these net sales and earnings. Also, effective October 1, 2007, we record gains and losses from sales of investments in marketable debt and equity securities in the Corporate and Eliminations segment. The segments’ results of operations for prior periods have been reclassified to be consistent with the revised

reporting structure and presentation, as well as to facilitate analysis of current and future operating segment information.

 

Effective October 1, 2008, to better align our business with our target markets, we recognized our core business into five operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, Wireless Solutions and Wireline Communications. We will report our segment results under this new structure beginning with the first quarter of the 2009 fiscal year.

 

Revenue

 

We generate our revenues primarily from the sale of our semiconductor products and systems solutions. Our semiconductor products include a wide array of chips and components used in electronic applications ranging from wireless and wireline communication systems, to chip cards, to automotive electronics, and industrial applications.

 

We generated the majority of our product revenues in the 2008 fiscal year through our direct sales force, with approximately 22 percent of revenues from our logic segments derived from sales made through distributors.

 

We derive our license revenue from royalties and license fees earned on technology that we own and license to third parties. This enables us to recover a portion of our research and development expenses, and also often allows us to gain access to manufacturing capacity at foundries through joint licensing and capacity reservation arrangements.

 

Our revenues fluctuate in response to a combination of factors, including the following:

 

 

 

In the 2008 fiscal year, revenues increased primarily as a result of the revenue increase in the wireless business of the Communication Solutions segment, while revenues of our Automotive, Industrial & Multimarket segment slightly decreased. The increase in license income was due to higher license income within our Communication Solutions segment. The strength of the Euro (primarily against the U.S. dollar) during the 2007 and 2008 fiscal years negatively impacted revenue. The effect of foreign exchange over the prior year is calculated as the estimated change in current year revenues if the average exchange rate for the preceding year were applied as a constant rate in the current year. The increase in revenue resulting from business acquisitions since the beginning of the prior year reflects primarily the inclusion of a full-year consolidation of revenue in the year after the initial acquisition. Revenues for the 2008 fiscal year include the effect of the mobility products business acquired from LSI starting October 25, 2007 and Primarion starting April 28, 2008. Revenues for the 2007 fiscal year include the effect of the DSL Customer Premises Equipment (“CPE”) business acquired from Texas Instruments Inc. (“TI”) starting August 1, 2007.

Revenue by Segment

 

 

 

 

 

Revenue by Region and Customer

 

 

The absolute and relative increase in the share of revenues in Asia/Pacific in the 2008 fiscal year was mainly due to the acquisition of the mobility products business from LSI and higher shipments of mobile phone platforms solutions to customers in Asia/Pacific in our Communication Solutions segment.

 

The revenues of our Automotive, Industrial & Multimarket segment increased in Germany and Asia/Pacific, whereas revenues from Other Europe, North America and Japan decreased. The number of

customers in this segment grew by more than 10 percent in the 2008 fiscal year. The top 20 customers in this segment accounted for approximately 62 percent of the segment’s sales in the 2008 fiscal year.

 

In the Communication Solutions segment, we have experienced a further shift of revenues from Europe and North America to the Asia/Pacific region in the 2008 fiscal year. Our top 20 customers in this segment accounted for over 70 percent of its revenues in the 2008 fiscal year.

 

Cost of Goods Sold and Gross Margin

 

Our cost of goods sold consists principally of:

 

 

In addition to factors that affect our revenue, our gross margin is impacted by:

 

 

We include in cost of goods sold the cost of inventory purchased from our joint ventures and other associated and related companies. Our purchases from these associated and related companies amounted to €47 million and €148 million in the 2007 and 2008 fiscal years respectively.

 

 

During the 2008 fiscal year our gross margin increased primarily as a result of productivity measures.

 

 

Research and Development Expenses

 

Research and development expenses consist primarily of salaries and benefits for research and development personnel, material costs, depreciation and maintenance of equipment used in our research and development efforts, and contracted technology development costs. R&D expenses also include our joint technology development arrangements with partners such as IBM. Costs of research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. Costs for development activities, whereby research findings are applied to a plan or

design for the production of new or substantially improved products and processes, are capitalized if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and we intend, and have sufficient resources, to complete development and use or sell the asset. The costs capitalized include the cost of materials, direct labor and directly attributable general overhead expenditure that serves to prepare the asset for use.

 

We continue to focus our investments on the development of leading-edge manufacturing technologies and products with high potential for growth and profitability.

 

 

Some of our R&D projects qualify for subsidies from local and regional governments where we do business. If the criteria to receive a grant are met, the subsidies received reduce R&D expenses over the project term as expenses are incurred.

 

In the 2008 fiscal year R&D expenses decreased by €49 million or 7 percent compared to the prior year. This decrease partly relates to a higher capitalization of development cost in 2008 fiscal year. During the 2008 fiscal year we capitalized development cost of €44 million compared to €27 million in the prior year.

 

 

Selling, General and Administrative (SG&A) Expenses

 

Selling expenses consist primarily of salaries and benefits for personnel engaged in sales and marketing activities, costs of customer samples, other marketing incentives, and related marketing expenses.

 

General and administrative expenses consist primarily of salaries and benefits for administrative personnel, non-manufacturing related overhead costs, consultancy, legal and other fees for professional services, recruitment and training expenses.

 

 

The year-on-year increase in absolute terms in the 2008 fiscal year primarily reflects increased selling expenses following the acquisitions of the mobility product business from LSI and the CPE business from TI.

Other Items Affecting Earnings

 

 

Other Operating Income.  In the 2007 fiscal year, other operating income consisted mainly of gains of €17 million from the sale of the Polymer Optical fiber (“POF”) business to Avago, and gains of €3 million from the sale of the Sci-Worx business to Silicon Image Inc. Other operating income increased by €82 million from €38 million in the 2007 fiscal year to €120 million in the 2008 fiscal year. This increase mainly relates to higher gains from sales of businesses of €80 million resulting from the sale of 40 percent of our interest in Bipolar to Siemens, the sale of our HDD business to LSI, and the sale of our BAW business to Avago. Additionally, we realized gains from disposals of long-term assets of €4 million in the 2008 fiscal year.

 

Other Operating Expense.  Other operating expense increased by €309 million from €57 million in the 2007 fiscal year to €366 million in the 2008 fiscal year. This increase relates primarily to higher restructuring charges of €188 million. During the 2007 fiscal year, we took further restructuring measures, mainly in response to the insolvency of one of our largest mobile phone customers, BenQ Mobile GmbH & Co. OHG, and in order to further streamline certain research and development locations. Approximately 280 jobs were affected worldwide, thereof approximately 120 in the German locations Munich, Salzgitter and Nuremberg. A large portion of these restructuring measures were completed during the 2007 fiscal year. The Infineon Complexity Reduction program (“ICoRe”) was launched in July 2007, aimed at reducing costs and seeking added efficiencies by optimizing process flows. To address rising risks in the current market environment, adverse currency trends and below benchmark margins, we implemented the IFX10+ cost-reduction program in the third quarter of the 2008 fiscal year. The IFX10+ program includes measured target areas including product portfolio management, manufacturing costs reduction, value chain optimization, processes efficiency, reorganization of our structure along our target markets, and reductions in workforce. Approximately 10 percent of Infineon Logic’s workforce worldwide is expected to be impacted by IFX10+, which resulted in restructuring charges of €172 million in the 2008 fiscal year. Furthermore, higher impairment charges of €130 million related primarily to the write-down of ALTIS to its estimated fair value at the reclassification date from held for sale to held and used contributed to the increase. Additionally, we recorded a write-down of in-process R&D acquired from LSI of €14 million as no future economic benefit from its use or disposal was expected.

 

Financial Income and Expense. Financial income and expense decreased slightly during the 2008 fiscal year by €12 million compared to the prior year.

 

During the quarter ended March 31, 2007, we entered into agreements with Molstanda Vermietungsgesellschaft mbH (“Molstanda”) and a financial institution. Molstanda is the owner of a parcel of land located in the vicinity of our headquarters south of Munich. Pursuant to SIC 12 “Consolidation — Special Purpose Entities”, we determined that Molstanda meets the criteria of a Special Purpose Entity (“SPE”) and as a result of the agreements our company controls it. Accordingly, we consolidated the assets and liabilities of Molstanda beginning in the second quarter of the 2007 fiscal year. The €35 million excess in fair value of liabilities assumed and consolidated of €76 million, over the fair value of the newly consolidated identifiable assets of €41 million, was recorded as other financial expense during the second quarter of the 2007 fiscal year. Due to our loss situation, no tax benefit was provided on this loss. We subsequently acquired the majority of the outstanding capital of Molstanda during the fourth quarter of the 2007 fiscal

year. In August 2007, we entered into an agreement to sell part of the acquired parcel of land to a third-party developer-lessor in connection with the construction and lease of Qimonda’s new headquarters office in the south of Munich.

 

Income from Investments Accounted for Using the Equity Method, Net.  In the 2008 fiscal year, equity in earnings of associated companies, net was €4 million, and primarily reflected our share in the net income of the Bipolar joint venture with Siemens.

 

Earnings Before Interest and Taxes (EBIT)

 

The accounting policies applied for segment reporting purposes are based on U.S. GAAP and may differ from those described in Note 2 to our consolidated financial statements which are based on IFRS. Significant differences in the accounting policies are discussed in Note 4 to our consolidated financial statements. Information with respect to our operating segments follows, in which the net difference between IFRS and U.S. GAAP financial information is presented as a single line in order to reconcile to measures on the basis of IFRS.

 

EBIT of our separate reporting segments were as follows:

 

 

EBIT developments of our reporting segments were as follows:

 

 

Interest Expense, Net

 

We derive interest income primarily from cash and cash equivalents and marketable securities. Interest expense is primarily attributable to bank loans and convertible/exchangeable notes, and is net of interest capitalized on manufacturing facilities under construction.

 

 

Interest expense relates principally to our convertible subordinated notes issued in February 2002 and in June 2003, our exchangeable subordinated notes issued in September 2007 and, to a lesser extent, bank loans and interest on outstanding tax obligations. In February 2007, we redeemed the remaining outstanding principal of the convertible subordinated notes issued in 2002, which resulted in a reduction of interest expense in the 2008 fiscal year. In addition, we realized higher interest income during the 2008 fiscal year. However, this net decrease in interest expense was partly offset by a loss of €8 million realized as a result of the repurchase of convertible subordinated notes due 2010 in the principal outstanding amount of €100 million during the third quarter of the 2008 fiscal year, which was classified as interest expense.

 

Income Taxes

 

 

Generally, deferred tax assets in tax jurisdictions that have a three-year cumulative loss are subject to a valuation allowance excluding the impact of forecasted future taxable income. In the 2007 and 2008 fiscal years we continued to have a three-year cumulative loss in certain tax jurisdictions and, accordingly, we recorded increases in the valuation allowance of €31 million, and €181 million in those periods, respectively. We assess our deferred tax asset position on a regular basis. Our ability to realize benefits from our deferred tax assets is dependent on our ability to generate future taxable income sufficient to utilize tax loss carry-forwards or tax credits before expiration. We expect to continue to recognize no tax benefits in these jurisdictions until we have ceased to be in a cumulative loss position for the preceding three-year period.

 

Loss from discontinued operations, net of income tax

 

The results of Qimonda, presented in the consolidated statements of operations as discontinued operations for the 2007 and 2008 fiscal years, consist of the following components:

 

 

In the 2008 fiscal year Qimonda’s total revenues decreased by €1,823 million, or 51 percent, to €1,785 million from €3,608 million in the 2007 fiscal year. Primarily responsible for this decrease was a significant decrease in DRAM prices and to a lesser extent the average exchange rate of the U.S. dollar against the euro. These decreases were partly offset by increases of higher bit shipments.

Cost and expenses of Qimonda decreased by €183 million from €3,956 million in the 2007 fiscal year to €3,773 million in the 2008 fiscal year, mainly as a result of a decrease in cost of goods sold. This decrease was partly offset by restructuring charges, impairment charges and higher R&D expenses primarily related to Qimonda’s efforts in the new Buried Wordline technology for 65-nanometers and 46-nanometers. Restructuring expenses of Qimonda during the 2008 fiscal year related mainly to the relocation of the back-end production in Malaysia, the combination of the research centers in North America, a comprehensive cost reduction program, the shutdown of our Flash activities in Italy and a global repositioning program. During the 2008 fiscal year, Qimonda recognized impairment charges for goodwill and for long-lived assets of the Richmond 200-millimeter facility. Additionally, as a result of Qimonda’s agreement to sell its 35.6 percent interest in Inotera Memories Inc. (“Inotera”) to Micron Technology, Inc. for US$400 million, Qimonda recognized impairment charges to reduce the carrying value of its investment in Inotera to the sales price less costs to sell.

 

Net Loss

 

In the 2007 fiscal year, net loss was significantly impacted by the results from discontinued operations, net of income tax, primarily due to Qimonda’s net loss, which resulted from the deterioration in memory product prices and a weaker U.S. dollar, and consequently a significant decrease in Qimonda’s gross margin. Net loss from discontinued operations in the 2007 fiscal year also included an €84 million loss from the sale of 28.75 million Qimonda ADSs. Restructuring charges of €45 million, and the expenses of €35 million resulting from the consolidation of Molstanda also contributed to the net loss in the 2007 fiscal year. In the 2008 fiscal year, the increase in net loss was primarily due to the increase in losses from discontinued operations, resulting from Qimonda’s net loss and the write-downs of €1,475 million to reduce Qimonda to its estimated current fair value less costs to sell. Furthermore, restructuring charges of €188 million primarily related to the IFX10+ program, and impairment charges contributed, to the net loss in the 2008 fiscal year.

 

Financial Condition

 

 

As of September 30, 2008, our total assets decreased by 34 percent to €6,982 million from €10,599 million at the prior year-end. This decrease was mainly due to the decrease in Qimonda’s total assets and the write-down recorded to reduce Qimonda to its estimated current fair value less costs to sell. In our continued operations total assets also decreased as of September 30, 2008, compared to the prior year-end. This decrease was mainly due to the decrease in current assets, as cash and cash equivalents and available for sale financial assets decreased, as a result of cash used in investing activities from continuing operations and cash used in financing activities being higher than cash provided by operating activities from continuing operations. In addition, cash and cash equivalents and available-for-sale financial assets in the amount of €121 million were reclassified to trade and other receivables as of September 30, 2008. This decrease in current assets within our continuing operations was partly offset by

increases of non-current assets within continuing operations as of September 30, 2008, primarily relating to the increase in goodwill and other intangible assets resulting from the acquisition of the mobility business from LSI and Primarion, which were partly offset by a decrease in property, plant and equipment as capital expenditures were more than offset by depreciation, amortization, and impairment charges during the 2008 fiscal year.

 

Total liabilities increased by €226 million as of September 30, 2008, compared to the prior year end. This increase was primarily caused by an increase in Qimonda’s total liabilities, which are classified as liabilities associated with assets held for disposal as of September 30, 2008. The increase in Qimonda’s total liabilities is mainly due increased short and long-term debt of Qimonda, partly offset by a decrease in trade accounts payable. Decreases in total liabilities within our continuing operations, primarily due to a decrease in short and long-term debt and trade accounts payable, partly offset the increases of Qimonda’s total liabilities.

 

Total equity decreased by €3,843 million as of September 30, 2008, primarily as a result of the net loss incurred in the 2008 fiscal year.

 

Liquidity

 

Cash Flow

 

Our 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 flows from investing and financing activities are both indirectly determined based on payments and receipts. Cash flows from operating activities are determined indirectly from net loss. The changes in balance sheet items have been adjusted for the effects of foreign currency exchange fluctuations and for changes in the scope of consolidation. Therefore, they do not conform to the corresponding changes in the respective balance sheet line items.

 

 

Cash provided by operating activities from continuing operations was €580 million in the 2008 fiscal year, and reflected mainly the loss from continuing operations of €188 million, which is net of non-cash charges for depreciation and amortization of €571 million, impairment charges of €137 million and a €14 million charge for in-process R&D acquired from LSI. Also included in loss from continuing operations were gains from sales of businesses of €80 million. Cash provided by operating activities from continuing operations was positively impacted by the changes in operating assets and liabilities of €145 million.

 

Net cash used in investing activities from continuing operations of €665 million in the 2008 fiscal year mainly reflects capital expenditures of €353 million for the acquisition of the mobility products business of LSI and Primarion, and of €312 million for the purchase of property, plant and equipment. These cash outflows were partially offset by proceeds from the sale of businesses and interests in subsidiaries of €121 million, and by net proceeds from the sale and purchase of marketable securities of €27 million.

 

Net cash used in financing activities from continuing operations increased by €16 million to €230 million in the 2008 fiscal year. During the 2008 fiscal year, we made repayments of short-term and long-term debt of €294 million, of which €98 million related to the repurchase of a notional amount of €100 million of convertible subordinated notes due 2010. We also made dividend payments to minority interest holders of €80 million, which were partly offset by proceeds from issuance of long-term debt of €149 million.

 

Net decrease in cash and cash equivalents from discontinued operations was €318 million in the 2008 fiscal year compared to €185 million in the prior year. The net decrease in cash and cash equivalents from discontinued operations was mainly due to Qimonda’s net cash used in operating activities which was

partly offset by Qimonda’s net cash provided by financing activities. Qimonda’s cash flow from operating activities decreased significantly from net cash provided of €995 million in the 2007 fiscal year to net cash used of €664 million in the 2008 fiscal year. This was mainly caused by Qimonda’s net loss, which was largely a result of lower revenues due to the strong decline in average selling prices as compared to the prior year. This negative impact on Qimonda’s cash flow from operating activities was partly offset by working capital improvements resulting from a decrease in its inventories and trade accounts receivable. Qimonda’s cash flow from operating activities was also negatively impacted by a decrease in trade accounts payable in the 2008 fiscal year compared to the 2007 fiscal year. Qimonda’s net cash provided by financing activities was €343 million in the 2008 fiscal year and refers mainly to Qimonda’s issuance of US$248 million of convertible notes due 2013 from which Qimonda raised €168 million. Furthermore, drawings under several short-term and long-term loan agreements net of repayments and partially offset by redemptions under capital lease agreements contributed to Qimonda’s net cash provided by financing activities.

 

Free Cash Flow

 

We define free cash flow as cash from operating and investing activities from continuing operations excluding purchases or sales of securities available-for-sale. Since we hold a substantial portion of our available monetary resources in the form of readily available marketable securities, 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. It 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 consolidated statements of cash flows:

 

 

Free cash flow was negative €112 million in the 2008 fiscal year, compared to negative €58 million in the 2007 fiscal year. The decrease in free cash flow was primarily due to higher net cash used in investing activities from continuing operations of €665 million, partly offset by increased net cash provided by operating activities from continuing operations of €580 million.

 

Net Cash Position

 

The following table presents our gross and net cash positions and the maturity of debt. It is not intended to be a forecast of cash available in future periods.

 

Our gross cash position, representing cash and cash equivalents, plus available-for-sale financial assets, was €883 million at September 30, 2008, compared with €2,226 million at the prior year end. The decrease was due to the negative free cash flow of €112 million, the repurchase of convertible subordinated notes due 2010 in the principal outstanding amount of €100 million, and the reclassification of cash and cash equivalents and available-for-sale financial assets in the amount of €121 million into trade and other receivables as of September 30, 2008. Furthermore, prior year gross cash position included Qimonda’s gross cash position which as of September 30, 2008 is included in assets classified as held for disposal.

 

Long-term debt principally consists of convertible and exchangeable subordinated notes that were issued in order to strengthen our liquidity position and allow us more financial flexibility in conducting our business operations. The total notional amount of outstanding convertible and exchangeable notes as of September 30, 2008 amounted to €815 million.

 

On June 5, 2003, we issued €700 million in convertible subordinated notes due 2010 at par in an underwritten offering to institutional investors in Europe. The notes are unsecured and accrue interest at 5 percent per year. The notes are convertible, at the option of the noteholders, into a maximum of 68.4 million ordinary shares of our company, at a conversion price of €10.23 per share through maturity. During the third quarter of the 2008 fiscal year, we repurchased a notional amount of €100 million of convertible subordinated notes due 2010. The repurchase was made out of available cash. These notes were subsequently cancelled.

 

On September 26, 2007, we issued €215 million in exchangeable subordinated notes due 2010 at par in an underwritten offering to institutional investors in Europe. The notes are unsecured and accrue interest at 1.375 percent per year. The notes are exchangeable for a maximum of 20.5 million Qimonda ADSs, at an exchange price of €10.48 per ADS at any time during the exchange period through maturity. Subsequent to September 30, 2008, we repurchased notional amounts of €95 million and €22 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively. The repurchases were made out of available cash.

 

Our net cash position, meaning cash and cash equivalents, plus available-for-sale financial assets, less total financial debt, decreased by €950 million to negative €287 million at September 30, 2008, compared with positive €663 million at September 30, 2007, primarily because prior year amounts also included Qimonda’s net cash position. Additionally, net cash position decreased principally due to negative free cash flow of 112 million from continuing operation and dividend payments to minority interest holders.

 

To secure our cash position and to keep flexibility with regards to liquidity, we have implemented a policy with risk limits for the amounts deposited with respect to the counterparty, credit rating, sector, duration, credit support and type of instrument.

 

Capital Requirements

 

We require capital in our 2009 fiscal year to:

 

 

We expect to meet these requirements through:

 

 

As of September 30, 2008, we require funds for the 2009 fiscal year aggregating €929 million, consisting of €207 million for short-term debt payments and €722 million for commitments. In addition, we may need up to €31 million for currently known and estimable contingencies. We also plan to invest approximately €200 million in capital expenditures. We have a gross cash position of €883 million as of September 30, 2008, and also the ability to draw funds from available credit facilities of €541 million.

We will need to continue to generate significant cash going forward in order to fund our investments and meet scheduled debt repayments. Given the recent trading price of our ordinary shares and Qimonda ADSs, it is unlikely that a noteholder would convert or exchange its notes for our ordinary shares or Qimonda ADSs, as applicable. Therefore, we may be required to find an alternative source of funds, to repay the outstanding principal and accrued interest on the convertible and exchangeable notes in June and August 2010, respectively.

 

Commitments and Contingencies

 

 

 

 

The above table should be read together with note 40 to our consolidated financial statements for the year ended September 30, 2008.

 

Off-Balance Sheet Arrangements

 

We issue guarantees in the normal course of business, mainly for the payment of import duties, rentals of buildings and contingent obligations related to government grants received. As of September 30, 2008, the undiscounted amount of potential future payments for guarantees was €97 million.

 

Capital Expenditures

 

 

Depending on market developments and our business situation we currently expect to invest approximately €200 million in capital expenditures in the 2009 fiscal year, principally for our manufacturing facilities in Malacca, Malaysia, and in Kulim, Malaysia. We also continuously seek to improve productivity and upgrade technology at existing facilities. As of September 30, 2008, €44 million of this amount was committed and included in unconditional purchase commitments. Due to the lead times between ordering and delivery of equipment, a substantial amount of capital expenditures typically is committed well in advance.

Credit Facilities

 

We have established both short- and long-term credit facilities with a number of different financial institutions in order to meet our anticipated funding requirements. These facilities, which aggregate €987 million, of which €541 million remained available at September 30, 2008, comprise the following:

 

 

 

 

In September 2004, we executed a US$400/€400 million syndicated credit facility with a five-year term, which was subsequently reduced to US$345/€300 million in August 2006. The facility consists of two tranches. Tranche A is a term loan originally intended to finance the expansion of the Richmond, Virginia, manufacturing facility. In January 2006, we drew US$345 million under Tranche A, on the basis of a repayment schedule that foresees equal installments falling due in March and September each year. At September 30, 2008, US$125 million was outstanding under Tranche A. Tranche B, which is a multicurrency revolving facility to be used for general corporate purposes, remained undrawn at September 30, 2008. The facility has customary financial covenants, and drawings bear interest at market-related rates that are linked to financial performance. The lenders of this credit facility have been granted a negative pledge relating to the future financial indebtedness of the Company with certain permitted encumbrances.

 

At September 30, 2008, we were in compliance with our debt covenants under the relevant facilities.

 

We plan to fund our working capital and capital requirements from cash provided by operations, available funds, bank loans, government subsidies and, if needed, the issuance of additional debt or equity securities. We have also applied for governmental subsidies in connection with certain capital expenditure projects, but can provide no assurance that such subsidies will be granted on a timely basis or at all. We can provide no assurance that we will be able to obtain additional financing for our research and development, working capital or investment requirements or that any such financing, if available, will be on terms favorable to us.

 

Taking into consideration the financial resources available to us, including our internally generated funds and currently available banking facilities, we believe that we will be in a position to fund our capital requirements in the 2009 fiscal year.

 

Pension Plan Funding

 

Our defined pension benefit obligation, which takes into account future compensation increases, amounted to €376 million at September 30, 2008, compared to €475 million at September 30, 2007. The fair value of plan assets as of September 30, 2008 was €333 million, compared to €409 million as of September 30, 2007.

 

The actual return on plan assets between the last measurement dates amounted to negative 11.1 percent, or €(41) million, for domestic (German) plans and negative 8.0 percent, or €(2) million, for foreign plans, compared to the expected return on plan assets for that period of 6.5 percent for domestic plans and 7.0 percent for foreign plans. We have estimated the return on plan assets for the next fiscal year to be 7.1 percent, or €21 million, for domestic plans and 7.2 percent, or €3 million, for foreign plans.

 

At September 30, 2007 and 2008, the combined funding status of our pension plans reflected an under-funding of €66 million and €43 million, respectively.

 

Our investment approach with respect to the pension plans involves employing a sufficient level of flexibility to capture investment opportunities as they occur, while maintaining reasonable parameters to

ensure that prudence and care are exercised in the execution of the investment program. The pension plans’ assets are invested with several investment managers. The plans employ a mix of active and passive investment management programs. Considering the duration of the underlying liabilities, a portfolio of investments of plan assets in equity securities, debt securities and other assets is targeted to maximize the long-term return on plan assets for a given level of risk. Investment risk is monitored on an ongoing basis through periodic portfolio reviews, meetings with investment managers and liability measurements. Investment policies and strategies are periodically reviewed to ensure the objectives of the plans are met considering any changes in benefit plan design, market conditions or other material items.

 

Our asset allocation targets for pension plan assets are based on our assessment of business and financial conditions, demographic and actuarial data, funding characteristics, related risk factors, market sensitivity analyses and other relevant factors. The overall allocation is expected to help protect the plans’ level of funding while generating sufficiently stable real returns (i.e., net of inflation) to meet current and future benefit payment needs. Due to active portfolio management, the asset allocation may differ from the target allocation up to certain limits. As a matter of policy, our pension plans do not invest in Infineon shares.

 

Financial Instruments

 

We periodically enter into derivatives, including foreign currency forward and option contracts as well as interest rate swap agreements. The objective of these transactions is to reduce the impact of interest rate and exchange rate fluctuations on our foreign currency denominated net future cash flows. We do not enter into derivatives for trading or speculative purposes.

 

Employees

 

The following table indicates the composition of our workforce by function and region at the end of the fiscal years indicated.

 

 

In the 2007 fiscal year, the number of employees in our logic business decreased in Germany primarily as a result of the phase out of manufacturing at Munich-Perlach, and the restructuring program initiated following the insolvency of BenQ’s German subsidiary, but increased in the Asia/Pacific region due to expansion of production in Kulim, Malaysia, and research and development in Malaysia and China.

During the 2008 fiscal year, the number of employees in our logic business decreased slightly, primarily due to the foundation of the Bipolar joint venture with Siemens and further decreases in the number of production employees primarily in Asia/Pacific. These decreases were partly offset by employees that joined the company as a result of the acquisitions we made during the year.

 

People at Infineon — Human resources management with regard IFX10+

 

 

The launch of IFX10+ was also the dominant issue in Human Resources department in the fiscal year 2008, and the associated efforts should deliver wide-ranging positive results in the current fiscal year in particular.

 

The restructuring of our company was the first matter to be tackled. Achieving the objectives of IFX10+ safeguards Infineon’s future prospects and protects jobs. Leaner structures will enable us to cut costs and boost EBIT, but we have to implement the necessary measures to reduce headcount in a socially responsible manner. What we aim for are mutually acceptable provisions that create a time window and financial framework within which the staff affected can find alternative employment. We are also working to establish channels of communication with other companies that are looking to recruit, and offering external consulting services. We consider it nothing less than our duty to work openly and constructively with employee representatives in relation to all employee concerns.

 

In the past fiscal year we already attained relevant agreements covering the majority of the targeted jobs to be discontinued worldwide, so it appears likely that we will complete the planned reduction over the next months.

 

The reorganization and realignment of our company were also priority issues under IFX10+. The company moved to a new system at the beginning of the current fiscal year comprising five divisions focusing on the existing customer and market segments plus stronger central functions and leaner management structures. The resulting adaptation of the personnel structure formed another of the focal points of human resources work as we sought to continue supporting our employees in a constantly evolving working environment.

 

Our employees have shown themselves most willing to adjust to new and more efficient corporate structures and to help mold the future of Infineon. The YIP (Your Idea Pays) program provides an excellent example of this commitment in practice: at Infineon, suggestions as to how we might be more frugal in our use of resources often originate from our workforce. One team from Dresden, for example, came up with the idea of reprocessing test wafers themselves, saving around €3.7 million in total while safeguarding jobs. Savings totaling around €100 million have been realized worldwide on the basis of the suggestions received.

 

Capable and committed employees and managers are essential for the effective implementation of IFX10+, as is improved internal communication of the type required for successful change management. In this regard, we are building on our company-wide principles (we commit, we innovate, we partner, we create value), which provide the foundation for a healthy, successful and diverse working environment. This ensures that the company remains an equitable place to work and offers equal opportunities to all.

 

Infineon’s Leadership Practices are intended to create a working environment that respects the individual and to make sure we live up to our social responsibilities. We want our company to be a place where respect and values matter. This builds confidence among employees and customers alike. We also provide jobs that offer the flexibility needed to balance family and career, opportunities for personal and professional development and assistance with building up a pension for retirement, all of which gives our employees good reason to back Infineon through all phases of the economic cycle.

 

Human resources work also involves managing general labor costs. The objective here is to ensure that remuneration structures are both attractive and commensurate with the value added by the role concerned. Here too market conditions have to taken into account. We see ourselves as a learning community and seek to enhance our employees’ skills and capabilities through stimulating and challenging

tasks, best practice sharing and targeted opportunities for continuing personal development. We believe that every one of our employees — and not just our engineers and managers — deserves the chance to learn how to do his or her job better and should be developed. Indeed, ultimately such an approach is central to putting the culture of innovation to which Infineon subscribes into practice at every level.

 

Our responsibility in occupational safety, in environment and health protection

 

Our IMPRES System — Infineon Integrated Management Program for Environment, Safety and Health — has been implemented worldwide and incorporates all processes, strategies and objectives in the area of safety, health and environmental protection. IMPRES as an integrated system is highly efficient and complies with the requirements of the standards ISO 14001 and OHSAS 18001.

 

By ongoing improvements, we ensure that we not only comply with the minimum statutory and regulatory requirements, but also go above and beyond the minimum requirements in order to meet our commitment for continuing improvement in safety, health and environmental protection, and thus ensure sustainable business management. The efficient and responsible use of resources and energy is an integral part of our policy.

 

The safe handling of chemicals that are an unavoidable necessity in our production processes is of high priority in our company. Already when such chemicals are ordered, experts start recording, evaluating, and monitoring them to ensure that they are used in production exclusively under precisely defined parameters which are subject to the expert’s approval. Such approvals are only granted when the safety of individuals and the environment is guaranteed throughout the period of usage of the chemicals.

 

In recent years, the world-wide requirements and restrictions involving the use of certain substances in electrical and electronic products as well as our processes have increased, and we expect it will continue to increase. However, compliance with these requirements does not come into question for us.

 

These requirements and restrictions, which are sometimes region-specific, are carefully taken into account by us, given our need to deliver products globally. Meeting these challenges requires clear strategies, defined management processes, and active participation in international standard setting. IMPRES incorporates product- related environmental protection as one of its integral pillars, and encompasses internal processes which ensure that our products consistently comply with legal and statutory requirements and offer a high degree of legal certainty and reliability to our customers.

 

Compensation

 

In compliance with legal requirements and the recommendations of the German Corporate Governance Code as amended on June 6, 2008, this report provides information on the principles for determining the compensation of the Management Board and Supervisory Board of Infineon Technologies AG and the amount of compensation paid to the individual members of the Management Board and Supervisory Board.

 

Compensation of the Management Board

 

Compensation structure

 

The Executive Committee of the Supervisory Board, which includes the chairman of the Supervisory Board Max Dietrich Kley, the deputy chairman of the board Gerd Schmidt, and board member Prof. Dr. Martin Winterkorn, is responsible for determining the compensation of the Management Board. The compensation of the members of the Management Board is intended to reflect the company’s size and global presence, its economic condition and performance, and the level and structure of the compensation paid to management boards of comparable companies within Germany and abroad. Additional factors taken into account are the duties, responsibilities and contributions of each member of the Management Board. Their compensation complies with the stipulations of Section 87 of the German Stock Corporation Act and is calculated to be competitive both nationally and internationally and thus to provide an incentive for dedicated and successful work within a dynamic environment. The level of compensation is reevaluated every two years, taking into account an analysis of the income paid to executives of comparable companies.

The compensation of the Management Board comprises the following elements:

 

 

Compensation of the Management Board in the 2008 fiscal year

 

In the 2008 fiscal year, the active members of the Management Board received total compensation of €4,920,006. No performance-related bonuses were paid for the 2008 fiscal year.

The individual members of the Management Board who were active in the 2008 fiscal year received the following annual compensation (gross without statutory deductions)⁽¹⁾:

 

Overview of the total compensation

 

 

 

 

Cash compensation

 

The cash compensation listed in the overview above comprises the following elements (in €):

 

 

 

 

Stock-based compensation

 

In the 2008 fiscal year, no stock options were granted to members of the Management Board (in the previous year, 550,000 stock options with a fair value at the grant date totaling €1,116,500 were granted to the members of the Management Board). In the 2008 fiscal year, no member of the Management Board exercised stock options.

 

Commitments to the Management Board upon termination of employment

 

Allowances and pension entitlements in the 2008 fiscal year

 

The pension agreement with Dr. Wolfgang Ziebart provided for a monthly pension payment equal to 70 percent of his last monthly base salary. The other members of the Management Board are contractually entitled to a fixed pension payment, which increases by €5,000 (and in the case of Mr. Bauer by €10,000) annually until a maximum amount is attained. In accordance with IFRS, a total of €2,995,045 was added to pension reserves in the 2008 fiscal year (previous year: €3,061,340). Upon termination of membership in the Management Board, pension entitlements normally begin from age 60 at the earliest. Exceptions are provided for in cases such as departures from the board for health reasons and surviving dependents’ pensions. Our agreements with Dr. Ziebart and Mr. Bauer deviate from this model, and each is entitled to a pension before age 60 if his contract is not renewed (the monthly pension of Dr. Ziebart will commence as of September 1, 2009), provided that there is no good cause for a revocation of the appointment in accordance with section 84, paragraph 3 of the German Stock Corporation Act. In such a case, however, his income from other employment and self-employed activities would be set off against up to one half of his pension entitlements.

 

The following overview represents the annual pension entitlements, as of the beginning of retirement, for Management Board members active in the 2008 fiscal year, on the basis of the entitlements vested through September 30, 2008.

 

 

 

 

The contracts of Dr. Ziebart and Mr. Bauer, furthermore, allow for a one-time transitional allowance upon termination of employment. This transitional allowance is equivalent to one year’s income, composed of the last 12 basic monthly installments, and a sum amounting to the average of the bonus sums received over the last three fiscal years prior to termination. There is no right to the payment of a transitional allowance in the event of termination by a member of the Management Board not prompted by the Company, and if the Company has good cause for the termination. Accordingly, Dr. Ziebart is entitled to a one-time transitional allowance, which is payable on August 31, 2009.

 

Early termination of employment

 

The contracts with the members of our Management Board include change-of-control clauses: A change-of-control within the meaning of this clause occurs when a third party, individually or in cooperation with another party, holds 30 percent of voting rights in Infineon Technologies AG as stipulated by section 30 of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz). In case of such a change-of-control, the Management Board members have the right to resign and terminate their contracts within a period of 12 months after the announcement of a change of control if the exercise of their office and the fulfillment of their service contract become unacceptable, due, for example, to considerable restrictions in their areas of responsibility. In such an event, board members are entitled

to a continuation of their annual target income for the full remaining duration of their contracts and a minimum of two years. This amount is based on the annual target income for the year of termination and the variable components assuming a return on assets of 6 percent. In the event of a termination of the contract by Infineon Technologies AG within 12 months after the announcement of a change of control, the members of the Management Board are entitled to a continuation of their annual target income for the full remaining duration of their contracts and a minimum of three years. The Management Board members’ pension entitlements remain unaffected. These rights in the event of a change of control, however, only exist if there is no serious breach of duty.

 

Management Board contracts do not generally provide for severance payments in the event of an early termination of contract.

 

Fringe benefits and other awards in the 2008 fiscal year

 

 

Payments to former members of the Management Board in the 2008 fiscal year

 

Former members of the Management Board received total payments of €916,896  (severance and pension payments) in the 2008 fiscal year. This includes the compensation paid to Dr. Ziebart starting June 2008 in the amount of €624,396 as stipulated under his employment contract.

 

According to IFRS, a total of €1,234,455 was added to pension reserves during the 2008 fiscal year for current pensions and entitlements to pensions by former Management Board members. Furthermore, pension reserves for active members of the Management Board in the amount of €13,591,553 were reclassified into pension reserves for former members of the Management Board; as of September 30, 2008, these pension reserves amount to €26,566,664.

 

Compensation of the Supervisory Board

 

Compensation structure

 

The compensation of the Supervisory Board is determined in the Company’s Articles of Incorporation. It is intended to reflect the Company’s size, the duties and responsibilities of the members of the Supervisory Board, and the Company’s economic condition and performance. The compensation of the Supervisory Board is governed by Section 11 of the Articles of Incorporation and comprises two elements:

 

 

Additional compensation is paid for certain functions on the Supervisory Board. The Chairman of the Supervisory Board receives an additional 100 percent of the fixed compensation. Furthermore, each Vice-Chairman and each other member of a Supervisory Board committee, with the exception of the Nomination Committee and the Mediation Committee, receives an additional 50 percent of their fixed compensation.

 

Members of the Supervisory Board, moreover, receive reimbursement of all expenses incurred in connection with their duties, as well as the value-added tax apportioned to their compensation, to the extent that they can charge for it separately and do so.

 

Compensation of the Supervisory Board in the 2008 fiscal year

 

In the 2008 fiscal year, the members of the Supervisory Board waived their share appreciations rights. The Supervisory Board compensation otherwise remained unchanged from the previous year. The individual members of the Supervisory Board received the following cash compensation (excluding 19 percent VAT), in the 2008 fiscal year:

 

 

Other

 

We do not provide loans to the members of the Supervisory Board.

 

We maintain a directors’ and officers’ group liability insurance (D&O insurance). The insurance covers the personal liability risk in the event of claims made against members of the Supervisory Board for indemnification of losses incurred in the exercise of their duties. Each member of the Supervisory Board has agreed to an adequate deductible (which constitutes a deductible as defined by the German Corporate Governance Code, section 3.8, paragraph 2).

Risk Report

 

Introduction

 

To a greater degree than most other businesses, the semiconductor industry is characterized by periods of rapid growth which are historically followed by periods of significant market contraction. Such periods of market contraction are characterized by surplus capacity, increasing order cancellations and above average price erosion and sales volume reductions. The risks associated with the cyclical nature of this business are complemented by the need for capital investments in order to achieve and sustain market leadership as well as the sector’s extraordinarily rapid pace of technological change. In this environment we try to reduce our business risks and exploit the opportunities we face. Efficient risk and opportunity management therefore is one of our important success factors. It is integrated in all of our business activities and supports our goal of sustainable profitable growth.

 

Risk and Opportunity Management System

 

The company-wide risk and opportunity management system (RMS) is based on a risk policy which defines risk as the potential negative deviation from the financial forecast and which is not limited to the detection of developments that endanger our company’s future. A substantial element of the RMS is the underlying risk management process, which consists of risk identification, risk analysis, risk steering and risk control. The systematic implementation of the risk management process improves our planning forecast accuracy, enhances transparency in decisions under uncertainty and supports our overall risk awareness.

 

The risk management organization consists of the central risk management department, which is assigned to the company’s Chief Financial Officer, and so-called risk officers, who are responsible for the implementation of the risk management process in their respective organizational units. One of the most important tasks of a risk officer is to collect and to document substantial risks and opportunities. They build the interface to the central risk management department, which is mainly in charge of the risk management process itself and methods for its implementation, as well as the presentation of risks and opportunities at the company group level.

 

The all-encompassing risk reporting approach uses a risk and opportunity catalogue (“risk and opportunity inventory”) which is checked for completeness and whose content is assessed once a year. The quarterly risk and opportunity assessments are based on estimates of the probability of a risk event and the corresponding impact on results of operations. Additionally, risk mitigation measures are defined and the related implementation status is documented. All risks and opportunities above a defined threshold are rated as important and have to be reported in the quarterly risk report. During a quarter, risks and opportunities have to be reported if their impact on our results of operations is above the “ad-hoc” threshold.

 

Because the success of our company is to a large degree based on successful R&D projects, we systematically use Monte-Carlo-Simulations for our most critical R&D projects. With this methodology, we try to get higher transparency with respect to financial performance and schedule deviations. Uncertain input parameters, such as revenue and cost figures, are modeled using probability density functions which are allowed to be dependent. The results of those analyses are documented in a uniform manner.

 

The summarized risk reports of the organizational units are aggregated by the central risk management department while dependencies are being validated. The aggregated risk report contains information on all critical risks and opportunities and is provided to the Management Board once a quarter.

 

The systematic development of our risk and opportunity management system fosters and supports the continuous improvement of our company’s risk management system. This is also supported by our quarterly organized risk forums, which are a regular communication platform for the risk officers and implicitly strengthen their risk awareness.

 

The risk and opportunity management system is comprehensively documented and published on our intranet. Thus all employees have access to the details of the risk management system. It is periodically controlled to ensure its legal compliance and correctness. These controls are performed by the internal corporate audit department.

 

Our independent auditor reviews the risk management system as part of their year-end-audit. They confirm that our Management Board has established an early warning system which is compliant with

Section 91 paragraph 2 of the German Stock Corporation Act and which is explicitly able to detect early on risks which could endanger our company’s future.

 

We identified the following risks and opportunities:

 

Market Risks

 

The worldwide semiconductor market is extremely volatile. Therefore, we face risks with respect to rapid market change in our target markets.

 

In addition to volume risks, significant price pressure and associated risks affect many of our logic businesses.

 

The quick pace of technological change can, for example, through delays in the introduction of new products, lead to a significant harm to our business and sometimes lead to loss of customer relationships.

 

Some of our products are purchased by a limited number of customers. This increases our dependency on the success of our customers in their respective markets. We react to such developments by constantly seeking to widen our customer base, which has proven to be a successful strategy in the past, leading to new customer wins.

 

As a global operating company, our business could suffer from periodic downturns in the global economy. Particularly, the downturn in the automotive industry market may result in lower revenues than originally expected. Furthermore, substantial changes in regional business environments around the globe may also have adverse effects on our business and results of operations. However, broad diversification within our product portfolio and the spread of development and manufacturing locations around the world helps to mitigate the overall risk of such regional crises.

 

Qimonda

 

Market prices for DRAM have experienced extremely significant declines since the beginning of the 2007 calendar year. As a result of this intense pricing pressure, Qimonda continued to incur significant losses during the 2008 fiscal year, which are reflected in “loss from discontinued operations, net of income tax” in the Company’s consolidated statements of operations. During the 2008 fiscal year, the Company also recorded material write-downs to the carrying value of Qimonda’s assets to reflect them at current fair value less costs to sell. Infineon does not intend to make any further capital contributions to Qimonda and has repeatedly announced that it is seeking to dispose of its remaining 77.5 percent interest in that company. We continue to pursue all potential strategic alternatives for the disposal of our remaining interest in Qimonda, but can provide no assurance that we will be successful in this regard.

 

In order to address the ongoing adverse market conditions in the memory products industry and to better enable it to meet its current obligations in the short term, Qimonda has intensively explored operational and strategic alternatives to raise and conserve cash. In furtherance of these goals, on October 13, 2008 Qimonda announced a global restructuring and cost-reduction program that is intended to reposition Qimonda in the market and substantially increase its efficiencies through a wide-ranging realignment of its business. As a part of this program, Qimonda also announced that it had agreed to sell its 35.6 percent interest in Inotera Memories Inc. to Micron Technology, Inc. for US$400 million (approximately €296 million) in cash. This transaction closed in November 2008.

 

During the 2008 fiscal year, the Company committed to a plan to dispose of its interest in Qimonda. Accordingly, Infineon has classified the assets and liabilities of Qimonda as held for disposal in accordance with IFRS 5, “Non-Current Assets Held for Sale and Discontinued Operations” and recorded the write-downs of Qimonda’s assets described above totaling €1,475 million. The net book value of the Qimonda disposal group in the Company’s consolidated balance sheet as of September 30, 2008 has been recorded at the estimated fair value less costs to sell of Qimonda. Upon disposal of its interest in Qimonda, the Company would also realize losses related to unrecognized currency translation effects for the Qimonda disposal group which are recorded in equity. As of September 30, 2008, the amount of such losses recorded in shareholders’ equity totaled €187 million.

 

On December 21, 2008, we, the German Free State of Saxony, and Qimonda jointly announced a financing package for Qimonda. The package includes a €150 million loan from the German Free State of Saxony, a €100 million loan from a state bank in Portugal and a €75 million loan from us. In addition to this financing package, Qimonda has announced that it expects to receive guarantees totaling €280 million from the Federal Government of Germany and the Free State of Saxony. Based on such guarantees,

Qimonda has announced that it is already in advanced negotiations regarding the financing of €150 million. The availability of the total financing package is contingent upon successful completion of the relevant state, federal and European Commission approval procedures as well as final agreement on the detailed terms and conditions of the transaction.

 

There can be no assurance that the operational, strategic and financial measures described above will enable Qimonda to continue to meet its obligations, or that Qimonda will be successful in implementing any further operational or strategic initiatives to adequately address its financial condition. There can also be no assurance that Infineon will be successful in disposing of its remaining interest in Qimonda. In the event that Qimonda’s ongoing operational and strategic efforts fail to generate adequate cash or to result in desired operational efficiencies and resulting cash savings, Qimonda may have difficulty meeting its obligations as they come due. In such a case, the financial condition and results of operations of the Company would be materially adversely affected.

 

In the event that Qimonda were to be unable to meet its obligations, Infineon may be exposed to certain significant liabilities related to the Qimonda business, including pending antitrust and securities law claims, the potential repayment of governmental subsidies received, and employee-related contingencies. Qimonda has accrued approximately €70 million in connection with the antitrust matters and anticipated defense costs in connection with the securities law matters. Given the uncertainty of the timing, nature, scope or success of any specific claim, Infineon is unable to meaningfully quantify its total potential exposure in respect of these matters, but Infineon is aware that such exposure, were it to arise, is likely to be material.

 

On November 7, 2008, the New York Stock Exchange (“NYSE”) notified Qimonda that it was not in compliance with the NYSE’s continued listing standards because the average closing price of its ADSs had been below US$1.00 over a consecutive 30-day trading period. Over the 12-month period ended November 19, 2008, Qimonda’s share price fell 98 percent, from US$8.62 to US$0.11. Qimonda has notified the NYSE that it intends to regain compliance with this listing standard. If Qimonda cannot do so by May 7, 2009, however, the NYSE has indicated that it will commence suspension and delisting procedures against Qimonda.

 

Management Risks

 

To foster or extend our current business activities we may seek to acquire other companies or enter into different forms of cooperation or partnerships. Those kinds of cooperations could prove to be unsuccessful, particularly in terms of integration of people and products in existing business structures.

 

Operational Risks

 

A substantial business-related risk in the semiconductor industry is that of delay, low yields, or substantial yield fluctuations in connection with the ramp-up of new technologies. We attempt to mitigate this risk by continuously improving project management and closely monitoring the selected business processes.

 

We try to mitigate the risks caused by volume fluctuations and corresponding idle costs by using flexible production management in terms of technology development and product shifts between our production sites.

 

We are exposed to commodity price risks with respect to certain materials used in manufacturing. We seek to minimize the risks through our sourcing policies and operating procedures, such as constant product and cost analysis, or specific optimization programs (“Best Cost Country Sourcing”, “Focus-on-Value”). These programs consist of cross-functional expert teams responsible for the standardization of purchasing processes with respect to materials and equipment.

 

We cooperate with a number of different suppliers, who provide us with materials and services, or who take over parts of our supply chain. For some of these suppliers we do not always have alternative sources. Therefore, we face the risk of delays in delivery or quality issues.

 

In order to address quality risks in our products, we have established specific Quality Management strategies such as “Zero Defects” and “Six Sigma”. The overall objective of these strategies is to prevent or solve problems, and to improve our business processes. Our quality management system (which includes the supplier development) has been certified on a worldwide basis according to ISO 9001 and ISO/TS 16949 for a number of years.

Financial Risks

 

Because we operate our own manufacturing facilities, we require significant amounts of capital to build, expand, modernize and maintain them. We also require significant amounts of capital to fund research and development. These funding requirements should generally be financed by net cash provided by operating activities, the use of available credit facilities, available government grants and — depending upon market conditions — capital market offerings including equity related financial instruments.

 

Although we have applied for financial support from public authorities for a number of investment projects, we cannot guarantee that we will get the support on a timely basis or at all. We intend to continue to cooperate on R&D projects and production with other semiconductor companies in order to reduce our financing needs.

 

We are exposed to interest rate risk through our debt instruments, fixed term deposits and loans. During the 2003 fiscal year we issued convertible subordinated notes due 2010, and in 2007 subordinated notes due 2010 exchangeable into Qimonda ADSs. Due to the high volatility of our core business and to maintain high operational flexibility, our liquid assets are kept at a high level. These assets are mainly invested in short-term interest rate instruments. Interest rate derivates are used to reduce the risk caused by changes in market interest rates.

 

In addition, the trading price of our shares on the Frankfurt Stock Exchange has recently fallen below €2 per share, which is the nominal value of each of our shares. Generally, we cannot sell shares to the public at a price per share below nominal value. Therefore, for so long as the trading price of our shares remains below €2 per share, we are generally unable to raise capital by issuing new shares, which significantly decreases our ability to raise capital.

 

In June 2003, we issued €700 million in convertible subordinated notes due 2010, and in September 2007, we issued €215 million in exchangeable subordinated notes due 2010. The convertible notes are convertible into ordinary shares of our company at a conversion price of €10.23 per share. The exchangeable notes are exchangeable into Qimonda ADSs at an exchange price of €10.48 per Qimonda ADS. Given the recent trading price of our ordinary shares and Qimonda ADSs, it is unlikely that a noteholder would convert or exchange its notes for our ordinary shares or Qimonda ADSs, as applicable. Therefore, we may be required to find an alternative source of funds, to repay the outstanding principal and accrued interest on the convertible and exchangeable notes in June and August 2010, respectively.

 

Our involvement and participation in various regional markets around the world creates cash flows in a number of currencies other than the Euro — primarily in U.S. dollars. Therefore, a major portion of our sales volumes as well as the costs relating to sales, administration, as well as research and development are incurred in US-dollars. Exchange rate fluctuations against the Euro may have substantial effects on our sales, our costs and our overall results of operations.

 

In general, our policy with respect to limiting short-term foreign currency exposure generally is to economically hedge at least 75 percent of our estimated net exposure for of the initial two-month period, at least 50 percent of our estimated net exposure for the third month and, depending on the nature of the underlying transactions, a significant portion for the periods thereafter. Part of our foreign currency exposure cannot be mitigated due to differences between actual and forecasted amounts. We calculate this net exposure on a cash flow basis considering actual orders received or made and all other planned income and expenses.

 

Over the last several quarters, our operating results experienced high volatility. It is possible that this volatility will continue in the future due to circumstances which we can not fully control. If our results of operations do not meet investor and financial analyst expectations, the Infineon stock price could decrease.

 

Information Technology Risks

 

Like other global technology companies, Infineon relies heavily on information technology and is increasingly dependent on information technology systems to support business processes as well as internal and external communications.

Despite implemented technical precautions, any significant disruption of these systems may result in loss of data and/or impairment of production and business processes.

 

All critical IT systems are hosted on high availability servers with redundancies in different data centers to minimize or eliminate the impact of hardware failures. Redundant network connections from different suppliers help reduce or eliminate the risk of losing connectivity between Infineon sites. Constant automated monitoring of the IT infrastructure allows Infineon to react quickly to unforeseen incidents.

 

Special precautions have been taken to address the risk of virus attacks to manufacturing supporting IT equipment.

 

It is very important to Infineon to protect highly confidential information from the risk of compromising confidentiality. Sophisticated encryption technology is used to store and transfer all highly confidential information. The most sensitive data is stored and processed in entirely isolated networks.

 

Human Resource Risks

 

One of our key success factors is to obtain and retain the required number of qualified employees. However, we are exposed to the general risks associated with employee turnover. Therefore, it is important to offer attractive working conditions in order to hire the desired employees and to keep them through motivational leadership.

 

The instruments we use for personal development and qualification help to ensure that we meet our present and future personnel requirements. We continuously use dedicated training programs to foster and broaden technical and personal skills.

 

Addressing rising risks in the current market environment, Infineon Logic has implemented its cost-reduction program IFX10+ in the third quarter of the 2008 fiscal year. Approximately 10 percent of Infineon Logic’s workforce worldwide is expected to be impacted by IFX10+.

 

Legal Risks

 

Like other companies in the semiconductor industry, Infineon has been exposed to patent claims, claims relating to alleged defective or faulty products, and claims relating to the alleged infringement of statutory duties. Regardless of the outcome of these claims, we may incur substantial costs in defending ourselves against these claims. Infineon intends to exert substantial efforts in defending itself vigorously against such claims. For more information please refer to the notes to the consolidated financial statements “Litigation and Investigations”.

 

In the area of intellectual property, the company benefits from various cross-license agreements with other companies. The Company aims to increase the number and scope of such cross-license agreements with leading competitors in order to reduce the risk of claims related to patent infringement.

 

Tax, fair trade and stock exchange regulations can all include additional risks. To mitigate these risks we rely upon the advice of internal and external experts.

 

Our global business strategy calls for maintaining research and development locations as well as manufacturing sites in various countries around the world. This may be the result of decisions to enhance our cost competitiveness, overcome market entry hurdles or enhance opportunities related to technology development. Therefore, risks could develop based upon negative economic and political developments in our regional markets, changes in laws and policies affecting trade and investment aimed at limiting free trade and varying practices of the regulatory, tax, judicial and administrative bodies in the jurisdictions where we operate, which restrict our entrepreneurial actions.

 

We use insurance policies to cover risk of liability or losses impacting our results of operations, financial condition and cash flow.

 

Overall Infineon Risk Situation

 

At no time during the past fiscal year did we become aware of any substantial risks which would have threatened the existence of the Company. In addition, we are not aware of any risks which would reasonably be expected to endanger the existence of the Company.

Additional descriptions relating to risks may be found in the notes to the consolidated financial statements included in this report as well as in the “Annual Report on Form 20-F” filed with the U.S. Securities and Exchange Commission.

 

Infineon Technologies AG

 

Infineon Technologies AG is the parent company of the Infineon group and carries out the group’s management and corporate functions. Infineon Technologies AG has major group-wide responsibilities such as finance and accounting, human resources, strategic and product-oriented research and development activities as well as worldwide corporate and marketing communications, and manages the logistical processes at the group level. Infineon Technologies AG has its own production facilities in Regensburg and Warstein. Since Infineon Technologies AG enters into most transactions with derivative financial instruments on behalf of the Infineon group, the same terms and conditions are valid for derivative financial instruments as well as covered risks for Infineon Technologies AG as for the Infineon Group.

 

The risks and opportunities as well as the future developments of Infineon Technologies AG are to a large extent the same as the risks and opportunities and future developments of the Infineon group, as further described in the Risk Report and Outlook sections.

 

Infineon Technologies AG prepares its stand-alone financial statements in accordance with the requirements of the German commercial code (“HGB”). The complete financial statements are published separately.

 

Statement of Operations⁽¹⁾ (condensed)