SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

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

INFINEON TECHNOLOGIES AG

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

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

Form 20-F þ     Form 40-F o

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

Yes o     No þ

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

 

 

This Report on Form 6-K dated February 11, 2009, contains a quarterly report of Infineon Technologies AG for the Company’s first quarter of the 2009 fiscal year.

 

INFINEON TECHNOLOGIES AG

 

QUARTERLY REPORT
FOR THE THREE MONTHS ENDED
December 31, 2008

 

 

INDEX

 

 

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

 

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

 

The following were key developments in our business during the three months ended December 31, 2008:

 

Financial Results

 

 

During the 2008 fiscal year, we committed to a plan to dispose of Qimonda. As a consequence, the results of Qimonda are reported as discontinued operations in our condensed consolidated statements of operations for all periods presented, and the assets and liabilities of Qimonda have been reclassified as held for disposal in the condensed consolidated balance sheet. In addition, we recorded after-tax write-downs totaling €1,475 million, in order to re-measure Qimonda to its estimated fair value less costs to sell as of September 30, 2008. In the first quarter of the 2008 fiscal year, loss from discontinued operations, net of income taxes included Qimondas negative results and amounted to €577 million. During the first quarter of the 2009 fiscal year, loss from discontinued operations, net of income taxes totalled €288 million. This amount was primarily composed of the realization of currency translation effects from Qimonda’s sale of its interest in Inotera Memories Inc. (“Inotera”) to Micron Technology, Inc (“Micron”) of €88 million and provisions and allowances of €195 million resulting from the application to open insolvency proceedings by Qimonda. In respect of the latter, the application to open insolvency proceedings by Qimonda exposed Infineon to potential liabilities and allowances arising from the Qimonda business; however, the provisions and allowances recorded as of December 31, 2008 relate only to those issues which management believes are probable of occurring and can be estimated with reasonable accuracy at this time.

 

 

Corporate Activities

 

 

Business highlights for the first quarter of the 2009 fiscal year

 

 

 

Energy Efficiency

 

 

Communications

 

 

Security

 

 

Revenue by Segment

 

 

 

 

Revenue by Region

 

 

The regional distribution remained broadly unchanged during the first quarter of the 2009 fiscal year compared to the first quarter of the 2008 fiscal year.

 

Cost of Goods Sold and Gross Profit

 

 

Cost of goods sold decreased in the first quarter of the 2009 fiscal year by 4 percent, or €27 million, to €678 million compared to €705 million in the first quarter of the 2008 fiscal year. Our gross profit decreased from €385 million in the first quarter of the 2008 fiscal year to €152 million in the first quarter of the 2009 fiscal year or as a percentage of revenues from 35 percent to 18 percent, respectively. This deterioration primarily resulted from lower sales volumes and higher idle capacity cost.

 

Research and Development Expenses

 

 

In absolute terms, research and development expenses amounted to €149 million in the three months ended December 31, 2008 compared to €181 million in the three months ended December 31, 2007. This decease resulted primarily from cost savings, in particular within our Wireless Solutions and Wireline Communications segment. Furthermore, cost saving measures which were implemented under our IFX10+ cost-reduction program also contributed to the decrease in research and development expenses. As a percentage of revenues, research and development expenses in the three months ended December 31, 2008 increased slightly to 18 percent, compared to 17 percent in the three months ended December 31, 2007, primarily as a result of lower revenues, and despite lower research and development expenses.

 

Selling, General and Administrative Expense

 

 

In absolute terms selling, general and administrative expenses amounted to €112 million in the first quarter of the 2009 fiscal year compared to €136 million in the first quarter of the 2008 fiscal year. This decease resulted primarily from cost savings as a result of our IFX10+ cost-reduction program and

reduced provisions for incentives. As a percentage of revenues, selling, general and administrative expenses in the first quarter of the 2009 fiscal year increased slightly to 13 percent, compared to 12 percent in first quarter of the 2008 fiscal year, primarily as a result of lower revenues, and despite lower selling, general and administrative expenses.

 

Other Items Affecting Earnings

 

 

Other operating income for the three months ended December 31, 2008, decreased to €3 million compared to €33 million for the three months ended December 31, 2007. For the three months ended December 31, 2007, other operating income primarily consisted of a gain from the sale of 40 percent of our interest in Infineon Technologies Bipolar GmbH & Co. KG (“Bipolar”) to Siemens AG.

 

Other operating expense decreased from €19 million in the first quarter of the 2008 fiscal year to €11 million in the first quarter of the 2009 fiscal year. Other operating expense in the first quarter of the 2008 fiscal year included a write-down of €14 million of in process-R&D acquired from LSI as no future economic benefit for its use or disposal was expected.

 

Financial income and expense, net increased in the three months ended December 31, 2008 to positive €4 million from negative €22 million in the three months ended December 31, 2007, primarily as a result of the gain of €36 million we realized from the repurchase of notional amounts of €95 million and €22 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively. Financial income and expense, net was partially offset by valuation changes and losses on available-for-sale financial assets in the three months ended December 31, 2008.

 

Income from investments accounted for using the equity method, net for the three months ended December 31, 2008 consisted of our share in the net income of Bipolar.

 

Segment Result

 

 

 

 

The following table provides the reconciliation of Segment Result to our loss from continuing operations before income tax:

 

 

Loss from discontinued operations, net of income taxes

 

In the first quarter of the 2008 fiscal year, loss from discontinued operations, net of income taxes included Qimonda’s net loss and amounted to €577 million. During the first quarter of the 2009 fiscal year, Loss from Discontinued Operations, net of income taxes totaled €288 million. This amount was primarily composed of the realization of currency translation effects from Qimonda’s sale of its interest in Inotera to Micron of €88 million and provisions and allowances of €195 million resulting from Qimonda’s insolvency. In respect of the latter, the application to commence insolvency proceedings by Qimonda exposed Infineon to potential liabilities and allowances arising from the Qimonda business; however, the provisions and allowances recorded as of December 31, 2008 relate only to those issues which management believes are probable of occurring and can be estimated with reasonable accuracy at this time. Potential liabilities resulting from Qimonda’s insolvency filing include pending antitrust and securities law claims, potential claims for repayment of governmental subsidies received, and employee-related contingencies. There can be no assurance that such provisions and allowances recorded will be sufficient to cover all losses that may ultimately be incurred in relation to these matters.

The operating losses of Qimonda, exclusive of depreciation, amortization and impairment of long-lived assets in the first quarter of the 2009 fiscal year were offset by a €460 million partial reversal of the write downs recorded in the 2008 fiscal year to reduce the net assets of Qimonda to fair value less cost to sell. Such reversal was recorded due to the fact that Infineon has neither the obligation nor the intention to provide additional equity capital to fund the operating losses of Qimonda.

 

The results of Qimonda presented in the condensed consolidated statements of operations as discontinued operations consist of the following components:

 

 

Financial Condition

 

 

As of December 31, 2008, our current assets decreased in comparison to September 30, 2008 by €559 million, due to a decrease within our continuing operations of €363 million and a decrease in assets held for disposal of €196 million. The decrease within our continuing operations primarily relates to a decrease of €278 million in trade and other receivables and a €104 million decrease in our gross cash position, consisting of cash and cash equivalents and available-for-sale financial assets, which were partly offset by increases in other current financial assets. Trade and other receivables within our continuing operations decreased primarily as a result of lower revenues during the first quarter of the 2009 fiscal year. Furthermore, increased allowances for doubtful accounts following Qimonda’s application to commence insolvency proceedings contributed to the decrease in trade and other receivables within our continuing operations. Our gross cash position within our continuing operations decreased as of December 31, 2008 compared to September 30, 2008 primarily due to the repurchase of notional amounts of €95 million and €22 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively. Additionally, purchases of intangible assets and property, plant and equipment contributed to the decrease of our gross cash position, which was partly offset by receipt of the contingent consideration of €13 million received from TI due to the failure to achieve the revenue targets of the CPE business. The decrease in assets held for disposal as of December 31, 2008 compared to September 30, 2008 primarily relates to changes at Qimonda.

Non-current assets decreased by €134 million as of December 31, 2008 compared to September 30, 2008. This decrease primarily results from a €102 million decrease in property, plant and equipment, net, as capital expenditures during the first quarter of the 2009 fiscal year were lower than depreciation. Additionally, goodwill and other intangible assets decreased by €15 million mainly due to the reduction of goodwill relating to the acquisition of the CPE business from TI as a result of the contingent consideration of €13 million received from TI. Other financial assets decreased by €22 million. These decreases were partly offset by an increase of deferred tax assets of €11 million.

 

As of December 31, 2008, current liabilities decreased by €371 million compared to September 30, 2008, mainly due to lower trade and other payables within our continuing operations, mainly resulting from to lower purchased services and lower capital expenditures. These decreases were partly offset by an increase of other current financial liabilities. Additionally, liabilities associated with assets classified as held for disposal decreased as of December 31, 2008 due to changes at Qimonda.

 

Non-current liabilities decreased as of December 31, 2008 by €24 million compared to September 30, 2008, primarily due to a decrease of long-term debt of €103 million which mainly relates to the repurchase of notional amounts of €95 million and €22 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively. This decrease was partly offset by a €86 million increase in long-term provisions, primarily for potential liabilities resulting from Qimonda’s insolvency.

 

Liquidity

 

 

Cash provided by operating activities from continuing operations was €5 million for the first quarter of the 2009 fiscal year, and reflected mainly the loss from continuing operations of €116 million which was net of non-cash charges for depreciation and amortization of €145 million. Cash provided by operating activities in the first quarter of the 2009 fiscal year was negatively impacted by changes in operating assets and liabilities of €49 million, and positively impacted by income taxes received and interest received, net in total of €23 million.

 

Cash used in investing activities from continuing operations was €22 million for the three months ended December 31, 2008 and primarily relates to cash used for the purchases of property, plant and equipment, intangible assets and other assets in total of €40 million which were partly offset by proceeds from sales of available-for-sale financial assets of €5 million and the contingent consideration of €13 million received from TI due to the failure to achieve the revenue targets of the CPE business.

 

Cash used in financing activities from continuing operations was €81 million and primarily relates to the repurchase of notional amounts of €95 million and €22 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively.

 

Free cash flow from continuing operations, representing cash flows from operating and investing activities from continuing operations excluding purchases or sales of available-for-sale financial assets, was negative €22 million for the three months ended December 31, 2008, an improvement from negative €270 million for the three months ended December 31, 2007. Free cash flow during the first quarter of the 2008 fiscal year included higher cash used in investing activities for continuing operations, due to the acquisition of the mobility products business from LSI and had higher capital expenditures, which were only partly offset by higher cash provided from operating activities from continued operations.

 

Our gross cash position from continuing operations as of December 31, 2008 representing cash and cash equivalents and available-for-sale financial assets, decreased to €779 million from €883 million as of September 30, 2008, primarily reflecting the cash used in financing and investing activities. Our net cash position from continuing operations as of December 31, 2008 defined as gross cash position less short and long-term debt was negative €293 million and, therefore, remained broadly unchanged compared to negative €287 million as of September 30, 2008.

Employees

 

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

 

 

During our first quarter of the 2009 fiscal year Infineon’s workforce decreased in all functions and regions primarily as a result of our IFX10+ cost-reduction program.

 

Outlook

 

Industry Environment

 

In the fourth quarter of calendar year 2008, the world economy further deteriorated. According to the International Monetary Fund’s latest World Economic Outlook Update the world economy is in its most severe downturn since World War II. Global growth is projected to experience a gradual recovery in calendar year 2010, the timing and pace of which depend critically on strong policy actions according to the International Monetary Fund.

 

The global economic crisis significantly affected the global semiconductor market. In the fourth quarter of calendar year 2008, the market contracted by 21.9 percent (in U.S. dollar terms) compared to the fourth quarter of calendar year 2007. The latest data from the World Semiconductor Trade Statistics (WSTS) shows that overall worldwide semiconductor revenues decreased by 2.8 percent in calendar year 2008 compared to the year before. For calendar year 2009, market experts predict a further decrease in revenues. iSuppli Corporation projects for calendar year 2009 a decline of 9 percent in worldwide semiconductor revenues. Future Horizons forcast a decline of 28 percent for calendar year 2009.

 

Outlook for the second quarter of the 2009 fiscal year

 

The drastic slow-down in world economic demand that started in the first quarter of the 2009 fiscal year is expected to continue to have a severe impact on overall demand levels in the second quarter of the 2009 fiscal year. In addition, we anticipate that inventory reductions throughout the entire electronics supply chain will continue. As such, we have relatively limited visibility with respect to the revenue development, even in the second quarter of the 2009 fiscal year. Within the limits of that low visibility, we currently expect revenues from continuing operations for the second quarter of the 2009 fiscal year to decrease by approximately 10 percent compared to the first quarter of the 2009 fiscal year. After the significant decrease in demand in the Automotive and Wireless Solutions segments in the first quarter of the 2009 fiscal year, we expect these segments to be more resilient in the second quarter of the 2009 fiscal

year compared to the first quarter of the 2009 fiscal year. By contrast, the three other segments, Industrial & Multimarket, Chip Card & Security and Wireline Communications, are expected to be more severely affected by the continuing slow-down in the second quarter of the 2009 fiscal year.

 

Additional savings measures implemented under the IFX10+ program are expected to result in substantial additional cost and cash savings over and above the savings levels realized in the first quarter of the 2009 fiscal year. As a consequence of continued sales declines and an aggressive reduction in factory loading in order to reduce inventory, we expect combined Segment Result margin in the second quarter to be within the range of a negative mid-to-high teens percentage. Without the additional measures described above, the impact of lower sales and factory loading on the bottom-line would have been significantly more severe.

 

Following Qimonda’s insolvency filing, we expect to deconsolidate Qimonda in the second quarter of the 2009 fiscal year. In this context, we anticipate that we will recognize accumulated losses related to unrecognized currency translation effects related to Qimonda. As of December 31, 2008, the amount of such accumulated losses totaled approximately €100 million. The recognition of such accumulated losses will not have any impact on our shareholders’ equity.

 

Risks and Opportunities

 

We are exposed to a number of risks as a result of the high volatility of the semiconductor business, its international orientation and its wide product range. Such risks include, but are not limited to, trends in demand and prices for semiconductors generally and for our products in particular, the success of our development efforts, both alone and with our partners, the success of our efforts to introduce new production processes at our facilities and the actions of our competitors, the availability of funds for planned expansion efforts, the outcome of antitrust investigations and litigation matters, the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, certain liabilities related to the Qimonda insolvency, including pending antitrust and related securities law claims, the potential repayment of governmental subsidies received, employee-related contingencies and other matters, as well as the other factors mentioned herein and those described in our Annual Report for the 2008 fiscal year. To minimize the negative impact of these risks, we continuously optimize our company-wide risk and opportunity management system. For more detailed information on risks and opportunities and their potential effect on our business, financial condition or results of operations, please refer to our Annual Report for the 2008 fiscal year.

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

Infineon Technologies AG and Subsidiaries
Condensed Consolidated Statements of Income and Expense Recognized in Equity (Unaudited)
For the three months ended December 31, 2007 and 2008

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

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

 

 

The accompanying condensed consolidated financial statements of Infineon Technologies AG and its subsidiaries (“Infineon” or the “Company”) as of and for the three months ended December 31, 2007 and 2008, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations issued by the International Accounting Standards Board (“IASB”), as adopted by the European Union (“EU”). The accompanying condensed consolidated financial statements have been prepared in compliance with IAS 34 “Interim financial reporting”. Accordingly, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. In addition, although the condensed consolidated balance sheet as of September 30, 2008 was derived from audited financial statements, it does not include all disclosures required by IFRS. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements prepared in accordance with IFRS, as adopted by the European Union (“EU”) as of and for the period ended September 30, 2008. The accounting policies applied in preparing the accompanying condensed consolidated financial statements are consistent with those for the year ended September 30, 2008 (see note 2).

 

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full fiscal year.

 

The preparation of the accompanying condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

 

All amounts herein are shown in Euro (or “€”) except where otherwise stated. The accompanying condensed consolidated balance sheet as of December 31, 2008, and the condensed consolidated statements of operations for the three months then ended, and the condensed consolidated statement of cash flows for the three months then ended are also presented in U.S. dollars (“$”), solely for the convenience of the reader, at the rate of €1 = $1.3919, the Federal Reserve noon buying rate on December 31, 2008.

 

Certain amounts in the prior period condensed consolidated financial statements and notes have been reclassified to conform to the current period presentation. During the second quarter of the 2008 fiscal year the Company committed to a plan to dispose of Qimonda. As a result, the historical results of Qimonda are reported as discontinued operations for all periods presented, and its assets and liabilities have been classified as held for disposal for all periods presented. In addition, effective October 1, 2008, the Company reorganized its core business into five operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, Wireless Solutions, and Wireline Communications.

 

 

In September 2007, the IASB issued an amendment to IAS 1, “Presentation of Financial Statements”. The revision is aimed at improving users’ ability to analyze and compare the information given in financial statements. IAS 1 sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. The revised IAS 1 resulted in consequential amendments to other statements and interpretations. The revision of IAS 1 will be effective for fiscal years beginning on or after January 1, 2009, with early adoption permitted. The EU has not yet endorsed the amendment to IAS 1. The Company is currently evaluating the potential effects of IAS 1.

 

In January 2008, the IASB published the amended standards IFRS 3, “Business Combinations”, (“IFRS 3 (2008)”) and IAS 27, “Consolidated and Separate Financial Statements” (“IAS 27 (2008)”). Neither standard has been endorsed by the EU yet.

 

IFRS 3 (2008) reconsiders the application of acquisition accounting for business combinations. Major changes relate to the measurement of non-controlling interests, the accounting for business combinations achieved in stages as well as the treatment of contingent consideration and acquisition-related costs. Based

 

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

 

on the new standard, non-controlling interests may be measured at their fair value (full-goodwill-methodology) or at the proportional fair value of assets acquired and liabilities assumed. In business combinations achieved in stages, any previously held equity interest in the acquiree is remeasured to its acquisition date fair value. Any changes to contingent consideration classified as a liability at the acquisition date are recognized in profit and loss. Acquisition-related costs are expensed in the period incurred.

 

Major changes in relation to IAS 27 (2008) relate to the accounting for transactions which do not result in a change of control as well as for those leading to a loss of control. If there is no loss of control, transactions with non-controlling interests are accounted for as equity transactions not affecting profit and loss. At the date control is lost, any retained equity interests are remeasured to fair value. Based on the amended standard, non-controlling interests may show a deficit balance since both profits and losses are allocated to the shareholders based on their equity interests.

 

The amended standards are effective for business combinations in annual periods beginning on or after July 1, 2009. The Company is currently evaluating the potential effects of IFRS 3 (2008) and IAS 27 (2008).

 

 

On July 31, 2007, the Company acquired Texas Instruments Inc.’s (“TI”) DSL Customer Premises Equipment (“CPE”) business for cash consideration of €45 million. The purchase price was subject to an upward or downward contingent consideration adjustment of up to $16 million, based on negotiated revenue targets of the CPE business. Due to the failure to achieve the negotiated revenue targets of the CPE business during the nine months following the acquisition date the cash consideration has been adjusted downward by an amount of €13 million, and the amount of €13 million was reimbursed by TI. Accordingly, the Company allocated the adjustment of the purchase price to goodwill.

 

On October 24, 2007, the Company completed the acquisition of the mobility products business of LSI Corporation (“LSI”) for cash consideration of €316 million ($450 million) plus transaction costs. As part of the acquisition, an amount of €14 million was allocated to purchased in-process research and development based on discounted estimated future cash flows over the respective estimated useful life. During the three months ended December 31, 2007, this amount was expensed as other operating expense, because no future economic benefit from its use or disposal was expected. The purchase price was subject to a contingent performance-based payment based on the relevant revenues in the measurement period following the completion of the transaction and ending December 31, 2008. Due to the lower revenues during the measurement period, no performance-based payment has been paid.

 

On April 28, 2008, the Company acquired Primarion, Inc., Torrance, California (“Primarion”) for cash consideration of €32 million ($50 million) plus a contingent performance-based payment of up to $30 million. The assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of acquisition. As a result of the law suit filed against Primarion subsequent to the acquisition, the Company reassessed the estimated fair value of the liabilities assumed. The adjustment resulted in a decrease of the net assets acquired by €4 million with a corresponding increase in goodwill.

 

 

High Power Bipolar Business

 

On September 28, 2007, the Company entered into a joint venture agreement with Siemens AG (“Siemens”). Effective September 30, 2007, the Company contributed all assets and liabilities of its high power bipolar business (including licenses, patents, and front-end and back-end production assets) to a newly formed legal entity called Infineon Technologies Bipolar GmbH & Co. KG (“Bipolar”) and Siemens subsequently acquired a 40 percent interest in Bipolar for €37 million. The transaction received regulatory approval and subsequently closed on November 30, 2007. As a result of the sale, the Company realized a gain before tax of €32 million which was recorded in other operating income during the fiscal year ended September 30, 2008. The joint venture agreement grants Siemens certain contractual participating rights which inhibit the Company from exercising control over Bipolar. Accordingly, the Company accounts for the retained interest in Bipolar under the equity method of accounting.

 

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

 

Qimonda

 

During the 2008 fiscal year, the Company committed to a plan to dispose of Qimonda. As a consequence, the results of Qimonda are reported as discontinued operations in the Company’s condensed consolidated statements of operations for all periods presented, and the assets and liabilities of Qimonda have been reclassified as held for disposal in the condensed consolidated balance sheets. In addition, the Company recorded after-tax write-downs totaling €1,475 million during the 2008 fiscal year. Pursuant to IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations”, the recognition of depreciation and amortization expense and impairments of long-lived asset recorded by Qimonda ceased as March 31, 2008.

 

Loss from discontinued operations, net of income taxes recognized during the first quarter of the 2009 fiscal year is primarily composed of the realization of currency translation effects, not included in the disposal group, from Qimonda’s sale of its interest in Inotera Memories Inc. (“Inotera”) to Micron Technology, Inc (“Micron”) of €88 million and provisions and allowances of €195 million resulting from Qimonda’s insolvency described below. While these amounts result from the Qimonda business they are not included in the assets and liabilities classified as held for disposal. The operating losses of Qimonda, exclusive of depreciation, amortization and impairment of long-lived assets in the first quarter of the 2009 fiscal year were offset by a partial reversal of €460 million of the write downs recorded in the 2008 fiscal year to reduce the net assets of Qimonda to fair value less cost to sell. Such reversal was recorded due to the fact that Infineon has neither the obligation nor the intention to provide additional equity capital to fund the operating losses of Qimonda.

 

On December 21, 2008, the Company, the German Free State of Saxony, and Qimonda jointly announced a financing package for Qimonda. The package included 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 Infineon. In addition to this financing package, Qimonda had announced that it expected to receive guarantees totaling €280 million from the Federal Government of Germany and the Free State of Saxony. Based on such guarantees, Qimonda had also announced that it was in advanced negotiations regarding a €150 million package. Given the difficult overall economic situation and the further deterioration of the DRAM business during the three months ended December 31, 2008, the negotiating parties were ultimately unable to agree on the rescue package that would work for everyone involved.

 

On January 23, 2009, Qimonda and its wholly owned subsidiary Qimonda Dresden GmbH & Co. oHG filed an application at the Munich Local Court to commence insolvency proceedings (see note 19). With respect to the application to commence insolvency proceedings by Qimonda exposed Infineon to potential liabilities and allowances arising from the Qimonda business. Potential liabilities resulting from Qimonda’s insolvency filing include pending antitrust and securities law claims, potential claims for repayment of governmental subsidies received, and employee-related contingencies. The Company recorded additional provisions and allowances of €195 million as of December 31, 2008, relating to those issues which management believes are probable of occurring and can be estimated with reasonable accuracy at this time. These additional provisions and allowances were recognized in loss from discontinued operations, net of income taxes in the three months ended December 31, 2008. There can be no assurance that such provisions and allowances recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters.

 

The results presented for Qimonda are based on preliminary results provided by Qimonda prior to the filing by Qimonda and Qimonda Dresden GmbH & Co. oHG for insolvency protection in the Munich Local Court on January 23, 2009, and were prepared on a going concern basis. Liquidation basis financial statements that would be required when the going concern assumptions is not assured are not available from Qimonda. There can be no assurances that individually the assets and liabilities held for disposal would not be materially different if presented on a liquidation basis, however, as the net assets of Qimonda that are held for disposal are valued at the fair value less costs to sell, the net value presented in these condensed consolidated financial statements would not be impacted.

 

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

 

The results of Qimonda presented in the condensed consolidated statements of operations as discontinued operations consist of the following components:

 

 

Assets and liabilities held for disposal are primarily composed of the book values of Qimonda’s assets and liabilities. At September 30, 2008 and December 31, 2008, the carrying amounts of the major classes of assets and liabilities classified as held for disposal were as follows:

 

 

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

 

 

During the 2007 fiscal year, restructuring measures were taken by the Company, mainly as a result of the insolvency of one of its 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.

 

To address rising risks in the current market environment, adverse currency trends and below benchmark margins, the Company 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, process efficiency, reorganization of the Company’s structure along its target markets, and reductions in workforce. Approximately 10 percent of Infineon Logic’s worldwide workforce is expected to be impacted by IFX10+. During the first quarter of the 2009 fiscal year, and in light of continuing adverse developments in general economic conditions and in the industry, the Company identified significant further cost savings in addition to those originally anticipated.

 

During the three months ended December 31, 2007 and 2008, charges of €3 million and €3 million, respectively, were recognized.

 

The development of the restructuring liability during the three months ended December 31, 2008, was as follows:

 

 

 

The amount of financial income is as follows for the three months ended December 31, 2007 and 2008, respectively:

 

 

Interest income for three months ended December 31, 2008, includes a net gain of €36 million before tax, as a result of the repurchased notional amounts of the subordinated exchangeable notes due 2010 and convertible subordinated notes due 2010 (see note 13).

 

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

 

 

The amount of financial expense is as follows for the three months ended December 31, 2007 and 2008, respectively: