Report on Short Fiscal Year 2010
Management Report
Consolidated Financial Statements
Auditor’s report
3
32
108
CONTENTS
Management Report
General
EPCOS Group
Business segments
Industries
Regions
Research and Development
Employees
Assets and financial position
EPCOS AG
Risk report
Outlook
Subsequent events
Consolidated Financial Statements
(1) Consolidated income statement
(2) Consolidated statement of comprehensive income
(3) Consolidated balance sheet
(4) Consolidated cash flow statement
(5) Consolidated statement of changes in equity
Notes to the consolidated financial statements
Auditor’s report
3
3
4
6
10
14
15
17
19
21
22
30
31
32
33
34
35
36
38
39
108
 EPCOS AG 2010 ● 2
Management report on the financial statements of EPCOS
AG, Munich, for the short fiscal year ending March 31, 2010
GENERAL
EPCOS AG is a leading manufacturer of electronic components, modules and systems headquartered in Munich/ Germany. With its broad portfolio EPCOS offers a
comprehensive range of products from a single source and focuses on fast-growing
and technologically demanding markets in the areas of information and communication technology, automotive electronics, industrial electronics and consumer electronics. The EPCOS Group has design and manufacturing locations and sales offices in
Europe, Asia, and in North and South America.
Electronic components are found in every electrical and electronic device. They are
as vital to mobile phones, TVs and notebooks as they are to automobiles, washing
machines, energy-saving lamps, industrial machine tools, elevators and electric
locomotives. Our products process electrical signals, protect electronic circuits and
ensure a reliable power supply. A single car, for example, can contain as many as
10,000 such components.
History
EPCOS emerged from Siemens Matsushita Components, a joint venture founded in
1989 by Siemens and Matsushita. The company was floated on the Frankfurt and
New York Stock Exchanges in 1999. Trading on the New York Stock Exchange was
discontinued in 2007.
Effective October 1, 2009, EPCOS was combined with the components business of
TDK under the roof of the new Japan-based TDK-EPC Corporation (or “TDK-EPC”
for short). EPCOS’ listing on all German stock exchanges was discontinued at the
start of November 2009.
Since March 2010, TDK-EPC Corporation and TDK Germany GmbH have held all
shares in EPCOS AG.
Short fiscal year and financial reporting
Until September 30, 2009, EPCOS AG’s fiscal year ran from October 1 to September 30 of the following year.
Effective April 1, 2010, EPCOS’ fiscal year will – pursuant to a resolution by the
Annual General Meeting on May 20, 2009 – be aligned with that of TDK Corporation.
All subsequent fiscal years will then run from April 1 to March 31 of the following
year.
 EPCOS AG 2010 ● 3
For financial reporting purposes, EPCOS is presenting the six-month period from
October 1, 2009, through March 31, 2010, as the short fiscal year 2010-S.
Fiscal 2009 – the reporting period that serves as the basis for comparison – was the
twelve-month period from October 1, 2008, through September 30, 2009. Since the
short fiscal year to March 31, 2010, only covered a six-month period, useful comparison of the data across reporting periods is possible only to a limited extent. In order
to enable better comparability a limited selection of key figures is presented for the
first 6 months of fiscal 2009 (2009-S). These figures are not audited.
EPCOS GROUP
Return to profitability; business operating under new
TDK-EPC brand
EUR million
Sales
EBIT
Net income/ loss
Capital expenditure in fixed assets
Depreciation and amortization
2009
1,147
-79
-121
103
126
October – March
2009-S
2010-S
546
696
-61
24
-81
7
53
80
64
71
The continuing recovery of the global economy set the pattern for the short fiscal year
2010-S. Starting from a very low level in fiscal 2009, demand for EPCOS products
revived – in some cases very considerably – across all industries served and in all
regions. This positive business development enabled EPCOS to return to profitability.
Sales
In the short fiscal year 2010-S, EPCOS’ sales totaled EUR 696 million (EUR 1.147
billion in fiscal 2009).
Sales of products for industrial and automotive electronics applications and to distributors experienced the strongest growth in the period under review. Business with
manufacturers of information and communication technology and consumer electronics customers also delivered positive sales development.
 EPCOS AG 2010 ● 4
Earnings
EPCOS recorded positive earnings before interest and tax (EBIT) totaling EUR 24
million in the short fiscal year 2010-S (minus EUR 79 million in fiscal 2009). This
improvement was essentially due to higher sales.
Net income was plus EUR 7 million (minus EUR 121 million in fiscal 2009).
Capital expenditure
In response to rising demand and the resultant need to increase production capacity,
EPCOS invested a total of EUR 80 million in property, plant and equipment in the
period under review. This figure is equivalent to more than three quarters of the
corresponding capital spend for the whole of fiscal 2009 (EUR 103 million). Almost
the entire sum (EUR 77 million) was used to buy tangible assets, so that this figure
was higher than depreciation and amortization, which stood at EUR 71 million
(EUR 126 million in fiscal 2009).
The largest share of capital spending – EUR 36 million – was for the Surface Acoustic Wave (SAW) Components business segment. EPCOS also invested EUR 27
million in Capacitors and Inductors and EUR 17 million in Ceramic Components.
New company launched: TDK-EPC Corporation
TDK-EPC Corporation was founded in Japan on October 1, 2009. The components
business of TDK and EPCOS has since been conducted by this company under the
new corporate identity TDK-EPC. The established product brands, EPCOS and TDK,
will continue to be used.
On October 22, 2009, the resolution by EPCOS’ Annual General Meeting to transfer
minority interests to the company’s main shareholder, TDK Corporation, was recorded in EPCOS AG’s commercial register entry. Since the beginning of November
2009, EPCOS AG has no longer been listed as a public company.
 EPCOS AG 2010 ● 5
BUSINESS SEGMENTS
Positive EBIT in all business segments
Note:
EPCOS uses earnings before interest and tax (EBIT) as a control instrument to
assess the operating performance of its business segments.
Sales by business segment EUR million
Capacitors and Inductors
Ceramic Components
SAW Components
Total sales
2009
500
307
340
1,147
October – March
2009-S
2010-S
249
311
140
193
157
192
546
696
Share of EPCOS’ sales by business segment
Capacitors and Inductors
Ceramic Components
SAW Components
2009
43%
27%
30%
2009-S
45%
26%
29%
2010-S
44%
28%
28%
EBIT by business segment EUR million
Capacitors and Inductors
Ceramic Components
SAW Components
2009
-14
-40
-24
2009-S
-8
-27
-26
2010-S
3
18
3
All three EPCOS business segments saw sales increase in the short fiscal year
2010-S.
The share of sales realized by Capacitors and Inductors rose 1 percentage point to
44 percent. This segment thus once again made the largest contribution to total
Group sales. Ceramic Components also increased its share of sales by 1 percentage
point to 28 percent. The share of sales generated by the Surface Acoustic Wave
(SAW) Components segment declined by 2 percentage points to 28 percent.
All business segments recorded positive EBIT in the period under review. Ceramic
Components posted the strongest gain, with EBIT rising to plus EUR 18 million. EBIT
for the Capacitors and Inductors and SAW Components segments was plus EUR 3
million each.
 EPCOS AG 2010 ● 6
Individual EPCOS business segments
1. Capacitors and Inductors
EUR million
Sales
EBIT
Capital expenditure on fixed assets
2009
500
-14
52
October – March
2009-S
2010-S
249
311
-8
3
30
27
In the Capacitors and Inductors segment, sales totaled EUR 311 million in the short
fiscal year 2010-S (EUR 500 million in fiscal 2009). Business in all product groups
developed well in the period under review.
Capacitors
Rebounding demand in the industrial electronics sector in particular had a very
positive impact on business with capacitors. Demand was especially strong for aluminum electrolytic and film capacitors for use in systems to generate and distribute
power from renewable sources, and for use in other applications to raise energy
efficiency. Business with capacitors for automotive electronics applications also
developed well.
Inductors
Sales of inductors also rose. This was essentially due to a return to much stronger
demand for components among manufacturers of automotive electronics products.
EPCOS supplies this industry with components such as the chokes that keep data
communication between dozens of electronic controllers in vehicles free from interference. Business was also positive with the transformers that improve energy efficiency in energy-saving lamps and lamp ballasts, for example, and thereby ultimately
reduce consumers’ electricity costs.
Earnings
Positive business development enabled EPCOS’ Capacitors and Inductors business
segment to record EBIT of plus EUR 3 million in the short fiscal year 2010-S (minus
EUR 14 million in fiscal 2009).
Capital expenditure on fixed assets
Capital expenditure on fixed assets for Capacitors and Inductors totaled EUR 27
million (EUR 52 million in fiscal 2009). This money was used mostly to expand production capacity, for example to ramp up volume production at a new factory in
Iceland. At this location, our subsidiary Becromal manufactures the aluminum foils
 EPCOS AG 2010 ● 7
that are needed primarily in the production of aluminum electrolytic capacitors. Another investment project involved the expansion of our inductor plant in Hongqi/
China.
2. Ceramic Components
EUR million
Sales
EBIT
Capital expenditure on fixed assets
2009
307
-40
12
October – March
2009-S
2010-S
140
193
-27
18
8
17
Sales at Ceramic Components stood at EUR 193 million in the short fiscal year
2010-S (EUR 307 million in fiscal 2009). In this segment too, business development
was positive across all product groups.
Piezo actuators
The main reason for growth in sales of ceramic components was a return to vigorous
demand for products for automotive electronics applications. Sales of piezo actuators, which make the largest single contribution to sales in this segment, thus increased in the period under review. Piezo actuators are key components in the piezo
injection systems that enable diesel and gasoline engines to burn fuel very efficiently
and with low emissions.
Protection devices
Business with protection devices likewise developed positively in the period under
review. Our broad portfolio in this line includes components such as thermistors, disk
varistors and multilayer varistors. These temperature- and voltage-dependent resistors are used mainly in automotive, industrial and consumer electronics applications,
where they handle either protection or heating functions. Surge arresters – another
ceramic protection device – mostly protect telephone systems against voltage
surges, such as those that occur when lightning strikes.
Sensors and sensor systems
Sales of sensors and sensor systems to all industries served rose in the period under
review. EPCOS provides a very broad spectrum of sensors, such as temperature
sensors that measure whether operating fluids in machinery (such as oils and coolants) are getting too hot. High-precision pressure sensors are another example.
These sensors measure pressure in demanding environments such as hot exhaust
gases and fuel vapors. Pressure sensors from EPCOS are also key components in
systems that can significantly improve the performance, energy efficiency and environmental impact of combustion engines.
 EPCOS AG 2010 ● 8
Earnings
Thanks to good business development, the Ceramic Components segment significantly improved its EBIT to plus EUR 18 million in the short fiscal year 2010-S (minus
EUR 40 million in fiscal 2009).
Capital expenditure on fixed assets
EUR 17 million (EUR 12 million in fiscal 2009) was spent on fixed assets in the
Ceramic Components segment. The bulk of this amount was used to purchase
factory buildings that had previously been leased at our facility in Deutschlandsberg/
Austria. Investment was also channeled into new production equipment.
3. SAW Components
EUR million
2009
Sales
EBIT
Capital expenditure on fixed assets
340
-24
39
October – March
2009-S
2010-S
157
192
-26
3
13
36
In the SAW Components segment, sales totaled EUR 192 million in the short fiscal
year 2010-S (EUR 340 million in fiscal 2009).
Multimedia and mobile communication filters
Sales of multimedia and mobile communication filters grew in total. This development
was driven by increasing demand for SAW filters for mobile communication applications. In this market context, EPCOS was, for example, able to benefit from the
volume roll-out of new UMTS handsets. In these high-end phones, which combine a
broad array of functions, EPCOS has an even stronger position than in simpler
handsets. UMTS phones also require more SAW filters per handset in total.
Integrated radio-frequency (RF) products
Besides discrete filters, EPCOS’ portfolio of products for high-end mobile phones
also includes a wide range of integrated RF products such as duplexers and ceramic
front-end modules. EPCOS also supplies ESD/ EMI protection modules that allow
customers to replace more expensive semiconductor components in their mobile
handsets.
Overall, demand for multilayer ceramic modules improved in the period under review,
leading to significant sales growth.
 EPCOS AG 2010 ● 9
Earnings
EBIT for SAW Components was plus EUR 3 million in the short fiscal year 2010-S
(minus EUR 24 million in fiscal 2009).
Capital expenditure on fixed assets
In the period under review, capital expenditure on fixed assets for SAW Components
was EUR 36 million (EUR 39 million in fiscal 2009). This amount was used primarily
to expand production capacity and ramp up the volume manufacture of new products.
INDUSTRIES
Unchanged broad and balanced base in target markets
Sales by industry EUR million
Industrial electronics
Automotive electronics
Information and communication technology
Distributors
Consumer electronics
Total sales
2009
278
233
287
204
145
1,147
October – March
2009-S
2010-S
143
174
100
159
138
151
99
127
66
85
546
696
Share of EPCOS’ sales by industry
Industrial electronics
Automotive electronics
Information and communication technology
Distributors
Consumer electronics
2009
24%
20%
25%
18%
13%
2009-S
26%
18%
26%
18%
12%
2010-S
25%
23%
22%
18%
12%
As a result of the global economic recovery, sales to all industries served by EPCOS
increased in the short fiscal year 2010-S.
Sales of products for industrial electronics applications generated the highest sales,
driving this industry’s share of total sales up to 25 percent (24 percent in fiscal 2009).
Products for automotive electronics applications likewise raised their share of total
EPCOS sales to 23 percent by the end of the period under review (20 percent in
fiscal 2009). Conversely, sales to customers in the information and communication
technology industry declined to 22 percent as a share of total sales (25 percent in
fiscal 2009). The share of sales to consumer electronics manufacturers also fell to
 EPCOS AG 2010 ● 10
12 percent (13 percent in fiscal 2009). Distributors who resell our products saw their
share of total sales remain stable at 18 percent.
There were thus some significant shifts in the breakdown of EPCOS’ sales by industry. Ultimately, however, the company still maintains a broad and comparatively well
balanced base in the markets it serves.
Industrial electronics
Trend toward greater energy efficiency continues
The trend toward greater energy efficiency remains a key driver of growth in EPCOS’
sales of products for industrial electronics applications. Our customers want solutions
that help them cut energy consumption by plant and machinery and reduce energy
losses during power generation and distribution.
In its efforts to save energy, industry is increasingly turning to variable-speed drives.
These drives need frequency converters in which our aluminum electrolytic capacitors perform vital functions, such as storing electrical energy and smoothing voltage.
Around the globe, action is being taken to improve power factor correction (PFC) in
power networks. EPCOS, the global market leader, supplies all key components for
PFC systems and is also able to deliver complete solutions containing capacitors,
thyristor modules and inductors. All around the world, the renewable energy generated by wind and solar power plants too is growing in importance. In this context, our
capacitors are fitted in the converters and inverters that transform generated power
so that it can be fed into the grid.
A parallel trend that also remains intact – and is also driving EPCOS’ sales of products for industrial electronics applications – is the increasing automation of production
facilities in the traditional industrialized countries. Further stimulus continues to come
from the modernization and construction of new factories in countries such as China,
India and some of the ASEAN states. Manufacturers of lighting systems too need
electronic components to make the energy-saving lamps that – in many cases due to
legislative changes – are increasingly replacing conventional incandescent light
bulbs.
Automotive electronics
Increasing electronic content in cars
The automotive electronics industry remains another central pillar of our business.
All three EPCOS business segments supply products to automotive electronics
customers, although Ceramic Components accounts for the greater part of these
sales. Many of our components and solutions are indispensable to automotive elec EPCOS AG 2010 ● 11
tronics systems and devices. The market’s ever increasing demand for enhanced
safety, comfort and – above all – fuel efficiency to help ease the burden on the environment is the key driver of our business in this industry.
Accordingly, sales of piezo actuators again accounted for the largest share of our
sales to automotive electronics customers in the period under review. Car makers
employ piezo fuel injection systems mainly in diesel engines to achieve more exact
and finely dosed control of the fuel injection process. This in turn enables engines to
burn fuel very efficiently and with lower emissions.
Sensors and sensor systems from EPCOS likewise help improve cars’ fuel consumption. For example, they measure the temperature of intake air, exhaust gases, oil and
cooling agents. Controllers then analyze this data and use it to optimize engine
performance. Our temperature sensors also enable the improved control of airconditioning systems. Our pressure sensors too are, for example, used in exhaust
gas recirculation systems that can significantly lower the level of emissions from
combustion engines.
Electronic systems are also called for in car safety applications. Airbags are now a
standard feature in mid-range and compact cars, while ABS and electronic stability
programs help shorten braking distances and keep vehicles safely in their lanes.
The trend toward ever more information and convenience systems in cars likewise
continues. As more and more functions are packed into these systems, it is only
natural for their electronic content to increase too. GPS navigation systems and
digital audio systems, for example, are increasingly becoming standard equipment
even in mid-range and compact cars.
Information and communication technology
Sales focused mostly on mobile solutions
Components and modules that are needed for mobile phones account for about three
quarters of EPCOS’ sales to the information and communication technology industry.
Mobile phones are increasingly evolving into multifunctional devices that, while
supporting more and more applications in addition to telephony, are expected to stay
as small and handy as ever. In the future, this trend will necessitate more and more
electronic components – especially RF filters and modules. Moreover, as a trendsetter in miniaturization, EPCOS is also benefiting from the fact that space to fit all the
necessary component functions on circuit boards is becoming smaller than ever.
EPCOS also sells a broad spectrum of products for traditional fixed network communications, including components for the suppression of interference and the protection of telecommunication systems, as well as products for use in the DSL modems
that enable high-speed access to the Internet.
 EPCOS AG 2010 ● 12
Consumer electronics
Focus on entertainment and home appliances
EPCOS groups entertainment electronics and household appliances together in the
consumer electronics category.
In the short fiscal year 2010-S, manufacturers of entertainment electronics equipment
accounted for more than half of EPCOS’ sales to consumer electronics customers.
Our components and modules are as essential to flat-screen HDTVs and DVD and
Blu-ray player/ recorders as they are to Internet-ready gaming consoles and MP3
players. In these products, they filter radio-frequency signals, ensure electromagnetic
compatibility and protect electronic components against electrostatic discharges.
We also manufacture a broad range of products for household appliances – another
area in which electronic content is growing. Electromechanical control units are
increasingly being replaced by electronic control units, while new technologies are
being developed to reduce energy consumption.
Distributors
Important sales partners for standard components
Our distributors are important partners who play a crucial role in ensuring a regular
supply of standard components to our customers. They also offer our customers a
broad spectrum of services, thereby improving the availability of many of our components.
Using distributors as a further sales channel helps us to focus our own sales force,
deploy it more efficiently and save on sales costs. Our customers also benefit as they
can bundle their purchases of standard components via distributors. This lets them
reduce the number of suppliers and cut their costs too.
 EPCOS AG 2010 ● 13
REGIONS
Upswing in all regions
Sales by region EUR million
EMEA (Europe, Middle East and Africa)
of which Germany
EMEA without Germany
Asia
of which Greater China
NAFTA
Others
Total sales
2009
655
315
340
369
232
85
38
1,147
October – March
2009-S
2010-S
316
413
151
200
165
213
167
205
109
131
43
53
20
25
546
696
Share of EPCOS’ sales by region
EMEA
of which Germany
EMEA without Germany
Asia
of which Greater China
NAFTA
Others
2009
57%
27%
30%
32%
20%
7%
4%
2009-S
58%
28%
30%
31%
20%
8%
3%
2010-S
59%
29%
30%
29%
19%
8%
4%
EPCOS’ sales were up in all regions in the course of the short fiscal year 2010-S,
although there were some substantial shifts in the regional breakdown of sales. While
the EMEA (Europe, Middle East and Africa) and NAFTA regions saw their shares of
EPCOS’ sales increase, Asia’s share of sales declined.
EMEA
Germany’s share of EPCOS’ sales increased to 29 percent in the period under review (27 percent in fiscal 2009). The contribution made by the other EMEA countries
remained unchanged at 30 percent.
EPCOS generated more than half its sales in Europe, where leading customers in the
automotive and industrial electronics industries are based, as are a number of large
customers in the telecommunications sector. Sales to the automotive and industrial
electronics sectors in particular experienced very positive development in the period
under review.
 EPCOS AG 2010 ● 14
Asia
Asia accounted for 29 percent of EPCOS’ sales in the short fiscal year 2010-S
(32 percent in fiscal 2009). While China and other Asian countries saw their share of
sales decline, sales revenues rose substantially in absolute terms in these countries
in the period under review. In this, the world’s largest regional electronics market,
EPCOS is stepping up both production and, increasingly, research and development,
as well as basing administrative tasks here.
NAFTA
EPCOS generated 8 percent of its total sales in the NAFTA region in the period
under review (7 percent in fiscal 2009). Although the NAFTA region accounts for a
relatively small share of EPCOS’ sales, it remains of vital importance to our business.
Many new products and systems are still developed in North America. Decisions
about which electronic components from which suppliers are to be approved for use
in new applications are also made here. If EPCOS is successfully involved in these
design-ins, our solutions play a part in the volume production that follows – much of
which now takes place in Asian countries with low labor costs.
RESEARCH AND DEVELOPMENT
Shaping progress
EUR million
R&D expenses
2009
80
2010-S
39
In the face of global competition, superior innovation is a decisive success factor, in
addition to flawless quality and competitive costs. In-depth knowledge, a wealth of
experience and efficient processes are imperative if we are to meet the market’s
demands for innovative products and consistently satisfy the ever-changing requirements of our customers. Our impressive capabilities in materials research, process
technology and product development enable us to manufacture standard components as well as solutions that are tailored to the needs of individual customers. The
outcomes of our innovation give both our customers and ourselves competitive
advantages. They also enable us to open promising areas of application and new
markets.
 EPCOS AG 2010 ● 15
Investments in research and development (R&D) prepare the ground for the continual
improvement of our processes and products, as well as laying a firm foundation for
future growth. EPCOS spent EUR 39 million on R&D in the short fiscal year 2010-S
(EUR 80 million in fiscal 2009). This figure is equivalent to 5.6 percent of sales (7.0
percent in fiscal 2009).
Energy efficiency, environmental protection and miniaturization – powerful
drivers of innovation
With its products and solutions EPCOS today is already helping to protect the environment and enable consumers to reduce their energy costs. At the same time the
demands for more energy-efficient electrical products and systems are growing ever
more important for our business. The trend toward lowering energy consumption and
reducing losses during power distribution is clearly visible in all the industries we
serve. Accordingly, application areas such as technologies for wind and solar energy
or for electromobility are moving more and more into the focus of our R&D work.
Miniaturization is a further megatrend in electronics, driven in part by the demand for
ever greater functional density in electrical and electronic devices. People want to
use these devices to perform more and more different tasks. At the same time, they
expect the devices themselves to become ever lighter and more compact. Mobile
phones, for example, increasingly boast an array of applications that go well beyond
telephony. Modern handsets additionally serve as cameras, MP3 players, navigation
systems, TVs and radios, for instance – and also have to incorporate USB, Bluetooth
and wireless LAN interfaces for data transfer. High-end mobile handsets in particular
are expected to work without problems anywhere in the world too. As a result, one
and the same device must support several different mobile communication standards
and thus be multiband- and multimode-capable. However, all these extra functions
can only be packed into less and less space if the electronic components used become smaller and smaller, or if more and more functions are integrated.
EPCOS is one of the miniaturization trendsetters in radio-frequency (RF) applications
in particular, manufacturing key components such as RF filter products and modules.
Other industries besides mobile communications are also increasingly demanding
miniaturized components, however. For them too, EPCOS supplies a series of innovative solutions that fulfill key functions in the applications for which they are built.
 EPCOS AG 2010 ● 16
EMPLOYEES
Stronger demand drives personnel build-up
Total employees
2009
Sept. 30, 2009
20,076
±
2010-S
March 31, 2010
+17%
23,431
Employees by segment
Capacitors and Inductors
Ceramic Components
SAW Components
Sales/Headquarters
Absolute
Share of total
2010-S
2009
2010-S
March 31, 2010 Sept. 30, 2009 March 31, 2010
15,040
61%
64%
4,271
19%
18%
3,437
17%
15%
683
3%
3%
Employees by region
China
Europe without Germany
Asia without China
Germany
Americas
2010-S
2009
2010-S
March 31, 2010 Sept. 30, 2009 March 31, 2010
12,683
49%
54%
3,993
19%
17%
3,397
16%
14%
1,775
9%
8%
1,583
7%
7%
As of March 31, 2010, EPCOS employed about 23,400 people worldwide (about
20,100 at the close of fiscal 2009 on September 30, 2009). The number of employees thus rose by 17 percent by the end of the short fiscal year 2010-S. This increase
was effected as EPCOS ramped up its production capacity to accommodate both a
forceful recovery in demand and the transfer of production of a number of TDK products. The personnel build-up took place almost exclusively in countries with low labor
costs.
More than half of work force in China
68 percent of our people were employed in Asia in the period under review (65 percent in fiscal 2009). More than three quarters of these people were based in China,
the world’s largest regional electronics market, where we now employ 54 percent of
our work force. China also accounted for nearly 90 percent of the personnel build-up.
Mainly due to the transfer of production of TDK products, our facility in Hongqi in
particularly is being expanded significantly.
 EPCOS AG 2010 ● 17
Our employee base in Europe without Germany shrank by 2 percentage points to
17 percent in the period under review. The corresponding figure in Germany was
down 1 percentage point to 8 percent. The Americas’ share of the total EPCOS work
force remained unchanged at 7 percent.
In absolute terms, the number of employees increased by about 3,300 in countries
with low labor costs and by about 50 in countries with high labor costs in the period
under review. The proportion of our work force employed in low-labor-cost countries
thus rose to 84 percent (82 percent in fiscal 2009).
R&D staff numbers increased
In the short fiscal year 2010-S, EPCOS raised the total number of people employed
worldwide in research and development (R&D) to about 850 (800 in fiscal 2009).
Focus on technical expertise in Sales
Our worldwide sales and product marketing network is one of the reasons why
EPCOS stands for competence and customer orientation in application-specific
solutions around the globe. About 800 employees – more than half of whom are
engineers and technical experts – are deployed to serve our customers worldwide.
EPCOS is thus well prepared to work together with customers and find the best
solutions every time.
 EPCOS AG 2010 ● 18
ASSETS AND FINANCIAL POSITION
S&P rating improved further to »A«
Balance sheet structure EUR million
Equity
Debt
2009
2010-S
532
552
758
866
Equity ration and gearing
Equity ratio
Gearing
2009
2010-S
41%
39%
69%
81%
Net cash flow EUR million
Net income/loss
Depreciation and amortization
Change in net current assets
Change in provisions and other adjustments
2009
2010-S
-121
7
126
71
16
-49
10
2
Net cash provided by operating activities
Net capital expenditures (on property, plant, equipment and
intangible assets)
Payments for the acquisition of businesses and equity investments
Net proceeds from the sale of businesses/other
Net cash used in investing activities
Net cash flow
31
31
-83
-80
-20
---
3
---
-100
-80
-69
-49
Assets
Current assets including cash and cash equivalents rose by EUR 97 million to
EUR 685 million in the period under review. Liquidity increased slightly by EUR 5
million to EUR 125 million. Inventories increased by about EUR 40 million, due to
volume growth especially toward the end of the short fiscal year. The higher inventory
figure also includes a EUR 14 million increase in stocks of materials. This rise can be
explained partly by the fact that new projects that will not deliver significant sales
revenues until fiscal 2011 were ramped up in the period under review. At the same
time, EPCOS built up safety stocks in response to existing and expected shortages of
some materials on the market. Both accounts receivable and other short-term financial and non-financial assets were up significantly again as a result of growing sales.
 EPCOS AG 2010 ● 19
Fixed assets and other long-term assets rose by EUR 30 million to EUR 732 million,
primarily due to the increase in intangible assets and property, plant and equipment.
Total assets thus stood at EUR 1,418 million on March 31, 2010, a gain of EUR 128
million compared with the figure at September 30, 2009.
Shareholders’ equity and liabilities
On the liabilities side of the balance sheet, financial debt increased by EUR 53 million
to EUR 341 million in the short fiscal year 2010-S. Net financial debt of EUR 446
million at the balance sheet date includes pension liabilities totaling EUR 230 million.
Net borrowings thus rose by EUR 64 million in the period under review. For volume
reasons, accounts payable increased by EUR 33 million to EUR 152 million. Other
short-term financial and non-financial liabilities dropped slightly by around EUR 6
million. Pension liabilities rose by about EUR 32 million due to actuarial effects and
reclassification on the balance sheet (see section 6.29 in the notes).
Equity rose by EUR 20 million to EUR 552 million (EUR 532 in fiscal 2009). This
increase was attributable essentially to net income of plus EUR 7 million, an increase
in minority interests and positive exchange rate effects. Conversely, the equity ratio
declined by two percentage points to 39 percent (41 percent in fiscal 2009).
Due to the further increase in financial debt and pension liabilities while equity rose
only slightly, EPCOS’ gearing ratio worsened to 81 percent in the period under review
(69 percent in fiscal 2009; without the balance sheet reclassification referred to in
section 6.29 of the notes, the comparable figure would have been 72 percent). Gearing is defined as the ratio of financial debt plus pension liabilities (EUR 571 million)
less cash and cash equivalents (EUR 125 million) to shareholders’ equity (EUR 552
million).
In addition to the liquid funds at EPCOS’ disposal, a credit line of EUR 300 million
has been made available by TDK. At the balance sheet date, EUR 250 million had
been drawn on this line. On March 31, 2010, EPCOS also had further borrowing
arrangements totaling EUR 104 million, of which EUR 30 million had been drawn at
the balance sheet date. Future needs for financing can be covered with credit from
within the TDK Group.
Net cash flow
EPCOS’ net cash flow totaled minus EUR 49 million in the short fiscal year 2010-S.
At EUR 31 million, net cash provided by operating activities remained roughly unchanged from the previous fiscal year. Net income of EUR 7 million and depreciation
and amortization totaling EUR 71 million in particular had a positive impact, while the
increase of about EUR 49 million in net working capital had the opposite effect. Net
cash used in investing activities (invested in property, plant, equipment and intangible
assets) came to EUR 80 million.
 EPCOS AG 2010 ● 20
Rating improved further
On December 18, 2009, Standard & Poor’s again raised our rating, this time from
»BBB« to »A«. The »developing« outlook remained unchanged. In addition to the
financial support made available by TDK, the reasons for the improvement in the
ratings is the fact that combination of TDK’s components business with EPCOS is so
far proceeding according to plan and the anticipated improvement in the company’s
competitive position as synergies (on cost, for example) are leveraged.
EPCOS AG
Ratios improved at EPCOS AG too
Balance sheet data for EPCOS AG
Total assets
Shareholders’
equity
EUR million
2009
1,114
±
+4.9%
2010-S
1,169
EUR million
562
+6.4%
598
+7.3%
51%
599
51%
Share of total assets
Non-current assets EUR million
Share of total assets
50%
558
50%
EPCOS AG, Munich, was created on September 2, 1999, by a change in legal form
of Siemens Matsushita Components GmbH, Munich (S+M GmbH). Until August 17,
1999, the latter company had operated under the name Siemens Matsushita Components Verwaltungsgesellschaft mbH, Munich (SMV mbH). Prior to this, the assets of
Siemens Matsushita Components GmbH & Co. KG, Munich (S+M KG) had passed to
SMV mbH effective July 1, 1999.
At the end of the short fiscal year 2010-S, EPCOS AG employed 1,614 people,
compared with 1,606 at the close of fiscal 2009.
Unlike the consolidated financial statements, which were prepared in accordance
with International Financial Reporting Standards (IFRS) as they are to be applied in
the European Union, the financial statements for EPCOS AG for the short fiscal year
ending March 31, 2010, were prepared in accordance with the accounting principles
prescribed by the German Commercial Code (HGB) and the German Stock Corporation Law (AktG).
 EPCOS AG 2010 ● 21
Sales
Substantially better economic developments positively impacted EPCOS AG's sales
in the short fiscal year under review. Sales totaled EUR 452 million, equivalent to
about 60 percent of sales posted for the whole of fiscal 2009 (EUR 746 million).
EPCOS AG accounts for such a large proportion of the Group’s consolidated sales of
EUR 696 million because all key Group subsidiaries report their sales for Europe and
selected other countries via EPCOS AG.
The three business segments made varying contributions to the sales of EPCOS AG.
Capacitors and Inductors once again accounted for the largest share of EPCOS AG's
sales, contributing 38 percent – unchanged from the previous year – to its total sales.
The Ceramic Components segment in particular benefited in the period under review
from reviving demand for products for use in automotive electronics applications. This
segment saw its share of EPCOS AG’s total sales increase slightly to 31 percent
(30 percent in fiscal 2009). Accordingly, SAW Components’ share of total EPCOS AG
sales declined by one percentage point to 31 percent (32 percent in fiscal 2009).
The regional breakdown of EPCOS AG's sales was shaped in particular by stronger
demand from the automotive and industrial electronics industries, causing Germany's
share of sales to rise to 42 percent (40 percent in fiscal 2009). The share of sales
accounted for by other European countries was slightly down at 38 percent (39
percent in fiscal 2009). The remaining regions saw their share decline to 20 percent
(21 percent in fiscal 2009).
Earnings
EPCOS AG recorded net income of about EUR 36 million in the short fiscal year
2010-S (against a net loss of EUR 17 million in fiscal 2009). This year-on-year improvement was due essentially to higher dividend payouts by foreign subsidiaries
totaling EUR 53 million (EUR 15 million in fiscal 2009). Positive volume effects driven
by stronger demand also had an effect. Other operating income and expenses were
influenced essentially by internal transfer charges and the currency translation result
from operations.
Capital expenditure
EPCOS AG invested a total of EUR 22 million in property, plant and equipment in the
period under review. Most of this money was used by the SAW Components segment, primarily to expand production capacity. At EPCOS AG, capital spending for
the Capacitors and Inductors segment and the Ceramic Components segment was
minimal, as the lion’s share of the production activities of these two segments is
already based outside EPCOS AG.
 EPCOS AG 2010 ● 22
RISK REPORT
Reliable risk management
EPCOS is exposed to a variety of risks that are inherent to the nature of its business
activities. The most urgent challenge facing us is to seize opportunities while seeking
to limit our risks. Accordingly, we align our policy on risk with our business strategy.
Within the framework of this strategy, we continually take steps to avoid inordinate
risks wherever possible.
The risks outlined below could impair our business, our financial resources and our
earnings. They are not the only risks to which we are exposed. Additional risks of
which we are currently unaware or which we currently regard as immaterial could
also influence our business.
We use financial derivatives to hedge some of the risks described, especially interest
and foreign exchange risks. The credit facilities that allow us to finance our global
business are denominated in different currencies and have different maturities. Some
of them are exposed to the risk of changes in interest rates. Regular analyses of
interest risks in the currencies relevant to EPCOS ensure that these risks are reduced to a minimum. In accordance with IFRS, all derivative financial instruments are
reported in the consolidated financial statements at their market value. To avert the
risk of default, EPCOS selects banks with first-class credit ratings as contractual
partners for financial derivatives. EPCOS also uses financial derivatives to avoid risks
arising from fluctuations in the market price of precious metals.
Details of the derivative instruments that we currently use and have used in the past
are provided in the section 6.31 of the notes to the consolidated financial statements.
Macroeconomic risks
Volatility and cyclical demand patterns are characteristic features of the market for
electronic components, modules and systems. Demand is dependent to a larger
degree on fluctuations in the global economy.
The short fiscal year 2010-S was shaped by a global economic recovery. EPCOS
was able to benefit from the improved economic conditions in all industries served
and regions. However, fluctuations in energy and material costs and the still significant volatility of exchange rates are continuing to fuel considerable uncertainty on the
markets.
Therefore, a degree of uncertainty about the wider economic context remains, which
makes it difficult to forecast future sales volumes and selling prices. Some of our
customers themselves operate in cyclical industries. Their demand for electronic
 EPCOS AG 2010 ● 23
components, modules and systems thus depends heavily on developments in their
own markets. This fact can significantly alter the pattern of sales at EPCOS, which in
turn may drive up unit costs. At the same time, adverse conditions make it more
difficult to plan production volumes and material consumption, and to forecast our
customers’ future delivery requirements. We therefore regularly adjust our inventories
to accommodate potential consumption, range of coverage and technical risks. The
risk of falling prices is factored into our inventory valuations – and our accounting
principles – on an ongoing basis.
EPCOS primarily operates in markets subject to fast innovation and very rapid technological change. There is therefore always the danger that we might not respond as
quickly as competitors to new market trends and/or technologies, thus losing market
share. To minimize this risk, EPCOS invests – compared to its competitors – a relatively large share of sales in research and development.
Competition risks
The electronic components, modules and systems industry in which we operate is
fiercely competitive. As a rule, the prices of our products fall in the course of their life
cycle. In this regard, globalization has made the prevailing conditions in this business
in particular considerably more difficult. Growing numbers of competitors from Asia,
especially China, are penetrating the market with lower prices. For component manufacturers such as EPCOS, it is therefore as vital as ever to quickly develop and
market competitive solutions. In this process, there is the risk that ramping up new
products will cause unexpectedly high costs and thus negatively affect the earnings
situation.
EPCOS is meeting these challenges by continually improving the quality of its processes, products and services and by relocating business processes to countries with
low labor costs. The goal is to cut costs continually while ensuring that our customers
gain maximum benefits from our technological expertise. Accordingly, EPCOS constantly invests in developing and marketing its technologies and products.
Credit risks
We define credit risk as the risk of financial losses incurred if a contractual partner
fails to meet its payment obligations. Credit risk or default risk exists primarily in
relation to accounts receivable. To reduce this risk, we define a maximum volume of
receivables outstanding for each customer. For this reason, and because of our
broad customer base, the amount of receivables outstanding per customer does not
reach a level that would pose a threat to the survival of the company should individual customers default.
The current amount of receivables outstanding is monitored constantly in the context
of our asset management activities. Reminders are issued swiftly as and when
amounts become overdue. We also examine the creditworthiness of our customers,
obtaining information from the relevant banks as a matter of course. In response to
 EPCOS AG 2010 ● 24
the increased risk of default due to the financial and economic crisis, we have further
expanded our monitoring methods.
The maximum default risk for operative accounts receivable is generally equal to the
book value.
In the past, EPCOS’ customers have never defaulted on significant receivable
amounts.
Liquidity risks
Liquidity risks refer to the danger that EPCOS might no longer be able to meet its
payment obligations arising, for example, from payment of interest, the repayment of
loans, capital expenditures, taxes, and other payments relating to operating business.
EPCOS currently has a credit facility totaling EUR 300 million supplied by the TDK
parent company. Part of this facility has been used. Our assumption is that continued
availability of both this credit facility and the existing scope of further credit facilities
provided by various banks will be assured beyond the current fiscal year. Regarding
the further credit facilities provided by banks, we must in the future continue to satisfy
the terms of credit covenants, some of which contain performance metrics. In addition to these instruments, we constantly monitor the alternative forms of funding
available on the financial markets, including their costs. One primary goal is to maintain EPCOS’ financial flexibility and contain inordinate financing costs and risks.
Should the crisis on the international financial markets persist for a prolonged period,
this could limit the alternative sources of finance available to us in the future. However, in view of the finances made available by TDK, this would pose no immediate
threat to EPCOS.
Our long-term liquidity management is based on a rolling three-year plan which
determines the Group’s financing structure for the years ahead. To manage liquidity
in the short term, regular liquidity forecasts are produced together with rolling estimates of net cash to be provided by and used in operating and investing activities.
These measures enable us to respond quickly to any changes, minimize financing
risks and optimize the short-term investment returns on excess liquidity.
Payment obligations arising from liabilities reported on the balance sheet are pre1
sented in section 6.31 of the notes to the consolidated financial statements.
Interest rate risks
To a moderate extent, we are subject to the risk of changes in interest rates, as on
the one hand floating interest rates have been agreed for isolated loan contracts as is
the case with the financing already provided by TDK, and on the other hand our
liquidity is invested on a rolling basis for periods of no more than three months.
1
See table "Maturity of financial liabilities"
 EPCOS AG 2010 ● 25
Details of the scope of floating-rate loans are provided in the notes on financial
liabilities (see section 6.22 in the notes to the consolidated financial statements).
To reduce our exposure to interest rate risks, Corporate Finance at EPCOS AG
supplies Group companies with funds in the form of internal loans and via cash
pooling systems, insofar as this is possible and reasonable under country-specific
laws. Conversely, Group companies transfer their excess liquidity to Corporate
Finance to the extent permitted by local law.
EPCOS tracks and monitors only those interest rate risks that affect liquidity. The fair
value of fixed-interest loans is determined by their interest rates. However, this risk
has no effect on the balance sheet as borrowings are recognized at amortized cost. If
the interest rate were to rise by 100 basis points, interest payments on our floatingrate credit facilities (as of March 31, 2010) would increase by EUR 3.0 million per
annum.
Foreign exchange risks
The global nature of our business leads to payment flows in various currencies, of
which the euro (EUR), the US dollar (USD), the Japanese yen (JPY) and the Singapore dollar (SGD) remain the most important to the EPCOS Group. Since EPCOS’
companies are exposed to foreign exchange risks, exchange rate hedging is an
essential part of our risk management practice. One further factor is that exchange
rate fluctuations can improve the cost position of other component manufacturers and
thus affect market prices
To minimize foreign exchange risks, EPCOS has in recent years transferred more
and more of its value added and sourcing processes from Central Europe to countries with lower labor costs. The currencies in many of these countries are more or
less closely tied to the US dollar. About 40 percent of EPCOS’ value added is now
generated in the extended US dollar area. This has reduced the company’s net risk
exposure and softened the impact on earnings due to pressure caused by the US
dollar. Imports from US dollar regions however will become more expensive due to
the current strength of the US dollar.
Foreign exchange risks arise because of cash flows at Group companies that are not
denominated in those companies’ presentation currencies. Most such cash flows are
in euros, US dollars, Japanese yen or Singapore dollars. To reduce such risks, we
are careful to have as many transactions as possible (sales, purchases and financing
transactions) agreed in the relevant presentation currencies and to break even on
foreign currency items. Residual foreign exchange risks are constantly tracked in our
central foreign exchange management system. Appropriate instruments – primarily
forward exchange contracts and options – are then used to hedge net amounts
denominated in the various currencies, usually for a period of three months.
On March 31, 2010, and September 30, 2009, the Group was exposed to the following foreign exchange risks:
 EPCOS AG 2010 ● 26
Net foreign exchange volume at risk
(in EUR million, on March 31, 2010, and on September 30, 2009)
2010-S
EUR
USD
2009
JPY
SGD
EUR
USD
JPY
SGD
Liquid funds and financial
assets
13.5
25.1
36.9
8.7
8.9
16.9
339.8
2.2
Accounts receivable
55.6
231.8
14.7
0.1
57.6
206.9
447.6
0.1
-146.5 -1,820.6
-4.5
-70.7
-130.4 -2,250.1
-4.9
0
0
-21.2
69.2 -1,769.0
4.3
-25.4
Accounts payable
-43.4
Foreign currency loans
-20.6
Gross foreign exchange risk
Estimated future net risk
Existing collateral security
Net foreign exchange risk
-41.2
5.1
-33.4
0
0
59.9 -1,462.7
-2.6
13.9
8.2
-237.3
-10.1
23.8
27.0
-525.4
-8.7
-10.7
-103.8
1,772.9
9.3
-1.0
-75.3
2,248.3
10.3
8.3
26.3
-233.4
3.5
-2.6
11.6
260.2
-1.0
The table below reflects EPCOS’ sensitivity to exchange rates. This sensitivity is
indicated by showing the impact on pre-tax profits of a hypothetical 10 percent upward or downward revaluation of the euro against the US dollar, the Japanese yen
and the Singapore dollar on March 31, 2010, and on September 30. This analysis
also assumes that all other variables – particularly interest rates and exchange rate
pairings other than those specified – will remain unchanged.
Sensitivity to exchange rates (in EUR million, on March 31, 2010, and on September 30,
2009)
2010-S
Result of a 10 percent upward revaluation
of the EUR
Result of a 10 percent downward revaluation of
the EUR
2009
USD
JPY
SGD
USD
JPY
SGD
-1.3
-0.1
-0.7
-0.6
0.1
-0.3
1.6
0.1
0.8
0.7
-0.2
0.4
Procurement risks
To avoid delivery shortages and dependence on suppliers of our most important raw
materials, EPCOS as a rule maintains alternative procurement sources. In addition,
innovation and the constant improvement of our technologies and processes are
 EPCOS AG 2010 ● 27
instrumental in reducing our requirements for expensive raw materials. Some of our
products nevertheless need materials that only a limited number of suppliers can
deliver in the required quality, or that are based on raw materials traded on commodity exchanges. In isolated cases, it is therefore possible for supply bottlenecks or
fluctuations in prices to occur over which EPCOS has no control. Examples include
silver palladium pastes for production of piezo actuators, for example, as well as
wafers made of lithium niobate, lithium tantalate and quartz for the manufacture of
surface acoustic wave (SAW) components.
Product liability and warranty claims
We are liable to our customers and end consumers for the quality of our products.
Despite comprehensive quality assurance measures, which we regularly monitor and
constantly refine and develop, a slight risk remains that individual EPCOS products
might be defective. Such defects could cause damage to our customers’ products.
Defective products supplied by EPCOS could therefore lead to warranty claims
against the company, or to liability claims for damages from customers throughout
the entire supply chain as a result of such defects. Moreover, defective products from
EPCOS could also impair our marketing success.
Personnel risks
EPCOS’ success depends on the knowledge, experience, motivation, performance
and commitment of its employees.
Our human resources policy therefore focuses on nurturing a corporate culture in
which a spirit of entrepreneurship and initiative are promoted, encouraged and allowed to develop on all levels and in every part of the organization. To sharpen our
competitive edge and continually strengthen our position with respect to rivals,
EPCOS must enable its employees – especially its best and most talented ones – to
contribute the full extent of their capabilities and thereby deliver top performance. We
also employ performance- and success-linked income components and compensation systems in order to increase the motivation of our employees. We are well aware
that it is very difficult to replace high performers at short notice. We therefore intensively plan the development of human potential and talent to prevent the loss of such
expertise wherever possible, or at least to be able to replace it quickly if necessary.
We also recruit experienced and highly qualified experts as required.
Information technology risks
EPCOS has established a comprehensive system of data lines and networks in order
to safeguard its international data traffic. EPCOS faces the following information
technology risks: networks can fail, data can be corrupted by operating or program
errors, and data can be manipulated or destroyed by external influences. We manage
these risks through our regular investments in hardware and software, through the
use of virus scanners, firewalls, access controls, and regular data backups, as well
as through the use of backup systems. Centralized computer systems are designed
 EPCOS AG 2010 ● 28
to be highly secure and ensure high availability, so that a total outage of these systems is unlikely.
The staff members responsible for the security of information technology monitor and
manage these measures constantly.
Environmental risks
Our global business activities are subject to local environmental legislation and
regulations on air pollution, pollution of ground water, waste water treatment, waste
disposal, the use and handling of hazardous substances, soil analysis and decontamination, and other issues. Liability risks to our past and present business operations arise from all of these factors.
In the future, additional environmental requirements could make it necessary for us to
adapt our environmental standards, which are already very strict, to new obligations.
This could, for example, drive up production costs and force us to modify our production processes.
Opportunities
The founding of TDK-EPC Corporation (TDK-EPC) in Japan on October 1, 2009, has
created a global leading manufacturer of electronic components, modules and systems – a company with a strong position in all key markets. The outlook for the new
company is very promising, given that the components activities of TDK and EPCOS
barely overlap and complement each other very well. That holds true in terms of
technology and products as well as in terms of customers and sales markets. One
benefit is that TDK is well established in Asia, the world’s fastest growing region,
especially in the consumer electronics and information technology markets. For its
part, EPCOS occupies a strong position above all in Europe in the growing automotive and industrial electronics markets, as well as in the global market for mobile
communication applications (see also Management Report, Industries section).
In addition to the general opportunities associated with entrepreneurial activity,
further opportunities for EPCOS derive from the trends toward greater energy efficiency and better protection of the environment, both of which are impacting all the
industries we serve, although to differing degrees. In the automotive industry, for
example, the increasingly widespread use of fuel-efficient and environmentally
friendly engines plus the issue of electromobility should provide EPCOS with further
impetus for growth. We also expect the increasingly broad functionality of mobile
handsets to stimulate growing demand for our miniaturized products. In this context,
we will benefit from the fact that EPCOS is especially well positioned in the markets
for high-end (smart) phones – the market for which is expanding much faster than the
market for low-end handsets.
A permanent standing as the technology and innovation leader gives EPCOS the
chance to sustainably reinforce and improve its position in the various industries
 EPCOS AG 2010 ● 29
served. Here too, the combination with TDK’s electronic components business gives
us the chance, drawing on our shared, stronger and broader base of technological
expertise, to develop new products. These are an important prerequisite for the
assurance and improvement of our competitiveness and the generation of new
business potential.
Superior innovation in and the flawless quality of technologies, processes and products are critical factors of success in global competition. Accordingly, EPCOS’ ongoing moves to improve quality – in the context of its zero-defect quality offensive, for
example – give the company the chance, on the basis of market-leading quality, to
consolidate and improve on its position in increasingly quality-sensitive markets.
OUTLOOK
Further improvement in business development expected
Positive economic forecasts
After a severe crisis, the global economy is in total on course for recovery. As a
result, EPCOS is now seeing demand for electronic components, modules and
systems revive across all industries and regions.
Economic research organizations expect the global economy to grow significantly in
2010. The International Monetary Fund (IMF), for example, predicts global growth of
4.2 percent for the calendar year as a whole (against minus 0.6 percent in 2009). In
the industrialized countries, the IMF expects output to increase by 2.3 percent
(against minus 3.2 percent in 2009). Leading German economic institutes anticipate
growth of 1.5 percent in Germany (against minus 5.0 percent in 2009).
Unsolved problems on the financial markets could lead to a less favorable macroeconomic development. Moreover, the high national debts of individual countries
bear risks for the further recovery of the real economy. Nevertheless, the resulting
weakness of the euro improves our competitiveness and could thus actually be
beneficial for our business.
Capital expenditure less than depreciation; higher productivity
In fiscal 2011 (April 1, 2010, through March 31, 2011), EPCOS anticipates a capital
spending volume of more than EUR 100 million. This figure will be less than depreciation and amortization in the same period. Money will be invested in increasing
capacity and in equipment and production facilities as volume production of new
products is ramped up – especially for SAW Components. EPCOS subsidiary
 EPCOS AG 2010 ● 30
Becromal will also continue with the expansion of a factory in Iceland to produce
aluminum foil.
EPCOS remains as committed as ever to cutting costs and increasing efficiency. In
this context, continually improving the quality of our processes, products and services
is one of the most important things we are doing to cut the cost of defects. Wherever
it is possible and makes sense, we are transferring business processes to countries
with low labor costs, primarily in order to reduce personnel expenses. In the future
too, improving productivity will remain another key focus. Moreover, we are expecting
the first significant synergy effects from the combination with TDK.
Higher sales, significantly better earnings
At the time when this report was being prepared (mid-May 2010), EPCOS’ overall
sales had returned to pre-crisis levels. Since the economy is gaining momentum and
demand for components is rising as a result, we expect to see double-digit year-onyear sales growth against the comparable period of the previous year (sales:
EUR 1.30 billion) and significantly positive earnings before interest and tax (EBIT) in
fiscal 2011.
If the economic climate remains positive beyond fiscal 2011, it is reasonable to
assume that EPCOS’ business will continue to develop positively in fiscal 2012 (April
1, 2011, through March 31, 2012).
Subsequent events
Since the end of the short fiscal year 2010-S, no events have occurred that are of
material significance to the earnings, financial and assets position of the EPCOS
Group.
This document may contain forward-looking statements with respect to EPCOS’ financial condition, results of operations, business, strategy and plans. In particular, statements using the
words “expects,” “anticipates” and similar expressions, and statements with regard to management goals and objectives, expected or targeted revenue and expense data, or trends in results
of operations or margins are forward looking in nature. Such statements are based on a number
of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including changes in our customers’ industries, slower growth in significant markets,
changes in our relationships with our principal shareholders, the ability to realize cost reductions
and operating efficiencies without unduly disrupting business operations, currency fluctuations,
unforeseen environmental obligations, and general economic and business conditions. EPCOS
does not assume any obligation to update publicly any forward-looking statement, whether as a
result of new information, future events or otherwise.
 EPCOS AG 2010 ● 31
Consolidated Financial Statements
Short Fiscal Year 2010
 EPCOS AG 2010 ● 32
1. Consolidated income statement
For the years ending March 31, 2010, and September 30, 2009
(EUR thousand)
Note
2010-S
Net sales
Third parties
Related parties and persons
Total net sales
Cost of sales
Gross profit
Marketing and selling expenses
Research and development expenses
General and administrative expenses
Other expenses and income, including foreign exchange
gains/ (losses), net
Interest income
Interest expenses
Net (loss)/ income from investments accounted for using the
equity method
Share of net income from other investments
Net loss from other financial income and financial expenses
Income before income taxes
Current and deferred taxes
Profit/ (loss)
Attributable to
Owners of the parent EPCOS AG
Non-controlling interest (Minority interest)
6.4.5
6.4.6
6.11
6.9
6.9
6.10
6.4.7, 6.28
2009
678,304 1,134,521
17,980
12,564
696,284 1,147,085
(576,002) (1,048,870)
120,282
98,215
(49,641)
(98,610)
(39,027)
(79,936)
(5,901)
(11,736)
(2,156)
12,938
1,620
(10,623)
6,493
(27,099)
(103)
448
37
(1,557)
12,931
(6,065)
6,866
26
(3,883)
(103,144)
(17,744)
(120,888)
6,731
135
(119,592)
(1,296)
 EPCOS AG 2010 ● 33
2. Consolidated statement of comprehensive income
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Note
Profit or loss including non-controlling interest
Currency translation adjustment
Available-for-sale financial assets
Derivative financial instruments
Actuarial gains/ losses arising from pensions and similar
obligations
Other comprehensive income for the period, after tax 1)
Total comprehensive income for the period, after tax
Attributable to:
Non-controlling interest (Minority interest)
Owners of the parent EPCOS AG
1)
6.4.4
6.4.12
6.4.11
6.29
2010-S
2009
6,866
20,085
503
731
(120,888)
(7,059)
87
8,128
(12,135)
(27,724)
9,184
16,049
(26,568)
(147,456)
1,663
14,386
(2,328)
(145,128)
Includes a non-controlling interest (minority interest) of plus EUR 1.5 million
(previous period: minus EUR 1.0 million) due to currency translation adjustments.
The consolidated statement of comprehensive income includes the gains and losses
within equity that are not part of the consolidated income statement.
Income tax relating to other comprehensive income in EPCOS Group for the years
ending March 31, 2010, and September 30, 2009 amounted to:
Tax effects
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Note
Available-for-sale financial assets
Derivative financial instruments
Actuarial gains/ losses arising from pensions and similar
obligations
6.4.12
6.4.11
6.29
2010-S
2009
(243)
(90)
(2,710)
(1,011)
3,633
Currency translation adjustments include currency effects of companies accounted
for using the equity method in amount of plus EUR 0.3 thousand and minus EUR
0.1 million for the years ending March 31, 2010 and September 30, 2009.
 EPCOS AG 2010 ● 34
3. Consolidated balance sheet
At March 31, 2010, and September 30, 2009 (EUR thousand, except number per share data)
Note
ASSETS
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
Other non-current financial assets
Deferred tax assets
Other non-current assets
Total non-current assets
Inventories
Trade receivables
Cash and cash equivalents
Other current financial assets
Income tax receivables
Other current assets
Total current assets
Total assets
LIABILITIES AND EQUITY
Share capital – 68,628,270 (96,280,000 at September 30,
2009) shares authorized and 66,682,270 shares issued and
outstanding at March 31, 2010, and September 30, 2009
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total equity without non-controlling interest
Non-controlling interest (Minority interest)
Total equity
Pensions and similar obligations
Other non-current provisions
Non-current debt
Other non-current financial liabilities
Other non-current liabilities
Deferred tax liabilities
Non-current liabilities and provisions
Pensions and similar obligations
Other current provisions
Trade liabilities
Current debt
Other current financial liabilities
Other current liabilities
Income tax liabilities
Current liabilities and provisions
Total liabilities and equity
6.4.8, 6.12
6.4.9, 6.12
6.4.2, 6.13
6.4.12, 6.31
6.4.7, 6.28
6.4.13, 6.14
6.15
6.4.14, 6.16
6.17
6.18
6.19
6.19
6.19
6.19
6.19
6.29
6.5.4, 6.21
6.22
6.23
6.23
6.4.7, 6.28
6.29
6.5.4, 6.21
6.22
6.23
6.23
2010-S
2009
560,609
66,003
3,273
18,256
63,861
20,478
732,480
257,319
253,040
124,608
14,950
3,270
32,058
685,245
1,417,725
552,828
61,192
3,125
17,588
62,960
4,357
702,050
217,275
213,364
119,475
11,870
2,616
23,404
588,004
1,290,054
66,682
66,682
289,746
169,467
1,643
527,538
24,878
552,416
219,205
12,297
49,257
1,715
9,369
6,610
298,453
10,551
34,598
151,974
291,548
13,762
58,916
5,507
566,856
1,417,725
289,746
162,736
(6,012)
513,152
18,586
531,738
187,622
27,025
50,042
15
9,017
6,550
280,271
10,063
29,034
118,647
238,390
20,172
58,601
3,138
478,045
1,290,054
 EPCOS AG 2010 ● 35
4. Consolidated cash flow statement
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Note
Cash flows from operating activities
Net income (loss)
Depreciation of property, plant and equipment
Amortization of intangible assets
Loss/ (Gain) on sale of property, plant and equipment
Deferred tax
Share of net income of non-consolidated affiliates and at equity
companies
Other non-cash items
(Increase)/ Decrease in inventories
(Increase)/ Decrease in trade receivables and other assets
Increase/ (Decrease) in trade liabilities and other liabilities
Increase/ (Decrease) in current and non-current accrued expenses
Increase in pension liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures on tangible and intangible assets, net
Increase in financial assets
Proceeds from sales of tangible and intangible assets
Payment for acquisitions of business and business units, net
Investments in associates and unconsolidated companies
Net cash used in investing activities
Cash flows from financing activities
Net increase in current borrowings
Proceeds from issuance of non-current debt
Principal payments on non-current debt
Principal payments under finance lease obligations
Repayment of convertible bond
Dividends paid to owners of the parent EPCOS AG
Issue of share capital
Dividends paid to non-controlling interest
(Funding)/ Repayment the Contractual Trust Arrangements
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of fiscal year
Cash and cash equivalents at end of period
6.12
6.12
6.14
6.15
6.21
6.29
6.12
6.12.3
6.4.2
6.22
6.19
6.19
6.16
6.16
6.16
2010-S
2009
6,866
68,002
2,767
1,231
(781)
(120,888)
121,854
4,568
(51)
7,553
103
(448)
(6,834)
(33,532)
(41,031)
25,645
4,588
4,247
31,271
19,379
44,610
57,331
(86,491)
(22,721)
6,538
31,234
(80,262)
(195)
276
(80,181)
(83,095)
(1,078)
3,771
(18,081)
(1,436)
(99,919)
52,822
3,281
(5,835)
(1,835)
(293)
48,140
5,903
5,133
119,475
124,608
173,002
375
(41,888)
(1,543)
(123,686)
(19,929)
503
(292)
1,920
(11,538)
1,290
(78,933)
198,408
119,475
 EPCOS AG 2010 ● 36
Additional information on payments received and made
Interest received
Interest paid
Dividends received
Cash flows from income taxes, net
2010-S
2009
738
(3,647)
(5,794)
2,783
(11,060)
21
(8,885)
 EPCOS AG 2010 ● 37
5. Consolidated statement of changes in equity
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Accumulated other comprehensive income
Share Additional Retained Currency Derivative AvailablePension Total equity attributcapital
paid-in earnings translation financial
for-sale
adjustments able to owners of the
capital
adjustinstru- financial
and similar
parent EPCOS AG
ment
ments
assets
obligations
Balances at September 30,
2008
Dividends
Total comprehensive
income
Issue of share capital
Share-based payment
Non-controlling effects from
first-time consolidation and
the capital increase
Balances at September 30,
2009
Balances at September 30,
2009
Dividends
Total comprehensive
income
Non-controlling effects
from first-time consolidation and the capital
increase
Balances at March 31,
2010
Noncontrolling
interest
(Minority
interest)
Total
66,431
285,332
302,257
4,537
(8,859)
698
23,148
673,544
7,032
680,576
-
-
(19,929)
-
-
-
-
(19,929)
(330)
(20,259)
-
-
(119,592)
(6,027)
8,128
87
(27,724)
(145,128)
(2,328)
(147,456)
251
-
4,242
172
-
-
-
-
-
4,493
172
-
4,493
172
-
-
-
-
-
-
-
-
14,212
14,212
66,682
289,746
162,736
(1,490)
(731)
785
(4,576)
513,152
18,586
531,738
66,682
289,746
162,736
(1,490)
(731)
785
(4,576)
513,152
18,586
531,738
-
-
-
-
-
-
-
-
-
-
-
6,731
18,556
731
503
(12,135)
14,386
1,663
16,049
-
-
-
-
-
-
-
-
4,629
4,629
66,682
289,746
169,467
17,066
-
1,288
(16,711)
527,538
24,878
552,416
 EPCOS AG 2010 ● 38
6.
Notes to the consolidated financial statements
6.1
Supplementary information on the notes to the consolidated financial
statements pursuant to section 315a German Commercial Code
(Handelsgesetzbuch, HGB)
6.1.1 Statement in accordance with section 313 (2) HGB
Subsidiaries at March 31, 2010
(data in accordance with IFRS including purchase price allocations)
Affiliates
Equity Earnings
capital (Losses)
EUR
EUR
thousand thousand
Equity
interest
in %
Germany
Aktiv Sensor GmbH, Stahnsdorf, Berlin
2,125
(19)*
100
Ernst Herrmann Ingenieur AG & Co. KG, Berlin
4,778
1,414
100
37
-
100
Europe without Germany
Becromal Iceland ehf, Akureyri, Iceland
14,324
(1,157)
60
Becromal S.p.A., Mailand, Italy
41,364
(5,304)
100
9,835
(1,442)
100
145,584
(368)
100
43
3
100
EPCOS OHG, Deutschlandsberg, Austria
52,432
(1,152)
100
EPCOS Verwaltungsgesellschaft m.b.H,
Deutschlandsberg, Austria
149,832
9
100
2,042
151
100
266
64
100
EPCOS UK Ltd., Bracknell, UK
1,192
62
100
EPCOS Netherlands B.V., Nijmegen, Netherlands
2,906
84
100
247
105
100
Herrmann Beteiligungs GmbH, Berlin
Becromal Norway A.S., Notodden, Norway
EPCOS Beteiligungs G.m.b.H.,
Deutschlandsberg, Austria
EPCOS Lagerbetriebsgesellschaft m.b.H.,
Deutschlandsberg, Austria
EPCOS SAS, Saint Denis, France
EPCOS Nordic OY, Espoo (Helsinki), Finland
EPCOS Polska Sp.zo.o, Warsaw, Poland **
 EPCOS AG 2010 ● 39
372
19
100
88
63
100
EPCOS Nordic AB, Kista, Sweden
526
71
100
EPCOS Schweiz Vertriebs GmbH,
Zurich, Switzerland **
31
9
100
(13,404)
(780)
100
EPCOS s.r.o., Šumperk, Czech Republic
13,601
(1,315)
100
EPCOS Elektronikai Alkatrész Kft.,
Szombathely, Hungary
37,039
5,479
100
29,362
366
60
101,372
3,794
100
EPCOS (Shanghai), Ltd., Shanghai, China
1,687
328
100
EPCOS (Xiamen) Co., Ltd., Xiamen, China
12,163
148
60
EPCOS (Xiaogan) Co., Ltd., Xiaogan, China
4,075
793
76
EPCOS (Zhuhai) Co., Ltd., Zhuhai, China
15,906
2,929
100
EPCOS (Zhuhai FTZ) Co., Ltd., Zhuhai, China
26,196
7,485
100
3,214
562
100
41,745
6,432
100
3,039
110
53.6
17,852
2,980
100
409
(232)
100
EPCOS KK, Yokohama, Japan
1,897
(298)
100
EPCOS RDC SDN. BHD., Johor Bahru, Malaysia
4,304
3,258
100
11,442
2,037
100
120,680
9,983
100
EPCOS Korea LLC, Seoul, South Korea **
400
85
100
EPCOS Taiwan Co. Ltd, Taipei, Taiwan **
192
20
75
EPCOS 2 Portugal LDA, Lisbon, Portugal
EPCOS LLC, Moscow, Russia **
EPCOS Electronic Components S.A., Málaga, Spain
Asia
EPCOS (Anhui) Feida Electronics Co., Ltd,
Ningguo City, China
EPCOS (China) Investment Ltd., Shanghai, China
EPCOS Limited, Hong Kong, China
EPCOS Technology (Wuxi) Co., Ltd., Wuxi, China
Baoke Electronic (Wuxi) Co., Ltd, Wuxi, China
EPCOS India Private Ltd., Nashik, India
PT. EPCOS Indonesia, Batam, Indonesia
EPCOS SDN. BHD., Johor Bahru, Malaysia
EPCOS PTE LTD, Singapore
 EPCOS AG 2010 ● 40
Americas
Becromal of America, Inc., Clinton, Tennessee, USA
6,599
(1,395)
100
Crystal Technology, Inc., Palo Alto, California, USA
7,724
153
100
EPCOS Inc., Iselin, New Jersey, USA
8,676
95
100
22,003
344
100
8,183
(258)
40
EPCOS do Brasil Ltda., Gravataí, Brazil
At equity companies
Becromal Properties ehf, Reykjavik, Iceland
*
**
After consideration of profit/loss transfer agreements according to German law
Non consolidated companies
6.1.2 Statement in accordance with section 314 (1) No. 4 HGB
Personnel expenses for the EPCOS Group amounted to EUR 202.5 million for fiscal
2010 and EUR 378.4 million for fiscal 2009.
On average, the Company employed 21,294 people in fiscal 2010 and 19,502 people
in fiscal 2009 (part-time employees are calculated on a pro rata basis).
Employees
Average number in fiscal year
Germany
Foreign
Total
2010-S
1,761
19,533
21,294
2009
1,804
17,698
19,502
6.1.3 Statement in accordance with section 314 (1) No. 9 HGB
The following fee expenses for the services of E&Y Wirtschaftsprüfungsgesellschaft
GmbH were recognized as expenses in Germany in fiscal 2010 and 2009:
Type of fees
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Audits
Audit-related fees
Tax fees
Other fees
Total
2010-S
(502)
(8)
(510)
2009
(822)
(50)
(872)
 EPCOS AG 2010 ● 41
6.1.4 Statement in accordance with section 160 (1) No. 8 German Stock
Corporation Law (Aktiengesetz, AktG)
TDK Corporation and affiliated companies
a) On October 21, 2008, TDK Germany GmbH, Duesseldorf, Germany, has notified
the Company pursuant to section 21 (1) WpHG that its percentage of voting rights
in EPCOS AG exceeded the thresholds of 3 percent, 5 percent, 10 percent,
15 percent, 20 percent, 25 percent and 30 percent on October 17, 2008, and
amounts to 35.96 percent (23,890,050 voting rights) as per this date.
b) On October 5, 2009, TDK-EPC Corporation, Tokyo, Japan, has notified the Company pursuant to section 21 (1) WpHG that its percentage of voting rights in
EPCOS AG, exceeded the thresholds of 3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 50 percent and 75 percent on October 1, 2009, and amounts to 95.82 percent (corresponding to 63,897,064 voting
rights) as per this date. 30,244,901 of these voting rights, corresponding to
45.36 percent of the voting rights in EPCOS AG, are attributed to TDK-EPC
Corporation pursuant to section 22 (1) sentence 1 No.1 WpHG. Voting rights that
are to be attributed to TDK-EPC Corporation are held via TDK Germany GmbH
which is controlled by TDK-EPC Corporation and whose holdings of voting rights
in EPCOS AG amounts to 3 percent or more.
On March 31, 2010, TDK-EPC Corporation held 50.5 percent of the voting rights in
EPCOS AG, and TDK Germany GmbH held 49.5 percent.
6.1.5 Statement in accordance with section 161 AktG
The version of the statement of compliance with the German Corporate Governance
Code in accordance with section 161 AktG was provided by the Management Board
and Supervisory Board in December 2009, and made available via the Internet on
the EPCOS website.
 EPCOS AG 2010 ● 42
6.1.6 Governing bodies and Compensation report
6.1.6.1. Members of the Supervisory Board Data at March 31, 2010
Klaus Ziegler
Chairman;
Chairman of the Board of Directors of
TDK-EPC Corporation, Japan.
Takehiro Kamigama
President & Chief Executive Officer of
TDK Corporation, Japan;
President & Chief Executive Officer of
TDK-EPC Corporation, Japan;
Director of Toppan TDK Label Co. Ltd., Japan.
Prof. Dr. Anton Kathrein Deputy Chairman;
Managing Director and General Partner, KATHREINWerke KG.
Dr. Bodo Lüttge
Former Member of the Management Board of
EPCOS AG.
Shiro Nomi
Senior Vice President of TDK Corporation, Japan;
Director of Tabuchi Electronic Co., Ltd, Japan;
Director of TDK China Co., Ltd., China;
Director of TDK Taiwan Corporation, Taiwan;
Director of TDK (Malaysia) Sdn. Bhd., Malaysia;
Director of TDK Europe S.A., Luxembourg;
Director of TDK Lambda Holdings Inc., USA;
Director of TDK-EPC Corporation, Japan;
Managing Director of TDK Germany GmbH, Germany;
Director of TDK U.S.A. Corporation, USA;
Director of TDK Service Corporation, Japan;
Director of Toppan TDK Label Co. Ltd., Japan.
Prof. Dr. Claus Weyrich Former Member of the Management Board of
Siemens AG.
 EPCOS AG 2010 ● 43
Gültekin Demirel
(since March 2, 2010)
Member of EPCOS AG Works Council,
Munich facility.
Peter Geschka
(until March 2, 2010)
Product Technology Manager at the Surface Acoustic
Wave Components Division of EPCOS AG;
Member of EPCOS AG Works Council,
Munich facility.
Martin Heigl
(since March 2, 2010)
Union Secretary of IG Metall, Munich.
Peter Hoffmann
Deputy Chairman;
Chairman of EPCOS AG Works Council, Heidenheim
facility.
Michael Leppek
(until March 2, 2010)
Second Authorized Representative of IG Metall,
Munich.
Hans-Jörg Napravnik
Second Authorized Representative of IG Metall,
Heidenheim.
Joachim Niestroj
(since March 2, 2010)
Manager of the division SAW WT of EPCOS AG.
Claus Ryschawy
Chairman of EPCOS AG Central Works Council;
Deputy Chairman of the EPCOS AG Works Council,
Munich facility;
Chairman of the European Employee Council of the
EPCOS Group.
Winfried Wolff
(until March 2, 2010)
Quality System Manager at EPCOS AG.
 EPCOS AG 2010 ● 44
6.1.6.2. Members of the Management Board Data at March 31, 2010
Gerhard Pegam
President and Chief Executive Officer; also responsible
for Sales, Corporate Center, Human Resources, Business Group Capacitors (KO), Becromal.
Dr. Werner Faber
Technology and Quality; Business Groups Film Capacitors (FK), Magnetics (MAG), Piezo and Protection
Devices (PPD), Systems, Acoustics, Waves (SAW),
Sensors (SEN).
Joachim Zichlarz
Chief Financial Officer; Business Administration (Finance, Accounting); Information Technology and Logistics, Legal Department, Internal Audit.
6.1.6.3. Compensation of the Supervisory Board
Compensation paid to the members of the Supervisory Board totaled EUR 182 thousand in fiscal 2010 (EUR 358 thousand in 2009).
6.1.6.4. Compensation of the Management Board
a.
Total compensation
Total compensation paid to all three members of the Management Board (four in
2009) amounted to EUR 1,260 thousand in fiscal 2010 (EUR 1,553 thousand in
2009). This amount was composed of non-performance-related components totaling
EUR 439 thousand (EUR 893 thousand in 2009) and performance-related components totaling EUR 821 thousand (EUR 660 thousand in 2009).
Amounts are assigned to the fiscal year for which the performance-related compensation component was paid. As a rule, payment is actually made in January of the
following fiscal year. Beginning with fiscal 2010 payment is made in June. Data for
the previous year comprise Helmut König for the period up to March 31, 2009 and
Joachim Zichlarz for the period starting April 1, 2009.
No further long-term incentives based on the share price were granted in fiscal 2010
and 2009. The reason is that, following the takeover by TDK and associated speculation about a squeeze-out, EPCOS' share price no longer representatively reflected
the Company's business performance.
 EPCOS AG 2010 ● 45
b.
Other disclosures regarding share-based compensation
The stock options granted to the members of the Management Board up to and
including fiscal 2007 developed as follows in fiscal 2009 and 2010:
Development of the stock options granted in units or in EUR
Options outstanding at
October 1, 2008
Options exercised in
fiscal 2009
Options that expired in
fiscal 2009
No. of
options
Weighted average
of exercise prices
227,500
28.72
(137,000)
16.31
(55,000)
64.11
35,500
21.76
35,500
21.76
35,500
21.76
(35,500)
-
0
-
Weighted average
share price on
exercise date
20.00
Options outstanding at
September 30, 2009
Of which:
exercisable options
Options outstanding at
October 1, 2009
Settlement by cash
payment in 2010
Options outstanding at
March 31, 2010
On September 30, 2009 the weighted average remaining contract term of the outstanding option was 1.2 years. On March 31, 2010 there were no stock options
outstanding.
In fiscal 2010 no expenses were recorded for share-based compensation instruments
held by members of the Management Board (EUR 37 thousand in 2009).
 EPCOS AG 2010 ● 46
c.
Annual pension commitments
Pension commitments on March 31, 2010 made to the three members of the Management Board in fiscal 2010 totaled EUR 363 thousand (EUR 363 thousand in
2009).
d.
Pension provisions
Under HGB accounting, a decrease about EUR 153 thousand was appropriated to
pension provisions for members of the Management Board in fiscal 2010 (increase
EUR 670 thousand in 2009). Under IFRS, the present value of defined benefit obligations (DBO) for members of the Management Board was EUR 6,132 thousand at
March 31, 2010 (EUR 5,819 thousand in 2009).
e.
Former members of the Management Board and their surviving
dependents
In fiscal 2010, the Company paid a total of EUR 244 thousand to former members of
the Management Board (EUR 288 thousand in 2009). Additional entitlements were
either met by Siemens AG or have already been settled. At March 31, 2010, provisions for pension commitments in respect of this group totaled EUR 2,159 thousand
under HGB accounting (EUR 2,159 thousand at September 30, 2009). Under IFRS,
the present value of defined benefit obligations (DBO) for all pension commitments
for former members of the Management Board and their surviving dependants was
EUR 3,164 thousand as of March 31, 2010 (EUR 2,921 thousand in 2009).
f.
Other issues
The Company provided neither advances nor credit facilities to members of the
Management Board in the period under review, nor did it accept liability for contingencies on their behalf.
 EPCOS AG 2010 ● 47
6.2
Description of the Company
EPCOS AG (the “Company”) is a leading producer and supplier of electronic components, modules and systems with headquarters in Munich/ Germany. The Company
has research and design centers and manufacturing facilities in Europe, Asia and the
Americas, and a worldwide sales network. Electronic components, modules and
systems are used in all types of electronic circuitry. The Company designs its product
offerings to meet the needs of its principal customer groups, such as the telecommunication, automotive, consumer and industrial electronics industries and the information technology industry. Customers consist of equipment manufacturers and other
companies that make modules or subsystems for equipment and automotive manufacturers, as well as distributors.
TDK Corporation, Tokyo, Japan, as ultimate controlling party owns 100 percent
voting rights in EPCOS AG as of March 31, 2010 indirectly.
According to the Articles of the Company fiscal years run from April 1 until March 31
of the following year. The reporting period for the prior fiscal year runs from October
1, 2008 to September 30, 2009. The period from October 1, 2009 to March 31, 2010
is a short fiscal year. The following fiscal years run from April 1 until March 31 of the
following year.
Except where explicitly stated otherwise, the presentation currency used in the notes
to the consolidated financial statements is the euro (EUR). Where necessary, figures
have been rounded on the basis of standard commercial principles.
6.3
Summary of significant accounting policies and basis for presentation
EPCOS AG has prepared these consolidated financial statements for the fiscal year
ending March 31, 2010 in accordance with the International Financial Reporting
Standards (IFRSs) issued by the International Accounting Standards Board (IASB),
as adopted by the European Union and the additional requirements of section 315a
(1) German Commercial Code (Handelsgesetzbuch, HGB).
The financial statements are not entirely comparable because the term of last fiscal
includes twelve months whereas the figures of the actual fiscal year include only six
months (short fiscal year). The changing of the reporting date from September 30 to
March 31 and the corresponding short fiscal year is based on the balance sheet date
of TDK Corporation.
The management report and group management report were compiled in accordance
with German Accounting Standard 5, “Risk reporting” (GAS 5), German Accounting
Standard 15, “Management reporting” (GAS 15), and German Accounting Standard 17 “Reporting on the remuneration of members of governing bodies” (GAS 17).
 EPCOS AG 2010 ● 48
The consolidated financial statements for the fiscal ending March 31, 2010, were
released for publication on May 25, 2010, pursuant to a resolution by the Management Board.
6.4
Summary of significant accounting and measurement policies
6.4.1 Consolidation
Companies where EPCOS AG exercises effective control in accordance with law are
consolidated in line with the regulations of IFRS. Control is deemed to exist if EPCOS
can govern the financial and operating policies of a company in order to obtain benefits from its activities.
Where necessary, the annual financial statements of subsidiaries are adjusted to
adhere to the accounting and valuation principles used in the EPCOS Group.
All significant balances and transactions within the Group and all significant intercompany profits arising from such transactions are eliminated from the consolidated
financial statements.
6.4.2 Investments in unconsolidated companies/associates
Companies that EPCOS does not control but over whose operating and financial
policies EPCOS can exercise a significant influence (associates) are stated at equity
in the consolidated financial statements.
The appropriate share of equity of companies accounted for under the equity method
is reported in the consolidated financial statements. Intercompany profits arising from
transactions with these companies are eliminated in the consolidated financial statements.
Significant influence is generally assumed if EPCOS directly or indirectly controls
20 percent to 50 percent of the voting rights in a company.
Indications of impairment lead to an examination of the recognized value. If necessary, this examination is followed by impairment. Where the reasons for an earlier
impairment no longer exist, the impairment is reversed and the write-up is recognized
in profit and loss.
Where fair value cannot be determined reliably or where no market price is available,
investments are recognized at cost in the consolidated financial statements. Where
indication of impairment exists, impairment tests are performed. Any necessary
corrections are recognized in profit and loss.
 EPCOS AG 2010 ● 49
6.4.3 Consolidated Group
The consolidated financial statements include all material German and foreign subsidiaries which EPCOS AG controls directly or indirectly. At March 31, 2010, and
September 30, 2009, the following number of companies was consolidated alongside
EPCOS AG:
March 31, 2010
September 30, 2009
3
36
39
1
40
3
36
39
1
40
Consolidated
Germany
Foreign
At Equity
Additions to the consolidated Group in fiscal 2009 consist of the purchase of
Becromal group and the newly founded EPCOS (Anhui) Feida Electronics Co., Ltd.
(EPCOS Feida).
The consolidated financial statements are based on the financial statements prepared of each legal entity as of March 31, 2010, and September 30, 2009.
6.4.4 Foreign currencies
6.4.4.1 Transactions in foreign currencies
Purchases and sales effected in foreign currencies are translated at the exchange
rate valid at the time of the transaction. Assets and liabilities denominated in foreign
currencies are translated to the functional currency at the exchange rate valid on the
balance sheet date. The resulting foreign currency gains and losses are recognized
in consolidated income statement.
6.4.4.2 Translation of financial statements into euros (EUR)
EPCOS presents its financial statements in euros. Balance sheet items reported by
subsidiaries for which the euro is not the presentation currency are translated at the
spot rate on the reporting date. Items in the income statement are translated at the
rate at the transaction date. The resulting translation adjustments are recognized in
other comprehensive income.
 EPCOS AG 2010 ● 50
The major exchange rates used for the currency translation corresponding to one
EUR at March 31, 2010, and September 30, 2009, respectively, are as follows:
Spot rate
US Dollar (USD)
Japanese Yen (JPY)
Singapore Dollar (SGD)
Chinese Renminbi / Yuan (CNY)
March 31,
2010
1.3479
125.9300
1.8862
9.1588
Sept. 30,
2009
1.4643
131.0616
2.0653
9.9701
Average rate
March
31, 2010
1.3672
124.3333
1.9187
9.3187
Sept. 30,
2009
1.3561
128.5512
1.9948
9.2851
6.4.5 Revenue recognition
Sales revenues are recognized when they are realized or become realizable, irrespective of the date of payment. Sales revenues are defined net of discounts, customer incentives, rebates and returns. Interest income and expenses are recognized
in the periods in which they occur. Dividends are recognized at the time when a legal
entitlement to them exists. They are recognized in profit and loss irrespective of the
actual disbursement timing.
6.4.6 Research and development costs
Research costs are distinguished from development costs. Research costs are
recognized in the period in which they are incurred.
Where the criteria for recognition specified by IAS 38 are met, development costs are
capitalized. These capitalized costs are then included in other internally generated
intangible assets, a subset of intangible assets. In subsequent periods, amortization
of capitalized development costs is recognized in income statement as cost of sales.
Where capitalized development costs can be assigned to a specific production operation, amortization is spread across the costs of the products concerned.
Where the criteria for capitalization of development costs are not met, development
costs are recorded under “Research and development costs” as an expense in the
appropriate period.
6.4.7 Income taxes
Current taxes are recognized at the time when Group income tax liabilities are incurred. Income taxes are calculated using the asset and liability method in accordance with the provisions of IAS 12 (Income Taxes). All liabilities or claims relating to
taxes on earnings, capital and property arising during the fiscal year are reflected in
the consolidated financial statements pursuant to the relevant tax laws applicable to
the individual companies. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the financial
 EPCOS AG 2010 ● 51
statement carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets are thus
recognized only insofar as it is probable that they can be utilized in the future with
positive taxable income.
Deferred tax assets and liabilities are computed using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment
date.
6.4.8 Property, plant and equipment
Property, plant and equipment are recognized at historical cost less accumulated
depreciation and accumulated impairment. Cost includes closure and restoration
costs that must be capitalized. Incidental acquisition costs are included as well.
Awarded and taken discounts and rebates are deducted from the purchase price.
It also includes the material cost of improvements that extend the useful life or increase the capacity of the assets concerned. Maintenance and repair costs are
recognized as an expense when they are incurred. Capital expenditure for expansion
is capitalized insofar as it increases the value of an asset.
Government grants reduce the acquisition cost if they can be assigned to individual
assets, i.e. the value of the assets to which they were granted.
When property, plant and equipment are disposed of, the associated historical cost
and accumulated depreciation and impairments are derecognized. The differences
between these amounts and the proceeds from the sale are recognized as income or
expense in the consolidated income statement.
As a general rule, the following useful lives are estimated for depreciable items of
property, plant and equipment:
Buildings, exterior fixtures and leasehold improvements
5 to 50 years
Machinery and other equipment
5 to 10 years
Other assets, office fixtures and fittings
3 to 5 years
The EPCOS Group depreciates these assets in using the straight-line method, except where other methods more accurately reflect actual patterns of usage.
 EPCOS AG 2010 ● 52
6.4.9 Intangible assets
With the exception of goodwill, intangible assets are recognized at cost less accumulated amortization and impairment. Scheduled amortization is recorded using the
straight-line method over the useful life of an asset.
Goodwill is defined as the difference between the purchase price and the fair value of
the net assets of an acquired separate entity or a business. Beyond that, intangible
assets consist primarily of the acquired customer base, patents, licenses and internally generated intangible assets. Patents are amortized over a maximum of ten
years in accordance with the patent certificate. The same period applies to amortization of the customer base. Licenses are amortized in accordance with the terms of
the relevant agreements. Internally generated intangible assets are amortized over
their probable useful life.
Pursuant to IAS 36 (Impairment of Assets), goodwill is not subject to scheduled
amortization. The goodwill assigned to business units is tested for impairment at least
once a year, or where events indicate an impairment may exist, and written down
accordingly as and when necessary. Goodwill impairments cannot be reversed in
subsequent periods.
6.4.10 Impairment of long-lived assets
The Company tests long-lived assets (including intangible assets) for impairment
whenever certain events or changes in circumstances indicate that an asset's carrying amount may no longer be recoverable.
In accordance with IAS 36 the carrying amount of such assets is compared with their
recoverable amount, which is defined as the higher of their value in use and their fair
value less cost to sell.
Normally, expert reports are prepared or discounted future net cash flows are estimated to determine the recoverable amount of an asset. Estimates of future net cash
flows require management to make assumptions. Actual values may, however,
deviate from the estimated values.
If an asset's carrying amount is higher than its recoverable amount, the asset is
written down by the difference between the carrying amount and the recoverable
amount. If the reasons for an earlier impairment no longer apply, assets impairments
(with the exception of goodwill) are reversed again. However, any such reversal must
not exceed the carrying amount of the asset that would have applied if impairment
had not been effected in previous periods.
 EPCOS AG 2010 ● 53
6.4.11 Financial instruments and hedges
The recording of financial instruments takes place on the transaction date of the
purchase or sale; this means on the day upon which an obligation to purchase or sell
an asset or liability was incurred.
Financial instruments consist of original and derivative financial instruments. These
instruments are assigned to individual classes and categories for the purposes of
internal and external reporting. Since fundamentally different measurement and
accounting policies are prescribed for the individual classes and categories, these
are explained below:
On the assets side, original financial instruments essentially consist of securities,
trade receivables and cash and cash equivalents. On the liabilities side, original
financial instruments mainly include debt and trade liabilities.
Securities are mainly classified as “available-for-sale (AFS) securities” and are measured at fair value. Fair value is determined from the securities’ market or stock market
valuations, where these are available. If the fair value of securities is higher than their
cost, the difference (less deferred taxes) is recognized in other comprehensive income. If the fair value of securities will probably remain lower than their cost on a
permanent basis, the difference is recognized in profit and loss in the consolidated
income statement. Receivables resulting from contracts include trade receivables
and issued loans (in the Loans and Receivables (LAR) category), for example. These
receivables are recognized at amortized cost less impairments. Cash and cash
equivalents are recognized at nominal amount. Cash and cash equivalents denominated in non-euro currencies are translated at the exchange rate on the balance
sheet date. Debt and trade liabilities (in the Financial Liabilities at amortized Cost,
FLAC) are recognized at amortized cost using the effective interest method.
IAS 39 (Financial Instruments: Recognition and Measurement) contains regulations
governing the accounting and reporting treatment of derivative financial instruments,
including certain derivative financial instruments that are embedded in other contracts
and hedge accounting.
EPCOS uses derivative financial instruments to contain the exchange rate risks,
interest rate risks and risks associated with fluctuations in the market price of precious metals. The Company neither uses nor issues derivative financial instruments
for trading or speculative purposes. However, to minimize certain risks that are
inherent to the nature of its business activities, EPCOS does engage in forward
exchange contracts, forward rate agreements and commodity futures transactions.
Derivative financial instruments are recognized at fair value both when they are
reported for the first time and in subsequent periods. Gains and losses arising from
fluctuations in fair value are recognized immediately in profit and loss.
 EPCOS AG 2010 ● 54
If a derivative financial instrument is used as a cash flow hedge in accordance with
IAS 39, the effective portion of the change in the fair value of the hedge is recognized
in other comprehensive income. The ineffective portion of the change in the fair value
of a cash flow hedge is recognized immediately in profit and loss. Reclassification to
profit and loss takes place in the period in which the hedged item is recognized in
profit and loss. Where a hedged item ceases to exist, the hedging result is immediately reclassified to profit and loss.
Changes in the fair value of derivative financial instruments where the hedge is not
designated as such are also recognized in profit and loss (under the category "Financial Liabilities/Assets Held for Trading, FLHfT/FAHfT”). Market/stock market values
are used to determine the fair value of derivative financial instruments.
For hedging of an underlying operating transaction the results of both the operating
activity and the hedging activity are posted in the operating result, within EBIT. For
hedging of an underlying financial transaction the results from the underlying and the
hedging activities are posted in the financial result, outside EBIT.
6.4.12 Securities
EPCOS classifies most of its securities as available-for-sale securities. These securities are recognized at their market value on the balance sheet date. Cumulative
unrealized gains and losses are recognized in other comprehensive income. Realized gains or losses and impairments that are probably of a permanent nature are
recognized in consolidated income statement.
The Company did not make use of the option of designating financial assets or
liabilities at fair value through profit and loss upon initial recording.
6.4.13 Inventories
Inventories are measured at the lower of cost or net realizable value. Cost is determined primarily using the weighted average method. Cost includes directly attributable material and labor cost and a share of material and production overheads, plus
depreciation based on the assumption of normal capacity utilization.
6.4.14 Cash and cash equivalents
For the purposes of the consolidated statements of cash flows, EPCOS recognizes
all highly liquid financial instruments with original maturities of up to three months as
cash and cash equivalents. These items include cash, checks, balances in bank
accounts and current investments for periods of less than three months at the time of
initial investment.
 EPCOS AG 2010 ● 55
6.4.15 Financial assets and financial liabilities
When booked for the first time, financial assets such as accounts receivable and
issued loans are recognized at fair value, which normally corresponds to cost. Subsequently, these financial assets are recognized at amortized cost less potential
impairment.
When booked for the first time, financial liabilities such as accounts payable and
received loans are recognized at cost, which corresponds to the fair value of the
consideration received. Subsequently, these liabilities are recognized at amortized
cost.
6.4.16 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset are capitalized during the construction period. The capitalized
amount increases the basis for the depreciation of the corresponding qualifying
asset.
6.4.17 Share-based payment
Personnel expenses arising from share-based compensation commitments that
EPCOS can fulfill by issuing new shares or purchasing its own shares on the capital
market are offset against additional paid-in capital. Personnel expenses arising from
stock appreciation rights (SARs) are carried in liabilities, whereby the relevant expenses are spread over the vesting period. The amount of expenses is determined
by parameters such as the grant date and the exercise price.
6.4.18 Leasing
In accordance with IAS 17 (Leases), the accounting treatment of leasing transactions
depends on whether a transaction is classified as a finance lease or as an operating
lease. A lease is classified as a finance lease if it transfers to the lessee substantially
all the risks and rewards incidental to ownership. Assets leased under finance lease
arrangements are capitalized in the consolidated financial statements; corresponding
obligations are also carried. Where the Company uses assets under operating lease
arrangements, the lease payments are recognized in the consolidated statement of
operations as expenses on a linear basis over the lease term.
The Company defers income resulting from sale-and-leaseback transactions and
recognizes it in profit and loss over the term of the lease (finance leases). Immediate
recognition of such income is not permissible. Where a sale-and-leaseback transaction results in an operating lease, profit or loss must be recognized immediately if
certain criteria are met.
 EPCOS AG 2010 ● 56
6.4.19 Statement of Cash flows
The statement of cash flows shows how cash inflows and outflows during the reporting periods have changed the Company’s balance of cash and cash equivalents. In
accordance with IAS 7, a distinction is drawn between cash flows from operating,
investing and financing activities. The balances of cash and cash equivalents reported in the statement of cash flows include highly liquid funds with original maturities of up to three months and whose valuation is subject to only insignificant fluctuations. Cash flows from investing and financing activities are calculated on the basis of
payments. Cash flows within operating activities are calculated using the indirect
method. The calculations used to prepare the statement of cash flows correct individual items on the balance sheet by adjusting them for non-cash effects (such as
currency translation at companies that do not use the euro as their presentation
currency, or the addition/removal of companies to/from the consolidated Group). It is
therefore not possible to reconcile the full amount of such changes to the resultant
discrepancies on the balance sheet. The effect of changes in exchange rates on
cash and cash equivalents is, however, presented as a separate item in the statement of cash flows. Cash flow from investing activities denotes the cash inflows and
outflows that arise from investments in or the divestment of property, plant, equipment, intangible assets and financial assets. Financing activities cover all cashsettled transactions between either EPCOS and its shareholders or EPCOS and its
creditors in the relevant reporting periods.
6.4.20 Structure of the balance sheet and the income statement
The consolidated balance sheets of EPCOS AG are prepared in accordance with
IAS 1R, which requires assets and liabilities to be split into non-current and current
items. Balance sheet items that should normally be realized or settled within twelve
months are to be carried as current items. The consolidated income statements are
prepared in accordance with the cost of sales format.
6.5
Accounting principles that require significant estimates
and assumptions
Some accounting principles require the use of significant estimates and assumptions.
These principles include complex and subjective evaluations and assessments on
the basis of issues that expose them to uncertainty and change. Accounting principles that require significant estimates and assumptions can change over time and
significantly influence the presentation of EPCOS’ financial position and performance.
These principles can also include the use of management assumptions that, for
equally persuasive reasons, could have been different in the same period. The Management Board expressly points out that future events often differ from forecasts,
and that estimates routinely have to be adapted in light of the actual developments.
 EPCOS AG 2010 ● 57
6.5.1 Trade receivables and other receivables
Allowances for doubtful receivables include estimates and assessments of individual
receivables. These estimates and assessments are based on the creditworthiness of
the individual customer, current economic developments and an analysis of historic
default records within the portfolio. Country-specific ratings are also taken into account.
6.5.2 Goodwill
EPCOS tests goodwill for impairment at least once a year. The Company uses
measurement methods that are based on discounted cash flows over the remaining
useful life. Cash flow forecasts take account of past experience and are based on
management's best estimates of future developments. Cash flows after this planning
period (five years) are extrapolated considering economic growth rates. The underlying assumptions, especially economic growth rates, weighted average capital cost
(WACC) and tax rate may have a significant influence on the recoverable amount of
the cash generating units.
6.5.3 Pensions and similar obligations
Defined-benefit plans (for which benefits are due after completion of the employment
relationship) are recognized in accordance with IAS 19 “Employee Benefits”. The
projected unit credit method is used to determine the present value of defined-benefit
obligations and, hence, the service cost. The plan assets are measured at fair value
on the balance sheet date and deducted from the present value of the defined-benefit
obligations.
Actuarial methods require the use of significant actuarial assumptions, including the
discount rate, future salary and benefit levels and the expected return on plan assets.
Discount rates are based on market rates of return for high quality corporate bonds
with similar maturities. Estimates of future salary and pension increases take into
account factors such as inflation and past experience. The projected returns on plan
assets are calculated subject to due account for historic long-term rates of return, the
expectations of the market and the structure of the portfolio.
Actual developments may differ from the assumed parameter values. This can lead
to actuarial gains or losses, as can changes in the underlying actuarial assumptions.
Using an option admitted by IAS 19, EPCOS recognizes actuarial gains and losses
directly in other comprehensive income in the period in which they are incurred, i.e.
not in profit and loss.
In addition, the Company makes contributions to regular pension funds (state pension plans/pension insurance) in accordance with legal stipulations. Unlike in the
case of defined benefit plans, the Company is obliged only to make specific contribu-
 EPCOS AG 2010 ● 58
tions to these defined contribution plans and therefore does not have to report its
future obligations.
6.5.4 Provisions
The calculation of all provisions – especially provisions for onerous sales contracts,
warranties and legal disputes – necessarily involves estimates and assumptions by
nature.
6.5.5 Inventories
Valuation allowances for inventories are calculated using estimates of market data
that take into account pricing, quantity and technical risks and are based on statistical
methods and past experience and actual estimation by the management. All these
risks are factored into the calculation of impairments. The prices that are later realized on the market may differ from these estimations.
6.5.6 Business combinations
Within the scope of business combinations all acquired identifiable assets and liabilities as well as contingent liabilities are measured with their fair value at the acquisition date. The determination of these values of intangible assets and fixed assets
requires estimation on a high level. EPCOS uses expert opinions or uses general
accepted methods for measurement depending on complexness and kind of assets.
The result of measurement depends on forecasts of cash flows and other relevant
assumptions for valuation as interest rate. Actual developments can differ from these
assumptions.
6.5.7 Deferred tax assets
Every closing date, EPCOS evaluates if the future realization of tax benefits is more
likely than not regarding the recognition of deferred tax assets. This requires the
evaluation and consideration of future positive taxable income over the following five
years, tax planning strategies and other positive as negative factors. The recoverability of deferred tax assets as of March 31, 2010 is considerably dependent on the
successful implementation of a projected tax planning strategy. The actual realization
of these tax benefits is not only dependent on the development of these assumptions, but also on future tax regulations.
6.6
Changes in accounting prescriptions; accounting pronouncements
already applied
In March 2007, the IASB published a revised version of IAS 23 (Borrowing Costs).
EPCOS did not choose the option to capitalize these borrowing costs and recorded
these interests directly as an expense in prior fiscal years. The revised version of
 EPCOS AG 2010 ● 59
IAS 23 is compulsory for fiscal years beginning on or after January 1, 2009. Borrowing costs that are directly attributable to the acquisition, construction or production of
a qualifying asset form part of the cost of that asset and, therefore, are to be capitalized for future periods. Starting October 1, 2009 EPCOS applies to the revised Standard. The impact on EPCOS’ consolidated financial statements was not material.
In September 2007, the International Accounting Standards Board (IASB) published
a new version of IAS 1 (Presentation of Financial Statements). It is compulsory for
fiscal years beginning on or after January 1, 2009. Starting October 1, 2009 EPCOS
applies to the revised Standard. Significant changes primarily concern the presentation of equity and the statements of income. EPCOS divides the presentation of the
income statement and statement of comprehensive income into two separate statements (“two statement approach”).
In January 2008, the IASB published a new version of IFRS 3R (Business Combinations) and of IAS 27 (Consolidated and Separate Financial Statements). These rules
are to be applied for transactions that take place in fiscal years that begin on or after
July 1, 2009. The definition of “business” is expended. Therefore more acquisitions
could be defined as business combinations. Contingent considerations are to be
accounted with their fair value. Adjustments of contingent considerations in following
periods are to be reported within gains or losses. Costs of transactions/acquisitionrelated costs, excluding costs for issuing shares or bonds, are to be booked as
expense when occurred. Investments in this business before the acquisition are to be
accounted at fair value, corresponding gains or losses are reported within income
statement. Non-controlling interest (minority interest) are valued either at fair value or
in relation to the identifiable assets and liabilities of the acquired business. In addition
IAS 27 (revised) requires that changes in the investment in a subsidiary, as long as
there is no change in control, are to be reported as transaction within equity. Therefore transactions with non-controlling interests can no longer result in goodwill or gain
resp. loss. Starting October 1, 2009 EPCOS applies to the revised standards. Up to
now there was no impact on EPCOS’ consolidated financial statements.
The revised versions of IAS 39 and IFRS 7, endorsed by the EU on September 9,
2009 are compulsory for July 1, 2008. The standards concern reclassifications of
financial instruments. The amendments are regarding the effective date of the endorsed standards because of the financial crises.
In March 2009, the IASB issued Improving Disclosures about Financial Instruments
(Amendments to IFRS 7 Financial Instruments: Disclosures) which enhances disclosures about fair value measurements of Financial Instruments. A three-level fair
value disclosure hierarchy is introduced, that distinguishes fair value measurements
by the significance of the inputs used and reflects the availability of observable market inputs when estimating fair values. Amendments are also made to enhance
disclosures on liquidity risks, by clarifying the scope of liabilities to be disclosed in a
maturity analysis. Starting October 1, 2009 EPCOS applies to the revised Standard.
 EPCOS AG 2010 ● 60
The information concerning fair value hierarchy is disclosed in note 6.31. Clarifications for disclosures on liquidity risks had no impact on EPCOS’ consolidated financial statements.
In May 2008 the IASB issued its first omnibus of amendments to its standards primarily with a view to removing inconsistencies and clarifying wording in several IFRS
standards. These amendments are based on individual transitional arrangements,
depending on the standard concerned. These standards had insignificant effect on
the EPCOS’ accounting but no impact on assets, financial and earnings position of
the Company.
6.7
Changes in accounting prescriptions; accounting pronouncements still
to be applied
In June 2009, the IASB published changes of IFRS 2 (Share-Based Payment). The
changes are concerning the reporting of share-based commitments to make cash
payments. Application of the changed version of IFRS 2 is compulsory for fiscal years
beginning on or after January 1, 2010. The changes had been endorsed by the EU
on March 23, 2010. Applying the changes of IFRS 2 will have no material impact on
EPCOS’ consolidated financial statements.
In November 2009, the IASB issued IFRS 9 (Financial Instruments). This standard
deals the classification and valuation of financial instruments. IFRS 9 is the first part
of the IASB’s wider project to replace IAS 39. The standard is to be applied for fiscal
years beginning on or after January 1, 2013. IFRS 9 had not yet been endorsed by
the EU. The standard may have impact on classification and valuation of financial
instruments of the consolidated statements of the Company.
In November 2009, the IASB issued the revised version of IAS 24 (Related Party
Disclosures). The standard simplifies the disclosure requirements for governmental
related entities and clarifies the definition of a related party. The revised version has
to be applied for annual periods beginning on January 1, 2011. The revised version
had not yet been endorsed by the EU. Applying the revised version of IAS 24 will
have no material impact on EPCOS’ consolidated financial statements.
In April 2009, the IASB issued its second omnibus of amendments within its annual
improvement project. These amendments affect the estimation, valuation, and reposting of business transactions, as well as terminological or editorial adjustments.
The changes must be applied for the first time in the fiscal year which begins on or
after January 1, 2010. Applying these amendments will have no material impact on
EPCOS’ consolidated financial statements.
In May 2010, the IASB issued its third omnibus of amendments within its annual
improvement project, “Improvements to IFRSs”. The changes must be applied for the
first time in the fiscal year which begins on or after January 1, 2011. The changes
 EPCOS AG 2010 ● 61
had not yet been endorsed by the EU. Applying these amendments will have no
material impact on EPCOS’ consolidated financial statements.
The IASB issued further standards and interpretations. In the meantime some of
them are already endorsed by the EU within the framework of European law whereas
other are not endorsed. These regulations will have no material impact on EPCOS'
consolidated statements.
6.8
Transactions with related parties
Transactions with related parties were as follows for the fiscal ending March 31,
2010, and September 30, 2009:
Transactions with related parties
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Net sales to
TDK Group
Others (non-controlling interest)
Purchases of inventories and services
TDK Group
Associated companies
Others (non-controlling interest)
2010-S
2009
7,018
10,358
17,376
2
11,527
11,529
(1,935)
(5,116)
(10,778)
(17,829)
(481)
(2,762)
(10,878)
(14,121)
In fiscal 2010 EPCOS’ Chinese subsidiary EPCOS (Anhui) Feida Electronics Co.,
Ltd. purchased materials and services from the group of companies of the noncontrolling interest (minority shareholder) Anhui Feida Industry amounting to EUR
10.0 million (fiscal 2009: EUR 10.2 million). Transactions with other non-controlling
interests were not material.
Net sales regarding other related parties for fiscal 2010 and fiscal 2009 are mainly
generated with Anhui Feida Industry.
Transactions with related parties were conducted at arm's length at prevailing market
rates.
 EPCOS AG 2010 ● 62
At March 31, 2010, and September 30, 2009, trade/other receivables/liabilities and
debt/loans reported in the consolidated balance sheets in respect of related parties
were as follows:
Amounts due from and to related parties
At March 31, 2010, and September 30, 2009 (EUR thousand)
TDK Group
Trade/ other receivables
Trade/ other liabilities
Current debt/ loans
Associated companies
Trade/ other liabilities
Debt/ loans from finance lease
Others
Trade/ other receivables
Trade/ other liabilities
2010-S
2009
4,065
(1,405)
(250,375)
3,066
(263)
(200,380)
(806)
(20,473)
(818)
(19,189)
7,401
(376)
5,093
(412)
Transactions with related persons were as follows for the years ended March 31,
2010, and September 30, 2009:
Transactions with related persons
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
2010-S
2009
Net sales to
Members of the Supervisory Board
604
1,035
Purchases of inventories and
services
Members of the Supervisory Board
(84)
(49)
Purchases from companies directly or indirectly owned by members of the Supervisory Board are conducted on an arm's length basis. Transactions in fiscal 2010 and
2009 were not considered material for either EPCOS AG or those companies that are
directly or indirectly owned by members of the Supervisory Board.
Amounts due from related persons
At March 31, 2010, and September 30, 2009 (EUR thousand)
Members of the Supervisory Board
Trade/other receivables
2010-S
2009
173
130
Details concerning compensation of members of the management team and people
in key positions are given in the compensation report in note 6.1.6.
 EPCOS AG 2010 ● 63
6.9
Interest income and interest expenses
Interest income from and interest expenses were as follows:
Interest income and interest expenses
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Interest income
Interest expenses
2010-S
1,620
(10,623)
2009
6,493
(27,099)
No interest income or interest expenses on financial assets or liabilities measured at
fair value were incurred in the years ending March 31, 2010, and September 30,
2009.
6.10
Other financial income and expenses
In particular the results from hedging not directly related to the operating business of
the Company are posted in the financial result.
6.11
Other expenses and income, including foreign exchange gains
and losses
Other expenses totalled EUR 8.2 million in fiscal 2010 and EUR 6.4 million in fiscal
2009. Other income totalled EUR 5.3 million in fiscal 2010 and EUR 17.6 million in
fiscal 2009. The Company received research bonuses in Austria totaling EUR 0.7
million in the year ending March 31, 2010, and EUR 2.8 million in the year ending
September 30, 2009. Other income in fiscal 2009 includes gains from reimbursements of prior years excessive electricity bills and compensation refunds from TDK.
Other expenses in fiscal 2010 include mainly costs from planned decrease in capacity of consolidated companies (fiscal 2009: losses from sale or disposals of assets).
Net gains and losses on foreign exchange totalled EUR 0.7 million in fiscal 2010 and
EUR 1.8 million in fiscal 2009.
 EPCOS AG 2010 ● 64
6.12
Fixed assets and intangible assets
6.12.1 Fixed asset schedule
Information with respect to changes to the Company’s intangible assets, property,
plant and equipment and non-current financial assets is presented in the following
fixed asset schedule:
Acquisition and production costs
At September 30 (EUR thousand)
Goodwill
Other intangible assets
Internally generated intangible
assets
Intangible assets
Land
Buildings
Technical equipment, machinery and other equipment
Construction in progress
Property, plant and
equipment
At equity investments
Shares in affiliates
Other financial assets
Non-current financial assets
2008
Additions
from
change
in group
Additions
Reclassifications
Disposals
Translation
adjustment
2009
30,515
48,491
4,100
2,604
11,779
-
10,158
5,033
5,855
-
(40)
-
(96)
(542)
(3)
33,023
75,701
9,130
83,106
12,980
113,417
1,534,625
14,383
18,495
42,251
15,191
9,980
47,323
5,855
(4,061)
1,523
39,736
(40)
(158)
(23,670)
(641)
117,854
(212)
8,707
(3,889)
139,368
(7,110) 1,633,155
44,281
1,705,303
9,074
69,820
35,200
92,503
(43,053)
(5,855)
(320)
(24,148)
(1,638)
43,544
(12,849) 1,824,773
5,007
1,353
1,884
-
(5,007)
(112)
3,125
739
-
19
-
-
-
758
6,523
12,269
1,353
2,021
3,924
-
(816)
(5,823)
(114)
(226)
7,614
11,497
 EPCOS AG 2010 ● 65
Accumulated depreciation, amortization and impairments
At September 30 (EUR thousand)
Goodwill
Other intangible assets
Internally generated intangible
assets
Intangible assets
Land
Buildings
Technical equipment, machinery and other equipment
Construction in progress
Property, plant and
equipment
At equity investments
Shares in affiliates
Other financial assets
Non-current financial assets
2008
Additions
Reversal
of
impairments
Reclassifications
Disposals
Translation
adjustment
2009
14,897
35,371
1,400
4,263
305
-
555
-
(20)
-
1
(110)
-
14,898
40,059
1,705
51,668
441
44,608
1,129,230
4,568
91
5,047
116,716
-
555
(538)
(2,664)
2,647
(20)
(61)
(20,497)
(109)
23
(1,039)
(2,058)
56,662
17
45,891
1,226,038
1,174,279
121,854
-
(555)
(20,558)
(3,074)
1,271,946
-
-
-
-
-
-
-
Net book value
At September 30 (EUR thousand)
Goodwill
Other intangible assets
Internally generated intangible assets
Intangible assets
Land
Buildings
Technical equipment, machinery and
other equipment
Construction in progress
Property, plant and equipment
At equity investments
Shares in affiliates
Other financial assets
Non-current financial assets
2009
18,125
35,642
7,425
61,192
8,690
93,477
407,117
43,544
552,828
3,125
758
7,614
11,497
2008
15,618
13,120
2,700
31,438
12,539
68,809
405,395
44,281
531,024
5,007
739
6,523
12,269
 EPCOS AG 2010 ● 66
Acquisition and production costs
At March 31, 2010, and September 30, 2009 (EUR thousand)
2009
Additions
from
change
in group
Additions
Reclassifications
Disposals
Translation
adjustment
2010-S
Goodwill
33,023
Other intangible assets
75,701
Internally generated intangible
9,130
assets
Intangible assets
117,854
Land
8,707
Buildings
139,368
Technical equipment, machinery 1,633,155
and other equipment
Construction in progress
43,544
Property, plant and equipment 1,824,773
At equity investments
3,125
-
1,464
4,491
-
(80)
-
261
1,761
-
33,284
78,846
13,621
-
5,955
63
15,969
26,641
10,905
16,427
(80)
(14,237)
2,022
262
4,712
28,502
125,751
9,032
170,954
1,690,488
-
23,453
66,126
(103)
(27,332)
-
(222)
(14,459)
-
298
33,774
251
39,741
1,910,215
3,273
Shares in affiliates
758
-
-
-
-
-
758
7,614
11,497
-
1,346
1,243
-
(1,348)
(1,348)
486
737
8,098
12,129
Other financial assets
Non-current financial assets
Accumulated depreciation, amortization and impairments
At March 31, 2010, and September 30, 2009
Goodwill
Other intangible assets
Internally generated intangible
assets
Intangible assets
Land
Buildings
Technical equipment, machinery and other equipment
Construction in progress
Property, plant and
equipment
At equity investments
Shares in affiliates
Other financial assets
Non-current financial assets
2009
Additions
Reversal
of
impairments
Reclassifications
Disposals
Translation
adjustment
2010-S
14,898
40,059
1,705
2,501
266
-
-
(62)
-
5
376
-
14,903
42,874
1,971
56,662
17
45,891
1,226,038
2,767
18
4,162
63,822
-
-
(62)
(12,837)
381
1,354
21,141
59,748
35
51,407
1,298,164
1,271,946
68,002
-
-
(12,837)
22,495
1,349,606
-
-
-
-
-
-
-
 EPCOS AG 2010 ● 67
Net book value
At March 31, 2010, and September 30, 2009
Goodwill
Other intangible assets
Internally generated intangible assets
Intangible assets
Land
Buildings
Technical equipment, machinery and
other equipment
Construction in progress
Property, plant and equipment
At equity investments
Shares in affiliates
Other financial assets
Non-current financial assets
2010-S
18,381
35,972
11,650
66,003
8,997
119,547
2009
18,125
35,642
7,425
61,192
8,690
93,477
392,324
407,117
39,741
560,609
3,273
758
8,098
12,129
43,544
552,828
3,125
758
7,614
11,497
The other financial assets mainly consist of shares in funds. These financial assets
are defined as available for sale securities in line with IAS 39. The shares in funds do
not have a specified time to maturity.
6.12.2 Property, plant and equipment
Depreciation on property, plant and equipment
Depreciation on property, plant and equipment was EUR 68.0 million for the year
ending March 31, 2010, and EUR 121.9 million for the year ending September 30,
2009. Where evidences indicate impairment may exist, a test for impairment is made.
Basis for impairment is the recoverable amount that is defined as the higher amount
of an asset’s fair value less costs to sell and its value in use. Value in use is the
present value of the future cash flows expected to be arrived from the corresponding
cash generating units (CGU). The CGU at EPCOS are the divisions. In case the
recoverable amount is less than the carrying amount an impairment needs to be
booked. Planned decrease in capacity of consolidated companies resulted in impairment. The depreciation on property, plant and equipment included impairment in the
amount of EUR 6.4 million in fiscal 2010 and EUR 0.0 million in fiscal 2009. The
impairment is included within “Other expenses and income” in the income statement.
The impact on buildings was EUR 1.0 million and EUR 5.4 million on technical
equipment, machinery and other equipment.
 EPCOS AG 2010 ● 68
Reversal of impairment for fixed assets
For the fiscal ending March 31, 2010, and September 30, 2009 there had been no
reversal of impairments for technical equipment, machinery and other equipment. In
case the recoverable amount of an already impaired asset increases, the impairment
has to be reversed. The increase of its recoverable amount may not exceed the book
value this asset would have without the prior impairment.
Government grants
Cumulated government grants totalled EUR 4.3 million in the year ending March 31,
2010, and EUR 7.3 million in the year ending September 30, 2009. These funds
reduce acquisition and production costs as they can be assigned to specific assets
for which they were granted. Most of these grants consisted of government investment subsidies for technical equipment, machinery and other equipment.
Borrowing costs
Until September 30, 2009 borrowing costs were recognized as an expense in the
period in which they are incurred. Since October 1, 2009 borrowing costs that are
attributable to the acquisition, construction or production of a qualifying asset are
capitalized during the construction period. The capitalized amount increases the
basis for the depreciation of the corresponding qualifying asset. The corresponding
interest rate for individual outside financing is the specific interest rate. Non-specific
outside financing is calculated by using the EPCOS Group capitalization rate of
2.39 percent. In the period ending March 31, 2010 the amount of borrowing costs
capitalized is not material.
6.12.3 Goodwill
In accordance with IAS 36, goodwill is not subject to scheduled amortization. Instead,
it is tested for impairment at least once a year, or where events indicate that an
impairment may exist.
EPCOS uses measurement methods that are based on discounted cash flows. Cash
flow forecasts and other relevant assumptions for valuation take into account past
experience and are based on management's best estimates of future developments.
Impairment tests are performed at the level of cash-generating units (CGUs) which,
at EPCOS, correspond to the divisions. Basis for the impairment test of the second
quarter of fiscal 2010 is the forecast of each division. The discounting of the cash
flows is calculated with the weighted average capital cost before taxes (WACC) of
9.91 percent (prior fiscal: 9.73 percent) under consideration of an economic growth
rate of 2.0 percent (prior fiscal: range of 1.75 percent to 2.0 percent). An impairment
would be necessary when the recoverable amount is lower than the carrying amount
of the corresponding division.
The Company came to the conclusion by testing the goodwill for impairment that
there is no need to record an impairment for the actual reporting period. The recover-
 EPCOS AG 2010 ● 69
able amounts of all cash generating units are higher compared to their carrying
amounts. Also after a sensitivity analysis by using a reduced economic growth rate
and an increased WACC with an adjustment of 25 basis points (prior fiscal: 25 basis
points) there would be no need for an impairment.
At March 31, 2010, and at September 30, 2009, goodwill was reported as follows:
Goodwill in the business segments
At March 31, 2010, and September 30, 2009 (EUR thousand)
Capacitors and Inductors
Ceramic Components
Surface Acoustic Wave Components
Total
2010-S
7,064
2009
6,861
7,038
6,983
4,279
18,381
4,281
18,125
Acquisition of businesses – Becromal S.p.A. (Becromal)
(EUR million)
at date of purchase (October 2008)
Assets
Intangible assets
Property, plant and equipment
Other non-current assets
Current assets
Liabilities
Non-current liabilities and provisions
Current liabilities and provisions
Minority interest
Net assets incl. Minority interest
Net assets excl. Minority interest
Thereof 51%
Purchase price
Goodwill
Carrying amount
Fair value
2.7
56.3
6.0
36.4
3.9
57.3
2.9
39.5
38.0
52.7
2.3
10.7
8.4
-
38.0
53.0
2.3
12.6
10.2
5.2
5.5
0.2
In October 2008, EPCOS signed a purchase agreement with Becrolux S.A., Luxembourg, for 51 percent of the shares in Becromal S.p.A. (Becromal). The purchase
price (including acquisition cost in an amount of EUR 0.5 million) was EUR 5.5 million, in which no equity instruments of EPCOS shares were issued. The price was
paid in total in fiscal 2009. The purchase price allocation was prepared according to
IFRS 3 under consideration of the net fair values of the assets and liabilities acquired.
The excess of acquirer’s purchase price over the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities is booked as goodwill
(EUR 0.2 million). This goodwill represents future synergy and economic benefits
from the combination of assets and activities from Becromal with EPCOS Group.
 EPCOS AG 2010 ● 70
Acquisition of businesses – EPCOS (Anhui) Feida
(EUR million)
at date of purchase (January 2009)
Carrying amount/
Fair value
Assets
Intangible assets (including goodwill in
amount of EUR 2.4 million)
Property, plant and equipment
Current assets
Net assets
Thereof 60%
Purchase price
10.2
12.5
3.7
26.4
15.8
15.8
At the first quarter of fiscal 2009 EPCOS signed a contract with the Chinese company
Anhui Feida Industry Stock Co., Ltd (Anhui Feida) regarding the foundation of
EPCOS (Anhui) Feida Electronics Co., Ltd. (EPCOS Feida). The subsidiary develops
and manufactures power capacitors for AC. EPCOS Feida is included in the group
financial statements since January 1, 2009.
6.12.4 Other acquired intangible assets
The following categories of other acquired intangible assets are included in the
consolidated financial statements at March 31, 2010, and September 30, 2009:
Other acquired intangible assets (finite lives)
At March 31, 2010, and September 30, 2009 (EUR thousand)
March 31, 2010
Patents, licenses and similar rights
Customer lists
Other
Total other intangible assets
Gross
49,674
4,777
24,395
78,846
Net
12,910
1,345
21,717
35,972
September 30,
2009
Gross
Net
48,420
13,719
4,705
1,546
22,576
20,377
75,701
35,642
 EPCOS AG 2010 ● 71
Amortization of other acquired intangible assets
Amortization of other acquired intangible assets (with finite lives) totalled EUR 2.5
million for the year ending March 31, 2010, and EUR 4.3 million for the year ending
September 30, 2009. Of these amounts, EUR 1.4 million (2010) and EUR 1.5 million
(2009) were recognized mainly as cost of sales in the income statement and EUR 0.7
million (2010) and EUR 1.6 million (2009) as research and development expenses.
These intangible assets are expected to have no residual value when their scheduled
useful lives expire. In accordance with patent certificates, patents are written off over
a maximum of ten years (like the customer list). Licenses are written off in accordance with contractual terms. There was no need to alter the useful lives. With exception of goodwill there are no intangible assets with indefinite useful lives included
in the consolidated balance sheets.
6.12.5 Internally generated intangible assets
The consolidated financial statements for the fiscal ending March 31, 2010, and
September 30, 2009, include the following internally generated intangible assets:
Internally generated intangible assets (finite lives)
At March 31, 2010, and September 30, 2009 (EUR thousand)
March 31, 2010
Internally generated intangible assets
Gross
13,621
Net
11,650
September 30,
2009
Gross
Net
9,130
7,425
Amortization on internally generated intangible assets
Scheduled amortization on internally generated intangible assets was EUR 0.3
million for the year ending March 31, 2010 and was EUR 0.3 million for the year
ending September 30, 2009. These amounts were recognized in profit and loss at
cost of sales. Internally generated intangible assets will be written off over their
probable useful lives. No impairment was necessary for fiscal ending March 31,
2010, and September 30, 2009.
EPCOS tests internally generated intangible assets for consideration of impairment
at least once a year. Internally generated intangible assets which are not ready for
use are tested for impairment at least once a year by comparing net book value with
the recoverable amount. The Company uses measuring methods that are based on
discounted cash flows. The cash flow forecasts take into account past experience
and are based on best management estimates of future developments. These assumptions can have a significant influence. Impairment tests are performed at the
level of individual projects and also take into account related property, plant and
equipment. Future cash flows that correspond to the assets assignable to these
projects form the basis for testing. The period of future cashflows is determined by
 EPCOS AG 2010 ● 72
the useful life of the assets. Assets are impaired if their value in use is less than the
carrying amount of the business unit.
In the period under review, EPCOS came to the conclusion that impairments were
not necessary in fiscal 2010 and 2009.
6.13
Investments accounted for using the equity method
Investments accounted for using the equity method that are included in the consolidated statements for March 31, 2010, and September 30, 2009 report the following
key data (figures for 100%, not concerning EPCOS group interest):
Key data of investments accounted for using the equity method
(EUR million)
2010-S
2009
Assets
22.3
25.8
Liabilities
14.1
18.0
Net sales
5.1
2.7
(0.3)
1.1
Net (loss)/ income
6.14
Inventories, net
Inventories, net
At March 31, 2010, and September 30, 2009 (EUR thousand)
Raw materials and supplies
Work in progress
Finished products
Total inventories, net
2010-S
2009
75,782
57,429
124,108
257,319
61,842
52,012
103,421
217,275
Inventories were net of valuation allowances of EUR 27.8 million at March 31, 2010,
and EUR 25.8 million at September 30, 2009. Of these inventories, consignment
stocks located at customers accounted for EUR 34.9 million at March 31, 2010, and
EUR 26.2 million at September 30, 2009.
Due to pricing, quantity and technical risks, impaired inventories totaling EUR 71.6
million at March 31, 2010, and EUR 63.5 million at September 30, 2009, were carried
at their net realizable values.
EUR 9.4 million of the inventories reported at March 31, 2010, and EUR 7.8 million of
the inventories reported at September 30, 2009, was pledged as collateral security.
Cost of materials amounted to EUR 241.8 million and EUR 411.0 million for the fiscal
ending March 31, 2010, and September 30, 2009.
 EPCOS AG 2010 ● 73
The following table presents the development in the inventory valuation allowance for
the fiscal ending March 31, 2010, and September 30, 2009:
Valuation Allowance for Inventories
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Valuation allowance, beginning of year
2010-S
25,818
2009
21,190
Additions
12,160
17,598
(11,110)
(13,400)
981
430
27,849
25,818
Use/reversals
Currency translation adjustment/other
Valuation allowance, end of year
6.15
Trade receivables
Trade receivables are presented net of an allowance for doubtful accounts. Of the
total amount of accounts receivable, EUR 12.2 million at March 31, 2010, and
EUR 9.5 million at September 30, 2009, were pledged to third parties as collateral
security. The full amount of all trade receivables is classified under current assets.
The table below presents changes to allowances for doubtful accounts for the years
ending March 31, 2010, and September 30, 2009:
Allowances for doubtful accounts
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
2010-S
4,457
2009
3,730
Additions charged to the allowances
335
980
Write-offs charged against the allowances
(68)
(229)
1
(24)
4,725
4,457
Allowances for doubtful accounts, beginning of year
Currency translation adjustment/other
Allowances for doubtful accounts, end of year
Specific allowances totalled EUR 3.2 million for the year ending March 31, 2010, and
EUR 3.0 million for the year ending September 30, 2009. In addition, general allowances of EUR 1.5 million for the year ending March 31, 2010, and EUR 1.4 million for
the year ending September 30, 2009, were reported based on a collective assessment of the portfolio of accounts.
 EPCOS AG 2010 ● 74
The age structure of trade receivables, net for the years ending March 31, 2010, and
September 30, 2009, was as follows:
Age structure of trade receivables, net
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
2010-S
227,755
2009
196,777
13,943
6,470
Past due between 30 and 90 days
4,205
4,012
Past due greater than 90 days
7,137
6,105
253,040
213,364
Not yet due
Past due less than 30 days
Total
No receivables were factored in the year ending March 31, 2010. Factored receivables (under non-notification factoring arrangements) totalled EUR 9.8 million as of
September 30, 2009. Total interest expenses on these transactions amounted to
EUR 0.1 million in the year ending September 30, 2009. A similar amount of interest
income was reported.
6.16
Cash and cash equivalents
There are no material restricted funds within the Company's cash and cash equivalents as of March 31, 2010, and September 30, 2009, respectively.
6.17
Other current financial assets
Other current financial assets included receivables from suppliers totaling EUR 2.0
million at March 31, 2010, and EUR 1.7 million at September 30, 2009 and positive
market values arising from derivatives totaling EUR 1.2 million at March 31, 2010,
and EUR 2.6 million at September 30, 2009. In addition, receivables from contractual
based benefits amounting to EUR 1.1 million are recorded at March 31, 2010, and
EUR 3.0 million at September 30, 2009.
6.18
Other current assets
Other current assets mainly consist of tax receivables (excluding income taxes)
totaling EUR 19.2 million at March 31, 2010, and EUR 14.8 million at September 30,
2009, and prepaid expenses totaling EUR 7.0 million at March 31, 2010, and
EUR 4.2 million at September 30, 2009.
 EPCOS AG 2010 ● 75
6.19
Total equity
(1) Share Capital
At March 31, 2010, the Company had share capital (common stock) amounting to
EUR 66,682,270, divided into 66,682,270 registered shares with no par value and a
nominal value of EUR 1 per share.
(2) Conditional Capital 2004
A resolution by the General Meeting on February 11, 2004, authorized the Management Board, until February 10, 2009, and subject to the consent of the Supervisory
Board, to increase the Company’s share capital by part or all of a total of EUR
13,020,000 by issuing new registered shares in return for cash or non-cash contributions (Conditional Capital 2004). In its meeting on January 27, 2010 the Supervisory
Board decided to rework the Articles of the Company and to delete Conditional
Capital 2004 which became obsolete over time. The corresponding entry in the
commercial register was made on March 9, 2010.
(3) Conditional capital arrangements / Contingent Capital
Resolutions by the General Meetings on September 28, 1999, and February 11,
2004, placed conditional capital totaling EUR 4,960,000 at the Company's disposal to
fulfill its obligations arising from stock option plans (Conditional Capital 1999/I totaling
EUR 2,480,000 and Conditional Capital 2004/II totaling EUR 2,480,000).
In addition, resolutions by the General Meetings on March 6, 2002, and February 11,
2004, placed conditional capital totaling EUR 13,000,000 at the Company's disposal
to fulfill its obligations arising from convertible or warrant-linked bonds (Conditional
Capital 2002/I totaling EUR 6,500,000 and Conditional Capital 2004/I totaling
EUR 6,500,000).
The Company (as guarantor) issued on July 16, 2003, a convertible bond with a total
nominal value of EUR 126,425,000 by its subsidiary EPCOS Netherlands B.V. (as
issuer; formerly: EPCOS Finance B.V.). The bond beared interest at a rate of 2.5
percent. Holders of this convertible bond could convert it to a maximum of 6,500,000
shares in the Company.
In fiscal 2008, 1,114,000 new shares with no par value were issued because of
share-based compensation. Therefore, share capital increased by EUR 1,114,000. At
the same time Conditional Capital 1999/I decreased by EUR 496,000 and Conditional
Capital 2004/II decreased by EUR 618,000.
In fiscal 2009 holders of the Convertible Bond (issued July 16, 2003) exercised the
convertible rights and obtained 218,270 shares with no par value. These share
issuance are based on Conditional Capital 2002/I.
 EPCOS AG 2010 ● 76
In the course of fiscal 2009, the exercise of stock options led to the issue of 33,000
new registered shares with no par value. These 33,000 shares had been taken from
Conditional Capital 1999/I.
The issue of these new shares in fiscal 2009 added EUR 251,270 to the Company’s
share capital. Conversely, Conditional Capital 2002/I was reduced by EUR 218,270
and Conditional Capital 1999/I was reduced by EUR 33,000.
The option to issue convertible and warrant-linked bonds of the resolution of the
General Meeting on February 11, 2004 wasn’t exercised. The Conditional Capital
2004/I remain unchanged.
At September 30, 2009 the Company’s share capital totalled EUR 66,682,270, the
Conditional Capital 1999/I was EUR 1,946,000, the Conditional Capital 2002/I was
EUR 6,281,730, the Conditional Capital 2004/II totalled EUR 1,850,000 and the
Conditional Capital 2004/I was EUR 6,500,000.
Within the exercise of the 33,000 stock options in fiscal 2009 the share capital was
increased by the exercise price up to the nominal value of the issued shares (EUR 1
per share) to be paid. The excess amount of EUR 469,590 in fiscal 2009 was appropriated to additional-paid in capital. No stock options were exercised in fiscal 2010.
In the course of exercising conversion privileges by the holders of the convertible
bond issued on July 16, 2003, the share capital increased by the nominal capital of
EUR 3,990,000 up to the nominal value per share (EUR 1 per share). The excess
amount of EUR 3,771,730 was appropriated to additional-paid in capital.
In its meeting on January 27, 2010 the Supervisory Board decided to rework the
Articles of the Company and to delete Conditional Capital 2002/I, 2004/I and 2004/II)
which became obsolete over time. The corresponding entry in the commercial register was made on March 9, 2010. As of March 31, 2010 the Company has Contingent
Capital 1999/I in amount of EUR 1,946,000 at the Company's disposal to fulfill its
obligations arising from stock option plans.
At March 31, 2010 the Company’s share capital totalled EUR 66,682,270, the Contingent Capital was EUR 1,946,000.
 EPCOS AG 2010 ● 77
The change in shares outstanding is as follows:
Shares outstanding
Shares outstanding at September 30, 2008
66,431,000
New shares issued pursuant to the exercise of stock options
33,000
New shares issued pursuant to the exercise of conversion privileges
from convertible bond issued July 16, 2003
218,270
Shares outstanding at September 30, 2009
66,682,270
New shares issued pursuant to the exercise of stock options
-
Shares outstanding at March 31, 2010
66,682,270
The development of Contingent Capital and Authorized Capital is included in the
following table:
Contingent Capital and Authorized Capital
(EUR thousand)
As of September 30, 2008
Exercise of stock options and conversion privileges
As of September 30, 2009
Deletion of obsolete authorized and conditional capitals
stipulated in the Articles of Association of the Company
As of March 31, 2010
Conditional
16,829
(251)
16,578
Authorized
13,020
13,020
(14,632)
(13,020)
1,946
-
(4) Additional Paid-In Capital
Additional paid-in capital essentially consists of premiums arising from the issue of
shares in EPCOS AG.
In fiscal 2009, the issue of new shares and the requirement to report share-based
compensation systems caused additional paid-in capital to increase.
(5) Retained Earnings
Earnings realized but not distributed in recent years by EPCOS AG and earnings
realized by its subsidiaries during their standing as consolidated companies account
for the bulk of retained earnings. In addition, effects arising from the conversion from
US GAAP to IFRS effective October 1, 2006, are also subsumed under this item.
The General Meeting on May 20, 2009, agreed to pay a dividend of EUR 19,929,300
or EUR 0.30 per eligible share (before withholding tax and the solidarity surcharge)
for the fiscal ending September 30, 2008. This dividend was paid out on May 22,
2009.
 EPCOS AG 2010 ● 78
In accordance with the German Stock Corporation Act, the amount of income available for distribution to shareholders is based upon the Company's declared profit as
reported in its financial statements drawn up on a stand-alone basis in accordance
with the German Commercial Code (HGB). Declared profit was EUR 70,826,000 at
March 31, 2010, and EUR 52,811,366 at September 30, 2009.
The German Stock Corporation Act also defines the rules for acquisition of treasury
shares. The Company does not require authorization or the approval of the General
Meeting to acquire treasury shares for the purpose of transferring them to employees
as part of an employee share purchase plan. In fiscal 2010, the Company neither
purchased shares nor reissued shares to its employees in this context.
(6) Non-controlling Interest
Where EPCOS AG owns less than 100 percent of the shares in a consolidated
subsidiary, the non-controlling interest is presented separately on the consolidated
balance sheet in light of net income attributable to it in the given period.
(7) Capital Management Disclosures
EPCOS AG actively manages its capital in line with the strategy of pursuing profitable
growth to increase the value of the EPCOS Group. The cornerstone of this strategy is
a balanced assets, financial and earnings position. EPCOS AG has no capital requirements anchored in its Articles of Association. The key objectives of capital
management are to safeguard the long-term health of the Company and to generate
an appropriate return on the funds invested by shareholders in light of the associated
risks. Instruments used to manage capital include the focused use of debt and an
appropriate dividend policy.
EPCOS uses Economic Value Added (EVA) and EBIT as a key metric in managing
and allocating its resources. Another key metric is gearing, which is defined as the
ratio of financial debt plus pension liabilities less cash and cash equivalents to equity.
At March 31, 2010, and September 30, 2009, EPCOS' gearing was as follows:
Gearing
At March 31, 2010, and September 30, 2009 (in %)
Gearing
2010-S
81
2009
69*
* In compliance with the reclassification of the balance sheet the value of previous year should have been 72%. See note 6.29
6.20
Paid and proposed dividends
The Supervisory Board and Management Board have decided to propose to the
General Meeting, that the allocation of net profit in the amount of EUR 70,826,000 for
the fiscal ending March 31, 2010 should be carried forward onto new account and no
dividend should be paid. The General Meeting on March 2, 2010 approved the proposal of the Supervisory Board and Management Board that the allocation of net
 EPCOS AG 2010 ● 79
profit in the amount of EUR 52,811,366 for the fiscal ending September 30, 2009
should be carried forward onto new account and no dividend should be paid. In
accordance with the resolution approved by the General Meeting on May 20, 2009,
for the fiscal ending September 30, 2008, a dividend payment (EUR 0.30 per eligible
share) for fiscal 2008, was distributed to shareholders on May 22, 2009. The total
amount thus distributed was EUR 19,929,300 (before withholding tax and the solidarity surcharge).
6.21
Provisions
Non-current and current provisions carried on the balance sheet changed as follows
in the period under review:
Provisions
(EUR thousand)
October 1,
2009
Additions
Accretion
expense
Use
Reversal
Other
adjustments/
currency
translation
adjustment
March
31, 2010
Personnel-related provisions
28,881
4,581
(138)
(3,130)
(790)
(15,702)
13,702
Provisions for onerous sales
contracts
6,460
6,539
-
(1,402)
(2,112)
132
9,617
9,777
1,679
-
(1,449)
(790)
245
9,462
5,063
580
58
(39)
(53)
14
5,623
5,878
3,980
17,359
(80)
(1,280)
(7,300)
(146)
(3,891)
59
(15,252)
8,491
46,895
Warranty provisions
Provisions for restoration
expenses
Other provisions
Provisions, total
56,059
“Other adjustments” item of personnel-related provisions mainly include reclassifications into “Pensions and similar obligations” (see note 6.29).
 EPCOS AG 2010 ● 80
The terms of the provisions are included in the following table:
Terms of Provisions
(EUR thousand)
Personnel-related provisions
Provisions for onerous sales
contracts
Warranty provisions
Provisions for restoration
expenses
Other provisions
Provisions, total
March 31, 2010
Total
Due within one
year
13,702
7,786
September 30, 2009
Total
Due within one
year
28,881
6,937
9,617
9,617
6,460
6,460
9,462
9,462
9,777
9,777
5,623
210
5,063
51
8,491
7,523
5,878
5,809
46,895
34,598
56,059
29,034
Personnel-related provisions mainly include provisions for partial retirement (Altersteilzeit) and separation allowances (for March 31, 2010 resp. September 30, 2009:
EUR 3.2 million resp. EUR 18.1 million) as well as anniversary cost (for March 31,
2010 resp. September 30, 2009: EUR 5.9 million resp. EUR 6.4 million).
6.22
Current and non-current debt
6.22.1 Financing
At March 31, 2010, the Company was able to call on a EUR 300.0 million credit line
granted by TDK Europe S.A., seated in Luxembourg. The line was utilized with EUR
250.0 million as per March 31, 2010 and EUR 200.0 million as per September 30,
2009. The syndicated credit facility in the amount of EUR 250.0 million granted until
November 2009 by a syndicate of banks led by Bayerische Hypo- und Vereinsbank,
The Royal Bank of Scotland and HSBC was cancelled by the Company as per September 18, 2009.
In addition, the Company has entered into a number of further borrowing arrangements with international and national banks totaling EUR 103.6 million as per March
31, 2010 and EUR 89.8 million as per September 30, 2009. These borrowing arrangements were used in the amount of EUR 30.2 million at March 31, 2010 as per
March 31, 2010 and EUR 22.3 million as per September 30, 2009.
 EPCOS AG 2010 ● 81
6.22.2 Current debt
Current debt was EUR 291.5 million at March 31, 2010, and EUR 238.4 million at
September 30, 2009. At March 31, 2010, the current debt includes liabilities against
TDK Group in amount of EUR 250.4 million (September 30, 2009: EUR 200.4 million). In addition, other current debt partly consisted of secured bank loans. Other
current debt consists of various working capital bank loans with a weighted average
interest rate of 1.25 percent in fiscal 2010, and 2.39 percent in fiscal 2009.
The Company as guarantor for a convertible bond with a total nominal value of EUR
126.4 million issued on July 16, 2003, by its subsidiary EPCOS Netherlands B.V.,
prematurely repaid the bond with an amount of EUR 121.0 million on January 8, 2009
due to a change of control by TDK. The outstanding nominal amount of EUR 1.4
million was fully repaid on January 28, 2009 because it was deemed to be immaterial. In November 2008 a nominal amount of EUR 4.0 million was converted into new
shares based on TDK’s change of control.
6.22.3 Non-current debt
Non-current debt breaks down as follows:
Non-current debt
At March 31, 2010, and September 30, 2009 (EUR thousand)
Total non-current debt
Less current installments
Non-current debt excluding current
installments
2010-S
72,835
23,578
2009
74,662
24,620
49,257
50,042
 EPCOS AG 2010 ● 82
Details of currencies, interest rates, maturities and creditors for non-current debt are
shown in the table below:
Non-current debt including current installments (loans and debentures)
At March 31, 2010 (currencies in millions)
Principal
EUR
equivalent
Interest rate (in %)
Maturity
(calendar year)
Lender
EUR 24.4
24.4
0.26 to 3.95
2010 to 2014
Austrian banking syndicate and
government institutions
BRL 26.4
11.0
7.60
2010
BNDES Âncora
EUR 7.9
7.9
6.0
2010 to 2017
Gewerbepark Heidenheim GmbH
EUR 0.1
0.1
2.85
2010 to 2011
Siemens Finance & Leasing GmbH
EUR 3.0
3.0
0.0
2010 to 2012
SAP - Leasing
EUR 1.9
1.9
0.0
2010 to 2023
Spain – diverse governmental loans
EUR 0.4
0.4
4.98
2010 to 2012
Italy – Ministero del Tesoro LEGGE
46
USD 27.6
20.5
13.50
2010 to 2039
Iceland – Capital Lease Becromal
Properties ehf
EUR 3.7
3.7
15.90
2010 to 2039
Iceland – Capital Lease with Norak
ehf
Non-current debt including current installments (loans and debentures)
At September 30, 2009 (currencies in millions)
Principal
EUR
equivalent
Interest rate (in %)
Maturity
(calendar year)
Lender
EUR 26.2
26.2
0.071 to 3.95
2009 to 2013
Austrian banking syndicate and
government institutions
BRL 26.4
10.2
7.85
2009
BNDES Âncora
EUR 8.3
8.3
6.0
2009 to 2017
Gewerbepark Heidenheim GmbH
EUR 0.1
0.1
2.85
2009 to 2011
Siemens Finance & Leasing GmbH
EUR 3.8
3.8
0.0
2009 to 2012
SAP - Leasing
EUR 2.2
2.2
0.0
2009 to 2023
Spain – diverse governmental loans
EUR 0.8
0.8
4.98
2009 to 2012
Italy – Ministero del Tesoro LEGGE
46
USD 28.1
19.2
12.50
2009 to 2029
Iceland – Capital Lease Becromal
Properties ehf
USD 5.8
3.9
12.50
2009 to 2029
Iceland – Capital Lease with Norak
ehf
At the balance sheet date, non-current debt with third parties includes EUR 24.4
million held by the Company's Austrian subsidiary EPCOS OHG. EUR 16.6 million
are secured by acceptance of a guarantee. Additionally, further EUR 7.8 million is
secured by liens on land. The weighted average interest rates of all the Austrian noncurrent third-party debt at March 31, 2010, and September 30, 2009, were
 EPCOS AG 2010 ● 83
1.3973 percent and 2.1897 percent respectively. The loan principal is due in semiannual installments over a period of up to four years.
The aggregate amounts of non-current debt at March 31, 2010, and September 30,
2009 are, in order of maturity date, as follows:
Non-current debt
At March 31, 2010 (EUR thousand)
(Fiscal year)
2011
2012
2013
2014
2015
Subsequent years
23,578
11,085
6,430
2,463
2,010
27,269
Non-current debt
At September 30, 2009 (EUR thousand)
(Fiscal year due October 1 till September 30)
2010
2011
2012
2013
2014
Subsequent years
24,620
14,354
6,370
3,500
1,860
23,958
There were no interruptions to the payment flow or other contractual violations for
either non-current or current debt in the fiscal year ending March 31, 2010, and
September 30, 2009.
6.23
Other current/non-current financial liabilities and other current/
non-current liabilities
Other current and non-current liabilities were attributable primarily to personnel
liabilities of EUR 55.5 million, of which EUR 52.5 million were current liabilities (fiscal
2009: EUR 56.4 million, of which current: EUR 54.9 million). Other current and noncurrent financial liabilities include negative market values arising from derivative
instruments and similar liabilities.
6.24
Restructuring
Relentless cost pressure due to international competition makes it necessary for the
Company to restructure by adjusting capacity and accelerating relocations to coun-
 EPCOS AG 2010 ● 84
tries with low labor costs. In fiscal 2010 restructuring expenses mainly occurred in
Germany (2009: Germany and Austria).
Restructuring costs in amount of EUR 0.7 million in fiscal 2010 (EUR 11.1 million in
fiscal 2009) include personnel costs in total.
These restructuring costs mainly impact the cost of sales. EPCOS paid EUR
2.8 million in fiscal 2010 and EUR 16.0 million in fiscal 2009.
The development of provisions and liabilities for personnel restructuring costs during
fiscal 2010 and 2009 was as follows:
Development of provisions and liabilities for restructuring costs
(EUR thousand)
Provisions and
liabilities
At September 30, 2008
12,524
Increase in provisions/liabilities, net
11,079
Amount netted against the CTA
Used
(16,885)
At September 30, 2009
Increase in provisions/liabilities, net
Change of CTA
Used
At March 31, 2010
6.25
536
7,254
655
(67)
(4,159)
3,683
Contingent liabilities
The contingent liabilities in amount of EUR 1.5 million as of March 31, 2010, and
EUR 6.2 million as of September 30, 2009 mainly include lawsuit (contingent liabilities arising from the purchase of real estate and lawsuit in fiscal 2009). The potential
cash payment is mainly expected in the next fiscal year.
In addition to these specific contingent liabilities, the Company is exposed to general
risks arising from its general business activities. These risks are briefly explained
below:
The Company and its subsidiaries are party to litigation and proceedings relating to a
variety of issues. In the opinion of the Management Board, based on the advice of
counsel handling such litigation and proceedings, adverse outcomes, if any, will not
result in a material effect on the Company’s consolidated financial situation or earnings.
 EPCOS AG 2010 ● 85
The Company and its subsidiaries are subject to extensive environmental regulation
in the jurisdictions in which they operate, including requirements governing emissions, effluents and the storage of hazardous materials and waste. These requirements will continue to be significant to the Group’s future operations. In the past, the
Company has occasionally been held liable for the remediation of soil or groundwater
contamination at its facilities. To date, however, significant penalties or fines have
been imposed on neither the Company nor its subsidiaries.
Notwithstanding, the Company or its subsidiaries may in future be constrained to
fulfill requirements, be held liable or be exposed to penalties or fines in relation to
environmental regulation. Because some of the Company’s facilities are located very
close to those of other companies or are even shared with other companies, the
Company may, in isolated cases, also have to answer claims relating to issues for
which neither the Company itself nor its subsidiaries are responsible.
Nor can the possibility be ruled out that future amendments to environmental legislation may compel the Company and its subsidiaries to assume substantial financial
burdens that could have a significant negative impact on the Company’s financial
situation and earnings.
As of March 31, 2010 open purchase orders for property, plant and equipment
amount to EUR 42.8 million.
6.26
Leases
a) Operating leases
The Company currently leases several facilities for manufacturing, company management and administration, as well as some production equipment under operating
lease agreements. Future minimum lease payments from operating leases that
cannot be terminated were as follows at March 31, 2010 and September 30, 2009:
Future minimum lease
payments
Operating leases
At March 31, 2010, and September 30, 2009 (EUR thousand)
Less than one year
Between one and five years
More than five years
Total
2010-S
13,573
28,060
4,523
46,156
2009
13,938
29,636
8,374
51,948
In the year ending March 31, 2010, and September 30, 2009, expenses of EUR 8.5
million (EUR 18.4 million) arising from operating lease agreements were recognized
in profit and loss.
 EPCOS AG 2010 ● 86
b) Finance leases
In September 2007, EPCOS concluded a finance lease in the form of a sale-andleaseback agreement for land and buildings at its Heidenheim site. The ten-year
lease is carried as a finance lease in which the present value of the leasing payments
corresponds to the liabilities arising from the finance lease. EPCOS has the option of
extending the lease for two five-year periods. The basic monthly rent will be adjusted
by 3 percent on January 1, 2011, and again on January 1, 2014, and assuming
exercise of the two options, 3 percent every three years during the option periods.
The sum of minimum future payments arising from non-cancelable subletting arrangements was EUR 0.2 million in the fiscal year ending March 31, 2010, and
EUR 0.3 million in the fiscal year ending September 30, 2009.
Becromal Iceland ehf, which is newly consolidated in EPCOS group in 2009, signed a
rent agreement for commercial properties as a lessee with Becromal Properties ehf in
fiscal 2009. The lease was carried as a finance lease in which the present value of
the leasing payments corresponds to the liabilities arising from the finance lease. In
addition the lessee has the option to extend this agreement. The monthly rent is
1 percent of the total construction value. In addition Becromal Iceland ehf signed also
a finance lease agreement concerning fixtures and furniture over a time period of
15 years. The monthly rent is 1.2 percent of total construction cost. This contract was
changed in fiscal 2010 to twenty years with an option to extend this agreement for
ten years. The time period for the disclosure of these contracts was extended to
30 years, the expected useful life.
In fiscal 2009, EPCOS concluded a finance lease in the form of a sale-and-leaseback
agreement for licenses sold to third in an amount of EUR 4.5 million. No gain was
recognized from this transaction. This agreement is recorded as a finance lease
transaction. The minimum term of lease is 36 months. After the minimum term beginning April 1, 2009 EPCOS will receive the ownership.
Assets arising from finance leases are written down over the shorter of their estimated useful life or the term of the lease. At the same time, the corresponding liability
is amortized over the same period using the effective interest method.
Minimum lease payments arising from finance leases that cannot be terminated and
the present values of these payments were as follows:
 EPCOS AG 2010 ● 87
Future minimum lease payments and present values
At March 31, 2010, and September 30, 2009 (EUR thousand)
2010-S
Minimum
lease
More than five years
Total
Present
lease
Present
payments
Interest
values
payments
Interest
values
6,690
949
5,741
5,784
2,917
2,867
22,215
5,470
16,745
20,242
11,501
8,741
96,807
125,712
84,131
90,550
12,676
35,162
57,820
83,846
34,181
48,599
23,639
35,247
Less than one year
Between one and five years
2009
Minimum
At March 31, 2010, the consolidated balance sheet contained land and buildings
valued at EUR 26.2 million (September 30, 2009: EUR 27.0 million) and technical
equipment, machinery and other equipment valued at EUR 3.9 million (September
30, 2009: EUR 4.0 million) resulting from finance lease agreements. Prior year figures were adjusted because of reclassifications. Licenses in an amount of EUR 4.5
million are presented in balance sheet as of March 31, 2010 (September 30, 2009:
EUR 4.5 million).
6.27
Share-based compensation
Stock option plans
Share-based compensation
EPCOS Stock Appreciation Rights Plan 2007
In December 2007, the Management Board and the Presidential Committee appointed by the Supervisory Board ratified the EPCOS Stock Appreciation Rights Plan
2007 (SARP 2007). Under this plan, the Presidential Committee is authorized to
grant non-transferable stock appreciation rights to the members of the Management
Board, while the Management Board is authorized to grant non-transferable stock
appreciation rights to selected managing directors of subsidiary companies and to
other executives in key positions within the EPCOS Group. The value of these stock
appreciation rights is linked the development of the EPCOS share price. The plan is
a cash-only plan, each tranche of which has a three-year term after which payment is
made automatically if the stock appreciation rights are in the money. The rights may
be cashed in prematurely only if a change of control occurs (e.g. if a third party
acquires a majority of EPCOS AG's shares). The settlement amount is calculated
from the difference between what is known as the closing price (the average of the
EPCOS share's closing prices in Xetra trading on all trading days in the last 30
calendar days of the term) and what is known as the issue price (the average of the
EPCOS share's closing prices on the last five trading days prior to issue). A further
precondition of payment is that the share price must have reached 115 percent of the
issue price at least once during the term of the tranche. Finally, the settlement
 EPCOS AG 2010 ● 88
amount is limited insofar as the closing price may not exceed 250 percent of the
issue price.
621,000 SARs were already issued in the initial and as of now only one tranche on
December 17, 2007. Due to the purchase of the majority of EPCOS AG shares by
TDK Group (Change of Control) the remaining 606,000 SARs were paid out ahead of
schedule in the three months ended in December 31, 2008.
During fiscal 2009, the Group recognized expense of EUR 0.07 million. The SARP
2007 was preceded by two regular stock option plans, the basic principles of which
are explained below.
EPCOS Stock Option Plan 1999
Effective October 13, 1999, an extraordinary shareholders’ meeting adopted a stock
option plan (EPCOS Stock Option Plan 1999). The plan had a term of five years.
Under this plan that was terminated by the shareholders’ meeting on February 11,
2004, members of the Management Board, directors of subsidiaries and other eligible
key employees could be granted non-transferable options to purchase up to
2,480,000 shares at 115 percent of the average closing market price of the Company’s shares during the five day period immediately before the date of grant. For
options granted immediately before the Company’s initial public offering, the exercise
price was 115 percent of the subscription price of EUR 31 per share. The Supervisory Board of the Company decided annually on the number of options to be granted
to the Management Board. In turn, the Management Board and the governing bodies
of the group companies decided annually on the number of shares to be granted to
the other eligible employees. Options granted under the plan can be exercised during
the five-year period starting two years after the options are granted, provided that the
share price has reached or exceeded the exercise price on at least one day since the
grant date. In connection with the EPCOS stock option plan 1999, Conditional Capital
of the Company in the amount of up to EUR 2,480,000 was created for the issuance
of up to 2,480,000 additional shares with no par value and a nominal value of EUR 1
each. The Conditional Capital became effective on October 13, 1999, when it was
recorded in the German Commercial Register.
EPCOS Stock Option Plan 2004
In the shareholders’ meeting of February 11, 2004, the shareholders approved the
since terminated EPCOS Stock Option Plan 2004. Under this plan a maximum of
2,480,000 options may be issued to the members of the Management Board of
EPCOS AG, to managing directors of EPCOS affiliates and to other selected executives until February 10, 2007. The Supervisory Board of EPCOS AG decided on the
number of options to be granted to the Management Board, and the Management
Board on the number of options to be granted to the other eligible persons. The
exercise price amounts to 115 percent of the base price, i.e. the average opening
market price of EPCOS AG shares on the five trading days before the grant date.
The exercise price is also the performance hurdle. The options may only be exer-
 EPCOS AG 2010 ● 89
cised after the expiration of a vesting period. This vesting period begins one week
after the grant date and runs for at least two years. The option rights may be exercised during the five years following the vesting period. Instead of shares issued from
Conditional Capital 2004/II of originally EUR 2,480,000 created for this purpose, the
eligible persons may, at the discretion of the Company, be granted treasury shares
repurchased from the stock market or paid cash settlement. The shares, to be issued
from the Conditional Capital 2004/II, have no par value and their nominal amount is
EUR 1 each. In the event of extraordinary, unforeseen developments, the Supervisory Board and the Management Board are authorized to introduce a cap on possible
gains from stock options.
In fiscal 2009 a total of 653,500 options were exercised. Thereof 33,000 options were
settled by using conditional capital placed for Stock Option Plan 1999 and 620,500
options were settled by cash payment. The settlement amount was calculated as the
difference between the closing price in Xetra trading at the exercise day (reduced by
EUR 0.30 because of the proposed dividend payment) and the respective strike price
of the options. TDK Corporation compensated EPCOS AG for the cost of the cash
settlement in the amount of EUR 2.1 million. Beyond these direct cost EPCOS AG
was also compensated for indirect (opportunity) cost in the amount of EUR 3.0 million. The opportunity cost is to be calculated by an economical comparison of the
effects from the cash settlement and the effects from issuing new shares (from Conditional Capital) on the financial statements.
No further long-term incentives based on the share price were granted in fiscal 2010
and 2009. The reason is that, following the takeover by TDK and associated speculation about a squeeze-out, EPCOS' share price no longer representatively reflected
the Company's business performance.
In fiscal 2010 380,500 stock options were settled by cash payment via Stock Option
Compensation Agreement between TDK Corporation and EPCOS AG. TDK Corporation compensated EPCOS AG for the cost of the cash settlement in the amount of
EUR 0.5 million.
 EPCOS AG 2010 ● 90
The table below summarizes stock option activity in the period under review:
Development of the stock options granted
(Figures in units or in EUR)
No. of
options
Options outstanding
at October 1, 2008
Options granted in
fiscal 2009
Options forfeited in
fiscal 2009
Options exercised in
fiscal 2009
Options redeemed in
fiscal 2009
Options that expired in
fiscal 2009
Options outstanding at
September 30, 2009
Of which:
exercisable options
Options outstanding
at October 1, 2009
Options granted in
fiscal 2010
Options redeemed in
fiscal 2010
Options that expired in
fiscal 2010
Options outstanding at
March 31, 2010
1,462,000
0
Weighted
average of
exercise
prices
30.85
-
Notes and explanations
No new stock options were granted in fiscal
2009.
Options were forfeited because the eligible
holders left the Group.
Settlement by Conditional Capital. The
weighted average share price on the
exercise date was EUR 18.17
18,500
21.76
33,000
15.23
620,500
16.20
Settlement by cash payment.
401,000
64.11
The exercise period expired.
389,000
21.68
-
389,000
21.68
-
389,000
21.68
-
-
No new stock options were granted in fiscal
2010.
0
(380,500)
21.76
Settlement by cash payment.
(8,500)
18.30
The exercise period expired.
0
-
-
 EPCOS AG 2010 ● 91
The table below provides information about the stock options outstanding at the end
of each fiscal year:
Stock options outstanding at fiscal year-end
(Figures
in units or
in EUR)
Exercise
price
64.11
15.23
21.76
16.31
Total
At March 31, 2010
No.
-
Weighted
average of
residual option
lives
(in years)
-
-
At September 30, 2009
No.
4,500
384,500
Weighted
average of
residual option
lives
(in years)
0.2
1.2
-
389,000
In fiscal 2010 no personnel expenses arose from share-based compensation
(EUR 0.24 million in fiscal 2009, thereof stock options accounted for EUR 0.17 million). For fiscal 2010 no cost of SARs occur (EUR 0.07 million in fiscal 2009).
6.28
Income taxes
Consolidated income (loss) before income taxes, split according to taxation criteria
into domestic and foreign sources, was as follows:
Income (loss) before income taxes
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Germany
Foreign
Total
2010-S
(17,742)
30,673
12,931
2009
(50,644)
(52,500)
(103,144)
 EPCOS AG 2010 ● 92
Provisions for/(benefits from) income taxes were as follows:
Provisions for/(benefits from) income taxes
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
Current taxes
Germany
Foreign
Deferred taxes
Germany
Foreign
Total
2010-S
2009
480
6,366
800
9,391
(33)
(748)
2,466
5,087
6,065
17,744
A reconciliation of income taxes for the years ending March 31, 2010, and September
30, 2009 is shown below. The German corporate tax rate plus the effective trade tax
rate was assumed, i.e. a consolidated statutory rate of 31.7 percent for 2010 and
2009.
Reconciliation of income taxes
For the years ending March 31, 2010, and September 30, 2009 (EUR thousand)
2010-S
2009
4,099
(32,696)
(3,974)
1,693
Change in realization of deferred tax assets
9,195
49,875
Non-deductible expenses
1,055
100
(2,484)
(2,040)
480
799
(1,801)
(4)
Change in tax rate
471
(252)
Tax effects according to differences in the
tax assessment basis
248
687
(1,224)
(418)
6,065
17,744
Expected income tax provision (benefit)
Foreign tax rate differential
Tax-free income
Foreign withholding tax
Tax benefit from prior years
Other factors
Actual income tax provision (benefit)
In Germany, a corporate tax rate of 15 percent will apply to the Company as of 2010
and 2009. A solidarity surcharge of 5.5 percent will be charged in addition to corporate tax. The total federal corporate tax rate for 2010 and 2009 therefore amounts to
15.8 percent. The effective rate for trade tax will be 15.9 percent in 2010 and 2009.
The total tax rate will thus be 31.7 percent.
 EPCOS AG 2010 ● 93
In the normal course of business, the Company is regularly audited by tax authorities
in different countries. In the Company’s opinion, existing tax provisions adequately
cover possible expenses for all open years.
Deferred tax assets and liabilities
At March 31, 2010, and September 30, 2009 (EUR thousand)
Inventories
Fixed assets
Net operating loss and tax credit carryforwards
Provisions
Pension liabilities
Other liabilities
Other
Deferred tax assets
Write-downs on receivables
Inventories
Fixed assets
Provisions
Other
Deferred tax liabilities
Deferred tax assets, net
2010-S
2009
4,618
4,149
5,394
14,258
4,001
38,933
6,155
9,997
83,356
5,275
14,967
6,545
39,495
1,642
12,760
84,833
(1,260)
(631)
(16,319)
(5,840)
(2,055)
(26,105)
57,251
(592)
(800)
(16,411)
(7,850)
(2,770)
(28,423)
56,410
Deferred tax income due to temporary differences totaled EUR 1.5 million in fiscal
2010 (prior year: deferred tax expense EUR 0.9 million). Deferred tax expense in the
amount of EUR 1.2 million were recognized in other comprehensive income in fiscal
2010 (prior year: deferred tax income EUR 0.8 million). This amount included mainly
effects from pensions and derivative financial instruments.
The net operating loss carryforwards relate mainly to the German, Austrian, French,
Brazilian, Italian and Spanish operations. Only those loss carryforwards were recognized as deferred tax assets for which there is reasonable assurance that sufficient
positive taxable income will allow these tax assets to be realized, and for which the
management assumes that it will be possible to recover these loss carryforwards due
to activities to improve earnings.
 EPCOS AG 2010 ● 94
No deferred tax assets were recognized for the following issues:
Items for which no deferred taxes were recognized
At March 31, 2010, and September 30, 2009 (EUR thousand)
Tax-deductible temporary differences
Tax loss carryforwards
Total
2010-S
37,222
93,558
130,780
2009
30,555
97,140
127,695
The pension liabilities on which no deferred tax asset were recognized amounted to
EUR 26.6 million at March 31, 2010 and EUR 19.6 million at September 30, 2009. A
write-up on tax loss carryforwards was made in fiscal 2010 totaling EUR 0.1 million.
Net deferred tax assets and liabilities are recorded as follows in the consolidated
balance sheets at March 31, 2010 and September 30, 2009:
Deferred tax assets and liabilities
on the consolidated balance sheets
At March 31, 2010, and September 30, 2009 (EUR thousand)
Deferred tax assets
Deferred tax liabilities
Total
2010-S
63,861
(6,610)
57,251
2009
62,960
(6,550)
56,410
At March 31, 2010 the EPCOS Group had consolidated net operating loss (NOL)
carryforwards amounting to EUR 404.0 million, of which EUR 38.8 million expire until
2015. The remaining net operating losses amounting to EUR 365.2 million expire
later than 2016 or have no expiry date. These figures show the gross amount of the
available NOLs. In addition, the subsidiaries in Spain, the United States and Hungary
have a tax credit amount of EUR 3.6 million at their disposal, which will expire beginning in 2011. Deferred tax assets on loss carryforwards and tax credits totaling
EUR 93.6 million were not taken into consideration for fiscal 2010. Of tax loss carryforwards for which no deferred tax assets were recognized, EUR 58.2 million will
expire until 2019.
At March 31, 2010 the Company accounted for deferred tax liabilities in the amount
of EUR 1.3 million and at September 30, 2009, EUR 1.3 million on the retained
earnings of foreign subsidiaries. No deferred tax liabilities were made on the remaining earnings of foreign subsidiaries of EUR 176.9 million at March 31, 2010, because
the Company intends to reinvest these earnings in these operations indefinitely, or
because the calculated amounts can be neglected due to immateriality. It is not
economically viable to estimate the amount of unrecognized deferred tax liabilities for
undistributed earnings.
 EPCOS AG 2010 ● 95
6.29
Pensions
The Company provides pension benefits principally under several defined benefit
pension plans. March 31 is the measurement date for the plans. Pension benefits
provided by EPCOS are currently organized primarily through defined benefit pension
plans which cover virtually all of the Company’s domestic employees and many of the
Company’s foreign employees. These predominantly other post-employment benefit
plans qualify as defined benefit plans under IFRS. Furthermore, the Company provides other post-employment benefits, which primarily consist of transition payments
to German employees after retirement as well as post-employment health care
benefits plans to employees in the U.S. and Brazil.
Individual benefits are generally based on eligible compensation levels and/or ranking within the Company hierarchy and years of service. Retirement benefits under
these plans vary depending on legal, fiscal and economic requirements in each
country.
Moreover, in Germany, a deferred compensation plan gives German employees the
opportunity to convert part of their compensation to a pension based on amounts
contributed, including the interest earned on these contributions up until retirement
age. The provision for future payments to retired staff is determined on the basis of
actuarial principles. This liability is recorded at the maximum of the market value of
the plan assets and the actuarial present value of the guaranteed financial funds.
In fiscal 2008, the plan assets in the amount of EUR 14.3 million were transferred.
The actual balance as of March 31, 2010 of the assets is EUR 14.2 million. The
assets held in trust by this organization cannot be accessed by the Company and
must be used exclusively to provide specified pension benefits or to satisfy employees’ and board members’ claims in the event of insolvency. The respective plan
assets cover those requirements not already satisfied by the pension assurance
association; therefore the amount is subject to fluctuations. The plan assets of the
Contractual Trust Arrangement (CTA) are invested in the capital markets in accordance with guidelines jointly developed by the EPCOS Vermögenstreuhänder e.V.
(till September 4, 2009) EPCOS Mitarbeitertreuhänder e.V. (since September 4,
2009) respectively and the Company.
Contributions totaling EUR 1.5 million in fiscal 2010 and EUR 2.3 million in fiscal
2009 were made to defined contribution pension plans. An estimated EUR 2.9 million
will be contributed for fiscal 2011. Unlike in the case of defined benefit plans, the
Company is obliged only to make specific contributions to these defined contribution
plans and therefore does not have to report its future obligations.
In fiscal 2010 and 2009 the Company made contributions to regular pension funds
(state pension plans/pension insurance) in accordance with legal stipulations in an
amount of EUR 18.1 million and EUR 29.4 million.
 EPCOS AG 2010 ● 96
Unless explicitly stated otherwise, the data for all defined-benefit plans are presented
in condensed form, as the obligations arise primarily from the plan in Germany. The
tables below provide a summary of the consolidated information in relation to all
pension plans operated by the Company at the specified balance sheet dates.
The table below presents the changes in defined benefit obligations (DBO) during the
years indicated:
Changes in defined benefit obligations
At March 31, 2010, and September 30, 2009 (EUR thousand)
Defined benefit obligations (DBOs)
at beginning of year
Reclassification/Transfer
Current service cost
Interest cost
Actuarial losses
Foreign currency exchange rate changes
Benefits paid
Plan cancellation
Plan amendments
Defined benefit obligations (DBOs)
at end of year
2010-S
2009
232,027
195,174
15,984
3,520
6,507
11,313
3,330
(5,679)
(396)
50
2,475
5,816
12,223
27,306
(949)
(8,873)
(1,145)
266,656
232,027
A termination indemnity concerning EPCOS OHG, Austria, shown up to now in
balance sheet position Other non-current provisions was reclassified in fiscal 2010 to
balance sheet position Pensions and similar obligations. The effect on DBO amounts
to EUR 16.0 million.
 EPCOS AG 2010 ● 97
The table below presents changes in plan assets during the fiscal years indicated:
Changes in plan assets
At March 31, 2010, and September 30, 2009 (EUR thousand)
Fair value of plan assets at beginning of year
Expected return on plan assets
Actuarial gain/(losses)
Foreign currency exchange rate changes
Contributions by the employer
Benefits paid
Settlements
Fair value of plan assets at end of year
2010-S
36,715
1,010
189
1,999
425
(505)
(68)
39,765
2009
35,472
2,643
(685)
(240)
1,155
(1,134)
(496)
36,715
The actual return on plan assets was EUR 1.2 million in fiscal 2010 and EUR 2.0
million in fiscal 2009.
Plan assets break down as follows:
German plan assets totaling EUR 14.2 million are invested exclusively in eurodenominated instruments on the money market or in bonds with maturities of no
more than three months. Furthermore, such bonds require a minimum rating of at
least A from Standard & Poor’s or A2 from Moody’s or a comparable rating. The
expected return is aligned with the EURIBOR rate.
Breakdown of foreign plan assets
At March 31, 2010, and September 30, 2009 (in %)
Investment in stocks
Bonds
Other
Total
2010-S
38.5
54.0
7.5
100.0
2009
37.2
54.9
7.9
100.0
The investment managers who handle the plan assets seek to reduce volatility by
their investment strategy. Accordingly, no more than 50 percent of those fund assets
that are invested largely in the USA may be held in corporate bonds. Furthermore,
these bonds require a minimum rating of A or better from Standard & Poor’s or
Moody’s at the date of purchase. The expected return is aligned with the market rate
of interest. The expected contribution to the plan assets in fiscal 2011 amounts to
EUR 2.1 million.
 EPCOS AG 2010 ● 98
The table below presents the funded status, including obligations, assets and provisions:
Obligations, assets and provisions
At March 31, 2010, and September 30, 2009 (EUR thousand)
1a. Funded defined benefit obligation
1b. Unfunded defined benefit obligation
1a+b. DBOs
2010-S
246,054
20,602
266,656
2009
225,933
6,094
232,027
2a. Plan assets
(39,765)
(36,715)
2,318
2,274
229,209
197,586
10,551
10,063
219,205
187,622
547
99
(11,124)
(29,639)
2b. Changes due to the asset ceiling
3. Net obligation in balance sheet
(= DBOs – plan assets+asset ceiling)
The amount reported on the balance sheet splits into
the following items:
Pensions and similar obligations (current)
Pensions and similar obligations (non-current)
Other non-current assets
4. Other comprehensive income
Actuarial losses
The table below presents the components of net pension costs for the years ending
March 31, 2010, and September 30, 2009:
Net pension costs
For the years ending March 31, 2010, and September 30, 2009 (EUR
thousand)
Service cost
Interest cost
Expected return on plan assets
Curtailment/ Settlement
Net pension costs for the reporting period
2010-S
3,520
6,507
(1,010)
125
9,142
2009
5,816
12,223
(2,643)
(650)
14,746
In the Consolidated Statements of Income, interest cost and the income from the
expected return on plan assets are reported as part of interest income (expense),
net. All other components of net pension costs are allocated among functional costs,
according to the function of the employee groups accruing benefits.
Assumed discount rates and rates of increase in compensation used in calculating
DBOs together with long-term rates of return on plan assets vary depending on the
economic conditions of the country in which the retirement plans apply. The weighted
average assumptions used in calculating actuarial values for the principal pension
 EPCOS AG 2010 ● 99
plans were 4.75 percent for the discount rate in fiscal 2010 and 5.25 percent in fiscal
2009. Compensation increases were assumed to be 2.75 percent in fiscal 2010 and
2.75 percent in fiscal 2009. The expected return on plan assets for the USA funded
pension plan in fiscal 2010 was 7.00 percent (previous year: 7.00 percent). The
expected return on plan assets for the Brazilian subsidiary amounts to 10.50 percent
(previous year: 10.50 percent).
A cost trend of 7.50 percent for healthcare was assumed for healthcare plans in
Brazil (7.00 percent in fiscal 2009). A cost trend of 5.50 percent was assumed for
healthcare plans in the USA (5.50 percent in fiscal 2009).
The effects of a one-percentage-point increase or decrease in the assumed health
care cost trend rates are as follows:
Effects
cost trend rates
cost trend rates
At March, 31 2010 (EUR thousand)
+ 1 percent
- 1 percent
Effect on current service cost/interest cost
components in net costs for the period for
post-employment medical care
25
(21)
Effect on accumulated obligations with regard
to post-employment medical care costs
345
(297)
The table below shows the income and expenses recognized in other comprehensive
income in equity:
Income and expenses recognized in other comprehensive income
At March 31, 2010, and September 30, 2009 (EUR thousand)
Beginning of fiscal year
Actuarial losses
Reclassification/ Foreign currency exchange rate changes
Income taxes
End of fiscal year
2010-S
2009
5,467
11,124
(891)
1,011
16,711
(21,388)
29,639
559
(3,343)
5,467
Historical Information
At March 31, 2010, and September 30, 2009, 2008 and 2007 (EUR thousand)
DBO
Fair value of plan assets
Changes due to the asset ceiling
Funded Status
2010-S
2009
2008
2007
266,656 232,027 195,174 212,010
(39,765) (36,715) (35,472) (23,035)
2,318
2,274
229,209 197,586 159,702 188,975
The adjustments based on experience, which are the differences between the earlier
actuarial assumptions applied and actual developments are as shown in the following
 EPCOS AG 2010 ● 100
table (based on the pension benefit plans and plan assets at March 31, 2010, and
September 30, 2009):
Adjustments based on experience
At March 31, 2010, and September 30, 2009 (EUR thousand)
Arising from plan liabilities
Attributable to plan assets
6.30
2010-S
(1,441)
(189)
2009
3,969
686
Non-cash transactions
The adjustment of the actuarial interest rate for the pension provision is resulting in a
cash neutral change at this liability position in amount of EUR 11.1 million as of
March 31, 2010 (September 30, 2009: EUR 29.6 million).
New issued shares resulting from the convertible bond were removed from liabilities
and converted into equity in amount EUR 4.0 million in fiscal 2009.
In fiscal 2009 licences amounting to EUR 4.5 million were sold to third parties within
a sale-leaseback transaction. In addition land and building including fixtures and
furniture in amount of EUR 23.1 million are accounted as financial lease transaction.
The present value of the leasing payments corresponds to the liabilities arising from
the finance lease.
In fiscal 2009 the increase in fixed assets was reduced by a not yet received government grant in an amount of EUR 3.0 million.
 EPCOS AG 2010 ● 101
6.31
Disclosures regarding financial instruments pursuant to IFRS 7
At March 31, 2010, and at September 30, 2009, the carrying amounts and fair values
of the individual financial instruments, grouped according to the categories defined by
IAS 39, were as follows:
Carrying amount and fair value for categories (EUR thousand)
Carrying
amount
at
March
31, 2010
Amortized
cost
Fair
value
recognized in
equity
Fair value
recognized in
profit/loss
IAS 17
leases
Fair value
at March
31, 2010
Valuation
categories
8,096
-
8,096
-
-
8,096
AfS
9,402
9,402
-
-
9,402
LaR
758
758*
-
-
-
AfS
Trade receivables
253,040
253,040
-
-
253,040
LaR
Cash and cash equivalents
124,608
124,608
-
-
124,608
LaR
1,177
-
-
-
1,177
FAHfT
13,773
13,773
-
-
13,773
LaR
Trade liabilities
151,974
151,974
-
-
151,974
FLAC
Non-current and current debt
305,643
305,643
-
-
305,146
FLAC
35,162
-
-
35,162
44,153
n.a.
1,075
-
-
1,075
-
1,075
FLHfT
640
640
-
-
-
640
FLAC
4,166
-
-
4,166
-
4,166
FLHfT
9,596
9,596
-
9,596
FLAC
ASSETS
Other non-current financial
assets
Investment securities
Investment securities and
other financial assets
Investments
-
Other current financial assets
Derivative instruments without
hedging relationship
Other financial assets
1,177
LIABILITIES
Liabilities from lease transactions
Derivative instruments without
hedging relationship
Other non-current financial
liabilities
Other current financial liabilities
Derivative instruments without
hedging relationship
Other financial liabilities
*) Investments can not be measured at fair value if no active market exists. In such cases, they are measured at
amortized cost. Sale of these instruments is not planned.
 EPCOS AG 2010 ● 102
Carrying amount and fair value for categories (EUR thousand)
Carrying
amount
at Sept.
30, 2009
Amortized
cost
Fair value
recognized
in equity
Fair value
recognized
in
profit/loss
IAS 17
leases
Fair
value at
Sept. 30,
2009
Valuation
categories
7,449
-
7,449
-
-
7,449
AfS
8,902
8,902
-
-
-
8,902
LaR
758
758*
-
-
-
-
AfS
479
-
-
479
-
479
FAHfT
Trade receivables
213,364
213,364
-
-
-
213,364
LaR
Cash and cash equivalents
119,475
119,475
-
-
-
119,475
LaR
2,471
-
-
2,471
-
2,471
FAHfT
139
-
139
-
-
139
n.a.
8,884
8,884
-
-
-
8,884
LaR
Trade liabilities
118,647
118,647
-
-
-
118,647
FLAC
Non-current and current debt
253,185
253,185
-
-
-
252,472
FLAC
35,247
-
-
-
35,247
34,289
n.a.
15
15
-
-
-
15
FLAC
1,112
-
1,112
-
-
1,112
n.a.
1,899
-
-
1,899
-
1,899
FLHfT
17,161
17,161
-
-
-
17,161
FLAC
ASSETS
Other non-current financial
assets
Investment securities
Investment securities and
other financial assets
Investments
Derivative instruments
without hedging relationship
Other current financial assets
Derivative instruments
without hedging relationship
Derivative instruments with
hedging relationship
Other financial assets
LIABILITIES
Liabilities from lease
transactions
Other non-current financial
liabilities
Other current financial
liabilities
Derivative instruments with
hedging relationship
Derivative instruments
without hedging relationship
Other financial liabilities
*) Investments can not be measured at fair value if no active market exists. In such cases, they are measured at
amortized cost. Sale of these instruments is not planned.
 EPCOS AG 2010 ● 103
Cash and cash equivalents denominated in currencies other than EUR are translated
at the spot rate.
Trade receivables and other current financial assets are assigned to current assets.
In light of their short maturities, it is assumed that the stated carrying amounts are
roughly equivalent to the corresponding fair values.
In the case of available-for-sale financial assets, the price on an active market (where
such a market exists) is recognized as the fair value.
The fair values of derivative financial instruments are calculated based on their
market values. This can, for example, be done by discounted expected future cash
flows on the basis of current market rates of interest and the term structure of interest
rates, or on financial mathematical models that contain assumptions about volatility
and/or current prices.
In light of their short maturities, the carrying amounts of trade liabilities are roughly
equivalent to their fair values.
Non-current debt (such as liabilities due to banks or liabilities arising from finance
leases) is measured at the present value of payments relating to the debt on the
basis of current market interest rates assuming punctual payment.
In accordance with the categories defined by IAS 39, the carrying amounts at March
31, 2010, and at September 30, 2009, were as follows:
Carrying amounts by valuation categories
At March 31, 2010, and September 30, 2009 (EUR thousand)
Available-for-sale assets (afs)
Loans and receivables (LaR)
Financial assets held for trading (FAHfT)
Financial liabilities measured at amortized cost (FLAC)
Financial liabilities held for trading (FLHfT)
2010-S
8,854
400,823
1,177
2009
8,207
350,625
2,950
(467,853)
(5,241)
(389,008)
(1,899)
Liabilities arising from finance leases and balances arising from transactions classed
as hedge accounting are not included in the above table.
 EPCOS AG 2010 ● 104
The classification of financial assets and liabilities measured at fair value to the three
levels of the fair value hierarchy in included in the following table:
Fair value hierarchy
At March 31, 2010 (EUR thousand)
Level 1 Level 2 Level 3
Financial assets measured at fair value:
afs securities
Derivative financial instruments
Financial liabilities measured at fair value:
Derivative financial instruments
8,096
-
Total
1,177
- 8,096
- 1,177
- (5,241)
- (5,241)
At level 1, fair value is determined in whole or in part by published price quotations in
an active market. At level 2, fair value can be determined direct or indirect being
based on observable market data. For level 3, no observable market data are available for fair values.
Net gains/(losses) by valuation categories
For the years ending March 31, 2010, and September 30, 2009
(EUR thousand)
Available-for-sale assets (afs)
Loans and receivables (LaR)
Financial liabilities measured at amortized cost (FLAC)
Financial assets and liabilities held for trading (FAHfT)/ (FLHfT)
2010-S
42
6,097
(4,075)
(2,667)
2009
160
1,151
2,367
(6,636)
Net gains/losses mainly include results from sale or derecognition, foreign exchange
effects, changes in allowances and fair value adjustments.
The table above does not include gains or losses on derivatives with hedges.
In addition to the figures listed above, a net gain of EUR 0.5 million resp. net gain of
EUR 0.1 million on available-for-sale financial assets was recognized directly in other
comprehensive income in fiscal 2010 resp. 2009. In fiscal 2010 and 2009, no net
gains/losses on available for sale financial assets were reclassified from other comprehensive income to profit and loss. A net loss of EUR 0.0 million and minus
EUR 1.0 million on derivatives with hedge relationships was appropriated to other
comprehensive income in fiscal 2010 and 2009. In fiscal 2010 and 2009, a net loss of
EUR 1.0 million and EUR 11.8 million on derivatives with hedge relationship was
reclassified from other comprehensive income to profit and loss. These losses are
reported within cost of sales in the consolidated income statement. At March 31,
2010 no derivative instruments with hedging relationship were existing.
 EPCOS AG 2010 ● 105
At March 31, 2010, and September 30, 2009, the maturities of the Group's debt were
as follows (Interest payments arising from floating-rate liabilities were calculated
based on the terms applicable at March 31, 2010 and September 30, 2009):
Debt maturities
For the year ending March 31, 2010 (EUR thousand)
Less than
Between one and
one year
five years
Current and non295,914
38,405
current debt
Trade accounts
151,974
payable
Derivative financial
4,166
1,075
instruments
Other debt
9,596
279
More than five
years
Total
97,124
431,443
-
151,974
-
5,241
361
10,236
More than five
years
Total
58,154
335,111
-
118,647
-
3,011
8
17,176
Debt maturities
For the year ending September 30, 2009 (EUR thousand)
Less than
Between one and
one year
five years
Current and non239,613
37,344
current debt
Trade accounts
118,647
payable
Derivative financial
3,011
instruments
Other debt
17,161
7
The following table includes details to budget and maturities of hedging activities:
Budget and maturities
At March 31, 2010, and September 30, 2009 (EUR thousand)
2010-S
Between
one and
five years
Total
Less than
one year
210,395
-
210,395
214,110
-
214,110
-
13,890
13,890
6,274
7,098
13,372
375
-
375
7,215
-
7,215
Less
than
one
year
Forward exchange
contracts
Cross-Currency swaps
and interest rate swaps
Commodity contracts
2009
Between
one and
five
years
Total
 EPCOS AG 2010 ● 106
6.32
Risk management
For details concerning the risk management please see the management report.
6.33
Subsequent events
No events have occurred after the balance sheet date which could have a major
impact on the financial statements of the EPCOS Group.
Munich, May 25, 2010
Pegam
Dr. Faber
Zichlarz
 EPCOS AG 2010 ● 107
Auditor’s Report
We have issued the following opinion on the consolidated financial statements and
the management report on the position of the company and the group:
“We have audited the consolidated financial statements prepared by the EPCOS
AG, Munich, comprising the income statement, the statement of comprehensive
income, the balance sheet, the cash flow statement, the statement of changes in
equity and the notes to the consolidated financial statements, together with the
management report on the position of the company and the group for the abbreviated fiscal year from October 1, 2009 to March 31, 2010. The preparation of the
consolidated financial statements and the management report on the position of
the company and the group in accordance with IFRSs as adopted by the EU, and
the additional requirements of German commercial law pursuant to Sec. 315a (1)
HGB [“Handelsgesetzbuch”: “German Commercial Code”] are the responsibility of
the parent company’s management. Our responsibility is to express an opinion on
the consolidated financial statements and on the management report on the position of the company and the group based on our audit.
We conducted our audit of the consolidated financial statements in accordance
with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of
Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the
net assets, financial position and results of operations in the consolidated financial
statements in accordance with the applicable financial reporting framework and in
the management report on the position of the company and the group are detected with reasonable assurance. Knowledge of the business activities and the
economic and legal environment of the Group and expectations as to possible
misstatements are taken into account in the determination of audit procedures.
The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the
management report on the position of the company and the group are examined
primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation,
the determination of entities to be included in consolidation, the accounting and
consolidation principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements
and the management report on the position of the company and the group. We
believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
 EPCOS AG 2010 ● 108
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU, the additional requirements of
German commercial law pursuant to Sec. 315a (1) HGB and give a true and fair
view of the net assets, financial position and results of operations of the Group in
accordance with these requirements. The management report on the position of
the company and the group is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.”
Munich, May 25, 2010
Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft
Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft
Broschulat
Müller
Wirtschaftsprüfer
Wirtschaftsprüfer
[German Public Auditor]
[German Public Auditor]
 EPCOS AG 2010 ● 109