smelling and tasting sound

www.sennheiser-annualreport.com Annual Report 2010

COVER PHOTO British photographer Nick Veasey has a passion for making the invisible visible. By x-raying his subjects, he is able to create a whole new world of images, unmasking a beauty that has never been seen before. Like this delicate and fragrant flower. Annual Report 2010

080895 Printed in Germany EDITORIAL 3

ur senses of smell and taste are uniquely intertwined. Only when they play in counterpoint are we truly able to O experience flavor. That much you probably know. But did you know that the right sound is able to intensify a meal’s flavor by 10 percent? In this annual report, we profile the British celebrity chef and Oxford scientist who made this discovery. Following “Seeing sound” in 2008 and “Feeling sound” in 2009, this year’s focus is “Smelling and tasting sound.” Paderborn music professor Heiner Gembris gives us a glimpse into the world of perfumers, who communicate in the same language as musicians. And who knows better about the cross-modal effect of melodies than the composer of the well-known theme songs for Das Boot and the German TV series Tatort? During an interview in his studio, Klaus Doldinger gives us his insights into the saxophone’s sensuality and the importance of choosing the right microphone. What’s more, we teamed up with a culinary treasure hunter who scours local Asian markets in search of long- forgotten or unknown ingredients. Stir them together and these stories will give you a fresh look at our core business. As audio specialists, sound is our passion. I hope you enjoy this new experience: smelling and tasting sound.

Yours,

Prof. Dr. Jörg Sennheiser

“Sound is our greatest passion.” 4 Ex ecutive Management Board Ex ecutive Management Board 5

Peter Callan Dr. Heinrich Esser D aniel Sennheiser D r. Andreas Sennheiser V olker Bartels Paul Whiting President, Consumer Electronics Division President, Professional Systems President, Strategy and Finance President, Supply Chain Division President, Corporate Services, President, Global Sales Division Division and Installed Sound Division Spokesperson of the Executive Management Board 6 CONTENTS PAGE Authors 44 & Artists PAGE Masthead PAGE 10 46 & Contact PAGE Sniffing 08 Listening melodies Klaus Doldinger, Germany’s finest jazz musician and most to perfume notable soundtrack composer, writes music to evoke idyllic beaches and the smell of limes. He compares the Note, composition, theme. The effect musical enjoyment of music to the taste of alpine trout. terminology has on a perfumer’s inspiration. PAGE 16 Tracking sound We don’t just listen to The Indiana Jones of Asian cuisine combs obscure markets and music with our ears, but with Smelling forests in his quest for new flavors. How does the background our noses and mouths music for the food hunter sound? PAGE 38 Tasting as well – awakening some and tasting sound of the most glorious Heston Blumenthal cooks with sounds, sound experiences. and serves the seven senses. The Brit is one sound of the finest chefs in the world. Together with a team of scientists, he explores PAGE the multisensory promise of haute cuisine. 22 Drinking

PAGE PAGE 32 26 music Smelling The old rule of thumb: white wine Crafting with fish and red wine with beef. But now rhythm scientists have proved that the right music enhances the enjoyment of wine. brands When the bass booms, he fills the club with the smell of amber. And when the clubbers start People build emotional associations to things. to get rowdy, he atomizes bergamot. ODO7 is no That’s why product designers create sounds, smells and ordinary DJ – he’s an aroma jockey. flavors that shape our overall brand experience. 8 Composition

not measurable is the connection between fragrance and music, between a musical note and a perfume note, between a musical chord and a perfume accord. Fragrance has no physical or material counterpart. Unlike sound recording, it is not possible to record the Though musicians and perfumers may have a different raison d’être, smell of perfume and then use modern technology to encode its substance and spirit into bits and bytes. they speak a common language. One that creates a mood and fills the air with magic. An essay by Heiner Gembris, Professor of Empirical Music Education and Music Psychology, Paderborn, Germany A good recording is an emotional experience If I wanted to enjoy a perfume in a different location or at some other time, I would have to secure the perfume composition and its ingredients in its original formulation. It’s different with music. I get the same A tone, a chord, a sound. Three words, one sensuous realm in which we are immediately feeling of sound and emotion from listening to a transported to the land of sound located in the world of music. But even as we explore faithfully reproduced musical performance – meaning this new territory, we come across similar terminology in the land of fragrances. a good recording taken up by perfectly matched Accords, harmonies and consonances permeate the perfumers’ language. Knowing instrumental, vocal and studio microphones. Sub- how much our speech mirrors our thoughts, it is fascinating to discover how very merging oneself in fragrance or music isn’t just a similar the vocabulary used to describe a piece of music and a fragrance actually is. matter of fragrant substances and musical elements. Both are built up on a “note.” For the one, it is a musical note. For the other, a perfume Other factors such as one’s mood, expectations, social note. One requires various musical elements to compose a coherent opus, a melodic context or room conditions can play an important part sequence of recurring musical notes; the other requires a variety of substances to in their modality. But do music and fragrance ever play compose a fragrant nosegay, an aromatic sequence of recurring perfume notes. It’s no in counterpoint? Yes. Their common wonder composers have tried to come up with their own attribute is their ability to create an musical interpretation of fragrance – albeit rarely. A hundred atmosphere. A mood. A lingering notes are associated with brightness and years ago, French composer Claude Debussy successfully transported to a warm summer night on the Iberian Peninsula, impression in the air that is perceived a sense of spatial height; low tones with translated music into fragrance in his orchestral masterpiece where a bouquet of flowers and Mediterranean trees exhale by all the senses: hearing, smell, darkness and heaviness. In the perfumery, Les parfums de la nuit: the fragrance of the night. Its title is their fragrance in a gentle wave of perfume carried on a light sight, touch and taste. high notes describe fresh, light notes; low as mysterious as it is evocative. Whenever I listen to it, I am breeze. Debussy’s unique compositional style lends itself to notes, deep and rather intense oriental creating such musical illusions. His colorful harmonies create Quiet tones – delicate fragrances fragrances. A quick musical tempo signifies richly sophisticated and imaginative melodies that release him One way to understand how music the smell of cologne as it quickly fades away. from the constraints of traditional harmonies. Debussy’s music and fragrance intertwine is to A leisurely tempo conjures up the sense of lingers. It is indefinable. describe their notes. In music, high heavier, muskier notes. Loud sounds reflect a fragrance’s intensity; soft sounds, delicate Fragrance has neither physical nor material counterpart or light fragrances. However, there has likely Although there are linguistic similarities, perfume and music never been such a beautiful combination of are built on two very different sensory modalities and, without fragrances as those interpreted by Debussy a common frame of reference, it is not easy to compare in his Les parfums de la nuit. them. Music’s unique elements of notes, scales, chords and rhythms, however, can be described and measured according to such physical parameters as pitch, volume and tempo. What is Sound 11

“It all comes down to the microphone” Klaus Doldinger, Germany’s foremost jazz musician, has been composing music for advertising, television (the German crime series Tatort) and film since the 1960s. Doldinger is known internationally for his screen scores for Das Boot and The Never- ending Story. The jazz saxophonist and his band, Passport, have been performing together for over 40 years. On the occasion of his 75th birthday, Doldinger talks about music’s sensuality and gives his insight into how to choose the right microphone.

Is there a smell or taste to music? (Laughs) That would make it all the better. When music grabs you, it evokes all kinds of feelings, though I am not sure one would get the same sense of enjoyment as sitting down to a nice meal of alpine trout. How- ever, I do believe that good sound and the right music can trigger a physical sense of well-being.

Wild Freshness, the advertising jingle you composed in 1969 for the beauty soap Fa, has become a classic. Is it possible for music to conjure up a sense of the “wild freshness of lime”? Back then, I had just started to write music for films, documentaries and TV commercials. All of a sudden, Is playing the saxophone sensuous? that took precedence, not the band. Questions like When you play, you are fully connected and totally “Who’s playing?” or “Who can play what?” were involved in the instrument. Though you may not get the expanded to include questions on content, sequences same feeling you do when listening to music, playing and synchronization. It’s possible to create an adds a whole new dimension. The location, such as a atmosphere that evokes the feeling of being at the theater with relatively dry acoustics, a large concert hall beach – possibly even smelling limes. Whether that or a sports arena, makes a huge difference. can be translated to every feeling – or even should – is a question for another day. But having to address That’s a bit disappointing to hear. Your music seems these questions broadened my reach as a composer. so full of emotion and now you tell us that the saxo- Wild freshness is just an example. But, in the end, it’s phone and sensuousness don’t go hand in hand … about writing something meaningful … something of I know the feeling (laughs). I was a pianist at first. My lasting value. enthusiasm for the saxophone suffered a big shock when I started practicing. It was a painful sensory experience for my lips, hands, arms and neck. I associate the first few years of learning to play the saxophone with bloody lips. It isn’t an easy instrument to master. The mouthpiece I use on my sax is really unique because the But don’t take it too badly. The more you practice, the chamber size is adjustable. more sensuous it becomes. As the chamber becomes narrower, the sound becomes brighter and more penetrating. 12 Sound

a huge “The microphone makes difference, especially when recording sensitive sounds like the human voice or certain instruments.“

How important is the interplay between microphone and mouthpiece? The mouthpiece is a very important part of playing a wind instrument. But so is its bamboo reed. There has to be a synergy between the reed, mouthpiece and instrument. Couple that with the right microphone, a room with great acoustics, a good audience and the right music, then nothing can go wrong (laughs).

You are a trained sound engineer and have your own studio … That’s true. But what I learned in the 1960s no longer applies today. That is, other than a natural curiosity in technology. Actually, I learned the most about sound technology in the late 1970s, when I set up my own studio. I had a room that we used for recording – sometimes even with two microphones. In other words, we started out very, very small.

Today’s music software is making a lot of studio equipment obsolete. Would it be fair to say that Now that you work with software, do you miss analog devices? all you need today is a fast computer and good With buttons to rotate, they could be very sensual. microphones? Recording has become less complicated. In the past, I was a prisoner It’s not as though analog technology has to be thrown to the studio as well as the sound engineer and his assistants. Today, out completely. The microphone connects the artist with I can do it all myself. Digital technology has its own sensuality; the recording equipment. The microphones you use for instance, clicking on a mouse to achieve the effects I want. make all the difference, especially when recording I have always considered sound technology as a natural extension of expressive things like the voice and other instruments. my musicianship.

You use Sennheiser microphones both on stage and in your studio. What do you like about them? EW-500 wireless microphones give me freedom of movement. How- ever, when it comes to acoustic improvisation with jazz piano and bass accompanied by the discreet rhythm of the drums, I prefer a stand microphone so that I can increase or lower the dynamics by moving toward or away from the mic. When I record myself, there’s nothing better than the tried and true Neumann microphones. “Dizzy” Gillepsie, I had a lot of role models – the end, Miles Davis, Lester Young. But, in my own voice. it all comes down to finding Sound 15

The saxophone is one of the most expressive wind instruments in the world. The wail of the Sound saxophone can be compared to the human voice. Sometimes uninhibited – sometimes low. according to Sometimes angry – sometimes soft. The first step in perfectly capturing its expression and many facets is to find the right place to position the microphone. At least that’s the theory. plan Here’s a look at it in practical application.

SRAOSAXOP N OPHONE TEO N R SAXOPHONE TEO N R SAXOPHONE clip-on microphone dynamic microphone clip-on microphone

A gooseneck wireless microphone is In the studio, tenor saxophonists use For performances on stage, a wire- typically used on stage for a soprano dynamic microphones fitted on a less transmitter is mounted to the sax because it gives the musician stand 1. The microphone 2 is tilted tenor saxophone’s bell 1. The trans- more freedom of movement. Trans- toward the opening of the saxo- mitter 2 is connected to the micro- mitter and battery 1 connected by a phone’s bell 3, giving every tone the phone 3, which is positioned directly cable to the microphone 2 can be same weight. The further away the above the bell. A wireless microphone mounted either on the saxophone or saxophonist stands from the mic, the system gives a saxophonist tremen- the musician’s belt. The microphone more neutral the tone. The closer he dous freedom to move around on collection of Selmer saxophones, I have a whole 3 is usually located near the right- is, the more intimate. The disadvan- stage during a live performance but my favorite is the legendary hand valve keys so that the sound is tage is that it can intensify any back- without forfeiting sound quality. Sennheiser’s MD441 dynamic microphone tenor model Mark VI. amplified evenly. ground noise, such as the valve keys hand is a classic. I always have it on opening and closing. in my studio for saxophone recordings.

Have you experimented with different types of microphones? On stage, we worked exclusively with condenser microphones – never tubes. It’s a whole other story in the studio. To me, Sennheiser is 2 the name. I like their world view and commitment to artists. I don’t know of any other company that pays as much attention to an artist’s needs as Sennheiser.

You’ve accumulated a tremendous amount I keep myself fit. There are other factors as well: where you perform and with of experience. After all, you’ve been in the whom. The only difference I have noticed is that every concert has become its 1 3 music business almost all your life. Now own moment of truth. 3 1 that you’re coming up to 75, do you find it 2 easier or more difficult to compose, impro- You’ve won prizes, written hits and traveled the world. Is there anything 1 vise and play? you feel like you haven’t achieved? I never really thought about what I wanted to achieve. Of course, one recognizes the successes. But that was never my main motivation. When things don’t go 3 2 right, you have to be able to take a step back. At the same time, you can’t ever stop rehearsing or working on yourself. That’s the bottom line. Seen superfi- cially, the benchmark for success is set slightly too high. But what’s important to me is that I come to terms with myself. T reasureblindtext hunt 17

On-site research: The food hunter has no qualms in asking the local women for their family recipes. His own special recipe for stumbling upon culinary exotics.

Raiders of lost flavors Mark Brownstein is a culinary treasure hunter. A food hunter, he scours the markets of Asia in search of long-forgotten ingredients and – sometimes – their subtle sounds as well. 18 T reasure hunt blindtext 19

The market of Vietnam’s ancient imperial city Hué smells of ginger and sweet coconut rice. A feast for the senses and a paradise for the food hunter.

s I listen to the sounds of the city waking up, the sun has just begun its slow climb over the most romantic city in the Indian state of Rajasthan. Udaipur. A Situated on a lake with two islands dotted with palaces, Udaipur is embraced by the mountains that surround it. And directly across from Udaipur, the Maharaja’s storybook castle sits on its throne. But that’s not what interests me this morning. My name is Bernd Girrbach, and I am on a treasure hunt with Mark Brownstein. We’ve 1 known each other for years and, in fact, I am the only one permitted to accompany him on his adventures. Well – actually – me and my film crew. It’s Brownstein’s rather unusual occupation that has us tagging along today. The 52-year-old American is in pursuit of totally unknown, ancient or long-forgotten ingredients (mostly from Asia) to bring back to the world’s most inspired chefs. Brownstein is the Indiana Jones of Asian cuisine, and I am his scribe. I call him the food hunter. ELE PHant-FRUIT The fruit grows on imposing Every flavor has its own perfect sound trees found in the dry plains of His explorations bring us to a remote crossroads. Though it’s early in the morning, the India and Sri Lanka. market is in full swing and – above all – loud! The food wallahs (wallah meaning man or worker) cry out their wares. The wallah selling lassi (an almond yogurt drink) calls out “tandaaai.” Oil hisses as the sweets-wallah fries masaloa vadai in oil. The chutney-wallah raises his roller shutter: “Acarwallah!” Brownstein is wide awake. Foodhunter. For Brownstein, the five senses are kith and kin. It’s “Just listening makes me hungry,” he exclaims. “As soon common knowledge that sight and taste are closely related, as my brain registers these sounds, it invites the matrix which is why restaurants are so attentive to the way food is of Indian aromas in. It’s fabulous! Everything is made arranged. But what many don’t know is that the sense of touch, fresh here. You can even watch as it’s being prepared.” in this case the “feel in the mouth,” is just as important. He sounds like the soundtrack for the TV series “Consistency” and ”texture” are important entries in a chef’s vocabulary. Brownstein believes that every flavor has its own prefect sound. Salad is crisp; a roast, crusty; waffles, crunchy. The hunter of flavor is convinced: “Many dishes imply a certain type A flavorful sound: Mark Brownstein may not be able to record smell, of sound.” Not hard to prove in Rajasthan. Between sacred cows but – for the food hunter – every food has its own special sound. and cars, street vendors cart around their hot dumplings. “Taja maal, taja maal” (really fresh) bark women carrying fruit baskets. Meanwhile, the traffic cop is sitting with the chai-wallah, sipping foamy spiced masala tea. Brownstein’s radar zooms in on pale- green, fist-sized cannon balls being sold by an elderly woman. That must be it! Elephant-fruit, which was once used to make a delicious chutney. The fruit derives its name from its extremely hard shell that supposedly only an elephant can open. In an emergency, a hammer will do. Being impractical, however, the fruit has fallen from favor. That and the fact that it releases a malicious, albeit quickly dissipating, odor when opened. Deciding on whether or not the fruit is ripe can be difficult because it’s not possible to judge by sight or smell. The secret is in the listening. Brownstein drops the fruit from about half a meter high. If it’s not ripe, it will bounce back like a tennis ball: pow! If it is ripe, it will land where it falls: plop.

An acoustical journey through the culinary world Back at home, editing the film material, I breathe in the acousti- cal atmosphere of Udaipur. And as I do, I am immediately filled 20 T reasure hunt T reasure hunt 21

Aromatic, flavorful and eye-catching culinary treasures. Found hiding deep in with a craving for cumin, mustard seed, the jungle, they are barked in colorful markets and prepared to perfection “Many foods turmeric, cinnamon and saffron. The D elicacy sounds we recorded are working their in pots and pans. Food hunter Mark Brownstein scours Asia in search of ancient, have a sound magic, immediately stimulating my long-forgotten or local delicacies, then whisks them off to the world’s finest brainstem. What amazes me is that the finds chefs. Here, a treasure map detailing the locations of three of his finds. connotation.” effect is even stronger when I close my 2 eyes. Then it’s off to Laos and a whole MR A K B OWNSTEIN other world. Vientiane, its capital, looks like an oversized village, which is irritat- ing having just arrived from India. No auto-rickshaws; no honking. It’s a quiet country. Flying north, we arrive in the moun- 1 tainous area home to Luang Prabang, the ancient imperial city situated on the Mekong KIPNA E River. Background music. The soft gurgling of the great river. Upstream, a chugging Wafer-thin sheets of cargo boat. The food hunter is searching for kai pen, thin sheets of river algae – seasoned river algae – a traditional 2 Laotian edible paper – native to the waters of the Mekong and its tributaries. Using a snack in Laos stock made from tamarind and sour jungle plum, the grass-green river algae is laid out in strands and then gently slapped. In season, you can hear the patting every- 3 where. Sesame seeds, garlic and tomato slices are strewn over the sheets of algae. Brownstein is studying his sound clips, Brownstein is better able to describe an ingredient’s individ- taking the Mekong’s kai back with ual character and texture to his select chefs. Brownstein and his film crew board a him to Hong Kong’s finest hotels. plane back to Vietnam and back to the noise. We’re shooting a documentary series for Wafer-thin, delicate, it is prepared European television stations SWR and Arte. Hué is located in the center of the coun- in Laos. As it is gently dipped into try. Wherever you go, the smell of coriander wafts from freshly prepared food. Our the hot, but not too hot, oil of a soundtrack this time? Mopeds making their deliveries. Like flocks of geese, the masses wok, you can hear its finely tuned of mopeds weave in and out of each other, regroup and then, in an explosion of fumes, 1 music. Sesame seeds bursting zoom on. But there is more to Hué. It’s also the imperial city of Vietnam where its open, moisture hissing as the kai emperors ruled until Ho Chi Minh arrived in 1945. Brownstein has been reading about ELE PHant-FRUIT crackles and sings its epicurean ruou thom, a marinade of fragrances used for chicken and painstakingly devised by U I daipur / ndia song. Brownstein has started to the “sad” emperor Tu Duc himself. We are in pursuit of its ingredients. 24° 37’ 3” north / 73° 53’ 45” east record these nano-sounds. The popping of Arborio rice near From the jungle to the tables of the world’s finest restaurants Elephant-fruit or wood-apples (feronia elephantum). Its Risotto; ant eggs bursting. By The crowd is thick. Hard going for Alok, the cameraman. Only soundman Mathews name comes from its hard shell that allegedly only an grins beneath his Sennheiser headphones. A Vietnamese market is a delight for elephant can open. In former times, the elephant-fruit was aficionados of the full stereo spectrum. It’s no wonder – the market offers up an used to make delicious chutney; today it is an almost endless cacophony of sounds, and the Sennheiser MKH 416 takes it all in. That is, forgotten delicacy – even in India. Brownstein discovered it except for fish. Rice noodles as they are being rolled. Dragon fruit being mixed. along the roadside in Udaipur (see page 18, above). CDs on sale bellowing their cheesy pop songs. And on the lead track, the Sennheiser MKH 416 records the market women as they gossip, laugh, argue, paint their finger- 2 3 nails or get a perm. Sweating men as they carry their loads of merchandise, drink rice KIPNA E RUHM OU T O wine and play cards. The noisy crowd is constantly being ploughed through by 3 mopeds as they make their deliveries of ducks or women with red-hot grills hanging Luang Prabang / Laos He u / Vietnam from their shoulder yokes. The grills are used to make bahn xeo (hissing pancake). 19° 53’ 52” north / 102° 9’ 39” east 16° 23’ 59” north / 107° 40’ 58” east The soundman is preoccupied with the bountiful sounds. Not the food hunter. His Brownstein first tasted kai pen, paper-thin sheets of river Ruou thom, a spicy marinade used for poultry, was original- treasure is rare. The people have all heard about the emperor’s marinade, but it is no algae, in northern Laos, where it grows in the waters of the ly devised by Emperor Tu Duc. In the imperial city Hué, longer sold. The recipe seems to have been lost. Brownstein continues his search for Mekong and its tributaries. Strands of seaweed are laid out Vietnam, Brownstein searches for the six spices needed to RUHM OU T O Madame Huy, whose great aunt was a palace cook. Finding her at last, Brownstein in sheets and tenderized, strewn with sesame, garlic and make the marinade. In vain, until he stumbles on Madame courts, flirts, coos. Madame Huy doesn’t stand a chance. “I will share the recipe with slices of tomato, and then cooked for a few seconds in hot, Huy, whose great aunt was a palace cook. Succumbing to his Toasted spices soaked in you and with the whole world,” she finally surrenders. When the food hunter rice wine for months are used but not too hot, vegetable oil (see page 20, above). charm, she offers up the family recipe (see page 20, below). for the marinade. presents his imperial treasure trove a few weeks later, his discerning chefs are enchanted: “It’s a dream!” Wine’s siren song 23

The palate Red wine tastes better with the Rolling Stones, while Kylie Minogue provides the perfect accompaniment to white wine. Why music is proving to be the most has ears noble of flavor enhancers.

vintner in distant Chile monasticizes his grapes with Gregorian chants. And in not so austere Austria, a winegrower plays Muzak to soothe the fermentation process. The relationship A between wine and music is bearing ever-stranger fruit. It used to be so simple: a good meal and the right wine. And, of course, the perfect music. If a sommelier wasn’t around to instruct us in what vine’s noble juice was suitable to which meal, in a pinch, we always had the bottle’s label to fall back on. Music was simply a matter of taste. Tempi passati. However, ever since Scottish researchers discovered that music has a measurable impact on how we perceive wine, the time of wildly selecting background music has become a thing of the past. A hint of Kylie Minogue makes a Riesling spritzy; the Rolling Stones spices up a red wine. After making an extensive study of wine and song, a team led by psychologist Dr. Adrian North and consumer researchers have discovered that the palate has ears.

We taste what we hear Research isn’t always dry. At least not when “It is widely acknowledged academics at Heriot-Watt University divided 250 volunteers into five different groups for an exclu- within the scientific sive wine tasting. As the fortunate test subjects sipped various types of wine, four groups were community that music serenaded by different kinds of music. The control group drank their wine in silence. Taste-testers affects behavior …” selected to partake in the lively wine tasting were dr. Adrian nor th, Herio t-Wat t University Edinburgh then asked to describe the different wines. Results were startling: wine tasted significantly different Proving that we taste what we hear, Cabernet Sauvignon tasted depending on whether or not music was being 60 percent richer and more robust when listening to a powerful played in the background. And that’s not all. The piece of classical music, while white wine tasted particularly lively music created a mood that directly impacted the and fresh when enjoyed to light pop music. Katy Perry gets A tip for the true wine test subjects’ sense of taste. our tongues jamming to Chardonnay. Strong red wines with connoisseur: From now tobacco, cocoa or wood notes have our tongues grooving to jazz on, pair your wines and the earthy soul music of Seal and Söhne Mannheims. Dr. both to your selection North’s research was based on a theory that suggests that music of food and music. stimulates specific areas of the brain. By the time the wine is usually served, any music being played has already stimulated the areas that prime the palate. In psychology, this is called cognitive priming. As North explains his results, “It is widely acknowledged within the scientific community that music affects 24 Wine’s siren song Wine’s siren song 25

When we listen to certain types of music, it stimulates a different area of An appetite our brain, ultimately influencing the way we perceive a wine’s taste. for That’s nothing new to Haydn and Mozart, who earned money by composing and playing music for musical soirees. For today’s audience, here are Mozart some tips for choosing the right music to bring the palate to a crescendo.

W Red Ine

C abernet Sauvignon brawny, smoky, dynamic The Rolling Stones / The White Stripes

C abernet / Merlot earthy, flinty, bold Jamiroquai / Ayo

Music influences our buying behavior: Merlot an oompah band is a Lorelei soft, fruity, full-bodied for German wines. French accordion Paramore / One Republic music seduces customers to behavior; however, this is the first time it has been scientifically proven that buy French wines. music can affect perception by other senses, thereby influencing the way a wine tastes.” In another study, North was able to measure how much of an Sry ah influence music has. Even before we’ve taken our first sip, sound has affected rich, complex, powerful our purchasing behavior. When French accordion music is piped in at a wine Seal / Xavier Naidoo shop, customers are more likely to buy French wines. Even W WHite INE German oompah music is able to cast a magical spell. In North’s experiment, it increased the sales of German but North is convinced that music serves to accentuate our Pinot Blanc dessert wines. To some, this may sound like brainwashing, internal feelings and general behavior. The psychologist spritzy, direct, accessible envisions a coming trend when wine labels will include P!nk / Lily Allen music recommendations. And what will they suggest? Rock R iesling “… however, this is for Chianti and pop for Riesling. The new flavor enhancers. fruity, lively, complex But how can the musical bouquet be enhanced? Just as the Madonna / Arctic Monkeys temperature of the wine and the glass selected must pay Ch ardonnay the first time homage to an exquisite wine, so should the quality of sound dense, full-bodied, smoky tones equipment. As another study proves – this one in France – it has been scientifically proven Katy Perry / Leona Lewis enjoyment and a boom box just don’t mix. French psycholo- gist Nicolas Guéguen found that the more he ratcheted up that music can affect S ilvaner the music, the faster his test subjects got drunk. Better to fine, mild, versatile perception in other senses.” fine-tune the balance of the music yourself and put on a a-ha / Keane dr. Adrian nor th, Herio t-Wat t University Edinburgh good set of headphones. A votre santé! 26 Ag fra rant performance

Moscow’s Imperia Lounge. Electronic music booms out of the speakers and, to every beat of the bass, ODO7 sprays a mist of amber towards two standing fans that send the fragrance twirling around the dance floor. or Berghammer, inspiration is everywhere – even in a The hotel bar. “I’ve never had a chance to spin vodka,” laughs F DJ ODO7 as he fills a small apothecary bottle with Russia’s “little water” and safely stores it along with the many other specimens in his metal pilot’s case. “I’m always on the lookout for something new.” The phone rings: his taxi has arrived. Whether at parties, fashion shows or product Quickly pulling on a T-shirt emblazoned with L-O-V-E, presentations, he uses a multisensory approach to scent Berghammer snaps the lid of his case closed and off he goes. get his crowd going – finely tuning the music to his It’s two o’clock in the morning as the DJ makes his way along perfect olfactory selection. of an Moscow’s streets with his mysterious case in hand. Entering through a nondescript door and climbing up a dark staircase, Getting down to Beyoncé and Tokio Hotel the DJ arrives in his dressing room in time to go through his ODO7’s list of references is long and impressive. A gear one last time: gloves, Sennheiser headphones, spray party for Isabella Rossellini. The launch of a Dior bottles, two metal bowls, small pots and countless little glass perfume. Celebrating with Beyoncé and Tokio Hotel. evening bottles and jars. ODO7 is the author of his own profession. Whether a company presentation or the film premier of Perfume, he takes his audience on an olfactory journey. Austrian-born disc jockey ODO7, Erich Berg- Erich Berghammer spins music and hammer, was a graphic designer and illustrator before moving to Amsterdam more than ten years ago. aromas around the world. His stage name? In 2002, he had an epiphany. “I was at the performance of a Japanese artist and the room was ODO7. Profession? Aroma Jockey. absolutely packed,” recalls the 45-year-old. “As she played, harmonizing colors were projected onto milk glass. It was a tremendously sensual experience.” The only problem was “the terrible stench in the room.” That’s when Berghammer decided to liberate clubbers and partygoers from the same old mix of stale smoke, sweat and alcohol. Since then, he’s been booked all over the world. Tonight? Moscow. 28 Ag fra rant performance Ag fra rant performance 29

O dors have the power to trigger memories ODO7 tosses a few grams It’s three o’clock in the morning when DJ ODO7 enters the mixing console located in the of sandalwood over middle of the main dance floor of the exclusive Imperia Lounge. He refers to tonight’s the red-hot coals, which music mix as “beach minimal house,” but that’s not going to be his real challenge. “It’s produces an immediately not all that hard to pick and choose the right music and find the right transitions,” he calming effect. explains. “That’s about as difficult as climbing into your own bed. But mixing the smell is like riding up a steep mountain on a mountain bike.” The club is starting to fill up, but despite the efforts of gyrating dancers on small platforms above the dance floor, the mood is still subdued. People sitting at the bar look on with interest when DJ ODO7 turns on his two large electric fans. As the electronic bass booms out of the speakers, he picks up the first of his numerous spray bottles and begins his performance. Depend- ing on where you are in the room, it can take a moment for the scent to reach you before the fans carry it on to the furthest recesses of the room. The smell does smells, our subconscious begins to take them in, intensifying not immediately assault the senses as does a eucalyp- their effect.” Viennese pharmacist and researcher Eva tus bath oil; rather it creeps up slowly. And that’s Heuberger likes to compare fragrances to psychotropic drugs. exactly what makes it so effective. “The odors are not She’s found that smells can have a direct impact on the brain, immediately obvious,” says Berghammer as he scans no matter whether they are inhaled through the nose or the labels on his bottles. “As our brain’s limbic system absorbed through the skin. A smell can trigger the memory of [the pleasure center of the brain] slowly processes the another person, a certain mood or a long-gone summer vacation. The DJ’s aroma therapy is having its desired effect on the Moscovian club. As more and more listeners and “smellers” get out on the dance floor, the mood begins to A master, the aroma jockey mixes his fragrant ingredients at lighting speed and ramp up. Morten, a 35-year-old Norwegian, has attended always in sync with the music. They rarely fail to cast their spell on his audience. more than one of ODO7’s parties. As he explains his own personal experience, “I start to get a feeling of happiness before I even become aware of the smell,” says the freelance photographer. “It has a tremendously positive impact on the entire evening. As your mood improves, you become more relaxed and more in touch with all your other senses.”

A low tone smells different than a high tone Berghammer, who travels the world in search of new smells for his fragrant symphonies, uses only the finest organic aromatics procured from aroma specialists, imported directly from Asia himself, or grown on his own balcony. The aroma jockey categorizes smells into three basic groups: fragrant compounds, such as chocolate, orange or rose; psychoactive substances, such as clove, tobacco or cinnamon; and phero- mones, such as musk or amber. Ag fra rant performance 31

The Every scent has a different impact. The right smell can cast away negative thoughts, soothe or sexually arouse. In clubs and at all kinds of other events, artist ODO7 finely tunes his aromatic blends to the nose music, creating an exhilarating experience. As he’s discovered, the synergetic knows effect between scent and sound can heighten the senses. saying a lot because I’m just as much a perfectionist about my sound equipment as I am about my aromatics.” His only real concern? That someone will steal his headphones “just because they look so cool.” O HIGH N TE

Changing the setting The atmosphere has reached its peak at the Imperia Lounge. The crowd is dancing wildly, and couples are cozy- ing up at the bar. Berghammer calls himself an “aroma illustrator,” influencing people’s emotions through the very air they breathe. He loves his job. Christine, a 34-year- old psychologist and long-time ODO7 fan, can testify to LIE M the aromatic spell Berghammer casts. “Many smells make distinct, fresh, us more accessible and outgoing. Others calm us down and vibrant make us more relaxed. Each creates its own emotion,” she Guggul is one of the most highly prized incenses in Nepal and Tibet. says. “I can well imagine that someone who needed drugs Its slightly sweet aroma relaxes and soothes. to enjoy music would get the same effect from aromas.” For the big finale, the aroma jockey turns off his electric fans and reaches for his much more theatrical atomizer – a Chinese hand-held fan, which he uses to intoxicate the ODO7 uses different techniques to disperse his scents across crowd with the final scents of his performance. The ROSE the dance floor. Once his fans have gotten the crowd going, revelers don’t want him to stop, but after almost three elegant, gentle, he pulls something else out of his bag of tricks. In just a few hours, Berghammer has run out of steam. The sun is just sensual motions, he has coals glowing in two metal bowls, then starting to come up as Berghammer returns to the peace STIMULATING L CA MING sprinkles them with sandalwood. Slowly, the fragrant wood and quiet of his hotel room and draws the curtains to get begins to smolder. “Calming … reassuring,” he mutters in a a few hours sleep. The hotel corridor begins to blossom trance. Like a shaman, Berghammer stoops and goes up a with the first scent of a new day. But this time, it isn’t VALLANI small ramp next to his DJ console, swinging his bowls to something DJ ODO7 has conjured up. It’s the smell of sweet, exotic, spread the incense. “It’s not about propelling just any freshly brewed coffee. soft fragrance into the air,” he says. “Each smell has its own essence, meaning and desired effect.” Citrus, for example, complements high notes and upbeat music. In comparison, resins such MSKU as storax and copal harmonize particularly well with low tones or organ woody, animalistic, music. Berghammer isn’t always responsible for mixing both music and fruity fragrance at a given event. When another disc jockey is on board, he has to adapt his aromatic performance accordingly. Of course, he prefers being the conductor of his own multisensory concert. “When I put on my Sennheiser HD 280 Pro, I can focus fully on the music. Every COPL A other sound is blocked out,” raves Berghammer about his DJ equip- sensual, warm, ment. “I’ve never experienced a better sound quality. And that’s mysterious

While the typical DJ carts in boxes O LOW N TE of records, ODO7’s flight case is filled with dozens of fragrances. 32 Product experience Product experience 33

From closing doors and fizzing bottles

What does a brand sound like? How does it smell and taste? Multisensory design has the answer. It turns brand identity into an experience and gives it the breath of life.

Slamming doors, clicking blinkers, the gentle roar of an engine. Automobile manufacturers don’t leave any sound to chance. The amount of carbonation in soft drinks is calibrated to have the same fizz when opened as it does in the commercials. 34 Product experience Product experience 35

t’s like a scene from a children’s storybook. The grandmother stretches out her arms, giving her 01 The right amount grandson a whiff of the promise of a batch of cookies hidden within the rustling baking of moisture, the ideal parchment lining the colorful cookie tin she is holding. The slightly hollow thump of the cookie thickness: just two of the I many sound components tin being opened is something he will never forget. Nor is the sweet smell of the cookies, their crumbly texture nor their heavenly taste. We carry these types of experiences with us for the rest of cookies. of our lives. Just a sound or a scent can trigger a memory of how a fabric feels. But our senses don’t 02 The analog camera as just trigger memories. They are also quick to register a pleasant association that affects the here role model: The shutter and now. Whether it’s a cookie jar or a luxury sedan, manufacturers have long known that there sound of today’s digital is more to brand positioning than functionality and visual appeal. To distinguish themselves from cameras is often the competition, brand-name products have to smell, taste and feel good if they are going to res- electronically intensified. onate with customers. Multisensory product design doesn’t just address the external characteris- tics of an object. It also manipulates deeper underlying perceptions and transmits subliminal mes- 03 Sound designers also sages that trigger the emotions. tinker around with wristwatches, which The customer wants a sensory experience that reflects the type of car he drives. should never sound like a kitchen timer. Hendrik N.J. Schifferstein and Paul Hekkert are researchers at the Delft University of Technology in the Netherlands. The two young professors collaborated on the book Product Experience. 04 As expensive on Says Schifferstein, “Even though the interaction between the consumer and product clearly the outside as it is on depends on the product, an emotional aspect also exists.” Schifferstein defines product the inside. Designing a experience as a complex structure founded on sensory and motor perception, experience, and perfume bottle is emotion. One of the researchers’ findings is that consumers are enticed into buying a product just as much a labor of before they have actually laid hands on it – simply by their perception of a sensory experience. A love as formulating television commercial that shows someone biting into a cookie, which is then followed by a loud the perfume that fills it. 01 02 crunch, conveys the message that a crunch means crispiness. In the end, the sound should reveal something to the the car quieter. However, as they quickly realized, the melody of a car is more than customer. Anyone who buys a choco- just its exhaust and engine; it is the combination of these sounds that influences late ice cream bar anticipates that first brand perception. For instance, the sound of a Mercedes-Benz CLS at a constant delicate cracking of the chocolate shell. speed should be unobtrusive: when accelerating, it should be powerful. A third of 03 04 Advertising has gone to great lengths all automobile buyers reported being able to identify the make of a car by the to communicate this sound so that, sound of the door being shut. At Porsche, dozens of engineers work together in a when we do hear it, our mouths begin sound studio to find the perfect brand-specific sound. It is estimated that the to water. Someone looking to buy a car Swabians spend more than €20 million to design the sound of each and every new may imagine the smell of its leather model. By the time an automobile manufacturer branches out into researching all interior or the sound of the engine. This the other senses, the team may have grown to more than 100 engineers, chemists, is why Mercedes-Benz set up its own physicists, and neuropsychologists. No one argues that sight is the fastest way to acoustic laboratory at the end of the assimilate the bulk of information. It also has the greatest impact on previous 1990s. The lab’s first task was to make experience. Even so, marketing studies have shown that adding other senses more than triples product association. Touch and smell were identified as being the “most emotional” senses. While Audi’s “nose team” works on keeping the smell as neutral as possible, other manufacturers come up with a signature scent.

An extremely quiet vacuum cleaner is generally regarded as having no oomph. Just like smell, the sense of hearing has the ability to access ancient, evolutionary areas of the brain. Professor Eckart Altenmüller, a neurologist and musician at the University of Music, Drama and Media Hanover, confirms this direct link to the Stone Age. “It takes 300 milliseconds for a person to identify the emotion in the speech of his dialog partner, and only 100 milliseconds to rec- ognize whether the tone of a violin is happy, sad or angry.“ Multisensory design- 36 Product experience Product experience 37

Even though the brain cannot be disassembled like a clock, researchers ers have to be able to master the interplay between the senses. Perfumers are almost have been able to largely identify exactly which areas of the brain never able to put their product messaging across through fragrance alone. Instead, they Teamwork use shape and color to trigger associations. Why? It’s difficult to come up with a descrip- of the are responsible for processing the different senses. Still to come: how, where tion for a perfume that resonates with the consumer. So manufacturers use the perfume and when the brain computes the different sensory stimuli and carries bottle, its liquid and product packaging to position brand messaging. Packaging designed senses out the multisensory integration. on a multisensory level increases the buyer’s anticipation, allowing him to not only see the brand he is buying, but also hear, smell and feel it. Italian houseware manufacturer Alessi designed a cookie box with rounded edges. “Mary Biscuit” feels good, smells of vanilla extract and produces a softer thump when opened. “But apart from the comforting sound, it also depends on the context in which it is heard,” says Dr. Janice Rock, chief engineer at the Institute of Technical Acoustics, RWTH, in Aachen. She cites an example: the sound of the ocean at the beach can have a calming effect – however, ENT EM the same sound in the same volume in a living room would only be perceived as noise. OV “Or imagine a silent vacuum cleaner. It Y H O wouldn’t give the perception of high DB M Touc performance.” To address their custom- “The sensory experience T ers on an emotional level, acoustical OS P ure engineers optimize a product’s material, G volume, shape and sound transmission. is not left to chance.” ION DIN PT AN Maurice Quarré, Director of Product Lifecycle Management, ST S ERCE Added value through tactile stimuli NDER Sennheiser Consumer Electronics GmbH, on product experience TION A U Increasingly, the sense of touch is also AC T T becoming a focus of multisensory RE TION ISPAL P S L T GU E A I designers. Even though touch may rank How does it work? SET NIL ic ION M R PT last among the senses as far as multi- A consumer doesn’t just begin experiencing OPLXC AAticu RCE sensory stimuli is concerned, the skin is, a product when he first actually has it in his G E R AL P and remains, our largest organ. For cer- hands. The experience starts from the mo- L EA ment he begins to look at, and touches the E H in ST T tain products, the sense of touch can LSM G packaging. The surface feel plays a crucial C I play a decisive role. For half of all car Aou ic HS role. What associations does it bring up? A buyers, the feel of the steering wheel strong brand like Sennheiser is associated and gearshift is a deciding factor in with values like tradition, innovation and whether or not they buy a car. And for quality. The logo on every product is a more than a third of all mobile phone What principles does Sennheiser follow guaranty of our attributes, and these high N buyers, the feel is more important than when designing its product experience? expectations should never disappoint. BALAce its looks. Which is why quality manufac- As the leading technology provider in the pre- turers such as Sennheiser use only the mier retail and professional audio segments, What role does operability play? finest materials. Plastics from the avia- Sennheiser has a keen interest in communi- The intuitive operation of a product is an im- tion and aerospace industries, and cating clearly and marketing its own technol- portant aspect of branding. However, there ogy and product advances. We don’t just de- is also a differentiation between retail and microfiber textile not only make the velop our own know-how, we also work close- professional audio equipment. Professionals HD800 headphones look good – they ly together with design agencies and want more sophisticated equipment. Some- convey a very unique brand feeling. It’s a technology partners to develop concepts for thing that says, “Only I know how to do little bit like grandma’s cookie jar, only ergonomics, material and design, perfor- that!”That’s also how we know that they are I ntelligent interaction: Just walking upright better. And better throughout. mance, unique advantages, perceived value equipped for more complex applications. requires the brain to process information and innovation. from four of the senses: balance, touch, spa- How do you create an emotional tial perception and sight. Aside from acoustics, do visual, tactile or bond to the product? even olfactory characteristics play a role? The more specifically and uncompromisingly Yes, any one of the “brand senses” able to the product is packaged, the more it polarizes influence a product and its appearance can and the greater emotion it evokes. This emo- have an effect on the Sennheiser brand. How tion can have many different facets – from a customer experiences Sennheiser is never the unexpectedness of the product, innova- left to chance. tion, materials used, lightweight design or size. 38 Gourmet tinker

Blumenthal serves an iPod loaded with the roar of the ocean and sound of seagulls to enhance the taste of his gourmet creation Sound of the Sea.

Tasting sound British celebrity chef Heston Blumenthal is a culinary magician, conjuring up the sounds of the ocean in a concha, and culinary explosions on the palate. 40 Gourmet tinker

he ocean is a long way off – and then again … The waiter brings it to the table ensconced in a giant conch shell perched on a wooden display box with a glass lid. In an old inn west T of London, oysters and baby eel are served in sea foam and sand; sea urchins and sea spray, algae and flotsam. “My ocean is different than yours,” says one guest to another as he pulls the hidden headphones out of the shell. The whispers and giggling begin to disappear as guests insert the small white earbuds and lose themselves in the sound of waves rolling over the beach, and the melancholy song of the seagulls and the sea breeze. The soundscape is deceptively real. As guests close their eyes, they forget that the sea is rushing in from an iPod Nano hidden in the spire of the conch shell. The sounds transport them from the tables of The Fat Duck in Bray, England, to the beaches of Mykonos or Hawaii. The man responsible for their A fabulous creation: teleportation is one of the finest chefs jelly of quail, in the world. But, despite his three langoustine cream Michelin stars, 46-year-old Englishman and parfait of foie Heston Blumenthal shows no sign of pre- gras (right) tense or celebrity posturing. His stocky build and shaved head with reddish-blonde nubs make him look more like a striker on an English football team. Self-educated and with a boyish accent, only his designer glasses give him away.

A menu eccentric and off-the-wall As a young man, Blumenthal was impressed by a book he read by Harold McGee: On Food and Cooking. Since this revelation, his epicurean coupling of stove top and laboratory has given rise to such breath- taking dishes as sardine sorbet and cauliflower chocolate. Some call it mole- cular gastronomy, but to Blumenthal it is a passion for uncovering the promise of multisensory perception. “Eating is the Sweet moments for the connoisseur: only activity that uses all the senses,” says carrot and orange lollipops (below) Blumenthal. Sight, smell, taste, texture and “Eating is the only sound. “Intensifying the senses casts a spell over the culinary experience.” activity that uses Professor Charles Spence, an experimental psychologist at Oxford University, helped him break the magician’s code. His Cross- all the senses.” modal Research Laboratory is impressive: H BLEST on UMENTHAL “Every surface was covered in a jumble of cables, connectors, headphones and sound mixers,” says Blumenthal. To make his point, Spence gave him headphones, microphone and a package of potato chips. “Nibble away!” Spence recorded Blumenthal as he crunched on the chips and then played the sound back over the headphones. Depending on how the psychologist adjusted the sound, Blumenthal’s perception of crispness modulated. It had the same effect on carrots. “Amplifying the sound can increase the perception of crispness by 15 percent,” says Spence. An effect he has been able to measure: among test subjects, the sense of crispness improved by up to 10 percent. Since that first meeting almost ten years ago, the chef A bowl full of delight served on rock salt: and psychologist have become a successful team, experimenting together, publishing scientific oysters with passion fruit jelly, papers and advising major food producers. “Heston is very modest and didn’t learn much horseradish cream and lavender (above) 42 Gourmet tinker Gourmet tinker 43

One of the specialties Heston Blumenthal serves at The Fat Duck, a restaurant in about science in school,” says Spence. “But he has a natural curiosity and is very good at translating Cooking southwestern England, is a dish poetically dubbed the Sound of the Sea. An arrangement of our findings.” Sound of the Sea is the result of one of these experiments. Serving oysters to their lab to the beat edible “sand” in the form of tapioca flour, algae and shellfish. The airy foam used assistants, Blumenthal and Spence found that they tasted much better (and saltier) when listening of a different to the seasides natural music. “Sounds can stimulate our imagination,” says Blumenthal, “taking us to represent waves is made of mussel and oyster juice. For anyone looking to partake in to another place, another time.” Immediately, Blumenthal conjured up images of guests seated at a drum Blumenthal’s culinary art, the surf’s up. table, wearing high-tech headphones. The chef is also an avid hi-fi fan. Lazing around on his beanbag at home, he puts on his Sennheiser headphones to listen to Spanish acoustic guitar, lounge music and dance tracks. He is inspired by the spatial effect of the HD800: “It's almost as if you’re listening to albums in 3D,” he told the Daily Mail. The celebrity chef enjoys music and its subtle nuances as much as he does food. “The range of frequencies you get from the Sennheisers is just amazing. It’s like buying a whole new record collection and a whole new stereo system.”

Diners are blown away by the sensory experience But his ideal – having guests don designer headphones while they sit at the table – is soon shattered. Though Blumenthal is indeed a true sound taster – he is also a realist. Large headphones are intrusive and would ruin his guests’ expensive hairstyles. He played around with infrared transmission and directional speakers, but didn’t get a satisfactory result. The perfect solution? the sea An iPod would provide an unobtrusive way to carry the sound of the sea from the conch shells to the conchas. He had e Ingr dients invented a new specialty. “Each sense is • 1 25 g carrot interlinked with the others,” say the chef finely sliced and psychologist. If you pluck a string, the others vibrate along. Sometimes that leads • 1 25 g onion to a huge crescendo, which Spence calls finely sliced “a hyper-additive.” For example, when • 7 5 g fennel Blumenthal serves jelly of quail, langous- finely sliced tine cream, and parfait of foie gras on oak • 5 0 g leek moss and truffle toast, and a waiter then white and pale green parts only, finely sliced sprays a mist of oak essence, alcohol and • 5 0 g shallots hot water over the “forest floor,” the magic sliced of the multisensory experience is com- plete. “Diners taste, feel, see and smell the • 5 g garlic oak’s essence.” But is that the final chord finely sliced of a gastronomical concert? Surely not. • 25 g vermouth Blumenthal bubbles over with his ideas of • 1 00 g white wine (Chardonnay) chocolate hidden in “Pop Rocks,” fragrant dishes and lickable wallpaper, lighting and • 2 50 g razor clams purged in several changes of fresh water a Prep ration holograms. One of Professor Spence’s latest inspirations is to use a touch screen • 3 00 g mussels Put the vegetables, garlic, vermouth and white wine in a saucepan and for a plate, which would react to the fork’s purged in several changes of fresh water simmer until translucent. Add water if necessary to prevent the vegeta- dance and activate sounds, music, special and beards removed bles from sticking. lighting effects and odors. And, Blumen- “Sound can stimulate our • 2 25 g cockles thal asks, why not work with magicians, purged in several changes of fresh water Add the shellfish and cover with the water. Bring the liquid up to 85°C/ imagination, taking us to 185°F, then cover and infuse for 25 minutes at this temperature. musicians, screenwriters and directors to • 1.75 kg water give an evening out as much emotion as a • 35 g dried wakame seaweed Remove the pan from the heat and add the wakame, kombu and pars- movie? But even without the added fan- another place, ley. Re-cover and allow to cool to room temperature. Skim off any im- • 20 g kombu fare, many a guest has shed a tear at purities that have risen to the top. Pass the stock through a chinois and The Fat Duck – overwhelmed by the overall another time.” • 1 5 g flat-leaf parsley then through a sieve lined with damp muslin. Cool over an ice bath. sensory experience. H BLEST on UMENTHAL AUTHORS & ARTISTS 45 Behind almost every story, there is a subtext. Here, some thoughts and experiences of the contributing authors and artists to this annual report. AutorenAuthors &KünstlerArtists Oliver Hafke Ahmad Author

Bernd Girrbach Our author is a saxophonist Author himself and leads the Berlin Hilmar Poganatz “Zooing” or more band The Jazz Nomads. Author “zooioong”? Heidelberg- Hafke Ahmad had already based author and director met Germany’s most famous When he started his Bernd Girrbach talking shop film composer and saxophon- research for this article, Hedi Lusser ist, Klaus Doldinger, before Heiner Gembris with Food Hunter Mark Illustrator Author Poganatz was immediately Brownstein in a café on the this interview, but had never overcome with despair. How banks of the Mekong River. Having grown up in southern visited the composer of the The Paderborn professor has can one “taste sounds” and What do the song-dried river Styria, Austria, the Munich- Tatort theme song and the been interested in music and “smell tones”? The search Jan von Holleben grass cakes sing as they are based illustrator is well soundtrack for Das Boot at its impact for a long time. led our writer and editorial Photographer dipped into hot oil? Girrbach versed in how to savor a his home just outside Munich. However, when a fragrance concept developer into the introduced the food hunter good wine. Something she As Doldinger and Hafke manufacturer described the world of multisensory No sooner had the Berlin- to German television sta- didn’t know, however, is that Ahmad discussed everything similarities between perfume perception. Poganatz based photographer begun tions SWR and Arte, and has there is more to drinking a from mixers, microphones, and music, he began a jour- learned how closely hearing to shoot his photo essay on accompanied this Indiana bottle of wine than listening music awards and old audio- ney into the world of aroma, and smell are linked to the the sensuality of products Jones of Asian cuisine on to an oompah band or the tapes, to the saxophone – culminating in an event palate when he wrote this did the first obstacles and many an adventure. In Laos, papery rattle of a Klapotetz and the seven senses – an air during which a perfumer portrait of British celebrity challenges appear. How can when he threw the term wine wheel in the back- of intimacy was created. p. 10 composed a fragrance for chef Heston Blumenthal. you make an object appear “zooioong” into the pot, his ground – nor did she realize the audience, while two Since then, he’s had a more lifelike? The award- table companion turned to the power sound had to musicians improvised music craving for oysters, which winning artist, whose photo- him and asked, “What are affect the bouquet of her to it. At home, the Director of supposedly taste graphs have been published you? An ornithologist per- wine. But once she did, the the Institute for Research on better when served to in ZEITmagazin, NEON and chance?” p. 16 publisher of Unser Magazin Musical Ability (IBFM) enjoys the sound of waves. p. 38 GEO, had to resort to tricks and director of photography the piano works of Chopin gained from analog repro- for Missy Magazine conduct- that once caused a sensation duction technology – photo- ed her own experiment: in the perfumed salons of graphing objects again and Cabernet Sauvignon to White 19th-century Paris. Currently, again, superimposing them Stripes. Delicious! p. 22 his favorite perfume is over the last shot. p. 32 Baldessarini Del Mar. p. 8 46 Masthead AND CONTACT Financial Report 2010 47

Financial Report 2010

MASTHEAD

Published by: Sennheiser electronic GmbH & Co. KG, Wedemark, Germany Publishers: Burda Creative Group GmbH, Konrad-Zuse-Platz 11, 81829 Munich, Germany Photos: Cover: gettyimages/Nick Veasey; p. 3 Andreas Pohlmann; pp. 4–5 Andreas Pohlmann; pp. 8–9 Illustration: Hedi Lusser; pp. 10–14 Enno Kapitza; pp. 16–17 Timothy O’Rourke; pp. 18–19 Timothy O’Rourke, Along Mekong, laif/Jonkmanns; p. 20 Along Mekong; pp. 22–24 Illustration: Hedi Lusser; p. 26 Gallerystock/Thomas Jackson; pp. 27–29 Enzo dal Verne; p. 30 Enzo dal Verne, Isabella Rozendaal; pp. 32–35 Jan von Holleben; p. 36 Mark Mühlhaus; pp. 38–39 Dominic Davies; p. 40 Clive Booth/Lotus PR; p. 41 Dominic Davies; p. 42 Clive Booth/Lotus PR; p. 50 Andreas Pohlmann

contact and information

Sennheiser electronic GmbH & Co. KG Am Labor 1, 30900 Wedemark, Germany, www.sennheiser.com Contact for press relations and publicity: Edelgard Marquardt, Corporate Public Relations, tel: +49 (0)5130 600-329, e-mail: [email protected] 48 Financial Report 2010 Financial Report 2010 49 25,000,000 viewers watched the 2010 Grammy awards on television. Sennheiser endorsers collected a total of 17 trophies during the music event. Contents

50 Report of the Supervisory Board

52 Consolidated Management Report 2010 52 I. Preliminary Remarks 3 53 II. Economic Developments during the 2010 Financial Year days is how long europe’s largest open-air festival, 63 III. Risk Management the 2010 Danube Island Festival in Vienna, went. Around 2,000 artists performed 65 IV. Outlook for Future Development on 13 stages for more than 600 hours in front of a live audience.

66 Consolidated Financial Statements 2010 66 Consolidated Balance Sheet as of December 31, 2010 68 Consolidated Profit and Loss Statement for the Financial Year 2010

70 Notes on Consolidated Financial Statements 2010 300 74 Statement of Asset Additions and Disposals for the Financial Year 2010 Sennheiser products were used at the Eurovision Song Contest. 82 Cash Flow Statement for the Financial Year 2010 84 Statement of Shareholder’s Equity for the Financial Year 2010 8,000,000 86 Independent Auditors’ Report people visited the German pavilion at the World Expo in Shanghai. Sennheiser provided various guide and audio systems for the visitor tours. 32 nations fought for the title of World Champion at the 2010 Soccer World Cup in South Africa. A lavish opening ceremony celebrated the start of the world championships – with the help of Sennheiser’s wireless technology and know-how. 50 FINANCIAL REPORT 2010 FINANCIAL REPORT 2010 51

– The large reorganization project ACT (accountability, communication, transparency) was presented and tracked at each Supervisory Board meet- Report of the Supervisory Board ing. Together with the management, it was steered in the right direction. This project will transform the past functional organization of our com- pany into a divisional organization. The design had to be well thought out, and therefore took up a lot of the management’s and Supervisory Board’s time and resources. Once the concept for the reorganization of the global Group had been developed, filling the management positions was another The members of the Supervisory Board of Sennheiser electronic GmbH & Co. KG have examined the highly debated subject. For this, we fell back on the practical experience of the Supervisory Board members, which helped us make the right, Consolidated Management Report and the Consolidated Financial Statements for financial year 2010, which sustainable decisions. were submitted on time by the management. Sennheiser Beteiligungs GmbH, Wedemark, Germany, was responsible for the management of Sennheiser electronic GmbH & Co. KG in its capacity as general partner. – The proposed concept for the reorganization project ACT was approved for implementation at the last meeting of the year. At the same meeting, In financial year 2010, Volker Bartels, Dr. Heinrich Esser and Stefan Junker were appointed as registered the members of the Executive Management Board (EMB) were appointed and their responsibilities allocated: Presidents of Sennheiser electronic GmbH & Co. KG, Wennebostel, Germany. In addition to the above-named Presidents, the other members of the Executive Team were Susanne Seidel (Global Marketing) and Paul Volker Bartels: Corporate Services and Spokesperson of the EMB Whiting (Global Sales). This year, the members of the Supervisory Board were Dr. Frank Heinricht, Andreas Daniel Sennheiser: Strategy & Finance Dornbracht and Dr. Hans-Peter Wiendahl; Prof. Dr. Jörg Sennheiser served as Chairman. Dr. Hans-Peter Wien- Dr. Andreas Sennheiser: Supply Chain Division dahl retired from his position on the Supervisory Board at the end of 2010, and Johann Soder was appointed Peter Callan: Consumer Electronics Division as his successor as from the start of the new financial year. The Supervisory Board monitored the develop- Dr. Heinrich Esser: Professional Systems Division, and ad interim: Installed Sound Division ment of the Sennheiser Group during regular meetings. Between meetings, the Supervisory Board was Paul Whiting: Global Sales Division given detailed information by the management, both orally and in writing, about all important decisions, projects and other business events. In particular, the following topics were discussed intensively by the – A look back at 2010 shows that we emerged from the crisis in 2009 within the first six months of the year. Business in the second half of the year was Supervisory Board: positive on account of developments in the markets and the targeted efforts of the entire company, our subsidiaries and partners, and we even man- aged to gain new market shares. The Supervisory Board carefully monitored these developments and provided many additional suggestions taken – The implementation of the model for the systematic establishment of a reasonable distribution straight from real-life experience. This paved the way for creating a realistic guide for the following year. structure, which had been introduced in the previous year, in the European countries. Together with the management, it was assessed step by step with regard to its practicality, and developed further. The Consolidated Management Report and the Consolidated Financial Statements for financial year 2010 have been audited by the auditing firm Deloitte & Touche GmbH, and have been confirmed unconditionally. The Supervisory Board ratified the auditors’ report, and recommends that the – The Supervisory Board approved the proposed concept for developing a strategy at Group level and shareholders accept it. Having completed its own examination of the Consolidated Management Report and the Consolidated Financial Statements, within the various market segments, and for deriving palpable measures as well as for comparing actual the Supervisory Board hereby concurs with the auditors’ report. and plan figures using the balanced scorecard system, and released it for implementation. This has made the updating and development of various strategies an integral part of business planning; both are carried out prior to the budgeting process.

– The net present value (NPV) and return on investment (ROI) valuation methods were developed, proposed and approved to provide for an improved comparability of internal projects. This makes it easier to assess the future impact of projects on the company’s success prior to their commencement, and to prioritize targeted measures to the best advantage of the company. This method has already been implemented for this year’s budgeting process, and will be continued in the future.

Wedemark, Germany, May 12, 2011

Prof. Dr. Jörg Sennheiser, Chairman of the Supervisory Board of Sennheiser electronic GmbH & Co. KG 52 Consolidated Management Report 2010 Consolidated Management Report 2010 53 Consolidated Management Report 2010 I. Preliminary Remarks II. Economic Developments During the 2010 Financial Year Overall Business Developments and Development of the Industry As a parent company, Sennheiser electronic GmbH & Co. KG is obliged to draw up consolidated financial statements. 2010 global economy The company’s production sites are located in Wennebostel (Germany), Tullamore (Ireland) and Albuquerque (New Mexico, USA). While Wennebostel chiefly manufactures wireless and wired In 2010, the global economy continued to recover from the serious recession, but economic Development microphones and microphone capsules, monitoring systems and headsets, the plant in performance developed very differently in individual regions. Numerous emerging markets Albuquerque concentrates on wireless microphones and monitoring systems. The Tullamore recorded enormous growth in the past year. They were the backbone of the global economy, facility manufactures headsets and headset transducers. The company has a branch office in and industrialized countries such as the USA, Japan and Europe, which were slow to emerge Singapore that manages the functions of product management, marketing, purchasing and from the crisis, benefited from their development. Positive cyclical effects like the end of the part of product development for the consumer electronics area. crisis-induced demand bottleneck as well as government’s economic stimulus packages have Besides the parent company Sennheiser electronic GmbH & Co. KG, the Sennheiser Group slowly stopped impacting the global economy since the middle of last year and by now the up- includes six subsidiaries within Germany and 18 subsidiaries abroad, as well as the joint venture turn is in all likelihood gaining momentum on its own. The USA however has still not managed Sennheiser Communications A/S, based in Copenhagen, Denmark. to sustain an all-encompassing economic recovery. Until now, the upturn has barely had any positive effect on the US labor market, and unemployment is remaining at a high level. The situation in the majority of emerging markets was extremely positive. The Asian emerging markets China and India, in particular, grew at a rapid pace, not the least bit hampered by the weakness of most Western markets. Japan started the year with a positive first half, then slowed down considerably and in the end fell short of expectations like other highly industrial- ized nations. Although the US dollar was weakened by the extremely expansive fiscal policies of the US Federal Reserve and the relatively slow economic recovery in 2010, it profited from its status as a global and reserve currency. The US dollar particularly gained on the euro, which had come under pressure during the Greece crisis in the second quarter as well as during the spread- ing debt crisis in the Eurozone.

The global economic recovery will cool off somewhat in 2011. The world is still divided into fast- Outlook growing emerging markets, especially in Asia and South America, and slow-growing or even stagnating Western markets. The risk of inflation remains subdued in most Western industrial- ized nations, whereas in Asia further measures will have to be taken to curb rising prices. The commodities markets also play their part in this development, as average prices will continue rising on account of strong demand coming from Asia.

The European Union

The economy of the European Union recovered earlier, and with more momentum than anticipat- Development ed from the global economic crisis, for two main reasons: Firstly, governments adjusted their economic policies unusually quickly after the collapse of the Lehman Brothers investment bank in September 2008. The fiscal policies of most European countries were extremely expansive as from the end of 2008. Secondly, the growth rates of Asian and Latin American emerging markets recovered and reached pre-crisis levels much more quickly than expected, partly on account of governments increasing their spending quite considerably. Consequently, European exports recovered significantly as from mid-2009, in turn driving economic growth. The weaken- ing of the euro provided even more momentum on the demand side in 2010. 54 Consolidated Management Report 2010 Consolidated Management Report 2010 55

However, this overall positive development went hand in hand with an increasing economic gap The Situation of the Electrical and Electronics Industry in Germany between individual countries as a result of the European government debt crisis. The previous economic and financial crisis in 2008/2009 exposed that particularly the countries at the South- After the output of the German electrical and electronics industry had dropped by more than Development ern periphery of the Eurozone as well as Ireland had been on an unsustainable ride, living far 20% in 2009, it recovered again by approximately 12% in 2010. Turnover, which had slumped by above their means in the first 10 years of the European Economic Community. In contrast, the 20% in 2009, went up again by at least 15%; turnover from business with foreign customers economies of most core countries of the Eurozone as well as Scandinavia and Switzerland, which grew by almost 20% and from German customers by 11%. Capacity utilization in the electrical are little or not at all affected by the above-mentioned problems of these peripheral countries, and electronics industry rose to just over 86% in October 2010, only slightly down on the record recovered in 2010. 88% in 2008 but considerably up on the long-term average of 83%.

Outlook The European indicators of the trust in the market shown by companies and consumers In November 2010, the sub-index of the Ifo Business Climate Index was already at its highest Outlook continued rising until the end of 2010. This supported the expectation of a continuing economic level since the German reunification. Output is also expected to increase considerably in 2011. recovery in Europe. However, the European government debt crisis has not come to an end as yet, and destabilization cannot be ruled out, especially if speculative attacks are carried out on the liquidity of Portugal and particularly Spain. At present, the effects of the budget cuts imple- Asset, Financial and Operating Position mented by the European governments on consumer spending cannot be reliably estimated. Turnover and Operating Position of the Sennheiser Group Although financial year 2010 started with less turnover growth than in 2009, Sennheiser gener- Development Germany ated €468.2 million in turnover, corresponding to 20.1% growth year on year. This was due to a marked increase as from spring 2010 and an extremely positive year-end business. Development Since the second quarter of 2009, the German economy has recovered surprisingly quickly from the serious slump caused by the global financial and economic crisis. This is thanks to a favor- able constellation of cyclical, structural and fiscal factors. Exports, which always have been Germany’s strongest economic driver, benefited from the early recovery of growth in Asia. In TURNOVER (€ MILLIONS) connection with high levels of order backlog left over from before the crisis and the increasing Change from previous year, in percent use of reduced working hours, unemployment figures only rose for a short time and to a limited extent until around mid-2009. Businesses therefore managed to quickly cope with the following influx of incoming orders by simply increasing working hours again, giving them a considerable 500 468.2 +20.1 % competitive advantage over other countries that had not reduced working hours. This excellent 395.3 385.8 389.9 competitive position was strengthened even further by the increasing use of temporary work- 400 +10.9 % –2.4 % +1.1 % ers, which is linked to the deregulation of the labor market implemented by the Hartz labor 356.5 market reforms. This provided companies with added flexibility and in turn enabled them to 300 react to increasing demand. 200 Outlook Private spending is expected to grow steeply on account of the improved situation in the labor market and anticipated pay rises. The corresponding increase in the number of imports, however, 100 will reduce the growth figure contributed by net exports. Investments will grow even more strong- ly than in 2010, as capacity utilization only reached its long-term average by the end of 2010. 0 2006 2007 2008 2009 2010

All product segments were able to contribute to this growth. Consumers’ reluctance to buy, which had made it difficult to sell, particularly microphones, in 2009, vanished in 2010. Turnover also profited from the weakening euro. 56 Consolidated Management Report 2010 Consolidated Management Report 2010 57

turnover by product group turnover by region in millions of euros Change from previous year, in percent

Headphones 282.9 34.9 % 253.7 Conference and Information Systems 246.5 3.3 % Georg Neumann 3.6 %

Professional Headsets 4.5 % 2010

125.6 Audiology 6.6 % 99.3 91.7

59.7 Wired Microphones Wireless Microphones 36.4 44.0 7.4 % 25.5 % 26.3 14.7 % 40.4 26.5 % 15.7 35.6 % Sennheiser Communications 8.1 % Americas EMEA Asia and Australia

2008 (€ millions) 2009 (€ millions) 2010 (€ millions) Change (€ millions) From all individual markets, turnover in the Americas managed to grow by 26.5% year on year. After declining by 2.8% in the previous year, EMEA, the largest region, grew by more than 14.8%. This figure includes Central Europe with 17.9%. During the same period, the gross profit margin went down from 63.7% in the previous year to 60.2% on account of changes in inventories. Results from ordinary activities, on the other hand, went up from €9.4 million to €38.3 million, as the rise in turnover considerably overcompensat- ed for the rise in expenses. In operating expenses, the largest increases were recorded for personnel costs at €13.3 million and other operating expenses at €31.7 million.

The Sennheiser Group expects that it will continue moving on a medium-term growth path in Outlook 2011. The new business divisions for the target markets Consumer Electronics, Professional Systems and Installed Sound will target their markets even more specifically and release new energies in the company thanks to their clear customer focus and strategic orientation. 58 Consolidated Management Report 2010 Consolidated Management Report 2010 59

Asset Position Production Companies The balance sheet total increased from €230.2 million in the previous year to €278.0 million in 2010, primarily on account of a rise in inventories and current receivables. Demand, which The general conditions for the German production site were primarily impacted by the merger Development suddenly soared in spring 2010, particularly resulted in inventories increasing. of the two German sites into the new production and technology center in Wennebostel. But Shareholders’ funds (comprising equity and liabilities to shareholders) came to €131.2 million despite these developments and after a slow start to financial year 2010, production output (47.2% of the balance sheet total), therefore rising by €21.0 million compared to the previous and turnover were significantly increased in the second half of the year. Turnover went up 15.1% year despite their share in the balance sheet total having dropped slightly. Pension provisions year on year, with production still focusing on the manufacture of microphones. In 2010, the went up from €52.2 million in the previous year to €62.2 million, mainly on account of adjust- project for increasing the production volumes of wireless microphones in Germany was conclud- ments made in connection with the Accounting Law Modernization Act (BilMoG). In addition, ed with the aim of once again covering European demand with products produced in Germany. other provisions increased by €13.4 million and current liabilities by €1.8 million. The company implemented measures with regard to materials availability, inspection equip- ment and personnel use so as to be able to increase its capacities as required. In order to improve efficiency and increase added value, production employees participated in numerous Financial Position lean management workshops. Across all areas, many suggestions for improvements in the Cash flow from current business activities came to €23.2 million (compared with €26.5 million in workplace were made and quickly implemented. This helped to increase production employees’ the previous year) and covered the Group’s investment and financing activities. Cash and cash satisfaction in the long term. equivalents went up by €9.3 million to €28.4 million. In 2010, Sennheiser Consumer Electronics GmbH’s sites in Ireland and Singapore generated 65.6% more turnover than in the previous year. This increase was achieved by measures such as the targeted stockpiling of core products to ensure the company’s ability to deliver at the end Purchasing of the year. The Irish production site has by now been fully developed from a headphones manufacturer into an internal supplier and specialist for acoustic transducers. The Group Development Financial year 2010 was characterized by a global supply bottleneck of electronic components. continued to invest there in 2010 to expand its specialization in the production of high-grade Business relationships with suppliers focus on the long term. Together with the Group-wide acoustic transducers. coordinated purchasing activities, they helped Sennheiser realize higher production volumes The production site in Albuquerque, New Mexico, USA, was able to increase turnover in its local than originally planned. Although global investment backlog, which had started to build up currency by 4.3% compared to the previous year. In 2010, the site’s main focus of production during the financial crisis in 2008 and worsened considerably in 2009, resolved itself again to a again was on wireless microphones and supplying production components to Sennheiser large extent in the previous year, it still created long delivery times due to limited production electronic GmbH & Co. KG. The most important project in 2010 was the adjustment of produc- capacities. This affected almost all materials areas, but particularly electronic components. tion capacities for wireless microphones in connection with the Wennebostel site. The company further extended its network of alternative suppliers to increase the reliability of its purchasing activities. Despite the supply situation remaining tense in the electrical and The key objectives in financial year 2011 will be implementing the new company structure and Outlook electronics industry, this ensured that purchase prices stayed largely within the budget. The per- also further increasing production output. In order to ensure the Sennheiser Group achieves its centage of purchases made in the US dollar zone went up slightly year on year to around 75%. planned turnover growth, the company will have to continue sharpening its focus on the prin- ciples of lean management in its processes. By implementing standard processes, any future Outlook The steadily climbing prices in the global market for basic raw materials and the structural potential can be targeted at further improving efficiency and effectiveness. This considered, changes in China, where minimum wages are rising significantly, had a considerable impact on Sennheiser will again ensure profitable growth in 2011 while maintaining excellent quality to price developments and prices will increase as a result in 2011. The supply situation in the elec- secure the Group’s production sites in the long term and to further expand them. trical and electronics industry will stabilize, making large materials bottlenecks unlikely. But as delivery times continue to be long, purchases still have to be carefully planned in advance. 60 Consolidated Management Report 2010 Consolidated Management Report 2010 61

Logistics Human Resources

Development Sennheiser Logistics Services GmbH (SLS) continued expanding its position as central supplier The Sennheiser Group’s average staffing level dropped by 0.7% in 2010 to 2,117 employees. This Development for the Sennheiser Group in 2010. The central warehouse in Hong Kong has also been directly included 67 trainees (compared with 59 in the previous year). At the end of the year, the supplying customers of Sennheiser Electronic Asia Pte Ltd. since July 2010, and the first number of Sennheiser Group employees came to 2,140 (previous year: 2,146). On average, 54% deliveries to customers of Sennheiser France S.A.R.L. left the central warehouse in Osnabrück in of all employees were working for companies within Germany and 46% for companies abroad. November 2010. This site has to be expanded further to its full capacity. Due to limited product Personnel costs rose by 10.6% in comparison with the previous year. This increase was due to availability from suppliers in Asia and the high demand in the first half of 2010, Asian suppliers the discontinuation of short-time work and also higher performance-related salary components transported the majority of consumer products to Europe and the Americas by air freight. This, on account of the company’s success. coupled with a shortage of transport capacities and the resulting increase in freight rates, pushed up air freight costs in this area. employees Outlook SLS’ central warehouse structure continues to be expanded by establishing the SLS central Change from previous year, in percent warehouse for the American market in the first quarter of 2011 and by increasing the volume of direct deliveries to customers of Sennheiser France to the maximum number of B2B deliveries. Plans for 2011 are to stock third-party brands from the sales portfolios of Sennheiser’s Europe- 2,500 an subsidiaries in the Osnabrück central warehouse, from where they will be delivered directly 2,117 2,132 2,117 1,976 +7.1 % +0.7 % –0.7 % to customers of the sales subsidiaries. The goal is to further reduce the inventories of the sales 2,000 +6.7 % subsidiaries and to create just one source from where customer orders are shipped. 1,852 964 Abroad 1,500 (46 %)

1,153 1,000 Quality Management Germany (54 %) Development In 2010, Sennheiser scored more success with the lean management approach launched in 2009 500 by shortening inspection times and increasing the efficiency of production processes. The general conditions for production were greatly impacted by the merger of the two German sites 0 into the new production and technology center. Despite all challenges that a move of this size 2006 2007 2008 2009 2010 brings with it, process performance, product quality and health and safety conditions remained stable. In addition, the number of first-aiders and safety representatives was increased to improve health and safety at work. The sports headphones segment’s successful cooperation with the sports equipment manufac- Short-time work, which had been introduced on April 1, 2009, due to the low capacity utilization turer adidas was a special project worth mentioning in 2010. Its requirements went far beyond of the sites in Wennebostel and Burgdorf, was discontinued on March 31, 2010, as the situation those stipulated by law. The detailed customer specifications were communicated to the had recovered. During this period, the Group was able to keep its specialists and highly qualified suppliers, and their compliance was checked regularly. workforce. The short-time work measure passed the assessment of the German Unemployment Using the GUARDUS software is one of the factors that help to continuously improve processes. Agency (Agentur für Arbeit) without reservations. It evaluates production quality data and internal audits, among other things, and makes them New qualification programs for the management of various teams were launched in 2010 as more transparent. part of personnel development to support networking between international groups. In 2010, Sennheiser electronic GmbH & Co. KG and Georg Neumann GmbH took on the majority Outlook The main focus of operations in 2011 will be redesigning Sennheiser’s internal processes in of employees from the subsidiary K + H Vertriebs- und Entwicklungsgesellschaft mbH, and accordance with the new organizational structure. Responsibilities and interfaces will have to employees of the old production site in Burgdorf were also transferred to and integrated in the be redefined and assessed for their actual usability. Establishing a new project office that deals new production building at the Wennebostel site. with all issues relating to change management should make the change easier for employees. 62 Consolidated Management Report 2010 Consolidated Management Report 2010 63

Investments In 2011, each business division is responsible for its own development activities and will Outlook contribute to the success of each operating unit as well as the Group by launching innovative In 2010, investments in tangible and intangible assets amounted to €12.2 million, which corre- and market-driven products. sponds to a 38.1% drop compared to 2009. Sennheiser electronic GmbH & Co. KG invested €6.4 million. €0.6 million of investments in tangible assets were for technical equipment and machinery and €2.4 million for furniture and III. Risk Management equipment. The subsidiaries primarily invested in the following: €0.7 million for tangible and intangible assets at the Irish production site, €1.7 million at the Singapore site and €0.3 million Sennheiser has a controlling system that monitors and manages all business processes within at the US production site. the Group. It quickly and effectively counteracts deviations. In 2010, the company also started developing a strategic planning and control process for analyzing and assessing medium- and long-term opportunities and risks. Research and Development (R&D) Sennheiser was able to emerge from the immediate effects of the global economic and financial crisis and return to its medium-term growth path in financial year 2010. But the future growth In 2010, the focus was on numerous new and additional products in the Consumer, Professional of the Sennheiser Group will still depend on the economic changes around the world. In order to Systems and Installed Sound segments. In January, the Sennheiser Consumer segment began disperse risks, the Sennheiser Group will continue to focus on different business areas. In- the year with 22 new headphones, designed specifically for use with portable devices. creased investments in brand development, particularly in North America, will help to reduce Customers have the choice of in-ear or clip-on earphones in varying designs and sizes. Great the company’s dependence on the general economic situation. importance was placed on creating a high degree of comfort and perfect acoustic properties. Liquid resources, inasmuch as they are not required by subsidiaries for daily business, are This was complimented by a series of sports headphones that were designed in cooperation concentrated in the parent company on the basis of a cash pooling program. Cash and cash with adidas. The sports headphones CX 680 won the CES Innovations Award at the Consumer equivalents are deposited with several banks and are mainly denominated in euros. As in the Electronics Show (CES) in Las Vegas. past, Sennheiser implemented a conservative investment strategy with the aim of minimizing The Consumer segment was strengthened further in fall with new travel headphones and head- default risks in 2010. sets, which combine top Sennheiser sound with a high level of active and passive noise Fluctuations of Sennheiser’s most important trading currencies once again had a significant reduction. The model PX 360 was launched, new foldable headphones that completely enclose impact on business developments in 2010. The company used currency hedges to protect itself, the ear. Their Bluetooth variant PX 360 BT can be linked to a multitude of portable video and particularly against the volatility of the exchange rates between the euro and the British pound audio devices via its wireless interface. In February 2010, Sennheiser presented its customers as well as the Canadian dollar. The high percentage of turnover generated in US dollars again with seven new wideband headsets for the business market at the CallCenterWorld in Berlin. created currency risks in 2010. These were successfully offset by concluding an increasing At the beginning of the year, the Professional segment introduced the pocket transmitter SK number of purchases in the US dollar zone, a strategy that the company has been continuously 5212-II and the receiver series EM 3732-II. In summer, the portfolio was completed with the SKM employing for years. 5200-II hand transmitter. The products are aimed at professional users with the highest expectations and provide the maximum degree of flexibility, even in difficult conditions, with a switching bandwidth of up to 184 MHz. The one-ear, clip-on microphones of the Ear-set series, which had been launched in fall, were already successfully used by the rock singer P!nk on her Funhouse tour. The broadcast headset HMD 26 is designed for professional use in loud environ- ments. It employs ActiveGard™ technology for protecting the ear against sudden volume peaks. Georg Neumann GmbH expanded its studio microphone product range with the TLM 102. Neumann took over the sales of studio monitors of the subsidiary K + H Vertriebs- und Entwick- lungsgesellschaft mbH after the company’s incorporation into Sennheiser and Neumann in 2010. In the future, new studio monitors will be launched under the name of Neumann. Since 2010, Sennheiser has been offering its customers the opportunity to style their own individual wired microphones by choosing from several colors and adding their own text and designs with programs like www.style-your-mic.com. Each microphone is manufactured accord- ing to the customer’s requirements. The digital discussion system ADN (Audio Distribution Network) is a premium product for the conference market. Sennheiser introduced it in 2010 at the Info Comm in Las Vegas. This system was entirely developed by Sennheiser. It is extremely robust and sports a large number of features, an appealing design and top sound quality. With this product, Sennheiser is further expanding its Installed Sound product portfolio. 64 Consolidated Management Report 2010 Consolidated Management Report 2010 65

Sennheiser counteracts the general default risk with not only effective customer management, IV. Outlook for Future Development but also an overall broadly diversified customer structure. Neither during the global economic and financial crisis in 2008 and 2009 nor in 2010 did the Group suffer any material defaults. In 2011, Sennheiser will be implementing the new organizational structure that it approved in The globally valid property, liability and transport insurance policy covers the interests of the the past year. Three business divisions are being established to increase the company’s interna- entire Group, including all affiliated companies. A Group-wide insurance policy is also in place to tional customer focus. protect against reciprocal risks within the Sennheiser Group and against consequential damag- The Consumer Electronics division concentrates on the headphone business as well as audio and es caused by defaulting suppliers. telecommunication products. The Professional Systems division is home to Professional Audio, The brand and product piracy risk has become a permanent threat for renowned manufacturers Live Sound, Studio and Professional Headsets, and the Installed Sound division is responsible for in the wake of globalization. Sennheiser cooperates with lawyers and authorities to effectively fixed audio transmission systems. In addition to these units, four Group divisions were estab- curb this risk. The implemented measures include crackdowns, seizing of products by customs, lished on January 1, 2011. The Executive Management Board (EMB), whose Spokesman is Volker shutting down trade stalls and legal action against parties in breach of industrial property Bartels, manages these operating units. rights. In 2010, Sennheiser again increased its cooperation with competitors, especially in Asia, The new organizational structure will be largely completed by the end of 2011. to increase the effectiveness of these measures. The re-allocation of the majority of UHF frequencies for new digital applications (DVB-H, Business Division Consumer Electronics, managed by Peter Callan wireless broadband Internet, etc.) and the resulting threat to the frequency resources that have Business Division Professional Systems, managed by Dr. Heinrich Esser traditionally been used by professional wireless microphone and monitoring systems has Business Division Installed Sound, managed by Dr. Heinrich Esser already started. The implementation process is still in its infancy and will take many years in Sales Division, managed by Paul Whiting Germany and across all of Europe. The attempt of large companies to establish cognitive devices Supply Chain Division, managed by Dr. Andreas Sennheiser for the transfer of data that use the UHF band poses a further risk to the uninterrupted use of Corporate Services, managed by Volker Bartels this frequency range for wireless production tools. Strategy and Finance, managed by Daniel Sennheiser For some years now, Sennheiser has been preparing for the restriction of the UHF spectrum to provide its customers with disruption-free productions and therefore safe investments in the The company expects to further increase its turnover in the coming financial years. The new future. These measures include the development of cognitive technologies and the lobbying of organizational structure in particular will generate additional profitability. the negative impact of these developments to decision-makers in politics and administration.

Wennebostel, Germany, March 31, 2011

The Executive Management Board

Volker Bartels Dr. Heinrich Esser Daniel Sennheiser President, Manufacturing President, Development President, Strategy and Finance 66 Consolidated Financial Statements 2010 Consolidated Financial Statements 2010 67 Consolidated Financial Statements 2010 Consolidated Balance Sheet as of December 31, 2010 Assets Liabilities

2010 previous Year 2010 previous Year (€) (€ in thousands) (€) (€ in thousands) A. Fixed Assets A. equity i. Intangible Assets i. Fixed Capital 1. Concessions, industrial property rights and similar rights 3,201,094.38 3,154 1. General partners’ share 0.00 0 2. Goodwill 1,810,886.34 2,493 2. Limited partners’ share 5,200,000.00 5,200 5,011,980.72 5,647 5,200,000.00 5,200 ii. Tangible Assets 1. Real estate, equivalent titles and buildings, 4,958,662.71 5,084 ii. Retained Earnings 23,931.37 0 including buildings on non-owned land 2. Technical equipment and machinery 16,983,509.25 19,042 iii. Expenses from Currency Translation –10,218,364.00 –12,426 3. Other plant, furniture and equipment 17,504,596.59 15,890 4. Down payments and plant under construction 2,258,215.65 2,740 iv. Balance Sheet Profit 53,425,167.32 47,652 41,704,984.20 42,756 iii. Financial Assets v. Balancing Item for Shares of Other Shareholders 481,689.14 470 1. Shares in associated companies 13,250.00 13 48,912,423.83 40,896 2. Shareholdings 3,350.00 3 3. Loans 8,972.17 7 B. special Items 178,401.00 185 4. Indemnity claims 1,527,451.19 1,652 1,553,023.36 1,675 C. provisions 48,269,988.28 50,078 1. Pension provisions 62,214,192.36 52,191 B. Current assets 2. Tax provisions 3,398,197.20 1,235 i. Stocks 3. Other provisions 34,101,012.99 22,848 1. Raw materials and supplies 17,750,852.70 15,724 99,713,402.55 76,274 2. Work in process 13,127,261.43 10,465 3. Finished products and merchandise 56,930,231.04 33,506 D. liabilities 4. Down payments 0.00 1 1. Liabilities to credit institutions 197,113.03 5 87,808,345.17 59,696 2. Advance payments received for orders 368,484.25 55 ii. Trade and Other Receivables 3. Trade payables 26,882,198.74 22,838 1. Trade receivables 86,863,434.73 70,073 4. Own bills of exchange payable 0.00 1,102 2. Other receivables 3,879,246.08 7,658 5. Liabilities to shareholders 82,322,017.39 69,332 90,742,680.81 77,731 6. Liabilities to associated companies 3,372.03 3 iii. Trade Investments 7. Other liabilities 19,336,674.52 19,462 Other securities 430.21 0 129,109,859.96 112,797

iv. Cash and Cash Equivalents 33,716,649.83 28,500 E. accruals and Deferrals 90,691.04 8 212,268,106.02 165,927 Total Liabilities 278,004,778.38 230,160 C. accruals and Deferrals 2,900,505.69 2,657

D. deferred Taxes 14,566,178.39 11,498 Total Assets 278,004,778.38 230,160 68 Consolidated Financial Statements 2010 Consolidated Financial Statements 2010 69

Consolidated Profit and Loss Statements for the Financial Year 2010

2010 Previous Year (€) (€ in thousands) 1. sales 468,234,237.98 389,862 2. Increase/reduction (–) of the inventory of 26,086,620.67 –8,526 finished and semi-finished products 3. other own work capitalized 2,659,730.85 5,736 496,980,589.50 387,072 4. other operating income 40,969,350.61 16,551 537,949,940.11 403,623 5. raw materials and consumables a) Expenditure on raw materials and supplies 193,252,588.08 136,589 and on bought-in goods b) Expenditure on bought-in services 3,454,146.61 2,970 196,706,734.69 139,559 6. personnel costs a) Wages and salaries 117,796,660.88 101,584 b) Social charges and expenditure 21,211,250.96 24,137 on pensions and assistance 139,007,911.84 125,721 7. amortization and depreciation on 14,247,739.47 13,200 intangible assets and tangible assets 8. other operating expenses 144,978,161.08 113,344 43,009,393.03 11,799 9. income from trade investments 24.00 0 10. other interest and similar income 104,268.00 111 11. interest and related expenses 4,855,731.44 2,497 –4,751,439.44 –2,386 12. result of ordinary activities 38,257,953.59 9,413 13. Extraordinary expenditures / extraordinary result 8,598,816.00 480 14. taxes on income and profits 5,656,880.50 4,698 15. other taxes 403,521.20 405 16. net profit for the year 23,598,735.89 3,830 (of which attributable to minority shareholders) 3,258,594.67 1,974 70 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 71 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements consolidation size of currency equity as of December 31, 2010 holding (in (in %) thousands) A. General Full Consolidation Sennheiser electronic GmbH & Co. KG, Wennebostel, Germany – EUR 5,200 The annual financial statements 2010 were prepared in accordance with the German Commer- Georg Neumann GmbH, Berlin, Germany 100.0 EUR 1,2791 cial Code (HGB). All regulations amended by the Accounting Law Modernization Act (BilMoG) K+H Vertriebs- und Entwicklungsgesellschaft mbH, 100.0 EUR 251 were applied for the first time. Wedemark, Germany The company is required by Section 264a of the German Commercial Code (HGB) in conjunction Sennheiser Audio OOO, Moscow, Russia 100.0 RUB 40,811 with Section 290 HGB to prepare consolidated financial statements and a consolidated manage- Sennheiser Consumer Electronics GmbH, Wennebostel, Ger. 100.0 EUR 12,0681 ment report. – Sennheiser New Mexico LLC, Albuquerque, USA 100.0 USD 5,432 Within the scope of the initial preparation of the annual financial statements according to the – Sennheiser Manufacturing USA Inc., Albuquerque, USA 100.0 USD 2 commercial law regulations amended by the Accounting Law Modernization Act (BilMoG), com- – Sennheiser Bondholding Company LLC, Albuquerque, USA 100.0 USD 2 parative figures for the previous year were not adjusted since the accounting policy choice pur- Sennheiser Global Operations GmbH, Wedemark, Germany 100.0 EUR 24,218 suant to Section 67, subsection 8, sentence 2, of the Introductory Act to the German – Sennheiser Belux B.V.B.A., Zellik, Belgium 100.0 EUR 1,445 Commercial Code (EGHGB) was exercised. – Sennheiser (Canada) Inc., Point Claire, Canada 100.0 CAD 6,285 – Sennheiser Electronic Asia Pte Ltd., Singapore 100.0 USD 4,959 – Sennheiser Electronic Corporation, Old Lyme, USA 100.0 USD 22,774 – Sennheiser Electronics (Beijing) Co. Ltd., Beijing, China 100.0 CNY 10,402 B. Reporting Entity – Sennheiser Electronics India Private Limited, Haryana, India 100.0 INR 25,424 – Sennheiser France S.A.R.L., Ivry-sur-Seine, France 100.0 EUR 7,004 Included in the consolidated financial statements are the parent company Sennheiser – Sennheiser Hong Kong Ltd., Hong Kong, China 100.0 HKD 17,020 electronic GmbH & Co. KG, Wennebostel, the six Sennheiser Group subsidiaries in Germany and – Sennheiser Japan K.K., Tokyo, Japan 100.0 JPY –24,934 18 in other countries, as well as the joint venture Sennheiser Communications A/S based in – Sennheiser Mexico S.A. de C.V., Mexico City, Mexico 100.0 MXN –2,722 Copenhagen, Denmark. – Sennheiser Nederland B.V., Almere, Netherlands 100.0 EUR 2,343 All subsidiaries are majority owned with the exception of Sennheiser Communications A/S, – Sennheiser Nordic A/S, Copenhagen, Denmark 100.0 DKK 24,819 where the holding is 50%. The following table provides an overview of all consolidated subsid- – Sennheiser UK Ltd., High Wycombe, Great Britain 100.0 GBP 8,288 iary companies: Sennheiser Innovation (Schweiz) AG, Zurich, Switzerland 100.0 CHF 1733 Sennheiser Logistics Services GmbH, Wedemark, Germany 100.0 EUR 251 Sennheiser Vertrieb und Service GmbH & Co. KG, Hanover, Ger. 53.0 EUR 1,049 Partial Consolidation Sennheiser Communications A/S, Copenhagen, Denmark 50.0 DKK 53,879

1 Profit and loss transfer agreement with Sennheiser electronic GmbH & Co. KG, Wennebostel, Germany 2 Contained in the annual accounts of Sennheiser New Mexico LLC, Albuquerque, USA 3 As per Commercial Balance Sheet II

The equity figures shown here represent the shareholder equity as presented in the balance sheet as of December 31, 2010.

In accordance with Section 296, subsection 2, HGB, the subsidiary SVS Beteiligungs GmbH, Hanover, Germany, with a holding of 53%, is recognized at acquisition cost rather than being fully consolidated, because it is of minor significance.

72 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 73

C. Principles of Consolidation Offsetting is undertaken on the basis of assigned values at the time of share purchase.

The accounting and valuation principles used throughout the Group correspond to those applied Receivables and payables involving the consolidated companies themselves are the subject of in the annual financial statements of the parent company and to the consolidating accounting set-off. standards laid down under commercial law (Section 308, subsections 1 and 2 HGB). Internal sales and other internal income within the Group are offset against the corresponding For the individual annual financial statements included in this report, the common balance expenses. sheet date is December 31, 2010. Interim profits from finished goods and raw materials are charged against net income. The individual annual financial statements denominated in foreign currencies were translated in accordance with Section 308a HGB. With the exception of equity, items were converted at the Interim profits relating to fixed assets are charged against net income. mean exchange rate. Equity, with the exception of the results for the year, is calculated using historic exchange rates. Conversion of the profit and loss items is on the basis of weighted average exchange rates. The currency conversion differences resulting from the conversion of D. Notes on the Consolidated Balance Sheet equity capital at historic exchange rates and the conversion of the Profit and Loss Statement at average exchange rates are shown in the equity capital as not affecting the operating results. Intangible assets are valued at acquisition cost and are subject to scheduled linear depreciation Foreign exchange losses or gains contained in the individual financial statements included in over a useful life between three and six years. Goodwill is generally amortized over a period of the consolidation are recognized as affecting the net income reported for the year. four years using the straight-line method. The valuation of tangible assets is based on acquisition and/or production costs, subject to scheduled depreciation over a useful life of two The following rates of exchange were employed for the currency conversion of the individual to 14 years for furniture and equipment as well as technical equipment and machinery, and financial statements of foreign subsidiaries: 50 years for buildings. Movable fixed assets are always depreciated on a linear or declining balance basis; depending on the useful life of the assets in question, a switch will be made to the linear method when most appropriate. CODE rate of exchange For the companies in Germany, in keeping with tax regulation changes that took effect on Average for 2010 End of year on Dec. 31, 2010 January 1, 2008, collective items were established for minor assets as defined by Section 6, Foreign currency/€ Foreign currency/€ subsection 2a, of the German Income Tax Act (EStG). These collective items are written off at a 01. US dollar USD 0.75226 0.74839 rate of 20% per year in the year of acquisition and in the subsequent four financial years. 02. Canadian dollar CAD 0.73172 0.75064 03. Pound sterling GBP 1.16569 1.16178 In companies outside Germany, minor assets are written off in full in the year of acquisition and 04. Mexican peso MXN 0.05967 0.06043 are shown as disposals in the same year. 05. Hong Kong dollar HKD 0.09686 0.09629 Interests in subsidiaries not fully consolidated and in associated companies are shown on the 06. Danish krone DKK 0.13427 0.13417 assets side of the balance sheet at acquisition cost. Other loans are shown at acquisition cost. 07. Russian ruble RUB 0.02475 0.02450 Indemnity claims from life insurance concluded for the coverage of pension obligations are 08. Indian rupee INR 0.01649 0.01673 recognized at fair value. Indemnity claims protected from the claims of all other creditors were 09. Japanese yen JPY 0.00862 0.00920 offset against the corresponding pension obligations. 10. Chinese yuan CNY 0.11135 0.11335 11. Swiss franc CHF 0.72703 0.79974 Fixed assets are shown in the table on the next two pages.

The average exchange rates were determined using weighted monthly average rates on the basis of the Sennheiser Group’s turnover development. Here, the monthly average exchange rates represent a monthly average based on the daily rates. This method was adopted in order to approximate the transaction-related exchange rates within the Group as closely as possible.

Capital consolidation for company acquisitions on or before December 31, 2009, was based on the book value method. If this capital consolidation leads to a positive gain, it is depreciated on a linear basis over a useful life of four years. The negative difference from capital consolidation was assigned to balance sheet profit. 74 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 75

statement of asset additions and disposals for the financial year 2010

(€) Acquisition and production costs accumulated depreciation Net book values Currency Currency Dec. 31, 2010 Previous year Jan. 1, 2010 differences Additions Disposals Transfers Dec. 31, 2010 Jan. 1, 2010 differences Additions Disposals Dec. 31, 2010 (€) (€ in thousands) I. intangible Assets 1. Concessions, industrial property rights 24,906,612.17 240,432.51 1,455,347.92 2,777,193.51 0.00 23,825,199.09 21,752,938.78 123,312.46 1,523,989.78 2,776,136.31 20,624,104.71 3,201,094.38 3,154 and similar rights 2. Goodwill 4,674,224.09 16,169.65 0.00 0.00 0.00 4,690,393.74 2,181,423.84 –422.60 698,506.16 0.00 2,879,507.40 1,810,886.34 2,493 29,580,836.26 256,602.16 1,455,347.92 2,777,193.51 0.00 28,515,592.83 23,934,362.62 122,889.86 2,222,495.94 2,776,136.31 23,503,612.11 5,011,980.72 5,647 II. tangible Assets 1. Real estate, equivalent titles and build- 6,355,070.04 134,299.65 22,576.64 0.00 0.00 6,511,946.33 1,271,506.39 47,609.59 234,167.64 0.00 1,553,283.62 4,958,662.71 5,084 ings, including buildings on non-owned land 2. Technical equipment and machinery 50,910,757.42 768,526.34 1,425,086.86 305,909.58 501,272.49 53,299,733.53 31,869,097.08 418,926.88 4,271,311.21 243,110.89 36,316,224.28 16,983,509.25 19,042 3. Other plant, furniture and fixtures 67,521,293.60 899,706.41 7,498,381.43 5,312,429.12 1,638,380.64 72,245,332.96 51,631,027.70 623,776.89 7,519,764.67 5,033,832.89 54,740,736.37 17,504,596.59 15,890 4. Down payments and plant under 2,740,215.52 55,571.28 1,793,706.45 191,624.47 –2,139,653.13 2,258,215.65 0.00 0.00 0.00 0.00 0.00 2,258,215.65 2,740 construction 127,527,336.58 1,858,103.68 10,739,751.38 5,809,963.17 0.00 134,315,228.47 84,771,631.17 1,090,313.36 12,025,243.52 5,276,943.78 92,610,244.27 41,704,984.20 42,756 III. Financial Assets 1. Shares in associated companies 13,250.00 0.00 0.00 0.00 0.00 13,250.00 0.00 0.00 0.00 0.00 0.00 13,250.00 13 2. Shareholdings 3,350.00 0.00 0.00 0.00 0.00 3,350.00 0.00 0.00 0.00 0.00 0.00 3,350.00 3 3. Loans 6,873.80 –9.80 2,108.17 0.00 0.00 8,972.17 0.00 0.00 0.00 0.00 0.00 8,972.17 7 4. Indemnity claims 1,652,054.43 0.00 0.00 124,603.24 0.00 1,527,451.19 0.00 0.00 0.00 0.00 0.00 1,527,451.19 1,652 1,675,528.23 –9.80 2,108.17 124,603.24 0.00 1,553,023.36 0.00 0.00 0.00 0.00 0.00 1,553,023.36 1,675 158,783,701.07 2,114,696.04 12,197,207.47 8,711,759.92 0.00 164,383,844.66 108,705,993.79 1,213,203.22 14,247,739.46 8,053,080.09 116,113,856.38 48,269,988.28 50,078 76 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 77

Inventories are separately valued at acquisition cost, subject to allocated surcharges and In accordance with the Accounting Law Modernization Act (BilMoG), pension provisions were discounts for incidental acquisition costs and acquisition cost reductions, or at production cost generally valued according to the projected unit credit method (PUC method) at an interest rate in accordance with Section 255, subsection 2 HGB. Production costs include individual costs as of 5.16% (as of January 1, 2010: 5.25%), a pay trend of 2.5% and a pension trend of 1.5% well as pro-rata allocated material overheads, production overheads and depreciation insofar as annually. The interest rate is based on the average market interest rate for the last seven years it is related to production. The lower of cost or market principle is applied. Marketability dis- determined by the German Central Bank, which is derived under the assumption of a remaining counts were applied as required and retrograde valuation was followed. term of 15 years. The actuarial tables 2005 G by Klaus Heubeck were applied. Trade and other receivables are shown at nominal value. Any necessary itemized and general In accordance with Section 246, subsection 2, sentence 2 HGB, the assets from reinsurance that provisions are set aside for bad and doubtful debts. Receivables denominated in foreign are protected from the claims of all other creditors and serve exclusively to meet pension currencies were converted at the mean exchange rate on the balance sheet date. Of the trade obligations or similar long-term commitments were offset against said obligations. The fair val- receivables, an amount of €62,000 (€832,000 in the previous year) have a remaining term to ue of the assets that were offset is €53,000, and the discharge amount of the offset liabilities is maturity of more than one year. Of the other receivables, an amount of €233,000 (€394,000 in €53,000. Pension provisions include provisions for obligations to previous members of the the previous year) have a remaining term to maturity of more than one year. Executive Team of €2.930 million (previous year: €2.566 million).

Other trade investments are valued at acquisition cost. In the financial result, income of €2,000 from fund assets was offset for the first time against interest expense of €2,000 resulting from imputed interest on pension obligations. Cash and cash equivalents are valued at nominal value. The formation of tax provisions and other provisions is at the discharge amount in accordance Accruals and deferrals on the assets side of the balance sheet are stated in the amount of with sound business judgment. Other provisions take into account all recognizable risks and expenditure for the period following the balance sheet date. contingent liabilities and contain, among other things, provisions for warranty claims in the sum of €7.267 million (previous year: €5.800 million), for profit shares, bonuses, fees and Deferred taxes result from temporary differences between balance sheet items under commer- provisions €10.593 million (previous year: €5.059 million), for anniversary awards €1.903 million cial law and for tax purposes, as well as consolidation entries. In case of temporary differences (previous year: €1.911 million), for vacation entitlement €2.037 million (previous year: €1.774 arising from consolidation entries, an average tax rate of 25% (previous year: 25%) was applied. million), for pre-retirement reduction in work hours €1.936 million (previous year: €1.511 mil- In determining deferred taxes arising from temporary differences between balance sheet items lion), and for severance payments €1.709 million (previous year: €508 ,000). under commercial law and for tax purposes, local tax rates between approximately 8% and 43% were applied. Deferred taxes continue to be accrued on losses carried forward. On the balance Liabilities are valued at their repayment and/or discharge amount. sheet date, the deferred taxes on losses carried forward were €2.907 million (previous year: €2.671 million). The remaining deferred tax assets of €12.506 million result from differences in They are as follows: fixed assets and inventories, receivables, liabilities and provisions. Deferred tax liabilities of €920,000 mainly relate to differences in fixed assets. In accordance with the accounting policy choice under Section 274, subsection 1, sentence 3 HGB, only the net amount of deferred taxes (€ in thousands) liabilities is reported. Offsetting results in net deferred tax assets of €14.566 million. Total Up to one year More than five years The fixed capital is shown at the nominal amount of the parent company’s general and limited Dec. 31, 2010 Previous year Dec. 31, 2010 Previous year Dec. 31, 2010 Previous year liability capital. The balance sheet profit includes a profit brought forward of €47.652 million. Liabilities to credit institutions 197 5 197 5 0 0 The consolidation operations affecting net income are shown in the profit brought forward as Advance payment received for orders 369 55 369 55 0 0 at the end of the previous year. The difference shown on the liabilities side of the balance sheet Liabilities to shareholders 82,322 69,332 67,755 69,332 0 0 arising from the capital consolidation has arisen through profit retentions by subsidiaries prior Trade payables 26,882 22,838 26,882 22,838 0 0 to initial consolidation and therefore has the nature of profit brought forward. The net profit of Own bills of exchange payable 0 1,102 0 1,102 0 0 the parent company and the proportion of the consolidated net profit owing to minority share- Liabilities to associated companies 3 3 3 3 holders are credited to the company clearing accounts and are thus not included in the balance Other liabilities 19,337 19,462 19,153 19,218 0 0 sheet profit. 129,110 112,797 114,359 112,553 0 0 Special items contain the investment subsidies and advance payments granted to Sennheiser Consumer Electronics GmbH, Branch Ireland, Tullamore, Ireland, by the Industrial Development Agency for establishing the Irish production facility. The amortization of this special item for Other liabilities include tax liabilities in the amount of €4.901 million (previous year: €4.436 mil- investment allowances on fixed assets corresponds to the scheduled depreciation on the lion) and social security liabilities of €1.103 million (previous year: €983,000). subsidized fixed assets. Under the terms of the contract, liability for part repayment of the allowances received may arise in certain circumstances. 78 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 79

E. Notes on the Consolidated Profit and Loss Statement Other operating income includes €7,000 (€6,000 in the previous year) from the dissolution of the special items for investment allowances on fixed assets. Other operating income also in- Sales are structured as follows: cludes income unrelated to the accounting period amounting to €875,000 (€1.338 million in the previous year), which mainly resulted from the release of provisions and reserves for bad debts. Currency translation gains amounted to €36.898 million (€12.556 million in the previous year). € thousands 2010 Headphones 163,399 Personnel costs include pension expenses in the amount of €2.644 million (previous year: Wireless Microphones 119,567 €6.808 million). Personnel costs also include expenses not relating to the accounting period of Sennheiser Communications 37,719 €0 (previous year: €26,000). Wired Microphones 34,833 Audiology 30,869 On the annual average, the company had a staff of 2,117 employees (previous year: 2,132), of Professional Headsets 20,859 whom 67 (previous year: 59) were trainees. Georg Neumann 16,731 Installed Sound 15,625 Other Products 28,632 Sales 468,234 Employees 2010 previous year Within Germany 1,153 1,180 Abroad 964 952 As a result of the integration of the former K+H Vertriebs- und Entwicklungsgesellschaft mbH 2,117 2,132 effective January 1, 2010, the company’s product groups were realigned and renamed so that a comparison with corresponding sales of the previous years is not possible this year. These figures include the full number of employees in the partially consolidated Sennheiser Communications A/S (83, compared with 80 in the previous year).

Sales broken down into geographical markets are as follows: Other operating expenses include expenses not related to the accounting period in the amount of €1.086 million (previous year: €1.793 million), which are mainly the result of reserves for bad debts. Other operating expenses also include the auditor’s fee for the audit of the consolidated € millions 2010 previous year financial statements for financial year 2010 in the amount of €348,000, consisting of €216,000 Americas 125.6 99.3 for the audit, €4,000 for other audit services, €47,000 in tax consultancy fees and €81,000 for Asia and Australia 59.7 44.0 other services. Currency translation losses amounted to €35.325 million (€13.596 million in the EMEA 282.9 246.6 previous year). Sales 468.2 389.9 Interest income includes proceeds from discounting provisions in the amount of €35,000. Interest expense includes expenditures for imputed interest on provisions in the amount of The EMEA region stands for the economic area that includes Europe, the Middle East and Africa. €3.195 million. Of the European sales, €79.596 million (previous year: €67.686 million) were earned in Germany. The amount of €8.599 million (€0 in the previous year) reported as an extraordinary expendi- ture results from the first-time preparation of the consolidated financial statements according to the Accounting Law Modernization Act (BilMoG) and the corresponding increase in provisions for pensions, partial retirement, anniversaries and personnel costs.

Income taxes include income from deferred taxes in the amount of €2.927 million.

80 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 81

F. Financial Obligations Mr. Stefan Junker, Burgwedel, Germany, President, Finance, was appointed as President until December 31, 2010. Contingent liabilities During the year under review, the members of the Supervisory Board were: The parent company has guaranteed a loan of €15 million. The availment by Sennheiser electronic GmbH & Co. KG is not expected, since all payments have been made to the financial Prof. Dr. Jörg Sennheiser, Chairman, Wedemark, Germany, institution on time to date. Dr. Frank Heinricht, Chairman of the Management of Heraeus Holding GmbH, Hanau, Germany, Andreas Dornbracht, Managing Director of Aloys F. Dornbracht GmbH & Co. KG Armaturenfabrik, Iserlohn, Germany, Other financial obligations Johann Soder, Director of Technology of SEW-EURODRIVE GmbH & Co. KG, Bruchsal, Germany (effective January 1, 2011). The parent company conducts its business exclusively in leased premises. The lease contract has a fixed term up to December 31, 2022, and it may be subsequently terminated by two years’ Dr. Hans-Peter Wiendahl, university professor (emeritus), Hanover, Germany, was also a member notice on expiry of the fifth calendar year. The annual rent during the financial year amounted of the Supervisory Board until December 31, 2010. to €1.735 million (€1.002 million in the previous year). On the balance sheet date, there were vehicle leasing liabilities in the amount of €72,000 and an obligation to order of €22.626 million. In addition, there are liabilities of €876,000 resulting from Total remuneration of the members of the Executive Team came to €2.159 million and that of hardware and software maintenance contracts. the Supervisory Board to €348,000. The subsidiary K+H Vertriebs- und Entwicklungsgesellschaft mbH, Wedemark, also has external rent and leasing obligations of €551,000 for the years 2011 to 2014. Regarding disclosure, the following subsidiaries in the legal form of a limited company or partnership within the meaning of Section 264a HGB have made use of the exemption rule in accordance with Section 264, subsection 3, and Section 264b HGB: The subsidiaries have further external rent and leasing obligations: – for the year 2011 in the amount of €4.965 million, – Georg Neumann Gesellschaft mit beschränkter Haftung, Berlin, Germany, – for the years 2012 to 2015 in the amount of €6.114 million, and – K + H Vertriebs- und Entwicklungsgesellschaft mbH, Wedemark, Germany, – for subsequent years in the amount of €377,000. – Sennheiser Consumer Electronics GmbH, Wedemark, Germany, – Sennheiser Logistics Services GmbH, Wedemark, Germany, The subsidiaries also have further obligations to order of €31.318 million. – Sennheiser Vertrieb und Service GmbH & Co. KG, Hanover, Germany.

The parent company, in the form of a limited company within the meaning of Section 264a HGB, G. Other Statutory Information makes use of the exemption rule in accordance with Section 264b HGB as the parent company producing the financial statements. The unlimited partner of the parent company is Sennheiser Beteiligungsgesellschaft mit beschränkter Haftung, Wedemark, whose subscribed capital amounts to €30,000. Wennebostel, Germany, March 31, 2011 The management of Sennheiser electronic GmbH & Co. KG is the responsibility of Sennheiser Sennheiser electronic GmbH & Co. KG Beteiligungsgesellschaft mit beschränkter Haftung, Wedemark. The Executive Team

The following persons were appointed as Presidents, collectively representing Sennheiser Beteili- gungsgesellschaft mit beschränkter Haftung, Wedemark: Volker Bartels Dr. Heinrich Esser Daniel Sennheiser President, Manufacturing Volker Bartels, Hanover, Germany, President, Manufacturing President, Development President, Strategy and Finance Dr. Heinrich Esser, Wedemark, Germany, President, Development Daniel Sennheiser, Zurich, Switzerland, President, Strategy and Finance (effective January 1, 2011) 82 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 83

Cash Flow Statement for the Financial Year 2010

(€ thousands) 2010 previous year (€ thousands) 2010 previous year Results of the year, including the 32,198 3,830 Payments received from disposals of items of fixed assets 349 560 shares of profits of minority shareholders Investments (–) in tangible assets –10,740 –15,475 Depreciation on items of fixed assets 14,248 13,200 Investments (–) in intangible assets –1,455 –1,813 Increase in medium- and long-term provisions 2,571 2,146 Investments (–) in fixed financial assets –2 0 Decrease in indemnity claims 124 45 Payments (–) for the acquisition of 0 –2,520 Changes in the special items –7 –6 consolidated companies and other business units Rate fluctuations relating to fixed assets –1,533 106 Cash flow from investment activities –11,848 –19,248 Cash earnings according to DVFA/SG principles 47,601 19,321 Other changes in shareholders’ funds Increase / decrease (–) in short-term provisions 12,269 –373 excluding net profit for the year Loss from the disposals of items or fixed assets 186 30 Cash flow from financing activities –2,592 –6,728 Decrease / increase (–) in inventories, trade receivables and other –44,436 5,004 Changes in cash and cash equivalents 8,706 496 assets that are not allocated to the investment or financing activities Increase in trade payables and other liabilities that are not allocated 7,526 2,490 Changes in cash and cash equivalents resulting from 631 –77 to the investment or financing activities foreign exchange and valuation effects Cash flow from current business activities 23,146 26,472 Cash and cash equivalents at the start of the period 19,073 18,654 Cash and cash equivalents at the end of the period 28,410 19,073

Composition of financial funds Dec. 31, 2010 PREVIOUS YEAR Cash and cash equivalents 33,717 28,500 Ongoing obligations (–) to credit institutions –197 –5 Obligations from the cash pool (–) –5,110 –9,422 28,410 19,073 84 Notes on Consolidated Financial Statements 2010 Notes on Consolidated Financial Statements 2010 85

Statement of Shareholder’s Equity for the Financial Year 2010

(€) parent company minority shareholders Shares Cumulative Other Cumulative Other Group Result Group Result Balancing item Balancing item General partners’ Limited partners’ Group equity capital from the foreign Other neutral from the foreign deposit deposit generated currency conversion transactions Equity Minority capital currency conversion Equity Group equity Status as of Dec. 31, 2009 0.00 5,200,000.00 42,318,546.63 –12,426,088.89 5,333,327.13 40,425,784.87 470,000.00 0.00 470,000.00 40,895,784.87 Credit to shareholder settlement accounts 0.00 0.00 –14,566,847.66 0.00 0.00 –14,566,847.66 –3,258,594.67 0.00 –3,258,594.67 –17,825,442.33 Other changes 0.00 0.00 23,931.37 0.00 0.00 23,931.37 11,689.14 0.00 11,689.14 35,620.51 Group net profit for the year 0.00 0.00 20,340,141.22 0.00 0.00 20,340,141.22 3,258,594.67 0.00 3,258,594.67 23,598,735.89 Other group result 0.00 0.00 0.00 2,207,724.89 0.00 2,207,724.89 0.00 0.00 0.00 2,207,724.89 Total group result 0.00 0.00 20,340,141.22 2,207,724.89 0.00 22,547,866,11 3,258,594.67 0.00 3,258,594.67 25,806,460.78 Status as of Dec. 31, 2010 0.00 5,200,000.00 48,115,771.56 –10,218,364.00 5,333,327.13 48,430,734.69 481,689.14 0.00 481,689.14 48,912,423.83 Previous year Status as of Dec. 31, 2008 0.00 5,200,000.00 47,881,885.14 –12,781,882.33 5,333,327.13 45,633,329.94 615,095.62 –30,021.97 585,073.65 46,218,403.59 Credit to shareholder settlement accounts 0.00 0.00 –7,419,018.47 0.00 0.00 –7,419,018.47 –1,974,408.40 0.00 –1,974,408.40 –9,393,426.87 Other changes 0.00 0.00 0.00 0.00 0.00 0.00 –145,095.62 30,021.97 –115,073.65 –115,073.65 Group net profit for the year 0.00 0.00 1,855,679.96 0.00 0.00 1,855,679.96 1,974,408.40 0.00 1,974,408.40 3,830,088.36 Other group result 0.00 0.00 0.00 355,793.44 0.00 355,793.44 0.00 0.00 0.00 355,793.44 Total group result 0.00 0,00 1,855,679.96 355,793.44 0.00 2,211,473.40 1,974,408.40 0.00 1,974,408.40 4,185,881.80 Status as of Dec. 31, 2009 0.00 5,200,000.00 42,318,546.63 –12,426,088.89 5,333,327.13 40,425,784.87 470,000.00 0.00 470,000.00 40,895,784.87 86 Audit Certificate Independent Auditors’ Report

We have audited the consolidated financial statements – comprising the consolidated balance sheet, the consolidated profit and loss statement, the notes on the consolidated financial statements, the consolidated cash flow statement and the consolidated statement of share- holder’s equity – and the consolidated management report of Sennheiser electronic GmbH & Co. KG, Wennebostel, Germany, for the financial year from January 1 to December 31, 2010. The maintenance of the books and records and the preparation of the consolidated financial state- ments and consolidated management report in accordance with German commercial law are the responsibility of the parent Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and the consolidated management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (German Institute of Auditors). 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 German principles of proper accounting and in the consolidated management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the company 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 books and records, the consolidated financial statements and the consolidated management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements included in the consolidated financial statements, the definition of the reporting entity, the accounting and consolidation principles used and significant estimates made by the manage- ment, as well as evaluating the overall presentation of the consolidated financial statements and consolidated management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements of Sennheiser electronic GmbH & Co. KG, Wennebostel, Germany, comply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the company in accordance with German principles of proper accounting. The con- solidated management report is consistent with the consolidated financial statements and, as a whole, provides a suitable view of the company’s position and accordingly presents the opportunities and risks of future development.

Hanover, April 18, 2011 Deloitte & Touche GmbH Audit Firm

Dr. Beine Ziegenbein Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]