This document is not an offer for sale or a solicitation to buy securities and has not been approved by any supervisory authority anywhere in the world. This document is in all material respects a convenience translation of the original German-language listing prospectus, which is the legally relevant document under German law; only the German-language version has been approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht).
Listing Prospectus
for admission to trading on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange and the Munich Stock Exchange with simultaneous admission to the sub-segment of the Frankfurt Stock Exchange with additional post-admission obligations (Prime Standard) of
104,689,400 no-par value registered shares (entire share capital upon effectiveness of the capital increase in connection with the spin-off of an indirect 80.5% shareholding in OSRAM GmbH by way of transfer of all shares in OSRAM Beteiligungen GmbH to OSRAM Licht AG under issuing shares to the shareholders of Siemens AG)
– each representing a notional share in the share capital of €1.00 per no-par value share and carrying full dividend rights from October 1, 2012 onwards –
of OSRAM Licht AG, Munich
– International Securities Identification Number (ISIN): DE000LED4000 – – German Securities Identification Number: LED 400 – – Common Code: 089579422 –
June 21, 2013 TABLE OF CONTENTS
SUMMARY OF THE PROSPECTUS ...... 1 A – INTRODUCTION AND WARNINGS ...... 1 B – THE ISSUER ...... 1 C – SECURITIES ...... 22 D – RISKS ...... 23 E – OFFER ...... 27 RISK FACTORS ...... 30 RISKS RELATING TO OUR INDUSTRY AND OUR BUSINESS ...... 30 REGULATORY RISKS ...... 49 RISKS ASSOCIATED WITH OUR SHAREHOLDER STRUCTURE AND THE SPIN-OFF ...... 53 RISKS RELATING TO THE COMMENCEMENT OF TRADING OF OUR SHARES ...... 55 GENERAL INFORMATION ...... 57 DOCUMENTS AVAILABLE FOR INSPECTION ...... 57 SUBJECT MATTER OF THIS PROSPECTUS ...... 57 FORWARD-LOOKING STATEMENTS ...... 57 CURRENCY PRESENTATION ...... 58 PRESENTATION OF SOURCES OF MARKET DATA; ADDITIONAL FINANCIAL AND NUMERICAL DATA ...... 58 PRESENTATION OF FINANCIAL INFORMATION ...... 59 THE SPIN-OFF ...... 62 CORPORATE STRUCTURE PRIOR TO THE SPIN-OFF ...... 62 SPIN-OFF PROCEDURE ...... 62 STATUTORY AUDITOR FOR THE SPIN-OFF ...... 63 CONTRIBUTIONS IN KIND AND POST-FORMATION AUDIT ...... 63 TRUSTEE, ALLOTMENT RATIO, ALLOTMENT, SETTLEMENT ...... 63 ADR PROGRAM ...... 66 ADMISSION TO STOCK EXCHANGE AND COMMENCEMENT OF TRADING ...... 66 SUBSIDIZED ACQUISITION OF SHARES BY EMPLOYEES ...... 66 TIMETABLE FOR THE SPIN-OFF ...... 67 DESIGNATED SPONSORS ...... 67 INTERESTS OF PARTICIPATING PARTIES IN THE SPIN-OFF ...... 67 DILUTION ...... 68 LISTING AGREEMENT; FEES; INDEMNITY; LOCK UP ...... 68 OTHER RELATIONSHIPS BETWEEN THE BANKS, SIEMENS AG AND THE COMPANY ...... 68 REASONS FOR THE SPIN-OFF; COST OF ISSUANCE ...... 69 REASONS FOR THE SPIN-OFF ...... 69 COST OF ISSUANCE ...... 69 DIVIDEND POLICY ...... 71 GENERAL PROVISIONS RELATING TO PROFIT ALLOCATION AND DIVIDEND PAYMENTS ...... 71 DIVIDEND POLICY AND EARNINGS PER SHARE ...... 71 CAPITALIZATION AND NET INDEBTEDNESS ...... 73 CAPITALIZATION ...... 73 NET FINANCIAL INDEBTEDNESS ...... 74 FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES ...... 74 STATEMENT ON WORKING CAPITAL ...... 74 NO SIGNIFICANT CHANGE OF FINANCIAL POSITION ...... 74
i SELECTED FINANCIAL AND OTHER INFORMATION ...... 75 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 83 OVERVIEW ...... 83 BASISOFPRESENTATION ...... 86 KEY FACTORS AFFECTING THE RESULTS OF OPERATIONS ...... 90 NON-GAAP MEASURES ...... 98 DISCUSSION OF INDIVIDUAL ITEMS IN THE COMBINED STATEMENTS OF INCOME ...... 103 COMPARISON OF OPERATING RESULTS ...... 105 INFORMATION ON COMBINED STATEMENTS OF FINANCIAL POSITION OF OSRAM LICHT GROUP ...... 133 LIQUIDITY AND CAPITAL RESOURCES ...... 133 CRITICAL ACCOUNTING ESTIMATES ...... 144 DISCLOSURE ABOUT MARKET AND OTHER FINANCIAL RISKS ...... 146 INFORMATION FROM THE ANNUAL FINANCIAL STATEMENTS OF OSRAM GMBH AND OSRAM LICHT AG IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE FOR THE FISCAL YEAR 2012 ...... 148 TECHNOLOGICAL BACKGROUND, INDUSTRY AND COMPETITIVE OVERVIEW ...... 149 TECHNOLOGICAL BACKGROUND ...... 149 THE GLOBAL LIGHTING MARKET ...... 152 COMPETITION AND MARKET POSITION ...... 160 BUSINESS ...... 162 OUR HISTORY ...... 162 OVERVIEW ...... 162 OUR SEPARATION FROM SIEMENS ...... 165 COMPETITIVE STRENGTHS ...... 165 STRATEGY ...... 168 PRODUCTS AND SERVICES ...... 172 SALES AND MARKETING ...... 175 PROCUREMENT ...... 176 INFORMATION TECHNOLOGY ...... 177 PRODUCTION ...... 178 RESEARCH AND DEVELOPMENT ...... 179 INTELLECTUAL PROPERTY RIGHTS ...... 181 EMPLOYEES ...... 183 INSURANCE ...... 184 RISK MANAGEMENT AND COMPLIANCE ...... 184 LEGAL AND ARBITRATION PROCEEDINGS ...... 186 MATERIAL CONTRACTS ...... 193 REGULATION ...... 198 ENVIRONMENT RELATED REGULATIONS ...... 198 CROSS BORDER IMPORT AND EXPORT LAWS ...... 205 GOVERNMENT SUBSIDIES ...... 206 LIGHTING REGULATION IN THE UNITED STATES ...... 206 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ...... 207 RELATIONSHIP WITH THE SIEMENS GROUP ...... 207 RELATIONSHIP WITH ASSOCIATES AND JOINT VENTURES ...... 220 RELATIONSHIP WITH MEMBERS OF THE MANAGING BOARD AND THE SUPERVISORY BOARD ...... 221
ii SHAREHOLDER STRUCTURE ...... 222 GENERAL INFORMATION ON THE COMPANY AND THE OSRAM LICHT GROUP ...... 223 GROUP STRUCTURE ...... 223 REGISTERED OFFICE, FISCAL YEAR, AND DURATION OF THE COMPANY ...... 223 CORPORATE PURPOSE ...... 224 INFORMATION ON OUR MATERIAL INVESTMENTS ...... 224 STATUTORY AUDITOR OF THE FINANCIAL STATEMENTS ...... 225 NOTICES, PAYING AND REGISTRATION AGENT ...... 225 DESCRIPTION OF SHARE CAPITAL OF OSRAM LICHT AG ...... 226 DEVELOPMENT OF SHARE CAPITAL OVER THE LAST THREE YEARS AND IN THE COURSE OF THE SPIN-OFF ...... 226 AUTHORIZED CAPITAL ...... 226 CONTINGENT CAPITAL ...... 227 AUTHORIZATION TO ISSUE CONVERTIBLE BONDS AND SIMILAR BONDS ...... 227 AUTHORIZATION TO ACQUIRE AND SELL TREASURY SHARES ...... 229 GENERAL PROVISIONS RELATING TO A LIQUIDATION OF THE COMPANY ...... 231 GENERAL PROVISIONS RELATING TO A CHANGE IN THE SHARE CAPITAL ...... 231 GENERAL PROVISIONS RELATING TO SUBSCRIPTION RIGHTS ...... 231 SQUEEZE-OUT OF MINORITY SHAREHOLDERS ...... 232 SHAREHOLDER REPORTING AND DISCLOSURE REQUIREMENTS ...... 232 MANAGEMENT ...... 235 OVERVIEW ...... 235 MANAGING BOARD ...... 236 SUPERVISORY BOARD ...... 243 CERTAIN INFORMATION ON THE MEMBERS OF THE MANAGING BOARD AND SUPERVISORY BOARD; CONFLICTS OF INTEREST ...... 250 GENERAL SHAREHOLDERS’ MEETING ...... 250 CORPORATE GOVERNANCE ...... 251 TAXATION IN THE FEDERAL REPUBLIC OF GERMANY ...... 252 TAXATION OF THE COMPANY ...... 252 TAXATION OF SHAREHOLDERS TAX RESIDENT IN GERMANY ...... 253 TAXATION OF SHAREHOLDERS NOT TAX RESIDENT IN GERMANY ...... 256 INHERITANCE AND GIFT TAX ...... 258 OTHER TAXES ...... 258 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS ...... 259 GLOSSARY ...... 262 FINANCIAL INFORMATION ...... F-1 RECENT DEVELOPMENTS AND OUTLOOK ...... O-1
iii [THIS PAGE INTENTIONALLY LEFT BLANK] SUMMARY OF THE PROSPECTUS
Summaries are made up of disclosure requirements known as elements (“Elements”). These Elements are numbered in Sections A – E (A.1 – E.7). This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.
A – INTRODUCTION AND WARNINGS
A.1 Warnings. This summary should be read as an introduction to this prospectus. Any decision to invest in securities should be based on consideration of the prospectus as a whole by the investor. A.2 Information regarding the Not applicable. Consent regarding the use of the prospectus for a subsequent use of the prospectus. subsequent resale or placement of the shares has not been granted.
B – THE ISSUER
B.1 Legal and commercial name. The Company’s legal name is OSRAM Licht AG. The companies of the OSRAM Licht Group generally use the master brand OSRAM. Additionally, second brands are used besides the master brand OSRAM, in particular to position it against private labels and second brands of competitors. In North America, the brand SYLVANIA is a brand well known by end-users and business partners. B.2 Domicile, legal form, legislation The Company has its registered seat in Munich. It is registered with the under which the issuer operates, commercial register (Handelsregister) at the local court (Amtsgericht)of country of incorporation. Munich under number HRB 199675. The Company is a stock corporation with its seat in Germany and subject to German law. B.3 Description of, and key factors OSRAM is one of the world’s leading providers of lighting products and relating to, the nature of the solutions based on sales (source: Frost & Sullivan 2011) and in its own issuer’s current operations and assessment the only pure play, i.e., exclusively focused on the lighting its principal activities, stating the industry, integrated global lighting company. With our mission statement main categories of products sold “Light is OSRAM” we deliver lighting solutions for every facet of life. We and/or services performed and offer vertically integrated solutions in all relevant stages of the lighting identification of the principal value chain from light sources over ballasts and light components, to markets in which the issuer complete luminaires, light management systems and lighting solutions as competes. well as value-added services. OSRAM products cover a broad range of applications. Our business is organized in separate Business Units. Our former business unit General Lighting and its successor business units (Lamps, Light Engines & Controls, Luminaires and Solutions), respectively, cover applications and products for both, consumer and professional customers in general lighting, the business unit Specialty Lighting produces products for automotive and in the area of projection, entertainment, industrial and medical applications, and the business unit Opto Semiconductors delivers LED, infrared and laser components for general lighting, automotive, industrial, and consumer & communication electronics. We are engaged in all major lighting technologies, from traditional incandescent and halogen to energy efficient low and high pressure discharge technology as well as to the latest SSL (solid state lighting, a semiconductor based lighting technology) products. We have an extensive patent portfolio protecting our intellectual property and our technical inventions. In our manufacturing facilities we produce high-quality products using proprietary equipment and technologies developed by us.
1 Our core trademark has a history of more than 100 years during which we became in our opinion a leading global lighting manufacturer with leading technology shaping the lighting market. Based on our extensive global distribution platform we cover all important sales channels for products in our portfolio. We have long-term relationships with important OEMs, retailers and wholesale customers throughout the world. As of September 30, 2012, we operated 39 production facilities in 15 countries and our sales network covered more than 120 countries through subsidiaries, branch offices, sales support centers or local agents. The average number of employees in the Fiscal Year 2012 was 40,157 FTE (full time equivalents) (Fiscal Year 2011: 40,497 FTE, Fiscal Year 2010: 39,743 FTE); as of September 30, 2012, we employed 39,194 FTE (September 30, 2011: 41,380); thereof 10,027 in Germany. In the Fiscal Year 2012 OSRAM generated revenue of €5,399.8 million (Fiscal Year 2011: €5,031.0 million; Fiscal Year 2010: €4,679.7 million), and EBITA (earnings before interest, taxes and amortization) of €53.3 million (Fiscal Year 2011: €437.0 million; Fiscal Year 2010: €582.5 million). Our light source product portfolio includes incandescent lamps, halogen lamps, fluorescent lamps, high intensity discharge lamps (HID), light emitting diodes (LEDs) and organic light emitting diodes (OLEDs). In addition, we offer electronic components such as electronic ballasts and complete luminaires. We also offer innovative, integrated and customized lighting solutions for large projects including light management systems, and offer value added services such as energy audits, light design and engineering as well as maintenance services. Our products are used for illumination, visualization, sensing and special purposes in a variety of applications for general lighting, in particular architectural, residential, office, industrial, shop, hospitality, and outdoor. Our products appear also in consumer and communication applications (e.g. mobile phones). In the automotive sector we furnish light sources and systems for forward, rear, signal and interior lighting as well as sensor technology. For the display/optic market we produce light sources and systems for special applications, such as projection, entertainment/architainment (dynamic architectural lighting) and medical as well as industrial applications (such as disinfection with UV radiation). Technologically, we divide our products into SSL products, efficient traditional products as part of in the Environmental Portfolio and traditional basic products. • SSL products are included in the Environmental Portfolio and comprise in particular semiconductor-based light sources, including LED components and LED modules, LED light engines (combination of a LED module and the associated electronic control gear), LED lamps, LED luminaires, infrared emitters and detectors, OLED as well as light management systems for such light sources. • Efficient traditional products as part of the Environmental Portfolio are based on traditional lighting technology, but offer the end-consumer an energy efficiency advantage compared to the respective baseline technology. Efficient traditional products as part of the Environmental Portfolio include compact fluorescent lamps (energy saving lamps), certain modern types of halogen lamps, efficient fluorescent lamps (energy saving lamps), high intensity discharge lamps, discharge lamps for specialty purposes, as well as electronic control gear including light management systems. • Traditional basic products primarily include products based on traditional lighting technology such as incandescent lamps, certain types of halogen and halo-phosphate fluorescent lamps, basic fluorescent lamps, mercury vapor lamps, magnetic ballasts and luminaires containing such basic products.
2 Business Units and Segments Through September 30, 2012, our business activities were divided into three business units (each forming a segment within the meaning of IFRS (International Financial Reporting Standards) 8 for the purpose of the combined financial statements for the Fiscal Years 2012, 2011 and 2010): General Lighting, Specialty Lighting and Opto Semiconductors. Effective as of the Fiscal Year 2013, we changed the structure of our business units and simultaneously our segments within the meaning of IFRS 8. To allow for a more distinct allocation of responsibilities and to address the technological transformation more efficiently, effective as of October 1, 2012, the former business unit General Lighting has been divided along the lighting value chain into four new separate business units – Lamps, Light Engines & Controls, Luminaires and Solutions – as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED is reported as part of corporate items. Competitive Strengths We believe that we have the following core strengths supporting our goal to expand our position as a leading integrated solution provider in the lighting industry. In our opinion, the core strengths are summarized as follows: • Based on revenue, we are one of the global market leaders (own assessment on the basis of our competitors’ revenue reports), in a market with attractive, long-term growth prospects. • As an integrated lighting company we are positioned with a well- diversified product portfolio. • We distinguish ourselves by our market presence with strong, pure lighting trademarks, local presence in all significant markets and product and technology leadership. • We have leading positions in the high-margin business of Specialty Lighting and the LED components business of Opto Semiconductors. • The strength of our general lighting business with traditional products is the platform for the transition to SSL based products. • We have, in our assessment, a strong management team with a proven track record. Strategy Our strategy is to expand our position as, in our assessment and based on revenue, a leading integrated solution provider in the lighting industry. In this context, we also aim to increase our coverage of the value chain. However, we continuously analyze the possibilities for in-house production and third party sourcing in due consideration of our core competences. Based on several factors, the lighting segment is undergoing significant change. We are determined to respond successfully to the global growth and technology drivers that are causing these industry changes. Demographics, increasing electrification and economic developments in emerging markets are expected to result in demand for more light products. In addition, energy saving, decarbonization (creation of a low-carbon production and consumption environment), digitalization and emotionalization of light trends are expected to create demand for higher value lighting products. For OSRAM, these changes provide the opportunity to shape our business model and continue to be a leader in the changing lighting industry, as we have successfully been throughout our long history. This new market environment also gives us the opportunity to
3 increase our sales in higher value efficient traditional products as part of the Environmental Portfolio and SSL products. Likewise important is the potential to service an expanded value chain as it shifts towards intelligent networked solutions and value-added services. Our strategy addresses the three drivers in the shaping of the lighting market: • Tradition: Traditional basic products like incandescent lamps are replaced by higher value and energy efficient products. • Transition: Both of traditional basic and more energy efficient technologies shift to the higher value SSL products across the entire value chain. • Transformation: Transformation drives standard lighting solutions into intelligent, networked solutions and value-added services to exploit the full potential offered by the new technologies. Our efforts are aimed at expanding our presence by serving each driver in the lighting industry. We strive to sell a wider variety of lighting products, solutions and services, and we plan to benefit from the projected growth opportunities in the lighting market. In response to market trends, our long-term strategic objectives consist of three key elements. (1) We will strive to leverage our core strengths to defend and expand our market presence. (2) On the basis of our rich tradition of lighting innovation, we plan to expand and enhance our product and service proposition. (3) In order to realize our strategic objectives, we will strengthen our entrepreneurial corporate culture. The execution of our strategy is evidenced by clearly defined short- to mid-term measures. These measures are aggregated in a comprehensive initiative, named OSRAM Push Program. This initiative shall serve as foundation of sustainable performance and fulfillment of our commitment to our shareholders with respect to growth, profit and capital efficiency and to our other stakeholders. B.4a Description of the most General Economic Development and Competition significant recent trends affecting Demand for our products is cyclical and the majority of our business is the issuer and the industries in subject to fluctuations in the general economic development. The cyclical which it operates. nature of our business was particularly pronounced in the last years. With regard to our fixed cost base, especially to costs relating to our production facilities, our earnings are usually impacted proportionately more than our revenue by swings in the economic development. With our OSRAM Push Program set out in more detail below, we are striving, inter alia, for a reduction of our fixed cost base. The markets in which we operate are subject to intense competition and new companies have entered and are entering in particular the LED market, with many companies making significant investments in LED production equipment. Product pricing pressures exist as market participants often undertake pricing strategies that are specifically aimed at gaining or protecting market share and increasing the utilization of production capacity. Competition is particularly intense in times of declining demand or overcapacities in the market as competitors, in order to retain or increase utilization of production capacity, are tempted to support their sales volumes by lowering prices (or not adjusting prices to increased cost of goods sold). In the Fiscal Years 2011 and 2012, many lighting suppliers had excess or underutilized factory capacity which led to an aggressive pricing environment, weighing on our margin. Regulatory Initiatives and Resulting Hoarding Effects The incremental phase out of energy inefficient lamps from the trade chain under the EU Ecodesign Directive (phase out) has had and continues to have an effect on our revenue. In September 2009, frosted inefficient lamps
4 were phased out in the EU. This resulted in shelf rebuilding in retail stores with CFLi (energy saving lamps) and halogen lamps as replacement, which had a positive effect on our revenue with efficient traditional products as part of the Environmental Portfolio. In addition, immediately prior to the effectiveness of the implementation measures of the EU Directive becoming effective, distributors and retailers increased their stocks of inefficient lamps, because such products could be sold even after effectiveness of the implementation measures once they were introduced into the trade chain (“hoarding effect”). Hoarding effects increased our revenue from traditional basic products in the Fiscal Year 2009. After effectiveness of the implementation measures, demand for the phased out products from our customers ceased in all countries concerned. In addition, the stock build-up at distributors, retailers and even consumers had a negative effect on demand for efficient traditional products as part of the Environmental Portfolio and SSL replacement products in the Fiscal Years 2010 and 2011. Other restrictions that were established in 2010 did not have a similar effect on our revenue as the restrictions affected only less popular lamp categories. We experienced hoarding effects again in the Fiscal Year 2011 before all 60W incandescent lamps in the EU were phased out in September 2011. However, we only benefitted to a lesser extent from hoarding purchases because distributors and retailers increasingly purchased such lamps from Asian low-cost competitors. Other countries are building their regulatory initiatives based on the European model (e.g. in the United States and Brazil first restrictions came into force starting in 2012) which may have a similar impact on our revenue in the future. Shift to SSL and Increasing Portion of SSL Sales The technological change from traditional lighting technologies to SSL alters the generation of electric light fundamentally and offers new technical opportunities regarding color, dynamics, miniaturization, application integration and energy efficiency. SSL products are expected to become the major general lighting source in the future. Due to attractive saving potential with respect to total cost of ownership and the pressure towards energy efficient products, especially customers in the professional segment have started to replace conventional light sources with SSL. Revenue generated by us with the sale of SSL products increased from €913.0 million (or 19.5% of our revenue) in the Fiscal Year 2010 to €1,170.8 million (or 23.3% of our revenue) in the Fiscal Year 2011 and to €1,370.8 million (or 25.4% of our revenue) in the Fiscal Year 2012. While the share of SSL products in the revenue in Fiscal Year 2012 was already substantial as a result of high price levels, it was still comparatively small in terms of installed sockets and volumes sold. We expect this to change also in the private consumer business with further decreasing selling prices. In addition to the substitution of conventional light sources, we also access new markets with our forward integrated SSL systems (integration of light sources in components and/or lighting systems), such as execution of large projects (e.g. illumination of arenas and monuments), which are realizable only to a limited extent with conventional light sources and systems. LEDs have a considerably higher life expectancy than traditional light bulbs and therefore need to be replaced less often. The stable replacement business for traditional products is therefore shifting to a first installation business for SSL products. We strive to compensate for reduced replacement business by selling higher value products in the first installation business, in particular by increasing our offer of luminaires, light management systems and providing value-added services. The effect on our revenue will depend on whether and to what extent higher value sales can compensate or exceed the decline of replacement driven revenue.
5 The fast technological development in SSL leads to shorter product life cycles compared to traditional products and stronger fluctuation in demand. This may have a positive revenue impact due to replacement business before the end of the technical product lifetime. However, it may also result in a higher level of write-downs on inventories and other costs resulting from products becoming non-marketable due to technological progress or sudden drops in demand for certain products. In addition, the transition to SSL products requires high up-front R&D and marketing expenditures (especially for forward integrated SSL products) as well as capital investments in more cost intensive manufacturing processes, mainly for LEDs. At the same time, the share of SSL merchandize purchased with a low gross margin increases, mainly for forward integrated SSL products. Also, we incur costs to adapt and educate our sales force to the transition to a first installation business model. Finally, competition in the SSL market is intense. Prices for SSL products have recently decreased significantly and we expect them to drop further in the future. A successful transition to high quality SSL products mainly depends on the speed of the transition and, consequently, the length of the transition period. The longer the transition period persists, the longer there will be an overlap of the product lifecycles of our traditional business with those of the SSL business (especially with regard to forward integrated SSL products). In this context, the strength of our traditional business is the basis for the transition to SSL based products. This is in line with our strategy of “harvesting the golden tail”, which is to draw maximum benefit from our strong portfolio of traditional products. On the other hand, if the penetration with SSL occurs faster than expected, we would have to intensify and accelerate our efforts and investments relating to the transition to SSL. Product Portfolio and Product Mix While we have expanded our share of revenue generated by SSL products and made substantial investments in production facilities and R&D for SSL components, we continue to benefit from sales of our traditional basic products and efficient traditional products as part of the Environmental Portfolio. The effect of the economic downturn in the Fiscal Year 2009 was partly mitigated by relatively stable sales of traditional products, in particular in the business unit General Lighting. We expect that the introduction of forward integrated SSL products will follow different timelines in different customer segments and regions and that the high, but decreasing demand will continue to be significant for efficient traditional products as part of the Environmental Portfolio and in some cases even traditional basic products. For example, in Fiscal Year 2012 we were able to grow or maintain the level of sales of incandescent lamps in certain emerging countries such as South Africa and Russia, and also sales of basic fluorescent lamps grew in Russia, India and Korea. Our profitability depends on the product mix that is demanded by our customers. Gross margins vary significantly within our extensive portfolio. The transition from traditional products to SSL products requires high upfront costs with regard to R&D expenses and distribution (especially with respect to forward integrated SSL products) as well as investments in new production plants, mainly for LEDs, while the product lifecycle is shorter compared to traditional products. At the same time, our depth of value added declines because the proportion of purchased, mainly forward integrated SSL merchandize rises. The strongly growing portfolio of forward integrated SSL products is currently still weighing on our results with significant negative contribution to income.
6 Transformation and Restructuring Costs In the context of the different company programs and strategic restructurings, significant costs have been incurred in the presented reporting periods, namely in the Fiscal Year 2012 and in the first half of the Fiscal Year 2013 and mainly in the General Lighting segment and from the beginning of the Fiscal Year 2013 in the segment Lamps & Components, respectively. OSRAM defines these as “transformation costs” if the relevant measures are associated with the fundamental change in the lighting markets. In contrast, costs incurred in connection with other, more general measures are defined as other restructuring costs. Technology Shift, OSRAM Push Program and Transformation Costs The technology shift and the consequential fundamental changes of the business environment require a strategic redirection of the OSRAM Licht Group. To drive the required changes, OSRAM has launched an internal transformation program called “OSRAM Push” in the first quarter of the Fiscal Year 2012. This program aims to ensure sustainable performance by transforming processes, operations, organization and culture. OSRAM Push Program includes the project “Future Industrial Footprint” that was initiated to realign our global production footprint by adapting production capacities to market demand. Significant expenses have been incurred in connection with OSRAM Push in the Fiscal Year 2012 and in the first half of the Fiscal Year 2013. The transformation costs associated with this program primarily relate to the business unit General Lighting (and from the beginning of the Fiscal Year 2013 to one of its successor segments, Lamps & Components, respectively), as this business unit is most affected by the technological shift. In order to better utilize the capacity of the plants, especially the production landscape will be further adjusted by, amongst others, moving, selling or terminating production and at times closing some smaller locations with low production volumes as well as unprofitable locations; a reduction of production facilities is targeted. As of September 30, 2011, OSRAM had 43 production facilities; the closing of 11 facilities is targeted until the Fiscal Year 2014 of which five facilities have already been closed as of May 31, 2013. Most recently, OSRAM announced the closing of its production facility for traditional products in Tangerang, Indonesia. At the same time, OSRAM is pursuing the goal of increasing profitability of the business by implementing more efficient structures in research and development, production, sales function as well as in central functions. In this context, R&D expenses are intended to be maintained at the level of the Fiscal Year 2012 until the Fiscal Year 2014 and marketing, selling and general administrative expenses are intended to decrease compared to the Fiscal Year 2012 level. With this transformation program, OSRAM is targeting approximately €1 billion cumulated cost savings (gross) in total until and including the Fiscal Year 2015, reduced by transformation costs which will be incurred in an estimated mid-three- digit million euro amount in the Fiscal Years 2012 through 2014, mainly in the Fiscal Years 2012 and 2013. The cost savings will further be reduced by other effects, especially the price decline, primarily for SSL products, wage increases and other effects of inflation. We are well on schedule with the implementation of the measures identified in OSRAM Push. We expect that the restructuring part of OSRAM Push will be essentially completed in the Fiscal Year 2014. However, OSRAM estimates that the technology shift will continue beyond 2014 which will lead to additional restructurings in the traditional business. In the Fiscal Year 2012 transformation costs reduced EBITA by €198.5 million. In the first half of the Fiscal Year 2013, EBITA was negatively affected by transformation costs in an amount of €126.3 million. This amount mainly comprises measures within the project “Future Industrial Footprint” and costs for more efficient structures in our research and development function, sales function and central functions.
7 The measures described above entail significant headcount reductions. In addition to the worldwide reduction of the level of personnel, we plan to invest in new business segments as well as the expansion of the production of LED based products. In Wuxi, China we are for example building a new LED assembly facility on a leased site (so called “back-end manufacturing”). General Personnel Related Restructuring Costs and Reduction of Cost Basis As part of our general strategy to geographically align, among other things, our production capacities with demand for our products and to strengthen production capacities in emerging countries, we aim to reduce personnel expenses, in particular personnel expenses recorded under our cost of goods sold and services rendered. In absolute amounts, overall personnel costs increased from €1,425.4 million in the Fiscal Year 2010 by €113.6 million or 8.0% to €1,539.0 million in the Fiscal Year 2011, mostly due to the acquisition of all shares in Siteco Lighting GmbH and also the investments in SSL. In the Fiscal Year 2012, personnel costs increased by €201.9 million, or 13.1%, to €1,740.9 million, among other things as a result of acquisitions as well as the transformation program. Personnel costs as a percentage of revenue remained nearly unchanged from the previous year at 30.6% in the Fiscal Year 2011 but increased to 32.2% in the Fiscal Year 2012. Other restructuring measures initiated by us led to personnel-related restructuring costs of €13.1 million in the Fiscal Year 2010 and €10.3 million in the Fiscal Year 2011. As set out above, in the Fiscal Year 2012, we incurred personnel-related restructuring costs in an aggregate amount of €69.3 million in connection with the transformation. In the first half of the Fiscal Year 2013, personnel-related restructuring costs in connection with the transformation amounted to €69.6 million. Impairments In the Fiscal Year 2012, in addition to impairments recorded under transformation costs we recorded significant other impairment charges amounting to €282.9 million on goodwill and other intangible assets, and our significant investment in Valeo Sylvania was impaired by €27.6 million. Impairments of our investment in Valeo Sylvania were also recorded in the first half of the Fiscal Year 2013 (€7.3 million). Costs Associated with the Separation, the Planned IPO and the Spin-off; Patent Infringement Suits In the Fiscal Years 2011 and 2012 we incurred certain costs related to the preparation of going public, amongst others for IT applications, external service providers and personnel related costs. Also included are expenses and income related to certain patent infringement suits as such disputes exacerbated significantly when the plans of our IPO became public (“Patent Infringement Suits”). The net expenses (after deduction of reimbursements received from Siemens) incurred as a result of the separation as well as of the intended Spin-off and the previously intended initial public offering, respectively, amounted to €30.8 million in the Fiscal Year 2012 and to €3.6 million in Fiscal Year 2011. In contrast, in the first half of the Fiscal Year 2013, we recognized net income in the amount of €20.7 million (including litigation related expenses and gains in connection with the Patent Infringement Suits as well as costs in connections with the separation of OSRAM and the associated relocation of corporate headquarters). Other Material Legal and Regulatory Matters In the ordinary course of business OSRAM is involved in several other legal proceedings. In the Fiscal Year 2012, OSRAM incurred expenses in
8 connection with the settlement of a license and trademark litigation in the amount of €34.2 million. Additionally, provisions were made for other material legal proceedings. In total OSRAM incurred costs of €50.6 million in the Fiscal Year 2012 arising from such other significant legal proceedings. In the first half of the Fiscal Year 2013, costs in the amount of €10.5 million were incurred in connection with further material legal and regulatory matters. Acquisitions and Divestments Our results of operations in the periods covered by this prospectus were influenced by acquisitions and divestments of certain businesses. The business combinations in the Fiscal Years 2012, 2011 and 2010 were accounted for under the acquisition method (IFRS 3 (revised 2008) – with the exception of the acquisition of Traxon Technologies Ltd. (IFRS 3 (2004)) in the Fiscal Year 2009, being a wholly owned subsidiary since November 2011. Other Factors Other factors that have affected, and may continue to affect, our results of operations include seasonal effects, exchange rate fluctuations and the volatility of procurement prices. B.5 Description of the group and the OSRAM Licht AG will be the future parent company of a group of issuer’s position within the group. companies, which will be reorganized in connection with a spin-off. The Spin-off is based on a spin-off and transfer agreement (Abspaltungs- und Übernahmevertrag) dated November 28, 2012, which was approved by the general shareholders’ meeting of Siemens AG on January 23, 2013 and by the general shareholders’ meeting of OSRAM Licht AG on January 21, 2013. Prior to the Spin-off becoming effective, the corporate structure is as follows:
Siemens shareholders
100% 100% Siemens AG
OSRAM OSRAM Beteiligungen Licht AG GmbH 19.5% 80.5%
OSRAM GmbH
9 In the Spin-off, Siemens AG as transferor will transfer its shares in OSRAM Beteiligungen GmbH (which in turn holds 80.5% of the OSRAM GmbH-shares) to OSRAM Licht AG as transferee by way of spin-off for assumption (Abspaltung zur Aufnahme) under the German Transformation Act (Umwandlungsgesetz). As consideration for the transfer of the spun-off assets, Siemens shareholders will receive newly issued OSRAM Licht AG Shares according to their proportional shareholding in Siemens AG. The newly issued Shares are derived from a capital increase against contribution in kind (contribution of all shares in OSRAM Beteiligungen GmbH into OSRAM Licht AG). The allotment ratio (Zuteilungsverhältnis) is 10:1, i.e. Siemens AG shareholders will receive one share in OSRAM Licht AG for every 10 shares in Siemens AG. As a result of the above steps, following registration of the Spin-off with the competent commercial registers (the last registration is expected on July 5, 2013), OSRAM Licht AG will hold directly and indirectly (through OSRAM Beteiligungen GmbH) 100% of the OSRAM GmbH shares, Siemens AG will hold 19.5% of OSRAM Licht AG’s share capital and the Siemens shareholders will hold the remaining 80.5% of OSRAM Licht AG’s share capital. The following diagram illustrates the mechanics of the Spin-off:
80.5% Siemens shareholders
Siemens AG
OSRAM OSRAM Beteiligungen Licht AG GmbH 19.5% 80.5%
OSRAM GmbH
Following registration of the Spin-off with the competent commercial registers (the last registration is expected on July 5, 2013), the corporate structure will be as illustrated by the following graph:
Siemens shareholders
100% 80.5%
OSRAM Siemens AG 19.5%* Licht AG
100%
OSRAM 19.5% Beteiligungen GmbH
80.5%
OSRAM GmbH
* Siemens AG will transfer 2.5% of the Shares in OSRAM Licht AG to Siemens Pension Trust e.V. shortly after the Spin-off becomes effective and thus retain a 17.0% shareholding thereafter.
10 Up to now, all activities of OSRAM have been concentrated in OSRAM GmbH and its subsidiaries. Upon the Spin-off becoming effective, the new holding structure described above with OSRAM Licht AG as the parent company of the OSRAM Licht Group will be created. The following graph provides an overview of the future structure of the OSRAM Licht Group and the material direct and indirect investments of OSRAM Licht AG giving effect to the Spin-off, namely the subsidiaries of OSRAM GmbH (except as otherwise indicated, all shareholdings are 100%; certain subsidiaries are owned by other subsidiaries):
OSRAM
Licht AG
OSRAM Beteiligungen GmbH (80.5%) (19.5%)
OSRAM GmbH
Radium (90%) OSRAM China OSRAM Lampenwerk GmbH Lighting Ltd. SYLVANIA Inc.
OSRAM Asia Pacific OSRAM S.A.S.U. OSRAM do Brasil Ltda. Ltd.
Chung Tak Lighting (58.5%) OSRAM Argentina OSRAM a.s. Control Systems S.A.C.I. (Guangzhou) Ltd.
OSRAM S.p.A. Soc. OSRAM Korea Riunite OSRAM Edison Co. Ltd. Clerici
(99.23%) Traxon OAO OSRAM Technologies Ltd.
OSRAM Ceská OSRAM India Pvt. republika s.r.o. Ltd.
OSRAM Middle East OSRAM Kunshan FZE Display Opto Co. Ltd.
Siteco Lighting P.T. OSRAM GmbH Indonesia
Siteco OSRAM Taiwan Beleuchtungstechnik Company Ltd. GmbH
OSRAM Opto Semi- OSRAM Opto conductors (MY) Sdn. Semiconductors GmbH Bhd.
EMEA APAC AMERICAS
B.6 Persons who, directly or At the date of this prospectus, Siemens AG holds all shares in OSRAM indirectly, have a (under German Licht AG. law notifiable) interest in the issuer’s capital or voting rights or have control over the issuer. Different voting rights. Not applicable. Each share in the Company carries one vote at the Company’s shareholders’ meeting. Shareholders that hold shares prior to the Spin-off are not entitled to different voting rights. Whether the issuer is directly or Prior to the Spin-off becoming effective, Siemens AG holds all shares in indirectly owned or controlled OSRAM Licht AG und thus controls it. Upon the Spin-off becoming and by whom and description of effective, Siemens AG will hold 19.5% of the Company’s share capital the nature of control. (17.0% upon transfer of 2.5% to Siemens Pension Trust e.V. shortly after the Spin-off becoming effective), and the remaining 80.5% will be held by the Siemens-shareholders. At that point in time, Siemens AG will only hold the rights vested with such a minority shareholding.
11 B.7 Selected key historical financial The financial data shown in the tables below for the Fiscal Years 2012, information. 2011 and 2010 has, unless otherwise indicated, been taken or derived from our audited combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 included in the financial section of this prospectus, or taken from our accounting records. The financial data for the six months ended March 31, 2013 and March 31, 2012 has been taken or derived from the unaudited condensed interim combined financial statements for the six months ended March 31, 2013 or taken from our accounting records. The combined financial statements for the Fiscal Years 2012, 2011 and 2010 were prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and have been audited in accordance with Section 317 of the German Commercial Code (“HGB”) and generally accepted German audit principles defined by the Institute of Public Auditors in Germany (“Institut der Wirtschaftsprüfer – IDW”) and in supplementary compliance with International Standards on Auditing (ISA) by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart (Munich office, Arnulfstr. 59, 80636 Munich), Germany (“Ernst & Young”), who issued an unqualified audit opinion thereon. The condensed interim combined financial statements for the six months ended March 31, 2013 (interim combined financial statements) of OSRAM Licht Group have been prepared in accordance with IFRS for interim financial reporting (IAS 34), and are unaudited. These combined financial statements are the first financial statements of OSRAM Licht Group in accordance with IFRS 1.3. The OSRAM Licht Group prepared the combined financial statements using IFRS 1.D16(a) (“predecessor accounting method”). OSRAM Licht Group used the same accounting policies and valuation methods for the preparation of these combined financial statements as those used by the OSRAM companies for the preparation of the financial information included in Siemens’ consolidated financial statements, unless such accounting policies and valuation methods are not in accordance with IFRS when presenting OSRAM Licht Group as a group of companies independent of Siemens. Since IFRS do not provide any guidance for the preparation of combined financial statements, IAS 8.12 has to be used for the preparation of combined financial statements. IAS 8.12 requires that the latest pronouncements of other standard setters, other accounting literature and accepted industry practice should be considered. The combined financial statements of the OSRAM Licht Group have been derived from the aggregation of the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH as well as OSRAM GmbH and its direct or indirect subsidiaries. All intra-group balances, income, expenses and unrealized profits and losses arising from transactions between companies belonging to OSRAM Licht Group were eliminated when preparing the combined financial statements. In addition, the investments of the holding companies in the OSRAM Licht Group were eliminated against the equity of the respective subsidiaries. Transactions with Siemens AG and Siemens Group companies, which do not belong to the OSRAM Licht Group, have been disclosed as transactions with related parties. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments according to IFRS 8. The former business unit General Lighting (forming a segment) has been split up into four new separate business units, namely Lamps, Light Engines & Controls, Luminaires and Solutions as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED will be reported as part of corporate items. Accordingly, at segment level our condensed interim combined financial statements for the six months ended
12 March 31, 2013 (with comparable data for the respective prior year period) are not directly comparable to our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010. As of October 1, 2012 IAS 19 “Employee Benefits” (revised 2011; IAS 19R) was early adopted. The amendments set out in the following have a significant impact on OSRAM’s interim combined financial statements: IAS 19R requires that the return on pension plan assets should be calculated based on the discount rate which is used to discount post- employment benefit obligations, as opposed to the expected return on plan assets. This gives rise to a homogeneous return of the pension obligations and plan assets which will be disclosed as net interest. The net interest’s difference between the discount rate and the actual return on plan assets is recorded in the combined statements of comprehensive income. Retrospective application and presentation of IAS 19R is required. Accordingly, the opening balance sheet as of October 1, 2011 as well as the prior year figures presented in the interim combined financial statements for the first half of the Fiscal Year 2013 were adjusted. The adjusted items will also be presented in the consolidated financial statements as of September 30, 2013 as prior year figures. The presentation of financial data related to the statements of financial position for the Fiscal Years ended September 30, 2012 and September 30, 2011 in the following tables does not reflect the adjustments resulting from the first-time adoption of IAS 19R. Where financial data in the following tables is presented as “audited,” this means that it was taken from the audited combined financial statements of the OSRAM Licht Group mentioned above. Where financial data is presented as “unaudited”, it indicates that the financial data has been derived from the audited combined financial statements or been taken or derived from the unaudited condensed interim combined financial statements of OSRAM Licht Group or been taken from OSRAM’s accounting records. The tables in this section also include certain non- GAAP measures (neither defined under IFRS nor under the German Commercial Code), used as key figures by our management to monitor the performance of the OSRAM Licht Group. If such non-GAAP measures are not included as such in the combined financial statements, they are labeled in the respective tables as “unaudited”. On the other hand, if non-GAAP measures are included in the combined financial statements, they are labeled “audited”. Unless otherwise indicated, all financial data presented in the text and tables in this section of the prospectus is shown in million euros (€ million), commercially rounded to one decimal point. Unless expressly otherwise noted, the percentage amounts that are stated in the tables have likewise been commercially rounded to one decimal point. Because of this rounding, the figures shown in the tables do not in all cases add up exactly to the respective totals.
13 Data from the Combined Statements of Income of OSRAM Licht Group Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Revenue ...... 5,399.8 5,031.0 4,679.7 2,678.3 2,730.7 Cost of goods sold and services rendered ...... (3,997.5) (3,418.5) (3,082.1) (1,903.4) (2,013.4) Gross profit ...... 1,402.3 1,612.5 1,597.6 774.9 717.3 Research and development expenses ...... (339.1) (300.9) (259.5) (173.1) (161.8) Marketing, selling and general administrative expenses ...... (1,054.9) (905.6) (774.7) (525.5) (502.9) Other operating income (expense), net (unaudited) ...... (268.1) 11.2 1.1 13.7 (130.6) Financial result(1) (unaudited) ...... (86.5) (41.5) (54.8) (37.5) (67.3) Income (loss) before income taxes ...... (346.3) 375.7 509.7 52.5 (145.3) Income taxes ...... (32.0) (129.6) (175.1) (4.0) (181.7) Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Attributable to: Non-controlling interests ...... 0.9 3.1 6.4 2.8 (0.7) Siemens Group ...... (379.2) 243.0 328.2 45.7 (326.3)
(1) Includes gain (loss) from investments accounted for using the equity method, net, interest income, interest expense and other financial income (expense), net. Data from the Combined Statements of Financial Position of OSRAM Licht Group September 30, March 31, 2012 2011 2010 2013 (audited unless otherwise indicated) (unaudited) in € million in € million Assets Cash and cash equivalents ...... 31.2 43.7 18.2 50.5 Trade receivables ...... 823.2 851.4 651.2 917.4 Receivables from Siemens Group ...... 956.2 538.5 605.2 941.2 thereof from financing activities ...... 619.4 535.8 486.7 939.4 Inventories ...... 1,043.7 1,118.2 916.0 1,000.2 Miscellaneous current assets(1) (unaudited) ...... 167.8 135.3 107.0 210.6 Goodwill ...... 36.7 238.2 129.6 37.0 Other intangible assets ...... 106.8 162.3 83.8 99.0 Property, plant and equipment ...... 1,336.3 1,532.0 1,390.5 1,234.9 Deferred tax assets ...... 397.4 315.4 374.4 405.7 Miscellaneous assets(2) (unaudited) ...... 168.8 193.3 174.8 180.6 Total assets ...... 5,068.1 5,128.3 4,450.7 5,077.1 Liabilities and equity Short-term debt and current maturities of long-term debt ...... 47.2 22.4 24.7 53.0 Trade payables ...... 609.2 586.0 552.1 579.9 Payables to Siemens Group ...... 1,209.5 1,498.0 859.5 966.7 thereof from financing activities ...... 1,198.1 1,343.7 596.3 957.0 Miscellaneous current liabilities(3) (unaudited) ...... 593.2 542.7 521.9 644.1 Long-term debt ...... 1.3 3.9 4.5 — Pension plans and similar commitments ...... 489.8 833.7 880.8 469.1 Miscellaneous liabilities(4) (unaudited) ...... 171.7 184.9 137.5 181.3 Total liabilities ...... 3,121.9 3,671.6 2,981.0 2,894.1 Total equity ...... 1,946.2 1,456.7 1,469.7 2,183.0 Total liabilities and equity ...... 5,068.1 5,128.3 4,450.7 5,077.1
(1) Includes available-for-sale financial assets, other current financial assets, income tax receivables, other current assets and noncurrent assets held for sale. (2) Includes investments accounted for using the equity method, other financial assets and other assets. (3) Includes other current financial liabilities, current provisions, income tax payables, other current liabilities and liabilities associated with noncurrent assets held for sale. (4) Includes deferred tax liabilities, provisions, other financial liabilities and other liabilities.
14 Data from the Combined Statements of Cash Flow of OSRAM Licht Group Six months ended Fiscal Year ended September 30, March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Cash flows from operating activities Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Amortization, depreciation and impairments ...... 655.2 253.1 247.6 157.1 325.5 Income taxes(1) ...... 32.0 129.5 175.1 4.0 181.7 Change in current assets and liabilities (Increase) decrease in inventories ...... 95.3 (171.4) (148.7) 35.9 19.1 (Increase) decrease in trade receivables ...... 37.2 (58.2) (66.7) (98.7) (27.5) (Increase) decrease in other current assets ...... (11.6) (17.1) (21.4) (1.4) 11.9 Increase (decrease) in trade payables ...... 17.8 8.5 156.2 (18.9) (12.9) Increase (decrease) in current provisions ...... 20.8 19.6 7.3 27.5 27.9 Increase (decrease) in other current liabilities ...... 0.2 (14.9) 43.2 (0.7) (51.2) Change in other assets and liabilities ...... (3.2) (65.5) (52.6) (2.8) (6.9) Change in pension plans due to contribution of plan assets ...... (499.5) — — — (499.5) Income taxes paid(1) ...... (91.8) (96.9) (50.9) (33.9) (43.5) Other adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities(2) (unaudited) ...... 90.5 35.7 67.4 52.8 73.5 Net cash provided by (used in) operating activities ...... (35.4) 268.5 691.1 169.4 (328.9) Cash flows from investing activities Additions to intangible assets and property, plant and equipment ...... (187.2) (312.4) (253.2) (78.1) (81.1) Acquisitions, net of cash acquired ...... (40.3) (125.2) (35.6) 0.5 (40.1) Purchases of investments ...... (23.6) (10.6) (41.1) (15.1) (11.1) Proceeds and payments from sales and disposals(3) (unaudited) ...... 48.0 6.5 4.5 29.1 8.5 Net cash provided by (used in) investing activities ...... (203.1) (441.7) (325.4) (63.6) (123.8) Net cash provided by (used in) financing activities(4) ...... 224.4 199.5 (362.6) (86.6) 432.7
(1) Income taxes were determined based on the assumption that the companies of the OSRAM Licht Group were separately taxable entities. This assumption implies that the current and deferred income taxes of all companies and of tax groups within the OSRAM Licht Group are calculated separately and the recoverability of the deferred tax assets is assessed accordingly. Due to the fact that certain entities of the OSRAM Licht Group did not file separate tax returns in previous years, the respective tax receivables and payables, as well as deferred tax assets on loss carryforwards, are deemed either contributed or distributed to shareholders not being part of the OSRAM Licht Group in the respective Fiscal Year. The combined statements of cash flow of the combined financial statements present taxes actually paid by the OSRAM Licht Group; the deemed contributions or distributions have not been included. In the Fiscal Year 2012, all companies of the OSRAM Licht Group were either separately taxable entities or were part of an income tax group within the OSRAM Licht Group. Receivables and payables between OSRAM GmbH and Siemens arising from the VAT group have been disclosed under other tax receivables / payables. (2) Includes interest (income) expense, net, (gains) losses on sales and disposals of businesses, intangibles and property, plant and equipment, net, (gains) losses on sales of investments, net, (income) loss from investments, other non-cash (income) expenses, dividends received and interest received. (3) Includes proceeds and payments from sales of investments, intangibles and property, plant and equipment and proceeds and payments from disposals of businesses. (4) Includes in the first half of the Fiscal Year 2012 a cash contribution of €499.5 million by Siemens AG for the funding of certain pension benefits of the OSRAM Licht Group.
15 Segment Information In this prospectus, the terms “business unit”, “segment” and “entity” do not have a synonymous meaning. OSRAM structures its business into business units with its own management. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments according to IFRS 8. The former business unit General Lighting (forming a segment) has been split up into four new separate business units, namely Lamps, Light Engines & Controls, Luminaires and Solutions as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED is reported as part of corporate items. The other business units Specialty Lighting and Opto Semiconductors each continue to form a segment. Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Total revenue by segment General Lighting(1) ...... 3,387.2 3,164.0 2,943.9 Lamps & Components (unaudited)(1) ...... 2,785.7 — — 1,362.9 1,450.3 Luminaires & Solutions (unaudited)(1) ...... 602.1 — — 275.7 308.1 Specialty Lighting ...... 1,404.6 1,243.5 1,173.8 728.0 694.6 Opto Semiconductors(2) ...... 899.1 858.4 743.3 470.4 415.8 Total revenue segments (including intersegment revenue) ..... 5,690.9 5,265.9 4,861.0 2,837.0 2,868.8 Corporate items and pensions ...... 23.3 26.6 28.3 9.5 12.2 Eliminations, corporate treasury and other reconciling items ..... (314.4) (261.5) (209.6) (168.2) (150.3) Total revenue OSRAM Licht Group ...... 5,399.8 5,031.0 4,679.7 2,678.3 2,730.7 EBITA by segment(3) General Lighting(1) ...... (184.2) 106.7 232.1 Lamps & Components (unaudited)(1) ...... (75.7) — — (14.6) (9.5) Luminaires & Solutions (unaudited)(1) ...... (81.6) — — (40.3) (38.8) Specialty Lighting ...... 227.1 209.8 192.9 126.4 123.6 Opto Semiconductors ...... 75.9 118.2 165.6 47.1 23.6 Total segments ...... 118.8 434.7 590.6 118.6 98.9 Corporate items and pensions ...... (64.9) (11.7) (7.6) (16.7) (60.6) Eliminations, corporate treasury and other reconciling items ..... (0.6) 14.0 (0.5) (0.3) (0.3) EBITA OSRAM Licht Group ...... 53.3 437.0 582.5 101.6 38.0
(1) At segment level the condensed interim combined financial statements of OSRAM Licht Group for the six months ended March 31, 2013 (with comparable data for the respective prior year period) are not directly comparable to our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 due to the changed segment structure. For information purposes, revenue and EBITA (as defined in footnote 3 below) have been determined for both new segments for the Fiscal Year 2012; these figures have not been taken from the combined financial statements for the Fiscal Years 2012, 2011 and 2010 but from our accounting records and are, therefore, unaudited. (2) Total revenue of Opto Semiconductors includes external revenue in the amount of €584.7 million, €596.9 million and €533.7 million for the Fiscal Years 2012, 2011 and 2010, respectively, and intersegment revenue in the amount of €314.4 million, €261.5 million and €209.6 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Years 2013 and 2012, total revenue includes external revenue in the amount of €302.2 million and €265.5 million, respectively, and intersegment revenue in the amount of €168.2 million and €150.3 million, respectively. (3) EBITA (shown in the segment information of the combined financial statements or interim combined financial statements) represents EBIT (earnings before interest and tax) before amortization and impairments of intangible assets (as defined below). EBITA is used by OSRAM management as key financial measure to assess the operating performance of our segments. EBITA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of the OSRAM Licht Group prepared in accordance with IFRS. EBITA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITA, which means, that EBITA shown by other companies may not necessarily be comparable with EBITA of the OSRAM Licht Group.
16 Selected Other Key Figures Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (unaudited unless otherwise (unaudited) indicated) in € million unless otherwise in € million unless otherwise indicated indicated Gross profit margin(1) in%...... 26.0% 32.1% 34.1% 28.9% 26.3% EBIT(2) ...... (259.8) 417.2 564.5 90.0 (78.0) Amortization(3) (for full fiscal years audited) ...... 313.1 19.8 18.0 11.6 116.0 EBITA(4) (for full fiscal years audited) ...... 53.3 437.0 582.5 101.6 38.0 including(*): Transformation costs(**) ...... 198.5 — — 126.3 140.0 Costs associated with the separation (net)(***) ...... 30.8 3.6 — (20.7) 25.8 Siemens one-time special remuneration(****) ...... — 21.6 — — — Trademark litigation (*****) ...... 34.2 — — — 22.1 Total(******) ...... 263.5 25.2 — 105.6 187.9 EBITA margin(5) in% ...... 1.0% 8.7% 12.4% 3.8% 1.4% Depreciation(6) (for full fiscal years audited) ...... 342.1 233.3 229.6 145.5 209.5 EBITDA(7) ...... 395.4 670.3 812.1 247.1 247.5 Net debt(8) ...... 595.3 789.8 119.9 19.4 — Adjusted net debt(9) ...... 1,095.6 1,624.5 1,006.6 499.0 — Net debt/EBITDA(10) ...... 1.5 1.2 0.1 0.0 — ROCE(11) in% ...... (11.0)% 10.3% 14.7% 4.2% (17.7)% Equity ratio(12) in% ...... 38.4% 28.4% 33.0% 43.0% — Intangible assets/equity(13) in% ...... 7.4% 27.5% 14.5% 6.2% — Free cash flow(14) (for full fiscal years audited) ...... (222.6) (43.9) 437.9 91.3 (410.0) Capital expenditures (capex)(15) (for full fiscal years audited) ...... 187.2 312.4 253.2 78.1 81.1 Capex in % of revenue(16) ...... 3.5% 6.2% 5.4% 2.9% 3.0% Capex in % of amortization and depreciation(17) ...... 44.8% 123.4% 102.3% 49.7% 36.1%
(1) Gross profit margin is defined as the ratio of gross profit to revenue, i.e. €1,402.3 million, €1,612.5 million and €1,597.6 million in relation to €5,399.8 million, €5,031.0 million and €4.679.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 and 2012, the ratio is calculated as €774.9 million and €717.3 million in relation to €2,678.3 million and €2,730.7 million. (2) EBIT (earnings before interest and taxes) represents income (loss) before financial result (i.e. gain (loss) from investments accounted for using the equity method, net, interest income, interest expense and other financial income (expense), net) and income taxes. EBIT is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of EBIT, which means that EBIT shown by other companies may not necessarily be comparable with EBIT of the OSRAM Licht Group. (3) Amortization (shown in the segment information of the combined financial statements or interim combined financial statements) represents amortization and impairments of goodwill and other intangible assets, net of reversals of impairments. (4) EBITA (shown in the segment information of the combined financial statements or interim combined financial statements) represents EBIT before amortization (both as defined above). EBITA is used by OSRAM management as key financial measure to assess the operating performance of our segments. EBITA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. EBITA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITA, which means that EBITA shown by other companies may not necessarily be comparable with EBITA of the OSRAM Licht Group. (*) The items listed below contain, in management’s opinion, certain special items that affect EBITA on a recurring or non-recurring basis. These special items are not a recognized term under IFRS. Special items are subject to certain discretion in the allocation of various income and expenses and the application of discretion may differ from company to company. Special items also include expenses that will recur in future accounting periods. Especially, we expect further significant restructuring costs in the Fiscal Years 2013 and 2014. The transformation costs listed below were mainly incurred in the above reporting periods in the segment General Lighting and in one of its successor segments, Lamps & Components, respectively. (**) The transformation costs negatively affecting EBITA in the amount of €198.5 million in total in the Fiscal Year 2012 comprise primarily of (i) impairments of the production facilities for the ceramic-based metal halide lamps (€36.7 million) and the OLED production facilities (€21.5 million); (ii) impairment (€16.1 million) and loss on disposal of property, plant and equipment (€11.0 million), as well as costs of personnel measures (€52.5 million), each relating to the “Future Industrial Footprint” project, and other personnel-related restructuring costs (€16.8 million); (iii) inventory write-offs to the net realizable values due to lower sales prices (€23.1 million), in connection with a complexity reduction of our product portfolio; and (iv) other transformation expenses (€19.6 million) which include amongst others consultancy costs attributable to OSRAM Push. In the first half of the Fiscal Years 2013 and 2012, EBITA was negatively affected by transformation costs in the amount of €126.3 million (thereof €36.2 million in the first quarter and €90.0 million in the second quarter) and €140.0 million (thereof €5.8 million in the first quarter and €134.2 million in the second quarter). The amount for the first half of the Fiscal Year 2013 mainly comprises of costs for measures in relation to our “Future Industrial Footprint” project and costs for implementing more efficient structures in research and development, production, sales function as well as in central functions. We incurred additional transformation costs, inter alia for regulatory risks relating to our past operations in one country which is addressed in the context of our “Future Industrial Footprint” project.
17 (***) In the Fiscal Years 2011 and 2012 we incurred certain costs related to the preparation of going public, mainly for IT applications, external service providers and personnel related costs. Also included are income and expenses related to certain patent infringement suits as such disputes exacerbated significantly when the plans of our initial public offering (“IPO”) became public (“Patent Infringement Suits”). The net expenses (after deduction of reimbursements received from Siemens) incurred as a result of the separation as well as of the intended Spin-off and the previously intended IPO amounted to €30.8 million in the Fiscal Year 2012 and to €3.6 million in the Fiscal Year 2011, respectively. In contrast, in the first half of the Fiscal Year 2013 we recognized net income in the amount of €20.7 million (thereof net income of €28.9 million in the first quarter and net expenses in the amount of €8.2 million in the second quarter) (including litigation related expenses and gains in connection with the Patent Infringement Suits as well as costs related to the separation of OSRAM and the related relocation of our corporate headquarters). In the first half of the Fiscal Year 2012 we recognized net expenses in the amount of €25.8 million (thereof €12.6 million in the first quarter and €13.2 million in the second quarter). (****) In the Fiscal Year 2011, our EBITA was impacted by personnel costs in an amount of €21.6 million representing OSRAM’s proportion of a Siemens-wide, global one-off special payment to reward non-management employees worldwide for their performance during the recent economic crisis. (*****) In the ordinary course of business, OSRAM is involved in several other legal proceedings. In the Fiscal Year 2012, OSRAM incurred expenses in connection with legal and regulatory disputes and the settlement of a license and trademark litigation in the amount of €34.2 million which are qualified as special items by OSRAM management; thereof €22.1 million are attributable to the first six months of the Fiscal Year 2012 which were incurred in the second quarter. In addition to the Patent Infringement Suits mentioned above, OSRAM incurred costs totaling €50.6 million in the Fiscal Year 2012 arising from significant legal proceedings. (******)Of the total amount of €105.6 million in the first six months of the Fiscal Year 2013, € 7.4 million were recorded in the first quarter and €98.2 million in the second quarter. Of the total amount of €187.9 million in the first six months of the Fiscal Year 2012, €18.4 million were recorded in the first quarter and €169.5 million in the second quarter. (5) EBITA margin is defined as the ratio of EBITA and revenue, i.e. €53.3 million, €437.0 million and €582.5 million in relation to €5,399.8 million, €5,031.0 million and €4,679.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Years 2013 and 2012, the ratio is calculated as €101.6 million and €38.0 million in relation to €2,678.3 million and €2,730.7 million, respectively. (6) Depreciation (shown in the segment information of the combined financial statements or interim combined financial statements) represents depreciation and impairments of property, plant and equipment, net of reversals of impairments. (7) EBITDA represents EBITA before depreciation (both as defined above). EBITDA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITDA, which means that EBITDA shown by other companies may not necessarily be comparable with EBITDA of the OSRAM Licht Group. (8) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Net debt represents total debt (short-term debt and current maturities of long-term debt plus long-term debt plus payables to Siemens Group from financing activities) minus adjusted total liquidity (cash and cash equivalents plus available-for-sale financial assets (current) plus receivables from Siemens Group from financing activities). Net debt is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of financial position of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of net debt, which means that net debt shown by other companies may not necessarily be comparable with net debt of the OSRAM Licht Group. (9) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Adjusted net debt represents net debt plus pension plans and similar commitments and credit guarantees. Adjusted net debt is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of financial position of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of adjusted net debt, which means that adjusted net debt shown by other companies may not necessarily be comparable with the net debt of the OSRAM Licht Group. (10) Net debt in relation to EBITDA, i.e. €595.3 million, €789.8 million and €119.9 million in relation to €395.4 million, €670.3 million and €812.1 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 calculated by dividing net debt as of March 31, 2013 in the amount of €19.4 million by the annualized EBITDA for the first six months of the Fiscal Year 2013 in the amount of €494.2 million. The annualized EBITDA for the first six months of the Fiscal Year 2013 is calculated by multiplying the EBITDA for the six months ended March 31, 2013 in the amount of €247.1 million by the factor two. (11) ROCE (return on capital employed) on OSRAM Licht Group level is defined as income (loss) before interest after taxes divided by average capital employed. Income (loss) before interest after taxes, the numerator in the ROCE calculation, is defined as net income (loss) excluding interest income (expense), net, other than pension and interest expense for pension plans and similar commitments as well as taxes thereon. The interest expense for pension plans and similar commitments for the Fiscal Years 2012, 2011 and 2010 principally has been calculated based on the weighted average discount rate for our principal pension benefits and other post-employment benefits as of September 30, 2011 (4.74%) and 2010 (4.69%) and October 1, 2009 (5.53%), respectively, multiplied by the amount for pension plans and similar commitments as included in the combined statements of financial position in the audited combined financial statements of OSRAM Licht Group as of September 30, 2011 (€833.7 million, reduced by €499.5 million) and 2010 (€880.8 million) and October 1, 2009 (€800.0 million); with regard to the Fiscal Year 2012, the amount recorded for pension plans and similar commitments as of September 30, 2011 was decreased by a funding of pension plan assets in the amount of €499.5 million. Effective as of the Fiscal Year 2013, the interest expense for pension plans and similar commitments is equal to the line item Pension related interest expense, net (shown in the notes to the interim combined financial statements). The taxes on interest have been calculated on a simplified basis using a tax rate which is calculated by dividing income taxes by income (loss) before income taxes (each as shown in the combined statements of income of OSRAM Licht Group). Average capital employed, the denominator in the ROCE calculation, is defined as a two-point average of capital employed at the beginning of the reporting period and the end of the reporting period. Capital employed is defined as the line item Total equity plus long-term debt plus short-term debt and current maturities of long-term debt plus payables to Siemens Group from financing activities and plus pension plans and similar commitments, minus cash and cash equivalents minus receivables from Siemens Group from financing activities. ROCE is not a recognized term under IFRS and does not purport to be an alternative to data from the combined financial statements or interim combined financial statements prepared in accordance with IFRS. There is no uniform definition of ROCE, which means that ROCE shown by other companies may not necessarily be comparable with ROCE of the OSRAM Licht Group. ROCE is not included in the combined financial statements or interim combined financial statements, but each component can be derived thereof.
18 (12) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Equity ratio represents the line item Total equity as a percentage of total assets, i.e. €1,946.2 million, €1,456.7 million and €1,469.7 million in relation to €5,068.1 million, €5,128.3 million and €4,450.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013, the ratio is calculated as €2,183.0millioninrelationto €5,077.1 million. (13) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Intangible assets (goodwill and other intangible assets) as a percentage of the line item Total equity, i.e. €143.5 million (€36.7 million plus €106.8 million), €400.5 million (€238.2 million plus €162.3 million) and €213.4 million (€129.6 million plus €83.8 million) in relation to €1,946.2 million, €1,456.7 million and €1,469.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013, the ratio is calculated as €136.0 million (€37.0 million plus €99.0 million) in relation to €2,183.0 million. (14) Free cash flow of OSRAM (shown in the segment information of the combined financial statements or interim combined financial statements) constitutes net cash provided by (used in) operating activities less additions to intangible assets and property, plant and equipment. Free cash flow is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of cash flow of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of free cash flow, which means that free cash flow shown by other companies may not necessarily be comparable with free cash flow of the OSRAM Licht Group. Free cash flow is reported to our management on a regular basis, which uses that measure to assess and manage cash generation among our reportable segments and the OSRAM Licht Group. In the first half of the Fiscal Years 2013 and 2012, Free Cash Flow amounted to €91.3 million (thereof €89.9 million in the first quarter and €1.4 million in the second quarter) and €(410.0) million (thereof €(505.8) million in the first quarter and €95.8 million in the second quarter), respectively. (15) Capital expenditures (capex) comprise additions to intangible assets and property, plant and equipment, which are shown in the segment information of the combined financial statements or interim combined financial statements. This does not include additions to intangible assets and property, plant and equipment in connection with acquisitions. (16) Capex as a percentage of revenue, i.e. €187.2 million, €312.4 million and €253.2 million in relation to €5,399.8 million, €5,031.0 million and €4,679.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 and 2012, the ratio is calculated as €78.1 million and €81.1 million in relation to €2,678.3 million and €2,730.7 million, respectively. (17) Capex as a percentage of amortization, depreciation and impairments of intangible assets (excluding impairments of goodwill) and property, plant and equipment, i.e. €187.2 million, €312.4 million and €253.2 million in relation to €417.8 million (amortization, depreciation and impairments of intangible assets and property, plant and equipment – including impairments of goodwill – of €655.2 million minus impairments of goodwill in the amount of €237.4 million), €253.1 million and €247.6 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 and 2012, the ratio is calculated as €78.1 million and €81.1 million in relation to €157.1 million and €224.4 million (amortization, depreciation and impairments of intangible assets and property, plant and equipment – including impairments of goodwill –of€325.5 million minus impairments of goodwill in the amount of €101.1 million, respectively).
Significant changes to the issuer’s The following changes in the Company’s financial condition and operating financial condition and operating results (defined by revenue and EBITA (earnings before financial result, results taxes and amortization and impairments)) have occurred in the six months period ended March 31, 2013 and 2012 and in the Fiscal Years 2012, 2011 and 2010. Six Months ended March 31, 2013 and 2012 In the first half of the Fiscal Year 2013, our revenue trend continued to reflect a muted economic climate. Revenue declined by €52.4 million, or 1.9%, dropping from €2,730.7 million in the first half of the Fiscal Year 2012 to €2,678.3 million in the first half of the Fiscal Year 2013. The decrease was significantly impacted by negative portfolio effects of 2.2% resulting from the disposal of our shares in the joint ventures with Mitsubishi and Toshiba in Japan. Excluding portfolio effects and foreign currency translation effects, revenue was stable on a level with the previous Fiscal Year. The fundamental structural trend toward SSL business continued. From a regional standpoint, the decline in the Americas region, and particularly in the U.S., had the greatest impact. At segment level, the revenue growth at Opto Semiconductors and Specialty Lighting could not offset the decreases in the Lamps & Components and Luminaires & Solutions segments. OSRAM Licht Group’s EBITA rose by €63.6 million, or 167.4%, increasing from €38.0 million in the first half of the Fiscal Year 2012 to €101.6 million in the first half of the Fiscal Year 2013. The corresponding EBITA margin (EBITA as a percentage of revenue) increased significantly from 1.4% in the first half of the Fiscal Year 2012 to 3.8% in the first half of the Fiscal Year 2013. This rise was primarily due to lower expenses in connection with the transformation process, the separation, the planned IPO and the Spin-off, respectively, and with legal and regulatory matters compared with the first half of the Fiscal Year 2012. These lower expenses were mainly reflected in corporate items. In addition, EBITA at Opto Semiconductors rose sharply.
19 The transformation costs relating to the OSRAM Push Program reflected in EBITA totaled €126.3 million in the first half of the Fiscal Year 2013, compared with €140.0 million in the comparable prior-year period. Costs incurred in connection with the separation, the planned IPO and the Spin- off, respectively, (including the Patent Infringement Suits) changed from a net expense of €25.8 million in the first half of the Fiscal Year 2012 to net income of €20.7 million in the first half of the current Fiscal Year. Equally, the decline in costs relating to other material legal and regulatory matters, which amounted to €10.5 million (compared with €30.1 million in the first half of the Fiscal Year 2012, mainly owing to a license and trademark proceeding that accounted for €22.1 million), lifted OSRAM Licht Group’s EBITA. The EBITA contribution from forward integrated SSL products was negative in both the first six months of the Fiscal Years 2013 and 2012. Fiscal Years 2012 and 2011 In the Fiscal Year 2012, our revenue continued to develop positively on a nominal basis and the revenue increased from €5,031.0 million in the Fiscal Year 2011 by €368.8 million, or 7.3%, to €5,399.8 million in the Fiscal Year 2012. Due to an increasingly difficult and volatile market environment the growth was mainly driven by our acquisitions, foreign currency translation effects as well as by increasing SSL sales. Due to the acquisitions the revenue increased by 3.0% (portfolio effect). This was primarily related to the acquisition of Siteco which was assigned to the General Lighting business unit. Furthermore, Encelium Holdings Inc., which was consolidated in the first quarter of the Fiscal Year 2012, contributed likewise, despite being comparatively smaller, to revenue growth and is reflected in the portfolio effect. Foreign currency translation effects had a positive effect of 3.3% on our revenue in the Fiscal Year 2012 as the appreciation of U.S. dollar versus euro in particular led to an increase of our reported revenue. Our EBITA decreased from €437.0 million in the Fiscal Year 2011 by €383.7 million, or 87.8%, to €53.3 million in the Fiscal Year 2012. Our EBITA margin fell from 8.7% in the Fiscal Year 2011 to 1.0% in the Fiscal Year 2012. Alongside the operating business performance, this was mainly caused by three material influencing factors: (1) transformation costs related to our OSRAM Push Program totaling €198.5 million, (2) costs associated with the separation and the Spin-off and the previously intended initial public offering, respectively; Patent Infringement Suits in the amount of €30.8 million (net of reimbursements by Siemens in the amount of €7.9 million in connection with the cost assumption agreement) in the Fiscal Year 2012 and (3) costs associated with further material legal and regulatory issues with a total amount of €50.6 million. The majority of the transformation cost negatively impacted EBITA of the business unit General Lighting. Specialty Lighting increased its EBITA mainly due to a continued stable demand for its products from the automotive sector. Lower utilization of its production capacities and increasing price pressure due to intense competition impacted mainly the business unit Opto Semiconductors. EBITA in the Fiscal Year 2012 did not decrease as much as income (loss) before income taxes as in particular amortization and impairments of goodwill and other intangible assets and certain costs in connection with joint ventures are by nature not part of EBITA.
20 Fiscal Years 2011 and 2010 Following the recovery of our revenue in the Fiscal Year 2010 from the depressed level of the Fiscal Year 2009, our revenue continued to develop positively and increased from €4,679.7 million in the Fiscal Year 2010 by €351.3 million, or 7.5%, to €5,031.0 million in the Fiscal Year 2011. All business units reported revenue growth and we achieved for the first time more than €5 billion of revenue. The growth was mainly driven by a strong demand for automotive applications and increasing SSL sales, despite an increasingly difficult and volatile market environment in the second half of the Fiscal Year 2011. The usual seasonal slowdown of sales especially in the retail channel as well as exceptional incidents such as the natural and nuclear disasters in Japan, negatively impacted our sales growth in the second half of the Fiscal Year 2011. Expected significant sales price increases in the fourth quarter of the Fiscal Year 2011 for fluorescent products as a consequence of increased raw material prices first led to hoarding effects among our customers and after price increases became effective, demand slowed down. The acquisition of Siteco and the deconsolidation of Valeo Sylvania resulted in opposite portfolio effects in the Fiscal Year 2011 that positively affected the total revenue by 0.1%. The negative impact of foreign currency translation effects on our total revenue in the Fiscal Year 2011 was 0.5%. Our EBITA decreased from €582.5 million in the Fiscal Year 2010 by €145.5 million, or 25.0%, to €437.0 million in the Fiscal Year 2011. Our EBITA margin fell from 12.4% in the Fiscal Year 2010 to 8.7% in the Fiscal Year 2011. The negative development of our EBITA and in particular our EBITA margin in the Fiscal Year 2011 was caused by lower utilization of our production capacities and price pressure from our competitors in comparison to the Fiscal Year 2010. Increasing price pressure due to intense competition impacted mainly the business units Opto Semiconductors and General Lighting for SSL products, thus contributing to the lower EBITA. EBITA of our business unit General Lighting was negatively impacted by upfront investments associated with the strengthening of our position with respect to forward integrated SSL products and increased costs for rare earths, other raw material as well as for electronic components. The cost increase was to some extent compensated by successful sales price increases initiated in the fourth quarter of the Fiscal Year 2011. B.8 Selected key pro forma financial Not applicable. No pro forma financial information has been prepared by information. the Company. B.9 Profit forecast and estimate. Not applicable. No profit forecast or estimate is being presented. B.10 Qualifications in the audit Not applicable. The audit opinion on the combined financial statements of opinion on the historical financial the OSRAM Licht Group for the Fiscal Years ended September 30, 2010, information. 2011 and 2012, as well as the audit opinions on the financial statements of Kyros A AG (now OSRAM Licht AG) and OSRAM GmbH (previously OSRAM AG) for the Fiscal Year ended September 30, 2012 have been issued without qualification. B.11 Insufficiency of the issuer’s Not applicable. The working capital of the Issuer is sufficient for its present working capital for its present requirements. requirements.
21 C – SECURITIES
C.1 A description of the type and the The subject matter of this prospectus for the purpose of admission to trading class of the securities being of the Shares are 104,689,400 registered shares with no par value, each with offered and/or admitted to a notional par value of €1.00 of the Company’s share capital (entire share trading, including any security capital upon effectiveness of the capital increase in connection with the spin- identification number. off of an indirect 80.5% shareholding in OSRAM GmbH by way of transfer of all shares in OSRAM Beteiligungen GmbH to OSRAM Licht AG under issuing shares to the shareholders of Siemens AG). International Securities Identification Number (ISIN): DE000LED4000 German Securities Identification Number: LED 400 Common Code: 089579422 In connection with the Spin-off, it is planned that employees of the German companies of the OSRAM Licht Group in the Federal Republic of Germany will be offered the opportunity to acquire Shares in OSRAM Licht AG (“Employee Tranche”). Each employee will be offered a subsidy by OSRAM Licht AG the amount of which will vary with the own investment (ranging from €100 to €3,500). The total maximum amount of investment comprising the own investment and the subsidy granted by OSRAM Licht AG is €4,206.35 per employee (own investment of €3,500 and subsidy amounting to €706.35) The settlement of the Employee Tranche will be effected by a mandated bank. The offer in connection with the Employee Tranche is not the subject matter of this prospectus but is made pursuant to § 4(1) N° 5 of the German Securities Prospectus Act. C.2 Currency. Euro. C.3 The number of shares issued and As of the date of this prospectus, the Company’s share capital amounts to fully paid and issued but not fully €20,414,433 and consists of 20,414,433 ordinary registered shares with no paid. par value. Upon the Spin-off becoming effective, which is expected for July 5, 2013, our share capital will be €104,689,400 and consist of 104,689,400 ordinary registered shares with no par value. The shares are created under German law. Our share capital is fully paid in. The par value per share, or that Each share is representing a notional par value of €1.00. the shares have no par value.
C.4 A description of the rights All shares issued by OSRAM Licht AG carry full dividend rights as from attached to the securities. October 1, 2012, including the shares issued in connection with the Spin-off. Each share in the Company carries one vote at the Company’s shareholders’ meeting. C.5 A description of any restrictions Not applicable. There are no restrictions on the transferability of the on the free transferability of the Company’s shares. securities.
C.6 An indication as to whether the Admission of the Shares to trading on the regulated market segment securities offered are or will be (Regulierter Markt) of the Frankfurt Stock Exchange and the Munich Stock the object of an application for Exchange and, simultaneously, in the sub-segment of the Frankfurt Stock admission to trading on a Exchange with additional post-admission obligations (Prime Standard) is regulated market and the identity expected to be applied for on June 21, 2013. An admission decision is of all the regulated markets expected to be announced on July 5, 2013. Trading on the Frankfurt Stock where the securities are or are to Exchange and the Munich Stock Exchange is expected to commence on be traded. July 8, 2013.
C.7 A description of dividend policy. OSRAM Licht AG has been incorporated in July 2012. Prior to the effectiveness of the Spin-off, OSRAM Licht AG does not conduct business (except for holding a minority shareholding in OSRAM GmbH) and did not pay any dividends in the past. Our ability and intention to pay dividends in the future will depend on our financial position, results of operations, capital
22 requirements, investment alternatives and other factors that the Managing Board and Supervisory Board may deem relevant, and any proposals by the Managing Board and Supervisory Board regarding dividend payments will be subject to the approval at the general shareholders’ meeting. We expect that the principal source of funds for the payment of dividends, if any, will be dividends and other payments received from our current and future subsidiaries, in particular OSRAM GmbH. The determination of each subsidiary’s ability to pay dividends is made in accordance with applicable law. Our future dividend policy is to distribute between 30 % and 50 % of consolidated net income determined in accordance with IFRS in a given Fiscal Year as dividends assuming that the payment of such dividends is consistent with our long-term and sustainable business development. For these purposes, the percentage calculation may take into account certain exceptional non-cash effects within income. However, our ability to pay dividends in future years will depend on the amount of distributable net earnings that are available. We can provide no assurance regarding the amounts of future net earnings, if any, and consequently, we can provide no assurance that we will pay dividends in future years. In the light of our current operating performance, we will not propose a dividend payment for the Fiscal Year 2013.
D – RISKS
In considering whether to invest in the shares of OSRAM Licht AG, investors should consider carefully the following risks, in addition to the other information in this prospectus. These risks relate to our Group’s industry, business, regulatory environment, results of operations and financial position and relate to the securities markets and ownership of the Shares. Additional risks and uncertainties not currently known to us or that we currently deem immaterial could also materially adversely affect our business. If any of the following risks actually occur, our business, financial position and results of operations could be materially adversely affected. In such cases, the market price of the Shares could decline, and investors could lose all or part of their investment. The order of the risk factors below does not indicate the likelihood of these risks actually occurring or the scope of any potential impairment these risks may cause to our business, financial position and results of operations. The risks mentioned may materialize individually or cumulatively. D.1 Key information on the key risks Risks Relating to our Industry and our Business that are specific to the issuer or • The cyclical nature of the lighting business and the changing general its industry. economic environment have resulted in significant volatility in demand for our products in the recent past and, therefore, the development of our revenues and results of operations, and these trends may continue in the future. • The lighting industry is facing a far-reaching technological change towards solid state lighting (SSL); that change may be disruptive and requires adjustments to our business model, since production, procurement and sales processes have to be adjusted. The associated upfront and transformation costs have significantly impacted our results of operations in the recent past and we expect further transformation costs. • The speed and extent of the transition to solid state lighting (SSL) is highly uncertain and depends on various framework conditions. We might not remain competitive if we are not able to adapt swiftly to changing market conditions.
23 • A significant part of our existing production facilities may become obsolete due to the transition to solid state lighting (SSL) or the shift in regional shares of sales since production processes for traditional lighting technologies on the one hand and solid state lighting on the other hand are fundamentally different. The resulting costs may have a significant adverse effect on our results of operations. • The lighting industry is characterized by intense competition. We face competition from other established large, global manufacturers as well as new competitors mainly from the semiconductor industry expanding their activities. The market entry of new competitors and overcapacities results in increasing price pressure that may adversely affect our results of operations. • Partly as a result of the technological change, the lighting industry is evidencing consolidation. The transition in the lighting industry may change the competitive landscape due to increasing consolidation and vertical integration along the value chain. We are also considering greater vertical integration, however, it is uncertain whether this strategy will be successful. • Our business is exposed to become more volatile in connection with the shift to solid state lighting (SSL) products. Overcapacities, price erosion and short product life cycles in the SSL business might increase the volatility of our business. Solid state lighting products are subject to rapid technological change as well as price erosion. Supply and demand are difficult to predict. • Prices for lighting products and especially SSL products have historically been subject to price erosion. The prices for our products tend to significantly decline over time and we need to compensate price declines by productivity improvements and strict cost control in order to avoid a deterioration of our results of operations. • The technological change requires a strategic redirection of the OSRAM Licht Group. OSRAM faces this redirection by launching comprehensive measures to ensure a sustainable performance of OSRAM by transforming processes, operations, organization and culture. Our cost optimization, transformation and restructuring programs may not succeed and entail their own risks. • Our business is capital and personnel intensive. Underutilization of our plants disproportionately impacts our profitability due to the fixed costs that can only be adapted with delay. We are subject to risks relating to our investments in production facilities and the utilization of our production capacities. • We procure key components for manufacturing our products from third parties. Delivery shortfalls in relation to supplier components and pre-materials can hold up production and materially adversely affect our business activities. • With the change in the lighting industry to SSL, the technological change accelerates, product life cycles become shorter and customer preferences change. We may not respond quickly enough to the technological change in our industry, misallocate our research and development resources and fail to develop innovative, reliable products and services in the future. • Due to regulatory requirements, certain inefficient lamps are gradually phased out. Hoarding effects in connection with the gradual phase out of inefficient lamps may affect demand of efficient traditional products as part of the Environmental Portfolio and/or SSL products and benefit our low-cost competitors with respect to traditional basic products.
24 • Some of our products contain small quantities of hazardous substances such as mercury, gallium or gallium arsenide. The acceptance of certain lamps, in particular fluorescent lamps (FL), LED lamps and other energy saving lamps by consumers may be adversely affected by the perceived potential harm to health caused by hazardous substances. • Our products must meet high quality standards and product recalls may involve significant costs as in most instances they will relate to a large number of products. Additionally, quality defects can lead to property damage and personal injury, for example if a product causes fire. We may face significant product liability or warranty claims or we may be forced to undertake recalls that may be costly and create adverse publicity. • If we fail to continuously improve our supply chain management to increase responsiveness to customer orders this might have material adverse effects on our business. • We operate an international business and generate a significant part of our revenue outside the euro zone. Exchange rate fluctuations can have material adverse effects on our revenues and profits and may also affect our competitive position. • For the manufacturing of our products we require raw materials that are partly subject to significant price volatility. Prices for certain raw materials, in particular for rare earths, sometimes increase considerably. Rising commodity prices could have a material adverse effect on the profitability of our business. • The loss of important customers or a change of the terms of purchases by important customers could materially adversely affect our business. • We offer our products worldwide and we also intend to transfer further production capacity to emerging countries. We are exposed to economic, political and regulatory risks, especially in emerging countries. • We are involved in legal disputes that bear significant risks. These legal disputes comprise product warranty claims, property damage and personal injury that were caused, or alleged to have been caused, by our products, alleged false or misleading information regarding product characteristics as well as alleged intoxications with mercury and patent litigations. • Intellectual property rights play an important role in the lighting industry. We may not be able to adequately protect and defend our intellectual property. • Our competitors possess intellectual property rights that we have to identify and respect. Accordingly, OSRAM is exposed to various risks in respect of third party intellectual property rights. • We have to rely on a compliance system to prevent irregularities in business activities. Our increasing project business and large customer accounts may make us susceptible to illegal business practices. • We may suffer substantial losses in the event of a natural disaster, terrorist attack or other casualty event in markets in which we operate. • We rely upon the uninterrupted operation of our production workflows and available IT processes. • OSRAM is subject to German and international tax conditions. Tax audits and changes in tax law as well as a reduced recoverability of deferred tax assets due to the deterioration of our results of operations could materially adversely affect our financial position and results of operations.
25 • We are dependent on good relationships with our workforce. Strikes or other labor-related conflicts as well as rising wages or indirect labor costs could have a material adverse effect on our business. • As a technology company, we need qualified employees; competition for such employees is intense. An inability to attract and retain skilled key personnel could materially adversely impact our business. • We may be subject to risks from past and future acquisitions, equity holdings, joint ventures and divestitures. • Our business is capital intensive. Our business activities could be negatively affected if we are unable to meet our capital requirements in the future (for example in weak financial markets or as a result of a breach of a credit facility agreement). • We are exposed to credit risks and may need to write off receivables if our customers are unable to meet their obligations. • OSRAM has granted pension benefits to a large portion of its employees. Therefore, we have significant liabilities with respect to our defined benefit pension plans and the actual costs of these obligations could exceed current estimates. • A sovereign default or exits of EU member states from the euro zone may have material adverse effects on the global economy. • Due to the technological change, our business model changes from producing products on a large scale basis towards more project business. We may not be able to adjust our business processes and IT landscape quickly enough to support the adaption to our changing business environment. • We may not be in a position to provide some of our customers quickly enough with a sufficient verification that our products are free from conflicted materials within the meaning of the U.S. American Dodd- Frank Act. As a result, we might lose important customers and our business might be materially affected. Regulatory Risks • There are regulatory efforts being taken worldwide regarding greater energy efficiency of light sources. The markets in which we operate are therefore subject to various regulatory requirements that will change in the future and may lead to additional product requirements. • Some of our production facilities and sites have been used for industrial purposes for decades and are in individual cases contaminated. Accordingly, we are subject to environmental liability risks, general regulatory risks and to risks from changes to the regulatory frameworks. • Some of our products contain low level radiation emitters and are subject to restrictive rules for distribution, storage, handling and import/export activities; in some countries we are already or will be required in the future to discontinue distribution of these products. • Current and pending legislation implementing an extended product responsibility frequently mandates funding of recycling programs (collection, transportation and recycling), with limited ability to pass these additional costs on to the customer. • We market our products worldwide; in this connection, we are subject to export control regulation. For certain countries such as Iran, regulation is constantly tightened. Further tightening of regulation may materially adversely affect our business activities.
26 • In the past, we have received government subsidies that have reduced our expenses. Reductions in the amount of government subsidies we receive or demands for repayment could increase our reported expenses. Risks Associated with our Shareholder Structure and the Spin-off • Siemens AG will retain a minority shareholding in OSRAM Licht AG upon the Spin-off becoming effective and will be able to exercise a corresponding influence, and the interests of Siemens could come into conflict with the interests of other investors. • The withdrawal from the Siemens Group may lead to the loss of business opportunities and higher procurement costs. • The creation of administrative, financial and other functions and services that were provided to date by the Siemens Group could be delayed or fail to succeed. • We may face increased administrative, financial and related expenses as a result of operating as an independent company. • Due to our complex financial history, we have prepared combined financial statements for this prospectus. The financial information presented in this prospectus may not be fully representative of our results as an independent company. • As a legal consequence of the Spin-off, we are exposed to existing claims against Siemens AG and depend on Siemens AG’s ability to provide indemnification and we might have to provide security to our creditors. • In the Spin-off and/or the preparation of the Spin-off, unutilized tax loss carry forwards and interest carry forwards of OSRAM GmbH and its subsidiaries could have been forfeited. D.3 Key information on the key risks Risks Relating to the Commencement of Trading of our Shares that are specific to the securities. • Substantial sales of our Shares may occur in connection with the Spin- off, which could cause the price of our Shares to decline; such sales may also occur subsequently. • There is no guarantee that an active and liquid market for the Shares will develop. • The combined value of our Shares and the Siemens shares following the Spin-off may not equal or exceed the value of Siemens shares prior to the Spin-off. • Future offerings of bonds or shares by us may adversely affect the market price of the Shares.
E – OFFER
E.1 The total net proceeds and an Neither Siemens AG nor OSRAM Licht AG will raise proceeds in the estimate of the total expenses of Spin-off or in the Employee Tranche. The Shares offered in the Employee the issue/offer, including Tranche will be acquired via a mandated bank on the stock exchange. The estimated expenses charged to the cost of the subsidy for these acquisitions borne by OSRAM will be investor by the issuer or the approximately €2.3 million if all subsidized shares are subscribed for. The offeror. total costs and expenses of the Spin-off and listing will be approximately €141 million which will be borne by Siemens AG. These costs essentially relate to costs for external advice (especially by investment banks, legal counsels and strategy consultants), auditing costs (auditors), transaction
27 costs, costs for notarization, costs of the general shareholder’s meeting, costs of registrations with the commercial registers and costs of the contemplated listing. Thereof, costs in the amount of €11.7 million are attributable to the capital increase in connection with the Spin-off. The allotment of Shares in OSRAM Licht AG as well as the instruction for settlement of any fractional rights to Shares of OSRAM Licht AG resulting therefrom shall be effected at no cost (commissions or out-of-pocket expenses) for the shareholders, provided that the shareholders maintain a securities account in the Federal Republic of Germany. E.2a Reasons for the offer, use of Not applicable. An offer of securities is not the subject matter of this proceeds, estimated net amount prospectus. of the proceeds. E.3 A description of the terms and Not applicable. An offer of securities is not the subject matter of this conditions of the offer. prospectus. E.4 A description of any interest that In connection with the Spin-off and the admission to trading of the Shares, is material to the issue/offer the Banks are in a contractual relationship with the Company and Siemens including conflicting interests. AG. The Banks advise the Company and Siemens AG on the Spin-off and the Employee Tranche and coordinate the structuring and execution of the Employee Tranche. In addition, each of the Lead Financial Advisors has been appointed to act as designated sponsor for the Shares. Upon successful implementation of the Spin-off and the Employee Tranche, the Banks will receive a commission. Siemens AG has promised the current members of the Managing Board of OSRAM Licht AG (as well as other executives of the future OSRAM Group) the grant of a transaction bonus. Thus, upon the Spin-off becoming effective, the beneficiaries will receive OSRAM Licht Shares in a certain amount. Siemens AG has a personal interest in the Spin-off as it serves to dispose of a majority shareholding. Siemens AG and OSRAM Licht AG expect indirect benefits from the Spin- off. E.5 Name of the person or entity Not applicable. An offer of securities is not the subject matter of this offering to sell the security. prospectus. Lock-up agreement: the parties In the listing agreement the Company has agreed that during the period involved; and indication of the commencing on the date of the listing agreement and ending six months period of the lock up. after the first day of trading of the Company’s Shares on the Frankfurt Stock Exchange, without the prior written consent of the Lead Financial Advisors, the Company, to the extent legally permissible, will not: (a) announce or effect an increase of the share capital of the Company out of authorized capital; or (b) submit a proposal for a capital increase to any meeting of the shareholders for resolution; or (c) announce to issue, effect or submit a proposal for the issuance of any securities convertible into shares of the Company, with option rights for shares of the Company; or (d) enter into a transaction or perform any action economically similar to those described in (a) through (c) above. The Company may, however, offer, sell and issue options, warrants and shares of the Company (i) under future employee share purchase and share option schemes or (ii) as partial or full consideration for a business acquired by the Company or for purposes of entering into a joint venture, provided that the Company shall (i) consult with the Lead Financial Advisors prior to the issuance of the shares or other securities and (ii) use its best efforts to negotiate an undertaking of the recipient of the shares or such other securities of the Company to comply with the restrictions on the disposal of shares set forth above.
28 There exist no lock-up agreements of other persons, including Siemens AG or Siemens Pension Trust e.V. E.6 The amount and percentage of Not applicable. An offer of securities is not the subject matter of this immediate dilution resulting from prospectus. the offer. In case of a subscription offer to Not applicable. An offer of securities is not the subject matter of this the existing equity holders, the prospectus. amount and percentage of immediate dilution if they do not subscribe to the new offer.
E.7 Estimated expenses charged to Not applicable. Investors will not be charged expenses of the Company or the investor by the issuer. the banks accompanying the Spin-off.
29 RISK FACTORS
In considering whether to invest in the shares (the “Shares”) of OSRAM Licht AG (the “Company” and, together with OSRAM Beteiligungen GmbH and OSRAM GmbH and their direct and indirect subsidiaries, “we”, “us”, “our”, “OSRAM”, the “Group” or the “OSRAM Licht Group”), investors should consider carefully the following risks, in addition to the other information in this prospectus. These risks relate to our Group’s industry, business, regulatory environment, results of operations and financial position and relate to the securities markets and ownership of the Shares. Additional risks and uncertainties not currently known to us or that we currently deem immaterial could also materially adversely affect our business. If any of the following risks actually occur, our business, financial position and results of operations could be materially adversely affected. In such cases, the market price of the Shares could decline, and investors could lose all or part of their investment. The order of the risk factors below does not indicate the likelihood of these risks actually occurring or the scope of any potential impairment these risks may cause to our business, financial position and results of operations. The risks mentioned may materialize individually or cumulatively.
RISKS RELATING TO OUR INDUSTRY AND OUR BUSINESS The cyclical nature of the lighting business and the changing general economic environment have resulted in significant volatility in demand for our products in the recent past and, therefore, the development of our revenues and results of operations, and these trends may continue in the future. Demand for our products is cyclical and the majority of our business is exposed to changes in the general economic environment. Our products serve applications in various segments of the general lighting sector such as residential, office, hospitality, outdoor, architectural and industrial lighting, in the automotive sector, for displays as well as in the entertainment industry, most of which are affected by changes in the economic environment relatively early in the economic cycle, which in turn impacts our business, financial position and results of operations. The main exception to this is the luminaires business, which is more exposed to the new build construction industry, which is affected rather late in the economic cycle. Furthermore, as our main markets are in Europe, the United States and Asia, economic developments in these regions have the highest impact on our business activities. Due to our substantial fixed cost base, our earnings tend to be impacted stronger by changes in demand than our revenues, at least for a certain period of time until we have adjusted our cost base. The cyclical nature of our business was particularly pronounced in the last few years. Since mid-2008, worldwide economic conditions have experienced a significant downturn due to the crisis in the global financial system resulting in significant recessionary pressures and lower business and consumer confidence. Both trends continued well into 2009. The global economic and financial crisis led to a sharp decline in revenues and earnings of the OSRAM Licht Group. In late 2009, the global economy started to recover. In the Fiscal Year 2010, our revenue increased significantly from the low level of the Fiscal Year 2009 (which was impacted strongly by the financial and economic crisis). In the Fiscal Year 2011, our business continued to develop positively, although revenue growth slowed down in the second half of the Fiscal Year 2011 and our gross margin came under pressure due to, among other things, cost increases (especially in rare earths), restocking effects that positively impacted the Fiscal Year 2010 but did not recur to the same extent in the Fiscal Year 2011, the natural and nuclear disasters in Japan, uncertainty caused by the European sovereign debt crisis and intensifying price competition. Revenue increased by €351.3 million, or 7.5% year-on-year from €4,679.7 million in the Fiscal Year 2010 to €5,031.0 million in the Fiscal Year 2011, while net income declined by €88.5 million, or 26.4%, from €334.6 million in the Fiscal Year 2010 to €246.1 million in the Fiscal Year 2011. In the Fiscal Year 2012, our revenue increased by €368.8 million, or 7.3% year-on-year from €5,031.0 million in the Fiscal Year 2011 to €5,399.8 million in the Fiscal Year 2012, mainly as a result of acquisitions and foreign currency translation effects. While net income amounted to €246.1 million in the Fiscal Year 2011, we incurred a net loss of €378.3 million in the Fiscal Year 2012, driven in particular by impairments of goodwill and high transformation costs (restructuring costs in connection with the fundamental change of the lighting market). By mid-2011, the economic recovery from the global financial crisis that began in 2008 was being affected by growing uncertainty on the markets with regard to the excessive sovereign debt of certain countries, especially with respect to Greece, Ireland, Italy, Portugal and Spain. This uncertainty has persisted through 2012 in light of increasing public debt loads, economic contraction or weak growth and growing unemployment rates in these and other European countries both within and outside the euro zone, including countries in Eastern Europe. Despite a number of measures taken by the governments of the euro zone countries and central banks to stem the negative effects of the crisis, the business environment in general has significantly weakened since the middle of 2011 as the uncertainty surrounding the sovereign debt crisis and European Union
30 efforts to resolve the crisis continued to intensify. In 2011, economic growth continued, but the euro zone, where OSRAM is based, has lagged behind other regions, especially Asia and other developing markets. The European sovereign debt crisis has contributed substantially to economic stagnation in the euro zone. By mid-2012 Europe was on the brink of dipping into recession as much of Southern Europe suffered from surging unemployment and economic contraction or low growth rates. These uncertainties are further exacerbated by strong headwinds in the global economy, resulting from declining rates of growth in the traditional emerging economies and a hesitant recovery in the United States. The economic outlook for 2013 is further threatened by several other factors. Efforts of financial institutions to strengthen their capital base in the face of sovereign debt write-downs and proposed or anticipated stricter regulatory capital requirements for greater capital has reduced overall lending in the real economy, and thus has contributed to uncertainty in the financial sector and has placed the broader economy more at risk. Austerity measures implemented by many European governments may further dampen the economic mood. If we experience low demand in our major markets Western Europe and North America and in light of lower demand downward pressure on pricing and under-utilized capacities, in particular those of a temporary nature in the area of LED manufacturing, this would have a material adverse effect on our business, financial position and results of operations. In addition, a prolonged period of low prices and volumes could, at depressed margins, result in us being unable to cover our fixed costs, which could continue to have material adverse effects on our business, financial position and results of operations, and lead to the need to adjust our business.
The lighting industry is facing a far-reaching technological change towards solid state lighting (SSL); that change may be disruptive and requires adjustments to our business model, since production, procurement and sales processes have to be adjusted. The associated upfront and transformation costs have significantly impacted our results of operations in the recent past and we expect further transformation costs. OSRAM manufactures semiconductor-based solid state lighting, generally referred to as SSL products, as well as efficient traditional products as part of the Environmental Portfolio and, decreasingly, traditional basic products; these three different technologies contributed 25.4%, 46.4% and 28.2%, respectively, to our revenue in the Fiscal Year 2012. Government authorities and consumers around the world are committed to reducing energy consumption. As lighting currently accounts for about 19% of global energy consumption (source: IEA, OECD, Light’s Labour’s Lost, Policies for Energy-efficient Lighting, 2006) and traditional light sources such as the incandescent light bulb are energy intensive, many countries have imposed – or are in the process of imposing – a phase out on energy inefficient lamps with the aim of replacing them with energy efficient lamps (such as energy efficient fluorescent or modern halogen lamps). However, we believe that this substitution process is likely to be only an interim process in an overriding mid- to long-term trend towards SSL technology. Especially LED products have a considerably higher life expectancy than incandescent light bulbs, are less energy-intensive, generate less heat, have a greater robustness and a greater range of colors, allow more flexibility when creating lighting systems and can be easily controlled. As their light yield has been rising, LED products are increasingly used as a general light source and replace the traditional lighting products such as incandescent and fluorescent lamps. Market studies predict that SSL will reach a penetration rate of 66% of the total lighting market by 2020 (source: OSRAM estimates based on the McKinsey Lighting Market Report 2012). The transition towards SSL in the lighting industry has significant effects on our competitive position and business model for the reasons explained below; in this context, it is important to distinguish between light- generating SSL products (light sources, i.e. LEDs) and SSL products resulting from the forward integration of LEDs (integration of light sources in components and/or lighting systems), the latter also referred to as forward integrated SSL products: • The longevity of LED products is expected to convert a former stable replacement lighting business to a first installation business over the next several years. The trend towards more durable light sources will lead to lower replacement demand; the importance of forward integrated SSL products and complete lighting systems or supplying the manufacturer of such systems on a first installation basis instead of supplying replacement light bulbs is likely to increase, which requires us to adapt our research and development (R&D) to this development. Moreover, we need to adapt and educate our sales force to develop the necessary technical know-how to be responsive to a first installation business model that will require in particular networking with architects, lighting advisors and constructors. Since luminaires (with integrated light sources) are becoming a more important part of both the lighting market and our product portfolio (as compared to the delivery and replacement of lamps), we will need to develop the expertise required to meet this expected shift of demand. • The production processes and necessary know-how for LED based products vary considerably from those for conventional lamps as these are completely different products. A substitution process as
31 described above requires a fundamental change of the production processes and of the strategy on how to create value. The associated transformation costs and investments incurred by OSRAM have been significant. The substitution process has not yet been completed and further, potentially higher than expected transformation costs will be required. • Due to the differences described above, we need qualified personnel dedicated to the specific characteristics of SSL technology in our whole value chain, especially in R&D, production and sales level. • Despite the longevity of LED products, the product lifecycle of forward integrated SSL products is much shorter compared to traditional lamps and luminaires due to the high speed of the technological development and continuously improved product features. This requires increasing flexibility in R&D, production processes and strict inventory management. • Our depth of value added declines as we increasingly buy electronic components and commodities, contributing to the need to adapt our design, production, sourcing and sales processes. • Compared to internal manufacturing, a lower depth of value added may also result in a decreasing profitability due to the purchasing of components and commodities – at least in the interim until we have developed forward integrated SSL products as demanded by the markets and built up relevant production facilities which are ready for utilization. • Further SSL penetration at least temporarily weighs on our profitability during the period of transition from traditional to LED products. The development of SSL products requires high up-front R&D and marketing expenditures as well as capital investments in new production facilities and processes. In addition, the increasing share of SSL results in increased competition. Furthermore, it is challenging to develop products precisely targeted to a market in a transition period. This holds especially true for our rapidly growing portfolio of forward integrated SSL products which currently significantly weigh on our results with negative profit contributions; we expect the break-even to occur within the next few years. If we fail to adjust our production processes, R&D and go-to-market strategy to this technological shift on time and in the required scope, this could have a material adverse effect on our competitive position and on our business, financial position and results of operations.
The speed and extent of the transition to solid state lighting (SSL) is highly uncertain and depends on various framework conditions. We might not remain competitive if we are not able to adapt swiftly to changing market conditions. Despite the advantages of SSL compared with traditional technology, SSL is only gradually penetrating the market; the extent and speed at which it will gain further market share is difficult to predict and opinions in this respect vary in the industry and among market researchers. Our planning is based on the market model developed by McKinsey (source: McKinsey Lighting Market Report 2012). However, there are other market studies which predict shorter or longer transition periods. Compared to traditional products, SSL products are still relatively expensive at the moment and their use depends in part on customer preferences that are difficult to predict. We also expect that the use of SSL products will rise to varying degrees in different areas of application and customer groups (professionals and consumers). Among others, factors that influence the acceptance or sales of SSL products are: • the further development of the regulatory framework and government support measures in favor of energy-saving lighting technology; • developments in energy prices; • acceptance of SSL products in the consumer business and by our customers generally, in particular further education on total operating costs weighing the comparably high acquisition costs against durability and energy savings; • developments in individual end markets, such as the automotive and construction industry; • the development of other technologies that could potentially compete with LEDs, such as highly energy efficient traditional light sources or new light sources (e.g. organic light-emitting diodes (OLED)); • the development of production costs for various product categories. Successful transition to higher quality SSL products will depend on the speed of the transition and, consequently, the length of the transition period. The longer this transition period persists, the longer there will be an overlap of the product lifecycles of our traditional business with those of the SSL business (especially with
32 regard to forward integrated SSL products). In this context, the strength of our traditional business is the platform for the transition to SSL products. This ties with our strategy of “harvesting the golden tail” during this technology transition period, which is to draw maximum benefit from our strong portfolio of traditional products. On the other hand, if the penetration with SSL happens faster than expected, we would have to intensify and accelerate our efforts and investments relating to the transition to SSL. We must therefore be flexible in our business processes that vary greatly for different technologies to respond to the changes in technology that are difficult to predict. The same applies to marketing activities and our distribution structure. Our strategy is based on the assumption of a certain speed of transition, but that transition may be faster or slower than currently anticipated. If we fail to adapt our business with the required flexibility to the actual speed of transition, this could have a material adverse effect on our competitive position, our business, financial position and results of operations.
A significant part of our existing production facilities may become obsolete due to the transition to solid state lighting (SSL) or the shift in regional shares of sales since production processes for traditional lighting technologies on the one hand and solid state lighting on the other hand are fundamentally different. The resulting costs may have a significant adverse effect on our results of operations. A significant part of our production facilities is used to manufacture traditional lighting technologies (such as fluorescent, halogen and high pressure discharge lamps). The production process of these types of lamps is significantly different from the production process of other lighting technologies, in particular the manufacturing of forward integrated SSL products. Accordingly, due to the transition to SSL, over time, some of our production facilities can no longer be used. While we can address these risks by either transforming affected facilities to produce other lighting technologies (for example halogen lamps instead of incandescent lamps), selling or shutting down these production facilities, the transformation, sale or closing down of production facilities will likely result in additional costs, including depreciation and impairments on production facilities, costs of removal, potential restructuring costs, costs for the transfer or dismissal of employees and other costs. We may also experience a shift of sales from one region to another, in particular to Asia, which would require additional steps to adapt our regional production capacity to regional sales and render some capacity obsolete, which may result in significant future costs. As the pace of the transition process to new technologies is difficult to predict, we may incur such costs earlier than anticipated. In the Fiscal Year 2012, we initiated a comprehensive project to adapt our global production footprint (“Future Industrial Footprint” project) mainly until 2014 to future demand as part of our “OSRAM Push Program”. Our planning is based on a market study by McKinsey & Company on the lighting industry. However, there are other market studies which assume a different market demand. We might incur material additional costs should the predictions underlying our planning turn out to be incorrect. “Future Industrial Footprint” measures comprise the closure or relocation of production facilities. Due to impairment costs and losses upon disposal related to property, plant and equipment, costs relating to the personnel-related measures in connection with the “Future Industrial Footprint” project as well as other personnel-related restructuring measures had a significant negative impact on OSRAM’s earnings in the Fiscal Year 2012 and in the first half of the Fiscal Year 2013. Going forward, we will continue our review of production facilities and the need to adapt our manufacturing structure and expect to incur additional restructuring costs, in particular during the course of the Fiscal Year 2013. Currently ongoing and future restructuring measures are likely to have a material adverse effect on our business, financial position and results of operations.
The lighting industry is characterized by intense competition. We face competition from other established large, global manufacturers as well as new competitors mainly from the semiconductor industry expanding their activities. The market entry of new competitors and overcapacities results in increasing price pressure that may adversely affect our results of operations. The markets in which we operate are subject to intense competition. We face worldwide competition from a number of other manufacturers that produce and sell similar products; our main global competitor is Koninklijke Philips Electronics N.V., The Netherlands (“Philips”). Amongst others, the main competitive factors are sales channels access, technology leadership, innovation strength, extensive patent portfolio, reliability, brand image, product range, performance, energy efficiency, price, delivery speed, quality and design. With SSL penetration increasing and the product lifecycle becoming shorter, innovative skills, the ability to deliver solutions and marketing speed will become more important than in the past. Competition is particularly intense in times of declining volumes or overcapacities in the market as competitors, in order to maintain or increase utilization of production capacity, are tempted to support their sales volumes by lowering prices (or not adjusting prices to increased cost of goods sold). New competitors, in particular from Asia, are entering the SSL market, adding to price pressure.
33 The competitive landscape of the lighting industry varies along the value chain. The lighting value chain ranges from basic prematerials and components such as glass, electric conductors, sockets (for lamps) for traditional products; SSL products, including wafers (a thin slice (approx. 1 mm)) of semiconductor material for integrated circuits, micro-mechanic components or optoelectronic coatings (fabricated through different technical procedures), light emitting semiconductor chips and reflectors through LED light engines with housing and plug connections, electronic ballasts to SSL luminaires. The value chain is complemented by sometimes highly complex lighting systems and light management systems. For traditional light sources, the leading manufacturers (OSRAM, Philips, General Electric Corp., U.S. (“General Electric”), and Panasonic Corp., Japan (“Panasonic”)) cover almost the entire value chain. However, the growing share of SSL in the market has resulted in a change of the competitive landscape. As a result of the technologies used and due to the expected growth of the market, new competitors are entering the market for SSL, while there is an accelerated consolidation in the area of traditional technologies. With a more diversified value chain in the SSL sector, a historically limited number of competitors in traditional lighting are facing an increasing number of new competitors that cover certain areas of the value chain and may extend their activities to other parts. Although we also cover large parts of the value chain for SSL, our market position varies in the individual value chain sections that are classified into the upstream, midstream and downstream sectors: • The so-called upstream sector comprises the light emitting semiconductor chip and packaging. Chip production is capital-intensive, requires high volume for profitable production, is likely to be volatile in terms of development and is subject to price erosion. Besides us, other LED market leaders which are also active in production of semiconductor chips for LEDs (including those with high brightness) are Nichia Corporation, Japan (“Nichia”), Cree Inc., U.S. (“Cree”), Philips Lumileds Lighting Company, U.S. (“Philips Lumileds”), Toyoda Gosei Co. Ltd., Japan (“Toyoda Gosei”), Seoul Semiconductor Inc., Korea (“Seoul Semiconductor”), LG Innotek Ltd., Korea (“LG Innotek”) and Samsung Electronics Ltd., Korea (“Samsung”). Some of these competitors have significant capacities in the area of LED backlighting which they might possibly use for the manufacturing of general lighting products. Major LED packaging companies (i.e. without own chip production) include Everlight Electronics Co. Ltd., Taiwan (“Everlight”) or Lite-On Electronics Inc., Taiwan (“Lite-On”). • The mid-stream sector comprises LED lamps, LED light engines and electronic controls. Our main competitors in the midstream sector are Philips, Sharp Ltd., Japan (“Sharp”), Toshiba K.K., Japan (“Toshiba”), Panasonic, Lutron Electronics Co., Inc., U.S. (“Lutron”) as well as Samsung, LG Electronics Inc., Korea (“LG Electronics” and, together with its subsidiaries, “LG”) and Delta Electronics Inc., Taiwan (“Delta Electronics”). • The downstream sector for the most part comprises luminaires, light management systems and solutions. Luminaire manufacturers buy lamps, control gear and LEDs predominately from fully-integrated manufacturers such as us or offer luminaires without lamps. The luminaires sector is still very fragmented regionally, partially because of different customer preferences and national regulations. The largest renowned market participants in Europe include Zumtobel AG, Austria (“Zumtobel”), Philips, Schréder Group GIE, Belgium (“Schréder”), Trilux GmbH & Co. KG, Germany (“Trilux”), Targetti Poulsen Industries, Italy (“Targetti Poulsen”), Fagerhult AB, Sweden (“Fagerhult”), Havells India Limited, India (“Havells India”) and Legrand SA, France (“Legrand”) and in the United States AcuityBrands Lighting Inc., U.S. (“AcuityBrands”), Cooper Industries Inc., U.S. (“Cooper”), Hubbell Lighting Inc., U.S. (“Hubbell”), Leviton Manufacturing Co. Inc. U.S. (“Leviton”) and Lutron. We are penetrating this market primarily via our subsidiary Traxon Technologies Ltd., Hong Kong (including its brand e:cue) and its subsidiaries (“Traxon”) and since July 2011 through Siteco Lighting GmbH, Germany and its subsidiaries (“Siteco”). Companies from other industries such as LG Electronics or Samsung, as well as other companies from the semiconductor industry, such as Taiwan Semiconductor Manufacturing Company Ltd., Taiwan (“Taiwan Semiconductor”) and Sharp, or manufacturers from the electronics industry such as Hon Hai Precision Industry Co. Ltd., Taiwan (“Hon Hai”) and AU Optronics Corp., Taiwan (“AU Optronics”), have succeeded in penetrating the LED lighting market. These companies can draw upon economies of scale for electronic assembly processes that are not available to us to the same extent. In addition, our competitors might benefit from government support measures that are not available to us at all or only to a lesser extent. China, for example, supports domestic LED producers (which also includes OSRAM with our facility in Wuxi) through government stimulus measures. Even if, in our opinion, the product quality does not yet match that of established manufacturers, we cannot rule out the threat of serious competition from Asia that may materialize sooner than expected. The publicly disclosed sales figures for production facilities for manufacturing light emitting semiconductor chips – MOCVD (Metal-Organic Chemical Vapour Deposition) equipment – indicate that significant production capacity has been created in the industry and especially in Asia, which is likely to increase
34 competition. Finally, original equipment manufacturers (OEM) in the automotive industry may expand their business, for example, to LED light engines leveraging on their know-how relating to the vehicle automotive body electronics. As competition becomes more diverse and with new competitors entering the lighting market, competition is likely to intensify and may have a material adverse effect on our business, financial position and results of operations.
Partly as a result of the technological change, the lighting industry is evidencing consolidation. The transition in the lighting industry may change the competitive landscape due to increasing consolidation and vertical integration along the value chain. We are also considering greater vertical integration, however, it is uncertain whether this strategy will be successful. The lighting industry is evidencing consolidation along the value chain towards integrated lighting providers. Vertical integration is considered important as a former replacement business changes towards a first installation business model where access to the downstream sector is likely to become increasingly important to retain competiveness. In particular, one of our main competitors – Philips – acquired a number of luminaires manufacturers. Vertical integration in our industry is also pursued through cooperation agreements. We are also considering greater vertical integration and, besides our organic initiatives to achieve further vertical integration, have taken another step into the downstream sector with the acquisition of Siteco in July 2011. We cannot yet assess with certainty whether this strategy will be successful. Further forward integration in the downstream sector would require substantial investments. Moreover, the sector is highly fragmented and characterized by regional requirements and customer preferences so that a gradual process appears to be the only option and we may not be as fast as necessary to retain our competitive position. Expanding our position in the LED upstream sector to gain increased economies of scale would also require considerable investments. Competition in the upstream sector is equally intense and the sector is subject to substantial price pressure and may increasingly change to a mass market, which is subject to market consolidation. Finally, integration in one or the other direction might turn former business partners into competitors, who may be lost as customers and could in turn extend their business activities and penetrate the market in which we operate. Integration steps could also fail or not achieve the expected objective. If one or more of these risks materialize, this could have a material adverse effect on our competitive position, and on our business, financial position and results of operations.
Our business is exposed to become more volatile in connection with the shift to solid state lighting (SSL) products. Overcapacities, price erosion and short product life cycles in the SSL business might increase the volatility of our business. Solid state lighting products are subject to rapid technological change as well as price erosion. Supply and demand are difficult to predict. Technologically, LEDs are types of semiconductors that produce light, while other types of semiconductors are used to process or store data. Certain parts of the semiconductor industry are highly cyclical, for instance, memory products used in computers. While we believe that the production of LEDs and memory chips is characterized by a number of significant differences (such as the size of investment required for a new manufacturing facility, product lifetime and the demand for new equipment for new technologies), some similarities between these two types of semiconductors remain. Supply and demand for LEDs are highly volatile. The market is defined by rapid technological change, the related threat of being unable to sell obsolete products, falling average selling prices, falling number of light emitting semiconductor chips and LEDs needed per application due to rising performance (lumens per watt as a ratio of light yield to energy usage) and therefore varying utilization of production capacity. Prices for our SSL products declined significantly in the Fiscal Year 2012, and LED lamps especially experienced intense price pressure. If LEDs become increasingly a commodity, the market for LEDs may become more cyclical, with periods of high demand with increasing prices leading to rising manufacturing capacity and supply, which may in turn meet decreasing demand and a fall in prices, and such mismatch of supply and demand may be significant. Competitors could quickly expand their production capacities, thus generating excess supply. On the other hand, we might not be able to extend our production capacity quickly enough to meet rising demand. Constructing a new manufacturing facility, conversion to SSL or re-equipping existing facilities requires significant lead time with limited certainty of demand before the facility comes on-stream and results in significant costs and requires substantial capital. In the area where OSRAM is acting as a component supplier for electronic consumer goods manufacturers we depend on the success of our customers in these dynamic markets. If one or more of these risks materialize, this could have a material adverse effect on our competitive position, and on our business, financial position and results of operations.
35 Prices for lighting products and especially SSL products have historically been subject to price erosion. The prices for our products tend to significantly decline over time and we need to compensate price declines by productivity improvements and strict cost control in order to avoid a deterioration of our results of operations. Prices for lighting products have historically been and continue to be subject to price erosion, both in traditional products, and in particular in relation to SSL products that must become cheaper to gain market share. In the area of SSL and, in particular, with regard to our business unit Opto Semiconductors, we expect price decreases of approximately 10% per annum for the next years depending on the portfolio segment (e.g., we expect higher price decreases for certain market segments, for example SSL lamps, but we expect lower price decreases for certain special applications and SSL luminaires). Other market studies such as the U.S. Department of Energy, “Solid-State Lighting Research and Development: Manufacturing Roadmap”, August 2012, even predict significantly higher price decreases. There are also market studies that predict prices to decrease slower. However, we consider our assumptions to be realistic as the definitions used in our market model and in the aforementioned market study are different and the rates of the price decreases have been based on different initial values. As these price declines are unlikely to be fully compensated by rising volumes of sold products, we need to achieve productivity improvements and keep our costs under control. In this context, an efficient supply chain management will, among other things, be of an increasing importance. Our SSL business requires significant expenditures for research and development and marketing efforts that weigh on our profitability. We continuously review our operation structures, global and regional presence and processes in order to identify potential cost savings and to adapt our global and regional reach accordingly. By doing so, we try to achieve cost savings and operational improvements that will allow us to compensate for falling selling prices, rising raw materials and energy costs, and higher wages. However, there is no guarantee that our cost saving and efficiency improvement measures will continue to be successful or result in anticipated savings. Furthermore, restructuring measures at first usually have a material adverse effect on our results of operations and cash flow.
The technological change requires a strategic redirection of the OSRAM Licht Group. OSRAM faces this redirection by launching comprehensive measures to ensure a sustainable performance of OSRAM by transforming processes, operations, organization and culture. Our cost optimization, transformation and restructuring programs may not succeed and entail their own risks. The technological change and the consequential fundamental transformation of our business environment require a strategic redirection of the OSRAM Licht Group. To drive the required changes, OSRAM has launched an internal transformation program called “OSRAM Push”. This program aims to ensure sustainable performance by transforming processes, operations, organization and culture. Under the OSRAM Push Program, the “Future Industrial Footprint” project was initiated to realign our global production footprint by adapting our product portfolio and production capacities to future needs. The measures taken in connection therewith are intense and include the closure of production facilities and headcount reductions and result in significant costs. We are also seeking to reduce our operating expenditures. Furthermore, changes in the organization of the business units entail consequential changes of business processes and require active support by the staff. While restructuring programs ultimately should result in cost savings, they also bear the risk that important know-how may be lost and the loyalty of the personnel may decrease as processes and workflows must be changed. Limiting investments and operating expenditures such as selling and marketing expenses may result in a competitive disadvantage once business starts to improve. Adjustments of sales structures may result in revenue decrease. In connection with our restructuring efforts, we may also be perceived as a less attractive employer. Cost saving measures on the procurement side may also result in negative reactions of suppliers potentially culminating in suspension of deliveries or even litigation. If our programs fail to sustain the expected cost-cutting, efficiency or growth effects, our cost structure and competitive position could deteriorate. We may consider increased outsourcing of certain processes to third parties to achieve cost savings. On the other hand, involving outsourcers for production significantly increases the risk of losing control over production processes, product quality and quantity and gives rise to further risks concerning intellectual property rights. Any of the foregoing factors alone or together with other factors may have a material adverse effect on our business, financial position and results of operations.
Our business is capital and personnel intensive. Underutilization of our plants disproportionately impacts our profitability due to the fixed costs that can only be adapted with delay. We are subject to risks relating to our investments in production facilities and the utilization of our production capacities. Because our business has relatively high fixed costs as a result of the capital and personnel intensity of our business, underutilization of our plants impacts our profitability disproportionately. For instance, the rapid and significant decline in revenue in the Fiscal Year 2009 could not be compensated with a similarly fast reduction of our cost base. Furthermore, production facilities in the industry require continuous investments for upgrading and
36 maintenance. Our business unit Opto Semiconductors, for example, is currently converting its light emitting semiconductor chip production facilities in Germany and Malaysia to 6-inch wafers which is expected to allow us to double the chip production capacity for white LEDs. There is a risk that we could build up capacities as a result of false expectations of market developments and therefore suffer low capacity utilization with a negative impact on profitability. On the other hand, if we do not invest sufficiently in upgrading existing capacities, this could impair our ability to supply the market with the required quality and quantity of products, which would adversely affect our competitive position, and therefore our business, financial position and results of operations.
We procure key components for manufacturing our products from third parties. Delivery shortfalls in relation to supplier components and pre-materials can hold up production and materially adversely affect our business activities. We procure key components for manufacturing LEDs from external suppliers; this applies in particular to specific light emitting semiconductor chips. Other materials supplied from third parties include metal organic substances and rare earths required for luminescent materials. Due to the strong growth in the LED market, the availability of special pre-materials or necessary components may become tighter compared to the past. This market is dominated by a small number of suppliers. Although our market position should make us less susceptible to that type of supply shortage, the limited availability of such products may still have a negative effect on our growth opportunities. Where possible, we pursue a multi-supplier strategy for the necessary components. We can resort to a limited number of suppliers only for certain pre-materials and vendor parts. If individual pre-materials and vendor parts are no longer available, because a supplier is temporarily or permanently unable or unwilling to supply them (e.g. because it is no longer economical to manufacture the product) or a supplier has increased the price of its pre-materials or vendor parts significantly, we may not be able to make up for this loss immediately. Changing to another supplier would often entail considerable costs or may be impossible in individual cases. The manufacturing of our products could be temporarily stopped or become impossible in the event of delayed delivery, non-compliance with the agreed specifications or the complete absence of necessary components due to economic or technical problems, logistical or capacity bottlenecks, strikes, lockouts or other reasons. This could have a material adverse effect on our business, financial position and results of operations.
With the change in the lighting industry to SSL, the technological change accelerates, product life cycles become shorter and customer preferences change. We may not respond quickly enough to the technological change in our industry, misallocate our research and development resources and fail to develop innovative, reliable products and services in the future. The lighting industry is facing rapid changes in technology, frequent new product introductions, increasingly shorter product life cycles and changes in customer preferences, as well as increasing price competition. In the future, our business success therefore depends in particular on our capability to offer innovative products tailored to our customers’ needs. We must develop our product range continuously in order to respond quickly to the latest technological developments. This requires, among other things, significant expertise, qualified employees and considerable investment in research and development. The successful implementation and introduction of new products depends on various factors, such as: • achieving and protecting technical innovation through patents to manufacture commercially attractive products; • correctly assessing market needs and the prevailing standards; • the acceptance of new technologies in the markets in which we operate; and • the sale of sufficient quantities to cover fixed costs. We may devote research and development resources to and invest in production facilities for technologies or products that may turn out to be unsuccessful (e.g., on grounds of cost) or not adopted adequately by the market. For example, the demand for high performance high power LEDs used for certain applications might be impacted by the bundling of comparably inexpensive mid and low power LEDs. Furthermore, we decided to review our strategy for OLED in the Fiscal Year 2012. In this context a detailed market review revealed that the market for OLED products is likely to pick-up only later this decade. This resulted in a reassessment of the time at which mass production is expected to start and to an impairment relating to our OLED production facilities in the amount of €21.5 million in the Fiscal Year 2012. Nevertheless we expect that OLEDs could play an important role in the long-term transition to SSL. For this reason, we further drive our research and development as well as the generation of patents in this field. Additionally, we are constantly evaluating various strategic options for our existing business and IP portfolio in this area.
37 Furthermore, new developments and adjustments can involve technical problems; they may fail completely, may not be accepted by the market and are often more frequently subject to malfunctions compared with established products. A product that does not match customer expectations can have a negative effect on existing customer relationships and afford advantages to competitors. If our competitors succeed in developing their current products and technologies quicker or in greater numbers than ourselves, or if our competitors launch alternative products or technologies on the market that are more cost-effective, of higher quality, more functional or are more competitive for other reasons, this could have negative implications upon the demand for products offered by us. If one or more of these risks materialize, this could have a material adverse effect on our competitive position, and on our business, financial position and results of operations.
Due to regulatory requirements, certain inefficient lamps are gradually phased out. Hoarding effects in connection with the gradual phase out of inefficient lamps may affect demand of efficient traditional products as part of the Environmental Portfolio and/or SSL products and benefit our low-cost competitors with respect to traditional basic products. As part of the gradual phase out of inefficient lamps under the EU Ecodesign Directive (see “—Regulatory Risks—There are regulatory efforts being taken worldwide regarding greater energy efficiency of light sources. The markets in which we operate are therefore subject to various regulatory requirements that will change in the future and may lead to additional product requirements.”), all frosted and inefficient lamps with higher wattages (100W) were phased out in the EU in September 2009. Immediately prior to the effectiveness of the phase out, distributors and retailers increased their stocks of frosted and other inefficient lamps with higher wattages (100W), because such stocks could be sold even after the phase out became effective. Even consumers stockpiled the to-be-phased out lamps (hoarding effect). Hoarding effects increased our revenue from traditional basic products in the Fiscal Year 2009, but demand for the phased out products ceased after the phase out became effective. Moreover, the EU Ecodesign Directive resulted in shelf replenishment in retail stores with more modern halogen and energy efficient compact fluorescent lamps as a substitute for such frosted and inefficient lamps with higher wattages (100W), which initially had a positive effect on our revenue with efficient traditional products as part of the Environmental Portfolio. Subsequent restrictions in 2010 did not have similar significant effects on our revenue as the restrictions affected only less popular lamp categories. We experienced hoarding effects again in the Fiscal Year 2011 from the phase out of all 60W incandescent lamps. However, we only benefitted to a lesser extent from hoarding purchases prior to the phase out because distributors and retailers redirected some of their hoarding purchases to Asian low-cost competitors, as quality became a selling proposition of minor importance following the shortage of incandescent lamps created by the phase out. Similar initiatives in other countries may cause similar effects and have a material adverse effect on our competitive position and on our business, financial position and results of operations.
Some of our products contain small quantities of hazardous substances such as mercury, gallium or gallium arsenide. The acceptance of certain lamps, in particular fluorescent lamps (FL), LED lamps and other energy saving lamps by consumers may be adversely affected by the perceived potential harm to health caused by hazardous substances. Fluorescent lamps (including FL tubes as well as compact fluorescent lamps (CFLs)) contain small quantities of mercury, a hazardous and toxic substance. Although we believe that the quantity of mercury contained in FLs or CFLs is unlikely to be harmful to human health, some concerns have been raised publicly regarding the possibility that broken fluorescent lamps can be a source of health impairments (exposure) caused by mercury. In addition, small amounts of volatile organic compounds can evaporate from CFLs. Also, LEDs can contain traces of gallium, indium, antimony and/or gallium arsenide. We believe that we fully comply with the relevant regulatory limits and deem these emissions and traces to be uncritical. However, the mere perception of our products (in this case FLs, CFLs or LED components and LED lamps, respectively) being seen as a risk to consumers’ health by our customers may affect their marketability in the future. While we believe that our products are safe to consumers, consumers may give more weight to the perceived risks than that which we consider reasonable, which in turn may have a material adverse effect on our sales of these products and, as a result, on our business, financial position and results of operations. Furthermore, it cannot be ruled out that in the future national or international legislators may forbid or tighten the existing regulatory provisions on the use of potentially hazardous substances in e.g. energy saving lamps and in LEDs, for instance as a result of public concerns. In this case we would have to fulfill the imposed conditions, which could have a material adverse effect on our business, financial position and results of operations. For regulatory risks in connection with certain specialty light products, see “—Regulatory Risks—Some of our products contain low level radiation emitters and are subject to restrictive rules for distribution, storage, handling and import/export activities; we are already or may be required to discontinue distribution of these products in some countries in the future.”
38 Our products must meet high quality standards and product recalls may involve significant costs as in most instances they will relate to a large number of products. Additionally, quality defects can lead to property damage and personal injury, for example if a product causes fire. We may face significant product liability or warranty claims or we may be forced to undertake recalls that may be costly and create adverse publicity.
Our products must meet high quality standards. Quality defects have sometimes emerged or have been implied in the past and may also occur in the future. The risk of quality defects arises in particular when production processes are undergoing a change, such as our current conversion of LED-manufacturing to 6-inch wafer technology. If the products manufactured or supplied by us do not meet the standards agreed with our customers or as stipulated by law, production or supply of such products can be suspended until the cause of the products’ defects is identified and a remedy is found. If necessary, defective products that have been sold must also be recalled and exchanged, and product recalls may be costly as in most instances they will relate to a large number of products sold or installed in other products (for example in automotives). There is a risk that we or our joint ventures incur increasing costs from warranties, because customers increasingly require us to provide longer warranty periods for products supplied by us, in particular regarding the operating life of LEDs. Other product liability risks may arise in connection with hazardous substances in or emissions from lamps. This also holds true for supplied components and products with regard to which we only have limited knowledge about the substances contained. Health risks from the ultraviolet light exposure from indoor tanning lamps are an example for product liability risks; the production facilities for the indoor tanning business were sold by us in two steps in 2010 and 2011 and completed in 2012, however legal risks from the past remain with us. We may incur significant costs, especially if there are several instances of malfunctioning in the supplied products of the same design and/or from exchanging the defective products. Depending on the type of product supplied and damage caused, the costs incurred in exchanging the defective product may exceed many times the price paid for it. Additionally, quality defects can lead to property damage and personal injury, for example if a product causes fire. Such liability claims could involve considerable costs for us. This applies in particular if such costs arise from damages which are not insured. If products are defective that we source from third party suppliers, we may be unable to enforce full recourse against such suppliers. Furthermore, product defects and recall actions can entail reputational damage. Such costs and damages can have a material adverse effect on our business, financial position and results of operations.
If we fail to continuously improve our supply chain management to increase responsiveness to customer orders this might have material adverse effects on our business.
Our business depends, among other things, on the timely availability of certain parts and components, commodities and other materials. In addition to the quality of such parts, components, commodities and other materials, reliable and timely delivery by suppliers and our own supply chain management are crucial to the uninterrupted production and delivery of our products. Supply chain management becomes particularly critical in times of increased volume volatility as we experienced in the financial and economic crisis when the volumes of such parts and components sharply declined, and in the Fiscal Year 2010 when the volumes exhibited strong growth. Changes in customer demand for special features or components may also lead to an increased risk of delivery bottlenecks. We generally attempt to maintain the lowest possible inventory levels, which may result in delivery delay in case of unforeseen strong demand. In connection with the supply chain improvement, we are also trying to continuously improve customer satisfaction. This includes a review of supply chain processes with specific objectives, including the improvement of forecast accuracy and the reliability of delivery as well as reduction of supplier lead-times. Failure to reach these goals could materially adversely affect our business, financial position and results of operations.
We operate an international business and generate a significant part of our revenue outside the euro zone. Exchange rate fluctuations can have material adverse effects on our revenues and profits and may also affect our competitive position.
We operate an international business and are subject to exchange rate risks in the ordinary course of our operations when business transactions or assets and liabilities are executed in a currency other than our reporting currency (euro). In the Fiscal Years 2010 through 2012 the largest share of our revenue in currencies other than the reporting currency of the combined financial statements (euro) was in U.S. dollar, followed by Hong Kong dollar, Chinese renminbi and Japanese yen. In comparison to revenue, a larger proportion of the value creation is located in the euro zone. In terms of currency risk, we are subject to two separate risk categories, transaction and translation risk. Transaction risk refers to the risk of a decrease in the value of a concrete future payment flow in a foreign currency, resulting from a change in the value of a foreign currency relative to the relevant currency
39 (financial risk). Translation risk relates to the risk of a change in the value of items of statements of financial position and statements of income originally denominated in a foreign currency as a result of the currency conversion for the inclusion in OSRAM Licht Group’s financial statements currency. • As a rule, we hedge transaction risks from balance sheet positions, from contractually-agreed transactions and planned sales and orders for a period of the following three to six months such that at least 75% but no more than 100% of the net foreign exchange exposure is hedged. For such hedging transactions hedge accounting is used to reduce earnings volatility, in particular for OSRAM GmbH. Our strategy to hedge against exchange rate fluctuations could be unsuccessful for various reasons and insufficient to prevent a material adverse impact on our business, financial position and results of operations. If the hedging strategy is based on estimates for future cash flows denominated in a foreign currency, these estimates might prove to be incorrect in the future. • We are also exposed to translation risks. We prepare our financial statements in euro. However, many of the entities included in our financial statements are located outside of the euro zone. For the purposes of inclusion in the combined financial statements of the OSRAM Licht Group, the financial statements of those companies are converted from their functional currency into euro. Changes in the average exchange rates in question, or in the exchange rates at the balance sheet date, also impact from period to period our revenue, earnings, assets and liabilities denominated in euro in the financial statements of the OSRAM Licht Group. • Furthermore, there is an economic risk, especially if our sales in one currency are not matched by costs in the same currency. For example, if the value of the U.S. dollar declines relative to the euro, our margins from revenue generated in U.S. dollar (in euro) decline to the extent our costs were incurred in euro but sales were generated with a weakening U.S. dollar. We are exposed to risks arising from fluctuations in the relative value of the relevant currencies, especially between the euro and the U.S. dollar given the magnitude of revenues generated in U.S. dollar. Changes in euro values of future cash flows due to volatile exchange rates might influence the unhedged portion of revenues, but would also affect the unhedged portion of cost of materials. Future changes in the foreign exchange rates can impact sales prices and may lead to margin changes, the extent of which is determined by the matching of foreign currency revenues and expenses. These exchange rate risks could have a material adverse effect on our business, financial position and results of operations. To analyze and manage exchange rate risks, we have historically used a statistical tool based on parametric variance-covariance Value at Risk (VaR). As of September 30, 2012, the foreign currency exchange rate risk based on historical volatilities and correlations, a ten day holding period and a confidence level of 99.5% resulted in a VaR of €1.0 million compared to a VaR of €2.0 million as of September 30, 2011. Actual results that are included in our financial statements may differ substantially from VaR figures due to fundamental conceptual differences. In addition, although VaR is an important tool for measuring market risk, it has some important limitations. In particular, the use of historical data as a basis for estimating the statistic behavior of the relevant markets and finally determining the possible range of the future outcomes out of this statistic behavior may not always cover all possible scenarios, especially those of an exceptional nature. Fluctuating exchange rates may also affect our competitive position. Unlike our U.S. and Asian competitors located outside the euro zone, we continue to produce to a significant extent within the euro zone, so that our procurement and production costs are also to a large extent incurred in euro. When factoring in the non-euro zone, any strength of the euro relative to other currencies, especially the U.S. dollar and currencies tied to the U.S. dollar, increases our relative production costs incurred in euro, compared with our U.S. and other competitors located outside the euro zone. As a result, we may be able to offer our products only at a comparatively higher price or lower profit margin if the exchange rates develop unfavorably. This currency- related competitive disadvantage can lead to a decline in revenue or a lower profit margin at the OSRAM Licht Group. Any of the foregoing currency exchange rate related risks could materially adversely affect our business, financial position and results of operations.
For the manufacturing of our products we require raw materials that are partly subject to significant price volatility. Prices for certain raw materials, in particular for rare earths, sometimes increase considerably. Rising commodity prices could have a material adverse effect on the profitability of our business. We require raw materials such as glass, industrial gasses (xenon and krypton), rare earths, and metals such as copper, aluminum, tin, molybdenum, nickel and zinc and vendor parts, especially mechanical and electronic components, derivative products such as plastic resins, as well as wafers and precious metals for the manufacturing of our products. The cost of materials represents a major portion of our costs of goods sold.
40 Accordingly, changes in raw material prices have a significant impact on our production costs. Some raw material prices are subject to significant price volatility and have increased gradually and in some cases, in particular for rare earths, considerably, which has temporarily adversely affected our gross margin and may continue to do so in the future. Our internal guideline provides the concept for the identification and determination of the commodity price risk exposure and commits the business units to hedge it within a narrow band of 75% – 100% of the commodity price risk exposure in the product for the current and the subsequent quarter. The aggregated commodity price risk exposure is at present hedged through derivative hedging instruments with the Corporate Supply Chain Management department of Siemens AG (together with its subsidiaries “Siemens” or the “Siemens Group”). The role of Siemens Corporate Supply Chain Management will be taken over by the OSRAM Corporate Supply Chain Management after completion of the Spin-off, with derivate hedging contracts at the financial markets being entered into by the OSRAM’s corporate treasury. With respect to commodity price risks, OSRAM does not use hedge accounting for derivative financial hedging instruments. As a consequence, changes in the valuation may result in volatile levels of income. Using historical volatilities and correlations, a ten day holding period and a confidence level of 99.5%, the VaR which comprises the net position of commodity derivatives and the price risk associated with commodity purchase transactions, was €0.7 million for commodity derivatives as of September 30, 2012, compared to €1.4 million as of September 30, 2011. As described above, using VaR has important limitations and some of our commodity price risk may remain unhedged at a given point in time. If we are not able to pass these price increases on to our customers, this could have a material adverse effect on our business, financial position and results of operations. For various reasons, our strategies to hedge against changing commodity prices could turn out to be unsuccessful or insufficient to prevent material adverse effects on our business, financial position and results of operations. If our hedging strategy is based on forecasts of future commodity needs, such forecasts could turn out to be incorrect.
The loss of important customers or a change of the terms of purchases by important customers could materially adversely affect our business. While our revenues do not depend on a single or small number of customers, some of our customers generate revenues in the low three digit million euro range per annum and the loss of these customers would have a material adverse effect on our business, financial position and results of operations. We do not generally enter into long-term commitment contracts with our customers but rather framework agreements with no firm purchase commitment. Important customers may alter their purchasing behavior and reduce or cancel orders or entirely cease to do business with us with little or no notice to us. The effect would be particularly severe if a number of important customer relationships were terminated or the number of products we deliver to such customers was substantially reduced within a short period of time. Customers whose framework agreements expire may also request a reduction of prices and/or a change in terms of purchases before making further purchases from us. Agreeing to such requests may materially adversely affect our revenues and our results of operations and failure to reach an agreement may result in the loss of major customers. Any of the foregoing developments that is systematic or widespread among our customers, especially if it involves multiple larger customers, could have a material adverse effect on our business, financial position and results of operations.
We offer our products worldwide and we also intend to transfer further production capacity to emerging countries. We are exposed to economic, political and regulatory risks, especially in emerging countries. We offer our products worldwide, including countries in Asia, Latin America, Africa and Eastern Europe which we have identified as growth markets for our products. We also intend to transfer further production capacity to emerging countries. Unlike Western Europe and North America, significantly different frameworks and lower economic, political and legal stability exist in some of the countries to which we export, or in which we manufacture our products. Some of the risks inherent in doing business in our existing markets and in new markets include, but are not limited to, the following: • the rate of economic activity, industrial and infrastructure growth and the impact thereof on the demand for lighting products; • currency exchange rate fluctuations; • foreign trade restrictions and exchange controls; • sufficient availability of local financing opportunities; • difficulties associated with the local legal and regulatory systems (e.g., with regard to our lease agreements in China and related capital expenditures); • economic, political and social instability; and
41 • potential imposition of, or increases in, tariffs, taxes and tax rates or other barriers to market entry. Countries such as India and China have introduced trade restrictions for various products in the form of duties or quotas. Additionally, some emerging countries have repeatedly experienced political and economic crises in the past. We are therefore exposed to a series of uncertainties, many of which we are unable to control, and which could have negative implications for our business activities and growth opportunities in these countries and could materially adversely affect our business, financial position and results of operations.
We are involved in legal disputes that bear significant risks. These legal disputes comprise product warranty claims, property damage and personal injury that were caused, or alleged to have been caused, by our products, alleged false or misleading information regarding product characteristics as well as alleged intoxications with mercury and patent litigations. We are involved in several legal disputes that are largely part of the ordinary course of business but are in some instances significant. For example, we are and we have been the defendant in a product warranty claim brought by a car front-light set maker in connection with allegedly mal-functioning LEDs used in automotive head and tail lamps. Other legal proceedings relate for example to fires that were caused, or alleged to have been caused, by our products, to an alleged poisoning of former employees with mercury in connection with the production of fluorescent lamps as well as to asserted damage claims for alleged false or misleading information regarding product characteristics in the U.S. Damages claimed in these proceedings may ultimately be significant. In addition to claims for damages and warranty claims, litigation from the ordinary course of business especially includes patent litigation. Such patent litigation could lead to high compensation or license payments, or to an impediment to production, to necessary modifications or even termination of the distribution of certain products affected by third party patents. Legal proceedings in which we are involved could also trigger claims for damages against us that could exceed our provisions for litigation. Legal expenses in connection with warranty, product liability or patent litigation also tend to be significant in many instances. Adverse developments in legal disputes, including product liability and patent litigations, could therefore have a material adverse effect on our business, financial position and results of operations.
Intellectual property rights play an important role in the lighting industry. We may not be able to adequately protect and defend our intellectual property. The lighting industry in general and the LED market in particular are characterized by a large number of patents and other intellectual property rights. A portion of our revenues and commercial success is based on products, processes, designs, and brands, which are protected by intellectual property rights, such as patents, design patents, trademarks and copyrights. In order to safeguard our development costs and avoid losing market share to competitors, we seek to maintain and defend existing, as well as to generate new robust, intellectual property rights. Therefore, we seek to protect all relevant innovations through intellectual property rights. However, there can be no guarantee that all of the intellectual property rights we apply for will be granted in the countries where we seek protection or with the protective scope that we consider appropriate. Furthermore, granting of intellectual property rights is no guarantee that the relevant claims based on such rights can be enforced to the full degree over the entire lifetime. Additionally, the countries selected at the time of filing may eventually not become economically important for the protected technical solutions, or effective intellectual property protection may be limited in some countries. Moreover, intellectual property rights are protected only for a definite term. Furthermore, Siemens granted licenses to third parties for intellectual property rights owned by us in the past to an extent that cannot be determined with certainty. This we have approved in connection with our separation from Siemens. We could also be potentially prevented from future business opportunities if our competitors file patent applications for a relevant subject matter prior to us. With the technology shift to SSL products, the lighting industry is facing an increasing number of disputes between competitors or other third parties who pursue infringements of their intellectual property rights. In the course of such infringement proceedings, the validity of intellectual property rights is frequently challenged. If we are defeated in such infringement proceedings or our relevant intellectual property rights are invalidated, competitors may gain market shares and we may not be able to generate future royalty income. In order to draw maximum benefit from our intellectual property rights, we need to ensure that our competitors respect them. This includes monitoring of third party products with respect to potential infringements of our intellectual property rights and may involve cost-intensive litigation. Infringements of our intellectual property rights could lead to significant losses of revenue that could have a material adverse effect on our business, financial position and results of operations. Moreover, competitors might also develop competitive products which circumvent our intellectual property rights or copy our products in countries in which we did not apply for intellectual property rights for the relevant technical solutions. This could likewise weaken our competitive position.
42 While we seek to retain the intellectual property rights generated in co-operation with third parties such as business partners, suppliers, customers and research institutes, we might not be able to prevent such third parties from using or distributing the know-how gained in such co-operations. With regard to the protection of our intellectual property, we are also subject to risks relating to employee fluctuations and lack of loyalty of our employees. Employee fluctuations are traditionally high in Asia. These employees may transfer intellectual property to their new employers. In this respect, non-protected know-how and trade secrets are of special concern. If any such risk materializes, this could have a material adverse effect on our competitive position, business, financial position and results of operations.
Our competitors possess intellectual property rights that we have to identify and respect. Accordingly, OSRAM is exposed to various risks in respect of third party intellectual property rights. Third parties and in particular competitors generate patents and possess intellectual property rights which we are required to respect. Such third party intellectual property rights have to be identified and their relevance to our products, processes and developments must be assessed. As we also source components and products from suppliers, we run the risk of infringing intellectual property rights of other third parties in this context as well. Due to the growing complexity of sourced components and products, the monitoring with regard to such third party intellectual property rights proves increasingly difficult. Patent license and patent cross-license agreements are common practice in our industry. In certain areas, our competitive position is based on patent cross-license agreements which we entered into with our competitors. Such agreements typically only cover patents filed within a certain defined period. If we are unable to enter into new or renew existing patent cross-license agreements in regular intervals to also cover patents filed after such period, this may have a material adverse effect on our competitive position and may leave us with insufficient licenses to continue our business. Patent license and cross-license agreements might also be at risk in case of insolvency of our counterparties. Technology covered by third party intellectual property rights may be unavailable or available only on unfavorable terms and conditions to the OSRAM Licht Group. The validity of intellectual property rights owned by third parties may need to be challenged while at the same time alternative solutions avoiding use of third party rights may need to be investigated and developed. However, we may not be successful in all cases or we may not be able to obtain all licenses necessary to use a technology relevant to us. Third parties may also claim that the OSRAM Licht Group infringes their intellectual property rights and start patent litigation that could require substantial financial and personnel resources. Depending on the outcome of any such litigation, which is usually difficult or impossible to predict, we may be prevented from using corresponding technologies and manufacturing or distributing certain products, and may be held liable for damages by the owners of the intellectual property rights. Disputes and litigation may lead to payments of significant amounts. Specifically in the U.S., this problem is increased by professional patent exploiters that acquire patents just in order to bring claims against manufacturers. Concerning sourced items, it may be difficult to obtain indemnification from the supplier. Expenditures to acquire licenses, the development of alternative non- infringing technologies and litigation and the payment of damages in connection with the infringement of intellectual property rights owned by third parties, as well as potential court injunctions preventing us from manufacturing and distributing certain products, could have material adverse effects on our business, financial position and results of operations.
We have to rely on a compliance system to prevent irregularities in business activities. Our increasing project business and large customer accounts may make us susceptible to illegal business practices. While we have implemented a worldwide compliance program to address compliance risks and, supported by our global compliance organization, continuously work to improve the effectiveness and efficiency of this program, employees may be tempted to win business with illegal practices, in particular corruption, certain sales incentives or violation of anti-trust laws. In case of illegal business practices, governmental authorities may take action against us or some of our employees. These actions could include administrative, criminal and civil fines as well as sanctions, injunctions against future conduct, profit disgorgements, occupational and employment bans, the loss of business licenses or permits or other restrictions. In addition to monetary and non monetary sanctions, monitors could be appointed to review future business practices in order to ensure compliance with applicable laws and we may otherwise be required to modify our business practices and our compliance program. Tax authorities may also impose certain sanctions, including potential tax penalties. Potential corruption or anti- trust proceedings could also damage our reputation and have a material adverse impact on our ability to compete
43 for business from both public and private sector customers. As a means of prevention, we are continuously working on increasing the specifications of our distribution agreements, for example those involving purchasing associations. This could also impair our relationship with important business partners as well as our ability to obtain new business partners. Any of the foregoing factors, alone or in combination, could have a material adverse effect on our business, financial position and results of operations.
We may suffer substantial losses in the event of a natural disaster, terrorist attack or other casualty event in markets in which we operate. Our global operations are subject to the risk of natural disasters, such as, among others, earthquakes, typhoons, fires and floods. Additionally, large disasters, terrorist attacks, riots and civil commotion or other casualty events could disrupt our operations despite any absence of direct physical damage to our properties by causing a material economic downturn, whether in the affected area or a country in which we operate. A catastrophic loss of lives, businesses and infrastructure may have an indirect impact on us by affecting our employees, customers, business partners and suppliers, and may consequently affect our production, sourcing and/or reduce the demand for our products. In addition, risks may not be insured or our insurance cover may not protect us against all damages or related business interruptions resulting from the events described above. With or without relevant insurance coverage, damage to any of our offices, branches, production facilities or distribution network or to third parties (e.g. suppliers), due to natural disasters, terrorist attacks or other casualty events, may materially adversely affect our business, financial position and results of operations.
We rely upon the uninterrupted operation of our production workflows and available IT processes. We cannot rule out that technical, logistical or other disruptions could occur and lead to a temporary stoppage of individual plants or plant components that are material to our business and production activities. An associated interruption of production or shipping could prevent us from meeting our supply obligations to our customers. This could cause customers to file a claim (especially for damages), and we may lose that customer permanently, which could materially adversely affect our business, financial position and results of operations. The operation of our production plants and the transfer of data between the individual companies of the OSRAM Licht Group and the different market organizations, the distribution and service partners and financial institutions depend on the efficient and uninterrupted operation of our IT landscape. IT landscapes are generally susceptible to disruptions, damages, power failure, computer viruses, hacking attempts by third parties, fire and other events. Although we have implemented certain measures to protect ourselves against such events, the operational breakdowns or interruptions of these systems may happen, which could impair our ability to maintain our efficient production and supply processes and guarantee sufficient controlling. In addition, operational breakdowns or interruptions could lead to production stoppage, which in turn could result in lower revenue and unexpected costs. If one or more of these risks materialize, this could have a material adverse effect on our business, financial position and results of operations.
OSRAM is subject to German and international tax conditions. Tax audits and changes in tax law as well as a reduced recoverability of deferred tax assets due to the deterioration of our results of operations could materially adversely affect our financial position and results of operations. We operate on a global basis and are therefore subject to regulation in different tax jurisdictions and have to deal with various tax authorities. Changes in tax laws could potentially result in higher tax expense and payments. Furthermore, this could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities. Using tax loss carry forwards and other deferred tax assets and, thus, the recoverability of deferred tax assets accounted for in the combined financial statements depend on the respective national tax legislation. In addition, ongoing and future tax audits, respectively, may have a detrimental impact on the amount of tax loss carry forwards and other deferred tax assets and related recognized deferred tax assets. Deferred tax assets are recognized if it is expected that sufficient future taxable profit is available. As future developments are uncertain and partly beyond management’s control, assumptions are necessary to estimate future taxable profits as well as the period in which deferred tax assets will recover. If management considers it probable that all or a portion of a deferred tax asset cannot be realized, a corresponding valuation allowance is taken into account. In addition, the uncertainty regarding the tax environment in some countries could limit our ability to enforce our rights. As a globally operating organization, we conduct business in countries subject to complex tax rules, which may be interpreted in different ways. Future interpretations and developments of tax regimes may affect our tax liability, financial position and results of operations.
44 The majority of companies that are part of the OSRAM Licht Group are subject to regular tax audits. We cannot rule out that tax authorities and/or courts will impose additional burdens on us or any of our subsidiaries as a result of ongoing or future tax or other audits (for instance because of the partial non-recognition of transfer prices applied to intra-group deliveries or services or as a result of the assessment of facts which may result in indirect taxes) or that reserves which have been set aside for this purpose will be insufficient. Any significant increase in our tax burden due to the factors described above is likely to have a material adverse effect on our cash flows, financial position and results of operations.
We are dependent on good relationships with our workforce. Strikes or other labor-related conflicts as well as rising wages or indirect labor costs could have a material adverse effect on our business. Personnel expenses represent a significant cost factor for the OSRAM Licht Group. The majority of our staff at the German locations, and to a lesser extent elsewhere in the world, is covered by collective bargaining agreements. Although we believe that we have good relationships with our workforce, the works councils and unions, there is no guarantee that when existing collective bargaining agreements expire, new agreements will be concluded on terms that are satisfactory to us. It also cannot be ruled out that such an agreement will only be reached following strikes or similar actions. If production is affected over a longer period of time by labor disputes, this could have a material adverse impact on our business, financial position and results of operations. The relationship with our employees may also be negatively affected by the disruptive trends in the lighting industry that require changes in our production process and may require the closure of further production facilities together with the need to transfer employees to new production facilities and processes or to reduce our workforce. In our operations in emerging markets, labor costs may continue to increase as a result of inflationary trends in these countries and rising unrest among low paid people. Indirect labor costs could increase due to continued inflation of medical costs especially in the Americas region. If one or more of these risks materialize, this could have a material adverse effect on our competitive position, and on our business, financial position and results of operations.
As a technology company, we need qualified employees; competition for such employees is intense. An inability to attract and retain skilled key personnel could materially adversely impact our business. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation, transition and expansion of our business could limit our ability to conduct research activities successfully and to develop and sell marketable products. Competition for qualified personnel is particularly intense in the area of research and development, engineering and the project business (qualified SSL sales people). We may also lose senior managers that are important to our business. Our new management team carried out an assessment of our senior management. A significant number of senior officers below board level were substituted. In connection with our restructuring efforts, we may lose key employees and may be perceived as a less attractive employer. If one or more of these risks materialize this could have a material adverse effect on our competitive situation, business, financial position and results of operations.
We may be subject to risks from past and future acquisitions, equity holdings, joint ventures and divestitures. In line with our growth strategy, we may consider acquiring companies and entering into joint ventures in the future. We cannot ensure that we will be able to identify suitable acquisition targets or complete acquisitions on satisfactory terms, if at all. Our ability to obtain debt financing for acquisitions depends on our profitability and capital structure (as expressed, e.g., by the ratio of net financial debt or adjusted net financial debt and EBITDA (earnings before interest, taxes, amortization, depreciation and impairments of intangible assets and property, plant and equipment)) existing at the relevant time. Any additional indebtedness we incur to pay for acquisitions may adversely affect our liquidity, cash inflows and outflows and financial position. Our strategy includes strengthening our business via joint ventures and associated companies. All factors that affect the profitability of our equity holdings or equity holdings of our subsidiaries (such as the interest in Valeo Sylvania currently held by our subsidiary OSRAM SYLVANIA), including negative effects on the sales, results and liquidity of such entities, could affect our proportionate share in the income or result in an impairment of these investments accounted for using the equity method. Furthermore, our business, financial position and results of operations could be negatively affected by the drawing of guarantees and loan facilities as well as capital contributions in connection with equity investments. Such investments also result in inherent risks, as we might not be able to take the measures required to react to potentially negative effects on our business by influencing management processes and business decisions of our equity investments.
45 Integration of acquisitions and joint ventures present the parties involved with a series of specific challenges, which in turn expose us to a series of risks that include, among others: • The integration of a new business always presents a challenge. It is therefore possible that the synergies that we expect to realize under our business plan will not be achievable, in whole or in part, or that acquisitions may prove materially disadvantageous to us. There can be no assurance that our acquisitions will contribute to our operating results to the extent we anticipated and on which we based our purchase price calculation. • The integration of a new business claims time and attention from the management of the companies involved. To the extent that matters associated with the integration distract management from their other tasks, our business may be adversely affected. For example, we are currently integrating the businesses of Siteco that we acquired in July 2011 and Encelium Holdings Inc., U.S. (“Encelium”), which we acquired in October 2011. These integrations require harmonization of processes and systems. • The companies involved in acquisitions will rely on their respective executive employees to achieve the successful integration and implement a joint strategy. If we or the businesses acquired lose key employees, an efficient and successful integration and the implementation of the strengths of our respective companies could be jeopardized. • Acquired companies and businesses may not be in compliance with, or may not have complied in the past with, all laws and regulations applicable to such businesses. Existing or new compliance-related issues may arise with respect to businesses we acquire. In such case, we could be subject to fines or other sanctions or liabilities or incur costs, which may materially adversely affect our business, financial position and results of operations. • Acquisitions often lead to goodwill being recognized in the statements of financial position. Goodwill is tested for impairment annually, as well as whenever there are events or changes in circumstances which suggest that the carrying amount may not be recoverable. Goodwill recorded in our combined financial statements amounted to €36.7 million as of September 30, 2012 (€238.2 million as of September 30, 2011). In the Fiscal Year 2012 we recorded goodwill impairments of €237.4 million. • We may be subject to claims if we do not fulfill our obligations in connection with an acquisition. • In some acquisitions, third parties may retain a minority position with possible minority rights; this could lead to the situation that we do not gain full control of the business acquired or shareholders may file actions to set aside certain shareholders’ resolutions or business transactions. • We have entered into a number of joint ventures, including Valeo Sylvania LLC, Seymour, U.S., (“Valeo Sylvania”). In connection with Valeo Sylvania we recorded impairment losses amounting to €27.6 million in the Fiscal Year 2012 and €7.3 million in the first half of the Fiscal Year 2013. Furthermore, shareholder financing measures had to be taken and might also become necessary in the future. On June 13, 2013, OSRAM SYLVANIA as seller and Valeo Investment Holdings, Inc. as purchaser together with OSRAM GmbH and Valeo S.A. (each as additional debtors) entered into a Call/Put Agreement pursuant to which OSRAM SYLVANIA has the right to sell (put option) to Valeo Investment Holdings, Inc. its interest in the joint venture Valeo Sylvania LLC, and Valeo Investment Holdings, Inc. has the right to buy (call option) such interest from OSRAM SYLVANIA. In the Fiscal Year 2012, OSRAM sold its shares in two joint ventures with Mitsubishi Electric Corporation, Tokyo, Japan (“Mitsubishi” or “MELCO”) and Toshiba Lighting & Technology Corporation, Yokosuka, Japan (“TLT”). Resulting from these divestitures, OSRAM is still subject to potential liabilities resulting from contractual obligations for guarantees for the benefit of the purchasers in an amount of €7.8 million (calculated based on the foreign currency exchange rate as of March 31, 2013). • Both with regard to companies with minority shareholders and joint ventures, we may want to acquire the shares of our copartners in connection with the realignment of our shareholding structure. Due to minority rights of shareholders, the related purchase price may be possibly higher than the fair enterprise value. Additional risks could emerge and unexpected problems could arise which we are unable to estimate at the time of the relevant transaction. The occurrence of such events or any events such as those described above could make the integration of the businesses acquired more difficult, more time-consuming and more expensive than initially expected, which could have material adverse effects on our operations or those of our new subsidiaries or equity investments, including our respective businesses, financial position and results of operations. We cannot guarantee that integration processes will be successful or that the businesses will be managed and operated efficiently in the future.
46 In the past, OSRAM has divested of companies and parts of companies and will continue to divest of companies and parts of companies in the future. This may result in further risks, in particular those caused by claims raised by the relevant purchaser. Furthermore, it is uncertain if in connection with future divestments the sales prices will correspond to the carrying amounts. Any of the foregoing risks alone or together with other risks could materially and adversely affect our business, financial position and results of operations.
Our business is capital intensive. Our business activities could be negatively affected if we are unable to meet our capital requirements in the future (for example in weak financial markets or as a result of a breach of a credit facility agreement). Since the lighting industry is subject to considerable technological change and consolidation, our capital requirements for the development of new products or production processes, or future acquisitions, investments and economically required restructuring measures may be significant in the future. For instance, significant investments in production facilities may be required to expand the production of LEDs; this also applies to the development of production facilities. Significant funds can also be required for further forward integration, for example through acquisitions. Our ability to obtain debt financing could also depend on several factors, some of which are beyond our control, such as general economic conditions, the availability of credit from financial institutions, and global and European monetary policy. In addition, deterioration in our business results, financial condition or credit ratings could lead to higher financing costs or other unfavorable commercial terms or an acceleration of loans. Depending on our future cash flows and the availability of equity capital or debt at appropriate terms, there is the risk that we cannot adequately finance and therefore realize new investments or acquisitions, which could in turn have a material adverse effect on our growth prospects, our competitive position and our business, financial position and results of operations. In connection with our separation from Siemens, we signed a credit facility agreement regarding credit facilities including a revolving loan with a maximum total volume of €1.25 billion in February 2013. During the term of our credit facility agreement, we are obligated to comply with the provisions set out therein. In the event of a breach of certain contractual obligations, e.g. the non-fulfillment of a repayment obligation or the breach of the financial covenant that is not cured within the agreed grace period and with respect to which the financing banks did not waive their termination right, respectively, there is a risk that the financing credit institutions terminate the credit facility agreement for cause. In the event of such termination, the outstanding amounts would be immediately due for repayment, which could have a material adverse effect on our business, financial position and results of operations.
We are exposed to credit risks and may need to write off receivables if our customers are unable to meet their obligations. We are exposed to credit risks, in particular relating to trade receivables arising from our ordinary course of business. Credit risk is defined as an unexpected loss in cash and earnings if the customer is unable to pay its obligations in due time or if the value of property that serves as collateral declines. We may incur losses if the credit quality of our customers deteriorates or if they default on or fall behind schedule with their payment obligations to us, such as a consequence of the financial crisis and the global economic downturn. The allowance for doubtful accounts involves significant management judgment and review of individual receivables based on individual customer creditworthiness, current economic trends and analysis of historical bad debts on a portfolio basis. As of September 30, 2012 and 2011, OSRAM recorded a valuation allowance for current trade receivables of €26.1 million and €24.9 million, respectively.
OSRAM has granted pension benefits to a large portion of its employees. Therefore, we have significant liabilities with respect to our defined benefit pension plans and the actual costs of these obligations could exceed current estimates. Pension benefits are granted to a large portion of the employees of the OSRAM Licht Group. These obligations have been grouped in different pension plans depending on the legal, economic and tax environment of the respective countries. For a major part, the pension schemes are designed as defined benefit plans, either funded in the form of external plan assets (so called pension plan assets) or unfunded. The funded status of our pension plans may be affected by an increase or decrease of the defined benefit obligation (DBO), as well as by an increase or decrease in the attributable fair value of the plan assets. The pension benefits are accounted for
47 based on actuarial valuations, which rely on statistical and other factors in order to anticipate future developments. The DBO significantly depends on the discount rate applied. The basis for determining the discount rate is the range of yields on high-quality corporate and government bonds used. A change of the discount rate and changes of the assessments of market yields used, respectively, may result in significant changes of the DBO. In addition, the DBO is determined by key valuation assumptions such as the rate of compensation increase or pension progression rate and biometric factors. Biometric factors include especially life expectancies of the employees participating in the pension plan. Life expectancies and corresponding expected mortality rates are reflected in regularly updated and mandatorily applied mortality tables by the Company. Actual developments may differ from assumptions e.g. due to changing market and economic conditions, thereby resulting in an increase or decrease in the actual obligations. Significant movements on the financial markets or a change in the portfolio mix of plan assets can result in significant increases or decreases of the attributable fair value of plan assets over time. This applies particularly to equity securities. Also, changes in the valuation assumptions of pension obligations can affect net periodic pension cost. For example, a change in discount rates in particular may result in changes in the net periodic pension cost in the following Fiscal Year. An increase of one percentage point of the discount rates would have led to a decrease of the DBO by €230.2 million in the Fiscal Year 2012; a reduction of one percentage point of the discount rates would have led to an increase of the DBO by €288.7 million in the Fiscal Year 2012. In order to comply with local pension regulations in selected foreign countries, we may face a risk of increasing cash outflows to reduce an underfunding of our pension plan in these countries, if any. The DBO of our (funded in the form of external plan assets or unfunded) principal pension and other post- employment benefits as of September 30, 2012 was €1,941.6 million, and the fair value of the corresponding plan assets totaled €1,477.6 million, resulting in an underfunding of €464.0 million. The liability for pension plans and similar commitments in our combined statements of financial position was €489.8 million as of September 30, 2012 (including the underfunding mentioned above and additional liabilities for pension plans and similar commitments that are not part of the principal pension and other post-employment benefits mentioned above).
A sovereign default or exits of EU member states from the euro zone may have material adverse effects on the global economy. At the date of this prospectus, the European sovereign debt crisis is unsolved, and concerns regarding the long-term solvency of a number of member states of the European Union, including Greece, Ireland, Portugal, Spain and Italy, have persisted as public debt has increased and economic growth has turned negative in most of these countries. The ongoing sovereign debt crisis has introduced considerable political and monetary uncertainty into the euro zone. It is uncertain when and how the European financial crisis will be resolved. If countries leave the euro zone, either consensually or non-consensually, the value of the euro compared to other currencies could change significantly, or the euro could cease to exist altogether. Such changes may result in substantial expense and disruption to us as our reporting currency is the euro and we report income and expenses, assets and liabilities and cash inflows and outflows in euros. In addition, companies we currently do business with may also face substantial disruption or cease to exist altogether. In this situation, there is no guarantee that we would be able to enter into new agreements similar to those we have now or that purchasers of our materials or licensees of our technology would continue their relationships with us. Efforts to stabilize the euro zone may also result in substantial new tax burdens on us or restrictions on our ability to do business. Any such change may have a material adverse effect on our business, financial position and results of operations, and affect these in various aspects, including • declining demand for our products; • increasing currency risks; • further contraction in bank lending affecting our refinancing; • loss of trade receivables leading to losses and financing needs. Any such event would have a material adverse effect on our growth prospects and our business, financial position and results of operations.
48 Due to the technological change, our business model changes from producing products on a large scale basis towards more project business. We may not be able to adjust our business processes and IT landscape quickly enough to support the adaption to our changing business environment. In the past, our business model was, to a large extent, to produce products on a large scale basis. In the future, we expect to increasingly design tailor-made products and we expect to expand the share of the project business. While historically we used to plan production levels based on forecasts, we will need to improve the flexibility of the production and align it more closely with the actual demand in order to avoid excessive inventory levels. As a result we will need to adjust our supply chain management accordingly. Given that the lifecycles of our products will generally become shorter, we will further have to focus on reducing the time between product development and availability for sale (time to market). In order to meet these objectives and other requirements of our changing business environment, we will need to be able to adjust our business processes and to implement newly developed IT systems in the near term. Any failure to do so may have a material adverse effect on our growth prospects, competitive position and our business, financial position and results of operations.
We may not be in a position to provide some of our customers quickly enough with a sufficient verification that our products are free from conflicted materials within the meaning of the U.S. American Dodd-Frank Act. As a result, we might lose important customers and our business might be materially affected. Many of our customers are under an obligation to prove the origins of certain materials, the so-called “Conflict Minerals”, in their products for the entire supply chain due to the U.S. American Dodd-Frank Wall Street Reform and Consumer Protection Act” or due to pressure from their own customers or from the public. The objective of the law is to ensure that the use of Conflict Minerals does not indirectly provide financing for the civil war and the resulting human rights violations in the Democratic Republic of Congo and the neighbouring countries. Conflict Minerals are currently the minerals and ores required for the extraction of tungsten, tantalum, tin and gold. These materials are of particular relevance for the manufacturing of our products. We have already implemented a code of conduct for our suppliers that demands for respect for human rights in our supply chain. In addition, we will have to prove that the materials used in our products are ‘conflict free’, i.e. do not indirectly provide financing for the civil war and the resulting human rights violations, at the request of our customers. This will entail significant efforts for our supply chain management. Specifically, we will have to implement additional processes, get in touch with our suppliers (which will in turn have to contact their subsuppliers), document the findings and, potentially, provide for an independent third party audit. This will, among other things, require the cooperation of our suppliers, many of which are not yet familiar with this topic. We have set up a project in order to meet the existing and expected needs of our customers. If we fail to meet these requirements, this could have a material adverse effect on our business, financial position and result of operations.
REGULATORY RISKS There are regulatory efforts being taken worldwide regarding greater energy efficiency of light sources. The markets in which we operate are therefore subject to various regulatory requirements that will change in the future and may lead to additional product requirements. On the basis of the so-called Kyoto Protocol, the European Union adopted a series of directives and regulations that contain detailed provisions in relation to the energy efficiency of light sources, among which the Ecodesign Directive 2009/125/EC is the most relevant. Uniform minimum energy efficiency standards throughout Europe shall improve energy efficiency potential and at the same time prevent the European market from fragmenting. According to the Ecodesign Directive, we are required to integrate aspects of environmental protection into product design to improve energy efficiency of the relevant product throughout its whole life span (Ecodesign). Based on the Ecodesign Directive, the European legislator sets forth specific requirements for defined product groups or for environmental aspects thereof (“Implementing Measures”), some of which have already been adopted. Further Implementing Measures on household luminaires and directional (reflector) lamps have recently been adopted. Products which do not meet the requirements of the respective Implementing Measure must no longer be placed on the European market. This has led to a far-reaching ban on the placing on the market of conventional light bulbs and other less efficient lamps in the European Union. In most other countries in which we are active, similar regulations are planned or have already been introduced. In the United States, for example, the Energy Independence and Security Act (“EISA 2007”) sets minimum performance standards in the United States for the efficiency of the common household incandescent lamp. These requirements affect the manufacture of lamps from 40W through 100W, with standards first being
49 applied to 100W lamps beginning January 1, 2012. Phase out will be completed by January 1, 2014. This effectively bans the sale of most current incandescent lamps in the United States. Further restrictions in relation to energy efficiency and product information are also expected in the future. Our ability to adjust our products to these standards is a key component of our business activities and a prerequisite for assuming a leading role in the various markets. The adjustment and development processes will likely require continuous investment in the future. Placing of certain hazardous substances in electrical and electronic equipment on the market is subject to restrictions, bans and notification obligations particularly under Directive 2011/65/EU on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“RoHS Recast Directive”) and Regulation (EC) No. 1907/2006 concerning the registration, evaluation, authorization and restriction of chemicals (“REACH Regulation”). The periodic review of such hazardous substances by the European Commission can lead to further limitations or a withdrawal of current exemptions for individual substances which currently allow placing such hazardous substances contained in articles on the European market. In the past this caused us to change the design of various lamps. It cannot be ruled out that we will have to make substantial investments in order to meet future requirements. We are currently developing suitable solutions for products containing hazardous substances subject to exemptions in order to meet (potentially) stricter requirements in the future. It cannot be ruled out that certain substances in applications or products will be prohibited within a very short or no transition time, forcing us to stop selling such products. Furthermore, it cannot be ruled out that in the future legislators will forbid the use of potentially hazardous substances in energy saving lamps such as the small amounts of mercury contained in fluorescent lamps and the small amounts of volatile organic compounds emitted by CFLs and other electronic equipment or traces of other hazardous substances in certain LEDs which are not accepted by the public opinion (see “—Risks relating to our Industry and our Business—Some of our products contain small quantities of hazardous substances such as mercury, gallium or gallium arsenide. The acceptance of certain lamps, in particular fluorescent lamps (FL), LED lamps and other energy saving lamps by consumers may be adversely affected by the perceived potential harm to health caused by hazardous substances.”). If one or more of these risks materialize, this could have a material adverse effect on our competitive situation, and on our business, financial position and results of operations.
Some of our production facilities and sites have been used for industrial purposes for decades and are in individual cases contaminated. Accordingly, we are subject to environmental liability risks, general regulatory risks and to risks from changes to the regulatory frameworks.
We are subject to a comprehensive legal framework, especially in relation to environmental protection. We must observe in particular emission control and other environmental regulations in the manufacture of our products in and outside of Germany. The measures required to comply with these provisions, especially regarding the fitting and retrofitting of plants, can involve considerable expenses. Regulations relating to the establishment, expansion or operation of plants in Germany, other European countries or elsewhere where we operate production sites may be tightened further, which can require cost-intensive measures in the future. Permits required for operating our plants or the use of (environmentally) hazardous substances can be restricted or withdrawn in the future. Similarly, it cannot be ruled out that we infringe public law regulations that must be observed in connection with the operation of our plants, especially in relation to emissions exceeding statutory limits or limits imposed by the authorities or other statutory provisions. We could therefore be confronted with an order to enforce such emission limits, the fulfillment of which could require considerable investment. In a worst- case scenario, a breach of environmental or other regulations could result in the closure of plants. Since some of our sites have been used in the past and continue to be used for industrial and occasionally in the past military purposes, there is a latent risk that these premises may be contaminated as a result of such use. Known cases of contaminations include especially remediation measures that were completed in the past, are currently being conducted or will possibly have to be conducted in the future in Germany, the U.S., Russia and Brazil. Even if we were not responsible for the contamination, we may be responsible for the examination and potential remediation of sites formerly or presently owned or leased by us by law or under contractual obligations, for example in cases of soil and/or groundwater contamination. In addition, some of the buildings owned or leased by us may contain asbestos or other hazardous materials that would eventually have to be removed. Environmental liabilities could arise, including cleanup obligations at these facilities or at off-site locations where materials from our operations were disposed of, which could result in future expenditures that currently cannot be quantified. In addition, we are subject to environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and require us to establish or observe standards for the treatment, storage and disposal of solid and hazardous wastes. Failure to comply with these laws and regulations or inability to obtain or keep the permits required for our operations could result in substantial
50 operating costs and capital expenditures, in addition to administrative fines and civil or criminal sanctions, third party claims for property damage or personal injury, and clean-up costs or temporary or permanent discontinuance of operations. Furthermore, the previous and current existence of hazardous materials such as asbestos in our production facilities or the previous or ongoing use of hazardous substances such as gallium arsenide, lead, mercury or hazardous dust in the production or the release of hazardous ionizing or non-ionizing radiation in the production process might, due to the potential exposure of people, especially employees or other people working on our sites, despite all precautions, have resulted in health impairments or illnesses, for the consequences of which, including examinations, treatment and compensation, we might be held liable even without fault. This applies to the use of such hazardous substances during production and environmental remediation measures as well as in connection with the recycling of certain valuable raw materials. OSRAM is currently active in implementing a recycling of fluorescent lamps for the recovery of rare earths. In this context, adequate processes for the proper use of recovered material were developed; the recovered materials inevitably include hazardous substances such as mercury. If one or more of these risks materialized, this could have a material adverse effect on our competitive situation, our perception in the broad public and on our business, financial position and results of operations.
Some of our products contain low level radiation emitters and are subject to restrictive rules for distribution, storage, handling and import/export activities; in some countries we are already or will be required in the future to discontinue distribution of these products. Certain types of our high performance lighting products that are used in professional and industrial applications contain small amounts of substances emitting low level of ionizing radiation (Krypton 85 or Thorium). Despite being proven as safe throughout their entire life span by a number of independent studies such as the recent publication of IAEA-TECDOC-1679 confirming the safety in all aspects of the life cycle of lamps, these products are subject to an un-harmonized and therefore complex set of national and international regulations. Regulations concerning distribution, storage, handling and import/export activities of such products vary significantly by country. Major lamp manufacturers are in contact with national regulators, and a significant number of countries have issued the respective licenses or agreed to exempt these lighting products from the respective national licensing requirements. In other countries, no such exemptions or licenses apply at present. We will continue to cooperate with all competent authorities in resolving this issue. Where such cooperation is not successful or necessary licenses are not granted, we are required to discontinue the distribution of such products, which could have a material adverse effect on our business. Recently, changes of global logistics were necessary because of a risk (which we consider remote) that penalties or sanctions could be imposed on us for infringement of the relevant regulations. The new compliant organization should avoid any such infringement but single failures in view of the complex set of regulations by local, appropriately trained staff cannot be excluded in general. To date neither penalties nor other sanctions have been issued in any country. While we continue to reduce or eliminate the low level radiation emission of our products, the factors described above may have a material adverse effect on our business, financial position and results of operations.
Current and pending legislation implementing an extended product responsibility frequently mandates funding of recycling programs (collection, transportation and recycling), with limited ability to pass these additional costs on to the customer. The WEEE Directive (Directive 2002/96/EC, as amended by Directive 2008/34/EC) inter alia has introduced the implementation of collection schemes where consumers return their used electrical or electronic waste free of charge. One objective of this directive is to increase the share of recycled and/or re-used products. Producers must pay for the collection and treatment of electrical and electronic waste, including its preparation for re-use, recycling or energy recovery. Products of the lighting industry have a special characteristic with respect to the collection and disposal. Based on data for Germany, about 80% of the disposed waste of electrical and electronic equipment counted by unit is expected to be lamps. The share of electrical and electronic waste of lamps in total weight, however, is expected to amount to 1% only. With these characteristics, our products differ from all other categories of electronic equipment to be returned and underline the importance of the obligation to collect for OSRAM. This is of increasing importance as according to the revised WEEE Directive (2012/19/EU) of July 24, 2012, starting from 2016, EU member states must annually collect 45% of the average weight (and not units) of electrical and electronic equipment (EEE) placed on their national markets (calculated on the basis of EEE placed on the market in the three preceding years). As of 2019, member states are to achieve a 65% collection rate. Lower collection rates and extended time limits apply to Malta and several Eastern European member states, e.g. the Czech Republic, Hungary or Poland, as in these countries the infrastructure
51 required for disposal and recycling is missing and the level of consumption of electrical and electronic equipment is low. It cannot be ruled out that our costs for collection and disposal will rise correspondingly. This would have a material adverse effect on our business activities. The WEEE Directive does not foresee recycling for incandescent lamps including halogen lamps or lamps covered by special regulations (e.g. Directive 2000/53/EC of the European Parliament and the Council of September 18, 2000 on end-of-life vehicles). In many other markets in which we are active, regulations have been enacted or are under discussion in pursuit of legislative goals similar to that in Germany and/or in the European Union. In the United States, for example, a number of states have introduced or plan to introduce regulations on the recycling of products. We may have to bear some of the costs for disposal or recycling of our products subject to such regulations. Given the number of countries in all parts of the world which have implemented or plan to implement such legislative acts related to waste electrical and electronic equipment, it cannot be ruled out that in some of these countries we will not be able to comply, or fail to comply within the set timeframe, with all relevant regulations, which might lead to penalties or restrictions relating to the sale of our relevant products. Any of the foregoing developments may have a material adverse effect on our competitive situation, and on our business, financial position and results of operations. In order to meet our obligations to redeem and handle waste electronic equipment, we have formed organizations in various legal forms together with other lighting and non-lighting companies in some countries, which organize the redemption and treatment of waste lamps for the companies of the lighting industry and enter into agreements with third parties for this purpose.
We market our products worldwide; in this connection, we are subject to export control regulation. For certain countries such as Iran, regulation is constantly tightened. Further tightening of regulation may materially adversely affect our business activities. As a global organization, we conduct business with customers in countries that are subject to export control regulations, embargos, sanctions or other forms of trade restrictions imposed by the United States, the European Union or other countries or organizations. For example, business with customers in Iran has recently become subject to significant further regulation of the Security Council of the United Nations, the U.S. and the European Union. Additionally, the U.S. American “Iran Threat Reduction and Syria Human Rights Acts 2012” of August 10, 2012 strengthens restrictions for non-U.S. companies to trade and do business with Iran and Syria. New or tightened export control regulations, sanctions, embargos or other forms of trade restrictions imposed on Iran or on other sanctioned countries in which we do business may result in a curtailment of our existing business in such countries and require us to amend and adapt our policies accordingly. In addition, the cutback on our activities in Iran or other sanctioned countries (such as Syria) may expose us to customer claims and other actions. Any of the foregoing risks may have a material adverse effect on our competitive situation, and on our business, financial position and results of operations.
In the past, we have received government subsidies that have reduced our expenses. Reductions in the amount of government subsidies we receive or demands for repayment could increase our reported expenses. As is the case with many other lighting companies, our reported expenses have been reduced in recent years by various subsidies received from governmental entities. In particular, in the past we have received subsidies for OLED, LED and laser-technology. Government grants were awarded for the purchase or the production of property, plant and equipment or were related to cost incurred and future costs, offset within research and development expenses. In the Fiscal Years 2012, 2011 and 2010, we received government grants in an aggregate amount of €12.6 million, €18.6 million and €15.2 million, respectively. The availability of government subsidies is largely outside of our control. We may not be able to benefit from such support in the future or sufficient alternative funding may not be available on a timely basis or on terms satisfactory to us. Generally, we believe that fewer government subsidies will be available in each of the countries in which we have received funding in the past, and the competition for government funding is expected to intensify. The application for and implementation of such subsidies often involves compliance with extensive regulatory requirements, including, in the case of subsidies to be granted within the European Union, notification to the European Commission in respect of the contemplated grant prior to disbursement. In particular, compliance with project related ceilings on subsidies defined under European Union law often involves highly complex economic evaluations. Many of the legal and other criteria for receiving subsidies have become more stringent. If we fail to meet such requirements or conditions, we may not be able to receive the subsidies or may be obliged to repay them. In addition, the terms of certain of the subsidies we have received impose certain conditions that may limit our flexibility to utilize the subsidized facility as we deem appropriate, to transfer
52 equipment to other facilities, to reduce employment at our sites, or to use related intellectual property outside of the European Union. This could impair our ability to operate our business in the manner we believe is most cost effective. Any of the foregoing developments may have a material adverse effect on our competitive situation, business, financial position and results of operations.
RISKS ASSOCIATED WITH OUR SHAREHOLDER STRUCTURE AND THE SPIN-OFF Siemens AG will retain a minority shareholding in OSRAM Licht AG upon the Spin-off becoming effective and will be able to exercise a corresponding influence, and the interests of Siemens could come into conflict with the interests of other investors. Upon the spin-off of the majority of the OSRAM activities by transfer of 80.5% of the Shares in OSRAM Licht AG to the shareholders of Siemens AG (the “Spin-off”) that becomes effective upon the last registration with the competent commercial registers that is expected on July 5, 2013, Siemens AG will hold 19.5% of the Company’s share capital (17.0% upon transfer of 2.5% to Siemens Pension Trust e.V. shortly after the Spin-off becoming effective). Upon the Spin-off becoming effective, one of our Supervisory Board members and one of the Supervisory Board members of OSRAM GmbH is at the same time member of the Managing Board of Siemens AG. Siemens’ interests could conflict with the interests of other shareholders. Depending on the shareholder presence at the general shareholders’ meeting, Siemens may also prevent resolutions from being adopted at the annual general meeting with its minority stake. This applies in particular to resolutions that require a qualified majority of the votes cast or the represented share capital to be adopted. This may include capital increases to finance acquisitions, investments or for other purposes. In case the presence of the other shareholders at the general meeting of OSRAM Licht AG is extraordinarily low, Siemens might be in a position to control the resolutions passed by the general shareholders’ meeting of the Company with a simple majority. The potential for Siemens to exercise influence, especially with regard to voting in the annual general shareholders’ meeting, or exercising other influence that is in conflict with the interests of the other shareholders, may adversely affect our share price. In the event that Siemens does not participate in a capital increase undertaken by us in the future, this could limit our efforts to raise new capital and may have a material adverse effect on our competitive position, and on our business, financial position and results of operations.
The withdrawal from the Siemens Group may lead to the loss of business opportunities and higher procurement costs. In the past, we benefited to some extent from the business activities of the Siemens Group, in particular regarding the infrastructure portfolio for comfort, energy efficiency and security as well as integrated and market specific solutions for buildings and public places (Siemens Building Technologies Division), but also in other areas. It cannot be ruled out that the significant reduction in Siemens’ investment could diminish this cooperation and we might in the future lose the business opportunities we previously enjoyed because our business partners took into consideration other business opportunities relating to the entire Siemens Group when they entered into business relations with us. We have historically been able to take advantage of Siemens’ size and purchasing power in procuring goods, technology, financing and other services, including insurance, pension plans, legal and audit services. Following our separation from Siemens, we are a smaller and less diversified company than Siemens. As a separate, stand-alone company, we may be unable to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to the separation from Siemens. Both loss of business and sourcing benefits based on us no longer being part of the Siemens Group may have a material adverse impact on our business, financial position and results of operations.
The creation of administrative, financial and other functions and services that were provided to date by the Siemens Group could be delayed or fail to succeed. In the past, we have relied on financial, administrative and other resources of Siemens to operate our business. In connection with our separation from Siemens, we will need to create our own financial, administrative and other support systems or contract with third parties to replace functions and services previously provided by Siemens. We have entered into agreements with Siemens AG or certain of its subsidiaries under which Siemens AG or certain of its subsidiaries will provide certain transitional services to us for a limited period. However, these services may not be sufficient to meet our needs, and, after these agreements with Siemens expire, we may not be able to replace these services at all or obtain these services at prices and on terms as favorable as we currently have. In addition, since we are becoming a public company, our management team will need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to independent
53 public companies, including requirements relating to corporate governance, listing standards, financial reporting and investor relations issues. While we were, as a business within Siemens, subject to requirements to maintain an effective internal control environment, our management will have to evaluate the applicability of those procedures to OSRAM in light of our new status as an independent company, and to implement necessary changes to those procedures to account for that status. We cannot guarantee that we will be able to do so in a timely and effective manner. All of the factors stated above, alone or in combination, could have a material adverse effect on our business, financial position and results of operations.
We may face increased administrative, financial and related expenses as a result of operating as an independent company. As a Division of the Siemens Group, we historically had access to a wide range of administrative, financial, information technology, logistics and other services that are provided centrally to Siemens Group companies. Our financial statements included in this prospectus for periods prior to our separation from Siemens may not fully reflect the additional costs of us operating as an independent company. We may incur increased administrative expenses as a stand-alone company, including expenses for services that will continue to be provided by the Siemens Group pursuant to services agreements at prices intended to correspond to those obtainable from third parties. As a substantially smaller company, we may also lose the benefit of some economies of scale that Siemens was able to achieve with respect to administrative operations. We have limited experience operating as a stand-alone entity, and it is possible that these increased costs will be materially higher than anticipated. In the future, we will also no longer benefit from funding previously provided by the Siemens Group or from external financing supported by collateral provided by Siemens Group (e.g. guarantees). Without further support activities of Siemens and dependent on our own credit standing, our future financing and our providing guarantees as security for our contractual obligations towards third parties will become more difficult and more expensive as an independent company. Any of the foregoing developments may have a material adverse effect on our competitive situation, and on our business, financial position and results of operations.
Due to our complex financial history, we have prepared combined financial statements for this prospectus. The financial information presented in this prospectus may not be fully representative of our results as an independent company. OSRAM Licht AG was founded only in 2012. A legal group of companies within the meaning of IAS 27 with OSRAM Licht AG as parent company will only be created when the Spin-off becomes effective (which is expected on July 5, 2013). Therefore, combined financial statements have been prepared for this prospectus. Our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 and the condensed interim combined financial statements for the six months ended March 31, 2013 are based on a series of assumptions and estimates which affect the recognition and amount of assets and liabilities, income and expenses and contingent liabilities, including in particular income taxes and the inclusion of certain subsidiaries that were owned by Siemens in the reporting periods. Accordingly, the historical financial information included in this prospectus does not necessarily fully reflect changes that have occurred or will occur when we operate as a separate company. Some of our subsidiaries were in the past part of the Siemens income tax group (hereinafter referred to as the tax group) such that taxes were not imposed on us. For purposes of the preparation of our combined financial statements, we have disregarded this tax group and calculated income and trade taxes based on certain assumptions. Use of these assumptions and estimates means that the combined financial statements presented in this prospectus are likely not to be fully representative of what our financial position, results of operations and cash flows would have been had we been a fully stand-alone entity during the periods presented.
As a legal consequence of the Spin-off, we are exposed to existing claims against Siemens AG and depend on Siemens AG’s ability to provide indemnification and we might have to provide security to our creditors. In accordance with the provisions of the German Transformation Act (Umwandlungsgesetz), OSRAM Licht AG is jointly and severally liable for liabilities of Siemens AG which came into existence before the Spin-off becomes effective, if (i) such liabilities become due before the expiry of five years after the Spin-off and (ii) a claim against OSRAM Licht AG is submitted to a court or established in another manner specified in Section 133 German Transformation Act (Umwandlungsgesetz). Siemens AG and OSRAM Licht AG have agreed in the spin- off and assumption agreement (Abspaltungs- und Übernahmevertrag) that OSRAM Licht AG shall be indemnified in case claims relating to existing liabilities of Siemens AG are submitted against OSRAM Licht AG. If existing creditors of Siemens AG submit such existing claims against OSRAM Licht AG and Siemens AG is not in the financial position to meet its indemnification obligation, this could have material adverse effects on
54 our business, financial position and results of operations. In addition, under the German Transformation Act, creditors of OSRAM Licht AG may, within six months after publication of registration of the Spin-off in the commercial register of OSRAM Licht AG, ask OSRAM Licht AG to provide security to the extent such creditors cannot obtain satisfaction of their claims and can demonstrate probable cause that the fulfillment of their claims will be jeopardized by the Spin-off. If we should be obliged to provide such security, this could have material adverse effects on our business, financial position and results of operations.
In the Spin-off and/or the preparation of the Spin-off, unutilized tax loss carry forwards and interest carry forwards of OSRAM GmbH and its subsidiaries could have been forfeited. Unutilized losses and interest carry forwards are forfeited in full if within a period of five years more than 50% of a corporation’s registered share capital or voting rights are directly or indirectly transferred to an acquiring party, affiliated individuals/entities or a group of acquirers with aligned interests, or a comparable change of ownership in the corporation occurs (harmful acquisition - schädlicher Beteiligungserwerb). If 50% or less but more than 25% of the corporation’s registered share capital or voting rights are transferred or due to another harmful acquisition as described above, unutilized losses and interest carry-forwards will be forfeited pro rata to the transferred percentage. As of 2010, the above-described limitations may not apply if the registered share capital or voting rights are transferred to certain transferees belonging to a group (as further defined in the pertinent provisions) of which the corporation forms part (Konzernklausel) or to the extent that the losses do not exceed the built-in gains which are taxable in Germany (Verschonungsregelung). It is currently unclear whether the limitations with respect to unutilized loss and interest carry-forwards also apply to EBITDA carry-forwards (if any). During the preparation of the Spin-off, a harmful acquisition could have occurred, because of (i) the contribution of the 80.5% participation of Siemens AG in OSRAM GmbH to OSRAM Beteiligungen GmbH and (ii) the spin-off of all shares in OSRAM Beteiligungen GmbH to OSRAM Licht AG where, in each case, more than 50% of the shares in OSRAM GmbH were transferred to an acquiring party (OSRAM Beteiligungen GmbH and OSRAM Licht AG, respectively) within a period of five years. According to the combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010, the deferred taxes capitalized in respect of the loss carry forwards of OSRAM GmbH amounted to €55.4 million. However, the forfeiture of the unused losses and interest carry forwards can, in our view, only be avoided to the extent that the losses do not exceed the built-in gains which are taxable in Germany.
RISKS RELATING TO THE COMMENCEMENT OF TRADING OF OUR SHARES Substantial sales of our Shares may occur in connection with the Spin-off, which could cause the price of our Shares to decline; such sales may also occur subsequently. Upon the Spin-off becoming effective and after the listing of the OSRAM Licht AG Shares, it is likely that a number of shareholders will sell Shares and the price of our Shares may initially decline significantly. Some of the reasons for such a fall in the share price could be that shareholders sell the Shares because they do not wish to invest in the activities which have been spun off and new investors do not buy the Shares to the same extent, one reason being that no experience has yet been gained with OSRAM Licht AG on a stand-alone basis. In particular, unlike the shares of Siemens AG, the Shares of OSRAM Licht AG are likely not to be listed in the DAX; this means that all existing investors who are limited to invest in stocks of DAX companies as a result of their investment guidelines or other reasons would have to sell the Shares. There are no lock-up agreements of shareholders, including in respect of the minority shareholding following effectiveness of the Spin-off held by Siemens AG and Siemens Pension Trust e.V. If Siemens disposes of a significant amount of shares on the open market or the markets anticipate such disposal, this could negatively affect our share price. In addition, Shares traded in the form of American Depositary Receipts (ADR) in the United States will be sold by a representative of the depositary once the Spin-off becomes effective and the proceeds (net of costs) will be paid to the ADR- holders. Therefore, it is not unlikely that considerable selling pressure will develop immediately after our Shares are admitted to trading.
There is no guarantee that an active and liquid market for the Shares will develop. Prior to the listing of the Shares, there was no public market for the Shares. There is no guarantee that a liquid trading in the Shares will develop and become established. Investors may not be in a position to sell their Shares quickly or at the market price if there is no active trading in the Shares.
55 The combined value of our Shares and the Siemens shares following the Spin-off may not equal or exceed the value of Siemens shares prior to the Spin-off. Following the Spin-off, the shares of Siemens AG will continue to be listed and traded giving effect for the Spin-off on the trading day following the Spin-off becoming effective (“ex spin-off”). We cannot assure that the combined trading prices of the Siemens shares and the Shares as allocated to Siemens shareholders in accordance with the allotment ratio will be equal to or greater than the trading price of Siemens shares prior to the Spin-off. Until the market has fully evaluated the business of Siemens Group excluding our business, as well as our business on a stand-alone basis, the price at which our Shares and to a lesser extent Siemens shares trade may fluctuate considerably.
Future offerings of bonds or shares by us may adversely affect the market price of the Shares. In the future, we may seek to raise capital through offerings of debt securities (potentially including convertible debt securities) or additional equity securities. An issuance of additional equity securities or securities with rights to convert into equity could materially adversely affect the market price of the Shares and would dilute the economic position and voting rights of existing shareholders if made without granting subscription rights to existing shareholders. Because the timing and nature of any future offering would depend on market conditions at the time of such an offering, we cannot predict or estimate the amount, timing or nature of future offerings. Thus, holders of Shares bear the risk of future offerings reducing the market price of the Shares and/or diluting their shareholdings in the Company. In addition, the acquisition of other companies or investments in companies in exchange for newly issued shares of the Company, as well as the exercise of stock options by our employees in the context of future stock option programs or the issuance of shares to employees in the context of future employee stock participation programs, could lead to such dilution.
56 GENERAL INFORMATION
DOCUMENTS AVAILABLE FOR INSPECTION For as long as this prospectus is valid, the following documents, or copies thereof, may be inspected during regular business hours at the offices of OSRAM Licht AG at Marcel-Breuer-Str. 6, 80807 Munich, Germany: • the Company’s articles of association, as amended to date (“Articles of Association”); • the audited combined financial statements of OSRAM Licht AG (prepared in accordance with the International Financial Reporting Standards as adopted by the EU (“IFRS”)) for the Fiscal Years ended September 30, 2012, 2011 and 2010; • the unaudited condensed interim combined financial statements of OSRAM Licht AG (prepared in accordance with IFRS for interim financial reporting (IAS 34) for the six months ended March 31, 2013); • the audited annual financial statements of OSRAM Licht AG as well as OSRAM GmbH (in each case prepared in accordance with the German Commercial Code (Handelsgesetzbuch – HGB)) for the Fiscal Year ended September 30, 2012. The aforementioned documents will also be available in electronic form for as long as this prospectus is valid on our internet website. Future annual financial statements, consolidated financial statements and condensed interim consolidated financial statements of the Company will also be available at the Company as well as in electronic form on the website.
SUBJECT MATTER OF THIS PROSPECTUS The subject matter of this prospectus for the purpose of admission to trading of the Shares are 104,689,400 registered shares with no par value, each with a notional par value of €1.00 of the Company’s share capital (entire share capital upon effectiveness of the capital increase in connection with the spin-off of an indirect 80.5% shareholding in OSRAM GmbH by way of transfer of all shares in OSRAM Beteiligungen GmbH to OSRAM Licht AG under issuing shares to the shareholders of Siemens AG).
FORWARD-LOOKING STATEMENTS This prospectus contains certain forward-looking statements. This includes statements in this prospectus containing information on future profitability, plans and expectations regarding the Group’s business and management, the Group’s growth and earning capacity, and general economic and regulatory conditions and other factors that may affect the Group. Forward-looking statements in this prospectus are based on current estimates and assumptions that we make to our present knowledge. These forward-looking statements are subject to risks, estimates, assumptions, uncertainties and other factors, the occurrence or non-occurrence of which could cause our actual results, including the financial position and results of operations, performance or achievements or business success of the Group, to differ materially from or fail to meet the expectations expressed or implied in such forward-looking statements. In light of the uncertainties and assumptions, it is also possible that the future events mentioned in this prospectus might not occur. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus. Actual results, performance or events may differ materially from those in such statements due to, without limitation, • changes in general economic and financial conditions; • changes in the markets in which we operate; • increase of the volatility of our business; • changes in the technology applied in the lighting industry, in particular with regard to the SSL area; • changes in commodity prices; • changes affecting currency exchange rates; • changes in competition levels and related consolidation; • changes in laws and regulations; • negative effects from current or future litigation (in particular related to intellectual property);
57 • decline in prices of our products; or • our ability to achieve operational synergies from past or future acquisitions. Our business is also subject to a number of risks and uncertainties that could cause a forward-looking statement, estimate or forecast in this prospectus to become inaccurate. Accordingly, investors are urged to read in particular the sections of this prospectus listed in the following: “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Technological Background, Industry and Competitive Overview”, “Business” and “Recent Developments and Outlook.” These sections include more detailed descriptions of factors that might have an impact on our business and the markets in which we operate. In light of these risks, uncertainties and assumptions, future events described in this prospectus may not occur, and forward-looking estimates and forecasts derived from third-party studies that have been reproduced in this prospectus may prove to be inaccurate. See “—Presentation of Sources of Market Data; Additional Financial and Numerical Data”. In addition, neither the Company nor the banks accompanying the listing of our Shares (“Banks”) assume any obligation, except as required by law, to update any forward-looking statements or to conform these forward-looking statements to actual events or developments. The risks described in this prospectus are possibly not the only risks to which OSRAM is exposed. New risk factors may emerge from time to time and it is not possible for the Company to predict all such risk factors on its business or the extent to which any of these factors, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place any undue reliance on forward-looking statements as a prediction of actual results.
CURRENCY PRESENTATION The amounts set forth in this prospectus in “€” or “euro” refer to the single currency of the participating member states in the third stage of the European Economic Union pursuant to the Treaty Establishing the European Community. The amounts in “$”, “U.S. dollar” or “USD” refer to the legal currency of the United States of America. Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of the Shares on conversion of dividends, if any, paid in euro on the Shares. The Group’s principal functional currency is the euro, and the combined financial statements have been prepared in euro.
PRESENTATION OF SOURCES OF MARKET DATA; ADDITIONAL FINANCIAL AND NUMERICAL DATA Certain information provided in this prospectus on the market environment, market developments, growth rates, market trends and competitive situation in the markets and segments in which the Company operates is taken from publicly available sources, including, without limitation, the McKinsey Lighting Market Reports 2011 and 2012 and Frost & Sullivan 2011 (both as defined below). In addition, third party sources used for the purposes of this prospectus include: • International Energy Agency (“IEA”), OECD, Light’s Labour’s Lost, Policies for Energy-efficient Lighting, 2006, • IEA, “World Energy Outlook 2012”, November 2012, • IHS Global Insight, “World Overview, Expenditure on Gross Domestic Product”, October 2012, • IHS Global Insight, “IHS Automotive Light Vehicle Production Forecast: Base (Global)”, September 2012, • IHS Global Insight, “Population Trends 2010 – 2020”, June 2011, • IMS Research, “Packaged LEDs World”, October 2012, • IMS Research, “2011 Lighting Report”, July 2011, • IMS Research, “Optoelectronic Components – World”, March 2011, • McKinsey & Company, “Lighting the way: Perspectives on the global lighting market”, 2nd edition, August 2012 (“McKinsey Lighting Market Report 2012”), • McKinsey & Company, “Lighting the way: Perspectives on the global lighting market”, July 2011 (“McKinsey Lighting Market Report 2011”),
58 • Frost & Sullivan, “The LED Revolution and its Effects on the Global Lighting Market”, July 2011 (“Frost & Sullivan 2011”), • United Nations (“UN”), Department of Economic and Social Affairs, Population Division, “World Urbanization Prospects: The 2011 Revision”, March 2012, • U.S. Department of Energy (“DoE”), “Life-Cycle Assessment of Energy and Environmental Impacts of LED Lighting Products – Part I”, February 2012 (“U.S. DoE, LED Life-Cycle Assessment, February 2012”), • U.S. DoE, “Energy Savings Potential of Solid-State Lighting in General Illumination Applications”, January 2012 (“U.S. DoE, Energy Savings Potential of SSL, January 2012”), • U.S. DoE, “Energy Savings Estimates of Light Emitting Diodes in Niche Lighting Applications”, January 2011 (“U.S. DoE, Energy Savings Estimates of LED in Niche Lighting Applications, January 2011”), • U.S. DoE, “Solid-State Lighting Research and Development: Manufacturing Roadmap”, August 2012 (“U.S. DoE, SSL Manufacturing Roadmap 2012, August 2012”), • U.S. DoE, “Solid-State Lighting Research and Development: Multi-Year Program Plan”, April 2012, (“U.S. DoE, Solid-State Lighting Research and Development: Multi-Year Program Plan April 2012”), • U.S. DoE, “Solid-State Lighting Research and Development: Multi-Year Program Plan”, March 2010, (“U.S. DoE, Solid-State Lighting Research and Development: Multi-Year Program Plan, March 2010”). To the extent not otherwise indicated, the information contained in this prospectus relating to the market environment, market developments, growth rates, market trends and competition in the markets in which we operate are based on assessments of the Company, which are based in part on internal observations of the market and on market studies. In addition, in certain places in this prospectus we cite two publicly available industry reports compiled by McKinsey & Company. We commissioned McKinsey & Company with the preparation of the first industry report in March 2011. In August 2012, McKinsey independently published a second, updated edition. Furthermore, we based our assessment of the competitive environment in particular on a publicly available report prepared by Frost & Sullivan dated July 2011 “The LED Revolution and its Effects on the Global Lighting Market” that was likewise commissioned by us. Neither we nor the Banks have independently verified the market data and other information on which third parties have based their studies or the external sources on which our own estimates are based. Therefore, we and the Banks assume no responsibility for the accuracy of the information relating to the market environment, market developments, growth rates, market trends and competitive situation presented in this prospectus from third-party studies or the accuracy of the information on which its estimates are based. To the extent the Company’s estimates are based on information that is not available from publicly available sources, the Company believes that it has prepared these estimates with due care and that these estimates reproduce the relevant information in a neutral manner. Any information in this prospectus that the Company has derived from publicly available sources or that it has otherwise derived from third-party sources has been accurately reproduced with reference to the respective source. As far as the Company is aware and was able to derive this information from information published by third party sources, no facts have been omitted that would render the reproduced information in this prospectus inaccurate or misleading. However, investors should be aware that market studies are often based on information or assumptions that may not be accurate or appropriate, and their methodology is often inherently predictive and speculative.
PRESENTATION OF FINANCIAL INFORMATION General Unless otherwise indicated, financial information contained in this prospectus has been prepared in accordance with the IFRS. In this prospectus, the term “combined financial statements” refers to the audited combined financial statements of the Company for the Fiscal Years ended September 30, 2012, 2011 and 2010 prepared in accordance with IFRS. The term “interim combined financial statements” refers to the unaudited condensed interim combined financial statements for the six month period ended March 31, 2013 prepared in accordance with IFRS applicable to interim financial reporting. The term “combined financial statements” sometimes refers also to both the audited combined financial statements and the unaudited condensed interim combined financial statements. References to our Fiscal Years 2012, 2011, and 2010 are references to our Fiscal Years ended September 30, 2012, 2011 and 2010, respectively.
59 Certain Definitions Where we refer to “subsidiaries” of OSRAM or the “OSRAM Licht Group” in this prospectus, this term also includes OSRAM GmbH (that will become a subsidiary of OSRAM Licht AG upon effectiveness of the Spin-off) and OSRAM Beteiligungen GmbH and OSRAM GmbH’s subsidiaries including companies that have been transferred to OSRAM GmbH from the Siemens Group in the Fiscal Year 2011 and have been included in our combined financial statements. In this prospectus, the terms “business unit”, “segment” and “entity” do not have a synonymous meaning. OSRAM structures its business into business units with their own management. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments within the meaning of IFRS 8. The former business unit General Lighting (forming a segment) has been split up into four new separate business units, namely Lamps, Light Engines & Controls, Luminaires and Solutions as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED will be reported as part of corporate items. The other business units Specialty Lighting and Opto Semiconductors continue to form each one segment. Where we refer to “SSL” revenue we use the following definition: SSL stands for solid state lighting and identifies the newest generation of lighting products such as LEDs. SSL is defined as and has to be distinguished into light-generating SSL products (semiconductor-based light sources) and forward integrated SSL products such as luminaires and detectors, as well as light management systems. It includes: • LED lamps, LED luminaires and LED systems in their entirety, including any necessary components and services sold as part of a LED light solution; • LED chips and LED light engines; • OLEDs (organic light emitting diodes); • Infrared emitters, producing electromagnetic radiation close to the spectrum of visible light; • Laser diodes; • Silicon photo detectors, semiconductors which react to and may be used to measure light; • Sensors, which are a combination of a semiconductor emitter and a photo detector; • Light management systems (sensors, user interfaces and controllers; actuators for traditional lamps are excluded) and associated components and services. To align our business activities with climate protection and help our customers save on energy costs, OSRAM defined an “Environmental Portfolio”, which comprises the groups of efficient traditional products as part of the Environmental Portfolio and SSL products. The qualification of products and solutions to these groups which is reviewed in each reporting period is based on a defined inclusion and exclusion process and strict criteria which have been implemented by OSRAM. To qualify, products, systems, solutions or services have to lead at a minimum to a 20% improvement in energy efficiency or energy savings in the use phase at the customer compared to the applicable basic product defined in the corresponding reporting period or have to embody a type of environmental technology or contribute to such technology as a main component (e.g. technologies in relation to water and wastewater treatment, air pollution control, waste reduction or recycling). Traditional basic products do not qualify for inclusion in the OSRAM Environmental Portfolio. It includes, inter alia, energy-saving lamps that are subject to the Regulation (EC) 244/2009. When determining which products, systems, solutions or services shall belong to the Environmental Portfolio, in cases of doubt, we take a conservative approach and use those assumptions, parameters and methodologies which are more likely to underestimate than overestimate the range of the Environmental Portfolio. Since certain energy inefficient products were subject to statutory energy efficiency regulation in calendar year 2012 (especially in the EU and the U.S.) and, therefore, must not be brought on the market anymore, we removed these products from the baseline of the OSRAM Environmental Portfolio and adapted the OSRAM Environmental Portfolio for the Fiscal Year 2012 accordingly. To reflect changes over time as transparent as possible, in addition to the nominal revenue change of the Environmental Portfolio, a comparable change adjusted for changes to the baseline is presented in which the mentioned products are treated as if they still belonged to the Environmental Portfolio of the Fiscal Year 2012. The term full time equivalent or “FTE” refers to both the average number of employees in a given accounting period and the number of employees as at the reported balance sheet date and includes part-time employees and fixed-term employees on a proportionate basis. Apprentices, trainees and interns as well as contract workers are not included in this number.
60 Where we refer to “emerging countries” in this prospectus, we follow the definition of the International Monetary Fund (IMF) of “Emerging and Developing Countries” that currently includes 150 countries. This prospectus contains information to our reporting regions “EMEA”, “Americas” and “APAC”. The region “EMEA” includes Europe, Russia, the Middle East and Africa. The region “Americas” comprises USA, Canada, Mexico and South America. The region “APAC” covers Asia, Australia and the Pacific region.
Measures not Defined by IFRS or the German Commercial Code (Non-GAAP Measures) This prospectus contains certain non-GAAP measures. Return on Capital Employed (ROCE), Free cash flow, EBITDA, EBITA, EBIT, EBITA margin, capital expenditures, capital expenditures as percentage of revenues and as a percentage of depreciation and amortization, net debt, adjusted net debt, net working capital and certain other items included herein are not recognized terms under IFRS or under the German Commercial Code (“GAAP measures”) and should not be considered as an alternative to the applicable GAAP measures. We have provided these non-GAAP measures and other information in this prospectus because we believe they provide investors with additional information to measure the economic performance of our business activities. Our use of these non-GAAP terms may vary from other companies in our industry. Terms used by us should not be considered as an alternative to net income (loss), revenues or any other performance measures derived in accordance with IFRS or the German Commercial Code as measures of operating performance. Neither should they be considered as an alternative to cash flows from operating activities as measures of liquidity. These non- GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under IFRS or under the German Commercial Code. For definitions and further explanations of non-GAAP measures see also “Management Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures”.
Negative Numbers; Rounding Numbers in parentheses in this prospectus denote a negative amount. Certain numerical data, financial information and market data (including percentages) in this prospectus have been rounded according to established commercial standards. As a result, the aggregate amounts (sum totals or sub-totals or differences or if numbers are put in relation) in this prospectus may not correspond in all cases to the amounts contained in the underlying (unrounded) figures appearing elsewhere in this prospectus. Furthermore, in tables and charts, these rounded figures may not add up exactly to the totals contained in the respective tables and charts.
61 THE SPIN-OFF
The Spin-off is based on a spin-off and transfer agreement (Abspaltungs- und Übernahmevertrag) dated November 28, 2012, which was approved by the general shareholders’ meeting of Siemens AG on January 23, 2013 and by the general shareholders’ meeting of OSRAM Licht AG on January 21, 2013. At the beginning of March 2013, eight shareholders filed actions to set aside or declare void the resolution of the general shareholders’ meeting of Siemens AG before the regional court (Landgericht) Munich I. By decision of April 10, 2013, the higher regional court (Oberlandesgericht) Munich decided in a so-called clearance procedure pursuant to sections 16(3), 125 of the German Transformation Act (Umwandlungsgesetz) that these actions no longer impede the registration of the Spin-off with the commercial register. The actions were subsequently withdrawn. By way of a spin-off for assumption (Abspaltung zur Aufnahme), Siemens AG will transfer all of the shares in a wholly owned subsidiary, OSRAM Beteiligungen GmbH, to OSRAM Licht AG and the shareholders of Siemens AG will in turn receive 84,274,967 Shares in OSRAM Licht AG (representing 80.5% of the total share capital of OSRAM Licht AG). OSRAM Beteiligungen GmbH in turn holds 80.5% of the shares in OSRAM GmbH. The spin-off and transfer agreement provides for an allotment ratio (Zuteilungsverhältnis) of 10:1, i.e. for ten shares in Siemens AG one share in OSRAM Licht AG will be issued in a capital increase against contribution in kind; contribution in kind are the spun-off assets, namely all shares in OSRAM Beteiligungen GmbH as further explained below. The Spin-off is expected to become effective on July 5, 2013 upon the registrations of the Spin- off with the competent commercial registers in Munich and Berlin-Charlottenburg, whereby the later registration is determinative. With respect to the reasons for the Spin-off, see “Reasons for the Spin-off; Cost of Issuance”.
CORPORATE STRUCTURE PRIOR TO THE SPIN-OFF In preparation for the Spin-off and to allow it retain a minority shareholding, Siemens AG has transferred its shareholding in OSRAM GmbH (the historic parent company of the OSRAM Licht Group) to two of its subsidiaries, namely 80.5% to OSRAM Beteiligungen GmbH and 19.5% to OSRAM Licht AG. The shareholding in OSRAM Licht AG serves to retain the minority shareholding of Siemens AG, while OSRAM Beteiligungen GmbH serves as a vehicle for the Spin-off. Prior to the Spin-off becoming effective, the corporate structure is as follows:
Siemens shareholders
100% 100% Siemens AG
OSRAM OSRAM Beteiligungen Licht AG GmbH 19.5% 80.5%
OSRAM GmbH
SPIN-OFF PROCEDURE In the Spin-off, Siemens AG as transferor will transfer its shares in OSRAM Beteiligungen GmbH (which in turn holds 80.5% of the OSRAM GmbH-shares) to OSRAM Licht AG as transferee by way of spin-off for assumption (Abspaltung zur Aufnahme) under the German Transformation Act (Umwandlungsgesetz). As consideration for the transfer of the spun-off assets, Siemens shareholders will receive newly issued OSRAM Licht AG Shares according to their proportional shareholding in Siemens AG. The newly issued Shares are derived from a capital increase against contribution in kind (contribution of all shares in OSRAM Beteiligungen GmbH into OSRAM Licht AG). The allotment ratio (Zuteilungsverhältnis) is 10:1, i.e. Siemens AG shareholders will receive one share in OSRAM Licht AG for every 10 shares in Siemens AG. As a result of the above steps, OSRAM Licht AG will hold directly and indirectly (through OSRAM Beteiligungen GmbH) 100% of the OSRAM GmbH shares, Siemens AG will hold 19.5% of OSRAM Licht AG’s share capital and the Siemens shareholders will hold the remaining 80.5% of OSRAM Licht AG’s share capital. The following diagram illustrates the mechanics of the Spin-off:
62 80.5% Siemens shareholders
Siemens AG
OSRAM OSRAM Beteiligungen Licht AG GmbH 19.5% 80.5%
OSRAM GmbH
Following registration of the Spin-off with the competent commercial registers (the last registration is expected on July 5, 2013), the corporate structure will be as illustrated by the following graph (see also “General Information on the Company and the OSRAM Licht Group—Group Structure”):
Siemens shareholders
100% 80.5%
OSRAM Siemens AG 19.5%* Licht AG
100%
OSRAM 19.5% Beteiligungen GmbH
80.5%
OSRAM GmbH
* Siemens AG will transfer 2.5% of the Shares in OSRAM Licht AG to Siemens Pension Trust e.V. shortly after the Spin-off becomes effective and thus retain a 17.0% shareholding thereafter.
STATUTORY AUDITOR FOR THE SPIN-OFF Pursuant to a resolution of the regional court (Landgericht) Munich I dated July 30, 2012, Rölfs RP AG Wirtschaftsprüfungsgesellschaft, Düsseldorf (“Rölfs”), was appointed as the spin-off auditor. The spin-off and transfer agreement was audited by Rölfs as spin-off auditor, and a spin-off audit report was prepared.
CONTRIBUTIONS IN KIND AND POST-FORMATION AUDIT The issuance of new shares to the Siemens shareholders against contribution of the shares in OSRAM Beteiligungen GmbH into OSRAM Licht AG by way of the Spin-off includes a capital increase against contribution in kind at the level of OSRAM Licht AG. As OSRAM Licht AG has been founded less than two years prior to the envisaged completion of the capital increase against contribution in kind, the supervisory board of OSRAM Licht AG has reviewed the spin-off and transfer agreement and prepared a post-formation report on December 19, 2012. Furthermore, by decision of the local court (Amtsgericht) of Munich of August 10, 2012, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart (“Ernst & Young”), has been appointed as auditor of the contribution in kind and as post-formation auditor (Sacheinlage- und Nachgründungsprüfer). Ernst & Young prepared an audit report on the contribution in kind and the post-formation dated December 20, 2012.
TRUSTEE, ALLOTMENT RATIO, ALLOTMENT, SETTLEMENT Deutsche Bank Aktiengesellschaft, Frankfurt am Main, has been appointed as trustee in connection with the Spin-off as required by the German Transformation Act. The trustee will receive the Shares in OSRAM Licht AG allocable to the shareholders of Siemens AG as a result of the Spin-off for transfer to such shareholders upon the Spin-off becoming effective. Deutsche Bank Aktiengesellschaft has also been appointed as settlement agent for the Spin-off.
63 The German language version of the notification of allotment (Zuteilungsbekanntmachung) set forth below is expected to be published on July 8, 2013 in the German Federal Gazette (Bundesanzeiger) and in the Frankfurter Allgemeine Zeitung: Siemens Aktiengesellschaft Berlin and Munich
ISIN CODE DE0007236101 // GERMAN SECURITIES IDENTIFICATION NUMBER (WERTPAPIER-KENN-NUMMER) 723 610 - Allotment of Shares in OSRAM Licht AG in connection with the Spin-off ISIN Code DE000LED4000 // German Securities Identification Number (Wertpapier-Kenn-Nummer) LED 400 - On November 28, 2012, Siemens AG as the transferring company and OSRAM Licht AG as the transferee company entered into a spin-off and transfer agreement (Abspaltungs- und Übernahmevertrag). Pursuant to that agreement, Siemens AG shall transfer all shares in OSRAM Beteiligungen GmbH, which in turn holds as its sole asset 80.5% of the shares in OSRAM GmbH (the remaining 19.5% of the shares in OSRAM GmbH being held by OSRAM Licht AG), by way of a spin-off for assumption pursuant to Section 123(2) no. 1 of the German Transformation Act to OSRAM Licht AG. As consideration, OSRAM Licht AG will grant to the shareholders of Siemens AG, free of charge, new Shares in OSRAM Licht AG. An allotment ratio of 10:1 has been stipulated in the spin-off and transfer agreement, i.e., for every ten (10) shares of Siemens AG one (1) Share of OSRAM Licht AG will be issued. The shareholders’ meetings of Siemens AG and OSRAM Licht AG approved the spin-off and transfer agreement of November 28, 2012 on January 23, 2013 and on January 21, 2013, respectively. The Spin-off was first registered with the commercial register of OSRAM Licht AG at the local court (Amtsgericht)of Munich and subsequently with the commercial register of Siemens AG at the local courts of Munich and Berlin-Charlottenburg, and became effective accordingly. Upon effectiveness of the Spin-off, 80.5% of the OSRAM Licht Shares are now held by the shareholders of Siemens AG, whereas 19.5% of the OSRAM Licht Shares continue to be held by Siemens AG. For the completion of the Spin-off, OSRAM Licht AG increased its share capital by €84,274,967 from €20,414,433 to €104,689,400 through the issue of 84,274,967 no-par value registered shares each representing a notional value of the share capital of €1.00. These new Shares will be granted to the shareholders of Siemens AG. All Shares issued by OSRAM Licht AG will be entitled to dividends as from October 1, 2012.
Allotment Ratio Upon effectiveness of the Spin-off, the shareholders of Siemens AG have also become shareholders of OSRAM Licht AG in the proportion of their shareholdings in Siemens AG. In this context, Section 10.1 of the spin-off and transfer agreement provides for an allotment ratio of 10:1. This means that each shareholder of Siemens AG receives • for every ten (10) no-par value registered shares of Siemens AG (ISIN DE0007236101 / German Securities Identification Number (WKN) 723 610) • one (1) no-par value registered Share of OSRAM Licht AG (ISIN DE000LED4000 / WKN LED400) representing a notional amount of the share capital of €1.00 and granting dividend rights as from October 1, 2012.
Trustee As regards the settlement of the allotment of the Shares in OSRAM Licht AG, Deutsche Bank AG acts as trustee for the shareholders of Siemens AG pursuant to Sections 125 sentence 1, 71(1) sentence 1 of the German Transformation Act.
Allotment Procedure As all shares in Siemens AG are held in collective safe custody accounts, the shareholders of Siemens AG need not take any action – except in the event of settlement of fractional amounts, if any – in relation to the allotment of the Shares in OSRAM Licht AG. The Shares in OSRAM Licht AG will be
64 allotted to the shareholders entitled thereto by crediting the Shares to the securities account in accordance with their holdings of shares in Siemens AG on (the evening of) July 5, 2013. The settlement of the above- described measures is centralized at Deutsche Bank AG. No Shares of OSRAM Licht AG will be allotted to the holders of American Depositary Receipts (“ADRs”) of Siemens AG. Under the provisions of the existing deposit agreement, the Shares of OSRAM Licht AG attributable to ADRs will be realized for the benefit of the holders of the ADRs and the realization proceeds will be distributed pro rata after deduction of the costs to the holders of the ADRs. As the right of the shareholders of OSRAM Licht AG to receive certificates for their Shares is excluded pursuant to the articles of association, the Shares of OSRAM Licht AG are represented by two permanent global certificates deposited with Clearstream Banking AG, Frankfurt am Main. The shareholders of OSRAM Licht AG hold an interest in this global holding of Shares in accordance with their proportional share as co-owners. As a result of the allotment ratio, the shareholders of Siemens AG whose holdings of shares in Siemens AG are not divisible by ten will receive fractional rights in Shares of OSRAM Licht AG (ISIN-Code DE000LED1TR8 // German Securities Identification Number LED 1TR), which generally do not confer any shareholder rights. Any consolidation of share fractions to make up full legal rights (i.e. settlement of fractions) requires a corresponding purchase or sales order. For the purpose of settling the fractions, the shareholders of Siemens AG are requested to issue their relevant depositary bank immediately, if possible,
however, no later than by July 19, 2013, with a corresponding instruction for the rounding to full legal rights. Deutsche Bank AG as centralized settlement agent is prepared to act as an intermediary for the purchase and sale of partial rights to the extent possible. Where no instruction for settlement of fractions is given, the fractional rights attributable to the allotted Shares in OSRAM Licht AG shall, after the end of July 19, 2013, be combined to form whole shares and disposed of by the central settlement agent via the stock exchange. The proceeds from this disposition are expected to be disbursed on August 6, 2013 to the respective shareholders in accordance with the fractional rights attributable to them. It is to be expected that, in individual cases, depositary banks, especially abroad, will not participate in the settlement of fractions or will not accept corresponding instructions. The allotment of Shares in OSRAM Licht AG as well as the instruction for settlement of any fractional rights to Shares of OSRAM Licht AG resulting therefrom shall be effected at no cost (commissions or out- of-pocket expenses) for the shareholders, provided that the shareholders maintain a securities account in the Federal Republic of Germany. The publication of the allocation ratio of the tax relevant values (acquisition costs) on shares of Siemens AG and OSRAM Licht AG will take place approximately two weeks following the first day of trading of OSRAM Licht AG shares. Therefore, it might be possible that, following a disposal of shares of Siemens AG and/or OSRAM Licht AG within the time from the first day of trading of the new shares of OSRAM Licht AG to final consideration of the published allocation ratio by the depositary banks, subsequent adjustments relating to tax relevant data and bookings have to be made by the depository banks. Those possible corrections result from the ex post maintenance of the allocation ratio of the relevant tax values (acquisition costs) in the settlement systems of the depositary banks.
Admission to Stock Exchange Trading and First Day of Listing The German language listing prospectus of OSRAM Licht AG for the admission to stock exchange trading was approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) on June 21, 2013. Printed versions of the prospectus relating to 104,689,400 no-par value registered Shares of OSRAM Licht AG are available free of charge from OSRAM Licht AG, Investor Relations, Marcel-Breuer-Str. 6, 80807 München (e-mail: [email protected]; telefax: +49 89 6213-3629) as well as from Deutsche Bank Aktiengesellschaft, Taunusanlage 12, 60325 Frankfurt am Main, Goldman Sachs AG, Messeturm, Friedrich-Ebert-Anlage 49, 60308 Frankfurt am Main, UBS Limited c/o. UBS Deutschland AG, Bockenheimer Landstraße 2–4, 60306 Frankfurt am Main, Commerzbank Aktiengesellschaft, Kaiserstr 16 (Kaiserplatz), 60311 Frankfurt am Main and Joh. Berenberg, Gossler & Co. KG, Neuer Jungfernstieg 20, 20354 Hamburg.
65 The 104,689,400 Shares of OSRAM Licht AG were admitted to the regulated market of the Frankfurt Stock Exchange, to the Munich Stock Exchange and, additionally, to the sub-segment of the regulated market with additional post-admission obligations (Prime Standard) of the Frankfurt Stock Exchange on July 5, 2013. Trading in the 104,689,400 Shares in OSRAM Licht AG is expected to commence on July 8, 2013. With effect from July 8, 2013, the shares of Siemens AG will be listed on the regulated market of the stock exchanges in Frankfurt am Main, Munich, Berlin, Düsseldorf, Stuttgart and Hamburg “ex spin-off”. It is intended that the Siemens share will, if possible, be listed with a comparable indicator at the stock exchanges outside the Federal Republic of Germany. In any event, upon effectiveness of the Spin-off, the Siemens share no longer represents, in economic terms, a participation in the business activities that have been spun off for transfer to OSRAM Licht AG. Munich, in July 2013 Siemens Aktiengesellschaft The Management Board
ADR PROGRAM In the United States, the shares in Siemens AG are traded on the New York Stock Exchange in the form of American Depositary Receipts (ADRs). The deposit agreement between Siemens AG and Deutsche Bank Trust Company Americas as depositary provides that in the case of any distribution on deposited securities other than cash, share distributions and subscription rights, to the extent the depositary deems, after consultation with Siemens AG, a distribution of such securities not to be lawful, equitable or practicable, the depositary may instead distribute the net proceeds of the sale of such distributions to the ADR holders. Accordingly, Deutsche Bank Securities Inc., acting as agent of the depositary, will receive Shares on behalf of the ADR holders, sell them upon commencement of the trading of the Shares on the Frankfurt and Munich stock exchanges and distribute the net cash proceeds from the sale to the ADR holders. No similar ADR program for the Shares in OSRAM Licht AG will be created after the Spin-off.
ADMISSION TO STOCK EXCHANGE AND COMMENCEMENT OF TRADING Admission of the Shares to trading on the regulated market segment (Regulierter Markt) of the Frankfurt Stock Exchange and the Munich Stock Exchange and, simultaneously, in the sub-segment of the Frankfurt Stock Exchange with additional post-admission obligations (Prime Standard) is expected to be applied for on June 21, 2013. An admission decision is expected to be announced on July 5, 2013. Trading on the Frankfurt Stock Exchange and the Munich Stock Exchange is expected to commence on July 8, 2013.
SUBSIDIZED ACQUISITION OF SHARES BY EMPLOYEES In connection with the Spin-off, employees of the German companies of the OSRAM Licht Group in the Federal Republic of Germany will be offered the opportunity to acquire Shares in OSRAM Licht AG with a subsidy granted by OSRAM Licht AG (“Employee Tranche”). OSRAM Licht AG offers eligible employees to acquire Shares in the total amount of investment of up to €4,206.35 per employee (the “Employee Shares”). The total amount of investment comprises an own investment of the respective employee in the amount of €100 through €3,500 and a subsidy granted by OSRAM Licht AG that depends on the amount of the employee’s own investment. In case of an own investment of up to €1,000, the subsidy amounts to 42.857% of the own investment and, thus, up to a maximum amount of €428.57; in case of an additional own investment of up to €2,500 per employee, the subsidy amounts to 11.111% on the additional own investment, thus, resulting in an additional maximum amount of €277.78. With the total amount of investment the respective employee acquires OSRAM Licht AG Shares at the employee price. The employee price equals the volume weighted average price of the Shares in the XETRA trading of the Frankfurt stock exchange in the first twenty trading days from and including the first day of trading of the Shares. For the calculation of the volume weighted average price, all OSRAM Licht AG Shares in the XETRA trading of the Frankfurt stock exchange between 9am and 5.30pm on such date will be taken into account; however, without the tradings in the opening, midday and closing auction. See also below “—Dilution”. The relevant employees will undertake to hold the Employee Shares they acquire for a period of six months following the first day of trading in the Company’s Shares. The number of Shares the acquisition of which by employees is subsidized results from the total amount of investment of all participating employees divided by the employee price (each rounded down to a whole number of Shares). The number of the participating OSRAM Licht Group employees in Germany is approximately up to 3,500. The settlement of the Employee Tranche will be effected by a mandated bank.
66 To service the Employee Tranche, OSRAM Licht AG will acquire Shares via a mandated bank on the stock exchange after the Spin-off becoming effective and the first day of trading of the OSRAM Licht AG Shares. In parallel, Shares will be repurchased to service a transaction bonus; see “Management—Managing Board— Compensation of Managing Board Members—Transaction Bonus Commitment in connection with the Spin-off from Siemens AG”. The maximum volume for the repurchase of Shares to service the subsidized acquisition is approximately €13.5 million; it may be significantly lower depending on the employees’ degree of participation. The repurchase is scheduled to commence on July 8, 2013 and to end on August 2, 2013. In the context of the transaction bonus, the number of Shares the beneficiaries will receive depends on the degree of achieving the target which is expected to be determined by August 19, 2013. Therefore, in the period between July 11, 2013 and August 2, 2013, for the transaction bonus, Shares in a volume of approximately €5.2 million will be repurchased at first. Depending on the degree of achieving the target, additionally required Shares in a maximum volume of €15.8 million will be repurchased after determination of the degree of achieving the target. The offering of the Employee Shares in the context of the Employee Tranche is not the subject matter of this prospectus; the Employee Shares will be offered to eligible employees in the Federal Republic of Germany pursuant to Section 4 para. 1 no. 5 of the German Securities Prospectus Act (Wertpapierprospektgesetz – WpPG). Apart from that, no shares of OSRAM Licht AG will be offered publicly within the meaning of Section 3 para. 1 of the German Securities Prospectus Act (Wertpapierprospektgesetz – WpPG) in connection with the Spin-off.
TIMETABLE FOR THE SPIN-OFF The following is the anticipated timetable for the Spin-off: June 21, 2013 ...... Approval of this prospectus by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht; the “BaFin”). Publication of the approved prospectus on our website. by July 5, 2013 ...... Registration of Spin-off with the competent commercial registers. Capital increase in connection with the Spin-off becoming effective. Issuance of the global certificates representing the shares derived from the capital increase to Deutsche Bank AG as trustee in accordance with Sections 125 sentence 1, 71(1) sentence 1 of the German Transformation Act. July 5, 2013 ...... Listing approval issued by the Frankfurt Stock Exchange and the Munich Stock Exchange. July 8, 2013 ...... Delivery of Shares in OSRAM Licht AG to Siemens shareholders according to the Spin-off allotment ratio (based on the securities account balances as of the end of July 5, 2013). July 8, 2013 ...... First day of trading of the Shares; Siemens shares will trade “ex spin-off”.
DESIGNATED SPONSORS Each of the Lead Financial Advisors will assume the function of designated sponsor of the Shares traded on the Frankfurt Stock Exchange, being entitled to designate an appropriately admitted third party to perform their functions. Pursuant to the designated sponsor agreements between the Company, Deutsche Bank AG, Goldman Sachs International and UBS Limited the Lead Financial Advisors will, among other things, place limited buy and sell orders for Shares in the electronic trading system of the Frankfurt Stock Exchange during regular trading hours. This is intended to achieve greater liquidity in the market for the Shares.
INTERESTS OF PARTICIPATING PARTIES IN THE SPIN-OFF In connection with the Spin-off and the admission to trading of the Shares, the Banks are in a contractual relationship with the Company and Siemens AG. The Banks advise the Company and Siemens AG on the Spin- off and the Employee Tranche and coordinate the structuring and execution of the Employee Tranche. In addition, each of the Lead Financial Advisors has been appointed to act as designated sponsor for the Shares. Upon successful implementation of the Spin-off and the Employee Tranche, the Banks will receive a commission. Siemens AG has promised the current members of the Managing Board of OSRAM Licht AG (as well as other executives of the future OSRAM Group) the grant of a transaction bonus. Thus, upon the Spin-off becoming effective, the beneficiaries will receive OSRAM Licht Shares in a certain value (see “Management— Managing Board—Compensation of Managing Board Members—Transaction Bonus Commitment in connection
67 with the Spin-off from Siemens AG” for further details). Siemens AG has a personal interest in the Spin-off as it serves to dispose of a majority shareholding. For the indirect benefits expected by Siemens AG and OSRAM Licht AG from the Spin-off see “Reasons for the Spin-off; Cost of Issuance”.
DILUTION As the Employee Tranche comprises only existing shares, the Employee Offering will not lead to any dilution as it is potentially in connection with a capital increase. The book value of the total equity of the OSRAM Licht Group according to IFRS amounted to €2,183.0 million as of March 31, 2013. This corresponds to €20.85 per share (calculated on the basis of the number of shares after the Spin-off becoming effective). It cannot be excluded that the employee price per Share for the Employee Tranche will be higher than this amount even after deduction of the subsidy per Share. Starting in its interim report for the second quarter ended March 31, 2013, Siemens recognized a spin-off liability amounting to €2.6 billion presented in other current liabilities. The spin-off liability reflects 80.5% of the fair value of OSRAM. As there is currently no market price of OSRAM Siemens determined, using the input of an external advisor, the fair value based on a discounted cash flow valuation, verified by a multiple analysis referring to relevant comparative entities. This value is higher than the proportionate book value of the total equity; however, the proportionate aggregate stock exchange price of the OSRAM Licht AG Shares (market capitalization) after commencement of trading may as well be higher or lower than this value.
LISTING AGREEMENT; FEES; INDEMNITY; LOCK UP In connection with the Spin-off and the stock exchange listing of the Shares, Siemens AG, OSRAM Licht AG and the Banks have entered into a listing agreement dated the date of this prospectus. In addition, Siemens AG and OSRAM Licht AG have entered into a share settlement agreement with Deutsche Bank AG who will act as a trustee within the meaning of Sections 125 sentence 1, 71 para. 1 sentence 1 of the German Transformation Act. In these agreements, Siemens AG has agreed to pay to the Banks a fixed fee of €14.8 million in the aggregate and a discretionary fee of up to €17.2 million in the aggregate. The Company and Siemens AG have agreed in the listing agreement to indemnify the Banks against certain liability obligations that may arise in connection with the Spin-off and the admission to trading. Internally, OSRAM Licht AG and Siemens AG have agreed to share certain indemnity risks in a certain proportion. In the listing agreement the Company has agreed that during the period commencing on the date of the listing agreement and ending six months after the first day of trading of the Company’s Shares on the Frankfurt Stock Exchange, without the prior written consent of the Lead Financial Advisors, the Company, to the extent legally permissible, will not: (a) announce or effect an increase of the share capital of the Company out of authorized capital; or (b) submit a proposal for a capital increase to any meeting of the shareholders for resolution; or (c) announce to issue, effect or submit a proposal for the issuance of any securities convertible into shares of the Company, with option rights for shares of the Company; or (d) enter into a transaction or perform any action economically similar to those described in (a) through (c) above. The Company may, however, offer, sell and issue options, warrants and shares of the Company (i) under future employee share purchase and share option schemes or (ii) as partial or full consideration for a business acquired by the Company or for purposes of entering into a joint venture, provided that the Company shall (i) consult with the Lead Financial Advisors prior to the issuance of the shares or other securities and (ii) use its best efforts to negotiate an undertaking of the recipient of the shares or such other securities of the Company to comply with the restrictions on the disposal of shares set forth above.
OTHER RELATIONSHIPS BETWEEN THE BANKS, SIEMENS AG AND THE COMPANY The three Lead Financial Advisors as well as Commerzbank Aktiengesellschaft have, together with further credit institutions, entered into a credit facility agreement with OSRAM GmbH. See “Business—Material Contracts—Credit Facility Agreement”. The Banks or their affiliates may provide services to the Company and/ or Siemens AG in the ordinary course of business and have regular business dealings with the Company and/or Siemens AG in their capacity as financial institutions (see also “—Interests of Participating Parties in the Spin- off”).
68 REASONS FOR THE SPIN-OFF; COST OF ISSUANCE
REASONS FOR THE SPIN-OFF As a diversified corporate group, Siemens is responsible for regularly analyzing the strategic importance of the various fields of business as well as their potential for synergies with other areas in the group. During the course of this analysis, and recognizing that the technological change in the lighting market requires increased entrepreneurial flexibility, the management board of Siemens AG decided to make OSRAM independent and to introduce it to the stock exchange. The global lighting market in which OSRAM is active is currently undergoing fundamental changes. In light of this background, the business requirements are changing for OSRAM, in its own assessment the leading pure play, i.e. exclusively focused on the lighting industry, lighting company. We are of the opinion that the separation from the Siemens Group will give OSRAM the necessary entrepreneurial flexibility to directly adjust the strategic focus and business model to the changing circumstances in the market. Furthermore, the direct access to the capital market will give OSRAM the benefit of additional sources for financing. The following aspects speak for a separation in the interest of OSRAM: • Upon becoming independent, the majority of OSRAM’s shares will be held in free flow as a listed company, and we will no longer be tight to the Siemens Group and its structures. This will enable OSRAM to secure and expand its position in the lighting market with greater entrepreneurial freedom. OSRAM will be able to use the newly gained independence to more effectively react to the dynamics in the lighting market with simplified and more efficient decision making and reporting processes, independently of the requirements of the remaining Siemens business. This independence will permit OSRAM to focus exclusively on its own market and address even more directly the client needs in a market environment which is undergoing fundamental changes. Thus, OSRAM will be able to better adapt to the changing requirements of the lighting market and more quickly implement the required measures. • As part of the Siemens Group, OSRAM has only very limited options to obtaining external capital independently and requires the allocation of funding within the corporate group. This allocation depends on a large number of factors, for example, potential for synergies with other activities of the Siemens Group as well as the strategic importance of the financed part of the corporate group for the Siemens Group overall. Direct access to the capital market will give an independent OSRAM Group the possibility to independently access financing in a manner appropriate for its situation and to be able to decide about using the financing without paying attention to the additional approval requirements that are necessary in a broad based corporate group such as Siemens. This increases the entrepreneurial flexibility and facilitates the implementation of attractive possibilities for investment, including entering into partnerships or potential acquisitions of enterprises. • As part of the Siemens Group, OSRAM was bound by the general corporate group reporting. The own regular reporting and the investor relations work involved by a admission to the stock exchange will permit OSRAM to better define its business profile and the perception in the broad public and represent OSRAM’s position in the market in a transparent and detailed manner during this important phase of change. • An admission to the stock exchange permits the introduction of share based payment programs and employee offerings which are directly linked to OSRAM’s business success. Thus, OSRAM can promote the employee participation in the company and increase the possibilities for further attracting and obtaining highly qualified personnel. In preparation of the Spin-off, OSRAM’s equity has been increased by Siemens. This capital structure aims to a creditworthiness that qualifies the OSRAM Group for an investment grade rating; however, there is no guarantee that this aim will be achieved. Additionally, a transformation program has been started and significant measures have been implemented in the Fiscal Year 2012 already and reflected in our combined financial statements. However, these measures are ongoing and will especially weigh on the current and the next Fiscal Year.
COST OF ISSUANCE Neither Siemens AG nor OSRAM Licht AG will raise proceeds in the Spin-off or in the Employee Tranche. The Shares offered in the Employee Tranche will be acquired via a mandated bank on the stock exchange. The cost of the subsidy for these acquisitions will be approximately €2.3 million if all subsidized shares are
69 subscribed for. The total costs and expenses of the Spin-off and listing will be approximately €141 million which will be borne by Siemens AG. These costs essentially relate to costs for external advice (especially by investment banks (see above “The Spin-Off—Listing Agreement; Fees, Indemnity; Lock up”), legal counsels and strategy consultants), auditing costs (auditors), transaction costs, costs for notarization, costs of the general shareholder’s meeting, costs of registrations with the commercial registers and costs of the contemplated listing. Thereof, costs in the amount of €11.7 million are attributable to the capital increase in connection with the Spin-off.
70 DIVIDEND POLICY
GENERAL PROVISIONS RELATING TO PROFIT ALLOCATION AND DIVIDEND PAYMENTS The shareholders’ share of profits is determined based on their respective interests in the Company’s share capital. In a German stock corporation (Aktiengesellschaft), resolutions concerning the distribution of dividends for a given Fiscal Year, and the amount thereof, are adopted by the general shareholders’ meeting of the subsequent Fiscal Year upon a joint proposal by the Managing Board and the Supervisory Board. Dividends may only be distributed from the distributable profit of the Company. The distributable profit is calculated based on the Company’s annual financial statements prepared in accordance with the accounting principles of the German Commercial Code (Handelsgesetzbuch – HGB). Accounting regulations under the German Commercial Code differ from IFRS which are used for group accounting in material respects. When determining the amount available for distribution, the net income (loss) for the year must be adjusted for profit/loss carry-forwards from the prior Fiscal Year and release of or allocations to reserves. Certain reserves are required to be set up by law and respective allocations must be deducted when calculating the net income (loss) before profit distribution. Certain additional limitations apply if self-created intangible assets or deferred tax assets have been capitalized or certain plan assets that exceed corresponding pension liabilities have been capitalized. The Managing Board must prepare the annual financial statements (balance sheet, statement of income and notes to the financial statements) and the management report for the previous Fiscal Year by the statutory deadline, and present these to the Supervisory Board and the auditors immediately after preparation. At the same time, the Managing Board must present to the Supervisory Board a proposal for the allocation of the Company’s distributable profit pursuant to Section 170 of the German Stock Corporation Act (Aktiengesetz – AktG). Pursuant to Section 171 of the German Stock Corporation Act, the Supervisory Board must review the annual financial statements, the Managing Board’s management report and the proposal for the allocation of the distributable profit, and report to the general shareholders’ meeting in writing on the results. The Supervisory Board must submit its report to the Managing Board within one month after the documents were received. If the Supervisory Board approves the annual financial statements after its review, these are deemed adopted unless the Managing Board and Supervisory Board resolve to assign adoption of the annual financial statements to the general shareholders’ meeting. If the Managing Board and Supervisory Board choose to allow the general shareholders’ meeting to adopt the annual financial statements, or if the Supervisory Board does not approve the annual financial statements, the Managing Board must convene a general shareholders’ meeting without delay. The general shareholders’ meeting’s resolution on the allocation of the distributable profit must be passed with a simple majority of votes. If the Managing Board and Supervisory Board adopt the annual financial statements, they can allocate an amount of up to half of the Company’s net income for the year to other surplus reserves. Additions to the legal reserves and loss carry-forwards must be deducted in advance when calculating the amount of net income for the year to be allocated to other surplus reserves. Dividends resolved by the general shareholders’ meeting are paid annually shortly after the general shareholders’ meeting, as provided in the dividend resolution, in compliance with the rules of the respective clearing system. Generally, withholding tax (Kapitalertragsteuer) of 25% plus a 5.5% solidarity surcharge thereon is withheld from the dividends paid. For more information on the taxation of dividends, see “Taxation in the Federal Republic of Germany—Taxation of Shareholders Tax Resident in Germany” and “Taxation in the Federal Republic of Germany—Taxation of Shareholders not Tax Resident in Germany”. Dividend payment claims are subject to a three-year standard limitation period. If dividend payment claims expire, then the Company becomes the beneficiary of the dividends. Details concerning any dividends resolved by the general shareholders’ meeting and the paying agents named by the Company in each case will be published in the Federal Gazette (Bundesanzeiger).
DIVIDEND POLICY AND EARNINGS PER SHARE OSRAM Licht AG has been incorporated in July 2012. Prior to the effectiveness of the Spin-off, OSRAM Licht AG does not conduct business (except for holding a minority shareholding in OSRAM GmbH) and did not pay any dividends in the past. Our ability and intention to pay dividends in the future will depend on our financial position, results of operations, capital requirements, investment alternatives and other factors that the Managing Board and Supervisory Board may deem relevant, and any proposals by the Managing Board and Supervisory Board regarding dividend payments will be subject to the approval at the general shareholders’ meeting. We expect that the principal source of funds for the payment of dividends, if any, will be dividends and other payments received from our current and future subsidiaries, in particular OSRAM GmbH. The determination of each subsidiary’s ability to pay dividends is made in accordance with applicable law. Our future dividend policy
71 is to distribute between 30% and 50% of consolidated net income determined in accordance with IFRS in a given Fiscal Year as dividends assuming that the payment of such dividends is consistent with our long-term and sustainable business development. For these purposes, the percentage calculation may take into account certain exceptional non-cash effects within income. However, our ability to pay dividends in future years will depend on the amount of distributable net earnings that are available. We can provide no assurance regarding the amounts of future net earnings, if any, and consequently, we can provide no assurance that we will pay dividends in future years. Moreover, our results of operations set out in the combined financial statements and interim combined financial statements, respectively, may not be indicative of the amounts of future dividend payments. In the light of our current operating performance, we will not propose a dividend payment for the Fiscal Year 2013. The following paragraphs provide data about the dividend payments of OSRAM GmbH (the former parent company of OSRAM). Until and including September 30, 2011, OSRAM GmbH (at that time still OSRAM AG) was party to a domination and profit and loss transfer agreement with Siemens AG. Pursuant to this agreement, OSRAM GmbH carried out its business at the direction of Siemens and was obliged to transfer its entire profit (subject to the allocation of amounts to retained earnings to the extent economically justified from a reasonable business assessment) to Siemens AG and Siemens AG was obliged to assume OSRAM GmbH’s loss in each Fiscal Year (in each case as determined by the annual financial statements prepared in accordance with the German Commercial Code). In connection with the termination of the domination and profit and loss transfer agreement effective as of the end of September 30, 2011 referred to above, OSRAM GmbH (at the time OSRAM AG) as controlled company and Siemens Beteiligungen Inland GmbH (“SBI”, a subsidiary of Siemens) as controlling company entered into a domination agreement (Beherrschungsvertrag) that became effective on October 6, 2011. The parties have unanimously terminated this domination agreement effective as of September 30, 2012. Under the domination agreement, SBI was required to cover all losses incurred by OSRAM GmbH from October 1, 2011 through the termination of the domination agreement in accordance with Section 302 of the German Stock Corporation Act. The table below sets forth the net income (loss) of OSRAM GmbH before profit (loss) transfer for the Fiscal Years 2012 and 2011 (according to the annual financial statements prepared in accordance with the German Commercial Code for the Fiscal Year 2012, including the comparative period in the Fiscal Year 2011). 2012 2011 In € million Net income (loss) before profit (loss) transfer (audited)(1) ...... (336.6) 148.0
(1) Net income (loss) before profit (loss) transfer equals profit distributed to (loss assumed by) Siemens pursuant to the domination and profit and loss transfer agreement, except that in the Fiscal Year 2011 OSRAM GmbH (at the time still OSRAM AG) allocated €4.3 million to the statutory reserve as required by German stock corporation law and recorded expenses under profit transfers to Siemens in the amount of €143.8 million. For the Fiscal Year 2012, SBI assumed a net loss of €336.6 million pursuant to the domination agreement with OSRAM GmbH referred to above (recorded as gains from loss assumptions in the financial statements of OSRAM GmbH for the Fiscal Year 2012).
72 CAPITALIZATION AND NET INDEBTEDNESS
The Employee Tranche does not involve the issuance of new shares by the Company and the Company will not receive any cash proceeds from the Spin-off and the Employee Tranche. The Spin-off will have no effect on the Company’s capitalization as reflected below. The Shares offered in the Employee Tranche will be acquired via a mandated bank on the stock exchange. The cost of the discount for these acquisitions will be approximately €2.3 million if all discounted shares are subscribed for. The following tables set forth an overview of our capitalization and net financial indebtedness as of March 31, 2013, based on the interim combined financial statements as of March 31, 2013. Investors should read this table in conjunction with “Selected Financial and Other Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed interim combined financial statements for the six months ended March 31, 2013, including the notes thereto, which are presented in the “Financial Section” of this prospectus beginning on page F-3.
CAPITALIZATION As of March 31, 2013 (unaudited) in € million Current Liabilities Short-term debt and current maturities of long-term debt ...... 53.0 Trade payables ...... 579.9 Payables to Siemens Group ...... 966.7 thereof from financing activities ...... 957.0 Miscellaneous current liabilities(1) ...... 644.1 Total Current Liabilities(2) ...... 2,243.7 thereof guaranteed by third parties* ...... 79.1 thereof guaranteed by entities of the OSRAM Licht Group ...... — thereof secured by third parties ...... — thereof secured by assets of the OSRAM Licht Group ...... — thereof unguaranteed/unsecured ...... 2,164.6 Non-Current Liabilities Long-term-financial debt ...... — Pension plans and similar commitments ...... 469.1 Miscellaneous liabilities(3) ...... 181.3 Total Non-Current Liabilities ...... 650.4 thereof guaranteed by third parties ...... — thereof guaranteed by entities of the OSRAM Licht Group ...... — thereof secured by third parties ...... — thereof secured by assets of the OSRAM Licht Group ...... — thereof unguaranteed/unsecured ...... 650.4 Equity(4) Net assets attributable to Siemens Group ...... 2,091.8 Other components of equity ...... 71.6 Total Equity attributable to Siemens Group ...... 2,163.4 Non-controlling interests ...... 19.6 Total equity ...... 2,183.0 Total Equity and Liabilities (Capitalization) ...... 5,077.1
(1) Miscellaneous current liabilities comprise other current financial liabilities, current provisions, income tax payables, other current liabilities and liabilities associated with noncurrent assets held for sale. (2) “Total Current Liabilities” corresponds to the line item Total current liabilities recorded in the combined statements of financial position. (3) Miscellaneous liabilities comprise deferred tax liabilities, provisions, other financial liabilities and other liabilities. (4) Prior to the Spin-off becoming effective, the OSRAM Licht Group that comprises OSRAM Licht AG, OSRAM Beteiligungen GmbH and OSRAM GmbH, as well as their direct and indirect subsidiaries, do not constitute a legal group of entities in accordance with IAS 27. Therefore, OSRAM Licht AG prepared condensed interim combined financial statements in accordance with IFRS for interim financial reporting (IAS 34) consisting of the financial statements of OSRAM Licht AG, OSRAM Beteiligungen GmbH and OSRAM GmbH, as well as their direct and indirect subsidiaries, for the first six months ended March 31, 2013. Since OSRAM Licht Group does not constitute a legal group of entities in accordance with IAS 27 but a combination of individual entities, and, thus, no parent company
73 exists and the parent company’s components of equity cannot form the basis of the presentation of equity, in the condensed interim combined financial statements and the combined financial statements, there is no share capital and no capital reserve of the parent company and no profit and loss reserve which are presented in the case of consolidated financial statements. * Current liabilities guaranteed by third parties mainly include local bank financing for subsidiaries of OSRAM GmbH in countries in which the usual financing by Siemens Group before the Spin-Off becoming effective was not possible or not appropriate. These liabilities are secured by letters of comfort (Patronatserklärungen) of Siemens in which Siemens represents and undertakes towards the financing banks to support the repayment by providing adequate financial funding to the subsidiaries or directly to the financing banks. There are additional collaterals in connection with the Supply Chain Finance Program. For further information see “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group—Participation in Supply Chain Finance Program of Siemens”.
NET FINANCIAL INDEBTEDNESS As of March 31, 2013 (unaudited) in € million Liquidity Cash ...... 48.0 Cash equivalents ...... 2.5 Trading securities ...... — Total liquidity(1) ...... 50.5 Current financial receivables(2) ...... 940.1 Current financial indebtedness Current bank debt ...... 53.0 Current portion of non-current debt ...... — Other current financial debt(3) ...... 957.0 Total current financial indebtedness ...... 1,010.0 Net current financial indebtedness ...... 19.4 Non-current financial indebtedness Non-current bank loans ...... — Bonds issued ...... — Other non-current loans ...... — Total non-current financial indebtedness ...... — Total financial indebtedness ...... 1,010.0 Net financial indebtedness(4) ...... 19.4
(1) “Total liquidity” corresponds to the line item Cash and cash equivalents recorded in the combined statements of financial position. (2) Current financial receivables include available-for-sale financial assets (current) and receivables from Siemens Group from financing activities. (3) Other current financial indebtedness corresponds to liabilities to Siemens Group from financing activities. (4) Net financial indebtedness (as required to be disclosed according to the EU Prospectus Regulation) corresponds to the term “net debt” which OSRAM uses elsewhere in this prospectus. Net debt represents total debt (short-term debt and current maturities of long-term debt plus long-term debt plus payables to Siemens Group from financing activities) minus adjusted total liquidity (cash and cash equivalents plus available-for-sale financial assets (current) plus receivables from Siemens Group from financing activities). Net debt is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of financial position of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of net debt, which means that net debt shown by other companies may not necessarily be comparable with net debt of the OSRAM Licht Group.
FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES As of March 31, 2013, the other financial commitments and contingencies of the OSRAM Licht Group amounted to €248.6 million. They mainly comprise future payment obligations under non-cancellable operating leases in the amount of €231.1 million (including lease payments to Siemens AG and payments for the lease of the corporate headquarters) and a contractual warranty obligation resulting from the sale of our interest in the joint venture with Mitsubishi Electric Corporation, Tokyo, Japan (“MELCO”).
STATEMENT ON WORKING CAPITAL In our opinion, our working capital is sufficient for present requirements, i.e. sufficient to cover payment obligations which will become due in the anticipated course of business at least within the next twelve months from the date of this prospectus.
NO SIGNIFICANT CHANGE OF FINANCIAL POSITION Since March 31, 2013, there have been no significant changes in our financial and trading position.
74 SELECTED FINANCIAL AND OTHER INFORMATION
The financial data shown in the tables below for the Fiscal Years 2012, 2011 and 2010 has, unless otherwise indicated, been taken or derived from our audited combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 included in the financial section of this prospectus, or taken from our accounting records. The financial data for the six months ended March 31, 2013 and March 31, 2012 has been taken or derived from the unaudited condensed interim combined financial statements for the six months ended March 31, 2013 or taken from our accounting records. The combined financial statements for the Fiscal Years 2012, 2011 and 2010 were prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and have been audited in accordance with Section 317 of the German Commercial Code (“HGB”) and generally accepted German audit principles defined by the Institute of Public Auditors in Germany (“Institut der Wirtschaftsprüfer – IDW”) and in supplementary compliance with International Standards on Auditing (ISA) by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart (Munich office, Arnulfstr. 59, 80636 Munich), Germany (“Ernst & Young”), who issued an unqualified audit opinion thereon. The condensed interim combined financial statements for the six months ended March 31, 2013 of OSRAM Licht Group have been prepared in accordance with IFRS for interim financial reporting (IAS 34), and are unaudited. These combined financial statements are the first financial statements of OSRAM Licht Group in accordance with IFRS 1.3. The OSRAM Licht Group prepared the combined financial statements using IFRS 1.D16(a) (“predecessor accounting method”). OSRAM Licht Group used the same accounting policies and valuation methods for the preparation of these combined financial statements as those used by the OSRAM companies for the preparation of the financial information included in Siemens’ consolidated financial statements, unless such accounting policies and valuation methods are not in accordance with IFRS when presenting OSRAM Licht Group as a group of companies independent of Siemens. These accounting policies have been disclosed under Note 2 to the combined financial statements under “—Summary of Significant Accounting Policies”. Since IFRS do not provide any guidance for the preparation of combined financial statements, IAS 8.12 has to be used for the preparation of combined financial statements. IAS 8.12 requires that the latest pronouncements of other standard setters, other accounting literature and accepted industry practice should be considered. The combined financial statements of the OSRAM Licht Group have been derived from the aggregation of the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH as well as OSRAM GmbH and its direct or indirect subsidiaries. All intra-group balances, income, expenses and unrealized profits and losses arising from transactions between companies belonging to OSRAM Licht Group were eliminated when preparing the combined financial statements. In addition, the investments of the holding companies in the OSRAM Licht Group were eliminated against the equity of the respective subsidiaries. Transactions with Siemens AG and Siemens Group companies, which do not belong to the OSRAM Licht Group, have been disclosed as transactions with related parties. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments according to IFRS 8. The former business unit General Lighting (forming a segment) has been split up into four new separate business units, namely Lamps, Light Engines & Controls, Luminaires and Solutions as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED will be reported as part of corporate items. Accordingly, at segment level our condensed interim combined financial statements for the six months ended March 31, 2013 (with comparable data for the respective prior year period) are not directly comparable to our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010. As of October 1, 2012 IAS 19 “Employee Benefits” (revised 2011; IAS 19R) was early adopted. The amendments set out in the following have a significant impact on OSRAM’s interim combined financial statements: IAS 19R requires that the return on pension plan assets should be calculated based on the discount rate which is used to discount post-employment benefit obligations, as opposed to the expected return on plan assets. This gives rise to a homogeneous return of the pension obligations and plan assets which will be disclosed as net interest. The net interest’s difference between the discount rate and the actual return on plan assets is recorded in the combined statements of comprehensive income. Retrospective application and presentation of IAS 19R is required. Accordingly, the opening balance sheet as of October 1, 2011 as well as the prior year figures presented in the interim combined financial statements for the first half of the Fiscal Year 2013 were adjusted. Due to these adjustments, as of September 30, 2012, equity increased by €3.4 million (after tax) in total and is attributable to the line item Total equity attributable to Siemens Group. The line item Pensions plans and similar commitments was reduced by €1.1 million. The adjusted items will also be presented in the consolidated
75 financial statements as of September 30, 2013 as prior year figures. The presentation of financial data related to the statements of financial position for the Fiscal Years ended September 30, 2012 and September 30, 2011 in the following tables does not reflect the adjustments resulting from the first-time adoption of IAS 19R. For additional information regarding the first-time adoption of IAS 19R, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Pension Plans and Similar Commitments”). Where financial data in the following tables is presented as “audited,” this means that it was taken from the audited combined financial statements of the OSRAM Licht Group mentioned above. Where financial data is presented as “unaudited”, it indicates that the financial data has been derived from the audited combined financial statements or been taken or derived from the unaudited condensed interim combined financial statements of OSRAM Licht Group or been taken from OSRAM’s accounting records. The tables in this section also include certain non-GAAP measures (neither defined under IFRS nor under the German Commercial Code), used as key figures by our management to monitor the performance of the OSRAM Licht Group. If such non- GAAP measures are not included as such in the combined financial statements, they are labeled in the respective tables as “unaudited”. On the other hand, if non-GAAP measures are included in the combined financial statements, they are labeled “audited”. Unless otherwise indicated, all financial data presented in the text and tables in this section of the prospectus is shown in million euros (€ million), commercially rounded to one decimal point. Unless expressly otherwise noted, the percentage amounts that are stated in the tables have likewise been commercially rounded to one decimal point. Because of this rounding, the figures shown in the tables do not in all cases add up exactly to the respective totals. The financial information shown in the tables below represents a selection of the financial information contained in the combined financial statements or interim combined financial statements of the OSRAM Licht Group, unless noted otherwise, and should be read in conjunction with the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements or interim combined financial statements and the other financial information contained elsewhere in this prospectus.
Data from the Combined Statements of Income of OSRAM Licht Group Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Revenue ...... 5,399.8 5,031.0 4,679.7 2,678.3 2,730.7 Cost of goods sold and services rendered ...... (3,997.5) (3,418.5) (3,082.1) (1,903.4) (2,013.4) Gross profit ...... 1,402.3 1,612.5 1,597.6 774.9 717.3 Research and development expenses ..... (339.1) (300.9) (259.5) (173.1) (161.8) Marketing, selling and general administrative expenses ...... (1,054.9) (905.6) (774.7) (525.5) (502.9) Other operating income (expense), net (unaudited) ...... (268.1) 11.2 1.1 13.7 (130.6) Financial result(1) (unaudited) ...... (86.5) (41.5) (54.8) (37.5) (67.3) Income (loss) before income taxes ...... (346.3) 375.7 509.7 52.5 (145.3) Income taxes ...... (32.0) (129.6) (175.1) (4.0) (181.7) Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Attributable to: Non-controlling interests ...... 0.9 3.1 6.4 2.8 (0.7) Siemens Group ...... (379.2) 243.0 328.2 45.7 (326.3)
(1) Includes gain (loss) from investments accounted for using the equity method, net, interest income, interest expense and other financial income (expense), net.
76 Data from the Combined Statements of Financial Position of OSRAM Licht Group September 30, March 31, 2012 2011 2010 2013 (audited unless otherwise indicated) (unaudited) in € million in € million Assets Cash and cash equivalents ...... 31.2 43.7 18.2 50.5 Trade receivables ...... 823.2 851.4 651.2 917.4 Receivables from Siemens Group ...... 956.2 538.5 605.2 941.2 thereof from financing activities ...... 619.4 535.8 486.7 939.4 Inventories ...... 1,043.7 1,118.2 916.0 1,000.2 Miscellaneous current assets(1) (unaudited) ...... 167.8 135.3 107.0 210.6 Goodwill ...... 36.7 238.2 129.6 37.0 Other intangible assets ...... 106.8 162.3 83.8 99.0 Property, plant and equipment ...... 1,336.3 1,532.0 1,390.5 1,234.9 Deferred tax assets ...... 397.4 315.4 374.4 405.7 Miscellaneous assets(2) (unaudited) ...... 168.8 193.3 174.8 180.6 Total assets ...... 5,068.1 5,128.3 4,450.7 5,077.1 Liabilities and equity Short-term debt and current maturities of long-term debt ..... 47.2 22.4 24.7 53.0 Trade payables ...... 609.2 586.0 552.1 579.9 Payables to Siemens Group ...... 1,209.5 1,498.0 859.5 966.7 thereof from financing activities ...... 1,198.1 1,343.7 596.3 957.0 Miscellaneous current liabilities(3) (unaudited) ...... 593.2 542.7 521.9 644.1 Long-term debt ...... 1.3 3.9 4.5 — Pension plans and similar commitments ...... 489.8 833.7 880.8 469.1 Miscellaneous liabilities(4) (unaudited) ...... 171.7 184.9 137.5 181.3 Total liabilities ...... 3,121.9 3,671.6 2,981.0 2,894.1 Total equity ...... 1,946.2 1,456.7 1,469.7 2,183.0 Total liabilities and equity ...... 5,068.1 5,128.3 4,450.7 5,077.1
(1) Includes available-for-sale financial assets, other current financial assets, income tax receivables, other current assets and noncurrent assets held for sale. (2) Includes investments accounted for using the equity method, other financial assets and other assets. (3) Includes other current financial liabilities, current provisions, income tax payables, other current liabilities and liabilities associated with noncurrent assets held for sale. (4) Includes deferred tax liabilities, provisions, other financial liabilities and other liabilities.
77 Data from the Combined Statements of Cash Flow of OSRAM Licht Group Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Cash flows from operating activities Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Amortization, depreciation and impairments ...... 655.2 253.1 247.6 157.1 325.5 Income taxes(1) ...... 32.0 129.5 175.1 4.0 181.7 Change in current assets and liabilities (Increase) decrease in inventories ...... 95.3 (171.4) (148.7) 35.9 19.1 (Increase) decrease in trade receivables ...... 37.2 (58.2) (66.7) (98.7) (27.5) (Increase) decrease in other current assets ...... (11.6) (17.1) (21.4) (1.4) 11.9 Increase (decrease) in trade payables ...... 17.8 8.5 156.2 (18.9) (12.9) Increase (decrease) in current provisions ...... 20.8 19.6 7.3 27.5 27.9 Increase (decrease) in other current liabilities .... 0.2 (14.9) 43.2 (0.7) (51.2) Change in other assets and liabilities ...... (3.2) (65.5) (52.6) (2.8) (6.9) Change in pension plans due to contribution of plan assets ...... (499.5) — — — (499.5) Income taxes paid(1) ...... (91.8) (96.9) (50.9) (33.9) (43.5) Other adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities(2) (unaudited) ...... 90.5 35.7 67.4 52.8 73.5 Net cash provided by (used in) operating activities ...... (35.4) 268.5 691.1 169.4 (328.9) Cash flows from investing activities Additions to intangible assets and property, plant and equipment ...... (187.2) (312.4) (253.2) (78.1) (81.1) Acquisitions, net of cash acquired ...... (40.3) (125.2) (35.6) 0.5 (40.1) Purchases of investments ...... (23.6) (10.6) (41.1) (15.1) (11.1) Proceeds and payments from sales and disposals(3) (unaudited) ...... 48.0 6.5 4.5 29.1 8.5 Net cash provided by (used in) investing activities ...... (203.1) (441.7) (325.4) (63.6) (123.8) Net cash provided by (used in) financing activities(4) ...... 224.4 199.5 (362.6) (86.6) 432.7
(1) Income taxes were determined based on the assumption that the companies of the OSRAM Licht Group were separately taxable entities. This assumption implies that the current and deferred income taxes of all companies and of tax groups within the OSRAM Licht Group are calculated separately and the recoverability of the deferred tax assets is assessed accordingly. Due to the fact that certain entities of the OSRAM Licht Group did not file separate tax returns in previous years, the respective tax receivables and payables, as well as deferred tax assets on loss carryforwards, are deemed either contributed or distributed to shareholders not being part of the OSRAM Licht Group in the respective Fiscal Year. The combined statements of cash flow of the combined financial statements present taxes actually paid by the OSRAM Licht Group; the deemed contributions or distributions have not been included. In the Fiscal Year 2012, all companies of the OSRAM Licht Group were either separately taxable entities or were part of an income tax group within the OSRAM Licht Group. Receivables and payables between OSRAM GmbH and Siemens arising from the VAT group have been disclosed under other tax receivables / payables. (2) Includes interest (income) expense, net, (gains) losses on sales and disposals of businesses, intangibles and property, plant and equipment, net, (gains) losses on sales of investments, net, (income) loss from investments, other non-cash (income) expenses, dividends received and interest received. (3) Includes proceeds and payments from sales of investments, intangibles and property, plant and equipment and proceeds and payments from disposals of businesses. (4) Includes in the first half of the Fiscal Year 2012 a cash contribution of €499.5 million by Siemens AG for the funding of certain pension benefits of the OSRAM Licht Group.
Segment Information In this prospectus, the terms “business unit”, “segment” and “entity” do not have a synonymous meaning. OSRAM structures its business into business units with its own management. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments according to IFRS 8. The former business unit General Lighting (forming a segment) has been split up into four new separate business units, namely Lamps, Light Engines & Controls, Luminaires and Solutions as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED is reported as part of corporate items. The other business units Specialty Lighting and Opto Semiconductors each continue to form a segment.
78 Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Total revenue by segment General Lighting(1) ...... 3,387.2 3,164.0 2,943.9 Lamps & Components (unaudited)(1) .... 2,785.7 — — 1,362.9 1,450.3 Luminaires & Solutions (unaudited)(1) . . . 602.1 — — 275.7 308.1 Specialty Lighting ...... 1,404.6 1,243.5 1,173.8 728.0 694.6 Opto Semiconductors(2) ...... 899.1 858.4 743.3 470.4 415.8 Total revenue segments (including intersegment revenue) ...... 5,690.9 5,265.9 4,861.0 2,837.0 2,868.8 Corporate items and pensions ...... 23.3 26.6 28.3 9.5 12.2 Eliminations, corporate treasury and other reconciling items ...... (314.4) (261.5) (209.6) (168.2) (150.3) Total revenue OSRAM Licht Group ..... 5,399.8 5,031.0 4,679.7 2,678.3 2,730.7 EBITA by segment(3) General Lighting(1) ...... (184.2) 106.7 232.1 Lamps & Components (unaudited)(1) .... (75.7) — — (14.6) (9.5) Luminaires & Solutions (unaudited)(1) . . . (81.6) — — (40.3) (38.8) Specialty Lighting ...... 227.1 209.8 192.9 126.4 123.6 Opto Semiconductors ...... 75.9 118.2 165.6 47.1 23.6 Total segments ...... 118.8 434.7 590.6 118.6 98.9 Corporate items and pensions ...... (64.9) (11.7) (7.6) (16.7) (60.6) Eliminations, corporate treasury and other reconciling items ...... (0.6) 14.0 (0.5) (0.3) (0.3) EBITA OSRAM Licht Group ...... 53.3 437.0 582.5 101.6 38.0
(1) At segment level the condensed interim combined financial statements of OSRAM Licht Group for the six months ended March 31, 2013 (with comparable data for the respective prior year period) are not directly comparable to our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 due to the changed segment structure. For information purposes, revenue and EBITA (as defined in footnote 3 below) have been determined for both new segments for the Fiscal Year 2012; these figures have not been taken from the combined financial statements for the Fiscal Years 2012, 2011 and 2010 but from our accounting records and are, therefore, unaudited. (2) Total revenue of Opto Semiconductors includes external revenue in the amount of €584.7 million, €596.9 million and €533.7 million for the Fiscal Years 2012, 2011 and 2010, respectively, and intersegment revenue in the amount of €314.4 million, €261.5 million and €209.6 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Years 2013 and 2012, total revenue includes external revenue in the amount of €302.2 million and €265.5 million, respectively, and intersegment revenue in the amount of €168.2 million and €150.3 million, respectively. (3) EBITA (shown in the segment information of the combined financial statements or interim combined financial statements) represents EBIT (earnings before interest and tax) before amortization and impairments of intangible assets (as defined below). EBITA is used by OSRAM management as key financial measure to assess the operating performance of our segments. EBITA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of the OSRAM Licht Group prepared in accordance with IFRS. EBITA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITA, which means, that EBITA shown by other companies may not necessarily be comparable with EBITA of the OSRAM Licht Group.
79 Selected Other Key Figures Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (unaudited unless otherwise (unaudited) indicated) in € million unless otherwise in € million unless otherwise indicated indicated Gross profit margin(1) in% ...... 26.0% 32.1% 34.1% 28.9% 26.3% EBIT(2) ...... (259.8) 417.2 564.5 90.0 (78.0) Amortization(3) (for full fiscal years audited) ...... 313.1 19.8 18.0 11.6 116.0 EBITA(4) (for full fiscal years audited) ...... 53.3 437.0 582.5 101.6 38.0 including(*): Transformation costs(**) ...... 198.5 — — 126.3 140.0 Costs associated with the separation (net)(***) ...... 30.8 3.6 — (20.7) 25.8 Siemens one-time special remuneration(****) ...... — 21.6 — — — Trademark litigation (*****) ...... 34.2 — — — 22.1 Total(******) ...... 263.5 25.2 — 105.6 187.9 EBITA margin(5) in%...... 1.0% 8.7% 12.4% 3.8% 1.4% Depreciation(6) (for full fiscal years audited) ...... 342.1 233.3 229.6 145.5 209.5 EBITDA(7) ...... 395.4 670.3 812.1 247.1 247.5 Net debt(8) ...... 595.3 789.8 119.9 19.4 — Adjusted net debt(9) ...... 1,095.6 1,624.5 1,006.6 499.0 — Net debt/EBITDA(10) ...... 1.5 1.2 0.1 0.0 — ROCE(11) in%...... (11.0)% 10.3% 14.7% 4.2% (17.7)% Equity ratio(12) in% ...... 38.4% 28.4% 33.0% 43.0% — Intangible assets/equity(13) in% ...... 7.4% 27.5% 14.5% 6.2% — Free cash flow(14) (for full fiscal years audited) ...... (222.6) (43.9) 437.9 91.3 (410.0) Capital expenditures (capex)(15) (for full fiscal years audited) ...... 187.2 312.4 253.2 78.1 81.1 Capex in % of revenue(16) ...... 3.5% 6.2% 5.4% 2.9% 3.0% Capex in % of amortization and depreciation(17) ...... 44.8% 123.4% 102.3% 49.7% 36.1%
(1) Gross profit margin is defined as the ratio of gross profit to revenue, i.e. €1,402.3 million, €1,612.5 million and €1,597.6 million in relation to €5,399.8 million, €5,031.0 million and €4.679.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 and 2012, the ratio is calculated as €774.9 million and €717.3 million in relation to €2,678.3 million and €2,730.7 million. (2) EBIT (earnings before interest and taxes) represents income (loss) before financial result (i.e. gain (loss) from investments accounted for using the equity method, net, interest income, interest expense and other financial income (expense), net) and income taxes. EBIT is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of EBIT, which means that EBIT shown by other companies may not necessarily be comparable with EBIT of the OSRAM Licht Group. (3) Amortization (shown in the segment information of the combined financial statements or interim combined financial statements) represents amortization and impairments of goodwill and other intangible assets, net of reversals of impairments. (4) EBITA (shown in the segment information of the combined financial statements or interim combined financial statements) represents EBIT before amortization (both as defined above). EBITA is used by OSRAM management as key financial measure to assess the operating performance of our segments. EBITA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. EBITA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITA, which means that EBITA shown by other companies may not necessarily be comparable with EBITA of the OSRAM Licht Group. (*) The items listed below contain, in management’s opinion, certain special items that affect EBITA on a recurring or non- recurring basis. These special items are not a recognized term under IFRS. Special items are subject to certain discretion in the allocation of various income and expenses and the application of discretion may differ from company to company. Special items also include expenses that will recur in future accounting periods. Especially, we expect further significant restructuring costs in the Fiscal Years 2013 and 2014. The transformation costs listed below were mainly incurred in the above reporting periods in the segment General Lighting and in one of its successor segments, Lamps & Components, respectively. (**) The transformation costs negatively affecting EBITA in the amount of €198.5 million in total in the Fiscal Year 2012 comprise primarily of (i) impairments of the production facilities for the ceramic-based metal halide lamps (€36.7 million) and the OLED production facilities (€21.5 million); (ii) impairment (€16.1 million) and loss on disposal of property, plant and equipment (€11.0 million), as well as costs of personnel measures (€52.5 million), each relating to the “Future Industrial Footprint” project, and other personnel-related restructuring costs (€16.8 million); (iii) inventory write-offs to the net realizable values due to lower sales prices (€23.1 million), in connection with a complexity reduction of our product portfolio; and (iv) other transformation expenses (€19.6 million) which include amongst others consultancy costs attributable to OSRAM Push. In the first half of the Fiscal Years 2013 and 2012, EBITA was negatively affected by transformation costs in the amount of €126.3 million (thereof €36.2 million in the first quarter and €90.0 million in the second quarter) and €140.0 million (thereof €5.8 million in the first quarter and €134.2 million in the second quarter). The amount for the first half of the Fiscal Year 2013 mainly comprises of costs for measures in relation to our “Future Industrial Footprint” project and costs for implementing more efficient structures in research and development, production, sales function as well as in central functions. We incurred additional transformation costs, inter alia for regulatory risks relating to our past operations in one country which is addressed in the context of our “Future Industrial Footprint” project.
80 (***) In the Fiscal Years 2011 and 2012 we incurred certain costs related to the preparation of going public, mainly for IT applications, external service providers and personnel related costs. Also included are income and expenses related to certain patent infringement suits as such disputes exacerbated significantly when the plans of our initial public offering (“IPO”) became public (“Patent Infringement Suits”). The net expenses (after deduction of reimbursements received from Siemens) incurred as a result of the separation as well as of the intended Spin-off and the previously intended IPO amounted to €30.8 million in the Fiscal Year 2012 and to €3.6 million in the Fiscal Year 2011, respectively. In contrast, in the first half of the Fiscal Year 2013 we recognized net income in the amount of €20.7 million (thereof net income of €28.9 million in the first quarter and net expenses in the amount of €8.2 million in the second quarter) (including litigation related expenses and gains in connection with the Patent Infringement Suits as well as costs related to the separation of OSRAM and the related relocation of our corporate headquarters). In the first half of the Fiscal Year 2012 we recognized net expenses in the amount of €25.8 million (thereof €12.6 million in the first quarter and €13.2 million in the second quarter). (****) In the Fiscal Year 2011, our EBITA was impacted by personnel costs in an amount of €21.6 million representing OSRAM’s proportion of a Siemens-wide, global one-off special payment to reward non-management employees worldwide for their performance during the recent economic crisis. (*****) In the ordinary course of business, OSRAM is involved in several other legal proceedings. In the Fiscal Year 2012, OSRAM incurred expenses in connection with legal and regulatory disputes and the settlement of a license and trademark litigation in the amount of €34.2 million which are qualified as special items by OSRAM management; thereof €22.1 million are attributable to the first six months of the Fiscal Year 2012 which were incurred in the second quarter. In addition to the Patent Infringement Suits mentioned above, OSRAM incurred costs totaling €50.6 million in the Fiscal Year 2012 arising from significant legal proceedings. (******) Of the total amount of €105.6 million in the first six months of the Fiscal Year 2013, € 7.4 million were recorded in the first quarter and €98.2 million in the second quarter. Of the total amount of €187.9 million in the first six months of the Fiscal Year 2012, €18.4 million were recorded in the first quarter and €169.5 million in the second quarter. (5) EBITA margin is defined as the ratio of EBITA and revenue, i.e. €53.3 million, €437.0 million and €582.5 million in relation to €5,399.8 million, €5,031.0 million and €4,679.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Years 2013 and 2012, the ratio is calculated as €101.6 million and €38.0 million in relation to €2,678.3 million and €2,730.7 million, respectively. (6) Depreciation (shown in the segment information of the combined financial statements or interim combined financial statements) represents depreciation and impairments of property, plant and equipment, net of reversals of impairments. (7) EBITDA represents EBITA before depreciation (both as defined above). EBITDA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITDA, which means that EBITDA shown by other companies may not necessarily be comparable with EBITDA of the OSRAM Licht Group. (8) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Net debt represents total debt (short-term debt and current maturities of long-term debt plus long-term debt plus payables to Siemens Group from financing activities) minus adjusted total liquidity (cash and cash equivalents plus available-for-sale financial assets (current) plus receivables from Siemens Group from financing activities). Net debt is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of financial position of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of net debt, which means that net debt shown by other companies may not necessarily be comparable with net debt of the OSRAM Licht Group. Net debt corresponds to the term net financial indebtedness which is used under “Capitalization and Net Indebtedness” to comply with the German Securities Prospectus Act (Wertpapierprospektgesetz - WpPG). (9) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Adjusted net debt represents net debt plus pension plans and similar commitments and credit guarantees. Adjusted net debt is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of financial position of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of adjusted net debt, which means that adjusted net debt shown by other companies may not necessarily be comparable with the net debt of the OSRAM Licht Group. (10) Net debt in relation to EBITDA, i.e. €595.3 million, €789.8 million and €119.9 million in relation to €395.4 million, €670.3 million and €812.1 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 calculated by dividing net debt as of March 31, 2013 in the amount of €19.4 million by the annualized EBITDA for the first six months of the Fiscal Year 2013 in the amount of €494.2 million. The annualized EBITDA for the first six months of the Fiscal Year 2013 is calculated by multiplying the EBITDA for the six months ended March 31, 2013 in the amount of €247.1 million by the factor two. (11) ROCE (return on capital employed) on OSRAM Licht Group level is defined as income (loss) before interest after taxes divided by average capital employed. Income (loss) before interest after taxes, the numerator in the ROCE calculation, is defined as net income (loss) excluding interest income (expense), net, other than pension and interest expense for pension plans and similar commitments as well as taxes thereon. The interest expense for pension plans and similar commitments for the Fiscal Years 2012, 2011 and 2010 principally has been calculated based on the weighted average discount rate for our principal pension benefits and other post-employment benefits as of September 30, 2011 (4.74%) and 2010 (4.69%) and October 1, 2009 (5.53%), respectively, multiplied by the amount for pension plans and similar commitments as included in the combined statements of financial position in the audited combined financial statements of OSRAM Licht Group as of September 30, 2011 (€833.7 million, reduced by €499.5 million) and 2010 (€880.8 million) and October 1, 2009 (€800.0 million); with regard to the Fiscal Year 2012, the amount recorded for pension plans and similar commitments as of September 30, 2011 was decreased by a funding of pension plan assets in the amount of €499.5 million (see “—Liquidity and Capital Resources—Pension Plans and Similar Commitments”). Effective as of the Fiscal Year 2013, the interest expense for pension plans and similar commitments is equal to the line item Pension related interest expense, net (shown in the notes to the interim combined financial statements). The taxes on interest have been calculated on a simplified basis using a tax rate which is calculated by dividing income taxes by income (loss) before income taxes (each as shown in the combined statements of income of OSRAM Licht Group). Average capital employed, the denominator in the ROCE calculation, is defined as a two-point average of capital employed at the beginning of the reporting period and the end of the reporting period. Capital employed is defined as the line item Total equity plus long-term debt plus short-term debt and current maturities of long-term debt plus payables to Siemens Group
81 from financing activities and plus pension plans and similar commitments, minus cash and cash equivalents minus receivables from Siemens Group from financing activities. ROCE is not a recognized term under IFRS and does not purport to be an alternative to data from the combined financial statements or interim combined financial statements prepared in accordance with IFRS. There is no uniform definition of ROCE, which means that ROCE shown by other companies may not necessarily be comparable with ROCE of the OSRAM Licht Group. ROCE is not included in the combined financial statements or interim combined financial statements, but each component can be derived thereof. (12) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Equity ratio represents the line item Total equity as a percentage of total assets, i.e. €1,946.2 million, €1,456.7 million and €1,469.7 million in relation to €5,068.1 million, €5,128.3 million and €4,450.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013, the ratio is calculated as €2,183.0 million in relation to €5,077.1 million. (13) As of September 30, 2012, 2011 and 2010 and March 31, 2013, respectively. Intangible assets (goodwill and other intangible assets) as a percentage of the line item Total equity, i.e. €143.5 million (€36.7 million plus €106.8 million), €400.5 million (€238.2 million plus €162.3 million) and €213.4 million (€129.6 million plus €83.8 million) in relation to €1,946.2 million, €1,456.7 million and €1,469.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013, the ratio is calculated as €136.0 million (€37.0 million plus €99.0 million) in relation to €2,183.0 million. (14) Free cash flow of OSRAM (shown in the segment information of the combined financial statements or interim combined financial statements) constitutes net cash provided by (used in) operating activities less additions to intangible assets and property, plant and equipment. Free cash flow is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of cash flow of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of free cash flow, which means that free cash flow shown by other companies may not necessarily be comparable with free cash flow of the OSRAM Licht Group. Free cash flow is reported to our management on a regular basis, which uses that measure to assess and manage cash generation among our reportable segments and the OSRAM Licht Group. In the first half of the Fiscal Years 2013 and 2012, Free Cash Flow amounted to €91.3 million (thereof €89.9 million in the first quarter and €1.4 million in the second quarter) and €(410.0) million (thereof €(505.8) million in the first quarter and €95.8 million in the second quarter), respectively. (15) Capital expenditures (capex) comprise additions to intangible assets and property, plant and equipment, which are shown in the segment information of the combined financial statements or interim combined financial statements. This does not include additions to intangible assets and property, plant and equipment in connection with acquisitions. (16) Capex as a percentage of revenue, i.e. €187.2 million, €312.4 million and €253.2 million in relation to €5,399.8 million, €5,031.0 million and €4,679.7 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 and 2012, the ratio is calculated as €78.1 million and €81.1 million in relation to €2,678.3 million and €2,730.7 million, respectively. (17) Capex as a percentage of amortization, depreciation and impairments of intangible assets (excluding impairments of goodwill) and property, plant and equipment, i.e. €187.2 million, €312.4 million and €253.2 million in relation to €417.8 million (amortization, depreciation and impairments of intangible assets and property, plant and equipment – including impairments of goodwill – of €655.2 million minus impairments of goodwill in the amount of €237.4 million), €253.1 million and €247.6 million for the Fiscal Years 2012, 2011 and 2010, respectively. In the first half of the Fiscal Year 2013 and 2012, the ratio is calculated as €78.1 million and €81.1 million in relation to €157.1 million and €224.4 million (amortization, depreciation and impairments of intangible assets and property, plant and equipment – including impairments of goodwill – of €325.5 million minus impairments of goodwill in the amount of €101.1 million, respectively).
82 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investors should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial and Other Information”, our unaudited condensed interim combined financial statements for the six months ended March 31, 2013, and our audited combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 which are included in the financial section of this prospectus. The combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 were prepared in accordance with IFRS and have been audited in accordance with Section 317 of the German Commercial Code (“HGB”) and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (“Institut der Wirtschaftsprüfer – IDW”) and in supplementary compliance with International Standards on Auditing (ISA) by Ernst & Young who issued an unqualified audit opinion thereon. The condensed interim combined financial statements for the six months ended March 31, 2013 have been prepared in accordance with IFRS for interim financial reporting (IAS 34), and are unaudited. In contrast to the preparation of consolidated financial statements, a series of assumptions and estimates were made in the preparation of our combined financial statements which affect the recognition and amount of assets and liabilities, income and expenses and contingent liabilities, including in particular income taxes. In such cases, the actual results may differ from our assumptions or estimates. In addition, the combined financial statements include companies that were held by Siemens during the relevant reporting periods. Therefore, the combined financial statements do not claim to represent the net assets, financial position and results of operations or cash flows that would have resulted had the OSRAM Licht Group existed in its current form since October 1, 2009, nor can the net assets, financial position and results of operations or cash flows be extrapolated for future periods or a future reporting date. See “—Basis of Presentation” below. Certain information in the discussion below includes forward-looking statements. Because such statements involve inherent uncertainties, actual results may differ materially from the results described in or implied by such forward-looking statements. See “Risk Factors”, “General Information—Forward-looking Statements” and “Business” for a discussion of important factors that can cause actual results to differ materially from the results described in or implied by these forward-looking statements. Where financial data in the following tables is presented as “audited,” this means that it was taken from the audited combined financial statements of the OSRAM Licht Group mentioned above. Where financial data is presented as “unaudited”, it indicates that the financial data has been derived from the audited combined financial statements or has been taken or derived from our unaudited condensed interim combined financial statements or been taken from our accounting records. Certain tables in this section also include certain non- GAAP measures (neither defined under IFRS nor under the German Commercial Code) as key figures used by our management to monitor the performance of the OSRAM Licht Group. If such non-GAAP measures are not included as such in the combined financial statements, they are labeled in the respective tables as “unaudited”. On the other hand, if non-GAAP measures are included in the combined financial statements, they are labeled “audited”. Unless otherwise indicated, all financial data presented in the text and tables in this section of the prospectus is shown in million euros (€ million), commercially rounded to one decimal point. Unless expressly otherwise noted, the percentage amounts that are stated in the text and tables have likewise been commercially rounded to one decimal point. Because of this rounding, the figures shown in the tables do not in all cases add up exactly to the respective totals given.
OVERVIEW OSRAM is one of the world’s leading providers of lighting products and solutions based on sales (source: Frost & Sullivan 2011) and, according to its own assessment, the only pure play, i.e. exclusively focused on the lighting industry, integrated global lighting company. With our mission statement “Light is OSRAM” we deliver lighting solutions for every facet of life. We offer vertically integrated solutions in all relevant stages of the lighting value chain from light sources over ballasts and light components, to complete luminaires, light management systems and lighting solutions as well as value-added services. OSRAM products cover a broad range of applications. Our former business unit General Lighting and its successor business units, respectively (Lamps, Light Engines & Controls, Luminaires and Solutions), cover applications and products for both consumer and professional customers in the general lighting market, the business unit Specialty Lighting produces products for automotive and in the area of projection, entertainment, industrial and medical applications, and the business unit Opto Semiconductors delivers LED, infrared and laser components for general
83 lighting, automotive, industrial, and consumer and communication electronics. We are engaged in all major lighting technologies, from traditional incandescent and halogen to energy efficient fluorescent lamps and high pressure discharge technology as well as to the latest SSL (solid state lighting) products. We have an extensive patent portfolio protecting our intellectual property and our technical inventions. In our manufacturing facilities we produce high-quality products using proprietary equipment and technologies developed by us. Our core trademark has a history of more than 100 years during which we became in our opinion a leading global lighting manufacturer with leading technology shaping the lighting market. Based on our extensive global distribution platform we cover all important sales channels for the products in our portfolio. We have long-term relationships with important OEMs as well as retailers and wholesale customers throughout the world. As of September 30, 2012, we operated 39 production facilities in 15 countries and our sales network covered more than 120 countries through subsidiaries, branch offices, sales support centers or local agents. The average number of employees in the Fiscal Year 2012 was 40,157 FTE (“Full Time Equivalents”) (Fiscal Year 2011: 40,497 FTE, Fiscal Year 2010: 39,743 FTE); as of September 30, 2012, we employed 39,194 FTE (September 30, 2011: 41,380), thereof 10,027 in Germany. In the Fiscal Year 2012 we generated revenue of €5,399.8 million (Fiscal Year 2011: €5,031.0 million; Fiscal Year 2010: €4,679.7 million), and EBITA of €53.3 million (Fiscal Year 2011: €437.0 million; Fiscal Year 2010: €582.5 million). Our light source product portfolio includes incandescent lamps, halogen lamps, fluorescent lamps, high intensity discharge lamps, light emitting diodes (LEDs) and organic light emitting diodes (OLEDs). In addition, we offer electronic components such as electronic ballasts and complete luminaires. We also offer innovative, integrated and customized lighting solutions for large projects including light management systems, and offer value added services such as energy audits, light design and engineering as well as maintenance services. Our products are used for illumination, visualization, sensing and special purposes in a variety of applications for general lighting including architectural, residential, office, industrial, shop, hospitality, and outdoor. Our products appear also in entertainment and communication electronics (e.g. mobile phones). In the automotive sector we furnish light sources and systems for forward, rear, signal and interior lighting as well as sensing. For the display/optic market we produce light sources and systems for special applications, such as projection, entertainment/architainment (dynamic architectural lighting) and medical and industrial applications (such as disinfection with UV radiation). Technologically, we divide our products into SSL products, efficient traditional products as part of the Environmental Portfolio and traditional basic products. • SSL products are included in the Environmental Portfolio and comprise in particular semiconductor- based light sources, including LED components and LED modules, LED light engines, LED lamps, LED luminaires, infrared emitters and detectors, OLED as well as light management systems for such light sources. • Efficient traditional products as part of the Environmental Portfolio are based on traditional lighting technology, but offer the end-consumer an energy efficiency advantage compared to the respective baseline technology. Efficient traditional products as part of the Environmental Portfolio include compact fluorescent lamps (energy saving lamps), certain modern types of halogen lamps, efficient fluorescent lamps, high intensity discharge lamps, discharge lamps for specialty purposes, as well as electronic control gear including light management systems. • Traditional basic products primarily include products based on traditional lighting technology such as incandescent lamps, certain types of halogen and halo-phosphate fluorescent lamps, basic fluorescent lamps, mercury vapor lamps, magnetic ballasts and luminaires containing such basic products. In the Fiscal Year 2012, traditional basic products accounted for 28.2% (Fiscal Year 2011: 26.4%) and efficient traditional products as part of the Environmental Portfolio for 46.4% (Fiscal Year 2011: 50.3%) of our revenue. SSL products generated 25.4% of our revenue (Fiscal Year 2011: 23.3%) and evidenced the most rapid revenue growth in the Fiscal Year 2012 with 17.1% (Fiscal Year 2011: 28.2%). Since certain energy inefficient products were subject to statutory energy efficiency regulation in the calendar year 2012 (especially in the EU and the U.S.) and, therefore, must not be brought on the market anymore, we removed these products from the baseline of the OSRAM Environmental Portfolio and adapted the OSRAM environmental portfolio accordingly. As a result, the requirements for products comprised in the Environmental Portfolio increased and the revenue share of our Environmental Portfolio (which includes SSL products and efficient traditional products as part of the Environmental Portfolio) decreased from 73.6% in the Fiscal Year 2011 to 71.8% in the Fiscal Year 2012. Adjusted for changes in the basis of comparison, the revenue share of the Environmental Portfolio increased slightly to 74.0% in the Fiscal Year 2012 (see also “General Information—Presentation of Financial
84 Information—Certain Definitions” and for further information regarding the adjustments “—Comparison of Operating Results—Comparison of Operating Results for the Fiscal Years 2012 and 2011—OSRAM Licht Group—Revenue—Revenue by Technology”). Through September 30, 2012, our business activities were divided into three business units (each forming a segment within the meaning of IFRS 8 for the purpose of the combined financial statements for the Fiscal Years 2012, 2011 and 2010): General Lighting, Specialty Lighting and Opto Semiconductors. • The business unit General Lighting (external revenue in the Fiscal Year 2012: €3,387.2 million or 62.7% of revenue of the OSRAM Licht Group) comprised all OSRAM product offerings oriented towards end- consumer and professional users in the general lighting market. Its products are sold through retailers and via the trade and OEM channel. In addition, integrated lighting solutions and services are offered. The General Lighting business unit offers both traditional basic products and efficient traditional products as part of the Environmental Portfolio as well as forward integrated SSL products, lighting components and systems, LED and light management systems, in addition to consumer and professional luminaires. An extensive line of forward integrated SSL products is also offered through Traxon (including the brand e:cue), a specialist for forward integrated SSL solutions that offers innovative, integrated and customized LED lighting and control solutions for large projects. Our recent acquisitions of Siteco and Encelium have additionally strengthened our position in the value chain and improved our direct market access. Effective as of the Fiscal Year 2013, we changed the structure of our business units and simultaneously our segments within the meaning of IFRS 8. To allow for a more distinct allocation of responsibilities and to address the technological transformation more efficiently, effective as of October 1, 2012, the former business unit General Lighting has been divided along the lighting value chain into four new separate business units - Lamps, Light Engines & Controls, Luminaires and Solutions – as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED is reported as part of corporate items. • The business unit Lamps comprises all our activities for traditional lamps as well as for lamps based on LED. Application fields covered include residential, architectural, outdoor, hospitality, office and industrial applications. The product portfolio includes incandescent lamps, halogen lamps, compact and linear fluorescent lamps (CFL/LFL), high intensity discharge lamps (HID), as well as LED lamps (LED lamps in classic shapes suitable for conventional sockets are sometimes called LED Retrofits). • The business unit Light Engines & Controls focuses on LED and light management systems as well as electronic control gear (ECG) for the control of lamps, luminaires and lighting systems. This includes Encelium, in our assessment, a leading software and technology development company concentrating on advanced lighting control and energy management systems for office and industrial buildings in the NAFTA zone. • The business unit Luminaires comprises our luminaire activities, in particular for professional customers but also for private end-users. The business unit combines the luminaires business of OSRAM and Siteco, a manufacturer of technical indoor and outdoor luminaires and customer- specific lighting solutions. • The business unit Solutions expands with its product portfolio our approach to the lighting value chain towards lighting solutions. The product portfolio of the business unit Solutions comprises on the one hand a variety of different scalable network control systems and on the other hand LED systems and LED solutions of different sizes. The business unit emerged from the acquisition of Traxon Technologies. • Services has a broad base of business activities in the U.S. The portfolio includes servicing and maintenance, repair, cleaning and modernization of outdoor and indoor lighting as well as light design and consulting. In the coming years, more services shall be added to this portfolio based on new business opportunities which shall also be offered in other regions. • OLED is a new, semiconductor-based light technology that has developed during the last years due to continuous improvements, especially in terms of efficiency and lifetime. If both can be further improved and unit costs can be constantly optimized, the technology has the potential to become a major lighting technology in addition to LED during the second half of this decade. With respect to OLED, OSRAM has, in its own assessment, a leading position in OLED technology and continues to focus on investing in research and development as well as in protecting the results through patents.
85 The two units OLED and Services report directly to the chairman of the Managing Board. The segment structure according to IFRS 8 mirrors the general lighting business along the value chain in line with our business model. Lamps & Components comprises our product business (lamps and components for lamps and luminaires) with a high share of traditional products which is expected to be increasingly substituted by forward integrated SSL products. Luminaires & Solutions comprises the project and solution business (luminaires and light management systems for the control of luminaires and lighting systems) as well as installation and maintenance services for such lighting solutions, which has been expanded in particular in the course of our most recent acquisitions. • The Specialty Lighting business unit (external revenue in the Fiscal Year 2012: €1,404.6 million or 26.0% of revenue of the OSRAM Licht Group) comprises light sources and systems for automotive forward, rear, signal and interior lighting as well as sensing and special applications, such as projection, entertainment, medical and industrial applications (such as UVC lamps for the disinfection with UV light) using all lighting technologies: incandescent, halogen, high and low pressure discharge, LED and laser modules. Display/optic products comprise lamps and lighting systems for stages and performance spaces, studios and film sets as well as lamps for cinema, video and television projection systems. Moreover it also produces medical and industrial applications such as disinfection with UV lamps. Specialty Lighting sells its products primarily to OEMs and serves the aftermarket via retailers as well as wholesalers. • Opto Semiconductors (external revenue in the Fiscal Year 2012: €584.7 million or 10.8% of revenue of the OSRAM Licht Group) develops, manufactures and sells a broad portfolio of opto-electronic semiconductors for external customers on a global basis as well as for OSRAM’s other business units. The products offered include LEDs, infrared components and laser diodes. Applications include automotive, industry, general lighting and consumer and communication electronics. Geographically, we divide our business into three regions – “EMEA”, “Americas” and “APAC”. The region “EMEA” includes Europe, Russia, the Middle East and Africa. The region “Americas” comprises USA, Canada, Mexico and South America. The region “APAC” covers Asia, Australia and the Pacific region.
BASIS OF PRESENTATION Structure of OSRAM Licht Group; Combined Financial Statements On March 28, 2011 Siemens AG announced its plans to publicly list the operating OSRAM business. In the light of the then prevailing market conditions, Siemens decided subsequently for a stock exchange listing via a spin-off, by issuing OSRAM Licht AG Shares to the shareholders of Siemens AG. OSRAM Licht AG (up to November 14, 2012: Kyros A AG) Munich, Germany, will be the parent company of the future OSRAM Group and the issuer of the Shares. OSRAM’s operating activities are performed by OSRAM GmbH (until October 25, 2012: OSRAM AG), Munich, Germany, and its direct and indirect subsidiaries. This company is currently (prior to the Spin-off becoming effective) owned by Siemens AG (19.5% share) and OSRAM Beteiligungen GmbH (80.5% share). In addition to OSRAM Licht AG, OSRAM Beteiligungen GmbH (until August 22, 2012: Blitz 12-464 GmbH), Munich, Germany, also acts as a transaction company. These two companies are both 100% direct or indirect subsidiaries of Siemens AG at the moment. OSRAM Licht AG and OSRAM Beteiligungen GmbH were incorporated in the Fiscal Year 2012 and are transaction companies without any operating activities. Upon the Spin-off becoming effective, OSRAM Licht AG will be the parent company of the future OSRAM Group and will hold 100% of the shares in OSRAM Beteiligungen GmbH and 19.5% of the shares in OSRAM GmbH. OSRAM Beteiligungen GmbH in turn holds 80.5% of the shares in OSRAM GmbH. See also “The Spin-off” and “General Information on the Company and the OSRAM Licht Group—Group Structure”. According to the Regulation (EC) No. 809/2004 (so-called prospectus regulation, “EPV”), an issuer must present historical financial information covering the latest three Fiscal Years in its securities prospectus. In the present case, this is the information for the fiscal years from October 1, 2011 to September 30, 2012, from October 1, 2010 to September 30, 2011 and from October 1, 2009 to September 30, 2010. According to the EPV, OSRAM Licht AG has a “complex financial history” as at the Share issuance date. As such, OSRAM Licht AG prepared combined financial statements consisting of financial statements for OSRAM Licht AG, OSRAM Beteiligungen GmbH as well as OSRAM GmbH and its direct and indirect subsidiaries. For the six months ended March 31, 2013, we have prepared (unaudited) condensed interim combined financial statements for the OSRAM Licht Group.
86 The combined financial statements consist of combined statements of income, combined statements of comprehensive income, combined statements of financial position, combined statements of cash flow, combined statements of changes in equity and notes to the combined financial statements for the Fiscal Years 2012, 2011 and 2010, as well as a combined statement of financial position (opening balance sheet) in accordance with IFRS 1 as of October 1, 2009 (“combined financial statements”). The condensed interim combined financial statements consist of combined statements of income, combined statements of comprehensive income, combined statements of cash flow, combined statements of changes in equity, notes to the condensed interim combined financial statements for the six months ended March 31, 2013, a combined statement of financial position as of March 31, 2013 as well as a combined statement of financial position as of October 1, 2011 (opening balance sheet) due to the first time application of IAS 19R as of October 1, 2012 (“interim combined financial statements”).
Definition of the OSRAM Business OSRAM operates worldwide in various legal entities and was presented as a Division of the Industry Sector (reportable unit within Siemens’ consolidated financial statements) in Siemens’ consolidated financial statements until March 31, 2011. Since March 31, 2011, OSRAM has been presented as discontinued operations in Siemens’ consolidated financial statements. In addition to some smaller interests, in the Fiscal Year 2011, OSRAM GmbH acquired the following significant interests in companies belonging to the Siemens Group: • 44% of the shares in OSRAM AS, Norway (“OSRAM Norway”), were acquired from Siemens AS, Norway; • 100% of the shares in OSRAM S.p.A. Società Riunite OSRAM-Edision-Clerici, Milan, Italy (“OSRAM Italy”), were acquired from Siemens Holding S.p.A., Italy; • 100% of the shares in OSRAM S.A., Madrid, Spain (“OSRAM Spain”), were acquired from Siemens Holding S.L., Spain. In addition, with effect as of July 4, 2011, Siemens AG transferred its shares in OSRAM SYLVANIA INC., Danvers, U.S. (“OSRAM SYLVANIA”), to OSRAM GmbH by way of a contribution to additional paid-in capital without consideration. The transfer of shares in OSRAM SYLVANIA to OSRAM GmbH and the acquisition of the interests from companies of the Siemens Group are “transactions under common control” of Siemens AG. The purchase price obligations in respect of the acquisition of the interests have been presented as equity transactions with the shareholder Siemens AG, at the respective closing dates of the contracts. For additional information, see Note 1 and 28 to the combined financial statements. For further details see also “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group—Other Relationships with the Siemens Group—Contribution, Acquisition and Transfers of Certain Subsidiaries, Assets, Employees in the Fiscal Year 2011”. As of September 30, 2012, the OSRAM Licht Group consisted of a combination of OSRAM Licht AG, OSRAM Beteiligungen GmbH and OSRAM GmbH, as well as its direct and indirect subsidiaries. OSRAM GmbH and its direct and indirect subsidiaries are a legal group for consolidated financial statements reporting purposes in accordance with IAS 27 as of September 30, 2012 and 2011. This includes the interests mentioned above that OSRAM acquired and that were transferred to OSRAM, respectively, in the Fiscal Year 2011. As of September 30, 2010 the OSRAM business for the preparation of the financial statements was a combination of OSRAM GmbH including its directly or indirectly controlled subsidiaries, OSRAM SYLVANIA including its directly or indirectly controlled subsidiaries, OSRAM Spain and OSRAM Italy.
Combined Financial Statements The combined financial statements for the Fiscal Years 2012, 2011 and 2010 were prepared in accordance with IFRS. The condensed interim combined financial statements for the six months ended March 31, 2013 were prepared in accordance with IFRS for interim financial reporting (IAS 34). These combined financial statements are the first financial statements of OSRAM Licht Group in accordance with IFRS 1.3. OSRAM Licht Group prepared the combined financial statements using IFRS 1.D16(a) (“predecessor accounting method”). OSRAM Licht Group used the same accounting policies and valuation methods for the preparation of these combined financial statements as those used by the OSRAM companies for the preparation of the financial information included in Siemens’ consolidated financial statements, unless such accounting policies and valuation methods are not in accordance with IFRS when
87 presenting OSRAM Licht Group as a group of companies independent of Siemens. These different accounting policies have been disclosed under Note 2 to the combined financial statements under “—Summary of significant accounting policies”. The combined financial statements have been prepared on a historical cost basis as included in the Siemens’ consolidated financial statements, based on Siemens’ date of transition to IFRS (as of October 1, 2004). Since IFRS do not provide any guidance for the preparation of combined financial statements, IAS 8.12 has to be used for the preparation of combined financial statements. IAS 8.12 requires that the latest pronouncements of other standard setters, other accounting literature and accepted industry practice should be considered. The combined financial statements of OSRAM Licht Group have been derived from the aggregation of the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH as well as OSRAM GmbH and its direct and indirect subsidiaries. All intra-group balances, income, expenses and unrealized gains and losses arising from transactions between companies belonging to OSRAM Licht Group were eliminated when preparing the combined financial statements. In addition, the investments of the holding companies of OSRAM Licht Group were eliminated against the equity of the respective subsidiaries. Transactions with Siemens AG and Siemens Group companies, which do not belong to OSRAM Licht Group, have been disclosed as transactions with related parties.
Segment Information Until September 30, 2012, our business activities have been divided into three business units: General Lighting, Specialty Lighting and Opto Semiconductors. These business units are OSRAM’s reportable segments for purposes of the combined financial statements for the Fiscal Years 2012, 2011 and 2010. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments according to IFRS 8. The former business unit General Lighting (forming a segment) has been split up into four new separate business units, namely Lamps, Light Engines & Controls, Luminaires and Solutions, as well as the units Services and OLED. For purposes of external reporting, there are two new segments according to IFRS 8: Lamps and Light Engines & Controls form the segment Lamps & Components and Luminaires, Solutions and Services form the segment Luminaires & Solutions. The research project OLED is reported as part of corporate items. Accordingly, at segment level our condensed interim combined financial statements for the six months ended March 31, 2013 (with comparable data for the respective prior year period) are not directly comparable to our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010.
Treatment of Taxes Until and including September 30, 2011, OSRAM AG (now OSRAM GmbH) was part of the income tax group of Siemens (and significant domestic subsidiaries of OSRAM AG were part of the income tax group of OSRAM). Foreign OSRAM companies were partly included in the income tax groups of the relevant jurisdictions. Accordingly, income taxes associated with these tax groups were reported in the consolidated financial statements of Siemens and paid by Siemens. Income taxes reported in our combined financial statements for the Fiscal Years 2011 and 2010 were determined under the assumption of the OSRAM Licht Group entities being separate taxable entities. Management considers the separate tax return approach to be reasonable, but it does not necessarily lead to the tax income or expense that would have been incurred if the OSRAM Licht Group entities were indeed separate taxable entities. The separate taxable entities assumption implies that current and deferred taxes of all OSRAM Licht Group entities are calculated separately and any resulting deferred tax assets are evaluated for utilization following this assumption. This treatment of taxes has various impacts within our combined financial statements: Statements of Income: In the combined statements of income of OSRAM Licht Group we report income taxes determined as described above. Tax expenses recorded in our combined financial statements for the Fiscal Years 2010 and 2011 in the line item Income taxes include taxes of OSRAM AG (now OSRAM GmbH) as well as taxes of OSRAM U.S., OSRAM Italy and OSRAM Spain on a notional basis, i.e. assuming that the tax group with Siemens did not exist and that OSRAM GmbH, OSRAM U.S., OSRAM Italy and OSRAM Spain each would have been separate taxable entities. Statements of Financial Position: Due to the fact that certain entities of the OSRAM Licht Group do not file separate tax returns and considering that certain taxes recorded as an expense in the combined statements of income will never be paid as they have already been paid by Siemens, the respective current tax assets and liabilities as well as the deferred tax assets on tax loss carryforwards of Siemens are deemed either contributed or distributed to the respective tax group member with a corresponding effect in equity of the OSRAM Licht Group as of the end of the reporting period for these entities. Deferred tax assets not meeting the utilization criteria following the separate taxable entities assumption are not capitalized
88 irrespective of a potential utilization within the tax group but outside the OSRAM Licht Group. In cases where taxes in a tax group were charged internally by the controlling company to the relevant controlled company, these charges are not deemed contributions or distributions but rather recorded as receivables from or payables to Siemens. See also Note 1 to our combined financial statements for the Fiscal Years 2012, 2011 and 2010 included in “Financial Section”. Statements of Cash Flow: Our combined statements of cash flow present income taxes effectively paid by the notional group. As income taxes associated with the tax group were actually not allocated to or paid by OSRAM, the combined statements of cash flow of the OSRAM Licht Group show no corresponding cash outflows. However, internal tax charges within a tax group described above have been presented in cash flows from operating activities as they reflect taxes effectively paid. In addition, the line item Income taxes paid reflects changes in tax payables (a rise of which leads under the indirect method of reporting cash flows from operating activities to an increase in cash and cash equivalents) and tax receivables (a rise of which leads under the indirect method of reporting cash flows from operating activities to a decrease in cash and cash equivalents). Income taxes paid as reported in our combined statements of cash flow and income tax expenses as reported in our combined statements of income amounted in the Fiscal Year 2010 to €50.9 million and €175.1 million, respectively, in the Fiscal Year 2011 to €96.9 million and €129.6 million, respectively, and in the Fiscal Year 2012 to €91.8 million and €32.0 million, respectively. In Germany, for the periods under review in this prospectus the calculation of current income tax is based on a corporate tax rate of 15% and a solidarity surcharge thereon of 5.5% for all distributed and retained earnings. In addition to corporate taxation, trade tax is levied on profits earned in Germany. Trade tax is a non-deductible expense resulting in an average trade tax rate of 14.6% and therefore a combined total tax rate of 30.4%. For foreign subsidiaries, current income taxes are calculated based on the regulation of the national tax law and using the tax rates applicable in the individual foreign countries. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled.
Payments for Certain Central Services (Infrastructure Costs) As a Division of Siemens we have historically used certain services performed at Siemens Group level as well as Siemens Sector level (such as for taxes, legal and contract management, IT, corporate communications, human resources, internal audit, compliance, accounting, finance and treasury). In the periods presented, OSRAM was charged a lump sum for services provided by the Industry Sector of Siemens Group (“Sector Charges”). These charges amounted to €18.3 million and €10.2 million in the Fiscal Years 2011 and 2010, respectively. The increase in the Fiscal Year 2011 was among other factors due to additional expenses related to a Siemens image campaign. Commencing in the Fiscal Year 2011, Siemens also charged the Sectors and Divisions of the Siemens Group for services provided by headquarter functions of Siemens Group (“Central Group Charges”) and OSRAM was invoiced a net amount of €30.9 million in the Fiscal Year 2011. These payments were reflected in the combined financial statements for the Fiscal Year 2011. No fees were charged by Siemens for such services provided by Siemens Group headquarter functions in the Fiscal Year 2010, and, therefore, the combined financial statements do not include charges for such central services in the Fiscal Year 2010. Since OSRAM in general has established stand-alone functions by the end of the Fiscal Year 2011, no more charges have been incurred from Fiscal Year 2012 through the date of this prospectus. However, we have incurred costs for implementing and maintaining these functions. For a limited number of services performed at Siemens Group level such as corporate technology and corporate strategy no fees were paid in the Fiscal Year 2011 and, accordingly, no corresponding costs were recorded in the combined financial statements for the Fiscal Year 2011. To the extent such costs are not included in the combined financial statements for the Fiscal Year 2011, the combined financial statements do not claim to represent the net assets, financial position and results of operations or cash flows that would have resulted had the OSRAM Licht Group existed as an independent group since October 1, 2010. In addition, service level agreements, relating in particular to accounting and finance (including taxes and treasury), compliance, export control and customs (use of special systems), human resources, insurance, intellectual property rights, IT, legal, environment, health & safety, procurement and real estate, existed between certain companies of the OSRAM Licht Group, especially subsidiaries in the regions, and the Siemens Group. These agreements were either terminated or replaced by transitional agreements with the Siemens Group. For more details see “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group”.
89 KEY FACTORS AFFECTING THE RESULTS OF OPERATIONS Our results of operations during the periods covered by this prospectus have been primarily affected by the following key events and material factors. Our results of operations may continue to be affected by these factors in the future.
General Economic Development and Competition Demand for our products is cyclical and the majority of our business is subject to fluctuations in the general economic development. Our products serve applications in various segments of the lighting market such as residential, office, shop, hospitality, outdoor, architectural and industrial lighting, general industry and the automotive industry as well as for displays and in the entertainment industry, most of which are affected by changes in economic development relatively early in the cycle, which in turn impacts our revenue. The main exception to this is the luminaires business, being more exposed to the construction industry, which, in turn, is generally affected relatively late in the economic cycle. Furthermore, as our main markets are in Europe, the United States and Asia, economic developments in these regions have the biggest impact on our business activities. With regard to our fixed cost base, especially to costs relating to our production facilities, our earnings are usually impacted proportionately more than our revenue by swings in the economic development. With our OSRAM Push Program set out in more detail below, we are striving, inter alia, for a reduction of our fixed cost base. The cyclical nature of our business was particularly pronounced in the last years. Since mid-2008, the world economy has experienced a significant downturn due to turmoil in the global financial markets resulting in significant recessionary pressures, weaker business and consumer confidence. In late 2009, the global economy started to recover. In the Fiscal Year 2010, our revenue increased significantly from the low level of the Fiscal Year 2009. In the Fiscal Year 2011, our business continued to develop positively, although sales growth slowed down in the second half of the Fiscal Year 2011 and our gross margin came under pressure, due to, among other things, cost increases, the natural and nuclear disasters in Japan and intensifying price competition. Furthermore, restocking effects positively impacted the Fiscal Year 2010 but did not recur to the same extent in the Fiscal Year 2011. The rising uncertainty caused by the escalating sovereign debt crisis in a number of industrialized countries as well as concerns about the stability of the banking sector in some countries had a negative impact on investment and private consumer spending. In the Fiscal Year 2012 the global economic situation continued to be tense with high uncertainties especially in Europe. In other parts of the world, namely China, Japan and the USA, growth decreased as well. Additionally, internal problems in some emerging countries gained attention. However, the overall lighting market developed stable compared to the prior year but was shaped by an accelerated technological change towards SSL. In the first six months of the Fiscal Year 2013, in spite of increased indications of an acceleration in the global economy, our business performance was still affected by the unstable general economic environment and the related continuing economic weakness. The markets in which we operate are subject to intense competition and new companies have entered and are entering in particular the LED market, with many companies making significant investments in LED production equipment. Product pricing pressures exist as market participants often undertake pricing strategies that are specifically aimed at gaining or protecting market share and increasing the utilization of production capacity. Competition is particularly intense in times of declining demand or overcapacities in the market as competitors, in order to retain or increase utilization of production capacity, are tempted to support their sales volumes by lowering prices (or not adjusting prices to increased cost of goods sold). In the Fiscal Years 2011 and 2012, many lighting suppliers had excess or underutilized factory capacity which led to an aggressive pricing environment, weighing on our margin.
Regulatory Initiatives and Resulting Hoarding Effects The incremental phase out of energy inefficient lamps from the trade chain under the EU Ecodesign Directive (phase out) (see “Regulation—Environment Related Regulations—Energy Efficiency”) has had and continues to have an effect on our revenue. In September 2009, frosted inefficient lamps were phased out in the EU. This resulted in shelf rebuilding in retail stores with CFLi (energy saving lamps) and halogen lamps as replacement, which had a positive effect on our revenue with efficient traditional products as part of the Environmental Portfolio. In addition, immediately prior to the effectiveness of the implementation measures of the EU Directive becoming effective, distributors and retailers increased their stocks of inefficient lamps, because such products could be sold even after effectiveness of the implementation measures once they were introduced into the trade chain (“hoarding effect”). Hoarding effects increased our revenue from traditional basic products in the Fiscal Year 2009. After effectiveness of the implementation measures, demand for the phased out
90 products from our customers ceased in all countries concerned. In addition, the stock build-up at distributors, retailers and even consumers had a negative effect on demand for efficient traditional products as part of the Environmental Portfolio and SSL replacement products in the Fiscal Years 2010 and 2011. Other restrictions that were established in 2010 did not have a similar effect on our revenue as the restrictions affected only less popular lamp categories. We experienced hoarding effects again in the Fiscal Year 2011 before all 60W incandescent lamps in the EU were phased out in September 2011. However, we only benefitted to a lesser extent from hoarding purchases because distributors and retailers increasingly purchased such lamps from Asian low-cost competitors. Other countries are building their regulatory initiatives based on the European model (e.g. in the United States and Brazil first restrictions came into force starting in 2012) which may have a similar impact on our revenue in the future.
Seasonality We experience some seasonal fluctuations in our sales, as generally the first half of our Fiscal Year (winter in the northern hemisphere) with shorter daylight periods causes higher demand for lighting products than in the second half of the Fiscal Year. This effect is most significant in General Lighting and its successor business units. Due to less daylight, lights are turned on for longer periods of time during the day, thus requiring more replacements than in summertime with lower light consumption. In Specialty Lighting, sales slow down in the summer since especially car manufacturers close their production facilities for several weeks resulting in reduced demand for lighting systems and components during that period. The demand for products of our business unit Opto Semiconductors is lowest in the winter half-year due to the production downtimes in the electronic industry during the different new year celebrations, especially in Asia. Due to the longer product lifetime of SSL products we expect that seasonality will be less relevant in the future.
Exchange Rate Fluctuations Due to our worldwide operations, we are exposed to currency fluctuations in the ordinary course of business which are, among other things, a result of the fact that business transactions or assets and liabilities are accounted for in a currency other than our reporting currency (euro). The largest share of non-euro revenue is in U.S. dollars and a further significant share of revenue is generated in other currencies such as the Hong Kong dollar, the Chinese renminbi and, in the past, the Japanese yen. In comparison to revenue, a larger proportion of the value creation is located in the euro zone. Accordingly, a significant part of our total costs accrue in euros while we generate a significant share of our revenue in currencies other than euros. In order to mitigate the risks of exchange rate fluctuations we hedge transaction risks to a certain extent. For further information about the exchange rate risks and instruments we use to hedge foreign exchange risk, see “—Disclosure about Market and Other Financial Risks—Foreign Currency Exchange Rate Risk”. See also “Risk Factors—Risks relating to our Industry and our Business—We operate an international business and generate a significant part of our revenue outside the euro zone. Exchange rate fluctuations can have material negative effects on our revenues and profits and may also affect our competitive position.”.
Procurement Price Volatility In our production we use vendor parts (especially mechanical and electronic components) and raw materials such as glass, industrial gases (Xenon and Krypton), rare earths and metals, such as copper, aluminum, tin, molybdenum, nickel and zinc, as well as derivative products, such as plastic resins, and wafers as well as precious metals for LED production. The cost of materials (also including energy and product packaging expenses) represent a major portion of our costs of goods sold. In addition to general price volatility in procurement costs, we are dependent in particular on the availability and purchase prices of critical materials/ components (such as rare earths or electronic components). While we benefited from stable and relatively low prices in the commodity markets in the first half of the Fiscal Year 2010, the cost of raw materials and certain components started to increase in the second half of our Fiscal Year 2010 as a result of the rise in demand for those materials and products in the global markets. Energy prices also rose significantly in the second half of the Fiscal Year 2010 and continued to increase in the Fiscal Year 2011. Prices for some raw materials are and were in the past subject to significant fluctuations. To some extent, OSRAM can pass price increases in raw materials on to its customers only with delay. In the Fiscal Year 2011 price increases for rare earths reduced our gross margin. During the Fiscal Year 2012 prices for rare earths dropped. However, the gross margin was still negatively impacted by high-priced inventory build-up for rare earths, initiated to preserve existing stock levels. This effect was largely compensated by a more efficient use of material. In the long term, we seek to reduce our dependence from Chinese suppliers through cooperations within mining projects outside of China.
91 We expect procurement prices to continue to have an effect on our margins in the future. In the past, we have concluded framework agreements with the main raw material suppliers which provide that prices are regularly renegotiated. Given that most of our contracts with our customers do not include so-called price escalation clauses that allow for at least some of the price increases in raw materials to be passed on to the customers, a sustained rise in raw material prices could temporarily result in a significant reduction of our margins. In order to mitigate the commodity price risks, we hedge to a certain extent against the transaction risk using financial derivatives. See “—Disclosure about Market and Other Financial Risks—Commodity Price Risk” for further information regarding the commodity price risks and the instruments used by OSRAM to hedge against these risks. See also “Risk Factors—Risks relating to our Industry and our Business—For the manufacturing of our products we require raw materials that are partly subject to significant price volatility. Prices for certain raw materials, in particular for rare earths, sometimes increase considerably. Rising commodity prices could have a material adverse effect on the profitability of our business.”
Shift to SSL and Increasing Portion of SSL Sales The technological change from traditional lighting technologies to SSL alters the generation of electric light fundamentally and offers new technical opportunities regarding color, dynamics, miniaturization, application integration and energy efficiency. SSL products are expected to become the major general lighting source in the future (see “Technological Background, Industry and Competitive Overview—The Global Lighting Market”). Due to attractive saving potential with respect to total cost of ownership and the pressure towards energy efficient products, especially customers in the professional segment have started to replace conventional light sources with SSL. Revenue generated by us with the sale of SSL products increased from €913.0 million (or 19.5% of our revenue) in the Fiscal Year 2010 to €1,170.8 million (or 23.3% of our revenue) in the Fiscal Year 2011 and to €1,370.8 million (or 25.4% of our revenue) in the Fiscal Year 2012. While the share of SSL products in the revenue in Fiscal Year 2012 was already substantial as a result of high price levels, it was still comparatively small in terms of installed sockets and volumes sold. We expect this to change also in the private consumer business with further decreasing selling prices. In addition to the substitution of conventional light sources, we also access new markets with our forward integrated SSL systems, such as execution of large projects (e.g. illumination of arenas and monuments), which are realizable only to a limited extent with conventional light sources and systems. SSL products have improved significantly with respect to brightness, energy efficiency and color quality, life span, design possibilities and, thus, conservation of resources. The total cost per lumen for LEDs has been significantly reduced in the last decade and is expected to decrease further due to increased automation and production standards. LEDs have a considerably higher life expectancy than traditional light bulbs and therefore need to be replaced less often. The stable replacement business for traditional products is therefore shifting to a first installation business for SSL products. We strive to compensate for reduced replacement business by selling higher value products in the first installation business, in particular by increasing our offer of luminaires, light management systems and providing value-added services. The effect on our revenue will depend on whether and to what extent higher value sales can compensate or exceed the decline of replacement driven revenue. The fast technological development in SSL leads to shorter product life cycles compared to traditional products and stronger fluctuation in demand. This may have a positive revenue impact due to replacement business before the end of the technical product lifetime. However, it may also result in a higher level of write-downs on inventories and other costs resulting from products becoming non-marketable due to technological progress or sudden drops in demand for certain products. In addition, the transition to SSL products requires high up-front R&D and marketing expenditures (especially for forward integrated SSL products) as well as capital investments in more cost intensive manufacturing processes, mainly for LEDs. At the same time, the share of SSL merchandize purchased with a low gross margin increases, mainly for forward integrated SSL products. Also, we incur costs to adapt and educate our sales force to the transition to a first installation business model. Finally, as noted above under “—General Economic Development and Competition”, competition in the SSL market is intense. Prices for SSL products have recently decreased significantly and we expect them to drop further in the future. A successful transition to high quality SSL products mainly depends on the speed of the transition and, consequently, the length of the transition period. The longer the transition period (see “Business—Strategy”) persists, the longer there will be an overlap of the product lifecycles of our traditional business with those of the SSL business (especially with regard to forward integrated SSL products). In this context, the strength of our traditional business is the basis for the transition to SSL based products (see also “—Product Portfolio and Product Mix”). This is in line with our strategy of “harvesting the golden tail”, which is to draw maximum
92 benefit from our strong portfolio of traditional products. On the other hand, if the penetration with SSL occurs faster than expected, we would have to intensify and accelerate our efforts and investments relating to the transition to SSL. In managing the shift to SSL, we believe that research and development (R&D) is fundamental to our success. Therefore, we place great importance on it. Our R&D expenses amounted to €259.5 million in the Fiscal Year 2010 (offset proportionally by a pension curtailment gain in the Fiscal Year 2010; see “—Other Factors— Pensions”), increased significantly to €300.9 million in the Fiscal Year 2011, which was mainly due to increase of R&D personnel, and amounted to €339.1 million in the Fiscal Year 2012. The average number of R&D employees increased from 2,215 FTE in the Fiscal Year 2010 to 2,489 FTE in the Fiscal Year 2011 and 2,721 FTE in the Fiscal Year 2012, mainly as a result of investments into SSL and the acquisition of Siteco. The continued investment in R&D had a negative impact on our EBITA margin.
Product Portfolio and Product Mix While we have expanded our share of revenue generated by SSL products and made substantial investments in production facilities and R&D for SSL components, we continue to benefit from sales of our traditional basic products and efficient traditional products as part of the Environmental Portfolio. The effect of the economic downturn in the Fiscal Year 2009 was partly mitigated by relatively stable sales of traditional products, in particular in the business unit General Lighting. We expect that the introduction of forward integrated SSL products will follow different timelines in different customer segments and regions and that the high, but decreasing demand will continue to be significant for efficient traditional products as part of the Environmental Portfolio and in some cases even traditional basic products. For example, in Fiscal Year 2012 we were able to grow or maintain the level of sales of incandescent lamps in certain emerging countries such as South Africa and Russia, and also sales of basic fluorescent lamps grew in Russia, India and Korea. Our profitability depends on the product mix that is demanded by our customers. Gross margins vary significantly within our extensive portfolio. The transition from traditional products to SSL products requires high upfront costs with regard to R&D expenses and distribution (especially with respect to forward integrated SSL products) as well as investments in new production plants, mainly for LEDs, while the product lifecycle is shorter compared to traditional products. At the same time, our depth of value added declines because the proportion of purchased, mainly forward integrated SSL merchandize rises. The strongly growing portfolio of forward integrated SSL products is currently still weighing on our results with significant negative contribution to income.
Transformation and Restructuring Costs In the context of the different company programs and strategic restructurings, significant costs have been incurred in the presented reporting periods, namely in the Fiscal Year 2012 and in the first half of the Fiscal Year 2013 and mainly in the General Lighting segment and from the beginning of the Fiscal Year 2013 in the segment Lamps & Components, respectively. OSRAM defines these as “transformation costs” if the relevant measures are associated with the fundamental change in the lighting markets. In contrast, costs incurred in connection with other, more general measures are defined as other restructuring costs.
Technology Shift, OSRAM Push Program and Transformation Costs The technology shift and the consequential fundamental changes of the business environment require a strategic redirection of the OSRAM Licht Group. To drive the required changes, OSRAM has launched an internal transformation program called “OSRAM Push” in the first quarter of the Fiscal Year 2012. This program aims to ensure sustainable performance by transforming processes, operations, organization and culture. OSRAM Push Program includes the project “Future Industrial Footprint” that was initiated to realign our global production footprint by adapting production capacities to market demand. Significant expenses have been incurred in connection with OSRAM Push in the Fiscal Year 2012 and in the first half of the Fiscal Year 2013. The transformation costs associated with this program primarily relate to the business unit General Lighting (and from the beginning of the Fiscal Year 2013 to one of its successor segments, Lamps & Components, respectively), as this business unit is most affected by the technological shift. In order to better utilize the capacity of the plants, especially the production landscape will be further adjusted by, amongst others, moving, selling or terminating production and at times closing some smaller locations with low production volumes as well as unprofitable locations; a reduction of production facilities is targeted. As of September 30, 2011, OSRAM had 43 production facilities; the closing of 11 facilities is targeted until the Fiscal Year 2014 of which five facilities have already been closed as of May 31, 2013. Most recently, OSRAM announced the closing of its
93 production facility for traditional products in Tangerang, Indonesia. At the same time, OSRAM is pursuing the goal of increasing profitability of the business by implementing more efficient structures in research and development, production, sales function as well as in central functions. In this context, R&D expenses are intended to be maintained at the level of the Fiscal Year 2012 until the Fiscal Year 2014 and marketing, selling and general administrative expenses are intended to decrease compared to the Fiscal Year 2012 level. With this transformation program, OSRAM is targeting approximately €1 billion cumulated cost savings (gross) in total until and including the Fiscal Year 2015, reduced by transformation costs which will be incurred in an estimated mid-three-digit million euro amount in the Fiscal Years 2012 through 2014, mainly in the Fiscal Years 2012 and 2013. The cost savings will further be reduced by other effects, especially the price decline, primarily for SSL products, wage increases and other effects of inflation. We are well on schedule with the implementation of the measures identified in OSRAM Push. We expect that the restructuring part of OSRAM Push will be essentially completed in the Fiscal Year 2014. However, OSRAM estimates that the technology shift will continue beyond 2014 which will lead to additional restructurings in the traditional business. In the Fiscal Year 2012 transformation costs reduced EBITA by €198.5 million. This amount mainly consisted of: • impairments on the production facilities for metal halide lamps with ceramic technology (€36.7 million) and OLED production facilities (€21.5 million); • expenses for personnel measures (€52.5 million) as well as impairments (€16.1 million) and losses on disposal of fixed tangible assets (€11.0 million) each in relation to the “Future Industrial Footprint” project as well as other personnel-related restructuring expenses (€16.8 million); • the complexity reduction of our product portfolio and the related write-off to the net realizable values of inventory due to lower expected sales prices of the respective products (€23.1 million); • other transformation costs (€19.6 million) which include among others consultancy costs attributable to OSRAM Push. In the first half of the Fiscal Year 2013, EBITA was negatively affected by transformation costs in an amount of €126.3 million. This amount mainly comprises measures within the project “Future Industrial Footprint” and costs for more efficient structures in our research and development function, sales function and central functions. These include: • expenses for personnel measures (€67.3 million) as well as other personnel-related restructuring expenses (€2.3 million); • impairments (€21.5 million) as well as losses on disposal of fixed tangible assets (€14.1 million); • other transformation costs (€19.5 million, net), inter alia for regulatory risks relating to our past operations in one country which is addressed in our project “Future Industrial Footprint”. These are also seen by OSRAM in connection with the strategic realignment in this country. The measures described above entail significant headcount reductions. OSRAM announced already in January 2012 that it would adjust its personnel levels by the end of the Fiscal Year 2014 and cut around 1,000 jobs in Germany in a socially responsible manner. A similar approach for the OSRAM locations outside of Germany was at the same time announced, corresponding to around 2,300 jobs. In connection with these restructuring measures, the level of personnel in the OSRAM Licht Group in the Fiscal Year 2012 was already reduced worldwide by approximately 1,900 jobs. As the transformation in the lighting industry has further accelerated since then, OSRAM has announced additional adjustments in order to better utilize the capacity of the plants and to reduce costs. In this context, OSRAM intends to sell plants outside of Germany where products that are no longer comprised in the strategic portfolio are being manufactured. These additional planned measures are likely to lead to a further reduction of 4,700 jobs in total worldwide (thereof 400 in Germany) in the Fiscal Years 2013 and 2014. Thus, in total a reduction of approximately 8,000 jobs is planned. Currently, additional structural measures are being assessed and discussed with the employee representatives especially in the segment Luminaires & Solutions. A significant number of the affected jobs relates to the sale of plants. The main portion of the remaining reduction is to be related to plants designed for products near the end of the product life cycle, and the remaining share of reduction of employees in production is to be associated with closing smaller locations. Moreover we will further adjust our research and development and sales structures as well as those of the central functions to the changed environment. The intended measures relate mostly to OSRAM locations outside Germany, reflecting the international spread of the business and the current global production network. Some of these reductions will be offset by the rebalancing of production capacity in the coming years, leading to new growth of personnel for
94 the semiconductor based technologies (SSL). As of April 1, 2013, approximately 5,000 jobs of the total number set out above have already been reduced. In connection with the aforementioned closure of our production facilities in Tangerang, Indonesia, an additional reduction of approximately 1,000 jobs presumably in the course of the calendar year 2013 is expected. In addition to the worldwide reduction of the level of personnel, we plan to invest in new business segments as well as the expansion of the production of LED based products. In Wuxi, China we are for example building a new LED assembly facility on a leased site (so called “back-end manufacturing”).
General Personnel Related Restructuring Costs and Reduction of Cost Basis As part of our general strategy to geographically align, among other things, our production capacities with demand for our products and to strengthen production capacities in emerging countries, we aim to reduce personnel expenses, in particular personnel expenses recorded under our cost of goods sold and services rendered. In absolute amounts, overall personnel costs increased from €1,425.4 million in the Fiscal Year 2010 by €113.6 million or 8.0% to €1,539.0 million in the Fiscal Year 2011, mostly due to the acquisition of Siteco and also the investments in SSL. In the Fiscal Year 2012, personnel costs increased by €201.9 million, or 13.1%, to €1,740.9 million, among other things as a result of acquisitions as well as the transformation program. Personnel costs as a percentage of revenue remained nearly unchanged from the previous year at 30.6% in the Fiscal Year 2011 but increased to 32.2% in the Fiscal Year 2012. Other restructuring measures initiated by us led to personnel-related restructuring costs of €13.1 million in the Fiscal Year 2010 and €10.3 million in the Fiscal Year 2011. As set out above, in the Fiscal Year 2012, we incurred personnel-related restructuring costs in an aggregate amount of €69.3 million in connection with the transformation. In the first half of the Fiscal Year 2013, personnel-related restructuring costs in connection with the transformation amounted to €69.6 million (see above “—Transformation and Restructuring Costs— Technology Shift, OSRAM Push Program and Transformation Costs”). The average number of our employees rose from 39,743 FTE in the Fiscal Year 2010, mainly as a result of acquisitions, to 40,497 FTE in the Fiscal Year 2011. In the Fiscal Year 2012 personnel-related measures led in turn to a decrease to 40,157 FTE. As of September 30, 2012, we employed 39,194 FTE (September 30, 2011: 41,380), thereof 10,027 in Germany. As of September 30, 2012, 42.8% of our workforce was employed in emerging countries compared to 43.4% as of September 30, 2011 and 45.2% as of September 30, 2010.
Impairments In the Fiscal Year 2012, we recorded significant additional impairment charges, especially on goodwill and investments. Impairments of investments were also recorded in the first half of the Fiscal Year 2013. • Joint Venture Valeo Sylvania – Our currently still existing 50% interest in Valeo Sylvania, a joint venture for the production of automobile lighting assemblies, was fully consolidated until February 2010 and allocated to the business unit Specialty Lighting. Effective end of February 2010, the investment was deconsolidated due to a loss of control by the OSRAM Licht Group over Valeo Sylvania and is now a jointly controlled entity of the OSRAM Licht Group and our joint venture partner Valeo S.A., Paris, France, and is accounted for using the equity method since March 2010 (with regard to the planned disposal of our interest see “Business—Material Contracts—Joint Venture Valeo Sylvania”). In the Fiscal Year 2012, the investment in Valeo Sylvania was impaired by €27.6 million of which €14.7 million related to long-term receivables as part of the net investments in Valeo Sylvania. In the first half of the Fiscal Year 2013, €7.3 million long-term receivables were impaired as part of the net investments in Valeo Sylvania. These impairments were fully recorded in the gain (loss) from investments accounted for using the equity method, net. The main triggering event for the impairment was the reassessment of the business plan, which resulted in a significant decrease in the estimated future cash flows. • Impairment of Goodwill and Other Intangible Assets – The Managing Board decided in the second quarter of the Fiscal Year 2012 to monitor the units Professional Luminaires (“PLUM”) and Light Management Solutions (“LMS”), both of which formed part of the business unit General Lighting until September 30, 2012, more closely and considered this to be the appropriate level of monitoring the goodwill associated with these cash-generating units. The remaining goodwill is monitored at the business unit level. This change in the monitoring level was made, as the business outlook of the acquired groups of companies, Siteco, Traxon and Encelium, was considered to be lower than previously assessed due to the technological change in the market, required additional selling efforts, still unrealized sales synergies and the reorganization of the lighting business within OSRAM. Furthermore,
95 this resulted in the requirement to perform an impairment test in the second quarter of the Fiscal Year 2012. The annual impairment test in the fourth quarter of the Fiscal Year 2012 was based on a revised business plan, mainly due to the loss of sales staff, delayed introduction of new products and increased price pressure. In addition, an expected increase of market risks had to be taken into account. In the Fiscal Year 2012, OSRAM recorded an expense of €216.0 million in the statements of income in connection with these impairment tests. The impairment includes an amount of €173.1 million relating to goodwill (including foreign currency effects in an amount of €2.6 million) of the cash-generating unit PLUM. An additional amount of €45.5 million was allocated pro rata to the other intangible assets of PLUM. Furthermore, the goodwill relating to the impairment test level of the business unit General Lighting was fully impaired as a result of the technological change and rising market risk expectations. This resulted in an expense of €66.9 million included in other operating expense and reduced the related translation differences of €2.7 million included in other comprehensive income.
Costs Associated with the Separation, the Planned IPO and the Spin-off; Patent Infringement Suits In the Fiscal Years 2011 and 2012 we incurred certain costs related to the preparation of going public, amongst others for IT applications, external service providers and personnel related costs. Also included are expenses and income related to certain patent infringement suits as such disputes exacerbated significantly when the plans of our IPO became public (“Patent Infringement Suits”). The net expenses (after deduction of reimbursements received from Siemens) incurred as a result of the separation as well as of the intended Spin-off and the previously intended initial public offering, respectively, amounted to €30.8 million in the Fiscal Year 2012 and to €3.6 million in Fiscal Year 2011. In contrast, in the first half of the Fiscal Year 2013, we recognized net income in the amount of €20.7 million (including litigation related expenses and gains in connection with the Patent Infringement Suits as well as costs in connections with the separation of OSRAM and the associated relocation of corporate headquarters). In September 2011, we had entered into a cost assumption agreement with Siemens pursuant to which Siemens is obliged to reimburse OSRAM for certain costs, which OSRAM and Siemens agreed to be associated with the preparation of our separation from Siemens. This agreement was supplemented in January 2012 and extended until the Spin-off will become effective. See “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group—Other Relationships with the Siemens Group—Other Agreements—Cost Assumption Agreements”. In the Fiscal Years 2012 and 2011, we recognized income of €7.9 million and €42.4 million, respectively (thereof in the Fiscal Year 2011, €31.3 million for legal expenses relating to the Patent Infringement Suits) in connection with the cost assumption agreement with Siemens; in the first half of the Fiscal Year 2013, corresponding income amounted to €1.8 million. This income has been recorded as a reduction of the related expenses.
Other Material Legal and Regulatory Matters In the ordinary course of business OSRAM is involved in several other legal proceedings. In the Fiscal Year 2012, OSRAM incurred expenses in connection with the settlement of a license and trademark litigation in the amount of €34.2 million. Additionally, provisions were made for other material legal proceedings. In total OSRAM incurred costs of €50.6 million in the Fiscal Year 2012 arising from such other significant legal proceedings. In the first half of the Fiscal Year 2013, costs in the amount of €10.5 million were incurred in connection with further material legal and regulatory matters.
Acquisitions and Divestments Our results of operations in the periods covered by this prospectus were influenced by acquisitions and divestments of certain businesses. The business combinations in the Fiscal Years 2012, 2011 and 2010 were accounted for under the acquisition method (IFRS 3 (revised 2008) – with the exception of the Traxon acquisition (IFRS 3 (2004)) in the Fiscal Year 2009. The material acquisitions and divestments are set forth below:
Acquisitions • Acquisition of Encelium – As of October 14, 2011, OSRAM acquired an additional interest of 83.13% in Encelium. The main rational for the acquisition was to enhance the Company’s position in the global growth market of light management systems and to complement OSRAM’s portfolio of energy efficient
96 products and solutions for General Lighting. As a result of the transaction, OSRAM’s interest in Encelium increased from 16.87% to 100%. The aggregate preliminary consideration amounted to €37.6 million, which consisted of €37.4 million for paid in cash and €0.2 million recognized as a liability. Cash acquired amounted to €0.6 million. Acquisition-related costs amounted to €1.1 million. The acquisition of Encelium contributed revenues of €4.5 million and a net loss of €8.0 million, including expenses from the purchase price allocation, in the Fiscal Year 2012. If Encelium had been included in the combined financial statements with effect from October 1, 2011, the impact would have resulted in an increase of revenue for the twelve month period by €4.5 million and would have increased the net income (loss)after taxes by €(8.4) million, including expenses from purchase price allocation. The fair value of OSRAM’s existing 16.87% equity interest in the acquiree on the date of the acquisition was €5.2 million and the remeasurement to fair value resulted in a gain of €0.2 million, which has been recognized in the Fiscal Year 2012 in the line item Other operating income, in the combined statements of income. • Acquisition of Siteco – As of July 1, 2011, OSRAM acquired a controlling interest of 100% in Siteco. Siteco is a leading company in the European market for lighting technology that offers luminaires and lighting systems for urban infrastructures, such as public and commercial buildings, streets, tunnels, airports and sport facilities. With this acquisition, OSRAM was able to improve its activities on the lighting market by strong relationship with key decision makers of wholesalers and architects. Siteco provides success factors, such as the technological transition from conventional lighting to SSL, development and manufacturing capabilities as well as know-how about the application of innovative lighting technologies. The aggregate purchase price amounted to €132.4 million, which consisted of €128.4 million paid in cash and €4.0 million in respect of a preliminary purchase price adjustment, subject to the seller’s acceptance. This adjustment was settled in the Fiscal Year 2012. Cash acquired amounted to €5.0 million. Acquisition-related costs amounted to €3.7 million. In the course of the acquisition, Siemens assumed a liability of Siteco towards a third party in the amount of €125.5 million with effect as of June 30, 2011. The acquired Siteco business contributed revenue of €61.6 million and a net loss of €5.6 million (including effects from purchase price allocation and integration costs) to OSRAM for the period from acquisition to September 30, 2011. If Siteco had been included as of October 1, 2010 in the combined financial statements, the impact on revenue and net income (loss) contributed by Siteco for the 12 months ended September 30, 2011 would have been €230.6 million and €(30.3) million, including €16.5 million one-off expenses, respectively. • Acquisition of Traxon – In the Fiscal Year 2009, the OSRAM Licht Group acquired a controlling interest of 51% in Traxon Technologies Ltd. (formerly Perfect Tact Ltd.) based in Hong Kong, China, including its subsidiaries. Traxon develops and provides LED products based on SSL technology and realizes integrated lighting solutions in the architectural, restaurant and hotel industry and retail sectors. As of November 8, 2011, OSRAM acquired additional shares of Traxon, increasing its ownership from 51% to 100%. The aggregate preliminary consideration amounted to €53.5 million, and consisted of the €48.0 million paid in cash and of €5.5 million (USD 7.5 million) for a contingent consideration. The contingent consideration represented its fair value at the acquisition date and was contingent upon reaching certain revenue targets for the year ended December 31, 2011. In April 2012, the remaining purchase price was paid and amounted to €5.7 million (USD 7.5 million). The difference of €45.9 million between non-controlling interests of €7.6 million and fair value of the consideration paid of €53.5 million was debited to equity in the Fiscal Year 2012 in accordance with IAS 27.
Divestments • Disposition of our Shares in the Joint Ventures with Mitsubishi and Toshiba – Starting in the first quarter of the Fiscal Year 2012, we classified assets and liabilities relating to our Japanese joint ventures with Mitsubishi Electric Corporation, Tokyo, Japan (“MELCO”) and Toshiba Lighting & Technology Corporation, Yokosuka, Japan (“TLT”), as held for disposal. The joint venture with MELCO consisted of our investment in Mitsubishi Electric OSRAM Ltd., Yokohama, Japan (“MOL”), as well as our subsidiary OSRAM MELCO Ltd., Yokohama, Japan (“OML”), and its investment in Ogasa Sanroku Kaihatsu KK, Kakegawa City, Japan. The second joint venture existed between OML and TLT and comprised our subsidiary OSRAM MELCO Toshiba Lighting Ltd., Yokosuka, Japan (“OMTL”), as well as our indirect participation in TLT OSRAM-Melco Lighting Ltd., Yokosuka, Japan (“TOML”). The joint venture with MELCO was dissolved by closing the sale and transfer of our shares in OML and MOL to MELCO based on a share purchase agreement dated April 12, 2012, with effect as of September 30, 2012. To hedge against the foreign currency risk arising from the sale price denominated in Japanese yen, we entered into a forward exchange contract. This hedged purchase price amounted to
97 €45.1 million for OML and MOL. Prior to the closing of the sale of our shares in OML and MOL, OML sold its shares in OMTL and TOML with effect as of September 26, 2012 to TLT. The price paid by OML for the dissolution of the joint venture amounted to €3.0 million and OSRAM’s share thereof to €1.5 million. An impairment loss of €5.6 million in accordance with IFRS 5 on the remeasurement of the assets and liabilities of OMTL and TOML to the lower of its carrying amount and its fair value less costs to sell has been recognized in cost of goods sold and services rendered for the Fiscal Year 2012. The sale of the shares in the two joint ventures resulted in a profit on disposal (before income taxes) of €8.4 million. The profit is included in the line item Other operating income in the Fiscal Year 2012. An amount of €9.2 million was transferred from the line item Other components of equity to the combined statements of income in respect to the realized foreign accumulated currency translation differences and the result of the forward exchange contract hedging the sales price. The joint venture conducted manufacturing and distribution of lamps, lamp material and components such as ballasts and starters for the Japanese market as well as for the distribution and the import and export of such products and has been previously reported within the business unit General Lighting. The sale of the shares in the joint ventures is part of our “Future Industrial Footprint” project. • Sunny World – Starting in the first half of the Fiscal Year 2013, we classify assets and liabilities relating to our subsidiaries Sunny World (Shaoxing) Green Lighting Co. Ltd., Shaoxing, China (“Sunny World”), and OSRAM Hong Kong Ltd., Hong Kong (“OHK”), that form part of the segment Lamps & Components (“L&C”), in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations”, as held for disposal. The sale is part of the “Future Industrial Footprint” project in connection with the transformation process in the lighting market; it was completed in the third quarter of the Fiscal Year 2013 by way of a share deal and, simultaneously, a supply agreement dated March 6, 2013, effective as of April 1, 2013. An impairment loss of €13.8 million on the remeasurement of the assets and liabilities of this disposal group to the lower of its carrying amount and its fair value less costs to sell has been recognized in cost of goods sold and services rendered in the statements of income. The accumulated foreign currency translation gain related to this disposal group and recognized in other comprehensive income amounted to €7.1 million as of March 31, 2013.
Other Factors Pensions – In the Fiscal Year 2010, we recorded a €22.8 million gain resulting from a curtailment of the American pension plans. Employees will retain accrued benefits under these plans, however, they will not earn future benefits under these plans. Future contributions will be made only to existing defined contribution plans. Siemens One-time Special Remuneration – In the Fiscal Year 2011, our EBITA was impacted by personnel costs in an amount of €21.6 million due to a charge in respect of OSRAM’s proportion of a Siemens-wide, global one-off special payment to reward non-management employees worldwide for their performance during the recent economic crisis.
NON-GAAP MEASURES In this prospectus we present certain non-GAAP measures used by our management as financial measures to monitor the performance of the OSRAM Licht Group or which management regards as being useful for investors. These figures are not recognized measures under IFRS or under the German Commercial Code and should, for this reason, not be considered as an alternative to the applicable GAAP measures. None of these non- GAAP measures have been audited by our auditor, except for the EBITA and free cash flow figures included in the segment information of the combined financial statements. We have provided these non-GAAP measures and other information because we believe they provide investors with additional information to measure the operating performance of our business activities. Our use of the non-GAAP measures may vary from the use of other companies in our industry. The measures we use should not be considered as an alternative to net income (loss), revenue or any other performance measure derived in accordance with IFRS or the German Commercial Code or to net cash provided by (used in) operating activities as measure of liquidity. The non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under IFRS or the German Commercial Code. They may exclude or include amounts that are included or excluded, as applicable, in the calculation of the most directly comparable GAAP measures in accordance with IFRS or the German Commercial Code. Their usefulness is therefore subject to limitations, which are described below. The non-GAAP measures should be considered in conjunction with our combined financial statements, interim combined financial statements and annual financial statements, respectively, prepared in accordance with IFRS or the German Commercial Code and the respective notes thereto. The
98 following discussion provides definitions of non-GAAP measures, provides information regarding the usefulness of non-GAAP measures and, where appropriate, a reconciliation of non-GAAP measures to their most directly comparable GAAP measures.
EBIT, EBITA, EBITDA and EBITA Margin We define EBIT (earnings before interest and taxes) as income (loss) before financial result (i.e. gain (loss) from investments accounted for using the equity method, net, interest income, interest expense and other financial income (expense), net) and income taxes. We define EBITA as EBIT before amortization (which represents amortization and impairments of goodwill and other intangible assets, net of reversals of impairments as shown in the segment information of the combined financial statements or interim combined financial statements). We define EBITDA as EBITA before depreciation (which represents depreciation and impairments of property, plant and equipment, net of reversals of impairments as shown in the segment information of the combined financial statements or interim combined financial statements). We disclose EBITDA, EBITA and EBIT as supplemental non-GAAP measures, as we believe they are meaningful measures to evaluate the performance of our business activities over time. We understand that these measures are broadly used by analysts, rating agencies and investors in assessing our performance. EBITA is used by OSRAM management as key financial measure to assess the operating performance of our segments. We define EBITA margins on Group and segment level as the ratio of EBITA to revenue (shown in the segment information of the combined financial statements or interim combined financial statements). We believe that the presentation of EBITA margins provides useful information on how our business developed in our markets and enhances the ability of our investors to compare profitability across our segments. The following table shows a reconciliation of net income (loss) to EBIT, EBITA and EBITDA for the Fiscal Years 2012, 2011 and 2010 and the first six months of the Fiscal Years 2013 and 2012: Six months Fiscal Year ended September 30, ended March 31, 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Income taxes ...... 32.0 129.6 175.1 4.0 181.7 Financial result (unaudited) ...... 86.5 41.5 54.8 37.5 67.3 thereof: Gain (loss) from investments accounted for using the equity method, net ...... 49.3 (5.5) 2.9 19.7 38.3 Interest income ...... (80.1) (53.3) (48.4) (4.0) (1.5) Interest expense ...... 105.8 97.6 97.5 15.9 29.0 Other financial income (expense,) net ...... 11.5 2.7 2.8 5.9 1.5 EBIT (unaudited)(1) ...... (259.8) 417.2 564.5 90.0 (78.0) Amortization(2) ...... 313.1 19.8 18.0 11.6 116.0 EBITA(3) ...... 53.3 437.0 582.5 101.6 38.0 Depreciation(4) ...... 342.1 233.3 229.6 145.5 209.5 EBITDA (unaudited)(5) ...... 395.4 670.3 812.1 247.1 247.5
(1) EBIT (earnings before interest and taxes) represents income (loss) before financial result (i.e. gain (loss) from investments accounted for using the equity method, net, interest income, interest expense and other financial income (expense), net) and income taxes. EBIT is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. There is no uniform definition of EBIT, which means that EBIT shown by other companies may not necessarily be comparable with EBIT of the OSRAM Licht Group. (2) Amortization (shown in the segment information of the combined financial statements or interim combined financial statements) represents amortization and impairments of goodwill and other intangible assets, net of reversals of impairments. (3) EBITA (shown in the segment information of the combined financial statements or interim combined financial statements) represents EBIT before amortization (both as defined above). EBITA is used by OSRAM management as key financial figure to assess the operating performance of our segments. EBITA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. EBITA should not be construed as an alternative to net income (loss) calculated in accordance with IFRS. There is no uniform definition of EBITA, which means that EBITA shown by other companies may not necessarily be comparable with EBITA of the OSRAM Licht Group. (4) Depreciation (shown in the segment information of the combined financial statements or interim combined financial statements) represents depreciation and impairments of property, plant and equipment, net of reversals of impairments.
99 (5) EBITDA represents EBITA before depreciation (both as defined above). EBITDA is not a recognized term under IFRS and does not purport to be an alternative to data from the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS. EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS. There is no uniform definition of EBITDA, which means that EBITDA shown by other companies may not necessarily be comparable with EBITDA of the OSRAM Licht Group.
Free Cash Flow Free cash flow of OSRAM constitutes net cash provided by (used in) operating activities less additions to intangible assets and property, plant and equipment. Free cash flow is shown in the table below for the periods indicated. Six months Fiscal Year ended September 30, ended March 31, 2012 2011 2010 2013 2012 (audited) (unaudited) in € million in € million Net cash provided by (used in) operating activities ...... (35.4) 268.5 691.1 169.4 (328.9) thereof: Change in pension plans due to contribution of plan assets ...... (499.5) — — — (499.5) Additions to intangible assets and property, plant and equipment ...... (187.2) (312.4) (253.2) 78.1 81.1 Free cash flow ...... (222.6) (43.9) 437.9 91.3 (410.0) The IFRS measure most directly comparable to free cash flow is net cash provided by (used in) operating activities. We believe that the presentation of free cash flow provides meaningful information to investors because it is a measure of cash generated by our operations after deducting cash outflows for additions to intangible assets and property, plant and equipment. Therefore, the measure gives an indication of the long-term cash generating ability of our business. In addition, because free cash flow is not impacted by portfolio activities (the line item Acquisitions net of cash acquired is not taken into consideration), it is less volatile than the total of net cash provided by (used in) operating activities and net cash provided by (used in) investing activities. For this reason, free cash flow is reported to our management on a regular basis, which uses the measure to assess and manage cash generation among our reportable segments and for the OSRAM Licht Group.
Return on Capital Employed (ROCE) Return on capital employed (ROCE) is a measure of capital efficiency. We present ROCE on OSRAM Licht Group level and use this measure in order to assess our result from the point of view of our shareholders and creditors. We believe that the presentation of ROCE provides useful information to investors because ROCE can be used to review whether capital employed by the Company yields competitive returns. ROCE on OSRAM Licht Group level is defined as income (loss) before interest after taxes divided by average capital employed. Income (loss) before interest after taxes, the numerator in the ROCE calculation, is defined as net income (loss) excluding interest (income) expense, net, other than pension and interest expense for pension plans and similar commitments as well as taxes thereon. The interest expense for pension plans and similar commitments for the Fiscal Years 2012, 2011 and 2010 principally has been calculated based on the weighted average discount rate as of September 30, 2011 and 2010 and October 1, 2009, respectively, multiplied by the amount for pension plans and similar commitments as included in the combined statements of financial position of OSRAM Licht Group as of September 30, 2011 and 2010 and October 1, 2009, respectively. Effective as of the Fiscal Year 2013, in connection with the first time application of IAS 19R, the interest expense for pension plans and similar commitments is equal to the line item Pension related interest expense, net. The taxes on interest have been calculated on a simplified basis using a tax rate which is calculated by dividing income taxes by income (loss) before income taxes (each as shown in the combined statements of income of OSRAM Licht Group). Each component of income (loss) before interest after taxes can be derived from the combined statements of income of OSRAM Licht Group or the respective notes to the combined financial statements or interim combined financial statements. Average capital employed, the denominator in the ROCE calculation, is defined as two-point average of capital employed at the beginning of the reporting period and the end of the reporting period. Capital employed is defined as the line item Total equity plus long-term debt plus short-term debt and current maturities of long-term debt plus payables to Siemens Group from financing activities and plus pension plans and similar commitments, minus cash and cash equivalents minus receivables from Siemens Group from financing activities. Each component of capital employed can be derived from the combined statements of
100 financial position of OSRAM Licht Group or the respective notes to the combined financial statements or interim combined financial statements. The following table sets forth our calculation of ROCE: Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (unaudited unless otherwise indicated) (unaudited) in € million unless otherwise indicated in € million unless otherwise indicated Average capital employed(1) Total equity ...... 1,701.5 1,463.2 1,390.4 2,066.3 1,526.7 Long-term debt ...... 2.6 4.2 5.9 0.7 3.3 Short-term debt and current maturities of long-term debt ...... 34.8 23.6 23.9 50.1 32.9 Payables to Siemens Group from financing activities ...... 1,270.9 970.0 623.9 1,077.5 1,390.8 Pension plans and similar commitments ...... 661.8 857.3 840.4 478.9 589.8 Cash and cash equivalents ...... (37.5) (31.0) (15.5) (40.9) (34.2) Receivables from Siemens Group from financing activities ...... (577.6) (511.3) (328.8) (779.4) (509.2) Average capital employed ...... 3,056.5 2,776.0 2,540.2 2,853.2 3,000.1 Income (loss) before interest after taxes Net income (loss)(2) ...... (378.3) 246.1 334.6 48.5 (327.0) Interest (income) expense, net, other than pension(2)(3) ...... 22.0 19.5 14.1 3.5 13.7 Interest expense for pension plans and similar commitments(4) ...... 15.8 41.3 44.2 8.4 13.8 Taxes on interest(5) ...... 3.5 (21.0) (20.0) (0.9) 34.4 Income (loss) before interest after taxes ...... (337.0) 285.9 372.9 59.5 (265.1) Calculation of tax rate Income (loss) before income taxes(2) ...... (346.3) 375.7 509.7 52.5 (145.3) Income taxes(2) ...... (32.0) (129.6) (175.1) (4.0) (181.7) Tax rate(6) ...... (9.2)% 34.5% 34.4% 7.6% (125.1)% ROCE Income (loss) before interest after taxes ...... (337.0) 285.9 372.9 59.5 (265.1) Average capital employed ...... 3,056.5 2,776.0 2,540.2 2,853.2 3,000.1 ROCE(7) ...... (11.0)% 10.3% 14.7% 4.2% (17.7)%
(1) Average capital employed in the reporting period is defined as a two-point average of capital employed at the beginning of the reporting period and capital employed at the end of the reporting period. (2) Audited for fiscal years as reporting period. (3) In the first half of the Fiscal Years 2013 and 2012, interest (income) expense other than pension, results from the items interest income in the amount of €4.0 million and €1.5 million, respectively, and interest expense, other than pension, in the amount of €7.5 million and €15.2 million, respectively, as disclosed in the notes to the interim combined financial statements. (4) For the Fiscal Years 2012, 2011 and 2010, interest expense for pension plans and similar commitments principally has been calculated based on the weighted average discount rate for our principal pension benefits and other post-employment benefits as of September 30, 2011 and 2010 and October 1, 2009 respectively, as disclosed in the notes to the combined financial statements, multiplied by the amount for pension plans and similar commitments as included in the combined statements of financial position in the audited combined financial statements as of September 30, 2011 (€833.7 million reduced by €499.5) and 2010 (€880.8 million) and October 1, 2009 (€800.0 million), respectively. The interest expense for pension plans and similar commitments set out in the table above are calculated as follows. Fiscal Year 2012: The amount of pension plans and similar commitments (€833.7 million) as included in the combined statements of financial position as of September 30, 2011 was reduced by a funding of pension plan assets in the amount of €499.5 million (see “—Liquidity and Capital Resources—Pension Plans and Similar Commitments”); interest expense of €15.8 million correspond to the discount rate of 4.74% used for the calculation of the DBO in the notes to the combined financial statements multiplied by the amount of €334.2 million resulting from the subtraction of the contribution of plan assets from the amount of pension plans and similar commitments.
101 Fiscal Year 2011: Interest expense of €41.3 million correspond to the discount rate of 4.69% used for the calculation of the DBO in the notes to the combined financial statements multiplied by pension plans and similar commitments in the amount of €880,8 million as included in the combined statements of financial position as of September 30, 2010. Fiscal Year 2010: Interest expense of €44.2 million correspond to the discount rate of 5.53% used for the calculation of the DBO in the notes to the combined financial statements multiplied by pension plans and similar commitments in the amount of €800,0 million as included in the combined statements of financial position as of October 1, 2009. Effective as of the Fiscal Year 2013, the interest expense for pension plans and similar commitments is equal to the line item Pension related interest expense, net (shown in the notes to the interim combined financial statements). (5) Taxes on interest have been calculated on a simplified basis applying the tax rate determined under “Calculation of tax rate” on the sum of (i) interest (income) expense, net, other than pension and (ii) interest expense for pension plans and similar commitments. In detail, the taxes on interest set out in the table above are calculated as follows: Fiscal Year 2012: (9.2)% multiplied by €37.8 million (€22.0 million plus €15.8 million). Fiscal Year 2011: 34.5% multiplied by €60.8 million (€19.5 million plus €41.3 million). Fiscal Year 2010: 34.4% multiplied by €58.3 million (€14.1 million plus €44.2 million). First half of the Fiscal Year 2013: 7.6% multiplied by 11.9 million (€3.5 million plus €8.4 million). First half of the Fiscal Year 2012: (125.1)% multiplied by 27.5 million (€13.7 million plus €13.8 million). (6) The tax rate is calculated by dividing income taxes by income (loss) before income taxes (each as shown in the combined statements of income of OSRAM Licht Group). (7) In the first six months of the Fiscal Years 2013 and 2012, ROCE is calculated as follows: annualized income (loss) before interest after taxes in the amount of €119.0 million and €(530.2) million, respectively, divided by average capital employed. The annualized income (loss) before interest after taxes is calculated by multiplying the income (loss) before interest after taxes for the first six months of the Fiscal Years 2013 and 2012 in the amount of €59.5 million and €(265.1) million by the factor two.
Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects We present, on a regional basis and for reportable segments, the percentage change of revenue from period to period adjusted for foreign currency translation effects and portfolio effects. • We present our combined financial statements and interim combined financial statements in euros; however, a significant proportion of the revenue is generated in other functional currencies and is therefore subject to foreign currency translation effects. Converting figures from these currencies into euros affects the comparability of our results of operations and financial position between the reporting periods when the exchange rates for these currencies fluctuate. Some entities are significantly affected due to their large proportion of international operations, particularly in the U.S. The foreign currency translation effects in revenue are calculated as: (1) (a) revenue for the current period, based on the currency exchange rate of the current period minus (b) revenue for the current period, based on the currency exchange rate of the previous period, divided by (2) revenue for the previous period, based on the currency exchange rate of the previous period. • In addition, the effects of acquisitions and dispositions on revenue (“portfolio effects”) affect the comparability of the combined financial statements or interim combined financial statements of OSRAM Licht Group. The portfolio effects are calculated, in case of acquisitions, as follows: (1) revenue of the acquired business in the reporting period divided by (2) revenue (of OSRAM Licht Group, the segment or the region) for the previous period; or, in case of dispositions, (1) revenue of the disposed business for the previous period divided by (2) revenue (of OSRAM Licht Group, the segment or the region) for the previous period. Acquisitions and dispositions during the fiscal year have pro rata effects in the periods following the acquisition or divestment as the portfolio effect impacts during the year of acquisition or disposition only those reporting months during which the acquired business was already part of OSRAM or the disposed business was no longer part of OSRAM, respectively. Thus, in the following period, there is a portfolio effect on the remaining months during which the acquired business was not yet part of OSRAM or the disposed business was still part of OSRAM, respectively. We determine for foreign currency translation effects and portfolio effects adjusted percentage change of revenue by deducting the percentage figures for the foreign currency translation effects and portfolio effects from the nominal change of revenue. Interaction effects between foreign currency translation effects and portfolio effects (second order effects) are not taken into account. We believe that the presentation of adjusted change rates of revenue provides useful information to investors because a meaningful analysis of the revenue development from one period to the next requires comparable data and therefore an understanding of the business development net of the impact of foreign currency translation and portfolio effects. Our management considers adjusted change rates in its management of our business. For this reason, we believe that investors’ ability to assess our performance may be improved by disclosure of this information.
102 Net Debt, Total Debt, Adjusted Total Liquidity, Adjusted Net Debt We define net debt as total debt less adjusted total liquidity. Total debt is defined as short-term debt and current maturities of long-term debt plus long-term debt plus payables to Siemens Group from financing activities. Adjusted total liquidity is defined as cash and cash equivalents plus available-for-sale financial assets (current) plus receivables from Siemens Group from financing activities. Adjusted net debt represents net debt plus pension plans and similar commitments and credit guarantees (see “—Liquidity and Capital Resources—Net Debt”). We believe that the presentation of net debt and adjusted net debt provides useful information to investors because our management reviews both measures as part of its management of our liquidity, financial flexibility, capital structure and leverage. Furthermore, we understand that certain rating agencies, creditors and credit analysts may monitor our net debt and adjusted net debt as part of their assessment of our business. Net debt corresponds to the term net financial indebtedness which is used under “Capitalization and Net Indebtedness” to comply with the German Securities Prospectus Act (Wertpapierprospektgesetz – WpPG).
Limitations on the Usefulness of our Non-GAAP Measures The non-GAAP measures reported by us may be subject to limitations as analytical tools. In particular: • With respect to revenue figures adjusted for foreign currency translation effects and portfolio effects: These figures are not adjusted for other effects, such as increases or decreases in prices or quantity/ volume. Furthermore, interaction effects between foreign currency translation effects and portfolio effects (second order effects) are not taken into account. • With respect to ROCE: The use of this measure is inherently limited by the fact that it is a ratio and thus does not provide information as to the absolute amount of our income and capital employed. • With respect to free cash flow: Free cash flow is not a measure of cash generated by operations available exclusively for discretionary expenditures. This is because in addition to capital expenditures needed to maintain or grow our business, we require funds for a wide variety of non-discretionary expenditures, such as payments on outstanding debt, dividend payments or other operating expenditures. • With respect to EBITDA, EBITA, EBIT and EBITA margin: As EBITDA and EBITA excludes items such as depreciation, amortization and impairment, it does not reflect the expense associated with, and accordingly the full economic effect of, the loss in value of our assets over time. Similarly, neither EBITDA, EBITA, EBIT nor the EBITA margin reflect the impact of other financial income (expense), net, interest expense, interest income, gain (loss) from investments accounted for using the equity method, net and income taxes. • With respect to net debt and adjusted net debt: We typically use a considerable proportion of our cash and cash equivalents as well as available-for-sale financial assets for purposes other than debt reduction. Therefore, the fact that these items are deducted both for the calculation of net debt and of adjusted net debt does not mean that they may be used exclusively for debt repayment.
DISCUSSION OF INDIVIDUAL ITEMS IN THE COMBINED STATEMENTS OF INCOME Certain individual line items in the combined statements of income of OSRAM Licht Group prepared in accordance with IFRS are described below. We use the cost of goods sold method in preparing our statements of income. Revenue – Under the condition that persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, revenue is recognized to the extent that it is probable that the economic benefits will flow to OSRAM and revenue can be reliably measured, regardless of when the payment is being made. In cases where the inflow of economic benefits is not probable due to customer related credit risks the revenue recognized is subject to the amount of payments irrevocably received. Revenue is measured at the fair value of the consideration received or receivable net of discounts and rebates and excluding taxes or duty. OSRAM assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. If sales of goods and services or software arrangements involve the provision of multiple elements, OSRAM determines whether the contract or arrangement contains more than one unit of accounting. The following specific recognition criteria must also be met before revenue is recognized: Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. If product sales are subject to customer acceptance, revenue is not recognized until customer acceptance occurs. Revenues from service transactions are
103 recognized as services are performed. For long-term service contracts, revenues are recognized on a straight-line basis over the term of the contract or, if the performance pattern is other than straight-line, as the services are provided. Interests are recognized using the effective interest method. Royalties are recognized on an accrual basis in accordance with the substance of the relevant agreement. Dividends are recognized when the right to receive payment is established. Cost of Goods Sold and Services Rendered – Cost of goods sold and services rendered includes the production costs of the goods sold and services rendered. All production-related full costs such as costs of raw materials, labor costs, supplies, merchandise for resale, order-specific development and design costs as well as energy use and depreciation are included. Administrative functions within operations and plants are also reported as cost of goods sold and services rendered. Gross Profit – Gross profit is calculated as revenue less cost of goods sold and services rendered. Our gross margin represents gross profit as a percentage of revenue. Research and Development Expenses – Costs of research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. Costs for development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if (1) development costs can be measured reliably, the product or process is (2) technically and (3) commercially feasible, (4) future economic benefits are probable and (5) OSRAM intends, and (6) has sufficient resources, to complete development and to use or sell the asset. The costs capitalized include the cost of materials, direct labor and other directly attributable expenditure that serves to prepare the asset for use. Such capitalized costs are included in the line item Other intangible assets. Other development costs are expensed as incurred. Capitalized development costs are stated at cost less accumulated amortization and impairment losses with an amortization period of generally three to five years. Government grants for research and development activities are offset against research and development costs. They are recognized as income over the periods in which the research and development costs incur that are to be compensated. Government grants for future research and development costs are recorded as deferred income. Marketing, Selling and General Administrative Expenses – Marketing and selling expenses comprise expenses that do not increase the value of manufactured products and provided services but are necessary to support and ensure the sales of such products and services. Therefore, the marketing and selling expenses comprise the cost centers for sales (including the administration function within sales) and sales-specific cost types. General administrative expenses include headquarter functions which are not allocable to other functions – such as administrative functions in units dedicated solely to production, research and sales – as well as executive management costs. Other Operating Income and Other Operating Expense – These items comprise all other income and expense that is not related to our core business but arises as part of operating activities (as opposed to e.g. interest income or interest expense). These include, among other things, gains and losses on sales of property, plant and equipment and intangibles and on disposals of businesses, goodwill impairments and the creation and reversal of accruals for other expenses and certain costs in connection with the initial stock exchange listing. OSRAM accounts for the reimbursement of costs net of the respective expenses, including income and expenses in connection with Patent Infringement Suits which exacerbated significantly when the plans of our IPO became public. Gain (loss) from Investments Accounted for Using the Equity Method, net – This item is used to recognize the share of profit or loss in associated companies or joint ventures accounted for using the equity method. Other income realized and other expense incurred in connection with investments accounted for using the equity method, such as gains and losses on the disposal of such investments, transaction costs and impairments are also recognized under this item. Interest Income and Interest Expense – Interest income and interest expense comprise interest income (expense) from pension plans and similar commitments and pension related interest expense, net, respectively as well as interest income (expense), other than pensions, which includes, for the periods under review, primarily interest relating to financing transactions with Siemens. Other Financial Income (Expense), net – Other financial income (expense), net primarily comprise income (expense) from available-for-sale financial assets including dividends received and impairments, as well as impacts from the valuation of monetary assets and liabilities at the respective closing foreign currency exchange rate.
104 Income Taxes – Tax expenses recorded in our combined financial statements include income taxes of our German, U.S., Italian and Spanish companies for the Fiscal Years 2010 and 2011 on a notional basis, i.e. assuming that the tax groups with Siemens did not exist and that the German, U.S., Italian and Spanish OSRAM companies would have been taxed on a stand-alone basis (see “—Basis of Presentation—Treatment of Taxes”). Net Income (Loss) – Net income (loss) is derived by deducting income taxes from income (loss) before income taxes. It also includes non-controlling interests. The net income (loss) attributable to non-controlling interests and that attributable to Siemens Group are reported separately in our combined statements of income.
COMPARISON OF OPERATING RESULTS Overview The table below sets forth selected financial information from the condensed interim combined statements of income of OSRAM Licht Group for the first six months of the Fiscal Year 2013 (including the prior year period) and the combined statements of income of OSRAM Licht Group for the Fiscal Years 2012, 2011 and 2010.
Combined statements of income Fiscal Year ended September 30, Six months ended March 31, OSRAM Licht Group 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million Revenue ...... 5,399.8 5,031.0 4,679.7 2,678.3 2,730.7 Cost of goods sold and services rendered ...... (3,997.5) (3,418.5) (3,082.1) (1,903.4) (2,013.4) Gross profit ...... 1,402.3 1,612.5 1,597.6 774.9 717.3 Research and development expenses ...... (339.1) (300.9) (259.5) (173.1) (161.8) Marketing, selling and general administrative expenses ...... (1,054.9) (905.6) (774.7) (525.5) (502.9) Other operating income ...... 44.8 20.9 6.2 43.0 6.5 Other operating expense ...... (312,9) (9.7) (5.1) (29.3) (137.1) Gain (loss) from investments accounted for using the equity method, net ...... (49.3) 5.5 (2.9) (19.7) (38.3) Interest income ...... 80.1 53.3 48.4 4.0 1.5 Interest expense ...... (105.8) (97.6) (97.5) (15.9) (29.0) Other financial income (expense), net ...... (11.5) (2.7) (2.8) (5.9) (1.5) Income (loss) before income taxes ...... (346.3) 375.7 509.7 52.5 (145.3) Income taxes ...... (32.0) (129.6) (175.1) (4.0) (181.7) Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Attributable to: Non-controlling interests ...... 0.9 3.1 6.4 2.8 (0.7) Siemens Group ...... (379.2) 243.0 328.2 45.7 (326.3) EBIT(1) (unaudited) ...... (259.8) 417.2 564.5 90.0 (78.0) EBITA(2) ...... 53.3 437.0 582.5 101.6 38.0
(1) EBIT represents income (loss) before financial result (i.e. gain (loss) from investments accounted for using the equity method, net, interest income, interest expense, other financial income (expense), net) and income taxes. (2) EBITA shown in the segment information of the combined financial statements and the interim combined financial statements, respectively, is EBIT as defined above before amortization shown in the segment information of the combined financial statements and the interim combined financial statements, respectively (representing amortization and impairments of goodwill and other intangible assets, net of reversals of impairment).
Comparison of Operating Results for the Six Months ended March 31, 2013 and 2012 OSRAM Licht Group Revenue In the first half of the Fiscal Year 2013, our revenue trend continued to reflect a muted economic climate. Revenue declined by €52.4 million, or 1.9%, dropping from €2,730.7 million in the first half of the Fiscal Year 2012 to €2,678.3 million in the first half of the Fiscal Year 2013. The decrease was significantly impacted by negative portfolio effects of 2.2% resulting from the disposal of our shares in the joint ventures with Mitsubishi and Toshiba in Japan. Excluding portfolio effects and foreign currency translation effects, revenue was stable on a level with the previous Fiscal Year. The fundamental structural trend toward SSL business continued. From a
105 regional standpoint, the decline in the Americas region, and particularly in the U.S., had the greatest impact. At segment level, the revenue growth at Opto Semiconductors and Specialty Lighting could not offset the decreases in the Lamps & Components and Luminaires & Solutions segments.
Total Revenue by Segment The table below provides an overview on total revenue development in the first half of the Fiscal Years 2013 and 2012 by segment. The individual segments are discussed in more detail below (see “—Segment Information Analysis”). Change adjusted Foreign for foreign Six months ended currency currency Total revenue by segment March 31, Nominal Portfolio translation translation and (including intersegment revenue) 2013 2012 change effects effects portfolio effects(1) (unaudited) (unaudited) in € million in % Lamps & Components(2) ...... 1,362.9 1,450.3 (6.0)% (4.1)% 0.2% (2.2)% Luminaires & Solutions(3) ...... 275.7 308.1 (10.5)% (0.1)% 0.8% (11.2)% Specialty Lighting(4) ...... 728.0 694.6 4.8% — 0.5% 4.3% Opto Semiconductors(5) ...... 470.4 415.8 13.1% — 0.9% 12.2% Total Segment (including Intersegment revenue) ..... 2,837.0 2,868.8 (1.1)% (2.1)% 0.5% 0.5% Reconciliation to interim combined financial statements(6) ...... (158.7) (138.1) 14.9% (0.2)% 0.9% 14.1% Total revenue OSRAM Licht Group(7) ... 2,678.3 2,730.7 (1.9)% (2.2)% 0.4% (0.2)%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) €694.8 million and €733.9 million, respectively, of the total revenue of Lamps & Components in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €668.1 million and €716.4 million, respectively, in the second quarter. (3) €148.0 million and €168.9 million, respectively, of the total revenue of Luminaires & Solutions in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €127.7 million and €139.2 million, respectively, in the second quarter. (4) €359.3 million and €333.3 million, respectively, of the total revenue of Specialty Lighting in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €368.7 million and €361.3 million, respectively, in the second quarter. (5) Total revenue of Opto Semiconductors includes external revenue of €302.2 million and €265.5 million for the first half of the Fiscal Years 2013 and 2012, respectively, and intersegment revenue of €168.2 million and €150.3 million for the first half of the Fiscal Years 2013 and 2012, respectively. €229.6 million and €205.0 million, respectively, of the total revenue of Opto Semiconductors in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €240.8 million and €210.8 million, respectively, in the second quarter. (6) Reconciliation to interim combined financial statements comprises corporate items and pensions presented in the segment information in the combined financial statements as well as eliminations, corporate treasury and other reconciling items. (7) €1,356.8 million and €1,374.6 million, respectively, of OSRAM Licht Group’s total revenue in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €1,321.6 million and €1,356.0 million, respectively, in the second quarter.
Revenue by Region The table below presents our revenue by region (derived by customer location) in the first half of the Fiscal Years 2013 and 2012: Change adjusted Six months ended Foreign for foreign March 31, currency currency Nominal Portfolio translation translation and Revenue by region(1) 2013 2012 change effects effects portfolio effects(1) (unaudited) (unaudited) in € million unless in % otherwise indicated EMEA ...... 1,182.5 1,176.0 0.6% — 0.4% 0.1% % of revenue OSRAM Licht Group ..... 44.2% 43.1% APAC ...... 621.7 629.4 (1.2)% (9.4)% 1.0% 7.2% % of revenue OSRAM Licht Group ..... 23.2% 23.0% Americas ...... 874.1 925.2 (5.5)% — 0.1% (5.6)% % of revenue OSRAM Licht Group ..... 32.6% 33.9% Revenue OSRAM Licht Group ...... 2,678.3 2,730.7 (1.9)% (2.2)% 0.4% (0.2)%
(1) Revenue by customer location. (2) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects.”
106 While the EMEA region achieved slight revenue growth in the first half of the Fiscal Year 2013 compared with the first half of the Fiscal Year 2012, revenue declined year-on-year in the APAC and Americas regions. The EMEA region saw a slight increase in revenue of €6.5 million, or 0.6%, from €1,176.0 million in the first half of the Fiscal Year 2012 to €1,182.5 million in the first half of the Fiscal Year 2013. Growth in Europe was in part offset by a decline in the Middle East/Africa. Growth in the Europe region was driven in particular by developments in Germany and Russia, which more than compensated for a decrease in southern Europe. Adjusted for foreign currency translation effects of 0.4%, EMEA revenue rose by 0.1% year-on-year. In the APAC region, revenue decreased by €7.7 million, or 1.2%, to €621.7 million in the first half of the Fiscal Year 2013, down from €629.4 million in the first half of the Fiscal Year 2012. The decline was attributable to significant negative portfolio effects of 9.4% resulting from the disposal of our shares in the joint ventures with Mitsubishi and Toshiba in Japan. However, these effects were offset to a significant extent by growth in other countries such as China, Taiwan, and India, for which the Opto Semiconductors and Specialty Lighting businesses were primarily responsible. In addition to the portfolio changes, revenue was impacted by positive foreign currency translation effects of 1.0%. Adjusted for foreign currency translation and portfolio effects, revenue therefore grew by 7.2%. Revenue in the Americas region experienced a significant decrease of €51.1 million, or 5.5%, dropping from to €925.2 million in the first half of the Fiscal Year 2012 to €874.1 million in the first half of the Fiscal Year 2013. The decline was mainly the result of lower demand in the U.S. This was due firstly to the strong first half of the Fiscal Year 2012, which had benefited from service business in the Luminaires & Solutions segment. In addition, business in the segment Lamps & Components was weaker than in the first half of the Fiscal Year 2012.
Cost of Goods Sold and Services Rendered Cost of goods sold and services rendered experienced a significant decrease of €110.0 million, or 5.5%, declining from €2,013.4 million in the first half of the Fiscal Year 2012 to €1,903.4 million in the first half of the Fiscal Year 2013. Expressed as a percentage of revenue, this item decreased from 73.7% in the first half of the Fiscal Year 2012 to 71.1% in the first half of the Fiscal Year 2013. The decrease was predominantly attributable to the fact that the transformation costs included in the cost of goods sold and services rendered discussed above under “—Key Factors Affecting the Results of Operations—Transformation and Restructuring Costs— Technology Shift, OSRAM Push Program and Transformation Costs” (particularly the expenses for personnel measures relating to the “Future Industrial Footprint” project and the expenses for more efficient structures in production) were much lower in the first half of the Fiscal Year 2013 than in the first half of the Fiscal Year 2012. The same applies to expenses relating to further material legal and regulatory matters; in the previous year, this item was impacted in particular by expenses in connection with a license and trademark proceeding.
Gross Profit Gross profit increased by €57.6 million, or 8.0%, rising from €717.3 million in the first half of the Fiscal Year 2012 to €774.9 million in the first half of the Fiscal Year 2013. The gross profit margin (gross profit as a percentage of revenue) rose from 26.3% in the first half of the Fiscal Year 2012 to 28.9% in the first half of the Fiscal Year 2013. The increase was due to the fact that the decrease in the cost of goods sold and services rendered (primarily due to the abovementioned decrease in transformation costs) was greater than the decrease in revenue. The SSL business contributed to the improvement in the gross profit margin, due in particular to an improved product mix and due to economies of scale at Opto Semiconductors. The gross profit margin for forward integrated SSL products also improved, although this is still substantially lower than in the traditional business.
Research and Development Expenses Research and development expenses increased by €11.3 million, or 7.0%, rising from €161.8 million in the first half of the Fiscal Year 2012 to €173.1 million in the first half of the Fiscal Year 2013. A significant part of the increase resulted from a portion of the transformation costs described above under “—Key Factors affecting the Results of Operations—Transformation and Restructuring Costs—Technology Shift, OSRAM Push Program and Transformation Costs” (particularly expenses for more efficient structures in research and development). R&D intensity, defined as R&D expenses divided by revenue, amounted to 5.1% for Lamps & Components, 6.3% for Luminaires & Solutions, 4.0% for Specialty Lighting, and 10.5% for Opto Semiconductors in the first half of the Fiscal Year 2013 (4.6%, 4.7%, 4.3%, and 10.7%, respectively, in the first half of the Fiscal Year 2012).
107 The following table presents an overview of our R&D expenses broken down by segments (for a more detailed discussion see below “—Segment Information Analysis”): Six months ended March 31, R&D expenses by segment 2013 2012 Change (unaudited) (unaudited) in € million unless otherwise indicated in % Lamps & Components ...... 69.9 66.7 4.8% % of R&D expenses OSRAM Licht Group ...... 40.4% 41.3% Luminaires & Solutions ...... 17.4 14.6 19.2% % of R&D expenses OSRAM Licht Group ...... 10.0% 9.0% Specialty Lighting ...... 28.8 30.0 (4.0)% % of R&D expenses OSRAM Licht Group ...... 16.6% 18.5% Opto Semiconductors ...... 49.3 44.5 10.8% % of R&D expenses OSRAM Licht Group ...... 28.5% 27.5% Other(1) ...... 7.7 6.0 28.3% % of R&D expenses OSRAM Licht Group ...... 4.5% 3.7% R&D expenses OSRAM Licht Group ...... 173.1 161.8 7.0%
(1) Other R&D expenses mainly relate to the development of certain pre-materials (e.g. glass) and, since the beginning of the Fiscal Year 2013, the research project OLED. Since that time, mechanical engineering and toolmaking activities have been allocated to the business unit Lamps of the segment Lamps & Components. The prior year period is presented on a comparable basis.
Marketing, Selling and General Administrative Expenses Marketing, selling and general administrative expenses rose by €22.6 million, or 4.5%, increasing from €502.9 million in the first half of the Fiscal Year 2012 to €525.5 million in the first half of the Fiscal Year 2013. The main reason for the increase was the abovementioned expenses for personnel-related measures for more efficient structures in the sales function and central functions. The percentage of revenue accounted for by marketing, selling and general administrative expenses rose from 18.4% in the first half of the Fiscal Year 2012 to 19.6% in the first half of the Fiscal Year 2013.
Other Operating Income (Expense), net Other operating income (expense), net increased by €144.3 million, changing from a net expense of €130.6 million in the first half of the Fiscal Year 2012 to net income of €13.7 million in the first half of the Fiscal Year 2013 and is broken down as follows: Six months ended March 31, 2013 2012 Change (unaudited) (unaudited) in € million in % Gain on sales of property, plant and equipment and intangibles ...... 0.4 2.4 (83.3)% Miscellaneous other income ...... 42.6 4.1 >200% Other operating income ...... 43.0 6.5 >200% Impairment of goodwill ...... — (101.1) n.a. Sales and disposals of property, plant and equipment and intangible assets ...... (14.6) (13.7) 6.6% Miscellaneous other expense ...... (14.7) (22.3) (34.1)% Other operating expense ...... (29.3) (137.1) (78.6)% Other operating income (expense), net ...... 13.7 (130.6) n.a. Other operating income rose by €36.5 million to €43.0 million in the first half of the Fiscal Year 2013, up from €6.5 million in the first half of the Fiscal Year 2012. The main income items affecting the first half of the Fiscal Year 2013 related to the settlement of Patent Infringement Suits (which exacerbated significantly when the plans of our IPO became public) and the reversal of related and other provisions included in the line item Miscellaneous other income. In the first half of the Fiscal Year 2013, a gain of €0.4 million was recorded on sales of property, plant and equipment and intangible assets, after income of €2.4 million had been generated in the comparable prior-year period, mainly due to the disposal of assets belonging to Chung Tak Lighting Control Systems (Guangzhou) Ltd., Guangzhou, China. Other operating expenses declined considerably by €107.8 million to €29.3 million in the first half of the Fiscal Year 2013, down from €137.1 million in the first half of the Fiscal Year 2012. The first half of the Fiscal Year 2012 was impacted in particular by significant goodwill impairments of the cash generating unit PLUM and
108 disposal losses incurred in connection with the “Future Industrial Footprint” project. Expenses relating to Patent Infringement Suits (which exacerbated significantly when the plans of our IPO became public) also declined. In the first half of the Fiscal Year 2013, the line item Miscellaneous other expenses primarily comprised obligations relating to historical regulatory risks in one country, which are being addressed as part of the “Future Industrial Footprint” project and which OSRAM also regards as being in connection with the strategic realignment in that country.
Gain (Loss) from Investments Accounted for Using the Equity Method, net The following table provides an overview on gain (loss) from investments accounted for using the equity method, net, for the first half of the Fiscal Years 2013 and 2012: Six months ended March 31, 2013 2012 Change (unaudited) (unaudited) in € million in % Share of profit (loss), net ...... (9.3) (4.0) 132.5% Impairments, net ...... (10.4) (34.3) (69.7)% Gain (loss) from investments accounted for using the equity method, net ...... (19.7) (38.3) (48.6)% In the first half of the Fiscal Year 2013, we registered a net loss of €19.7 million from investments accounted for using the equity method, compared with a net loss of €38.3 million in the first half of the Fiscal Year 2012. This positive trend was attributable above all to lower impairment losses. An impairment loss of €27.6 million was recognized on the net investment in Valeo Sylvania in the first half of the Fiscal Year 2012. In the first half of the Fiscal Year 2013, an impairment loss of €7.3 million was charged on non-current receivables, which are part of the net investment in Valeo Sylvania. The main triggering event for the impairment loss in the first half of the Fiscal Year 2013 was the company’s negative business performance. In this context, each of the joint venture partners extended an additional loan of €11.4 million to the company (see “Business—Material Contracts—Joint Venture Valeo Sylvania”). We further recorded an impairment loss on the investment in OSRAM (China) Fluorescent Materials Co. Ltd., Yi Xing City, China (“OCFM”), in the amount of €3.1 million. In the first half of the Fiscal Year 2012, expenses of €4.8 million were recognized in connection with a provision for legal disputes at CVL Componentes de Vidro Ltda., Caçapava, Brazil (“CVL”), one of our joint ventures. Of this amount, €2.5 million was recognized in the line item Share of profit (loss), net, and €2.3 million under Impairments, net. In the first half of the Fiscal Year 2013, the line item Share of profit (loss), net, primarily comprised a loss on the investment in Valeo Sylvania in the amount of €10.5 million (first half of the Fiscal Year 2012: €3.8 million) as well as a profit of €1.3 million (first half of the Fiscal Year 2012: €1.7 million) on the investment in Foshan Electrical and Lighting Co., Ltd, Foshan, China (“FELCO”).
Interest Income, Interest Expense and Other Financial Income (Expense), net Interest income, interest expense and other financial income (expense), net is presented in the following table for the first half of the Fiscal Years 2013 and 2012: Six months ended March 31, 2013 2012 Change (unaudited) (unaudited) in € million in % Interest income ...... 4.0 1.5 166.7% Pension related interest expense, net ...... (8.4) (13.8) (39.1)% Interest expense, other than pension ...... (7.5) (15.2) (50.7)% Interest expense ...... (15.9) (29.0) (45.2)% Other financial income (expense), net ...... (5.9) (1.5) >200% The application of the revised IAS 19 results in a uniform return on the pension obligations and plan assets, which is disclosed as net interest. In December 2011, OSRAM GmbH received a cash contribution from Siemens AG for funding pension plans, which primarily led to a significant reduction in the underfunding of the pension commitments in Germany as of September 30, 2012. This resulted in pension related interest expense, net of €8.4 million in the first half of the Fiscal Year 2013, which is well below the comparable prior-year figure of €13.8 million.
109 The line items Interest income and Interest expense include the following positions with respect to financial assets (financial liabilities) not designated at fair value through profit or loss: Six months ended March 31, 2013 2012 Change (unaudited) (unaudited) in € million in % Total interest income on financial assets ...... 4.0 1.5 166.7% Total interest expense on financial liabilities ...... (7.5) (15,2) (50.7)%
The decline of the total interest expense on financial liabilities is in particular due to the reduction of liabilities to Siemens Group from financing activities.
Income (Loss) before Income Taxes Despite declining revenue, income before income taxes of €52.5 million was achieved in the first half of the Fiscal Year 2013 compared with a loss of €145.3 million in the first half of the Fiscal Year 2012. The change resulted primarily from the increase in gross profit (primarily due to the decrease in transformation costs), the fact that no impairment losses had to be recognized on goodwill, the significant income from the settlement of the Patent Infringement Suits, and the substantially lower impairment losses on investments accounted for using the equity method compared with the prior-year period.
Income Taxes The income tax expense declined significantly by €177.7 million to €4.0 million in the first half of the Fiscal Year 2013, down from €181.7 million in the first half of the Fiscal Year 2012. In interim periods, income tax expense is based on the expected effective tax rate for the Fiscal Year as a whole.
Net Income (Loss) Based on the factors described above, net income of €48.5 million was recognized in the first half of the Fiscal Year 2013. The result therefore improved significantly by €375.5 million compared with the net loss of €327.0 million reported in the first half of the Fiscal Year 2012.
EBITA OSRAM Licht Group’s EBITA rose by €63.6 million, or 167.4%, increasing from €38.0 million in the first half of the Fiscal Year 2012 to €101.6 million in the first half of the Fiscal Year 2013. The corresponding EBITA margin (EBITA as a percentage of revenue) increased significantly from 1.4% in the first half of the Fiscal Year 2012 to 3.8% in the first half of the Fiscal Year 2013. This rise was primarily due to lower expenses in connection with the transformation process, the separation, the planned IPO and the Spin-off, respectively, and with legal and regulatory matters compared with the first half of the Fiscal Year 2012. These lower expenses were mainly reflected in corporate items. In addition, EBITA at Opto Semiconductors rose sharply. The transformation costs relating to the OSRAM Push Program reflected in EBITA totaled €126.3 million in the first half of the Fiscal Year 2013, compared with €140.0 million in the comparable prior-year period. Costs incurred in connection with the separation, the planned IPO and the Spin-off, respectively, (including the Patent Infringement Suits) changed from a net expense of €25.8 million in the first half of the Fiscal Year 2012 to net income of €20.7 million in the first half of the current Fiscal Year. Equally, the decline in costs relating to other material legal and regulatory matters, which amounted to €10.5 million (compared with €30.1 million in the first half of the Fiscal Year 2012, mainly owing to a license and trademark proceeding that accounted for €22.1 million), lifted OSRAM Licht Group’s EBITA. The EBITA contribution from forward integrated SSL products was negative in both the first six months of the Fiscal Years 2013 and 2012.
110 Six months ended March 31, EBITA by segment 2013 2012 Change (unaudited) (unaudited) in € million in % Lamps & Components(1) ...... (14.6) (9.5) 53.7% Luminaires & Solutions(2) ...... (40.3) (38.8) 3.9% Specialty Lighting(3) ...... 126.4 123.6 2.3% Opto Semiconductors(4) ...... 47.1 23.6 99.6% Total EBITA Segments ...... 118.6 98.9 19.9% Corporate items and pensions(5) ...... (16.7) (60.6) (72.4)% Eliminations, corporate treasury and other reconciling items ...... (0.3) (0.3) — EBITA OSRAM Licht Group(6) ...... 101.6 38.0 167.4%
(1) €1.7 million and €60.8 million, respectively, of the total EBITA of Lamps & Components in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €(16.3) million and €(70.3) million, respectively, in the second quarter. (2) €(17.0) million and €(11.7) million, respectively, of the total EBITA of Luminaires & Solutions in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €(23.3) million and €(27.1) million, respectively, in the second quarter. (3) €68.5 million and €59.5 million, respectively, of the total EBITA of Specialty Lighting in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €57.9 million and €64.1 million, respectively, in the second quarter. (4) €22.5 million and €8.2 million, respectively, of the total EBITA of Opto Semiconductors in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €24.6 million and €15.4 million, respectively, in the second quarter. (5) €24.8 million and €3.2 million, respectively, of the total EBITA of Corporate items and pensions in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €(41.5) million and €(63.8) million, respectively, in the second quarter. (6) €100.4 million and €119.9 million, respectively, of the total EBITA of OSRAM Licht Group in the first half of the Fiscal Years 2013 and 2012, were accounted for in the first quarter and €1.2 million and €(81.9) million, respectively, in the second quarter.
Segment Information Analysis Lamps & Components Change adjusted for foreign Six months ended Foreign currency currency March 31, Nominal Portfolio translation translation and 2013 2012 change effects effects portfolio effects(1) (unaudited) (unaudited) in € million unless in % otherwise indicated Total revenue ...... 1,362.9 1,450.3 (6.0)% (4.1)% 0.2% (2.2)% External revenue ...... 1,362.9 1,450.3 (6.0)% EBITA ...... (14.6) (9.5) 53.7% EBITA margin(2) ...... (1.1)% (0.7)% R&D expenses ...... (69.9) (66.7) 4.8% % of total revenue ...... 5.1% 4.6%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects.” (2) EBITA as a percentage of total revenue. Total revenue generated by the segment Lamps & Components declined by €87.4 million, or 6.0%, dropping from €1,450.3 million in the first half of the Fiscal Year 2012 to €1,362.9 million in the first half of the Fiscal Year 2013. Portfolio effects from the disposal of the joint ventures in Japan were the main factor contributing to the decrease (see “—Key Factors Affecting the Results of Operations—Acquisitions and Divestments—Divestments—Disposition of our Shares in the Joint Ventures with Mitsubishi and Toshiba”). Although the segment’s business with forward integrated SSL products increased, this was outweighed by declining demand in the traditional business, particularly for general-purpose incandescent lamps, high pressure discharge lamps, and electronic ballasts. In regional terms, the revenue of Lamps & Components decreased in particular – mainly in connection with the portfolio effects described above – in the APAC region and due to the business downturn in the Americas region. Adjusted for negative effects from portfolio changes of 4.1% and positive foreign currency translation effects of 0.2%, total segment revenue fell by 2.2%. EBITA reported by the segment Lamps & Components declined by €5.1 million to €(14.6) million in the first half of the Fiscal Year 2013, down from €(9.5) million in the first half of the Fiscal Year 2012. This was largely due to the decline in revenue and the fact that functional costs did not decrease to the same extent. A modest decrease in transformation costs year-on-year and improved margins for SSL products only partially offset this development. Overall, the EBITA margin deteriorated slightly, from (0.7)% in the first half of the Fiscal Year 2012 to (1.1)% in the first half of the Fiscal Year 2013.
111 As in the first half of the Fiscal Year 2012, the largest portion of our total R&D expenses was attributable to the segment Lamps & Components. Despite the rise in R&D expenses of €3.2 million, or 4.8%, from €66.7 million in the first half of the Fiscal Year 2012 to €69.9 million in the first half of the Fiscal Year 2013, the share of total R&D expenses for OSRAM Licht Group accounted for by Lamps & Components decreased from 41.3% in the first half of the Fiscal Year 2012 to 40.4% in the first half of the Fiscal Year 2013.
Luminaires & Solutions Change adjusted for foreign Six months Foreign currency currency ended March 31, Nominal Portfolio translation translation and 2013 2012 change effects effects portfolio effects(1) (unaudited) (unaudited) in € million unless in % otherwise indicated Total revenue ...... 275.7 308.1 (10.5)% (0.1)% 0.8% (11.2)% External revenue ...... 275.7 308.1 (10.5)% EBITA ...... (40.3) (38.8) 3.9% EBITA margin(2) ...... (14.6)% (12.6)% R&D expenses ...... (17.4) (14.6) 19.2% % of total revenue ...... 6.3% 4.7%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects.” (2) EBITA as a percentage of total revenue. Total revenue of the segment Luminaires & Solutions declined by €32.4 million, or 10.5%, dropping from €308.1 million in the first half of the Fiscal Year 2012 to €275.7 million in the first half of the Fiscal Year 2013. Revenue growth in the lighting business in all regions was outweighed by decreases in the service business in the Americas. This was due on the one hand to postponements of large-scale capital spending among customers due to the so-called U.S. fiscal cliff. In addition, the revenue for the first half of the Fiscal Year 2012 had included two major SSL installation projects in the U.S. Adjusted for foreign currency translation effects of 0.8% and negative portfolio effects of 0.1%, total segment revenue fell by 11.2% overall. EBITA reported by the segment Luminaires & Solutions deteriorated slightly by €1.5 million, or 3.9%, to €(40.3) million in the first half of the Fiscal Year 2013, compared with €(38.8) million in the first half of the Fiscal Year 2012. This was primarily attributable to lower revenue in the service business and the fact that functional costs could not be reduced to the same extent. This was the main cause of the slight decline in the EBITA margin, which was (14.6)% in the first half of the Fiscal Year 2013 compared with (12.6)% in the comparable prior-year period. R&D expenses in the segment Luminaires & Solutions increased by €2.8 million, or 19.2%, rising from €14.6 million in the first half of the Fiscal Year 2012 to €17.4 million in the first half of the Fiscal Year 2013. The higher R&D expenses, which were incurred above all to develop the product portfolio, increased the share of R&D expenses to 6.3% of total revenue of Luminaires & Solutions.
Specialty Lighting Change adjusted Six months for foreign ended March 31, Foreign currency currency Nominal Portfolio translation translation and 2013 2012 change effects effects portfolio effects(1) (unaudited) (unaudited) in € million unless in % otherwise indicated Total revenue ...... 728.0 694,6 4.8% — 0.5% 4.3% External revenue ...... 728.0 694.6 4.8% EBITA ...... 126.4 123.6 2.3% EBITA margin(2) ...... 17.4% 17.8% R&D expenses ...... (28.8) (30.0) (4.0)% % of total revenue ...... 4.0% 4.3%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects.” (2) EBITA as a percentage of total revenue.
112 Specialty Lighting registered a €33.4 million, or 4.8%, rise in total revenue, from €694.6 million in the first half of Fiscal Year 2012 to €728.0 million in the first half of the Fiscal Year 2013. The increase was mainly attributable to a clear growth in the APAC region. The Americas region recorded moderate business growth. In contrast, business was weaker in the EMEA region, due primarily to the persistently muted economic situation in southern Europe. Revenue growth was based above all on demand for high pressure discharge headlights and LED components for the automotive sector. Growth in the automotive area more than offset a decline in the display/optic area. Excluding foreign currency translation effects of 0.5%, total revenue of Specialty Lighting rose by 4.3% in the first half of the Fiscal Year 2013. EBITA at Specialty Lighting rose by €2.8 million, or 2.3%, increasing from €123.6 million in the first half of the Fiscal Year 2012 to €126.4 million in the first half of the Fiscal Year 2013. This was mainly a result of an improvement in gross profit in the business with high pressure discharge and halogen headlights as a result of volume effects. The EBITA margin declined slightly on the back of a slightly lower gross margin, from 17.8% in the first half of the previous year to 17.4%. At €28.8 million, Specialty Lighting’s R&D expenses were down only slightly on the prior-year level, both in absolute terms and as a percentage of total revenue, in the first half of the Fiscal Year 2013, compared with €30.0 million in the comparable prior-year period.
Opto Semiconductors Change adjusted for foreign Six months Foreign currency currency ended March 31, Nominal Portfolio translation translation and 2013 2012 change effects effects portfolio effects(1) (unaudited) (unaudited) in € million unless in % otherwise indicated Total revenue ...... 470.4 415.8 13.1% — 0.9% 12.2% External revenue ...... 302.2 265.5 13.8% EBITA ...... 47.1 23.6 99.6% EBITA margin(2) ...... 10.0% 5.7% R&D expenses ...... (49.3) (44.5) 10.8% % of total revenue ...... 10.5% 10.7%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects.” (2) EBITA as a percentage of total revenue. Total revenue recorded by Opto Semiconductors increased by €54.6 million, or 13.1%, rising from €415.8 million in the first half of Fiscal Year 2012 to €470.4 million in the first half of the Fiscal Year 2013. The growth was achieved in all regions, and in the APAC region in particular. Revenue growth was recorded in all areas, but most notably in infrared components and LEDs for general lighting. Excluding foreign currency translation effects of 0.9%, total revenue of Opto Semiconductors grew by 12.2% in the first half of the Fiscal Year 2013 compared with the prior-year period. EBITA of Opto Semiconductors rose by €23.5 million, or 99.6%, increasing from €23.6 million in the first half of Fiscal Year 2012 to €47.1 million in the first half of Fiscal Year 2013. The rise in revenue, improved capacity utilization, and further productivity gains contributed to the increase. The product mix was also more favorable in a year-on-year comparison, especially given the lower share of third-party products in the total business volume. Compared with the first half of the previous year, the EBITA margin of Opto Semiconductors therefore improved from 5.7% to 10.0%. As in the first half of the Fiscal Year 2012, Opto Semiconductors was responsible for the second-largest share of our total R&D expenses; they rose by €4.8 million, or 10.8%, from €44.5 million in the first half of Fiscal Year 2012 to €49.3 million in the first half of Fiscal Year 2013. At 10.5%, R&D expenses expressed as a percentage of total revenue were down slightly on the comparable prior-year figure of 10.7% in the first half of the Fiscal Year 2013.
Reconciliation to Interim Combined Financial Statements Corporate items include certain business activities and special topics that are not directly allocated to the segments because the Managing Board does not consider them to be indicative of the segments’ performance. Among other things, these include activities in connection with specific pre-materials (e.g., the production of
113 fluorescent materials) and specific legal issues. Since the beginning of the Fiscal Year 2013, the research project OLED has also been reported under corporate items, whereas mechanical engineering and toolmaking activities have been allocated to the business unit Lamps of the segment Lamps & Components since that time. The prior year period was presented on a comparable basis. Pensions include those pension related income and expenses at OSRAM that are not allocated to the segments. In the first half of the Fiscal Years 2013 and 2012, EBITA for corporate items and pensions was as follows: €(14.3) million and €(58.4) million, respectively, for corporate items and €(2.4) million and €(2.2) million, respectively, for pensions. The improvement in EBITA for corporate items in the first half of the Fiscal Year 2013 was primarily due to significantly lower costs associated with the separation, the planned IPO and the Spin-off, respectively, compared with the previous year, as well as non-recurring income in connection with the settlement of the Patent Infringement Suits. In addition, there was a significant decline in costs relating to legal and regulatory matters. An offsetting effect was produced by, among other things, expenses of €5.9 million resulting from the relocation of our corporate headquarters in Munich.
Comparison of Operating Results for the Fiscal Years 2012 and 2011 OSRAM Licht Group Revenue In the Fiscal Year 2012, our revenue continued to develop positively on a nominal basis and the revenue increased from €5,031.0 million in the Fiscal Year 2011 by €368.8 million, or 7.3%, to €5,399.8 million in the Fiscal Year 2012. Due to an increasingly difficult and volatile market environment the growth was mainly driven by our acquisitions, foreign currency translation effects as well as by increasing SSL sales. Due to the acquisitions the revenue increased by 3.0% (portfolio effect). This was primarily related to the acquisition of Siteco which was assigned to the General Lighting business unit. Furthermore, Encelium Holdings Inc., which was consolidated in the first quarter of the Fiscal Year 2012, contributed likewise, despite being comparatively smaller, to revenue growth and is reflected in the portfolio effect. Foreign currency translation effects had a positive effect of 3.3% on our revenue in the Fiscal Year 2012 as the appreciation of U.S. dollar versus euro in particular led to an increase of our reported revenue.
Total Revenue by Segment The table below provides an overview on total revenue development in the Fiscal Years 2012 and 2011 by segment. The individual segments are discussed in more detail below (see “—Segment Information Analysis”).
Change adjusted Foreign for foreign Fiscal Year ended currency currency Total revenue by segment September 30, Nominal Portfolio translation translation and (including intersegment revenue) 2012 2011 change effects effects portfolio effects(1) (audited) (unaudited) in € million in % General Lighting ...... 3,387.2 3,164.0 7.1% 4.8% 3.0% (0.8)% Specialty Lighting ...... 1,404.6 1,243.5 13.0% — 4.1% 8.9% Opto Semiconductors(2) ...... 899.1 858.4 4.7% — 3.6% 1.1% Total Segment (including Intersegment revenue) ...... 5,690.9 5,265.9 8.1% 2.9% 3.3% 1.8% Reconciliation to combined financial statements(3) ...... (291.1) (234.9) 23.9% — 3.7% 20.3% Total revenue OSRAM Licht Group .... 5,399.8 5,031.0 7.3% 3.0% 3.3% 1.0%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) Total revenue of Opto Semiconductors includes external revenue of €584.7 million and €596.9 million for the Fiscal Years 2012 and 2011, respectively, and intersegment revenue of €314.4 million and €261.5 million for the Fiscal Years 2012 and 2011, respectively. (3) Reconciliation to combined financial statements comprises corporate items and pensions presented in the segment information in the combined financial statements as well as eliminations, corporate treasury and other reconciling items.
114 Revenue by Region The table below presents our revenue by region (derived by customer location) in the Fiscal Year 2012 and 2011: Change adjusted Fiscal Year ended Foreign for foreign September 30, currency currency Nominal Portfolio translation translation and Revenue by region(1) 2012 2011 change effects effects portfolio effects(2) (audited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated EMEA ...... 2,232.8 2,099.5 6.3% 7.0% 0.1% (0.8)% % of revenue OSRAM Licht Group(3) . . . 41.3% 41.7% APAC ...... 1,316.0 1,211.7 8.6% 0.2% 6.1% 2.4% % of revenue OSRAM Licht Group(3) . . . 24.4% 24.1% Americas ...... 1,851.0 1,719.8 7.6% 0.2% 5.3% 2.1% % of revenue OSRAM Licht Group(3) . . . 34.3% 34.2% Revenue OSRAM Licht Group ...... 5,399.8 5,031.0 7.3% 3.0% 3.3% 1.0%
(1) Revenue by customer location. (2) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (3) Unaudited. In the Fiscal Year 2012, the regions APAC and Americas recorded the strongest nominal revenue growth, followed by EMEA. In the region APAC, revenue grew from €1,211.7 million in the Fiscal Year 2011 by €104.3 million, or 8.6%, to €1,316.0 million in the Fiscal Year 2012. This was supported by positive currency translation effects that contributed 6.1% and portfolio effects of 0.2% resulting from the acquisition of Siteco. Adjusted for foreign currency translation and portfolio effects, the APAC revenue grew by 2.4%. Compared to the economic growth of the region, our revenue growth was relatively smaller, mainly due to the fact that customer demand in China, in particular for products of Opto Semiconductors, slowed down in the Fiscal Year 2012. Revenue in the Americas region increased from €1,719.8 million in the Fiscal Year 2011 by €131.2 million, or 7.6%, to €1,851.0 million in the Fiscal Year 2012. While revenue in the Americas region was positively affected by an increased demand in the U.S., especially in the construction sector, and two major SSL installation projects in the U.S. and by positive currency effects, the business in Brazil declined. Adjusted for foreign currency translation and portfolio effects, revenue in the Americas region increased by 2.1% in the Fiscal Year 2012. In the region EMEA, revenue increased from €2,099.5 million in the Fiscal Year 2011 by €133.3 million, or 6.3%, to €2,232.8 million in the Fiscal Year 2012. In Europe, the sovereign debt crisis resulted in lower demand in southern Europe compared to the previous year. For that reason, the increase in revenue in EMEA was mainly due to the inclusion of Siteco in the combined financial statements; portfolio effects amounted to 7.0% in total in the region EMEA in the Fiscal Year 2012. The significant growth in the Middle East could not sustainably support the development in EMEA. Adjusted for foreign currency translation and portfolio effects, revenue in EMEA decreased by 0.8% in the Fiscal Year 2012.
115 Revenue by Technology
Change adjusted Fiscal Year ended September 30, for changes of Revenue by technology 2012 2011 Nominal change the baseline(1) (unaudited unless otherwise indicated) (unaudited) (unaudited) in % of in % of in % in % in € million revenue in € million revenue SSL products ...... 1,370.8 25.4% 1,170.8 23.3% 17.1% 17.1% Efficient traditional products as part of the Environmental Portfolio . . . 2,503.9 46.4% 2,532.9 50.3% (1.1%) 3.6% Revenue OSRAM Environmental Portfolio(2) ...... 3,874.7 71.8% 3,703.7 73.6% 4.6% 7.9% Traditional basic products ...... 1,525.1 28.2% 1,327.3 26.4% 14.9% 5.9% Revenue OSRAM Licht Group ... 5,399.8(3) 100.0% 5,031.0(3) 100.0% 7.3% 7.3%
(1) The OSRAM Environmental Portfolio is determined in accordance with the internal directive “OSRAM Environmental Portfolio Corporate Guideline V1.2 (August 2011)” based on fixed criteria for inclusion and exclusion. In accordance with this regulation, our product portfolio is reviewed annually and products are assigned to the categories set out above. Since certain energy inefficient products were subject to statutory energy efficiency regulation in calendar year 2012 (especially in the EU and the U.S.) and, therefore, must not be introduced into the trade chain anymore, we removed these products from the basis of comparison of the OSRAM Environmental Portfolio and adapted the OSRAM Environmental Portfolio for the Fiscal Year 2012 accordingly. To reflect changes over time as transparent as possible, in addition to the nominal revenue change of the Environmental Portfolio, a change adjusted for changes in the comparable basis is set out above in which the mentioned products are treated as if they still belonged to the Environmental Portfolio of the Fiscal Year 2012. Based on this assumption, revenue of efficient traditional products as part of the Environmental Portfolio, revenue of the Environmental Portfolio and revenue of traditional basic products would have amounted to €2,623.7 million, €3,994.5 million and €1,405,3 million, respectively, in the Fiscal Year 2012. Accordingly, on the basis of such adjustment, the revenue share of the OSRAM Environmental Portfolio would have amounted to 74.0% of total revenue in the Fiscal Year 2012. (2) Revenue generated with the Environmental Portfolio is the sum of revenue generated with SSL products and revenue with efficient traditional products as part of the Environmental Portfolio. (3) Audited.
In the Fiscal Year 2012, revenue generated with SSL products showed the strongest growth within our product portfolio, increasing from €1,170.8 million in the Fiscal Year 2011 by €200.0 million, or 17.1%, to €1,370.8 million in the Fiscal Year 2012, mainly driven by increased LED lamp and LED luminaire sales and continued demand for LEDs from the automotive industry. The revenue share of our Environmental Portfolio decreased from 73.6% in the Fiscal Year 2011 to 71.8% in the Fiscal Year 2012. However, adjusted for changes in the comparable basis, it showed a small increase to 74.0%. The share of efficient traditional products as part of the Environmental Portfolio and traditional basic products was impacted by a change in the comparable basis of the Environmental Portfolio: due to regulatory requirements in most countries (especially in the EU and the U.S.) to phase out certain energy inefficient products, these products were removed from the baseline of the OSRAM Environmental Portfolio. The revenue generated from sales of traditional basic products increased by 14.9% in the Fiscal Year 2012 and 5.9% adjusted for changes in the comparable basis, respectively. The increase is mainly due to the adaption of our product portfolio following the inclusion of Siteco in the combined financial statements.
Cost of Goods Sold and Services Rendered Cost of goods sold and services rendered increased significantly from €3,418.5 million in the Fiscal Year 2011 by €579.0 million, or 16.9%, to €3,997.5 million in the Fiscal Year 2012, and as a percentage of revenue, from 67.9% in the Fiscal Year 2011 to 74.0% in the Fiscal Year 2012. The increase was mainly due to the fact that the majority of the transformation costs discussed above under “—Key Factors Affecting the Results of Operations—Transformation and Restructuring Costs—Technology Shift, OSRAM Push Program and Transformation Costs” were recorded under cost of goods sold and services rendered. In essence, these comprise the impairment loss on production facilities for metal halide lamps with ceramic technology (€36.7 million) and OLED production facilities (€21.5 million), the cost of personnel measures relating to the “Future Industrial Footprint” project, the complexity reduction of our product portfolio, which, in turn, resulted in a write-off of inventory due to low net realizable values and reduced sales prices (€23.1 million). In addition to transformation costs, costs of goods sold and services rendered increased in the Fiscal Year 2012 due to expenses incurred in connection with the settlement of a license and trademark proceeding and impairments of intangible assets in connection with the impairment test of PLUM. Furthermore, price increases for raw materials, notably rare earths (as a result of high-priced inventory buildup initiated to preserve existing stock levels) but also metals (gold,
116 silver and copper), which are needed for production of LEDs, burdened cost of goods sold and services rendered; moreover the share of forward integrated SSL products increased, bearing higher costs of goods sold compared to the traditional business.
Gross Profit Our gross profit declined from €1,612.5 million in the Fiscal Year 2011 by €210.2 million, or 13.0%, to €1,402.3 million in the Fiscal Year 2012, while our gross profit margin (gross profit as a percentage of revenue) decreased from 32.1% in the Fiscal Year 2011 to 26.0% in the Fiscal Year 2012. The gross margins in all business units declined. Main driver was the increase of cost of goods sold and services rendered as discussed above.
Research and Development Expenses Our research and development expenses increased from €300.9 million in the Fiscal Year 2011 by €38.2 million, or 12.7%, to €339.1 million in the Fiscal Year 2012. This was in particular due to upfront investments to further strengthen our position specifically with regard to forward integrated SSL products. R&D intensity, defined as R&D expenses divided by revenue, amounted to 5.3% for General Lighting, 4.4% for Specialty Lighting and 10.3% for Opto Semiconductors in the Fiscal Year 2012 (4.8%, 4.7% and 10.4%, respectively, in the Fiscal Year 2011). The average R&D headcount increased from 2,489 FTE (Full Time Equivalents) in the Fiscal Year 2011 by 232 FTE to 2,721 FTE in the Fiscal Year 2012 associated with the above mentioned upfront investments in forward integrated SSL. In particular, our business unit General Lighting increased the number of FTEs for SSL product development, for our research center in Shenzhen as well as for R&D project management. In addition, R&D expenses increased as a result of the inclusion of Siteco in the combined financial statements (initial integration of Siteco in the combined financial statements for the full fiscal year compared to just one quarter in the Fiscal Year 2011). The following table presents an overview of our R&D expenses broken down by segments (for a more detailed discussion see below “—Segment Information Analysis”):
R&D expenses by segment Fiscal Year ended September 30, 2012 2011 Change (unaudited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated General Lighting ...... 181.2 150.9 20.1% % of R&D expenses OSRAM Licht Group ...... 53.4% 50.1% Specialty Lighting ...... 61.4 58.8 4.5% % of R&D expenses OSRAM Licht Group ...... 18.1% 19.5% Opto Semiconductors ...... 92.2 89.5 3.0% % of R&D expenses OSRAM Licht Group ...... 27.2% 29.7% Other(1) ...... 4.4 1.8 140.7% % of R&D expenses OSRAM Licht Group ...... 1.3% 0.6% R&D expenses OSRAM Licht Group (audited for full Fiscal Years) ...... 339.1 300.9 12.7%
(1) Other R&D expenses mainly relate to the development of certain pre-materials (e.g. fluorescent materials) and certain machines and tools from our engineering unit.
Marketing, Selling and General Administrative Expenses Our marketing, selling and general administrative expenses increased from €905.6 million in the Fiscal Year 2011 by €149.3 million, or 16.5%, to €1,054.9 million in the Fiscal Year 2012. The primary reason for this increase was the initial inclusion of Siteco for a full Fiscal Year in the combined financial statements. Moreover, expenses increased by reductions in the carrying amount of customer relationships and brand names in the amount of €23.5 million in the Fiscal Year 2012. In addition, we incurred personnel related restructuring costs inter alia in connection with our “Future Industrial Footprint” project as well as costs of €9.4 million in connection with the setup of OSRAM as an independent enterprise (net of reimbursements by Siemens). Additional expenses arose from consulting costs incurred in connection with OSRAM Push and in connection with provisions for material legal and regulatory matters. As a percentage of revenue, marketing, selling and general administrative expenses increased from 18.0% in the Fiscal Year 2011 to 19.5% in the Fiscal Year 2012.
117 Other Operating Income (Expense), net Other operating income (expense), net decreased from net income of €11.2 million in the Fiscal Year 2011 by €279.3 million to net expenses of €268.1 million in the Fiscal Year 2012 and is broken down as follows: Fiscal Year ended September 30, 2012 2011 Change (audited unless otherwise (unaudited) indicated) in € million in % Gain on disposals of businesses ...... 8.4 — n.a. Gain on sales of property, plant and equipment and intangibles ...... 3.2 8.8 (63.6)% Miscellaneous other income ...... 33.2 12.1 174.4% Other operating income ...... 44.8 20.9 114.4% Impairment of goodwill ...... (237.4) — n.a. Losses on sales and disposal of property, plant and equipment and intangibles ...... (14.4) (2.7) >200.0% Losses on disposals of businesses ...... (1.9) — n.a. Miscellaneous other expense ...... (59.2) (7.0) >200.0% Other operating expense ...... (312.9) (9.7) >200.00% Other operating income (expense), net (unaudited) ...... (268.1) 11.2 n.a.
Other operating income increased from €20.9 million in the Fiscal Year 2011 by €23.9 million, or 114.4%, to €44.8 million in the Fiscal Year 2012. The gain on disposals of businesses related to the sale of subsidiaries in Japan in the amount of €8.4 million in the Fiscal Year 2012. The gain on sales of property, plant and equipment and intangibles in the Fiscal Year 2012 mainly related to the sale of land and buildings held by Chung Tak Lighting Control Systems (Guangzhou) Ltd., Guangzhou, China, with a total amount of €2.2 million and was recorded in the business unit General Lighting. In the Fiscal Year 2012, miscellaneous other income included in particular proceeds from the settlement of a Patent Infringement Suit and the release of corresponding provisions.
Other operating expense increased significantly from €9.7 million in the Fiscal Year 2011 by €303.2 million to €312.9 million in the Fiscal Year 2012. The increase of other operating expenses in the Fiscal Year 2012 compared to the previous year was mainly due to impairments of goodwill of the cash-generating unit PLUM in the amount of €170.5 million. PLUM mainly comprises the business activities of Siteco and Traxon. Impairments of goodwill in the business unit General Lighting amounted to €66.9 million in the Fiscal Year 2012 (see above “—Key Factors Affecting the Results of Operations—Impairments—Impairment of Goodwill and Other intangible assets”). Furthermore, costs incurred in connection with the Patent Infringement Suits amounted to €45.8 million in the Fiscal Year 2012. Disposal of property, plant and equipment in connection with the “Future Industrial Footprint” project resulted in a loss in the amount of €11.0 million in the Fiscal Year 2012 (see above “—Key Factors Affecting the Results of Operations—Transformation and Restructuring Costs—Technology Shift, OSRAM Push Program and Transformation Costs”). In addition, a provision for a material law suit was recognised.
Gain (Loss) from Investments Accounted for Using the Equity Method, net The following table provides an overview on gain (loss) from investments accounted for using the equity method, net, for the Fiscal Years 2012 and 2011:
Fiscal Year ended September 30, 2012 2011 Change (audited) (unaudited) in € million in % Share of profit (loss), net ...... (7.6) 5.1 n.a. Impairments, net ...... (41.7) (2.8) >200% Reversals of impairments ...... — 3.2 n.a. Gain (loss) from investments accounted for using the equity method, net ...... (49.3) 5.5 n.a.
118 In the Fiscal Year 2012 we recorded a net loss from investments accounted for using the equity method in the amount of €49.3 million compared to a net gain of €5.5 million in the Fiscal Year 2011. This negative development was caused by several factors, including: • In the Fiscal Year 2012 the investment in Valeo Sylvania was impaired by €27.6 million (including €14.7 million on long-term receivables). Valeo Sylvania is allocated to the business unit Specialty Lighting. The main triggering event for the impairment was the reassessment of the investment’s business plan, which resulted in a significant decrease in the expected future cash flows. The share of profit (loss), net included a loss of €7.6 million in relation to Valeo Sylvania. • Furthermore, in the Fiscal Year 2012, a provision for a capital commitment concerning OSRAM’s jointly controlled entity EMGO N.V., Lommel, Belgium (“EMGO”), amounting to €8.8 million was recorded in the business unit General Lighting and disclosed in the line item Impairments, net. The capital commitment resulted from the intended closure of EMGO, related to the “Future Industrial Footprint” project and being part of our transformation process. • The joint venture company, CVL Componentes de Vidro Ltda., Caçapava, Brazil (“CVL”), which had been allocated to the business unit General Lighting recorded a provision for legal disputes amounting to €10.3 million. The costs of €5.4 million to be carried by OSRAM relate to the reduction of the book value of the investment amounting to €2.5 million and a provision for a payment guarantee to the benefit of CVL amounting to €2.9 million and which have been included in the combined financial statements in the line item Impairments, net, of which €2.1 million has already been utilized by CVL. • In the Fiscal Year 2012 the net investment in OSRAM’s jointly controlled entity OSRAM (China) Fluorescent Materials Co., Ltd., Yi Xing City, China (“OCFM”), was impaired by €2.4 million. This was reported in the segment reporting in the line item Corporate items and pensions. The main triggering event for the impairment was a reassessment of the business plan, which resulted in a significant decrease in the expected future cash flows. The cost of the provision has been included in the line item Impairments, net.
Interest Income, Interest Expense and Other Financial Income (Expense), net Our interest income, interest expense and other financial income (expense), net is presented in the following table for the Fiscal Years 2012 and 2011: Fiscal Year ended September 30, 2012 2011 Change (audited) (unaudited) in € million in % Pension related interest income ...... 75.4 50.0 50.8% Interest income, other than pension ...... 4.7 3.3 42.4% Interest income ...... 80.1 53.3 50.3% Pension related interest expense ...... (79.1) (74.8) 5.7% Interest expense, other than pension ...... (26.7) (22.8) 17.1% Interest expense ...... (105.8) (97.6) 8.4% Income (expense) from available-for-sale financial assets, net ...... (5.8) — n.a. Miscellaneous financial income (expense), net ...... (5.7) (2.7) 111.1% Other financial income (expense), net ...... (11.5) (2.7) >200.0% In the Fiscal Year 2012, we recorded higher pension related interest income due to a significant addition to pension assets (see “—Liquidity and Capital Resources—Pension Plans and Similar Commitments”), which was in part compensated by higher pension related interest expenses and higher interest expenses from financing transactions with the Siemens Group, included in interest expense, other than pension. Income (expense) from available-for-sale financial assets, net, in the Fiscal Year 2012 included an impairment in the amount of €5.8 million associated with the liquidation of Ritos GmbH, Mömbris, Germany. Impacts resulting from the valuation of certain monetary assets and liabilities at the respective closing foreign currency exchange rate are included in the line item Miscellaneous financial income (expense), net.
119 Interest income (expense), net, other than pension, includes the following with respect to financial assets (financial liabilities) not designated at fair value through profit or loss: Fiscal Year ended September 30, 2012 2011 Change (audited) (unaudited) in € million in % Total interest income on financial assets ...... 4.6 3.3 39.4% Total interest expense on financial liabilities ...... (26.6) (21.1) 26.1%
Income (Loss) before Income Taxes Income (loss) before income taxes declined from an income of €375.7 million in the Fiscal Year 2011 by €722.0 million to a loss of €346.3 million in the Fiscal Year 2012. The loss before income taxes in the Fiscal Year 2012 was on the one hand due to the strategic redirection in the Fiscal Year 2012. On the other hand, the income (loss) before income taxes was (unlike EBITA) influenced by amortizations and impairments of goodwill and other intangible assets and certain costs in connection with joint ventures.
Income Taxes The following table provides an overview of our income tax expenses in the Fiscal Years 2012 and 2011: Fiscal Year ended September 30, 2012 2011 Change (audited) (unaudited) in € million in % Current tax (expense) benefit, net ...... (93.7) (77.1) 21.5% Deferred tax (expense) benefit, net ...... 61.7 (52.5) n.a. Income tax (expense) benefit, net ...... (32.0) (129.6) (75.3)%
Including the items charged or credited directly to equity, the income tax benefit or expense consists of the following: Fiscal Year ended September 30, 2012 2011 Change (audited) (unaudited) in € million in % Income tax expense ...... (32.0) (129.6) (75.3)% Income and expense recognized directly in other comprehensive income ...... 57.8 8.3 >200% As certain OSRAM entities (and in particular OSRAM AG, now OSRAM GmbH) formed part of a tax group with Siemens entities until and including our Fiscal Year 2011, tax expenses recorded in the combined financial statements include taxes of these OSRAM entities on a notional basis, i.e. assuming that the tax group did not exist and that these OSRAM entities would have been taxed on a stand-alone basis. See also “—Basis of Presentation—Treatment of Taxes” above. Income tax expense decreased from €129.6 million in the Fiscal Year 2011 by €97.6 million, or 75.3%, to €32.0 million in the Fiscal Year 2012 due to the negative development of our income (loss) before income taxes. The current income tax expense in the Fiscal Years 2012 and 2011 included expenses recognized for current tax of prior years amounting to €11.6 million and current tax gains of prior years amounting to €9.0 million, respectively. The deferred tax (expenses) benefits in the Fiscal Years 2012 and 2011 included a tax deferred benefit in the amount of €11.1 million in the Fiscal Year 2012 and a deferred tax expense in the amount of €47.0 million in the Fiscal Year 2011, both resulting from the origination and reversal of temporary differences. Income tax expenses did not decrease as much as income before taxes, mainly as a result of goodwill impairments and the impairment in Valeo Sylvania, which were non deductible expenses for tax purposes. Net deferred tax assets of €396.3 million and €281.1 million were recorded as of September 30, 2012 and 2011, respectively. The acquisition of Siteco resulted in recognition of net deferred tax liabilities increasing goodwill amounting to €26.6 million which were mainly attributable to other intangible assets. As of September 30, 2012 and 2011, OSRAM had €304.4 million and €74.5 million, respectively, of gross tax loss carry-forwards. OSRAM assumes that the future operations will generate sufficient taxable income to realize these tax loss carry-forwards.
120 Net Income (Loss) As a result of the factors discussed above, net income decreased from €246.1 million in the Fiscal Year 2011 by €624.4 million to a net loss of €378.3 million in the Fiscal Year 2012.
EBITA Our EBITA decreased from €437.0 million in the Fiscal Year 2011 by €383.7 million, or 87.8%, to €53.3 million in the Fiscal Year 2012. Our EBITA margin fell from 8.7% in the Fiscal Year 2011 to 1.0% in the Fiscal Year 2012. Alongside the operating business performance, this was mainly caused by three material influencing factors: (1) transformation costs related to our OSRAM Push Program totaling €198.5 million, (2) costs associated with the separation and the Spin-off and the previously intended initial public offering, respectively; Patent Infringement Suits in the amount of €30.8 million (net of reimbursements by Siemens in the amount of €7.9 million in connection with the cost assumption agreement) in the Fiscal Year 2012 and (3) costs associated with further material legal and regulatory issues with a total amount of €50.6 million, thereof especially costs in the amount of €34.2 million resulting from a license and trademark litigation. The majority of the transformation cost negatively impacted EBITA of the business unit General Lighting. The business unit Specialty Lighting increased its EBITA mainly due to a continued stable demand for its products from the automotive sector. Lower utilization of its production capacities and increasing price pressure due to intense competition impacted mainly the business unit Opto Semiconductors. EBITA in the Fiscal Year 2012 did not decrease as much as income (loss) before income taxes as in particular amortization and impairments of goodwill and other intangible assets and certain costs in connection with joint ventures are by nature not part of EBITA. The following table provides an overview of our EBITA in the Fiscal Years 2012 and 2011 by segments (for a more detailed discussion on the segment level see below “—Segment Information Analysis”). Fiscal Year ended September 30, EBITA by segment 2012 2011 Change (audited) (unaudited) in % General Lighting ...... (184.2) 106.7 n.a. Specialty Lighting ...... 227.1 209.8 8.2% Opto Semiconductors ...... 75.9 118.2 (35.8)% Total EBITA Segments ...... 118.8 434.7 (72.7)% Corporate items and pensions ...... (64.9) (11.7) >200.0% Eliminations, corporate treasury and other reconciling items ...... (0.6) 14.0 n.a. EBITA OSRAM Licht Group ...... 53.3 437.0 (87.8)%
Segment Information Analysis General Lighting Change adjusted Foreign for foreign Fiscal Year ended currency currency September 30, Nominal Portfolio translation translation and 2012 2011 change effects effects portfolio effects(1) (audited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated Total revenue ...... 3,387.2 3,164.0 7.1% 4.8% 3.0% (0.8%) External revenue ...... 3,387.2 3,164.0 7.1% EBITA ...... (184.2) 106.7 n.a. EBITA margin(2) (unaudited) ...... (5.4)% 3.4% R&D expenses (unaudited) ...... (181.2) (150.9) 20.1% % of total revenue (unaudited) ...... 5.3% 4.8%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) EBITA as a percentage of total revenue.
Total revenue of the business unit General Lighting grew from €3,164.0 million in the Fiscal Year 2011 by €223.2 million, or 7.1%, to €3,387.2 million in the Fiscal Year 2012. A significant share of this increase was attributable to the portfolio effect of integrating Siteco. Revenue generated by our business unit General Lighting was negatively affected by a significant decrease of sales of ballasts and high intensity discharge lamps, caused
121 amongst others by slow demand in Southern Europe, China and Brazil. Revenue from sales of incandescent lamps decreased due to the worldwide increase of regulation directed at greater energy efficiency. Increasing revenue generated from sales of forward integrated SSL products, fluorescent lamps as well as modern types of halogen lamps largely compensated for this effect. The revenue share of forward integrated SSL products increased significantly due to lower selling prices and enhanced product features followed by a stronger demand. Adjusted for foreign currency translation effects of 3.0% and portfolio effects of 4.8% (Siteco and Encelium), the total revenue decreased by 0.8%. EBITA reported by General Lighting decreased significantly from €106.7 million in the Fiscal Year 2011 by €290.9 million to €(184.2) million in the Fiscal Year 2012, which was attributable to several factors: EBITA was negatively impacted by a considerable increase of cost of goods sold and services rendered, mainly due to transformation costs and rising procurement costs for rare earths. In addition, the increased revenue with forward integrated SSL products and the respective negative profit contributions as well as increased upfront investments in this sector weighed on our profitability of the Fiscal Year 2012. The marketing, selling and general administrative expenses of our business unit General Lighting increased in the Fiscal Year 2012, mainly due to increased expenses due to the full time inclusion of Siteco in the combined financial statements of the Fiscal Year 2012, depreciations for customer relationships and trademark rights in the amount of €23.5 million and consulting costs in connection with OSRAM Push. R&D expenses in General Lighting increased from €150.9 million in the Fiscal Year 2011 by €30.3 million, or 20.1%, to €181.2 million in the Fiscal Year 2012. This cost increase was in particular due to the extension of our R&D center in Shenzhen, China, as well as for the expansion of project management of R&D projects.
Specialty Lighting Change adjusted Foreign for foreign Fiscal Year ended currency currency September 30, Nominal Portfolio translation translation and 2012 2011 change effects effects portfolio effects(1) (audited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated Total revenue ...... 1,404.6 1,243.5 13.0% — 4.1% 8.9% External revenue ...... 1,404.6 1,243.5 13.0% EBITA ...... 227.1 209.8 8.2% EBITA margin(2) (unaudited) ...... 16.2% 16.9% R&D expenses (unaudited) ...... (61.4) (58.8) 4.5% % of total revenue (unaudited) ...... 4.4% 4.7%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) EBITA as a percentage of total revenue. Following the increase of Total revenue of our business unit Specialty Lighting in the Fiscal Year 2011, Specialty Lighting reported a significant further increase of Total revenue from €1,243.5 million in the Fiscal Year 2011 by €161.1 million, or 13.0%, to €1,404.6 million in the Fiscal Year 2012. This positive development was mainly due to continued strong demand from the automotive industry, notably driven by increased sales of automotive HID and halogen head lamps. Our automotive SSL products contributed a significantly smaller amount of total revenue, however with strong growth. The Display/optic business remained stable. Adjusted for foreign currency translation effects of 4.1%, total revenue of Specialty Lighting increased by 8.9% in the Fiscal Year 2012. EBITA reported by Specialty Lighting increased from €209.8 million in the Fiscal Year 2011 by €17.3 million, or 8.2%, to €227.1 million in the Fiscal Year 2012 mainly as a result of the volume and degression effects from the revenue increase as well as the implementation of measures to improve productivity. EBITA margin of Specialty Lighting in the Fiscal Year 2012 decreased slightly. However, it could be maintained on a high level despite upfront investments for the development of forward integrated SSL products and the increased share of such products within the product mix as well as transformation costs due to the adaptation of production capacities at our plant in Berlin due to the anticipated decline of demand for traditional projection lamps and as a result of costs allocated to Specialty Lighting for restructuring in connection with central functions. R&D expenses and marketing, selling and general administrative expenses of Specialty Lighting were both impacted by enhanced efforts for the further ramp up of our SSL business. Marketing, selling and general administrative expenses further increased with additional logistics costs due to revenue growth.
122 Opto Semiconductors Change adjusted Foreign for foreign Fiscal Year ended currency currency September 30, Nominal Portfolio translation translation and 2012 2011 change effects effects portfolio effects(1) (audited unless otherwise (unaudited) indicated) in € million unless otherwise in % indicated Total revenue ...... 899.1 858.4 4.7% — 3.6% 1.1% External revenue ...... 584.7 596.9 (2.0)% EBITA ...... 75.9 118.2 (35.8)% EBITA margin(2) (unaudited) ..... 8.4% 13.8% R&D expenses (unaudited) ...... (92.2) (89.5) 3.0% % of total revenue (unaudited) .... 10.3 10.4%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) EBITA as a percentage of total revenue. Total revenue of our business unit Opto Semiconductors increased from €858.4 million by €40.7 million, or 4.7%, to €899.1 million in the Fiscal Year 2012. Although the sales volume could be increased in the Fiscal Year 2012, especially in the APAC region, overcapacities in the market for LEDs existed that led to underutilization especially on the light emitting semiconductor chip side and significant price decreases which resulted in a lower growth rate in revenue compared to the previous year. In general, sales in consumer and communication electronics continued to be very volatile while the sales of LEDs for the general lighting market remained below our expectation in the Fiscal Year 2012. Sales into other applications (incl. automotive) showed solid growth. Adjusted for foreign currency translation effects of 3.6%, total revenue of our business unit Opto Semiconductors grew by 1.1% in the Fiscal Year 2012. EBITA reported by Opto Semiconductors was negatively impacted by relative higher cost of goods sold and services rendered in combination with declining sales prices, mainly in the first two quarters of the Fiscal Year 2012, and decreased from €118.2 million in the Fiscal Year 2011 by €42.3 million, or 35.8%, to €75.9 million in the Fiscal Year 2012. Utilization in semiconductor chip manufacturing was lower than planned, partially caused by a stronger increase of production yields than planned. In particular the productivity potential of our extended production site for LED chips in Penang, Malaysia, was not yet exploited to the full extent. Furthermore, the rising market prices for gold and other precious metals significantly increased Opto Semiconductors’ cost of goods sold and services rendered. This was further supported by a disadvantageous product mix. However, an improvement of the EBITA margin became visible during the last two quarters of the Fiscal Year 2012. As in the Fiscal Year 2011, Opto Semiconductors accounted for the second largest portion of our overall R&D expenses, increasing from €89.5 million in the Fiscal Year 2011 by €2.7 million, or 3.0%, to €92.2 million in the Fiscal Year 2012. Although the main portion was spent for R&D activities in Regensburg, a strong focus was placed on the further ramp-up in Penang.
Reconciliation to Combined Financial Statements Corporate items include business activities and special topics, which are not allocated directly to a segment, because the Managing Board does not consider them to be indicative of the segments’ performance. These include inter alia activities in connection with specific pre-materials (e.g. the production of fluorescent materials), machine and tool making, as well as specific legal issues. Pensions include OSRAM’s pension related income (expense) not allocated to the segments.
In the Fiscal Years 2012 and 2011, EBITA of corporate items and pensions was comprised as follows: €(62.0) million and €(10.6) million, respectively, related to corporate items as well as €(2.9) million and €(1.1) million, respectively, related to pensions. The decrease in EBITA of corporate items in the Fiscal Year 2012 was a result of the additional costs associated with the separation of OSRAM, the planned Spin-off and originally planned IPO as well as Patent Infringement Suits, as well as a license and trademark dispute.
123 Comparison of Operating Results for the Fiscal Years 2011 and 2010 OSRAM Licht Group Revenue Following the recovery of our revenue in the Fiscal Year 2010 from the depressed level of the Fiscal Year 2009, our revenue continued to develop positively and increased from €4,679.7 million in the Fiscal Year 2010 by €351.3 million, or 7.5%, to €5,031.0 million in the Fiscal Year 2011. All business units reported revenue growth and we achieved for the first time more than €5 billion of revenue. The growth was mainly driven by a strong demand for automotive applications and increasing SSL sales, despite an increasingly difficult and volatile market environment in the second half of the Fiscal Year 2011. The usual seasonal slowdown of sales especially in the retail channel as well as exceptional incidents such as the natural and nuclear disasters in Japan, negatively impacted our sales growth in the second half of the Fiscal Year 2011. Expected significant sales price increases in the fourth quarter of the Fiscal Year 2011 for fluorescent products as a consequence of increased raw material prices first led to hoarding effects among our customers and after price increases became effective, demand slowed down. The acquisition of Siteco and the deconsolidation of Valeo Sylvania resulted in opposite portfolio effects in the Fiscal Year 2011 that positively affected the total revenue of OSRAM by 0.1%. The negative impact of foreign currency translation effects on our total revenue in the Fiscal Year 2011 was 0.5%.
Total Revenue by Segment The table below presents an overview on total revenue development in the Fiscal Years 2011 and 2010 by segment. The individual segments are discussed in more detail below (see “—Segment Information Analysis”).
Change adjusted Foreign for foreign Fiscal Year ended currency currency Total revenue by segment September 30, Nominal Portfolio translation translation and (including intersegment revenue) 2011 2010 change effects effects portfolio effects (1) (audited) (unaudited) in € million in % General Lighting ...... 3,164.0 2,943.9 7.5% 2.0% (0.3)% 5.8% Specialty Lighting ...... 1,243.5 1,173.8 5.9% (4.6)% (0.1)% 10.6% Opto Semiconductors(2) ...... 858.4 743.3 15.5% — (1.7)% 17.2% Total revenue segments (including intersegment revenue) ...... 5,265.9 4,861.0 8.3% 0.1% (0.5)% 8.7% Reconciliation to combined financial statements(3) ...... (234.9) (181.3) 29.6% — (0.2)% 29.7% Total revenue OSRAM Licht Group .... 5,031.0 4,679.7 7.5% 0.1% (0.5)% 7.9%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) Total revenue of Opto Semiconductors includes external revenue of €596.9 million and €533.7 million for the Fiscal Years 2011 and 2010, respectively, and intersegment revenue of €261.5 million and €209.6 million for the Fiscal Years 2011 and 2010, respectively. (3) Reconciliation to combined financial statements comprises corporate items and pensions presented in the segment information in the combined financial statements as well as eliminations, corporate treasury and other reconciling items.
124 Revenue by Region The table below presents our revenue by region (derived by customer location) in the Fiscal Year 2011 and 2010: Change adjusted for foreign currency Foreign translation Fiscal Year ended currency and September 30, Nominal Portfolio translation portfolio Revenue by region(1) 2011 2010 change effects effects effects(2) (audited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated EMEA ...... 2,099.5 1,910.1 9.9% 3.0% 0.2% 6.7% % of revenue OSRAM Licht Group(3) ...... 41.7% 40.8% APAC ...... 1,211.7 1,097.2 10.4% 0.1% 1.3% 9.0% % of revenue OSRAM Licht Group(3) ...... 24.1% 23.4% Americas ...... 1,719.8 1,672.4 2.8% (3.2)% (2.5)% 8.5% % of revenue OSRAM Licht Group(3) ...... 34.2% 35.7% Revenue OSRAM Licht Group ...... 5,031.0 4,679.7 7.5% 0.1% (0.5)% 7.9%
(1) Derived by customer location. (2) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (3) Unaudited. In the Fiscal Year 2011, the positive development of revenue continued in particular in emerging markets, although growth slowed down compared to the Fiscal Year 2010. The significant revenue increase in the EMEA region from €1,910.1 million in the Fiscal Year 2010 by €189.4 million, or 9.9%, to €2,099.5 million in the Fiscal Year 2011 was partly (3.0%) due to the acquisition of Siteco with the major proportion in EMEA. Growth in the EMEA region adjusted for foreign currency translation and portfolio effects in the Fiscal Year 2011 was 6.7%, which was mainly due to further gains in Russia and other emerging markets in Eastern Europe. In Western Europe, the hoarding of inefficient lamps among retailers and consumers, which preceded the step of the EU Ecodesign Directive to phase out all incandescent 60W lamps (see “—Key Factors Affecting the Results of Operations—Regulatory Initiatives and Resulting Hoarding Effects”) led to a market saturation and a lower demand for efficient traditional products as part of the Environmental Portfolio. In the Fiscal Year 2011, our sales in the APAC region were negatively impacted, especially in the third quarter, by the earthquake in the prefecture of Fukushima, Japan, and its negative consequences on the automotive production in Japan and other Asian countries. However, revenue in the APAC region grew from €1,097.2 million in the Fiscal Year 2010 by 10.4% to €1,211.7 million in the Fiscal Year 2011, mainly due to growing revenue in the business unit Opto Semiconductors. Positive foreign currency translation effects contributed 1.3% to revenue in the APAC region in the Fiscal Year 2011. In the Americas region, despite pricing pressure by competitors in the South American market, revenue grew slightly from €1,672.4 million in the Fiscal Year 2010 by €47.4 million, or 2.8%, to €1,719.8 million in the Fiscal Year 2011. Adjusted for foreign currency translation and portfolio effects, the Americas revenue grew by 8.5% in the Fiscal Year 2011.
Revenue by Technology Fiscal Year ended September 30, Revenue by technology 2011 2010 Change (unaudited unless otherwise indicated) (unaudited) in % of in % of in € million revenue in € million revenue in % SSL products ...... 1,170.8 23.3% 913.0 19.5% 28.2% Efficient traditional products as part of the Environmental Portfolio ...... 2,532.9 50.3% 2,378.1 50.8% 6.5% Revenue OSRAM Environmental Portfolio(1) ...... 3,703.7 73.6% 3,291.1 70.3% 12.5% Traditional basic products ...... 1,327.3 26.4% 1,388.6 29.7% (4.4)% Revenue OSRAM Licht Group ...... 5,031.0(2) 100.0% 4,679.7(2) 100.0% 7.5%
125 (1) Revenue generated with the Environmental Portfolio is the sum of revenue generated with SSL products and revenue with efficient traditional products as part of the Environmental Portfolio. (2) Audited. In the Fiscal Year 2011, revenue generated with SSL products showed the strongest growth within our product portfolio, increasing from €913.0 million in the Fiscal Year 2010 by €257.8 million, or 28.2%, to €1,170.8 million in the Fiscal Year 2011, mainly driven by increased LED lamp and LED luminaire sales and continued demand for LEDs from the automotive industry. The revenue share of our SSL and efficient traditional products as part of the Environmental Portfolio increased from 70.3% in the Fiscal Year 2010 to 73.6% in the Fiscal Year 2011.
Cost of Goods Sold and Services Rendered Cost of goods sold and services rendered increased significantly from €3,082.1 million in the Fiscal Year 2010 by €336.4 million, or 10.9%, to €3,418.5 million in the Fiscal Year 2011, and as a percentage of revenue from 65.9% in the Fiscal Year 2010 to 67.9% in the Fiscal Year 2011. The increase was mainly due to price increases for raw materials and supplies, notably rare earths, and electronic components, as well as to adverse mix effects in our product portfolio towards products with higher production costs. Our business unit Opto Semiconductors had lower capacity utilization, due to among others enhanced capacity extension, which led in turn to negative fixed cost degression effects compared to the very high capacity utilization in the Fiscal Year 2010.
Gross Profit Our gross profit grew from €1,597.6 million in the Fiscal Year 2010 by €14.9 million, or 0.9%, to €1,612.5 million in the Fiscal Year 2011, while our gross profit margin (gross profit as a percentage of revenue) decreased from 34.1% in the Fiscal Year 2010 to 32.1% in the Fiscal Year 2011. A slight increase of the gross profit margin was recorded by our business unit Specialty Lighting, whereas the gross margins in the other business units declined, most significantly in our business unit Opto Semiconductors. Main driver was the increase of cost of goods sold and services rendered as discussed above.
Research and Development Expenses Our research and development expenses increased significantly from €259.5 million in the Fiscal Year 2010 by €41.4 million, or 16.0%, to €300.9 million in the Fiscal Year 2011. The increase was in particular due to upfront investments to further strengthen our position specifically with regard to forward integrated SSL products (see “—Key Factors Affecting the Results of Operations—Transformation and Restructuring Costs—Technology Shift, OSRAM Push Program and Transformation Costs”). R&D intensity, defined as R&D expenses divided by revenue, amounted to 4.8% for General Lighting, 4.7% for Specialty Lighting and 10.4% for Opto Semiconductors in the Fiscal Year 2011 (4.2%, 4.4% and 10.5% in the Fiscal Year 2010, respectively). The average R&D headcount increased from 2,215 FTE (Full Time Equivalents) in the Fiscal Year 2010 by 274 FTE to 2,489 FTE in the Fiscal Year 2011 associated with the above mentioned upfront investments in forward integrated SSL products. The following table presents an overview of our R&D expenses broken down by segments (for a more detailed discussion see below “—Segment Information Analysis”): Fiscal Year ended September 30, R&D expenses by segment 2011 2010 Change (unaudited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated General Lighting ...... 150.9 125.0 20.7% % of R&D expenses OSRAM Licht Group ...... 50.1% 48.2% Specialty Lighting ...... 58.8 51.7 13.7% % of R&D expenses OSRAM Licht Group ...... 19.5% 19.9% Opto Semiconductors ...... 89.5 77.7 15.2% % of R&D expenses OSRAM Licht Group ...... 29.7% 30.0% Other(1) ...... 1.8 5.0 (64.0)% % of R&D expenses OSRAM Licht Group ...... 0.6% 1.9% R&D expenses OSRAM Licht Group (audited for full Fiscal Years) ...... 300.9 259.5 16.0%
126 (1) Other R&D expenses mainly relate to the development of certain pre-materials (e.g. fluorescent materials) and certain machines and tools from our engineering unit.
Marketing, Selling and General Administrative Expenses Our marketing, selling and general administrative expenses increased significantly from €774.7 million in the Fiscal Year 2010 by €130.9 million, or 16.9%, to €905.6 million in the Fiscal Year 2011, mainly due to additional spending to strengthen our marketing and sales forces in the SSL market segment. Also, Siemens charged OSRAM an amount of €30.9 million for corporate services in the Fiscal Year 2011 (see “—Basis of Presentation—Payments for Certain Central Services (Infrastructure Costs)”). As a percentage of revenue, the marketing, selling and general administrative expenses increased from 16.6% in the Fiscal Year 2010 to 18.0% in the Fiscal Year 2011.
Other Operating Income (Expense), net Other operating income (expense), net, increased from a net income of €1.1 million in the Fiscal Year 2010 by €10.1 million to a net income of €11.2 million in the Fiscal Year 2011 and is broken down as follows: Fiscal Year ended September 30, 2011 2010 Change (audited unless (unaudited) otherwise indicated) in € million in % Gain on disposals of businesses ...... — 1.4 n.a. Gain on sales of property, plant and equipment and intangibles .... 8.8 2.6 >200.0% Miscellaneous other income ...... 12.1 2.2 >200.0% Other operating income ...... 20.9 6.2 >200.0% Losses on sales and disposal of property, plant and equipment and intangibles ...... (2.7) (2.0) 35.0% Losses on disposals of businesses ...... — (1.4) n.a. Miscellaneous other expense ...... (7.0) (1.7) >200.0% Other operating expense ...... (9.7) (5.1) 90.2% Other operating income (expense), net (unaudited) ...... 11.2 1.1 >200.0% Other operating income rose from €6.2 million in the Fiscal Year 2010 by €14.7 million to €20.9 million in the Fiscal Year 2011. The gain on sales of property, plant and equipment and intangibles in the Fiscal Year 2011 mainly related to the sale of assets of Ningbo Zuoming Electronics Co. Ltd., Ningbo, China, which resulted in income in an amount of €5.5 million, recorded in the business unit General Lighting. In the Fiscal Year 2011, the gain on sales of property, plant and equipment and intangibles also included a gain of €1.6 million, resulting from the sale of the production equipment for tanning lamps in the business unit Specialty Lighting. In the Fiscal Year 2011, unsettled payables of aged intercompany balances with Siemens companies due to certain national transfer restrictions were released and resulted in a gain of €7.3 million which are presented as other operating income in the line item Miscellaneous other income. Other operating expense increased from €5.1 million in the Fiscal Year 2010 by €4.6 million, or 90.2%, to €9.7 million in the Fiscal Year 2011. Other operating expense in the Fiscal Year 2011 included legal costs related to Patent Infringement Suits amounting to €31.3 million and costs associated with the planned IPO. These costs were offset by income generated in connection with the cost assumption agreement in an amount of €42.4 million due to reimbursements by Siemens in the same Fiscal Year. OSRAM records the reimbursement of those costs net of the respective expenses.
Gain (Loss) from Investments Accounted for Using the Equity Method, net Fiscal Year ended September 30, 2011 2010 Change (audited) (unaudited) in € million in % Share of profit (loss), net ...... 5.1 8.8 (42.0)% Impairments, net ...... (2.8) (11.7) (76.1)% Reversal of impairments ...... 3.2 — n.a. Gain (loss) from investments accounted for using the equity method, net ...... 5.5 (2.9) n.a.
127 In the Fiscal Year 2011, we recorded a net gain from investments accounted for using the equity method in the amount of €5.5 million compared to a net loss of €2.9 million in the Fiscal Year 2010. The line item Share of profit (loss), net, includes OSRAM’s share in the earnings of Foshan Electrical and Lighting Co., Ltd, Foshan, China (“FELCO”), of €4.5 million and €3.3 million in the Fiscal Year 2011 and the Fiscal Year 2010, respectively. In the Fiscal Year 2011, OSRAM increased the capital of EMGO by €2.8 million to cover the restructuring expenses which are recorded in the line item Impairments, net. As a result of the sale of the operative business of CVL, the impairment recognized in the Fiscal Year 2010 of €11.7 million decreased. In connection therewith, in the Fiscal Year 2011 OSRAM released a liability of €3.2 million against CVL as reversal of impairments.
Interest Income, Interest Expense and Other Financial Income (Expense), net Interest income, interest expense and other financial income (expense), net, is presented in the following table for the Fiscal Years 2011 and 2010: Fiscal Year ended September 30, 2011 2010 Change (audited) (unaudited) in € million in % Pension related interest income ...... 50.0 45.9 8.9% Interest income, other than pension ...... 3.3 2.5 32.0% Interest income ...... 53.3 48.4 10.1% Pension related interest expense ...... (74.8) (80.9) (7.5)% Interest expense, other than pension ...... (22.8) (16.6) 37.3% Interest expense ...... (97.6) (97.5) 0.1% Income (expense) from available-for-sale financial assets, net ...... — (0.4) n.a. Miscellaneous financial income (expense), net ...... (2.7) (2.4) 12.5% Other financial income (expense), net ...... (2.7) (2.8) (3.6)% Impacts resulting from the valuation of monetary assets at the respective closing foreign currency exchange rate are included within miscellaneous financial income (expense), net. Interest income (expense), net, other than pension includes primarily interest relating to transactions with Siemens. Interest income (expense), net, other than pension includes the following with respect to financial assets (financial liabilities) not designated at fair value through profit or loss: Fiscal Year ended September 30, 2011 2010 Change (audited) (unaudited) in € million in % Total interest income on financial assets ...... 3.3 2.3 43.5% Total interest expense on financial liabilities ...... (21.1) (15.3) 37.9%
Income (Loss) before Income Taxes Income before income taxes declined from €509.7 million in the Fiscal Year 2010 by €134.0 million, or 26.3%, to €375.7 million in the Fiscal Year 2011. This development was largely due to our declining gross profit margin, higher research and development expenses and a significant increase of marketing, selling and general administration expenses.
Income Taxes The following table provides an overview of our income tax expenses in the Fiscal Years 2011 and 2010: Fiscal Year ended September 30, 2011 2010 Change (audited) (unaudited) in € million in % Current tax (expense) benefit ...... (77.1) (144.4) (46.6)% Deferred tax (expense) benefit ...... (52.5) (30.7) 71.0% Income tax (expense) benefit ...... (129.6) (175.1) (26.0)%
128 Including the items charged or credited directly to equity, the income tax benefit or expense consists of the following:
Fiscal Year ended September 30, 2011 2010 Change (audited) (unaudited) in € million in % Income tax expense ...... (129.6) (175.1) (26.0)% Income and expense recognized directly in other comprehensive income ...... 8.3 24.0 (65.4)% As certain OSRAM entities (and in particular OSRAM GmbH) formed part of a tax group with Siemens entities until and including the Fiscal Year 2011, tax expenses recorded in the combined financial statements include taxes of these OSRAM entities on a notional basis, i.e. assuming that the tax group did not exist and that these OSRAM entities would have been taxed on a stand-alone basis. See also “—Basis of Presentation—Treatment of Taxes” above. Income tax expense decreased from €175.1 million in the Fiscal Year 2010 by €45.5 million, or 26.0%, to €129.6 million in the Fiscal Year 2011 due to the negative development of our income (loss) before income taxes. The current income tax expense in the Fiscal Years 2011 and 2010 included current tax gains of prior fiscal years amounting to €9.0 million and €5.5 million, respectively. Of the deferred tax expense, €47.0 million and €39.9 million related to the origination and reversal of temporary differences in the Fiscal Years 2011 and 2010, respectively. Net deferred tax assets of €281.1 million and €369.6 million were recorded as of September 30, 2011 and 2010, respectively. The acquisition of Siteco resulted in the recognition of net deferred tax liabilities increasing goodwill amounting to €26.6 million which were mainly attributable to other intangible assets. As of September 30, 2011 and 2010, OSRAM had €74.5 million and €36.7 million, respectively, of tax loss carry- forwards. Based upon the projections for future taxable income over the periods for which the deferred tax assets are utilizable, management believes it is probable that the OSRAM Licht Group will realize those deferred tax assets.
Net Income (Loss) As a result of the factors discussed above, net income decreased from €334.6 million in the Fiscal Year 2010 by €88.5 million, or 26.4%, to €246.1 million in the Fiscal Year 2011.
EBITA Our EBITA decreased from €582.5 million in the Fiscal Year 2010 by €145.5 million, or 25.0%, to €437.0 million in the Fiscal Year 2011. Our EBITA margin fell from 12.4% in the Fiscal Year 2010 to 8.7% in the Fiscal Year 2011. The negative development of our EBITA and in particular our EBITA margin in the Fiscal Year 2011 was caused by lower utilization of our production capacities and price pressure from our competitors in comparison to the Fiscal Year 2010. Increasing price pressure due to intense competition impacted mainly the business units Opto Semiconductors and General Lighting for SSL products, thus contributing to the lower EBITA. EBITA of our business unit General Lighting was negatively impacted by upfront investments associated with the strengthening of our position with respect to forward integrated SSL products and increased costs for rare earths, other raw material as well as for electronic components. The cost increase was to some extent compensated by successful sales price increases initiated in the fourth quarter of the Fiscal Year 2011. The following table provides an overview of our EBITA in the Fiscal Years 2011 and 2010 by segments (for a more detailed discussion on segment level see below “—Segment Information Analysis”). Fiscal Year ended September 30, EBITA by segment 2011 2010 Change (audited) (unaudited) in € million in % General Lighting ...... 106.7 232.1 (54.0%) Specialty Lighting ...... 209.8 192.9 8.8% Opto Semiconductors ...... 118.2 165.6 (28.6)% Total segments ...... 434.7 590.6 (26.4)% Corporate items and pensions ...... (11.7) (7.6) 53.9% Eliminations, corporate treasury and other reconciling items ...... 14.0 (0.5) n.a. EBITA OSRAM Licht Group ...... 437.0 582.5 (25.0)%
129 Segment Information Analysis General Lighting Change adjusted Foreign for foreign Fiscal Year ended currency currency September 30, Nominal Portfolio translation translation and 2011 2010 change effects effects portfolio effects(1) (audited unless (unaudited) otherwise indicated) in € million unless in % otherwise indicated Total revenue ...... 3,164.0 2,943.9 7.5% 2.0% (0.3)% 5.8% External revenue ...... 3,164.0 2,943.9 7.5% EBITA ...... 106.7 232.1 (54.0%) EBITA margin(2) (unaudited) ...... 3.4% 7.9% R&D expenses (unaudited) ...... (150.9) (125.0) 20.7% % of total revenue (unaudited) ...... 4.8% 4.2%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) EBITA as a percentage of total revenue. Total revenue of the business unit General Lighting grew from €2,943.9 million in the Fiscal Year 2010 by €220.1 million, or 7.5%, to €3,164.0 million in the Fiscal Year 2011. A significant share of this increase was attributable to the portfolio effect of integrating Siteco, which contributed total revenue of €61.6 million in the fourth quarter of the Fiscal Year 2011. The share of forward integrated SSL products showed a significant growth due to increasing ecological awareness, lower selling prices and enhanced product features which resulted in a higher demand. Nevertheless, the shift of professional customers towards SSL in the Fiscal Year 2011 remained below our expectations. Along with strongly increasing volumes, an accelerating price decrease was visible in the LED lamp business due to increasing price pressure from major competitors. Adjusted for foreign currency translation effects of (0.3)% and portfolio effects of 2.0% caused by Siteco, the total revenue increase in the Fiscal Year 2011 was 5.8%. EBITA reported by General Lighting decreased significantly from €232.1 million in the Fiscal Year 2010 by €125.4 million, or 54.0%, to €106.7 million in the Fiscal Year 2011, which was attributable to several factors: EBITA was negatively impacted by a considerable increase of cost of goods sold and services rendered, mainly due to high price increases for raw materials, in particular rare earths, and electronic components. The price increases for rare earth were partly compensated by successfully initiated sales price increases only in the fourth quarter of the Fiscal Year 2011. The increase of marketing, selling and general administrative expenses of our business unit General Lighting, mainly due to expenses associated with investments in SSL and fees paid to Siemens AG for certain central services which had not been charged in the Fiscal Year 2010 (see “—Basis of Presentation—Payments for Certain Central Services (Infrastructure Costs)”), also contributed to the reduction of EBITA. In the Fiscal Year 2011, General Lighting recorded personnel restructuring costs in the amount of €7.2 million, the major portion of a special bonus in a total amount of €21.6 million paid for the performance of our staff during the global financial crisis as well as costs relating to the integration of Siteco (see “—Key Factors Affecting the Results of Operations—Other Factors—Siemens One-time Special Remuneration”). On the other hand, no positive effect from a pension curtailment was recorded in the Fiscal Year 2011 as opposed to the Fiscal Year 2010 (see “—Key Factors Affecting the Results of Operations—Other Factors—Pensions”). Both effects were only partly offset by a gain in the amount of €5.7 million from the reversal of impairments accounted in the previous Fiscal Years with respect to the manufacturing facilities for incandescent lamps in the U. S. The sale of assets in Ningbo Zuoming Electronics Co. Ltd., Ningbo, China, also had offsetting effects, resulting in a gain of €5.5 million in the Fiscal Year 2011. R&D expenses in General Lighting increased from €125.0 million in the Fiscal Year 2010 by €25.9 million, or 20.7%, to €150.9 million in the Fiscal Year 2011. This cost increase was in particular due to upfront investments in SSL.
130 Specialty Lighting Change adjusted Foreign for foreign Fiscal Year ended currency currency September 30, Nominal Portfolio translation translation and 2011 2010 change effects effects portfolio effects(1) (audited unless (unaudited) otherwise indicated) in € million unless otherwise indicated in % Total revenue ...... 1,243.5 1,173.8 5.9% (4.6)% (0.1)% 10.6% External revenue ...... 1,243.5 1,173.8 5.9% EBITA ...... 209.8 192.9 8.8% EBITA margin(2) (unaudited) ...... 16.9% 16.4% R&D expenses (unaudited) ...... (58.8) (51.7) 13.7% % of total revenue (unaudited) ...... 4.7% 4.4%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) EBITA as a percentage of total revenue. Following the increase of total revenue of our business unit Specialty Lighting in the Fiscal Year 2010, Specialty Lighting reported a further significant increase of total revenue from €1,173.8 million in the Fiscal Year 2010 by €69.7 million, or 5.9%, to €1,243.5 million in the Fiscal Year 2011. This positive development was due to the further growth of our automotive business, notably driven by increased sales of traditional automotive lamps, for which capacity extensions were realized at our sites in Berlin and Foshan, but also of LED lamps for the automotive industry. Our automotive SSL products contributed a significantly smaller amount of total revenue compared with traditional products, however with continued growth. Display/optic developed less favorably, mainly due to the declining sales of video projection lamps. The total revenue growth (excluding the portfolio effect from the deconsolidation of Valeo Sylvania in the Fiscal Year 2010 of (4.6)% and adjusted for foreign currency translation effects of (0.1)% amounted to 10.6% in the Fiscal Year 2011. EBITA reported by Specialty Lighting increased from €192.9 million in the Fiscal Year 2010 by €16.9 million, or 8.8%, to €209.8 million in the Fiscal Year 2011. The positive effects on total revenue and cost of goods sold and services rendered (including higher sales volume, cost degression and higher productivity) were partly offset by higher personnel costs. EBITA development of the business unit Specialty Lighting as compared to the Fiscal Year 2010 was also influenced by the non-recurrence of items recorded in the Fiscal Year 2010, in particular the discontinuation of EBITA effects resulting from the full consolidation of Valeo Sylvania, the pension curtailment income accounted in the Fiscal Year 2010 (see “—Key Factors Affecting the Results of Operations—Other Factors—Pensions”). Moreover, in the Fiscal Year 2011, the income from the sale of production equipment for tanning lamps increased the result of operations by €1.6 million. However, this effect was more than compensated by the allocated portion of the Siemens special bonus awarding the performance of our staff during the global financial crisis (see “—Key Factors Affecting the Results of Operations—Other Factors—Siemens One-time Special Remuneration”). R&D expenses and marketing, selling and general administrative expenses of Specialty Lighting were both impacted by enhanced efforts for the further ramp up of our SSL business. Marketing, selling and general administrative expenses further increased due to the strategic move to expand sales in emerging countries with a focus on APAC and Americas as well as additional logistics costs due to revenue increase.
131 Opto Semiconductors Change adjusted Foreign for foreign Fiscal Year ended currency currency September 30, Nominal Portfolio translation translation and 2011 2010 change Effects effects portfolio effects(1) (audited unless (unaudited) otherwise indicated) in € million unless otherwise indicated in % Total revenue ...... 858.4 743.3 15.5% — (1.7)% 17.2% External revenue ...... 596.9 533.7 11.8% EBITA ...... 118.2 165.6 (28.6)% EBITA margin(2) (unaudited) ...... 13.8% 22.3% R&D expenses (unaudited) ...... (89.5) (77.7) 15.2% % of total revenue (unaudited) ...... 10.4% 10.5%
(1) For calculation see above “—Non-GAAP Measures—Figures for Revenue Adjusted for Foreign Currency Translation Effects and Portfolio Effects”. (2) EBITA as a percentage of total revenue. After a strong post-crisis increase in the Fiscal Year 2010, total revenue of our business unit Opto Semiconductors showed further growth from €743.3 million by €115.1 million, or 15.5%, to €858.4 million in the Fiscal Year 2011, with the growth in the first half of the Fiscal Year 2011 being stronger than in the second half. The strongest growth was attributable to the continuously growing demand from the automotive sector and the project driven business with consumer and communication electronics as well as building-, shop- and street lighting applications. In the second half of the Fiscal Year 2011 the consumer and communication electronics business faced a strong decrease in demand. Despite the strong demand for the full year, overcapacities in the market for LEDs led to underutilization especially on the light emitting semiconductor chip side and increasing price pressure. In general, sales in consumer and communication electronics developed volatile while the sales of LEDs for general lighting market could not fulfill the revenue expectations for the Fiscal Year 2011. Excluding foreign currency translation effects of (1.7)%, total revenue of our business unit Opto Semiconductors grew by 17.2% in the Fiscal Year 2011. EBITA reported by Opto Semiconductors was significantly impacted by higher cost of goods sold and services rendered and decreased from €165.6 million in the Fiscal Year 2010 by €47.4 million, or 28.6%, to €118.2 million in the Fiscal Year 2011. Due to the lower degree of utilization in semiconductor chip manufacturing compared to the maximum utilization in the Fiscal Year 2010, Opto Semiconductors could not realize the same level of fixed cost degression. In particular the productivity potential of our newly extended production site for LED chips in Penang, Malaysia, was not yet exploited to the full extent. Furthermore, the rising market prices for gold and other precious metals significantly increased Opto Semiconductors’ cost of goods sold and services rendered; product mix effects in the Fiscal Year 2011 also had a negative impact on EBITA of Opto Semiconductors. As in the Fiscal Year 2010, Opto Semiconductors accounted for the second largest portion of our overall R&D expenses (excluding R&D expenses for OLED), increasing from €77.7 million in the Fiscal Year 2010 by €11.8 million, or 15.2%, to €89.5 million in the Fiscal Year 2011. The main portion was spent for R&D activities in Regensburg, another strong focus was placed on the further ramp-up in Penang.
Reconciliation to Combined Financial Statements Corporate items include certain activities and special issues, which are not allocated to a segment, because the Managing Board does not consider them to be indicative of the segments’ performance. These include inter alia activities connected with specific pre-materials (e.g. the production of fluorescent materials), machine and tool making, as well as specific legal issues. Pensions include OSRAM Licht Group’s pension related income (expense) not allocated to the segments. In the Fiscal Years 2011 and 2010, EBITA of corporate items and pensions were comprised of €(10.6) million and €(5.3) million related to corporate items, as well as €(1.1) million and €(2.3) million related to pensions, respectively. The line item Eliminations, corporate treasury and other reconciling items include a release of unsettled payables with Siemens companies due to certain national transfer restrictions which resulted in a gain of €7.3 million in the Fiscal Year 2011.
132 INFORMATION ON COMBINED STATEMENTS OF FINANCIAL POSITION OF OSRAM LICHT GROUP First Six Months of the Fiscal Year 2013 In the first six months of the Fiscal Year 2013, total assets increased by €10.2 million, or 0.2%, rising from €5,066.9 million as of September 30, 2012, to €5,077.1 million as of March 31, 2013. Cash and cash equivalents, and trade receivables rose by €19.3 million and €94.2 million, respectively. Inventories decreased by €43.5 million. The ratio between revenue to inventories and trade receivables less trade payables is expected to reach in the future (over the cycle) a similar level as in the first six months of the Fiscal Year 2013. Property, plant and equipment declined by €101.4 million, particularly as a result of a capex ratio of 49.7% (capex in % of amortization and depreciation, see “Selected Financial and Other Information—Selected Other Key Figures”) and the reclassification of non-current assets held for sale as a result of the decision to sell a subsidiary in China. The carrying amount of the non-current assets held for sale amounted to €38.4 million as of March 31, 2013. On the liabilities and equity side, payables to Siemens Group decreased by €242.8 million, mainly due to a waiver of claims in the amount of €163.0 million. Equity rose by €233.4 million to €2,183.0 million, particularly as a result of capital increases by the Siemens Group totaling €166.8 million and a net income of €48.5 million. The equity ratio (total equity in relation to total assets) was therefore 43.0% as of March 31, 2013, compared with 38.4% as of September 30, 2012.
Fiscal Year 2012 Compared to Fiscal Year 2011 In the Fiscal Year 2012, total assets decreased from €5,128.3 million as of September 30, 2011 by €60.2 million, or 1.2%, to €5,068.1 million as of September 30, 2012. While trade receivables remained largely unchanged with a decrease by €28.2 million, receivables from Siemens Group increased by €417.7 million, including the claim for loss compensation against Siemens Group under the domination agreement effective in the Fiscal Year 2012 (€336.6 million). Inventories decreased by €74.5 million. Goodwill decreased by €201.5 million to €36.7 million, mainly due to impairments in the business segment PLUM and in the business unit General Lighting. Property, plant and equipment decreased by €195.7 million, particularly due to an increase of accumulated depreciation and impairment. On the liabilities and equity side, payables to Siemens Group decreased by €288.5 million, which included the effects of a contribution to additional paid-in capital in the form of a partial waiver of claims against OSRAM GmbH in the amount of €200.0 million. Pension plans and similar commitments decreased by €343.9 million due to the additional contribution of plan assets for funded pension plans (see “—Liquidity and Capital Resources—Pension Plans and Similar Commitments”). Mainly due to equity contributions of Siemens AG in an aggregate amount of €699.5 million and despite the loss after taxes of €378.3 million in the Fiscal Year 2012, total equity increased by €489.5 million to €1,946.2 million, resulting in an equity ratio (total equity in relation to total assets) of 38.4% in the Fiscal Year 2012 compared to 28.4% in the Fiscal Year 2011.
Fiscal Year 2011 Compared to Fiscal Year 2010 In the Fiscal Year 2011, total assets rose from €4,450.7 million as of September 30, 2010 by €677.6 million, or 15.2%, to €5,128.3 million as of September 30, 2011. Trade receivables increased by €200.2 million. Inventories increased by €202.2 million, thereof €127.5 million due to additional raw materials and supplies which were mainly attributable to an increase in rare earth stocks due to higher volumes and increased prices, and €78.0 million due to additional finished goods and merchandise. Property, plant and equipment grew by €141.5 million. Goodwill increased by €108.6 million, mainly as a result of the Siteco acquisition. On the liabilities and equity side, payables to Siemens Group grew by an aggregate amount of €638.5 million, mostly due to an increase of liabilities to Siemens Group from financing activities (€747.4 million). Total equity remained largely unchanged with a slight decrease by €13.0 million.
LIQUIDITY AND CAPITAL RESOURCES Overview Financing Structure prior to the Spin-off We have historically financed our capital expenditures and working capital requirements through a combination of cash flow from operating activities and short-term financing from our sole shareholder Siemens AG. Until completion of the Spin-off, we are included in Siemens Group’s funding program which includes certain cash pooling arrangements. Under this program, OSRAM Licht Group companies invest excess short term liquidity and are granted overdraft facilities and/or short-term loans by Siemens AG or affiliated financing
133 companies to the extent operating activities cannot be otherwise financed through their operating cash flow. The cash management system provides for a Siemens Group-wide system for clearing and settlement of intragroup and external payables and receivables. Some OSRAM Licht Group companies also participated in a factoring program named the Siemens Credit Warehouse. The participation in the factoring program did not serve a financing function. The participating entities transferred their trade receivables including the credit risks to Siemens, but remained responsible for the servicing, e.g. debt collection. Our participation in this program was terminated in 2011 and has been replaced by our own credit risk insurance program with the credit risk insurance company Coface (see “—Disclosure about Market and Other Financial Risks—Credit Risk”). Our liabilities to Siemens Group from financing activities increased from €596.3 million at the end of the Fiscal Year 2010 by €747.4 million, or 125.3%, to €1,343.7 million in the Fiscal Year 2011 and decreased by €145.6 million, or 10.8%, to €1,198.1 million in the Fiscal Year 2012. The decrease in the Fiscal Year 2012 was mainly attributable to a partial waiver of claims of Siemens AG against OSRAM GmbH (at that time OSRAM AG) in the amount of €200.0 million by agreement dated September 27, 2012 which constituted a contribution to equity increasing the capital reserves within the meaning of Section 272(2) no. 4 of the German Commercial Code (see “—Information on Combined Statements of Financial Position”).
Financing Structure following the Spin-off In connection with the Spin-off, the previous financing program of Siemens Group will be replaced by a financing program operated by OSRAM GmbH that will provide cash pooling arrangements, clearing and settlement of intra-group and external payables and receivables, financing and liquidity investment opportunities to participating OSRAM Licht Group companies. The financing liabilities owed to Siemens will be repaid shortly prior to completion of the Spin-off by a term loan and a revolving credit facility under a Credit Facility Agreement between OSRAM GmbH as borrower and a group of international banks as lenders. See “Business— Material Contracts—Credit Facility Agreement”. In addition, OSRAM Group’s external local financing agreements remain in place, especially in countries with highly regulated capital markets (for example India and China). Further, the implementation of short-term bilateral credit lines in particular for OSRAM Group’s intraday liquidity is being examined.
134 Combined Statements of Cash Flow The following table sets forth our combined statements of cash flow for the first six months of the Fiscal Year 2013 (including data for the prior year period) and our combined statements of cash flow for the Fiscal Years 2012, 2011 and 2010: Fiscal Year ended September 30, Six months ended March 31, 2012 2011 2010 2013 2012 (audited) (unaudited) in € million in € million Cash flows from operating activities Net income (loss) ...... (378.3) 246.1 334.6 48.5 (327.0) Adjustments to reconcile net income (loss) to cash provided Amortization, depreciation and impairments ...... 655.2 253.1 247.6 157.1 325.5 Income taxes(1) ...... 32.0 129.5 175.1 4.0 181.7 Interest (income) expense, net ...... 25.7 44.3 49.2 11.9 27.5 (Gains) losses on sales and disposals of businesses, intangibles and property, plant and equipment, net...... 4.7 (6.1) (0.7) 14.2 11.3 (Gains) losses on sales of investments, net ...... 0.1 — — — — (Income) loss from investments ...... 55.1 (8.3) 11.3 19.7 38.3 Other non-cash (income) expenses ...... (2.7) 0.3 1.3 6.0 (4.4) Change in current assets and liabilities (Increase) decrease in inventories ...... 95.3 (171.4) (148.7) 35.9 19.1 (Increase) decrease in trade receivables ...... 37.2 (58.2) (66.7) (98.7) (27.5) (Increase) decrease in other current assets ...... (11.6) (17.1) (21.4) (1.4) 11.9 Increase (decrease) in trade payables ...... 17.8 8.5 156.2 (18.9) (12.9) Increase (decrease) in current provisions ...... 20.8 19.6 7.3 27.5 27.9 Increase (decrease) in other current liabilities .... 0.2 (14.9) 43.2 (0.7) (51.2) Change in other assets and liabilities ...... (3.2) (65.5) (52.6) (2.8) (6.9) Change in pension plans due to contribution of plan assets ...... (499.5) — — — (499.5) Income taxes paid(1) ...... (91.8) (96.9) (50.9) (33.9) (43.5) Dividends received ...... 4.2 4.1 4.4 0.6 — Interest received ...... 3.4 1.4 1.9 0.4 0.8 Net cash provided by (used in) operating activities ...... (35.4) 268.5 691.1 169.4 (328.9) Cash flows from investing activities Additions to intangible assets and property, plant and equipment ...... (187.2) (312.4) (253.2) (78.1) (81.1) Acquisitions, net of cash acquired ...... (40.3) (125.2) (35.6) 0.5 (40.1) Purchases of investments ...... (23.6) (10.6) (41.1) (15.1) (11.1) Proceeds and payments from sales of investments, intangibles and property, plant and equipment .... 11.1 6.5 4.4 0.8 8.5 Proceeds and payments from disposals of businesses ...... 36.9 — 0.1 28.3 — Net cash provided by (used in) investing activities .. (203.1) (441.7) (325.4) (63.6) (123.8) Cash flows from financing activities Transaction costs for unused credit facilities ...... — — — (18.5) — Change in short-term debt and other financing activities ...... 24.8 (0.5) (3.6) 7.1 20.3 Interest paid ...... (5.5) (3.2) (3.1) (2.8) (1.8) Payments for acquisition of shares ...... (53.7) (136.2) — — (48.0) Profit and loss transfer to Siemens Group ...... (143.8) (221.6) 66.1 336.6 (143.8) Dividends paid ...... — (1.9) (10.0) — — Dividends paid to non-controlling interest holders . . . (1.3) (6.6) (4.3) (4.1) (1.2) Interest paid to Siemens Group ...... (19.8) (17.7) (13.0) (2.2) (12.6) Other transactions/financing with Siemens Group . . . (75.8) 587.2 (394.7) (402.7) 120.3 Funding of pension plans by Siemens Group ...... 499.5 — — — 499.5 Net cash provided by (used in) financing activities .. 224.4 199.5 (362.6) (86.6) 432.7 Effect of exchange rates on cash and cash equivalents ...... 1.6 (0.8) 2.3 0.3 1.0 Net increase (decrease) in cash and cash equivalents . . . (12.5) 25.5 5.4 19.5 (19.0) Cash and cash equivalents at beginning of period ..... 43.7 18.2 12.8 31.2 43.7 Cash and cash equivalents at end of period (combined statements of financial position) ...... 31.2 43.7 18.2 50.7 24.7 Free cash flow(2) ...... (222.6) (43.9) 437.9 91.3 (410.0)
(1) Income taxes were determined based on the assumption that the companies in the OSRAM Licht Group were separately taxable entities. This assumption implies that the current and deferred income taxes of all companies and of the tax groups within the OSRAM Licht Group are calculated separately and the recoverability of the deferred tax assets is also assessed accordingly. Due to the fact that certain
135 entities of the OSRAM Licht Group did not file separate tax returns in previous years, the respective current tax assets and liabilities, as well as the deferred tax assets on net operating losses, are deemed either contributed or distributed to the respective tax group member filing the tax return with a corresponding effect in the equity of the (non-OSRAM Licht Group) shareholder as of the end of the respective fiscal year. The taxes actually paid by the OSRAM Licht Group have been presented in the combined statements of cash flow; the deemed contributions or distributions have not been included. In the Fiscal Year 2012, all companies of the OSRAM Licht Group were either independent taxable entities or were part of an income tax group within the OSRAM Licht Group. Receivables and payables between OSRAM GmbH and Siemens arising from the VAT group have been disclosed under other tax receivables/payables. (2) Free cash flow for OSRAM shown in the segment information of the combined or interim combined financial statements is defined as net cash provided by (used in) operating activities less additions to intangible assets and property, plant and equipment.
Comparison of Cash Flows in the First Six Months of the Fiscal Years 2013 and 2012 Cash Flows from Operating Activities Net cash provided by (used in) operating activities changed from net cash used of €328.9 million in the first half of Fiscal Year 2012 to net cash provided of €169.4 million in the first half of the Fiscal Year 2013, a change of €498.3 million. The increase was predominantly related to the negative effect of the €499.5 million change in pension plans due to additional contribution of plan assets in the first half of the Fiscal Year 2012, which was not repeated in the first half of the Fiscal Year 2013. Due to an earnings improvement of €375.5 million, the net loss of €327.0 million in the first half of the Fiscal Year 2012 was converted into net income of €48.5 million in the first half of the Fiscal Year 2013. However, this change did not affect the change in net cash provided by (used in) operating activities to the same extent, since the result in the first half of the Fiscal Year 2012 had been impacted by significant non-cash expenses. Income taxes paid, which were primarily attributable to withholding taxes, the payment of tax liabilities from previous years, and tax prepayments for the current year, decreased by €9.6 million, or 22.1%, declining from €43.5 million in the first half of Fiscal Year 2012 to €33.9 million in the first half of the Fiscal Year 2013. The change in net working capital (resulting from the positions presented under “changes in current assets and liabilities” in the statements of cash flow) led to €56.3 million being tied up in the first half of the Fiscal Year 2013, while €32.7 million being tied up were recorded in the comparable prior-year period. This was for the most part due to a change in trade receivables in the first half of the Fiscal Year 2013, particularly in the segment Lamps & Components, which led to €98.7 million being tied up. This is contrasted with a figure of €27.5 million in the comparable prior-year period. The funds tied up as a result of the increase in receivables were partially offset by the change in inventories in the first half of the Fiscal Year 2013, also particularly in the segment Lamps & Components, which led to €35.9 million being released. The amount released in the comparable prior- year period was €19.1 million. In addition, the change in other current liabilities in the first half of the current Fiscal Year led to €0.7 million being tied up. In contrast, €51.2 million being tied up were recorded in the same period of the Fiscal Year 2012. The difference was primarily due to an increase in liabilities relating to personnel-related transformation costs especially in the segment Lamps & Components in the first half of the Fiscal Year 2013 which was partly contrasted, in particular in the first half of the Fiscal Year 2013, by cash outflows in connection with previously established provisions for personnel-related transformation costs. Furthermore, the change in other current assets led to €1.4 million being tied up in the first half of Fiscal Year 2013, compared with €11.9 million being released in the comparable prior-year period.
Cash Flows from Investing Activities Net cash used in investing activities amounted to €63.6 million in the first half of the Fiscal Year 2013, compared with €123.8 million in the comparable prior-year period. The decline of €60.2 million, or 48.6%, was mainly due to the fact that no acquisitions were made in the first half of the Fiscal Year 2013, while cash of €40.1 million was used in the comparable prior-year period for acquisitions, net of cash acquired, particularly for the acquisition of Encelium. In addition, the proceeds and (payments) from disposals of businesses item included a cash inflow of €28.3 million from the sale of the subsidiaries Sunny World (Shaoxing) Green Lighting Co. Ltd., Shaoxing, China (“Sunny World”), and OSRAM Hong Kong Ltd., Hong Kong (“OHK”), in the second quarter of the Fiscal Year 2013. At €78.1 million, additions to intangible assets and property, plant, and equipment remained largely constant in the first half of the Fiscal Year 2013 compared with the comparable prior-year period (€81.1 million). Free cash flow (the balance of net cash provided by (used in) operating activities and additions to intangible assets and property, plant and equipment) increased considerably from a cash outflow of €410.0 million in the first half of the Fiscal Year 2012 to a cash inflow of €91.3 million in the first half of the Fiscal Year 2013. Overall, this change is due above all to the abovementioned additional contribution of plan assets in the first half of the Fiscal Year 2012, since the corresponding cash contribution by Siemens AG is not included in the calculation of free cash flow.
136 Cash Flows from Financing Activities Net cash provided by (used in) financing activities changed by €519.3 million, from a cash inflow of €432.7 million in the first half of the Fiscal Year 2012 to a cash outflow of €86.6 million in the first half of the Fiscal Year 2013. The main impact on cash flows from financing activities resulted from transactions with Siemens in the first half of the Fiscal Years 2013 and 2012. In the first half of the Fiscal Year 2012, we were provided funds of €619.8 million from Siemens (of which €499.5 million is attributable to funding of pension plans by Siemens Group and €120.3 million to other transactions/financing with Siemens Group). By contrast, the Other internal transactions/financing with Siemens Group item amounted to €(402.7) million in the first half of the Fiscal Year 2013, primarily due to the decline in payables to the Siemens Group from financing activities. An offsetting effect resulted from the loss transfer of €336.6 million to Siemens in the first half of the Fiscal Year 2013 for the Fiscal Year 2012 pursuant to the domination agreement. In the first half of the Fiscal Year 2012, €143.8 million had been transferred to Siemens for the Fiscal Year 2011 as a profit transfer under the domination and profit and loss transfer agreement with Siemens. No payments were made for acquisition of shares in the first half of the Fiscal Year 2013, while in the comparable prior-year period a payment of €48.0 million was reported under the line item Payments for acquisition of shares in connection with the purchase of the remaining shares in Traxon.
Comparison of Cash Flows in the Fiscal Years 2012 and 2011 Cash Flows from Operating Activities Net cash provided by operating activities of €268.5 million in the Fiscal Year 2011 changed by €303.9 million to €35.4 million net cash used in operating activities in the Fiscal Year 2012. The cash generation of the ongoing business was negatively affected by a funding of OSRAM’s pension plans of €499.5 million which was recorded as a payment to a separate special fund as part of the cash outflows from operating activities. This funding was fully financed by a contribution for purposes of the allocation to pension entitlements from Siemens Group which was recorded as a cash inflow from financing activities (see below “—Cash Flows from Financing Activities”). Net income of €246.1 million in the Fiscal Year 2011 decreased by €624.4 million to a net loss of €378.3 million in the Fiscal Year 2012, but affected operating cash flow only to a lesser extent since a substantial loss amount related to non-cash expenses, especially impairments (see “—Comparison of Operating Results—Comparison of Operating Results for the Fiscal Years 2012 and 2011—OSRAM Licht Group”). Income taxes paid decreased from €96.9 million in the Fiscal Year 2011 by €5.1 million, or 5.3%, to €91.8 million in the Fiscal Year 2012, while income tax expenses decreased from €129.5 million in the Fiscal Year 2011 by €97.5 million, or 75.3%, to €32.0 million in the Fiscal Year 2012. Changes in net working capital in the Fiscal Year 2012 in total provided cash inflows from operating activities of €159.7 million, while comparable cash outflows in the Fiscal Year 2011 were €233.5 million. Notably, the decrease of the inventories resulted in €95.3 million being released, compared to €171.4 million being tied up for an increase of inventories in the Fiscal Year 2011.
Cash Flows from Investing Activities In the Fiscal Year 2012, we recorded a net cash outflow from investing activities amounting to €203.1 million as compared to a net cash outflow of €441.7 million in the Fiscal Year 2011. This decrease of €238.6 million, or 54.0%, was mainly due to lower cash outflows for acquisitions, net of cash acquired (Fiscal Year 2012: €40.3 million; Fiscal Year 2011: €125.2 million) and lower additions to intangible assets and property, plant and equipment (Fiscal Year 2012: €187.2 million; Fiscal Year 2011: €312.4 million). This was due to the high level of investment in the Fiscal Year 2011 (including the Siteco acquisition) but also to a decreasing need for capital expenditures taking into account slowing business growth in the Fiscal Year 2012. The decrease of cash outflows for investing activities was also affected by cash inflows from the disposal of shares in OSRAM MELCO Ltd., Yokohama, Japan, and Mitsubishi Electronic OSRAM Ltd., Yokohama, Japan, in the amount of €45.1 million, net of cash and cash equivalents disposed in the amount of €6.8 million. As a result of the factors set out above, free cash flow (calculated as the balance of net cash flows from operating activities and investments in intangible assets and property, plant and equipment) decreased significantly from a cash outflow of €43.9 million in the Fiscal Year 2011 to a cash outflow of €222.6 million in the Fiscal Year 2012. This change was mainly due to the effects of the treatment of the funding of pension plan assets in the amount of €499.5 million as described above, as the corresponding cash contribution from Siemens AG was not included for purposes of calculating the free cash flows.
137 Cash Flows from Financing Activities Net cash provided by financing activities amounted to €224.4 million in the Fiscal Year 2012, compared to €199.5 million in the Fiscal Year 2011. Cash flows from financing activities in the Fiscal Years 2012 and 2011 were strongly influenced by transactions with Siemens. While in the Fiscal Year 2011 we obtained respective cash inflows from Siemens of €587.2 million, in the Fiscal Year 2012 we received a total amount of €423.7 million (recorded in the line items Other internal transactions/financing by Siemens Group and Funding of pension plans by Siemens Group in the combined statements of cash flow of OSRAM Licht Group), including a cash contribution of €499.5 million for the funding of pension plan assets and for the funding of OSRAM’s pension plans in Germany, Canada, Switzerland, Mexico, Taiwan and Belgium (see “—Pension Plans and Similar Commitments” and “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group—Other Relationships with the Siemens Group—Pension Schemes and Trust Entities”). At the same time, funds were distributed to Siemens in the Fiscal Year 2012 as profit transfer amounting to €143.8 million under the domination and profit and loss transfer agreement with Siemens for the Fiscal Year 2011, compared to profits recorded in the Fiscal Year 2010 in the amount of €221.6 million paid to Siemens under this agreement in the Fiscal Year 2011. In the Fiscal Year 2012 an amount of €53.7 million was paid for the acquisition of the remaining 49% of shares in our subsidiary Traxon (see “—Key Factors Affecting the Results of Operations—Acquisitions and Divestments”), while the cash outflows for acquisitions in the prior Fiscal Year in the amount of €136.2 million were paid to Siemens for the purchase price for the OSRAM entities acquired in the Fiscal Year 2011. Additionally, cash inflows in the amount of €24.8 million in the Fiscal Year 2012 resulted from the change of short-term debt and other financing activities, compared to a cash outflow of €0.5 million in the previous Fiscal Year.
Comparison of Cash Flows in the Fiscal Years 2011 and 2010 Cash Flows from Operating Activities Net cash provided by operating activities decreased from €691.1 million in the Fiscal Year 2010 by €422.6 million, or 61.1%, to €268.5 million in the Fiscal Year 2011. This decrease in cash flow was in part due to lower net income which decreased from €334.6 million in the Fiscal Year 2010 by €88.5 million, or 26.4%, to €246.1 million in the Fiscal Year 2011 due to the reasons described above in “—Comparison of Operating Results—Comparison of Operating Results for the Fiscal Years 2011 and 2010—OSRAM Licht Group—Gross Profit” and “—Comparison of Operating Results—Comparison of Operating Results for the Fiscal Years 2011 and 2010—OSRAM Licht Group—Net Income”. Income taxes paid increased from €50.9 million in the Fiscal Year 2010 by €46.0 million, or 90.4%, to €96.9 million in the Fiscal Year 2011, while income tax expenses decreased from €175.1 million in the Fiscal Year 2010 by €45.6 million, or 26.0%, to €129.5 million in the Fiscal Year 2011. Changes in net working capital in total used cash of €233.5 million in the Fiscal Year 2011, while comparable cash outflows from operating activities in the Fiscal Year 2010 were €30.1 million. Notably, the lower increase in trade payables in the Fiscal Year 2011 resulted only in €8.5 million being released compared to €156.2 million in the Fiscal Year 2010, primarily concerning Opto Semiconductors. The increase in inventories in the Fiscal Year 2011 led to €171.4 million being tied up as compared to €148.7 million in the Fiscal Year 2010, mainly attributable to an increase in rare earth stocks and price increases of rare earths mainly at General Lighting. Furthermore, we recorded a decrease in other current liabilities in the amount of €14.9 million in the Fiscal Year 2011 as opposed to an increase in other current liabilities amounting to €43.2 million in the Fiscal Year 2010, mainly relating to the cash outflow of employee related liabilities recognized in the Fiscal Year 2010 with regard to variable compensation and bonus payments.
Cash Flows from Investing Activities In the Fiscal Year 2011, we recorded a net cash outflow from investing activities amounting to €441.7 million as compared to a net cash outflow of €325.4 million in the Fiscal Year 2010. The respective increase of €116.3 million, or 35.7%, was mainly due to the acquisition of Siteco (€123.4 million cash outflow, net of cash acquired) which resulted in an increase of the cash outflow for the line item Acquisitions, net of cash acquired of €89.6 million in comparison to the prior Fiscal Year (Fiscal Year 2011: €125.2 million; Fiscal Year 2010: €35.6 million). In addition, mainly due to our significant investments to expand existing production capacities and our position in SSL, our cash outflows recorded under the line item Additions to intangible assets and property, plant and equipment increased from €253.2 million in the Fiscal Year 2010 by €59.2 million, or 23.4%, to €312.4 million in the Fiscal Year 2011. This increase of the cash outflow from investing activities was only partially offset by reduced cash outflows in the amount of €30.5 million in the line item Purchases of
138 investments. In the Fiscal Year 2011, the cash outflows recorded under this line item amounted to €10.6 million as opposed to €41.1 million in the Fiscal Year 2010, mainly due to the acquisition fund participations as assets for partial retirement liabilities. As a result of the factors set out above, free cash flow (calculated as the balance of net cash flows from operating activities and investments in intangible assets and property, plant and equipment) decreased significantly from a cash inflow of €437.9 million in the Fiscal Year 2010 to a cash outflow of €43.9 million in the Fiscal Year 2011.
Cash Flows from Financing Activities Net cash provided by financing activities amounted to €199.5 million in the Fiscal Year 2011, while we incurred a respective cash outflow in the Fiscal Year 2010 of €362.6 million. The difference of €562.1 million mainly resulted from financing transactions with Siemens. While in the Fiscal Year 2010 payments in the amount of €394.7 million under shareholder financing from Siemens were made, we obtained respective cash inflows from Siemens of €587.2 million in the Fiscal Year 2011, both recorded in the line item Other internal transactions/financing by Siemens Group in our combined statements of cash flow. At the same time, payments were made to Siemens in the Fiscal Year 2011 for the purchase price amounting to €136.2 million (recorded as acquisition related payments) paid for the OSRAM entities acquired in June and July 2011 (see “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group—Other Relationships with the Siemens Group—Contribution, Acquisition and Transfers of Certain Subsidiaries, Assets, Employees in the Fiscal Year 2011”) and by the profit transfer in the amount of €221.6 million made under the domination and profit and loss transfer agreement with Siemens for the Fiscal Year 2010 as opposed to the cash inflows from the loss compensation in the amount of €66.1 million received from Siemens under this agreement in the Fiscal Year 2010 for losses incurred in the Fiscal Year 2009.
Capital Expenditures Capital expenditures comprise additions to intangible assets and property, plant and equipment. The table below sets forth our capital expenditures broken down by segment and region for the periods indicated:
Additions to intangible assets and property, plant Fiscal Year ended September 30, Six months ended March 31, and equipment by segment 2012 2011 2010 2013 2012 (audited unless otherwise indicated) (unaudited) in € million in € million General Lighting ...... 75.8 109.5 86.9 Lamps & Components (unaudited)(1) .... 59.5 — — 28.0 26.5 Luminaires & Solutions (unaudited)(1) . . . 14.3 — — 4.9 5.3 Specialty Lighting ...... 43.0 36.1 24.0 12.6 17.4 Opto Semiconductors ...... 62.3 157.1 137.7 26.3 28.2 Total segments ...... 181.1 302.7 248.6 71.8 77.4 Corporate Items and Pensions ...... 6.1 9.7 4.6 6.3 3.7 Additions to intangible assets and property, plant and equipment OSRAM Licht Group ...... 187.2 312.4 253.2 78.1 81.1
Additions to intangible assets and property, plant Fiscal Year ended September 30, Six months ended March 31, and equipment by region 2012 2011 2010 2013 2012 (unaudited unless otherwise indicated) (unaudited) in € million in € million EMEA ...... 83.4 171.9 122.1 46.2 33.7 APAC ...... 76.9 116.7 109.6 26.1 33.1 Americas ...... 27.0 23.8 21.6 5.7 14.3 Additions to intangible assets and property, plant and equipment OSRAM Licht Group (audited for full Fiscal Years) ...... 187.2 312.4 253.2 78.1 81.1
139 (1) At segment level the condensed interim combined financial statements of OSRAM Licht Group for the six months ended March 31, 2013 (with comparable data for the respective prior year period) are not directly comparable to our combined financial statements for the Fiscal Years ended September 30, 2012, 2011 and 2010 due to the changed segment structure. For information purposes, Additions to intangible assets and property, plant and equipment have been determined for both new segments for the Fiscal Year 2012; these figures have not been taken from the combined financial statements for the Fiscal Years 2012, 2011 and 2010 but from our accounting records and are, therefore, unaudited.
Capital Expenditures in the Fiscal Years 2012, 2011 and 2010 and in the First Half of the Fiscal Year 2013 Capital expenditures in the first half of the Fiscal Year 2013 amounted to €78.1 million and, therefore, decreased by €3.0 million compared to the first half of the Fiscal Year 2012 (€81.1 million). €28.0 million of the total amount in the first half of the Fiscal Year 2013 were accounted for by the segment Lamps & Components, especially for the expansion of existing production lines for modern halogen lamps and new SSL products. €4.9 million were accounted for by the segment Luminaires & Solutions and €12.6 million by Specialty Lighting. Opto Semiconductors invested €26.3 million, inter alia, for the switch to 6 inch wafer technology and further enlargement of wafer fabrication facilities in Penang. Capital expenditures recorded under corporate items and pensions amounted to €6.3 million in the first half of the Fiscal Year 2013. For details regarding the purposes of the capital expenditures see “—Current and planned capital expenditures”. Capital expenditures in the Fiscal Year 2012 amounted to €187.2 million, of which €75.8 million were accounted for by the segment General Lighting, €43.0 million by the segment Specialty Lighting and €62.3 million by the segment Opto Semiconductors. Capital expenditures recorded under corporate items and pensions amounted to €6.1 million in the Fiscal Year 2012. Capital expenditures across all segments in the Fiscal Year 2012 related primarily to investments in machinery and equipment for extensions and new products, primarily related to the shift of production capacities to emerging markets. The investments in the business unit General Lighting decreased compared to the Fiscal Year 2011 because of a conservative approach to larger capital expenditures in a volatile economic environment and related largely to the production extension of modern halogen lamps, research facilities for the OLED technology and LED luminaires for professional users. The majority of investments in the segment Specialty Lighting related to capacity extensions for halogen automotive lamps in China, the U. S. and India as well as for cinema lamps. Capital expenditures in the Opto Semiconductors business unit clearly decreased compared to the prior Fiscal Year. This was mainly due to the high level of investment in the Fiscal Year 2011 (particularly related to the production facility in Penang) while productivity increases above plan also reduced the need for capacity extensions in the Fiscal Year 2012. Capital expenditures in the Fiscal Year 2011 amounted to €312.4 million, of which €109.5 million were accounted for by the segment General Lighting, €36.1 million by the segment Specialty Lighting and €157.1 million by the segment Opto Semiconductors. Capital expenditures recorded under corporate items and pensions amounted to €9.7 million in the Fiscal Year 2011. Capital expenditures across all business units in the Fiscal Year 2011 related primarily to investments in machinery and equipment for new products and optimization of our production processes as well as the shift of production capacities to emerging markets and SSL products. The investments in the business unit General Lighting related largely to investments in machinery and equipment for the SSL production facility in Treviso, Italy, capacity extensions in various halogen lamp production facilities and the OLED production facility in Regensburg. The majority of investments in the business unit Specialty Lighting related to capacity extensions for SSL production facilities and various halogen lamps and high intensity discharge lamps. Capital expenditures in the Opto Semiconductors business unit related mainly to investments in capacity extension of our LED production and to wafer fabrication in Regensburg and Penang. Capital expenditures in the Fiscal Year 2010 amounted to €253.2 million, of which €86.9 million were accounted for by the segment General Lighting, €24.0 million by the segment Specialty Lighting and €137.7 million by the segment Opto Semiconductors. Capital expenditures recorded under corporate items and pensions amounted to €4.6 million in the Fiscal Year 2010. Capital expenditures across all business units in the Fiscal Year 2010 related primarily to investments in machinery and equipment for production of new products and optimization of our production processes as well as the shift of production capacities to emerging markets. Capital expenditures in the Opto Semiconductors business unit related mainly to investments in capacity extension of our LED production and to wafer fabrication in Regensburg and Penang.
Capital Expenditures since April 1, 2013 Since April 1, 2013 until the date of this prospectus, capital expenditures mainly comprised capacity extension and optimization projects of our production facilities and amounted to a mid-double-digit million euro amount. Capital expenditures geographically related to EMEA and APAC and to a limited extent Americas. These capital expenditures were funded by cash flows from operating activities.
140 Current and Planned Capital Expenditures Current Capital Expenditures—For the second half of the Fiscal Year 2013, including the capital expenditures already incurred since April 1, 2013 until the date of this prospectus that amounted to a mid-double- digit million euro amount, we expect significant higher capital expenditures compared to the first half of the Fiscal Year 2013. Therefore, we expect capital expenditures for intangible assets and property, plant and equipment in the Fiscal Year 2013 to rise above the Fiscal Year 2012 level. Our current capital expenditures comprise, in particular, the continuation of extension and optimization projects of our production facilities across all segments. At Opto Semiconductors, we gradually switch our semiconductor production from 4 inch to 6 inch wafer technology. The segment Lamps & Components invests in the expansion of the production of more energy efficient lamps, conducts productivity projects and expands the SSL production capacities. In addition, maintenance investments with respect to our traditional business will be required. The segment Specialty Lighting plans to mainly invest in capacity extension (inter alia for SSL production) and production rationalization for the existing traditional product portfolio across all our reporting regions EMEA, APAC and Americas. Other current capital expenditures relate to capital expenditures for the establishment of our new LED back- end production in Wuxi, China, that have already been approved. These capital expenditures relate to Opto Semiconductors. On a leased site, an assembly facility for the back-end production is built, where LED chips manufactured in the front-end plants at Regensburg and Penang are intended to be installed in their housings, mainly directed at the Chinese market. The entire investment volume is expected to amount to €150 million through €200 million which is expected to be incurred until the Fiscal Year 2017. Almost the entire amount relates to capital expenditures for machinery and equipment for the production. In the Fiscal Year 2013, up to 10% of the entire amount will be invested. The capital expenditures are intended to be funded with cash flows from operating activities and existing liquidity, respectively, and, if necessary, partly by drawing on credit facilities. Planned Capital Expenditures—With the exception of the expected cash outflows in connection with the aforementioned capital expenditures for the LED assembly facility in Wuxi, China, and in addition to regular maintenance and optimization expenditures, there are currently no other significant investment projects planned. Over the cycle, we are expecting a capex ratio (capital expenditures as a percentage of revenue) of approximately 5%. Further, OSRAM does currently not plan any major acquisitions.
Net Debt Net debt represents total debt (short-term debt and current maturities of long-term debt plus long-term debt plus payables to Siemens Group from financing activities) minus adjusted total liquidity (cash and cash equivalents plus available-for-sale financial assets (current) plus receivables from Siemens Group from financing activities). Until March 31, 2013, our net debt was mainly composed of liabilities to and receivables from the Siemens Group. September 30, March 31, 2012 2011 2010 2013 (audited unless otherwise indicated) (unaudited) in € million in € million Short-term debt and current maturities of long-term debt ...... 47.2 22.4 24.7 53.0 Long-term debt ...... 1.3 3.9 4.5 — Payables to Siemens Group from financing activities ...... 1,198.1 1,343.7 596.3 957.0 Total debt (unaudited) ...... 1,246.6 1,370.0 625.5 1,010.0 Cash and cash equivalents ...... 31.2 43.7 18.2 50.5 Available-for sale financial assets (current) ...... 0.7 0.7 0.7 0.7 Receivables from Siemens Group from financing activities ...... 619.4 535.8 486.7 939.4 Adjusted total liquidity (unaudited) ...... 651.3 580.2 505.6 990.6 Net debt(1) (unaudited) ...... 595.3 789.8 119.9 19.4 Pension plans and similar commitments ...... 489.8 833.7 880.8 469.1 Credit guarantees(2) ...... 10.5 1.0 5.9 10.5 Adjusted net debt (unaudited)(3) ...... 1,095.6 1,624.5 1,006.6 499.0
(1) Net debt represents total debt minus adjusted total liquidity.
141 (2) The line item credit guarantees that is included in the calculation of adjusted net debt as of March 31, 2013 mainly relates to guarantees in connection with the granting of credit to Valeo Sylvania with regard to which, for part of which a provision in the amount of €5.3 million was recorded for payment obligations that exceed the net investment (bank guarantee) and to credit guarantees (€5.2 million) presented in the notes to the interim combined financial statements that mainly relate to the remaining part of the credit guarantee to Valeo Sylvania in the total amount of €10.5 million. (3) Adjusted net debt represents net debt plus pension plans and similar commitments and credit guarantees. The change in net debt from €595.3 million as of September 30, 2012 to €19.4 million as of March 31, 2013 resulted in particular from the loss assumption by Siemens in the amount of €336.6 million in the first half of the Fiscal Year 2013 pursuant to the domination agreement for the Fiscal Year 2012, from a capital increase by the Siemens Group in connection with a waiver of claims in a total amount of €163.0 million as well as from operative cash inflows in the first half of the Fiscal Year 2013. Prior to the Spin-off, we participated in the Siemens Group cash management system and had liabilities to Siemens Group from intra-group financing activities as short-term loans or granted overdraft facilities in the amount of €957.0 million, €1,198.1 million, €1,343.7 million and €596.3 million as of March 31, 2013 and September 30, 2012, 2011, 2010, respectively. The receivables against Siemens Group from financing activities, resulting from the amount of short-term excess liquidity transferred by us to the Siemens Group cash pool amounted to €939.4 million, €619.4 million, €535.8 million and €486.7 million as of March 31, 2013 and September 30, 2012, 2011, 2010, respectively. The following table sets forth our short-term and long-term third party debt as of the dates indicated: September 30, March 31, 2012 2011 2010 2013 (audited) (unaudited) in € million in € million Short-term (within one year) Loans from banks ...... 46.1 20.4 22.8 53.0 Obligations under finance leases ...... 1.1 2.0 1.9 0.0 Short-term debt and current maturities of long-term debt ...... 47.2 22.4 24.7 53.0 Long-term (between one and five years) Loans from banks ...... 0.6 2.1 1.1 0.0 Obligations under finance leases ...... 0.7 1.8 3.4 0.0 Long-term debt ...... 1.3 3.9 4.5 0.0
Pension Plans and Similar Commitments While part of the Siemens Group, OSRAM’s management of pension plans and similar commitments was governed by the Corporate Pension Policy at the Siemens Group level. These included a corporate funding policy for the companies in the Siemens Group which was prepared on the basis of a global pension benefit risk management concept and should address the potential risk of a deterioration in the principal plans’ funded status as a result of the adverse development of plan assets and/or defined benefit obligations. Historically, the majority of our pension obligations have been defined benefit plans. However, in order to reduce the exposure to certain risks associated with defined benefit plans, such as longevity, inflation, effects of compensation increases and other factors, new pension plans have been implemented in some of our major subsidiaries, including Germany, the U.S. and the U.K. during the last several years. The benefits of these new plans are based predominantly on contributions made by us and thus are less affected by inflation adjustments, longevity risks and compensation increases. In the coming years, we will review the need for the implementation of similar plans to better control future benefit obligations and related costs. In the Fiscal Year 2010, we recognized a curtailment gain of €22.8 million related to pension plans in the U.S. Employees will keep benefits earned, however will not earn future benefits under these plans. Instead, employer contributions will be made to existing defined contribution plans. In certain countries, primarily in the U.S., Switzerland and the U.K., OSRAM employees historically participated in Siemens pension plans and Siemens pension trusts. In connection with our separation from Siemens, we implemented local OSRAM approaches for employees in certain countries. The participations in U.S. pension schemes and the underlying pension assets were transferred to an independent pension scheme of the OSRAM Licht Group in the U.S. With respect to pension obligations resulting from the defined benefit pension plan of OSRAM employees in U.K., Siemens PLC, Frimley, Great Britain, OSRAM Ltd., Langley, Great Britain and the Siemens Benefits Scheme Limited, Frimley, Great Britain agreed on January 31, 2012 that OSRAM Ltd. will cease to be liable for any potential pension obligations and, therefore, only Siemens PLC and the pension plan assets will be liable for such obligations. As a consequence, no pension obligations resulting
142 from this plan are recognized at OSRAM as from February 2012 onwards. In Germany, we have concluded a contractual trust agreement with Deutsche Treuinvest Stiftung in order to secure pension plan entitlements. Furthermore, in December 2011, OSRAM received a cash contribution of €499.5 million from Siemens AG, including a funding for the German pension plans of €485.0 million as well as €11.8 million for pension plans in Canada and Switzerland, and €2.7 million for further pension plans in Mexico, Taiwan, Switzerland and Belgium. For further details, see “Certain Relationships and Related Party Transactions-Relationship with the Siemens Group—Other Relationships with the Siemens Group—Pension Schemes and Trust Entities”. These measures had significant effects on the defined benefit obligations, the plan assets and, accordingly, on the funded status and the recognized liability for pension plans and similar commitments in the combined statements of financial position of OSRAM Licht Group. The defined benefit obligations of our principal pension and principal other post-employment benefits, the fair value of plan assets and the funded status as of September 30, 2012, 2011 and 2010 as well as March 31, 2013 were as follows: September 30, March 31, 2012 2011 2010 2013 (audited) (unaudited) in € million in € million Defined benefit obligation ...... 1,941.6 1,645.6 1,591.7 1,963.4 Fair value of plan assets ...... 1,477.6 838.9 734.9 1,519.2 Funded status (underfunding) ...... 464.0 806.7 856.8 444.2 The significant reduction of the underfunding as of September 30, 2012 compared to September 30, 2011 is mainly due to the funding of pension plan assets in the amount of €499.5 million. The reduction of the underfunding was in part compensated by an increase of the defined benefit obligation due to lower discount rates effective as of September 30, 2012, see also “—Critical Accounting Estimates”. In the first half of the Fiscal Year 2013, actual return on plan assets of our principal pension plans amounted to €56.6 million resulting mainly from gains from fixed-income investments in Europe and profits from global share investments. Actual return on plan assets amounted to €159.8 million in the Fiscal Year 2012, resulting mainly from gains from fixed-income investments, which represented a pro rata return of 11.9% (with respect to the material cash contribution to plan assets in the course of the Fiscal Year 2012, as set out above) compared to the expected return of €75.3 million, or a pro rata return of 5.6%. For the Fiscal Year 2011, the actual return was €22.8 million, resulting mainly from gains from fixed income investments, which represented a 3.1% return compared to the expected return of €49.4 million, or 6.6%. Actual return in the Fiscal Year 2010 was €82.4 million resulting mainly from gains from fixed income investments and to a lesser extent from equity investments, which represented a 12.5% return, compared to the expected return of €45.4 million or 6.9%. For further details, see the notes to our combined financial statements for the Fiscal Years 2012, 2011 and 2010 (Note 25) included in the “Financial Information” section of this prospectus. We expect to use considerable cash amounts in the future for contributions according to our funding strategy of our pension plans. Taking local funding requirements into account, as a common non-binding rule we generally aim to contribute at least funds on service cost level in the long run. Effective as of the current Fiscal Year, for our pension plans in the U.S., we make use of funding relief regulation passed by the U.S. Congress in calendar year 2012 (Moving Ahead for Progress in the 21st century Act, MAP 21). OSRAM continuously evaluates if an adjustment of significant parameters is required due to market or demographic developments (e.g., discount rate or mortality tables). As of October 1, 2012, IAS 19 “Employee Benefits” (revised 2011; IAS 19R) was adopted early. The amendment set out in the following has an impact on OSRAM’s interim combined financial statements: IAS 19R requires the return on pension plan assets to be calculated based on the discount rate which is used to discount post-employment benefit obligations, as opposed to market expectations in terms of asset returns. This gives rise to a uniform return of the pension obligations and plan assets which will be disclosed as net interest. The difference between interest income based on the discount rate and the actual return on plan assets is recorded in the combined statements of comprehensive income. The net interest will have a negative effect on the net income (loss) in the reporting periods presented, when the expected return on plan assets was higher than the discount rate. The expected return on plan assets for the principal pension schemes in the Fiscal Years 2012, 2011 and 2010 were €75.3 million, €49.4 million and €45.4 million, respectively. The adoption of IAS 19R resulted in lower interest income recognized in the combined statements of income. Net interest based on the discount rate only amounted to €56.3 million, €36.2 million and €37.1 million for the Fiscal Years 2012, 2011 and 2010 respectively. This resulted in higher net interest expenses (before income tax) for the principal pension plans of €19.0 million, €13.2 million and €8.3 million for the Fiscal Years 2012, 2011 and 2010 respectively. The adjustment of the combined statements of income reported in the Fiscal Year 2012 resulted in a reduction of the
143 interest (income) expense by €9.0 million. For further details see the notes to our interim combined financial statements (Note 1) under “—Interim Combined Financial Statements” included in the “Financial Section”of this prospectus.
Commitments and Contingencies We provide credit guarantees in the form of variably utilizable credit-line guarantees with variable utilization to joint ventures and associates. The maximum amount of these guarantees is subject to the outstanding balance of the credit or, in case where a credit line is subject to variable utilization, the nominal amount of the credit line. These guarantees usually have terms of between one and five years. The following table sets forth the undiscounted maximum amount for which OSRAM is liable based as a result of guarantees as of the date of the statements of financial position: September 30, March 31, 2012 2011 2010 2013 (audited) (unaudited) in € million in € million Credit guarantees ...... 10.5 1.0 5.9 5.2 Other guarantees ...... 9.7 — 0.1 12.3 20.2 1.0 6.0 17.5 The item Other guarantees in the amount of €12.3 million as of March 31, 2013 mainly included a contractual obligation for warranties in the amount of €7.8 million in connection with the sale of shares in the joint venture with Mitsubishi Electronic Corporation, Tokyo, Japan (“MELCO”). The credit guarantees mainly relate to guarantees in connection with granting of credit to Valeo Sylvania for part of which a provision was recorded in the amount of €5.3 million as of March 31, 2013. As of September 30, 2012, 2011 and 2010, and March 31, 2013, respectively, our future payment obligations under non-cancellable operating leases were as follows: September 30, March 31, 2012 2011 2010 2013 (audited) (unaudited) in € million in € million Within 1 year(1) ...... 40.0 29.8 22.7 23.9 Between 1 and 5 years(1) ...... 99.8 50.1 53.0 103.6 After 5 years(1) ...... 101.7 44.9 49.0 103.6 Future payment obligations under non-cancellable operating leases ...... 241.5 124.8 124.7 231.1
(1) The maturity of our payment obligations as of March 31, 2013 is as follows: Within 1 year: Maturity by September 30, 2013. Between 1 and 5 years: Maturity between September 30, 2013 and September 30, 2017. After 5 years: Maturity after September 30, 2017. The future payment obligations under non-cancellable operating leases relate to lease payments to Siemens AG as well as lease payments for the corporate headquarters. Total operating lease expenses to third parties amounted to €28.3 million in the first half of the Fiscal Year 2013 and in the Fiscal Years 2012, 2011 and 2010 to €59.0 million, €45.2 million and €37.7 million, respectively.
CRITICAL ACCOUNTING ESTIMATES OSRAM’s combined financial statements have been prepared in accordance with IFRS. OSRAM’s significant accounting policies are essential to understand OSRAM’s results of operations, financial positions and cash flows. Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates could change from period to period and have a material impact on OSRAM’s results of operations, financial positions and cash flows. Critical accounting estimates could also involve estimates where OSRAM reasonably could have used a different estimate in the current accounting period. Management cautions that future events often vary from forecasts and that estimates routinely require adjustment. Trade Receivables – The allowance for doubtful accounts involves significant management judgment and review of individual receivables based on individual customer creditworthiness, current economic trends and analysis of historical bad debts on a portfolio basis. For the determination of the country-specific component of
144 the individual allowance, OSRAM also considers country credit ratings, which are centrally determined based on information from external rating agencies. Regarding the determination of the valuation allowance derived from a portfolio-based analysis of historical bad debts, a decline of receivables in volume results in a corresponding reduction of such provisions and vice versa. As of September 30, 2012, the total valuation allowance for trade receivables amounted to €26.1 million (September 30, 2011: €24.9 million; September 30, 2010: €26.3 million). Goodwill – Goodwill is not amortized, but instead tested for impairment annually, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount may not be recoverable. Goodwill is carried at cost less accumulated impairment losses. The goodwill impairment test is performed at the level of a cash-generating unit or group of cash-generating units, which is the lowest level at which goodwill is monitored for internal management purposes. In the Fiscal Years 2012 and 2011, these units were the business units General Lighting and Specialty Lighting and, additionally in the Fiscal Year 2012, the units Professional Luminaires and Light Management Solutions, both of which formed part of the business unit General Lighting. In the Fiscal Year 2010, the goodwill impairment test was performed at the OSRAM Division level within the Siemens Group, since the monitoring of the impairment of goodwill was performed by Siemens Group management at this level. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash- generating unit that is expected to benefit from the synergies of the business combination. If the carrying amount of the cash-generating unit, to which the goodwill is allocated, exceeds its recoverable amount, an impairment loss on goodwill allocated to this cash-generating unit is recognized. The recoverable amount is the higher of the cash-generating unit’s fair value less costs to sell and its value in use. If either of these amounts exceeds the carrying amount, it is not necessary to determine both amounts. These values are generally determined based on discounted cash flow calculations. Impairment losses on goodwill are not reversed in future periods if the recoverable amount exceeds the carrying amount of the cash-generating unit to which the goodwill is allocated. The determination of the recoverable amount of a cash-generating unit to which goodwill is allocated involves the use of estimates by management. The outcome predicted by these estimates is influenced e.g. by the successful integration of acquired entities, volatility of capital markets, interest rate developments, foreign exchange rate fluctuations and the outlook on economic trends. In particular, the business plan of the business unit General Lighting and its successor business units, respectively, includes significant assumptions relating to the future development of the traditional lighting business and current programs, such as “OSRAM Push”. The recoverable amount is the higher of the fair value less costs to sell and its value in use. OSRAM generally uses discounted cash flow calculations to determine these values. The discounted cash flow calculations use five-year projections that are based on financial plannings. Cash flow projections take into account past experience, current operating results and represent management’s best estimate about future economic developments and market assessments. Cash flows after the planning period are extrapolated using individual growth rates. Key assumptions on which management has based its determination of fair value less costs to sell and value in use include estimated growth rates and weighted average cost of capital. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment. The estimate of growth rates considers expectations as to inflation and market growth, as well as macro- economic data and industry specific trends. The weighted average cost of capital reflects the specific risks of every individual cash-generating unit to which goodwill has been allocated and takes account of the current market assessment. In the Fiscal Year 2012, OSRAM recorded material impairments of goodwill (and of investments accounted for using the equity method). See Note 3 to the combined financial statements included in the “Financial Section” of this prospectus. In the Fiscal Year 2012, OSRAM reassessed, among other things, the current economic viability of its PLUM business and, as a result, booked an expense of €216.0 million in the combined statements of income and reduced the related currency translation differences by €2.6 million included in other comprehensive income. The impairment in the Fiscal Year 2012 includes an amount of €173.1 million relating to goodwill (including currency effects). An additional amount of €45.5 million was allocated pro rata to the other intangible assets. Goodwill relating to the business unit General Lighting was fully impaired as a result of the technological change and revised market expectations. In the Fiscal Year 2012, this resulted in an expense of €66.9 million included in other operating expense and reduced the related currency translation differences by €2.7 million included in other comprehensive income. Employee Benefits – Pension Plans and Similar Commitments – Liabilities for pension plans and similar commitments, related net periodic benefit costs and all significant expenses for defined benefit obligations, respectively, are determined in accordance with actuarial valuations. These valuations rely on key assumptions including discount rates, compensation entitlements, expected salary increases, mortality rates and healthcare trend rates. The discount rate assumptions are determined by reference to yields on high-quality corporate bonds
145 of appropriate duration and currency at the end of the reporting period. In case such yields are not available the discount rate is determined by reference to market rate of return of government bonds. Due to changing market and economic conditions, the underlying key assumptions may differ from actual developments or critical parameters such as the discount rate may have to be adjusted. This may lead to significant changes in the liabilities for pension plans and similar commitments. Such differences are recognized generally in other comprehensive income in the period in which they occur. The recognized liabilities for pension plans and similar commitments as of March 31, 2013 amounted to €469.1 million (September 30, 2012: €489.8 million; September 30, 2011: €833.7 million; September 30, 2010: €880.8 million). Termination Benefits – OSRAM runs restructuring programs and takes individual actions to terminate employment contracts. Costs in conjunction with terminating employment contracts and other exit costs are subject to significant estimates and assumptions. These include, for example, the number of acceptances in respect of an offer to terminate early employment contracts and the nature of the measures. Legal Proceedings – OSRAM is subject to legal and regulatory proceedings in various jurisdictions. Such proceedings may result in criminal or civil sanctions, penalties and disgorgements against OSRAM. If it is more likely than not that an obligation of OSRAM exists and will result in an outflow of resources, a provision for legal or regulatory proceedings or governmental investigations is recorded if the amount of the obligation can be reliably estimated. Regulatory and legal proceedings as well as government investigations often involve complex legal issues and are subject to substantial uncertainties. Accordingly, management exercises considerable judgment in determining whether there is a present obligation as a result of a past event at the end of the reporting period, whether it is more likely than not that such a proceeding will result in an outflow of resources and whether the amount of the obligation can be reliably estimated. OSRAM periodically reviews the status of these proceedings, involving also outside counsel. These judgments are subject to change as new information becomes available. The required amount of a provision may change in the future due to new developments in the particular matter. Revisions to estimates and assumptions over time may significantly impact future results of operations. Finally, OSRAM may incur charges in excess of recorded provisions. In case of an unfavorable outcome of legal or regulatory proceedings or government investigations, OSRAM may incur charges in excess of the recorded provisions for such matters, which may have a material effect on the financial position, results of operations and cash flows of OSRAM. Income Taxes – OSRAM operates in various tax jurisdictions and therefore has to determine tax positions, as reflected in the combined financial statements, under respective local tax laws and tax authorities’ views, which can be complex and subject to different interpretations of taxpayers and local tax authorities. Deferred tax assets are recognized if it is expected that sufficient future taxable profit is available, including income from forecasted operating earnings, the reversal of existing taxable temporary differences and established tax planning opportunities. As of the end of each reporting period, management evaluates the recoverability of deferred tax assets, based on projected future taxable profits. As future developments are uncertain and partly beyond management’s control, assumptions are necessary to estimate future taxable profits as well as the period in which deferred tax assets will recover. Estimates are revised in the period in which there is sufficient evidence to revise the assumption. If management considers it probable that all or a portion of a deferred tax asset cannot be realized, a corresponding valuation allowance is taken into account.
DISCLOSURE ABOUT MARKET AND OTHER FINANCIAL RISKS Overview Market fluctuations may result in cash flow and earnings volatility risk for OSRAM. Our worldwide operating business as well as our investment and financing activities are affected by changes in foreign exchange rates, interest rates and commodity prices. OSRAM seeks to manage and control these risks primarily through its regular operating activities and uses derivative instruments when deemed appropriate.
Foreign Currency Exchange Rate Risk OSRAM’s international operations expose OSRAM to foreign currency exchange risks, especially from the U.S. dollar, the Hong Kong dollar, the Chinese renminbi and, in the past, the Japanese yen. OSRAM employs various strategies involving the use of derivative financial instruments to mitigate or eliminate certain of those exposures. Many OSRAM entities are located outside the euro zone. Since the financial reporting currency of OSRAM is the euro, the financial statements of these subsidiaries are translated into euro for the preparation of the combined financial statements of OSRAM. To consider the effects of foreign exchange translation in risk management, the general assumption is that investments in foreign-based operations are permanent and that
146 reinvestment is continuous. Effects from foreign currency exchange rate fluctuations on the translation of net asset amounts into euro are reflected in the line item Total equity in OSRAM’s combined financial statements. See also “Risk Factors—Risks Relating to our Industry and our Business—We operate an international business and generate a significant part of our revenue outside the euro zone. Exchange rate fluctuations can have material negative effects on our revenue and profits and may also affect our competitive position.”.
Interest Rate Risk OSRAM’s exposure to the risk of changes in market interest rates relates historically primarily to short-term bank loans and borrowings and investments at Siemens, mainly with fixed rates of interest. No significant long- term financial obligations or interest bearing investments exist. OSRAM has historically been mainly financed by Siemens. Financing provided by Siemens Group was in the form of participation in the financing program and the cash management system (and related arrangements) established for all Siemens Group’s subsidiaries. Financing provided under this system was mainly short term and at fixed rates. The management of the interest rate risk was handled at the level of Siemens Group. Consequently, until the Spin-off from Siemens, there was no need for OSRAM to actively manage its interest rate risk by entering into any interest rate derivative contracts. Going forward we intend to hedge interest rate risks partially if commercially appropriate.
Interest and Share Price Risks from Pension Plans Interest and share price risks have an effect on pension liabilities and the associated pension plan assets, as decreasing interest rates result in increasing pension liabilities and lower interest income from new investments (combined with positive effects on the market value of existing investments in interest bearing securities). In addition to interest bearing investments, the plan assets especially include equity instruments such as shares and equity funds which are subject to the market fluctuations on the capital markets.
Commodity Price Risk In the ordinary course of business, OSRAM’s operations expose it to various commodity price risks. Commodity price risk fluctuations may result in unwanted and unpredictable earnings and cash flow volatility. OSRAM employs various strategies involving the use of derivative financial instruments to mitigate or eliminate certain of those exposures. See also “Risk Factors—Risks Relating to our Industry and our Business—For the manufacturing of our products we require raw materials that are partly subject to significant price volatility. Prices for certain raw materials, in particular for rare earths, sometimes increase considerably. Rising commodity prices could have a material adverse effect on the profitability of our business.” and “—Key Factors Affecting the Results of Operations—Procurement Price Volatility”.
Liquidity Risk Liquidity risk results from our potential inability to meet our financial liabilities, in particular paying our suppliers. In order to monitor and control liquidity risk, OSRAM has implemented liquidity forecasts and performs working capital management. OSRAM’s liquidity reserve as of September 30, 2012, 2011 and 2010 of cash and cash equivalents amounted to €31.2 million, €43.7 million and €18.2 million, respectively. Upon effectiveness of the Spin-off, OSRAM will be financed mainly by drawing on syndicated credit facilities provided by an international syndicate of banks. The loan volume, the structure of the credit facility and the term of the loan have been determined to ensure that OSRAM has access to sufficient financing in the midterm in accordance with its business planning and is adequately flexible in repaying its financial obligations. See “Business—Material Contracts—Credit Facility Agreement”. For further information see Note 32 to our combined financial statements for the Fiscal Years 2012, 2011 and 2010 under “—Liquidity Risk” presented in the “Financial Section” of this prospectus. See also “Risk Factors—Risks Relating to our Industry and our Business—Our business is capital intensive. Our business activities could be negatively affected if we are unable to meet our capital requirements in the future (for example in weak financial markets or as a result of a breach of a credit facility agreement)”.
Credit Risk We are exposed to credit risk, in particular relating to trade receivables arising from our regular business activities. Credit risk is defined as an unexpected loss in cash and/or earnings if the customer is unable to pay its
147 obligations in due time or not at all or if the value of assets that serves as collateral declines. OSRAM may incur losses if the credit quality of its customers deteriorates or if they default or fall behind schedule on their payment obligations to OSRAM, such as a consequence of the financial crisis and the global downturn. The effective monitoring and controlling of credit risk is an integral part of the risk management system of OSRAM. OSRAM entities have been bound historically to a credit policy implemented by Siemens. Credit evaluations and ratings are performed for all customers with an exposure or requiring credit beyond a limit defined centrally by Siemens. For further information see Note 32 to our combined financial statements under “—Credit Risk” presented in the “Financial Information” section of this prospectus. See also “Risk Factors—Risks Relating to our Industry and our Business—We are exposed to credit risks and may need to write off receivables if our customers are unable to meet their obligations”.
INFORMATION FROM THE ANNUAL FINANCIAL STATEMENTS OF OSRAM GMBH AND OSRAM LICHT AG IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE FOR THE FISCAL YEAR 2012 OSRAM GmbH In the Fiscal Year 2012, OSRAM GmbH generated revenue of €1,878.8 million compared to €1,851.5 million in the Fiscal Year 2011. Gross profit decreased from €473.2 million in the Fiscal Year 2011 by 12.5% to €413.9 million in the Fiscal Year 2012. Cost of goods sold and services rendered increased more than revenue from €1,378.3 million in the Fiscal Year 2011 by 6.3% to €1,464.9 million in the Fiscal Year 2012. Costs of goods sold and services rendered included transformation costs in a mid double-digit million euro amount. In addition, higher prices for rare earths and metals had a negative impact on cost of goods sold and services rendered. Financial result (as the aggregate of income (loss) from investments, net, interest income, interest expense and other financial result, net) changed from €126.6 million in the Fiscal Year 2011 to €(249.1) million in the Fiscal Year 2012, mainly relating to impairments of investments in affiliated companies, in particular of Siteco Lighting GmbH (€(192.9) million), OSRAM SYLVANIA INC (€(87.9) million), Traxon Technologies Ltd. (€(12.3) million) and Radium Lampenwerke Gesellschaft mbH (€(11.1) million). The net income (loss) before profit and loss transfer amounted to a loss of €336.6 million in the Fiscal Year 2012 compared to a profit prior to profit transfer of €148.0 million in the Fiscal Year 2011. Under the domination agreement with Siemens Beteiligungen Inland GmbH (that was terminated effective at the end of September 30, 2012), such net loss was fully assumed by Siemens Beteiligungen Inland GmbH. Total assets increased from €2,999.5 as of September 30, 2011 to €3,373.0 million as of September 30, 2012. Equity amounted to €2,273.5 million as of September 30, 2012 compared to €1,574.1 million as of September 30, 2011. This increase is primarily due to two equity contributions from Siemens AG and OSRAM Beteiligungen GmbH, respectively, in the Fiscal Year 2012 totaling €699.5 million.
OSRAM Licht AG In the Fiscal Year 2012, OSRAM Licht AG, which was founded only in June 2012, did not conduct any operative business and will not conduct any such business prior to the Spin-off becoming effective. Since February 11, 2013 it holds a 19.5% share in OSRAM GmbH. In the Fiscal Year 2012, OSRAM Licht AG incurred general administrative expenses of €2,683,493.10, mainly in connection with the preparation and the audit of its financial statements and the combined financial statements. Although the associated costs were reimbursed by Siemens AG, OSRAM Licht AG recorded a net loss of €2,683,450.00 (reflecting minor other operating income of €43.10) as the reimbursement constituted a contribution into the equity (capital reserve) which was, for that reason, not recorded in profit and loss. Total assets as of September 30, 2012 amounted to €2,733,464.55, consisting of receivables from affiliated companies amounting to €2,683,493.10 (expense reimbursement) and cash in banks amounting to €49,971.45. Total equity and liabilities amounted to €2,733,464.55, consisting of equity in the amount of €50,000.00, provisions of €2,683,450.00 for the preparation and audit of the annual financial statements and the combined financial statements and other liabilities of €14.55.
148 TECHNOLOGICAL BACKGROUND, INDUSTRY AND COMPETITIVE OVERVIEW
We are present in heterogeneous markets for which external market studies are available only for individual segments. As far as we are aware, there is no comprehensive source describing the overall market and its submarkets. The following information on market environment, market developments, market volumes, market shares, and the competitive situation represents our aggregation of diverse external and internal data and estimates. The actual market and competitive environment may differ from our assessment and other market participants may have a different view. To the extent not otherwise indicated, the information contained in this presentation with regard to the environment, developments, growth rates, trends and competitors in the markets in which we operate are based on our assessments. These assessments, in turn, are based in part on our internal observations of the market, independent and publicly available market studies and on market studies that we have commissioned. In particular, our market assessment is based on a publicly available industry report which we commissioned and which was compiled by McKinsey & Company (“McKinsey”) dated July 2011 “Lighting the way: Perspectives on the global lighting market” (“McKinsey Lighting Market Report 2011”) and an independently published and updated second edition by McKinsey dated August 2012 (“McKinsey Lighting Market Report 2012”). The two reports cover market segments of general lighting, automotive and LCD backlighting. Our own market model varies slightly compared to these reports and is broader. Where we address the broader market below, we have added our own estimates about the additional market to the data compiled by McKinsey. Furthermore, we based our assessment of the competitive environment in particular on a publicly available report prepared by Frost & Sullivan dated July 2011 “The LED revolution and its effects on the Global Lighting Market” (“Frost & Sullivan 2011”) that was likewise commissioned by us.
TECHNOLOGICAL BACKGROUND Light is a form of electromagnetic radiation. Electromagnetic radiation travels outwards from its source in a waveform. Only a very small part of the electromagnetic radiation spectrum is visible to the human eye (visible spectrum). Other parts of this spectrum include for example ultraviolet (UV) radiation and infrared (IR) radiation. The properties of light are commonly described by the following parameters: the quantity of light is measured in lumen. “Luminous efficacy” is the energy efficiency of a lamp which is the ratio of emitted light (in lumen) to required electrical power (in watt) measured in “lumens per watt”. The ability to reveal “true” colors is specified by the “Color Rendering Index” (“CRI”), where values above 80 can be considered “good”, while a CRI of 100 is the maximum achievable, revealing “natural” colors. Moreover, the “color temperature” (in degrees Kelvin or “K”) describes the “color” of white light produced from a source, e.g. “warm light” (approximately 2,700K, “warm white”) or “cold light” (approximately 8,000K, “daylight”). We have a long history in the development of lighting technologies and the production of light sources in the visible and non- visible parts of the electromagnetic radiation spectrum, as required for the particular application. Currently, our product portfolio is based on the following established and emerging technologies: • Incandescent Lamps (INC). In incandescent lamps, an electrical current flows through a thin coil (filament) in an inert gas atmosphere, which is heated up to the point where it glows, creating light with “warm” color temperature and nearly perfect color rendering. This type of lamp is a kind of benchmark for light quality, but the majority of the energy needed is dissipated as heat (only 5 – 10% light). This type of lamp is typically used in residential households for general lighting as well as in a variety of applications in cars (e.g. signal and stop lights) or other special purposes. Incandescent lamps have a typical lifespan of approximately 1,400 hours on average (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 19). • Halogen Lamps (HAL) are based on the same basic principle as incandescent lamps, but are filled with noble gas and a small amount of a halogen supplement. This extends the lifespan of the lamp and allows the filament to work at higher temperatures than traditional incandescent lamps, thus improving the efficacy of the lamp. These lamps also have a nearly perfect color rendering and are typically used in residential households, hotels, shops or similar applications. Halogen lamps are also widely used in front lighting and auxiliary lights in cars. The lifespan is typically between 1,500 and 4,000 hours (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 19). • Low Pressure Discharge Lamps (LPD). The most popular low pressure discharge lamps are linear (LFL) and compact fluorescent lamps (CFL). Lamps of this type have a luminescent coating inside the glass envelope that converts the invisible ultraviolet radiation generated by a discharge into visible light. Similar to high intensity discharge lamps, a discharge of inert gas (typically argon) between two electrodes within the lamp is ignited. The heat generated causes mercury, which was added in small quantities, to vaporize. For this reason, some types of lamps in this product category are slower to reach
149 their full brightness. On the other hand, fluorescent lamps therefore have much higher energy efficiency than traditional incandescent lamps and generally show a quite good color rendering; they need typically 4 – 7 times less electrical power for the same amount of light output (according to our own estimates). Low pressure discharge lamps are available with different color temperatures (e.g. “cold” and “warm” light), “warm white” is the right choice for replacing incandescent light for residential households. Moreover, fluorescent lamps are used in a broad range of applications such as offices, street lighting, shop, hospitality and industrial applications. The form factor, life time, color temperature and color rendering vary to meet the different customer preferences. The lifespan ranges typically from 8,500 hours for CFLs (source: U.S. DoE, LED Life-Cycle Assessment, February 2012, page 20) to 20,000 hours for LFLs (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 19). • High Intensity Discharge Lamps (HID) also belong to the gas-discharge lamp category such as fluorescent lamps. While the light generation in a fluorescent lamp relies on generation of ultraviolet radiation which is converted to visible light by a luminescent coating, in high intensity discharge lamps light is generated directly by the arc of the gas discharge which burns between two inserted electrodes. The ignition of the ark occurs within an inert gas (typically argon). The heat generated by the ark of inert gas causes all other components required for light generation within the lamp to vaporize, get into the ark and participate in the light generation. For this reason, HID lamps operate at high temperatures and are largely independent of ambient temperature. They require in general longer time to reach full light output than other lamp types due to the complex starting process. With appropriate engineering, it is however also possible to realize significantly shorter warm-up periods, e.g. with the Xenon automotive headlamp. HID lamps are in most instances highly energy efficient and therefore typically used when high levels of light are desired. They produce for example typically 5 – 10 times more light flux within a small-sized lamp for the same power input compared to incandescent lamps. The power range starts from approximately 10W up to thousands of watts. Depending on the specific product type, HID lamps can differ quite extensively in color rendering. Lamps as Ceramic Metal Halide (HCI) offer for example very good color rendering. However, most HID lamps today contain mercury or other hazardous substances. One of the first mercury-free metal-halide devices was the Xenon lamp. High-intensity discharge lamps are typically used in applications with a high demand on the “quality” of the light and/or high output, e.g. shop lighting, sports stadiums, industrial buildings, restaurants, hotels, offices, studios, movie production and architectural purposes but also for automotive headlamps, video projectors, cinemas and the specialized field of semiconductor production. Lifetimes are typically between 18,000 hours and 28,000 hours (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 19). • Light Emitting Diodes (LEDs) consist of a light emitting semiconductor chip in combination with wiring, luminescent materials, reflector, lens and protective covering. The color of the light emitted depends on the chemical composition of the semiconductor material and the luminescent material. Each chip emits visible or non-visible radiation within a narrow spectral range. LEDs have a considerably longer lifespan than incandescent and most fluorescent lamps. On the lamp and luminaire level they exceeded 25,000 hours in lifetime in 2010 and are expected to reach 44,100 hours on average in 2015 (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 27, 30). Moreover, they do not contain mercury (unlike fluorescent or HID lamps). LEDs allow greater flexibility in designing lighting systems because they are small in size, very robust, operate at low voltage and are easy to dim. Due to their low lumen output, LEDs were in the past limited to applications such as indicator light sources, e.g. clocks. Today they are often used for backlighting in mobile phones, notebook computers, dashboard lighting in passenger vehicles and television sets. Although the initial purchase of LEDs is expensive compared to conventional solutions at present, the total lifecycle cost is already lower in many applications. It is expected that technological advancements will lead to further cost reductions, allowing for a wider adoption of this technology. A high lumen/light output generally requires more than a single light emitting semiconductor chip; therefore chips are often grouped into multi-chip light sources. The major challenge of multi-chip modules is the thermal management of the device, because high chip densities create a lot of heat on a small area, which reduce the energy efficiency and could even destroy the chip. Lasers can also be a type of semiconductor light source. These products are for example designed for tasks such as distance and speed measurement, adaptive cruise control, collision avoidance and video projection. • Organic Light Emitting Diodes (OLEDs) are flat luminescent components that use organic materials as a semiconductor. An OLED consists of thin, luminous layers made of organic semiconductor materials which may be deposited on a glass or potentially in the future also on flexible substrates. OLEDs differ from (inorganic) semiconductor light-emitting diodes (LEDs) as OLEDs emit light from a flat, large
150 area surface instead of a small point source. As a result of continuous improvements, specifically regarding efficiency and lifetime, the OLED technology has further developed in the direction of commercial functional lighting in recent years. The Lifetime was about 2,000 hours in 2009 (based on the industry standard LT 70 at which the light yield has sunk to 70% of the initial value) and about 10,000 hours (LT 70) in 2011, while a lifetime of more than 50,000 hours is expected by 2020 (source: U.S. DoE, Solid-State Lighting Research and Development: Multi-Year Program Plan, April 2012, page 100 and U.S. DoE, Solid-State Lighting Research and Development: Multi-Year Program Plan, March 2010, page 86). OLED has the potential to establish as the second important lighting technology besides LED in the second half of the current decade if continuous improvements and further optimization of unit costs can be achieved. • Ballasts, which can be subsumed under the term control gear, are needed for gas discharge light sources (e.g. fluorescent and HID lamps), LEDs and some halogen lamps. These halogen light sources for example require a voltage, current and/or wattage “control device” between it and a source of power (e.g. AC line voltage in private household or DC battery voltage in an automobile) to ensure proper light source operation. For halogen sources the control device is known as the “electronic transformer”. Gas discharge lamps require a higher voltage to ignite the discharge and then lower voltage for steady-state operation. The control device for these kinds of lamps is known as the “ballast”. OSRAM designs the ballast to reliably start, operate and maintain the light source and lighting system throughout the anticipated minimum/nominal/maximum range of light source, power source, environmental and application parameters. Depending upon the light source and application requirements, the control device may consist of traditional magnetic and capacitor technologies (“conventional control gear”), state-of-the-art power electronic technologies (“electronic control gear”) or a mixture of both. Additional features, functionality and control can be added with additional electronic devices which interact with the control gear, light source, application and/or end-user to realize a state-of-the-art, energy efficient controlled lighting system. Practical and cost-effective lighting controls for example provide for comfort and energy-saving dimming or occupancy sensing. Such controlled lighting systems deliver energy efficient, reliable, long-life and cost-effective solutions which can be adapted/adjusted to accommodate several different end-user expectations and wants. Control devices for traditional products have a typical lifespan of 20,000 – 50,000 hours, depending upon type, and special industrial products having a 100,000 hour lifespan are also available (based on standardized mean time between failures (“MTBF”) calculations referring to standard SN 29500 (source: measurements and calculations based on Siemens standard SN 29500)). • LED Drivers, which can also be subsumed under the term control gear, are electronic devices which convert line voltage into a constant voltage or constant current to supply power to LED modules. Constant voltage LED drivers are normally used in LED systems where the light solution is distributed over a certain illuminating area, while constant current versions (which have inherently the advantage to be more efficient) are normally used to drive concentrated LED light solutions. LED drivers may be integrated into the LED light engines or be stand-alone units (power supplies). They can have built-in capabilities or be combined with light management control units in order to set different levels of light output (dimming), different colors (normally obtained by the combination of red, green and blue LEDs) and various color temperatures of the white light (e.g. “warm” or “cold light”). State of the art LED drivers offer the end-user a wide range of intensity, dimming, color, interaction and light quality control options, which were not practical or cost-effective with traditional lighting technologies. LED drivers are designed to be highly efficient and reliable, delivering lifetimes in the range of 50,000 to 100,000 hours (according to OSRAM estimates). • LED Lamps (LED Retrofits) are designed to be direct replacements for traditional lamps. They comprise one or more LED modules on a board and also include secondary optics, heat sink, LED driver, housing and sometimes chips for communication purposes to light management systems. LED lamps have a similar design to traditional lamps and can therefore be used in existing fixtures. The typical lifetime is between 25,000 and 50,000 hours, depending on the lamp design (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 30). • LED Light Engines are a combination of a LED module and its associated electronic control gear, e.g. according to the standardization consortium Zhaga. The LED module consists of numerous LEDs, multi- chip modules or light emitting semiconductor chips and contains elements for conversion, heat dissipation, housing, optics and maybe even sensors and software for color control. Compared to traditional lamps, LED light engines can offer additional functionality such as adjustable luminous color and sensor intelligence. They allow easy integration into a LED luminaire. Latest LED light engines show efficiencies comparable to discharge lamps and lifetimes of up to 50,000 hours depending on the
151 configuration of the light engine itself (source: U.S. DoE, Energy Savings Potential of SSL, January 2012, page 30). • Luminaires (Lighting Fixtures) describe the physical housing that holds the lamp(s) or the LED light engine, as well as the control gear and potentially additional sensors, the reflectors and all of the components necessary to mount the housing appropriately. The key function of luminaires is the proper and efficient light distribution for a particular application (in an appropriate design). Many luminaires have standard sizing, especially in commercial applications. In addition, the housing allows an easy assembly and access to the lamp for servicing while providing protection of the light source against environmental impacts. In the consumer business, design and functionality are also significant sales factors. Luminaires are required for all lighting applications from residential homes to professional shops, streets, industrial buildings and special applications. Generally speaking, the lifetime of the luminaires depends on the lifespan of its components or e.g. the refurbishment cycles of the specific application. • Light Management Systems automate the lighting and related controls within a room, building or in outdoor applications. Their task is to provide the right light in the right amount, at the right place, in the right color and in the right quality and to communicate the current status if necessary. When it is needed, different channels may be used for this purpose. There are three major reasons to use light management systems: energy savings, comfort and creating specific “lighting atmospheres”. OSRAM provides solutions for all three purposes. Light management systems targeting energy savings use various strategies and sensors such as occupancy detectors, light sensors or time schedules to switch-off or dim the luminaire automatically when artificial light is not needed, or to reduce the artificial light level automatically when natural light is available. Artificial light levels may also be adjusted based on each occupant’s personal preferences, the lighting requirements in particular spaces, or in response to local energy availability, grid utilization (“Smart Grid”). These strategies contribute significantly to energy savings within commercial and industrial buildings, as well as in street lighting. For comfort purposes, light management systems can create preset lighting “scenes” within rooms to adjust the lighting within a room according to its actual usage (e.g. conference or dining rooms). Light “scenes” are often activated with push buttons, remote controls or touch screens. “Atmospheric lighting” is created with dynamic colored light. Typical applications are spas, bars, restaurants or retail shops. They are also used for beautification of complete buildings or cities by creating dynamic color effects on facades or roofs of public buildings, hotels, shopping malls or sport arenas. • Light Solutions are tailor-made projects including specific product development, and implementation at a client’s site accompanied by special services. The initial step of these projects is either studying the client’s needs (e.g. concept design) or evaluating the client’s current infrastructure (e.g. energy audits). Based on this analysis a variety of above mentioned lighting related technologies are then combined with different kinds of intelligent controls, sensors, actuators and software which are sometimes integrated into existing networks like buildings management systems. The interconnectivity of these components allows optimizing the performance of the installed solution. In some cases, the lighting solutions could also include services like project management, maintenance of the installed base, performance based contracting or lifecycle services. Those services are either rendered by us or in collaboration with preferred suppliers and partners.
THE GLOBAL LIGHTING MARKET Introduction Our definition of the global lighting market includes all elements of the value chain from components to luminaires and lighting control components to light management systems. It considers all technologies and the main applications, including general lighting, automotive lighting, LCD backlighting as well as some special segments, in particular display/optic. The global lighting market according to this definition had according to our estimate a volume of approximately €79 billion in 2011. The McKinsey Lighting Market Report 2012 uses a more narrow definition excluding parts of our product offering, and arrives at a total market volume of €73 billion in 2011 (source: McKinsey Lighting Market Report 2012, page 15). The products not covered by the McKinsey Lighting Market Report 2012 include additional components offered by our business unit Opto Semiconductors (LED for other applications, infrared and laser components), display/optic and automotive aftermarket Retrofits, kits and accessory of our Specialty Lighting business unit and OLEDs. We estimate the market for these products to have a volume of €6 billion in 2011. The table below outlines the lighting markets we cover.
152 OSRAM covered lighting markets by applications 2011 2020 (In € billion) Covered by McKinsey Lighting Market Report 2012 General Lighting ...... 55 83 Automotive Lighting ...... 14 18 Backlighting ...... 4 1 Total from McKinsey Lighting Market Report 2012 ...... 73 101 OSRAM estimates Other Markets ...... 6 12 Total Market (extended scope) ...... 79 113
(Source: OSRAM estimates based on McKinsey Lighting Market Report 2012) We distinguish the lighting market in four ways:
By Technology: Technologically, we divide our products into SSL products, efficient traditional products as part of the Environmental Portfolio and traditional basic products. To align the business activities with climate protection and help our customers save on energy costs, OSRAM defined an “Environmental Portfolio”, which comprises the groups of efficient traditional products as part of the Environmental Portfolio and SSL products. This definition is accepted industry wide and McKinsey used it in the 2011 and 2012 lighting reports (source: McKinsey Lighting Market Report 2011 and 2012, pages 28 and 21, respectively). The qualification of products and solutions to these groups is based on an OSRAM defined inclusion and exclusion process and strict criteria. To qualify, products, systems, solutions or services have to lead at a minimum to a 20% improvement in energy efficiency or energy savings in the use phase for the customer compared to the applicable basic product defined in the relevant reporting period or have to embody a type of environmental technology or contribute to an environmental technology as main component (e.g. technologies in relation to purifying water or wastewater, air pollution control, waste reduction and recycling).
By Value Chain Element: • Semiconductor components: light emitting diodes (LED), laser- and infrared components • Light sources: traditional lamps (“traditional basic”), energy efficient lamps (“efficient traditional products as part of the Environmental Portfolio” like, for example, energy efficient fluorescent lamps), SSL products (comprising light emitting semiconductor chip and modules, LED lamps, LED light engines), and OLED systems • Ballasts (control gear) and LED drivers • Traditional and LED/OLED luminaires • Light management systems, including lighting control components.
By Application: • General lighting applications cover residential and professional segments. Professional applications include offices (commercial buildings), shops (general lighting, decoration and display lighting), hospitality (hotels, bars and restaurants), architainment (architectural and entertainment, i.e. illumination of buildings with integration of light source and architectural elements), industrial lighting (illumination of factories and warehouses), and outdoor (street lighting for roads, highways and tunnels, including non-public outdoor areas such as parking lots, low bays and area lighting in stadiums). Light requirements vary among applications. For example, the hospitality application is often focused on decorative lighting and ranges from mood lighting to orientation lighting while for shops, sub- applications include display lighting, decoration as well as general shop floor area lighting. • Special applications, covering automotive as main segment and, furthermore, display/optic applications. Display/optic applications include cinema projection, front projection systems, studio & effect lighting, industry applications (airfield lighting, semiconductor production, UV lights for purification) and medical applications (endoscopy, microscopy, etc.).
153 • Other products covered by our business unit Opto Semiconductors including the consumer and communication electronics segment with applications such as LCD backlighting (e.g. LCD monitors) and camera flash or proximity sensors for mobile phones, and the industry segment with applications such as video walls, LED projectors or white goods illumination (for example refrigerator and washing machine applications).
By Region: We split our market data on a regional basis into EMEA, Americas as well as APAC. Consumer preferences vary from country to country, in particular in the luminaires sector. Generally, regions can be broadly divided into “cold light” regions and “warm light” regions. The difference between “cold light” and “warm light” is the relative white color temperature. A cold light has a higher color temperature and appears to be somewhat blue, and a warm light has a lower color temperature and contains more yellow color. Lamps can emit both cold and warm light colors. In certain regions such as South America, Africa and Asia there is a preference for cold light colors. With initial costs and energy savings compared to traditional basic products being the key factors in the purchase decision, these countries mainly show demand for fluorescent Lamps (CFL and LFL) and cold white LED lamps. End users in the northern hemisphere such as North America and most European countries prefer warm light colors (supporting the sale of modern halogen and energy efficient warm white LED lamps with light quality and energy efficiency being the key buying reason).
Key Trends Affecting the Lighting Industry The lighting industry faces strong forces that are driving a transition in the way electric light is expected to be delivered in the future. In particular, awareness of energy consumption and efficiency is rising amongst consumers driven by public and political opinion, rising energy costs and legislative actions. In addition, a disruptive technological change towards SSL products that are introducing new dimensions of performance and style is affecting lighting applications and influencing the lighting industry and its competitive landscape. These and other factors are expected to have a significant effect on the lighting industry which introduces both opportunities and challenges for all lighting industry participants across all areas of the value chain. Against this background, several global megatrends are expected to affect the development of the lighting industry: Population Growth and Rising Electrification: The overall growth of the global population is expected to stimulate the lighting market. The worldwide population is expected to increase by more than 1% per annum from 2010 to 2020 (source: IEA, World Energy Outlook 2012, November 2012, page 39). Emerging countries exhibit the largest growth rates; living standards in these countries are expected to improve, leading to increasing demand for lighting products. Today, about 20% of the global population does not yet have access to electric lighting (source: IEA, World Energy Outlook 2012, November 2012, page 535), but this is changing; over 85 million people are getting new access to electricity and electric light every year (source: IEA, World Energy Outlook 2012, November 2012, page 535). Accordingly, we expect that population growth and the increasing electrification will contribute to lighting market growth. Urbanization: More and more people are moving from rural to urban areas as a result of modernization and industrialization. The share of people living in urban areas is expected to grow from 52% in 2011 to around 60% in 2030. That results in a population growth rate of around 1.7% per year for urban areas (source: UN, Department of Economic and Social Affairs, Population Division – World Urbanization Prospects: The 2011 Revision, March 2012, page 4). According to our estimates, this trend is expected to result in higher electrification levels and more demand for lighting products. Demographic Change: Changing demographics are also expected to have an effect on lighting demand. The world population is getting older, and we expect elderly people to demand more light, better light quality, as well as convenient and intelligent lighting solutions and more lumen than younger people. For example, the population aged over 65 years is expected to grow by 3% worldwide, compared to more than 1% for the overall population from 2010 to 2020 (source: IHS Global Insight, Population Trends 2010 – 2020, June 2011). Energy Efficiency and Decarbonization (Creation of a Low-carbon Production and Consumption Environment): There is an increasing trend globally to reduce energy consumption due to two main drivers: First, energy costs at the consumer level are rising as a function of production cost and public tax policy. Second, there is rising environmental awareness and growing concern about CO2 emissions. These factors are driving the demand for “green” and energy efficient lighting. Because lighting is estimated to consume 19% of the total electricity energy in the world and constitutes one of the largest lever on the CO2 abatement curve (source: IEA, OECD, Light’s Labour’s Lost, Policies for Energy-efficient Lighting, 2006, page 25), the technical savings potential is significant as efficiency savings between 15% to 80% in lighting are possible (source: IEA, OECD,
154 Light’s Labour’s Lost, Policies for Energy-efficient Lighting, 2006, page 219, 220); at the light source level alone, up to 50% of the consumed energy could be saved depending on application and installed base (source: IEA, OECD, Light’s Labour’s Lost, Policies for Energy-efficient Lighting, 2006, page 27; McKinsey Lighting Market Report 2011, page 15, 16). To respond to environmental and energy efficiency concerns, most OECD countries have passed legislation to phase out inefficient lighting technologies over the coming years. We expect an increasing demand for energy efficient, higher value products from this trend (sources: IEA, OECD, Light’s Labour’s Lost, Policies for Energy-efficient Lighting, 2006, page 363; U.S. DoE, Energy Savings Estimates of LED in Niche Lighting Applications, January 2011). Digitalization: Demand for more energy efficient lighting solutions and also for lighting with additional intelligent features is expected to result in a demand for light management systems. These intelligent light management systems use sensors to adjust lighting levels and features to meet the consumer’s requirements; they not only enable energy savings but also improve the quality of light by making lighting more flexible. They can adjust the electric light based on available natural light, can be programmed to provide varying lighting scenarios for homes, offices and public spaces, and can provide light styling effects in hospitality and entertainment applications. This trend presumably results in higher demand for light management systems or complete solutions. Emotionalization of Light: Customers are increasingly focusing on individual and differentiating experience derived from lighting. As customers move towards smarter products, the markets for custom-made luminaires and intelligent solutions are expected to grow. We expect particularly the versatility of LEDs to lead to additional lighting applications and new design opportunities in the future, such as light used for special events and mood setting. This may also drive value into the lighting segment, as lighting products with additional features typically demand higher pricing than conventional solutions.
The Lighting Market in General Our business plan is based on the McKinsey market model (source: The McKinsey Lighting Market Report 2012). This model assumes a certain speed of the technology shift in the lighting market, namely the penetration of SSL products. However, there are other market studies that predict a faster or slower transition to SSL products and, therefore, different scenarios for the transition process. According to our own estimates, the total lighting market – based on our definition of the global lighting market described above (see “—Introduction”) – is expected by us to grow by 4% per year from €79 billion in 2011 to approximately €113 billion in 2020. In the midterm, the increase is expected by us to be faster with a compound annual growth rate (CAGR) of 5% in the years 2011 to 2016. The growth of the lighting industry is predicted to outpace the worldwide average real GDP growth rate of 3% in the same period (source: IHS Global Insight World Overview, Expenditure on Gross Domestic Product, October 2012, sheet GDPR$A). Due to the factors described above (see “—Key Trends Affecting the Lighting Industry”), SSL products are expected to record significant growth rates during this period. As SSL products are higher priced products, market growth is to some extent price-, not volume-driven, although prices for the LEDs are expected to decline. At the luminaires level, some portion of the expected LED price decline (depending on the approach used, more than 30% p.a. between 2011 and 2015, source: U.S. DoE, SSL Manufacturing Roadmap 2012, August 2012, page 27; for further information as well as for OSRAM’s assessment regarding price erosion for SSL products see “Risk Factors—Risks Relating to our Industry and our Business—Prices for lighting products and especially SSL products have historically been and continue to be subject to price erosion. The prices for our products tend to significantly decline over time and we need to compensate price declines by productivity improvements and strict cost control in order to avoid a deterioration of our results of operations.”) is expected to be offset by the added value of new lighting features. From the consumer’s point of view, we expect that the promise of reduced energy operating cost will help justifying the higher price of new, higher performance lighting products.
155 The following chart illustrates our expectation of the development of the total lighting market based on definition of the McKinsey market report segmented into traditional basic (non-green traditional), traditional green (traditional energy efficient) and SSL (LED) lighting products.
Total lighting market EUR bn SSL penetration rate x% (incl. OLED)
120 OLED 113
99 100 SSL 80 79 45% 66% 18% 60
40 Traditional Green
20 Traditional Basic
2011 2016 2020
(Source: OSRAM estimates based on McKinsey Lighting Market Report 2012; SSL includes LED, infrared, laser products and OLED.) The transition to SSL products is expected to be the main growth driver. We believe that the market for SSL products such as LED lamps and LED luminaires will show a significant increase from €14 billion in 2011 to over €74 billion in 2020 with a compound annual growth rate (CAGR) of over 20% per annum, resulting in an overall penetration rate of SSL products of 66% of the total market by 2020 (source: OSRAM estimates based on McKinsey Lighting Market Report 2012). However, ongoing price erosion on SSL products is expected to slow down the market growth towards 2020. In addition, the transition rate in the general lighting market is also expected to vary; we expect a fast SSL penetration for example in the architectural segment, and outdoor segments, and a slower transition in industry applications. Key drivers of SSL penetration include factors such as total cost of ownership (initial purchasing costs plus the running costs over the lifetime), light quality and design (light output including color temperature, color consistency and design flexibility) and a trend towards energy efficient products as well as existing and ongoing regulatory actions and subsidies. Total cost of ownership is expected to decline due to improvements in efficacy (lumen per watt) and declining production costs caused by increasing economies of scale and improved production technology. For the more narrow defined market for opto semiconductors such as LED, infrared and laser components that is addressed by our segment Opto Semiconductors an annual growth rate of 4% from €9 billion in 2011 to €13 billion in 2020 is expected. This comprises five different main market segments: LED for LCD backlighting, LED for automotive lighting, LED for general lighting, LED for other applications and infrared and laser components. The LED market for LCD backlighting is largely saturated and is expected to decline in the future; this part of the market is not in OSRAM’s strategic focus. Without this market segment, an annual growth rate of 7% from 2011 to 2020 is expected for the market that is addressed by OSRAM. The market segment LED for general lighting is the main growth driver with an expected average annual growth rate of over 15% from 2011 to 2020. The market that is addressed by Opto Semiconductors is part of the total market and covers the different areas of applications that are set out in the following section “—Market Trends by End-use Segments” (Source: OSRAM estimates based on McKinsey Lighting Market Report 2012). For traditional products, we expect two different areas of growth development. Traditional basic products such as incandescent lamps will be phased out in many countries mainly due to public regulations and are expected to have a CAGR of the market volume of -9% from 2011 to 2020. In contrast to the basic technologies, the market volume of efficient traditional products as part of the Environmental Portfolio is expected to show only a slight decline in the midterm with -1% per annum from 2011 to 2016. Later on, this market will be more affected by the increasing penetration rate of the LED products. We expect the transition from compact fluorescent lamps to LED products to be slower in countries where consumers prefer cold light color but to be faster in countries where warm light color is preferred (source: OSRAM estimates based on McKinsey Lighting Market Report 2012).
156 Market Trends by End-use Segments We separate the market into two broad categories: general lighting and special applications. In terms of end-use segments, the general lighting part represents the largest fraction of the market with a share of €55 billion in 2011. The second largest segment is automotive with a market size of €14 billion in 2011 (source: McKinsey Lighting Market Report 2012, page 15). The other segments have a combined market value of €10 billion in 2011, including approximately €4 billion attributable to LCD backlighting (source: OSRAM estimates based on McKinsey Lighting Market Reports 2011 and 2012). The general lighting market is covered by our segments Lamps & Components and Luminaires & Solutions. The area automotive lighting, display/optic as well as other special applications in the area of projection, entertainment, medical and industrial applications is addressed by our segment Specialty Lighting. In the year 2011, the market segments addressed by Specialty Lighting covered approximately €5 billion of the market; this figure does not include the submarket for lighting fixtures that is served by our currently still existing joint venture Valeo Sylvania. This market which is addressed by Specialty Lighting is expected to grow by 5% per annum to reach €8 billion in 2020 especially due to the transition to SSL products. As set out above, the segment Opto Semiconductors serves the market for opto semiconductors such as LED, infrared and laser components.
General Lighting Market The total general lighting market includes light sources, ballasts and luminaires as well as light management systems. In 2011, we estimate the volume of the total market at approximately €55 billion and for 2012 at approximately €59 billion; thereof in 2011 approximately €21 billion consumer lighting (2012: approximately €23 billion) and approximately €34 billion professional lighting (2012: €36 billion). We believe that the general lighting market will evidence stable growth until 2020 with a CAGR of 5% per annum to reach €83 billion in 2020. Residential applications account for the largest share with approximately €21 billion in 2011, followed by office (€8 billion), outdoor (€7 billion), shop (€6 billion), hospitality (€4 billion) and industrial (€4 billion), as well as architectural (€3 billion). Among the different applications, we expect above-average growth from 2011 to 2020 for office with a growth of 7% per year and compound annual growth rates (CAGRs) between 2% and 6% for other applications. The main growth drivers of the general lighting market are LED products with an estimated growth rate of over 30% per annum (source: McKinsey Lighting Market Report 2012, page 21).
General Lighting Light Source Market The light source market includes lamps and LED light engines and is particularly served by our segment Lamps & Components. Light sources had a market volume of approximately €12 billion in 2011, and this market is expected to grow by approximately 4% per annum to €17 billion in 2020. However, a period of fast growth is expected to be followed by a period of slower growth: In the midterm, the light source market is expected to grow with a CAGR of approximately 7% per annum until 2016. Between 2016 and 2020 it is estimated to show a lower CAGR of approximately 1% per year due to the decreasing traditional replacement business based on the increasing LED luminaires share (source: OSRAM estimates based on McKinsey Lighting Market Reports 2011 and 2012). Due to the market demand for energy efficient products and also due to regulations, traditional incandescent lamps are expected to largely disappear from the market by 2020. Halogen technology is expected to follow this development of the incandescent light bulb later, but modern halogen products still are expected to show a stable growth in the midterm. Compared with incandescent lamps, modern halogen lamps have the same light quality and about double life time and will in our opinion be the first alternative for incandescent lamps in the residential market segment where customers request light quality (especially warm light). The energy efficient versions of the CFL, LFL and HID technologies are expected to show solid growth until the penetration rate of the LED products eventually leads to their decline. LED products, LED lamps and light engines are expected to show a strong increase with an estimated CAGR around 23% from 2011 until the year 2020 (source: McKinsey Lighting Market Report 2012, page 43).
157 The table below summarizes the expectations about the development of the various lighting technologies and their market share from 2011 through 2020 by value:
Development of the light source market by technology Market size general lighting light sources (in € billion); split by technology 2011 2016 2020 in € bn in % in € bn in % in € bn in % INC ...... 1.1 9% 0.2 1% 0.0 0% HAL ...... 1.5 12% 1.5 9% 0.6 3% HID...... 1.7 14% 1.7 10% 1.3 7% FL ...... 2.1 18% 1.7 10% 1.1 7% CFL...... 3.4 29% 2.3 14% 1.0 5% LED Lamp / Light Engine ...... 2.1 18% 9.5 56% 13.5 77% Total ...... 11.9 100% 17.0 100% 17.5 100%
(Source: OSRAM estimates based on McKinsey Lighting Market Report 2012, page 43)
Ballast Market The ballast market that is particularly served by our segment Lamps & Components is driven primarily by the transition from old-style electromagnetic ballasts to newer, more efficient full electronic versions. We believe that traditional electromagnetic ballast will disappear from the market over time. In addition, we expect that new features for controlling light will be added to electronic control gear, further increasing their adoption. Finally, we expect ballast growth to be supported by the fact that new technology lamps, including LED light sources, in most instances require electronic control gears. We expect the ballast market to increase from a total volume of €4 billion in the year 2011 to around €11 billion in 2020 with a compound annual growth rate (CAGR) of approximately 12% (source: McKinsey Lighting Market Report 2012, page 43). The electronic control gears market is expected to grow by 13% per annum until the year 2020 (source: OSRAM estimates based on McKinsey Lighting Market Report 2012, page 43).
Luminaires Market A major part of the general lighting market is the luminaires market, that is particularly served by our segment Luminaires & Solutions, with a market size in 2011 of €45 billion (including light sources and ballasts for original equipment in the amount of €8 billion) (source: McKinsey Lighting Market Report 2012, page 44). The luminaires market is expected to increase with a CAGR of approximately 5% through 2020. LED luminaires are expected to grow disproportionally quickly with a growth rate of over 30% per annum until 2020. Luminaires with an integrated LED light source are expected to grow in share from approximately 8% today to over 60% in 2020. The luminaires market is expected to grow by providing more value adds with efficient and long lasting technology, light management systems and control gears (source: OSRAM estimates based on McKinsey Lighting Market Report 2012, page 44). The luminaires market can be segmented into different end-user applications. Residential applications account for the largest share with approximately 40%. Professional applications follow with office (15%), and outdoor (14%) as largest segments, and further professional applications, including in particular industrial, shop, hospitality and architectural, accounting for a share between 6% and 11%. Estimated CAGRs for these applications from 2011 through 2020 vary between 2% and 6% (source: McKinsey Lighting Market Report 2012, page 44) with offices and shop applications exhibiting the highest expected growth rates. These applications are expected to show different developments regarding the penetration rates of LED luminaires. Currently, only the architectural application has a significant share of LED adoption with a penetration rate of approximately 50%. Architectural lighting is expected to reach an LED share of approximately 90% in 2020. Other applications with high LED penetration in 2020 are expected to include shops, hospitality and outdoor. In the residential and office market, the adoption of the LED technology is also expected to grow significantly, with the LED share reaching above 50% by 2020. Amongst others, the different LED penetration rates are caused by different technological requirements for each of the applications (source: OSRAM estimates based on McKinsey Lighting Market Report 2012, page 44).
Light Management Systems With the growing demand for more energy efficient solutions and increased possibilities to control light, the market for light management systems that is particularly served by our segments Lamps & Components and
158 Luminaires & Solutions is expected to grow around 18% per annum from €1.8 billion in 2011 to €7.7 billion in 2020 (source: McKinsey Lighting Market Report 2012, page 37). Light management systems enable advanced lighting applications and also result in automated energy savings. This trend is expected to extend to all applications, including residential with systems for convenience light control, offices (adaptive lighting and sensing and a combination of artificial light for well-being and productivity), outdoor (integration of light-based safety requirements and energy-saving and emotional light for building) as well as hospitality and entertainment (for example multi-functional lighting systems providing more comfort, safety and well-being with sensor technology for remote control). Light management systems for offices as the largest application are predicted to grow from €0.8 billion in 2011 to €3.3 billion in 2020 which corresponds to a CAGR of 17% (source: McKinsey Lighting Market Report 2012, page 37).
Automotive Lighting With the total number of car units projected to increase by around 5% per annum globally from 2011 to 2016 (source: IHS, Global Insight, IHS Automotive Light Vehicle Production Forecast: Base (Global), September 2012) driven by the increasing demand for personal mobility in the emerging markets, the total automotive lighting market (light sources and fixtures, such as light sources for headlights) is expected to grow in the same time frame also at a 5% rate. From 2011 to 2020 the automotive market is expected to grow with a CAGR of 3% from €14 billion to more than €18 billion (source: McKinsey Lighting Market Report 2012, page 48). The market for automotive light sources including ballasts is expected to grow at a rate of close to 6% per annum, increasing from €3.4 billion in 2011 to €5.5 billion in 2020 (source: McKinsey Lighting Market Report 2012, page 48). We believe that the main growth driver will be the transition to LED products for forward lighting applications. Light sources for daytime running light, which is now mandatory for new car models in the EU in 2012 for instance, are also expected to support LED growth rates. In this application, it is estimated that the LED penetration rate will grow to more than 60% by 2020. LED use is already wide-spread today in taillight and signal light applications, where the penetration rate is estimated to be over 40%. In the headlight application, the penetration rate is still low today (less than 10% in 2011), but is expected to grow rapidly as the availability of high-brightness LEDs improves. By 2020, LEDs are expected to drive close to 50% of headlight systems. Since a LED headlight is more sophisticated and higher priced than the standard halogen light sources widely used today, the value of this lighting segment is expected to rise rapidly (source: OSRAM estimates based on McKinsey Lighting Market Report 2012, page 48). APAC is the largest region of the total automotive light source market with a share of around 42% in 2011, followed by EMEA with a share of 32% and Americas with 26%. These regions are expected to show different growth rates. EMEA and Americas are expected to show a stable increase with rates of approximately 3 and 5% respectively. The APAC region is expected to grow above average with approximately 7% per year until 2020 as consumers become more mobile (source: OSRAM estimates based on McKinsey Lighting Market Report 2012). While SSL applications in automotive are expected to grow at a rate of over 10% annually from 2011 to 2020, the displacement of traditional solutions is not expected to happen quickly. Traditional green products are expected to increase around 2% and basic lighting sources to remain flat from 2011 to the year 2020. The reason for this is the wide range of vehicle prices and equipment levels. LEDs are expected to penetrate the top price segments first and then migrate downwards. The lowest priced segments, especially in the rapidly growing emerging markets, are expected to continue to use halogen light sources through the end of this decade (source: OSRAM estimates based on McKinsey Lighting Market Report 2012).
Other Markets Display/Optic Other applications in the lighting industry for light sources include display/optic applications such as cinema projection, front projection systems, studio & effect lighting, industry applications (airfield, light sources for semiconductor production, UV lamps for disinfection) and lighting for medical applications (endoscopy, microscopy, etc.). The display/optic segment is expected to increase from a market volume of approximately €1.5 billion in 2011 to approximately €2.5 billion in 2020 with a CAGR of approximately 6% (source: OSRAM estimates).
Other Applications, in Particular Backlighting The opto semiconductor industry serves further applications in addition to LEDs for the automotive and general lighting segments. The largest single application is the LED LCD backlight application with a market
159 size in 2011 of over €2 billion on a component level. This application is expected to be flat until 2013. Passing the peak around 2013 with approximately €2 billion, the LED LCD backlight market is expected to decrease to a market size of approximately €1 billion in 2020 (source: McKinsey Lighting Market Report 2012, page 49). We estimate that all other applications (including LED, infrared and laser components for video walls, camera flash, proximity sensors, LED projectors, white goods, etc.) will increase from €5 billion to €6 billion at a CAGR of 3% per year (source: OSRAM estimates).
Market Trends by Region Geographically, we estimate the total lighting market value of approximately €79 billion in 2011 to be divided as follows: APAC accounted for around €36 billion, EMEA for around €24 billion and Americas for €19 billion. We expect the market to rise to approximately €113 billion by 2020, with emerging countries significantly outgrowing western markets like Europe and NAFTA driven by an increase in population, electrification, urbanization, mobility and improved illumination per square meter. We estimate the APAC market to grow with a CAGR of 5% to over €55 billion in 2020, whereas the markets in the regions EMEA and Americas are expected to grow until 2020 with a CAGR of around 4% to €31 billion and €27 billion, respectively. Western markets (Europe and NAFTA) are expected to show subdued growth with an average growth rate of around 1.5% per year after 2016 due to low construction levels and price pressure across the lighting value chain (source: OSRAM estimates based on McKinsey Lighting Market Report 2012).
COMPETITION AND MARKET POSITION Competition The competitive situation varies strongly between segments and value chain components. For instance, the traditional lamp and ballast market is comparatively concentrated with three top players – Philips, OSRAM and General Electric – reaching a combined market share of over 50%, and 20 to 30 smaller competitors. On the other hand, the luminaires market in the general lighting segment is highly fragmented and regionally focused where the top five players do not reach a combined market share of 30%, and there are more than one thousand additional active market participants. Renowned market participants in Europe for luminaires include Zumtobel, Philips, Fagerhult, Havells India, Targetti Poulsen, Trilux, Schréder and Eglo Leuchten Handels GmbH, Germany, and in Asia Panasonic, Toshiba and Philips. In the U.S., the main luminaires suppliers are AcuityBrands, Cooper, Hubbell and Philips. For LEDs, the competitive landscape is more diverse across the different value chain steps. Besides us, market leaders for LEDs (including those with high brightness) are Nichia (market leader), Cree, Philips Lumileds, Samsung Electronics, Seoul Semiconductor, Everlight, Lite-On, LG and Toyoda Gosei. The main competitors in the midstream sector (LED lamps, LED modules, LED light engines and electronic controls) are Philips, Sharp, Toshiba, Panasonic, Lutron, as well as mainly Asian electronic manufacturers such as Samsung Electronics, LG Electronics or Delta Electronics. Only a few players in the lighting industry are active across all segments and along the entire value chain. Here, the predominant global players are Philips and OSRAM. In addition, significant competitors active in some regions and some value chain areas include General Electric, Panasonic and Toshiba (source: OSRAM estimates). With the transition to SSL products the competitive landscape is changing. New players are entering the lighting market from different industries despite barriers to entry such as intellectual property rights, market channel access as well as technology and application know-how. For instance, large manufacturers are entering from the LED component, electronic manufacturing services (“EMS”) or semiconductor industry. We expect that some of these companies will try to participate in other value chain steps or market segments where we are active. Additionally, companies from adjacent industries have succeeded in penetrating the LED market, namely Samsung Electronics and LG Electronics, two major Korean LED, TV and semiconductor manufacturers that offer LEDs and LED products for lighting applications, too. Further companies from the semiconductor industry such as Taiwan Semiconductor, and manufacturers from the electronics/EMS industry such as Hon Hai are expanding their business activities. These companies can draw upon economies of scale for electronic assembly processes that are not available to us to the same extent. In addition, competitors might benefit from government support measures not available to us. Finally, OEMs in the automotive industry, e.g. Hella may expand their value chain offering into SSL by leveraging their vehicle automotive body electronic know-how.
160 Market Position We base the following statements regarding our market position on the sources set out below. Depending on the market definition and sources used, differing market positions may result. General: With respect to the worldwide market position, in general lighting with respect to lamps and ballasts we estimate to be the second largest supplier (source: Frost & Sullivan 2011, page 16; IMS Research, 2011 Lighting Report, July 2011, page 27). According to our own estimates, with regard to halogen lamps, OSRAM is leading. With respect to lighting fixtures, we are not yet among the top three of the largest companies. As regards specialty lighting, we view our market position in our own assessment as follows: We estimate to be the number one worldwide in the automotive lighting sector (source in this respect: Frost & Sullivan 2011, page 16) and with regard to light sources for projection, industry and medical applications, and the number two in the area of entertainment and stage lighting. With respect to optical semiconductors, we are in position number two on the market for LED (source: IMS Research, Packaged LEDs World, October 2012, page 10). Regarding optical semiconductors (such as LED, infrared detectors and sensors, lasers) used in the automotive sector, OSRAM is the market leader (source: IMS Research, Packaged LEDs, October 2012, page 113; IMS Research, Optoelectronic Components – World, March 2011, page 200) and the number two for industry applications (source: IMS Research, Packaged LEDs – World, October 2012, page 113; IMS Research, Optoelectronic Components – World, March 2011, page 200) and, according to our own estimates, the number two for applications such as sensors used in consumer electronics, projection and flash lighting applications. Regions: According to our own estimates, based on revenue we hold the number two position in the Americas and EMEA regions and the number three position in the APAC region. Applications and Technology: In terms of applications, we consider ourself to be the number one in the automotive lighting sector (source: Frost & Sullivan 2011, page 16) and for projection applications (including optical semiconductors and traditional lamps) as well as number two in the general lighting sector (including LED and traditional lamps, control gear and luminaires).
161 BUSINESS
OUR HISTORY Our history dates back over 100 years. In 1906, the OSRAM brand, an artificial word derived from osmium and wolfram (tungsten), was registered as a trademark by Deutsche Gasglühlicht-Anstalt (Auer-Gesellschaft) at the Imperial Patent Office in Berlin. In 1918, “Deutsche Gasglühlicht AG” spun-off its light bulb production activities and incorporated “OSRAM Werke GmbH KG” for these production activities with “Auer-Gesellschaft” as limited partner. Siemens & Halske as well as AEG entered “OSRAM Werke GmbH KG” and the joint company was then renamed “OSRAM GmbH KG”. In 1919, the picture trademark of the stylized light bulb was introduced that still stands for OSRAM today, after various modifications. In the period following the company’s founding – particularly in the 1920s – OSRAM established numerous international production plants, branch offices and sales support centers. In 1929, International General Electric, U.S., became a shareholder of OSRAM GmbH Kommanditgesellschaft by acquiring shares from AEG. As a result of World War II, we lost our production facilities in East Berlin and in the Soviet-occupied zone, as well as many of our foreign holdings and trademark rights around the world through expropriation. In the 1950s and 1960s, the company was able to regain and start expanding our foreign holdings. In 1954, OSRAM’s headquarters were moved to Munich. In 1986, the rights to the OSRAM trademark were regained in the United Kingdom and Commonwealth nations by founding OSRAM G.E.C. (General Electric Company) Ltd. OSRAM initially held a 49% stake in the company before acquiring the remaining 51% from G.E.C. in 1990 and changing the name of the company to OSRAM Ltd. In 1976 and 1978, Siemens acquired the shares in OSRAM held by AEG-Telefunken and General Electric, thereby becoming the sole shareholder. In 1993 we acquired SYLVANIA North American Lighting, the second- largest lighting manufacturer in North America, including its business segments in the U.S., Canada and Puerto Rico. On January 1, 1999 OSRAM took over 51% of the LED division from Siemens (Infineon Technologies AG received 49%), since then named OSRAM Opto Semiconductors GmbH & Co. KG. Since then, OSRAM has been in a position to supply semiconductor light sources for all areas of applications. In August 2001, OSRAM acquired the remaining 49% of the LED business from Infineon Technologies AG and changed the legal form of OSRAM Opto Semiconductors to a limited liability company (GmbH). Between 2001 and 2003, we constructed a modern production plant for manufacturing LEDs in Regensburg. In 2002 OSRAM Opto Semiconductors GmbH started to develop organic light emitting diodes (OLEDs). In 2009, we commenced chip production in our second LED chip production facility, located in Penang, Malaysia, that was in our opinion the world’s most modern LED chip production plant at that time. OSRAM became the first LED manufacturer with high-volume chip production facilities in Europe and Asia. In the Fiscal Year 2009 we acquired a 51% interest in Traxon (which we increased to 100% in November 2011), acquired Amtech in the same year, and in 2011 acquired Siteco, thereby expanding the luminaires and lighting solutions business. In October 2011, we closed the acquisition of Encelium, a leading U.S. software technology development company concentrating on advanced lighting control and energy management systems for commercial and industrial buildings. In August 2012, the start of construction of a new LED production facility took place in Wuxi in the Chinese province Jiangsu. As of 2013, LED chips that are produced in Regensburg and Penang are intended to be refined to LED packages at the new location near Shanghai (so called “back-end manufacturing”).
OVERVIEW OSRAM is one of the world’s leading providers of lighting products and solutions based on sales (source: Frost & Sullivan 2011) and in its own assessment the only pure play, i.e., exclusively focused on the lighting industry, integrated global lighting company. With our mission statement “Light is OSRAM” we deliver lighting solutions for every facet of life. We offer vertically integrated solutions in all relevant stages of the lighting value chain from light sources over ballasts and light components, to complete luminaires, light management systems and lighting solutions as well as value-added services. OSRAM products cover a broad range of applications. Our former business unit General Lighting and its successor business units (Lamps, Light Engines & Controls, Luminaires and Solutions), respectively, cover applications and products for both, consumer and professional customers in general lighting, the business unit Specialty Lighting produces products for automotive and in the area of projection, entertainment, industrial and medical applications, and the business unit Opto Semiconductors delivers LED, infrared and laser components for general lighting, automotive, industrial, and consumer & communication electronics. We are engaged in all major lighting technologies, from traditional incandescent and halogen to energy efficient low and high pressure discharge technology as well as to the latest SSL (solid state lighting, a semiconductor based lighting technology) products. We have an extensive patent portfolio protecting
162 our intellectual property and our technical inventions. In our manufacturing facilities we produce high-quality products using proprietary equipment and technologies developed by us. Our core trademark has a history of more than 100 years during which we became in our opinion a leading global lighting manufacturer with leading technology shaping the lighting market. Based on our extensive global distribution platform we cover all important sales channels for products in our portfolio. We have long-term relationships with important OEMs, retailers and wholesale customers throughout the world. As of September 30, 2012, we operated 39 production facilities in 15 countries and our sales network covered more than 120 countries through subsidiaries, branch offices, sales support centers or local agents. The average number of employees in the Fiscal Year 2012 was 40,157 FTE (Fiscal Year 2011: 40,497 FTE, Fiscal Year 2010: 39,743 FTE); as of September 30, 2012, we employed 39,194 FTE (September 30, 2011: 41,380); thereof 10,027 in Germany. In the Fiscal Year 2012 OSRAM generated revenue of €5,399.8 million (Fiscal Year 2011: €5,031.0 million; Fiscal Year 2010: €4,679.7 million), and EBITA of €53.3 million (Fiscal Year 2011: €437.0 million; Fiscal Year 2010: €582.5 million). Our light source product portfolio includes incandescent lamps, halogen lamps, fluorescent lamps, high intensity discharge lamps, light emitting diodes (LEDs) and organic light emitting diodes (OLEDs). In addition, we offer electronic components such as electronic ballasts and complete luminaires. We also offer innovative, integrated and customized lighting solutions for large projects including light management systems, and offer value added services such as energy audits, light design and engineering as well as maintenance services. Our products are used for illumination, visualization, sensing and special purposes in a variety of applications for general lighting, in particular architectural, residential, office, industrial, shop, hospitality, and outdoor. Our products appear also in consumer and communication applications (e.g. mobile phones). In the automotive sector we furnish light sources and systems for forward, rear, signal and interior lighting as well as sensor technology. For the display/optic market we produce light sources and systems for special applications, such as projection, entertainment/architainment (dynamic architectural lighting) and medical as well as industrial applications (such as disinfection with UV radiation). Technologically, we divide our products into SSL products, efficient traditional products as part of the Environmental Portfolio and traditional basic products. • SSL products are included in the Environmental Portfolio and comprise in particular semiconductor- based light sources, including LED components and LED modules, LED light engines, LED lamps, LED luminaires, infrared emitters and detectors, OLED as well as light management systems for such light sources. • Efficient traditional products as part of the Environmental Portfolio are based on traditional lighting technology, but offer the end-consumer an energy efficiency advantage compared to the respective baseline technology. Efficient traditional products as part of the Environmental Portfolio include compact fluorescent lamps (energy saving lamps), certain modern types of halogen lamps, efficient fluorescent lamps (energy saving lamps), high intensity discharge lamps, discharge lamps for specialty purposes, as well as electronic control gear including light management systems. • Traditional basic products primarily include products based on traditional lighting technology such as incandescent lamps, certain types of halogen and halo-phosphate fluorescent lamps, basic fluorescent lamps, mercury vapor lamps, magnetic ballasts and luminaires containing such basic products. In the Fiscal Year 2012 traditional basic products accounted for 28.2% (Fiscal Year 2011: 26.4%) and efficient traditional products as part of the Environmental Portfolio for 46.4% (Fiscal Year 2011: 50.3%) of our revenue. SSL products generated 25.4% of our revenue (Fiscal Year 2011: 23.3%) and evidenced the most rapid revenue growth in the Fiscal Year 2012 with 17.1% (Fiscal Year 2011: 28.2%). Since certain energy inefficient products were subject to statutory energy efficiency regulation in the calendar year 2012 (especially in the EU and the U.S.) and, therefore, must not be brought on the market anymore, we removed these products from the basis of comparison of the OSRAM Environmental Portfolio and the OSRAM Environmental Portfolio was adapted and the respective products removed from the portfolio accordingly. Thus, the revenue share of our Environmental Portfolio (SSL products and efficient traditional products as part of our Environmental Portfolio) decreased from 73.6% in the Fiscal Year 2011 to 71.8% in the Fiscal Year 2012. Adjusted for changes in the basis of comparison, the revenue share of our Environmental Portfolio showed a small increase to 74.0% in the Fiscal Year 2012 (see also “General Information—Presentation of Financial Information—Certain Definitions” and for more detailed information regarding the adjustment procedure see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of Operating Results—Comparison of Operating Results for the Fiscal Years 2012 and 2011—OSRAM Licht Group—Revenue—Revenue by Technology”).
163 Through September 30, 2012, our business activities were divided into three business units: General Lighting, Specialty Lighting and Opto Semiconductors. • The General Lighting business unit (external revenue in the Fiscal Year 2012: €3,387.2 million or 62.7% of revenue of the OSRAM Licht Group) comprised all OSRAM product offerings oriented towards end- consumers and professional users in the general lighting market. Its products are sold through retailers and via the trade and OEM channel. In addition, integrated lighting solutions and services are offered. The General Lighting business unit offers both traditional basic products and efficient traditional products as part of the Environmental Portfolio as well as forward integrated SSL products, lighting components and systems, LED and light management systems, in addition to consumer and professional luminaires. An extensive line of forward integrated SSL products is also offered through Traxon (including its brand e:cue), a specialist for forward integrated SSL solutions that offers innovative, integrated and customized LED lighting and control solutions for large projects. Our recent acquisitions of Siteco and Encelium have additionally strengthened our position in the value chain and improved our direct market access. Effective as of the Fiscal Year 2013, we have changed the structure of our business units and simultaneously our segments. To create even clearer responsibilities and to better address the technological transformation, effective as of October 1, 2012, the former business unit General Lighting has been divided along the lighting value chain into four new separate business units - Lamps, Light Engines & Controls, Luminaires and Solutions – as well as the units Services and OLED. • The business unit Lamps comprises all our activities for traditional and LED based lamps. Application fields covered include residential, architectural, outdoor, hospitality, office and industrial applications. The product portfolio includes incandescent lamps, halogen lamps, compact and linear fluorescent lamps (CFL/LFL), high intensity discharge lamps (HID) as well as LED lamps (LED lamps in classic shapes suitable for conventional sockets are sometimes called LED Retrofits). • The business unit Light Engines & Controls focuses on LED and light management systems as well as electronic control gear (ECG) to control lamps, luminaires and lighting systems. This includes Encelium, in our assessment a leading software technology development company concentrating on advanced lighting control and energy management systems for office and industrial buildings in the NAFTA zone. • The business unit Luminaires comprises our luminaire activities, especially for professional customers but also for private end-users. The business unit combines the luminaires business of OSRAM and Siteco, a manufacturer of technical indoor and outdoor luminaires and customer- specific lighting solutions. • The business unit Solutions expands with its product portfolio our approach to the lighting value chain towards lighting solutions. The product portfolio of the business unit Solutions comprises on the one hand a variety of different scalable network control systems and on the other hand LED systems and solutions of different sizes. The Business Unit emerged from the acquisition of Traxon Technologies. • Services has a broad base of business activities in the U.S. The portfolio includes servicing and maintenance, repair, cleaning and modernization of outdoor and indoor lighting as well as light design and consulting. In the coming years, more services shall be added to this portfolio based on new business opportunities which can also be offered in other regions. • OLED is a new, semiconductor-based light technology that has developed during the last years, specifically due to continuous improvements in terms of efficiency and lifetime. If both can be improved further and unit costs can be constantly optimized, the technology has the potential to become the second major lighting technology in addition to LED during the second half of this decade. With respect to OLED, OSRAM has, in its own assessment, a leading position in OLED technology and continues to focus on investing in research and development as well as in protecting the results through patents. The two units OLED and Services report directly to the chairman of the Managing Board. • The Specialty Lighting business unit (external revenue in the Fiscal Year 2012: €1,404.6 million or 26.0% of revenue of the OSRAM Licht Group) produces and develops light sources and systems for automotive forward, rear, signal and interior lighting and sensor technology as well as special applications, such as projection, entertainment, medical and industrial applications (such as UVC lamps for disinfection with UV light) using all technologies: incandescent, halogen, high and low pressure
164 discharge, LED and laser modules. Display/optic products comprise lamps and lighting systems for stages and performance spaces, studios and film sets as well as lamps for cinema, video and television projection systems. Moreover, it also produces products regarding medical and industrial applications such as disinfection with UV lamps. Specialty Lighting sells its products primarily to OEMs and serves the aftermarket via retailers as well as trade customers. • Opto Semiconductors (external revenue in the Fiscal Year 2012: €584.7 million or 10.8% of revenue of the OSRAM Licht Group) develops, manufactures and markets a broad portfolio of opto-electronic semiconductors for external customers on a global basis as well as for the other business units. The products offered include LEDs, infrared components and laser diodes. Applications include automotive, industry, general lighting and consumer and communication electronics. Our revenue, manufacturing sites and R&D locations as well as sales force and customers are spread worldwide so that we believe we have a well-balanced global footprint. The following table contains certain key figures by region for the Fiscal Year ended September 30, 2012: EMEA Americas APAC Total Revenue (in € million) (audited)* ...... 2,232.8 1,851.0 1,316.0 5,399.8 Manufacturing sites ...... 15 15 9 39 R&D locations ...... 15 12 11 38 Employees** (FTE) ...... 15,876 8,365 15,916 40,157
* By location of customer ** Average number of employees
OUR SEPARATION FROM SIEMENS In March 2011, Siemens announced its plans to dispose of a majority shareholding in OSRAM via an initial public offering. In 2012, Siemens announced that our going public shall be effected by way of a spin-off. While Siemens plans to dispose of a majority share in the Spin-off, it has publicly stated its intention to retain a minority shareholding in OSRAM. We believe that our separation from Siemens will allow us and our shareholders to realize a number of benefits. See “Reasons for the Spin-off; Cost of Issuance”.
COMPETITIVE STRENGTHS We believe that we have the following core strengths supporting our goal to expand our position as a leading integrated solution provider in the lighting industry. In our opinion, the core strengths are summarized as follows: • Based on revenue, we are one of the global market leaders (own assessment on the basis of our competitors’ revenue reports), in a market with attractive, long-term growth prospects. • As an integrated lighting company we are positioned with a well-diversified product portfolio. • We distinguish ourselves by our market presence with strong, pure lighting trademarks, local presence in all significant markets and product and technology leadership. • We have leading positions in the high-margin business of Specialty Lighting and the LED components business of Opto Semiconductors. • The strength of our general lighting business with traditional products is the platform for the transition to SSL based products. • We have, in our assessment, a strong management team with a proven track record.
Global Market Leader in a Market with Attractive, Long-term Growth Prospects In terms of revenue, we are a leading player in the market for lighting and solutions. With respect to worldwide market position, in general lighting we estimate to be the second largest supplier for lamps and control devices and have a leading position in optical semiconductor (LED, infrared detectors and sensors, lasers) as the second largest supplier. According to our own estimates, based on revenue we hold the number two position in the Americas and EMEA regions and the number three position in the APAC region. As regards specialty lighting, we view our market position as follows: We estimate to be the number one worldwide in the automotive lighting sector and with regard to light sources for projection, industry and medical applications, and the number two in the area of entertainment and stage lighting. With respect to optical semiconductor, we are
165 according to our own estimates in position number two on the market for LED. Regarding optical semiconductors (LED, infrared detectors and sensors, lasers) used in the automotive sector, OSRAM is, according to our own estimates, the market leader and the number two for industry applications. (See “Technological Background, Industry and Competitive Overview—Competition and Market Position—Market Position” for sources). As described above (see “Technological Background, Industry and Competitive Overview—The Global Lighting Market—The Lighting Market in General”), the lighting market is a growth market. According to our own estimates, the total lighting market is expected by us to grow by 4% per year from €79 billion in 2011 to approximately €113 billion in 2020. The growth of the lighting industry is predicted to outpace the worldwide average real GDP growth rate of 3% between the years 2011 and 2016. We believe that our market position enables us to participate in this growth, at least proportionally.
Integrated Lighting Company with a Well-diversified Portfolio We believe that the lighting industry is facing three structural shifts and consider ourselves as being well prepared for each of them. The first shift is expected to be within the traditional lighting technologies, i.e. from traditional basic to energy efficient, higher value efficient traditional products as part of the Environmental Portfolio. The second shift is the transition from traditional technologies and components towards integrated products and higher-value SSL products. The third shift is expected by the transformation from standard solutions towards intelligent networked lighting solutions and value-added services. Various industry sources predict different timing and speed for these transitional and transformational processes; nonetheless, we believe that OSRAM is well prepared for all scenarios. OSRAM has in its own assessment leading market positions across all technologies with a comprehensive business portfolio, serving a wide range of applications and a diversified customer base across all relevant sales channels globally. At the same time, our largest customers each accounted for approximately 3% of our total revenue in the Fiscal Year 2012. We believe that our highly diversified global customer base combined with our leading positions and mix of sales channels result in overall balanced revenue that makes us less susceptible to negative developments in individual sectors and applications. We believe that we can leverage the strength of our portfolio especially in efficient traditional products as part of the Environmental Portfolio and SSL products, and benefit from the shift towards these new technologies. For example, as a provider of a comprehensive portfolio of efficient traditional products as part of the Environmental Portfolio, we have the ability to benefit from increased demand for CFLi (CFL lamps with integrated ballast) and halogen products in APAC, Latin America and the Middle East and Europe, respectively, before these regions’ transition to SSL. We have been at the forefront of the transition to SSL, generating 25% of our revenue with SSL products in the Fiscal Year 2012. In parallel we strongly expand our SSL portfolio organically. In addition to the organic expansion for SSL products and luminaires, we have significantly strengthened our portfolio through Traxon and the recent acquisitions of Siteco and Encelium, which allows us to also offer integrated lighting solutions. In addition, we believe that our presence in multiple end-market applications will enable us to benefit from different areas of growth in these applications. We operate a service and a project business that allows us to offer further value- added services. Therefore, we believe to have a flexible business model, being equipped for all trends and changes.
Market Presence with Strong, Pure Lighting Trademarks, Locally Present in all Significant Markets, Product and Technology Competences OSRAM is the largest pure-play global lighting company measured by revenue. Our trademark has a history of more than 100 years and we believe that our customers associate the OSRAM brand with high quality and technology leadership. The same applies to the Sylvania brand, which is used in North America. Radium is another strong brand focused on Europe, especially Germany. Siteco, a leading player in the European luminaires market, is another strong and well-established brand which we believe has an excellent reputation. The Traxon brand is well recognized for its complex light projects realized with LED products and lighting control systems, for example evidenced by the illumination of the statue of Christ in Rio de Janeiro. In our assessment, our brand awareness is strong, in particular among professional customers in North America, Latin America, and Western and Eastern Europe. We believe that our strong brands generate customer loyalty. We have a global sales force and are represented in more than 120 countries by subsidiaries, sales centers, branch offices and local sales agents with three regional headquarters located in Munich, Danvers (Massachusetts) and Hong Kong that support well established sales partnerships. Based on our extensive product
166 portfolio and visible in our balanced geographic sales split with leading market positions in the regions we serve, we have access to and a leading position in every major sales channel, including OEMs, trade partners and retail customers. We offer diversified solutions to large, globally active customers. In the business units which are active in the field of general lighting we are a preferred supplier of key trade customers such as Sonepar S.A., France, Rexel S.A., France and Imelco S.p.r.l., Belgium, have a high share of supply at top OEMs (e.g. AcuityBrands Inc., U.S., Zumtobel AG, Austria) and are present in important large do-it-yourself stores and retail chains (e.g. OBI GmbH & Co. Deutschland KG and Wal-Mart Stores Inc., U.S.). Our business unit Specialty Lighting has a high share of business with top automotive suppliers (e.g. Hella KGaA Hueck & Co. (“Hella”)), is involved in innovation partnerships with automotive manufacturers, and has a strong aftermarket business with multi-year contracts with key retailers (amongst others Advance Auto Parts Inc., U.S.). Our business unit Opto Semiconductors has strong co-operations in product development with lead customers (e.g. Continental AG, Germany (“Continental”), and Hella), long-term customer relationships with key customers (e.g. Continental and Miele & Cie. KG, Germany) and a strong mix of global (e.g. Arrow Electronics Inc., U.S., and Avnet Inc., U.S.) and regional and local distributors. We believe that we have a leading position in lighting technology and innovation, as is evidenced, for example, by our track record for new product introductions, our strong intellectual property portfolio, and numerous awards. We believe that we enjoy a competitive technological advantage by covering a broad range of product and market application segments. Generation of intellectual property is a core competence of any technology-driven company. We have a large number of patents and have in our assessment a leading position in terms of the number of patents we successfully filed. Two of our most important patent families cover key technologies that are difficult to circumvent by our competitors. In our assessment, we have the third highest number of patents in LED, hold a number 1 or 2 position in other lamp technologies in terms of numbers of patents and a number 3 position in display/optic. In order to leverage our intellectual property investment, we have concluded cross-licensing agreements with important competitors in LEDs and have granted licenses to other companies, for which we receive royalty fees. We spend significant amounts on research and solid core technology development (approximately 6% in R&D expenses of revenue in the Fiscal Years 2012, 2011 and 2010, respectively) to continuously improve both conventional and new technologies to support our strength. According to our assessment, we are a leading investor in R&D focused on SSL, with our Opto Semiconductor business unit investing approximately 10% of its total revenue in R&D and overall R&D expenditures of the OSRAM Licht Group reaching 6.3% of revenue, each in the Fiscal Year 2012. Our R&D is driving new products in all parts of the lighting business, advanced integrated LED systems for general lighting and automotive, laser applications in our display/optic business, LED luminaires and intelligent, networked light management systems and solutions as well as OLEDs. In traditional product lines, we aim at reducing hazardous material content and producing more “green” solutions that require less energy. We believe that we have a well-balanced portfolio of products in the different phases of the product life-cycle, including innovations at different stages of market introduction and in the phase-out stage (each representing a comparatively small portion of our revenue), products in the growth phase and products in the saturation phase. We produce a major part of components and pre-materials for our products in-house, from precision materials and components through semiconductor chips to lamps and LED products. We also design, construct and maintain to a large extent our own machines for our lamp production. We therefore control major parts of the value chain, thereby assuring a high quality level of our products. At the same time, our depth of value added declines because the share of purchased SSL commodities increases in connection with the continuing technological shift, especially with regard to forward integrated SSL products, even though we integrate and further optimize certain equipment components and solutions available in the market. We operate what we believe to be leading-edge production facilities for traditional lamps as well as LED and have a reputation for quality. We have continuously improved the quality of our products as reflected by decreasing customer claims and defects. In 2012, we were able to reduce the number of defects for the product basket comprising all products of our Opto Semiconductors business unit from 0.3 ppm (Parts per million) in 2011 to 0.2 ppm.
Leading Market Positions in the High-margin Business of Specialty Lighting and the LED Components Business of Opto Semiconductors Our business units Specialty Lighting and Opto Semiconductors have constantly achieved revenue growth in the last three Fiscal Years and together contributed stable earnings. Strong customer intimacy, constant innovations as well as a solid automotive aftermarket business are the basis for the performance development in the business unit Specialty Lighting which we estimate to be the
167 number one worldwide in the automotive lighting sector (source: Frost & Sullivan 2011, page 16). EBITA reported by Specialty Lighting in the Fiscal Year 2012 amounted to €227.1 million (EBITA margin: 16.2%). With Opto Semiconductors we are in position number two on the worldwide market for LED based on revenue (source: IMS Research, Packaged LEDs World, October 2012, page 10). Despite the strong competition, Opto Semiconductors was able to defend its market position for several years, not least based on innovations and simultaneous productivity improvements, for example the change from 2 inch to 4 inch and currently to 6 inch wafer production, where we are one of the first movers in the industry. EBITA reported by Opto Semiconductors in the Fiscal Year 2012 amounted to €75.9 million. The EBITA margin of 8.4% significantly improved compared to the previous Fiscal Year, especially in the second half of the Fiscal Year 2012.
Strength of our General Lighting Business with Traditional Products is the Basis for the Transition to SSL Based Products As the second largest supplier for lamps and control devices (source: Frost & Sullivan 2011, page 16; IMS Research, 2011 Lighting Report, July 2011, page 27) and with extensive measures being taken, our business unit General Lighting and its successor business units have a strong starting position to be led back to profitability which is mainly negatively affected by the current developments in the lighting industry. In our opinion, OSRAM has a proven track record in successfully managing trends and technical innovations. We have effectively shifted our footprint (research & development, production and sales) to emerging countries ensuring our cost competitiveness and increased our revenue in these countries significantly over the last years. Also, OSRAM has successfully managed the phase out of many incandescent lamp types in several countries including the shift in production capacity towards halogen and CFL products. Our Push Program that is currently in the implementation stage (see below “—Strategy”) especially focuses on sustainable profit growth in the general lighting business. The business with traditional products that is still significant in this connection shall serve as the basis to make our general lighting business with integrated SSL based products permanently profitable.
We Have a Strong Management Team with a Proven Track Record We believe that we have a dedicated, ambitious and competent management team with substantial experience in the lighting industry as well as other relevant management experience. Both our CEO and the other members of the Managing Board have demonstrated cost-cutting capabilities and experience with disruptive industry trends in related sectors (automotive, semiconductors). Furthermore, our business unit management has mainly longstanding experience working in the lighting industry as well as in related industries (in particular electronics, building technology). Our organizational structure is supported by a regionally responsible management team across all key regions as well as by a local management team across product areas and functions to successfully execute our business strategy. We believe we have a proven operational track record with foresight in adjusting our business mix to account for the shift to “green” and SSL (e.g. significant reduction of pure incandescent plants) and shifting production capacity and sourcing to emerging countries.
STRATEGY Our strategy is to expand our position as, in our assessment and based on revenue, a leading integrated solution provider in the lighting industry. In this context, we also aim to increase our coverage of the value chain. However, we continuously analyze the possibilities for in-house production and third party sourcing in due consideration of our core competences. Based on several factors, the lighting segment is undergoing significant change. We are determined to respond successfully to the global growth and technology drivers that are causing these industry changes. Demographics, increasing electrification and economic developments in emerging markets are expected to result in demand for more light products. In addition, energy saving, decarbonization (creation of a low-carbon production and consumption environment), digitalization and emotionalization of light trends are expected to create demand for higher value lighting products. For OSRAM, these changes provide the opportunity to shape our business model and continue to be a leader in the changing lighting industry, as we have successfully been throughout our long history. This new market environment also gives us the opportunity to increase our sales in higher value efficient traditional products as part of the Environmental Portfolio and LED products. Likewise important is the potential to service an expanded value chain as it shifts towards intelligent networked solutions and value-added services. Our strategy addresses the three drivers in the shaping of the lighting market: • Tradition: Traditional basic products like incandescent lamps are replaced by higher value and energy efficient products.
168 • Transition: Both of traditional basic and more energy efficient technologies shift to the higher value SSL products across the entire value chain. • Transformation: Transformation drives standard lighting solutions into intelligent, networked solutions and value-added services to exploit the full potential offered by the new technologies. Our efforts are aimed at expanding our presence by serving each driver in the lighting industry. We strive to sell a wider variety of lighting products, solutions and services, and we plan to benefit from the projected growth opportunities in the lighting market. In response to market trends, our long-term strategic objectives consist of three key elements. (1) We will strive to leverage our core strengths to defend and expand our market presence. (2) On the basis of our rich tradition of lighting innovation, we plan to expand and enhance our product and service proposition. (3) In order to realize our strategic objectives, we will strengthen our entrepreneurial corporate culture. The execution of our strategy is evidenced by clearly defined short- to mid-term measures. These measures are aggregated in a comprehensive initiative, named OSRAM Push Program. This initiative shall serve as foundation of sustainable performance and fulfillment of our commitment to our shareholders with respect to growth, profit and capital efficiency and to our other stakeholders.
Optimal Utilisation of our Core Competences to Defend and Enhance our Market Presence Harvest the Golden Tail We plan to leverage our strong portfolio of traditional products as they give us the market position that will be the platform for a successful shift towards SSL products and solutions. We see three key levers to maximize our cash flow out of the traditional business. First, we plan to manage our traditional portfolio and product phase outs proactively. We will leverage our deep understanding of customer and market in the transition phase (e.g. with regard to incandescent phase-out regulations) to maximize value. We intend to apply proven transition concepts in one region (e.g. phasing out of incandescent in Europe) for upcoming phase out legislation in other regions (e.g. China and the U.S.). Second, we will strongly focus on systematic cost-cut initiatives (e.g. improving material cost, machine efficiency, etc.). Third, we will continue to selectively invest in the most resilient traditional technologies, like e.g. T5 fluorescent technology that offers an advantage in energy efficiency compared to conventional fluorescent lamps. We expect the T5 market to grow with a CAGR of 9% from 2012 until 2017. This is mainly driven by the energy efficiency, very favorable costs and the long product lifetime.
Strengthen Customer Intimacy As an integrated lighting supplier, our customers rely on us to fulfill all of their lighting requirements. Recognition of our brands combined with strong business relationships gives us access to different sales channels in different regions. This opens the door for us to sell new products and services. We expect the transition to SSL to result in additional business for OSRAM as the traditional products will not disappear in the short-term and new technologies create the potential for higher value-add products and services. Looking at the top 30 buyers in the lighting market, we believe to have a substantial growth potential. In our assessment, we have a relative high market share at the No. 21 to No. 30 buyers and a relatively lower share at the top 20 buyers. We believe to be able to leverage our strengths with the smaller buyers towards the top 20 players by strengthening our sales focus and key account management approach. Through dedicated key account management we aim to (1) capture additional opportunities from adding value by solutions, (2) prioritize and focus fast growing customer groups, (3) grow share with untargeted customers and (4) thereby support our market growth strategy.
Support SSL Transition by Leveraging our Core Domain Know-how In our own assessment, we have competitive lighting technology know-how. For decades we have in our assessment been an industry leader in traditional lighting. In these decades we have developed a deep understanding of core lighting materials (e.g. phosphors, metals, ceramics) and know-how in areas like optics, thermal management and electronics. With the acquisition of a majority stake in Siemens’ LED business – today our wholly owned subsidiary OSRAM Semiconductors GmbH – in 1999 we started to bring our core know-how to bear on the SSL segment. For example, like for fluorescent lighting, phosphors are a critical material for the creation of white light in SSL products. Approximately 70% of LEDs in the market are based on phosphor-based light conversion, evidencing how our traditional in-house expertise may contribute to our competitive advantage in emerging technologies. While it is difficult to predict where another ‘breakthrough’ technical solution will surface or is rapidly needed, it may again have to rely on our knowledge of materials science, be it glass, metals, ceramics, phosphors or polymers. We believe that our combined know-how of traditional and SSL technologies, together with a deep understanding of lighting applications, will be important success factors for our SSL transition.
169 Based on our technological and innovation strength, we believe that we have a leading revenue position in most lighting technologies and applications. We offer a comprehensive product portfolio including efficient traditional products as part of the Environmental Portfolio and SSL products. This provides in our opinion an excellent platform for the shift to energy efficient lighting products. Our global sales force supports our leading position and high brand-awareness across all regions, as is demonstrated by our highly diversified customer portfolio across our balanced sales channel mix. In addition, we believe to have operational excellence and a well-established global sourcing and manufacturing footprint. The result of our combined core strengths is reflected in the success of our OSRAM brand, which is a global pure-play lighting brand. We plan to leverage the trust that is associated with our global lighting brand in order to strengthen our downstream business towards luminaires and complete lighting solutions.
Expand and Improve our Product and Service Proposition Expand Coverage of the Value Chain and Implement Closer Integration across the Value Chain OSRAM’s presence along the entire value chain makes us an integrated player. We believe that this end-to- end control of the value chain will be a key success factor in creating value for our customers. We differentiate our value chain presence along three dimensions. The first dimension is “scale”. “Scale” is the degree of product, application and solution coverage for each value chain step. For traditional lighting components the competitive advantage is strongly driven by deep vertical integration and having the full R&D, manufacturing and process know-how for all technologies in-house. This business model is strongly driven by demand fulfillment. The use of LEDs and the demand for new features is expected to change the traditional product and service proposition and make it much more complex. Taking advantage of the full potential of the new lighting technology in terms of functionality as well as energy efficiency will be strongly dependent on and the ability to offer integrated light solutions, i.e., coordinated products, solutions and services along the entire value chain, which we refer to as “scope”. We believe that this “scope” will become a key success factor in the future. OSRAM has already been preparing for these changes both organically and through directed acquisitions and joint ventures. The acquisition of a majority share in today’s OSRAM Opto Semiconductor GmbH in 1999 and the increase to a 100% shareholding in 2001 were first big steps into the future. Our focused acquisitions in the area of luminaires and solutions (Siteco, Traxon), light management systems Traxon (including e:cue, Encelium), and services (Amtech) has strengthened our end-to-end coverage of the value chain. All these acquisitions accelerate our shift towards an integrated lighting player generating value through demand creation (e.g. design-in, energy audits, education of end- installers/light planners), demand fulfillment (over the counter business, replacement business, project business) and demand retention (customer lock-in through value added services). Demand retention will also be driven strongly by what we call “smart”, which is the third dimension. “Smart” will be the intelligent interconnectivity along the value chain. As intelligent lighting systems grow more complex, we believe that customers will increasingly consider integrated solutions when making their purchasing decisions. This offers us greater opportunities to participate upstream in the design-in phase as well as downstream via value-added services such as energy audits and energy monitoring. Furthermore, integrated system solutions are expected to see an increase in demand. In the automotive sector we are in our assessment a leading component supplier. Car makers request technology choices, ranging from high customized solutions for top-end models that can be used on one model only to standardized, “plug & play” LED lighting products that contain all necessary features, such as electronic, electrical interface, thermal management, and primary optics. Because these solutions for signal and forward lighting can be used across multiple platforms, customers’ engineering efforts and risks are reduced, resulting in an excellent price/performance ratio for middle market vehicles. Therefore, we expect expanded presence in the value chain to translate into greater market access during the design-in phase when a lighting specification is created. OSRAM Opto Semiconductor’s approach to the automotive market illustrates this point. The implementation of new technologies can face significant entry barriers because it requires new approaches throughout the value chain. By building a collaborative framework with strong customers such as Hella, we were able to support the introduction of new LED components for LED headlights that won the prestigious Automotive News PACE award. We believe that our present platform, including Siteco, Traxon and Encelium, positions us well to apply know-how and provide integrated solutions. To further exploit our potential, we may consider selective value-adding acquisitions, joint ventures and partnerships in the future. Our long term targets include achieving the following positions: • One of the leading SSL supplier in all three regions
170 • Supplier of light management systems in all three regions • Entirely localized LED supplier in Asia, especially in China With the decision to build a LED back-end production facility in China, we have already made a major step towards becoming a fully integrated LED player in Asia.
Extension of Product and Service Proposition with a Differentiated Sales Approach The changing fundamentals in the lighting market of the future require new sales approaches and a significant extension of the market access in the design phase. Therefore, OSRAM follows an intelligent sales approach throughout all sales levels including light planners and architects by offering creative products and generating and attracting customer demand. In addition to the early involvement in the design phase of our OEM customers and the relevant decision takers, this is supposed to be achieved by an expanded offer of different service, information and sales offers.
Enhance our Entrepreneurial Corporate Culture To respond quickly to the lighting industry transition and transformation, OSRAM fosters an entrepreneurial culture supported by the necessary organization, governance and operating framework. We intend to further simplify our organizational structure with a simple and narrow reporting structure as well as streamlined corporate processes. In this respect we progressed since 2008 by (a) reducing the number of board members from four to three, (b) reducing corporate functions from 23 to 17, (c) reducing the number of business units from ten to six and (d) realigning our regions parallel to reducing their number from five to three. Our organizational structure is reflected by a clear leadership structure ensuring that we act as one company that follows the same strategy. The heads of our business units will have the full business responsibility combined with the authority to enforce their decisions within the framework laid down by the Managing Board. They will be held accountable for the targets they commit to. In addition we strive for a high performance culture. First of all, we promote freedom for the best to succeed. The measures are: (a) selecting the best leaders for senior management positions. We have been assessing externally 111 senior managers out of 306 in 2011; (b) driving succession planning and career path development; (c) establishing a speed track for high performers via a dedicated mentoring and top talent program. Furthermore, we promote performance via a clear incentive system, in particular with regard to the implementation of certain measures and especially results within OSRAM Push. Our transparent bonus system is driven by clear measurable targets and forced ranking of senior management. Finally, we promote diversity. We strongly believe in the strength of a workforce that reflects the global society.
OSRAM Push Program The execution of our strategy is evidenced by clearly defined short- to mid-term implementation measures. These measures aim to improve continuously our operational excellence. These measures are aggregated in our comprehensive initiative, the “OSRAM Push Program”. Via dedicated workstreams we execute all necessary measures with regard to (a) organizational structure, (b) operations, (c) corporate culture and (d) new growth areas. We plan to make necessary footprint adjustments by critically evaluating all or our assets. In addition we aim to strengthen our capabilities for SSL components. To accelerate our organic growth, we are continuously reviewing exogenous growth opportunities. In the area of operations, OSRAM has been making the necessary short-term capacity adjustments including a reduction of production facilities, adjustments to the number of employees as well as an extensive cost savings program to respond to the current market dynamics. In all three areas mentioned above, successes have been largely achieved already and the basis for a successful implementation of our strategy has been built. In addition we aim at improving the SSL business profitability by adapting the existing in-house business models towards a more design, sourcing and distribution-driven approach. To anticipate the higher value of SSL products and their shorter product lifecycles, we have started initiatives to further strengthen our procurement and supply chain management excellence. We intend to strengthen our key account management to leverage the sales potential of our full value chain coverage. With regard to the segment Luminaires & Solutions that is at present loss-making, we are currently pursuing a strategic redirection within the framework of our transformation program that is intended to be completed in the Fiscal Year 2014. The focus will be on profitable business; in this respect, we will also accept a temporary revenue decline, if necessary.
171 The OSRAM Push Program is the foundation of sustainable performance and fulfillment of our commitment to our shareholders with respect to growth, profit and capital efficiency and to our other stakeholders. It is our target to: (a) gain market share, (b) achieve an average EBITA margin of more than 8% over the cycle from 2015 onwards and (c) achieve capital efficiency measured by return on capital employed significantly above our weighted average cost of capital (that is estimated by OSRAM to be approximately 9% as of October 1, 2012).
PRODUCTS AND SERVICES OSRAM supplies lighting solutions for almost all aspects of life and living environments, providing its customers with an extensive lighting product portfolio consisting of both traditional (halogen, high intensity discharge, fluorescent and incandescent lamps) and new technologies such as LED and OLED products. OSRAM covers the entire lighting value chain from components and light management systems to luminaires, solutions and services. The products are inter alia used in residential, shop, hospitality, office as well as architectural, automotive, industrial and outdoor applications. OSRAM offers its products and services through its business units Lamps (LP), Light Engines & Controls (LE), Luminaires (LUM) and Solutions (SOL) which have a joint distribution on the market side (General Illumination Sales), Specialty Lighting (SP) and Opto Semiconductors (OS).
Business Units Lamps (LP), Light Engines & Controls (LE), Luminaires (LUM) and Solutions (SOL) Until September 30, 2012, the General Lighting business unit comprised all OSRAM product and service offerings in the general lighting market oriented towards consumers as well as professional users (“General Illumination”). Customers include for example manufacturers of luminaires, wholesalers and retailers, installers, lighting planners, architects, large end-users, municipalities, facility managers and general contractors. We offer products and services for applications such as residential, architectural, office, industrial, shop, hospitality and outdoor (street & urban, sports & area) as well as signage. Effective as of October 1, 2012, the former business unit General Lighting has been split up into four new separate business units, and the units Services and OLED. They have entrepreneurial responsibility and joint distribution on the market side (General Illumination sales). The new organization structure is oriented along the value chain in the lighting industry. The four new business units are: • Lamps (LP) • Light Engines & Controls (LE) • Luminaires (LUM) • Solutions (SOL) General Lighting and its successor business units are present in every important market covering all relevant sales channels for lighting products. The four business units are a preferred supplier of key trade customers such as Sonepar, Rexel and Imelco, have a high share of business at top OEMs (e.g. AcuityBrands, Zumtobel) and are present in important large retail chains (e.g. OBI, Wal-Mart, Metro). In the Fiscal Year 2012 the business unit General Lighting generated €3,387.2 million external revenue. In terms of technology, 30.7% of product revenue was attributable to traditional basic products, 56.2% to efficient traditional products as part of the Environmental Portfolio and 13.1% to SSL products.
Lamps (LP) LP comprises all our activities for traditional and LED based lamps. Traditional products include incandescent, halogen, fluorescent lamps (FL), compact fluorescent lamps (CFL) and high intensity discharge lamps (HID). Incandescent lamps can be replaced by modern halogen, compact fluorescent or LED lamps (Retrofits), which are offered in common types of sockets so that they can be used in luminaires designed for traditional lamps. This offers our customers a wide range of choice for replacing lamps. The range of products comprises different types of lamps, such as spotlights or lamps with traditional incandescent shapes, as well as lamps with different whites (e.g. warm-white or day light) and lamps in different colors.
Light Engines & Controls (LE) The business unit Light Engines & Controls (LE) comprises LED systems, light management systems and electronic control gear (ECG) to control lamps, luminaires and lighting systems. The portfolio was strengthened
172 by the acquisition of the company Encelium which is according to our estimates among the leaders in software technology with focus on advanced lighting control systems and energy management systems in office and industrial buildings in the NAFTA zone. The systems enable commercial customers to save energy and optimize maintenance with improved light quality. The LED systems (light engines) and the electronic control gears are mainly distributed via the OEM channel, while the light management systems are customized solutions which are sold based on a modular system in project sales.
Luminaires (LUM) LUM comprises our luminaire activities, especially for professional customers but also for private end- users. For professional users luminaires are offered for indoor and outdoor applications. For indoor use, aesthetic, innovative lighting solutions are offered for a wide variety of areas in industry and commerce. These are solutions that are easy to install, yet as efficient as they are functional and with a price/performance ratio as attractive as possible. For outdoor use, luminaires have to be economical and robust, but at the same time easy to install and serviceable. The products combine these features with high light quality and attractive design that is tailored to the respective area of application and the specific customer requirements. The product range includes a variety of product families, divided into LED luminaires, modular systems, surface mounted, batten and furniture luminaires, industrial fittings, and spotlights. Included are also recessed, moisture-proof and plant luminaires, floodlights and products for street and urban decorative lighting. We strengthened our professional luminaires business by the acquisition of Siteco, completed in July 2011. Siteco is a European leader in lighting technology and provides luminaires and lighting systems for urban infrastructure, including public and commercial buildings, streets, tunnels, airports and sports stadiums. With this acquisition, the expertise in the luminaires, systems and solutions business as a leading component manufacturer was further expanded. In the development of new products, we also benefit from Siteco’s diverse experience in working with end-users, architects, lighting designers and installation specialists. Important projects of Siteco include for example the lighting in Munich’s Allianz Arena, the Barajas airport in Madrid and one of the world’s tallest buildings, the Taipei 101 Tower in Taiwan. In terms of the product spectrum and areas of application, the Siteco portfolio and business model complements well the product offering of Traxon Technologies for architectural, hospitality and shop lighting. Moreover, LUM offers luminaires for consumers based on traditional technologies but more importantly based on LEDs, including integrated LED luminaires. Luminaires are offered for the living areas (e.g. living room, kitchen) as well as for outdoor use (e.g. gardens, patios). Additionally mobile products such as camping luminaires, torches and night lights are part of the portfolio. Consumer products include lighting gadgets run by battery such as the Dot-it luminaires range as well as other creative luminaires based on LEDs.
Solutions (SOL) With regard to the lighting value chain SOL expands our portfolio towards lighting solutions. Solutions are an important enabler for our components and products business. An important part of SOL is our Hong Kong based subsidiary Traxon Technologies (including its brand e:cue), a SSL solution provider that offers innovative, integrated and customized LED lighting and control solutions for large projects. Traxon Technologies not only offers a leading technology portfolio but also has intensive contacts in the worldwide project business to architects and lighting designers.
Specialty Lighting (SP) The Specialty Lighting business unit develops, manufactures, markets and sells lighting products and equipment for automotive and special applications in the display/optic entity through its sales channels OEM and aftermarket. Specialty Lighting generated external revenue of €1,404.6 million in the Fiscal Year 2012. In terms of technology, 33.1% of product revenue was attributable to traditional basic products, 42.7% to efficient traditional products as part of the Environmental Portfolio and 24.1% to SSL products.
Automotive Lighting The automotive lighting product range includes various types of lamps, for passenger vehicles, trucks, busses and motorcycles. Automotive lamps are not only used for exterior lighting (front, rear and signal lighting) but also for the dashboard and vehicle interior. The product range for headlights and rear lights includes in particular conventional halogen lamps, high intensity discharge lamps and LED lighting systems. These products
173 are sold both to OEMs and in the aftermarket. OSRAM covers the full value chain, including components (incandescent, halogen, HID and LED components), systems (HID lamps including ballast and LED light engines including electronics) and entire spotlights (via the currently still existing joint venture with Valeo Sylvania; see “—Material Contracts—Joint Venture Valeo Sylvania”) and reflectors for LED lighting.
Display/Optic The display/optic (DO) product range comprises lamps and lighting systems for entertainment and event purposes, performance spaces, studios and film sets as well as lamps for cinema, video and television projection systems. These areas have special requirements for the light performance and the technical construction of the luminaires. Film and television recordings require a special quality of light that closely approximates daylight. Similarly, it is vital that especially precise adjustments can be made to lighting for film, studio, stage and theatre. The luminaires offered must be easy to install and maintain even under difficult conditions. Lasers are gaining in importance for the projection business as well as in the architainment market. Additionally, DO manufactures e.g. halogen lamps with infrared coating for surgical lighting, light sources for microscopy, for micro lithography and for water purification. Other applications include airport lighting, in particular for runways as well as infrared lamps for industrial applications.
Opto Semiconductors (OS) The Opto Semiconductors business unit develops, manufactures and sells a broad range of opto-electronic semiconductors to large OEM customers and via distributors, and also to OSRAM’s other business units. The most important products are LED packages for visible light, infrared components (IR emitters and detectors, sensors, power lasers), and visible lasers primarily for the automotive industry, industry electronics, general lighting as well as consumer and communication electronics. In the Fiscal Year 2012, the business unit Opto Semiconductors generated €584.7 million external revenue that is entirely attributable to SSL.
LEDs Opto Semiconductors offers LEDs (consisting of a semiconductor chip in a carrier, sometimes with additional features such as luminescent material and lenses) for almost every lighting application. This includes LEDs that emit white or colored light in a variety of luminosities with different properties and in different configurations. LED products and LED applications cover a broad range and comprise visible LEDs for the automotive industry, industry electronics, general lighting as well as consumer and communication electronics. In the automotive sector the LED products serve for interior illumination, front, rear and signal lighting. In the general lighting market the LEDs are used for outdoor lighting (streets and architecture) as well as indoor professional and residential lighting (office, shop, industry, hospitality and residential). Industrial applications include video walls and so called white goods. In the market segment consumer and communication electronics LED components are used for example for backlighting of liquid crystal displays, projections with LEDs and LED flashes in mobile phones. Both semiconductor chips and the LED packages built around them are manufactured by Opto Semiconductors. The LED components produced by Opto Semiconductors are offered as independent products on the market. Additionally, they also are used in the lighting products of our other business units.
Other Opto Semiconductors in addition to LEDs (for Visible Light) – Infrared Emitters and Detectors, Optical Sensors, Infrared Power Lasers and Visible Lasers Infrared emitters are based on LED technology but emit light in the infrared spectrum. They are used e.g. in infrared remote controls for entertainment devices, in security systems, in rain sensors for automotive automatic wiper systems and in night vision systems. Silicon photo detectors are based on semiconductor technology (using silicon as the semiconductor material) but do not produce light themselves; instead, they measure the light intensity (of particular wavelengths). The light stimulates electrons in the semiconductor material, thus generating a voltage or current. Photo detectors are for example used to receive signals from infrared remote controls or as ambient light sensors. Together with other components, photo detectors act as optical sensors that detect for example distances in order to perform functions such as turning off the display backlighting of a mobile phone once it is held to the ear. Opto Semiconductors offers a variety of different infrared emitters, photo detectors and optical sensors that can be used for different applications, including light barriers, material processing and safety applications in the automotive industry. Opto Semiconductors manufactures not only the underlying light emitting semiconductor
174 chips but also the packages built around them. Opto Semiconductors also produces and distributes visible light laser diodes as well as infrared high-energy laser diodes for various applications such as projection, medical technology, materials processing and measurement technology.
Services and OLED Services The business activities of OSRAM Services have a broad basis in the U.S. The portfolio includes servicing and maintenance, repair, cleaning and modernization of outdoor and interior lighting through lighting design and consulting. We plan to expand this portfolio in the coming years with additional services which are also supposed to be increasingly offered in other regions as a result of new business opportunities. Services can contribute additional value, as evidenced by the project for Deutsche Post AG, Germany, and its logistics service provider (“DHL”). OSRAM analyzed a DHL facility by conducting an energy audit. This led to recommendations for better and more efficient lighting solutions for one pilot facility, using new lighting technologies and light management systems. Based on the favorable results, it was possible to expand the business to 60 German sites.
OLED Organic Light Emitting Diodes are flat luminescent components that use organic materials as a semiconductor. An OLED consists of thin, luminous layers made of organic semiconductor materials which may be deposited on a glass or potentially in the future also on flexible substrates. OLEDs differ from (inorganic) semiconductor light-emitting diodes (LEDs) as OLEDs emit light from a flat, large area surface instead of a small point source. As a result of continuous improvements, especially regarding efficiency and lifetime, OLED technology has further developed in the direction of commercial functional lighting in recent years. OLED has the potential to establish as the second important lighting technology besides LED in the second half of the current decade if continuous improvements and further optimization of unit costs can be achieved. With respect to OLED technology, OSRAM is among the world’s leading manufacturers and continues to focus on investing in research and development as well as in protecting the results through patents.
SALES AND MARKETING Sales OSRAM has an extensive global distribution platform and we are present in every important market. We employed on average 5,208 FTE in our sales function in the Fiscal Year 2012. The global presence is backed by regional headquarters in Munich for Europe, Middle East and Africa (EMEA), in Danvers (Massachusetts) for Americas and in Hong Kong for the APAC region. We are present in more than 120 countries through subsidiaries, branch offices, sales support centers or local agents. In order to serve different customer structures and product applications, we operate the following sales channels for lighting components and luminaires: trade, retail, OEM and project business. We have long-term cooperations with key OEMs, wholesalers and distributors, retailers and commercial customers throughout the world. Our trade and distribution customers carry our main product portfolio and sell to sub-dealers, traditional retailers, solution providers and luminaire manufacturers. Global, regional and local customers are served by professional key account management teams which support cross-channels and regional sales opportunities. Each business unit has different main sales channels: • Our business units active in general lighting sell their consumer products predominantly through retailers such as Wal-Mart Stores Inc., Metro AG and its subsidiaries, Bauhaus, Obi GmbH & Co. Deutschland KG and its subsidiaries, and Lowe’s Home Centers, as well as through the trade channel (e.g. Rexel S.A., Sonepar S.A., Imelco S.p.r.l.). Sales for professional users also takes place via the trade channel (again, for example, Imelco, Sonepar and Rexel) and via OEM such as Cooper Industries Inc., Zumtobel AG and AcuityBrands Inc. including its brand Lithonia Lighting. In addition, some large end- users such as retail chains for their own use and hotels are served directly. Furthermore, project lighting business is gaining in importance, particularly for luminaires, lighting solutions and light management systems. In this area, we work directly with architects, engineers, light designers, energy service providers, installation specialists, investors, property owners and public users to realize their projects, providing them with sophisticated lighting products and light management systems based on their specifications and customer requirements, respectively. In this area, OSRAM sells directly or through the trade channel. Altogether, the trade channel’s share in general lighting is the most significant, followed by retail and OEMs.
175 • Specialty Lighting sells primarily to OEM such as Hella, Valeo S.A., France (“Valeo”), and Continental and serves the aftermarket via retailers such as Advance Auto Parts as well as trade customers such as Stahlgruber GmbH and Trost Auto Service Technik SE. Display/optic products are sold via OEM (for example Barco or Martin Professional), trade channels (Multi-Light and others) as well as customers (for example, Regal Entertainment Group). • Opto Semiconductors sells primarily through its direct sales force to large OEM such as Continental, Hella, Miele and through its distribution partners such as Avnet and Arrow to small and midsize customers. OSRAM’s customer base is diverse. In the Fiscal Year 2012 our largest customer accounted for approximately 3% of revenue and our top fifty customers together generated 42.6% of OSRAM Licht Group revenue.
Marketing Our key communication targets are to continuously strengthen our brand and to position OSRAM as technological leader in LED, as application and solution provider and as a sustainable company improving quality of life. All our marketing communication activities are derived from and paying into these targets. One example is the fully integrated global LED campaign which started in 2010. This application orientated LED campaign spotlights different LED projects from around the world as key OSRAM light references and additionally presents our LED products like LEDvance and PrevaLED. Besides advertisements in various target group specific special interest publications (online and offline), we focused on a European SSL roadshow and a new internet concept for our global websites. All marketing communication activities are targeted to continuously enhance and strengthen our brands since they are a key driver for sales. A major task of OSRAM’s marketing is to guide the customers in finding the right product. Therefore our major part of marketing activities focuses on the consulting of our customers in all sales channels. For example in the retail channel in 10 European countries, we initiated a successful activity with specific consultants for OSRAM products in front of the shelves which on the one hand informed the end-consumers and on the other hand directly pushed sales (especially of OSRAM SSL products). Online and web-based activities are also a part of marketing at OSRAM. The OSRAM website provides a comprehensive global overview and description of our product range. With specific online consulting tools we offer professional customers as well as end-consumers the opportunity to find the right product from our portfolio – matching their respective needs. Innovative lighting applications are provided generating high usage rates e.g. DIALux capable luminaries and lamp plug-ins for lighting designers or mobile applications like the AM lamp replacement guide. With selected lighthouse projects we spotlight our products together with globally recognized events or landmarks as for example the Expo Pavilion in Shanghai, the Yas Hotel at the Formula 1TM race track in Abu Dhabi, the Durban world cup soccer stadium or the new LED lighting of the statue of Christ in Rio de Janeiro, Brazil. This lighthouse project idea is complemented by local projects as for example event lighting at the 41st FIS Alpine Ski World Championships in Garmisch-Partenkirchen in 2011 or the illumination of the Bavaria statue in Munich during the anniversary Oktoberfest 2010. In addition, fairs and trade shows are a key communication vehicle for OSRAM. OSRAM is present at all major fairs globally, in particular at the LIGHT + Building (Germany), the Guangzhou Lighting Fair (China), the Light Fair (U.S.) as well as on numerous platforms addressing the various target groups (e.g. Automechanika, Euroshop, Elektronica, Prolight+Sound, VISCOM). We market our products primarily under the master brand OSRAM. Opto electronic semiconductor components are sold under the brand OSRAM Opto Semiconductors. In North America, we market our products also under the brand SYLVANIA, for which relevant rights of use were acquired through the purchase of SYLVANIA North American Lighting in 1993. In the luminaires and light management markets our additional brands are Traxon and Siteco under the master brand OSRAM with the addition “An OSRAM business”.
PROCUREMENT The procurement function at OSRAM is managed globally with responsibility for the complete purchasing volume, structured by material fields. The country specific aspects as well as the local procurement activities in all companies are covered by the regional procurement organizations, reporting to the head of procurement. The split between material field management and local procurement is necessary to focus on strategic purchasing activities independently from the day to day operational procurement. With our purchasing engineering group we aim to ensure the early involvement of the purchasing function within the development process of new products,
176 especially in the field of SSL. This enables us to optimize cost, availability and quality of products. The link between local demand and the global procurement strategies is ensured through material field business teams composed of representatives from locations with the highest material demand. With a relatively high level of vertical integration, OSRAM purchases a broad range of products with a high proportion of raw materials and components. Finished products, non-product related materials and capital goods such as machines or parts for production equipment, as well as services are also acquired as needed. As our production facilities and sales organizations are located around the world, the purchasing volume is distributed accordingly. The main purchasing countries in terms of volume are Germany, China, Malaysia and the U.S. Nearly half of the purchasing volume is sourced in emerging countries. For purchasing decisions, we undertake a total cost of ownership analysis to achieve the best cost position based on an end-to-end cost approach. Electronic sourcing tools are frequently used for auctions and biddings, to generate competition in our negotiations and obtain objective and transparent sourcing decisions. To support natural currency hedging and to realize logistical advantages, we pursue a balanced local or regional sourcing strategy. Wherever reasonable and possible, we aim to maximize regional or worldwide demand pooling to generate economies of scale. Therefore, one of the major tasks of our material field management is to concentrate the supply base and develop long term supplier relations, however, without compromising the supply risk situation. Wherever possible, we aim to secure a qualified second procurement source. Due to the specific sourcing needs, a fair amount of the sourcing is directly impacted by the supply situation of commodities such as nickel, copper, tin or derivative thereof, e.g. plastic resins and paper products. While we expect no specific supply constraints for these materials, our sourcing costs are strongly dependent on material price developments. Limitations on export of rare earths from China for example have resulted in a strong price increase of rare earths used in fluorescent and compact fluorescent lamps. In order to limit supply shortages, we pursue a multiple supplier strategy (see also “—Material Contracts”). As a result, our material field strategy for electronic components limits the usage of customized components and considers the integration of standard product platforms. Besides internal pooling, OSRAM is also participating in pooling activities of Siemens, especially in the field of electronic components (see also “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group”). If joint pooling activities cannot be pursued, alternative alliances are evaluated. Main direct materials sourced by OSRAM are electronic components from suppliers such as STMicroelectronics N.V., The Netherlands/Switzerland, Epcos AG, Germany, and Infineon Technologies AG, Germany, glass and reflector products from suppliers such as Schott AG, Germany, or Auer Lighting GmbH, Germany, and gases from suppliers such as Linde AG, Germany. Deutsche Technoplast GmbH, Germany, is one of our biggest suppliers of opto semiconductor materials and Aixtron SE, Germany, is our main supplier of opto semiconductor equipment. In addition to the direct materials and finished products that account for approximately two thirds of our purchasing volume, we source services such as transport on all modes through suppliers with own operating networks and certified processes. In the glass and lamp production, energy is also an important part of our sourcing. The main finished products manufactured by third parties are certain compact fluorescent lamps, LED lamps, luminaires and conventional as well as electronic control gears. In respect of the sourcing of finished products we apply different business models, such as contract manufacturing or merchandise depending on the applicable product strategy. Our key suppliers are regularly evaluated and improvement measures are mutually agreed. It is part of our procurement strategy to use the innovation power of our suppliers by integrating them into the product development and to continuously generate material related productivity improvements.
INFORMATION TECHNOLOGY Information technology is an important part of our operations, in particular in the context of productivity increases and process optimization. We use predominantly SAP and Microsoft products as the common application platforms running on standardized infrastructure components from Fujitsu and IBM. We will continue to consolidate our Enterprise Resource Planning operating platform into standardized systems. We also use various specialized solutions in connection with some of our activities, including research and development, manufacturing, design and light planning activities. OSRAM has an IT organization responsible for infrastructure and application management of all IT systems which are considered indispensable. OSRAM generally keeps the necessary competence to maintain and operate the major IT systems and further develop functionality in-house. OSRAM has established three main data centers in Europe, U.S. and Asia and is also taking more and more advantage of ‘cloud’ based solutions.
177 PRODUCTION As of September 30, 2012, we operated 39 production sites in 15 countries. The production sites are located mainly in Europe, the Asia-Pacific region and North America. Additional production sites are operated by associated entities including our joint venture OSRAM (China) Fluorescent Materials Co., Ltd. (China). In the context of OSRAM Push, we intend to reduce the 39 production facilities to 33 production facilities by the Fiscal Year 2014. We maintain development centers in several countries and additional six research centers in the regions Europe, Americas (North, Central and South America) and Asia. Our production capability is based on long experience and consistent development of our footprint which we believe puts us in a positive competitive position. In addition to lamps and luminaires we produce certain components, such as filaments, wires, glass, chemicals and semiconductor chips as well as electronic ballasts. We strive to enhance our productivity with cutting-edge production processes and state of the art production facilities such as our LED production in Regensburg, Germany, and Penang, Malaysia. To extend the production of LED components (LED packaging) to China, one of the most important markets for optoelectronics, we started to build a new LED assembly facility (back-end production) in Wuxi, China; on this leased site we invest in the respective production facilities and receive investment subsidies granted by the Chinese government. Start of production is expected for the end of 2013. Part of our operational strategy is, for example, the use of so-called 6 inch wafers for the production of LED chips. We have a 15 years history with an integrated OSRAM production system based on key elements such as lean, six sigma and TPM (Total Productive Maintenance) and seek to compensate product sales price decreases with productivity gains. We also seek to optimize our cost position by making use of low-cost production locations such as Asia, Mexico and Eastern Europe. We have centralized planning, layout, contracting, installation and initiation of operations of new production lines in our worldwide production plants. In doing so, many of the processes for such new production lines are developed in-house, which reduces costs and increases the protection of our production know-how against competitors. We obtained ISO certifications for the sites in Europe, America (North, Central and South America) and Asia (ISO 9001, ISO 14001). Our Lamps, Light Engines & Controls, Luminaires and Specialty Lighting business units use many production sites jointly, in particular when there is an overlap in the products and production processes of each business unit. We have built significant production facilities for these business units in China (Foshan (Nanhai) and Guangzhou (Panyu)). Each business unit, however, also maintains stand-alone production sites. The production of our Opto Semiconductors business unit runs independently at the specialized sites in Regensburg- Burgweinting, Germany (front-end), and Penang, Malaysia (front-end and back-end), and in the future also in Wuxi, China (back-end). The production of traditional lamps of the Lamps business unit is concentrated in low- cost manufacturing countries, such as China, India and Mexico, where we expect a continued demand for traditional lamps, but we continue to produce incandescent lamps also in France and in the U.S. OSRAM assesses possibilities to further shift production of traditional standard lamps to such low cost manufacturing countries. In the Specialty Lighting business unit, the production and research is increasingly concentrated in the APAC region, especially in China and India which we expect to be the most dynamic growth region for specialty lighting products. The transition from traditional lighting to SSL requires a reduction of internal value-added depth and higher use of standardized electronic components. Therefore the worldwide manufacturing capacity in the traditional areas will be adapted. We seek to continuously working on optimizing the production footprint. Close to the market and the customers combined with the understanding of local or global distribution concepts, technology, flexibility and cost are the key pillars of our strategy.
178 As of September 30, 2012, we owned real estate (land and buildings) with a net book value of €310.3 million and with a total building area of about 1.75 million square meters. Our real estate ownership and equivalent rights relate mostly to land on which administrative, production and other operating facilities are located. We also lease land and building space, amounting to a total building area of approximately 0.3 million square meters. The following table sets forth real estate-related information about the most significant sites. Building space (m2)¹ Owned/Leased Germany Augsburg (Berliner Allee) ...... 90,000 Owned Berlin (Nonnendammallee) ...... 73,600 Owned Eichstätt ...... 17,300 Owned Traunreut ...... 82,500 Owned Herbrechtingen ...... 26,300 Owned Regensburg-Burgweinting ...... 63,000 Owned Regensburg-West ...... 11,000 Leased Europe (w/o Germany) Nove Zamky, Slovakia ...... 39,600 Owned Smolensk, Russia ...... 70,500 Owned Treviso, Italy ...... 30,800 Owned U.S. Hillsboro, NH ...... 22,600 Owned Versailles, KY ...... 159,900 Owned China Foshan (Nanhai) ...... 77,400 Owned Guangzhou (Panyu) ...... 26,200 Owned Under construction: Wuxi (Jiangsu) ...... 107,0002 Leased APAC (other than China) Penang, Malaysia ...... 99,900 Owned and Leased
1 Not indicating any land m². 2 Including 40,000 m² in the second construction stage. There are no significant encumbrances (such as land charges or easements) on any real estate or other major property, plant and equipment assets.
RESEARCH AND DEVELOPMENT Overview As one of the leading established global players in the lighting industry we have a strong position in the global R&D for both, traditional products and the growing market of Solid State Lighting (SSL). In traditional lighting technologies, we are one of the two market leaders and we aim to defend our market position by continuously improving cost and value of our traditional product portfolio. This can be achieved for example by continuing to increase energy efficiency or reducing mercury and other hazardous materials to the lowest levels feasible. Based on the expected higher demand for SSL products in the future, OSRAM has shifted resources from traditional technologies to SSL in recent years to maintain its leadership position in lighting. OSRAM has been able to establish a leading position in SSL by taking advantage of synergies between traditional and SSL competencies in the fields of luminescent material, ceramics, electronics, thermal management, glass and manufacturing, as well as other critical technical aspects. We believe that sustainable economic value is created through continuous innovation and that continuous investments in R&D are fundamental to our success. The table below sets forth our R&D expenses for the periods indicated: Fiscal Year ended September 30, 2012 2011 2010 Research and development expenses (in € millions) (audited) ..... 339.1 300.9 259.5 in % of revenue (unaudited) ...... 6.3% 6.0% 5.5% Until the Fiscal Year 2014, R&D expenses are intended to be maintained at the level of the Fiscal Year 2012.
179 In the Fiscal Year 2012, we employed on average 2,721 FTE in our worldwide R&D sites (Fiscal Year 2011: 2,489 FTE). We have research and development activities in 38 locations (as of September 30, 2012) across the globe and along all parts of the value chain from light sources to light management systems. The number of R&D sites and the corresponding employees may decrease in the future due to adjustments regarding production sites. To lead the transition of the lighting industry to SSL with its opportunities for LEDs, LED light engines, LED lamps, LED luminaires, light management systems and OLEDs, we extended our capabilities in the Fiscal Year 2011 through the acquisition of Siteco. In the Fiscal Year 2012, we acquired the remaining interest in Traxon and we increased our shares in Encelium Holdings Inc. from 16.87% to 100%. In addition we have shifted resources in our R&D activities from traditional lighting technologies to SSL. In the Fiscal Year 2012, we deployed approximately 60% of our total R&D expenses related to the development of SSL and we plan to gradually raise this share.
Corporate Technology OSRAM differentiates between fundamental developments, applied research and product development activities. Fundamental developments are performed at e.g. universities and the applied research in the area of optical semiconductors including packaging of semiconductor components is performed in the Advanced Development Group in the business unit Opto Semiconductors. In our central Corporate Technology department the latest theoretical results are analyzed as to their applicability for lighting and if suitable technology development projects are started. In addition, this group supports the six business units in adopting new technologies within their product development activities. The units within the central department Corporate Technology are present at 10 sites in Germany, USA and China. Furthermore, this department focuses primarily on future technologies, for example, organometallic light emitting electrochemical cells (so called OLECs), that are expected to be used in the next two to seven years. It seeks early protection of our innovations through patent and other intellectual property rights, realization of technological synergies between the business units and the identification of cost reduction opportunities. The Corporate Technology organization has a special focus on SSL and has competencies in all relevant areas including materials development, light engine development, thermal management, electronics, luminaire design and development of user-oriented systems. One example for our leading material competency is the ceramic based light conversion technology for high-luminance SSL light sources used in automotive headlamps and display projectors. With this technology, we were able to double the luminance for green emitting LEDs and achieved record efficiencies of 154 lumens per watt in 2011 in the laboratory. Having this exceptional expertise in rapid identification, development and transfer to production of advanced lighting materials (phosphors, ceramics, glass, polymers or metal) is considered crucial by us. Like many other successful companies, OSRAM makes use of the “open innovation” approach in research and development. This process is driven by two dedicated functions within our Corporate Technology organization. The Innovation Management (IM) function provides insight on lighting trends and actively seeks innovative concepts and cooperation partners for products or technological solutions outside the company. The Technology Cooperation (TCO) function supports the establishment of alliances with strategic partners to conduct critical research activities and coordinates the cooperation with many leading companies such as for example BASF SE, Audi AG, Siemens AG or Infineon Technologies AG, as well as with worldwide renowned universities and research institutes such as Fraunhofer Institute (Munich, Germany), Massachusetts Institute of Technology MIT (Boston, Massachusetts) and Tsinghua University (Beijing, China). These activities allow OSRAM to obtain information about relevant technologies at an early stage which makes it possible to bring innovative products to the market.
Development in Business Units OSRAM Licht Group’s product development activities are structured along the six application oriented business units. This application orientation enables us to identify and fulfill specific customer needs. To facilitate this approach, each business unit has dedicated development centers to drive product developments and system integration world-wide. Cross-business unit issues, material innovations and major decisions are coordinated by the so-called Technology Board. Examples of focus topics in the business units include: • Applied research relating to novel semiconductor material, processes and components; • Future LED epitaxy, chips and LED packaging related topics for high brightness LEDs; • Development of platforms, e.g. to reduce complexity;
180 • Application-specific LED light engines in various designs, especially for general lighting (incl. LED lamps) and automotive forward lighting, e.g. for adaptive front-lighting systems (AFS); • OLEDs (Organic Light Emitting Diodes); • Highly efficient lasers for large video projection systems or sensoric applications such as Adaptive Cruise Control (ACC) systems; • Integration of drivers and circuits in corresponding components and platforms; • Extension of LED luminaire portfolio for professional and consumer applications, if necessary equipped with an intra-luminaire communication; • Light management systems with sensoric, intelligent controls, algorithms, interfaces and for example wireless communication with devices or to building management systems; • Focus topics for traditional lamps are: Efficiency improvements, minimization/elimination of hazardous materials, extension of lifetime, reduction of product costs.
SSL Centers Our SSL center in Regensburg, Germany, is fundamental to the development of SSL products. This center provides the pre-development and product development activities for LEDs, LED light engines and the development of organic LEDs (OLEDs). Several business units, the unit OLED and the Corporate Technology department are represented there. The Opto Semiconductors R&D group focuses inter alia on the development and optimization of LED-chips and their application specific packaging as well as on the development of multi-chip modules for high lighting power. For LED light engines, it develops and tests multi-chip technology and 1st level packaging, processes such as concepts/process validation and intellectual property. Dedicated SSL teams develop specific products on the basis of the advanced concepts tested at our SSL center. The SSL center in Shenzhen, China, supplements the R&D activities in Germany and helps to realize application synergies across business units. The focus of this center is primarily on developing or adapting technologies for products that are popular in the BRIC countries (Brazil, Russia, India and China) with growth potential.
Award Winning Innovations We have received multiple awards for essential advances in a number of technologies. For example, we won the German president’s prize for our thin-film technology and the WirtschaftsWoche Best Innovator Award in 2007, the Karl Heinz Beckurts prize in 2010 for high-efficiency green lasers and the Handelsblatt prize for our leading approach in Open Innovation. In addition, we received many awards for innovative products like the Best Electronic Design Award in 2008 for white LED prototypes, the German Sustainability Award for our large product portfolio of energy efficient products and our performance in research and development within this field, the Product of the Year prize in 2010 by Electronic Products magazine for an ambient light sensor and the Automechanika Innovation prize for the lamp Ultra Life in 2010. In 2011 we have been honored with two Lighting for Tomorrow awards at the American Lighting Association for LED lamps, the red dot design award for our OLED Airabesc luminaire and with the Automotive News PACE Award for our OSTAR-LED for headlamps. In 2012, a jury awarded a red dot design award to the LED image projector Kreios G1, the portable LED luminaire Cuby and the Raystar LED torch. Our subsidiaries likewise received multiple awards in 2011. Siteco was announced multiple times as the winner of the IF product design award. Traxon received the red dot design award in 2009 for one of its products and the “Innovationspreis Architektur und Technik” at Light & Building in 2008. Finally, Encelium won the North American Green Lighting Controls Market 2008 Emerging Company of the Year Award.
INTELLECTUAL PROPERTY RIGHTS Patents Intellectual property, which includes patents, utility models, designs, copyrights and trademarks, as well as trade secrets and know-how, is particularly important in our business. Our standard practice is to seek patent protection for technical solutions relevant to our business. Currently, the OSRAM Licht Group has approximately 20,400 patents/applications in approximately 6,200 patent families. A significant number of these patents/applications were filed after January 1, 2002, and they generally have a residual term of at least 10 years. In the Fiscal Years 2012, 2011 and 2010, the OSRAM Licht Group filed on average approximately 740 patent applications as first filings every year. In the Fiscal Year 2013, the number of patent applications will be lower
181 due to an increased focus on the selection. The OSRAM Licht Group regularly files patent applications in countries of major economic significance as well as in countries where competitors’ manufacturing sites are located. These countries include Germany, the U.S. and China, but also other European and Asian countries and occasionally other countries. Our patent portfolio is predominantly derived from employee inventions. The selection of inventions to be filed is made jointly by the relevant business unit and the patent department. The patent department prepares the filing of the patent applications and takes care of the grant proceedings with the occasional support from external patent attorneys if necessary or legally required. In cases of development by order, the OSRAM Licht Group always strives for sole ownership, while joint developments with third parties usually lead to a co-ownership of the resulting patents. Important patents of the OSRAM Licht Group relate especially to technical solutions for SSL products as well as to technical solutions for traditional light sources, related electronics and related components and pre-materials. With regard to SSL, we consider two of our own patent families particularly important to our business, WO1997/50132 and WO1998/12757, which we call the “conversion principle” and the “particle size” families. These patent families are the basis for manufacturing LEDs emitting homogenous white light generated by wavelength conversion due to the use of fluorescent substances. Although patents in particular are an important strategic asset of OSRAM, OSRAM also files design patents to prevent the unauthorized copying of product designs. The lighting industry and in particular the LED industry is characterized by a significant number of patents and patent cross-license agreements between manufacturers. We have entered into cross-license agreements or non-assertion agreements with, among others, Samsung, Nichia, Philips, Toyoda Gosei, LG and Cree, which agreements cover large parts of the worldwide LED market. Pursuant to these agreements, the contractual parties are allowed to use patents of the counterparty in the fields covered by the respective cross-license agreement. Usually, these agreements do not provide for payment of royalties as they are reciprocal by nature. Only in case there are imbalances regarding quantity or quality of the patent portfolios concerned or due to other factors, cross-license agreements may also provide for a compensation payment by a party. Cross-license agreements cover all patents in a particular technical field filed by the parties within a certain defined period. Usually, the cross-license agreement is valid for the lifetime of the respective patents. Generally we expect that we will extend the cross-license agreements with our key competitors. In addition, we have granted to and have been granted from competitors or other third parties one-way licenses in certain fields for which we receive or pay license fees. Intellectual property rights and specifically patents are of significant importance to the OSRAM Licht Group. Especially the two patent families mentioned above and certain patents by third parties licensed to OSRAM, in particular through the above-mentioned cross-license agreements with major competitors in the LED market, are particularly important to our business. Apart from this, due to our wide product range we do not believe our business to be dependent on single patents, licenses or new manufacturing processes. As intensive patent filing activity is characteristic for the lighting industry, third parties may bring claims of infringement of their intellectual property rights against the OSRAM Licht Group as we might decide to bring claims of patent infringement against another party. See “Risk Factors—Risks Relating to our Industry and our Business—We are involved in legal disputes that bear significant risks. These legal disputes comprise product warranty claims, property damage and personal injury that were caused, or alleged to have been caused, by our products, alleged false or misleading information regarding product characteristics as well as alleged intoxications with mercury and patent litigations.”, “Risk Factors—Risks Relating to our Industry and our Business—Intellectual property rights play an important role in the lighting industry. We may not be able to adequately protect and defend our intellectual property” and “Risk Factors—Risks Relating to our Industry and our Business—Our competitors possess intellectual property rights that we have to identify and respect. Accordingly, OSRAM is exposed to various risks in respect of third party intellectual property rights.”.
Brands Our major brands, particularly OSRAM and the OSRAM logo, are registered as trademarks in every country of the world where trademarks can be protected. More than 900 product names, such as BILUX, NIGHT BREAKER, POWERSTAR, LUMILUX, are furthermore registered as trademarks in numerous countries. The field of use and the territorial allocation of the trademark SYLVANIA is subject to an agreement with a third party. In the Americas region, the SYLVANIA brand is a well-known brand of our Company in the consumer business as well as to business partners in North America. Recent acquisitions of OSRAM are Traxon, Siteco and Encelium as well as their trademarks to enlarge the wide portfolio of light solutions.
182 Additionally, second brands are used besides the master brand OSRAM, in particular to position it against private labels and second brands of competitors. In the field of general lighting the key OSRAM second brand addressing the trade channel is RADIUM and that for the retail channel NEOLUX. The second brands HEJALUX and NEOLUX are used for the automotive market: HEJALUX is addressing the middle-end market and NEOLUX the low-end market. OSRAM’s second brands are also registered as trademarks in important countries. See also “—Sales and Marketing”
EMPLOYEES In the Fiscal Year 2012, OSRAM employed an average number of 40,157 FTE. As of September 30, 2012, we employed 39,194 FTE (September 30, 2011: 41,380), thereof 10,027 in Germany. The table below contains information about the average number of FTE in the different segments and geographical regions where we operate. Six months Fiscal Year ended September 30, ended March 31, 2012 2011 2010 2013 By segment General Lighting ...... 26,542 26,903 27,426 — Lamps & Components ...... 23,322 — — 21,330 Luminaires & Solutions ...... 3,220 — — 2,914 Specialty Lighting ...... 6,260 6,306 6,143 6,046 Opto Semiconductors ...... 6,559 6,424 5,375 7,063 Corporate(1) ...... 797 864 799 739 Total ...... 40,157 40,497 39,743 38,092 By geographical region EMEA ...... 15,876 15,384 14,878 15,440 thereof Germany ...... 10,047 9,250 8,585 9,927 Americas ...... 8,365 8,468 8,290 7,350 APAC ...... 15,916 16,645 16,575 15,302 Total ...... 40,157 40,497 39,743 38,092
(1) Corporate employees mainly relate to the development and production of certain pre-materials (e.g. glass). The reduction in the average number of employees as of March 31, 2013 is mainly due to personnel-related measures in connection with the “Future Industrial Footprint” project and more efficient structures in research and development, sales function as well as in central functions. Since March 31, 2013 until the date of this prospectus, the number of our employees has decreased by approximately 2,300 due to the sale of our subsidiaries Sunny World and OHK. As of September 30, 2012, OSRAM employed 3,518 contract workers worldwide. With respect to the planned reduction of our personnel due to the ongoing technological transformation in the lighting industry see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting the Results of Operations—Transformation and Restructuring Costs— Technology Shift, OSRAM Push Program and Transformation Costs”. In January 2012, OSRAM GmbH (at that time still OSRAM AG) announced measures to reduce personnel of approximately 1,000 jobs in Germany until the end of the Fiscal Year 2014. In order to implement these measures, a general social plan was agreed on with the general works council on May 10, 2012. The general social plan has a term up to September 30, 2014 and provides, amongst other things, for claims for compensation upon leaving as a result of a termination agreement or a termination given for business reasons. Employees also have the possibility to move to one of the transfer companies established related to the locations. The transfer companies each have a term of 24 months. Further measures resolved since then will likely involve a further reduction of a total of 4,700 jobs worldwide in the Fiscal Years 2013 and 2014. The intended measures relate mostly to OSRAM locations outside of Germany in accordance with the international distribution of the business volume and the current global production network. Under the current status of the planning, around 400 further jobs will be eliminated in Germany in addition to the adjustments already announced and agreed in January 2012, taking into account the existing rights of the employee representative bodies to be involved. To this end an extension of the general social plan until September 30, 2014 has been agreed with the general works council. The negotiations with the relevant employee representative bodies about a settlement of interests have for a major part been completed, some negotiations are ongoing. Additional structural measures are currently being assessed and discussed with the relevant employee representative bodies in particular in Luminaires & Solutions.
183 Parts of our employees in America, Asia and Europe are organized in country specific union organizations. In Germany, many of OSRAM’s employees are organized in the German Metalworkers’ Union (IG Metall). OSRAM GmbH is member of the Baden-Württemberg Metal and Electronics Employers’ Association (Arbeitgeberverband der Metall- und Elektroindustrie Baden-Württemberg e.V., Südwestmetall), member of the Association of Bavarian Metal and Electronics Employers (Verband der bayerischen Metall- und Elektro- Industrie e. V.) (together with OSRAM Opto Semiconductors GmbH) and the Berlin and Brandenburg Metal and Electronics Employers association (Arbeitgeberverband der Metall- und Elektroindustrie Berlin und Brandenburg). Members of these organizations are bound by the respective collective bargaining agreements. In the past three years, there were only few small-scale warning strikes during the wage negotiation rounds. Good relationships with our employees are especially important to us. For example, there is a company-specific arrangement in the U.S. pursuant to which OSRAM voluntarily pays severance payments in the event of business-related cancellation agreements (Sylvania Voluntary Severance Program). For senior executives we are currently evaluating the implementation of a share-based compensation system (in addition to the fixed and variable compensation (bonus)) based on the model used for the members of the Managing Board; see “Management—Managing Board—Compensation of Managing Board Members—Remuneration System”. Our German employees are represented by works councils. Works councils have numerous rights relating to the notification and co-determination in personnel, social and economic matters. Under the German Works Constitution Act (Betriebsverfassungsgesetz – BetrVG), works councils are required to be notified in advance of any proposed employee termination, must confirm hiring and relocations and similar matters. They also have a right to co-determine social matters such as work schedules and rules of conduct. In addition, OSRAM has concluded with the German Metalworkers’ Union and the general works council an agreement for the future in connection with our future orientation, structural changes and restructuring of the OSRAM group in Germany (Grundsätze über Zukunftsausrichtung, Strukturänderung und Restrukturierung im OSRAM-Konzern in Deutschland). Furthermore, OSRAM is party to certain collective agreements/shop agreements, in particular in Germany and France, in which promises on the safeguarding of the respective locations and non-relocation of products manufacturing in these locations were agreed. OSRAM Licht AG plans to implement share programs for employees and a share based compensation program for the senior management in the Fiscal Year 2014; details of these programs have not yet been determined.
INSURANCE In the past we were covered by Siemens’ global umbrella insurance policies (so called Global Lines Insurance). Prior to the Spin-off we have sought our own insurance cover with the assistance of professional insurance brokers. We have insurance coverage through various insurance policies, including Product and General Liability, Environmental Liability (subject to customary exceptions, such as no coverage for remediation of incidents that were not sudden or accidental), Property and Business Interruption insurance, Credit insurance for customer receivables, Fidelity insurance and Marine Cargo insurance. OSRAM has also taken out a Directors’ and Officers’ (D&O) Liability insurance policy for board members and an Employment Practises Liability insurance (which covers, among other things, the employer’s liability in case of discrimination claims). We believe that the OSRAM Licht Group is adequately insured and that we pay appropriate premiums for this coverage. The insurance coverage is regularly evaluated and adjusted as necessary. It cannot, however, be ruled out that the Company or one of the companies within the OSRAM Licht Group could suffer damages that are not covered by the existing insurance policies or that exceed the coverage limits set in these policies. Furthermore, there is no guarantee that we will also be able to obtain adequate insurance cover at appropriate conditions in the future.
RISK MANAGEMENT AND COMPLIANCE We continuously seek to reduce various risks to which we are exposed, including the risk that employees in some of our business activities may engage in illegal business practices. The aim of our risk management and compliance system is to observe all applicable legal regulations through our risk management and functional departments. For these purposes, we have implemented organizational, information technology and human resources strategies, which we continuously monitor, develop and improve. We have also implemented a compliance system relating to anti-corruption and anti-trust regulations in order to prevent, detect and respond to potential violations.
184 Risk Management We operate in an increasingly complex business environment which is subject to ongoing change, and as such will inherently face new risks and opportunities. Our ability to effectively deal with risks and opportunities is a major factor in creating and protecting value for our stakeholders. Risk management comprises a set of processes and systems through which our management identifies, assesses and, where necessary, responds appropriately to risks that might adversely affect the realization of the organization’s business objectives or opportunities. Our risk management system is designed to protect business resources against potential loss and to identify new opportunities. In addition, we have in the past closely co-operated with Siemens in selected risk management areas and benefitted from its established risk management systems. Our risk management system uses standardized methods designed for identifying risks and opportunities, capturing impact and likelihood of a given risk/opportunity, and clearly defines accountabilities and procedures for managing these risks/opportunities. The ultimate purpose of our risk management is not to completely avoid or eliminate risks, but to support entrepreneurial spirit by finding the right balance between managing risks and seizing opportunities. One of the prerequisites for proactively managing risks is to create transparency in relation to the overall risk situation, i.e. to provide timely and relevant information to the appropriate level of management. We have identified numerous strategic, operational, financial, legal and compliance risks that we have clustered into major topics. The risk management system is a continuous cycle with the objective of proactively managing our risks/opportunities. It includes the process steps ‘identify’, ‘assess’, ‘respond’, ‘monitor’, ‘report and escalate’ and ‘sustain and continuously improve’. In order to ensure a comprehensive view on the overall risk/opportunity situation, a top-down perspective is combined with a bottom-up perspective. The top-down perspective involves senior management with a broad overview of the OSRAM business and is considered in various stages of the risk management process. The bottom-up perspective involves individuals in the organization who are close to day-to-day operations and who identify risks/opportunities with a view on the achievement of their objectives. Different categories are determined to allow a systematic and standardized evaluation of the likelihood of a risk materializing and its potential impact on our business. Risk owners are identified and a response plan must be documented for major risks in which a target exposure level and the expected mitigation date is fixed. The same applies for opportunities. The risks/opportunities are updated and reported quarterly in the respective OSRAM register. Once per year, workshops with the senior management of business units, regions and corporate functions are performed in order to verify, review and assess the risk and opportunity registers. Furthermore, the objective of these workshops is to identify new risks and opportunities. The consolidated results of these workshops and the quarterly reviews are discussed with the Managing Board of OSRAM Licht AG in the respective “OSRAM Risk and Internal Control Committee” (ORIC).
Compliance As part of the Siemens Group, we were integrated into the Siemens compliance system, which was initially developed and implemented in response to the discovery of systematic violations of anti-corruption laws and accounting regulations in several Siemens divisions over many years. In this context criminal investigations were carried out by the office of the public prosecutor in Munich, Germany, the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice, numerous other investigating authorities worldwide. Additionally independent internal investigations were conducted by the U.S. law firm Debevoise & Plimpton in 2007 and 2008. In preparation for our separation from Siemens, we have implemented our own compliance system, the key features of which are based on the system developed by Siemens. The compliance system is organized in an operative and a legal function. Our Chief Compliance Officer is the head of both functions and is responsible for OSRAM’s compliance risk activities. In our compliance structure we employ approximately 44 FTE (8 FTE in our headquarters in Munich). Our compliance system is designed to prevent, detect, and respond to potential violations of existing anti- corruption and antitrust provisions based on internal guidelines and trainings. The Business Conduct Guidelines which were adopted in 2009 define group wide rules of conduct, specifically on efforts to combat corruption and on proper conduct when engaging in competition. In addition, we address compliance-related risks through various IT tools. For example, we classify our business partners based on certain risk indicators, such as the level of corruption in the country in which the relevant business partner operates. We have also introduced country- specific tools addressing issues relating to giving and receiving gifts and hospitalities, sponsorships, donations, and memberships. All compliance regulations are continuously evaluated with regard to their practicability and adjusted or further developed if necessary. To ensure the implementation of our compliance system, multiple face-to-face and web-based trainings have been conducted, including at the top management level. All of our compliance officers undergo intense training in four-day introductory courses. We keep all of our employees informed about compliance measures and new developments through circulars, our intranet and via email.
185 Compliance procedures provide an approval-process as well as checks of high risk payments to third parties. We furthermore integrated rules in our human resources processes, such as compliance screening in connection with the hiring of senior management. In order to detect and respond to compliance violations, we rely on an external anonymous whistleblower hotline. Furthermore, all employees have the option to report violations to our compliance organization. We follow up on any indication of a violation. An internal compliance investigation is launched if justified by concrete evidence. Upon completion of an investigation, we propose remedies for the identified deficits and supervise their implementation. We also respond to detected misconduct with employment-law disciplinary sanctions. We monitor, evaluate and improve the OSRAM compliance system on a continuous basis.
LEGAL AND ARBITRATION PROCEEDINGS In the ordinary course of business, we are involved in a series of governmental, legal and arbitration proceedings. In addition to claims for damages and warranty claims, litigation from the ordinary course of business especially includes patent and trademark litigation (such as infringement lawsuits which may result in license or damage payments due from us). Except for the proceedings described below, neither the Company nor any companies of the OSRAM Licht Group are currently involved and have during the period of the past twelve months been involved, respectively, in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which we are aware), which may have or have had in the recent past significant effects on the financial position or profitability of the Company and/or the OSRAM Licht Group. For certain cases we have set up provisions in an amount we consider appropriate. In addition, in some instances (regarding product liability claims) we are covered by insurance, subject to deductibles.
Product Liability Claims Product Liability Claims in Germany regarding Standard LEDs Used in Car Lamps Since summer 2010, OSRAM Opto Semiconductors GmbH, Germany (“OSRAM OS”), has been the defendant in two product liability claims brought by the car lamp producers Hella KGaA Hueck & Co., Germany (“Hella”), and Automotive Lighting Reutlingen GmbH, Germany (“Automotive Lighting”) before the regional court (Landgericht) of Regensburg, Germany. The plaintiffs seek to judicially assess the liability of OSRAM OS for allegedly defective LEDs used in car lamps. Hella also claims to be reimbursed for specifically incurred cost. Due to silver corrosion caused by sulfur compounds within the car lamp, the LED lamps became inoperable. The respective replacement actions led, and may lead to further costs for the plaintiffs for which they seek reimbursement from OSRAM OS. It is claimed that the LEDs provided by OSRAM OS are not suited for the use in car lamps and are therefore defective and that OSRAM OS should be responsible for the costs incurred by the plaintiffs. OSRAM OS has moved to dismiss the action as the supplied LEDs met the required specifications and were free of defects; in addition the assembly and combination of these standard LEDs with other parts of a car lamp system is out of OSRAM’s control and responsibility. In September 2011, Hella has specified its claim for damages to an amount of €40.7 million plus any further damages arising in the future. The regional court of Regensburg has set the value of the Hella case to €30 million. We negotiated an out-of court settlement of the claim with Automotive Lighting on December 22, 2011 and Automotive Lighting withdrew its claim before the court on January 6, 2012. In respect to the Hella claim, the Regional Court of Regensburg dismissed the claim in its entirety after the oral hearing on January 19, 2012. Hella appealed against this decision to the higher regional court (Oberlandesgericht) in Nürnberg on March 7, 2012. In the appeal proceedings, Hella has extended its claim for damages to an amount of €88.8 million in February 2013. The first oral hearing at the higher regional court (Oberlandesgericht) in Nürnberg took place on March 13, 2013. The court indicated in this hearing that it will not maintain fundamental legal positions of the first instance decision and that it will most likely obtain an expert opinion on Hella’s and OSRAM OS’ respective share in causing the damage. OSRAM OS is defending itself against the claim. Therefore, we cannot rule out that OSRAM OS will be required to reimburse Hella a currently unknown amount.
Product Liability Claims in the U.S. Travelers et al versus OSRAM SYLVANIA In March 2010, the insurance companies Travelers Property Casualty Company of America, U.S. (“Travelers”), Factory Mutual Insurance Company, U.S. (“Factory Mutual”), and Briggs & Stratton Power Products Group LLC, U.S. (“Briggs & Stratton”) filed lawsuits before the U.S. District Court for the Western District of Tennessee against our subsidiary OSRAM SYLVANIA INC., U.S. (“OSRAM SYLVANIA”). The plaintiffs claim damages in an aggregate amount of $50 million for both lawsuits due to a fire allegedly caused
186 by the rupture of a metal halide lamp. The fire destroyed a warehouse building at Dyersburg, Tennessee, previously used as a manufacturing site. All parties dismissed their cases without prejudice in June 2010. However, Briggs & Stratton, the tenant of the damaged property, refiled its case in May 2011 before the Circuit Court for Dyer County, Tennessee, U.S. claiming $25 million in property damage. Travelers had until December 1, 2011 to re-file its case, which it did not do; accordingly this part of the case is finished. Discovery is expected to be terminated in 2013 and trial is expected for the end of 2013 or the beginning of 2014. Given the recent re-filing of the case and the early stage of proceedings, OSRAM SYLVANIA cannot predict the outcome of this case. OSRAM SYLVANIA will defend itself against this claim.
Murphy Bonded et al. versus OSRAM SYLVANIA In January 2011, Murphy Bonded Warehouse LLC, U.S. (“Murphy Bonded”), International Paper Company, U.S. (“International Paper”) jointly with Factory Mutual Insurance, U.S. filed suits before a state and a federal court against OSRAM SYLVANIA claiming a fire and related property damage was caused by the rupture of a 400 watt metal halide lamp. The lamp which allegedly caused the fire has not been produced or identified for inspection. We have reason to question that a defective lamp was the cause of the fire. The combined property damage claims raised by Murphy Bonded and International Paper amount to $10 million. The plaintiffs filed comparable lawsuits against additional parties allegedly related to the cause of fire. In August 2012, OSRAM SYLVANIA filed a motion for summary judgment in the federal court case brought by International Paper. On October 23, 2012, summary judgment was granted and the claim against OSRAM SYLVANIA was dismissed. Two further proceedings in connection with the fire are still pending: The suit filed by Lloyds of London, the insurer of International Paper at the federal court and the suit filed by Murphy Bonded, the owner of the facility, at the state court. We aim at a voluntary withdrawal of the suit filed by Lloyds of London and a summary judgment against Murphy Bonded. Until the proceedings with Lloyds are completed and we receive the information regarding the allocation of the damage amount, respectively, in our opinion, the potential damage amount remains $5 million for Murphy Bonded and $5 million for Lloyds of London. OSRAM SYLVANIA defends itself against the actions.
Maxim and Lexington versus OSRAM SYLVANIA et al. OSRAM SYLVANIA is subject to investigation proceedings initiated by Maxim Production Company. Inc., U.S. (“Maxim”), and Lexington Insurance Company, U.S. (“Lexington”) regarding the cause of a fire at an egg production facility in Boling, Texas, that occurred in 2010. According to Lexington, the property damages amount to $20 million. Furthermore, a fire fighter was killed during the fire-fighting operations. Maxim and Lexington allege that the blaze was either caused by the failure of a fluorescent lamp, fixture or connected component. The inspections on the fire scene have been completed and no evidence was produced linking a lamp as the cause of the fire. A lawsuit was filed in April 2012 by Lexington, the property insurer for the egg production facility, against all companies involved in the lighting of the plant including OSRAM SYLVANIA with no specific allegation against any of the parties. On July 5, 2012, the surviving family of the fire fighter filed a motion to intervene the Lexington lawsuit. Following results of a laboratory test of the residuals of the fire, the plaintiffs withdrew their cases against OSRAM SYLVANIA with prejudice. It cannot be assessed whether the co-defendants Simkar LLC, U.S., Leviton Manufacturing Company, U.S., and Philips Electronics North America, U.S. will also waive potential claims for recourse against OSRAM SYLVANIA. However, OSRAM SYLVANIA will endeavor to collect waivers by these parties as well.
Wells Fargo, Colonial et al. versus OSRAM SYLVANIA et al. OSRAM SYLVANIA has been involved in investigation proceedings initiated by Wells Fargo Bank, U.S (“Wells Fargo”) in March 2013 regarding the cause of a fire in a building rented by Wells Fargo. Wells Fargo’s property damage claim is $1.9 million. Wells Fargo alleges that the fire was caused by the failure of a SYLVANIA 250 watt metal halide lamp. OSRAM SYLVANIA takes the view that the lamp was not used in an enclosed luminaire as required by the safety instructions for the product. In May 2011, Wells Fargo, the tenant of the building, filed suit against SSH Management LLC, U.S. (“SSH”), the property manager and Colonial Electric Supply, U.S. (“Colonial”), the seller of the metal halide lamp in question. In August 2011, the building owners, 123 South Broad Condominium Association, 123 South Broad GP, LLC and 123 South Broad Partners LP, U.S. (together “123 South Broad”) also filed suit against Colonial. 123 South Broad’s property damage claim is $6.5 million. In November 2011, Colonial filed a joinder complaint against the additional defendants OSRAM SYLVANIA and SSH for contribution and indemnity. By order dated October 11, 2011, the two cases were consolidated for discovery and trial. Colonial denied liability, but pled that Colonial looks to OSRAM SYLVANIA to be held liable in the event the owner recovers any judgment against Colonial based upon
187 allegations related to the mode of operation or warnings of the metal halide lamp. In spring 2012, 123 South Broad also filed direct claims against OSRAM SYLVANIA and SSH and Wells Fargo for punitive damage against Colonial. In May 2013, Colonial filed joinder complaint against the additional defendant OSRAM SYLVANIA for contribution and indemnity in the Wells Fargo matter. In the mediation hearing on April 24, 2013 that was scheduled by the court no agreement was reached. The asserted damage claims amount to $8.4 million (€6.5 million). OSRAM SYLVANIA will defend itself against these claims.
Allianz México versus OSRAM SYLVANIA Allianz México, S.A. Compañia de Seguros, Mexico, in its capacity as property insurer of Kimberly Clark de México, S.A.B. de CV, Mexico (“Kimberly Clark”) filed a lawsuit on October 26, 2012 based on assigned rights against OSRAM SYLVANIA and Holophane Corporation, Granville, Ohio, U.S., before the court of Essex County, Massachusetts, USA. The complaint has been formally served on OSRAM SYLVANIA on January 23, 2013. The lawsuit is based on a fire incident in a Kimberly Clark plant in Morella, Mexico, that occurred on June 1, 2012. According to the plaintiff’s allegations, the fire was caused by a defect of a metal halide 250W lamp which was produced by OSRAM SYLVANIA. Although the complaint does not contain a specific amount of damages, OSRAM SYLVANIA was informed that the property damages amount to approximately $75 million. OSRAM SYLVANIA will defend itself against these claims.
Pliant Corporation versus OSRAM SYLVANIA In July 2011, Pliant Corporation, U.S., and several insurance companies filed a lawsuit before the Brown County Circuit Court, Wisconsin, against OSRAM SYLVANIA for property damages concerning a fire in a printing press allegedly caused by one of its components. OSRAM SYLVANIA supplied the relevant component, a triple pass heater, for this machine. The plaintiffs expect the claimed damages to amount to $10 million. OSRAM SYLVANIA and Pliant Corporation agreed on a settlement in February 2013. The lawsuit is therefore terminated for OSRAM SYLVANIA.
Cabot (Arkansas) versus Cooper Lighting versus OSRAM SYLVANIA In August 2006, a fire destroyed the school building of Cabot Junior High School, Arkansas, U.S. (“Cabot”). The insurer, Great American Insurance Company, Cincinnati, Ohio, U.S., initiated an investigation and notified OSRAM SYLVANIA that a ballast manufactured by OSRAM SYLVANIA had been found in the building. In April 2009, Cabot filed a complaint against Cooper Industries, Houston, Texas, U.S. (“Cooper”). Subsequently, Cooper initiated third-party notice proceedings against OSRAM SYLVANIA, but abandoned such proceedings subsequently. The plaintiff and Cooper agreed on a settlement in August 2010.
Imran Chaudhri, individually, and on behalf of Others Similarly Situated, versus OSRAM SYLVANIA and OSRAM SYLVANIA Products On September 22, 2011, a suit was filed against OSRAM SYLVANIA and OSRAM SYLVANIA Products Inc., U.S. (“OSRAM SYLVANIA Products”) in the U. S. District Court for the District of New Jersey by Plaintiff Imran Chaudhri and on behalf of a class of consumers made up of purchasers of SilverStar® head lamps. On January 9, 2012, the plaintiff amended his complaint and alleged that various performance claims and advertising regarding the lamps are “false and misleading” within the meaning of New Jersey’s Consumer Fraud Act. The claimant seeks certification of a nationwide consumer class action under the New Jersey Consumer Fraud Act and damages in an unspecified amount. In conformity with an order of the presiding judge, proceedings to determine whether a class action lawsuit is appropriate are underway. OSRAM is continuously assessing the allegations on the basis of the ongoing survey proceedings. OSRAM SYLVANIA and OSRAM SYLVANIA Products are defending themselves against the action. These survey proceedings are currently ongoing.
ER Carriers Inc. versus OSRAM SYLVANIA Ltd./LTEE and OSRAM SYLVANIA In 2009, ER Carriers Inc., King City, Ontario, Canada (“ER Carriers”) filed a complaint against OSRAM SYLVANIA Ltd./LTEE, Mississauga, Ontario, Canada (“OSRAM SYLVANIA Canada”) and OSRAM SYLVANIA with regard to a contract for cross-border transportation services between the U.S. and Canada which was awarded to OSRAM SYLVANIA Canada and another company in a public tender. ER Carriers claimed damages in the amount of CAD 5 million (€3.7 million) from OSRAM SYLVANIA Canada and OSRAM SYLVANIA. The complaint was dismissed in February 2011.
188 Other Proceedings Legal Proceedings regarding the Recolight WEEE Recycling System In 2009, Electric Waste Recycling Group Limited, UK, and City Electrical Factors Limited, UK, filed a suit against, among others, OSRAM Ltd., UK (“OSRAM UK”), before the High Court of Justice for England and Wales in respect of certain allegations of violations of competition laws concerning Recolight Ltd., UK. Recolight Ltd. was formed by OSRAM UK together with other companies and operates a recycling scheme carrying out the collection and recycling of lamps pursuant to the EU directive regarding Waste Electrical and Electronic Equipment (“WEEE Directive”) and its implementation in the United Kingdom. The plaintiffs in the lawsuit claimed that the defendants including OSRAM UK have violated several competition laws and the WEEE-directive and consequently the laws implementing the WEEE Directive in the United Kingdom. The court already dismissed the plaintiffs’ claims to the extent they relate to an alleged violation of the WEEE Directive and the provisions implementing the directive in the United Kingdom. However, the claims regarding the violation of competition law were further supplemented by the plaintiffs. Furthermore, the plaintiffs asserted damages, including a restitution of the recycling fee indirectly paid by them. The proceedings were closed by a settlement decree sealed by the High Court on October 12, 2012.
Action by the Republic of Iraq with respect to the UN Oil-for-Food Program In June 2008, the Republic of Iraq filed an action requesting unspecified damages against 93 named defendants with the U.S. District Court for the Southern District of New York on the basis of findings made in the “Report of the Independent Inquiry Committee into the United Nations Oil-For-Food Program” (also known as the “Volcker Report”). OSRAM Middle East FZE, Dubai (“OSRAM Middle East”), is among the defendants and has received service of process. OSRAM Middle East is defending itself and requested in January 2010, together with other named defendants, that the court dismiss the action. The court has dismissed the action on February 6, 2013. The Republic of Iraq has appealed against the decision on February 15, 2013.
Missing Environmental Assessment in China Chung Tak Lighting Control Systems (Guangzhou) Ltd. (“Chung Tak”), China, a subsidiary producing electronic control gear in which we hold 58.5%, received a notice in July 2010 from the local environmental administration stating that Chung Tak lacks certain environmental assessments for some of its production buildings. The local environmental administration imposed a fine and intended to order a production stop for the affected buildings which has, however, never been implemented. In our opinion, there is no basis for such measure. On June 7, 2012, the outstanding environmental permit was issued by Panyu Environmental Protection Bureau and we consider this issue solved.
Osasco Labor Prosecutor’s Office et al. versus OSRAM do Brasil In September 2012, the labor prosecutor (Osasco Labor Prosecutor’s Office) filed a so called civil public action against OSRAM do Brasil Lampadas Eléctricas Ltda., Brazil (“OSRAM do Brasil”) based on a possible chronic intoxication of 25 former employees with mercury in connection with the use of mercury in the production. The Osasco Labor Prosecutor’s Office claims from OSRAM do Brasil inter alia, the payment of compensation as collective immaterial (“moral”) damages in the amount of 100 million Brazilian Reals (approximately €37 million) and the payment of compensation of 500,000.00 Brazilian Reals (approximately €185,000.00) to each affected worker as well as funding of a lifetime health care plan. Due to the characteristics of the civil public action, the number of people affected may increase further. Additionally, the association of workers that were poisoned with mercury in Brazil (AEIMM) that meanwhile joined the proceedings as additional plaintiff demands from OSRAM do Brasil essentially additional immaterial damages in various forms for workers, family members and external service providers, lost profits, payment of lifetime pensions for family members of deceased workers as well as lifetime pensions for children that have been injured as a result of a parent’s intoxication with mercury.
Morrison Foerster versus OSRAM On September 19, 2012, the law firm Morrison & Foerster LLP, Washington D.C., U.S. (“Morrison Foerster”), initiated arbitration proceedings against OSRAM GmbH, OSRAM OS, OSRAM SYLVANIA and OSRAM Opto Semiconductors Inc., U.S., before the American Arbitration Association (“AAA”) with regard to the legal representation in certain proceedings before the U.S. International Trade Commission (“ITC”). Morrison Foerster seeks the award of a payment title in the amount of at least $26.7 million (€20.9 million) for
189 alleged legal fees as well as legal fees and costs incurred in connection with the arbitration proceedings before the AAA. We are defending ourselves against this claim. Furthermore, OSRAM GmbH, OSRAM SYLVANIA, OSRAM OS and OSRAM Opto Semiconductors Inc. raised claims against Morrison Foerster in connection with their representation by Morrison Foerster in arbitration proceedings, which were filed on January 16, 2013 before the International Court of Arbitration of the International Chamber of Commerce (“ICC”). On February 13, 2013, Morrison Foerster filed an amended arbitration claim to join Siemens Corporation, U.S., as an additional respondent for the payment claim in the AAA proceedings. In March 2013, Morrison Foerster in its answer filed a counterclaim (for a payment title in the amount of at least $26.7 million) and a request to join Siemens Corporation as an additional respondent for the counterclaim of Morrison Foerster in the ICC proceedings.
Legal Proceedings regarding Real Estate in Italy In 2003, LM Real Estate SPA, Milan, Italy, and Jargonnat Partners SCARL, Luxembourg, filed a law suit against OSRAM S.p.A., Milan, Italy (“OSRAM Italy”) before the civil court of Milan, Italy. The plaintiffs claimed damages based on the breach of a pre-agreement on the sale of real estate which OSRAM Italy had subsequently sold to a third party. In March 2011, the court awarded repayment of a downpayment and damages to the plaintiffs for which OSRAM had formed a provision in the previous years. In October 2011, the parties agreed on a settlement and OSRAM paid a settlement amount of €6.3 million to the plaintiffs. The reversal of the provision in the Fiscal Year 2011 resulted in income in an amount of €2.5 million.
State of Sao Paulo versus OSRAM do Brasil The Sao Paulo State Treasury Office issued two infraction notices against OSRAM do Brasil regarding the so-called “ICMS tax” for the years of 2006 to 2008 (ICMS – „Imposto sobre Operações relativas à Circulação de Mercadorias e Prestação de Serviços de Transporte interestadual e intermunicipal e de Comunicação” – tax on the circulation of merchandise and on rendering of interstate and inter-municipal transportation services and on communications), in which Sao Paulo State Treasury Office requests from OSRAM do Brasil considerable ICMS tax debts plus fines and interest, and at the same time disallowed considerable ICMS tax credits which would also result in a collection of the tax amounts which have previously been settled with these credits plus fines and interest. OSRAM do Brasil has filed administrative defenses against such infraction notices.
Antitrust Proceedings In November 2011 and June 2012, the European Commission requested OSRAM GmbH to present its legal position regarding potential anti-competitive arrangements alleged by third parties concerning the licensing program for LED based luminaires of a third party and the participation of OSRAM GmbH therein. No formal proceedings have been opened against OSRAM GmbH. We are cooperating with the authority. In March 2011, the Competition Commission of Mexico initiated investigations with regard to anti- competitive practices on the Mexican ballast market. OSRAM S.A. de C.V., Mexico (“OSRAM S.A.”) was requested by the Competition Commission to present information on aspects of its local ballast business in November 2011. On January 21, 2013, the Competition Commission has communicated its preliminary position and has stated that OSRAM S.A. was allegedly involved to a limited extent in anti-competitive arrangements. OSRAM S.A. responded against the allegation points on March 5, 2013 in time. On June 14, 2013, the Competition Commission rendered its decision, but did not impose a fine on OSRAM. The Commission stated that the activities in which OSRAM S.A. participated did not give rise to the determination of a fine.
Patent and Trademark Litigation OSRAM versus Samsung and Samsung versus OSRAM Since 2011 OSRAM Licht Group companies have been involved in numerous patent lawsuits with companies within the group of Samsung Electronics Co., Ltd., South Korea (“Samsung Group”). On the one hand, OSRAM had sued Samsung Group companies and certain of their customers in the U.S. (inter alia, in front of the U.S. International Trade Commission, “ITC”), South Korea and Germany for patent infringements to enforce patents on Light Emitting Diode (LED) technology, and were requesting injunctions against unauthorized use of the asserted patents and, in some cases, import bans and compensation. In addition, OSRAM had commenced patent invalidation proceedings relating to patents of the Samsung Group on LED technology in South Korea. Samsung Group companies had, on the other hand, initiated patent invalidation proceedings and oppositions relating to OSRAM patents on LED technology in South Korea and Germany. In addition, Samsung Group
190 companies had filed patent infringement lawsuits in the U.S. (inter alia, in front of the ITC), South Korea and Germany, requesting injunctions against unauthorized use of the asserted patents and, in some cases, import bans and compensation from OSRAM. The patent infringement lawsuits initiated by Samsung Group companies partly involved direct and indirect customers of OSRAM. Furthermore, Samsung Electronics Co., Ltd., Korea (“Samsung Electronics”), acquired a patent that Bluestone Innovations Texas, LLC, U.S. (“Bluestone Innovations”), had invoked in a lawsuit against OSRAM GmbH, OSRAM SYLVANIA and OSRAM OS before the U.S. Eastern District Court of Texas, in May 2010. Bluestone Innovations had alleged that certain of OSRAM’s LED products infringe a U.S. patent held at that time by Bluestone Innovations. In January 2012, the case was transferred to the U.S. District Court for the Northern District of California. In August 2012, Samsung Electronics and OSRAM GmbH agreed on a settlement agreement. According to the agreement all pending patent litigations between Samsung Group and OSRAM Licht Group on LED technology worldwide were resolved.
OSRAM versus LG and LG versus OSRAM Since June 2011 OSRAM Licht Group companies have been involved in numerous patent lawsuits with companies within the group of LG Electronics Inc., South Korea (“LG Electronics”), and LG Innotek Co., Ltd., South Korea (“LG Innotek”; together “LG Group”). OSRAM filed patent lawsuits in the U.S. (inter alia, in front of the ITC), in Germany, in South Korea (inter alia, in front of the Korean Trade Commission (“KTC”), in Japan and in China to enforce OSRAM’s patents on LED technology. In some cases these actions included customers of the LG Group. In the lawsuits OSRAM claimed that LG Group companies infringe patents on white and surface mountable LED technology. OSRAM requested injunctions from the respective courts against unauthorized use of the asserted patents and in some cases import bans and compensation. Additionally, OSRAM filed invalidation proceedings and oppositions against patents and utility models of companies within the LG Group in China, South Korea, Germany and the U.S. In April 2012, the KTC dismissed a complaint of OSRAM to issue an order requesting suspension of the export of certain LED products of a LG Group company. OSRAM filed an appeal against this decision at the Korean Trial Commission. In June 2012, the regional court (Landgericht) of Hamburg found that certain products of a LG Group company infringe one LED conversion principle patent of OSRAM. LG Group appealed this decision. In some further decisions the Regional Court of Hamburg stayed the proceedings against a LG Group company until the decision on the validity of the respective patents. In response to OSRAM’s lawsuits, LG Group companies initiated patent invalidation proceedings and oppositions against patents of OSRAM on LED technology in South Korea, China, Japan, Great Britain, Germany and the U.S. Furthermore, LG Group companies initiated patent infringement lawsuits against OSRAM in South Korea (inter alia, in front of the KTC), in China, in the U.S. (inter alia, in front of the ITC) and in Germany requesting injunctions against unauthorized use of the asserted patents and in some cases compensation and import bans. The patent infringement lawsuits initiated by LG Group companies were partly also directed against direct and indirect customers of OSRAM. In June 2012, the KTC decided to dismiss LG’s complaint for an import ban for certain OSRAM products. LG appealed against this decision before the Korean Administrative Court. At the end of October 2012, LG Innotek, LG Electronics and OSRAM agreed on a settlement agreement. According to the agreement, all pending LED patent disputes between LG Group and the OSRAM Licht Group worldwide were resolved to the extent possible. The appeal against decisions in invalidation lawsuits regarding OSRAM patents in China is still pending; however, LG group is not actively involved anymore.
ICC Trademark Arbitration Since December 2006, OSRAM SYLVANIA was party to an arbitration proceeding before the International Court of Arbitration of the International Chamber of Commerce (ICC) against Havells India and some of its subsidiaries, including Sylvania Lighting International B.V., The Netherlands (“SLI”), Havells USA Inc., U.S. (“Havells USA”) and Flowil International Lighting (Holding) B.V., The Netherlands (“Flowil”) (collectively “Havells”) in connection with breaches and threatened breaches by Havells of a trademark allocation agreement allocating ownership and responsibilities related to the Sylvania trademark (the “Trademark Allocation Agreement”). Havells in turn initiated trademark litigation in India, as described below, and initiated trademark infringement litigations against several Chinese suppliers of OSRAM SYLVANIA.
191 The arbitration proceedings were terminated in September 2012 as a result of a settlement between Havells and OSRAM with regard to the trademark SYLVANIA. According to the settlement terms, the pending ICC arbitration as well as parallel proceedings in the U.S. which had been initiated in the meantime were dismissed.
Trademark Litigation in India In India, OSRAM GmbH and OSRAM SYLVANIA have been parties to a trademark infringement lawsuit initiated by Flowil and Havells India. According to the claimants, OSRAM SYLVANIA violated the aforementioned Trademark Allocation Agreement. As a result of a settlement concluded in September 2012, the Indian trademark claim was withdrawn.
Professor E. Fred Schubert versus OSRAM On July 18, 2012, Professor E. Fred Schubert filed a complaint for infringement of a United States patent against OSRAM GmbH, OSRAM OS, OSRAM Opto Semiconductors, Inc., and OSRAM SYLVANIA in the United States District Court for the District of Delaware. The complaint alleges that OSRAM is manufacturing, marketing, distributing, using, selling, and/or offering to sell high-brightness GaN-based LEDs that allegedly infringe the patent, including LEDs incorporating technology known as “ThinGaN”. The answer and a motion to transfer the case to another court were filed on November 7, 2012. The motion to transfer the case to another court was denied on February 14, 2013. The defendants will defend themselves against the claim.
Lexington Luminance LLC versus OSRAM SYLVANIA et al. On August 21, 2012, Lexington Luminance LLC, U.S., filed a complaint for infringement of a United States patent against OSRAM SYLVANIA in the United States District Court for the District of Massachusetts. It is alleged that OSRAM SYLVANIA is infringing the patent by making, using, selling, or offering for sale in or importing into the United States LED products used for lighting applications, including, without limitation, at least the Sylvania 8-watt A19 LED lamp model LED8A/0/F/827/HVP and other similar products. A motion filed by Lexington Luminance LLC to reassign the case to another judge was denied on January 25, 2013. On March 7, 2013, OSRAM SYLVANIA and Lighting Science Group Corporation, U.S., agreed with Lexington Luminance LLC to consolidate Lexington Luminance’s claims against OSRAM SYLVANIA and Lighting Science Group Corporation in one proceeding. OSRAM SYLVANIA will defend itself in these proceedings.
Prof. Neumark Rothschild versus OSRAM In April 2009, Prof. Gertrude Neumark Rothschild (“Prof. Neumark Rothschild”) launched a series of patent infringement lawsuits against major global electronic manufacturers; OSRAM GmbH and OSRAM OS have been sued in Germany for alleged infringement of a patent for LED and Laser diode technologies. The patent has expired in August 2009. As a countermeasure, we have filed an invalidation action against the patent with the German Federal Patent Court. In a decision of November 2011, the German Federal Patent Court has determined that the asserted claims of the patent in dispute are invalid. Prof. Neumark Rothschild appealed this decision to the German Federal Court of Justice (Bundesgerichtshof). By decision dated June 18, 2013, the German Federal Court of Justice set aside the decision of the German Federal Patent Court rendered in November 2011 and referred the matter back to the Patent Court for another hearing and decision. In 2010, the Regional Court Düsseldorf recognized OSRAM’s principal liability in this case. The value of the case was set to €4 million. We have appealed this decision. After the partial invalidation of the patent by the German Federal Patent court, the appeal at the higher regional court (Oberlandesgericht) of Düsseldorf has been stayed until the final decision on the pending invalidation action. Prof. Neumark Rothschild deceased during the proceedings which are continued by her administrator. OSRAM will defend itself in these proceedings.
Digital Gadgets versus OSRAM SYLVANIA On June 13, 2012, Digital Gadgets LLC (“DG”) filed a lawsuit against OSRAM SYLVANIA in the United States District Court of Massachusetts. The lawsuit is based on OSRAM SYLVANIA’s refusal to accept DG’s request to renew its trademark licensing agreement. OSRAM SYLVANIA’s refusal to renew was based on several factors, including DG’s failure to comply with the renewal terms of the agreement. DG alleges that OSRAM SYLVANIA breached the terms of the trademark license agreement by rejecting DG’s request to renew. OSRAM SYLVANIA filed its answer to the complaint on July 17, 2012. In addition, on October 16, 2012, OSRAM SYLVANIA filed counterclaims against DG in which OSRAM SYLVANIA seeks both damages and injunctive relief. On June 7, 2013, the parties agreed on a settlement of the dispute and DG dismissed its complaint with prejudice. The case is closed.
192 CAO Group versus OSRAM SYLVANIA On May 10, 2011, CAO Group Inc., West Jordan, Utah, U.S. (“CAO Group”) filed a complaint for infringement of three United States patents against OSRAM SYLVANIA and seven other lighting manufacturers in the United States District Court for the District of Utah, U.S. The complaint alleges that the defendants are infringing these patents by manufacturing, using, marketing, selling and/ or offering LED light sources, especially LED Retrofits. In September 2012, OSRAM SYLVANIA and co-defendant General Electric filed requests for inter partes reexamination with the U.S. Patent and Trademark Office (“USPTO”) for the patents in suits. The inter partes reexamination requests have been granted. In light of the inter partes reexamination requests that have been granted by the USPTO, the proceedings in Utah were stayed and all deadlines were vacated on March 25, 2013. OSRAM SYLVANIA will continue to defend itself in these proceedings.
MATERIAL CONTRACTS The section below summarizes all material contracts entered into in our business. With the exception of the contracts set out below, there are no other significant dependencies on industry, commercial or financing contracts by the OSRAM Licht Group.
Credit Facility Agreement On February 1, 2013 a syndicate consisting of initially five banks (Commerzbank Aktiengesellschaft, Filiale Luxemburg, Deutsche Bank Luxembourg S.A., Goldman Sachs Bank USA, UBS AG London Branch and UniCredit Luxembourg S.A.) and OSRAM GmbH concluded a credit facility agreement regarding credit facilities including a revolving loan with a maximum total volume of €1.25 billion, 10 other banks (Banco Bilbao Vizcaya Argentaria, S.A., German Branch, Bayerische Landesbank, Citibank, N.A. London Branch, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, HSBC Trinkaus & Burkhardt AG, JPMORGAN CHASE BANK, N.A., Landesbank Baden-Württemberg, Landesbank Hessen-Thüringen Girozentrale, Société Générale, Frankfurt Branch and The Royal Bank of Scotland plc, Frankfurt Branch) have meanwhile acceded to the agreement. The credit facilities to be made available under the credit facility agreement comprise a term loan in the amount of €300 million as well as a revolving loan in the amount of €950 million, which may also be drawn in U.S. dollar and, subject to the consent of the banks, in other currencies. The loans will each be used to finance general corporate purposes (including the refinancing of liabilities owed to Siemens AG and its other subsidiaries). The sole borrower will initially be OSRAM GmbH. However, it is intended that OSRAM Licht AG joins the credit facility agreement upon the Spin-off becoming effective. The credit facility agreement will provide for a right of other subsidiaries of OSRAM GmbH to join the credit facility agreement as borrowers under certain conditions. Upon the effectiveness of the Spin-off and after its accession to the credit facility agreement, OSRAM Licht AG will provide a guarantee for all payment obligations under the credit facility agreement. OSRAM GmbH will provide a guarantee for subsidiaries that join the credit facility agreement for their payment obligations to the financing banks. Both credit facilities have a term of five years. The term loan will be due and repayable in one amount at the end of the term. It may also be repaid during the term either partially or in full; however, if so partially of fully repaid early, a second drawdown is not permitted. The loans under the revolving credit facility will be due and repayable at the end of their respective chosen interest period, but may be re-borrowed thereafter during the term if applicable. The drawdowns will bear interest at a variable rate based on the relevant applicable EURIBOR (or USD-LIBOR, as applicable) plus a margin which will vary depending on the ratio between net debt and EBITDA. Such adjustment of the margin shall be made for the first time after the first quarter of the Fiscal Year 2014. In addition, the loan agreements provides for fees and indemnifications in favour of the banks. In addition, the credit facility agreement contains certain covenants, obligations and termination rights. In particular, the borrowers, guarantors and certain material subsidiaries of OSRAM Licht AG are subject to restrictions regarding the entering into financial obligations, the provision of collateral for these obligations, the entering into acquisitions and joint-ventures and the disposal of assets. The credit facility agreement includes a financial covenant providing that OSRAM’s ratio of net debt to EBITDA (as defined in the credit facility agreement) must not exceed 2.5 : 1. This definition of EBITDA differs from the calculation methodology used elsewhere in this prospectus since EBITDA of the preceding twelve-month period is used for reporting periods during one Fiscal Year pursuant to the credit facility agreement. In addition, EBITDA of each quarter of the Fiscal Year 2013 will be adjusted for transformation costs in a certain amount. Therefore, these transformation costs referred to in the credit facility agreement will be included in the calculation of EBITDA of the four quarters of the Fiscal Year 2013 and the first three quarters of the Fiscal Year 2014. Compliance with the financial covenants is monitored on the basis of IFRS combined/consolidated financial statements. On the basis
193 of the calculation method in the credit facility agreement and the interim combined financial statements for the first six months of the Fiscal Year 2013, this ratio has been 0.04:1 as of March 31, 2013. The lenders are also entitled – subject to certain exemptions and cure periods – to terminate the credit facility agreement if the borrowers or the guarantors are in breach of their duties (including compliance with the financial covenant, payment obligations and the duty to provide the accession letter of OSRAM Licht AG to the credit facility agreement upon the effectiveness of the Spin-off) under the loan agreements, if grounds for the commencement of insolvency proceedings against the borrower or a guarantor and/or certain material subsidiaries arise or such proceedings are initiated, if other financial obligations of a borrower or a guarantor or certain material subsidiaries are not performed when due or are accelerated, or if the OSRAM Licht Group discontinues or threatens to discontinue its business or a material part of at least 30% of such business. In the event that one person or several persons acting in concert (other than Siemens AG and its subsidiaries) acquire more than 50% of the voting rights in OSRAM Licht AG or OSRAM GmbH, then the credit facility agreement provides for the right of each lender to demand for accelerated repayment. With the consent of the majority lenders the credit facility agreement provides for a right of the financing banks to waive the premature termination rights referred to above. In the event that the Spin-off does not become effective by October 31, 2013, the credit facility agreement will be automatically cancelled.
Joint Venture OSRAM (China) Fluorescent Materials In October 2009, OSRAM entered into a joint venture with a subsidiary of China Rare Earth Holdings Limited, China. OSRAM and Silver Mile Holdings Limited, Hong Kong, entered into an investment contract dated October 18, 2009 (“OCFM Investment Contract”), regarding the incorporation of OSRAM (China) Fluorescent Materials Co., Ltd. (“OCFM”), a joint venture for the production and sale of phosphors, in particular fluorescent materials, having its business address in Yixing, Jiangsu Province in the People’s Republic of China. Silver Mile Holdings Limited is a wholly owned subsidiary of Leeshing Holdings Ltd., British Virgin Islands (“Leeshing”), wholly owned by China Rare Earth Holdings Limited, a company listed on the main board of the stock exchange of Hong Kong. OSRAM holds 50.1% and Silver Mile Holdings Limited holds 49.9% in the share capital of OCFM. The business of the OCFM joint venture comprises research, development, production and sale of phosphor products and the import and export of such products and transfer of technologies in relation to the production of phosphor. Pursuant to the OCFM Investment Contract and a Business and Assets Transfer Agreement dated October 18, 2009, Wuxi Xinwei Fluorescent Materials Co., Ltd., Wuxi (“Xinwei”), a wholly owned subsidiary of Leeshing and a sister company of Silver Mile Holdings Limited, has transferred, with the exception of certain assets and businesses specified in the agreement, its entire business of producing and selling fluorescent materials including fixed assets, inventories, selected employees, intellectual property and goodwill to OCFM. The OCFM Investment Contract provides that, upon completion of the business transfer by Xinwei to OCFM, neither Xinwei nor any of its affiliates may engage in any phosphor business, including the manufacture and sale of phosphor. Neither Silver Mile Holdings Limited nor OSRAM, or any of their affiliates shall engage in any other fluorescent material production except under certain specific circumstances. OSRAM and its affiliates are, however, entitled to continue their existing fluorescent material production and business. OCFM has acquired usage rights to land in Yixing, Jiangsu Province, the People’s Republic of China and completed the construction of a production facility for the production of phosphor products in June 2011. Shareholders resolutions must be made unanimously and each shareholder may nominate two out of four members of the board of directors. In case of a deadlock in the board, the matter is escalated to the chairman of China Rare Earth Holdings Limited and the CEO of OSRAM for negotiation and resolution. The CEO of OCFM is currently nominated by Silver Mile Holdings Limited and the CFO is currently nominated by OSRAM. According to the OCFM Investment Contract, share transfers to third parties other than certain affiliates are subject to a right of first refusal of the other shareholder. The OCFM Investment Contract may be terminated by either party for certain causes and after expiry of a term of fifty years from the incorporation of OCFM. Causes for termination include, among others, OCFM sustaining losses of a certain amount over a certain period of time, material breaches of the OCFM Investment Contract and bankruptcy of either party. Pursuant to the OCFM Investment Contract, OSRAM and OCFM entered into certain ancillary agreements including a General Conditions and Framework Supply Agreement. The term of the General Conditions and Framework Supply Agreement is indefinite, but it may be terminated for certain causes, among other things, when OSRAM ceases to be a shareholder of OCFM. Furthermore, on June 9, 2010, Yixing Xinwei Leeshing Rare Earth Co. Ltd., China (“Xinwei Rare Earth”), in which Leeshing owns a 95% equity interest, and OSRAM agreed to amend a certain strategic supplier agreement dated July 30, 2008. The strategic supplier agreement, as amended, provides that Xinwei Rare Earth is obligated to supply certain products including rare earth oxide for
194 phosphors to OSRAM and all of its subsidiaries and joint ventures, including OCFM, to the extent they are needed for their own production and not for trading, to give priority to OSRAM’s demand for such products and to treat OSRAM as Xinwei Rare Earth’s most favored customer, in each case subject to availability of required export quotas. Furthermore, the strategic supplier agreement, as amended, provides that OSRAM shall treat Xinwei Rare Earth as its preferred supplier for tri-band phosphor and shall allocate a certain amount of its demand for certain products to Xinwei Rare Earth.
Chung Tak Lighting Control Systems (Guangzhou) Limited Chung Tak is a company with registered office in Guangzhou, the People’s Republic of China. The registered share capital is held by OSRAM (58.5%), General Electronics (Overseas) Limited, Hong Kong (“GEO”) (31.5%) and Yixing Electronics Limited of Guangzhou, China (“YEL”) (10%). Chung Tak’s business is to develop, manufacture and sell electronic products including electronic control gear, light management systems, coil transformers, electronic transformers, lighting equipment and fixtures and other electronic products relating to lighting technology and to conduct related research. Chung Tak was established by agreement dated August 16, 1993, as subsequently amended and supplemented from time to time (“Chung Tak Joint Venture Contract”), in accordance with the laws and regulations of the People’s Republic of China. The business of Chung Tak is managed by a board of directors consisting of seven members of which four (including the chairman) are appointed by OSRAM, two by GEO and one by YEL. While resolutions of the board of directors in general are passed by a simple majority of votes, certain matters including material contracts or transactions outside the ordinary course of business require affirmative votes in the board of directors of at least six directors. In addition, certain reserved matters require the unanimous affirmative votes of all directors that are present or represented at a duly convened meeting and vote in person or by proxy. The joint venture has a regular term of thirty years, but may be terminated by either party for certain causes prior to that date. During the term of the Chung Tak Joint Venture Contract, the shareholders may sell and transfer or otherwise dispose of their interest in Chung Tak only with the written consent of the other shareholders and the approval of the board of directors. Additionally, transfers require the consent of the competent examination and approval authority in China. As soon as the companies of the Siemens Group cease to beneficially own at least half of OSRAM’s paid-up share capital (“OSRAM Change-of-Control”), GEO has a put option in respect of its shares in Chung Tak vis-à-vis OSRAM. We have obtained a waiver from GEO in the context of the contemplated Spin-off. In connection with the Chung Tak Joint Venture Contract, OSRAM holds shares in OSRAM Lighting Control Systems Limited (“OLCS”) with registered office in Hong Kong, owned by OSRAM (65%) and GEO (35%). OLCS was incorporated in 1993 with the intention to purchase Chung Tak’s products for sale or resale to OSRAM or to other parties designated by OSRAM and provides financing and services to Chung Tak, including procurement of materials, financial services and services in connection with the export of products. Currently, the main business purpose of OLCS is the provision of support services and the procurement of components and parts in connection with electronic control gears for Chung Tak. The board of directors of OLCS consists of four members appointed by OSRAM (three directors) and GEO (one director). Either party may terminate the joint venture OLCS for certain causes and request that the respective other party purchases the shares held by the terminating party or sells its own shares to the terminating party. Similar to the provision in the Chung Tak Joint Venture Contract, GEO has a put option regarding its shares in OLCS to OSRAM in the event that Siemens Group companies hold less than half of the shares in OLCS. We have already obtained a waiver from GEO in the context of the contemplated Spin-off.
Joint Venture with Mitsubishi and Toshiba In Japan OSRAM was until 2012 partner in joint ventures with Mitsubishi Electric Corporation, Tokyo (“MELCO”) and Toshiba Lighting & Technology Corporation, Yokosuka, Japan (“TLT”), regarding the production of lamps, lamp materials and components such as ballasts and starters for the Japanese market and the distribution, import and export of such products. The joint venture with MELCO consisted of our investment in Mitsubishi Electric OSRAM Ltd., Yokohama, Japan (“MOL”), as well as our subsidiary OSRAM MELCO Ltd., Yokohama, Japan (“OML”), and the investment of OML in Ogasa Sanroku Kaihatsu KK, Kakegawa City, Japan. The second joint venture comprised OML and TLT and included our subsidiary OSRAM MELCO Toshiba Lighting Ltd., Yokosuka, Japan (“OMTL”), as well as our indirect participation in TLT OSRAM-Melco Lighting Ltd., Yokosuka, Japan (“TOML”). The joint venture with MELCO was dissolved by closing the sale and transfer of our shares in OML and MOL to MELCO, in accordance with a share purchase agreement dated April 12, 2012, with effect as of September 30, 2012. The purchase price for our shares in OML and MOL amounted to €45.1 million (Japanese yen 4.8 billion). Prior to the closing of the sale of our shares in OML and MOL to MELCO, OML sold its shares in OMTL and TOML to TLT, with effect as of September 26, 2012. According to
195 the purchase agreement concluded with TLT, OML paid a consideration in the amount of €3 million (Japanese yen 300 million) to TLT, of which OSRAM assumed a portion of €1.5 million (Japanese yen 150 million) were borne by OSRAM. In connection with the dissolution of the joint ventures, OSRAM, and certain of its subsidiaries, have entered into several ancillary agreements governing future commercial relationship with OML.
Joint Venture Valeo Sylvania In 1997, OSRAM SYLVANIA and Valeo agreed to enter into a joint venture relationship forming Valeo Sylvania with equal membership and voting rights, through an Asset Contribution and Joint Venture Agreement (“JV Agreement”), extended by the Valeo Sylvania, L.L.C. Amended and Restated Limited Liability Company Agreement (“Valeo Sylvania Limited Liability Agreement”). Until March 2010, Valeo Sylvania was fully consolidated in OSRAM’s group financial statements. Since March 2010, Valeo Sylvania is recognized using the equity method due to the loss of OSRAM Licht Group’s control over Valeo Sylvania. The Valeo Sylvania Limited Liability Agreement was entered into by OSRAM SYLVANIA Products Inc., U.S. (whose name was changed to OSRAM SYLVANIA INC. effective October 1, 2010), and Valeo Wiper Systems, Inc., U.S. (the current Valeo entity being a member of Valeo Investment Holdings, Inc., also a Valeo affiliate and also referred to as Valeo below). Primarily in North America, Valeo Sylvania designs, manufactures and sells automotive head and tail lamp fixtures, and other automotive lighting systems for integration primarily into new automotive vehicles. Sales are made to OEMs (original equipment manufacturers), original equipment suppliers and aftermarket customers. Valeo Sylvania is governed by an executive committee, to which four representatives are appointed by OSRAM and four are appointed by Valeo. For a period of three years, or as otherwise agreed by the joint venture members, one joint venture member appoints Valeo Sylvania’s president and the other appoints the chief financial officer, the right to appoint such officers alternates between the joint venture members every three years. Under the JV Agreement, OSRAM SYLVANIA and Valeo and their affiliates commit to abstain from the lighting systems business in the automotive industry in North America in favor of Valeo Sylvania, with limited exceptions set forth in the JV Agreement and in the Addendum to the JV Agreement entered into on April 6, 2011. Valeo Sylvania’s lighting systems business includes automotive lighting systems operations conducted in North America, including the development, engineering, application, production, sales and marketing of products. Such products include automotive lighting systems products used in passenger cars and light and heavy duty trucks, including ballasts, forward, rear and interior lighting assemblies, such as head lamp assemblies, fog lamp assemblies, park and turn lamp assemblies, signal lamp assemblies and center high mounted stop lamp assemblies; provided however that such products do not include ready-to-use lamps on sockets. OSRAM, Valeo and Valeo Sylvania have additionally entered into further ancillary agreements relating to the joint venture. The joint venture partners each granted additional loan financing in the amount of €11.4 million (USD 15.0 million) in the first half of the Fiscal Year 2013. Together with the existing financing in the amount of €14.9 million (USD 19.3 million) in the form of loans, in the amount of €10.2 million (USD 13.2 million) in the form of deferred payments for accounts receivable payable to OSRAM and in the amount of €10.3 million (USD 13.5 million) in the form of a guarantee provided by OSRAM to the lending bank, total financing increased to a nominal amount of €46.8 million (USD 61.0 million), which is due for repayment partly in 2013 and partly in 2014 or which will be replaced by other, potentially higher financing. In April 2013, the joint venture partners granted additional loan financing in the amount of €1.9 million (USD 2.5 million) each, which is due for repayment or must be replaced by other, potentially higher financing, in 2014. There is no express limitation on the term of the joint venture. However, the Valeo Sylvania Limited Liability Agreement provides that specified dissolution events, such as the sale of all or substantially all of the company’s assets, will cause the dissolution of the company. If one party commits a material breach that is not cured within a period of time, the non-breaching party has the right to acquire the breaching party’s interest for asset book value. Furthermore, if a party wishes to transfer any or all of its interest to a third party pursuant to a bona fide offer, then such party must provide a right of first refusal to the other party. On June 13 2013, OSRAM SYLVANIA as seller and Valeo Investment Holdings, Inc. as purchaser together with OSRAM GmbH and Valeo S.A. (each as additional debtors) entered into a Call/Put Agreement pursuant to which OSRAM SYLVANIA has the right to sell (put option) to Valeo Investment Holdings, Inc. its interest in the joint venture Valeo Sylvania LLC, and Valeo Investment Holdings, Inc. has the right to buy (call option) such interest from OSRAM SYLVANIA. The put option is exercisable from January 1 through January 10, 2014, and the call option is exercisable from February 1 through February 10, 2014. Upon closing of the transaction, the JV Agreement and the Valeo Sylvania Limited Liability Agreement shall terminate.
196 The purchase price for OSRAM SYLVANIA’s equity interest in the joint venture is calculated on a “cash free/debt free” basis pursuant to a formula according to which certain balance sheet items as at January 1, 2014 are deducted (debt) or added (for example cash exceeding a certain limit) to an implied enterprise value. The final purchase price for the equity interest cannot be determined at the time of this prospectus and may vary between a positive number, a negative number and zero. At closing the debt owed by Valeo Sylvania LLC to OSRAM SYLVANIA (“OSRAM Debt”) shall be repaid to OSRAM SYLVANIA at its nominal amount, provided that any negative purchase price for the equity interest shall be deducted from the consideration for the OSRAM Debt. We expect a positive income effect resulting from the transaction. The Call/Put Agreement provides for continuing funding obligations of OSRAM SYLVANIA up until the closing of the transaction. It further provides that OSRAM SYLVANIA shall indemnify Valeo Investment Holdings, Inc. on a pro rata basis against damages arising out of, among other things, tax matters, environmental issues, product liability claims and damages arising out of a violation of certain defined laws, in each case provided that the cause for the damage occurred in a defined period prior to the date of the Call/Put Agreement. This indemnity is limited to specified amounts that vary between the individual defined claims. Furthermore, the Call/Put Agreement provides for a covenant not to compete pursuant to which OSRAM shall not engage for a limited period of time in the development, engineering, application, production, sales or marketing of Automotive Lighting System Products (e.g. forward, rear and interior lighting assemblies) in North America. In connection with the Call/Put Agreement, Valeo S.A. and OSRAM GmbH entered into a strategic supply agreement to strengthen the cooperation in the automotive lighting business.
Customer and Supplier Agreements We do not generally enter into long-term commitment contracts with our customers or suppliers, but rather into framework agreements as a basis for individual orders. The term of such framework agreements may be up to five years in the case of customer and up to three years in the case of supplier agreements. In most cases, framework agreements do not contain any firm purchase commitments. However, in respect of the customer contracts, we have entered into a number of agreements with certain trade partners and other customers that may provide for certain target volumes and volume-based bonuses as well as other provisions and thus to some extent secure our position as supplier to these customers. The term of such agreements may be up to five years. In parallel certain agreements with suppliers contain supply commitments or grant us a preferred status as purchaser of certain supplies. The term of such agreements may be up to three years.
Cross-licensing Agreements For a description of cross-licensing agreements entered into by us see above “—Intellectual Property Rights—Patents”.
Investment Agreement, Factory Buildings Construction Agreement and Lease Agreement regarding Wuxi In May 2012, OSRAM Opto Semiconductors Asia Limited, Wuxi Municipal People’s Government and the New District Administrative Committee of Wuxi Municipal People’s Government entered into an investment agreement. This agreement, together with the factory buildings construction agreement between OSRAM Opto Semiconductor (China) Co., Ltd. and the Wuxi-Singapore Industrial Park Development Co., Ltd. (“WSIP”), and the lease agreement between OSRAM Opto Semiconductors (China) Co., Ltd. und WSIP as well as Wuxi New District Economic Development Group Co., Ltd. is the basis for the buildup of our manufacturing in Wuxi, China, where LED chips manufactured in the front-end plants at Regensburg and Penang are intended to be installed in their housings. Pursuant to this agreement, WSIP leases the real estate to us for a period of 20 years with the option to extend the term of lease. On these premises and according to our requirements, WSIP builds the factory building which is included in the lease. Pursuant to the stipulations of the investment agreement, we receive an investment subsidy in the context of this cooperation.
Agreements with Siemens As a wholly owned subsidiary of Siemens AG, we have had various relationships with Siemens and its direct and indirect subsidiaries excluding OSRAM (Siemens Group) in the past and will continue to have a – modified and reduced – relationship with the Siemens Group in the future. In particular, we received certain services relating to human resources, real estate, IT, intellectual property, legal, compliance, procurement, export control and customs, treasury and other areas and were part of the cash management system and global insurance cover of the Siemens Group; a limited number of services in some areas will to some extent (not the global insurance cover) continue for a transition period after the Spin-off becoming effective while we have already built up our own resources for other areas. For further details see “Certain Relationships and Related Party Transactions—Relationship with the Siemens Group”.
197 REGULATION
As of September 30, 2012, OSRAM produced at 39 sites in 15 countries. All countries in which we operate have various and comprehensive laws, regulations, technical rules and standards in place concerning, among other things, environmental and health protection, equipment and plant safety, the production, handling, storage and transportation of hazardous materials, radiation protection, the treatment and recycling or disposal of waste as well as regulations related to the import and export of products. Due to our multinational business operations, we do not only have to comply with German and European regulations. Rather, additional obligations may arise in other jurisdictions in which we operate our business. These regulations are updated on a constant basis and require the ongoing improvement and upgrading of plants and equipment to remain in step with the advancing state of the art, which can at times require substantial investments.
ENVIRONMENT RELATED REGULATIONS Each country where we develop, produce and sell our lighting products and solutions has various environment-related regulatory requirements. Within the European Union (EU) these requirements are defined in EU directives and implementing member states’ national laws as well as in EU regulations which are directly legally enforceable in the member states. We must comply with substantial labeling, certification, approval and permit requirements, as well as numerous and continually increasing energy related product requirements, particularly with regard to environmental protection and the safety of users as well as substances reporting requirements and substance restrictions. Violations of such regulations can lead to consequences under public law, civil law and criminal law. Non-compliance may result in administrative fines or even constitute a criminal offence. We may be subject to claims under warranty laws, product liability laws and in tort, and may be required to issue warnings or product recalls, which may damage our reputation and lead to substantial liabilities and costs (see also “Risk Factors—Regulatory Risks”). The following regulations are of particular relevance to us:
Energy Efficiency As a manufacturer of energy-using products we have to comply with all regulations on energy efficiency and environmental compatibility. Energy-using products are products for whose use energy must be supplied in the form of electricity, fossil fuels or renewable energy resources. The Framework Directive 2009/125/EC of the European Parliament and of the Council of October 21, 2009 establishing a framework for the setting of ecodesign requirements for energy-related products (“Ecodesign Directive”, also called Energy-related Products Directive (“ErP-Directive”)) deals with all energy related products and thereby replaces Framework Directive 2005/32/EC of the European Parliament and of the Council of July 6, 2005 establishing a framework for the setting of ecodesign requirements for energy-using products and amending Council Directive 92/42/EEC and Directives 96/57/EC and 2000/55/EC of the European Parliament and of the Council (Energy-using Products Directive (“EuP-Directive”)). The ErP-Directive aims at protecting the environment by reducing the environmental impact of energy-related products. Therefore, the ErP-Directive sets a framework for the introduction of specific ecodesign aspects that we have to integrate into our product design. Before being placed on the market and/or put into service, all products must undergo a conformity assessment concerning all ecodesign requirements. As a manufacturer, we have to provide consumers with information on the role that they can play in the sustainable use of the product concerned, as well as the ecological profile of the product and the advantages of ecodesign. If a product does not fulfill these requirements, member states of the European Union must take suitable measures which may go as far as prohibiting product placement on the market. The EuP- Directive and the ErP-Directive have been transferred into German national law by the Energy-using Products Act (Gesetz über die umweltgerechte Gestaltung energieverbrauchsrelevanter Produkte). Based on the Ecodesign Directive the European legislator sets forth specific requirements for defined product groups or for environmental aspects thereof (“Implementing Measures”). With respect to lighting products for households and certain fluorescent and high intensity discharge products the following Implementing Measures have been adopted: Regulation (EC) No 244/2009 of March 18, 2009 implementing Directive 2005/32/EC of the European Parliament and the Council with regard to ecodesign requirements for non-directional household lamps (amended by Regulation (EC) No 859/2009 of September 18, 2009) establishes rules for the phasing out of inefficient lamps (mainly conventional incandescent lamps and conventional halogen lamps) and sets forth functionality requirements, e.g. with respect to lifetime, light quality, starting times, UV radiation, for other lamps. In addition, the regulation requires us to display product information on the packaging of the lamps and on free access websites. According to the regulation, inefficient lamps have had or will have to be phased out gradually from the EU market until September 2012, or respectively, September 2016. All inefficient non-clear (frosted) lamps were phased out as from September 2009. Since September 2009 non-clear (frosted) lamps are required to comply with stage 1 for non-clear (frosted) lamps of the Commission Regulation
198 (EC) No 244/2009 (or slightly less efficient for certain lamps such as those with external envelope). Inefficient clear (transparent) lamps have been phased out progressively, starting with the highest wattage (100W conventional incandescent bulbs and above) in 2009. Since September 2009, lamps equivalent in light output to 80W transparent conventional incandescent lamps and above have to comply with stage 1 for clear (transparent) lamps of the Commission Regulation (EC) No 244/2009 (improved incandescent lamps with halogen technology instead of conventional incandescent lamps). By September 2012, the other wattage levels have followed and now have to reach at least stages 2 through 4 of the Commission Regulation (EC) No 244/2009. The most commonly used 60W lamps have been phased out in September 2011. 40W and 25W lamps have been phased out in September 2012. Until September 2013, lamps with S14, S15 or S19 bases are exempted from the efficiency requirements. As from September 2016, special cap halogen lamps will be required to comply at least with stages 1 through 5 of the Commission Regulation (EC) No 244/2009 (lamps with G9 and R7s bases). All other lamps will then have to comply at least with the stricter requirements of stage 6 of the Commission Regulation (EC) No 244/2009. LED lamps must comply with the requirements regarding energy efficiency; however, these lamps do not have to comply with additional functionality requirements. Special purpose lamps do not have to comply with energy efficiency and functionality requirements. However, there are certain information requirements for these lamps. The Commission Regulation (EC) No 245/2009 of March 18, 2009 implementing Directive 2005/32/EC of the European Parliament and of the Council with regard to ecodesign requirements for fluorescent lamps without integrated ballast, for high intensity discharge lamps, and for ballasts and luminaries able to operate such lamps, and repealing Directive 2000/55/EC of the European Parliament and of the Council (amended by Commission Regulation (EU) No 347/2010 of April 21, 2010), establishes ecodesign requirements for products which are mainly used in office lighting, industry lighting and street lighting. The following products have been or will be phased out in several stages: In 2010, T8 halophosphate fluorescent lamps have already been phased out. T12 fluorescent lamps have been phased out in 2012. In addition, regarding high-pressure sodium lamps (HPS) and metal halide lamps (for both, lamps with E27, E40, PGZ12 bases) minimum quality requirements (regarding efficiency, lifetime and lumen maintenance) are established and non-complying products have been phased out. In 2015 high-pressure mercury lamps and plug-in or retrofit high-pressure sodium lamps with low efficiency will be phased out. Poor performing metal halide lamps (with E27, E40, PGZ12 bases) will be phased out in 2017. Certain products are exempt from the energy efficiency and functionality requirements. However, there are certain information requirements applicable to them. The Commission Regulation (EU) No 1194/2012 of December 12, 2012 implementing Directive 2009/125/EC of the European Parliament and of the Council with regard to ecodesign requirements for directional lamps, light emitting diode lamps and related equipment, which has come into force on January 3, 2013, establishes specific ecodesign requirements (requirements in regard to energy efficiency, functionality and product information) for directional lamps, light emitting diode lamps and equipment designed for installation between the mains and the lamps, including lamp control gear, control devices and luminaires (other than ballasts and luminaires for fluorescent and high-intensity discharge lamps) which shall apply in accordance with three stages (September 1, 2013, September 1, 2014 and September 1, 2016). Special purpose products do not have to comply with energy efficiency and functionality requirements. However, there are certain information requirements applicable to these products. In 2014 the European Commission shall review Regulations (EC) 244/2009 and (EC) 245/2009 taking into account technological progress. According to the Ecodesign Directive, the products covered by Implementing Measures and ballasts must bear the CE marking before being placed on the market according to Decision 93/465/EEC of the Council dated July 22, 1993 concerning the modules for the various phases of the conformity assessment procedures and the rules for the affixing and use of the CE conformity marking, which are intended to be used in the technical harmonization directives (“CE-Decision”). It indicates that the product complies with all requirements under applicable European law. Member states may not restrict the placing on the market and entry into service of products bearing the CE marking unless there is supporting evidence of the product’s non-conformity. In addition, we have to publish information on the consumption of energy and of other essential resources. We have to label some of our products as set forth in Directive 92/75/EEC of the Council of September 22, 1992 on the indication by labeling and standard product information of the consumption of energy and other resources by household appliances. The Directive was repealed on July 21, 2011 by Directive 2010/30/EC of the European Parliament and of the Council of May 19, 2010 on the indication by labeling and standard product information of the consumption of energy and other resources by energy-related products. This directive establishes a framework for labeling and consumer information regarding energy consumption of all goods having an impact on energy consumption (energy-related products). For the energy consumption labeling of lamps and luminaires, the directive 2010/30/EU was supplemented by the delegated regulation (EU) 874/2012 on July 12, 2012. Directive 98/11/EC will be repealed with effect as of September 1, 2013.
199 Despite existing differences in the implementation of the legislative provisions, in most other material markets in which we are active, provisions have been or will be enacted in pursuit of legislative goals similar to those in Germany and/or in the European Union. In the United States, for example, the Energy Independent and Security Act (“EISA 2007”) has established energy management goals and requirements while also amending portions of the National Energy Conservation Policy Act (“NECPA”) with respect to standards for appliances and lighting. It sets minimum performance standards in the United States for the efficiency of the common household incandescent lamp. These requirements affect the manufacture of lamps from 40W through 100W, with standards first being applied to today’s 100W lamps beginning January 1, 2012. Phase out will be completed by January 1, 2014. This practically bans the sale of most current incandescent lamps in the United States. Canada and Mexico have introduced similar regulations.
Hazardous Substances We are producers and importers of products as well as producers and users of various substances and preparations within the meaning of the applicable chemicals and hazardous substances laws. Therefore, we must rely on a comprehensive and complex material management and safe working processes meeting the requirements of the individual countries in which we carry out our business operations. Chemicals and hazardous substances laws are monitored by the competent authorities. In the event of violations, regulators can intervene and order remediation measures and, in the case of administrative offenses, may also impose administrative fines. In serious cases, criminal prosecution is also possible. Placing on the market of certain hazardous substances in electrical and electronic equipment is subject to specific regional (EU) or national restrictions and phase outs. We particularly have to comply with Directive 2002/95/EC of the European Parliament and of the Counsel of January 27, 2003 on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“RoHS Directive”) (amended by Directives 2005/618/EC and 2008/35/EC). The RoHS Directive requires heavy metals such as lead, mercury, cadmium, hexavalent chromium and flame retardants of the groups of polybrominated biphenyls and polybrominated biphenyl ethers in electronic and electrical equipment materials to be substituted by safer alternatives. The substitution of these materials by safer alternatives aims to improve the possibilities of recycling and to reduce the recycling costs long-term. However, manufacturers may use certain substances for specific applications if these are listed in the Annex to the RoHS Directive. For example, manufacturers are allowed to use a limited amount of mercury in compact fluorescent and fluorescent lamps as well as in high intensity discharge lamps. The periodic review of these exemptions by the European Commission can lead to further limitations or withdrawal of the exemptions with short or no transition times. In the past this caused us to change the design of some lamps. It cannot be ruled out that we will have to make substantial investments in order to meet the future requirements. We are currently developing suitable solutions for products containing substances subject to the exemptions in order to meet (potential) stricter requirements in the future. In Germany, the Electrical and Electronic Equipment Act (Elektro- und Elektronikgerätegesetz – “ElektroG”) implements the RoHS Directive as well as the Directive 2002/96/EC of the European Parliament and of the Council of January 27, 2003 on waste electrical and electronic equipment (“WEEE Directive”). A violation of the regulations can result in administrative fines of up to €50,000 or the prohibition of the marketing (Vertriebsverbot) in the case of a violation of registration requirements. The RoHS Directive has recently been revised by Directive 2011/65/EU of June 8, 2011 (“RoHS II-Directive”), which entered into force on July 21, 2011 and had to be incorporated by January 2, 2013 into national law. The revised RoHS Directive substantially enlarges the legislative content. The directive imposes the manufacturer obligation to ensure that the product complies with the provisions of the directive. This includes measures for conformity assessments defining obligations for manufacturers regarding for example the labeling of products with the CE marking. With the CE marking the manufacturer indicates that the product is in conformity with the applicable requirements. The RoHS II-Directive includes numerous requirements in regard to documentation, information, withdrawal and recall. The substance bans and restrictions applicable under the previous law shall remain unchanged for the time being, however its scope has been partially extended. It is to be noted that the EU-Commission shall examine not later than July 22, 2014 the substance bans and restrictions. Further details are contained in the communication of the European Commission in the framework of the implementation of Directive 2011/65/EU of the European Parliament and of the Council on the restriction of the use of certain hazardous substances in electrical and electronic equipment for the harmonized standard EN 50581 as a safeguard for the conformity dated November 23, 2012 in the Official Journal of the European Union (C 363/6). There is, however, the possibility that many types of lamps will have to undergo external testing to prove their compliance with the RoHS Directive as required under the CE marking. As the wattage of each lighting type will require its own testing, high costs could arise for us. The external testing will be based on using sample products provided by the manufacturers for the testing and therefore will not grant more safety as the
200 self-licensing. In the revised RoHS Directive, the member states are obliged to perform market surveillance. In order to implement the RoHS II Directive into national law, a new Ordinance on electrical and electronical equipment substance (Elektro- und Elektronikgeräte-Stoff-Verordnung – “ElektroStoffV”) has been adopted in Germany. It has recently been published in the Federal Law Gazette and came into force on May 9, 2013. Fluorescent lamps (FLs) including compact fluorescent lamps (CFLs) contain small amounts of mercury, a toxic metal and a key component of FLs and CFLs. There has been some concern over the possibility that broken CFLs can cause some exposure to mercury. Although mercury is a hazardous and toxic substance, mercury exposures from broken CFLs are not likely to be harmful to human health. This is due to several factors, including the amount and duration that consumers would be exposed to. As CFLs contain very small amounts of mercury, a release of this amount of mercury is not likely to present any significant risk. In addition CFLs emit small amounts of volatile organic compounds, which are well within the range of emissions of any other electronic equipment. Due to the very low concentration of the emission of volatile organic compounds by CFLs there is no increased risk to health. This has been confirmed by the German Federal Environmental Agency (Bundesumweltamt) which currently does not see the need to take any legal measures. However, the mere perception of CFLs being a risk to consumers’ health may affect their marketability in the future. According to the RoHS Directive, the mercury content inside fluorescent lamps is currently restricted depending on the specific lamp type. The limit for CFLs is currently set to a maximum dose per lamp of 5 mg. For lamps below 30 Watts this limit changed to 3.5 mg on January 1, 2012 and to 2.5 mg on January 1, 2013. It cannot be ruled out that in the future national or European legislators will forbid the use of these substances in energy saving lamps completely if suitable alternatives are available from a technical and environmental point of view in the market of the European Union. In this case we would have to fulfill the imposed conditions, which could have a material adverse effect on our business activities. Furthermore, the United Nations Environment Programme (UNEP) has decided to prepare a global legally binding instrument on mercury. This instrument aims among other things to reduce the supply, demand, trade and atmospheric emissions of mercury. It is likely that such a regulation will also have a great effect on the production of lighting products and thereby on our business activities. OSRAM actively supports the introduction of globally harmonized limits for mercury based on existing limits in the EU. Semiconductor chips can contain traces of gallium, indium, gallium arsenide and other substances and compounds. These substances and compounds, if used in large amounts, have the potential to cause human health and ecological toxicity effects. OSRAM LEDs contain most of these substances only in small traces and therefore do not represent any danger to human health. Furthermore, our LEDs fully comply with the requirements set forth in the RoHS Directive. The rapid growth in the LED industry may imply that ultimately LEDs will contribute to the solid waste stream and thereby will have an impact on human health and ecosystems. However, in an end-customer product such as an LED-lamp, the LED components themselves have a quite small amount in weight. As a manufacturer we are also subject to Regulation (EC) No 1907/2006 of the European Parliament and of the Council of December 18, 2006 concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH Regulation”). A key requirement of the REACH Regulation is the registration of chemical substances at the European Chemicals Agency (ECHA). Compilation of safety data sheets, registration requirements, scaled volume requirements, and transitional periods are applicable from 2010 to 2018. Without prior registration in accordance with the REACH Regulation, it is generally prohibited to produce chemical substances or place them on the market in the European Union. The REACH Regulation also contains a requirement to disclose defined, particularly dangerous substances in products. It requires substantial efforts for us to gather the necessary data from our suppliers, to evaluate high risk materials and products and to establish related communication pathways. In addition, the REACH Regulation requires producers to inform their customers if certain hazardous substances (so-called “substances of very high concern”) are present in concentrations above 0.1%. The list of substances of very high concern is continuously updated (approximately twice a year) by the European Chemical Agency. Several hundred substances are expected to be included in this list. This requires a sophisticated substance reporting system along the supply chain. We make, among other things, use of a web-based industry database according to which suppliers are requested to report compliance and material information to the data base which is accessible for us. Besides the REACH Regulation, Regulation (EC) No 1272/2008 on classification, labeling and packaging of chemical substances and preparations, amending and repealing Directives 67/548/EEC and 1999/45/EC, and amending Regulation (EC) No 1907/2006 (REACH) (“CLP Regulation”) applies to our business. The CLP Regulation stipulates the classification, labeling and packaging of substances and preparations, with manufacturers being responsible for the (correct) classification of the substances and preparations.
201 Despite existing differences in the implementation of the legislative provisions, in most other material markets in which we are active, provisions have been enacted in pursuit of legislative goals similar to those in Germany and/or in the European Union. With respect to the use of hazardous substances (e.g. mercury) in electrical and electronic equipment for example, equivalent legislation is planned or has already been implemented in the United States, China and South Korea. It cannot be ruled out that we will have to make substantial investments in order to meet the future requirements in these regions. For information regarding a law suit filed by the Brazilian Labor Ministry, represented by the labor prosecutor, based on alleged intoxications with mercury in connection with the production of fluorescent lamps see “Business—Legal and Arbitration Proceedings—Other Proceedings—Osasco Labor Prosecutor’s Office et al. versus OSRAM do Brasil”.
Radiation Protection We have to comply with regulations on radiation protection to ensure safety with respect to the handling of ionizing radiation and radiation sources, in particular with Directive 96/29/Euratom of the Council of May 13, 1996 laying down basic safety standards for the protection of the health of workers and the general public against the dangers arising from ionizing radiation (as previously regulated by Directive 84/467/Euratom) (“Radiation Directive”) as implemented into German law by the Radiation Protection Ordinance (Strahlenschutzverordnung). According to the Radiation Directive prior authorization has to be obtained for practices that may involve a risk of ionizing radiation, subject to the exceptions provided for in the Radiation Directive. Prior authorization is also required for the disposal, recycling or re-use of radioactive substances or materials containing radioactive substances resulting from any practice subject to compulsory reporting or authorization, unless the clearance levels established by the competent national authorities are complied with. We have to prove by sophisticated calculations that the radiation exposure of the general public ranges maximal up to 10 microsievert per year by normal use, but also in case of accidents (including breakage of lamps) or by deposition. The Radiation Directive and the Radiation Protection Ordinance can be relevant to us with respect to our production and assessment of (primary) products, our test methods and our nuclide-specific analysis. With regard to our employees we also have to comply with Directive 2006/25/EC of the European Parliament and of the Council of April 5, 2006 on the minimum health and safety requirements regarding the exposure of workers to risks arising from physical agents (artificial optical radiation) and implementing member state legislation. Certain types of our high performance lighting products that are used in professional and industrial applications contain small amounts of substances emitting low level ionizing radiation (Krypton 85 or Thorium). Despite being proven as safe throughout their entire life span by a number of independent studies, especially the recent publication of IAEA-TECDOC-1679 confirming the safety in all aspects of the life cycle of lamps, the products concerned are subject to an unharmonized and therefore complex set of national and international regulations. Regulations concerning distribution, storage, handling and import/export activities of such products may vary significantly by country. Except for product information accompanying the relevant products, the German Radiation Protection Ordinance (Strahlenschutzverordnung) does not impose any further requirements on manufacturers after sale as the relevant high performance lighting products have an approval as consumer good (Konsumgutzulassung). However, some jurisdictions do not foresee the possibility of a consumer good approval and exemptions associated with it. By consequence, the relevant high performance lighting products have to comply with requirements set forth in the respective national radiation protection legislations. Manufacturers also have to comply with regulations on the transport of dangerous goods. See “—Transport of Dangerous Goods”. Members of the lighting industry, led by the European Lamp Companies Federation (ELC), worked together with the International Atomic Energy Agency (IAEA) and authorities around the world until the end of 2012 to harmonize and simplify national and international rules. In 11 countries, a follow-up is provided by an expert network of the ELC successor organization LightingEurope, an European industry association representing members from the lighting industry (e.g., manufacturers of lamps and luminaires) and national lighting associations (e.g., for Germany the Central Association of the Electrical Engineering and Electronics Industry (Zentralverband Elektrotechnik- und Elektronikindustrie e.V., ZVEI)). The radiation dose of the involved lamps is less than one hundredth of the natural radiation to which each individual is exposed in everyday life. Due to this low dose these lamps do not cause any danger for health and environment. Major lamp manufacturers are in contact with national regulators, and a significant number of countries (59 of 70 countries as of December 2012) issued the respective licenses or agreed to exempt these lighting products from the respective national licensing requirements. In other countries, no such exemptions or licenses apply at present. We will continue to cooperate with all competent authorities in resolving this issue. To the extent such cooperation was unsuccessful or necessary licenses were not granted, we were and may be forced in the future to discontinue the distribution of the products in question. Recently, changes of global logistics were necessary because of a risk (which we consider remote) that penalties or sanctions could be imposed on us for infringement of the relevant regulations.
202 The new compliant organization should avoid any such infringement but single failures with the complex set of regulations, for example single mistakes by a local staff, cannot be excluded in general. However, so far neither penalties nor other sanctions have been issued or threatened in any country. We continue to reduce or eliminate such substances from our products. Apart from regulatory risks and despite the fact that we believe that our products are safe, our customers may place increasing weight on the perceived risks.
Transport of Dangerous Goods We have to comply with dangerous goods regulations for shipment activities with certain types of products. In Germany, requirements for the transport of dangerous goods can be found, inter alia, in the Dangerous Goods Transportation Act (Gefahrgutbeförderungsgesetz), the Dangerous Goods Ordinance on the Transport on Road, Rail and Inland Navigation (Gefahrgutverordnung Straße, Eisenbahn und Binnenschifffahrt), the Dangerous Goods Ordinance on the Transport by Vessel (Gefahrgutverordnung für Seetransport), the Air Transportation Act (Luftverkehrsgesetz) and the Ordinance for the Appointment of Dangerous Goods Safety Advisors (Gefahrgutbeauftragtenverordnung). Further requirements for the transport of dangerous goods (e.g. by air) are contained in international dangerous goods regulations. These regulations require specific organization, training, classification, packaging, marking, labeling and documentation prior to transport and after receipt depending on possible transport risks by the goods shipped. OSRAM products which are subject to dangerous goods regulations include radioactive material, mercury and sodium contained in lamps and lamp components as well as luminaries with lithium batteries. In terms of volume, the largest portion of our transports of dangerous goods relates to chemicals, raw material and hazardous waste. For finished products as dangerous goods further regulations may apply (e.g. radiation protection, see “—Radiation Protection” above). The violation of these regulations may be sanctioned with a fine or with further national sanctions (e.g. prohibition of transport) in the event of repetitive intentional violation. Regulations on the transport of dangerous goods have not been harmonized completely and therefore may differ from country to country. Customers may not accept the aggravations of transport and storage caused by the required marking of certain consignments as dangerous goods.
Disposal, Re-use, Recycling The WEEE Directive (Directive 2002/96/EC as amended by Directive 2008/34/EC) provides among other things for the creation of collection schemes where consumers return their used electrical or electronic waste free of charge. Among others, one objective of this directive is to increase the share of recycled and/or re-used products. Producers must pay for the collection and treatment of the waste, including its preparation for re-use, recycling or energy recovery. Products of the lighting industry have a special characteristic with respect to the collection and disposal. Based on German data, about 80% of the disposed waste of electrical and electronic equipment, counted by unit, is expected to be lamps. The share of electrical and electronic waste of lamps in total weight, however, is expected to amount to 1% only. With these characteristics, our products differ from all other categories of electronic equipment to be returned and underline the importance of the obligation to collect for OSRAM. This is of increased importance as according to the revised WEEE Directive (Directive 2012/19/EU) of July 24, 2012, from 2016, EU member states must annually collect 45% of the average weight (and not units) of electrical and electronic equipment (“EEE”) placed on their national markets (calculated on the basis of EEE placed on the market in the three preceding years). As of 2019, member states are generally to achieve a 65% collection rate. Lower collection rates and extended time limits apply to Malta and several Eastern European member states, e.g. the Czech Republic, Hungary or Poland, as in these countries the infrastructure required for disposal and recycling is missing and the level of consumption of electrical and electronic equipment is low. It cannot be ruled out that our costs for collection and disposal will rise correspondingly. This would have a material adverse effect on our business activities. The WEEE Directive does not foresee recycling for incandescent lamps including halogen lamps or lamps covered by special regulations (e.g. Directive 2000/53/EC of the European Parliament and the Council of September 18, 2000 on end-of-life vehicles (“ELVs”)). Some equipment, parts and materials supplied to us or produced by us will become part of equipment and products which can be subject to further regulation, for example the restrictions of substances defined in Directive 2000/53/EC of the European Parliament and the Council of September 18, 2000 on ELVs and defined in Directive 2006/66/EC of the European Parliament and the Council of September 6, 2006 on batteries and accumulators and waste batteries and accumulators and repealing Directive 91/157/EEC of the Council of March 18, 1991 on batteries and accumulators containing certain dangerous substances (“Directive on Batteries”). In many other markets in which we are active, regulations have been enacted or are under discussion in pursuit of legislative goals similar to that in Germany and/or in the European Union. In the United States, for
203 example, a number of states have passed, introduced or plan to introduce regulations on the recycling of products. Currently Maine, Washington and Vermont have passed laws requiring manufacturer-funded recycling of (primarily) residential mercury-containing lamps. Massachusetts law holds manufacturers responsible for the state lamp recycling rate for all mercury-containing lamps and currently authorizes an annual fine on the industry (up to $1 million annually) for the non-compliance. We are working with other lighting industry participants through the National Electrical Manufacturers Association (NEMA) to amend this law and institute a more practical program focused solely on mercury-containing lamps sold at retail. In California, the cost of recycling (or any “fee”) may not be added to prices unless approved by a 2/3 majority vote of the Californian legislature. Since this is a difficult obstacle to overcome, we are currently working with a California lobbying firm engaged by us, as well as with other lighting industry participants on alternative proposals. At this point, all legislative activity related to manufacturer-funded recycling has been focused on lamps sold at retail. Given the number of countries in all parts of the world which have or plan to implement such legislative acts related to waste electrical and electronic equipment, it cannot be ruled out that in some of these countries we will not be able to comply, or fail to comply within the set timeframe, with all relevant regulation, which might lead to penalties or restrictions relating to the sale of our relevant products. In order to comply with its obligations regarding collection and treatment of used electrical or electronic waste, OSRAM, together with other companies (within and outside the lighting industry) in some countries established organisations through a range of different legal forms, which organize the collection and treatment of used electrical or electronic waste for the companies in the lighting industry and which concluded agreements with third parties for this purpose.
Other Environmental Regulations We engage in activities that fall within the scope of the environmental protection legislation of the member states of the European Union, as well as of the directives and regulations of the European Union and the implementing legislation of the individual member states. Each member state of the European Union has detailed regulations for the protection of the environment. All legal systems of the member states of the European Union impose legal and administrative restrictions on pollution of the environment, especially of the air, soil, water and ground water, but also other harmful influences on the environment (for example, noise). For example, each member state of the European Union is required to implement Directive 2010/75/EC on industrial emissions whose requirements include stricter emission standards and the use of best available techniques. We also must comply with Directive 2004/35/EC on Environmental Liability with regard to the prevention and remedying of environmental damage (the “Environmental Liability Directive”). The Directive establishes a comprehensive liability system based on the “polluter pays” principle, with a view to preventing and remediating damage to natural resources, protected species and natural habitats, waters and land. Any person or body who operates or controls occupational activities carried out in the course of an economic activity, a business or an undertaking that cause damage or threaten to cause damage to these natural resources may be held responsible for remediating the damage caused, or may be made to pay for remediation, irrespective of whether they caused the damage. The Environmental Liability Directive was implemented into German law by the Act on the Prevention and Remediation of Environmental Damage (Gesetz über die Vermeidung und Sanierung von Umweltschäden – “Umweltschadensgesetz”). In Germany we need a specific permit for the construction, operation or alteration of plants in terms of the 4th Federal Immission Protection Ordinance (Verordnung über genehmigungsbedürftige Anlagen – “4. BImSchV”). We have obtained all necessary permits (for our glass factories in Augsburg and Berlin as well as for our factories in Regensburg and Schwabmünchen). If such plants are constructed, altered or operated without the required permit, the competent authority can impose penalties and order modifications or restrictions for the plant. With the entry into force of the Act on the Implementation of Directive 2010/75/EU on Industrial Emissions in spring 2013 the application of European emission standards increases in order to reduce disparities in the determination of emission limits in Europe and to achieve fairer conditions of competition. In future, stricter requirements apply to the monitoring of the permit conditions and to the adaption of installations to stricter emission standards. Some of our production facilities have already been used for industrial purposes for a long time, and their soil and ground water may thus be contaminated. This could result in considerable investigation and clean-up costs. In Germany the Federal Soil Protection Act (Bundes-Bodenschutzgesetz) regulates who can be held liable for environmental contamination. Should any contamination be discovered at any sites, the originator of the contamination or its legal successor, the present owner and/or user of the respective property, or the entity being responsible under general principles of commercial or corporate law for the legal entity owning the respective property may be held liable for the remediation. Under the laws of some countries we may be held responsible even if we did not cause the contamination. In addition, our companies, as the previous owner or user of properties, could be held responsible for eliminating soil or groundwater pollution that may be discovered in the
204 future at former production sites. This applies irrespective of whether the respective property is still owned by us and whether such liability is contractually excluded, for example, in a property purchase agreement (see also “Risk Factors—Regulatory Risks—Some of our production facilities and sites have been used for industrial purposes for decades and are in individual cases contaminated. Accordingly, we are subject to environmental liability risks, general regulatory risks and to risks from changes to the regulatory frameworks.”). Similar environmental regulations are applicable in the rest of the world.
Emissions Trading As operator of a facility that is subject to the European and national emissions trading system, the regulations on emissions trading are applicable to us. The EU member states have passed regulations on implementing a system of emission allowance trading, as contemplated in Directive 2003/87/EC of October 13, 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (“Emissions Trading Directive”). These regulations provide for the granting of a specific quantity of emission allowances to certain energy-intensive plants that allow the plants to emit a certain amount of carbon dioxide. If a company needs to emit more carbon dioxide, it can purchase unused emission allowances from other companies on the open market. We were in a court procedure with the German Emissions Trading Authority (Deutsche Emissionshandelsstelle – “DEHSt”) since in our opinion we did not receive the correct number of certificates in the last administrative decision dated July 2011 under the statutory provisions. Meanwhile we reached an agreement with the DEHSt and terminated the court procedure after receipt of the agreed number of certificates. By adopting Directive 2009/29/EC to amend Directive 2003/87/EC for the purpose of improving and extending the European Union scheme for greenhouse gas emission allowance trading (“Amendment Directive”), which has been implemented into German law in the revised Greenhouse Gas Emissions Trading Act (Treibhausgas-Emissionshandelsgesetz), the European Union set the legal framework for the 3rd emission trading period which has begun on January 1, 2013. In addition to a large number of substantive and procedural changes, the effect of the Amendment Directive is, in particular, to increase the number of facilities subject to European emission trading. Our manufacturing sites in Germany will not make use of the opt-out possibilities provided for in the Amendment Directive. In addition, starting in 2013, in principle, all emission allowances will be auctioned against payment, although there are exemptions for some parts of the production sector and certain energy generation facilities. Certificates will be allocated free of charge also for the period from 2013 to 2020 to certain listed (sub-) industry sectors where a shift of production to countries outside Europe is imminent due to the changed requirements of emission trading (so-called “carbon leakage”). The manufacturing of glass is in these sectors. The companies belonging to these sectors will be provided with amounts of emission allowances allocated free of charge on the basis of the emission benchmark. DEHSt is expected to grant the respective emission allowances in the beginning of 2013. We have not yet received the final emission allowances. It cannot be excluded that in the course of the 3rd emission trading period additional emission allowances will have to be purchased in order to compensate higher carbon dioxide emissions in our facility. Despite existing differences in the implementation of the legislative provisions, in most other material markets in which we are active, provisions have been enacted in pursuit of legislative goals similar to those in Germany and/or in the European Union.
CROSS BORDER IMPORT AND EXPORT LAWS Our import and export of goods across borders is subject to the relevant national and international foreign trade regulations and customs laws. Under German and/or European law, the key regulations can be found in the Customs Code (Regulation (EEC) No 2913/92), in the Customs Code Implementation Regulation (Regulation (EEC) No 2454/93) as well as in the Foreign Trade Law (Außenwirtschaftsgesetz), the Foreign Trade Regulation (Außenwirtschaftsverordnung) and Council Regulation (EC) No 428/2009 of May 5, 2009 setting up a European Union regime for the control of exports, transfer, brokering and transit of dual-use items (“Dual-Use Regulation”) including relevant export lists. Furthermore, country and person specific restrictions set forth in the Foreign Trade Regulation need to be observed as a result of the imposition of sanctions by the UN Security Council, the Organization for Security and Cooperation in Europe and the European Union. Since foreign trade regulations (including the lists of embargoed countries) always have to be adapted to developments in foreign policy, we must reassess compliance with the relevant requirements on a regular basis. For example, with respect to exports to Iran, we have to comply with the currently adopted Resolution 1929 (2010) of the Security Council of the United Nations, the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 enacted on July 1, 2010 and the Iran Threat Reduction and Syria Human Rights Act enacted on August 10, 2012, as well as the Council Regulation (EU) No 267/2012 of March 23, 2012 on restrictive measures against Iran and
205 repealing Regulation (EU) No 961/2010. Despite existing differences in the implementation of the legislative provisions, in most other material markets in which we are active provisions have been enacted in pursuit of legislative goals similar to those in Germany and/or in the European Union.
GOVERNMENT SUBSIDIES As is the case with many other lighting companies, our reported expenses have been reduced in recent years by various subsidies received from governmental entities. In particular, we have received, and expect to continue to receive, subsidies for OLED, LED and laser-technology. Government grants were awarded for the purchase or the production of property, plant and equipment or were related to cost incurred and future costs, offset within research and development expenses. The availability of government subsidies is mostly outside of our control. The application for and implementation of such subsidies often involves compliance with extensive regulatory requirements, including, in the case of subsidies to be granted within the European Union, notification to the European Commission of the contemplated grant prior to disbursement. In particular, establishment of compliance with project related ceilings on aggregate subsidies defined under European Union law often involves highly complex economic evaluations. Many of the legal and other criteria for receiving subsidies are more stringent than they were in the past. In addition, the terms of certain of the subsidies we have received impose conditions (Auflagen) that may limit our flexibility to utilize the subsidized facility as we deem appropriate, to divert equipment to other facilities, to reduce employment at the site, to decide about investments or to use related intellectual property outside the European Union. This could impair our ability to operate our business in the manner we believe is most cost effective. See also “Risk Factors—Regulatory Risks—In the past, we have received government subsidies that have reduced our expenses. Reductions in the amount of government subsidies we receive or demands for repayment could increase our reported expenses.”.
LIGHTING REGULATION IN THE UNITED STATES In the U.S., lighting-related regulations are initiated by the U.S. Department of Energy (“DoE”), or in some cases the state agencies (e.g. California Energy Commission). They are generally categorized as related to energy efficiency or environmental in nature. Energy related regulations establish appliance standards or building energy standards. Appliance standards set minimum energy performance standards for lighting components such as lamps and ballasts. As a consequence, any product manufactured on or after a specific date must not enter the U.S. market unless it meets the performance standard. To date, these appliance standards apply particularly to traditional lighting products, whereas SSL products are generally presumed to meet these standards. Building energy standards include provisions for maximum installed power allowed for lighting systems. These standards are created by consensus groups and have to be adopted by the U.S. federal authorities and the authorities of the federal states. On the environmental side, most lighting regulations are state-driven and tend to focus on such topics as recycling, disposal, and toxic material content of lighting products. U.S. trends in energy-related lighting regulations move towards requirements for lighting controls and sensors to reduce energy use as well as towards continued improvement of product efficiency of fluorescent lamps, high-intensity discharge lamps, ballasts, and halogen reflector lamps. The U.S. DoE reviews and strengthens the standards for products every three to five years. As a result, the standards of certification, compliance and enforcement have increased. Additionally, there is an emphasis on building standards as it is increasingly difficult to require higher product standards. As a consequence, more sophisticated controlling systems are needed. We also have to invest in technologies such as SSL lighting, advanced metal halide and high performance fluorescent lamps that can meet the ever-higher efficiency requirements for products. Additionally the personnel require training and education on the increasingly complex provisions. In the U.S., environmental- related lighting regulations are typically adopted by the individual federal states. Some federal states make producers responsible for disposal costs regarding lighting products that contain lead or mercury. We expect that in the coming years, at least six additional U.S. states will adopt corresponding regulations. According to the environment-related lighting regulations, manufacturers will be held responsible for end-of-life disposal costs for products containing materials such as mercury and lead. The regulations applicable in the EU serve as guidelines to set standards for maximum toxic material content in lighting products. Within the U.S. there is potential for different toxic material content regulations set by states instead of federal law, which causes labeling, shipping, and operational issues. Some U.S. states have established producer responsibility groups (Extended Producer Responsibility group - “EPR group”) that are regulated by the state and are paid for and run by manufacturers. The number of EPR groups will most likely increase and might extend to up to 50 different EPR groups in the future.
206 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In accordance with IAS 24 (International Accounting Standards), transactions with persons or companies which are, inter alia, members of the same group as OSRAM or which are in control of, or controlled by, OSRAM must be disclosed, unless they are already consolidated in the OSRAM’s combined financial statements. Control exists if a shareholder owns more than one half of the voting rights in the respective company or, by virtue of an agreement, has the power to govern the financial and operating policies of the company so as to obtain benefits from its activities. The disclosure requirements under IAS 24 also extend to transactions with associated companies (including joint ventures) as well as transactions with persons who have significant influence on OSRAM Licht AG’s financial and operating policies, including close family members and intermediate entities. Set forth below is a summary of transactions with related parties for the Fiscal Years 2012, 2011 and 2010 as well as for the Fiscal Year 2013 until the date of this prospectus. Further information, including quantitative amounts, of related party transactions are contained in the notes (Note 34) to our audited combined financial statements, included in the “Financial Section” of this prospectus.
RELATIONSHIP WITH THE SIEMENS GROUP Overview OSRAM Licht AG was founded in June 2012 for the purposes of the Spin-off. Prior to the Spin-off becoming effective, which is expected on July 5, 2013, it is a wholly owned direct subsidiary of Siemens AG. As OSRAM Licht AG has not conducted and will not conduct its own business or operations prior to the Spin-off (with the exception of holding a minority shareholding in OSRAM GmbH), the following discussion focuses on OSRAM GmbH and its subsidiaries. See also “Shareholder Structure”. Prior to the completion of the Spin-off, OSRAM GmbH as well is also a subsidiary of Siemens AG. OSRAM GmbH was converted into a stock corporation (OSRAM AG) in 2011 as a preparation for an intended IPO but reconverted into a limited liability company (OSRAM GmbH) in October 2012 in anticipation of the Spin-off. As a wholly owned subsidiary of Siemens AG, we had various business relationships with Siemens AG and its subsidiaries (excluding OSRAM) (Siemens Group) in the past and will continue to have a – modified and reduced – relationship with the Siemens Group in the future. In particular, • OSRAM GmbH was a party to a domination and profit and loss transfer agreement (Beherrschungs-und Ergebnisabführungsvertrag) until and including September 30, 2011, and with effect as of October 6, 2011 a party to a subsequent domination agreement that has been terminated by mutual agreement with expiry of September 30, 2012; • we received certain services relating to human resources, real estate, IT, intellectual property, legal, compliance, procurement, export control and customs, treasury, finance services and other areas and were part of the cash pooling and cash management system and global insurance cover of the Siemens Group; in certain areas (excluding for example global insurance coverage), if necessary, these services will continue for a transition period after the completion of the Spin-off while we have already built up our own resources for other areas; • certain subsidiaries and other assets that were part of the OSRAM Division within the Siemens Group but were directly or indirectly owned by Siemens rather than by us were transferred to us in preparation of our separation from Siemens; • we have conducted and expect to continue to conduct business with the Siemens Group. At present, Siemens is among our top 50 customers and we expect to benefit further from our relationship to Siemens, in particular in relation to our LED component business and in the future intensified also in our luminaires business.
Domination and Profit and Loss Transfer Agreement OSRAM GmbH as controlled company and Siemens AG as controlling company were parties to a domination and profit and loss transfer agreement signed on August 23, 1993 / September 6, 1993 and effective as of October 1, 1993. Pursuant to this agreement, OSRAM GmbH had to carry out its business at the direction of Siemens and was obliged to transfer its entire annual net income (Jahresüberschuss) (subject to the allocation of amounts to retained earnings to the extent this is economically justified from a reasonable business assessment) to Siemens and Siemens was obliged to assume OSRAM GmbH’s entire annual net loss (Jahresfehlbetrag)in each Fiscal Year (in each case as determined by the annual financial statements of OSRAM GmbH prepared in
207 accordance with the German Commercial Code). Under this agreement, OSRAM GmbH transferred profits to Siemens in the Fiscal Year 2012 of €143.8 million for the Fiscal Year 2011 and in the Fiscal Year 2011 in the amount of €221.6 million for the Fiscal Year 2010, and Siemens in the Fiscal Year 2010 compensated a loss of €66.1 million for the Fiscal Year 2009. This agreement was terminated with expiry of September 30, 2011.
Domination Agreement In connection with the termination of the domination and profit and loss transfer agreement effective as of the end of September 30, 2011 referred to above, OSRAM GmbH (at the time OSRAM AG) as controlled company and Siemens Beteiligungen Inland GmbH (“SBI”) (a subsidiary of Siemens) as controlling company entered into a domination agreement (Beherrschungsvertrag) that became effective on October 6, 2011. The parties have unanimously terminated this domination agreement effective as of the end of September 30, 2012. Under the domination agreement, SBI was required to cover all losses incurred by OSRAM GmbH from October 1, 2011 through the termination of the domination agreement in accordance with Section 302 of the German Stock Corporation Act. These losses have been determined by the financial statements of OSRAM GmbH prepared in accordance with the German Commercial Code for the Fiscal Year 2012 and amounted to €336.6 million (recorded as annual net income prior to loss assumption/profit transfer); this claim was fulfilled in the first quarter of the Fiscal Year 2013.
Other Relationships with the Siemens Group We received various services from the Siemens Group in the past, including treasury or finance services and global insurance cover of the Siemens Group, and we have conducted other business with the Siemens Group as described in more detail below. Sales of goods and services and other income as well as purchases of goods and services and other expense to and from the Siemens Group in the Fiscal Years 2012, 2011 and 2010 are set forth in the following table. In the Fiscal Year 2011, other income included significant cost compensation by Siemens (see “—Other Agreements”). Other expense in 2011 included, inter alia, charges by Siemens for services provided by headquarter functions (infrastructure costs; see “—Services and Other agreements”). Sales of goods and services and other Purchases of goods and services and income other expense Fiscal Year Fiscal Year 2012 2011 2010 2012 2011 2010 (audited) in € million 23.5 72.7 12.2 100.5 184.9 112.3 The table below sets forth the sales of goods and services and other income and purchases of goods and services and other expense in the relationship with the Siemens Group in the first six months ended March 31, 2013 and March 31, 2012, respectively: Sales of goods and services and other Purchases of goods and services and income other expense Six months ended March 31, Six months ended March 31, 2013 2012 2013 2012 (unaudited) in € million 10.1 12.3 33.2 50.9 As of the dates indicated below, OSRAM’s receivables from and payables to Siemens Group are as follows. September 30 March 31 2012 2011 2010 2013 ( audited) (unaudited) in € million in € million Receivables from Siemens Group ...... 956.2 538.5 605.2 941.2 therein: Siemens Credit Warehouse ...... — — 114.5 — Financing activities ...... 619.4 535.8 486.7 939.4 Other items ...... 336.8 2.7 4.0 1.8 Liabilities to Siemens Group ...... 1,209.5 1,498.0 859.5 966.7 therein: Financing activities ...... 1,198.1 1,343.7 596.3 957.0 Other items ...... 11.4 154.3 263.2 9.7
208 Financing Prior to the Spin-off, OSRAM GmbH and its subsidiaries were mainly financed by the Siemens Group as described below. Such financing by the Siemens Group will be terminated at the beginning of July 2013 and replaced by an individual and separate financing of our Group. The past and future financing of our Group is described below: • Historically, we participated in the cash pooling and other cash management systems of the Siemens Group. This included, among other things, the investment of excess short term liquidity and the financing via granted overdraft facilities as well as the processing and invoicing of intra-group and external receivables and payables. These participations will be terminated at the latest as of the Spin-off becoming effective and replaced by new OSRAM Licht Group cash pooling and cash management systems the preparations for which have been mostly completed. • In addition, the Siemens Group has in the past provided short term loans to us. These loans amounted to €720.1 million, €685.4 million and €454.8 million as of September 30, 2012, 2011 and 2010, respectively (March 31, 2013: €705.4 million). In the course of the Siteco acquisition in the Fiscal Year 2011, Siemens repaid a bank loan in the amount of €125.6 million owed by Siteco. The resulting loan granted by Siemens Treasury amounted to €0.0 million as of September 30, 2012 (€131.6 million as of September 30, 2011). In September 2012, Siemens AG contributed an amount of €200.0 million into the capital reserves of OSRAM AG (now OSRAM GmbH) in the form of a waiver of claims against OSRAM GmbH from the Siemens cash management. Moreover, in October 2012 Siemens AG waived an additional part of a receivable against OSRAM GmbH in an amount of approximately €32 million from the cash management and assigned a part of a receivable against OSRAM GmbH from intra-group financing activities in an amount of approximately €131 million to OSRAM Beteiligungen GmbH, which in turn waived the assigned amount of the receivable; this also constituted a contribution into the capital reserves. Furthermore, in the past we have also provided short term deposits to Siemens. We have agreed with the Siemens Group that these loans and deposits with the Siemens Group will be terminated and replaced by an intra-Group lending structure in the OSRAM Licht Group. This structure will also be implemented in July 2013. In connection with the replacement of financing previously provided by the Siemens Group, OSRAM GmbH has entered into a credit facility agreement with a number of financial institutions; see “Business—Material Contracts—Credit Facility Agreement”. The drawdown for the replacement of the financing by the Siemens Group is scheduled to start at the beginning of July 2013. In addition, external local financing agreements by some of our subsidiaries remain in place, especially in countries with highly regulated capital markets. These local credit agreements are generally secured with collateral provided by Siemens AG. Such collateral will be terminated by Siemens AG at the latest upon the Spin-off becoming effective, so that we might be potentially obligated to grant alternative collateral (including collateral provided by other companies of the OSRAM Licht Group) for the relevant obligations. See below under “—Collateral of the Siemens Group as Security for our Contractual Obligations towards Third Parties”.
Financial Risk Management and Factoring In the past, we entered into derivative hedging arrangements with Siemens relating to currency exchange rate risks. Siemens acted as counterparty, unless local legal restrictions demanded otherwise. We have agreed with the Siemens Group that all OSRAM Licht Group internal currency exchange rate hedging activities with Siemens will be terminated at the latest upon the Spin-off becoming effective at current market values. Only in some special cases external hedging agreements with financial institutions entered by Siemens in our interest will be transferred to us. Upon the Spin-off becoming effective, OSRAM will directly enter into currency hedging arrangements with financial institutions as part of its own financing agreements. For the purpose of commodity price hedging, we participated in a commodity price risk management system established by the Siemens Group. The aggregated commodity price risk exposure was hedged to varying extents through derivate financial hedging instruments. We have agreed with Siemens Group that all OSRAM Licht Group internal commodity price hedging activities with Siemens will be terminated and will be replaced by a commodity price hedging of the OSRAM Licht Group with financial institutions effective at the latest upon the completion of the Spin-off. Certain operating units of the OSRAM Licht Group participated in a factoring program of Siemens named “Siemens Credit Warehouse”. Under this program, we sold and assigned certain eligible trade receivables together with the credit risks pertaining thereto to Siemens, without a financing function, but remained responsible for the servicing of such receivables (e.g. debt collection). This participation was terminated in the Fiscal Year 2011 and replaced by a credit insurance policy program with the credit insurance company Coface.
209 Collateral of the Siemens Group as Security for our Contractual Obligations towards Third Parties The guarantees issued by Siemens Group amounted to €305.1 million as of March 31, 2013. This includes a guarantee of €70.0 million from the transitional provisions of the Supply Chain Finance Program. See below “—Participation in Supply Chain Finance Program of Siemens”. The total amount of €305.1 million further includes collaterals for our local credit facilities, guarantee facilities and currency hedging arrangements that have been provided by Siemens Group companies as part of our participation in the financing structure of Siemens Group. The collateral will be terminated to the extent possible at the latest upon the Spin-off becoming effective. As a result, we may be obligated to grant alternative collateral to the relevant bank, insurance company or other financial institution. Furthermore, Siemens Group as well as banks, insurance companies and other financial institutions instructed by Siemens Group have granted guarantees or other types of collateral for the benefit of suppliers, customers and partners which are also included in the total sum of guarantees issued of €305.1 million as of March 31, 2013. At the end of 2011, we have begun to obtain the release of the collateral granted by Siemens Group. Such discharge occurs in the form of a substitution by collateral granted by us or based on our guarantee facilities. The security portfolio that has not yet been released as of the date of this prospectus is comprised of two guarantees in the U.S. We have agreed with Siemens Group that any collateral granted that has not yet been released and any remaining liability of Siemens Group shall be fully released. Such obligation will become due once our new Group financing is in place, at the latest upon the Spin-off becoming effective. At that time, we will have to substitute or otherwise discharge Siemens from all existing obligations within 40 banking days after the Spin-off becomes effective. We are required to reimburse Siemens for fees, costs and expenses Siemens incurs in connection of the relevant security after completion of the Spin-off. In addition, we agreed to hold Siemens harmless from and against any and all liabilities and costs, especially against payment claims raised in respect of the aforementioned security.
Participation in Supply Chain Finance Program of Siemens We participated together with some of our strategic suppliers in the supply chain finance programs of Siemens AG in Germany and of Siemens Corporation in the U.S. (jointly the “Siemens SCFP”) which are offered and managed by external providers. Siemens AG and Siemens Corporation assumed joint and several liabilities with us and vis-à-vis the external provider for our payment obligations under the Siemens SCFP to the external provider. Any payments made by Siemens AG and Siemens Corporation under this Siemens SCFP, but owed by us, were settled between Siemens and us through the inter-company clearing system. In connection with the Spin-off and effective as of June 1, 2012 we have terminated our participation in the Siemens SCFP and have implemented our own stand-alone supply chain finance programs in the context of which Siemens is still jointly and severally liable. It is intended to discharge Siemens from its joint and several liability in connection with the Spin-off. For a certain transition period, Siemens will remain liable for the joint and several liabilities that have arisen up until the effectiveness of the Spin-off. Such liability is limited to €70 million. We will, upon Siemens’ request, pay an amount which equals the amount of the outstanding liabilities for which Siemens is jointly and severally liable to Siemens at the earliest 15 days prior to the Spin-off becoming effective. Siemens is obligated to use this amount only for the payment of the obligation to the external provider. Otherwise, Siemens’ liability expires upon proper payment of the last secured payable by OSRAM.
Equipment and Machinery Leasing We have entered into several leasing transactions with Siemens relating to IT equipment and machinery with a one-digit million euro value. In the Fiscal Years 2012, 2011 and 2010, interest expenses for such finance leases amounted to €0.3 million, €0.3 million and €0.3 million, respectively. As of September 30, 2012, 2011 and 2010, the outstanding minimum lease payments were €3.0 million, €4.0 million and €5.7 million, respectively. In the first six months of the Fiscal Year 2013, interest expenses for finance leases amounted to less than €0.1 million. Finance leases were replaced as of March 31, 2013.
Real Estate Leasing Several lease and rental agreements exist between companies of the OSRAM Licht Group and other companies of the Siemens Group, in particular Siemens Real Estate. The most important lease agreements relate to real estate located in Munich, Germany (until March 31, 2013, thereafter only for a small and insignificant area until September 30, 2013) and in Mississauga, Canada. The majority of these real estate leasing, rental agreements and related service agreements will continue to remain in force after the completion of the Spin-off. Only a limited number of agreements will be terminated in connection with the Spin-off.
210 Furthermore, some locations are rented by companies of the Siemens Group and are subleased to subsidiaries of OSRAM Licht Group in part or in total. Where a separation of the contracts was not possible in the course of our separation due to the missing approval of the landlord, we continue the sublease agreement with the respective company of the Siemens Group, unless we have agreed upon a relocation.
Services and Other Agreements As a Division of the Siemens Group we were historically able to use certain services performed at Siemens Group level as well as Siemens Sector level (such as tax, legal and contract management, IT services, corporate communications, human resources, internal audit, compliance, accounting and finance). In the Fiscal Years 2011 and 2010, OSRAM was charged a lump sum for services provided by the Industry Sector of Siemens (“Sector Charge”). These charges amounted to €18.3 million and €10.2 million in the Fiscal Years 2011 and 2010, respectively. Commencing in the Fiscal Year 2011, Siemens also charges the Sectors and Divisions for services provided by headquarter functions of Siemens Group (“Central Group Charge”). Accordingly, in the Fiscal Year 2011 we were charged for these services a lump sum net amount of €30.9 million. No fees had been charged by Siemens for such services provided by Siemens Group headquarter functions in the Fiscal Year 2010. Since OSRAM generally established stand-alone functions by the end of the Fiscal Year 2011, no more general charges have been incurred in the Fiscal Year 2012 until the date of this prospectus. Prior to the Spin-off becoming effective, we were covered by the global enterprise insurance program of the Siemens Group. Apart from that, several agreements existed between companies of our Group and companies of the Siemens Group regarding individual insurance services. In the Fiscal Year 2012, premiums payable to the Siemens Group under global line insurance agreements (excluding transport insurance), including related services, amounted to €9.2 million including local insurance services by the Siemens Group in Germany and in the U.S. (Fiscal Year 2011: €9.5 million including transport insurance and local insurance services by the Siemens Group in Germany and in the U.S.). In connection with the Spin-off, the insurance cover by Siemens has been largely replaced by a separate insurance cover of the OSRAM Licht Group effective as of October 1, 2011. The remaining part of insurance coverage has been almost entirely replaced by a separate insurance cover of the OSRAM Licht Group effective as of October 1, 2012. An exception to this is the Employment Practises Liability insurance (EPLI, which covers, among other things, the employer’s liability in case of discrimination claims) which has been replaced by an own program as of January 1, 2013. Only the Directors’ and Officers’ (D&O) Liability insurance is still provided by insurance program of the Siemens Group and will be replaced with OSRAM insurance policies at the latest as of the completion of the Spin-off. In addition, service level agreements, relating in particular to accounting and finance (including tax and treasury), compliance, export control and customs (use of special systems), HR-matters, insurance, intellectual property, IT, legal, environment, health & safety, procurement and real estate existed between certain companies of the OSRAM Licht Group, especially regional companies, and the Siemens Group. In connection with our separation from Siemens, most of these service level agreements • were either terminated as of September 30, 2011 or will be terminated at the latest as of the completion of the Spin-off, and replaced by OSRAM in-house solutions or by new agreements with external providers, which also include external agreements with Siemens (e.g. Siemens Professional Education or real estate); or • will be replaced by transitional service agreements with the Siemens Group (see below “—Ongoing Relationships and Services Provided by the Siemens Group”). In addition to the services provided by Siemens to us, companies of our Group also have provided, and will continue to provide, certain services to Siemens on the basis of six service level agreements, relating in particular to the renting of building, office space and facilities, warehousing and education.
Participation and Benefit Programs of the Siemens Group Since OSRAM formed part of the Siemens Group, several of our employees and members of our Managing Board participate or have participated in the past in the share-based payment plans of Siemens AG, which include, inter alia, stock awards, phantom stock awards, a share matching program (under certain conditions, participating individuals receive free additional shares subject to certain own investments) and its underlying plans. Siemens is mandated by us to fulfill OSRAM’s obligations hereunder and deliver the awards granted (i.e. shares of Siemens) to the employees on our behalf. Siemens is reimbursed by us accordingly. As a result of the Spin-off with OSRAM Licht Group ceasing to belong to the Siemens Group, these share-based payment plans will be terminated and the respective outstanding rights will be compensated in cash. We estimate that the
211 associated net cash outflow of such cash compensation will be in the range of €20 million. See “Management—Managing Board—Compensation of Managing Board Members—Treatment of Siemens Stock Awards after the Spin-off Takes Effect” and for the remuneration system of OSRAM Licht AG see “Management—Managing Board—Compensation of Managing Board Members—Remuneration System”. For further details on the existing participation programs, see the notes to our audited combined financial statements as of and for the Fiscal Years 2012, 2011 and 2010 (Note 33), which are included in the “Financial Section” of this prospectus.
Pension Schemes and Trust Entities Pension benefits provided by the OSRAM Licht Group include primarily defined benefit pension plans which cover almost all of our German employees and many of our foreign employees. To reduce our risk exposure arising from our pension plans, we performed a redesign of some major pension plans in the past towards benefit schemes which are predominantly based on defined contributions. In Germany, a contribution- oriented defined benefit scheme was introduced. In order to fund our pension obligations, trust schemes for the major part with limited access to the plan assets within the meaning of IAS 19 have been established. In most of the countries where we operate we have historically established stand-alone solutions for pension schemes. In certain countries, primarily in the U.S., Switzerland and the U.K., OSRAM employees historically participated in Siemens pension plans. For these plans pension entitlements were managed separately for each company. The assets of these pension plans were managed by external trustees. In connection with our separation from Siemens, the membership in U.S. pension schemes and the underlying pension assets were transferred to a separate, newly established pension scheme of the OSRAM Licht Group in the U.S. (OSRAM SYLVANIA Pension Plan). The allocation of pension plan assets to the OSRAM SYLVANIA Pension Plan in the U.S. was calculated in accordance with Internal Revenue Code Section 414(I) and resulted in an additional transfer of plan assets compared to the asset allocation in IAS 19 accounting valuations. In this context, additional assets in an amount of €6.7 million and €56.2 million, respectively, were transferred from the Siemens trust in the U.S. to the newly established OSRAM trust in the U.S. in the Fiscal Years 2012 and 2011, respectively. With respect to the existing pension obligations under the defined benefit plan for OSRAM employees in the United Kingdom, Siemens and PLC, Frimley, Great Britain, OSRAM Ltd., Langley, Great Britain, and the Siemens Benefits Scheme Limited, Frimley, Great Britain, agreed on January 31, 2012 that, in addition to the trust assets, only Siemens PLC and not OSRAM Ltd. shall be liable for potential liabilities in respect of these pension obligations. As a consequence, no pension obligations resulting from this plan are recognized at OSRAM as from February 2012 onwards. In Germany, we have concluded a contractual trust agreement with Deutsche Treuinvest Stiftung to secure the entitlements from the pension schemes. Furthermore, in December 2011, OSRAM GmbH received an earmarked cash contribution of €499.5 million from Siemens AG to provide additional funding to funded pension plans, including a funding for the German pension plans of €485.0 million, €11.8 million for principal funded pension plans in Canada and Switzerland, and €2.7 million for further pension plans in Mexico, Taiwan, Switzerland and Belgium. In some countries, such as Austria and Brazil, OSRAM will participate in so-called multi-employer-pension schemes in which the Siemens Group entities may also participate. For further details on the pension schemes and the accounting of the respective pension liabilities, see the notes to our combined financial statements for the Fiscal Years 2012, 2011 and 2010 (Note 25) included in the “Financial Section” of this prospectus.
IT License Agreements Already prior to the decision to separate OSRAM, the IT infrastructure of OSRAM Licht Group was largely separated from the rest of Siemens Group. Applications and IT infrastructure which has previously been provided within Siemens Group will be provided within the OSRAM Licht Group and by outsourcing partners independent from Siemens, respectively. This process has been mostly completed. Historically, OSRAM used certain software (e.g. SAP, Microsoft, Oracle) under group frame agreements of Siemens Group. Going forward, OSRAM will enter into own Group license agreements. The individual licenses currently used by OSRAM shall, to the extent possible, be transferred to OSRAM upon the Spin-off becoming effective. If and to the extent that there are no adequate licenses that can be transferred to OSRAM, this may result in additional costs. If this does not suffice in order to provide for satisfactory coverage of OSRAM with licenses, OSRAM will procure licenses directly from the software providers. Independent thereof, OSRAM will enter into license and service agreements with the providers going forward based on the existing demand. Within the OSRAM Licht Group, an internal license management structure was established independent of the Siemens Group. See also “—Other Agreements—Master Agreement Separation”.
212 Co-ownerships OSRAM A.E., Greece, and Siemens A.E., Greece, each hold 10% of the shares in the Greek recycling company Anakiklosi Siskevon Simetochiki S.A., Piraeus. Furthermore, OSRAM GmbH and Siemens AG hold 0.07% and 0.77%, respectively, in the Bavarian recycling company GSB (Sonderabfall-Entsorgung Bayern GmbH). In the first step, these shareholdings shall also be maintained following the Spin-off.
Shared Agreements Prior to the effectiveness of the Spin-off, companies of the OSRAM Licht Group and companies of the Siemens group have entered into shared purchase, procurement and logistics agreements with third parties. These agreements have, with few exceptions, been split-up between us and Siemens Group or replaced by newly negotiated separate agreements for the OSRAM Licht Group and Siemens Group. The remaining agreements will be split up in connection with the Spin-off.
Personal Connections with the Siemens Group - Dual Mandates Two of the current members of our Managing Board were previously member of the managing board and senior officer (leitender Angestellter), respectively, of Siemens. In addition, one future member of our Supervisory Board and, upon the Spin-off becoming effective, one member of the supervisory board of OSRAM GmbH is at the same time a member of the managing board of Siemens. See “Management—Managing Board” and “Management—Supervisory Board” for more information.
Contribution, Acquisition and Transfers of Certain Subsidiaries, Assets, Employees in the Fiscal Year 2011 Certain companies attributable to the OSRAM Licht Group business were in the past not subsidiaries directly or indirectly owned by us but by Siemens AG or other companies of the Siemens Group. Likewise, certain customer relationships, assets and employees attributable to our Group were previously held or employed by Siemens AG or other companies of the Siemens Group. On July 4, 2011, OSRAM GmbH concluded with Siemens AG a contribution agreement under which Siemens AG transferred all shares in OSRAM SYLVANIA to OSRAM GmbH. The share transfer became effective as of July 4, 2011. No new shares were issued by OSRAM GmbH in this context but rather the transfer was recorded as a contribution in kind without consideration into OSRAM GmbH’s additional paid-in capital. In addition, OSRAM GmbH acquired several other significant subsidiaries and shareholdings from Siemens AG and certain Siemens subsidiaries, namely • 100% of the shares in OSRAM S.p.A., Società Riunite OSRAM-Edison-Clerici, Italy • 100% of the shares in OSRAM S.A., Spain • 44% of the shares in OSRAM AS, Norway OSRAM GmbH paid an aggregate consideration of €136.2 million in the Fiscal Year 2011 to Siemens AG and the previous shareholders belonging to the Siemens Group, respectively, for these shares. In addition, the following participations were transferred to OSRAM: • a 2% shareholding in OSRAM Lamp PjS Co, Iran (now Yekta Setareh Atlas Co P.J.S.) • a 0.02% shareholding (20 shares) in OSRAM Lighting Control Systems Ltd., Hong Kong • one share (around 0.0002%) in Compact Automotive Lamps Pvt Ltd., India (subsequently renamed OSRAM Automotive Lamps Pvt Ltd.) • a 16.87% shareholding in Encelium Holdings Inc., U.S. • a 11.05% shareholding in Design LED Products Ltd, United Kingdom (this shareholding was reduced in August 2011 to 9.35% due to an allotment of shares to new shareholders) In respect of certain important acquisitions OSRAM GmbH relied on third party evaluation reports to support its assessment that the relevant purchase price was fair to us from a financial perspective. Under the respective purchase agreements OSRAM GmbH or other companies of our Group undertook to indemnify the Siemens Group and persons related to it from and against any loss, liabilities, damage and cost and expenses arising out of or in connection with (i) any breach by us of any covenant, undertaking or other obligations under the respective agreements as well as, in case of the more important acquisitions, (ii) from any liability in
213 connection with the conduct of the business of the respective subsidiary (prior or after the respective effective date) for which Siemens AG or Siemens subsidiaries or any of its related persons may be held liable. Our indemnification obligations are in general time-barred in each case five years after a claim for which we have to indemnify Siemens AG or any of its affiliates has been raised against Siemens or any of its affiliates. Furthermore, OSRAM GmbH undertook in the respective purchase agreements not to assert against the Siemens Group and persons related to it any claims which are in connection with or based on Siemens’ position as shareholder of the respective subsidiary. In addition to the acquisition of shareholdings from Siemens AG and certain Siemens subsidiaries, we sold and transferred minority participations in certain regional subsidiaries of Siemens (in Mexico and Brazil) to Siemens entities. The respective agreements contain similar indemnification undertakings by Siemens and restrictions of claims as are contained in the agreements described above with us as purchaser. In China, a regional company of the Siemens Group holding a license to trade in foreign currencies has historically been used by us to import and sell certain products to customers. In connection with our separation from Siemens, this subsidiary of Siemens has terminated its customer relationships for OSRAM products and three regional OSRAM companies entered directly into business related partnerships with these customers or economically took over these customer relationships. In some countries such as China, Belarus, Kazakhstan and Ireland, employees (less than 20 FTE in total) formerly employed by Siemens have been transferred to OSRAM. In China some R&D related assets and personnel were in addition transferred to us and one of our local subsidiaries has entered into a business partner agreement with a local Siemens subsidiary. In addition, we obtained services in certain countries or in certain functions (e.g. real estate) from Siemens. In some cases employees rendering these services have been transferred to us.
Other Agreements Management Indemnification Agreement In April 2011, Siemens agreed to hold harmless OSRAM GmbH’s managing board for certain risks relating to regulations on radiation protections affecting certain of our products.
Indemnification Agreements in connection with the Spin-off and the Stock Exchange Listing In the spin-off and transfer agreement governing the Spin-off, Siemens AG and OSRAM Licht AG have agreed on a mutual indemnification for liabilities resulting from Section 133 of the German Transformation Act (Umwandlungsgesetz) to the extent the relevant liabilities can be attributed to one of the parties, while the other party is held liable externally. In a separate agreement, Siemens AG and OSRAM Licht AG have internally agreed to share liabilities from prospectus liability claims that have been either determined by a final judgement or settled by mutual agreement in a certain proportion based on stock corporation law considerations and taking into account the existing case law.
Cost Assumption Agreements In preparation of OSRAM’s separation from Siemens, the planned IPO and the planned Spin-off, OSRAM has incurred certain related costs which Siemens and OSRAM determined to be outside the ordinary course of OSRAM’s ongoing operations, in particular legal costs related to Patent Infringement Suits that escalated immediately upon of our IPO plans becoming public, costs related to the preparation of going public and personnel-related costs. OSRAM GmbH (then OSRAM AG) and Siemens AG entered into a cost assumption agreement (“Kostenübernahmevereinbarung”) in September 2011 stipulating that Siemens AG will bear these costs. This agreement has been supplemented in January 2012 in relation to costs relating to the preparation of going public and the meanwhile intended Spin-off. OSRAM accounts for the costs net of the respective reimbursements. In the Fiscal Year 2011, OSRAM received reimbursements related to the cost assumption agreement in the amount of €42.4 million, thereof €31.3 million for legal costs related to Patent Infringement Suits. In the Fiscal Year 2012, we recognized income of €7.9 million as cost reimbursement under this cost assumption agreement. In the first half of the Fiscal Year 2013, we recognized income of €1.8 million as cost reimbursement under this cost assumption agreement. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting the Results of Operations—Costs Associated with the Separation, the Planned IPO and the Spin-off; Patent Infringement Suits”. Furthermore, Siemens AG has reimbursed OSRAM Licht AG for the costs associated with the audit of the annual financial statements for the Fiscal Year 2012 and of the combined financial statements for the Fiscal Years 2012, 2011 and 2010 as well as for certain other costs by way of a contribution. The spin-off and
214 transfer agreement between Siemens AG and OSRAM Licht AG and the associated contribution agreement (Einbringungsvertrag) between these entities relating to the contribution of shares in OSRAM GmbH by Siemens AG into OSRAM Licht AG provide for further cost assumption obligations of Siemens AG.
Releases of Payables/Equity Contributions In the Fiscal Year 2011, Siemens released unsettled payables of aged intercompany balances in the amount of €7.3 million that could not be met due to capital transfer restrictions, for which we recorded other operating income. On September 27, 2012, Siemens AG partially waived a claim from the Siemens cash management against OSRAM AG (now OSRAM GmbH) in the amount of €200.0 million which was recorded as a contribution into the capital reserves and increased the capital reserves accordingly. On October 30/31, 2012, Siemens AG waived additional claims in the amount of €31.8 million and assigned claims against OSRAM GmbH of €131.2 million to OSRAM Beteiligungen GmbH which in turn waived such claims vis-à-vis OSRAM GmbH. The aggregate amount of €163.0 million was likewise recorded as a contribution into the capital reserves and increased the capital reserves accordingly. Additionally, in the first half of the Fiscal Year 2013 Siemens contributed €3.8 million as reimbursements of transaction costs in connection with the stand-alone financing of OSRAM Licht Group and certain audit costs. On February 6, 2013, Siemens AG, OSRAM Beteiligungen GmbH and OSRAM GmbH concluded an agreement to strengthen OSRAM GmbH’s equity. On June 13, 2013, Siemens AG and OSRAM Licht AG concluded an additional agreement to strengthen OSRAM Licht AG’s equity. Background of both agreements are certain bank fees in connection with the credit facility agreement dated February 2013 (see “Business—Material Contracts—Credit Facility Agreement”). In the agreements regarding the strengthening of equity, Siemens AG committed itself to credit or to pay an amount of €13.0 million. This amount has been allocated and will be allocated, respectively, to the capital reserves of OSRAM GmbH and OSRAM Licht AG, respectively. The obligation to strengthen the equity of OSRAM Licht AG will become due for payment with the Spin-off becoming effective upon registration with the commercial register of Siemens AG in Berlin (Charlottenburg).
Philips Patent License Agreement As part of an agreement between Siemens AG, OSRAM GmbH and Philips, Philips and OSRAM GmbH agreed on a prolongation and the conclusion, respectively, of certain patent cross-license agreements and the amendment of the respective divestment provisions.
Master Agreement Separation In order to complete our separation from Siemens, OSRAM GmbH (then OSRAM AG) and Siemens AG entered into a Master Agreement Separation in September 2012 (as supplemented in June 2013) providing for: • Release from Security. The release from security provided by Siemens as described above under “—Other Relationships with the Siemens Group—Collateral of the Siemens Group as Security for our Contractual Obligations towards Third Parties”. • Termination of Intra-group Agreements. Siemens and OSRAM understand that they will have terminated with effect, at the latest, upon effectiveness of the Spin-off by way of conclusion of respective termination agreements all existing service level agreements related solely to Siemens group internal services between OSRAM and Siemens which were previously rendered under a contract based on which Siemens provided goods or services to OSRAM or vice versa, except for those contracts for the provision of goods or services which are part of the product or services portfolio of Siemens or OSRAM offered also to third parties (“Inter-Group Related Services”). To the extent single Inter-Group Related Services have not been terminated, Siemens and OSRAM agreed to cooperate and to use reasonable efforts to procure that their respective affiliates cooperate to effect the termination of said Inter-Group Related Services upon effectiveness of the Spin-off. • Permits, Export Licenses and Customs Authorizations. Siemens and OSRAM have agreed to cooperate in identifying all permits, licenses, consents, approvals, certificates, qualifications, specifications, registrations or other authorizations or filings of a notification, reports or assessments as required or requested by any governmental authority OSRAM requires to carry out its business (“Required Permits”). With respect to the Required Permits other than export licenses by public authorities and customs authorizations, the parties have agreed with regard to the Required Permits as follows: Siemens shall transfer all such legally transferable Required Permits held by Siemens and exclusively pertaining to the OSRAM business as of the Spin-off becoming effective or shall use
215 reasonable endeavors to procure that such transfer can be effected (“Transferred Permits”). In addition, the parties have agreed contractually to take all necessary actions to obtain all other Required Permits and to apply for new export licenses and customs authorizations, each on its own behalf and account. • Equity Based Instruments. As described above under “—Other Relationships with the Siemens Group—Participation and Benefit Programs of the Siemens Group”, Siemens has implemented various group-wide equity based compensation schemes (collectively “Equity Based Instruments”). Siemens and certain of its affiliates, including certain members of the OSRAM Licht Group, have granted Equity Based Instruments to selected members of the management board and selected employees of Siemens, including certain board members and employees of the OSRAM Licht Group. Each of the relevant companies of the OSRAM Licht Group has entered into, or will enter into, an agreement with Siemens regarding its participation in the programs for the granting of Equity Based Instruments (each a “Group Agreement”). These Group Agreements also extend to potential obligations in connection with Equity Based Instruments. • Corporate Governance. Following effectiveness of the Spin-off, OSRAM may further use the internal guidelines of Siemens, for example in the areas of accounting, controlling, compliance, reporting and risk management, applicable to companies of the OSRAM Licht Group upon effectiveness of the Spin- off as OSRAM’s own, internal guidelines. • Access to Documentation. OSRAM and Siemens have agreed that, as from the completion of the Spin-off, each Party (“Granting Party”) will assist the respective other party (“Beneficiary”) by providing documents and information, specifically those required for the preparation of financial statements, as reasonable, legally permissible and necessary for (i) the preparation of the other party’s or its affiliates financial statements and/or if necessary, any (consolidated) quarterly accounts, or (ii) in regard to Siemens for purposes of the deconsolidation of companies of the OSRAM Licht Group by Siemens. The same support obligations apply to any tax matters and for any court proceedings with a third party or administrative proceedings, including litigation and arbitral proceedings, to which a Beneficiary is a party or which may give rise to a claim against a Beneficiary and which relates to the OSRAM business. Finally, the support obligations serve to allow a Beneficiary to assert its own claims or defend itself against third party claims, or to ensure the carrying out of obligations, in connection with contracts which the Beneficiary is a party to or under which it is entitled to claims or which are inseparably connected to the aforementioned contracts. Siemens undertakes that, as from the completion of the Spin-off, OSRAM shall be granted, upon its request, access to certain systems of Siemens in particular in connection with the preparation of the annual financial statements of Siemens and OSRAM, respectively, in accordance with the German Commercial Code (Jahresabschlüsse nach HGB) and the financial statements in accordance with IFRS if and to the extent such financial data has to be retained by Siemens and/or OSRAM in accordance with mandatory applicable law. In turn, OSRAM has undertaken to cooperate with, and to take such measures and provide such information as reasonably requested by, Siemens (and its representatives and auditors) in order to comply with certain requirements under U.S. securities laws. • Certain Licenses. The members of the OSRAM Licht Group purchased or will purchase all necessary licenses of the so-called “Ingentis Software”. With effect upon the completion of the Spin-off, Siemens has granted to OSRAM (i) under certain enhancements to the Ingentis Software, particularly copyrights and similar rights thereto (“Siemens Enhancements”) a non-exclusive, fully paid-up, perpetual and irrevocable worldwide, non-transferable license, without the right to sublicense, to use the Siemens Enhancements in source code format for purposes of having such source code customized to OSRAM’s requirements and (ii) under the Siemens Enhancements to the Ingentis Software and the copyrights and similar rights thereto a non-exclusive, worldwide, non-transferable, perpetual, irrevocable, fully paid-up license to use the Siemens Enhancements in object code format for its own internal purposes and to sublicense the use of such Siemens Enhancements in object code format solely to members of the OSRAM Licht Group for their own internal purposes. Furthermore, with regard to license agreements under which a third party has licensed to Siemens software which is used by any of the companies of the OSRAM Licht Group at the time of the completion of the Spin-off (“Corporate License Agreements”), OSRAM shall at its own costs endeavor to conclude its own corporate license agreements for its business. Concerning individual software copies licensed by third parties to Siemens and used by OSRAM under a Corporate License Agreement as of the completion of the Spin-off, OSRAM and Siemens have agreed to cooperate closely with regard to the scope of software licenses to be transferred to OSRAM upon completion of the Spin-off. Each party shall bear its own costs in regards to the transfer, however, OSRAM shall bear all external costs or necessary payments relating to such transfer.
216 • Siemens Designations. If and to the extent OSRAM was, prior to the completion of the Spin-off, granted any license to use the designation “Siemens”, “Si” and/or any reference substantially similar to the designation “Siemens” (collectively “Siemens Designation(s)”) as name affix, as trademark, as domain or otherwise, such license shall automatically terminate with effect as of the completion of the Spin-off to the extent the future use of certain Siemens Designations by OSRAM has not explicitly been authorized under the Master Agreement Separation. Unless such authorization has been granted, OSRAM shall refrain from using, and, if used prior to the completion of the Spin-off, cease to use and remove, any Siemens Designation(s) as commercial designation (Geschäftliche Bezeichnung) within the meaning of Section 5 of the German Trademark Act (Markengesetz) including company name or corporate mark, as name affix, as trademark, as domain or otherwise in any communication, in connection with services, and on, or in connection with, products (including software). An authorization of future use has been granted for certain designations, which are important for OSRAM, including but not limited to “Siteco”, “Silverstar”, “Sirius” and “SIDELED”. • Certain Taxes. After the termination of the income tax group between Siemens and OSRAM, Siemens has undertaken to pay to OSRAM such amount as is necessary to indemnify OSRAM from and against any and all taxes for which any of the companies is liable pursuant to Section 73 of the German Fiscal Code (Abgabenordnung) or any similar provision under any other jurisdiction (subject to certain exceptions). Furthermore, certain compensation mechanisms have been implemented for previous tax periods in the case the tax authorities change the taxation. In addition, Siemens AG and OSRAM GmbH have agreed on a comprehensive cooperation in tax matters with regard to the period prior to the termination of the tax group between Siemens Group and the OSRAM Licht Group. • Mutual Indemnities. OSRAM and Siemens agreed to hold each other and their respective successors, officers, directors, shareholders, employees, advisors and other agents as third party beneficiaries (echter Vertrag zugunsten Dritter) from and against any and all losses, liabilities (whether present or future, actual or contingent), damages, reasonable costs and reasonable expenses (including taxes, legal fees, expenses and disbursements) arising out of, or in connection with any breach of any covenant, undertaking or other obligation under, or in connection with, the Master Agreement Separation by such party. OSRAM shall further hold such persons on Siemens’ side harmless from any such liabilities of the OSRAM business as conducted after completion of the Spin-off for which they are held liable. Siemens agreed to provide a reciprocal indemnity for any liability of such persons on OSRAM’s side for its remaining business. OSRAM and Siemens further agreed to hold harmless and indemnify each other for the amount to be repaid or to reimburse the other party for the amount repaid, as the case may be, if, from the completion of the Spin-off on, as a result of an incontestable decision issued by a governmental authority or court the other party is obliged to repay a public subsidy granted before the completion of the Spin-off, because of any action or omission by the indemnifying party, and if no other written agreement exists between the parties or the involved companies regarding such matter and if the party obliged to indemnify had known or could have known the public subsidy before the relevant action or omission. • Insurance. With a few exceptions, insurance coverage provided to OSRAM via a Siemens subsidiary has ceased with the end of the Fiscal Year 2012. OSRAM shall remain covered under the Siemens Directors & Officers liability insurance until the completion of the Spin-off. If and to the extent that the Siemens insurance policies provide coverage for damages incurred by OSRAM within the insurance period, OSRAM may file claims under these policies even after the termination of the insurance coverage (subject to various triggers and notification periods/dates). OSRAM has undertaken to procure seamless insurance coverage for the OSRAM business at the latest effective from the end of the shared insurance coverage under the Siemens policies including the period after the Spin-off becoming effective. Such coverage shall generally be commensurate to the insurance coverage existing for the OSRAM business under the Siemens insurance policies.
217 Ongoing Relationships and Services Provided by the Siemens Group As described above, several lease and rental agreements, supply and delivery arrangements with companies of the Siemens Group will remain in place after the completion of the Spin-off. Also, we remain liable under the Siemens SCFP, jointly and severally with Siemens, for a transitional period. In addition, some guarantees and securities provided by the Siemens Group for certain of our obligations will stay in place for a transitional period. Furthermore, following completion of the Spin-off, Siemens Group will provide the following ongoing services to companies of our Group:
Transitional Service Agreements In connection with our separation from Siemens, if necessary, we will enter with Siemens and some companies of the Siemens Group into several transitional service agreements (“TSA”). These TSAs will come into force effective as of the completion of the Spin-off for a limited period of time. In addition, our subsidiary Siteco Lighting GmbH and some of its subsidiaries use, and will continue to use, regional companies of the Siemens Group as generally non-exclusive sales agents or distributors in certain countries such as Spain, Portugal, Luxemburg, Greece and Slovakia. Furthermore, Siteco cooperates from time to time with companies of the Siemens Group on a project partner basis.
Siemens Account Management and Market Development/Service Agreement In the past we have participated in the so-called Siemens One program. Following this initiative, Siemens is focusing on coordinated sales, product portfolio activities and sustainable solutions on strategic markets and their actual and future demands in the field of e.g. airports, automotive, chemicals, cities, hospitality, hospitals, oil & gas, public sector. Within the Siemens One program we have historically participated in the following market development boards: Airports, Cities, Hospitality, Hospitals, Public Sector and Power Utilities. Our participation in the Siemens One program was based on a service agreement with Siemens entered into in 2008. We will continue our participation in the Siemens One program to the extent legally possible on the basis of a new service agreement with Siemens, which has been concluded in January 2012, to maximize mutual benefits.
Strategic Partnership Agreement Going forward, we expect to continue to work together with Siemens on a project-by-project basis. In the past such project partnering related especially to the construction of new buildings as well as to renovations and optimization of existing buildings e.g. through common energy and lighting audits. Such project partnering can also take the form of cooperations, consortiums and subcontractor models. In September 2012, OSRAM and Siemens have concluded a Strategic Partnership Agreement which covers the main areas of future cooperation between OSRAM and Siemens with the aim to secure and expand the business opportunities on both sides and to support common goals, especially in the Infrastructure & Cities Sector. According to the agreement, OSRAM and Siemens shall, in particular, (i) enter into negotiations for the purpose of concluding agreements on the supply of OSRAM lighting products to Siemens AG or Siemens affiliates to qualify OSRAM to become listed on Siemens’ forward procurement list, (ii) establish an executive board to ensure sponsorship of sales efforts on the management board level within both organizations and (iii) cooperate on a non-exclusive basis with a view to Siemens external projects as well as in the fields of building technology and building standardization. Siemens committed itself in particular to the following undertakings: (i) fostering of the integration of OSRAM products in infrastructure projects carried out by Siemens and in Siemens-owned properties, if technically feasible and commercially reasonable, (ii) encouraging relevant Siemens Divisions to offer OSRAM a right of first call to supply lighting products in certain external projects, (iii) providing OSRAM with an option to participate in Siemens’ market development boards or similar business development platforms and (iv) admitting OSRAM to Siemens’ joint procurement program in the field of services and indirect material. The further terms of the cooperation with a view to external projects shall be determined by frame project agreements already concluded or to be concluded between OSRAM and the relevant Siemens Divisions and on a case-by-case basis. Any of the foregoing obligations are subject to compliance with applicable laws, in particular competition and antitrust laws. The Strategic Partnership Agreement has been concluded for an initial term of five years with automatic 12-month-extensions. Both parties can generally terminate the agreement with effect to the end of the initial term or the extension periods with a six months termination period, with a right for Siemens to terminate certain obligations early after a three-year term. In addition, both OSRAM and Siemens have a right of termination if OSRAM comes under the direct or indirect influence or control of any competitor of Siemens.
218 Cooperation Agreement with Siemens Corporate Technology As a Division of Siemens, we used the support of Siemens Corporate Technology (CT) for research and development projects as well as analytics support. In the Fiscal Year 2011 the project volume with CT amounted to €6.2 million and decreased to €4.2 million in the Fiscal Year 2012. In the course of the carve-out process, some of the development topics have already been transferred to OSRAM. For the remaining topics, we intend to continue this cooperation with Siemens CT in the form of research, development and analytics projects for the time after the Spin-off. The terms and conditions for this collaboration are set forth in a framework contract, the details in individual project agreements within this frame.
Joint Pooling Agreement between Siemens and OSRAM In order to improve purchasing conditions on the procurement markets for certain indirect materials (i.e., materials that are not directly incorporated in end products), OSRAM has entered into a joint pooling agreement with Siemens relating to the procurement of indirect materials on September 12/18, 2012. The agreement will become effective on the day on which OSRAM ceases to be an affiliated company of Siemens AG and is concluded for an indefinite period of time. Siemens undertakes to act for OSRAM on the procurement markets for the groups of commodities set out and defined in the agreement (i.e., IT Hardware, Energy and Consulting). This includes in particular the following actions: (i) structured analysis of OSRAM’s procurement demands, (ii) development of an optimizing strategy for each group of commodities (including a procurement strategy, a bundling strategy and a supplier strategy), (iii) development of a realization concept, in particular planning of public tenders, (iv) organization of public tenders and contract negotiations (including negotiations of prices and conditions of payment) and (v) supply management. Following the joint pooling process as described above, Siemens and OSRAM each enter into separate supply agreements with the relevant suppliers which set forth the individual terms and conditions of purchase with reference to a template framework agreement negotiated by Siemens. OSRAM reimburses Siemens’ expenses in connection with the joint pooling by paying a lump sum in the amount of €78,000 per commodity group and year. The agreement may be terminated by either party with a notice period of two weeks (however, as a general rule, the compensation is still due for the full year).
Cross-license Agreement between Siemens and OSRAM Under a cross-license agreement dated September 27/28, 2012, Siemens and OSRAM agreed to grant each other certain royalty-free rights under patents, utility models and registered designs (the “Patents”) which can be licensed without the consent of or payment to a third party. The granting of rights under the Patents will become effective on the date on which OSRAM ceases to be under the control of Siemens. The agreement shall remain in effect until the expiration of the last Patent licensed under the agreement. OSRAM grants to Siemens a perpetual, world-wide, irrevocable, non-exclusive, fully-paid up and non- transferable license for all Patents forming part of the portfolio of OSRAM or its Group companies at the time of the Spin-off of OSRAM becoming effective to do any acts within the current or future business of Siemens which would otherwise infringe any of the Patents owned by OSRAM. In turn, Siemens grants to OSRAM a perpetual, world-wide, irrevocable, non-exclusive, fully-paid up and non-transferable license for all Patents forming part of the portfolio of Siemens or its Group companies at the time of the Spin-off of OSRAM becoming effective to do any acts within OSRAM’s and its subsidiaries operational business activities regarding lighting, light or radiation emission and light applications on the date the agreement becomes effective which would otherwise infringe any of the Patents. The licenses granted by OSRAM and Siemens comprise the right to grant sublicenses. However, this will not include the right to grant sublicenses under Patents with the main purpose of generating license income and to make the Patents subject of patent cross licensing agreements and to grant sublicenses to third parties competing with the other party, unless such sublicense is granted in connection with products or services of the sublicensor. The agreement includes a mutual release of the parties for the benefit of the respective other party and its distributors and customers, direct or indirect, from any and all claims of liability for infringement of the licensed Patents during the time period prior to the effectiveness of the agreement, to the extent such infringement would have been licensed under the cross license agreement, if such license had been in existence on the day of the agreement becoming effective. In addition, OSRAM and Siemens have agreed that all rights and licenses granted or contractually promised to be granted by Siemens to third parties with respect to Patents held by OSRAM and
219 its Group companies prior to the Spin-off becoming effective shall remain unaffected and enforceable. This may become relevant in particular for licenses relating to the OSRAM patent portfolio that Siemens has granted on behalf of OSRAM to third parties in the past without obtaining the prior consent of OSRAM. OSRAM and Siemens must further ensure that the rights granted under the agreement remain unaffected in case of a transfer of the respective Patents.
Technology Transfer and License Agreement In October 2012, OSRAM and Siemens have entered into a Technology Transfer and License Agreement in order to enable OSRAM to independently manufacture and further develop wafer probers. Under the agreement, Siemens (i) grants to OSRAM non-transferable, world-wide and sole licenses to use certain licensed know-how for wafer probers for electrical LED tests and a certain licensed software (‘Prober Software’) in object code and source code, (ii) shall supply OSRAM with a full set of documentation relating to the licensed know-how and (iii) provide OSRAM’s personnel a training program for the know-how and Prober Software. Licenses to Siemens patents required to make use of the licensed know-how and licensed software are granted by and subject to the aforementioned Cross-license Agreement between Siemens and OSRAM. Siemens’ services under the Technology Transfer and License Agreement are subject to payment of a consideration by OSRAM as defined in more detail therein. The agreement shall run for an indefinite term, with both parties having the right to terminate the agreement for cause upon the occurrence of certain defined events without notice.
RELATIONSHIP WITH ASSOCIATES AND JOINT VENTURES We have several business relationships with our associates and joint ventures as well as with associates and joint ventures of the Siemens Group. Sales of goods and services and other income as well as purchases of goods and services and other expense to and from our associates and joint ventures as well as to and from associates and joint ventures of the Siemens Group in the Fiscal Years 2012, 2011 and 2010 are set forth in the following table: Sales of goods and Purchases of goods and services and other services and other income expense Fiscal Year Fiscal Year 2012 2011 2010 2012 2011 2010 (audited) in € million OSRAM associates ...... 125.5 133.2 116.4 0.3 0.2 0.8 OSRAM joint ventures ...... 10.6 24.9 11.2 14.1 9.0 14.7 Siemens Group’s associates ...... — — 0.8 — (0.1) — Siemens Group’s joint ventures ...... 0.8 0.7 0.9 1.0 0.1 — Total ...... 136.9 158.8 129.3 15.4 9.2 15.5 Our receivables against and liabilities to our associates and joint ventures as well as against and to associates and joint ventures of the Siemens Group as of September 30, 2012, 2011 and 2010 are set forth in the following table: Receivables Liabilities As of September 30, As of September 30, 2012 2011 2010 2012 2011 2010 (audited unless otherwise indicated) in € million OSRAM associates ...... 0.0 31.9 26.6 0.0 1.9 2.7 OSRAM joint ventures ...... 18.2(1) 17.1 0.4 0.9 0.7 1.6 Siemens Group’s associates ...... — 0.3 0.4 — 0.0 — Siemens Group’s joint ventures ...... 0.3 0.1 0.0 0.6 (0.1) (0.1) Total ...... 18.5(1) 49.4 27.4 1.5 2.5 4.2
(1) Unaudited, this figure was derived from the interim combined financial statements as of and for the period ended March 31, 2013. As of September 30, 2012, other loans in an amount of €0.6 million were outstanding to associates and joint ventures (none as of September 30, 2011 and 2010). In the normal course of business, OSRAM regularly reviews loans and receivables against joint ventures and associates. In the Fiscal Years 2012, 2011 and 2010, the review resulted in expenses related to valuation allowances relating to receivables amounting to €14.1 million, €0.0 million and €2.9 million, respectively. As of September 30, 2012, 2011 and 2010, valuation allowances amounted to €14.8 million, €0.7 million and €0.7 million, respectively.
220 The table below sets forth the sales of goods and services and other income and purchases of goods and services and other expense in the relationship with our associates and joint ventures as well as with associates and joint ventures of the Siemens Group in the first six months ended March 31, 2013 and March 31, 2012: Sales of goods and services Purchases of goods and and other income services and other expense Six months ended March 31, Six months ended March 31, 2013 2012 2013 2012 (unaudited) in € million OSRAM associates ...... 0.0 67.0 0.0 0.3 OSRAM joint ventures ...... 12.0 15.3 7.1 3.6 Siemens Group’s joint ventures ...... 0.5 0.5 0.3 0.3 Total ...... 12.5 82.8 7.4 4.2 OSRAM’s receivables from and payables to associates and joint ventures as well as to and from associates and joint ventures of the Siemens Group as of March 31, 2013 were as follows: Receivables Liabilities As of March 31, As of March 31, 2013 2013 (unaudited) in € million OSRAM associates ...... 0.0 0.0 OSRAM joint ventures ...... 22.9 0.9 Siemens Group’s joint ventures ...... 0.3 — Total ...... 23.2 0.9 In the first half of the Fiscal Year 2013, the review of loans from and receivables against joint ventures resulted in expenses related to valuation allowances relating to receivables amounting to €7.3 million. As of March 31, 2013, valuation allowances mainly for non-current receivables in foreign currencies amounted to €22.5 million.
RELATIONSHIP WITH MEMBERS OF THE MANAGING BOARD AND THE SUPERVISORY BOARD For an overview regarding the compensation, shareholding and share-based compensation of the members of the Managing Board and the Supervisory Board, see “Management—Managing Board” and “Management— Supervisory Board”, as well as the notes to our combined financial statements for the Fiscal Years 2012, 2011 and 2010 (Note 33), which are included in the “Financial Section” of this prospectus.
221 SHAREHOLDER STRUCTURE
Prior to the completion of the Spin-off, all Shares in OSRAM Licht AG are held by Siemens AG, a stock corporation (Aktiengesellschaft) organized under the laws of Germany and registered with the commercial register of the local court of Berlin-Charlottenburg under number HRB 12300 B and the local court of Munich under number HRB 6684. The registered office of Siemens is in Berlin and Munich and its business address is Wittelsbacherplatz 2, 80333 Munich. Siemens traces its origins to 1847. Beginning with advances in telegraph technology, the company quickly expanded its product line and geographic scope and was already a multi-national business by the end of the 19th century. In 1847 a partnership under the name Siemens & Halske was formed, reorganized as a limited partnership in 1889 and as a stock corporation in 1897. The company moved its group headquarters from Berlin to Munich in 1949, and assumed its current name as Siemens Aktiengesellschaft in 1966. In the Fiscal Year ended September 30, 2012, total group revenues of Siemens from continued operations amounted to €78.3 billion. The business of the Siemens Group is divided into the four Sectors Energy, Healthcare, Industries and Infrastructure & Cities as well as Cross-Sectoral operations and separate businesses. • The Sector Energy offers a wide spectrum of products, services and solutions for the generation and transmission of power as well as the extraction, conversion and transport of oil and gas. The Sector services above all the needs of energy providers. Industrial companies, particularly in the oil and gas industry, are also among the Sector’s customers. • The Sector Healthcare offers its customers a comprehensive portfolio of medical solutions across the therapeutic chain ranging from medical imaging to in-vitro diagnostics to interventional systems and clinical information technology systems. In addition, the Sector provides technical maintenance, professional services and consulting as well as financing services for its customers in cooperation with Financial Services. • The Sector Industry offers a broad spectrum of products, services and solutions with which resources and energy can be used efficiently and the productivity and flexibility in industry can be increased. With its integrated technologies and integrated solutions, the Sector focusses primarily on industrial customers, for example, in the processing and manufacturing industry. The Sector supplies above all products and services for industry automation, industry software, and motor technology and provides systems integration and solutions for the industrial plant business. After the end of the Fiscal Year 2012, the Sector decided to dispose its water purification business. • Siemens provides through its Sector Infrastructure & Cities, which was newly established as of the beginning of the Fiscal Year 2012, worldwide a broad spectrum of sustainable technologies for metropolitan centers and their infrastructures. Examples are mobility solutions, building and security technology, power distribution, smart grid applications as well as low voltage and mid-voltage products. The Sector consists of businesses which were previously organized under the Industry and Energy Sectors and bundles already existing competencies in the Siemens Group. The Siemens portfolio also includes businesses which cannot be allocated to the four Sectors. Those include, among other aspects, Financial Services, the segment Equity Investments, in which major investments held by Siemens involving especially BSH Bosch und Siemens Hausgeräte GmbH as well as Nokia Siemens Networks B.V. are bundled, and Siemens Real Estate. In addition, businesses which are accounted for as discontinued operations, especially OSRAM, also belong to Siemens. The following table shows certain information concerning the Shares held by Siemens, both before and immediately after the completion of the Spin-off. See also “The Spin-off”. Before the Spin-off After completion of the Spin-off Shares in % Shares in % Siemens Aktiengesellschaft ...... 20,414,433 100 20,414,433* 19.5* Free float ...... 0 0 84,274,967 80.5
* Immediately after the Spin-off becoming effective, Siemens AG will transfer 2.5% of the shares in OSRAM Licht AG to the Siemens Pension Trust e.V. and, consequently, hold a remaining participation of 17.0% thereafter.
222 GENERAL INFORMATION ON THE COMPANY AND THE OSRAM LICHT GROUP
OSRAM Licht AG was founded by means of a notarial deed dated June 1, 2012 with the name Kyros A AG and registered with the commercial register (Handelsregister) at the local court (Amtsgericht) of Munich under number HRB 199675 on July 6, 2012 in preparation of the Spin-off of OSRAM GmbH. The corporate name was changed to OSRAM Licht AG in November 2012 and such change was registered with the commercial register on November 14, 2012.
GROUP STRUCTURE Up to now, all activities of OSRAM have been concentrated in OSRAM GmbH and its subsidiaries. Upon the Spin-off becoming effective, which is expected for July 5, 2013, a new holding structure with OSRAM Licht AG as the parent company of the OSRAM Licht Group will be created. OSRAM Licht AG directly holds 19.5% of the shares in OSRAM GmbH and the remaining 80.5% indirectly via OSRAM Beteiligungen GmbH, i.e. in total the entire registered capital of OSRAM GmbH. The following graph provides a simplified overview of the future structure of the OSRAM Licht Group and the material direct and indirect investments of OSRAM Licht AG giving effect to the Spin-off, namely the subsidiaries of OSRAM GmbH (except as otherwise indicated, all shareholdings are 100%; certain subsidiaries are owned by other subsidiaries):
OSRAM
Licht AG
OSRAM Beteiligungen GmbH (80.5%) (19.5%)
OSRAM GmbH
Radium (90%) OSRAM China OSRAM Lampenwerk GmbH Lighting Ltd. SYLVANIA Inc.
OSRAM Asia Pacific OSRAM S.A.S.U. OSRAM do Brasil Ltda. Ltd.
Chung Tak Lighting (58.5%) OSRAM Argentina OSRAM a.s. Control Systems S.A.C.I. (Guangzhou) Ltd.
OSRAM S.p.A. Soc. OSRAM Korea Riunite OSRAM Edison Co. Ltd. Clerici
(99.23%) Traxon OAO OSRAM Technologies Ltd.
OSRAM Ceská OSRAM India Pvt. republika s.r.o. Ltd.
OSRAM Middle East OSRAM Kunshan FZE Display Opto Co. Ltd.
Siteco Lighting P.T. OSRAM GmbH Indonesia
Siteco OSRAM Taiwan Beleuchtungstechnik Company Ltd. GmbH
OSRAM Opto Semi- OSRAM Opto conductors (MY) Sdn. Semiconductors GmbH Bhd.
EMEA APAC AMERICAS
REGISTERED OFFICE, FISCAL YEAR, AND DURATION OF THE COMPANY The registered office of the Company is in Munich, Germany. The Company is registered in the commercial register at the local court of Munich under HRB 199675. Its head office is at Marcel-Breuer-Str. 6, 80807 Munich, Germany, Tel. +49 (0) 89 6213-0, and its websites are: www.osram.de and www.osram.com. The Company’s Fiscal Year is the twelve months period ended on September 30 of each calendar year. As a stock corporation established in Germany and under German law, the Company is subject to German stock corporation law. The Company has been formed for an unlimited duration.
223 CORPORATE PURPOSE The corporate purpose of OSRAM Licht AG is pursuant to Section 2 of the Articles of Association the management of a group of companies that are active in the following areas: (a) the development, construction, manufacturing and the sale of lighting and illumination products, photonic, in particular light generating products, systems and solutions, including lighting sources, luminaires, operating and manufacturing tools and machines, control gear, pre-materials, as well as parts and accessories of such products, systems and solutions; (b) the rendering of consulting services and other services in the fields of activities listed under (a) above. The Company may be active in the areas set forth above also by itself. The Company is entitled to perform all acts and take all steps and conduct all kinds of transactions which are appropriate to directly or indirectly further the attainment of the Company’s corporate purpose. It may also establish, acquire or participate in enterprises in Germany or abroad as well as manage such enterprises or confine itself to the management of its participations. It may spin off its business or participations held by it in total or in part to, or let such business or participations be managed by, affiliated companies and may conclude enterprise agreements (Unternehmensverträge). The Company may also establish branch offices and permanent establishments in Germany and abroad. It may limit its business activities to one of the areas described in (a) and (b) above.
INFORMATION ON OUR MATERIAL INVESTMENTS Prior to the Spin-off becoming effective, OSRAM Licht AG only holds a minority shareholding (19.5%) in OSRAM GmbH (constituting effectively its entire assets) that was contributed in connection with a capital increase against contribution in kind of the shares in OSRAM GmbH by Siemens AG in November 2012 with economic effect as of October 1, 2012. The following direct and indirect subsidiaries of OSRAM GmbH had a book value equivalent to at least 10% of equity of the OSRAM Licht Group as of September 30, 2012 or contributed the equivalent of at least 10% of the net income (loss) of the OSRAM Licht Group in the Fiscal Year 2012. All shares in affiliates have been fully paid in. The figures stated for share capital (issued capital and reserves), book value of the shares, receivables and liabilities, as well as net income (loss), for the period have been taken from the respective financial statements and accounting system of the subsidiaries as of September 30, 2012 and were prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). Siteco OSRAM OSRAM Beleuch- OSRAM Opto OSRAM Opto Semi- Traxon tungs- Asia Semicon- China conductors OSRAM Techno- Company name technik(1) Pacific(2) ductors(3) Lighting(4) (Malaysia)(5) SYLVANIA(6) logies(7) (in € thousand except for percentages) Equity interest in % ...... 100 100 100 90 100 100 100 Book value of the shares(8) ...... 39,048 1 584,996 37,645 55,320 610,209 114,877 Issued capital ...... 25 1 5,000 42,688 27 1 113 Reserves(9) ...... 64,207 (28,834) 71,744 45,269 98,253 557,232 8,078 Receivables from OSRAM Licht AG . . . — — — — — — — Liabilities to OSRAM Licht AG ...... — — — — — — — Net income (loss) for the Fiscal Year ended September 30, 2012(10) ...... (47,853) (37,443) (5,478) 17,908 14,424 (19,329) (18,418) Dividends distributed in the Fiscal Year ended September 30, 2012 ...... — 6,929 102,377 16,147(11) ———
Corporate name, registered seat and business purpose (1) Siteco Beleuchtungstechnik GmbH, Traunreut: Luminaires and lighting systems for urban infrastructures, such as public and commercial buildings, streets, tunnels, airports and sport stadiums. (2) OSRAM Asia Pacific Ltd., Hongkong, Hongkong: Services for companies of OSRAM Licht Group regarding marketing, procurement, management and trade with luminaires and lighting systems. (3) OSRAM Opto Semiconductors GmbH, Regensburg: Manufacturer of opto-electronic semiconductors for illumination, visualization and sensoric. (4) OSRAM China Lighting Ltd., Foshan, China: General lighting, specialty lighting, engineering technology. (5) OSRAM Opto Semiconductors (Malaysia) Sdn. Bhd., Penang, Malaysia: Manufacturer of opto-electronic semiconductors for illumination, visualization and sensoric. (6) OSRAM SYLVANIA INC., Danvers, USA: General lighting, precision materials and components, automotive lighting, electronic control devices. (7) Traxon Technologies Ltd., Hongkong, Hongkong: Manufacturer of LED products based on SSL technology and provider of holistic lighting solutions in the architectural, restaurant and hotel industry and retail sectors.
224 (8) In the annual financial statements of OSRAM GmbH; for Siteco Beleuchtungstechnik GmbH in the annual financial statements of Siteco Lighting GmbH; for OSRAM Opto Semiconductors (Malaysia) in the annual financial statements of OSRAM Opto Semiconductors. (9) Capital reserve and surplus reserve as well as other components of equity. (10) After transfer of profits, if any. (11) Excluding dividends paid to non-controlling interests.
STATUTORY AUDITOR OF THE FINANCIAL STATEMENTS Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart (Munich office, Arnulfstr. 59, 80636 Munich), Germany (“Ernst & Young”), a member of the German Chamber of Public Accountants (Wirtschaftsprüferkammer), Berlin, is the auditor of OSRAM GmbH and OSRAM Licht AG. Ernst & Young has audited the combined financial statements of OSRAM Licht AG for the Fiscal Years ended September 30, 2012, 2011 and 2010 prepared by the Company in accordance with International Financial Reporting Standards as adopted by the EU, in accordance with Section 317 of the German Commercial Code in compliance with the generally accepted German audit principles defined by the German Institute of Public Auditors (Institut der Wirtschaftsprüfer – IDW) and in supplementary compliance with International Standards on Auditing (ISA), and issued an unqualified audit opinion thereon reproduced in the financial section of this prospectus. Furthermore, Ernst & Young audited the annual financial statements of OSRAM Licht AG and OSRAM GmbH (formerly OSRAM AG) for the Fiscal Year ended September 30, 2012, each prepared in accordance with the German Commercial Code, in accordance with Section 317 of the German Commercial Code in compliance with the generally accepted German audit principles defined by the German Institute of Public Auditors (Institut der Wirtschaftsprüfer – IDW), and issued unqualified audit opinion reproduced in the financial section of this prospectus.
NOTICES, PAYING AND REGISTRATION AGENT Pursuant to the Articles of Association, our notices are published in the Federal Gazette (Bundesanzeiger). Notices to our shareholders may also be communicated by data transmission. Notices in connection with the approval of this prospectus or any supplements thereto will be published in accordance with the German Securities Prospectus Act (Wertpapierprospektgesetz), in the manner of publication provided for in this prospectus, that is, through publication on our websites. Commerzbank Aktiengesellschaft, Kaiserstr. 16 (Kaiserplatz), 60311 Frankfurt am Main, will be the Paying Agent for our Shares effective from the commencement of trading. Registration Agent in connection with general shareholders’ meetings is OSRAM Licht AG, c/o Computershare Operations Center, 80249 Munich.
225 DESCRIPTION OF SHARE CAPITAL OF OSRAM LICHT AG
As of the date of this prospectus, the Company’s share capital amounts to €20,414,433 and consists of 20,414,433 ordinary registered Shares with no par value, each representing a notional par value of €1.00. Upon the Spin-off becoming effective, which is expected for July 5, 2013, our share capital will be €104,689,400 and consist of 104,689,400 ordinary registered Shares with no par value, each representing a notional par value of €1.00. The shares are created under German law. Our share capital is fully paid in. Shareholders who already held Shares of the Company prior to the Spin-off do not have any special voting rights. Each Share carries one vote in the general shareholders’ meeting. In accordance with the Articles of Association all of our Shares have been issued as ordinary registered Shares with no par value. All Shares are represented by global certificates that have been deposited or will be deposited in connection with the Spin-off, respectively, with Clearstream Banking AG, Mergenthalerallee 61, 65760 Eschborn, Germany. In accordance with Section 4(4) of the Articles of Association, the Managing Board determines the form of the share certificates. Section 4(3) of the Articles of Association excludes shareholders’ rights to individual share certificates, to the extent legally permitted and to the extent the rules of the stock exchange on which the Shares are listed do not require individual certification. We are pursuant to Section 4(3) of the Articles of Association entitled to issue certificates that represent individual Shares (individual certificates) or multiple Shares (global certificates). Also, shareholders are not entitled to request that dividend coupons and renewal coupons are issued. Our Shares are freely transferable.
DEVELOPMENT OF SHARE CAPITAL OVER THE LAST THREE YEARS AND IN THE COURSE OF THE SPIN-OFF Upon our foundation in June 2012 and registration with the commercial register in July 2012, our share capital amounted to €50,000. Based on a contribution agreement dated November 28, 2012, Siemens AG transferred 19.5% of the shares in OSRAM GmbH to us as a contribution in kind in return for the granting of new shares and our share capital has been increased by €20,364,433 to €20,414,433. In this context, OSRAM Licht AG was further obliged to pay an amount of €50,000 as additional consideration for the contribution of the shares (so called mixed contribution in kind). This capital increase including its implementation has been registered with the commercial register on February 11, 2013. In connection with the Spin-off, our capital will be increased by €84,274,967 to €104,689,400 against a further contribution in kind, namely the transfer by Siemens of all shares in OSRAM Beteiligungen GmbH to us. See also “The Spin-off”.
AUTHORIZED CAPITAL By resolution of the general shareholders’ meeting of the Company dated June 14, 2013 under the condition precedent that the capital increase for the Spin-off has become effective, the following authorization (Authorized Capital) was granted that will become effective upon the registration with the commercial register after the Spin- off becoming effective: The Managing Board is authorized through February 28, 2018 to increase, with the consent of the Supervisory Board, the share capital of the Company by up to €52,344,700 once or several times by issuing up to 52,344,700 new registered no-par-value Shares against cash contributions and/or contributions in kind (“Authorized Capital 2013”). The new Shares shall generally be offered to the shareholders for subscription. They may be underwritten by credit institutions or companies within the meaning of Section 186(5) sentence 1 of the German Stock Corporation Act under the obligation to have the Shares offered to shareholders for subscription. The Managing Board is further authorized to exclude, with the consent of the Supervisory Board, the subscription rights of the shareholders in the following cases: • for fractional amounts; • if the Shares are issued against contributions in kind, in particular for the purpose of business combinations, of the (also indirect) acquisition of enterprises, parts of enterprises, participations in enterprises or other assets or of claims to acquire any assets; • if the aggregate notional par value of the Shares to be issued for contribution in cash with the exclusion of the subscription rights does not exceed 10% of the total share capital both at the time when the authorization takes effect and when the authorization is used and the issue price is not significantly lower than the market price of the Company’s shares which are already listed at the time when the issue price is fixed which shall be done as closely to the placement of the Shares as possible. Towards the above limit of 10% of the total share capital any Shares shall count which were issued or disposed of excluding shareholders’ subscription rights in application, directly or by analogy, of Section 186(3)
226 sentence 4 of the German Stock Corporation Act during the term of the authorization until each date on which the relevant authorization is exercised. Furthermore, Shares shall count towards such limit which were or may be issued to honor convertible bonds or warrant bonds issued by the Company or any of its Group companies under the exclusion of shareholders’ subscription rights in application, directly or by analogy, of Section 186(3) sentence 4 of the German Stock Corporation Act at the time when the authorization is exercised but after this authorization has become effective; • for the issuance of Shares to employees of the Company and employees members of the management of subordinated affiliated entities, with regard to employees also under the requirements set out in Section 204(3) of the German Stock Corporation Act; • and (a) to the extent this is necessary in order to fulfill obligations or rights to acquire OSRAM Licht Shares arising from or in connection with convertible bonds or warrant bonds issued by the Company or any of its Group companies, or (b) to the extent necessary for protection against dilution to grant the holders or creditors of convertible bonds or warrants from warrant bonds (or any combination of such instruments) issued by the Company or any of its Group companies subscription rights to new Shares in the Company in an amount which they would be entitled to if the conversion rights, options rights or put options (Andienungsrechte) had already been exercised or fulfilled, respectively. The Managing Board is authorized to determine, with the consent of the Supervisory Board, the further details of capital increases under the Authorized Capital 2013 and their implementation, namely the details of the rights under the Shares and the terms and conditions of the issue.
CONTINGENT CAPITAL By resolution of the general shareholders’ meeting of the Company dated June 14, 2013, the following contingent capital was created that will become effective upon the registration with the commercial register after the Spin-off becoming effective: The share capital of the Company is conditionally increased by up to €10,207,216. The conditional capital increase is to be effected by issuing up to 10,207,216 new no-par-value registered Shares with the right to participate in the profits as from the beginning of the Fiscal Year of their issuance and only to the extent to which holders or creditors of convertible bonds or warrants under warrant bonds are issued based on the authorization granted to the Managing Board by the general shareholders’ meeting on June 14, 2013, exercise their conversion or option rights or fulfill their conversion or option obligation or if a delivery under a put option (Andienungsrecht) is effected and no other forms of fulfillment of delivery are used (“Contingent Capital 2013”). The new Shares shall be issued at a conversion or option price which meets the requirements stipulated in the aforementioned authorization. The Managing Board is authorized to determine the further details of the conditional capital increase and its execution.
AUTHORIZATION TO ISSUE CONVERTIBLE BONDS AND SIMILAR BONDS The general shareholders’ meeting of the Company dated June 14, 2013, has passed the following authorization resolution: The Managing Board is authorized to issue bearer bonds or registered bonds in an aggregate nominal amount of up to €300,000,000 with conversion rights or warrant rights represented by bearer or registered warrant bonds (or a combination of such instruments) for up to 10,207,216 no-par-value registered shares of the Company (“OSRAM Licht Shares”) representing an aggregate fraction of the registered share capital of up to €10,207,216 in total (“bonds”). The terms and conditions of the bonds or the warrants may also provide for an obligation of the bondholder to exercise the conversion or warrant right or for a put option for the Company to deliver Shares (in any combination), in each case to be satisfied or exercised, as the case may be, at the end of the term or earlier. The bonds are to be issued against cash consideration. The authorization also includes the possibility to guarantee bonds issued by a Group company and to make any declarations and perform any actions that are necessary for a successful issuance. The authorization further includes the possibility to grant OSRAM Licht Shares to the extent that holders or creditors of convertible bonds or warrant rights from warrant bonds make use of their conversion or warrant rights or discharge their conversion or option obligations or shares are offered in exercise of the put option. The authorization is valid until February 28, 2018. The bonds as well as the warrants can be issued once or several times, in full or in part or at the same time in separate fractional bonds with equally ranked rights and obligations within each tranche. The fractional amount of the share capital of the Shares to be issued for each fractional bond may not exceed the nominal amount or, if lower, the issue price of the fractional bond.
227 The conversion/option price may not fall short of 80% of the price of the OSRAM Licht Share quoted in the XETRA trading system (or a comparable successor system) of the Frankfurt Stock Exchange. The relevant price is the average closing price on the ten trading days before the final decision of the Managing Board on the offer to subscribe for bonds or the declaration of acceptance by the Company following a public invitation to submit subscription offers. In case of a trading in subscription rights, the days of such subscription rights trading are relevant except for the last two trading days. In case of bonds with a conversion/option obligation of the bondholder or a put option of the Company, the conversion/option price may equal at least either the above minimum price or the average closing price of the OSRAM Licht Shares on the ten trading days in the XETRA trading system (or a comparable successor system) of the Frankfurt Stock Exchange before or after the date of final maturity of the bonds, even if such average closing price is below the minimum price set out above (80%). Sections 9(1) and 199 (2) of the German Stock Corporation Act remain unaffected. In case of warrant bonds being issued, one or several warrants shall attach to each fractional bond entitling and/or obliging the holder or creditor to subscribe to OSRAM Licht Shares or including a put option entitling the issuer to deliver Shares, subject in each case to the terms and conditions of the bonds or the warrants. The respective warrants may be detachable from the respective fractional bonds. The terms and conditions of the bonds or the warrants may also provide that payment of the option price can also be fulfilled by transferring fractional bonds and, as the case may be, with an additional cash payment. The fractional amount of the share capital of the Shares to be issued for each warrant bond must not exceed the nominal amount or, if lower, the issue price of the warrant bond. In case of convertible bonds being issued, the holders/creditors of the convertible bonds shall be entitled and/or obliged to convert the convertible bonds into OSRAM Licht Shares, subject to the terms and conditions of the convertible bonds. The conversion ratio is obtained by dividing the nominal amount or, if lower, the issue price of a convertible bond by the conversion price stipulated for one new OSRAM Licht Share. The fractional amount of the share capital of the Shares to be issued for each convertible bond must not exceed the nominal amount or, if lower, the issue price of the convertible bond. The authorization shall also include the possibility, subject to the terms and conditions of the bonds or warrants, to provide dilution protection and/or other adjustments under certain circumstances. Dilution protection or other adjustments may be provided for in particular if the Company changes its capital structure during the term of the bonds or the warrants (e.g. through a capital increase, a capital decrease or a stock split), but also in connection with dividend payouts, the issue of additional convertible and/or warrant bonds and in the case of extraordinary events that may occur during the term of the bonds or warrants (e.g. control gained by a third party). Dilution protection or other adjustments may be provided by granting subscription rights, by changing the conversion or exercise price, and by amending or introducing cash components. The Managing Board shall be authorized to determine the further terms and conditions of the bond or warrant issues or to establish such terms and conditions by mutual agreement with the respective issuing Group company. The terms and conditions may inter alia include the following aspects: • whether, rather than using the Company’s conditional capital, consideration should be offered in the form of OSRAM Licht Shares held in treasury, by payment of the equivalent amount in cash or by transfer of other listed securities; • whether the conversion or exercise price or the conversion ratio should be determined at the time of bond issue or by means of future market prices within a predetermined range; • whether and how a conversion ratio should be rounded; • whether an additional cash payment or a compensation in cash should be specified in the case of fractional amounts; • how, in the case of mandatory conversions, the fulfillment of obligations to exercise the option right or delivery rights under a put option, details are to be determined regarding the exercise, fulfillment or obligations or rights, deadlines and determination of conversion or exercise prices; • whether the bonds should be issued in euro or in the legal currency of an OECD country other than euros, subject to limitation to the euro value equivalent. The bonds must generally be offered to shareholders for subscription, including the possibility of issuing them to banks with the obligation that they must be offered to the shareholders for subscription. However, the Managing Board is authorized to exclude shareholders’ subscription rights with the approval of the Supervisory Board, • if the issue price of the bonds is not significantly lower than their theoretical market price computed in accordance with generally accepted financial methods, provided that the total number of shares to be
228 issued on the basis of bond issues under this authorization or otherwise in application, directly or by analogy, of Section 186(3) sentence 4 of the German Stock Corporation Act (against cash contributions, with shareholders’ subscription rights being excluded) during the term of this authorization, does not exceed 10% of the total share capital at the time this authorization becomes effective or is exercised; any Shares issued prior to the issuance of bonds on the basis of the Authorized Capital 2013 pursuant to Section 4 of the Articles of Association, of any other authorized capital or by way of sale of treasury shares excluding the subscription rights of the shareholders pursuant to Section 186(3) sentence 4 of the German Stock Corporation Act, if applicable in connection with Section 71(1) no. 8 sentence 5 of the German Stock Corporation Act, shall count towards such limit; • to the extent that the exclusion is necessary with regard to fractional amounts resulting from the subscription ratio; • in order to grant holders or creditors of conversion or option rights or conversion or option obligations in respect of OSRAM Licht Shares subscription rights as compensation for the effects of dilution to the extent to which they would be entitled to subscription rights upon exercising such rights or fulfilling such obligations. The Supervisory Board is authorized to adjust the wording of Section 4 of the Articles of Association according to the actual use of the Contingent Capital 2013 and to the extent that the Contingent Capital 2013 and the authorization to issue convertible bonds or warrant bonds have not been used upon the expiry of all conversion/option periods or of the authorization, respectively.
AUTHORIZATION TO ACQUIRE AND SELL TREASURY SHARES The general shareholders’ meeting of the Company dated June 14, 2013, has passed the following authorization resolution that will come into force upon the implementation of the capital increase in connection with the Spin-off becoming effective: 1. The Managing Board is authorized through February 28, 2018 to repurchase up to 10% of the Company’s share capital existing on the date of this authorization becoming effective, or – if lower – at the time of the respective exercise of the authorization for any admissible purpose within the statutory limitations and in accordance with the provisions set out below. The authorization may be exercised by the Company or any of its Group companies (Konzerngesellschaften), or by third parties for the account of the Company or its Group companies in line with statutory requirements, in particular in line with Section 71(2) of the German Stock Corporation Act. Any repurchase of treasury shares shall be accomplished either by (i) acquisitions on the stock exchange or (ii) through a public share purchase offer to all shareholders or (iii) a public invitation to all shareholders to tender sale offers or (iv) by way of granting put options to the shareholders. • If the treasury shares are to be acquired on the stock exchange, the purchase price per share (excluding ancillary purchase costs) paid by the Company may not exceed the average trading price as determined by the closing auction on the XETRA trading system (or a comparable successor system) of the Frankfurt Stock Exchange on the three trading days preceding the day when the purchase obligation is incurred by more than 10% and may not fall short of such average price by more than 20%. • If the treasury shares are acquired through a public offering, the offered purchase price per share (excluding ancillary purchase costs) may not exceed by more than 10%, nor fall short by more than 20% of, the average closing price on the XETRA trading system (or a comparable successor system) of the Frankfurt Stock Exchange on the three trading days prior to the final decision of the Managing Board to make the offer. • If the treasury shares are acquired by way of public invitation for tenders or issuance of put options, the offered purchase price per share (excluding ancillary purchase costs) may not exceed by more than 10%, nor fall short by more than 20% of the average closing price on the XETRA trading system (or a comparable successor system) on the three trading days prior to the day of acceptance of the purchase offers or the issuance of the put options. In case the trading price deviates significantly from the offered share purchase or share sale price or the limits of a respective price range following the announcement of the offer or invitation or the grant of the put option, the offer, invitation or put option may be adjusted until the date of acceptance. In this case the trading price on the last trading day prior to the final decision of the Managing Board to make the adjustment, if any, shall be decisive, subject only to the upper and lower limits of 10% and 20% described above.
229 The volume of the offer or invitation for tenders can be restricted. In case the total subscription exceeds the stipulated volume, the acceptance must be pro-rata with a partial exclusion of a potential right of the shareholders to tender their Shares. A preferential acquisition or preferential offer acceptance, as the case may be, for low numbers of shares (up to 150 shares per shareholder) and commercial rounding can be included and fractional amounts can be excluded from a potential right of the shareholders to tender their Shares. If put options are granted to shareholders, these shall be allotted to the shareholders pro rata to the portion of their respective shareholdings on the basis of the ratio which the Shares to be repurchased by the Company bear to the volume of the total share capital. Fractions of put option rights need not be allotted and fractional put option rights are excluded in this case. The further details of the acquisition, in particular of the offer or invitation for tenders, including the terms and conditions of any put options, their term and, as the case may be, tradability, shall be determined by the Managing Board. 2. The Managing Board is authorized to use treasury shares repurchased on the basis of this authorization or previous authorizations as follows: a) treasury shares may be sold over the stock exchange or, with the approval of the Supervisory Board, through a public sales offer to all shareholders in proportion of their shareholding (in which case subscription rights for fractional amounts are excluded); b) treasury shares may, with the approval of the Supervisory Board, be sold to third parties against payment in cash if the price at which such treasury shares are to be sold is not significantly lower than the market price of shares in the Company carrying similar rights at the time of the disposal. The aggregate notional amount attributable to the total number of treasury shares to be sold under this authorization must not exceed 10% of the share capital existing either at the time this authorization becomes effective or, if lower, at the time it is exercised. This limit shall include any Shares issued by the Company after the resolution of the general shareholders’ meeting on the authorization to acquire treasury shares from any authorized capital by excluding the subscription right of the shareholders in application of Section 186(3) sentence 4 of the German Stock Corporation Act. In addition, this amount shall include any shares issued or to be issued in respect of convertible and/or warrant bonds with conversion or option rights or a conversion or exchange obligation or a put option (Andienungsrecht) which are issued pursuant to Sections 221(4) and 186(3) sentence 4 of the German Stock Corporation Act after this resolution; c) the treasury shares may also be offered for acquisition to individuals currently or formerly employed by the Company or any of its affiliates as well as to board members of any of the Company’s affiliates (each a “Beneficiary”), or they may be promised or transferred to the Beneficiaries with a lock-up or blocking period of not less than two years provided that the employment relationship or board membership exists at the time of the offer or promise. Furthermore, the treasury shares may be offered for acquisition, or promised or transferred to the Beneficiaries with a lock-up or blocking period of not less than six months after the initial stock exchange listing or the transfer. The Managing Board is authorized to determine the further terms and conditions of such promises and transfers, including a potential direct compensation, any potential eligibility criteria and the limitations and compensations (Verfalls- und Ausgleichsregelungen), in particular for special cases such as retirement, incapacity to work or death. d) treasury shares may, with the approval of the Supervisory Board, be offered and transferred in the form of a contribution in kind (Sachleistung) in particular as (part of the) consideration for the direct or indirect acquisition of enterprises, parts of enterprises, participations in enterprises or other assets or of claims for the acquisition of assets or in connection with business combinations; e) they can be used to satisfy acquisition obligations or acquisition rights for OSRAM Licht Shares arising from or in connection with convertible or option bonds issued by the Company or its Group companies; or f) they may be cancelled without an additional resolution by the general shareholders’ meeting being required for such redemption or its implementation resulting in a reduction of the share capital (Kapitalherabsetzung); the Managing Board may also resolve that the share capital shall not be reduced, but that the notional value of the remaining shares is increased in accordance with Section 8(3) of the German Stock Corporation Act. In such case, the Managing Board is authorized to adjust the number of shares stipulated in the articles of association.
230 3. Provided that they need not to be used for a specific other purpose, the Supervisory Board shall be authorized to use treasury shares as follows: Treasury shares may be used to satisfy acquisition obligations or acquisition rights for shares in the Company that have been agreed with members of the Managing Board as part of the provisions on compensation for the Managing Board that have been agreed or will be agreed. They may further be promised or transferred to current or future members of the Managing Board as part of the provisions on compensation for the Managing Board with a lock-up or blocking period that must not expire earlier than at the end of the second day after publication of the financial performance in the fourth calendar year after the promise or transfer (whichever is earlier). Furthermore, the treasury shares may be offered for acquisition, or promised or transferred to the Beneficiaries with a lock-up or blocking period of not less than six months in connection with the listing of the Shares of the Company. The Supervisory Board shall be authorized to determine the further terms and conditions of such promises and transfers, including a potential direct compensation, any potential eligibility criteria and the limitations and compensations (Verfalls- und Ausgleichsregelungen), in particular for special cases such as retirement, incapacity to work or death, in line with the requirements of Section 87 of the German Stock Corporation Act. 4. A subscription right of the shareholders relating to their own Shares affected by such exercise shall be excluded insofar as these Shares are used in accordance with the authorizations set out above under numbers 2. (b) to (e) or number 3. 5. The authorizations for the acquisition, disposal, cancellation or other use of treasury shares may be exercised as a whole or in part, once or several times, individually or jointly.
GENERAL PROVISIONS RELATING TO A LIQUIDATION OF THE COMPANY Apart from a liquidation as a result of insolvency proceedings, the Company may be liquidated only with a vote of 75% or more of the share capital represented at the general shareholders’ meeting at which such vote is taken. Pursuant to the German Stock Corporation Act, in the event of the Company’s liquidation, any assets remaining after all of the Company’s liabilities have been settled will be distributed pro rata among its shareholders. The German Stock Corporation Act provides certain protections for creditors which must be observed in the event of liquidation.
GENERAL PROVISIONS RELATING TO A CHANGE IN THE SHARE CAPITAL The German Stock Corporation Act provides that the share capital of a stock corporation may be increased by a resolution of the general shareholders’ meeting. Such resolution must be adopted by a majority of at least 75% of the share capital represented when the resolution is passed, unless the stock corporation’s articles of association provide for a different majority. Our Articles of Association provide in Section 17(2) that the resolutions of the general shareholders’ meeting are adopted by a simple majority of the votes cast and, to the extent the law requires approval by a majority of capital in addition to the majority of the votes cast, that resolutions may be adopted by a simple majority of the share capital represented at the meeting, unless mandatory law or the articles of association require a higher majority (which is currently not the case under the Articles of Association of the Company). In addition, shareholders may resolve to issue authorized capital, by a vote of 75% of the share capital represented at the passing of the resolution authorizing the Managing Board to issue Shares, up to a specific amount within a period not exceeding five years. The nominal amount of such issuance may not exceed 50% of the share capital in existence at the time of the authorization, that is, at the time the authorized capital is entered into the commercial register. Additionally, shareholders may resolve to create contingent capital for the purpose of issuing Shares (i) to holders of convertible bonds or other securities convertible into Shares of the Company, (ii) as consideration in connection with a merger with another company or (iii) to executives and employees. A resolution to create contingent capital must be adopted by at least 75% of the share capital represented at the passing of the resolution. The nominal amount of the contingent capital created for the purpose of share issues to executives and employees may not exceed 10%, a contingent capital created for any other purpose may not exceed 50% of the nominal share capital in existence at the time such resolution is passed. In such cases, no further justification of the exclusion of subscription rights of the shareholders is required. A resolution to reduce the share capital must be adopted by at least 75% of the share capital represented at the passing of the resolution.
GENERAL PROVISIONS RELATING TO SUBSCRIPTION RIGHTS According to the German Stock Corporation Act, every shareholder is generally entitled to subscription rights to any new Shares issued within the framework of a capital increase, including convertible bonds, bonds
231 with warrants, profit-sharing rights or income bonds. Such subscription rights are freely transferable and may generally be traded on German stock exchanges within a specified period prior to the expiration of such period. The general shareholders’ meeting may pass a resolution excluding subscription rights if at least 75% of the share capital represented adopts the resolution. To exclude subscription rights, the Managing Board must also make a report available to the shareholders justifying the exclusion and demonstrating that the Company’s interest in excluding the subscription rights outweighs the shareholders’ interest in keeping them. The exclusion of subscription rights upon the issuance of new Shares is permitted, in particular, if the Company increases the share capital against cash contributions, the amount of the capital increase does not exceed 10% of the existing share capital and the issue price of the new Shares is not significantly lower than the market price of the Company’s shares.
SQUEEZE-OUT OF MINORITY SHAREHOLDERS According to the “stock corporation law squeeze-out” regulations of Section 327a et seq. of the German Stock Corporation Act, the general shareholders’ meeting of a stock corporation can, at the request of a shareholder holding 95% of the share capital (“Principal Shareholder”), resolve to transfer the shares of the minority shareholders to the Principal Shareholder against payment of an appropriate cash compensation. The amount of the cash compensation to be paid to the minority shareholders must reflect the company’s situation at the time the resolution is passed by the general shareholders’ meeting. The amount of the cash compensation is based on the full value of the Company, which is typically determined using the discounted earnings method (Ertragswertmethode) or any other recognized method. Under Section 62(5) of the German Transformation Act (Umwandlungsgesetz), a further alternative for squeezing out minority shareholders of a stock corporation in connection with its merger into its majority shareholder has been introduced (so-called “transformation law squeeze-out”). A majority shareholder holding at least 90% of a stock corporation’s share capital can require the general shareholders’ meeting to resolve that the minority shareholders must transfer their stock to the majority shareholder against an appropriate cash compensation, provided that: • The majority shareholder is a stock corporation, a partnership limited by shares (KGaA), or a European stock corporation (SE) having its seat in Germany; and • The squeeze-out is performed to facilitate a merger of the stock corporation into its majority shareholder under the German Transformation Act; the general assembly approving the squeeze-out must take place within three months of the conclusion of the merger agreement. The procedure for the squeeze-out is basically identical to the one described above according to the German Stock Corporation Act, including the minority shareholders’ option to have the appropriateness of the cash compensation reviewed. In addition, according to Sections 39a and 39b of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG) concerning squeeze-outs after a takeover or mandatory public offer, at the request of the bidder who owns shares of the target company amounting to at least 95% of the voting rights, the remaining shares must be transferred to the bidder in return for an appropriate settlement amount to be determined by a court (so-called “squeeze-out under takeover law”). To this end, the compensation guaranteed as part of the takeover or mandatory public offer is deemed an appropriate compensation if, on the basis of the offer, the bidder has acquired shares amounting to at least 90% of the share capital affected by the offer. In addition to the legal provisions on the exclusion of minority shareholders, the German Stock Corporation Act also provides for what is called the integration of stock corporations (Eingliederung) in Section 319 et seq. According to these provisions, the general shareholders’ meeting of a stock corporation can approve the integration of a company if 95% of the shares of the company to be integrated are held by the future principal company. The former shareholders of the integrated company are entitled to an appropriate compensation that generally has to be granted in the form of shares of the principal company. The amount of the compensation would be calculated using the “merger value ratio” (Verschmelzungswertrelation) between the two companies (i.e., the exchange ratio that would have been regarded as appropriate in the event of a merger of the two companies). Such integration is, however, only possible if the future principal company is a stock corporation with its registered office in Germany.
SHAREHOLDER REPORTING AND DISCLOSURE REQUIREMENTS After our Shares have been admitted to trading on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange and the Munich Stock Exchange, we, as a listed company, will become subject to the provisions of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) governing disclosure requirements for shareholdings.
232 Notification Requirements relating to Voting Rights The general rule requires that anyone who, due to an acquisition, sale or other event, obtains, exceeds, or no longer holds 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of the voting rights in an issuer whose home country (Herkunftsstaat) is Germany must promptly, and within no later than four trading days, notify the issuer and simultaneously the BaFin (Section 21(1) German Securities Trading Act). The notice must include, among other things, the address of the notifying person, the share of voting rights held and the date on which its shareholding reached, exceeded or fell below the respective threshold. In connection with the notice requirements, the German Securities Trading Act contains various provisions designed to ensure that shareholdings in listed companies are attributed to the person who actually controls the voting rights associated with such shares (Section 22 German Securities Trading Act). Such attribution applies, inter alia, to the voting rights attached to shares owned by a subsidiary of the notifying person (Section 22(1) sentence 1 No. 1 German Securities Trading Act). The same applies to shares owned by a third party for the account of the notifying person (Section 22(1) sentence 1 No. 2 German Securities Trading Act). A German issuer must publish any notification of changes in voting rights which it receives without undue delay, and no later than three trading days after having received the information. The publication has to be realized by means of media, including media that can be expected to distribute the information throughout the whole of the European Union and the rest of the Member States of the Agreement creating the European Economic Area (EEA). If a shareholder who holds voting rights does not comply with the disclosure requirements, he will pursuant to Section 28 German Securities Trading Act be precluded from exercising any rights associated with his or her shares until proper notice has been given (including voting rights and the right to draw dividends; but in relation to the latter only if the disclosure was omitted willfully and has not been rectified by subsequent notification). This also applies if voting rights of a subsidiary or a third party, who holds the voting rights for the account of the person responsible for disclosure, are attributed to the shareholder. As far as the proportion of voting rights is concerned, the period is extended by six months if the breach has been committed willfully or with gross negligence. If the disclosure requirements for notifications of changes in voting rights are not complied with, the BaFin can impose a fine irrespective of the relevant attribution provisions.
Notification Requirements relating to Holdings in Financial and Other Instruments Anyone who directly or indirectly holds financial or other instruments which entitle their holder to acquire, unilaterally under a legally binding agreement, shares in an issuer whose home state is the Federal Republic of Germany that carry voting rights and have already been issued, must promptly upon obtaining, exceeding, or no longer holding 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of voting rights, and within no later than four trading days, provide notice thereof to the issuer and simultaneously to the BaFin (Section 25 German Securities Trading Act). The voting rights from shares that are to be notified in a voting rights notification will be aggregated for the purposes of the calculation. Financial or other instruments that may be acquired by the notifying person by a declaration of intent will be accounted for only once in the calculation.
Notification Requirements relating to Holdings in Further Financial and Other Instruments Anyone who directly or indirectly holds financial instruments or other instruments which are not already covered by Section 25 German Securities Trading Act and which are designed to enable their holder or a third party to acquire shares with voting rights that have already been issued by an issuer whose home country is Germany must promptly upon obtaining, exceeding, or no longer holding 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%, and within no later than four trading days, provide notice thereof to the issuer and simultaneously to the BaFin (Section 25a German Securities Trading Act). The instruments are deemed to enable their holders or a third party as set forth above, in particular, if • the counterparty of the holder could exclude or reduce its risks under these instruments by holding shares within the above meaning, or • the financial or other instruments grant a right to acquire shares within the above meaning or establish an obligation to acquire such shares. With respect to option transactions or comparable transactions, the exercise thereof is to be assumed.
Notification Requirements of Persons Holding Material Interests In general, any person whose shareholding reaches or exceeds the threshold of 10% or more of the voting shares is obliged to inform an issuer, whose country of origin is the Federal Republic of Germany, within 20 trading days of the purpose of its investment and the origin of the funds used for such investment. A change of these purposes must be disclosed within 20 trading days (Section 27a German Securities Trading Act).
233 Notification and Publication Requirements for Holders of Net Short-selling Positions Net short-selling positions which reach, exceed or fall below 0.2% of a company’s issued shares which are admitted to trading on the regulated market of a German stock exchange, must be notified by their holder, rounded to two places after the decimal point, to the BaFin by the close of the next trading day. Net short-selling positions which reach, exceed or fall below a threshold of 0.5% must, in addition thereto, be published by their holder in the Federal Gazette (Bundesanzeiger). As soon as a net short-selling position reaches, exceeds or falls below the threshold of 0.2% plus 0.1% or a multiple thereof, the holder of such position must make a further notification and, starting at the threshold of 0.5%, a publication in the Federal Gazette.
Publication of a Change of Control Furthermore, any person who acquires direct or indirect control of a company listed in Germany must publish this fact and specify the percentage of the acquired voting rights without undue delay, and in any case, within seven calendar days of such acquisition. Control in the sense of the German Securities Acquisition and Takeover Act means an interest of at least 30% of the voting rights of a company listed in Germany. Subsequently, a mandatory bid must be made to all shareholders of the company unless an exemption from this requirement has been granted by the BaFin. As with disclosure requirements concerning notification of changes in voting rights, the German Securities Acquisition and Takeover Act contains a number of provisions according to which shareholdings are attributed to those who actually control the voting rights attached to the shares.
Directors’ Dealing Reporting Requirements Persons with managerial responsibilities (as further defined in the German Securities Trading Act) within listed stock corporations are required to notify the stock corporation and BaFin within five business days of their own transactions involving shares of the company or related financial instruments, including, in particular, derivatives. This obligation also applies to individuals related to such parties. Notification is not required if the total sum of all transactions involving persons with managerial responsibilities and his or her related parties is less than €5,000 for the calendar year.
234 MANAGEMENT
OVERVIEW Our governing entities are our Managing Board, Supervisory Board and general shareholders’ meeting (Hauptversammlung). The responsibilities of these entities are determined by the German Stock Corporation Act, the Articles of Association, the internal rules of procedure (Geschäftsordnung des Aufsichtsrats) of the Supervisory Board and the Supervisory Board’s rules of procedure (Geschäftsordnung des Vorstands) for the Managing Board that will come into force upon the Spin-off becoming effective. The Managing Board is responsible for managing the Company in accordance with applicable law, the Articles of Association and internal rules of procedure for the Managing Board (including the business distribution plan (Geschäftsverteilungsplan)). The Managing Board represents the Company in dealings with third parties. The Managing Board is responsible for implementing appropriate risk management and risk control systems within the OSRAM Licht Group that provide timely warning of any development that might jeopardize our continued existence. The Managing Board is obliged to report to the Supervisory Board, in accordance with statutory regulations, regularly, timely and comprehensively on all matters of planning, development of business, risks, risk management and compliance. The Managing Board reports to the Supervisory Board at least once a year on the projected business objectives and other key issues relating to corporate planning (especially finance, investment and human resources planning), which must include a budget for the following Fiscal Year and a plan for the medium term and a discussion of any deviations between actual developments and objectives previously reported on, including the reasons for such deviations. According to the internal rules of procedure that will come into force upon the Spin-off becoming effective, the Managing Board is also required to report to the Supervisory Board quarterly on the development of profits and losses, balance sheet, cash flow, capital efficiency, debt, investments, receivables and personnel at Group level and results of the business units as well as profits and losses and balance sheet of the Company in the course of the relevant Fiscal Year together with the forecast for the Fiscal Year. Simultaneous membership on the managing board and the supervisory board of a German stock corporation is not permitted under German law. The Supervisory Board may appoint certain of its members as deputies for absent or incapacitated members of the Managing Board for a predetermined period of time which may not in any event exceed one year. The members of the Supervisory Board may not exercise the functions of a member of the Supervisory Board during their term of office as deputy members of the Managing Board. The Supervisory Board appoints the members of the Managing Board and is entitled to dismiss them for good cause. The Supervisory Board advises and oversees the Managing Board on the management of the Company, but is not itself authorized to manage the Company. The Articles of Association or the Supervisory Board must, however, designate certain types of transactions that may only be made with the approval of the Supervisory Board. Section 9 of our Articles of Association provides that the rules of procedure for the Company’s Managing Board or the Supervisory Board or resolutions of the Supervisory Board must make certain transactions or types of transactions subject to the consent of the Supervisory Board. Matters subject to the consent of the Supervisory Board as set forth in the internal rules of procedure for the Managing Board include, among other things, the acquisition, disposal and transformation of companies, shareholdings and parts of companies above a certain threshold, the entry into new or the termination of the current area of business exceeding a certain revenue share of total Group revenues of the preceding Fiscal Year and the conclusion of financing agreements exceeding certain thresholds. Members of the Managing Board and Supervisory Board owe a duty of care and a duty of loyalty to the Company. Board members must consider a number of interests, including those of the Company and its shareholders, employees and creditors. The Managing Board must also take into consideration shareholders’ rights to equal treatment and equal access to information. Should members of the Managing Board or Supervisory Board breach these duties, they will be jointly and severally liable to the Company for compensatory damages. The Company’s Directors’ and Officers’ (D&O) Liability insurance policy provides financial loss coverage up to a certain amount for members of the Managing Board and the Supervisory Board with regard to their activities. The Company bears the cost of these insurance policies. However, it should be noted that applicable German law requires that each member of our Managing Board remains personally responsible in the case of any finding of personal liability of such member, as the case may be, for 10% of the total amount of such personal liability, up to an amount that equals 150% of such member’s total annual fixed remuneration. A shareholder is generally not able to file suit against members of the Managing Board or Supervisory Board if he or she believes that these persons have neglected their duties towards the Company and this has resulted in damage to the Company. Company claims for compensatory damages against members of the Managing Board or the Supervisory Board may, as a rule, only be asserted by the Company itself, in which case
235 the Company is represented by the Managing Board when claims are made against members of the Supervisory Board and the Supervisory Board when claims are made against members of the Managing Board. According to a ruling by the German Federal Court of Justice (Bundesgerichtshof), the Supervisory Board is obligated to assert claims for compensatory damages against the Managing Board that are likely to be successful, unless important Company interests would conflict with such an assertion of claims and such grounds outweigh, or are at least comparable to, the grounds in favor of asserting claims. In the event that the competent corporate body decides not to pursue such claims, then such claims of the Company for compensatory damages must nevertheless be asserted against members of the Managing Board or the Supervisory Board if the general shareholders’ meeting passes a resolution to this effect by a simple majority vote. The general shareholders’ meeting may appoint a special representative to assert such claims. Shareholders whose aggregate holdings amount to at least 10% or €1,000,000 of the Company’s share capital may apply to the court to appoint a special representative to assert claims for compensatory damages, who, in the event of such an appointment, becomes responsible for this matter in place of the Company’s management. In addition, if there are facts supporting the claim that the Company has been damaged by fraud or gross breaches of duty, shareholders whose aggregate holdings amount to at least 1% or €100,000 of the Company’s share capital have the option, under certain circumstances, of being granted permission by the competent court to file a lawsuit on their own behalf for compensatory damages for the Company against members of the board. Such a lawsuit will be dismissed if the Company itself files a lawsuit for compensatory damages. The Company may only waive or settle any damage claims against members of the corporate bodies if three years have passed since the claims came into existence, and only if a simple majority of the shareholders votes in favor of such waiver or settlement at the shareholders’ general meeting and provided that a minority of the shareholders whose shares collectively reach the level of 10% of the share capital does not raise an objection which is entered in the minutes of the meeting. Under German law, it is illegal for shareholders or any other individuals to attempt to influence members of the Managing Board or Supervisory Board, authorized representatives (Prokuristen) or other persons holding a commercial power of attorney to act in a way harmful to the Company. Shareholders with a controlling influence may not use such influence to cause the Company to act against its own best interests, unless any resulting damages are compensated for. Any person who uses his or her influence to cause a member of the Company’s Managing Board or Supervisory Board, authorized representative or person holding a commercial power of attorney to act in a manner harmful to the Company or its shareholders is obligated to compensate the Company and its shareholders for any resulting damage. In addition, members of the Managing Board and Supervisory Board may be jointly and severally liable for breach of their duties.
MANAGING BOARD Overview According to the current version of the Articles of Association, the Managing Board consists of one or several persons (upon the Spin-off becoming effective, the Articles of Association will provide that the Managing Board consists of several persons). The Supervisory Board determines the number of Managing Board members. The Supervisory Board may appoint one Managing Board member as chairman and another member as deputy chairman. Currently, the Company’s Managing Board consists of three members with Wolfgang Dehen appointed as chairman. The Supervisory Board appoints the members of the Managing Board for a maximum term of five years. Reappointment or extension of the term each for up to five years is permissible. The Supervisory Board may revoke the appointment of a Managing Board member prior to the expiration of his or her term for good cause, such as for gross breach of fiduciary duties or if the shareholders’ meeting passes a vote of no-confidence with respect to such member, unless the no-confidence vote was clearly unreasonable. The Supervisory Board is also responsible for entering into, amending and terminating employment agreements with the Managing Board members and, in general, for representing the Company in and out of court against the Managing Board. The Supervisory Board may assign these duties to a committee of the Supervisory Board, if permissible according to statutory law. The Managing Board determines the Company’s business areas and operating segments. The Supervisory Board resolves upon the allocation of businesses to the various members of the Managing Board. The Supervisory Board will appoint in the future a works director (Arbeitsdirektor) pursuant to Section 33 of the German Co-Determination Act (Mitbestimmungsgesetz – MitbestG). According to the Articles of Association, the Company is represented statutorily by two Managing Board members or one Managing Board member acting jointly with an authorized representative.
236 Current Members of the Managing Board The following table lists the current members of the Managing Board, their age, the date on which they were first appointed, the date on which their current appointment is scheduled to end, their position in administrative, management and supervisory bodies and as partners in other companies outside the Company during the past five years; unless stated otherwise below, these memberships are current: Appointed Name Age in Appointed until Responsibilities Other Activities Wolfgang Dehen .... 59 November March 31, Chairman of the Member of the supervisory board 2012 2016 Managing Board, of TÜV Süd AG (since 2003) Chief Executive Former economic advisor to Officer Governor of Guangdong Province Business Units China (ICCFED - International Specialty Lighting Consultative Conference on the and Opto Future Economic Development in Semiconductors, Guangdong) (2009-2011) Business Segments Former member of the managing OLED and Services, board of Siemens AG (2008-2011) Regions, Strategy, Former deputy chairman of the Communications, advisory board of the HUF Legal & Compliance, Hülsbeck & Fürst GmbH & Co. Human Resources, KG (2003-2008) Former chairman of the managing board of VDO AG (later Siemens VDO AG) (2002-2008) Dr. Klaus Patzak .... 48 November March 31, Chief Financial Member of the supervisory board 2012 2016 Officer of Bayerische Börse AG Corporate Finance & (since 2011) Controlling, Investor Former member of the supervisory Relations, board of Siemens Sanayi ve Information Ticaret A.S., Turkey (2008-2009) Technology (IT), Internal Revision Dr. Peter Laier ...... 44 January December 31, Chief Technology Former member of the 2013 2017 Officer for Research management board division & Development, chassis & safety of Continental Supply Chain AG (2008-2012) Management, Former executive Vice President – Quality and Business Unit Hydraulic Brake Technology Business Systems Continental AG Units Lamps, Light (2011-2012) Engines and Controls, Luminaires, Solutions (former Business Unit General Lighting) Wolfgang Dehen, born 1954, studied business administration at the University of Siegen and graduated with a diploma in business administration (Diplom-Kaufmann). In 1979, Mr. Dehen started his career as market analyst in the Marketing Systems department of Alfred Teves GmbH, Frankfurt, Germany, a wholly owned subsidiary of ITT Inc., U.S., where he became an assistant to the executive management in 1982. After two years, he worked in the Spare Part / Customer Service department as Head of Export and assistant of the Head of Sales. In 1987, Mr. Dehen was appointed as managing director of Kolb GmbH & Co, Wuppertal, a subsidiary of Alfred Teves GmbH. After the merger of Alfred Teves GmbH into a newly set up ITT Automotive Group, part of ITT Inc., Mr. Dehen became Head of Aftermarket Operations Europe at the ITT Automotive GmbH, Frankfurt, in 1992. In 1995, he changed his position to ITT Automotive GmbH, Bietigheim-Bissingen, Electrical Systems Group, where he worked as head of the Switch and Sensor Product Lines and from 1997 as Head of Business
237 Unit Europe and from 1998 as head of the Switches and Sensors Europe Division. After the acquisition of ITT Automotive Electrical Systems Group by Valeo, Mr. Dehen relocated to Paris and became Branch Vice President of the department Switches & Detection Systems in 2001. From 2002 onwards, Mr. Dehen was chairman of the managing board of Siemens VDO Automotive AG and, following its integration into Siemens, became Chief Executive Officer with an identical area of responsibility within the business unit Siemens VDO. In January 2008, Mr. Dehen was appointed to the managing board of Siemens with responsibility for the business sector Energy. Since April 2011 Mr. Dehen has been chairman of the board of directors of OSRAM GmbH and chairman of OSRAM AG’s managing board, respectively. In November 2012, Mr. Dehen has also been appointed as chairman of the Managing Board of OSRAM Licht AG. Dr. Klaus Patzak, born 1965, studied business administration in Munich. He joined Siemens in 1993 as an expert on general business administration topics in the central department for Corporate Finance. Mr. Patzak then worked in various functions with Siemens, both domestic and abroad, including the position as head of Business Analysis, Holding and Finance of Siemens Corporation, New York, and as head of Corporate Financial Audit of Siemens AG. From 2000 to 2002, he was Chief Financial Officer of the Wireline Communications division of Infineon Technologies AG, Munich. From 2004, he worked as Corporate Vice President Financial Reporting and Controlling within the Corporate Finance department of Siemens. In 2007, he became Corporate Vice President, Chief Accounting Officer and Controller of Siemens. In April 2011 he was appointed to the board of directors of OSRAM GmbH and to the managing board of OSRAM AG with responsibility for corporate finance. In November 2012, Mr. Patzak has also been appointed as Chief Financial Officer of OSRAM Licht AG. Dr. Peter Laier, born 1968, studied mechanical engineering at University of Applied Science Würzburg/ Schweinfurt and at Technical University Stuttgart where he later obtained a Doctor’s degree for mechanical engineering (Dr. Ing.). After graduation, he started his career at the Fraunhofer Institute for Production Technology and Automation in Stuttgart. In 2000, Dr. Laier joined Continental Automotive Systems, Frankfurt. During his time at Continental AG, Dr. Laier has over 12 years assumed various functions in management and technology. This included four years in Asia, in which he was based in Japan. From 2008 to the end of 2012, he has been member of Continental AG’s Management Board Division Chassis & Safety where he first was responsible for the business unit Chassis Components. From 2011 to the end of 2012, he was Executive Vice President of the business unit Hydraulic Brake Systems. Since January 1, 2013, Dr. Laier is member of the managing board of OSRAM GmbH and member of the Managing Board of OSRAM Licht AG as Chief Technology Officer, with the responsibilities for Corporate Research and Development as well as Corporate Supply Chain Management and Quality and Technology. The members of the Managing Board can be reached at the Company’s business address.
238 Compensation of Managing Board Members The current Managing Board members of OSRAM Licht AG have only been appointed in November 2012 (with effect as of January 2013 in the case of Dr. Laier) and did not receive a salary from OSRAM Licht AG so far. Our Managing Board members are also members of the managing board of OSRAM GmbH (former OSRAM AG). The total compensation (including contributions to pension schemes) paid to members of the managing board of OSRAM AG, today OSRAM GmbH, in the Fiscal Year 2012 amounted to €11.2 million (Fiscal Year 2011: €5.3 million; Fiscal Year 2010: €2.9 million). In addition to fixed compensation components and variable compensation components, the members of the Managing Board of former OSRAM AG (today OSRAM GmbH) were reimbursed for travel and other expenses actually incurred and received the ordinary amount of out-of-pocket cash expenses. The table below provides an overview of the individual breakdown for the Fiscal Year 2012 (Dr. Peter Laier was not yet member of the Managing Board of OSRAM Licht AG and of former OSRAM AG, respectively, in the Fiscal Year 2012; Mr. Martin Goetzeler left the managing board of former OSRAM AG on March 31, 2012). Non-performance based components Performance-based components without long- with long-term incentive effect term incentive share-based Stock Awards(5) effect non-share- Target based Target attainment attainment variable depending on EPS depending on compensation for past future stock (bonus) fiscal years performance Base Other cash Current Current Total compensation compensation(3) component Shares value(4) Shares value(4) compensation (Amounts in number of units or €) Managing Board members serving as of September 30, 2012(1) Wolfgang Dehen .... 900,000 94,591 1,107,000 11,859 770,005 7,701 478,232 3,349,828 Dr. Klaus Patzak .... 600,000 36,255 738,000 7,827 508,207 5,083 315,654 2,198,116 Former Managing Board members Martin Goetzeler(2) . . . 350,000 25,097 430,500 4,566 296,470 2,965 184,127 1,286,194 Total ...... 1,850,000 155,943 2,275,500 24,252 1,574,682 15,749 978,013 6,834,138
(1) Wolfgang Dehen and Dr. Klaus Patzak have been appointed as members of the managing board of OSRAM GmbH on April 1, 2011 and as members of the managing board of OSRAM AG on July 1, 2011, respectively. Martin Goetzeler has been member of the managing board of OSRAM GmbH since October 1, 2010 and has been appointed as member of the managing board of OSRAM AG on July 1, 2011. (2) Martin Goetzeler resigned from office as member of the managing board of former OSRAM AG as of March 31, 2012 and left the Company as of April 30, 2012. As part of his resignation from the managing board, Martin Goetzeler received in the Fiscal Year 2012 other benefits including a compensation for an agreed non-compete obligation in the amount of €2,826,500. In the Fiscal Year 2013, the compensation amounts to an additional (and final) amount of €330,000. (3) Other compensation includes costs, or the cash equivalent, of non-monetary benefits and perquisites, such as provision of company cars, contributions towards the cost of insurance, reimbursement of fees for legal advice, tax advice and accommodation and moving expenses, including any taxes that have been assumed in this regard, as well as costs connected with preventive medical examinations. (4) The total compensation (€6.8 million) reflects the relevant current fair value of share-based compensation components for the Fiscal Year 2012 (€2.6 million). (5) Since the shares of OSRAM Licht AG are not yet listed on a regulated market, the long-term share-based incentive for the Fiscal Year 2012 was granted in the form of forfeitable commitments to transfer shares of Siemens AG without additional payments (Siemens Stock Awards). The figures contain the stock awards granted in November 2012 for the Fiscal Year 2012. Martin Goetzeler has been compensated in cash for his stock awards for the Fiscal Year 2012 in the Fiscal Year 2013. With regard to pension commitments see below “—Remuneration System—Pension Benefit Commitments”. After the Spin-off takes effect, the contracts of the members of the Managing Board of OSRAM Licht AG will provide for the remuneration system described in the following which corresponds to the remuneration system of OSRAM GmbH. Remuneration obligations will be transferred from OSRAM GmbH to OSRAM Licht AG.
239 Remuneration System The remuneration system for the Managing Board is intended to provide an incentive for successful corporate management with an emphasis on sustainability. The remuneration system for the Managing Board has the following components:
Non-performance-based Components The members of the Managing Board receive a fixed base compensation which is paid as a monthly salary. Additionally, non-monetary benefits and perquisites are granted, such as provision of company cars, contributions towards the cost of insurance, reimbursement of fees for legal advice, tax advice and accommodation and moving expenses, including any taxes that have been assumed in this regard, as well as costs connected with preventive medical examinations.
Performance-based components Performance-based components include a variable compensation component (bonus) and a long-term share- based incentive: Variable Compensation Component (Bonus). The variable compensation component (bonus) is based on the Company’s business performance in the last Fiscal Year. The Supervisory Board at the beginning of each fiscal year defines specific targets for several parameters (currently organic revenue growth, EBITA and free cash flow). For a 100% target attainment (target amount) the amount of the bonus equals the amount of base compensation. The bonus is subject to a ceiling (cap) of 200%. The Supervisory Board is entitled to revise the amount resulting from attaining targets, by as much as 20% upward or downward, at its duty-bound discretion (pflichtgemäßes Ermessen). In choosing the factors to be considered in deciding on possible revisions of the bonus payouts, the Supervisory Board takes into account specific parameters that the Supervisory Board also defines at the beginning of each Fiscal Year. The revision option may also be exercised in recognition of Managing Board members’ individual achievements. The bonus is paid half in cash, and half in the form of non-forfeitable stock commitments for OSRAM Licht AG Shares (“OSRAM Stock Awards”). After a four-year waiting period, the beneficiary will receive one Share of OSRAM Licht AG for each OSRAM Stock Award without additional payment. Instead of the transfer of OSRAM Licht AG shares, an equivalent cash settlement may be effected. As long as OSRAM Licht AG Shares are not listed on a regulated market when the target attainment is determined at the end of a Fiscal Year (for example for Fiscal Year 2012), the bonus will be granted in cash only. Long-term Share-based Compensation. Long-term share-based compensation generally consists of a grant of forfeitable OSRAM Stock Awards which are subject to a four-year restriction period. The monetary value of this compensation component is determined by the attainment of targets that are defined by the Supervisory Board at the beginning of a Fiscal Year. The monetary value may lie between 0% and 200% (cap) depending on the target attainment. The number of OSRAM Stock Awards granted is calculated by dividing the monetary value determined by the Supervisory Board by the closing price of the OSRAM Licht AG Shares on the grant date less discounted estimated dividends during the four-year restriction period. Additional conditions for the OSRAM Stock Awards will be determined by the Supervisory Board after listing of the OSRAM Licht AG Shares. As long as OSRAM Licht AG is not yet listed on a regulated market, when the target attainment is determined at the end of a Fiscal Year (for example for Fiscal Year 2012), the long-term share-based incentive is granted in the form of forfeitable commitments to transfer shares of Siemens AG without additional payments (“Siemens Stock Awards”). The restriction period for the Siemens Stock Awards ends at the close of the second day after publication of the operating results in the fourth calendar year after the grant date (thus, the restriction period is approximately four years). 50% of the annual target amount for the monetary value of the Siemens Stock Awards is linked to the average basic earnings per share (EPS) for the respective last three Fiscal Years of Siemens Aktiengesellschaft. With respect to the other 50% of the annual target amount for the Stock Awards, the Supervisory Board will first grant a number of Siemens Stock Awards equivalent to this target amount. This commitment is then linked to the performance of Siemens share relative to relevant competitors during the four- year restriction period. After expiry of the four-year restriction period the number of Stock Awards granted is adjusted according to the degree of target achieving determined. In the event of extraordinary unforeseen developments that have an impact on the share price, the Supervisory Board may decide to reduce the number of promised OSRAM Stock Awards and Siemens Stock
240 Awards (together the “Stock Awards”) retroactively, or it may decide that in lieu of a transfer of the relevant shares only a cash settlement in a defined and limited amount will be paid, or it may decide to postpone transfers for payable Stock Awards until the developments have ceased to have an impact on the stock price. In the event that the contract of a member of the Managing Board is terminated in the course of an appointment period, Stock Awards will expire without replacement. The same applies if the contract is not extended after the end of an appointment period, either at the Board member’s request or because there is serious cause that would have entitled the Company to revoke the appointment or terminate the contract. However, once granted, Stock Awards do not expire if the contract is terminated because of retirement, disability, or death, or in connection with a spin-off, the transfer of an operation, or a change of activity within the Group.
Pension Benefit Commitments The members of the Managing Board, like the employees, are included in the OSRAM Defined Contribution Benefit Plan (Beitragsorientierte OSRAM Altersversorgung – BOA). Under the BOA, members of the Managing Board receive contributions that are credited to their personal pension account. The amount of contribution is decided annually by the Supervisory Board; it was set most recently at 28% of the total of the base compensation and the target bonus. The non-forfeitability of pension benefit commitments is in accordance with the provisions of the German Company Pensions Act (Betriebsrentengesetz). Members of the Managing Board are entitled to benefits under the BOA on reaching the age of 60, at the earliest (62 in the event of new commitments after January 1, 2012). They may choose to have their accrued pension benefit balance paid out as a pension, as a lump sum, or in a maximum of twelve annual installments. The following table gives an overview over the contributions to pension accounts of current and former members of the managing board of former OSRAM AG (now OSRAM GmbH). Total contributions Fiscal Year 2012 (all numbers in €) Managing Board members serving as of September 30, 2012 Wolfgang Dehen ...... 504,000 Dr. Klaus Patzak ...... 336,000 Former Managing Board members Martin Goetzeler(1) ...... 696,000(2) Total ...... 1,536,000
(1) Martin Goetzeler resigned from office as of March 31, 2012 and left OSRAM as of April 30, 2012. (2) Including a special contribution to the pension benefit commitment in the amount of €500,000 that was granted in connection with the resignment of Martin Goetzeler. As of September 30, 2012, the defined benefit obligations of all pension commitments excluding deferred compensation for current and former members of the Managing Board amounted to €4,415,775 (including defined benefit obligations of pension benefit commitments of Siemens AG’s pension scheme that one member of the Managing Board transferred to BOA in connection with his transfer to OSRAM GmbH).
Commitments in connection with Termination of Managing Board Membership Managing Board contracts provide for a compensatory payment if membership on the Managing Board is terminated prematurely by mutual agreement, without serious cause. The amount of this payment must not exceed the value of two years’ compensation (cap). The amount of the compensatory payment is calculated on the basis of the base compensation and the variable components of compensation actually received for the last Fiscal Year before termination. The compensatory payment is payable in the month when the member leaves the Managing Board. In addition, a one-time exceptional contribution is made to the BOA. The amount of this contribution is based on the BOA contribution that the Managing Board member received for the previous year, together with the remaining term of the appointment. The above benefits are not paid if an amicable termination of the member’s activity on the Managing Board is agreed upon at the member’s request, or if there is serious cause for the Company to terminate the employment relationship. In the event of a change of control (i.e., if one or more shareholders exercise a controlling influence, as a result of the majority of voting rights in OSRAM Licht AG, entering into an enterprise agreement or a merger) that results in a substantial change in the position of the individual Managing Board member, the member of the Managing Board has the right to terminate his or her contract with the Company for good cause. If this right of
241 termination is exercised, the Managing Board member is entitled to a severance payment in the amount of not more than two years’ compensation (cap). The calculation of the annual compensation includes not only the base compensation and the target amount for the bonus, but also the target amount for the Stock Awards, in each case based on the most recent completed Fiscal Year prior to termination of the contract. Any Stock Awards not due will remain unaffected. There is no entitlement to a severance payment if the Managing Board member receives benefits from third parties in connection with a change of control or if the change of control occurs within a period of twelve months prior to a Managing Board member’s retirement. Additionally, compensatory or severance payments cover non-monetary benefits by including an amount of 5% of the total compensation or severance amount. Compensatory or severance payments will be reduced by 15% as a lump-sum allowance for discounted values and for income earned elsewhere, if the remaining term of the Managing Board member’s contract is at least six months. However, this reduction will apply only to the portion of the compensatory or severance payment that was calculated without taking account of the first six months of the remaining term of the Managing Board member’s contract.
D&O Insurance OSRAM Licht AG and OSRAM GmbH are up to now covered by a group liability insurance policy for members of the Managing Board and the Supervisory Board and certain employees of the Siemens Group with regard to their management activities. This policy which is concluded for one-year terms covers personal liability for financial loss associated with performing the respective activity. The members of the Managing Board of OSRAM Licht AG are at the same time members of the Managing Board of OSRAM GmbH. The policy provides for a deductible/retention that conforms to the requirements of the German Stock Corporation Act. OSRAM intends to provide a comparable insurance coverage under a OSRAM group liability insurance policy upon the Spin-off becoming effective.
Transaction Bonus Commitment in connection with the Spin-off from Siemens AG Siemens AG has granted the current members of the Managing Board of OSRAM Licht AG (as well as other executives of the future OSRAM Group) in the first quarter of the Fiscal Year 2013 a transaction bonus. After the Spin-off takes effect, OSRAM Licht Shares in a value of at least 50% and a maximum of 200% of the target amount established individually for each member of the Managing Board will be granted. The target amount is €2,500,000 for Wolfgang Dehen and €1,000,000 for Dr. Klaus Patzak as well as €250,000 for Dr. Peter Laier. When calculating the number of the OSRAM Licht Shares to be granted, the volume weighted average price of the OSRAM Licht Share in XETRA trading on the Frankfurt Stock Exchange in the first 20 trading days will be used as a basis. For the calculation of the volume weighted average price, all OSRAM Licht AG Shares traded in the XETRA trading between 9am and 5.30pm during such period will be taken into account; however, excluding trades in the opening, midday and closing auction. The specific determination of the degree of achieving the target between 50% and 200% remains in the discretion of Siemens AG and will take place shortly after the listing. The resulting number of OSRAM Licht Shares will be transferred to the members of the Managing Board four years after the listing. Each member of the Managing Board can demand an early transfer in four equal annual tranches; in this situation, a lock-up period for the shares exists for the duration of four years starting with the listing. Processing of the transaction bonus will be taken care of by OSRAM Licht AG. In particular, OSRAM Licht AG will have the duty to deliver the OSRAM Licht AG Shares that are granted as transaction bonus to the beneficiary. The right of determination of the degree of achieving the target remains in Siemens AG’s responsibility. It is expected that OSRAM Licht AG will acquire the OSRAM Licht AG Shares to service the transaction bonus via a mandated bank on the stock exchange on or after the fourth day of trading of the OSRAM Licht AG Shares. Siemens AG will reimburse OSRAM Licht AG the costs of processing the transaction bonus including the costs for the acquisition of the Shares that will be delivered to the beneficiaries. The transaction bonus is supposed to compensate the benefited persons for the performance which they render in connection with the Spin-off and the listing. Secondly, a particular incentive is supposed to be created to also make the listing of OSRAM a success in the mid-term in the interests of Siemens AG and its shareholders as well as the future OSRAM Group.
Treatment of Siemens Stock Awards after the Spin-off Takes Effect Siemens AG and its Group companies have granted or will grant prior to the Spin-off taking effect various entitlements to shares of no par value (registered shares) in Siemens AG to members of the managing board and employees of Siemens AG as well as members of corporate bodies and employees of Siemens Group companies, including members of corporate bodies and employees of the OSRAM
242 Licht Group (the “Beneficiaries”) in the context of share-based compensation programs and employee participation programs, respectively (together the “Stock Entitlements”);
Beneficiaries of the OSRAM Licht Group who leave the Siemens Group as a direct consequence of the Spin-off taking effect (because either their employing company is no longer part of the Siemens Group or their contract provides for a termination as a result of the Spin-off) are entitled to a cash compensation and a cash settlement, respectively, for the Stock Entitlements from the entity of the Siemens Group or the OSRAM Licht Group, respectively, which is obliged by the Stock Entitlement upon effectiveness of the Spin-off. We expect that the net cash outflow for the cash compensation and the cash settlement, respectively, will amount to approximately €20 million.
Shareholdings of Managing Board Members The members of the Managing Board do not, apart from Siemens AG shares, directly or indirectly, hold any Shares or options on Shares of the Company as of the date of this prospectus. The members of the Managing Board in total hold 6,292 shares in Siemens AG for which 629 shares in OSRAM Licht AG will be issued upon the Spin-off becoming effective.
SUPERVISORY BOARD Currently, the Supervisory Board of OSRAM Licht AG consists of three shareholder representatives. Upon the Spin-off becoming effective, OSRAM GmbH will become a subsidiary of OSRAM Licht AG and we will therefore become subject to the German Co-determination Act (Mitbestimmungsgesetz). In accordance with Sections 95 and 96 of the German Stock Corporation Act (Aktiengesetz) and Section 7 of the German Co- determination Act (Mitbestimmungsgesetz), the Supervisory Board will in the future consist of 12 members (six shareholder representatives and six employee representatives). The shareholder representatives are elected by the shareholders at the general shareholders’ meeting. The new composition of the Supervisory Board must be determined in a formal procedure, the so-called status proceedings (Statusverfahren) that will be initiated in July 2013 by the Managing Board of OSRAM Licht AG after the Spin-Off becoming effective. In anticipation of the Spin-off becoming effective, the shareholders’ meeting of OSRAM Licht AG on June 14, 2013 has amended the Articles of Association regarding the Supervisory Board insofar as the Supervisory Board will in the future consist of 12 members (six shareholder representatives and six employee representatives). The amendment of the Articles of Association is subject to the provision that it will be registered with the commercial register in such manner as to ensure that it only becomes effective upon the Spin-off becoming effective and the completion of the status proceedings. Current and future composition of the Supervisory Board is as follows: • The three current members of the Supervisory Board will resign upon the Spin-off becoming effective. • The general shareholders’ meeting has already elected three new members of the Supervisory Board. The election is conditional on the Spin-off becoming effective. The term of office of these members of the Supervisory Board will end upon the registration of the amendment of the Articles of Association described above. However, under a corresponding condition precedent, they have also been elected for another term of office beginning with the registration of the amendment of the Articles of Association until the end of the general shareholders’ meeting that resolves on the discharge for the Fiscal Year ending September 30, 2013. • Furthermore, the general shareholders’ meeting has elected three additional members of the Supervisory Board under the condition precedent that the Spin-off becomes effective and the amendment of the Articles of Association described above is registered. However, under a corresponding condition precedent they have also been elected for another term of office beginning with the registration of the amendment of the Articles of Association described above until the end of the general shareholders’ meeting that resolves on the discharge for the Fiscal Year ending September 30, 2013. • After termination of the status proceedings, the Company plans to have employee representatives be appointed by the competent court until the time regular employee representatives have been elected in accordance with the provisions of the German Co-determination Act (Mitbestimmungsgesetz). OSRAM GmbH has its own supervisory board consisting of 12 members (six shareholder representatives and six employee representatives), which will remain in place after the Spin-off becomes effective. Except for Prof. Dr. Russwurm, all representatives of Siemens have resigned from the supervisory board of OSRAM GmbH effective upon the Spin-off becoming effective. The future shareholders’ representatives in the Supervisory Board mentioned above have been elected members of the supervisory board of OSRAM GmbH from the same
243 date. The employee representatives in the Supervisory Board of OSRAM Licht AG that will be suggested for the court appointment are already members of the supervisory board of OSRAM GmbH. Accordingly, provided that they will be appointed by the court, the members of the supervisory board of OSRAM GmbH are supposed to be identical with the members of the Supervisory Board of OSRAM Licht AG in the future. The Supervisory Board members being shareholder representatives are elected by the shareholders in the general shareholders’ meeting. Unless the general shareholders’ meeting has set a shorter term, the term of each Supervisory Board member, as well as the term of each substitute member, expires at the end of the annual general shareholders’ meeting ratifying the activities of the Supervisory Board for the fourth Fiscal Year following the commencement of the member’s term of office, not including the Fiscal Year in which the term commences. The election of a successor for a member leaving his or her office before the end of his or her term of office is valid for the remainder of the term of office of the departing member. Re-election is possible. Supervisory Board members elected by the general shareholders’ meeting may be removed by a resolution of the shareholders’ meeting if such resolution is approved by the single majority of the votes cast. In addition, the Articles of Association provide that Supervisory Board members and substitute members of the Supervisory Board may resign, without good cause, with a four weeks’ notice period, by providing written notice to the Supervisory Board chairman. The shareholders’ meeting may appoint substitute members for one or more Supervisory Board members, who, in accordance with the order determined by election, may become members of the Supervisory Board if elected shareholder representatives leave office before the end of their term or if the election has been set aside by a court. The term of the substitute member expires as soon as a successor for the departing Supervisory Board member is appointed, but no later than the expiration of the departing Supervisory Board member’s term. At least one independent member of the supervisory board of publicly traded companies must have expertise in the fields of accounting or auditing. On the Supervisory Board, Dr. Faber has the required financial expertise and independence. Under mandatory statutory provisions and the Articles of Association, the Supervisory Board is authorized to establish internal rules of procedure (Geschäftsordnung). The Supervisory Board’s current internal rules of procedure are dated June 18, 2013. Following the completion of the status proceedings described above and the appointment of the employee representatives to the Supervisory Board, the Supervisory Board elects a new chairman and a deputy chairman from among its members. The election of the chairman and the first deputy chairman will in the future require pursuant to Section 27 of the German Co-Determination Act (Mitbestimmungsgesetz) a two-thirds majority vote. If either the chairman or the first deputy chairman is not elected by a vote of two-thirds of the members of the Supervisory Board, the shareholder representatives elect the chairman and the employee representatives elect the first deputy chairman by a simple majority of the votes cast. The Supervisory Board may elect one or more other deputy chairmen by simple majority vote. The Supervisory Board is authorized to make amendments to the Articles of Association that only affect their wording. Meetings of the Supervisory Board are called by its chairman, or, if he is unavailable, by a deputy chairman, with at least 14 days’ advance notice (the day on which the invitation is sent and the day of the meeting itself are not included). In urgent cases, the chairman can shorten the notice period. The chairman may call a meeting in writing, orally, by phone, telefax, e-mail or any other common means of communication. The version of the Articles of Association that is currently still in force provides that all three members of the Supervisory Board must participate in voting on a resolution to constitute a quorum. Pursuant to the Articles of Association that enter into force upon the Spin-off becoming effective and completion of the status proceedings, at least half of the members of which the Supervisory Board is required to comprise, must participate in voting on a resolution to constitute a quorum. For calculating the quorum, any member who is present but abstains from voting is deemed to have participated in the vote. Unless otherwise required by law or by the Articles of Association, resolutions of the Supervisory Board are passed by a simple majority of the votes cast. For purposes of passing a resolution, abstentions do not count as votes cast. If a vote in the Supervisory Board results in a tie, pursuant to the Articles of Association that enter into force upon the Spin-off becoming effective and completion of the status proceedings, the chairman’s vote counts twice if a second vote on the same motion also results in a tie. The Articles of Association provide that, if all members participate or, if adequate prior notice is given, on the chairman’s instruction, resolutions may be passed without a meeting in writing, orally, by phone, telefax or e-mail, or any other common means of communication or any combination thereof. The following table lists (i) the current members of our Supervisory Board which will resign upon the Spin-off becoming effective, (ii) the members of the Supervisory Board that have been newly elected under the condition precedent that the Spin-off becomes effective (successors of the members stated under (i)), (iii) the future shareholder representatives already elected conditional on the Spin-off becoming effective and the completion of the status proceedings described above, and (iv) the employee representatives designated for
244 appointment by the competent court, the date on which they were first appointed as well as their other positions in administrative, management and supervisory bodies and as partners in partnerships outside the Company over the past five years; unless stated otherwise below, these memberships are current: Name / Position Member Since Member Until* Other Activities Georg Bernwieser(1) June 1, 2012 July 5, 2013 Member of the board of Siemens Foundation as well as mandates at Siemens subsidiaries Peter Kastenmeier(1) June 1, 2012 July 5, 2013 None, with the exception of Siemens subsidiaries Walter Richter(1) June 1, 2012 July 5, 2013 None, with the exception of Siemens subsidiaries Prof. Dr. Siegfried July 5, 2013 GSM 2014 Member of the managing board of Siemens Russwurm(2) AG (since January 2008); member of the supervisory board of Deutsche Messe AG (since July 2010); member of the supervisory board of Innovationsgesellschaft f. fortgeschrittene Produktionssysteme (inpro) GmbH (since January 2013); other mandates at Siemens subsidiaries Peter Bauer(2) July 5, 2013 GSM 2014 Former member of the managing board of Infineon AG (until September 2012); member of the supervisory board of Kontron AG (since February 2013) Dr. Joachim Faber(2) July 5, 2013 GSM 2014 Former member of the managing board of Allianz SE (until December 2011); chairman of the supervisory board of Deutsche Börse AG (since March 2012) Dr. Christine Completion of GSM 2014 Managing director of Deutsches Bortenlänger(3) status proceedings Aktieninstitut e.V.; member of the supervisory board of ERGO Versicherungsgruppe AG (since January 2012); member of the supervisory board of SGL Carbon SE (since April 2013) and TÜV Süd AG (since April 2011); former member of the supervisory board of Fondsbörse Deutschland Beteiligungsmakler AG (until September 2012); former member of the managing board of Bayerische Börse AG (until June 2012); former member of the board of Munich stock exchange (until June 2012) Prof. Dr. Lothar Frey(3) Completion of GSM 2014 Professor at Erlangen-Nürnberg university status proceedings (chair of electronic components) and head of Fraunhofer Institute IISB Frank (Franciscus) Completion of GSM 2014 Former member of the supervisory board of H. Lakerveld(3) status proceedings Klöckner & Co. SE (until 2011); member of the supervisory board of Aliaxis S.A., Belgium (since 2009), of Technische Unie, the Netherlands (since 2011) and Sonepar S.A., France (since June 2013) Willhelm Sattler(4) Court appointed Completion of — election proceedings Alfred Haas(4) Court appointed Completion of Former member of the advisory board of election proceedings Ritos GmbH (until 2012) Michael Knuth(4) Court appointed Completion of Member of the supervisory board of FTE election proceedings automotive GmbH (since December 2008) Hubert Roßkopf(4) Court appointed Completion of — election proceedings Irene Schulz(4) Court appointed Completion of Member of the supervisory board of Nokia election proceedings Siemens Networks Management GmbH (since 2011) Thomas Wetzel(4) Court appointed Completion of — election proceedings
245 (1) Messrs Georg Bernwieser, Peter Kastenmeier and Walter Richter have each resigned from office as member of the Supervisory Board of OSRAM Licht AG and Mr. Bernwieser has simultaneously resigned from office as chairman of the Supervisory Board and Mr. Kastenmeier has simultaneously resigned from office as deputy chairman of the Supervisory Board on May 29, 28 and 25, 2013, respectively, each with effect upon the Spin-off becoming effective. (2) On June 14, 2013, the general shareholders’ meeting of OSRAM Licht AG has appointed Prof. Dr. Russwurm, Mr. Bauer and Dr. Faber as shareholder representatives of the Supervisory Board with effect upon the Spin-off becoming effective. (3) On June 14, 2013, the general shareholders’ meeting of OSRAM Licht AG has appointed Dr. Bortenlänger as well as Prof. Dr. Frey and Mr. Lakerveld as shareholder representatives in the Supervisory Board under the condition precedent that the Spin-off becomes effective and the status proceedings are completed. (4) It is intended to propose to the local court (Amtsgericht) Munich to appoint Ms Irene Schulz as well as Messrs Willhelm Sattler, Alfred Haas, Michael Knuth, Hubert Roßkopf and Thomas Wetzel as employee representatives in the Supervisory Board. * GSM 2014 means the general shareholders’ meeting that resolves on the discharge for the Fiscal Year ending September 30, 2013; this general shareholders’ meeting is expected to take place in February 2014. Completion of election proceedings means the termination of the election proceedings for the employee representatives pursuant to the German Co-determination Act (Mitbestimmungsgesetz). Georg Bernwieser, born 1957, started his career with an apprenticeship as an industrial clerk (Industriekaufmann) at a medium sized company where he also was active in the sales department. He then studied macroeconomics at the University of Munich and joined Siemens AG in 1985. He assumed various functions in controlling, accounting and M&A as well as in the management of affiliated companies. In connection with these responsibilities, he assumed various mandates in managing boards and supervisory boards, respectively, of affiliated companies. He has been the head of the department Corporate Shareholder Controlling Germany of Siemens AG since 2001. Since the establishment of the Siemens Foundation, Munich, in September 2008 he has held the unpaid position of CFO of the Foundation. Peter Kastenmeier, born 1960, studied business administration at the University of Munich and earned a degree as “Diplom-Kaufmann” in 1987. He joined Siemens AG that same year. Mr. Kastenmeier assumed various functions in sales, accounting, controlling and M&A. Currently, he is active in the department Corporate Shareholder Controlling Germany of Siemens AG. In connection with these functions, he assumed various mandates in managing boards and supervisory boards of affiliated companies. Walter Richter, born 1953, studied business administration at the University of Augsburg and earned a degree as “Diplom-Ökonom” in 1981. He joined Bergmann-Elektricitäts-Werke AG as an assistant to the management that same year. Mr. Richter has been with Siemens Group since 1990. He assumed various functions at affiliated companies and in the corporate headquarters in controlling, accounting and M&A departments as well as in the management of affiliated companies. In connection with these functions, he assumed various mandates in managing boards and supervisory boards, respectively, of affiliated companies. Prof. Dr. Siegfried Russwurm, born 1963, studied manufacturing engineering and worked as a research assistant at Erlangen-Nürnberg University where he also received a doctorate in engineering. In 1992 he started to work at Siemens in the Medical Technology department. In 1999 he became head of the department Electronical Systems at Siemens Elema AB., Solona, Sweden. In 2003 he became head of the department Motion Control Systems which belongs to the department Automotion and Drives in Erlangen. In 2006, Prof. Dr. Russwurm became member of the divisional managing board Medical Solutions. In January 2008 he became member of the managing board of Siemens AG and has been responsible for the Sector Industry since 2010. Peter Bauer, born 1960, graduated in electrical engineering at Munich University. He started his career as development engineer at Siemens in the department electronic semiconductors in 1986. In 1993, Mr. Bauer became the head of the unit Chipcard and ID System ICs. In 1996 he became first Vice President and General Manager of the semiconductors department Microcontroller Ics of Siemens and head of the segment Microcomputer IC that same year. He was chairman of the managing board of Siemens Microelectronics, Inc., U.S., from 1998 through April 1999. In 1999, Mr. Bauer was appointed member of the managing board of Infineon AG and in 2008 he became chairman of the managing board of Infineon AG until he resigned from the managing board of Infineon AG at the end of September 2012. Mr. Bauer is member of the supervisory board of Kontron AG. Dr. Joachim Faber, born 1950, studied law and received a doctorate (Dr. rer. publ.). He held various positions at Citibank AG, Frankfurt am Main from 1984 through 1992 and at Citibank International PLC, London (including the position as Head of Capital Markets) from 1992 through 1997. In 1997 Dr. Faber joined Allianz Group. Dr. Faber was member of the managing board of Allianz Versicherung AG from 1997 through 1999 and was appointed member of the managing board of Allianz SE in January 2000 and remained a member of the managing board until the end of December 2011. Dr. Faber is the chairman of the supervisory board of Deutsche Börse AG.
246 Dr. Christine Bortenlänger, born 1966, studied business management at Munich University and received a doctorate after an apprenticeship at a bank. She was a project manager in the department Electronic Business Networking/Electronic Commerce at Bayerische Landesbank in Munich from 1996 through 1997. She was a senior consultant and a project manager for strategic and organizational projects in the finance sector at the consultancy firm Dr. Seebauer & Partner in Munich from 1997 through 1998. Dr. Bortenlänger became deputy managing director of Munich Stock Exchange in 1998 and was responsible for the marketing and the public relations department. She was managing director of the Munich Stock Exchange and member of the managing board of Bayerische Börse AG from 2000 through June 30, 2012 and was responsible for the marketing and sales department as well as for public relations, press relations, business development, organization and IT. She heads Deutsche Aktieninstitut e.V. in Frankfurt am Main as managing director since September 1, 2012. Prof. Dr. Lothar Frey, born 1958, is physicist (Diplomphysiker) and received a doctorate (Dr. rer. nat.)at Würzburg University in 1986. He worked at the Fraunhofer-Arbeitsgruppe in Erlangen from 1989 through 1993. He was responsible for the cleanroom laboratory of Erlangen-Nürnberg University from 1993 through 2005. Later on he assumed responsibility for the department semiconductor technology at the Fraunhofer-Institut. Prof. Dr. Frey was promoted to professor at Erlangen-Nürnberg University in 2004. He was involved in the pre development of new materials for transistors at Infineon AG, Dresden, from 2005 through 2006. Prof. Dr. Frey was professor at Technische Universität Bergakademie Freiberg from 2006 through 2008. He has been professor at Erlangen-Nürnberg University (chair for electronic components) and head of the Fraunhofer Institut IISB since 2008. Frank (Franciscus) H. Lakerveld, born 1947, initially studied marketing. Dutch-born Mr. Lakerveld first became manager of I.D.N. GmbH in Ouderkerk a/d Yssel, the Netherlands, in 1974, then he was manager of Monster GmbH, Gorinchen, the Netherlands, from 1984 through 1989 and of Snikkers GmbH, Strijen, the Netherlands from 1989 through 1995. Mr. Lakerveld was member of the management board at Otra Niederlande from 1994 through 1995. He assumed various mandates at Sonepar Group, a leading trade group for electronic components and devices headquartered in Paris, from 1995 through 2011. He was chairman of the management board of Sonepar Deutschland GmbH from 1995 through 2011. He was member of the management board and chief operating officer of Sonepar S.A., France, from 2003 through 2011. He was member of the supervisory board of Klöckner & Co SE until 2011. Mr. Lakerveld is currently member of the supervisory board of Aliaxis S.A., Belgium, of Technische Unie Netherlands and of Sonepar S.A., France. Michael Knuth, born 1957, completed an apprenticeship as mechanic at OSRAM GmbH. In 1982, he became trade union secretary of IG Metall Augsburg, in 1989 of IG Metall Bavaria. From 1997 until 2005, Mr. Kurth was managing director of IG Metall Neu-Ulm. In 2005, he became head of the youth-educational institution of IG Metall in Schliersee, Bavaria. In 2008 he was again trade union secretary of IG Metall Bavaria, before he became managing director of IG Metall Passau in 2009. Since 2010 he has been trade union secretary of IG Metall Bavaria. Since February 1995, Mr. Knuth is member of the supervisory board of OSRAM GmbH; since December 2012, he is also deputy chairman of the supervisory board of OSRAM GmbH. Alfred Haas, born 1950, studied and graduated in business administration at the University of Mannheim and Munich (Diplom Kaufmann). From 1977 until 1980, he worked for Fichtel & Sachs in Schweinfurt in the department Strategic Business Planning (Strategische Planung). In 1981, Mr. Haas started his career with OSRAM in the Strategic Business Planning department and later occupied various marketing/sales and business unit positions in the OSRAM Group. At present he is head of the Public Affairs department and member of the board of various associations in the lighting industry. Furthermore, he is spokesman of the executive employees (leitende Angestellte) of OSRAM. Hubert Roßkopf, born 1968, completed an apprenticeship as mechanic with a company outside OSRAM. He started his career with OSRAM in 1990. Following further qualification as a master in mechanical engineering, he worked as a master and production engineer. He was elected to the works council in 2002 and became chairman in 2010. At the same time, he became a member of the general works council and of the economic committee. Willhelm Sattler, born 1959, started his career with OSRAM in 1985 and became deputy chairman of the works council (Betriebsrat) in 1994. In 1997, he became member of the supervisory board and one year later chairman of the works council, deputy chairman of the general works council (Gesamtbetriebsrat) and member of the economic committee (Wirtschaftsausschuss). In 2006, Mr. Sattler became chairman of the general works council. Irene Schulz, born 1964, studied German studies and politics at the universities in Aachen, Freiburg and Berlin. She graduated with a diploma in politics (Diplom Politikwissenschaftlerin) from the Freie Universität Berlin in 1989. After finishing her studies, Ms. Schulz assumed various (executive) functions in the Berlin- Brandenburg district of the Confederation of German Trade Unions (DGB). Since 2004, Ms. Schulz has been
247 working for IG Metall in Berlin. Starting 2007, she was responsible for OSRAM and the operations of Siemens Group in Berlin and became a member of the nationwide Siemens team of the IG Metall board. Since 2012, she is active in the regional directorate of IG Metall Berlin-Brandenburg-Saxony and responsible for Siemens Group companies in Northern and Eastern Germany, OSRAM and IT companies. Thomas Wetzel, born 1964, completed an apprenticeship as mechanic from 1980 to 1983 at Siemens AG. In 1983, he joined OSRAM GmbH as a production mechanic in the glass tailoring. Afterwards, he was active in various departments until 2006, most recently as a foreman in the laser cutting work. Since 2006, he is a fulltime member of the works council (Betriebsrat). Currently, he serves as deputy chairman of the works council of the Berlin office. It is intended that Prof. Dr. Russwurm will become the chairman of the Supervisory Board that will initially consist of three members. Prof. Dr. Russwurm is expected to resign from the position as chairman of the Supervisory Board and, simultaneously, resign as member of the Supervisory Board in calendar year 2013, at the latest, however, by the next general shareholders’ meeting that is expected to take place in February 2014. Mr. Bauer has announced that at this point in time he will be available for the position of chairman of the Supervisory Board. Upon resignation of Prof. Dr. Russwurm as member of the Supervisory Board, Dr. Roland Busch, member of the managing board of Siemens AG, will assume the position previously held by Prof. Dr. Russwurm as substitute member already elected by the general shareholders’ meeting in June 2013.
Supervisory Board Committees The Supervisory Board may form committees from among its members and can transfer decision-making power to these committees as permitted by law. The committees’ tasks, authorizations and processes are determined by the Supervisory Board. Where permissible by law, important powers of the Supervisory Board may also be transferred to the committees. The Supervisory Board plans, based on the current practice in the Supervisory Board of OSRAM GmbH, to establish the following committees with the following tasks once the Supervisory Board is composed of all members (including employee representatives which will be appointed by the competent court once the status proceedings have been completed): Executive Committee: The Executive Committee (Präsidium) coordinates the Supervisory Board’s work, and prepares the Supervisory Board meetings. It takes into account the planning of senior manager development. The Executive Committee further prepares resolutions on the appointment of Managing Board members and the conditions of the respective employment contracts including the remuneration. It submits proposals to the Supervisory Board for the determination of the total remuneration of our Managing Board members. The Executive Committee also has, among others, the following tasks: (i) granting consent to other mandates of members of the Managing Board or any other secondary employment of relevance and granting exemptions from non-competition obligations; (ii) granting loans to members of the Managing Board and the Supervisory Board and their dependents; and (iii) granting the consent to transactions between the Company and its affiliates on the one side and a member of the Managing Board or related persons on the other hand. Audit Committee: The purpose of the Audit Committee is to assist the Supervisory Board in fulfilling its responsibilities to oversee the accounting and financial reporting processes. These responsibilities include the preparation of the review of the correctness and completeness of the Company’s annual financial statements and consolidated financial statements and related disclosure as well as the oversight of the Company’s internal control system, risk management and internal audit. The committee furthermore oversees the performance, qualifications and independence of the external auditor and discusses the semi-annual and the quarterly financial reports with the Managing Board. Nomination Committee: The Nomination Committee (Nominierungsausschuss) prepares the decision of the Supervisory Board regarding proposals to the general shareholders’ meeting for the appointment of shareholder representatives of the Supervisory Board. Mediation Committee: The Mediation Committee exercises the functions set forth under section 31(3) of the German Co-determination Act. Compliance Committee: The Compliance Committee monitors the compliance with legal, governmental and Company-internal regulations. In addition, it deals with topics regarding sustainability.
Compensation of Supervisory Board Members and Shareholdings of Supervisory Board Members Pursuant to the version of the Articles of Association that is currently still in force, in addition to the reimbursement of their costs, the members of the Supervisory Board are not entitled to compensation. In the Fiscal Year ended September 30, 2012, members of the Supervisory Board of OSRAM Licht AG did not receive any reimbursement of costs, for members of the Supervisory Board of OSRAM GmbH, the reimbursement
248 amounted to less than €2,000. Pursuant to Section 12 of the version of the Articles of Association that will come into force upon the Spin-off becoming effective and the completion of the status proceedings, the compensation of the Supervisory Board members of OSRAM Licht AG has been determined as follows effective for the Fiscal Year commencing on October 1, 2012: The members of the Supervisory Board receive a fixed compensation. The base compensation is €80,000 for the chairman of the Supervisory Board, €60,000 for each deputy chairman of the Supervisory Board and €40,000 for each of the remaining members. In addition, the chairman of the Audit Committee receives €40,000 and each other member of the Audit Committee receives €20,000; the chairman of the Executive Committee receives €25,000 and each other member of the Executive Committee receives €15,000; the chairman of the Compliance committee receives €20,000 and each other member of the Compliance Committee receives €10,000, while no compensation is paid for services in the Compliance Committee to the extent the relevant member of the Supervisory Board already receives a compensation for its services in the Audit Committee. If a Supervisory Board member fails to attend a meeting of the Supervisory Board, one-third of the overall remuneration shall be reduced by a percentage equal to the percentage of meetings the Supervisory Board member has not attended relative to the total number of meetings held in the Fiscal Year. For the participation in Supervisory Board meetings and committee meetings each member receives €1,000. Members of the Supervisory Board who have held office for less than a full Fiscal Year or who have been chairman for less than a full Fiscal Year receive the compensation on a pro rata temporis basis (with parts of months being rounded up to full months). The members of the supervisory board of OSRAM GmbH receive a base compensation in the amount of €40,000. The base compensation is €80,000 for the chairman of the supervisory board, €60,000 for each deputy chairman of the supervisory board. In addition, for activities in committees the chairman of the audit committee receives €40,000 and each other member of the audit committee receives €20,000; the chairman of the executive committee receives €25,000 and each other member of the executive committee receives €15,000; the chairman of the compliance committee receives €20,000 and each other member of the compliance committee receives €10,000, while no compensation is paid for services in the compliance committee to the extent the relevant member of the supervisory board already receives a compensation for its services in the audit committee. In the event of changes in the supervisory board or its committees, the compensation is paid on a pro rata temporis basis (with parts of months being rounded up to full months). If a supervisory board member fails to attend a meeting of the supervisory board, one-third of the overall remuneration shall be reduced by a percentage equal to the percentage of meetings the supervisory board member has not attended relative to the total number of meetings held in the Fiscal Year. With effect as of the Fiscal Year that starts on October 1, 2013, the total compensation for a member of the supervisory board of OSRAM GmbH is limited to a maximum amount as follows: In the event that a member of the supervisory board is at the same time member of the Supervisory Board of OSRAM Licht AG, the total compensation of such member for his or her services as supervisory board member (including the compensation for the services as member of committees but excluding attendance fees) of OSRAM Licht AG and OSRAM GmbH in one Fiscal Year for the following positions in the supervisory board of one of the two companies must not exceed the following maximum compensation amount: (a) chairman of the supervisory board: €150,000; (b) deputy chairman of the supervisory board: €120,000 (c) chairman of the audit committee: €120,000; (d) chairman of other compensated committees: €100,000; (e) member of a compensated committee: €80,000; (f) member of the supervisory board: €70,000. In the case that the maximum compensation amount is exceeded, the aforementioned compensation for services in the supervisory board of OSRAM GmbH is reduced by the exceeding amount as of the Fiscal Year starting on October 1, 2013. If a member of the supervisory board assumes several functions in the supervisory boards of OSRAM GmbH and OSRAM Licht AG, respectively, the maximum compensation amount is determined by the position with the highest compensation. In the event of changes in the supervisory board or its committees, the compensation is paid on a pro rata temporis basis (with parts of months being rounded up to full months). The aforementioned current and future members of the Supervisory Board, respectively, do not hold any Shares or options on Shares of the Company as of the date of this prospectus. See “Shareholder Structure”. However, individual members of the Supervisory Board hold 52,425 Siemens AG shares in total, for which 5,242 Shares in OSRAM Licht AG will be issued upon the Spin-off becoming effective, if the shares are still held on such date. There are no service agreements between the Company, its subsidiaries, and any of its Supervisory Board members under which a Supervisory Board member would receive benefits from the
249 Company or its subsidiaries on termination of his or her activity. If existing, any D&O Liability insurance that provides cover for any liability claims arising out of their activities as members of the corporate bodies shall cover also for the members of the Supervisory Board of OSRAM Licht AG.
CERTAIN INFORMATION ON THE MEMBERS OF THE MANAGING BOARD AND SUPERVISORY BOARD; CONFLICTS OF INTEREST During the last five years, no current member of the Managing Board or current or aforementioned future member of the Supervisory Board has been convicted of any fraudulent offenses. In addition, no current member of the Managing Board or current or aforementioned future member of the Supervisory Board has been publicly incriminated or sanctioned by statutory or regulatory authorities (including professional associations) or, acting in the capacity of a member of a management or supervisory entity or as senior manager, been associated with any bankruptcies and/or insolvencies, receiverships or liquidations. No current member of the Managing Board or Supervisory Board has ever been deemed by a court to be unfit for membership in a management or supervisory entity of a company or to be unfit to exercise management duties for or manage the business of an issuer during the past five years. At the date of this prospectus, no family relationships exist among the members of the Managing Board, among the members of the Supervisory Board and among the members of the Managing Board on the one hand and the members of the Supervisory Board on the other hand. One future member of the Supervisory Board (and, at the same time member of the supervisory board of OSRAM GmbH) is at the same time member of the managing board of Siemens AG which will hold a minority interest after the Spin-off becoming effective. The interests of Siemens AG and OSRAM Licht AG are not necessarily always the same. Another future member of the Supervisory Board is at the same time member of the supervisory board of Sonepar S.A., a customer and, additionally, at least in the future a potential competitor of OSRAM. Apart from that, there are no conflicts of interest or potential conflicts of interests between the duties of members of the Managing Board and duties of members of the Supervisory Board vis-à-vis the Company and their private interests or other duties.
GENERAL SHAREHOLDERS’ MEETING Pursuant to the Articles of Association, the annual general shareholders’ meeting takes place at the discretion of the corporate body convening such meeting at the corporate seat of the Company, the seat of a German stock exchange or in a German city with more than 100,000 inhabitants. Each share entitles its holder to one vote at the general shareholders’ meeting. Shareholders can vote their shares by proxy. Unless otherwise stipulated by the German Stock Corporation Act, resolutions of the general shareholders’ meeting are adopted by a simple majority of the votes cast or, if a capital majority is required, by a simple majority of the registered share capital represented at the meeting. Pursuant to the German Stock Corporation Act, resolutions of fundamental importance (grundlegende Bedeutung) require both a majority of votes cast and a mandatory majority of at least 75% of the registered share capital represented at the vote on the resolution. Resolutions of fundamental importance include: • changes to the articles of association; • capital increases if shareholders’ subscription rights are excluded; • capital decreases; • the creation of authorized or contingent capital; • transformations pursuant to the German Transformation Act (Umwandlungsgesetz), including mergers, spin-offs, transfers of assets and changes in legal form; • an agreement to transfer all of the company’s assets pursuant to Section 179a of the German Stock Corporation Act; • the conclusion of enterprise agreements, such as domination and profit and loss transfer agreements; and • the dissolution of the Company. The Managing Board, the Supervisory Board or shareholders holding an aggregate of 5% or more of the registered share capital may call a shareholders’ meeting. The Supervisory Board must call a shareholders’ meeting whenever the interests of the Company so require. The Company must hold the annual general shareholders’ meeting during the first eight months of each Fiscal Year. The current version of the German Stock Corporation Act requires the Company to publish notices of shareholders’ meetings in the Federal Gazette
250 (Bundesanzeiger) at least 30 days before the shareholders must register for the meeting. The registration deadline for attending the meeting is published concurrently with the notice of meeting. Neither German law nor the Articles of Association restrict the right of foreign shareholders or shareholders not domiciled in Germany to hold our shares or vote their shares.
CORPORATE GOVERNANCE The German Corporate Governance Code (Deutscher Corporate Governance Kodex) (the “Code”), adopted in February 2002 and last amended on May 13, 2013, includes recommendations and suggestions for managing and supervising companies listed on German stock exchanges with regard to shareholders and shareholders’ meetings, executive and supervisory boards, transparency, accounting and the auditing of financial statements. While the recommendations or suggestions of the Code are not mandatory, the German Stock Corporation Act requires the managing and supervisory boards of a listed company to disclose each year which recommendations were and will be complied with and which recommendations were not or will not be applied and why. This disclosure must be made permanently accessible to shareholders. However, deviations from the suggestions contained in the Code need not be disclosed. Prior to the listing of the Shares on the Frankfurt Stock Exchange and the Munich Stock Exchange, the Company is not subject to the obligation to render a declaration as to compliance with the Code. As of the date of this prospectus, the Company – as an unlisted corporation with a single shareholder – does not comply with the recommendations of the Code. OSRAM Licht AG will fully meet the obligation as a listed company to submit, publish and provide shareholders with permanent access to disclosure in accordance with Section 161 of the German Stock Corporation Act during the course of the current Fiscal Year. The Management Board and Supervisory Board of OSRAM Licht AG believe in the objectives of the Code to foster a responsible and transparent corporate management and control directed towards achieving a sustained increase in shareholder value. OSRAM Licht AG therefore intends to document in its disclosure that the Company will largely follow the recommendations of the Code. The Management and Supervisory Boards are still deciding on details.
251 TAXATION IN THE FEDERAL REPUBLIC OF GERMANY
The following section “Taxation in the Federal Republic of Germany” describes certain key German tax principles that may be relevant with respect to the acquisition, holding or transfer of Shares by shareholders. It does not address tax questions for shareholders of Siemens AG arising in connection with the Spin-off. The summary outlined below is not set out in respect of any specific tax consideration of the Company, an investor or a shareholder but provides a general overview of certain German tax principles. This section does not cover the treatment of certain special companies such as those engaged in the financial and insurance sectors and pension funds. This section does not purport to be comprehensive or an exhaustive description of all conceivable German tax considerations that may be relevant for prospective investors/shareholders. It is based upon current domestic German tax laws (including the typical double taxation treaties entered into between Germany and other jurisdictions) as interpreted by the German tax courts and the German tax authorities and as in effect on the date of this prospectus. This legal situation may change, possibly with retroactive effect. The information included in the following section must not be understood as a substitute for individual tax advice. Prospective investors should consult their own tax advisors as to the individual tax consequences that may arise from the acquisition, holding or transfer of Shares and the prerequisites under German tax law to reclaim tax amounts initially withheld or deducted with respect to the Shares. Only such an individual tax consultation can appropriately take into account the particular tax situation of an investor.
TAXATION OF THE COMPANY Corporate Income Tax The taxable income of the Company, irrespective of whether distributed or retained, is subject to corporate income tax (Körperschaftsteuer) at a uniform rate of 15% plus solidarity surcharge (Solidaritätszuschlag)of 5.5% on the corporate income tax liability, resulting in an aggregate tax rate of 15.825%. Currently, any profit distributions (Dividenden) received by the Company in respect of shares held in other domestic or foreign corporations are generally exempt from corporate income tax; however 5% of such profit distributions are deemed to be non-deductible business expenses and are, as such, subject to corporate income tax plus solidarity surcharge. Ultimately, therefore, 95% of these profit distributions are exempt from corporate income tax. In contrast to this, pursuant to the Act for the implementation of the ECJ’s decision dated October 20, 2011 (Entwurf eines Gesetzes zur Umsetzung des EuGH-Urteils vom 20. Oktober 2011 in der Rechtssache C-284/09, (BGBl. I 2013, 561), dividends that the Company receives from domestic or foreign corporations after February 28, 2013, are not exempt in the amount of 95% from corporate income tax (including solidarity surcharge thereon) if the Company holds a direct participation of less than 10% in the share capital of such corporation at the beginning of the calendar year (hereinafter in all cases, a “Portfolio Participation” – Streubesitzbeteiligung). Participations of at least 10% acquired during a calendar year are deemed to be acquired at the beginning of the calendar year. Participations through a partnership that is a co-entrepreneurship (Mitunternehmerschaft) are attributable to the Company pro rata in the amount of the participation. Profits arising from the disposal of shares held in domestic or foreign corporations are - as a general rule and irrespective of any holding period and/or percentage level of shareholding - 95% tax exempt from corporate income tax (including solidarity surcharge). 5% of the capital gains is deemed to be non-deductible business expenses and are, as such, subject to corporate income tax plus solidarity surcharge. Conversely, losses incurred from the disposal of such shares are generally not deductible for corporate income tax purposes. Currently there are no specific rules for profits arising from the disposal of Portfolio Participations.
Trade Tax The Company is further subject to trade tax (Gewerbesteuer) with respect to its taxable trade profit (Gewerbeertrag) provided that such taxable trade profit is attributable to a permanent establishment of the Company maintained in Germany (inländische Betriebsstätte). The taxable trade profit corresponds in principle with the profit as determined for corporate income tax purposes. However, certain add-backs (including, for instance, certain amounts of lease payments and interest expenses) and deductions might result in a lower or higher tax base. The trade tax rate depends on the local municipalities in which the Company maintains its permanent establishments and currently amounts to approximately 7% - 18.2% of the taxable trade profit, depending on the local tax multiplier (Hebesatz). Dividends received from other corporations and capital gains from the disposal of shares held in other corporations are in principle treated in the same manner for trade tax purposes as for corporate income tax purposes. However, dividends received from other corporations are only exempt from trade tax in the amount of 95% (see above) if the Company held at the beginning or, in the case of a corporation not tax resident in
252 Germany, since the beginning of the relevant trade tax assessment period at least 15% (10% in case of EU-corporations) of the registered share capital of the distributing corporation (additional limitations apply to profit distributions received from foreign corporations).
Tax Losses Subject to certain restrictions, current year tax losses can be used to offset current year tax gains. Remaining tax losses up to an amount of currently €1,000,000 (€511,000 until 2012) may (optionally) be carried back one year for corporate income tax but not for trade tax purposes. Tax losses which could not be utilized by means of a loss carry-back may generally be carried forward for an unlimited time period (subject to certain change-of- control rules pursuant to which loss carry-forwards may be partially or fully forfeited, see below) and may be used to offset up to €1 million of taxable income for corporate income tax and trade tax purposes. To the extent that the taxable income exceeds this threshold, only 60% of the excess amount can be offset by tax loss carry- forwards. The remaining 40% of the taxable income is in any case subject to tax (minimum taxation) (Mindestbesteuerung).
Interest Limitation Rules According to the so-called interest limitation rules (Zinsschranke), the deductibility of interest expenses exceeding the Company’s interest income is limited to 30% of the Company’s EBITDA as determined for tax purposes unless a relevant exception from such interest limitation rules applies. Interest that is not deductible under the interest limitation rules may be carried forward to subsequent years and may be deducted subject to the limitations set out above. EBITDA amounts that could not be utilized in a fiscal year may generally be carried forward for five fiscal years. Further limitations may apply to interest paid on shareholder loans within the meaning of the interest limitation rules.
Forfeiture of Tax Loss Carry-forwards and Interest Carry-forwards Unutilized losses and interest carry forwards are forfeited in full if within a period of five years more than 50% of the Company’s registered share capital or voting rights are directly or indirectly transferred to an acquiring party, affiliated individuals/entities or a group of acquirers with aligned interests, or a comparable change of ownership in the Company occurs (harmful acquisition) (schädlicher Beteiligungserwerb). If 50% or less but more than 25% of the Company’s registered share capital or voting rights are transferred or due to another harmful acquisition as described above, unutilized losses and interest carry-forwards will be forfeited pro rata to the transferred percentage. As of 2010, the above-described limitations may not apply if the registered share capital is or voting rights are transferred to certain transferees belonging to the Group as further defined in the pertinent provisions of which the Company forms part (Konzernklausel) or to the extent that the losses do not exceed the built-in gains which are taxable in Germany (Verschonungsregelung). It is currently unclear whether the limitations with respect to loss and interest carry-forwards also apply to EBITDA carry-forwards (if any).
TAXATION OF SHAREHOLDERS TAX RESIDENT IN GERMANY Taxation of Dividend Income Shares Held as Non-business Assets Dividends received by a shareholder who is subject to an unlimited tax liability in Germany and holds his Shares as non-business assets are, as a general rule, taxed as capital investment income (Einkünfte aus Kapitalvermögen) and, as such, are subject to a 25% flat tax plus 5.5% solidarity surcharge thereon resulting in an aggregate tax rate of 26.375% (flat tax regime, Abgeltungsteuer), plus church tax, if applicable. The flat tax is discharged via withholding which will generally satisfy the personal income tax liability of a shareholder on the capital investment income from the dividends. The basis for the withholding tax is the dividend resolved by the general shareholders’ meeting. If and to the extent amounts from the tax equity account (steuerliches Einlagekonto) are to be used for the distribution to a shareholder holding Shares as non-business-assets, such payment is generally not subject to (withholding) tax. Specific provisions apply to Qualified Participations (as defined below). Because the Shares are admitted for collective custody by a securities custodian bank (Wertpapiersammelbank) pursuant to Section 5 of the German Act on Securities Accounts (Depotgesetz) and are entrusted to such bank for collective custody (Sammelverwahrung) in Germany, the withholding tax will be deducted (i) by the German bank or German financial services institution (inländisches Kredit- oder Finanzdienstleistungsinstitut) (including German branches of foreign banks or financial services institutions),
253 (ii) by the German securities trading company (inländisches Wertpapierhandelsunternehmen) or by the German securities trading bank (inländische Wertpapierhandelsbank) which keeps or administers the Shares and disburses or credits the dividends or disburses or credits the investment income against delivery of a dividend certificate or disburses the dividends to a foreign agent or (iii) by the securities custodian bank to which the Shares were entrusted for collective custody if the dividends are disbursed to a foreign agent by such securities custodian bank. The Company does not assume any responsibility for withholding of the withholding tax. Shareholders who are subject to an unlimited tax liability in Germany and hold their Shares as non-business assets may be paid the dividends without deduction of withholding tax, if certain prerequisites are met, in particular, if the shareholder has provided a non-assessment certificate (Nichtveranlagungs-Bescheinigung)oran exemption declaration (Freistellungsauftrag) and the indicated exempt amount has not yet been exceeded. The individual shareholder is taxed on his aggregate capital investment income, less the saver’s allowance of €801 (or, for married couples filing jointly, €1,602). Income-related expenses are generally not tax-deductible. Private investors can however apply to have their investment income assessed in accordance with the general rules on determining the individual tax rate of the shareholder if this results in a lower tax than the flat tax. Pursuant to the current view of the German tax authorities (contradicting the decision of a fiscal court), also in this case income-related expenses cannot be deducted from capital investment income; there is no clarification by the German Federal Tax Court (Bundesfinanzhof).
Shares Held as Business Assets If the Shares form part of a German business, the taxation of dividends differs depending on whether the shareholder is a corporation, a sole proprietor or a partnership. The flat tax regime does not apply to dividends paid on Shares held by a German tax resident shareholder as business assets. However, irrespective of the legal form of the business investor, dividends are generally subject to the 25% dividend withholding tax plus 5.5% solidarity surcharge thereon resulting in an aggregate tax rate of 26.375%, plus church tax for individuals, if applicable. The withholding tax is credited against the respective shareholder’s (corporate or individual, as the case may be) income tax liability. To the extent that the amount withheld exceeds the corporate or individual income tax liability of the shareholder, it will be refunded, provided that certain requirements are met. If and to the extent amounts from the tax equity account are to be used for the distribution to a shareholder holding Shares as business assets, such payment is generally not subject to (withholding) tax; only a payment exceeding the acquisition cost or the book value, as the case may be, of the Shares may be taxable, in principle, similar to a capital gain.
(i) Corporations: For corporations subject to an unlimited corporate income tax liability in Germany, dividends are - as a general rule - tax exempt from corporate income tax (including solidarity surcharge). However, 5% of the dividend income is deemed to be non-deductible business expense and, as such, subject to corporate income tax plus solidarity surcharge. In contrast to this, pursuant to the Act for the implementation of the ECJ’s decision dated October 20, 2011 (Gesetz zur Umsetzung des EuGH-Urteils vom 20. Oktober 2011 in der Rechtssache C-284/09, (BGBl. I 2013, 561), dividends that the shareholder receives after February 28, 2013, are not exempt in the amount of 95% from corporate income tax (including solidarity surcharge thereon) if the shareholder holds a Portfolio Participation at the beginning of the calendar year. Participations of at least 10% acquired during a calendar year are deemed to be acquired at the beginning of the calendar year. Participations through a partnership that is a co-entrepreneurship (Mitunternehmerschaft) are attributable to the shareholder pro rata in the amount of the participation. Dividends are fully subject to trade tax, unless the shareholder holds at least 15% of the registered share capital of the Company at the beginning of the relevant tax assessment period. In the latter case, 95% of the dividends are exempt from trade tax. Business expenses incurred in connection with the dividends are generally deductible for corporate income tax and – subject to certain restrictions – also for trade tax purposes.
(ii) Sole Proprietors (Individuals): Where the Shares are held by an individual who is subject to unlimited tax liability in Germany as business assets, 60% of the dividends are taxed at the applicable individual income tax rate plus 5.5% solidarity surcharge on such income tax (partial income taxation method – Teileinkünfteverfahren) totaling up to a maximum rate of approximately 47.5%, plus church tax, if applicable. Correspondingly, only 60% of any business expenses related to the dividends may be deducted for income tax purposes. Dividends are fully subject to trade tax, unless the sole proprietor holds at least 15% of the Company’s registered share capital at the beginning of the relevant tax
254 assessment period. In this case, the net amount of the dividend (i.e. after deduction of the business expenses economically connected to them) is exempt from trade tax. In general, business expenses are deductible for trade tax purposes but certain restrictions may apply. All or part of the trade tax levied may be credited on a lump-sum basis against the sole proprietor’s income taxes, depending on the multiplier set by the relevant municipality and the individual tax situation of the individual shareholder.
(iii) Partnerships: If the shareholder is a co-entrepreneur, the individual income tax or corporate income tax is not charged at the level of the partnership, but rather at the level of the respective partner. The taxation of each partner depends on whether the partner is a corporation or an individual. Thus, (corporate) income tax (including solidarity surcharge) will be assessed and levied only at the level of the partners, whereby, in principle, the respective rules applicable to a direct shareholding described above in subsection (i) and (ii) apply accordingly. Trade tax, however, is assessed and levied at the level of the partnership if the Shares are attributable to a permanent establishment of a commercial business of the partnership in Germany; this applies irrespective of whether the dividends are attributable to individual partners or corporate partners. It is currently unclear if and how the new rules for the taxation of dividends from Portfolio Participations (see “Taxation of the Company—Corporate Income Tax” above) might impact the trade tax treatment at the level of the partnership. Shareholders are recommended to consult their tax advisors. If the partnership held a participation of at least 15% in the share capital of the Company at the beginning of the relevant tax assessment period, the dividends, after deduction of the business expenses economically related thereto, should generally not be subject to trade tax. Under a literally reading of the new law, something different should apply for corporate partners to whom at least 10% of the shares in the Company are attributable on a look-through basis. In this case, trade tax should be levied on 5% of the dividends to the extent they are included in the profit share of such parties, since such portion of the dividends should be deemed to be non-deductible business expenses. The remaining portion of the dividend income attributable to other than such specific corporate partners (which includes individual partners and should, under a literal reading of the law, also include corporate partners to whom, on a look-through basis, only Portfolio Participations are attributable) should not be subject to trade tax. The trade tax paid by the partnership and attributable to the individual’s general profit share is completely or partially credited against the shareholder’s individual income tax in accordance with a lump-sum method.
Taxation of Capital Gains Shares Held by Individual Shareholders as Non-business Assets Capital gains from the sale of Shares which an individual shareholder holds as non-business assets are generally subject to a 25% flat tax (plus 5.5% solidarity surcharge thereon, resulting in an aggregate flat tax rate of 26.375%), plus church tax, if applicable. Losses from the sale of such Shares can only offset capital gains from the disposal of shares in stock corporations during the same year or in subsequent years. The amount of the taxable capital gain from the sale is the difference between (a) the proceeds from the sale and (b) the cost of acquisition of the shares and the expenses directly related to the sale. Capital investment income is only reduced by a saver’s allowance of €801 (or, for couples filing jointly, €1,602); income-related expenses may generally not be deducted from capital gains. If the Shares are deposited with or administered by a German bank, German financial services institution, German securities trading company or a German securities trading bank (including German branches of foreign institutions) or such an institution is carrying out the sale on behalf of the shareholder and disburses or credits the proceeds from the sale (a “German Disbursing Agent”), the tax on the capital gains is generally settled by way of withholding through the German Disbursing Agent which is required to deduct a withholding tax of 26.375% (including solidarity surcharge), plus church tax, if applicable, of the capital gains from the sale proceeds and remit it to the tax authority. The flat tax (plus solidarity surcharge) is withheld irrespective of any holding period. Shareholders who are subject to an unlimited tax liability in Germany and hold their Shares as non-business assets may be paid the capital gains without deduction of withholding tax and solidarity surcharge if certain prerequisites are met, particularly if the shareholder has provided a non-assessment certificate or an exemption declaration and the indicated exempt amount has not yet been exceeded. If, however, a shareholder, or in the case of a gratuitous acquisition, the shareholder’s legal predecessor, directly or indirectly held at least 1% of the share capital of the Company at any time during the five years preceding the sale of Shares (a “Qualified Participation”), the flat tax regime does not apply and, rather, 60% of any capital gain resulting from the sale is taxable as business income at the shareholder’s individual income tax rate plus 5.5% solidarity surcharge (and church tax, if applicable) on such income tax. Conversely, 60% of a capital loss from the disposal of the Shares is generally recognized for tax purposes. Withholding tax is also
255 deducted by a German Disbursing Agent in the case of a Qualified Participation, but this does not have the effect of a settlement of the shareholder’s tax liability. Upon the shareholder’s assessment to income tax, the withheld and remitted tax is credited against the individual income tax liability. To the extent that the amounts withheld exceed the individual income tax liability of the shareholder, they will be refunded.
Shares Held as Business Assets Gains from the disposal of Shares held by an individual or corporation as business assets are in principle not subject to the flat tax regime. Withholding tax must only be withheld in the case of a German Disbursing Agent. The tax withheld, however, is not considered to be generally final as under the flat tax regime. The amount of tax withheld is credited against the shareholder’s individual or corporate income tax liability and any amounts withheld in excess of such individual or corporate income tax liability will be refunded. The German Disbursing Agent may, however, refrain from levying withholding tax if (i) the shareholder is a corporation tax-resident in Germany, or (ii) the shareholder holds the Shares as assets of a business in Germany and declares this to the German Disbursing Agent in the officially required pre-printed form and certain further prerequisites are fulfilled. If a German Disbursing Agent nonetheless withholds tax on capital gains, the tax withheld and remitted (including solidarity surcharge, and church tax, if applicable) will be credited against the individual income tax or corporate income tax liability and any excess amount will be refunded. The taxation of capital gains depends on whether the shareholder is a corporation, a sole proprietor or a partnership:
(i) Corporations: For corporations, capital gains from the sale of Shares are - as a general rule and irrespective of any holding period or percentage level of shareholding - 95% tax exempt from corporate income tax (including solidarity surcharge) and trade tax. 5% of the capital gains is deemed to be non-deductible business expenses and is, as such, subject to corporate income tax plus solidarity surcharge and trade tax. Losses from the sale of Shares and other reductions in profit in connection with the Shares are generally not deductible for corporate income tax and trade tax purposes.
(ii) Sole Proprietors (Individuals): 60% of capital gains from the sale of Shares is taxed at the individual income tax rate plus 5.5% solidarity surcharge (plus church tax, if applicable) on such income tax where the Shares are held by an individual as business assets. Correspondingly, only 60% of the capital losses, other reductions in profit in connection with the Shares and business expenses resulting from a share sale are generally deductible for income tax purposes. Only 60% of the capital gains are subject to trade tax. Correspondingly, subject to general restrictions, only 60% of the business expenses resulting from a share sale are generally deductible for trade tax purposes. The trade tax is generally credited – dependent on the amount of the local tax multiplier and the individual tax position – completely or partially on a lump-sum basis against the sole proprietor’s individual income tax.
(iii) Partnerships: For (corporate) income tax purposes, partnerships are generally treated as transparent. Thus, (corporate) income tax will be assessed and levied at the level of the partners only, whereby the respective rules applicable to a direct shareholding described above in subsections (i) and (ii) apply accordingly. Trade tax, however, is assessed and levied at the level of the partnership if the Shares are attributable to a permanent establishment of a commercial business of the partnership in Germany. Generally, 60% of a capital gain attributable to an individual partner and 5% of a capital gain attributable to a corporate partner are subject to tax. Capital losses or other reductions in profit in connection with the Shares sold are not taken into account for purposes of trade tax to the extent they are attributable to a partner that is a corporation, and subject to general restrictions only 60% of these losses or expenses are taken into account to the extent they are attributable to a partner who is an individual. The trade tax paid by the partnership and attributable to the individual’s general profit share is completely or partially credited against the shareholder’s individual income tax in accordance with a lump-sum method.
TAXATION OF SHAREHOLDERS NOT TAX RESIDENT IN GERMANY Taxation of Dividend Income Shareholders who are not tax resident in Germany but whose Shares form part of the business assets of a permanent establishment or a fixed place of business in Germany, or constitute business assets for which a
256 permanent representative has been appointed in Germany, are subject to taxation in Germany in respect of their dividend income in the same manner as are shareholders tax resident in Germany who hold their Shares as business assets (as described above in “—Taxation of Shareholders Tax Resident in Germany—Taxation of Dividend Income—Shares Held as Business Assets”). The withholding tax deducted and remitted to the tax authorities (including solidarity surcharge) is either credited against the individual income tax or corporate income tax liability or refunded in the amount that the withheld tax is in excess of such liability. In all other situations, dividends received by a shareholder not tax resident in Germany will, in principle, be subject to a final German withholding tax at a rate of 25% plus 5.5% solidarity surcharge thereon (resulting in an aggregate withholding tax rate of 26.375%). Subject to certain requirements, a corporate shareholder may apply for a refund of the German withholding tax exceeding 15% plus 5.5% solidarity surcharge thereon under German domestic tax law. Where dividends are distributed to a corporation domiciled in a member state of the European Union within the meaning of Article 3(1)(a) of the Parent-Subsidiary Directive (EU Directive 2011/96/EU of the Council dated November 30, 2011), which requires, inter alia, a direct participation of 10% or more in the share capital of the Company, the withheld amount is refunded upon application, provided that certain requirements are met. The same applies where dividends are distributed to a European Union located permanent establishment of a German tax resident parent corporation. The withholding tax on distributions to other shareholders not resident in Germany can be reduced in accordance with a double taxation treaty which provides for a lower dividend withholding tax rate if Germany has entered into a double taxation treaty with the country of residence of the shareholder and if the shareholder does not hold his Shares either as part of the assets of a permanent establishment or a fixed place of business in Germany or as business assets for which a permanent representative has been appointed in Germany. The reduction is generally granted in such a manner that the difference between the withheld total amount, including solidarity surcharge, and the tax liability determined on the basis of the tax rate set out in the applicable double taxation treaty (generally 15%) is refunded by the German tax administration upon an application (in line with official application forms) with the German Federal Central Office for Taxes (Bundeszentralamt für Steuern, Hauptdienstsitz Bonn-Beuel, An der Küppe 1, 53225 Bonn, Germany). Forms for the refund procedure are available at the German Federal Central Office for Taxes (http://www.bzst.de) as well as at German embassies and consulates. The refund of withholding tax in accordance with the EU Parent-Subsidiary Directive and the aforementioned option for a refund of the withholding tax pursuant to an applicable double taxation treaty depend on whether certain additional prerequisites are fulfilled (in particular so-called substance requirements). On October 20, 2011, the European Court of Justice (ECJ) held that the previous German portfolio dividend taxation infringes both European Community law and the European Economic Area Agreement with respect to the free movement of capital because of a higher definite tax burden incurred by corporations resident in the EU and in the EEA countries Iceland and Norway with shareholdings below 10 per cent. The legislator reacted to the ECJ’s decision dated October 20, 2011 by enacting the Act for the implementation of the ECJ’s ruling dated October 20, 2011 (Gesetz zur Umsetzung des EuGH-Urteils vom 20. Oktober 2011 in der Rechtssache C-284/09, (BGBl. I 2013, 561) which provides for (i) new rules for the taxation of dividends from Portfolio Participations received after 28 February 2013 (see “Taxation of the Company—Corporate Income Tax”) and (ii) for a mechanism under which corporations domiciled in the EU or EEA, which do not fall under the Parent-Subsidiary Directive, can apply for a refund of withholding tax on the dividends received until 28 February 2013 if certain prerequisites are met. It currently cannot be excluded that such a refund might in certain situations also be available with regard to withholding tax imposed on dividends received after 28 February 2013 if corporate shareholders, directly hold at least 10% in the equity capital of the Company at the beginning of the relevant calendar year or acquire a stake of at least 10% in the equity capital of the Company in the course of the relevant calendar year, but do not fulfill the requirements provided for by the Parent-Subsidiary Directive at the time they apply for such refund. Shareholders affected by these rules are strongly recommended to consult their tax advisors.
Taxation of Capital Gains Capital gains from the disposal of Shares by a shareholder not tax resident in Germany are only taxable in Germany if the selling shareholder holds a Qualified Participation or the selling shareholder holds the Shares through a permanent establishment or fixed place of business or as business assets for which a permanent representative is appointed in Germany. However, applicable double taxation treaties regularly provide for partial or full relief from German tax in these cases. Withholding tax on capital gains at a rate of 25% (plus 5.5% solidarity surcharge thereon, resulting in an aggregate withholding tax rate of 26.375%) is generally levied if the
257 Shares are deposited with a German Disbursing Agent. However, if (i) the capital gains are taxable in Germany (see above) and the Shares are not held through a permanent establishment or fixed place of business or as business assets for which a permanent representative is appointed in Germany and (ii) there is a German Disbursing Agent, the German Disbursing Agent is not obliged to withhold the withholding tax (plus solidarity surcharge thereon) according to a decree issued by the German Federal Ministry of Finance on October 9, 2012, marginal note 315, provided that a certification of residence (Ansässigkeitsbescheinigung) was made available to the German Disbursing Agent. In case of a Qualified Participation, capital gains have to be declared in a tax return and will be (partially) taxed via an assessment procedure if no exemption pursuant to a double taxation treaty or pursuant to domestic law is available. In the case of capital gains or losses from the sale of Shares held through a permanent establishment in Germany or a fixed place of business, or as business assets for which a permanent representative has been appointed in Germany, the description above for German tax resident shareholders who hold their Shares as business assets applies accordingly (“—Taxation of Shareholders Tax Resident in Germany—Taxation of Capital Gains—Shares Held as Business Assets”), provided that a German Disbursing Agent may only refrain from levying withholding tax if the shareholder declares to the German Disbursing Agent in an officially prescribed form that the Shares are held as assets of a German business and certain further prerequisites are met.
INHERITANCE AND GIFT TAX The transfer of Shares to another person upon death or by way of gift is generally subject to German inheritance and gift tax if: (i) the decedent, the person making the gift, the heir, the person receiving the gift or the other person acquiring the Shares has at the time of the transfer of the Shares his domicile or ordinary residence, place of management or registered office in Germany or is a German citizen who has not permanently resided in a foreign country for longer than five years without having a German residence, or (ii) the Shares are business assets of the decedent or the person making the gift for which a permanent establishment was maintained in Germany or for which a permanent representative was appointed, or (iii) the decedent or the person making the gift, either himself or together with other persons related to him, held a direct or indirect participation of at least 10% in the share capital of the Company at the time of the transfer. The few German double taxation treaties on inheritance tax and gift tax presently in force usually provide that German inheritance tax or gift tax can only be levied in case of (i) above and also with certain restrictions in case of (ii). Special rules apply to German citizens living outside Germany and to former German citizens.
OTHER TAXES In general, no value-added tax, stamp duty or similar transfer taxes are assessed in Germany on the purchase, sale or other forms of transfer of Shares. Entrepreneurs may, however, opt for the payment of value- added tax on such transactions that are generally tax exempt provided that the service is rendered to the business of another business owner. Wealth tax (Vermögensteuer) is currently not imposed in Germany.
258 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This disclosure is limited to the U.S. federal income tax issues addressed herein. Additional issues may exist that are not addressed in this disclosure and that could affect the U.S. federal tax treatment of the Spin-off and of owning the Shares. This tax disclosure was written in connection with the promotion or marketing of the transaction by the Company, and it cannot be used by any holder for the purpose of avoiding penalties that may be asserted against the holder under the Internal Revenue Code of 1986, as amended (the “Code”). Holders should seek their own advice based on their particular circumstances from an independent tax adviser. The following is a description of certain U.S. federal income tax consequences to the U.S. Holders described below of the Spin-off and of owning and disposing of Shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a particular person. This discussion does not address U.S. state, local and non-U.S. tax consequences. This discussion applies only to U.S. Holders of Siemens AG shares or ADRs that receive Shares in the Spin-off and that hold the Shares as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences and tax consequences applicable to U.S. Holders subject to special rules, such as: • certain financial institutions; • dealers or traders in securities who use a mark-to-market method of tax accounting; • persons holding ADRs or Shares as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the Shares; • persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; • entities classified as partnerships for U.S. federal income tax purposes; • tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”; • persons that own or are deemed to own ten percent or more of Siemens AG’s or the Company’s voting stock; or • persons holding ADRs or Shares in connection with a trade or business conducted outside of the United States. If an entity that is classified as a partnership for U.S. federal income tax purposes holds ADRs or Shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding ADRs or Shares and partners in such partnerships should consult their tax advisers as to the U.S. federal income tax consequences of the Spin-off and of holding and disposing of Shares. This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed U.S. Treasury regulations, and the income tax treaty between Germany and the United States (the “Treaty”), all as of the date hereof, any of which is subject to change, possibly with retroactive effect. A “U.S. Holder” is a beneficial owner of Siemens AG Shares or ADRs that is, for U.S. federal income tax purposes: • a citizen or individual resident of the United States; • a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or • an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of the Spin-off and of owning and disposing of Shares in their particular circumstances. This discussion assumes that each of Siemens AG and the Company are not, and that the Company will not become, a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”), as described below.
Tax Consequences of the Spin-off The Spin-off has not been structured to qualify as a tax free spin-off for shareholders resident outside Germany, and no ruling has been sought from the U.S. Internal Revenue Service. Accordingly, Siemens AG
259 believes that the distribution of Shares pursuant to the Spin-off will constitute a taxable dividend to U.S. Holders of Siemens AG shares and ADRs to the extent of Siemens AG’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because Siemens AG does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that the distribution of Shares will be reported to U.S. Holders as a dividend. The amount of the dividend will equal the fair market value of the Shares on the date of the Spin-off and a U.S. Holder will have a tax basis in the Shares equal to that fair market value. The dividend income will be foreign-source and U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations, dividends included in income of certain non-corporate U.S. Holders may be taxable at favorable rates. U.S. Holders should consult their tax advisers regarding the availability of the favorable tax rates on dividends. As described in “The Spin-Off—ADR-Program”, Shares that U.S. Holders of ADRs would otherwise be entitled to receive in the Spin-off will be sold by the Depositary for cash on behalf of the U.S. Holders. U.S. Holders of ADRs will be treated as if they received a taxable distribution of the Shares on the date of the Spin-off and then sold such Shares for cash when they are disposed of by the Depositary. U.S. Holders will recognize dividend income in an amount equal to the fair market value of the Shares on the date of the Spin-off as described above, and will also recognize short-term capital gain or loss in an amount equal to the difference (if any) between the U.S. Holder’s tax basis in the Shares and the amount of cash realized on the sale of the Shares by the Depositary (each as determined in U.S. dollars). The U.S. Holder’s tax basis in the Shares will be equal to their U.S. dollar value as of the date of the Spin-off (that is, the amount includible in income as dividend income as described above).
Taxation of Distributions on the Shares Distributions paid on Shares, other than certain pro rata distributions of ordinary shares, will be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. The amount of a dividend will include any amounts withheld by the Company in respect of German taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at favorable rates. U.S. Holders should consult their tax advisers regarding the availability of the favorable tax rates on dividends. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend. The amount of any dividend paid in euros will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Subject to applicable limitations, German income taxes withheld from dividends on Shares at a rate not exceeding the rate applicable under the Treaty will be creditable against the U.S. Holder’s U.S. federal income tax liability. German taxes withheld in excess of the rate applicable under the Treaty will not be eligible for credit against a U.S. Holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including German taxes, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.
Sale or Other Disposition of Shares Gain or loss realized on the sale or other disposition of Shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the Shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the Shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules In general, a foreign corporation will be a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income (such as dividends, interest, rents and royalties) or (ii) 50% or more of the
260 average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. If a corporation owns at least 25% (by value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as owning its proportionate share of the 25%-owned corporation’s assets and receiving its proportionate share of the 25%-owned corporation’s income. Based upon the nature of their businesses, Siemens AG and the Company do not expect to be PFICs for their current taxable year and the Company does not expect to become a PFIC in the foreseeable future. However, because PFIC status depends on the composition of a company’s income and assets and the market value of its assets from time to time, there can be no assurance that Siemens AG or the Company will not be a PFIC for any taxable year. If the Company were a PFIC for any taxable year during which a U.S. Holder held Shares, gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of the Shares would be allocated ratably over the U.S. Holder’s holding period for the Shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by a U.S. Holder on its Shares exceeds 125% of the average of the annual distributions on the Shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above. In addition, if Siemens AG were a PFIC for the year in which the Spin-off occurs, to the extent that any distribution received by a U.S. Holder on Siemens AG shares or ADRs exceeds 125% of the average of the annual distributions on Siemens AG shares or ADRs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the Shares. U.S. Holders should consult their tax advisers to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances.
Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is an exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
Certain U.S. Holders who are individuals (and under proposed Treasury regulations, certain entities) may be required to report information relating to securities issued by a non-U.S. person, subject to certain exceptions (including an exception for securities held in accounts maintained by U.S. financial institutions). U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to the Shares.
261 GLOSSARY
The Glossary contains a short definition for typical terms used in the lighting industry and within OSRAM. Adaptive lighting Lighting that is adjusted to the required lighting conditions, e.g. (dynamic lighting) following the course of the day or dynamic front lighting in cars. The simulated daylight process can be governed by a time-based program or controlled by sensors monitoring lighting variables. Architainment lighting Architectural and entertainment lighting, i.e. illumination of buildings with artistic integration of light source and architectural elements. Backlight A backlight is a form of illumination used in electronic devices with a liquid crystal display (LCD) for displaying images like TVs, monitors, notebooks or mobile phones. The backlight illuminates the LCD from the rear. Ballast For fluorescent or high intensity discharge lamps (HID) ballasts supply sufficient voltage to start the lamp but then limit the current during operation. For Halogen and SSL lamps they transform the supply voltage to the lamps’ specific requirements. Ballasts are available in magnetic (conventional) or electronic designs. (also see: controlgear) Chip The chip is a light emitting semiconductor that is wired up and protected with a cover in the package. Coating See: Infrared coating Color temperature Color temperature in Kelvin (K) determines the color appearance of a light source. Normal commercial lamps have color temperatures ranging from 2,700 Kelvin (warm white) through to 5,300 Kelvin (neutral white) to over 8,000 Kelvin (daylight white). Compact fluorescent lamp (CFL) Are small-sized fluorescent lamps Controlgear (CG) Most electrical light sources, with the exception of the incandescent lamp, require a special device to start and to operate. Depending on the light source technology, they are named ballasts, ignitors or transformers and belong to the category of control gears. The term “controlgear” is the umbrella term for electromagnetic (= conventional controlgear or ballast) and electronic (= ECG) operation devices, which also subsumes LED drivers. The phrase control gear describes devices for one or more components between the supply and one or more lamps which may serve to transform the supply voltage, limit the current of the lamp(s) to the required value, provide starting voltage and preheat current, prevent cold starting, correct power factor or reduce radio interference”. Also starters (e.g. for fluorescent lamps) and step down convertors (for incandescent or halogen incandescent lamps) are covered. Conventional ballast See controlgear Conventional controlgear (CCG) See controlgear DIALux DIALux is graphics software that is used for professional indoor and outdoor light planning. Various manufacturers of lamps and luminaires now offer technologies to transfer luminaire data (particularly beam characteristics) in scenarios created by DIALux. Dimming Dimmable lamps allow for a regulation of the brightness of individual light sources or groups of light sources to be regulated. It changes the lighting atmosphere and permits adjustments to suit different room uses (comfort dimming). Increasingly, dimming is also used to save energy (power dimming).
262 Diode A diode is a two-terminal electronic device which permits significant current flow in only one direction. Diodes typically function as a rectifier, i.e. converting AC into DC. Direct lighting Direct lighting is where luminaires cast their light directly into the room onto surfaces or zones where light is needed. See also indirect lighting. Discharge lamp Discharge lamps generate light by sending an electrical discharge through an ionized gas or metal vapor. Depending on the gas with which a lamp is filled, it either radiates visible light directly or converts UV radiation to light through interaction with a luminescent coating on the inside surface of the glass enclosure. The operating pressure inside a discharge lamp is either low (low pressure discharge lamps) or high (high pressure discharge lamps). Low and high pressure discharge lamps are divided by the lamp load, see high- intensity discharge lamp. Display Device for visual presentation of images (including text) acquired, stored or transmitted in various forms. Most common displays are designed to present information dynamically in a visual medium. Downstream sector The downstream sector – as one of the LED value chain parts – comprises luminaires, complete lighting systems and light management systems. Electronic controlgear (ECG) See: Controlgear Electronic ballast See: Controlgear Emerging countries OSRAM defines emerging countries according to the most recent IMF (international monetary fund) definition. According to this, all countries are classified into the categories “advanced” and “emerging”. Emerging countries are all countries except advanced countries, which are: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal, Singapore, Slovak Republic, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, United States of America. Electronic manufacturing services Electronic manufacturing services (“EMS”) companies design, test, (EMS) manufacture, distribute, and provide return/repair services for electronic components and assemblies for OEMs. Energy label Throughout the EU, lamps which are addressed by the relevant EU Directives 2010/30/EU and 98/11/EC are required to display an Energy Label indicating the efficiency class – from A to G – to which they conform. “A” identifies a particularly efficient lamp, “G” a highly energy inefficient lamp. Environmental Portfolio To align our business activities with climate protection and help our customers save on energy costs, OSRAM defined an “Environmental Portfolio”, which comprises the groups of efficient traditional products as part of the Environmental Portfolio and SSL products. The qualification of products and solutions to these groups which is revised in each reporting period is based on a defined inclusion and exclusion process and strict criteria which have been implemented by OSRAM. To qualify, products, systems, solutions or services have to lead at a minimum to a 20% improvement in energy efficiency or energy savings in the use phase for the customer compared to the applicable basic product as defined in each reporting period or have to embody a type of environmental technology or contribute to such technology as a main component (e.g. technologies in relation to
263 water and wastewater treatment, air pollution control, waste reduction or recycling). Traditional basic products do not qualify for inclusion in the OSRAM Environmental Portfolio. It includes, inter alia, energy-saving lamps that are partially subject to the Regulation (EC) 244/2009. When determining which products, systems, solutions or services shall belong to the Environmental Portfolio, in cases of doubt, we take a conservative approach and use those assumptions, parameters and methodologies which are more likely to underestimate than overestimate the range of the Environmental Portfolio. Since certain energy inefficient products were subject to statutory energy efficiency regulation in calendar year 2012 (especially in the EU and the U.S.) and, therefore, must not be brought on the market anymore, we removed these products from the basis of comparison of the OSRAM Environmental Portfolio and adapted the OSRAM Environmental Portfolio for the Fiscal Year 2012 accordingly. To reflect changes over time as transparent as possible, in addition to the nominal revenue change of the Environmental Portfolio, a comparable change is presented in which the mentioned products are treated as if they still belonged to the Environmental Portfolio of the Fiscal Year 2012. Epitaxy The deposition of crystalline layers on a suited substrate for reasons of crystal growth. Fluorescent lamp (FL) See Discharge Lamp. Fluorescent lamps are available in different shapes, such as linear fluorescent lamps (LFL), tube shaped and compact fluorescent lamps (CFL). Gallium nitride (GaN) Gallium nitride (“GaN”), a semiconductor material with high heat capacity and thermal conductivity. Gas discharge lamp See: Discharge lamp Halo-phosphate lamp A low pressure discharge lamp (fluorescent lamp) using halo- phosphate as luminescent substance. Halogen lamp (HAL) Halogen lamps are type of incandescent lamps that are filled with a gas that contains small amounts of halogens or halogen compounds enabling smaller bulbs and higher luminous flux. High intensity discharge lamp (HID) A high-intensity discharge (HID) lamp is a type of electrical lamp which produces light by means of an electric arc. Compared with fluorescent and incandescent lamps, HID lamps have higher luminous efficacy since a greater proportion of their radiation is emitted as visible light as opposed to heat. HID lamps include groups of lamps known as high-pressure mercury, metal halide and high-pressure sodium lamps. High pressure discharge lamp (HPD) See: high-intensity discharge lamp Ignitor Ignitors are required for lamps that cannot be started by normal line voltage. Incandescent lamp (INC) Incandescent lamps are electrical light sources which radiate light as a result of a tungsten filament being heated. The tungsten wire is enclosed in a sealed, gas-filled – or in some cases evacuated – glass bulb. Infrared coating Technique of providing the light bulb of a halogen lamp with a specific infrared coating. This coating reflects the thermal radiation for the most part back to the glow filament. Integrated circuit Microcircuit in which all or some of the circuit elements are inseparably associated and electrically interconnected so that it is considered to be indivisible for the purpose of construction and commerce.
264 Lamp The term “lamp” refers to an engineered artificial light source – a device that converts electrical energy into light and that has a standardized electrical and mechanical connection to the lampholder. Lamps are used in luminaires, which distribute and direct lamp light and prevent it from causing glare. Laser (light amplification by A device that creates and amplifies electromagnetic radiation of a stimulated emission of specific frequency through the process of stimulated emission. Lasers radiation) have many uses, such as cutting hard or delicate substances or reading data from compact disks and other storage devices. Laser diode Such as a LED, a laser diode is a semiconductor component. A laser is a device that emits coherent optical radiation through stimulated emission resulting from the recombination of conduction electrons and holes when excited by an electric current that exceeds the threshold current of the diode. LCD (liquid crystal display) A liquid crystal display (LCD) is a thin, flat electronic visual display that uses the light modulating properties of liquid crystals (LCs), if a certain voltage is applied. LCs do not emit light directly. LCDs therefore need a light source (backlight) and are classified as “passive” displays. LED (light emitting diode) A LED consists of a light emitting semiconductor chip in combination with wiring, luminescent materials if need be, reflector, lens and protective covering to create a package (“Package”). LED backlight LED-backlighting is an alternative form of illumination of LCD backlights. (see Backlight). LED driver An LED driver or control system is an electronic device, which converts line voltage into a constant voltage or constant current to supply LED modules or LED light engines, and which can also control the intensity, the color and the quality of light. LED lamp A LED lamp is a light source incorporating one or more LEDs on a board and it also includes secondary optics, heat sink, driver electronics and housing. It can be used as a replacement for existing lamps in form of retrofit (replacement of another type of lamp without requiring internal modification of the luminaire). The term LED retrofit is sometimes used synonymously. It can also be used for conversion (requiring modification in the luminaire). LED light engine LED light engines are the combination of an LED module and its associated electronic control gear assembled in a unit according to the standardization consortium Zhaga. Light (visible light) Visible light is the radiation that can be perceived by the human eye. The spectral range of light embraces wavelengths from 380 to 780 nm and is divided into the different color sections ranging from violet through blue, green and yellow to red. Outside this band, the human eye cannot “see” radiation. Light management systems Light management systems automate the lighting and related controls within a room, building or in outdoor applications. Their task is to provide the right light in the right amount at the right place when it is needed. Light solution A light solution is a specific use case tailored to the application for which an arrangement of luminaires, light sources, controlgear and light management has been planned and is executed; servicing of the installation can be included. Low cost countries OSRAM defines low cost countries as countries, which offer a comparative cost advantage in terms of production or sourcing. According to this definition the following countries are deemed as
265 low cost countries: Argentina, Brazil, China, Czech Republic India, Indonesia, Malaysia, Mexico, Russia, Slovak Republic, Korea. Low pressure discharge lamp (LPD ) See discharge lamp. The operating pressure inside a discharge lamp is low. The counterpart is the high intensity discharge lamp. Luminaire (lighting fixture) The term luminaire (sometimes also referred to as “lighting fixture”) refers to the entire electric light fitting, including all the components needed to mount, operate and protect the lamp. The luminaire distributes the light of the lamp and e.g. prevents it from causing glare. Luminance Luminance (symbol: L) is the brightness of a luminous or illuminated surface as perceived by the human eye. It is measured in candelas per unit area (cd/m²). For lamps, the unit of measurement cd/cm² is normally used. Luminous efficacy Luminous efficacy – measured in lumens per Watt (lm/W) – indicates the efficiency with which the electrical power consumed is converted into light. Luminous flux Luminous flux – measured in lumens (lm) – is the light power of a lamp. It describes the visible light radiating from a light source in all directions. Magnetic ballasts See: Controlgear Mercury vapour lamp A gas-discharge lamp in which an electric current is passed through mercury vapor to produce light. Metal halide lamp and HMI A metal halide lamp is a lamp design that is closely related to the mercury vapor lamp, which uses various components amalgam / mercury. HMI stands for Hydrargyrum medium-arc iodide. This metal halide lamp with a short electrode distance was developed by OSRAM and achieves a high light efficiency and an improved color rendering index. Midstream sector The midstream sector is part of the LED value chain and contains LED light engines, LED lamps and electronic controls. MOCVD (metal-organic vapor-phase MOCVD describes a production method for compound epitaxy) semiconductors, the main components for LEDs and laser diodes. With this production method, the raw material – metal organic compounds – are transformed into gases and then, bound to a carrier gas, are fed into the reactor. This transformation occurs under reduced pressure, approximately one-tenth of normal atmospheric pressure. The MOCVD production method allows the processing of quite large surface areas and is therefore first choice for the manufacture of compound semiconductors. Nano stacked laser Nanostacks are vertically stacked laser diodes in a monolithic chip. All laser emitters are connected in series and separated by a few micro meters only. This technology offers high optical output power from small laser aperture with very high reliability. OEM (original equipment manufacturer) An original equipment manufacturer, or OEM, manufactures products or components that are purchased by a company and retailed under that purchasing company’s brand name. OEM refers to the company that originally manufactured the product. OES (original equipment supplier) An original equipment supplier (“OES”) is a producer of components which are bought by an OEM and integrated in its production. OES may use parts of other suppliers (second or third tier suppliers).
266 Organic light emitting diode (OLED ) An OLED is a light emitting semiconductor that has an electroluminescent area made of organic compounds. OLEDs are typically area light sources. Opto-electronic semiconductor A type of semiconductor that transforms electric impulses into light or light into electric impulses. Photo detector Photo detectors, based on semiconductor technology. Silicon serves mostly as semiconductor material. Photo detectors do not produce light themselves, but measure light of particular wave-lengths. The light excites electrons in the semiconductor material thereby producing a voltage or current. Possible areas of application of photo detectors comprise infrared remote controls, optical drives or ambient light sensors. Reflector White or matt finish reflectors are used in luminaires to shield the light source and make for diffuse light distribution. Polished and highly polished reflectors in luminaires and reflector lamps are used as light controllers. Region Americas For OSRAM the region America comprises the United States of America, Canada, Mexico and South America and consists of the following countries: American Guam, American Oceania, American Samoa, Antigua and Barbuda, Anguilla, Argentina, Bahamas, Barbados, Belize, Bermuda, Bolivia, Brazil, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Marshall Islands, Mexico, Montserrat, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, Turks and Caicos Islands, United States of America, Uruguay, Virgin Islands (British), Virgin Islands (U.S.) and Venezuela. Region APAC For OSRAM the region APAC comprises Asia, Australia and the Pacific and consists of the following countries: Australia, Bangladesh, Bhutan, Bouvet Island, Brunei Darussalam, Cambodia, China, Christmas Island, Cocos Islands, Cook Islands, Fiji, Heard Island and McDonald Islands, Hong Kong, India, Indonesia, Japan, Kiribati, Lao people’s democratic republic, Macao, Malaysia, Maldives, Micronesia (Federated States of), Mongolia, Myanmar, Nauru, Nepal, New Zealand, Niue Island, Norfolk Island, North Korea, Northern Mariana Islands, Palau, Papua New Guinea, Philippines, Pitcairn, Samoa, Singapore, Solomon Islands, South Korea, Sri Lanka, Taiwan, Thailand, Timor-Leste, Tokelau Islands, Tonga, Tuvalu, Vanuatu and Vietnam Region EMEA For OSRAM the region EMEA comprises Europe, Russia, the Middle East and Africa and consists of the following countries: Afghanistan, Åland Islands, Albania, Algeria, Andorra, Angola, Armenia, Aruba, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Benin, Bosnia and Herzegovina, Botswana, British Indian Ocean Territory, Bulgaria, Burkina Faso, Burundi, Cape Verde, Cameroon, Central African Republic, Chad, Comoros, Congo, Democratic Republic of the Congo, Cote d’Ivoire (Ivory Coast), Croatia, Cyprus, Czech Republic, Denmark, Djibouti, Egypt, Equatorial Guinea, Eritrea, Estonia, Ethiopia, Falkland Islands (Malvinas), Faroe Islands, Finland, France, French Guiana, French Polynesia, French Southern Territories, Gabon, Gambia, Georgia, Germany, Ghana, Gibraltar, Greece, Greenland, Guadeloupe, Guernsey, Guinea, Guinea-Bissau, Holy See (Vatican City State), Hungary, Iceland, Iran, Iraq, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Kazakhstan, Kenya, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lesotho, Liberia, Libyan Arab Jamahiriya, Liechtenstein, Lithuania, Luxembourg, Macedonia,
267 Madagascar, Malawi, Malta, Mali, Martinique, Mauritania, Mauritius, Mayotte, Monaco, Montenegro, Morocco, Mozambique, Namibia, Netherlands, Netherlands Antilles, New Caledonia, Niger, Nigeria, Norway, Oman, Pakistan, Palestinian Territory (occupied), Poland, Portugal, Qatar, Republic of Moldova, Reunion, Romania, Russian Federation, Rwanda, Saint Barthélemy, Saint Helena, Saint Martin, Saint Pierre and Miquelon, San Marino, Sao Tome and Principe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Slovakia, Slovenia, Somalia, South Africa, South Georgia and the South Sandwich Islands, Spain, Sudan, Suriname, Svalbard and Jan Mayen, Swaziland, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Tanzania, Togo, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, Uzbekistan, Wallis and Futuna, Western Sahara, Yemen, Zambia and Zimbabwe Silicon photo detectors Silicon photo detectors are based on semiconductor technology (using silicon as the semiconductor material) but do not produce light themselves; instead, they measure light (of particular wavelengths). The light excites electrons in the semiconductor material, thus generating a voltage or current. Sodium lamp A sodium lamp is a gas discharge lamp that uses sodium in an increased excited state to produce light. Solid state lighting (SSL) Solid state lighting (“SSL”) refers to a type of lighting that uses semiconductors as sources of illumination SSL products SSL stands for solid state lighting and identifies the newest generation of lighting products such as LEDs. For the purpose of the Environmental Portfolio, OSRAM defines SSL products as, semiconductor-based light sources, luminaires and detectors, as well as light management systems for such light sources. It includes: • LED lamps, luminaires and systems in their entirety, including any necessary components and services sold as part of a LED light solution • LED chips and light engines • OLED – organic light emitting diodes • infrared emitters, producing electromagnetic radiation close to the spectrum of visible light • laser diodes • silicon photo detectors, semiconductors which react to and may be used to measure light • sensors, which are a combination of a semiconductor emitter and a photo detector • light management systems (sensors, user interfaces and controllers; actuators for traditional lamps are excluded) and associated components and services Spotlight Luminaires that produce a strong beam of light to illuminate a restricted area. Spotlights are used to focus attention towards goods, pieces of art etc. Transformer An electric energy converter without moving parts that changes voltages and currents associated with electric energy without change of frequency. The transformers that are normally used in lighting reduce 230V mains voltage to a protective extra-low voltage of 6, 12 or 24V. Upstream sector The upstream sector is part of the LED value chain and comprises the semiconductor chip and packaging.
268 UVC lamp UVC lamps are used for the disinfection of water, air and surfaces through UV-C radiation, eliminating the need for chemical products. UV-C radiation is used in a wide range of different application areas, such as disinfecting water in swimming pools, in water purification systems, pond clarifiers and water dispensers. This type of radiation is used for purifying the air in hospitals and offices as well as a range of applications in the food production industry, in animal housing and in air ducts of air-conditioning units. Wafer Describes a thin slice (approx. 1 mm) of semiconductor material on which integrated circuits, micro-mechanic components or photoelectric coatings are fabricated through different technical procedures. A wafer consists of gallium arsenide, sapphire or silicon. Xenon lamp A Xenon lamp is a gas-discharge lamp which uses ionized Xenon gas to produce a bright white light that closely mimics natural daylight. Xenon lamps have a very high color rendering index and extremely high luminance. For this reason they are used for cinema film projection, high-end video projectors, automotive and in light guide systems, e.g. for endoscopy. See also: discharge lamp. Zhaga Zhaga is an industry-wide cooperation between companies aimed at enabling the interchangeability of LED light sources made by different manufacturers. Interchangeability is achieved by defining interfaces for a variety of application-specific light engines.
269 [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL SECTION TABLE OF CONTENTS
The English-language financial statements for OSRAM Licht Group, of OSRAM Licht AG and of OSRAM GmbH (F-3-170) are translations of the respective unaudited and audited German-language financial statements prepared in accordance with IFRS and the German Commercial Code, respectively.
Condensed Interim Combined Financial Statements for OSRAM Licht Group (prepared in accordance with IFRS) for the six months ended March 31, 2013 Combined Statements of Income ...... F-5 Combined Statements of Comprehensive Income ...... F-5 Combined Statements of Financial Position ...... F-6 Combined Statements of Cash Flow ...... F-7 Combined Statements of Changes in Equity ...... F-8 Notes to the Condensed Interim Combined Financial Statements ...... F-10 Combined Financial Statements for OSRAM Licht Group (prepared in accordance with IFRS) for the fiscal years ended September 30, 2012, 2011 and 2010 (audited) Combined Statements of Income ...... F-37 Combined Statements of Comprehensive Income ...... F-37 Combined Statements of Financial Position ...... F-38 Combined Statements of Cash Flow ...... F-39 Combined Statements of Changes in Equity ...... F-40 Notes to the Combined Financial Statements ...... F-42 Audit Opinion ...... F-128 Annual Financial Statements of OSRAM Licht AG (up to November 14, 2012, Kyros A AG) (prepared in accordance with German Commercial Code) for the fiscal year ended September 30, 2012 (audited) Statement of Income for the abbreviated fiscal year from July 4, 2012 to September 30, 2012 ...... F-132 Balance Sheet as of September 30, 2012 ...... F-133 Notes to the Financial Statements for the abbreviated fiscal year from July 4, 2012 to September 30, 2012 ...... F-134 Audit Opinion ...... F-136 Annual Financial Statements of OSRAM GmbH (formerly OSRAM AG) (prepared in accordance with German Commercial Code) for the fiscal year ended September 30, 2012 (audited) Income Statement ...... F-140 Balance Sheet ...... F-141 Notes to the Financial Statements ...... F-142 Audit Opinion ...... F-170
F-1 [THIS PAGE INTENTIONALLY LEFT BLANK]
F-2 Condensed Interim Combined Financial Statements for the six months ended March 31, 2013 in accordance with International Financial Reporting Standards (IFRS as adopted by the EU) for the OSRAM Licht Group
(The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
F-3 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
Contents
I. Combined Statements of Income ...... F-5 II. Combined Statements of Comprehensive Income ...... F-5 III. Combined Statements of Financial Position ...... F-6 IV. Combined Statements of Cash Flow ...... F-7 V. Combined Statements of Changes in Equity ...... F-8 VI. Notes to the Condensed Interim Combined Financial Statements—Segment Information ...... F-9
Notes to the Condensed Interim Combined Financial Statements ...... F-10 1. Basis of preparation ...... F-10 2. Acquisitions and disposals ...... F-13 3. Personnel-related restructuring expenses ...... F-15 4. Other operating income ...... F-15 5. Other operating expense ...... F-16 6. Gain (loss) from investments accounted for using the equity method, net ...... F-16 7. Interest income, interest expense, and other financial income (expense), net ...... F-18 8. Goodwill ...... F-19 9. Property, plant, and equipment ...... F-19 10. Pension plans and similar commitments ...... F-20 11. Equity ...... F-21 12. Other financial commitments and contingent liabilities ...... F-22 13. Legal proceedings ...... F-22 14. Segment information ...... F-26 15. Related party disclosures ...... F-30 16. Events after the balance sheet date ...... F-34
F-4 OSRAM Licht Group COMBINED STATEMENTS OF INCOME (unaudited) For the six months ended March 31, 2013 and 2012 (in millions of euros) (The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
Six months ended March 31, Note 2013 2012(1) Revenue ...... 2,678.3 2,730.7 Cost of goods sold and services rendered ...... (1,903.4) (2,013.4) Gross profit ...... 774.9 717.3 Research and development expenses ...... (173.1) (161.8) Marketing, selling and general administrative expenses ...... (525.5) (502.9) Other operating income ...... (4) 43.0 6.5 Other operating expense ...... (5) (29.3) (137.1) Gain (loss) from investments accounted for using the equity method, net ...... (6) (19.7) (38.3) Interest income ...... (7) 4.0 1.5 Interest expense ...... (7) (15.9) (29.0) Other financial income (expense), net ...... (7) (5.9) (1.5) Income (loss) before income taxes ...... 52.5 (145.3) Income taxes ...... (4.0) (181.7) Net income (loss) ...... 48.5 (327.0) Attributable to: Non-controlling interests ...... 2.8 (0.7) Siemens Group ...... 45.7 (326.3)
The accompanying Notes are an integral part of these condensed interim combined financial statements. (1) Adjusted due to the effects of the initial application of IAS 19R (see Note 1 Basis of preparation in the accompanying Notes).
COMBINED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) For the six months ended March 31, 2013 and 2012 (in millions of euros) (The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
Six months ended March 31, Note 2013 2012(1) Net income (loss) ...... 48.5 (327.0) Items that will not be reclassified to profit or loss Remeasurements of defined benefit plans ...... (10)(11) 11.9 (14.8)
Items that may be reclassified subsequently to profit or loss Currency translation differences ...... (11) 6.5 27.5 Derivative financial instruments ...... (0.7) 0.9 5.8 28.4 Other comprehensive income (loss), net of tax(2) ...... 17.7 13.6 Total comprehensive income (loss) ...... 66.2 (313.4) Attributable to: Non-controlling interests ...... 3.2 5.0 Siemens Group ...... 63.0 (318.4)
The accompanying Notes are an integral part of these condensed interim combined financial statements. (1) Adjusted due to the effects of the initial application of IAS 19R (see Note 1 Basis of preparation in the accompanying Notes). (2) Other comprehensive income (loss), net of tax includes losses from investments accounted for using the equity method of €3.7 million and €7.9 million, respectively, for the six months ended March 31, 2013 and 2012 of which €3.7 million and €7.9 million, respectively, are attributable to items that will not be reclassified to profit or loss.
F-5 OSRAM Licht Group COMBINED STATEMENTS OF FINANCIAL POSITION (unaudited) As of March 31, 2013, September 30, 2012 and October 1, 2011 (in millions of euros) (The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
March 31, September 30, October 1, Note 2013 2012(1) 2011(1) Assets Current assets Cash and cash equivalents ...... 50.5 31.2 43.7 Available-for-sale financial assets ...... 0.7 0.7 0.7 Trade receivables ...... 917.4 823.2 851.4 Other current financial assets ...... 50.8 54.7 43.4 Receivables from Siemens Group ...... (15) 941.2 956.2 538.5 Inventories ...... 1,000.2 1,043.7 1,118.2 Income tax receivables ...... 39.2 32.7 15.6 Other current assets ...... 81.5 79.7 75.6 Noncurrent assets held for sale ...... (2) 38.4 — — Total current assets ...... 3,119.9 3,022.1 2,687.1 Goodwill ...... (8) 37.0 36.7 238.2 Other intangible assets ...... 99.0 106.8 162.3 Property, plant and equipment ...... (9) 1,234.9 1,336.3 1,532.0 Investments accounted for using the equity method ...... 61.3 62.1 88.7 Other financial assets ...... 17.8 8.7 16.0 Deferred tax assets ...... 405.7 396.2 313.9 Other assets ...... 101.5 98.0 88.6 Total assets ...... 5,077.1 5,066.9 5,126.8 Liabilities and equity Current liabilities Short-term debt and current maturities of long-term debt ...... 53.0 47.2 22.4 Trade payables ...... 579.9 609.2 586.0 Other current financial liabilities ...... 55.7 52.9 40.5 Payables to Siemens Group ...... (15) 966.7 1,209.5 1,498.0 Current provisions ...... 120.6 97.0 81.3 Income tax payables ...... 51.5 66.5 43.9 Other current liabilities ...... 395.5 376.8 377.0 Liabilities associated with noncurrent assets held for sale ...... (2) 20.8 — — Total current liabilities ...... 2,243.7 2,459.1 2,649.1 Long-term debt ...... — 1.3 3.9 Pension plans and similar commitments ...... (10) 469.1 488.7 832.5 Deferred tax liabilities ...... 1.3 1.1 34.3 Provisions ...... 17.1 19.1 16.0 Other financial liabilities ...... 0.5 0.4 5.8 Other liabilities ...... 162.4 147.6 124.4 Total liabilities ...... 2,894.1 3,117.3 3,666.0 Equity Net assets attributable to Siemens Group ...... 2,091.8 1,866.9 1,375.8 Other components of equity ...... 71.6 66.2 16.1 Total equity attributable to Siemens Group ...... 2,163.4 1,933.1 1,391.9 Non-controlling interests ...... 19.6 16.5 68.9 Total equity ...... (11) 2,183.0 1,949.6 1,460.8 Total liabilities and equity ...... 5,077.1 5,066.9 5,126.8
The accompanying Notes are an integral part of these condensed interim combined financial statements. (1) Adjusted due to the effects of the initial application of IAS 19R (see Note 1 Basis of preparation in the accompanying Notes).
F-6 OSRAM Licht Group COMBINED STATEMENTS OF CASH FLOW (unaudited) For the six months ended March 31, 2013 and 2012 (in millions of euros) (The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
Six months ended March 31, Note 2013 2012(1) Cash flows from operating activities Net income (loss) ...... 48.5 (327.0) Adjustments to reconcile net income (loss) to cash provided Amortization, depreciation, and impairments ...... 157.1 325.5 Income taxes ...... 4.0 181.7 Interest (income) expense, net ...... 11.9 27.5 (Gains) losses on sales and disposals of businesses, intangible assets and property, plant and equipment, net ...... 14.2 11.3 (Income) loss from investments ...... 19.7 38.3 Other non-cash (income) expenses ...... 6.0 (4.4) Change in current assets and liabilities (Increase) decrease in inventories ...... 35.9 19.1 (Increase) decrease in trade receivables ...... (98.7) (27.5) (Increase) decrease in other current assets ...... (1.4) 11.9 Increase (decrease) in trade payables ...... (18.9) (12.9) Increase (decrease) in current provisions ...... 27.5 27.9 Increase (decrease) in other current liabilities ...... (0.7) (51.2) Change in other assets and liabilities ...... (2.8) (6.9) Change in pension plans from contribution of plan assets ...... (10) — (499.5) Income taxes paid ...... (33.9) (43.5) Dividends received ...... 0.6 — Interest received ...... 0.4 0.8 Net cash provided by (used in) operating activities ...... 169.4 (328.9) Cash flows from investing activities Additions to intangible assets and property, plant and equipment ...... (78.1) (81.1) Acquisitions, net of cash acquired ...... (2) 0.5 (40.1) Purchases of financial investments ...... (15.1) (11.1) Proceeds and payments from sales of investments, intangible assets and property, plant and equipment ...... 0.8 8.5 Proceeds and payments from the sale of business activities ...... (2) 28.3 — Net cash provided by (used in) investing activities ...... (63.6) (123.8) Cash flows from financing activities Transaction costs related to unused credit facilities ...... (18.5) — Change in short-term debt and other financing activities ...... 7.1 20.3 Interest paid ...... (2.8) (1.8) Payments for acquisition of shares ...... (2) — (48.0) Profit and loss transfer with Siemens Group ...... (11) 336.6 (143.8) Dividends paid to non-controlling interest shareholders ...... (4.1) (1.2) Interest paid to Siemens Group ...... (2.2) (12.6) Other transactions/financing with Siemens Group ...... (402.7) 120.3 Funding of pension plans by Siemens Group ...... (10)(11) — 499.5 Net cash provided by (used in) financing activities ...... (86.6) 432.7 Effect of exchange rates on cash and cash equivalents ...... 0.3 1.0 Net increase (decrease) in cash and cash equivalents ...... 19.5 (19.0) Cash and cash equivalents at beginning of period ...... 31.2 43.7 Cash and cash equivalents at end of period ...... 50.7 24.7 Less: Cash and cash equivalents of assets classified as held for disposal at end of period ...... 0.2 0.1 Cash and cash equivalents at end of period (combined statements of financial position) ...... 50.5 24.6
The accompanying Notes are an integral part of these condensed interim combined financial statements. (1) Adjusted due to the effects of the initial application of IAS 19R (see Note 1 Basis of preparation in the accompanying Notes).
F-7 OSRAM Licht Group COMBINED STATEMENTS OF CHANGES IN EQUITY (unaudited) For the six months ended March 31, 2013 and 2012 (in millions of euros) (The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.) Net assets Currency Derivative Total equity attributable to translation Available-for-sale financial attributable to Non-controlling Siemens Group(1) differences financial assets instruments Siemens Group(1) interests Total equity Balance at October 1, 2011 (as previously reported) ...... 1,371.7 16.7 0.1 (0.7) 1,387.8 68.9 1,456.7 Effects of retrospectively applying IAS 19R ...... 4.1 — — — 4.1 — 4.1 Balance at October 1, 2011(5) ...... 1,375.8 16.7 0.1 (0.7) 1,391.9 68.9 1,460.8 Net income (loss)(5) ...... (326.3) — — — (326.3) (0.7) (327.0) Other comprehensive income (loss), net of tax(5) ...... (14.8)(2) 29.4 — 0.9 15.5 (1.9)(3) 13.6 Total comprehensive income (loss), net of tax ...... (341.1) 29.4 — 0.9 (310.8) (2.6) (313.4) Capital increase by Siemens Group ...... 499.5(4) — — — 499.5 — 499.5 Payments for acquisition of shares (without change of control) ...... (45.9) — — — (45.9) (7.6) (53.5) Transfer-in of U.S. pension assets (net of tax) ...... 4.7 — — — 4.7 — 4.7 Other changes in equity ...... (5.5) — — — (5.5) — (5.5)
F-8 Balance at March 31, 2012 ...... 1,487.5 46.1 0.1 0.2 1,533.9 58.7 1,592.6 Balance at October 1, 2012 (as previously reported) ...... 1,863.4 65.9 (0.1) 0.5 1,929.7 16.5 1,946.2 Effects of retrospectively applying IAS 19R ...... 3.5 (0.1) — — 3.4 — 3.4 Balance at October 1, 2012(5) ...... 1,866.9 65.8 (0.1) 0.5 1,933.1 16.5 1,949.6 Net income (loss) ...... 45.7 — — — 45.7 2.8 48.5 Other comprehensive income (loss), net of tax ...... 11.9(2) 6.1 — (0.7) 17.3 0.4(3) 17.7 Total comprehensive income (loss), net of tax ...... 57.6 6.1 — (0.7) 63.0 3.2 66.2 Capital increase by Siemens Group(6) ...... 166.8 — — — 166.8 — 166.8 Other changes in equity ...... 0.5 — — — 0.5 (0.1) 0.4 Balance at March 31, 2013 ...... 2,091.8 71.9 (0.1) (0.2) 2,163.4 19.6 2,183.0
The accompanying Notes are an integral part of these condensed interim combined financial statements. (1) OSRAM Licht Group is not a legal group for consolidated financial statements reporting purposes in accordance with IAS 27. The condensed interim combined financial statements were prepared by aggregating the net assets (see Note 1 Basis of preparation of the accompanying Notes). (2) Other comprehensive income (loss), net of tax attributable to Siemens Group includes remeasurement gains (losses) on defined benefit plans of €11.9 million and €(14.8) million, respectively, for the six months ended March 31, 2013 and 2012. (3) Other comprehensive income (loss), net of tax attributable to non-controlling interests includes currency translation differences, consisting of gains (losses) of €0.4 million and €(1.9) million, respectively, for the six months ended March 31, 2013 and 2012. (4) The capital increase by Siemens Group consists of a cash contribution of €499.5 million for the funding of pension plans (see Note 11 Equity of the accompanying Notes). (5) Adjusted due to the effects of the initial application of IAS 19R (see Note 1 Basis of preparation in the accompanying Notes). (6) The capital increase by Siemens Group totaling to €166.8 million includes a waiver of part of Siemens Cash Management receivables amounting to €163.0 million (see Note 11 Equity of the accompanying Notes). OSRAM Licht Group
NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS—Segment Information (unaudited) As of and for the six months ended March 31, 2013 and 2012 and as of September 30, 2012 (in millions of euros)
(The following English condensed interim combined financial statements are translations of the German condensed interim combined financial statements.)
Additions to intangible assets and Intersegment Free Cash property, plant and Amortization and Depreciation and External revenue revenue Total revenue EBITA(1) Assets(2) Flow(3) equipment impairments(4) impairments(5) Six months Six months Six months Six months Six months Six months ended ended ended ended ended ended Six months ended Six months ended March 31, March 31, March 31, March 31, March 31, September 30, March 31, March 31, March 31, March 31, 2013 2012 2013 2012 2013 2012 2013 2012(6) 2013 2012 2013 2012(6) 2013 2012 2013 2012 2013 2012 Segments(7) Lamps & Components ..... 1,362.9 1,450.3 — — 1,362.9 1,450.3 (14.6) (9.5) 961.1 1,005.4 (1.8) 23.2 28.0 26.5 3.8 2.7 63.4 89.5 Luminaires & Solutions . . . 275.7 308.1 — — 275.7 308.1 (40.3) (38.8) 195.9 207.9 (38.7) (27.3) 4.9 5.3 4.6 110.2 6.3 6.6 Specialty Lighting ...... 728.0 694.6 — — 728.0 694.6 126.4 123.6 393.3 404.3 108.1 84.1 12.6 17.4 0.7 0.5 18.9 19.6 Opto Semiconductors ...... 302.2 265.5 168.2 150.3 470.4 415.8 47.1 23.6 520.0 551.4 70.3 70.8 26.3 28.2 0.4 0.4 49.9 55.3 F-9 Total Segments ...... 2,668.8 2,718.5 168.2 150.3 2,837.0 2,868.8 118.6 98.9 2,070.3 2,169.0 137.9 150.8 71.8 77.4 9.5 113.8 138.5 171.0 Reconciliation to Interim Combined Financial Statements Corporate items and pensions ...... 9.5 12.2 — — 9.5 12.2 (16.7) (60.6) (278.5) (339.1) (43.9) (558.2) 6.3 3.7 2.1 2.2 7.0 38.5 Eliminations, corporate treasury and other reconciling items ...... — — (168.2) (150.3) (168.2) (150.3) (0.3) (0.3) 3,285.3 3,237.0 (2.7) (2.6) — — — — — — OSRAM Licht Group ...... 2,678.3 2,730.7 — — 2,678.3 2,730.7 101.6 38.0 5,077.1 5,066.9 91.3 (410.0) 78.1 81.1 11.6 116.0 145.5 209.5
(1) EBITA is earnings before financial results (Gain (loss) from investments accounted for using the equity method, net; Interest income; Interest expense and Other financial income (expense), net), Income taxes and Amortization and impairments as defined below. (2) Assets of the segments and corporate items and pensions are based on the Total assets of the Combined Statements of Financial Position, primarily excluding financing receivables and tax related assets including deferred taxes as well as non-interest-bearing provisions and liabilities and other than tax liabilities (e.g. trade payables). (3) Free Cash Flow constitutes net cash provided by (used in) operating activities less additions to intangible assets and property, plant and equipment. For the Segments, it primarily excludes income tax related and financing interest payments and proceeds. (4) Amortization and impairments represents amortization and impairments of goodwill and intangible assets, net of reversals of impairments. (5) Depreciation and impairments represents depreciation and impairments of property, plant and equipment, net of reversals of impairments. (6) Adjusted due to the effects of the initial application of IAS 19R (see Note 1 Basis of preparation of the accompanying Notes). (7) The line items of the Segment information have been adjusted due to the reorganization of the segments for the previous period. OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Notes to the Condensed Interim Combined Financial Statements 1. Basis of preparation Background On March 28, 2011, Siemens AG (“Siemens”) announced its plan to publicly list OSRAM’s operating business. In view of market conditions, Siemens decided in June 2012 to prepare, in parallel and alternatively to the plan for an initial public offering, an offering in the form of a spin-off, by issuing OSRAM shares to the shareholders of Siemens AG and subsequently listing these shares. In November 2012, Siemens decided to conduct a spin-off and canceled its former plans for an initial public offering. OSRAM Licht AG (until November 14, 2012: Kyros A AG) Munich, Germany, will be the issuer of the shares and the parent company of the future OSRAM Group. OSRAM Licht AG has a “complex financial history” within the meaning of the European Prospectus Regulation No. 809/2004 as of the share issue date. Therefore, OSRAM Licht AG has prepared condensed interim combined financial statements consisting of the interim financial statements of OSRAM Licht AG, OSRAM Beteiligungen GmbH (until August 22, 2012: Blitz 12-464 GmbH), Munich, Germany, and OSRAM GmbH (until October 25, 2012: OSRAM AG), Munich, Germany, together with the latter’s direct and indirect subsidiaries (hereafter referred to as the “OSRAM Licht Group” or “OSRAM”). These three companies are all direct or indirect subsidiaries of Siemens. OSRAM Licht AG and OSRAM Beteiligungen GmbH were incorporated in fiscal 2012 and did not have any operating activities during the reporting period. Upon completion of the proposed transaction structure, OSRAM Licht AG will be the parent company of the future OSRAM Group and will directly hold 100% of the shares of OSRAM Beteiligungen GmbH and 19.5% of the shares of OSRAM GmbH, while OSRAM Beteiligungen GmbH will hold 80.5% of the shares of OSRAM GmbH. With economic effect from October 1, 2012, Siemens AG contributed this 80.5% of its interest in OSRAM GmbH (which at this date was still OSRAM AG) to OSRAM Beteiligungen GmbH by way of a capital contribution against the issue of new shares in OSRAM Beteiligungen GmbH plus a payment of €25 thousand to Siemens. At the Extraordinary General Meeting of OSRAM Licht AG held on November 28, 2012, Siemens, as the sole shareholder of OSRAM Licht AG, resolved, with retrospective economic effect from October 1, 2012, to contribute its 19.5% interest in OSRAM GmbH to OSRAM Licht AG by way of a capital contribution against the issue of new shares in OSRAM Licht AG plus a payment of €50 thousand to Siemens. The resolution took effect as of its entry in the Commercial Register on February 11, 2013. These contributions constitute “transactions under common control” by Siemens. Apart from the decrease in cash and cash equivalents in the amount of €25 thousand and €50 thousand, respectively, the contributions did not affect the condensed interim combined financial statements as of March 31, 2013. According to the Spin-off and Transfer Agreement dated November 28, 2012, Siemens is obliged—subject to the contract taking effect—to transfer in the form of a spin-off by way of absorption in accordance with section 123(2) no. 1 of the Umwandlungsgesetz (UmwG—“German Reorganization and Transformation Act”) its entire interest in OSRAM Beteiligungen GmbH, including all rights and duties, to OSRAM Licht AG in return for the issue of shares in OSRAM Licht AG to the Siemens shareholders. The General Meeting of Siemens and the General Meeting of OSRAM Licht AG approved the Spin-off and Transfer Agreement on January 23, 2013, and January 21, 2013, respectively. An action for avoidance and rescission was brought against this resolution of the General Meeting of Siemens, which prevented its entry in the Commercial Register. At the beginning of March 2013, eight shareholders filed actions for avoidance and rescission of the resolution by the General Meeting of Siemens AG at the Munich Local Court I. On April 10, 2013, the Higher Regional Court in Munich established in clearance proceedings in accordance with sections 16(3) and 125 of the UmwG that these actions were not sufficient to prevent entry of the spin-off in the Commercial Register.
Change of legal form to OSRAM GmbH The Extraordinary General Meeting on October 5, 2012, resolved to change the legal form of OSRAM AG into a limited liability company, OSRAM GmbH. The change in the legal form from OSRAM AG to OSRAM
F-10 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
GmbH, Munich, became legally effective on its entry in the Commercial Register on October 25, 2012. The previously issued capital stock of OSRAM AG in the amount of €562,940,000 was converted into the capital stock of OSRAM GmbH. 562,940,000 shares with a notional value of €1.00 each were issued.
Appointment of the managing directors and Managing Board On October 9, 2012, the supervisory board of the former OSRAM AG, now OSRAM GmbH, appointed Mr. Wolfgang Dehen and Dr. Klaus Patzak as managing directors of OSRAM GmbH, effective as of the entry of the change in the legal form in the Commercial Register. On November 29, 2012, the supervisory board appointed Dr. Peter Laier as a managing director of OSRAM GmbH with effect from January 1, 2013. The Extraordinary General Meeting on November 8, 2012, appointed Mr. Wolfgang Dehen and Dr. Klaus Patzak as members of the Managing Board of OSRAM Licht AG. On December 21, 2012, the Supervisory Board of OSRAM Licht AG appointed Dr. Peter Laier as a member of the Managing Board of OSRAM Licht AG with effect from January 1, 2013. OSRAM is a leading global provider of lighting products and solutions and operates worldwide via a number of legal entities (see Note14). Prior to the formal appointment of the managing directors of OSRAM GmbH to the Managing Board of OSRAM Licht AG on November 8, 2012, the OSRAM Licht Group was managed centrally by the managing directors of OSRAM GmbH.
Interim combined financial statements The OSRAM Licht Group prepared these condensed interim combined financial statements in accordance with International Financial Reporting Standards (“IFRSs”), as adopted by the European Union (“EU”). Since IFRSs do not provide any guidance for the preparation of combined financial statements, IAS 8.12 has been used for their preparation. In accordance with IAS 8.12, the most recent pronouncements of other standard-setting bodies, other accounting literature, and accepted industry practices can also be considered. The condensed interim combined financial statements of the OSRAM Licht Group have been derived by aggregating the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH, and OSRAM GmbH together with the latter’s direct and indirect subsidiaries. All intragroup balances, income, expenses, and unrealized gains and losses arising from transactions between companies belonging to the OSRAM Licht Group were eliminated when preparing the condensed interim combined financial statements. In addition, the investments of the parent companies in the OSRAM Licht Group were eliminated against the equity of the respective subsidiaries. Transactions with Siemens and with Siemens Group companies that do not belong to the OSRAM Licht Group are disclosed as transactions with related parties. As of March 31, 2012, the OSRAM Licht Group consisted of OSRAM GmbH together with its direct and indirect subsidiaries, which formed a group for consolidated financial reporting purposes in accordance with IAS 27. These condensed interim combined financial statements consist of a combined statement of income and combined statement of comprehensive income for the six months ended March 31, 2013, a combined statement of financial position as of March 31, 2013, a combined statement of cash flow and combined statement of changes in equity for the six months ended March 31, 2013, as well as notes to the condensed interim combined financial statements for the six months ended March 31, 2013 (“interim combined financial statements”). The interim combined financial statements were prepared for interim financial reporting purposes and are unaudited. They were prepared in compliance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, and should be read in connection with the OSRAM Licht Group’s annual IFRS combined financial statements for the fiscal years ended September 30, 2012, 2011, and 2010. The interim combined financial statements apply the same accounting policies as those used in the combined financial statements for the fiscal years ended September 30, 2012, 2011, and 2010, except as stated below. In the opinion of management, these unaudited interim combined financial statements include all
F-11 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.) adjustments of a normal and recurring nature necessary for a fair presentation of OSRAM’s course of business for the interim periods. The results for the six months ended March 31, 2013, are not necessarily indicative of future results. The interim combined financial statements have been prepared in millions of euros (€m). Rounding differences may arise when individual amounts or percentages are added together. The interim combined financial statements were authorized for issue by the Managing Board of OSRAM Licht AG, Marcel-Breuer-Strasse 6, 80807 Munich, Germany, on May 8, 2013. Unless stated otherwise, the accounting policies disclosed as of September 30, 2012, have been applied consistently for all periods presented in these interim combined financial statements. Income taxes—In interim periods, tax expense is based on the current estimated average annual effective income tax rate. Income taxes in other comprehensive income in interim periods are recognized on an actual basis at the reporting date. Additionally, OSRAM still assumes that sufficient unrecognized gains subject to German taxation exist to avoid a loss of tax loss carryforwards in accordance with section 8c of the Körperschaftsteuergesetz (KStG—“German Corporation Tax Act”) in connection with the Spin-off of OSRAM. Key accounting estimates and judgments—The preparation of the interim combined financial statements requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amount of income, expenses, assets, and liabilities, as well as of contingent assets and liabilities required to be disclosed. Actual results may differ from management’s estimates.
Initial application of accounting pronouncements As of October 1, 2012, OSRAM early adopted IAS 19, Employee Benefits (revised 2011; IAS 19R), which was issued by the International Accounting Standards Board in June 2011. The standard is effective for annual periods beginning on or after January 1, 2013; early application is permitted. The standard must be applied retrospectively. The revised standard was endorsed by the European Union in June 2012. IAS 19R eliminates the previous accounting policy option of recognizing actuarial gains and losses immediately as profit or loss, recognizing them in other comprehensive income, or recognizing only a portion of the gains and losses in accordance with the corridor method. These changes do not affect OSRAM, since it already recognizes the actuarial gains and losses as they arise in other comprehensive income. The following changes affect OSRAM’s interim combined financial statements: IAS 19R replaces the expected return on assets and interest cost on the defined benefit obligation with a single net interest component. IAS 19R now requires the return on pension plan assets to be calculated based on the discount rate, as opposed to the expected return on plan assets. This gives rise to a uniform return on the pension obligations and plan assets, which is disclosed as net interest. The difference between the interest income on plan assets resulting from application of the discount rate and the actual return on the plan assets of defined benefit pension plans is recognized in the combined statements of comprehensive income. Additionally, adjustments to the past service cost/income under IAS 19R are required to be included in full in the period in which the plan was amended instead of being amortized over the vesting period. Other administration costs which are unrelated to the management of plan assets are recognized as function costs when the administration services are provided. The revision of IAS 19R also changes the definition of termination benefits, establishing the consistent principle that termination benefits are recognized when the service is rendered by the employee. There are no significant effects on OSRAM’s interim combined financial statements resulting from these changes. IAS 19R must be applied retrospectively. Accordingly, the opening balance as of October 1, 2011, and the combined financial statements for the prior year have been adjusted. Taking deferred taxes into consideration, this led overall to an increase in equity reported in Net assets attributable to Siemens Group of €4.1 million as of October 1, 2011. As of October 1, 2011, application of IAS 19R reduced actuarial losses by €17.0 million (after taxes) on a cumulative basis. The adjustment of the combined statements of income as reported in the prior year essentially resulted in a decrease in interest income as reported in the prior year for the six months ended March 31, 2012. Net interest for the six months ended March 31, 2012, decreased by €9.0 million in total. The
F-12 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.) net interest component resulting from the uniform return on the pension obligations and plan assets required to be reported under IAS 19R is presented in Interest expense. As of September 30, 2012, equity increased by €3.4 million in total (after taxes) due to the adjustments and is presented under Net assets attributable to Siemens Group. As of September 30, 2012, application of IAS 19R reduced actuarial losses by €29.4 million (after taxes) on a cumulative basis. The Pension plans and similar commitments line item decreased by €1.1 million as of September 30, 2012 (by €1.2 million as of March 31, 2012, to €347.0 million). Had the Company not applied IAS 19R as of October 1, 2012, the expected return on plan assets in the combined statements of income for the six months ended March 31, 2013, would have exceeded interest income according to IAS 19R. Correspondingly, the actuarial gains recognized in the Remeasurements of defined benefit plans line item of the combined statements of comprehensive income would have decreased. Based on the expected return on plan assets as of September 30, 2012, the effect would have been €18.8 million (pre-tax) for the principal pensions and principal other post-employment obligations. In June 2011, the IASB issued “Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)”. The amendments require that an entity presents separately the items of other comprehensive income that will be reclassified subsequently to profit or loss from those that will not be reclassified. The amendments have been applied in these interim combined financial statements for the first time.
2. Acquisitions and disposals a) Acquisitions Fiscal 2013 No acquisitions were made in the six months ended March 31, 2013.
Fiscal 2012 Acquisition of Encelium As of October 14, 2011, OSRAM acquired an additional 83.13% interest in Encelium Holdings, Inc., Teaneck, U.S.A. (“Encelium”). The main rationale for the acquisition was to enhance the Company’s position in particular in the global growth market for Light Management Systems and to complement its Lamps & Components (“LC”) segment’s portfolio of energy-efficient lighting products and solutions. OSRAM’s interest in Encelium increased from 16.87% to 100% as a result of the transaction. The aggregate consideration amounted to €37.6 million – €37.4 million paid in cash and €0.2 million in the form of an assumed liability. Cash acquired amounted to €0.6 million. Acquisition-related costs amounted to €1.1 million and were expensed under Marketing, selling, and general and administrative expenses. The fair value of OSRAM’s existing 16.87% equity interest in Encelium on the date of the acquisition was €5.2 million and the remeasurement to fair value resulted in a gain of €0.2 million, which was recognized in Other operating income in the combined statements of income. Based on the fair value assessment performed in the course of purchase price allocation, €11.8 million was allocated to intangible assets and €34.5 million to goodwill; the latter was allocated to the Light Engines & Controls Business Unit (“LE”) (see Note 8 Goodwill). Of the €11.8 million in intangible assets, €5.4 million related to customer contracts with useful lives of eight years, €5.3 million to patented and unpatented technology with useful lives of five to seven years, and €1.1 million to the Encelium trademark. The latter is considered to have an indefinite useful life, as OSRAM intends to continue to use it in the foreseeable future and the trademark is not limited in its usage. Goodwill comprises non-separable intangible assets such as employee know-how and expected synergy effects. €0.5 million of the recognized goodwill is deductible for tax purposes. The acquisition of Encelium led to additional revenue of €2.2 million and a net loss of €3.5 million, including expenses related to purchase price allocation, in the six months ended March 31, 2012. If Encelium had been included in the interim combined financial statements with effect from October 1, 2011, the effect would have been additional revenue of €2.2 million and a net loss of €3.9 million for the six months ended March 31, 2012, including expenses related to purchase price allocation.
F-13 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Acquisition of Traxon As of November 8, 2011, OSRAM acquired additional shares of its subsidiary Traxon Technologies Ltd (formerly Perfect Tact Ltd.), Hong Kong, China (“Traxon”), increasing its ownership from 51% to 100%. The aggregate consideration amounted to €53.5 million, and consisted of €48.0 million in cash and contingent consideration of €5.5 million (USD 7.5 million). The contingent consideration was measured at fair value at the acquisition date and depended on certain revenue targets for the calendar year ended December 31, 2011, being reached. The outstanding consideration of €5.7 million (USD 7.5 million) was paid in April 2012. The difference of €45.9 million between the non-controlling interests of €7.6 million and the fair value of the consideration paid of €53.5 million was recognized in equity in accordance with IAS 27. Traxon is reported in the Luminaires & Solutions (“LS”) segment. b) Disposals Fiscal 2013 In the six months ended March 31, 2013, OSRAM classified the assets and liabilities relating to its subsidiaries Sunny World (Shaoxing) Green Lighting Co. Ltd., Shaoxing, China (“Sunny World”), and OSRAM Hong Kong Ltd., Hong Kong, China (“OHK”), which are allocated to the LC segment, as held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations.” The sale by way of a share deal is related to the transformation of the lighting market and is part of the “Future Industrial Footprint” project. The sale was concluded together with a sourcing contract and became effective as of the disposal as of April 1, 2013. The remeasurement of this disposal group at the lower of its carrying amount and fair value less costs to sell resulted in an impairment loss of €13.8 million, which was recognized in Costs of goods sold and services rendered in the combined statements of income. The accumulated currency translation gains related to this disposal group and recognized in other comprehensive income amounted to €7.1 million as of March 31, 2013. The carrying amounts of the principal groups of assets and liabilities that were derecognized on completion of the disposal described above are presented in the following table:
March 31, 2013 €m Cash and cash equivalents ...... 0.2 Trade and other receivables ...... 0.2 Inventories ...... 8.8 Other current assets ...... 1.6 Property, plant and equipment ...... 21.8 Other noncurrent assets ...... 5.8 Total assets ...... 38.4 Trade payables ...... 12.1 Provisions ...... 4.7 Other liabilities ...... 4.0 Total liabilities ...... 20.8
Fiscal 2012 In the six months ended March 31, 2012, OSRAM classified the assets and liabilities relating to its subsidiary OSRAM MELCO Ltd., Yokohama, Japan (“OML”), which is allocated to the LC segment, and its investments in Mitsubishi Electric OSRAM Ltd., Yokohama, Japan (“MOL”), and Ogasa Sanroku Kaihatsu KK, Kakegawa City, Japan, as held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations.” The remeasurement of this disposal group at the lower of its carrying amount and fair value less costs to sell resulted in an impairment loss of €1.2 million, which was recognized in Costs of goods sold and services rendered in the combined statements of income. The sale was completed in the fourth quarter of fiscal 2012.
F-14 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Additionally, the assets and liabilities of the subsidiary OSRAM MELCO Toshiba Lighting Ltd., Yokosuka, Japan (“OMTL”), which is allocated to the LC segment, and the investment in TLT OSRAM-Melco Lighting Ltd., Yokosuka, Japan (“TOML”), were classified as held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations.” The remeasurement of this disposal group at the lower of its carrying amount and fair value less costs to sell resulted in an impairment loss of €4.1 million, which was recognized in Costs of goods sold and services rendered in the combined statements of income. OSRAM also recognized a provision of €1.5 million in respect of obligations resulting from the sale of OMTL and TOML in Other operating expense in the combined statements of income.
3. Personnel-related restructuring expenses In the six months ended March 31, 2013, and 2012, personnel-related restructuring expenses primarily affected Cost of goods sold and services rendered as well as Marketing, selling, and general and administrative expenses. Personnel-related restructuring expenses were as follows: Six months ended March 31, 2013 2012 €m Lamps & Components ...... (58.8) (12.0) Luminaires & Solutions ...... (5.6) (1.1) Specialty Lighting ...... (4.8) (3.9) Opto Semiconductors ...... (0.2) — Corporate items ...... (0.2) (0.9) OSRAM Licht Group ...... (69.6) (17.9)
The technology shift and the consequent fundamental changes in the business environment are driving the strategic realignment of the OSRAM Licht Group. Part of this comprehensive, global transformation program is the “Future Industrial Footprint” project, which was announced on January 17, 2012, and which aims to adapt global production capacity to the changes in market demand. The measures to be taken as a result of the program include the closure and relocation of production facilities and a reduction in the headcount in the following years. Simultaneously, OSRAM is aiming to increase the earnings power of its business by ensuring more efficient structures in the research and development, production, and sales and distribution functions, as well as in central corporate services. The personnel-related restructuring expenses incurred in the six months ended March 31, 2013, essentially arose in connection with those measures.
4. Other operating income Six months ended March 31, 2013 2012 €m Gains on sales of property, plant, and equipment, and intangibles ...... 0.4 2.4 Miscellaneous other income ...... 42.6 4.1 Other operating income ...... 43.0 6.5
Fiscal 2013 In the six months ended March 31, 2013, the main income items recognized related to the settlement of patent infringement disputes, which escalated following the announcement that the OSRAM Licht Group was to go public, including the reversal of corresponding and further provisions included in the Miscellaneous other income line item. For further information about patent infringement disputes, see Note 13 Legal proceedings.
F-15 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Fiscal 2012 In the six months ended March 31, 2012, the Gain on sales of property, plant, and equipment, and intangible assets included income from the sale of assets belonging to Chung Tak Lighting Control Systems (Guangzhou) Ltd., Guangzhou, China. The sale was recorded in the LC segment.
5. Other operating expense
Six months ended March 31, 2013 2012 €m Impairments of goodwill ...... — (101.1) Losses on sales and disposals of property, plant, and equipment, and intangibles ...... (14.6) (13.7) Miscellaneous other expense ...... (14.7) (22.3) Other operating expense ...... (29.3) (137.1)
Fiscal 2013 In the six months ended March 31, 2013, Losses on sales and disposals of property, plant, and equipment, and intangible assets mainly relates to the “Future Industrial Footprint” project. Miscellaneous other expense primarily includes obligations relating to historical regulatory risks in one country, which are being addressed as part of the “Future Industrial Footprint” project and which OSRAM regards as being in connection with the strategic realignment in that country. The item also includes costs in connection with patent infringement disputes that escalated after the announcement that the OSRAM Licht Group was to go public.
Fiscal 2012 In the six months ended March 31, 2012, an impairment loss of €101.1 million was charged on goodwill related to the Luminaires Business Unit (“LUM”)—until September 30, 2012: Professional Luminaires Business Segment (“PLUM”). The main triggering event for the impairment loss was a downward revision of the business prospects due to the technological changes in the market, the additional sales activities necessary, the as yet unrealized sales synergies, and the reorganization of the lighting business within OSRAM. The impairment loss recognized on goodwill was based on the value in use, which was calculated using a discounted cash flow method assuming a pre-tax discount rate of 11.5% and a terminal value growth rate of 2.0%. This impairment loss is not offset by a corresponding effect in deferred taxes. The Losses on sales and disposals of property, plant, and equipment, and intangible assets in the six months ended March 31, 2012, relate primarily to the “Future Industrial Footprint” restructuring program. In the six months ended March 31, 2012, Miscellaneous other expense mainly comprises costs related to patent infringement disputes that escalated following the announcement that the OSRAM Licht Group was to go public. It also includes costs of €1.5 million relating to the recognition of a provision for OMTL and TOML (see also Note 2 for further information).
6. Gain (loss) from investments accounted for using the equity method, net Six months ended March 31, 2013 2012 €m Share of profit (loss), net ...... (9.3) (4.0) Impairments, net ...... (10.4) (34.3) Gain (loss) from investments accounted for using the equity method, net ..... (19.7) (38.3)
F-16 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Fiscal 2013 In the six months ended March 31, 2013, an impairment loss of €7.3 million was charged on non-current receivables that are part of the net investment in Valeo Sylvania LLC, Seymour, U.S.A. (“Valeo Sylvania”). Valeo Sylvania is allocated to the Specialty Lighting reportable segment. The main triggering event for the impairment loss was the company’s negative business performance, which led to the investment’s business plan being updated. In this context, each of the joint venture partners extended an additional loan of €11.4 million (USD 15.0 million) in the six months ended March 31, 2013. Together with the financing already provided consisting of loans of €14.9 million (USD 19.3 million), €10.2 million (USD 13.2 million) in deferred payments for receivables of OSRAM, and a €10.3 million (USD 13.5 million) guarantee from OSRAM in favor of the financing bank, the total nominal financing provided by OSRAM amounts to €46.8 million (USD 61.0 million). The impairment loss recognized on the additional loan was based on the fair value less costs to sell, which was calculated using the discounted cash flow method assuming a post-tax discount rate of 7.9% and a terminal value growth rate of 1.3%. This impairment loss is not offset by a corresponding effect in deferred taxes. Furthermore, an impairment loss of €3.1 million was charged on the investment in OSRAM (China) Fluorescent Materials Co., Ltd., Yi Xing City, China (“OCFM”). This was reported in Corporate items and pensions in the segment reporting (see Note 14 Segment information for further information). The main triggering event for the impairment loss was the decrease in previously expected sales to Sunny World, which is now classified as held for sale (see Note 2 Acquisitions and disposals). This led to the business plan being updated. The impairment loss was based on the value in use, which was calculated using the discounted cash flow method assuming a pre-tax discount rate of 14.6% and a terminal value growth rate of 3.1%. This impairment loss is not offset by a corresponding effect in deferred taxes. In the six months ended March 31, 2013, the Share of profit (loss), net, primarily comprises a loss contributed by Valeo Sylvania in the amount of €10.5 million as well as a profit recorded by Foshan Electrical and Lighting Co., Ltd, Foshan, China (“FELCO”), in the amount of €1.3 million. The recognition of the loss on the investment in Valeo Sylvania led to the recognition of a provision for a payment obligation (bank guarantee) amounting to €5.3 million in excess of the net investment.
Fiscal 2012 In the six months ended March 31, 2012, an impairment loss of €27.6 million was charged on the investment in Valeo Sylvania (including €14.7 million on non-current receivables). The main triggering event for the impairment loss was the reassessment of the investment’s business plan, which resulted in a significant decrease in the expected future cash flows. The impairment loss was based on the fair value less costs to sell, which was calculated using the discounted cash flow method assuming a post-tax discount rate of 10.0% and a terminal value growth rate of 1.5%. This impairment loss was not offset by a corresponding effect in deferred taxes. An impairment loss of €2.4 million was recognized on the net investment in OSRAM’s OCFM joint venture in the six months ended March 31, 2012. This was reported in Corporate items and pensions in the segment reporting (see Note 14 Segment information for further information). The main triggering event for the impairment loss was the adjustment to the business plans, which indicated a significant decline in expected future cash flows. This impairment loss was recognized in Impairment losses, net. Additionally, OSRAM’s share of a provision for litigation costs recognized by Componentes de Vidro Ltda., Caçapava, Brazil (“CVL”), was recognized in the amount of €2.5 million as a decrease in the carrying amount of the investment in the Share of profit (loss), net, line item and in the amount of €2.3 million as a provision for agreed payment guarantees in favor of CVL in the Impairment losses, net, line item. Valeo Sylvania and CVL contributed a loss of €3.8 million and €2.5 million, respectively (see above), to the Share of profit (loss), net, which was reduced by the profits recorded by FELCO in the amount of €1.7 million and by MOL in the amount of €0.7 million.
F-17 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.) 7. Interest income, interest expense, and other financial income (expense), net Six months ended March 31, 2013 2012 €m Interest income ...... 4.0 1.5 Interest expense ...... (15.9) (29.0) Other financial income (expense), net ...... (5.9) (1.5)
Interest income primarily includes interest relating to transactions with Siemens (“Siemens Treasury”). The components of Interest expense were as follows: Six months ended March 31, 2013 2012 €m Interest expense, other than pension ...... (7.5) (15.2) Pension related interest expense, net ...... (8.4) (13.8) Interest expense ...... (15.9) (29.0)
Interest expense, other than pension related primarily includes interest relating to transactions with Siemens (“Siemens Treasury”). The application of IAS 19R results in a uniform return on the pension obligations and plan assets, which is disclosed as net interest. This led to OSRAM recognizing a net pension related interest expense. For further information on the Pension related interest expense, net relating to OSRAM’s material pension and similar other post-employment benefits, see Note 10 Pension plans and similar commitments. The Interest income and Interest expense line items include the following results from financial assets and financial liabilities not measured at fair value through profit or loss: Six months ended March 31, 2013 2012 €m Total interest income on financial assets ...... 4.0 1.5 Total interest expense on financial liabilities ...... (7.5) (15.2) The Other financial income (expense), net line item includes the effects of the remeasurement of certain monetary assets and liabilities at their respective closing exchange rates. On February 1, 2013, OSRAM signed a loan agreement with a banking syndicate relating to credit facilities including a revolving facility with a maximum total volume of €1.25 billion which was completely unused as of March 31, 2013. Future actual drawdowns may differ from this amount. Transaction costs paid amounting to €18.5 million as of March 31, 2013 are recognized as prepaid expenses in the balance sheet and will be amortized as interest expense using the effective interest method when drawdowns begin. Financing is provided by the Siemens Group until the Spin-off from Siemens (see Note 15 Related party disclosures).
F-18 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.) 8. Goodwill
March 31, September 30, 2013 2012 €m Light Management Solutions ...... — 33.0 Light Engines ...... 33.2 — Specialty Lighting ...... 3.8 3.7 OSRAM ...... 37.0 36.7
In the six months ended March 31, 2013, the only change to this goodwill was due to changes in exchange rates. With effect from October 1, 2012, the Managing Board of OSRAM resolved to split the former General Lighting Business Unit (“GL”) into the four new Business Units of Lamps (“LP”), Light Engines & Controls (“LE”), Luminaires (“LUM”), and Solutions (“SOL”), as well as two centrally managed units (see Note 13 Segment information). Since then, goodwill allocated to the related operations has been monitored at the Business Unit level, meaning that the Business Units are the relevant level for the purpose of goodwill impairment testing. Goodwill resulting from the acquisition of Encelium, which was previously allocated to the Light Management Solutions (“LMS”) Business Segment, is now allocated to the newly formed LE Business Unit because the acquired business of Encelium was allocated to LE in its entirety. No other goodwill had to be reallocated. The LE goodwill was tested for impairment on the date of reorganization. The impairment test was triggered by the fact that the annual impairment test as of September 30, 2012, for the former LMS Business Segment revealed that there was little in the way of headroom and the composition of operations had changed due to the reorganization; as a result, an impairment loss on this goodwill could not be ruled out. The recoverable amount was determined on the basis of the fair value less costs to sell. The key assumptions underlying the impairment test were the growth rate for the period beyond the five-year planning horizon and the post-tax discount rate. The growth rate was set at 2.0% and the post-tax discount rate at 8.2%. The impairment test confirmed the recoverability of the carrying amount of the goodwill.
9. Property, plant, and equipment Fiscal 2013 An impairment loss of €7.4 million was recognized in the six months ended March 31, 2013, on property, plant, and equipment used for the production of CFLi products in India. The impairment loss is recorded in the Costs of goods sold and services rendered und allocated to the LC segment. The main triggering event for the impairment loss was the strategic realignment regarding these products, which led to the business plan being updated. The impairment loss was based on the value in use, which was calculated using a discounted cash flow method assuming a pre-tax discount rate of 11.4%. Additionally, in the six months ended March 31, 2013, losses on the disposal of items of property, plant, and equipment were recognized in connection with the transformation process.
Fiscal 2012 In the second quarter of fiscal 2012, OSRAM reviewed its future strategy as regards metal halide lamps incorporating ceramic technology. This review indicated a significant reduction in the expected future cash flows. In turn, this required the recoverable amount of the cash-generating unit to be measured. The recoverable amount of the cash-generating unit in question was estimated based on its value in use. Because the cash- generating unit’s carrying amount was €36.6 million higher than its recoverable amount, a corresponding impairment loss was recognized in Cost of goods sold and services rendered for items of property, plant, and equipment. Value in use was estimated based on a pre-tax discount rate of 7.7%. The cash-generating unit was allocated to the GL Business Unit that existed until September 30, 2012.
F-19 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
In the second quarter of fiscal 2012, the evaluation by the GL Business Unit, which existed until September 30, 2012, of external market studies about the timing of the start mass production for OLED technology resulted in a change in the purpose of the production facilities and thus in a change in the business plans. The recoverable amount of the cash-generating unit was estimated based on its value in use. The cash- generating unit’s carrying amount was €21.6 million higher than its recoverable amount, so an impairment loss was recognized in Cost of goods sold and services rendered for the production facilities in fiscal 2012. Value in use was estimated based on a pre-tax discount rate of 11.4%.
10. Pension plans and similar commitments The following information refers to the principal pension and principal other post-employment benefit plans in Germany, the U.S.A., Canada, the UK (until January 2012), Switzerland, and Italy. Current service cost for pensions and other post-employment obligations is allocated to the function costs (Cost of goods sold and services rendered, Research and development expenses, and Marketing, selling, and general and administrative expenses), depending on the function to which the corresponding profit and cost centers are assigned. The following table shows the significant components of the defined benefit cost recognized in connection with the principal pension and principal other post-employment benefits:
Six months ended March 31, 2013 Six months ended March 31, 2012 Outside Outside Total Germany Germany Total Germany Germany €m Current service cost ...... 17.1 10.8 6.3 14.4 9.1 5.3 Net interest expense ...... 8.2 2.4 5.8 13.3 6.6 6.7 Net periodic benefit cost ...... 25.3 13.2 12.1 27.7 15.7 12.0 Germany ...... 13.2 15.7 United States ...... 10.5 10.3 Canada ...... 1.1 1.1 Switzerland ...... 0.3 0.3 Italy ...... 0.2 0.3 UK ...... — 0.0 In December 2011, OSRAM GmbH received a cash contribution from Siemens AG for funding pension plans. This resulted primarily in a significant reduction in the underfunding of the pension commitments in Germany. Therefore, the net interest to be disclosed in accordance with IAS 19R resulting from a uniform return on the pension obligations and plan assets decreased in the six months ended March 31, 2013, compared with the prior-year reporting period. In addition, the lower interest rates for the German pension plans as of September 30, 2012, compared with September 30, 2011, results overall in a lower net interest expense for the year. At the end of January 2012, Siemens plc, Frimley, United Kingdom (“Siemens plc”), Siemens Benefits Scheme Ltd., Frimley, United Kingdom (“Siemens Benefits Scheme”), and OSRAM Ltd., Langley, United Kingdom (“OSRAM Ltd.”), entered into a binding agreement to retransfer to Siemens the defined benefit obligations and assets attributable to OSRAM in the United Kingdom. In consequence, OSRAM no longer recognizes any pension obligations from the defined benefit pension plan in the United Kingdom effective February 2012.
Pension obligations and funded status As of March 31, 2013, the underfunding of OSRAM’s principal pension and principal other post- employment benefit plans amounted to €444.2 million. As of September 30, 2012, the underfunding of these principal pension and principal other post-employment benefit plans amounted to €464.0 million. The estimated defined benefit obligation of these principal pension and principal other post-employment benefit plans as of March 31, 2013, amounted to €1,963.4 million (as of September 30, 2012: €1,941.6 million), and the fair value of plan assets as of March 31, 2013, was €1,519.2 million (as of September 30, 2012: €1,477.6 million).
F-20 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
The estimated defined benefit obligation of these principal pension and principal other post-employment benefit plans as of March 31, 2013, is based on a weighted-average discount rate of 3.66% (as of September 30, 2012: 3.65%). In the six months ended March 31, 2013, employer contributions made by OSRAM amounted to €21.3 million and primarily consisted of the funding of the German pension plans paid in December 2012. The employer contributions paid by OSRAM in the six months ended March 31, 2012, amounted to €7.6 million and primarily consisted of the funding of the pension plans in the United States. Additionally, in December 2011, OSRAM GmbH received the abovementioned extraordinary cash contribution of €499.5 million from Siemens AG for the additional funding of certain funded pension plans. Of this amount, €485.0 million related to the funding of German pension plans that were previously unfunded. Due to a change in legislation related to the funding of pension plans in the U.S.A. (Moving Ahead for Progress in the 21st Century Act; MAP 21) effective from this fiscal year onwards, the expected employer contributions for the current fiscal year will be lower than the expected employer contributions disclosed in the notes to the combined financial statements for the fiscal years ended September 30, 2012, 2011, and 2010.
11. Equity Net assets (reported in the interim combined financial statements) As stated in Note 1 Basis of preparation, OSRAM is not a legal group for consolidated financial reporting purposes in accordance with IAS 27 and is presented on the basis of the aggregation of the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH, and OSRAM GmbH, as well as the latter’s direct and indirect subsidiaries. Since the combined group does not have any subscribed capital, a presentation of earnings per share in accordance with IAS 33 is not possible. In accordance with the agreement dated October 30 and 31, 2012, Siemens waived Siemens Cash Management receivables due from OSRAM GmbH amounting to €31.8 million. Additionally, Siemens transferred existing receivables to OSRAM Beteiligungen GmbH in the total amount of €131.2 million, which in turn waived these receivables due from OSRAM GmbH. The total amount of €163.0 million was recognized as an increase in the additional paid-in capital of OSRAM GmbH and increased the net assets reported in the interim combined financial statements accordingly. Further capital contributions totaling €3.8 million were made to OSRAM by Siemens, increasing the net assets reported in the interim combined financial statements (see Note 15 Related party disclosures). In December 2011, the OSRAM Licht Group received a cash contribution from Siemens AG amounting to €499.5 million as additional funding for its pension plans.
F-21 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Other comprehensive income (loss) The changes in Other comprehensive income (loss) including non-controlling interests were as follows: Six months ended Six months ended March 31, 2013 March 31, 2012 Pre-tax Tax effect Net Pre-tax Tax effect Net €m Items that will not be reclassified to profit or loss Remeasurements of defined benefit plans ...... 19.4 (7.5) 11.9 (15.3) 0.5 (14.8) Items that may be reclassified subsequently to profit or loss Foreign-currency translation differences ...... 6.5 0.0 6.5 27.5 0.0 27.5 Unrealized gains (losses) on derivative financial instruments ...... 0.5 (0.1) 0.4 (1.6) 0.5 (1.1) Reclassification adjustments for (gains) losses included in net income ...... (1.5) 0.4 (1.1) 2.9 (0.9) 2.0 Net unrealized gains (losses) on derivative financial instruments ...... (1.0) 0.3 (0.7) 1.3 (0.4) 0.9 5.5 0.3 5.8 28.8 (0.4) 28.4 Other comprehensive income (loss) ...... 24.9 (7.2) 17.7 13.5 0.1 13.6
Acquisition of non-controlling interests As of November 8, 2011, OSRAM acquired additional shares in its subsidiary Traxon Technologies Ltd., Hong Kong, China, (“Traxon”), increasing its ownership from 51% to 100%. The difference of €45.9 million between the non-controlling interest of €7.6 million and the fair value of consideration paid of €53.5 million was recognized in equity in accordance with IAS 27.
12. Other financial commitments and contingent liabilities Contingent liabilities The following table presents the undiscounted maximum potential future payments by OSRAM for guarantees as of the reporting date: March 31, September 30, 2013 2012 €m Credit guarantees ...... 5.2 10.5 Other ...... 12.3 9.7 17.5 20.2
OSRAM provides its joint ventures and associates with credit guarantees in the form of variable guarantees for credit lines. The maximum amount of these guarantees is determined by the outstanding balance of the credit or, in the case of variable credit lines, by the nominal amount of the credit line. These guarantees usually have terms of between one and five years. The credit guarantees relate primarily to commitments made in relation to a loan granted to Valeo Sylvania, for part of which a provision was recognized as of March 31, 2013 (see Note 6 Gain (loss) from investments accounted for using the equity method, net). The Other line item primarily contains a contractual obligation for guarantees from the sale of OML amounting to €7.8 million (as of September 30, 2012: €9.7 million).
13. Legal proceedings Information regarding investigations and other legal proceedings as well as possible risks and possible financial implications for OSRAM associated with such are contained in the combined financial statements for the fiscal years ended September 30, 2012, 2011, and 2010 of the OSRAM Licht Group.
F-22 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
The following material developments regarding investigations and other legal proceedings have occurred since the combined financial statements for the fiscal years ended September 30, 2012, 2011 and 2010 of the OSRAM Licht Group have been authorized for issue.
Procedures under Product Liability Law Product liability claims in Germany regarding standard light emitting diodes (LEDs) used in car lamps As reported, in summer 2010, car lamp producer Hella KGaA Hueck & Co., Lippstadt, Germany (“Hella”) filed a lawsuit against OSRAM Opto Semiconductors GmbH, Regensburg. In January 2012, the first instance court before which Hella’s suit was brought, the Regional Court of Regensburg, dismissed all of the suit’s claims. On appeal in February 2013, Hella increased the amount demanded in the suit to a total of €88.8 million. In March 2013, the Nuremberg Higher Regional Court indicated it would be necessary to hold an evidentiary hearing.
Wells Fargo, Colonial Electric Supply et al. vs. OSRAM SYLVANIA et al. As reported, OSRAM SYLVANIA is the subject of a complex fire investigation with various parties, originally initiated by Wells Fargo Bank, Raleigh, North Carolina, U.S. (“Wells Fargo”), into the cause of a fire in a building. The fire was allegedly caused by the rupture of a SYLVANIA metal halide lamp. Meanwhile, the motion filed by Colonial Electric Supply, King of Prussia, Pennsylvania, U.S., the seller of the halogen metal halide lamp in question, to implead OSRAM SYLVANIA in the Wells Fargo proceeding has been granted. The damages claimed amount to USD 9.5 million (€7.4 million).
Murphy Bonded et al vs. OSRAM SYLVANIA As reported, in 2011 Murphy Bonded Warehouse, LLC, Mansfield, Louisiana, U.S. (“Murphy Bonded”) and International Paper Company, Memphis, Tennessee, U.S. (“International Paper”), along with Factory Mutual Insurance, Johnston, Rhode Island, U.S., and Lloyds of London, London, England (“Lloyds”) brought actions against OSRAM SYLVANIA in a state court and a federal court. These actions assert that a fire and associated property damage were caused by the rupture of a metal halide lamp. In August 2012, OSRAM SYLVANIA filed a motion for summary judgment in the federal court case filed by International Paper. Since that time, the motion for summary judgment has been granted and the claim against OSRAM SYLVANIA dismissed. The lawsuit filed by Lloyds of London, London, England (“Lloyds”), the insurer for International Paper, before the federal court and the lawsuit filed by Murphy Bonded Warehouse, the building owner, in state court remain pending. The damages claimed amount to USD 10 million (€7.8 million).
Pliant Corporation vs. OSRAM SYLVANIA As reported, Pliant Corporation, Illinois/Indiana, U.S. (“Pliant”) submitted a legal action in July 2011 against OSRAM SYLVANIA with respect to property damage that was caused by a fire that occurred within a printing press component. In February 2013, the parties resolved the case by entering into a settlement.
Allianz Mexico vs. OSRAM SYLVANIA In October 2012, Allianz Mexico, S.A. Compagnia de Seguros (“Allianz”), property insurer for Kimberly Clark de Mexico, S.A.B. de CV (“Kimberly Clark”), filed suit in its capacity as subrogee against OSRAM SYLVANIA and Holophane Corporation, Granville, Ohio, U.S. in Massachusetts Superior Court, Essex County. The matter arises as the result of a fire that occurred at the Kimberly Clark facility in Morella, Mexico in June 2012, which the plaintiff claims was caused by the alleged rupture of an OSRAM SYLVANIA metal halide lamp. Although the complaint does not include any precise monetary damages, OSRAM SYLVANIA was informed during the fire investigation that property damage in the amount of USD 75 million (€58.6 million) had been caused.
F-23 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Imran Chaudhri, Class Action Suit against OSRAM SYLVANIA and OSRAM SYLVANIA Products As reported, on September 22, 2011, a class action suit was brought against OSRAM SYLVANIA and OSRAM SYLVANIA Products Inc., Danvers, Massachusetts, U.S. (“OSRAM SYLVANIA Products”) in the U.S. District Court for the District of New Jersey by the plaintiff Imran Chaudhri, who involves the group of purchasers of Silverstar®-headlights. Imram Chaudhri is represented before court by an external US law firm. On January 9, 2012, the plaintiff expanded his legal action and asserted that various power ratings and advertisements relating to the Silverstar-automobile headlight replacement bulbs were allegedly “false and misleading” in the sense of the New Jersey Consumer Fraud Act. The plaintiff seeks admission of a national class action suit under the Consumer Fraud Act of New Jersey as well as compensation for damages. OSRAM SYLVANIA Products is defending itself against the actions. In conformity with an order from the presiding judge, proceedings to determine whether a class action lawsuit is appropriate are underway. OSRAM continuously assesses the allegations based on the ongoing discovery proceedings.
Patent and Trademark Litigation OSRAM Licht Group vs. LG Group and LG Group vs. OSRAM Licht Group As reported, companies of the OSRAM Licht Group have been involved since June 2011 in several patent lawsuits pertaining to light emitting diode (“LED”) technology against companies of the corporate group of LG Electronics Inc., Seoul, Korea (“LG Electronics”), and LG Innotek Co., Ltd., South Korea (“LG Innotek”) (collectively: “LG Group”) in Germany, the U.S., South Korea, Japan, and China. At the end of October 2012, LG Innotek, LG Electronics, and OSRAM entered into a settlement agreement. According to the agreement, the LED patent disputes pending worldwide between the LG Group and OSRAM Licht Group have been resolved to the extent possible. The appeal against court decisions in invalidity proceedings against OSRAM´s patents in China remains pending, however without further active participation by the LG Group.
CAO Group vs. OSRAM SYLVANIA In May 2011, CAO Group Inc., West Jordan, Utah, U.S. (“CAO Group”) filed a lawsuit alleging infringement of three U.S. patents against OSRAM SYLVANIA and seven other lighting manufacturers before the United States District Court for the District of Utah in the U.S. The suit alleges that the defendants infringed the asserted patents by manufacturing, using, marketing, selling, and /or offering to sell LED light sources, in particular LED retrofits. In September 2012, OSRAM SYLVANIA together with further defendant General Electric filed inter partes reexamination requests with the U.S. Patent and Trademark Office (“USPTO”) against the three patents asserted. The proceedings in Utah have been suspended. The reexamination requests have been granted by the USTPO.
Digital Gadgets vs. OSRAM SYLVANIA Already in June 2012, Digital Gadgets, Monroe Township, New Jersey, U.S. (“DG”) filed a lawsuit against OSRAM SYLVANIA before the US District Court of Massachusetts. The lawsuit is aimed at OSRAM SYLVANIA’s refusal to renew the existing trademark licensing agreement with DG. DG has argued that OSRAM SYLVANIA’s refusal to extend the agreement is in breach of the terms of the agreement. OSRAM SYLVANIA has argued that DG has acted in breach of the terms of the agreement. In October 2012, OSRAM SYLVANIA filed a countersuit seeking both injunctive relief as well as damages.
Other Legal Disputes Suit of the Republic of Iraq with respect to the UN Oil-for-Food Program As reported, in June 2008 the Republic of Iraq filed an action requesting unspecified damages against OSRAM Middle East FZE, Dubai, United Arab Emirates, with the U.S. District Court for the Southern District of New York on the basis of findings in the “Report of the Independent Inquiry Committee into the United Nations Oil-For-Food Program”. The court dismissed the action in February 2013. The Republic of Iraq has appealed this decision.
F-24 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Morrison Foerster vs. OSRAM As reported, in September 2012, the law firm Morrison Foerster LLP, Washington, D.C., U.S. (“Morrison Foerster”) has commenced proceedings against OSRAM GmbH, OSRAM Opto Semiconductors GmbH, Regensburg, Germany (“OSRAM OS”), OSRAM SYLVANIA and OSRAM Opto Semiconductors, Inc., Sunnyvale, California, U.S. (“OSRAM-OS Inc.”) with the American Arbitration Association (“AAA”). In addition, OSRAM GmbH, OSRAM SYLVANIA, OSRAM OS, and OSRAM-OS Inc. have asserted claims against Morrison Foerster in arbitration proceedings filed in January 2013 with the International Court of Arbitration of the International Chamber of Commerce (“ICC”) in connection with Morrison Foerster’s representation of them. In February 2013, Morrison Foerster filed an amended demand for arbitration in order to include Siemens Corporation, Washington, D.C., U.S., (“Siemens Corp.”) as another defendant with respect to the claims made by Morrison Foerster in the AAA proceedings. In March 2013, Morrison Foerster filed a countersuit for payment in the amount of at least USD 26.7 million (€20.9 million) and a motion to join Siemens Corp. as a further defendant for the claims set out in the countersuit by Morrison Foerster in the ICC proceedings.
Osasco Labor Prosecutor’s Office et al. vs. OSRAM do Brasil As reported, in September 2012 the Osasco Labor Prosecutor´s Office filed a so-called civil public action against OSRAM do Brasil Lampadas Eléctricas Ltda. (“OSRAM do Brasil”). The case is based on an alleged chronic intoxication of 25 former employees while mercury was being used in production. Due to how the lawsuit has been set out, the number of potential injured parties may increase further. The Association of Workers Exposed and Intoxicated by Metallic Mercury (AEIMM), which has joined the proceedings as another plaintiff, has in the meantime demanded further immaterial damages from OSRAM do Brasil in various forms for employees, family members, and external service providers, loss of income, lifelong annuity payments for family members of the deceased, as well as lifelong annuity payments for children harmed by mercury contamination of a parent.
State Sao Paulo vs OSRAM do Brasil Sao Paulo State Treasury office issued two infraction notices against OSRAM do Brasil which are relatet to tax on circulation of goods (ICMS—„Imposto sobre Operações relativas à Circulação de Mercadorias e Prestação de Serviços de Transporte interestadual e intermunicipal e de Comunicação“—tax on the distribution of goods, interstate and intermunicipal transportation, and communication services) and are related to the years 2006 to 2008. The Sao Paulo State Treasury office demands substantial taxes plus interests and penalties. Furthermore the Sao Paulo State Treasury office disallows tax credits accounted for by OSRAM do Brasil which also causes substantial taxes plus interests and penalties. OSRAM do Brasil filed administrative defences.
Actions under Anti-Trust Law In March 2011, the Competition Commission of Mexico initiated legal proceedings for anti-competitive practices on the local market for ballasts. In November 2011, the Commission requested OSRAM S.A. de C.V. Mexico (“OSRAM S.A.”) to provide information about aspects of its local ballast business. On January 21, 2013, the Commission communicated its preliminary assessment stating that OSRAM S.A. was allegedly involved into anti-competitive agreements to a limited extent. OSRAM S.A. is cooperating with the authorities and has commented on the allegations within the prescribed period on March 5, 2013. The decision of the Commission to impose a fine remains to be seen, we do, however, expect a fine in the region of a middle single-digit Million EURO amount for which a provision has been set up in a previous period. For legal proceedings information required under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed, if the Company concludes that the disclosure can be expected to seriously prejudice the outcome of the ligitation. In addition to the investigations and legal disputes described above, OSRAM was named as a defendant in various other legal disputes and proceedings in connection with its business activities as a diversified, globally present corporate group. Some of these pending proceedings have been previously disclosed. Some of the legal actions include claims or potential claims for indeterminate amounts of damages or punitive damages claims. OSRAM is defending itself against all aforementioned claims.
F-25 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
From time to time, OSRAM is also involved in regulatory investigations beyond those described above. OSRAM is cooperating with the relevant authorities in several jurisdictions and, where appropriate, conducts internal investigations regarding potential wrongdoing with the assistance of in-house and external counsel. In light of the number of legal disputes and other proceedings in which OSRAM is involved, it cannot be ruled out that some of these proceedings could result in rulings against OSRAM. OSRAM is defending itself in legal disputes and proceedings to the extent necessary and prudent. Any conjecture regarding the results of proceedings is associated with considerable difficulties, especially in cases in which the claimant brings claims for undetermined amounts of compensation. With this in mind, OSRAM cannot make any prediction regarding what kind of obligations could possibly ensue from such proceedings. Possible negative rulings in such cases could have considerable effects on the asset, finance and earnings situations in a given reporting period. At this time, however, OSRAM does not expect any significant negative effects on OSRAM‘s financial position or, finance and earnings situations resulting from the other legal topics not separately dealt with in this section.
14. Segment information The OSRAM Licht Group is managed centrally by the Managing Board of OSRAM Licht AG in its function as chief operating decision maker (“CODM”). The Managing Board is responsible for the operating activities of the OSRAM Licht Group. The following information is intended to show how it monitors the reportable segments. In fiscal 2012, there were three Business Units that also corresponded to the reportable segments: General Lighting, Specialty Lighting, and Opto Semiconductors. In order to better address the challenges associated with the change in business models in response to technological transformation and to create even clearer responsibilities, the General Lighting Business Unit’s operations were split into four new Business Units—Lamps, Light Engines & Controls, Luminaires, and Solutions—plus two centrally managed units, Services and OLED (a unit for developing organic light emitting diodes) with effect from October 1, 2012. The newly formed Business Units were combined into the following reportable segments: Lamps & Components (consisting of Lamps and Light Engines & Controls) and Luminaires & Solutions (consisting of Luminaires, Solutions, and Services). As a central research and development project, OLED is reported under Corporate items. In the course of the reorganization, the mechanical engineering and toolmaking activities previously reported under Corporate items were allocated to the Lamps Business Unit. Accordingly, OSRAM has four reportable segments since the beginning of fiscal 2013: Lamps & Components (“LC”), Luminaires & Solutions (“LS”), Specialty Lighting (“SP”), and Opto Semiconductors (“OS”). Intersegment revenue is disclosed in line with the reporting to the CODM. This segment reporting presents the general illumination business based on the business model along the lighting value chain. The LC reportable segment contains the product business (lamps and components for lamps and luminaires). This has a high share of traditional products, which are expected to be increasingly substituted by forward-integrated SSL products (“SSL” stands for “solid state lighting”—the newest generation of lighting products, such as LEDs (light emitting diodes)). The LS reportable segment contains the project and solutions business (luminaires and light management systems for controlling luminaires and lighting systems), which was reinforced largely by acquisitions in recent years, as well as installation and maintenance services for such lighting solutions.
Description of reportable segments Lamps & Components (LC) The LC segment largely comprises OSRAM’s traditional product business, consisting of lamps (from incandescent lamps for consumers through halogen and fluorescent lamps to high-intensity discharge lamps for professional indoor and outdoor use) and components for lamps and luminaires (e.g., electronic ballasts and components for light management systems). Additionally, LC increasingly develops and sells direct substitutes for traditional lamps based on SSL technology. By integrating LEDs into traditional lamp and luminaire forms (forward integration), LC develops SSL products such as LED retrofit lamps and electronic ballasts for LED luminaires.
F-26 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Luminaires & Solutions (LS) The LS segment primarily contains OSRAM’s project and solutions business, which has been extended through OSRAM’s latest acquisitions. This segment includes luminaires for professional applications such as street lighting or architectural lighting, which are mainly sold as part of large projects, as well as (to a much lesser extent) luminaires for private applications such as table and flashlights. In addition, LS offers lighting solutions and associated light management systems that are used in internal and external architectural lighting, and in event lighting. Installation and maintenance services for the LS product portfolio are covered by the Services unit. For a description of the SP and OS segments, whose organizational structures have remained unchanged, see Note 35 Segment information in the notes to the combined financial statements for the fiscal years ended September 30, 2012, 2011, and 2010.
Reconciliation to the condensed interim combined financial statements The Reconciliation to interim combined financial statement item contains businesses, activities, and items that are not directly related or allocated to OSRAM’s reportable segments.
Corporate items and pensions The Corporate items include certain business activities and special topics that are not directly attributed to the segments because the CODM does not consider them to be indicative for the segments’ performance. Among other things, these include activities in connection with specific pre-materials (e.g., the production of fluorescent materials) and specific legal issues. Since the beginning of fiscal 2013, the OLED research and development project is also reported under Corporate items. The Pensions item includes those pension-related income and expenses at OSRAM that are not allocated to the segments. In the six months ended March 31, 2013, the EBITA column of the Corporate items and pensions line item includes €(14.3) million (six months ended March 31, 2012: €(58.4) million) relating to corporate items, as well as €(2.4) million (six months ended March 31, 2012: €(2.2) million) relating to pensions. The increase in EBITA for the corporate items is primarily due to income from the settlement of patent infringement disputes. An offsetting effect on EBITA of €5.9 million resulted from the relocation of Group headquarters in Munich, among other things.
Eliminations, corporate treasury, and other reconciling items Eliminations, corporate treasury, and other reconciling items comprise the consolidation of transactions between the segments, certain reconciliation and reclassification items, and the operations of OSRAM’s corporate treasury.
Measurement—Segments The accounting policies for the segment information are generally the same as those described in Note 2 Summary of significant accounting policies in the notes to the combined financial statements for the fiscal years ended September 30, 2012, 2011, and 2010. Corporate overheads and certain other items not directly attributable to segments are allocated to the segments.
Segment EBITA The Managing Board of OSRAM Licht AG is responsible for assessing the performance of the segments. The Managing Board has specified that earnings before the financial result (gain (loss) from investments accounted for using the equity method, interest income, interest expense, and other financial income (expense), net), income taxes, and amortization and impairment of intangible assets and goodwill (“EBITA”) are to be used as the performance measure. EBITA is an indicator based on operational performance. The net financial result not included in EBITA comprises both the gain (loss) from investments accounted for using the equity method and net interest income from financing activities, as decisions in this regard are taken at Group level.
F-27 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Key decisions on pension-related issues are taken centrally. Therefore, EBITA primarily includes current service cost only. Pension plan curtailments are regarded as a partial payback reimbursement of past service cost, which affects segment profit or loss. Income taxes are also not a component of EBITA because the tax expense is only allocated to legal entities. The legal entities do not usually correspond to the segment structure. A reconciliation of the EBITA presented in the segment information to the income (loss) before income taxes in the combined statements of income is presented below.
Asset measurement principles The Managing Board of OSRAM Licht AG has specified that net assets are to be used as the basis for assessing the capital intensity of the segments (net capital employed). They are calculated as the total assets in the combined statements of financial position, less intragroup financial and tax receivables, including deferred assets. Non-interest-bearing liabilities and other liabilities not resulting from taxes (for example trade payables) are deducted from the remaining assets. A reconciliation of total assets presented in the segment information to the combined statements of financial position is presented below.
Free cash flow definition The segment information shows the free cash flow and additions to property, plant, and equipment, and intangible assets. The segments’ free cash flow is defined as net cash provided by (used in) operating activities less additions to intangible assets and property, plant, and equipment. It primarily excludes the payments and reimbursements related to income taxes and finance charges.
Amortization and impairment of intangible assets The amortization charges and impairment losses presented in the segment information include impairment losses on goodwill and amortization charges and impairment losses on intangible assets, net of reversals of impairment losses.
Depreciation and impairment of property, plant, and equipment The depreciation charges and impairment losses presented in the segment information include depreciation charges and impairment losses on property, plant, and equipment, net of reversals of impairment losses.
Reconciliation to the condensed interim combined financial statements The following table reconciles EBITA as presented in the segment information to the income (loss) before income taxes as presented in OSRAM’s combined statements of income:
Six months ended March 31, 2013 2012 €m EBITA ...... 101.6 38.0 Amortization and impairments(1) ...... (11.6) (116.0) Interest income ...... 4.0 1.5 Interest expense ...... (15.9) (29.0) Other financial income (expense), net ...... (5.9) (1.5) Gain (loss) from investments accounted for using the equity method, net ...... (19.7) (38.3) Income (loss) before income taxes ...... 52.5 (145.3)
(1) Goodwill included.
F-28 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Costs associated with the transformation process OSRAM is addressing the fundamental change in the lighting industry proactively. In order to implement the necessary changes in a focused manner, OSRAM introduced the internal transformation program “OSRAM Push” in the first quarter of fiscal 2012, with the goal of ensuring a sustained improvement in performance. One part of OSRAM Push is the worldwide restructuring project, “Future Industrial Footprint”, which is aimed at adapting production capacity to new market demand. Simultaneously, OSRAM is aiming to increase the earnings power of its business by ensuring more efficient structures in the research and development, production, and sales and distribution functions, as well as in central corporate services (see Note 3 Personnel-related restructuring expenses). Other parts of OSRAM Push are aimed at improving the processes and organizations, as well as the business’s performance-oriented culture. The transformation costs of OSRAM Push have an effect on EBITA and relate primarily to the LC and LS segments, as well as Corporate items. The transformation costs totaling €126.3 million that affected EBITA for the six months ended March 31, 2013, primarily comprise the cost of restructuring measures relating to the “Future Industrial Footprint” program and of more efficient structures in research and development, production, sales and distribution, and central corporate services. These include costs for (a) personnel-related measures (€67.3 million) as well as other personnel-related restructuring measures (€2.3 million) (see Note 3 Personnel-related restructuring expenses); (b) impairment losses (€21.5 million) (see Note 2 Acquisitions and disposals and Note 9 Property, plant, and equipment) and losses on the disposal of items of property, plant, and equipment (€14.1 million) (see Note 5 Other operating expense and Note 9 Property, plant, and equipment). Further transformation costs (€19.5 million, net), were also incurred, including for historical regulatory risks relating to one country, which is being addressed as part of the “Future Industrial Footprint” project. OSRAM also regards these as being in connection with the strategic realignment in that country. By contrast, transformation costs of €140.0 million were incurred in the first six months of fiscal 2012. These mainly comprised: (a) impairment losses on the production facilities for metal halide lamps incorporating ceramic technology (€36.6 million) and OLED production facilities (€21.6 million) (b) impairment losses (€13.5 million) and losses on the disposal of items of property, plant, and equipment (€10.3 million), expenses for personnel-related measures for the “Future Industrial Footprint” program (€10.2 million), as well as other personnel-related restructuring expenses (€7.7 million); (c) the program to reduce product complexity and the related discontinuation of products, which resulted in the remeasurement of the net realizable value of inventories due to lower selling prices (€23.1 million); and (d) other transformation costs, among others relating to the disposal of certain Japanese subsidiaries (see Note 2 Acquisitions and disposals) as well as consulting expenses for OSRAM Push (€17.0 million).
Costs associated with the separation and planned IPO and spin-off; Patent infringement disputes The net income recorded in the six months ended March 31, 2013, as a result of the separation and planned spin-off/the originally planned IPO amounted to €20.7 million. This amount includes legal costs and income in connection with patent infringement disputes, which escalated after the announcement of the planned IPO (see Note 13 Legal proceedings). Additionally, costs were incurred in connection with the listing and the establishment of OSRAM as an independent company (which were partly reimbursed by Siemens), as well as the abovementioned costs related to the relocation of Group headquarters. In the six months ended March 31, 2012, the net expense incurred in relation to the separation and planned IPO and spin-off amounted to €25.8 million (after deduction of the amounts reimbursed by Siemens). These costs were largely dominated by expenses in connection with the patent infringement disputes. For information on the costs reimbursed by Siemens, see Note 15 Related party disclosures.
Costs associated with legal and regulatory disputes In the six months ended March 31, 2013, OSRAM incurred expenses of €10.5 million in connection with other material legal and regulatory disputes (see Note 13 Legal proceedings). By contrast, costs of €30.1 million in connection with further material legal and regulatory disputes were incurred in the six months ended March 31, 2012. These related with €22.1 million largely to a license and brand name dispute.
F-29 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
The following table reconciles total net capital employed for the segments to the total assets reported in OSRAM’s combined statement of financial position: March 31, September 30, 2013 2012 €m Total segment net capital employed ...... 2,070.3 2,169.0 Reconciliation to interim combined financial statements Corporate items and pensions ...... (278.5) (339.1) Asset-based adjustments Receivables from Siemens Group(1) ...... 941.1 956.2 Tax-related assets including deferred taxes(2) ...... 443.7 432.1 Liability-based adjustments Liabilities and provisions ...... 1,431.4 1,360.0 Pensions and other post-retirement obligations ...... 469.1 488.7 Total assets ...... 5,077.1 5,066.9
(1) Trade receivables from affiliated companies amounting to €0.1m as of March 31, 2013, are already included in the assets of the segments. (2) Tax related assets: of which €3.2 million relates to noncurrent income tax receivables in fiscal 2012; of which a correction of €(1.2) million deferred income taxes relate to Noncurrent assets held for sale in fiscal 2013. The following table presents the Gain (loss) from investments accounted for using the equity method, net attributable to the individual segments: Six months ended March 31, 2013 2012 €m Segments Lamps & Components ...... 1.4 (4.4) Luminaires & Solutions ...... 0.2 0.1 Specialty Lighting ...... (17.6) (31.3) Opto Semiconductors ...... — — Reconciliation to interim combined financial statements Corporate items and pensions ...... (3.7) (2.7) Gain (loss) from investments accounted for using the equity method, net .... (19.7) (38.3)
15. Related party disclosures The OSRAM Licht Group has business relations with the Siemens Group (Siemens AG and its direct and indirect subsidiaries excluding OSRAM), Siemens associates and joint ventures, as well as OSRAM associates and joint ventures. Siemens Group entities are related parties, as Siemens AG controls OSRAM.
Transactions with the Siemens Group Sales of goods and services and other income from transactions, and purchases of goods and services and other expenses from transactions with the Siemens Group in the six months ended March 31, 2013, and 2012, are presented in the following table: Sales of goods and Purchases of goods and services and other income services and other expense Six months ended Six months ended March 31, March 31, 2013 2012 2013 2012 €m Siemens Group ...... 10.1 12.3 33.2 50.9
F-30 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Sales to and purchases from the Siemens Group Supply and delivery agreements exist between OSRAM and the Siemens Group. OSRAM both sources goods and services from the Siemens Group and supplies goods and services to it.
Reimbursement of costs by Siemens As stated in Note 1 Basis of preparation, Siemens has announced its plans to take OSRAM public. In preparation for the separation from the Siemens Group and the planned IPO and spin-off of the OSRAM Licht Group, OSRAM incurred certain costs that are considered to be extraordinary and that were reimbursed by Siemens under a cost reimbursement agreement. OSRAM reports the reimbursement of those costs net of the respective expenses. In the six months ended March 31, 2013, OSRAM recognized income related to the cost reimbursement agreement in the amount of €1.8 million. In the six months ended March 31, 2012, OSRAM recognized income related to the cost reimbursement agreement in the amount of €3.6 million.
Share-based payment OSRAM’s employees participate in Siemens AG’s share-based payment programs. Siemens AG grants the shares concerned on behalf of and for the account of OSRAM. In the first quarter of fiscal 2013, Siemens AG has announced the current members of the managing board (as well as other executives of the future OSRAM Group) the grant of a transaction bonus. Accordingly OSRAM Licht shares in a value of at least 50 % and a maximum of 200 % of the target amount established individually for each member of the managing board must be granted after the Spin-off takes effect. The target amount is €2,500,000 for Mr. Wolfgang Dehen and €1,000,000 for Dr. Klaus Patzak as well as €250,000 for Dr. Peter Laier. When calculating the number of the OSRAM Licht shares to be granted, the volume weighted average price of the OSRAM Licht share in XETRA trading on the Frankfurt Stock Exchange in the first 20 trading days will be used as a basis. The specific determination of the degree of achieving the target between 50 % and 200 % lies in the discretion of Siemens AG and will take place shortly after the listing. The resulting fixed number of OSRAM Licht shares will be transferred to the members of the managing board four years after the listing. Each member of the managing board can demand an early transfer in four equal annual tranches; in this situation, a lock-up period for the shares exists for the duration of four years starting with the listing on the stock exchange. The transaction bonus is intended to compensate the benefited persons for the performance which they render in connection with the Spin-off and the listing. Secondly, it shall provide a particular incentive to make the listing of OSRAM a success in the mid-term in the interests of Siemens AG and its shareholders as well as the future OSRAM Group.
License agreements OSRAM uses software originally purchased by Siemens under Group-wide license arrangements (e.g., SAP, Microsoft, and Oracle licenses). At the end of fiscal 2012, Siemens AG and OSRAM GmbH reached an agreement on the cross-licensing of patents, registered designs, and utility models belonging to the portfolio of the respective parties to the agreement and their group companies at the date the Spin-off becomes effective.
Master Agreement Separation In September 2012, OSRAM GmbH (at that time OSRAM AG) and Siemens AG entered into a Master Agreement Separation (“Rahmenvertrag Trennung”) to execute the Spin-off from Siemens. In particular, this agreement governs the termination of internal Group agreements, the transfer of permissions and licenses, share- based instruments, the settlement of taxes, and reciprocal indemnity obligations.
F-31 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
OSRAM’s receivables from and payables to the Siemens Group are as follows: March 31, September 30, 2013 2012 €m Receivables from Siemens Group ...... 941.2 956.2 of which from financing activities ...... 939.4 619.4 from other items ...... 1.8 336.8 Liabilities to Siemens Group ...... 966.7 1,209.5 of which from financing activities ...... 957.0 1,198.1 from other items ...... 9.7 11.4
Financing OSRAM is included in the Siemens Group’s cash pooling and cash management system. OSRAM invests excess short-term liquidity and is granted overdraft facilities for financing its operating activities. As part of the spin-off, this finance program will be replaced by a finance scheme operated by OSRAM GmbH itself. In accordance with the agreement dated October 30 and 31, 2012, Siemens waived Siemens Cash Management receivables due from OSRAM GmbH in the amount of €31.8 million. In addition, it transferred total Siemens Cash Management receivables of €131.2 million to OSRAM Beteiligungen GmbH. In turn, OSRAM Beteiligungen GmbH waived these receivables, which were due from OSRAM GmbH. The total amount of €163.0 million was recognized as a contribution to OSRAM GmbH’s additional paid-in capital and increased the net assets reported in the interim combined financial statements accordingly. In addition, capital contributions totaling €3.8 million were made to OSRAM entities in the six months ended March 31, 2013. The net assets reported in the interim combined financial statements increased by a corresponding amount. Additionally, the Siemens Group provides OSRAM with short-term loans. These amounted to €705.4 million as of March 31, 2013 (September 30, 2012: €720.1 million). The interest income and expense on balances from these financing activities are included in Interest income and Interest expense, respectively. All receivables from and payables to related parties are settled regularly.
Leasing OSRAM has entered into leasing transactions with Siemens Treasury. In addition, several operating lease agreements exist between OSRAM and the Siemens Group, in particular for real estate.
Other items As of September 30, 2012, the other items included a receivable of €336.6 million in relation to the domination agreement between OSRAM GmbH and Siemens Beteiligungen Inland GmbH, Munich, that was effective in fiscal 2012; this receivable was settled in the first quarter of fiscal 2013.
Reorganization of the legal structure of the OSRAM Licht Group For additional information regarding the reorganization of the legal structure of the OSRAM Licht Group see Note 1 Basis of preparation.
Hedging The OSRAM Group’s hedging activities are mainly performed by Siemens AG. The consideration paid is based on standard market rates. The related receivables and payables are reported in the Other current financial assets and Other current financial liabilities line items.
F-32 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Collateral/global letter of support/guarantees The guarantees issued by the Siemens Group amounted to €305.1 million as of March 31, 2013 (September 30, 2012: €322.2 million). As of March 31, 2013, the item included a guarantee of €70.0 million (September 30, 2012: €70.0 million) resulting from the transitional provisions of the Supply Chain Finance Program.
Transactions relating to plan assets In December 2011, OSRAM GmbH received from Siemens AG a cash contribution of €499.5 million for the additional funding of pension plans. For additional information, see also Note 10 Pension plans and similar commitments.
Transactions with associates and joint ventures OSRAM’s business activities include transactions with associates and joint ventures of both the Siemens Group and OSRAM, in particular in respect of the operating business. These are summarized below: Sales of goods and Purchases of goods and services and other income services and other expense Six months ended Six months ended March 31, March 31, 2013 2012 2013 2012 €m Siemens Group joint ventures ...... 0.5 0.5 0.3 0.3 OSRAM associates ...... 0.0 67.0 0.0 0.3 OSRAM joint ventures ...... 12.0 15.3 7.1 3.6 12.5 82.8 7.4 4.2
OSRAM’s receivables from and payables to associates and joint ventures of the Siemens Group and OSRAM are as follows: Receivables Liabilities March 31, September 30, March 31, September 30, 2013 2012 2013 2012 €m Siemens Group joint ventures ...... 0.3 0.3 — 0.6 OSRAM associates ...... 0.0 0.0 0.0 0.0 OSRAM joint ventures ...... 22.9 18.2 0.9 0.9 23.2 18.5 0.9 1.5
In the first six months of fiscal 2012 and 2013, loans granted and noncurrent trade receivables were classified as part of the net investment in Valeo Sylvania and an impairment loss was subsequently charged. For additional information see Note 6 Gain (loss) from investments accounted for using the equity method, net. As of March 31, 2013, there were no additional loans to associates and joint ventures (September 30, 2012: €0.6 million). OSRAM regularly reviews, in the normal course of business, loans and receivables associated with joint ventures and associates. In the six months ended March 31, 2013, this review resulted in a net expense for valuation allowances on non-current receivables of €7.3 million (six months ended March 31, 2012: €14.7 million). Accumulated valuation allowances as of March 31, 2013, primarily on noncurrent foreign currency receivables, amounted to €22.5 million (September 30, 2012: €14.8 million).
Transactions with individuals classified as related parties OSRAM does not qualify as a group in legal terms and is not a group for consolidated financial reporting purposes within the meaning of IAS 27; nor does it have a parent. The key management of the OSRAM Licht
F-33 OSRAM Licht Group NOTES TO THE CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS for the six months ended March 31, 2013
(The following English combined financial statements are translations of the German combined financial statements.)
Group is therefore defined as those persons who, due to their function within OSRAM and in the interests of Siemens AG, are responsible for the worldwide operating business of the OSRAM Licht Group. Prior to the appointment of the managing directors of OSRAM GmbH to the Managing Board of OSRAM Licht AG on November 8, 2012, the OSRAM Licht Group was managed centrally by the managing directors of OSRAM GmbH. In the six months ended March 31, 2013, and 2012, no further material transactions took place between OSRAM and the managing directors of OSRAM GmbH or the Managing Board of OSRAM Licht AG, or between OSRAM and the members of the supervisory boards of OSRAM GmbH and OSRAM Licht AG.
16. Events after the balance sheet date The disposal of the Sunny World and OHK subsidiaries took effect as of April 1, 2013 (see also Note 2 Acquisitions and disposals).
Munich, May 8, 2013
Wolfgang Dehen Dr. Peter Laier Dr. Klaus Patzak
F-34 Combined Financial Statements for the fiscal years ended September 30, 2012, 2011 and 2010 in accordance with International Financial Reporting Standards (IFRS as adopted by the EU) for OSRAM Licht Group
F-35 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) Content
I. Combined Statements of Income ...... F-37 II. Combined Statements of Comprehensive Income ...... F-37 III. Combined Statements of Financial Position ...... F-38 IV. Combined Statements of Cash Flow ...... F-39 V. Combined Statements of Changes in Equity ...... F-40 VI. Notes to Combined Financial Statements—Segment Information ...... F-41 VII. Notes to the Combined Financial Statements ...... F-42
1. Basis of preparation ...... F-42 2. Summary of significant accounting policies ...... F-44 3. Management estimates and judgments ...... F-53 4. Acquisitions and disposals ...... F-56 5. Personnel restructuring expenses ...... F-59 6. Other operating income ...... F-60 7. Other operating expense ...... F-60 8. Gain (loss) from investments accounted for using the equity method, net ...... F-61 9. Interest income, interest expense and other financial income (expense), net ...... F-62 10. Income taxes ...... F-63 11. Available-for-sale financial assets ...... F-66 12. Trade receivables ...... F-66 13. Other current financial assets ...... F-66 14. Inventories ...... F-67 15. Other current assets ...... F-67 16. Goodwill ...... F-67 17. Other intangible assets ...... F-70 18. Property, plant and equipment ...... F-71 19. Investments accounted for using the equity method ...... F-73 20. Other financial assets ...... F-74 21. Other assets ...... F-75 22. Other current financial liabilities ...... F-75 23. Other current liabilities ...... F-75 24. Debt ...... F-76 25. Pension plans and similar commitments ...... F-77 26. Provisions ...... F-87 27. Other liabilities ...... F-88 28. Equity ...... F-88 29. Commitments and contingencies ...... F-90 30. Legal proceedings ...... F-90 31. Financial instruments and hedging activities ...... F-98 32. Financial risk management ...... F-101 33. Share-based payment ...... F-105 34. Related party disclosures ...... F-110 35. Segment information ...... F-115 36. Information about geographies ...... F-119 37. Personnel costs ...... F-120 38. Subsequent events ...... F-120 39. List of subsidiaries, associated companies and joint ventures, and other investments ...... F-122
F-36 OSRAM Licht Group COMBINED STATEMENTS OF INCOME For the fiscal years ended September 30, 2012, 2011 and 2010 (in million of euro) (The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Note 2012 2011 2010 Revenue ...... 5,399.8 5,031.0 4,679.7 Cost of goods sold and services rendered ...... (3,997.5) (3,418.5) (3,082.1) Gross profit ...... 1,402.3 1,612.5 1,597.6 Research and development expenses ...... (339.1) (300.9) (259.5) Marketing, selling and general administrative expenses ...... (1,054.9) (905.6) (774.7) Other operating income ...... (6) 44.8 20.9 6.2 Other operating expense ...... (7) (312.9) (9.7) (5.1) Gain (loss) from investments accounted for using the equity method, net...... (8) (49.3) 5.5 (2.9) Interest income ...... (9) 80.1 53.3 48.4 Interest expense ...... (9) (105.8) (97.6) (97.5) Other financial income (expense), net ...... (9) (11.5) (2.7) (2.8) Income (loss) before income taxes ...... (346.3) 375.7 509.7 Income taxes ...... (10) (32.0) (129.6) (175.1) Net income (loss) ...... (378.3) 246.1 334.6 Attributable to: Non-controlling interests ...... 0.9 3.1 6.4 Siemens Group ...... (379.2) 243.0 328.2
The accompanying Notes are an integral part of these Combined Financial Statements.
COMBINED STATEMENTS OF COMPREHENSIVE INCOME For the fiscal years ended September 30, 2012, 2011 and 2010 (in million of euro) (The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Note 2012 2011 2010 Net income (loss) ...... (378.3) 246.1 334.6 Currency translation differences ...... (28) 52.3 6.9 97.3 Available-for-sale financial assets ...... (28) (0.2) — — Derivative financial instruments ...... 1.2 (4.5) 3.1 Actuarial gains and losses on pension plans and similar commitments, net ...... (25)(28) (119.0) (6.3) (72.2) Other comprehensive income (loss), net of tax ...... (28) (65.7) (3.9) 28.2 Total comprehensive income (loss) ...... (444.0) 242.2 362.8 Attributable to: Non-controlling interests ...... 5.9 7.5 15.7 Siemens Group ...... (449.9) 234.7 347.1
The accompanying Notes are an integral part of these Combined Financial Statements.
F-37 OSRAM Licht Group COMBINED STATEMENTS OF FINANCIAL POSITION As of September 30, 2012, 2011, 2010 and October 1, 2009 (in million of euro) (The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Note 2012 2011 2010 2009 Assets Current Assets Cash and cash equivalents ...... 31.2 43.7 18.2 12.8 Available-for-sale financial assets ...... (11) 0.7 0.7 0.7 0.7 Trade receivables ...... (12) 823.2 851.4 651.2 565.0 Other current financial assets ...... (13) 54.7 43.4 36.8 26.6 Receivables from Siemens Group ...... (34) 956.2 538.5 605.2 363.5 Inventories ...... (14) 1,043.7 1,118.2 916.0 728.1 Income tax receivables ...... 32.7 15.6 5.5 5.8 Other current assets ...... (15) 79.7 75.6 64.0 40.4 Total current assets ...... 3,022.1 2,687.1 2,297.6 1,742.9 Goodwill ...... (16) 36.7 238.2 129.6 115.2 Other intangible assets ...... (17) 106.8 162.3 83.8 101.3 Property, plant and equipment ...... (18) 1,336.3 1,532.0 1,390.5 1,361.7 Investments accounted for using the equity method ...... (19) 62.1 88.7 79.5 46.2 Other financial assets ...... (20) 8.7 16.0 13.4 15.3 Deferred tax assets ...... (10) 397.4 315.4 374.4 368.4 Other assets ...... (21) 98.0 88.6 81.9 73.9 Total assets ...... 5,068.1 5,128.3 4,450.7 3,824.9 Liabilities and equity Current liabilities Short-term debt and current maturities of long-term debt ...... (24) 47.2 22.4 24.7 23.1 Trade payables ...... 609.2 586.0 552.1 391.4 Other current financial liabilities ...... (22) 52.9 40.5 54.7 60.1 Payables to Siemens Group ...... (34) 1,209.5 1,498.0 859.5 667.7 Current provisions ...... (26) 97.0 81.3 64.1 52.7 Income tax payables ...... 66.5 43.9 30.0 18.9 Other current liabilities ...... (23) 376.8 377.0 373.1 331.5 Total current liabilities ...... 2,459.1 2,649.1 1,958.2 1,545.4 Long-term debt ...... (24) 1.3 3.9 4.5 7.2 Pension plans and similar commitments ...... (25) 489.8 833.7 880.8 800.0 Deferred tax liabilities ...... (10) 1.1 34.3 4.8 9.9 Provisions ...... (26) 19.1 16.0 9.0 12.4 Other financial liabilities ...... 0.4 5.8 9.3 12.4 Other liabilities ...... (27) 151.1 128.8 114.4 126.6 Total liabilities ...... 3,121.9 3,671.6 2,981.0 2,513.9 Equity Net assets attributable to Siemens Group ...... 1,863.4 1,371.7 1,387.7 1,313.6 Other components of equity ...... 66.3 16.1 17.4 (74.6) Total equity attributable to Siemens Group ...... 1,929.7 1,387.8 1,405.1 1,239.0 Non-controlling interests ...... 16.5 68.9 64.6 72.0 Total equity ...... (28) 1,946.2 1,456.7 1,469.7 1,311.0 Total liabilities and equity ...... 5,068.1 5,128.3 4,450.7 3,824.9
The accompanying Notes are an integral part of these Combined Financial Statements.
F-38 OSRAM Licht Group COMBINED STATEMENTS OF CASH FLOW For the fiscal years ended September 30, 2012, 2011 and 2010 (in million of euro) (The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Note 2012 2011 2010 Cash flows from operating activities Net income (loss) ...... (378.3) 246.1 334.6 Adjustments to reconcile net income (loss) to cash provided Amortization, depreciation and impairments ...... 655.2 253.1 247.6 Income taxes ...... 32.0 129.5 175.1 Interest (income) expense, net ...... 25.7 44.3 49.2 (Gains) losses on sales and disposals of businesses, intangibles and property, plant and equipment, net ...... 4.7 (6.1) (0.7) (Gains) losses on sales of investments, net ...... 0.1 — — (Income) loss from investments ...... 55.1 (8.3) 11.3 Other non-cash (income) expenses ...... (2.7) 0.3 1.3 Change in current assets and liabilities (Increase) decrease in inventories ...... 95.3 (171.4) (148.7) (Increase) decrease in trade receivables ...... 37.2 (58.2) (66.7) (Increase) decrease in other current assets ...... (11.6) (17.1) (21.4) Increase (decrease) in trade payables ...... 17.8 8.5 156.2 Increase (decrease) in current provisions ...... 20.8 19.6 7.3 Increase (decrease) in other current liabilities ...... 0.2 (14.9) 43.2 Change in other assets and liabilities ...... (3.2) (65.5) (52.6) Change in pension plans due to contribution of plan assets ...... (499.5) — — Income taxes paid ...... (91.8) (96.9) (50.9) Dividends received ...... 4.2 4.1 4.4 Interest received ...... 3.4 1.4 1.9 Net cash provided by (used in) operating activities ...... (35.4) 268.5 691.1 Cash flows from investing activities Additions to intangible assets and property, plant and equipment ...... (17) (18) (187.2) (312.4) (253.2) Acquisitions, net of cash acquired ...... (40.3) (125.2) (35.6) Purchases of investments ...... (23.6) (10.6) (41.1) Proceeds and payments from sales of investments, intangibles and property, plant and equipment ...... 11.1 6.5 4.4 Proceeds and payments from disposals of businesses ...... 36.9 — 0.1 Net cash provided by (used in) investing activities ...... (203.1) (441.7) (325.4) Cash flows from financing activities Change in short-term debt and other financing activities ...... (24) 24.8 (0.5) (3.6) Interest paid ...... (5.5) (3.2) (3.1) Payments for acquisition of shares ...... (1) (4) (53.7) (136.2) — Profit and loss transfer with Siemens Group ...... (28) (143.8) (221.6) 66.1 Dividends paid ...... — (1.9) (10.0) Dividends paid to non-controlling interest holders ...... (1.3) (6.6) (4.3) Interest paid to Siemens Group ...... (19.8) (17.7) (13.0) Other transactions/financing with Siemens Group ...... (75.8) 587.2 (394.7) Funding of pension plans by Siemens Group ...... 499.5 — — Net cash provided by (used in) financing activities ...... 224.4 199.5 (362.6) Effect of exchange rates on cash and cash equivalents ...... 1.6 (0.8) 2.3 Net increase (decrease) in cash and cash equivalents ...... (12.5) 25.5 5.4 Cash and cash equivalents at beginning of period ...... 43.7 18.2 12.8 Cash and cash equivalents at end of period (Combined Statements of Financial Position) ...... 31.2 43.7 18.2
The accompanying Notes are an integral part of these Combined Financial Statements.
F-39 OSRAM Licht Group COMBINED STATEMENTS OF CHANGES IN EQUITY For the fiscal years ended September 30, 2012, 2011 and 2010 (in million of euro) (The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) Net assets Currency Derivative attributable to translation Available-for-sale financial Total equity attributable Non-controlling Siemens Group(1) differences financial assets instruments to Siemens Group(1) interests Total equity Balance at October 1, 2009 ...... 1,313.6 (75.4) 0.1 0.7 1,239.0 72.0 1,311.0 Net income (loss) of the period ...... 328.2 328.2 6.4 334.6 Other comprehensive income (loss), net of tax ...... (73.1)(2) 88.9 — 3.1 18.9 9.3(3) 28.2 Total comprehensive income (loss), net of tax ...... 255.1 88.9 — 3.1 347.1 15.7 362.8 Profit and loss transfer agreement with Siemens Group ...... (221.6) (221.6) — (221.6) Dividends ...... (10.0) (10.0) (6.0) (16.0) Other changes in equity ...... 50.6 50.6 (17.1) 33.5 Balance at September 30, 2010 ...... 1,387.7 13.5 0.1 3.8 1,405.1 64.6 1,469.7 Balance at October 1, 2010 ...... 1,387.7 13.5 0.1 3.8 1,405.1 64.6 1,469.7 Payments for acquisition of shares (to Siemens Group) ...... (136.2) (136.2) — (136.2) Net income (loss) of the period ...... 243.0 243.0 3.1 246.1 Other comprehensive income (loss), net of tax ...... (7.0)(2) 3.2 — (4.5) (8.3) 4.4(3) (3.9) Total comprehensive income (loss), net of tax ...... 236.0 3.2 — (4.5) 234.7 7.5 242.2 Profit and loss transfer agreement with Siemens Group ...... (143.8) (143.8) — (143.8) F-40 Dividends ...... (1.9) (1.9) (2.6) (4.5) Transfer-in of pension assets U.S. (net of tax) ...... 34.1 34.1 — 34.1 Other changes in equity ...... (4.2) (4.2) (0.6) (4.8) Balance at September 30, 2011 ...... 1,371.7 16.7 0.1 (0.7) 1,387.8 68.9 1,456.7 Balance at October 1, 2011 ...... 1,371.7 16.7 0.1 (0.7) 1,387.8 68.9 1,456.7 Net income (loss) of the period ...... (379.2) (379.2) 0.9 (378.3) Other comprehensive income (loss), net of tax ...... (120.9)(2) 49.2 (0.2) 1.2 (70.7) 5.0(3) (65.7) Total comprehensive income (loss), net of tax ...... (500.1) 49.2 (0.2) 1.2 (449.9) 5.9 (444.0) Loss transfer to Siemens Group ...... 336.6 336.6 — 336.6 Dividends ...... — — (4.3) (4.3) Capital increase by Siemens Group ...... 702.1(4) 702.1 — 702.1 Sale of subsidiaries ...... — — (46.5) (46.5) Payments for acquisition of shares (without change of control) ...... (45.9) (45.9) (7.6) (53.5) Transfer-in of pension assets U.S. (net of tax) ...... 4.7 4.7 — 4.7 Other changes in equity ...... (5.7) (5.7) 0.1 (5.6) Balance at September 30, 2012 ...... 1,863.4 65.9 (0.1) 0.5 1,929.7 16.5 1,946.2
(1) OSRAM Licht Group is not a legal group for consolidated financial statements reporting purposes in accordance with IAS 27. The Combined Financial Statements were prepared by aggregating the net assets (see Note 1 Basis of preparation of the accompanying notes). (2) Other comprehensive income (loss), net of tax attributable to Siemens Group includes actuarial gains and losses on pension plans and similar commitments of €(120.9) million, €(7.0) million and €(73.1) million, respectively, in fiscal 2012, 2011 and 2010. (3) In fiscal 2012, non-controlling interests include actuarial gains of €1.9 million and currency translation differences of €3.1 million. In fiscal 2011, non-controlling interests include actuarial gains of €0.7 million and currency translation differences of €3.7 million. In fiscal 2010, non-controlling interests include actuarial gains of €0.9 million and currency translation differences of €8.4 million. (4) The capital increase by Siemens Group consists of a cash contribution of €499.5 million for the funding of pension plans and of €200.0 million due to a waiver of receivables (see Note 28 Equity of the accompanying Notes). The capital increase by Siemens Group also includes €2.7 million equity of the OSRAM Licht AG as of September 30, 2012.
The accompanying Notes are an integral part of these Combined Financial Statements. OSRAM Licht Group NOTES TO COMBINED FINANCIAL STATEMENTS—SEGMENT INFORMATION As of and for the fiscal years ended September 30, 2012, 2011 and 2010 (in million of euro) (The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Additions to intangible assets and property, plant Amortization and Depreciation and External revenue Intersegment revenue Total revenue EBITA(1) Assets(2) Free Cash Flow(3) and equipment impairments(4) impairments(5) 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 9/30/12 9/30/11 9/30/10 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 Segments General Lighting ...... 3,387.2 3,164.0 2,943.9 — — — 3,387.2 3,164.0 2,943.9 (184.2)106.7 232.1 1,213.2 1,755.1 1,292.0 62.3 (73.1)235.5 75.8 109.5 86.9 306.9 12.2 9.6 170.1 91.0 99.2 Speciality Lighting ...... 1,404.6 1,243.5 1,173.8 — — — 1,404.6 1,243.5 1,173.8 227.1 209.8 192.9 403.4 427.3 392.0 210.9 163.6 196.2 43.0 36.1 24.0 0.9 1.7 2.1 40.7 39.5 46.7 Opto Semiconductors ...... 584.7 596.9 533.7 314.4 261.5 209.6 899.1 858.4 743.3 75.9 118.2 165.6 550.4 598.3 475.6 139.5 (12.2)102.4 62.3 157.1 137.7 0.8 0.8 0.6 104.5 84.9 70.5 Total Segments ...... 5,376.5 5,004.4 4,651.4 314.4 261.5 209.6 5,690.9 5,265.9 4,861.0 118.8 434.7 590.6 2,167.0 2,780.7 2,159.6 412.7 78.3 534.1 181.1 302.7 248.6 308.6 14.7 12.3 315.3 215.4 216.4 Reconciliation to Combined Financial Statements Corporate items and pensions ...... 23.3 26.6 28.3 — — — 23.3 26.6 28.3 (64.9)(11.7) (7.6) (341.6) (634.5) (655.4)(631.9)(133.9) (58.4) 6.1 9.7 4.6 4.5 5.1 5.7 26.8 17.9 13.2 Eliminations, corporate treasury and other reconciling items ...... — — — (314.4) (261.5) (209.6) (314.4) (261.5) (209.6) (0.6) 14.0 (0.5) 3,242.7 2,982.1 2,946.5 (3.4) 11.7 (37.8) ————————— OSRAM Licht Group ...... 5,399.8 5,031.0 4,679.7 — — — 5,399.8 5,031.0 4,679.7 53.3 437.0 582.5 5,068.1 5,128.3 4,450.7 (222.6) (43.9)437.9 187.2 312.4 253.2 313.1 19.8 18.0 342.1 233.3 229.6 F-41
(1) EBITA is earnings before financial results (Gain (loss) from investments accounted for using the equity method, net; Interest income; Interest expense and Other financial income (expense), net), Income taxes and Amortization and impairments as defined below. (2) Assets of the segments and corporate items and pensions is based on the total assets of the Combined Statements of Financial Position, primarily excluding financing receivables and tax related assets including deferred taxes as well non- interest- bearing liabilities and other than tax related liabilities (e.g. trade payables). (3) Free Cash Flow constitutes net cash provided by (used in) operating activities less additions to intangible assets and property, plant and equipment. For the Segments, it primarily excludes income tax related and financing interest and proceeds. (4) Amortization and impairments represents amortization and impairments of goodwill and intangible assets, net of reversals of impairments.
(5) Depreciation and impairments represents depreciation and impairments of property, plant and equipment, net of reversals of impairments. OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 1. Basis of preparation Background On March 28, 2011 Siemens AG (“Siemens”) announced its plans to publicly list the OSRAM Business. Facing the current market conditions, Siemens decided in June 2012 to prepare, parallel and alternatively to the aforementioned plan of an Initial Public Offering, an offering in the form of a spin-off, by issuing OSRAM shares to the shareholders of Siemens AG and a subsequent listing of these shares. Also in this simultaneously prepared form of a listing, that requires approval at the general shareholders’ meeting, Siemens plans to retain a minority stake of OSRAM. OSRAM Licht AG (until November 14, 2012: Kyros A AG) Munich, Germany will be the parent company of the future OSRAM Group and, as such, the share issuer. OSRAM’s operating activities are performed by OSRAM GmbH (until October 25, 2012: OSRAM AG), Munich, Germany and its direct and indirect subsidiaries. In addition to OSRAM Licht AG, OSRAM Beteiligungen GmbH (until August 22, 2012: Blitz 12-464 GmbH), Munich, Germany also acts as a transaction company. These three companies are all 100% subsidiaries of Siemens AG. OSRAM Licht AG and OSRAM Beteiligungen GmbH were incorporated in fiscal 2012 and are solely transaction companies without any operating activities. Upon completion of the proposed transaction structure, OSRAM Licht AG will be the parent company of the future OSRAM Group and will hold 100% of the shares of OSRAM Beteiligungen GmbH and 19.5% of the shares of OSRAM GmbH while OSRAM Beteiligungen GmbH will hold 80.5% of the shares of OSRAM GmbH. According to the European Prospectus Regulation No. 809/2004 (“EPV”), an issuer must present historical financial information covering the latest three fiscal years in its securities prospectus. In the present case, this is the information for the fiscal years from October 1, 2011 to September 30, 2012, from October 1, 2010 to September 30, 2011 and from October 1, 2009 to September 30, 2010. According to the EPV, OSRAM Licht AG has a “Complex Financial History” as of the share issuance date. As such, OSRAM Licht AG prepares Combined Financial Statements for OSRAM Licht AG, OSRAM Beteiligungen GmbH, OSRAM GmbH and its direct and indirect subsidiaries (hereafter referred to as “OSRAM Licht Group” or “OSRAM”). The Combined Financial Statements consist of Combined Statements of Income, Combined Statements of Comprehensive Income, Combined Statements of Financial Position, Combined Statements of Cash Flow, Combined Statements of Changes in Equity and Notes to the Combined Financial Statements for the fiscal years 2012, 2011 and 2010, as well as a Combined Statement of Financial Position in accordance with IFRS 1 as of October 1, 2009 (collectively referred to hereafter as “Combined Financial Statements”).
Definition of the OSRAM business OSRAM is one of the world’s leading providers of lighting products and solutions. In addition to products and lighting solutions based on traditional technologies, OSRAM offers LEDs (light-emitting diodes), OLEDs (organic light emitting diodes) and products based on LED, which OSRAM subsumes under the term SSL (solid state lighting). These include inter-alia retrofit lamps (LED lamps in the traditional form and which are direct substitutions for the traditional light bulbs), SSL systems and SSL luminaires for various applications. The product portfolio using traditional technologies includes halogen lamps, compact fluorescent lamps (CFL, energy saving lamps), linear fluorescent lamps, high intensity discharge lamps (e.g. metal halide lamps on a quartz or ceramic basis), traditional incandescent lamps, as well as electronic ballasts and dimmers for both traditional and LED-based products. In addition, OSRAM offers customized solutions and light management systems for large projects. OSRAM’s products are used for illumination, visualization, sensing and various other purposes in a wide variety of applications. OSRAM operates worldwide in legal entities and was presented as a Division of the Industry Sector (business segment within Siemens) in Siemens’ Consolidated Financial Statements. Since March 31, 2011 OSRAM has been classified as held for disposal and presented as discontinued operation in Siemens’ Consolidated Financial Statements.
F-42 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
As of September 30, 2012 OSRAM Licht Group consists of OSRAM Licht AG, OSRAM Beteiligungen GmbH and OSRAM GmbH, as well as its direct and indirect subsidiaries. As of September 30, 2012 and 2011 OSRAM GmbH and its direct and indirect subsidiaries are a legal group for consolidated financial statement reporting purposes in accordance with IAS 27. In fiscal 2011 OSRAM GmbH acquired the following significant interests in companies from Siemens Group entities: • 44% of the shares in OSRAM AS, Norway (“OSRAM Norway”) were acquired from Siemens AS, Norway for a purchase price of €8.9 million on June 17, 2011. • 100% of the shares in OSRAM S.p.A. Società Riunite OSRAM-Edision-Clerici, Milan, Italy (“OSRAM Italy”) were acquired from Siemens Holding S.p.A., Italy for a purchase price of €107.0 million on June 24, 2011. • 100% of the shares in OSRAM S.A., Madrid, Spain (“OSRAM Spain”) were acquired from Siemens Holding S.L., Spain for a purchase price of €20.2 million on June 29, 2011. In addition, by a contract dated July 4, 2011, Siemens AG transferred its shares in OSRAM SYLVANIA Inc., Danvers, U.S.A., (“OSRAM SYLVANIA”) to OSRAM GmbH by way of a contribution to additional paid in capital amounting to €698.1 million without consideration. The contribution of OSRAM SYLVANIA to OSRAM GmbH and the acquisition of the interests from other companies in the Siemens Group are transactions under common control of Siemens AG. The purchase price obligations in respect of the acquisition of the interests have been presented as equity transactions with the shareholder, Siemens AG, at the individual closing dates of the contracts. For additional information, see Note 28 Equity. As of September 30, 2010 OSRAM Licht Group consisted of OSRAM GmbH, including its direct and indirect subsidiaries, OSRAM SYLVANIA including its direct and indirect subsidiaries (“OSRAM U.S.”), OSRAM Spain und OSRAM Italy. On September 22/26, 2011, Siemens AG and the former OSRAM AG terminated the domination and profit and loss transfer agreement (“Beherrschungs- und Gewinnabführungsvertrag”), previously entered into by Siemens AG and OSRAM GmbH, with effect from the end of fiscal 2011, that is after September 30, 2011. Also at September 22/26, 2011, Siemens Beteiligungen Inland GmbH, Munich, Germany (“SBI”, a 100% subsidiary of Siemens AG) and OSRAM AG put OSRAM AG under the control of SBI and concluded a domination agreement (“Beherrschungsvertrag”), which became effective with entry into the Commercial Register on October 6, 2011. SBI and OSRAM AG mutually agreed on September 10/12, 2012 to terminate the domination agreement with effect from the end of fiscal 2012, that is after September 30, 2012.
Combined Financial Statements OSRAM Licht Group has prepared these Combined Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). These Combined Financial Statements are the first financial statements of OSRAM Licht Group in accordance with IFRS 1.3. OSRAM Licht Group prepared the Combined Financial Statements using IFRS 1.D16(a) (“predecessor accounting method”). OSRAM Licht Group used the same accounting policies and valuation methods for the preparation of these Combined Financial Statements, as those used by the OSRAM companies for the preparation of the financial information included in Siemens’ Consolidated Financial Statements, unless such accounting policies and valuation methods are not in accordance with IFRS when presenting OSRAM Licht Group as a group of companies independent of Siemens. These accounting policies have been disclosed under Note 2 Summary of significant accounting policies. The Combined Financial Statements were prepared on a historical cost basis as included in Siemens’ Consolidated Financial Statements, based on Siemens’ date of transition to IFRS (October 1, 2004). Since IFRS does not provide any guidance for the preparation of Combined Financial Statements, IAS 8.12 has been used for the preparation of the Combined Financial Statements. IAS 8.12 requires that the latest pronouncements of other standard setters, other accounting literature and accepted industry practice should be
F-43 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) considered. The Combined Financial Statements of OSRAM Licht Group have been derived from the aggregation of the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH, OSRAM GmbH and its direct and indirect subsidiaries. All intra-group balances, income, expenses and unrealized gains and losses arising from transactions between companies belonging to OSRAM Licht Group were eliminated when preparing the Combined Financial Statements. In addition, the investments of the holding companies in OSRAM Licht Group were eliminated against the equity of the respective subsidiaries. Transactions with Siemens AG and Siemens group companies, which do not belong to OSRAM Licht Group, have been disclosed as transactions with related parties.
Income taxes were determined based on the assumption that the companies in OSRAM Licht Group were separately taxable entities. This assumption implies that the current and deferred income taxes of all companies and of the tax groups within OSRAM Licht Group are calculated separately and the recoverability of the deferred tax assets is also assessed accordingly. Due to the fact that certain entities of OSRAM Licht Group did not file separate tax returns in previous years, the respective current tax assets and liabilities, as well as the deferred tax assets on net operating losses, are deemed either contributed or distributed to the respective tax group member filing the tax return with a corresponding effect in the equity of the (non-OSRAM Licht Group) shareholder as of the end of the respective fiscal year. The taxes actually paid by the OSRAM Licht Group have been presented in the Combined Statements of Cash Flow; the deemed contributions or distributions have not been included. In fiscal 2012 all companies of OSRAM Licht Group were either separately taxable entities or were part of an income tax group within OSRAM Licht Group. Receivables and payables between OSRAM GmbH and Siemens arising from the VAT group have been disclosed under other tax receivables / payables.
Management considers the separate tax return approach to be reasonable, but not necessarily indicative of the tax income or expense that would have been incurred if the entities were indeed separate taxable entities.
The Combined Financial Statements have been prepared and published in million of euro (€ million). Rounding differences may occur in respect of individual amounts or percentages.
Prior to the formal appointment of the management of OSRAM GmbH to the managing board of OSRAM Licht AG on November 8, 2012, OSRAM Licht Group was managed centrally by the management of OSRAM GmbH.
The Combined Financial Statements were authorized for issue by the managing board of OSRAM Licht AG located in Hellabrunner Straße 1, 81543 Munich, Germany, on November 15, 2012.
2. Summary of significant accounting policies The accounting principles set out below have, unless stated otherwise, been applied consistently for all periods presented in these Combined Financial Statements. Key accounting estimates and judgments—The preparation of the Combined Financial Statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of income, expenses, assets and liabilities. Actual results may differ from management’s estimates. Estimates and assumptions are reviewed on an on-going basis, and changes in estimates and assumptions are recognized in the period in which the changes occur and in future periods impacted by the changes. The estimates in accordance with the basis of preparation made in these Combined Financial Statements are consistent with estimates made for the same date in accordance with the reporting requirements under IFRS as part of the consolidation group of Siemens AG, unless there is objective evidence that those estimates are not in accordance with IFRS on a stand-alone basis. In addition, the areas involving a high degree of judgment or where estimates and assumptions are significant to the Combined Financial Statements are disclosed in Note 3 Management estimates and judgments. Basis of combination—The Combined Financial Statements include the accounts of OSRAM Licht AG, OSRAM Beteiligungen GmbH, OSRAM GmbH AG and its direct and indirect subsidiaries. Subsidiaries are companies over which OSRAM has controlling influence over operating and financial policies. Control is
F-44 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) generally conveyed by ownership of the majority of voting rights. Associated companies are recorded in the Combined Financial Statements using the equity method of accounting. Companies in which OSRAM has joint control are also recorded using the equity method. The Combined Financial Statements for fiscal 2010 include the accounts of OSRAM GmbH and its direct and indirect subsidiaries, OSRAM U.S., OSRAM Spain and OSRAM Italy. Business combinations—Business combinations which took place after fiscal 2010 are accounted for under the acquisition method in accordance with IFRS 3 (2008). Cost of an acquisition is measured at the fair value of the assets given and liabilities incurred or assumed, as well as contingent consideration, at the date of exchange. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be recognized either in the statements of income or as a change to other comprehensive income, in accordance with IAS 39. A contingent consideration classified as equity will not be remeasured and subsequent settlement is accounted for within equity. Acquisition-related costs are expensed in the period incurred. Identifiable assets acquired and liabilities assumed in a business combination (including contingent liabilities) are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. A positive difference between the acquisition cost including the fair value of the non-controlling interests and the assets and liabilities acquired is accounted for as goodwill. A negative difference is immediately accounted for as income. Non-controlling interests may be measured at their fair value (full goodwill method) or at the proportional fair value of assets acquired and liabilities assumed (partial goodwill method). After initial recognition non-controlling interests may show a deficit balance since both profits and losses are allocated to the shareholders based on their equity interests. In business combinations achieved in stages, any previously held equity interest in the acquiree is remeasured to its acquisition date fair value. If there is no loss of control, transactions with non-controlling interests are accounted for as equity transactions not affecting profit and loss. Where there was an existing business relationship between OSRAM and the business acquired prior to the acquisition date and this relationship was settled as a result of the acquisition, any profit or loss is included in the statements of income. At the date, control is lost, any retained equity interests are remeasured to fair value through the statements of income. Business combinations which took place prior to fiscal 2010 are accounted for under the purchase method in accordance with IFRS 3 (2004). The acquisition cost of an acquisition is measured at the fair value of the assets given and liabilities incurred or assumed, as well as directly attributable acquisition-related costs. Identifiable assets acquired and liabilities assumed in a business combination (including contingent liabilities) are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Subsequent changes to the fair value of contingent considerations classified as liabilities were accounted for with no effect on net income. A positive difference between the acquisition cost and the net value of the assets and liabilities acquired was accounted for as goodwill. Associated companies and jointly controlled entities—Companies in which OSRAM has the ability to exercise significant influence over their operating and financial policies (generally through direct or indirect ownership of 20% to 50% of the voting rights) and jointly controlled entities are recorded in the Combined Financial Statements using the equity method of accounting and are initially recognized at cost. The following policies equally apply to associated companies and jointly controlled entities. Goodwill relating to the acquisition of associated companies is included in the carrying amount of the investment and is not amortized but is tested for impairment as part of the overall investment in the associated company. OSRAM’s share of its associated companies’ post-acquisition profits or losses is recognized in the Combined Statements of Income, and its share of post-acquisition movements in equity that have not been recognized in the associate’s profit or loss is recognized directly in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment in the associated company. When OSRAM’s share of losses in an associated company equals or exceeds its interest in the associate, OSRAM does not recognize further losses, unless it incurs obligations or makes payments on behalf of the associate. The interest in an associate is the carrying amount of the investment in the associate together with any long-term interests that, in substance, form part of OSRAM’s net investment in the associate. Intercompany results arising from transactions between OSRAM and its associated companies are eliminated to the extent of OSRAM’s interest in the associated company. OSRAM determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, OSRAM calculates the amount of impairment as the difference between the
F-45 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) recoverable amount of the associate and its carrying amount. Upon loss of significant influence over the associate, OSRAM measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognized in profit or loss. Foreign currency translation—The assets, including goodwill, and liabilities of foreign subsidiaries, where the functional currency is other than the euro, are translated using the spot exchange rate at the end of the reporting period, while the Combined Statements of Income are translated using average exchange rates during the period. Differences arising from such translations are recognized within equity and reclassified to net income when the gain or loss on disposal of the foreign subsidiary is recognized. The Combined Statements of Cash Flow of foreign subsidiaries are translated at average exchange rates during the period, whereas cash and cash equivalents are translated at the spot exchange rate at the end of the reporting period. The exchange rates of the significant currencies of non-euro countries used in the preparation of the Combined Financial Statements were as follows: Spot exchange rate €1 quoted into currencies specified below September 30, October 1, Currency ISO Code 2012 2011 2010 2009 U.S. Dollar ...... USD 1.293 1.350 1.365 1.464 Chinese Renminbi ...... CNY 8.189 8.633 9.133 9.966 Hongkong Dollar ...... HKD 10.026 10.521 10.592 11.349 Japanese Yen ...... JPY 100.370 103.790 113.680 131.070
Annual average exchange rate €1 quoted into currencies specified for the year ended September 30, Currency ISO Code 2012 2011 2010 U.S. Dollar ...... USD 1.303 1.399 1.354 Chinese Renminbi ...... CNY 8.225 9.148 9.198 Hongkong Dollar ...... HKD 10.120 10.882 10.229 Japanese Yen ...... JPY 102.460 113.166 110.375 Foreign currency transaction—Transactions that are denominated in a currency other than the functional currency of an entity are recorded at that functional currency applying the spot exchange rate at the date when the underlying transactions are recognized initially. At the end of the reporting period, foreign currency-denominated monetary assets and liabilities are re-valued to functional currency applying the spot exchange rate prevailing at that date. Gains and losses arising from these foreign currency revaluations are recognized in net income. Those foreign currency-denominated transactions which are classified as non-monetary are remeasured using the historical spot exchange rate. Revenue recognition—Under the condition that persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, revenue is recognized to the extent that it is probable that the economic benefits will flow to OSRAM and revenue can be reliably measured, regardless of when the payment is being made. In cases where the inflow of economic benefits is not probable due to customer related credit risks the revenue recognized is subject to the amount of payments irrevocably received. Revenue is measured at the fair value of the consideration received or receivable net of discounts and rebates and excluding taxes or duty. OSRAM assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent.
F-46 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
If sales of goods and services or software arrangements involve the provision of multiple elements, OSRAM determines whether the contract or arrangement contains more than one unit of accounting. The following specific recognition criteria must also be met before revenue is recognized: Sale of goods—Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. If product sales are subject to customer acceptance, revenue is not recognized until customer acceptance occurs. Rendering of services—Revenues from service transactions are recognized as services are performed. For long-term service contracts, revenues are recognized on a straight-line basis over the term of the contract or, if the performance pattern is other than straight-line, as the services are provided, i.e. generally under the percentage-of-completion method. Interest income—Interests are recognized using the effective interest method. Royalties—Royalties are recognized on an accrual basis in accordance with the substance of the relevant agreement. Dividends—Dividends are recognized when the right to receive payment is established. Functional costs—In general, operating expenses by types are assigned to the functions following the functional area of the corresponding profit and cost centers, if necessary based on an appropriate allocation principle. For additional information on amortization see Note 17 Other intangible assets and Note 18 Property, plant and equipment. For information on expenses for employee benefits, see Note 37 Personnel costs. Government grants—Government grants are recognized when there is reasonable assurance that the conditions attached to the grants are complied with and the grants will be received. Grants awarded for the purchase or the production of fixed assets (grants related to assets) are generally offset against the acquisition or production costs of the respective assets and reduce future depreciations accordingly. Grants awarded for other than non-current assets (grants related to income) are reported in the Combined Statements of Income under the same functional area as the corresponding expenses. They are recognized as income over the periods necessary to match them on a systematic basis to the costs that are intended to be compensated. Government grants for future expenses are recorded as deferred income. Product-related expenses and losses from onerous contracts—Provisions for estimated costs related to product warranties are recorded in line item Cost of goods sold and services rendered at the time the related sale is recognized, and are mainly determined on an individual basis. The estimates reflect historic trends of warranty costs, as well as information regarding product failure experienced during construction, installation or testing of products. Expected losses from onerous contracts are recognized in the period when the unavoidable costs under these contracts exceed the economic benefit arising from them. Research and development costs—Costs of research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. Costs for development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if (1) development costs can be measured reliably, the product or process is (2) technically and (3) commercially feasible, (4) future economic benefits are probable and (5) OSRAM intends, and (6) has sufficient resources, to complete development and to use or sell the asset. The costs capitalized include the cost of materials, direct labor and other directly attributable expenditure that serves to prepare the asset for use. Such capitalized costs are included in the line item Other intangible assets, see Note 17 Other intangible assets. Other development costs are expensed as incurred. Capitalized development costs are stated at cost less accumulated amortization and impairment losses with an amortization period of generally three to five years. Government grants for research and development activities are offset against research and development costs. They are recognized as income over the periods in which the research and development costs incur that are to be compensated. Government grants for future research and development costs are recorded as deferred income.
F-47 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Goodwill—Goodwill is not amortized, but instead tested for impairment annually, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount may not be recoverable. Goodwill is carried at cost less accumulated impairment losses. The goodwill impairment test is performed at the level of a cash-generating unit or a group of cash-generating units, which is the lowest level at which goodwill is monitored by management. In fiscal 2012 and 2011, these were the Business Units General Lighting (“GL”) and Specialty Lighting (“SP”) and, additionally in fiscal 2012, the Business Segments Professional Luminaires (“PLUM”) and Light Management Solutions (“LMS”), both of which form part of the Business Unit GL. In fiscal 2010, the goodwill impairment test was performed at the OSRAM Division level within the Siemens Group, since the monitoring of goodwill was performed by Siemens Group management at this level. See Note 16 Goodwill. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash-generating unit that is expected to benefit from the synergies of the business combination. If the carrying amount of the cash-generating unit, to which the goodwill is allocated, exceeds its recoverable amount, an impairment loss on goodwill allocated to this cash-generating unit is recognized. The recoverable amount is the higher of the cash-generating unit’s fair value less costs to sell and its value in use. If either of these amounts exceeds the carrying amount, it is not always necessary to determine both amounts. These values are generally determined based on discounted cash flow calculations. Impairment losses on goodwill are not reversed in future periods if the recoverable amount exceeds the carrying amount of the cash-generating unit to which the goodwill is allocated; see Note 16 Goodwill for further information. Other intangible assets—Other intangible assets consist of software and other internally generated intangible assets, patents, licenses and similar rights. The Company amortizes intangible assets with finite useful lives on a straight-line basis over their respective estimated useful lives to their estimated residual values. The estimated useful lives for software, patents, licenses, and other similar rights range generally from three to five years, except for intangible assets with finite useful lives acquired in business combinations. Intangible assets acquired in business combinations primarily consist of patented and unpatented technology and customer relationships. Useful lives in specific acquisitions were up to 17 years for patented and unpatented technology and range from two to 16 years for customer relationships. Intangible assets which are determined to have indefinite useful lives, as well as intangible assets not yet available for use are not amortized, but instead tested for impairment, at least annually. For additional information, see Note 17 Other intangible assets. Property, plant and equipment—Property, plant and equipment is valued at cost less accumulated depreciation and impairment losses. If the costs of certain components of an item of property, plant and equipment are significant in relation to the total cost of the item, they are accounted for and depreciated separately. Depreciation expense is recognized using the straight-line method. Residual values and useful lives are reviewed annually and, if expectations differ from previous estimates, adjusted accordingly. The following useful lives are assumed: Buildings ...... 20to50years Technical machinery & equipment ...... 5to15years Furniture & office equipment ...... 5to6years Impairment of property, plant and equipment and other intangible assets—OSRAM reviews property, plant and equipment and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, intangible assets which are determined to have indefinite useful lives as well as intangible assets not yet available for use are subject to an annual impairment test. Recoverability of assets is measured by the comparison of the carrying amount of the asset to the recoverable amount, which is the higher of the asset’s value in use and its fair value less costs to sell. The assets’ value in use is measured by discounting their estimated future cash flows. If assets do not generate cash inflows that are largely independent of those from other assets or groups of assets, the impairment test is not performed at an individual asset level, instead it is performed at the level of the cash-generating unit the asset belongs to. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset or cash-generating unit exceeds their recoverable amount. If there is an indication that the reasons which caused the impairment no longer exist, OSRAM assesses the need to reverse all or a portion of the impairment.
F-48 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The Company’s Property, plant and equipment and other intangible assets to be disposed of are recorded at the lower of carrying amount or fair value less costs to sell and depreciation and amortization is ceased. Income taxes—The Company applies IAS 12 Income taxes. Current taxes are calculated based on the profit (loss) of the fiscal year and in accordance with local tax law of the respective tax jurisdiction. Expected and executed additional tax payments respectively tax refunds for prior years are also taken into account. Under the liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Combined Statements of Income, unless related to items directly recognized in equity, in the period the new laws are enacted or substantively enacted. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilized. See additional information in Note 1 Basis of preparation. Inventories—Inventories are valued at the lower of acquisition or productions costs and net realizable value with costs being generally determined on the basis of the average cost method or first-in, first-out method. Production costs comprise direct material and labor and applicable manufacturing overheads, including depreciation charges. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Non-current assets held for disposal—OSRAM classifies a non-current asset (or a disposal group) as held for disposal if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale or distribution in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. Non-current assets classified as held for disposal and disposal groups are measured at the lower of their carrying amount and fair value less costs to sell, unless these items presented in the disposal group are not part of the measurement scope as defined in IFRS 5, Non-current Assets held for Sale and Discontinued Operations. Defined Benefit Plans—OSRAM measures the entitlements of the defined benefit plans by applying the projected unit credit method. The approach reflects an actuarially calculated net present value of the future benefit entitlement for services already rendered. In determining the net present value of the future benefit entitlement for service already rendered (Defined Benefit Obligation (DBO)), OSRAM considers future compensation and benefit increases, because the employee’s final benefit entitlement at regular retirement age depends on future compensation or benefit increases. For post-employment healthcare benefits, OSRAM considers health care trends in the actuarial valuation. The separating out of the pension entitlement of OSRAM’s employees from the pension plans of Siemens may be dependent upon the employees’ consent. For unfunded plans, OSRAM recognizes a pension liability equal to the DBO adjusted by unrecognized past service cost. For funded plans, OSRAM offsets the fair value of the plan assets with the benefit obligations. OSRAM recognizes the net amount, after adjustments for effects relating to unrecognized past service cost and any asset ceiling in line item Pension plans and similar commitments or in line item Other current assets. Actuarial gains and losses, resulting for example from an adjustment of the discount rate or from a difference between actual and expected return on plan assets, are recognized in the Combined Statements of Comprehensive Income in the year in which they occur. Those effects are recorded in full directly in equity, net of tax. Countries with significant pension plans and significant other post-employment benefit plans are the U.S., Germany, Canada, U.K., Switzerland and Italy. Provisions—A provision is recognized in the Statements of Financial Position when OSRAM has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are recognized at present value by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. When a contract becomes onerous, the present obligation under the contract is recognized as a provision and measured at the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract as far as they exceed the expected economic benefits of the contract.
F-49 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Additions to provisions and reversals are generally recognized in the Combined Statements of Income. Termination benefits—Termination benefits are recognized in the period incurred and when the amount is reasonably estimable. Termination benefits in accordance with IAS 19 are recognized as a liability and an expense when the entity has demonstrably committed itself, through a formal termination plan or otherwise creating a valid expectation, to either provide termination benefits as a result of an offer made in order to encourage voluntary redundancy or terminate employment before the normal retirement date. Leasing—The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item to OSRAM as lessee, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the Combined Statements of Income. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that OSRAM will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Leases of assets under which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Combined Statements of Income on a straight-line basis over the term of the lease. Since these Combined Financial Statements present OSRAM Licht Group as an independent business, leasing arrangements with Siemens are accounted for as either finance or operating leases in accordance with the aforementioned accounting. Financial instruments—A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. OSRAM’s financial assets mainly include cash and cash equivalents, available-for-sale financial assets, trade receivables, loans receivable and derivative financial instruments with a positive fair value. Cash and cash equivalents are not included within the category available-for-sale financial assets as these financial instruments are not subject to fluctuations in value. OSRAM does not make use of the category held to maturity. OSRAM’s financial liabilities mainly comprise loans from banks, trade payables, finance lease payables and derivative financial instruments with a negative fair value. OSRAM does not make use of the option to designate financial assets or financial liabilities at fair value through profit or loss at inception (Fair Value Option). Based on their nature, financial instruments are classified as financial assets and financial liabilities measured at cost or amortized cost and financial assets and financial liabilities measured at fair value. See Note 31 Financial instruments and hedging activities for further information. Financial instruments are recognized on the Combined Statements of Financial Position when OSRAM becomes a party to the contractual obligations of the instrument. Regular way purchases or sales of financial assets, i.e. purchases or sales under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned, are accounted for at the trade date. Initially, financial instruments are recognized at their fair value. Transaction costs directly attributable to the acquisition or issue of financial instruments are only recognized in determining the carrying amount, if the financial instruments are not measured at fair value through profit or loss. Subsequently, financial assets and liabilities are measured according to the category—cash and cash equivalents, available-for-sale financial assets, loans and receivables, financial liabilities measured at amortized cost or financial assets and liabilities classified as held for trading—to which they are assigned. Financial instruments are derecognized when they have been repaid by the debtor. Repayment usually takes place in the form of a payment from the debtor to the creditor. Repayment can, however, also occur where the debtor is legally released from his original obligation or the obligation has extinguished. The derecognition of the obligation by the creditor is also made, when the creditor transfers the financial asset to another party and has not withheld any significant risks and rewards from that financial asset. Cash and cash equivalents—All highly liquid investments with less than three months maturity from the date of acquisition are considered to be cash equivalents. Cash and cash equivalents are measured at cost.
F-50 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Available-for-sale financial assets—Investments in equity instruments, debt instruments and fund shares are classified as available-for-sale financial assets and are measured at fair value, if reliably measurable. Unrealized gains and losses, net of applicable deferred income taxes, are recognized in line item other comprehensive income, net of tax. Provided that fair value cannot be reliably determined, OSRAM measures available-for-sale financial instruments at cost. This applies to equity instruments that do not have a quoted market price in an active market, and decisive parameters cannot be reliably estimated to be used in valuation models for the determination of fair value. When available-for-sale financial assets incur a decline in fair value below acquisition cost and there is objective evidence that the asset is impaired, the cumulative loss that has been recognized in equity is removed from equity and recognized in the Combined Statements of Income. OSRAM considers all available evidence such as market conditions and prices, investee-specific factors and the duration as well as the extent to which fair value is less than acquisition cost in evaluating potential impairment of its available-for-sale financial assets. OSRAM considers a decline in fair value as objective evidence of impairment, if the decline exceeds 20% of costs or continues for more than six months. An impairment loss for debt instruments is reversed in subsequent periods, if the reasons for the impairment no longer exist. Loans and receivables—Financial assets classified as loans and receivables are measured at amortized cost using the effective interest method less any impairment losses. Impairment losses on trade and other receivables are recognized using separate allowance accounts. See Note 3 Management estimates and judgments for further information regarding the determination of valuation allowances. Loans and receivables bearing no or lower interest rates compared to market rates with a maturity of more than one year, are discounted. Financial liabilities—OSRAM measures financial liabilities, except for derivative financial instruments, at amortized cost using the effective interest method. Derivative financial instruments—Derivative financial instruments, such as foreign currency exchange contracts and interest rate swap contracts, are measured at fair value. Derivative financial instruments are classified as held for trading unless they are designated as hedging instruments, for which hedge accounting is applied. Changes in the fair value of held for trading derivative financial instruments are recognized periodically in net income. The effective portion of changes in the fair value of derivative instruments designated as cash flow hedges are recognized in line item Other comprehensive income (loss), net of tax (applicable deferred income taxes). The ineffective portion is recognized immediately in net income. Amounts accumulated in equity are reclassified into the Combined Statements of Income in the same periods in which the hedged item affects the Combined Statements of Income or the occurrence of the underlying hedged item can no longer be expected. See Note 31 Financial Instruments and hedging activities for further information. Share-based payment—Employees of OSRAM may participate in the share-based payment programs of the Siemens Group. The share-based payments awards including rights to receive shares of Siemens stock have been granted by the legal entities in which the OSRAM employees are employed and OSRAM recognizes the expenses over the term of the vesting period and later until settlement. OSRAM’s Combined Financial Statements apply a fair-value based cash-settlement accounting in accordance with IFRS 2.43B. The fair value is measured at grant date and compensation expense is recognized over the vesting period during which the employees become unconditionally entitled to the awards granted. Cash-settled awards are remeasured at fair value at the end of each reporting period and upon settlement. OSRAM uses an option pricing model to determine the fair value of stock options. The fair value of other share-based awards, such as stock awards, matching shares and shares granted under the Jubilee Share Program (to the extent that these relate to shares of Siemens), is determined as the market price of Siemens shares, considering dividends during the vesting period the grantees are not entitled to and, to the extent necessary, to certain market and non-vesting conditions. Additional information on the share based awards can be found in Note 33 Share-based payment.
Accounting pronouncements adopted in fiscals 2012, 2011 and 2010 In October 2010, the IASB issued amendments to IFRS 7, Financial Instruments: Disclosures, which enhance the disclosure requirements, hence maintain the derecognition model of IAS 39. The amendments
F-51 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) increase the disclosure requirements for transfers of financial assets where the transferor retains continuing involvement in the transferred asset; additional disclosures are required if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. The amendment is applicable for annual reporting periods beginning on or after July 1, 2011; early adoption is permitted. The adoption of IFRS 7 did not result in a material impact on the Combined Financial Statements. The adoption of new accounting pronouncements in fiscal years 2012, 2011 and 2010 did not have any material impact on the Combined Financial Statements.
Recent accounting pronouncements, not yet adopted The following pronouncements, issued by IASB, are not yet effective and have not yet been adopted by OSRAM: In December 2011, the IASB issued amendments to IAS 32, Financial Instruments: Presentation and IFRS 7, Financial Instruments: Disclosures regarding offsetting of financial assets and financial liabilities. The amendment to IAS 32 clarifies the existing offsetting rules and is effective for reporting periods beginning on or after January 1, 2014; early application is permitted, however, it requires the application of the amendments to IFRS 7. These amendments to IFRS 7 expand the disclosure requirements for financial assets and financial liabilities offset in the Statements of Financial Position including netting agreements where netting is subject to certain future events. This amendment is effective for reporting periods beginning on or after January 1, 2013. Both amendments have not yet been endorsed by the EU. In June 2011, the IASB issued IAS 19, Employee Benefits (revised 2011; IAS 19R). IAS 19R eliminated the previous policy option of accounting for actuarial gains and losses either immediately as a profit or loss, in other comprehensive income or recognizing only a portion of the gains and losses in accordance with the so-called “corridor method”. These changes will not have any impact on the Combined Financial Statements, since OSRAM already recognizes the actuarial gains and losses as they occur in other comprehensive income. Furthermore, IAS 19R requires that the return on pension plan assets should be calculated based on the discount rate, as opposed to the expected return on plan assets. This gives rise to a homogeneous return of the pension obligations and plan assets and which will be disclosed as net interest. This will have a negative effect on the profit / loss (net of income taxes) in the fiscal years presented, when the expected return on plan assets was higher than the discount rate. The expected return on plan assets for the principal pension schemes in fiscal 2012, 2011 and 2010 were €75.3 million, €49.4 million and €45.4 million respectively. The implementation of IAS 19R results in a reduction of the gains accounted for. The gains from the discounting of the obligations which are to be included in the net interest amounted to €56.3 million, €36.2 million and €37.1 million for the fiscal years 2012, 2011 and 2010 respectively. This results in higher net interest expenses (before income tax) for the principal pension schemes of €19.0 million, €13.2 million and €8.3 million for the fiscal years 2012, 2011 and 2010 respectively. Adjustments to the past service costs / income are to be included in full in the period in which the plan was amended. This will not result in a material impact on the Combined Financial Statements of the previous fiscal years. The revision of IAS 19 changes the definition of termination benefits and establishes the principle that expenses for employee benefits are to be accounted for when these have been earned by the employee. This will not result in a material impact on the Combined Financial Statements of the previous fiscal years. The disclosure requirements for defined benefit pension obligations have also been extended. The amendment is effective for reporting periods beginning on or after January 1, 2013. Early adoption is allowed. The revision of IAS 19 was endorsed by the EU in June 2012. OSRAM will adopt the revised standard in the fiscal year commencing on October 1, 2012. Retrospective application and presentation is required. In May 2011, the IASB published its improvements to the accounting and disclosure requirements for consolidation, off balance sheet activities and joint arrangements by issuing IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities and consequential amendments to IAS 27, Separate Financial Statements (amended 2011) and IAS 28, Investments in Associates and Joint Ventures (amended 2011).
F-52 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
IFRS 10 builds on existing principles by identifying a comprehensive concept of control as the determining factor in whether an entity should be included within the Consolidated Financial Statements. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 11 provides guidance for the accounting of joint arrangements by focusing on the rights and obligations of the arrangements, rather than its legal form. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and off balance sheet vehicles. IFRS 10, 11, 12 and the consequential amendments to IAS 27 and IAS 28 are effective for annual periods beginning on or after January 1, 2013. These new or amended standards may be adopted early, however all as of the same date, except that an entity may early adopt the disclosure provisions of IFRS 12. The standards are to be applied on a retrospective basis. IFRS 10, 11, 12 and the consequential amendments to IAS 27 and IAS 28 are not endorsed by the EU yet. OSRAM will adopt IFRS 10, 11, 12 and the consequential amendments to IAS 27 and IAS 28 in fiscal 2014. The Company is currently assessing the impact on the Combined Financial Statements. In May 2011, the IASB issued IFRS 13, Fair Value Measurement. The new standard defines fair value and standardizes disclosures on fair value measurement of both financial and non-financial instrument items. The new standard is applicable for annual periods beginning on or after January 1, 2013; early adoption is permitted. IFRS 13 has not been endorsed by the EU yet. Regarding financial instruments, the majority of changes required by IFRS 13 have already been introduced, mainly by amendments to IFRS 7, Financial Instruments: Disclosures. OSRAM does not expect a material impact on financial assets and liabilities upon adopting IFRS 13. The Company is currently assessing the impact on non-financial assets and liabilities in the Combined Financial Statements. In November 2009, the IASB issued IFRS 9, Financial Instruments. This standard is the first phase of the IASB’s three-phase project to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 amends the classification and measurement requirements for financial assets, including some hybrid contracts. It uses a single approach to determine whether a financial asset is measured at amortized cost or at fair value, replacing the different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the different impairment methods in IAS 39. In December 2011, the IASB deferred the mandatory effective date from annual reporting periods beginning on or after January 1, 2013 to annual reporting periods beginning on or after January 1, 2015; early application is permitted. The IASB also provided relief from restating comparative financial statements for the effect of applying IFRS 9; instead additional transition disclosures will be required. The European Financial Reporting Advisory Group postponed its endorsement advice, to take more time to consider the output from the IASB project to improve accounting for financial instruments. OSRAM is currently assessing the impacts of adopting IFRS 9 on the Combined Financial Statements. In June 2011, the IASB issued Amendments to IAS 1—Presentation of Items of Other Comprehensive Income. The amendments require that an entity present separately the items of Other Comprehensive Income (“OCI”) that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The amendments are effective for the annual periods beginning on or after July 1, 2012. The amendments to IAS 1 will result in changes to the presentation of Other Comprehensive Income. The IASB issued various other pronouncements. These recently adopted pronouncements as well as pronouncements not yet adopted do not have a material impact on OSRAM’s Combined Financial Statements.
3. Management estimates and judgments OSRAM’s Combined Financial Statements are prepared in accordance with IFRS as adopted by the EU. OSRAM’s significant accounting policies, as described in Note 2 Summary of significant accounting policies are essential to understand OSRAM’s results of operations, financial positions and cash flows. Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the
F-53 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates could change from period to period and have a material impact on OSRAM’s results of operations, financial positions and cash flows. Critical accounting estimates could also involve estimates where management reasonably could have used a different estimate in the current accounting period. Management cautions that future events often vary from forecasts and that estimates routinely require adjustment. Trade and other receivables—The allowance for doubtful accounts involves significant management judgment and review of individual receivables based on individual customer creditworthiness, current economic trends and analysis of historical bad debts on a portfolio basis. For the determination of the country-specific component of the individual allowance, country credit ratings are also considered, which are centrally determined based on information from external rating agencies. Regarding the determination of the valuation allowance derived from a portfolio-based analysis of historical bad debts, a decline of receivables in volume results in a corresponding reduction of such provisions and vice versa. As of September 30, 2012 OSRAM recorded a total valuation allowance for short term accounts receivable of €26.1 million (September 30, 2011: €24.9 million, September 30, 2010: €26.3 million and October 1, 2009: €29.9 million). Impairment—The managing board decided in the second quarter of fiscal 2012 to monitor the Business Segments PLUM and LMS more closely and considered this to be the appropriate level of monitoring the goodwill associated with these business segments. This change in the monitoring level was made, as the business outlook of the acquired groups of companies, Siteco Lighting GmbH, Traunreut, Germany including its indirectly and directly controlled subsidiaries (collectively “Siteco”), Traxon Technologies Ltd, (formerly Perfect Tact Ltd.) Hong Kong, China and its subsidiaries (collectively “Traxon”) and Encelium Holdings, Inc., Teaneck, U.S. and its subsidiary in Canada (collectively “Encelium”) has declined as a result of technological changes in the market, required additional selling efforts, lower than expected sales synergies and the reorganization of the lighting business within OSRAM. The remaining goodwill is monitored at the Business Unit level. The goodwill allocated to PLUM, LMS and GL was tested for impairment due to certain events in the second quarter and also as part of the annual impairment test. In fiscal 2011 the goodwill impairment test was performed at the level of the Business Units and in 2010 at the OSRAM Division level within the Siemens group, since the monitoring of the goodwill was performed by Siemens Group management at this level. The determination of the recoverable amount of cash-generating units to which goodwill is allocated involves the use of estimates by management. The outcome predicted by these estimates is influenced e.g. by the successful integration of acquired entities, volatility of capital markets, interest rate developments, foreign exchange rate fluctuations and the outlook on economic trends. In particular, the business plan of the Business Unit GL includes significant assumptions relating to the future development of the traditional lighting business and current programs, such as “OSRAM Push” (for additional information on OSRAM Push, see Note 35 Segment information). The recoverable amount is the higher of fair value less costs to sell and value in use. OSRAM generally uses discounted cash flow methods to determine these values. These discounted cash flow calculations use five-year projections that are based on business plans. Cash flow projections take into account past experience, current operating results and represent management’s best estimate about future economic developments. Cash flows after the planning period are extrapolated using individual growth rates. Key assumptions on which management has based its determination of fair value less costs to sell and value in use include estimated growth rates and weighted average cost of capital. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment. The estimate of growth rates considers expectations as to inflation and market growth, as well as macro-economic data and industry specific trends. The weighted average cost of capital reflects the specific risks of every individual cash-generating unit to which goodwill has been allocated and takes account of the current market assessment. OSRAM reassessed inter-alia the current economic viability of its PLUM business in fiscal 2012 and, as a result, booked an expense of €216.0 million in the Combined Statements of Income and reduced the related translation differences of €2.6 million included in Other comprehensive income. The impairment includes an amount of €173.1 million relating to Goodwill (including foreign currency effects). An additional amount of €45.5 million was allocated pro-rata to Other intangible assets (see Note 17 Other intangible assets).
F-54 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Goodwill allocated to the BU GL was fully impaired, as a result of the technological change. This resulted in an expense of €66.9 million included in Other operating expense and reduced the related translation differences of €2.7 million included in Other comprehensive income. See Note 16 Goodwill for additional information. Likewise, whenever property, plant and equipment, other intangible assets and investments accounted for using the equity method are tested for impairment, the determination of the assets’ recoverable amount involves the use of estimates by management and can have a material impact on the respective values and ultimately the amount of any impairment (see Note 18 Property, plant and equipment). In the first quarter of fiscal 2012, the joint venture Valeo Sylvania LLC (“Valeo Sylvania”), which is accounted for using the equity method and relates to the Business Unit Specialty Lighting, was tested for impairment. This resulted in an impairment loss of €27.6 million, of which €14.7 million relate to long-term receivables (see Note 8 Gain (loss) from investments accounted for using the equity method, net and Note 19 Investments accounted for using the equity method). Employee benefits accounting—Pension plans and similar commitments—Obligations for pension and other post-employment benefits and related net periodic benefit costs are determined in accordance with actuarial valuations. These valuations rely on key assumptions including discount rates, expected return on plan assets, compensation entitlements, expected salary increases, mortality rates and healthcare trend rates. The discount rate assumptions are determined by reference to yields on high-quality corporate bonds of appropriate duration and currency at the end of the reporting period. In cases such yields are not available the discount rate is determined by reference to market rate of return of government bonds. Expected returns on plan assets assumptions are determined on a uniform methodology, considering long-term historical returns and asset allocations. Due to changing market and economic conditions, the underlying key assumptions may differ from actual developments and may lead to significant changes in pension and other post-employment benefit obligations. Such differences are recognized in full directly in equity in the period in which they occur without affecting profit or loss. The recognized liabilities for pension plans and similar commitments as of September 30, 2012 amounted to €489.8 million (September 30, 2011: €833.7 million, September 30, 2010: €880.8 million and October 1, 2009: €800.0 million). See Note 25 Pension plans and similar commitments for further details on principal pension and principal other post-employment benefits. Termination benefits—OSRAM runs restructuring programs and takes individual action to terminate employment contracts. Costs in conjunction with terminating employment contracts and other exit costs are subject to significant estimates and assumptions. These include, for example, the number of acceptances in respect of an offer to terminate early employment contracts and the nature of the measures. See Note 5 Personnel restructuring expenses for further information. Legal proceedings—OSRAM is subject to legal and regulatory proceedings and government investigations in various jurisdictions. Such proceedings may result in criminal or civil sanctions, penalties, disgorgements and legal costs against the Company. If it is more likely than not that an obligation of the Company exists and will result in an outflow of resources, a provision is recorded if the amount of the obligation can be reliably estimated. Regulatory and legal proceedings as well as government investigations often involve complex legal issues and are subject to substantial uncertainties. Accordingly, management exercises considerable judgment in determining whether there is a present obligation as a result of a past event at the end of the reporting period, whether it is more likely than not that such a proceeding will result in an outflow of resources and whether the amount of the obligation can be reliably estimated. OSRAM periodically reviews the status of these proceedings with both inside and outside counsel. These judgments are subject to change as new information becomes available. The required amount of a provision may change in the future due to new developments in the particular matter. Revisions to estimates may significantly impact future net income. Upon resolution, OSRAM may incur charges in excess of the recorded provisions for such matters. It cannot be excluded, that the financial position or results of operations of OSRAM will be materially affected by an unfavorable outcome of legal or regulatory proceedings or government investigations. See Note 30 Legal proceedings for further information. Income taxes—OSRAM operates in various tax jurisdictions and therefore has to determine tax positions under respective local tax laws and tax authorities’ views, which can be complex and subject to different
F-55 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) interpretations of taxpayers and local tax authorities. Deferred tax assets are recognized if sufficient future taxable profit is available, including income from forecasted operating earnings, the reversal of existing taxable temporary differences and established tax planning opportunities. As of each period-end, management evaluates the recoverability of deferred tax assets, based on projected future taxable profits. As future developments are uncertain and partly beyond management’s control, assumptions are necessary to estimate future taxable profits as well as the period in which deferred tax assets will recover. Estimates are revised in the period in which there is sufficient evidence to revise the assumption. If management considers it probable that all or a portion of a deferred tax asset cannot be realized, a corresponding valuation allowance is taken into account. See Note 2 Summary of significant accounting policies and Note 10 Income taxes for further information.
4. Acquisitions and disposals a) Acquisitions In fiscal 2012, 2011 and 2010, the Company completed a number of acquisitions, which are accounted under the acquisition method in the Combined Financial Statements (IFRS 3 (2008) revised). For further information, see Note 2 Summary of significant accounting policies.
Fiscal 2012 Acquisition of Encelium As of October 14, 2011, OSRAM acquired an additional interest of 83.13% in Encelium Holdings, Inc., Teaneck, U.S. in a share deal transaction. The main rational for the acquisition was to enhance the Company’s position in the global growth market of Light Management Systems and to complement to OSRAM’s Business Unit Light Engines portfolio of energy-efficient lighting products and solutions. As a result of the transaction, OSRAM’s interest in Encelium increased from 16.87% to 100%. The aggregate consideration amounts to €37.6 million, which consists of €37.4 million for paid in cash and €0.2 million recognized as a liability. Cash acquired amounts to €0.6 million. Acquisition-related costs amount to €1.1 million and were expensed within Marketing, selling and general administrative expenses. The fair value of OSRAM’s existing 16.87% equity interest in the acquiree on the date of the acquisition was €5.2 million and the remeasurement to fair value resulted in a gain of €0.2 million, which has been recognized in Other operating income, in the Combined Statements of Income. Based on the fair value assessment in the course of the preliminary purchase price allocation, €11.8 million was allocated to intangible assets and €34.5 million to goodwill which was allocated to the Business Segment Light Management Solutions (“LMS”) (see Note 16 Goodwill). Of the €11.8 million intangible assets, €5.4 million relate to customer contracts with useful lives of eight years, €5.3 million to patented and unpatented technology with useful lives of five to seven years and €1.1 million to Encelium trademark, which was considered to be of indefinite useful life as OSRAM intends to continue to use the Encelium trademark in the foreseeable future and the trademark is not limited in its usage. Goodwill comprises intangible assets that are not separable such as employee know-how and expected synergy effects. €0.5 million of the recognized goodwill is deductible for tax purposes. The acquired Encelium business contributed revenues of €4.5 million and a net loss of €(8.0) million, including effects from purchase price accounting, in fiscal 2012. If Encelium had been included in the Combined Financial Statements with effect from October 1, 2011, the impact for the 12 months ended September 30, 2012 would have been additional revenues of €4.5 million and a net loss (net of income taxes) of €(8.4) million, including effects from purchase price accounting.
Acquisition of Traxon As of November 8, 2011, OSRAM acquired additional shares of its subsidiary Traxon Technologies Ltd (formerly Perfect Tact Ltd.), Hong Kong, China, (“Traxon”) increasing its ownership from 51% to 100%. The aggregate preliminary consideration amounts to €53.5 million, and consists of the €48.0 million paid in cash and of €5.5 million (USD 7.5 million) for a contingent consideration. The contingent consideration represents its fair
F-56 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) value at the acquisition date and was contingent upon reaching certain revenue targets for the year ended December 31, 2011. In April 2012, the remaining consideration was paid and amounted to €5.7 million (USD 7.5 million). The difference of €45.9 million between non-controlling interests of €7.6 million and fair value of the consideration paid of €53.5 million is debited to equity in accordance with IAS 27. OSRAM acquired various additional companies in fiscal 2012, the effects of which were not significant, neither individually nor in aggregate.
Fiscal 2011 Acquisition of Siteco As of July 1, 2011, OSRAM acquired a controlling interest of 100% in Siteco. Siteco is a leading company in the European market for lighting technology that offers luminairs and lighting systems for urban infrastructures, such as public and commercial buildings, streets, tunnels, airports and sport facilities. With this acquisition, OSRAM was able to improve its strong relationship with key decision makers of wholesalers and architects. Siteco provides significant success factors, such as the technological transition from conventional lighting to SSL, strong development and manufacturing capabilities as well as profound know-how of the use of lighting technologies. The aggregate consideration amounted to €132.4 million, which consisted of €128.4 million paid in cash and €4.0 million in respect of a preliminary purchase price adjustment, subject to the seller’s acceptance. This adjustment was recorded within Other current financial liabilities and was settled in fiscal 2012. Cash acquired amounted to €5.0 million. Acquisition-related costs amounted to €3.7 million and were expensed within Marketing, selling and general administrative expenses. The following table is based on the final purchase price allocation and shows the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed: July 1, 2011 €m Trade and other receivables ...... 37.9 Inventories ...... 37.7 Goodwill ...... 107.5 Property, plant and equipment ...... 69.5 Other intangible assets ...... 95.8 Deferred tax assets ...... 14.3 Trade payables ...... (24.7) Other current financial liabilities ...... (125.8) Other current liabilities ...... (14.0) Provisions ...... (15.5) Deferred tax liabilities ...... (40.9) Pension plans and similar commitments ...... (30.7) Intangible assets mainly relate to customer relationships of €37.5 million (with useful lives between two and ten years), technology of €26.4 million (with useful lives of between three and 17 years) and to the Siteco corporate brand of €7.7 million. The Siteco corporate brand was considered to be of indefinite useful life as OSRAM intends to continue to use the Siteco corporate brand in the foreseeable future and it is not limited in its usage. Goodwill comprises intangible assets that are not separable such as employee know-how and expected synergy effects. None of the recognized goodwill is deductible for tax purposes. The nominal amount of trade and other receivables acquired was €40.8 million at the acquisition date and the net carrying amount was €37.9 million (equivalent to the fair value). The acquired Siteco business contributed revenues of €61.6 million and a net loss of €(5.6) million (including effects from purchase price accounting and integration costs) to OSRAM for the period from acquisition to September 30, 2011. If Siteco had been included as of October 1, 2010, the impact on consolidated revenues and consolidated net income contributed by Siteco for the 12 months ended September 30, 2011 would have been €230.6 million and €(30.3) million, including €16.5 million one off expenses, respectively.
F-57 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
In the course of the acquisition, Siemens assumed an external liability of Siteco of €125.5 million as of June 30, 2011. In fiscal 2011, OSRAM acquired one further company, which was deemed not material.
Fiscal 2010 Acquisition of Traxon In the second quarter of fiscal 2009, OSRAM acquired a controlling interest of 51% in Traxon. Traxon develops and provides integrated lighting solutions in the architectural, restaurant and hotel and retail industry. Traxon was initially consolidated in the second quarter of fiscal 2009 and is integrated in the Business Unit General Lighting. The aggregate purchase price amounted to €54.8 million and consisted of the purchase price payment of €38.0 million and of a variable purchase price consideration (earn-out amount). In fiscal 2010, the earn-out amount increased by €18.8 million to €35.6 million. €5.2 million were paid in by the minority shareholders as capital contribution. Both the acquisition of Traxon and the additional earn-out payment, which increased the goodwill by €16.4 million, were accounted for using IFRS 3 (2004). See Note 16 Goodwill for additional information. €2.4 million relates to the non-controlling interest’s proportional share of the capital contribution. None of the goodwill is deductible for tax purposes. Furthermore, in fiscal 2010, OSRAM Group acquired other entities, which were not material, either individually or in aggregate. b) Disposal Fiscal 2012 With effect from September 30, 2012 OSRAM sold its 51% interest in OSRAM MELCO Ltd., Yokohama, Japan (“OML”) and its 49% interest in Mitsubishi Electric OSRAM Ltd., Yokohama, Japan (“MOL”) to Mitsubishi Electric Corporation, Tokyo, Japan (“MELCO”). OSRAM entered into a forward contract to hedge foreign currency risks arising from the sales price denominated in Japanese yen. The hedged sales price for both companies, OML and MOL, totaled €45.1 million (before deduction of the cash and cash equivalents sold of €6.8 million). With effect from September 26, 2012, OSRAM and MELCO, as shareholder in OML, agreed upon the sale of OML’s interests in OSRAM MELCO Toshiba Lighting Ltd. Yokusuka, Japan (“OMTL”) and TLT OSRAM-Melco Lighting Ltd., Yokusuka, Japan (“TOML”) to Toshiba Lighting & Technology Corporation, Yokusuka Japan (“TLT”). Under the terms of the share purchase agreement, OML paid an amount of €3.0 million for the dissolution of the Joint Venture, of which €1.5 million had to be borne by OSRAM. Prior to the sale, OSRAM classified the assets and liabilities of its subsidiary, OML, including the interest held by OML in OGASA Sanroku Kaihatsu KK, Kakegawa City, Japan, its interest in MOL, as well as its interests in the subsidiary OMTL and TOML as held for sale in accordance with IFRS 5. In fiscal year 2012 an impairment loss of €5.6 million was booked in accordance with IFRS 5 and recorded in Costs of goods sold and services rendered in the Combined Statements of Income. The sale of OML and MOL, together with OMTL and TOML resulted in a profit on disposal (before income taxes) of €8.4 million. The profit is included in the line item Other operating income in fiscal 2012. An amount of €9.2 million was transferred from the line item Other components of equity to the Combined Statements of Income, consisting of the realized foreign accumulated currency translation differences and the result of the forward exchange contract hedging the sales price.
F-58 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The disposal of the aforementioned companies is part of OSRAM’s world-wide project “Future Industrial Footprint” (see Note 5 Personnel restructuring expenses and Note 35 Segment information). The activities of the companies sold comprised primarily of the production and distribution of lamps, materials for lamps and components (e.g. ballasts and starters) for the Japanese market. The companies concerned were previously included in the Business Unit General Lighting. The carrying values of the main asset and liability groups derecognized due to on the aforementioned disposal are summarized below: September 30, 2012 €m Cash and cash equivalents ...... 6.8 Receivables and other financial assets ...... 33.6 Inventories ...... 19.8 Property, plant and equipment ...... 57.1 Investments accounted for using the equity method ...... 1.3 Other assets ...... 2.0 Total assets ...... 120.6 Liabilities ...... 25.4 Pension plans and similar commitments ...... 2.5 Total liabilities ...... 27.9
The interest of the non-controlling shareholder in the net assets of the derecognized subsidiaries OML and OMTL amounted to €44.4 million.
5. Personnel restructuring expenses OSRAM initiated personnel related restructuring measures in the fiscal years 2012, 2011 and 2010. The costs for these measures amounted to €69.3 million in fiscal 2012 (2011: €10.3 million; 2010: €13.1 million). Restructuring expenses affect all functional costs, primarily Cost of goods sold and services rendered. The restructuring expenses consist of: Year ended September 30, 2012 2011 2010 €m General Lighting ...... (59.2) (7.2) (5.8) Specialty Lighting ...... (8.5) (3.1) (7.1) Opto Semiconductors ...... (0.3) — (0.2) Corporate items ...... (1.3) — — OSRAM ...... (69.3) (10.3) (13.1)
The increase in the restructuring expenses in fiscal 2012 compared to prior years is primarily a result of the world-wide restructuring project “Future Industrial Footprint”. This program was announced on January 17, 2012 with the goal to adapt the global production capacity to new market demand. The measures to be taken as a result of the program “Future Industrial Footprint” comprise the closure and relocation of production facilities and a reduction of the company’s headcount in later years. The program is a result of the Company’s transformation process (see Note 35 Segment information). The personnel costs associated with the “Future Industrial Footprint” program totaled €52.5 million in fiscal 2012.
F-59 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 6. Other operating income Year ended September 30, 2012 2011 2010 €m Gain on sales of property, plant and equipment and intangibles ...... 3.2 8.8 2.6 Gain on disposals of businesses ...... 8.4 — 1.4 Miscellaneous other income ...... 33.2 12.1 2.2 Other operating income ...... 44.8 20.9 6.2
Fiscal 2012 The fiscal 2012 Gain on sales of property, plant and equipment and intangibles includes income amounting to €2.2 million from the sale of assets in Chung Take Lighting Control Systems (Guangzhou) Ltd., Guangzhou, China. This sale was included in the Business Unit General Lighting. The Gain on disposals of businesses amounting to €8.4 million in fiscal 2012 relates to the sale of OML and MOL, as well as OMTL and TOML. For additional information, see Note 4 Acquisitions and disposals. The line item Miscellaneous other income includes income from the settlement of a patent infringement dispute and the release of corresponding provisions.
Fiscal 2011 The Gain on sales of property, plant and equipment and intangibles in fiscal 2011 relates to the sale of assets in Ningbo Zuoming Electronics Co. Ltd., Ningbo, China, with a total amount of €5.5 million, recorded in the Business Unit General Lighting. Additionally, in fiscal 2011 a gain of €1.6 million is included, resulting from the sale of the production equipment for tanning lamps relating to the Business Unit Specialty Lighting. In fiscal 2011 unsettled payables of aged intercompany balances with Siemens were released in the amount of €7.3 million which is presented in the line Miscellaneous other income.
Fiscal 2010 There were no significant individual items in fiscal 2010.
7. Other operating expense Year ended September 30, 2012 2011 2010 €m Impairment of goodwill ...... (237.4) — — Losses on sales and disposals of property, plant and equipment and intangibles ...... (14.4) (2.7) (2.0) Losses on disposals of businesses ...... (1.9) — (1.4) Miscellaneous other expense ...... (59.2) (7.0) (1.7) Other operating expense ...... (312.9) (9.7) (5.1)
Fiscal 2012 Impairment of goodwill in fiscal 2012 relates to the Business Segment PLUM and the Business Unit GL. The Business Segment PLUM is allocated to the Business Unit GL (see Note 16 Goodwill). Losses on sales of property, plant and equipment and intangibles include expenses in connection with the “Future Industrial Footprint” program. The disposal of property, plant and equipment in the course of this program resulted in a loss of €11.0 million in fiscal 2012 (see Note 35 Segment information).
F-60 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The line item Miscellaneous other expense includes costs in connection with the patent infringement disputes of €45.8 million, which escalated immediately after the announcement of the originally planned IPO of OSRAM Licht Group as well as another provision for an additional lawsuit.
Fiscal 2011 The line item Miscellaneous other expense includes costs in connection with patent infringement disputes of €31.3 million, which escalated immediately after the announcement of the originally planned IPO of OSRAM Licht Group. These costs were reimbursed by Siemens in fiscal 2011. OSRAM accounts for the reimbursements net of the related costs (see Note 34 Related party disclosures).
Fiscal 2010 There were no significant individual items in fiscal 2010.
8. Gain (loss) from investments accounted for using the equity method, net Year ended September 30, 2012 2011 2010 €m Share of profit (loss), net ...... (7.6) 5.1 8.8 Impairments, net ...... (41.7) (2.8) (11.7) Reversals of impairments ...... — 3.2 — Gain (loss) from investments accounted for using the equity method, net ...... (49.3) 5.5 (2.9)
Fiscal 2012 In fiscal year 2012 the investment in Valeo Sylvania was impaired by €27.6 million (including €14.7 million on long-term receivables). Valeo Sylvania is allocated to the Business Unit Specialty Lighting. The main triggering event for the impairment was the reassessment of the investment’s business plan, which resulted in a significant decrease in the expected future cash flows. The impairment is based on the fair value, less costs to sell, applying a discounted cash flow model assuming a post-tax discount rate of 10.0% and a terminal value growth rate of 1.5%. The Share of profit (loss), net, includes a loss of €7.6 million in relation to Valeo. In fiscal year 2012 the net investment in OSRAM’s jointly controlled entity OSRAM (China) Fluorescent Materials Co., Ltd., Yi Xing City, China (“OCFM”) was impaired by €2.4 million. This was reported in the segment information in the line item Corporate Items and Pensions (see Note 35 Segment information for further information). The main triggering event for the impairment was a reassessment of the business plan, which resulted in a significant decrease in the expected future cash flows. The impairment was recognized in the line item Impairment, net. In fiscal year 2012 a provision for a capital commitment concerning OSRAM’s jointly controlled entity EMGO N.V., Lommel, Belgium (“EMGO”), amounting to €8.8 million was recorded within the Business Unit General Lighting and disclosed in the line item Impairments, net. The capital commitment is a result of the intended closure of EMGO related to the transformation process of OSRAM Licht Group and the “Future Industrial Footprint” program (for additional information on the transformation process, see Note 35 Segment information). The joint venture company, CVL Componentes de Vidro Ltda., Cac˛apava, Brazil (“CVL”), which had been allocated to the Business Unit General Lighting recorded a provision for legal disputes amounting to €10.3 million in fiscal 2012. The costs of €5.4 million to be carried by OSRAM relate to the reduction in the book value of the investment amounting to €2.5 million and a provision for a payment guarantee to the benefit of CVL amounting to €2.9 million and which have been included in the Combined Financial Statements in the line items Share of profit (loss), net, and Impairments, net, of which €2.1 million has already been utilized by CVL.
F-61 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Share of profit (loss), net, includes a profit of €5.2 million from the investment in Foshan Electrical and Lighting Co., Ltd, Foshan, China, (“FELCO”) for the fiscal year 2012.
Fiscal 2011 In fiscal 2011 OSRAM increased the capital of EMGO by €2.8 million, to cover the restructuring expenses recorded in Impairments, net. Share of profit (loss), net includes a profit of €4.5 million from OSRAM’s share in the investment FELCO for the fiscal year 2011.
Fiscal 2010 In fiscal 2010 OSRAM increased the capital of CVL to cover the personnel restructuring expenses. Due to the loss situation an impairment on the investment in the amount of €11.7 million was recorded in the Business Unit General Lighting to reflect the recoverable amount of the investment. As a result of the successful sale of the operative business of CVL, the impairment loss recognized in fiscal 2010 was decreased. In consequence OSRAM recorded the release of a liability of €3.2 million in the line item Reversals of impairments for fiscal year 2011. The share of profit (loss), net in fiscal 2010 includes €3.3 million resulting from OSRAM’s share in the investment of FELCO. Furthermore, it includes the release of a provision in the amount of €5.0 million previously recognized for a guarantee securing one of EMGO’s bank loans. The provision was recorded in 2009 and released in 2010 as a result of the improved business outlook. For further information on the company’s material investments accounted for using the equity method see Note 19 Investments accounted for using the equity method.
9. Interest income, interest expense and other financial income (expense), net Year ended September 30, 2012 2011 2010 €m Pension related interest income ...... 75.4 50.0 45.9 Interest income, other than pension ...... 4.7 3.3 2.5 Interest income ...... 80.1 53.3 48.4 Pension related interest expense ...... (79.1) (74.8) (80.9) Interest expense, other than pension ...... (26.7) (22.8) (16.6) Interest expense ...... (105.8) (97.6) (97.5) Income (expense) from available-for-sale financial assets, net ...... (5.8) — (0.4) Miscellaneous financial income (expense), net ...... (5.7) (2.7) (2.4) Other financial income (expense), net ...... (11.5) (2.7) (2.8)
The components of Interest income (expense) from pension plans and similar commitments, net were as follows: Year ended September 30, 2012 2011 2010 €m Expected return on plan assets and reimbursement rights ...... 75.4 50.0 45.9 Pension related interest expense ...... (79.1) (74.8) (80.9) Interest income (expense) from pension plans and similar commitments, net ...... (3.7) (24.8) (35.0)
F-62 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
See Note 25 Pension plans and similar commitments for further details on Interest income (expense) from pension plans and similar commitments, net on OSRAM´s principal pension benefits and principal other post-employment benefits. Total amounts of Interest income (expense), net, other than pension, were as follows: Year ended September 30, 2012 2011 2010 €m Interest income, other than pension ...... 4.7 3.3 2.5 Interest expense, other than pension ...... (26.7) (22.8) (16.6) Interest income (expense), net, other than pension ...... (22.0) (19.5) (14.1)
Item Interest income (expense), net, other than pension includes primarily interest relating to transactions with Siemens Treasury (“Siemens Treasury”) and includes the following with respect to financial assets (financial liabilities) not at fair value through profit or loss: Year ended September 30, 2012 2011 2010 €m Total interest income on financial assets ...... 4.6 3.3 2.3 Total interest expense on financial liabilities ...... (26.6) (21.1) (15.3) The components of Income (expense) from available-for-sale financial assets, net were as follows: Year ended September 30, 2012 2011 2010 €m Dividends received ...... — — 0.4 Impairment ...... (5.8) — (0.8) Income (expense) from available-for-sale financial assets, net ...... (5.8) — (0.4)
The impairment of €5.8 million relates to expenses incurred in fiscal 2012 as a result of the liquidation of Ritos GmbH, Mömbris, Germany (“Ritos”). The effects from the remeasurement of certain monetary assets and liabilities to the exchange rates at the relevant fiscal year ends are included in Miscellaneous financial income (expense), net.
10. Income taxes The income tax (expense) benefit consists of the following: Year ended September 30, 2012 2011 2010 €m Current tax (expense) benefit, net ...... (93.7) (77.1) (144.4) Deferred tax (expense) benefit, net ...... 61.7 (52.5) (30.7) Income tax (expense) benefit, net ...... (32.0) (129.6) (175.1)
The current income tax expense in fiscal 2012 includes adjustments recognized for current tax expense of prior years amounting to €(11.6) million (2011: benefit of €9.0 million and 2010: benefit of €5.5 million). The deferred tax benefit in fiscal 2012 includes the tax benefits of the origination and reversal of temporary differences of €11.1 million (2011: expense of €(47.0) million and 2010: expense of €(39.9) million). In Germany, the calculation of current tax is based on a corporate tax rate of 15.0% and a solidarity surcharge thereon of 5.5% for all distributed and retained earnings. In addition to corporate taxation, trade tax is levied on profits earned in Germany. As the German trade tax is a non deductible expense, the average trade tax
F-63 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) rate amounts to 14.6% and the combined total tax rate amounts to 30.4%. The calculation of the German deferred tax for fiscal 2012 is based on a combined total tax rate of 30.08%, as a lower future average trade tax rate is expected. For foreign subsidiaries, current taxes are calculated based on the regulation of the national tax law and using the tax rates applicable in the individual foreign countries. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Income tax expense differs from the amounts computed by applying a German income tax rate of 30.4% as follows: Year ended September 30, 2012 2011 2010 €m Expected income tax benefit (expense) ...... 105.3 (114.2) (155.0) Increase (decrease) in income taxes resulting from: Non-deductible losses and expenses ...... (115.4) (18.8) (45.2) Tax-free income ...... 10.5 3.0 3.4 Taxes for prior years ...... (15.8) 4.0 8.4 Change in realizability of deferred tax assets and tax credits ...... (3.9) (3.0) 8.4 Foreign tax rate differential ...... 4.7 1.3 8.0 Change in tax rates ...... 0.4 (1.7) (0.8) Other, net ...... (17.8) (0.2) (2.3) Actual income tax benefit (expense) ...... (32.0) (129.6) (175.1)
The tax effect of Non-deductible losses and expenses in fiscal 2012 relates primarily to the impairment charges in relation to goodwill (see Note 7 Other operating expense). The line item Other, net in fiscal 2012 results primarily from withholding taxes on dividend payments which are not creditable against local income taxes. Deferred income tax assets and liabilities on a gross basis are summarized as follows:
Assets September 30, October 1, 2012 2011 2010 2009 €m Financial assets ...... 0.5 2.4 0.1 3.1 Other intangible assets ...... 40.1 80.3 118.0 152.7 Property, plant and equipment ...... 15.8 13.3 14.1 11.9 Inventories ...... 42.1 37.6 33.9 21.5 Receivables ...... 15.6 17.4 11.5 10.5 Pension plans and similar commitments ...... 193.6 165.8 199.6 151.0 Provisions ...... 45.9 32.3 73.7 70.6 Liabilities ...... 82.3 41.8 17.3 13.9 Tax loss and credit carryforward ...... 79.7 21.2 13.2 14.0 Other ...... 7.4 2.6 12.1 0.7 Deferred tax assets ...... 523.0 414.7 493.5 449.9
F-64 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Liabilities September 30, October 1, 2012 2011 2010 2009 €m Financial assets ...... (1.7) (5.6) (4.7) (3.7) Other intangible assets ...... (19.1) (30.2) (5.0) (7.5) Property, plant and equipment ...... (51.6) (69.8) (69.3) (58.2) Inventories ...... (2.6) (0.8) (0.8) (0.2) Receivables ...... (6.9) (13.3) (13.6) (4.6) Pension plans and similar commitments ...... (6.6) (8.3) (18.3) (9.6) Provisions ...... (15.0) (0.5) (4.9) (1.7) Liabilities ...... (11.1) (4.0) (6.0) (3.5) Other ...... (12.1) (1.1) (1.3) (2.4) Deferred tax liabilities ...... (126.7) (133.6) (123.9) (91.4) Total deferred tax asset (liability), net ...... 396.3 281.1 369.6 358.5
In assessing the realizability of deferred tax assets, management considers to which extent it is probable that the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry- forwards become deductible. Management considers the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is probable that OSRAM will realize the benefits of these deductible differences for which deferred tax assets have been recognized. The acquisition of Siteco in fiscal 2011 resulted in a recognition of a net deferred tax liability amounting to €26.6 million, which resulted in an increase in goodwill and which was mainly attributable to Other intangible assets (see Note 4 Acquisitions and disposals). OSRAM had gross tax loss carry-forwards of €304.4 million as of September 30, 2012 (September 30, 2011: €74.5 million, September 30, 2010: €36.7 million and October 1, 2009: €51.7 million). The deferred taxes capitalized in respect of the loss carry forwards of OSRAM GmbH amounted to €55.4 million. OSRAM assumes that the future operations will generate sufficient taxable income to realize the deferred tax assets and that there are sufficient taxable hidden reserves in Germany to prevent the loss of such tax loss carry-forwards during the proposed corporate restructuring measures required for the OSRAM spin-off, in accordance with sec. 8c KStG. Deferred tax assets have not been recognized in respect of the following items (gross amounts): September 30, October 1, 2012 2011 2010 2009 €m Deductible temporary differences ...... 28.2 21.7 9.7 14.1 Tax loss carry-forwards ...... 64.4 19.7 19.7 15.4 As of September 30, 2012, 2011 and 2010, €19.2 million, €19.7 million and €19.7 million, respectively of unrecognized tax loss carry-forwards expire over the periods to 2020. In a number of jurisdictions OSRAM Licht Group has not been finally assessed by the tax authorities. Adequate provisions for all open tax years have been foreseen. OSRAM recorded deferred tax liabilities for income taxes and foreign withholding taxes on future dividend distributions from subsidiaries which are actually intended to be repatriated. As of September 30, 2012, OSRAM has not recognized deferred tax liabilities for income taxes or foreign withholding taxes on the cumulative earnings of subsidiaries of €439.9 million (September 30, 2011: €461.5 million, September 30, 2010: €364.1 million and October 1, 2009: €243.3 million) because the earnings are intended to be permanently reinvested in the subsidiaries.
F-65 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Including the items charged or credited directly to equity, the income tax benefit or (expense) consists of the following: Year ended September 30, 2012 2011 2010 €m Income tax expense ...... (32.0) (129.6) (175.1) Income and expense recognized directly in OCI ...... 57.8 8.3 24.0
11. Available-for-sale financial assets The current portion of OSRAM Licht Group’s investment in Available-for-sale financial assets primarily relate to shares in a fund. Available-for-sale financial assets classified as non-current are included in the line item Other financial assets (see Note 20). For additional information, see also Note 31 Financial instruments and hedging activities.
12. Trade receivables Current trade receivables are as follows: September 30, October 1, 2012 2011 2010 2009 €m Trade receivables before valuation allowance ...... 849.3 876.3 677.5 594.9 Valuation allowance ...... (26.1) (24.9) (26.3) (29.9) Trade receivables after valuation allowance ...... 823.2 851.4 651.2 565.0
The valuation allowance on OSRAM Licht Group’s short-term trade receivables changed as follows: September 30, October 1, 2012 2011 2010 2009 €m Valuation allowance as of beginning of fiscal year ...... (24.9) (26.3) (29.9) (18.7) Increase in valuation allowances recorded in the income statement in the current period ...... (2.7) (0.4) (6.2) (16.6) Write-offs charged against the allowance ...... 0.6 0.3 7.7 3.4 Release of valuation allowance ...... 1.9 3.6 3.1 1.8 Foreign exchange translation differences ...... (1.0) 0.7 (1.4) 0.8 Changes of the basis of consolidation ...... — (2.8) 0.4 (0.6) Valuation allowance as of fiscal year end ...... (26.1) (24.9) (26.3) (29.9)
13. Other current financial assets September 30, October 1, 2012 2011 2010 2009 €m Derivative financial instruments ...... 3.3 20.6 15.9 6.0 Debit balances of trade accounts payable ...... 5.5 6.4 4.7 4.8 Receivables from employees ...... 2.3 2.4 2.9 3.6 Other ...... 43.6 14.0 13.3 12.2 Other current financial assets ...... 54.7 43.4 36.8 26.6
Derivative financial instruments include foreign currency exchange contracts and commodity swaps. For further information see Note 31 Financial instruments and hedging activities. The increase in the line item Other is primarily a result of a receivable arising from the settlement of a patent infringement dispute.
F-66 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 14. Inventories September 30, October 1, 2012 2011 2010 2009 €m Raw materials and supplies ...... 242.3 318.4 190.9 140.1 Work in process ...... 231.1 212.3 214.8 164.1 Finished goods and merchandise ...... 571.8 588.7 510.7 424.1 Advances to suppliers ...... 4.1 1.4 1.7 2.1 Advance payments received ...... (5.6) (2.6) (2.1) (2.3) Inventories ...... 1,043.7 1,118.2 916.0 728.1
Raw materials and supplies, Work in process as well as Finished goods and merchandise are valued at the lower of acquisition/production cost and net realizable value. The decrease in raw materials and supplies in fiscal 2012 is due to the fact that, in contrast to the previous year, there was an increase in the availability of Rare Earth stocks in the markets, which resulted in lower purchase prices. Quantities purchased in fiscal 2012 were reduced, as a result of the high inventory levels from the previous year and the increased availability in the markets. This resulted in a decrease of the Raw materials and supplies. The write-downs in fiscal 2012, as compared to prior year, increased by €32.0 million (increases in fiscal 2011 of €17.4 million and in fiscal 2010 of €12.5 million). The increase in 2012 is, in particular a result of the management’s decision to reduce the complexity of the product portfolio for the general lighting business which in turn led to a reassessment of the net realizable value of certain products, resulting in an additional expense of €23.1 million (see Note 35 Segment information). Cost of goods sold and services rendered substantially include inventories recognized as an expense. The increase of Raw materials and supplies from fiscal 2010 to fiscal 2011 is mainly attributable to the increase in Rare Earth stocks, due to both increased stock levels and price increases. The increase in fiscal 2010 is due to the recovery of the business after the global financial and economic crisis.
15. Other current assets September 30, October 1, 2012 2011 2010 2009 €m Miscellaneous tax receivables ...... 55.9 48.0 41.4 20.2 Prepaid expenses ...... 6.1 6.3 4.1 7.4 Other ...... 17.7 21.3 18.5 12.8 Other current assets ...... 79.7 75.6 64.0 40.4
The line item Other in fiscal 2012 and 2011 includes receivables from the Federal Ministry of Research and Education, Bonn, Germany (“BMBF”) for research and development.
16. Goodwill The goodwill impairment test is performed at the level of cash-generating units or group of cash-generating units, which is the lowest level at which goodwill is monitored for internal management purposes. In fiscal 2012 and 2011 these were the Business Units GL and SP, as well as in fiscal 2012 the Business Segments PLUM and LMS, which are both part of the Business Unit GL. In fiscal 2010, the goodwill impairment test was performed at the OSRAM Division level within the Siemens Group, since the monitoring of the impairment of goodwill was performed by Siemens Group management at this level.
F-67 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
In order to present comparable figures for all years, the goodwill of OSRAM in 2010, which had been monitored by Siemens management at the Siemens Division level, was allocated to the Business Units similar to the allocation done in 2011. Goodwill changed as follows: September 30, 2012 2011 2010 €m Cost Balance at the beginning of the year ...... 238.2 129.6 115.2 Translation differences and others ...... 12.3 1.1 5.3 Acquisitions and measurement period adjustments ...... 34.5 107.5 16.4 Divestment and reclassifications to assets held for disposal ...... — — (7.3) Balance at the end of the year ...... 285.0 238.2 129.6 Accumulated impairment losses and other changes Balance at the beginning of the year ...... — — — Translation differences and others ...... (10.9) — — Impairment charges during the period ...... (237.4) — — Balance at the end of the year ...... (248.3) — — Net book value Balance at the beginning of the year ...... 238.2 129.6 115.2 Balance at the end of the year ...... 36.7 238.2 129.6 Acquisitions and Net book value Translation measurement Impairment Net book value as as of October 1, differences period charges during of September 30, 2011 and others adjustments the period 2012 €m Cash-generating units General Lighting ...... 64.3 2.6 — (66.9) — PLUM ...... 170.4 0.1 — (170.5) — LMS ...... — (1.5) 34.5 — 33.0 Specialty Lighting ...... 3.5 0.2 — — 3.7 Opto Semiconductors ...... — — — — — OSRAM ...... 238.2 1.4 34.5 (237.4) 36.7
Acquisitions and Net book value Translation measurement Net book value as as of October 1, differences period Divestments and of September 30, 2010 and others adjustments reclassifications 2011 €m Cash-generating units General Lighting ...... 126.1 1.1 107.5 — 234.7 Specialty Lighting ...... 3.5 — — — 3.5 Opto Semiconductors ...... — — — — — OSRAM ...... 129.6 1.1 107.5 — 238.2
F-68 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) Acquisitions and Net book value Translation measurement Net book value as as of October 1, differences period Divestments and of September 30, 2009 and others adjustments reclassifications 2010 €m Cash-generating units General Lighting ...... 105.2 4.5 16.4 — 126.1 Specialty Lighting ...... 10.0 0.8 — (7.3) 3.5 Opto Semiconductors ..... — — — — — OSRAM ...... 115.2 5.3 16.4 (7.3) 129.6
Goodwill decreased in fiscal year 2012 by €237.4 million (excluding foreign currency translation effects) due to lower recoverability of the carrying amounts of the cash generating units GL and PLUM. This was partly offset by the acquisition of Encelium (€34.5 million). In fiscal 2011, the acquisition of Siteco increased goodwill in the amount of €107.5 million. The annual impairment test confirmed the recoverability of the carrying amount of goodwill as of September 30, 2011. In fiscal 2010, goodwill increased by €16.4 million as a result of the additional earn-out payment relating to the Traxon acquisition. Furthermore the deconsolidation of Valeo Sylvania, due to the loss of control, decreased goodwill by €7.3 million. The annual impairment test performed as of September 30, 2010 confirmed the recoverability of the carrying amount of goodwill. For further information, please see Note 4 Acquisitions and disposals. In the second quarter of fiscal 2012 the Business Segments PLUM and LMS, both belonging to the Business Unit GL, have been monitored separately and the related goodwill was tested for impairment at that level respectively. This change in the monitoring level was made, as the business outlook of the acquired groups of companies, Siteco, Traxon and Encelium is considered to be lower than previously, due to the technological change in the market, required additional selling efforts, lower than expected sales synergies and the reorganization of the lighting business within OSRAM. This resulted in the requirement to perform an impairment test. To determine the recoverable amount, the value in use was calculated, which is considered to equal the fair value, if adjusted for costs to sell. As a result an impairment loss of €101.1 million on goodwill of the cash-generating unit PLUM was recorded for the second quarter in the line item Other operating expenses (see Note 7 Other operating expenses). The business plan was amended to take into account lower growth expectations. The cash flows were extrapolated after the five year planning period with a constant growth rate of 2.0% and discounted using pre-tax discount rates of 11.5% for PLUM and 14.2% for LMS. The annual impairment test in the fourth quarter was based on a revised business plan. The revisions were required in respect to PLUM primarily as a result of the loss of sales staff, the delayed introduction of new products and increased price pressure. GL was mainly impacted by the technological change. Furthermore, the cost of capital to be applied for the impairment test increased, as a result of a higher market risk premium. The recoverable amount of the cash generating units was based on the fair value, less cost to sell. This resulted in an impairment of goodwill of €69.4 million for PLUM and €66.9 million for GL (both excluding foreign currency translation effects). The key assumptions underlying the goodwill impairment test are the estimated growth rates for the periods beyond the five year planning horizon and the discount rates. The growth rates applied in the annual impairment test in fiscal 2012 were 1.8% for GL and 2.0% for PLUM and LMS. The post-tax discount rate applied was 8.3% for GL, 8.9% for PLUM and 11.1% for LMS. A reduction in the growth rate for LMS of 0.5% would result in an impairment of €1.6 million and an increase in the discount rate of 0.5% would result in an impairment of €4.0 million (see Note 17 Other intangible assets). In fiscal 2011, the growth rate applied was 2.0% and the post-tax discount rates were between 7.1% and 8.2%. In fiscal 2010, a growth rate of 2.0% and a post-tax discount rate of 7.5% were assumed.
F-69 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 17. Other intangible assets
Gross Additions Gross Amorti- carrying through carrying Accumulated Net book zation and amount Trans- business amount amortization Value impairment as of lation combi- Retire- Reclassifi- as of and as of during fiscal 10/1/2011 differences nations Additions ments cations 9/30/2012 impairment 9/30/2012 2012 €m Capitalized software development costs ...... 124.1 (8.6) — 1.6 (16.3) 6.0 106.8 (101.2) 5.6 (3.3) Capitalized development costs for other projects . . . 45.2 4.2 — 1.1 (0.2) (3.8) 46.5 (31.2) 15.3 (8.5) Patents, licenses and other rights ...... 332.8 15.5 11.8 4.2 (1.3) (2.2) 360.8 (274.9) 85.9 (63.9) Other intangible assets .... 502.1 11.1 11.8 6.9 (17.8) — 514.1 (407.3) 106.8 (75.7)
Gross Additions Gross Amorti- carrying through carrying Accumulated Net book zation and amount Trans- business amount amortization Value impairment as of lation combi- Retire- Reclassifi- as of and as of during fiscal 10/1/2010 differences nations Additions ments cations 9/30/2011 impairment 9/30/2011 2011 €m Capitalized software development costs ...... 119.0 0.1 5.0 1.4 — (1.4) 124.1 (116.1) 8.0 (7.2) Capitalized development costs for other projects . . . 27.0 0.1 16.6 0.1 — 1.4 45.2 (21.7) 23.5 (3.2) Patents, licenses and other rights ...... 255.7 1.6 74.2 1.7 (0.4) — 332.8 (202.0) 130.8 (9.4) Other intangible assets .... 401.7 1.8 95.8 3.2 (0.4) — 502.1 (339.8) 162.3 (19.8)
Gross Additions Gross Amorti- carrying through carrying Accumulated Net book zation and amount Trans- business amount amortization Value impairment as of lation combi- Retire- Reclassifi- as of and as of during fiscal 10/1/2009 differences nations Additions ments cations 9/30/2010 impairment 9/30/2010 2010 €m Capitalized software development costs ...... 114.2 1.0 — 3.8 — — 119.0 (108.6) 10.4 (6.3) Capitalized development costs for other projects . . . 50.9 2.8 — 2.3 (29.0) — 27.0 (18.3) 8.7 (4.1) Patents, licenses and other rights ...... 241.8 12.2 0.5 1.2 — — 255.7 (191.0) 64.7 (7.6) Other intangible assets .... 406.9 16.0 0.5 7.3 (29.0) — 401.7 (317.9) 83.8 (18.0)
Intangible assets as of September 30, 2012 primarily relate to a cross license agreement with Koninklijke Philips Electronics N.V., Eindhoven, NL (“Philips”) amounting to €37.2 million (September 30, 2011: €40.4 million, September 30, 2010 €43.5 million and October 1, 2009 €46.6 million). These rights were capitalized on September 30, 2008 and a useful life of 16 years had been determined. This line item also includes intangible assets acquired in the course of business combinations (see Note 4 Acquisitions and disposals). The carrying amount of the corporate brands Siteco and Traxon as of September 30, 2012 were €3.3 million (September 30, 2011: €8.3 million) and €2.3 million (September 30, 2011, September 30, 2010 and October 1, 2009 €5.6 million) respectively. The corporate brands have indefinite useful lives and are allocated to the Business Unit General Lighting.
As part of the impairment testing of the cash generating unit PLUM, in fiscal 2012, OSRAM allocated impairments of €45.5 million pro-rata to the other intangible assets, in addition to the reduction in the carrying amount of the goodwill (see Note 16: Goodwill). This resulted in reductions in the carrying amounts of customer relationships amounting to €15.2 million, product technology amounting to €11.4 million, brand names
F-70 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) amounting to €8.3 million, enabling technology amounting to €7.0 million and capitalized product-related development projects amounting to €3.6 million. The impairments relating to product technology and capitalized product-related development projects were included in Cost of goods sold and services rendered, the losses relating to customer relationships and brand names were included in Marketing, selling and general administrative expenses and the reduction in enabling technology included in Research and development expenses. In fiscal 2011 and 2010 no impairment losses were recorded. The amortization of intangible assets is included in the line items Cost of goods sold and services rendered, Research and development expenses or Marketing, selling and general administrative expenses, dependent upon the use of the underlying asset. In fiscal 2012, 2011 and 2010 no material commitments to purchase intangible assets exist.
18. Property, plant and equipment
Gross Additions Gross Depreciation carrying Transla- through carrying Accumulated Net book and amount tion business amount depreciation Value impairment as at diff- combina- Reclassifi- Retire- as at and as at during fiscal 10/1/2011 erences tions Additions cations ment 9/30/2012 impairment 9/30/2012 2012 €m Land and buildings ..... 678.0 15.6 — 4.5 11.7 (68.3) 641.5 (331.2) 310.3 (30.3) Technical machinery and equipment ...... 3,281.0 74.5 0.2 50.5 120.0 (179.7) 3,346.5 (2,564.1) 782.4 (256.2) Furniture and office equipment ...... 572.7 12.2 — 29.1 17.4 (25.5) 605.9 (490.2) 115.7 (55.6) Advances to suppliers and construction in progress ...... 179.9 4.9 — 96.2 (149.1) (1.8) 130.1 (2.2) 127.9 — Property, plant and equipment ...... 4,711.6 107.2 0.2 180.3 — (275.3) 4,724.0 (3,387.7) 1,336.3 (342.1)
Gross Additions Gross Depreciation carrying Transla- through carrying Accumulated Net book and amount tion business amount depreciation Value impairment as at diff- combina- Reclassifi- Retire- as at and as at during fiscal 10/1/2010 erences tions Additions cations ment 9/30/2011 impairment 9/30/2011 2011 €m Land and buildings ..... 630.1 5.5 37.8 4.4 6.1 (5.9) 678.0 (316.8) 361.2 (17.0) Technical machinery and equipment ...... 3,090.8 11.1 14.1 117.7 110.5 (63.2) 3,281.0 (2,411.4) 869.6 (164.7) Furniture and office equipment...... 522.0 (0.4) 17.5 33.2 18.9 (18.5) 572.7 (449.3) 123.4 (51.5) Advances to suppliers and construction in progress ...... 161.9 0.3 1.0 153.9 (135.5) (1.7) 179.9 (2.1) 177.8 — Property, plant and equipment ...... 4,404.8 16.5 70.4 309.2 — (89.3) 4,711.6 (3,179.6) 1,532.0 (233.2)
F-71 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Gross Additions Gross Depreciation carrying Transla- through carrying Accumulated Net book and amount tion business amount depreciation Value impairment as at diff- combina- Reclassifi- Retire- as at and as at during 10/1/2009 erences tions Additions cations ment 9/30/2010 impairment 9/30/2010 fiscal 2010 €m Land and buildings ...... 601.9 31.1 — 2.1 17.3 (22.3) 630.1 (299.9) 330.2 (18.3) Technical machinery and equipment ...... 2,924.5 127.1 — 70.4 101.0 (132.2) 3,090.8 (2,300.6) 790.2 (161.7) Furniture and office equipment...... 501.7 19.1 — 26.0 10.7 (35.5) 522.0 (411.8) 110.2 (49.3) Advances to suppliers and construction in progress . . 142.8 3.2 — 147.4 (129.0) (2.5) 161.9 (2.0) 159.9 (0.3) Property, plant and equipment ...... 4,170.9 180.5 — 245.9 — (192.5) 4,404.8 (3,014.3) 1,390.5 (229.6)
Fiscal 2012 In the second quarter of fiscal 2012, OSRAM reviewed its future strategy regarding the ceramic-based metal halide lamps. This resulted in a significant reduction in the expected future cash flows and required the determination of the recoverable amount of the cash generating unit. The estimate of the recoverable amount of the relevant cash generating unit is based on the value in use. Since the carrying amount of the cash generating unit was €36.7 million higher than the recoverable amount, an appropriate impairment loss for property, plant and equipment was included in the line item Cost of goods sold and services rendered. The determination of the value in use is based on a discount rate (before tax) of 7.7%. The cash generating unit is allocated to the Business Unit GL. The evaluation by the Business Unit GL of external market studies regarding the timing of the introduction of mass-production for OLED-technology resulted in a change to the use of the production facility and therefore to the business plan. The estimate of the recoverable amount of the cash generating unit is based on the value in use. The carrying amount of the cash generating unit was €21.5 million higher than the recoverable amount, which resulted in impairment in fiscal 2012 of the production facility concerned. The impairment loss was included in the line item Cost of goods sold and services rendered. The estimate of the value in use is based on a discount rate (before tax) of 11.4%. In addition, measures taken in fiscal 2012 in connection with the program “Future Industrial Footprint” resulted in impairment losses of €16.1 million and losses on the disposal of property, plant and equipment of €11.0 million (see Note 5 Personnel restructuring expenses). See Note 4 Acquisitions and disposals for information on the disposal of the Japanese subsidiary. These effects are a result of the transformation process of OSRAM (see Note 35 Segment information). As of September 30, 2012, contractual commitments for purchases of property, plant and equipment amounted to €35.3 million (September 30, 2011, September 30, 2010 and October 1, 2009: €37.5 million, €101.4 million and €17.9 million respectively). In fiscal 2012, government grants awarded for the purchase or the production of property, plant and equipment amounted to €1.5 million (2011: €1.4 million and fiscal 2010: €0.9 million). Government grants are generally deducted from acquisition costs. The award of additional government grants of €11.1 million in fiscal 2012 (2011: €17.2 million and 2010: €14.3 million) related to costs incurred and future costs, offset within Research and development expenses. Thereof in fiscal 2012, a government grant of €8.3 million (2011: €12.4 million and 2010: €9.5 million) relates to OSRAM Opto Semiconductors GmbH Regensburg, Germany (“OSRAM OS”) and was granted for research projects related to SSL of €4.6 million (2011: €4.8 million and 2010: €3.7 million) and to OLED of €3.7 million (2011: €7.6 million and 2010: €5.8 million).
F-72 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The net book value of the technical machinery and equipment leased under finance lease amounted to €1.7 million as of September 30, 2012 (2011: €3.1 million and 2010: €4.8 million). For further information see Note 24 Debt and Note 34 Related party disclosures.
Fiscal 2011 In fiscal 2011 the net book value of Land and buildings and Technical machinery and equipment relating to the traditional incandescent lamp product line of OSRAM U.S., within OSRAM Business Unit GL, increased by €2.1 million and €3.6 million, respectively following the reversal of the impairment, conducted in fiscal 2008. The reversal is recorded in the line item Depreciation and impairment. The reason for the reversal was the increase of the recoverable amount of the incandescent lamp business due to higher demand from an improved market position driven by a better competitive situation and from additional glass sales for both lighting and other industrial applications. Depreciation expense, impairment charges, as well as reversals of impairment on plant and equipment are included in Cost of goods sold and services rendered, Research and development expenses, Marketing selling and general administrative expenses, depending on the use of the asset.
19. Investments accounted for using the equity method As of September 30, 2012, 2011, 2010 and October 1, 2009, OSRAM’s principal investments accounted for under the equity method, are (in alphabetical order): Percentage (%) of ownership 2012 2011 2010 2009 Foshan Electrical and Lighting Co. Ltd, Foshan, China(1) ...... 13.47% 13.47% 13.47% 13.47% Mitsubishi Electric OSRAM Ltd, Yokohama, Japan ...... — 49.00% 49.00% 49.00% Valeo Sylvania LLC, Seymour, IN / U.S.(2) ...... 50.00% 50.00% 50.00% —
(1) OSRAM has significant influence due to composition of board of directors. (2) The entity was fully consolidated until February 2010. Valeo Sylvania is a jointly controlled entity and has been accounted for using the equity method since March 2010. Before that date, Valeo Sylvania was fully consolidated in OSRAM’s Combined Financial Statements. The change of the consolidation method is due to the loss of control over Valeo Sylvania. At the date of loss of control, the interest accounted for using the equity method was remeasured at fair value resulting in a gain of €1.4 million in fiscal 2010 recorded in Other operating income. The Valeo Sylvania income statement information is presented for the periods ended June 30, 2012, 2011 and 2010 not adjusted for the percentage of ownership held by OSRAM. Year ended September, 30 2012 2011 2010(1) €m Revenue(2) ...... 253.9 197.2 59.3 Net income (loss)(2) ...... (13.7) 0.7 0.6
(1) The entity was fully consolidated until February 2010. (2) The Income Statement information is based on a 12 months period. Information relating to the Statements of Financial Position is presented as of June 30, 2012, 2011 and 2010, not adjusted for the percentage of ownership held by OSRAM, and as applied for the equity adjustments as of September 30, 2012, 2011 and 2010. 2012 2011 2010 2009 €m Current assets ...... 74.0 55.0 46.0 —(1) Non-current assets ...... 132.4 77.6 74.9 —(1) Current liabilities ...... 121.2 68.0 40.1 —(1) Non-current liabilities ...... 74.1 28.7 38.2 —(1)
(1) The entity was fully consolidated until February 2010.
F-73 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Summarized income statement information for the significant investments in the associate FELCO and the former associate MOL sold at the end of the fiscal year is presented below. For further information on the disposal of MOL, see Note 4 Acquisitions and disposals. The table contains the latest available information for both companies and before any adjustments for the percentage of ownership held by OSRAM. Year ended September, 30 2012 2011 2010 €m Revenue(1) ...... 435.2 401.4 347.5 Net income(1) ...... 35.3 33.8 32.0
(1) The Income Statement information is based on a 12 months period. The following table contains the latest available information on the statements of financial position for FELCO and MOL before any adjustments for the percentage of ownership held by OSRAM. September 30, October 1, 2012(1) 2011 2010 2009 €m Total assets ...... 432.3 422.3 405.0 358.2 Total liabilities ...... 54.8 111.3 84.9 77.9
(1) Disposal of Mitsubishi Electric OSRAM Ltd. in September 2012. For additional information on the impairment of Valeo Sylvania, CVL and OCFM in fiscal 2012, as well as EMGO in fiscal 2011 and CVL in fiscal 2010 see Note 8 Gain (loss) from investments accounted for using the equity method. FELCO is listed on the Shenzhen stock exchange. The table below shows the number of shares held by OSRAM as well as the fair value of the investment in FELCO. September 30, October 1, 2012 2011 2010 2009 Percentage of ownership ...... 13.47% 13.47% 13.47% 13.47% Number of shares held by OSRAM Licht Group .... 131,815,685 131,815,685 131,815,685 131,815,685 Fair value of investment in FELCO in € million .... 109.9 172.5 248.1 107.7
20. Other financial assets September 30, October 1, 2012 2011 2010 2009 €m Receivables ...... 4.8 6.2 10.3 7.1 Available-for-sale financial assets ...... 1.4 6.5 1.4 2.3 Receivables from employees ...... 0.2 0.2 0.8 0.3 Loans receivable ...... — — — 4.7 Other ...... 2.3 3.1 0.9 0.9 Other financial assets ...... 8.7 16.0 13.4 15.3
Receivables as of September 30, 2012 relate primarily to a loan receivable from Valeo Sylvania.
F-74 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 21. Other assets September 30, October 1, 2012 2011 2010 2009 €m Deferred compensation assets ...... 45.4 42.2 39.3 34.2 Chinese land usage ...... 16.7 16.3 21.1 20.2 Prepaid assets ...... 0.5 1.2 0.3 2.8 Other ...... 35.4 28.9 21.2 16.7 Other assets ...... 98.0 88.6 81.9 73.9
Deferred compensation assets relate to a deferred compensation plan in the U.S., see also Note 27 Other liabilities. The line item Other comprises primarily advance payments.
22. Other current financial liabilities September 30, October 1, 2012 2011 2010 2009 €m Derivative financial instruments ...... 8.2 12.5 14.5 7.5 Credit balances of trade accounts receivable ...... 7.5 7.3 11.0 13.5 Accrued liabilities ...... 7.8 6.4 7.2 3.9 Dividends ...... 3.9 1.1 5.1 2.8 Other ...... 25.5 13.2 16.9 32.4 Other current financial liabilities ...... 52.9 40.5 54.7 60.1
23. Other current liabilities September 30, October 1, 2012 2011 2010 2009 €m Employee related accruals ...... 100.6 99.0 104.5 96.3 Bonus obligations ...... 83.6 89.5 101.6 75.6 Payroll obligations and social security taxes ...... 97.0 77.3 72.9 67.8 Sales and other taxes ...... 46.3 51.4 55.2 40.5 Other ...... 49.3 59.8 38.9 51.3 Other current liabilities ...... 376.8 377.0 373.1 331.5
Employee related accruals primarily include vacation payments, accrued overtime, service anniversary awards and accruals for severance pay in connection with dismissals or early retirement. The increase in payroll obligations and social security taxes in fiscal 2012 is mainly due to the termination and early retirement liabilities arising from the program “Future Industrial Footprint”.
F-75 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 24. Debt September 30, October 1, 2012 2011 2010 2009 €m Short-term (within 1 year) Loans from banks ...... 46.1 20.4 22.8 21.4 Obligations under finance leases ...... 1.1 2.0 1.9 1.7 Short-term debt and current maturities of long-term debt ...... 47.2 22.4 24.7 23.1 Long-term (between 1 and 5 years) Loans from banks ...... 0.6 2.1 1.1 3.0 Obligations under finance leases ...... 0.7 1.8 3.4 4.2 Long-term debt ...... 1.3 3.9 4.5 7.2 48.5 26.3 29.2 30.3
The loans from banks result from the use of short-term credit facilities. The Obligations under finance leases result mainly from related party transactions between OSRAM and the Siemens Group. For further information see Note 18 Property, plant and equipment and 34 Related party disclosures. The minimum lease payments from the finance lease payables and the reconciliation to the present value of the minimum lease payments are as follows: September 30, 2012 Present value of Minimum future Unamortized minimum future lease payment interest lease payment Due obligation expense obligation €m Within 1 year ...... 1.2 0.1 1.1 Between 1 and 5 years ...... 0.8 0.1 0.7 Total ...... 2.0 0.2 1.8
September 30, 2011 Present value of Minimum future Unamortized minimum future lease payment interest lease payment Due obligation expense obligation €m Within 1 year ...... 2.1 0.1 2.0 Between 1 and 5 years ...... 1.9 0.1 1.8 Total ...... 4.0 0.2 3.8
September 30, 2010 Present value of Minimum future Unamortized minimum future lease payment interest lease payment Due obligation expense obligation €m Within 1 year ...... 2.0 0.1 1.9 Between 1 and 5 years ...... 3.7 0.3 3.4 Total ...... 5.7 0.4 5.3
F-76 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) October 1, 2009 Present value of Minimum future Unamortized minimum future lease payment interest lease payment Due obligation expense obligation €m Within 1 year ...... 2.0 0.3 1.7 Between 1 and 5 years ...... 4.6 0.4 4.2 Total ...... 6.6 0.7 5.9
25. Pension plans and similar commitments During the reporting period, OSRAM provided pension benefits to almost all employees in Germany and many of OSRAM’s foreign employees, which are organized through respective pension plans. To reduce the risk exposure arising from its pension plans, OSRAM Licht Group redesigned major pension plans during the last several years towards benefit schemes which are predominantly based on employer contributions. In order to fund OSRAM’s pension obligations, the pension plans are mainly funded with assets in segregated pension trusts. Furthermore, OSRAM provides other post-employment benefits, which primarily consist of post-employment transition payments to employees in Germany as well as post-employment health care and life insurance benefits to employees in the U.S. and Canada. These predominantly unfunded other post-employment benefit plans qualify as defined benefit plans under IFRS. The Combined Statement of Financial Position includes the following significant items related to pension plans and similar commitments as of September 30, 2012, 2011, 2010 and October 1, 2009: September 30, October 1, 2012 2011 2010 2009 €m Principal pension benefit plans ...... 373.9 725.3 777.8 694.1 Principal other post-employment benefit plans ...... 91.8 83.9 80.9 84.8 Other ...... 24.1 24.5 22.1 21.1 Liabilities for pension plans and similar commitments ...... 489.8 833.7 880.8 800.0 Prepaid costs for post-employment benefits ...... — 0.6 — 0.4 Actuarial gains (losses) ...... (412.5) (235.2) (221.5) (124.9) Effects due to asset ceiling ...... — — (1.0) — Income tax effect ...... 138.7 80.5 74.1 48.8 Net amount recognized in the Combined Statements of Changes in Equity, net of tax ...... (273.8) (154.7) (148.4) (76.1)
In addition to the above, OSRAM has defined contribution plans for pensions and other post-employment benefits outside Germany or makes contributions to social pension funds based on legal regulations (state plans). The recognition of a liability is not required because the obligation of OSRAM is limited to the payment of the contributions into these plans or funds. The principal pension and other post-employment benefits exist in Germany, U.S., Canada, U.K. (until January 2012), Switzerland and Italy and are presented in the following tables. The line item Other in the table above includes additional, non-principal pension and other post-employment benefits, which are less significant to the Company.
Principal pension benefits and principal other post-employment benefits Individual pension benefits are generally based on eligible compensation levels and/or ranking within OSRAM hierarchy and years of service. Such benefits can vary depending on legal, fiscal and economic
F-77 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) circumstances in each country. The majority of OSRAM’s active employees in Germany participate in a pension scheme introduced in fiscal 2004, the BOA (Beitragsorientierte OSRAM Altersversorgung). The BOA is a defined benefit pension scheme, whose benefits are predominantly based on the contributions made by the Company and the investment returns earned on these contributions, subject to a minimum return guaranteed by OSRAM. The effect of compensation increases on the defined pension benefits was largely eliminated when introducing the BOA, since additional benefits can no longer be earned for the majority of such pension benefits. From the perspective of OSRAM, for purposes of the Combined Financial Statements the BOA has the characteristics of an unfunded obligation until the first quarter of fiscal 2012. In Germany, employees who entered into OSRAM Licht Group’s employment on or before September 30, 1983 are entitled to transition payments after retirement equal to the difference between their final compensation and the retirement benefits payable under the corporate pension plan. In Italy, the Company provided benefits to employee groups immediately after termination of employment. Certain foreign companies of the OSRAM Licht Group in the U.S. and Canada provide other post-employment benefits in the form of medical and life insurance. The amount of obligations for other post-employment benefits in the form of medical benefits specifically depends on the expected cost trend in the healthcare sector. To be entitled to such healthcare benefits, participants must contribute to the insurance premiums. Participants’ contributions are based on specific regulations of cost sharing which are defined in the benefit plans. OSRAM has the right to adjust the cost allocation at any time; generally, this is done on an annual basis. Premiums for life insurance benefits are paid solely by OSRAM. In some countries, primarily the U.S. and U.K., in the past the OSRAM employees participated in the Siemens pension schemes and related pension trust assets. The obligations and assets under these pension plans were administered centrally by Siemens and were therefore the sole responsibility of Siemens. The assets were not separately identifiable; instead the companies had a common right to the trusts’ assets. The OSRAM companies were charged for the net periodic benefit cost (“NPBC”) and contributions which had been allocated to them. This allocation was calculated mainly based on the defined benefit obligation (“DBO”) of the OSRAM participants (active employees, former employees with vested pension rights, retirees and their surviving dependents). At the end of September 2011, in the U.S. the negotiations with Siemens and the trustees of the Siemens pension plans regarding the foundation of an independent OSRAM trust in the U.S. and the separation of the plan assets attributable to OSRAM were well advanced. On this basis, additional assets amounting to €56.2 million were provided for the OSRAM pension plan at September 30, 2011. The calculation was based on the legal requirements (Internal Revenue Code 414 (I)) and is included in the line item Transfer-In in the table of the development of plan assets. On the same basis, an additional final transfer of €6.7 million was made to the newly founded OSRAM SYLVANIA Inc., Danvers, Massachusetts U.S. (“OSRAM SYLVANIA”) pension plan. These asset transfers were treated as a contribution of the shareholder Siemens AG, and has been included in the Combined Statement of Changes in Equity on an after tax basis. In December 2011, OSRAM GmbH received a cash contribution of €499.5 million from Siemens AG for the additional financing of the funded pension plans. Of this amount, €485.0 million relate to German pension plans previously unfunded. For an additional €11.8 million, plan assets of the principal pension plans in Canada and Switzerland and for €2.7 million plan assets of non-principal pension plans in Mexico, Taiwan, Switzerland and Belgium were funded. At the end of January 2012, Siemens plc, Frimley, U.K. (“Siemens plc”), Siemens Benefits Scheme Ltd., Frimley, U.K. (“Siemens Benefits Scheme”) and OSRAM Ltd., Langley, U.K. (“OSRAM Ltd.”) reached a binding agreement that the obligations and assets in respect of the defined benefits attributable to OSRAM in U.K. should be transferred back to Siemens. As a result, OSRAM has not accounted for any pension obligations from the defined benefit pension scheme in U.K. since February 2012. The transfers of pension obligations and plan assets are disclosed in the line item Transfer-Out. As of September 30, 2012, all pension obligations and trust assets had been transferred, so that no allocations have to be made and all pension obligations, assets and benefit costs can be assigned directly to OSRAM.
F-78 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The principal pension benefits and principal other post-employment benefits are explicitly explained in the subsequent sections with regard to: • Pension obligations, plan assets and funded status, • Components of NPBC, • Amounts recognized in the Combined Statements of Comprehensive Income, • Assumptions used for the calculation of the DBO and NPBC, • Plan assets and actual return on plan assets, • Sensitivity analysis, and • Pension benefit payments and payments for other post-employment benefits.
Principal pension benefits and principal other post-employment benefits: Pension obligations and funded status A reconciliation of the funded status to the amounts recognized in the Combined Statements of Financial Position is as follows:
September 30, October 1, 2012 2011 2010 2009 Outside Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany Total Germany Germany €m Fair value of plan assets ....1,477.6 508.8 968.8 838.9 8.9 830.0 734.9 9.0 725.9 655.3 8.5 646.8 Total defined benefit obligation ...... 1,941.6 670.3 1,271.3 1,645.6 533.7 1,111.9 1,591.7 540.9 1,050.8 1,431.5 454.6 976.9 Defined benefit obligation (funded) ...... 1,816.5 658.7 1,157.8 1,022.9 9.3 1,013.6 964.7 9.2 955.5 890.6 8.5 882.1 Defined benefit obligation (unfunded) ...... 125.1 11.6 113.5 622.7 524.4 98.3 627.0 531.7 95.3 540.9 446.1 94.8 Funded status ...... (464.0) (161.5) (302.5) (806.7) (524.8) (281.9) (856.8) (531.9) (324.9) (776.2) (446.1) (330.1) Germany ...... (161.5) (524.8) (531.9) (446.1) U.S...... (280.7) (254.7) (297.8) (307.2) Canada ...... (8.1) (13.1) (9.8) (6.2) U.K...... — 0.6 (3.2) (4.0) Switzerland ...... (1.4) (3.6) (2.6) (1.5) Italy ...... (12.3) (11.1) (11.5) (11.2) Unrecognized past service cost (benefits) ...... (1.7) — (1.7) (1.9) — (1.9) (1.9) — (1.9) (2.7) — (2.7) Effects due to asset ceiling . . — — — — — — — — — — — — Net amount recognized .... (465.7) (161.5) (304.2) (808.6) (524.8) (283.8) (858.7) (531.9) (326.8) (778.9) (446.1) (332.8) Amounts recognized in the Combined Statement of Financial Position consist of: Other assets ...... — — — 0.6 — 0.6 — — — — — — Pension liability ...... (465.7) (161.5) (304.2) (809.2) (524.8) (284.4) (858.7) (531.9) (326.8) (778.9) (446.1) (332.8) The funding of the pension plans in Germany, Canada and Switzerland resulted in a significantly reduced underfunding as of September 30, 2012. This reduction was partly off-set by the decrease of the discount rates as of September 30, 2012, which resulted in an increased DBO. As of September 30, 2008, the fair value of plan assets, the DBO and the funded status amounted to €626.0 million, €1,272.6 million and €(646.6) million, respectively.
F-79 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
A detailed reconciliation of the changes in the DBO, as well as additional information by country, is provided in the following table: September 30, October 1, 2012 2011 2010 2009 Outside Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany Total Germany Germany €m Change in defined benefit obligation: Defined benefit obligation at beginning of fiscal year ...... 1,645.6 533.7 1,111.9 1,591.7 540.9 1,050.8 1,431.5 454.6 976.9 1,272.6 393.9 878.7 Foreign currency exchange rate changes ...... 49.3 — 49.3 13.0 — 13.0 73.1 — 73.1 (32.7) — (32.7) Current service cost ...... 29.3 18.6 10.7 28.3 17.2 11.1 31.8 15.6 16.2 29.2 13.6 15.6 Interest expense ...... 77.8 25.1 52.7 73.4 22.8 50.6 79.9 23.8 56.1 84.2 24.3 59.9 Settlements and curtailments ...... (0.3) (0.2) (0.1) — — — (22.8) — (22.8) (3.0) — (3.0) Plan participants’ contributions ...... 6.1 0.9 5.2 1.5 1.1 0.4 0.8 0.3 0.5 0.8 0.4 0.4 Plan amendments and other ...... 0.4 0.0 0.4 — — — (0.2) — (0.2) 0.8 — 0.8 Actuarial (gains) losses . . . 250.9 120.0 130.9 (14.8) (50.0) 35.2 133.3 73.0 60.3 154.1 47.7 106.4 Transfer-Out ...... (29.8) — (29.8) — — — — — — — — — Acquisitions and other .... 2.9 2.9 — 30.9 29.9 1.0 0.6 0.6 — 0.9 0.9 — Divestments and other .... (2.5) (2.0) (0.5) — — — (60.3) (0.6) (59.7) 1.3 (0.6) 1.9 Benefits paid ...... (88.1) (28.7) (59.4) (78.4) (28.2) (50.2) (76.0) (26.4) (49.6) (76.7) (25.6) (51.1) Defined benefit obligation at end of year ...... 1,941.6 670.3 1,271.3 1,645.6 533.7 1,111.9 1,591.7 540.9 1,050.8 1,431.5 454.6 976.9 Germany ...... 670.3 533.7 540.9 454.6 U.S...... 1,163.7 995.5 937.0 879.1 Canada ...... 72.2 59.2 56.8 47.4 U.K...... — 26.0 27.5 24.1 Switzerland ...... 23.1 20.1 18.0 15.1 Italy ...... 12.3 11.1 11.5 11.2 The total DBO at the end of fiscal 2012 includes €798.0 million for active employees, €205.4 million for former employees with vested benefits and €938.2 million for retirees and surviving dependents. The total DBO at the end of fiscal 2011 includes €642.4 million for active employees, €165.4 million for former employees with vested benefits and €837.8 million for retirees and surviving dependents. The total DBO at the end of fiscal 2010 includes €633.6 million for active employees, €160.9 million for former employees with vested benefits and €797.2 million for retirees and surviving dependents. In fiscal 2012, the DBO of German pension plans and pension plans outside Germany increased as a result of the decrease of the discount rates. Furthermore, the DBO increased as a result of currency exchange effects. The transfer of the defined benefit obligations of the employees in U.K. to Siemens in accordance with the agreement dated January 31, 2012 reached between Siemens plc, Siemens Benefits Scheme and OSRAM Ltd. is disclosed in the line item Transfer-Out. In fiscal 2011, the line item Acquisitions and other in the table above refers mainly to the acquisition of the Siteco business in Germany as of July 1, 2011. In fiscal 2011, the DBO in the U.S. increased primarily due to a decrease of the discount rate, while in Germany the DBO decreased due to an increase of the discount rate. In fiscal 2010, the DBO of German pension plans and pension plans outside Germany increased due to a decrease of the discount rates and due to currency exchange effects. The line item Losses (gains) due to settlements and curtailments in fiscal 2010, in the table above, results from a curtailment of pension plans in the U.S. The line item Divestments and other in fiscal 2010 refers mainly to the deconsolidation of the Valeo Sylvania business.
F-80 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The following table shows a detailed reconciliation of the change in plan assets: September 30, October 1, 2012 2011 2010 2009 Outside Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany Total Germany Germany €m Change in plan assets: Fair value of plan assets at beginning of year ...... 838.9 8.9 830.0 734.9 9.0 725.9 655.3 8.5 646.8 626.0 7.9 618.1 Foreign currency exchange rate changes...... 39.2 — 39.2 11.3 — 11.3 49.3 — 49.3 (20.5) — (20.5) Expected return on plan assets ...... 75.3 18.2 57.1 49.4 0.4 49.0 45.4 0.4 45.0 43.5 0.5 43.0 Actuarial gains (losses) on plan assets...... 84.5 16.9 67.6 (26.6) (0.8) (25.8) 37.0 (0.1) 37.1 30.0 0.0 30.0 Transfer-In ...... 6.7 — 6.7 56.2 — 56.2 — — — — — — Transfer-Out ...... (29.7) — (29.7) — — — — — — — — — Acquisitions and other ...... 0.1 0.1 0.9 0.1 0.8 — — — — — — Divestments and other ...... (0.8) — (0.8) — — — (35.0) — (35.0) 10.0 — 10.0 Settlements ...... — — — — — — — — — — — — Employer contributions ...... 529.7 485.2 44.5 53.5 0.1 53.4 22.3 0.1 22.2 5.5 0.0 5.5 Plan participants’ contributions ...... 1.4 0.9 0.5 1.5 1.1 0.4 0.8 0.3 0.5 0.8 0.4 0.4 Benefits paid ...... (67.7) (21.4) (46.3) (42.2) (1.0) (41.2) (40.2) (0.2) (40.0) (40.0) (0.3) (39.7) Fair value of plan assets at end of year ...... 1,477.6 508.8 968.8 838.9 8.9 830.0 734.9 9.0 725.9 655.3 8.5 646.8 Germany ...... 508.8 8.9 9.0 8.5 U.S...... 883.0 740.8 639.1 571.8 Canada ...... 64.1 46.2 47.2 41.3 U.K...... 0.0 26.6 24.2 20.1 Switzerland ...... 21.7 16.4 15.4 13.6 Italy ...... ———— The fair value of plan assets at the end of fiscal 2012 increased primarily as a result of the additional funding of plan assets during the fiscal year, for which OSRAM GmbH received a cash contribution from Siemens AG. This included €485.0 million for German pension plans previously unfunded and €11.8 million for principal pension plans in Canada and Switzerland. These fundings are disclosed in the line item Employer contributions. Currency exchange effects have a positive effect on the fair value of plan assets. The transfer of plan assets related to the defined benefit obligations in U.K. to Siemens is included in the line item Transfer-Out. Employer contributions to the funded pension plans expected for fiscal 2013 amount to €52.4 million, of which €18.6 million for German pension plans and €33.8 million to non-German pension plans. The fair value of plan assets at the end of fiscal 2011 increased as a result of the additional transfer of assets in connection with the separation and foundation of the OSRAM SYLVANIA pension plan in accordance with legal requirements in the U.S. (Internal Revenue Code 414 (I)). The asset transfer amounted to €56.2 million and is disclosed in the line item Transfer-In. In fiscal 2010, the line item Divestments and other mainly refers to the deconsolidation of the Valeo Sylvania business. The line item Employer contributions for fiscal 2010 in the table above includes supplemental employer contributions in U.K.
F-81 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Principal pension benefits and principal other post-employment benefits: Components of NPBC The components of the NPBC are as follows: Year ended September 30, 2012 2011 2010 Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany €m Current service cost ...... 29.3 18.6 10.7 28.3 17.2 11.1 31.8 15.6 16.2 Interest cost ...... 77.8 25.1 52.7 73.4 22.8 50.6 79.9 23.8 56.1 Expected return on plan assets . . (75.3) (18.2) (57.1) (49.4) (0.4) (49.0) (45.4) (0.4) (45.0) Amortization of past service cost (benefits) ...... 0.7 0.5 0.2 (0.2) — (0.2) (0.3) — (0.3) Losses (gains) due to settlements and curtailments ...... (0.3) (0.2) (0.1) — — — (22.8) — (22.8) Net periodic benefit cost ...... 32.2 25.8 6.4 52.1 39.6 12.5 43.2 39.0 4.2 Germany ...... 25.8 39.6 39.0 U.S...... 4.6 11.1 2.3 Canada ...... 1.3 1.1 1.1 U.K...... (0.1) 0.0 0.1 Switzerland ...... 0.1 (0.2) 0.1 Italy ...... 0.5 0.5 0.6 The decrease of NPBC by €19.9 million in fiscal 2012 compared to fiscal 2011 was primarily a result of the increase of the Expected return on plan assets, which is due to the increase in the plan assets: assets were transferred to the German pension plans in December 2011 and, furthermore, additional assets were transferred to the pension plans in the U.S. as of September 30, 2011 in accordance with the legal requirements (Internal Revenue Code 414 (I)). Loss (gain) due to settlements and curtailments in fiscal 2010, in the table above, refers to €22.8 million resulting from the curtailment of pension plans in the U.S. The Business Unit GL benefited with an amount of €13.3 million and the Business Unit SP with an amount of €7.5 million from this curtailment gain. Employees kept benefits earned, however, will not earn future benefits under these plans. Instead, employer contributions are made to existing defined contribution plans. The current service cost for pension plans and similar commitments are allocated among functional cost (line items Cost of goods sold and services rendered, Research and development expenses, Marketing, selling and general administrative expenses) following the functional area of the respective profit and cost center.
F-82 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Principal pension benefits and principal other post-employment benefits: Amounts recognized in the Combined Statements of Comprehensive Income The actuarial gains and losses on the principal defined pension benefits and principal other post-employment benefits recognized in the Combined Statements of Comprehensive Income are as follows: Year ended September 30, 2012 2011 2010 Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany €m Actuarial gains (losses) ..... 166.4 103.1 63.3 11.8 (49.2) 61.0 96.3 73.1 23.2 Effects due to asset ceiling . . . — — — — — — — — — Income tax effect ...... (55.3) (31.1) (24.2) (7.4) 15.0 (22.4) (24.8) (22.3) (2.5) Net amount recognised in the Combined Statements of Comprehensive Income, net of tax ...... 111.1 72.0 39.1 4.4 (34.2) 38.6 71.5 50.8 20.7 Germany ...... 72.0 (34.2) 50.8 U.S...... 34.5 37.7 14.9 Canada ...... 3.5 1.9 4.1 U.K...... 0.2 (1.7) 0.2 Switzerland ...... 0.1 1.0 0.9 Italy ...... 0.8 (0.3) 0.6
Principal pension benefits and principal other post-employment benefits: Assumptions used for the calculation of the DBO and NPBC Assumed discount rates, compensation increase rates and pension progression rates used in calculating the DBO and NPBC together with the expected return on plan assets vary, amongst other things, according to the economic conditions of the country in which the pension plans are situated or where plan assets are invested as well as capital market expectations. The weighted-average discount rate used for the actuarial valuation of the DBO at fiscal year-end and the expected return on plan assets for the respective fiscal year were as follows: September 30, October, 1 2012 2011 2010 2009 Outside Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany Total Germany Germany Discount rate . . 3.65% 3.10% 3.93% 4.74% 4.70% 4.76% 4.69% 4.00% 5.04% 5.53% 5.30% 5.65% Germany .... 3.10% 4.70% 4.00% 5.30% U.S...... 4.00% 4.80% 5.10% 5.70% Canada ..... 3.70% 4.45% 4.90% 5.40% U.K...... — 5.65% 5.30% 5.70% Switzerland .. 1.70% 2.50% 2.60% 3.50% Italy ...... 3.10% 4.70% 4.00% 5.30% Expected return on plan assets ...... 6.24% 5.00% 6.89% 6.88% 6.50% 6.88% 6.87% 6.50% 6.87% 6.92% 6.50% 6.93% Germany .... 5.00% 0.00% 6.50% 6.50% 6.50% U.S...... 6.96% 6.96% 6.96% 7.02% Canada ..... 6.50% 6.50% 6.50% 6.50% U.K...... 6.00% 6.00% 6.00% 6.00% Switzerland .. 5.00% 5.00% 5.00% 5.00% Italy ...... ————
F-83 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The assumptions used for the calculation of the DBO as of the period-end of the preceding fiscal year are used to calculate the interest cost and service cost of the following fiscal year. The total expected return on plan assets for the fiscal year is based on the expected rate of return for the respective fiscal year multiplied by the fair value of plan assets at the end of the preceding fiscal year. The fair value and thus the expected return on plan assets are adjusted for significant events after fiscal year-end, such as supplemental funding. The discount rate assumptions reflect the rates available on high-quality corporate bonds or government bonds of consistent duration and currency. The expected return on plan assets is determined in considering long-term historical returns, asset allocation, and future estimates of long-term investment returns. The rates of compensation increase for countries with significant effects with regard to this assumption were as follows for the fiscal years 2012, 2011 and 2010: U.S.: 3.50% for 2012, 2011 and 2010, Canada: 3.25% for 2012, 3.5% for 2011 and 4.00% for 2010, Switzerland: 1.5% for 2012, 2011 and 2010, and Italy: 2.0% for 2012, 2011 and 2010. The compensation increase rate for the German pension plans for each of the fiscal years 2012, 2011 and 2010 was 2.25%. However, due to the implementation of the BOA, the effect of compensation increase on the German pension plans was substantially eliminated. The pension progression rates for countries with significant effects with regard to this assumption were as follows for the fiscal years 2012, 2011 and 2010: Germany: 2012 1.65%, 2011 1.67% and 2010 1.68%. Changes of other actuarial assumptions not mentioned above, such as employee turnover, mortality, disability had only a minor effect on the total DBO for the fiscal years 2012, 2011 and 2010. Experience adjustments which are the result of differences between the actuarial assumptions and the actual occurrence decreased the DBO in fiscal 2012 by 1.3%. In fiscal 2011 and 2010, the experience adjustments increased the DBO by 0.6% and 0.7%, respectively. The weighted-average assumptions used in calculating the actuarial obligations of health care and life insurance benefits are as follows: September 30, October 1, 2012 2011 2010 2009 Discount rate ...... 3.86% 4.75% 4.83% 5.66% U.S. Medical trend rates (initial/ ultimate/year): Medicare ineligible pre-65 ...... 9.0%/5.0%/2021 9.0%/5.0%/2020 8.0%/5.0%/2017 8.5%/5.0%/2017 Medicare eligible post-65 ...... 8.5%/5.0%/2020 8.5%/5.0%/2019 8.5%/5.0%/2018 9.0%/5.0%/2018 Fixed Dollar Benefits ...... 3.00% 3.00% 3.00% 3.00% Experience adjustments of principal health care and life insurance benefits increased the DBO in fiscal 2012 by 0.2%. In fiscal 2011 they reduced the DBO by 1.6%, and they increased the DBO by 4.2% in fiscal 2010.
Principal pension benefits and principal other post-employment benefits: Plan assets The asset allocation of the plan assets of the principal pension plans are as follows: September 30, October 1, 2012 2011 2010 2009 Outside Outside Outside Outside Total Germany Germany Total Germany Germany Total Germany Germany Total Germany Germany Equity ...... 32.0% 16.5% 40.1% 28.2% 22.7% 28.2% 33.6% 26.2% 33.7% 37.5% 31.9% 37.6% Fixed income .... 66.8% 81.3% 59.2% 68.1% 54.1% 68.2% 60.1% 51.9% 60.2% 56.3% 59.8% 56.3% Real estate ...... 0.3% 0.1% 0.4% 1.2% 4.0% 1.2% 5.0% 3.4% 5.1% 5.1% 3.7% 5.1% Cash and other assets ...... 0.9% 2.1% 0.3% 2.5% 19.2% 2.4% 1.3% 18.5% 1.0% 1.1% 4.6% 1.0% Total ...... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
The current asset allocation of fixed income investments is composed of high-quality government and selected corporate bonds. The asset allocation is regularly reviewed considering the duration of the respective pension obligations. Trends and market developments are analyzed with regard to their potential effect on asset values in order to initiate appropriate countermeasures at a very early stage.
F-84 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Principal pension benefits and principal other post-employment benefits: Actual return on plan assets The following table shows the actual return on plan assets: Year ended September 30, 2012 2011 2010 €m Germany ...... 35.1 (0.4) 0.3 Outside Germany ...... 124.7 23.2 82.1 Total ...... 159.8 22.8 82.4
The actual return on plan assets in fiscal 2012 was a pro rata return of 11.9% or €159.8 million, compared to a pro rata expected return of 5.6% or €75.3 million. In fiscal 2011, the actual return on plan assets was 3.1% or €22.8 million, compared to an expected return of 6.6% or €49.4 million. In fiscal 2010 the actual return on plan assets amounted to 12.5% or €82.4 million, compared to an expected return of 6.9% or €45.4 million. The experience adjustments arising on plan assets in fiscal 2012 were 6.3%; in fiscal 2011 (3.5)% and in fiscal 2010 5.6%.
Principal pension benefits and principal other post-employment benefits: Sensitivity analysis for discount rates The DBO is significantly influenced by the assumed discount rates. A one-percentage-point increase of the discount rate would have resulted in an €230.2 million decrease of the DBO in fiscal 2012. A one-percentage-point decrease in the discount rate would have resulted in an €288.7 million increase of the DBO.
Participation of OSRAM in Siemens pension plans Prior to the aforementioned changes in fiscal 2012, OSRAM employees in various countries, primarily in the U.S. and U.K., participated in Siemens pension plans and the respective pension trusts. For these plans, pension entitlements are managed centrally by Siemens, but separated for each company. Plan assets were managed by Siemens and the trustees of Siemens’ pension trusts. Plan assets are not kept separately for each participating company, but were rather allocated to all plan participants. In the past, the OSRAM companies were generally charged proportionately based on employee payroll data, the DBO of active employees, former OSRAM employees with vested benefits and retirees and surviving dependants as well as their proportion of the plan assets. The following related party disclosures refer to Siemens pension plans as a whole in which OSRAM employees participated in fiscal 2011, 2010 and 2009: For the Siemens Pension Trust in U.K. the fair value of plan assets as of September 30, 2011 in total amounted to €2,845.4 million (September 30, 2010: €2,873.7 million and October 1, 2009 €2,245.6 million), the DBO in total amounted to €2,732.2 million (September 30, 2010: 3,204.9 million and October 1, 2009: €2,616.1 million) and the funded status in total amounted to €113.2 million (September 30, 2010: €(331.2) million and October 1, 2009: €(370.5) million). The NPBC for fiscal 2011 and 2010 amounted to €65.3 million and €(26.0) million, respectively. OSRAM’s share of the total DBO amounted to approximately 1% as of September 30, 2011, 2010 and October 1, 2009. For the Siemens Pension Trust in the U.S. the fair value of plan assets as of September 30, 2011 in total amounted to €2,805.8 million (September 30, 2010: €2,633.1 million and October 1, 2009: €2,159.8 million), the DBO in total amounted to €3,680.4 million (September 30, 2010: 3,370.2 million and October 1, 2009: €2,769.2 million) and the funded status in total amounted to €(874.5) million (September 30, 2010: €(737.1) million and October 1, 2009: €(609.4) million). The NPBC for fiscal 2011 and 2010 amounted to €6.3 million and €(69.5) million (including a curtailment gain), respectively.
F-85 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
OSRAM’s share of the total DBO as of September 30, 2011, 2010 and October 1, 2009 amounted to approximately 19%, 20% and 21%, respectively. In fiscal 2011, OSRAM participated in the Siemens pension trust for union employees in the U.S. The fair value of plan assets, DBO and funded status as of September 30, 2011 in total amounted to €275.3 million, €360.2 million and €(84.9) million, respectively. The NPBC for fiscal 2011 amounted to €2.4 million. OSRAM’s share of the total DBO amounted to approximately 53% as of September 30, 2011.
Principal pension benefits and principal other post-employment benefits: Sensitivity analysis for medical benefits The post-employment medical benefits in the U.S. are capped at a fixed dollar amount, for some employee groups an indexation at 3% p.a. exists. As a result, changes of the assumptions regarding medical benefits do not have a significant effect.
Principal pension benefits and principal other post-employment benefits: Benefit payments The following table shows the payments for pension and other post-employment benefits in the fiscal years 2012, 2011 and 2010, as well as the expected payments in the next five fiscal years and the total amount for the five years thereafter (not discounted): Outside Total Germany Germany €m Payments for pensions and other-postemployment benefits 2010 ...... 76.0 26.4 49.6 2011 ...... 78.4 28.2 50.2 2012 ...... 88.1 28.7 59.4 Expected payments for pensions and other-postemployment benefits 2013 ...... 91.8 28.5 63.3 2014 ...... 92.7 28.5 64.2 2015 ...... 94.5 29.0 65.5 2016 ...... 95.5 28.4 67.1 2017 ...... 97.8 29.0 68.8 2018 - 2022 ...... 522.3 154.1 368.2 Since pension benefit payments reduce both the DBO and the plan assets in the same amount, there is no effect on the funded status of OSRAM’s principal funded pension plans. Since the other post-employment benefit plans are generally unfunded, the benefit payments reduce the both the DBO and the recognized liability and therefore lead to a corresponding operative cash outflow at OSRAM.
Non-principal pension benefits and non-principal other post-employment benefits The DBO amounted to €28.6 million, the plan assets to €3.9 million and the funded status to €(24.7) million in respect of non-principal pension benefits and non-principal other post-employment benefits as of September 30, 2012. As of September 30, 2011, the DBO amounted to €31.4 million, the plan assets to €6.4 million and the funded status to €(25.0) million in respect of these benefits. As of September 30, 2010, the DBO amounted to €26.5 million, the plan assets to €4.4 million and the funded status to €(22.1) million in respect of these benefits. As of October 1, 2009, the DBO amounted to €41.3 million, the plan assets to €20.6 million and the funded status to €(20.7) million in respect of these benefits.
F-86 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Defined contribution pension plans and state plans The contributions paid and recognized in profit and loss in respect of defined contribution pension plans and state plans amounted to €135.2 million, €112.5 million and €99.3 million in the fiscal years 2012, 2011 and 2010, respectively.
26. Provisions Specific Order Losses on patent related losses onerous infringement Warranties and risks contracts disputes Others Total €m Balance as of October 1, 2011 ...... 29.9 3.1 — 23.1 41.2 97.3 Additions ...... 8.6 6.5 0.0 11.2 46.3 72.6 Usage ...... (6.1) (0.8) — (17.8) (9.4) (34.1) Reversals ...... (2.5) (0.2) — (4.5) (14.0) (21.2) Translation differences ...... 0.7 0.1 0.0 — 1.0 1.8 Other changes ...... (0.3) — — — — (0.3) Balance as of September 30, 2012 ...... 30.3 8.7 — 12.0 65.1 116.1 thereof non-current ...... 1.8 4.6 — — 12.7 19.1 Specific Order Losses on patent related losses onerous infringement Warranties and risks contracts disputes Others Total €m Balance as of October 1, 2010 ...... 27.4 3.0 4.6 — 38.1 73.1 Additions ...... 10.0 1.3 — 24.8 9.7 45.8 Usage ...... (6.2) (0.9) (4.4) (0.3) (4.1) (15.9) Reversals ...... (4.2) (0.4) — (1.4) (2.6) (8.6) Translation differences ...... 0.0 0.1 (0.1) — (0.4) (0.4) Other changes ...... 2.9 0.0 (0.1) — 0.5 3.3 Balance as of September 30, 2011 ...... 29.9 3.1 0.0 23.1 41.2 97.3 thereof non-current ...... 5.5 — — 3.0 7.5 16.0 Specific Order Losses on patent related losses onerous infringement Warranties and risks contracts disputes Others Total €m Balance as of October 1, 2009 ...... 27.4 2.5 9.3 — 25.9 65.1 Additions ...... 13.6 1.1 — — 19.4 34.1 Usage ...... (8.3) (0.1) (5.5) — (3.2) (17.1) Reversals ...... (5.6) (0.6) — — (5.0) (11.2) Translation differences ...... 1.5 0.1 0.7 — 1.0 3.3 Other changes ...... (1.2) — 0.1 — — (1.1) Balance as of September 30, 2010 ...... 27.4 3.0 4.6 — 38.1 73.1 thereof non-current ...... 2.9 — — — 6.1 9.0 Warranties mainly relate to products sold and services rendered. Order related losses and risks are provided for anticipated losses and risks on uncompleted construction and sales contracts. Losses on onerous contracts relate to OSRAM SYLVANIA in respect of contracts related to the “Global Tungsten and Powder Business Program” (“GTP”) which was sold in fiscal 2008. Contracts signed with GTP were determined to be onerous and therefore a provision for losses on onerous contracts was set up and used over the duration of the contract, which terminated in fiscal 2011.
F-87 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Other changes contains provisions for environmental obligations amounting to €3.5 million as of September 30, 2012 (September 30, 2011: €3.5 million, September 30, 2010: €2.2 million and October 1, 2009: €2.7 million). In addition, the line item includes provisions for significant additional legal proceedings in the amount of €33.6 million as of September 30, 2012 (September 30, 2011: €9.3 million, September 30, 2010: €13.3 million and October 1, 2009: €2.3 million). The line item specific patent infringement disputes relates primarily to the legal costs in association with the patent infringement disputes, which escalated immediately after the announcement of OSRAM’s proposed IPO (see Note 30 Legal proceedings).
27. Other liabilities September 30, October 1, 2012 2011 2010 2009 €m Employee related liabilities ...... 62.2 51.5 43.7 57.0 Deferred compensation plan ...... 64.8 59.5 57.0 52.5 Other ...... 24.1 17.8 13.7 17.1 Other liabilities ...... 151.1 128.8 114.4 126.6
As of September 30, 2012 employee related liabilities primarily include accruals for early retirement (“Altersteilzeit”) amounting to €17.0 million (September 30, 2011: €13.0 million, September 30, 2010: €13.6 million and October 1, 2009: 35.2 million). A significant portion of the deferred compensation plan is subject to a change in control clause. In the event of a change in control this portion of the plan would terminate and would be subject to an immediate distribution to the vested participants. Regarding the related plan assets, see Note 21 Other assets.
28. Equity Net assets (Combined Financial Statements) As stated in Note 1 Basis of preparation, OSRAM was not a legal group for Consolidated Financial Statements reporting purposes in accordance with IAS 27 and was presented on the basis of the aggregation of the net assets of OSRAM Licht AG, OSRAM Beteiligungen GmbH and OSRAM GmbH, as well as its direct and indirect subsidiaries. Since the combined group does not have any subscribed capital, a presentation of earning per share in accordance with IAS 33 is not possible.
Capital Management Capital management for OSRAM is performed by the ultimate shareholder, Siemens AG, and includes the consideration of legal requirements relating to the equity and the liquidity requirements of the Siemens Group.
Domination and profit and loss transfer agreements On September 6 and 29, 1993, Siemens AG and OSRAM GmbH concluded a domination and profit and loss transfer agreement (“Beherrschungs- und Gewinnabführungsvertrag”). On September 22 and 26, 2011, OSRAM AG and Siemens AG mutually agreed to terminate the domination and profit and loss transfer agreement, with effect from the end of September 30, 2011. Based on the domination and profit and loss transfer agreement until the effective termination date all profits or losses of OSRAM AG determined in accordance with German GAAP (HGB) were paid to or absorbed by Siemens AG. On September 22 and 26, 2011, Siemens Beteiligungen Inland GmbH, Munich, Germany (“SBI”) and OSRAM AG concluded a domination agreement (“Beherrschungsvertrag”) and decided to put OSRAM AG
F-88 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) under the control of SBI. Based on this domination agreement, SBI had the authority to issue instructions to the managing board of OSRAM, which the managing board were required to follow. This agreement was entered into the Commercial Register on October 6, 2011. In accordance with sec. 302 of the German Stock Corporation Code (“Aktiengesetz”), SBI was obliged to absorb the losses of OSRAM AG until the termination of the domination agreement. This resulted in SBI absorbing losses of €336.6 million as of September 30, 2012. SBI and OSRAM AG mutually agreed on September 10 and 12, 2012 to terminate the domination agreement with effect from the end of fiscal 2012, that is after September 30, 2012. Some OSRAM companies pay dividends to shareholders outside of the group. For further information, see the development of the combined equity. In fiscal 2012, OSRAM Licht Group received a capital contribution of €499.5 million from Siemens AG for the funding of the pension plans. In accordance with sec. 272 para. 2 no. 4 HGB, Siemens made an additional contribution to the capital reserves of OSRAM AG of €200.0 million in accordance with the agreement dated September 27, 2012. This contribution was made by waiving part of the Siemens Cash Management receivables due by OSRAM AG to Siemens AG (see Note 34 Related party disclosures).
Other Comprehensive income The changes in the other comprehensive income including non-controlling interest holders are as follows:
September 30, 2012 2011 2010 Tax Tax Tax Pre-tax effect Net Pre-tax effect Net Pre-tax effect Net Unrealized holding gains (losses) on available-for-sale financial assets ...... (0.2) — (0.2) — — — — — — Reclassification adjustments for (gains) losses included in net income ...... — — — — — — — — — Net unrealized gains (losses) on available-for-sale financial assets ..... (0.2) — (0.2) — — — — — — Unrealized gains (losses) on derivative financial instruments ...... 9.8 (2.9) 6.9 (0.8) 0.2 (0.6) 4.9 (1.5) 3.4 Reclassification adjustments for (gains) losses included in net income ...... (8.1) 2.4 (5.7) (5.6) 1.7 (3.9) (0.4) 0.1 (0.3) Net unrealized gains (losses) on derivative financial instruments ..... 1.7 (0.5) 1.2 (6.4) 1.9 (4.5) 4.5 (1.4) 3.1 Unrealized foreign-currency translation . . . 64.7 — 64.7 6.9 — 6.9 97.3 — 97.3 Reclassification adjustments for (gains) losses included in net income ...... (12.4) — (12.4) — — — — — — Foreign-currency translation differences ...... 52.3 — 52.3 6.9 — 6.9 97.3 — 97.3 Actuarial gains and losses on pension plans and similar commitments ...... (177.3) 58.3 (119.0) (12.7) 6.4 (6.3) (97.6) 25.4 (72.2) Other comprehensive income (loss) ..... (123.5) 57.8 (65.7) (12.2) 8.3 (3.9) 4.2 24.0 28.2
Other changes in equity Other changes in equity mainly relate to the deemed contributions/withdrawals in respect of the share-based compensation and taxes (see Note 33 Share-based payment and the separate tax return approach in Note 2 Summary of significant accounting policies).
F-89 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 29. Commitments and contingencies Guarantees and other commitments The following table presents the undiscounted amount of maximum potential future payments for each major group of guarantee: September 30, October 1, 2012 2011 2010 2009 €m Credit guarantees ...... 10.5 1.0 5.9 5.9 Other guarantees ...... 9.7 — 0.1 — 20.2 1.0 6.0 5.9
OSRAM provides credit guarantees generally as credit-line guarantees with variable utilization to joint ventures and associates (defined in Note 19 Investments accounted for using the equity method and 34 Related party disclosures). The maximum amount of these guarantees is subject to the outstanding balance of the credit or, in case where a credit line is subject to variable utilization, the nominal amount of the credit line. These guarantees usually have terms of between one and five years. The credit guarantees relate primarily to credit guarantees given to Valeo Sylvania. In addition, the sale of OSRAM-MELCO Ltd., Yokohama, Japan constituted a contractual obligation for guarantees amounting to €9.7 million as of September 30, 2012. As of September 30, 2012, 2011 and 2010, as well as of October 1, 2009, future payment obligations under non-cancellable operating leases are as follows: September 30, October 1, 2012 2011 2010 2009 €m Within 1 year ...... 40.0 29.8 22.7 22.5 Between 1 and 5 years ...... 99.8 50.1 53.0 46.1 After 5 years ...... 101.7 44.9 49.0 53.5 Future payment obligations under non-cancellable operating leases ...... 241.5 124.8 124.7 122.1
The future payment obligations under non-cancellable operating leases mainly relate to lease payments to Siemens AG. The increase as of September 30, 2012 compared to the prior fiscal year is primarily due to the central corporate functions moving into a new building, which is being rented under long-term rental agreements. Total operating lease expenses in respect of third parties for the fiscal years ended September 30, 2012, 2011 and 2010, as well as October 1, 2009 amounted to €59.0 million, €45.2 million, €37.7 million and €43.1 million, respectively. Regarding legal proceedings see Note 30 Legal Proceedings.
30. Legal proceedings Procedures under Product Liability Law Product liability claims in Germany regarding Standard-Light Emitting Diodes (LED’s) used in car lamps In the summer 2010, the car lamp producers Hella KGaA Hueck & Co., Lippstadt, Germany (“Hella”) and Automotive Lighting Reutlingen GmbH, Reutlingen, Germany (“AL”) filed lawsuits against our subsidiary OSRAM OS before the Regional Court of Regensburg, Germany. The plaintiffs seek a declaration of the liability OSRAM OS for allegedly defective LEDs used in car lamps for compensation for damages. In September 2011 Hella has specified its claim for damages to an amount of €40.7 million plus any further damages arising in the future. The Regional Court set the amount in dispute at €30 million for the Hella-case. OSRAM OS is defending the actions. Meanwhile, OSRAM OS has settled the AL case amicably out-of-court and AL has withdrawn its
F-90 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) claim on January 6, 2012. After the oral hearing on January 19, 2012 in the Hella case, the Regional Court has dismissed Hella’s claim in its entirety. Hella has appealed the decision and has substantiated its appeal on June 29, 2012. OSRAM OS’s counter arguments have been filed with the court on September 3, 2012. The court set a date for oral hearing on March 13, 2013. OSRAM OS is defending itself against the action.
Product Liability Claims in the U.S. with Reference to Property Damage allegedly caused by Metal Halide In March 2010, the insurance companies Travelers Property Casualty Company of America, Hartford, Connecticut, U.S. (“Travelers”), and Factory Mutual Insurance Company, Johnston, Rhode Island, U.S. (“Factory Mutual”), together with Briggs & Stratton Power Products Group, LLC, Jefferson, Wisconsin, U.S. (“Briggs & Stratton”), brought legal actions in United States (“U.S.”) District Court for the Western District of Tennessee against OSRAM SYLVANIA. The plaintiffs demanded compensation for damages in the amount of USD 50 million (€38.5 million) combined in both actions based on a fire that was allegedly caused by the rupture of a metal halide lamp. All parties voluntarily withdrew their actions in June 2010 without prejudice. However, Briggs & Stratton, which was leasing the building, re-filed its case before the Circuit Court for Dyer County, Tennessee, U.S. in May 2011, and claims USD 25 million (€19.3 million) in property damage. Travelers had time through December 1, 2011 to re-file its action anew. Travelers did not re-file and this portion of the legal dispute is therewith concluded. Discovery will take place in 2012 and the trial shall take place in 2013 (according to the current information). In light of the re-submission of the action and the early stage of the proceeding, OSRAM SYLVANIA cannot predict the outcome of this legal dispute. OSRAM SYLVANIA is preparing its legal defense in this proceeding.
Investigations into the Causes of Fires in the U.S. OSRAM SYLVANIA is subject to an investigation into the cause of a fire initiated by Wells Fargo Bank, Raleigh, North Carolina, U.S. (“Wells Fargo”) and allegedly caused by the rupture of a SYLVANIA 250-Watt-halogen-metal halide lamp. OSRAM SYLVANIA represents the view that the lamp was not used in an enclosed lighting fixture as is required in the product warnings. In May 2011Wells Fargo, which was leasing the building, brought legal action against SSH Management LLC, Philadelphia, Pennsylvania, U.S. (“SSH”), the property manager and Colonial Electric Supply, King of Prussia, Pennsylvania, U.S. (“Colonial”), the vendor of the metal halide lamp in question. In August 2011, the building’s owners, 123 South Broad Condominium Association, 123 South Broad GP, LLC und 123 South Broad Partners LP, Philadelphia, Pennsylvania, U.S. (“123 South Broad”) also brought action against Colonial and SSH. In November 2011, Colonial submitted an action against the other defendants (“Joinder Complaint”) OSRAM SYLVANIA and SSH demanding contribution and indemnification. With an order from October 11, 2011, the two cases were merged for the evidentiary hearing and the actual trial. Colonial has rejected liability. It further stated that in case Colonial was found to be liable towards the owner based on the owner´s statements on the functioning of the halogen-metal halide lamp or its warning notices it would seek indemnification from OSRAM SYLVANIA. The depositions in the discovery began in February 2012 and after the deposition of a representative from Colonial complaints were filed by 123 South Broad against OSRAM SYLVANIA and SSH as well as a complaint for punitive damages against Colonial. The trial is scheduled for March 2013. OSRAM SYLVANIA is defending itself against the actions. In 2011 Murphy Bonded Warehouse, LLC, Mansfield, Louisiana, U.S. (“Murphy Bonded”) and International Paper Company, Memphis, Tennessee, U.S. (“International Paper”), along with Factory Mutual Insurance, Johnston, Rhode Island, U.S., brought actions against OSRAM SYLVANIA in a State Court and a Federal Court. These actions assert that a fire and associated property damages were caused by the rupture of a 400-Watt-metal halide lamp. The lamp in question was not presented nor identified for examination. Statements from witnesses and scientific evidence indicate that sparks which did not come from the light fixture, which supposedly ignited a stack of paper, were the likely cause of the fire. The overall damages claimed amount to USD 10 million (€7.7 million). With regards to International Paper the procedure has been assigned to International Paper`s insurer by court order. OSRAM Sylvania is defending itself against the action.
F-91 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Product Liability Claims in the U.S. with Reference to Property Damages Allegedly Caused by Fluorescent Lamps OSRAM SYLVANIA is the object of an investigation into the cause of a fire initiated by Maxim Production Company, Boling, Texas, U.S. (“Maxim”) and Lexington Insurance Company, Boston, Massachusetts, U.S. (“Lexington”) with reference to a fire in an egg production facility in Boling, Texas in 2010. According to Lexington, property damages amount to USD 20 million (€15.4 million). Additionally a fireman was killed on-site during the firefighting effort. Maxim and Lexington assert that the fire was caused by a fluorescent lamp, a lighting fixture or associated component. The lamps in the building were produced by different manufacturers. The investigations at the site of the fire were concluded without yielding any proof of the cause. In April 2012 Lexington brought an action against all companies involved in the lighting fixtures at the facility—including OSRAM SYLVANIA—without naming any specific grounds for liability against any single one of the parties. The relatives of the deceased fireman submitted a petition to join the action brought by Lexington, which was presented to OSRAM SYLVANIA on July 5, 2012. After a laboratory examination of remains from the fire, all plaintiffs withdrew their actions against OSRAM SLYVANIA with prejudice. It cannot be determined at this time if the co-defendants, Simkar LLC, Philadelphia, Pennsylvania, U.S., Leviton Manufacturing Company, Melville, New York, U.S. and Philips Electronics North America, Andover, Massachusetts, U.S. will also withdraw their claims of recourse against OSRAM SYLVANIA. OSRAM SYLVANIA will make every effort to achieve withdrawals from these parties as well.
Product Liability Claims in the U.S. on the Basis of Property Damages that were Allegedly Caused by a Triple- Pass-Heater. In July 2011 Pliant Corporation, Illinois/Indiana, U.S. (“Pliant”) submitted a legal action against OSRAM SYLVANIA with respect to property damage that was caused by a fire that occurred within a printing press component. The manufacturer of the press purchased this component, a so-called triple-pass-heater, from OSRAM SYLVANIA. The estimated claim for damages came to a total amount of USD 10 million (€7.7 million). The trial is scheduled for September 2013. OSRAM SYLVANIA will defend itself in this case.
Imran Chaudhri, Class Action Suit against OSRAM SYLVANIA and OSRAM SYLVANIA Products On September 22, 2011, a class action suit was brought against OSRAM SYLVANIA and OSRAM SYLVANIA Products Inc., Danvers, Massachusetts, U.S. (“OSRAM SYLVANIA Products”) in the U.S. District Court for the District of New Jersey by the plaintiff Imran Chaudhri, who involves the group of purchasers of Silverstar®-headlights. On January 9, 2012, the plaintiff expanded his legal action and asserted that various power ratings and advertisements relating to the Silverstar-automobile headlight replacement bulbs were allegedly “false and misleading” in the sense of the New Jersey Consumer Fraud Act. The plaintiff seeks admission of a national class action suit under the Consumer Fraud Act of New Jersey as well as compensation for damages. OSRAM SYLVANIA Products is defending itself against the actions. In conformity with an order from the presiding judge, proceedings to determine whether a class action lawsuit is appropriate are underway.
Cabot against Cooper Industries as well as against OSRAM SYLVANIA In August 2006 a fire destroyed the building of Cabot Junior High School, Arkansas, U.S. (“Cabot”). The insurer, the Great American Insurance Company, Cincinnati, Ohio, U.S., initiated an investigation and informed OSRAM SYLVANIA of a ballast made by OSRAM SYLVANIA that was found in the building. In March 2009 Cabot brought a legal action against Cooper Industries, Houston, Texas, U.S. (“Cooper”). In 2009 Cooper initiated a third party notice against OSRAM SYLVANIA, but later withdrew it. The plaintiff settled with Cooper Lighting in August 2010.
ER Carriers Inc. against OSRAM SYLVANIA Ltd./LTEE and OSRAM SYLVANIA In 2009 ER Carriers Inc., King City, Ontario, Canada (“ER Carries”) brought a legal action against OSRAM SYLVANIA Ltd./LTEE, Mississauga, Ontario, Canada (“OSRAM SYLVANIA Canada”) and OSRAM SYLVANIA with respect to OSRAM SYLVANIA Canada’s awarding a contract to a company other
F-92 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) than ER Carriers for cross border transport services between the U.S. and Canada. ER Carriers demanded compensation from OSRAM SYLVANIA Canada and OSRAM SYLVANIA in the amount of CAD 5 million (€3.7 million). The action was dismissed in February 2011.
Patent and Trademark Litigation OSRAM Light Group against Samsung Group and Samsung Group against OSRAM Light Group Since 2011, companies of OSRAM Light Group have been involved in numerous patent lawsuits with the corporate group of Samsung Electronics Co., Ltd., Seoul, Korea (“Samsung Group”). On the one hand, OSRAM had sued the Samsung Group in the US (including the U.S. International Trade Commission, “ITC”), in South Korea and in Germany for patent infringements to enforce patents on Light Emitting Diode (LED) technology, and were requesting injunctions against unauthorized use of the asserted patents and, in some cases, import bans and compensation. In some cases the legal actions also included customers of the Samsung Group. In addition, OSRAM Light Group had commenced patent invalidation proceedings relating to patents of the Samsung Group on LED-technology in South Korea. On the other hand, companies of the Samsung Group had initiated patent invalidation proceedings and oppositions relating to OSRAM Light Group patents on LED-technology in South Korea and Germany. In addition, companies of the Samsung Group had filed patent infringement lawsuits in the US (including the ITC), South Korea and Germany, requesting injunctions against unauthorized use of the asserted patents and, in some cases, import bans and compensation from OSRAM. The patent infringement lawsuits initiated by companies of the Samsung Group partly also involved direct and indirect customers of OSRAM. Samsung Electronics Co., Ltd., Seoul, Korea (“Samsung Electronics”), furthermore, acquired a patent that Bluestone Innovations Texas, LLC, U.S. (“Bluestone Innovations”) had invoked in a lawsuit before the U.S. District Court for the Eastern District of Texas in May 2012 against OSRAM GmbH, OSRAM SYLVANIA and OSRAM OS. Bluestone Innovations had alleged that certain of OSRAM’s LED-products infringe a US-patent held at that time by Bluestone Innovations. In January 2012, the case was transferred to the U. S. District Court for the Northern District of California. In August 2012 Samsung Electronics and OSRAM GmbH concluded a settlement agreement. According to the agreement all pending patent litigations between the Samsung Group and OSRAM Light Group on LED-technology world-wide were dismissed.
OSRAM Light Group against LG Group In June 2011 companies of OSRAM Light Group filed legal actions against companies of the corporate group of LG Electronics Inc., Seoul, Korea (“LG Electronics”) and LG Innotek Co., Ltd., Seoul, Korea (“LG Innotek”) (“LG Group”) in the US (including the ITC), Germany, Japan and China, to enforce its patents on Light Emitting Diodes (“LED”) technology. In some cases the actions included customers of the LG Group. OSRAM Light Group claimed that LG Group companies infringed OSRAM’s patents on white and surface mountable LED technology in the US, Germany, Japan and China. OSRAM requested injunctions against unauthorized use of the asserted patents and, in some cases, import bans and compensation. The ITC initiated the investigation on July 7, 2011. The District Court proceedings in the US were stayed. End of July 2011, OSRAM Light Group applied at the Korean Trade Commission against an LG Group company requesting suspension of export of certain LED products. In April 2012, the Korean Trade Commission dismissed OSRAM’s complaint. This decision was appealed to the Korean Trial Commission. Furthermore, in August 2011 OSRAM Light Group filed infringement claims with the District Court of Seoul against LG Group companies as well as invalidation petitions with the Korean Intellectual Property Tribunal (“KIPT”) requesting invalidation of Korean patents of LG Group companies. The KIPT ruled that five of the LG-patents were invalid. LG had appealed the decisions. In September 2011 OSRAM China Lighting Ltd., Foshan, China (“OSRAM China Lighting”) filed invalidation requests against two patents of the LG Group in China. In September 2012 OSRAM filed requests for cancellation of certain German utility models of the LG Group. Likewise, in September 2012, OSRAM filed four inter partes re-examination requests against patents of the LG Group in the US.
F-93 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
In June 2012 the Landgericht Hamburg found that certain products or LG Group companies infringe one conversion principle patent of OSRAM. In some further decisions the court stayed the proceedings against companies of the LG Group until the decision on the validity of the respective patents. In August 2012 OSRAM filed another patent infringement lawsuit against a company of the LG Group in Germany alleging that certain LG smart phones, tablets and retrofits infringe two of OSRAM’s LED conversion principle patents. At the end of October 2012, LG Innotek, LG Electronics and OSRAM GmbH concluded a settlement agreement. According to the agreement all pending patent disputes on LED technology between the LG Group and OSRAM Light Group world-wide shall be dismissed.
LG Group against OSRAM Light Group In response to OSRAM’s legal actions LG Group companies have initiated 13 patent invalidation actions against LED related patents of OSRAM Light Group registered in the Republic of Korea, four patent invalidation actions against OSRAM Light Group patents in China, patent invalidation actions against an OSRAM Light Group patent in Japan, an invalidation action against one OSRAM Light Group patent in Great Britain, three patent invalidation actions against OSRAM Light Group’s German and European patents. In addition they joined a pending opposition against an OSRAM European patent and filed four inter partes re-examination requests against US patents of OSRAM Light Group. OSRAM withdrew one patent in Great Britain and is defending its patents in all other countries. Following the complaint of LG the KIPT has decided that nine of OSRAM’s patents are invalid. End of September 2012, the Chinese Patent Reexamination Board has decided that three of OSRAM’s patents are invalid. In addition, LG Group companies have filed infringement lawsuits against OSRAM Light Group and several OSRAM Light Group distributors in Korea and applied at the Korean Trade Commission for an import ban against OSRAM Light Group based on seven LG patents in the field of LED technology. In June 2012, the Korean Trade Commission decided to dismiss the complaint of LG. LG filed an appeal against the decision of the Korean Trade Commission at the Korean Administrative Court. In September 2011, LG Group companies initiated a second patent infringement lawsuit at the Seoul Central District Court in Korea against OSRAM’s customers BMW and Audi. The named defendants are BMW Korea Inc., Seoul, Korea, Audi Volkswagen Korea Co., Ltd., Seoul, Korea and 12 car dealers. With this lawsuit LG seeks injunctive relief against patent infringement and damages. End of July 2011, LG Group companies also filed two patent infringement lawsuits in China, one directed against OSRAM China Lighting Ltd., Foshan, China and a distributor, the other directed against a car dealer and the automotive suppliers Changchun Hella Automotive Lighting Ltd., Changchun, China and Hella Trading (Shanghai) Co. Ltd., Shanghai, China. Both lawsuits were based on the same two LG patents and were seeking a ban on sales of OSRAM’s LED products, including retrofits and automotive headlamps as well as damages. Furthermore, LG Group companies started a patent infringement lawsuit at the U.S. District Court of Delaware seeking inter alia injunction and monetary compensation for damages and initiated proceedings at the ITC to ban imports of OSRAM LED products. The US lawsuits claimed infringement of eight patents of LG Group companies on LED technology. The District Court proceedings in Delaware were stayed. The ITC instituted investigation on August 26, 2011. In September 2011, LG amended the ITC complaint to include two automotive suppliers as respondents (Hella and Automotive Lighting). In March 2012, LG Group companies initiated three infringement lawsuits in Germany based on utility models related to LED products. At the end of October 2012, LG Innotek, LG Electronics and OSRAM GmbH concluded a settlement agreement. According to the agreement all pending patent disputes between the LG Group and OSRAM Light Group world-wide shall be dismissed.
Proceedings under Trademark Law in India In India OSRAM GmbH and OSRAM SYLVANIA were defendants in a trademark infringement suit that was initiated by Flowil International Lighting B.V., Amsterdam, the Netherlands (“Flowil”) and Havells India Ltd., Noida, India (“Havells”). The subject of the proceedings was related to a trademark allocation agreement between the legal predecessors of the plaintiffs and OSRAM Light Group regarding the use of the trademark
F-94 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
SYLVANIA in India. This allocation agreement was concluded in 1992 in connection with the allocation of rights to the trademark SYLVANIA between OSRAM SYLVANIA and SLI Holdings International LLC, Amsterdam, Netherlands (“SLI”). Havells included Honda Siel Cars India Ltd., Distt. Gautam, Budh Nagar, India and Honda Motor Co. Ltd., Tokyo, Japan (“Honda”) in the proceedings. In September 2012 Havells and OSRAM concluded a settlement agreement with respect to the SYLVANIA trademark. As a result of this settlement agreement, the Indian trademark suit against OSRAM and its customer Honda was withdrawn.
ICC-Trademark Arbitration Proceedings In December 2006, OSRAM SYLVANIA initiated an arbitration proceeding before the International Court of Arbitration of the International Chamber of Commerce (“ICC”) against SLI, Flowil and other companies (collectively referred to as Havells) in connection with Havells’ threatened or committed violations of the trademark allocation agreement, which, inter alia, regulates the rights and obligations with respect to the trademark SYLVANIA. The arbitration proceedings that had been suspended, were continued in June 2011, when Havells, 18 years after the trademark allocation agreement had come into effect, began to dispute certain rights of OSRAM SYLVANIA and specifically demanded the confiscation and retention of certain freight shipments of lighting products manufactured in China. In particular, Chinese customs authorities held back shipments in China that were destined for export to the U.S. at Havells request. Havells also submitted a trademark infringement suit in China against some Chinese contract manufacturers and licensees of OSRAM SYLVANIA. A modified request for arbitration was submitted together with a request for a preliminary injunction and a parallel case against Havells in the U.S. was initiated. On November 2, 2011, the ICC-Arbitrator ruled on the request for a preliminary injunction in favor of OSRAM SYLVANIA and instructed Havells to take the necessary measures to effect the release of all of the then retained shipments and to prevent detentions of future shipments until a ruling was achieved in the primary case. The hearing before the ICC took place in September 2012. In September 2012, Havells and OSRAM reached a settlement on the SYLVANIA trademark. As a result of this settlement agreement, the arbitration proceedings before the International Chamber of Commerce (“ICC”) and the parallel case in the U.S. were ended.
Neumark/Rothschild against OSRAM In April 2009, Prof. Gertrude Neumark Rothschild initiated a series of patent infringement suits against major electronics manufacturers in the U.S. OSRAM GmbH and OSRAM OS were sued in Germany for alleged infringement of a patent on LED and laser diode technologies. The patent has expired in August 2009. As a countermeasure, OSRAM submitted a nullity action against the patent before the German Federal Patent Court. In a decision from November 2011, the German Federal Patent Court ruled that the asserted claims of the patent in dispute are invalid. Prof. Neumark Rothschild appealed this decision to the Federal Supreme Court. In 2010, the District Court of Düsseldorf established, in principle, OSRAM’s obligation to pay damages and set the value of the dispute at €4 million. OSRAM appealed this decision. Following the partial nullification of the patent by the Federal Patent Court, the appeal before the Superior District Court of Düsseldorf has been suspended until a final decision with reference to the pending nullity suit is passed. Prof. Neumark Rotschild died during proceedings, which has since been continued by the executor of her estate, Diane Parker. OSRAM OS is defending itself against the suit.
Schubert against OSRAM On July 18, 2012, Professor E. Fred Schubert filed a complaint for infringement of a United States Patent against OSRAM GmbH, OSRAM OS, OSRAM Opto Semiconductors, Inc., Sunnyvale, California, U.S. (“OSRAM-OS Inc.”) and OSRAM SYLVANIA in the U.S. District Court for the District of Delaware in the U.S. The complaint alleges that the defendants manufacture, market, distribute, use, sell and/or offer high-brightness GaN-based LEDs that allegedly infringe the asserted patent, including LEDs incorporating the technology known as “ThinGaN”. The defendants will defend themselves in this proceeding. The answer to the complaint and a motion to transfer to another court were both filed on November 7th, 2012.
F-95 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Lexington against OSRAM SYLVANIA On August 21, 2012, Lexington Luminance LLC, Lexington, Massachusetts, U.S. (“Lexington Luminance”) filed a complaint for infringement of a United States Patent against OSRAM SYLVANIA in the U.S. District Court for the District of Massachusetts in the U.S.. The complaint alleges that OSRAM SYLVANIA is allegedly infringing the patent by making, using, selling, or offering for sale in or importing into the U.S. LED-devices used for lighting applications, including, without limitation, at least the following products: Sylvania 8-watt A19 LED Light Bulb model LED8A/0/F/827/HVP and other similar products. OSRAM SYLVANIA will defend itself in this proceeding. The answer to the complaint was filed on November 13, 2012.
Other Legal Disputes Legal Dispute Involving the Recolight WEEE-Recycling-Systems In 2009 Electrical Waste Recycling Group Limited, Glasgow, UK and City Electrical Factors Limited, Kenilworth, UK filed suit against, inter alia, OSRAM Ltd., Langley, UK (“OSRAM UK”) in the High Court of Justice for England and Wales regarding alleged violations of competition law with respect to Recolight Ltd., Croydon, UK (“Recolight Ltd.”). Recolight Ltd. was, inter alia, founded by OSRAM UK and operates a system for carrying out the collection and recycling of lamps in conformity with the directive of the EU regarding Waste Electrical and Electronic Equipment (WEEE-directive) and its implementation in the United Kingdom. The plaintiffs assert that the defendants, including OSRAM UK, violated several provisions of competition law, the WEEE-directive as well as the regulations concerning its implementation in the United Kingdom. In the meantime, the suit claiming alleged violations of the WEEE- directive and the regulations concerning its implementation in the United Kingdom was dismissed while the suit with respect to the alleged violation of the regulations under competition law governing competition was further amended. Furthermore the plaintiffs asserted claims for compensation including the reimbursement of the recycling fee that they had paid indirectly. On October 12, 2012 the suit was closed by a consent order sealed by the High Court.
Suit of the Republic of Iraq respecting the UN-Oil-for-Food-Programs In June 2008, the Republic of Iraq filed an action requesting unspecified damages against 93 named defendants with the U.S. District Court for the Southern District of New York on the basis of findings made in the “Report of the Independent Inquiry Committee into the United Nations Oil-For-Food Program”. OSRAM’s subsidiary OSRAM Middle East FZE, Dubai (“OSRAM Middle East”), is among the 93 named defendants and process was served upon it. OSRAM Middle East is defending itself against the action.
Legal Dispute involving Real Estate in Italy In 2003 LM Real Estate SPA, Milan, Italy and Jargonnat Partners SCARL, Luxemburg brought suit in the Civil Court of Milan, Italy against OSRAM S.p.A., Milan, Italy (“OSRAM Italy”). The plaintiffs demanded damages resulting from the violation of a preliminary contract with reference to real estate that OSRAM Italy later sold to a third party. In March 2011, the court granted the reimbursement of a down payment as well as damages for which OSRAM had laid aside a reserve in recent years, which came to a total of approximately €9 million. In May 2011 OSRAM Italy appealed this ruling. In order to secure the damages assured them by the first instance, the plaintiffs got granted the block of the bank accounts of OSRAM Italy up to an amount of €12.5 million starting in August 2011. In October 2011, the parties agreed to a settlement to end the block on the accounts and the legal proceeding. The settlement contract was signed and the settlement of €6.3 million was paid by OSRAM Italy to the plaintiffs. The release of the reserves leads to a return in the amount of €2.5 million in fiscal year 2011. The formal steps toward ending the block on the account and the legal proceedings were completed in calendar year 2011.
Suit brought by State’s Attorney for Cases under Labor Law in Brazil On September 6, 2012 the Brazilian Ministry of Labor, represented by the responsible State’s Attorney, brought a suit against OSRAM do Brazil Lampadas Eléctricas Ltda. (“OSRAM do Brazil”) for possible mercury
F-96 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) poisoning of 25 former employees on the basis of alleged negligence in the use of mercury in the production of fluorescent lighting tubes. Furthermore the State’s Attorney asserted that OSRAM do Brazil did not provide adequate support for the allegedly poisoned employees. The State’s Attorney demanded that OSRAM do Brazil pay i.a. collective “moral compensation” in the amount of 100 million Brazilian Reais (appr. €37 million) and compensation in the amount of 500,000 Brazilian Reais (appr. €185.000) to each affected employee as well as financing for a life-long healthcare plan. OSRAM do Brazil will investigate the allegations and will defend itself against the action.
Morrison Foerster against OSRAM OSRAM is assessing claims against the law firm Morrison Foerster LLP, Washington, D.C., U.S., with respect to the representation in certain proceedings before the International Trade Commission (“ITC”), Washington, D.C., U.S. In this context Morrison Foerster LLP filed an arbitration action against OSRAM GmbH, OSRAM OS, OSRAM SYLVANIA and OSRAM-OS Inc. before the American Arbitration Association (“AAA”) on September 19, 2012. These proceedings are currently suspended. Morrison Foerster LLP is suing for a payment in the amount of at least USD 25 million (€15.4 million) concerning alleged payable attorneys’ fees as well as payment of the legal costs in this arbitration, and the administrative costs of the arbitration before the AAA. OSRAM GmbH, OSRAM OS, OSRAM SYLVANIA and OSRAM-OS Inc. will defend themselves in the proceedings.
Actions under Anti-Trust Law In November 2011 and June 2012, the European Commission requested OSRAM GmbH to present its legal position regarding potential anti-competitive arrangements alleged by third parties mainly concerning the licensing program for LED based luminaires of a third party and OSRAM’s participation therein. No formal proceedings have been opened against OSRAM GmbH. OSRAM is cooperating with the authorities.
In December 2011, the Competition Commission of Mexico requested that OSRAM, S.A. de C.V., Tultitlán, Mexico (“OSRAM, S.A.”) provide information about aspects of its local ballast business. OSRAM, S.A. is cooperating with the authorities. OSRAM, S.A. received confirmation in July 2012 that OSRAM, S.A. was included in the leniency policy, which restricts liability as a counter-consideration for continuous cooperation with the Competition Commission of Mexico in this investigation. In addition to the investigations and legal disputes described above, OSRAM was named as a defendant in various other legal disputes and proceedings in connection with its business activities as a diversified, globally present corporate group. Some of these pending proceedings have been previously disclosed. Some of the legal actions include claims or potential claims for punitive damages or indeterminate amounts of damage. OSRAM from time to time is also involved in regulatory investigations beyond those described above. OSRAM is cooperating with the relevant authorities in several jurisdictions and, where appropriate conducts internal investigations regarding potential wrongdoing with the assistance of in-house and external counsel. In light of the number of legal disputes and other proceedings in which OSRAM is involved, it cannot be excluded that some of these proceedings could result in rulings against OSRAM. OSRAM is defending itself in legal disputes and proceedings to the extent necessary and prudent. Any prognosis of the results of proceedings is associated with considerable difficulties, especially in cases in which the claimant brings claims for undetermined amounts of compensation. With this in mind, OSRAM cannot make any prediction of which obligations could possibly issue from such proceedings. Possible negative rulings in such cases could have considerable effects on the asset, finance and earnings situations in a given reporting period. At this time, however, OSRAM does not expect any significant negative effects on OSRAM‘s asset, finance and earnings situations resulting from the other legal topics not separately dealt with in this section.
F-97 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 31. Financial instruments and hedging activities This section gives a comprehensive overview of the significance of financial instruments and hedging activities for OSRAM. The following table presents the carrying amounts and fair values of each category of financial assets and financial liabilities:
September 30, October 1, 2012 2011 2010 2009 Carrying Carrying Carrying Carrying Category amount Fair value amount Fair value amount Fair value amount Fair value €m Financial assets Cash and cash equivalents ...... n.a. 31.2 31.2 43.7 43.7 18.2 18.2 12.8 12.8 Available-for-sale financial assets(1) ...... AfS 1.4 — 6.5 — 1.4 — 2.3 — Available-for-sale financial assets ...... AfS 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 Trade receivables ...... LaR 823.2 823.2 851.4 851.4 651.2 651.2 565.0 565.0 Receivables from Siemens Group ...... LaR 956.2 956.2 538.5 538.5 605.2 605.2 363.5 363.5 Other financial assets Derivatives not designated in a hedge accounting relationship ...... FAHfT 2.9 2.9 20.6 20.6 10.9 10.9 5.4 5.4 Derivatives in connection with cash flow hedges ...... n.a. 0.4 0.4 — — 5.0 5.0 0.6 0.6 Other financial assets ...... LaR 58.7 58.7 32.3 32.3 32.9 32.9 33.6 33.6 Financial liabilities Debt Loans from banks ...... FLaC 46.7 46.7 22.5 22.5 23.9 23.9 24.4 24.4 Obligations under finance n.a. leases to Siemens Group . . . (IAS 17) 1.8 1.8 3.8 3.8 5.3 5.3 5.9 5.9 Trade payables ...... FLaC 609.2 609.2 586.0 586.0 552.1 552.1 391.4 391.4 Payables to Siemens Group ..... FLaC 1,209.5 1,209.5 1,498.0 1,498.0 859.5 859.5 667.7 667.7 Other financial liabilities Derivatives not designated in a hedge accounting relationship ...... FLHfT 8.0 8.0 11.0 11.0 14.5 14.5 7.5 7.5 Derivatives in connection with cash flow hedges ...... n.a. 0.2 0.2 1.5 1.5 ———— Other financial liabilities ..... FLaC 45.1 45.1 33.8 33.8 49.5 49.5 65.0 65.0
(1) This caption consists of equity instruments classified as available for sale, for which a fair value could not be reliably measured and which are recognized at cost.
F-98 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The aggregated book values in accordance with the individual categories defined in IAS 39 are set out below: September, 30 October 1, 2012 2011 2010 2009 Fair value Carrying Carrying Carrying Carrying Measurement at: hierarchy amount amount amount amount €m Loans and receivables (LaR) Amortized cost n.a. 1,838.1 1,422.2 1,289.3 962.1 Financial assets held for trading (FAHfT) Fair Value Level 2 2.9 20.6 10.9 5.4 Available-for-sale financial assets (Afs) Cost n.a. 1.4 6.5 1.4 2.3 Fair Value Level 1 0.7 0.7 0.7 0.7 Financial liabilities measured at Amortized cost n.a. 1,910.5 2,140.3 1,485.0 1,148.5 amortized cost (FLaC) Financial liabilities held for trading Fair Value Level 2 8.0 11.0 14.5 7.5 (FLHfT) The fair values of cash and cash equivalents, current receivables, trade payables (all short-term) as well as other current financial assets and other current financial liabilities approximate their carrying amount due to the short-term maturities of these instruments. Long-term receivables are evaluated by OSRAM based on parameters such as interest rates, specific country risk factors and the individual creditworthiness of the customer. Based on this evaluation, allowances for these receivables are taken into account. As of September 30, 2012, 2011 and 2010, as well as October 1, 2009, the carrying amounts of such receivables, net of allowances, amounted to €7.3 million, €9.5 million, €12.0 million and €13.1 million, respectively. The carrying amounts of such receivables, net of allowances, approximate their fair values. The fair value of loans from banks, obligations under finance leases as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt of similar terms and remaining maturities. The fair values approximate the carrying amount because these obligations are generally all short-term or interest rates considered for the long-term part approximate market rates. Fair values of Available for sale—financial assets are derived from quoted market prices in active markets. OSRAM enters into derivative contracts, in accordance with Siemens Group policies, mainly with Siemens Treasury. For further information see Note 34 Related party disclosures. The exact calculation of fair values of derivative financial instruments depends on the specific type of instrument.
Derivative currency contracts The fair value of foreign currency exchange contracts is based on forward exchange rates. Currency options are valued on the basis of quoted market prices or on estimates based on option pricing models.
Derivative commodity contracts The fair value of commodity swaps is based on forward commodity prices. In determining the fair values of the derivative financial instruments, no compensating effects from underlying transactions (for example firm commitments and forecast transactions) are taken into consideration. The levels of the fair value hierarchy and its application to the financial assets and financial liabilities are described below: Level 1: quoted prices in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data.
F-99 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Net gains (losses) of financial instruments are as follows: Year ended September 30, 2012 2011 2010 €m Available-for-sale financial assets ...... — — (0.8) Loans and receivables ...... (19.4) 1.5 (0.7) Financial liabilities measured at amortized cost ...... 14.0 (13.2) 18.9 Financial assets and financial liabilities held for trading ...... (19.1) 5.7 (13.5)
Net gains/losses on available-for-sale financial assets include net gains or losses on derecognition, as well as impairment losses. For the amount of unrealized gains (losses) on available-for-sale financial assets recognized directly in equity and the amount removed from equity and recognized in net income in the respective fiscal years, see Combined Statements of Comprehensive Income. For additional information, see Note 28 Equity. Net gains/losses on loans and receivables contain changes in valuation allowances, gains or losses on derecognition, as well as recoveries of amounts previously written-off. Net gains/losses on financial liabilities measured at amortized cost are comprised of gains or losses from derecognition. Net gains/losses on financial assets and financial liabilities held for trading consist of changes in the fair value of derivative financial instruments for which hedge accounting is not applied. In all three fiscal years, the changes in the fair value result primarily from the hedging of a US dollar denominated loan granted by Siemens. The amounts presented include foreign currency gains and losses from the realization and valuation of the financial assets and liabilities mentioned above.
Hedging activities As part of OSRAM’s risk management program, a variety of derivative financial instruments are used to reduce the risks resulting primarily from fluctuations in foreign currency exchange rates, interest rates and commodity prices. For additional information regarding OSRAM’s risk management strategies, including the use of derivative financial instruments to mitigate or eliminate certain of these risks, see Note 32 Financial Risk Management. OSRAM is mainly financed by Siemens Group through Siemens Treasury. Financing by Siemens Treasury is mainly short term and at fixed rates. Consequently, until the end of fiscal 2012, OSRAM did not actively manage its interest rate risk. The fair values of each type of derivative financial instruments recorded as financial assets or financial liabilities are as follows: September 30, October 1, 2012 2011 2010 2009 Asset Liability Asset Liability Asset Liability Asset Liability €m Foreign currency exchange contracts ...... 3.2 6.8 15.5 4.0 8.2 13.0 3.0 7.2 Commodity swaps ...... 0.1 1.4 5.1 8.5 7.7 1.5 3.0 0.3 3.3 8.2 20.6 12.5 15.9 14.5 6.0 7.5
Foreign currency exchange rate risk management As described in Note 32 Financial Risk Management, OSRAM employs derivative financial instruments in order to mitigate or eliminate certain foreign-currency exchange rate risks.
F-100 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Derivative financial instruments not designated in a hedging relationship OSRAM manages its risks associated with fluctuations in foreign currency-denominated receivables, payables, debt, firm commitments and, to some extent, forecast transactions. Primarily foreign currency exchange contracts and, in rare cases, options are utilized to minimize such risks.
Derivative financial instruments designated as hedges For certain forecast transactions and firm commitments denominated in foreign currencies hedge accounting is applied. Specifically, OSRAM enters into foreign currency exchange contracts to reduce the risk of variability of future cash flows resulting from forecast sales and purchases as well as firm commitments. All such hedging activities have been designated as cash flow hedges. As of September 30, 2012, 2011 and 2010, as well as October 1, 2009, the maximum maturity of derivative financial instruments which are used to hedge future cash flows associated with foreign-currency forecast transactions is 12 months. Changes in fair value of foreign exchange contracts that were designated as hedging instruments in foreign- currency cash flow hedges are recorded in line item Other comprehensive income, net of tax. The development of line item Other comprehensive income, net of tax resulting from changes in fair value of these transactions as well as from amounts that were removed and included in profit or loss is presented in Note 28 Equity.
Commodity price risk management As described in Note 32 Financial Risk Management, OSRAM employs commodity derivatives in order to mitigate or eliminate price risks from the procurement of commodities. OSRAM seeks to economically hedge its purchase requirements. However, OSRAM does not apply hedge accounting for its commodity price risk.
Derivative financial instruments not designated in a hedging relationship OSRAM manages its risks associated with fluctuations in commodity prices from firm commitments and forecast transactions by entering into commodity swaps.
32. Financial risk management OSRAM Licht Group is managed centrally by the managing board of OSRAM GmbH, which is responsible for the operating business of OSRAM Licht Group.
Market risks Market fluctuations may result in cash flow and earnings volatility risk for OSRAM. Its worldwide operating business as well as its investment and financing activities are affected by changes in foreign exchange rates, interest rates and commodity prices. OSRAM seeks to manage and control these risks primarily through its regular operating activities, and uses derivative instruments when deemed appropriate. Siemens AG monitors and controls the financing activities in the respective reporting periods. The management of financial market risk is a key priority for the managing board of OSRAM. As a member of the managing board, the Chief Financial Officer has specific responsibility for this part of the overall risk management system. For practical business purposes, the managing board delegates responsibilities to central functions and to the individual OSRAM entities. OSRAM manages and controls its financial risks in accordance with Siemens Group policies. Within the various methodologies to analyze and manage risk, Siemens Group implemented a system based on parametric variance-covariance Value at Risk (VaR). The VaR methodology provides a quantification of market risk based on historical volatilities and correlations of the different risk factors under the assumptions of the parametric variance-covariance Value at Risk-Model. The VaR figures are calculated based on • historical volatilities and correlations;
F-101 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
• a ten day holding period; and • a 99.5% confidence level for foreign currency exchange rate risk and for commodity price risk as discussed below. Actual results that are included in the Combined Statements of Income and Combined Statements of Comprehensive Income may differ substantially from VaR figures due to fundamental conceptual differences. The Combined Statements of Income and Combined Statements of Comprehensive Income are prepared in accordance with IFRS. The VaR figures are the output of a model with purely financial perspective and represent the potential financial loss which will not be exceeded within ten days with a probability of 99.5%. The concept of VaR is used for internal management of the Treasury activities of Siemens Group. Although VaR is an important tool for measuring market risk, the assumptions on which the model is based give rise to some limitations including the following. A ten-day holding period assumes that it is possible to dispose of the underlying positions within this period. While this is considered to be a realistic assumption in almost all cases, it may not be valid during prolonged periods of severe market illiquidity. A 99.5% confidence level does not reflect losses that may occur beyond this level. There is a 0.5% statistical probability that losses could exceed the calculated VaR. The use of historical data as a basis for estimating the statistic behavior of the relevant markets and finally determining the possible range of the future outcomes on the basis of this statistic behavior may not always cover all possible scenarios, especially those of an exceptional nature. Any market sensitive instruments, including equity and interest bearing investment, that the Company’s pension plans hold are not included in the following quantitative and qualitative disclosure. For additional information see Note 25 Pensions plans and similar commitments.
Foreign currency exchange rate risk Transaction risk and foreign currency exchange rate risk management OSRAM’s international operations expose OSRAM to foreign currency exchange rate risks, particularly regarding fluctuations between the U.S. dollar, Hong Kong dollar, Chinese Renminbi, Japanese Yen and the euro, in the ordinary course of business. OSRAM employs various strategies discussed below involving the use of derivative financial instruments to mitigate or eliminate certain of those exposures. Foreign currency exchange rate fluctuations may create unwanted and unpredictable earnings and cash flow volatility. Each OSRAM entity conducting business with international counterparties that leads to future cash flows denominated in a currency other than its functional currency is exposed to the risk from changes in foreign currency exchange rates. The risk is mitigated by closing all types of business transactions (sales and procurement of products and services as well as investment and financing activities) mainly in the functional currency. In addition, the remaining foreign currency transaction exposure is partly balanced by purchasing of goods, commodities and services in the respective currencies as well as production activities and other contributions along the value chain in the local markets. OSRAM entities are prohibited from borrowing or investing in foreign currencies on a speculative basis. Financing or investments of operating units are preferably carried out in their functional currency or on a hedged basis. OSRAM entities are bound by a foreign currency exchange rate risk management system established within the Siemens Group. Each OSRAM entity is responsible for recording, assessing, monitoring, reporting and hedging its foreign currency transaction exposure. The binding guideline provides the concept for the identification and determination of a single net currency position for each OSRAM entity and commits the entities to hedge this aggregated position within a narrow band of at least 75% but no more than 100% of their net foreign currency position. Hedging transactions are carried out primarily with Siemens Treasury as counterparty. The VaR relating to foreign currency exchange rates is calculated by aggregating the net foreign currency positions after hedging of OSRAM entities. As of September 30, 2012, the foreign currency exchange rate risk based on historical volatilities and correlations, a ten day holding period and a confidence level of 99.5% resulted
F-102 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) in a VaR of €1.0 million (September 30, 2011: €2.0 million and September 30, 2010: €3.1 million). Changes in euro values of future cash flows denominated in foreign currency due to volatile foreign currency exchange rates might influence the unhedged portion of revenues, but would also affect the unhedged portion of cost of materials. Future changes in the foreign currency exchange rates can impact sales prices and may lead to margin changes, the extent of which is determined by the matching of foreign currency revenues and expenses. OSRAM defines foreign currency exchange rate exposure generally as items of the Combined Statements of Financial Position in addition to foreign currency denominated cash inflows and cash outflows from firm commitments and forecast anticipated transactions for the following six months. This foreign currency exchange rate exposure is determined based on the respective functional currencies of the exposed OSRAM entities.
Effects of foreign currency translation Many OSRAM entities are located outside the euro zone. Since the financial reporting currency of OSRAM is the euro, the financial statements of these subsidiaries are translated into euro for the preparation of the Combined Financial Statements of OSRAM. To consider the effects of foreign currency translation in the risk management, the general assumption is that investments in foreign-based operations are permanent and that reinvestment is continuous. Effects from foreign currency exchange rate fluctuations on the translation of net asset amounts into euro are reflected in OSRAM’s combined equity position.
Interest rate risk OSRAM’s exposure to the risk of changes in market interest rates relates primarily to short-term bank loans and short-term borrowings and investments at Siemens Treasury, mainly with fixed rates of interest. No significant long-term liabilities or interest bearing investments exist. In fiscal 2012, 2011 and 2010, OSRAM is mainly financed by the Siemens Group through Siemens Treasury and interest rate risk management is performed at the level of Siemens AG. Consequently, there is no need for OSRAM to actively manage its interest rate risk or to enter into any interest rate derivative contracts.
Commodity price risk OSRAM’s production operations expose OSRAM to various commodity price risks in the ordinary course of business. Especially a continuous supply of copper, aluminium and Rare Earths is necessary for the operating activities. Commodity price risk fluctuations may create unwanted and unpredictable earnings and cash flow volatility. OSRAM employs various strategies discussed below involving the use of derivative financial instruments to mitigate or eliminate certain of those exposures. OSRAM is bound by a commodity price risk management system established within the Siemens Group whose aim is to reduce earnings and cash flow volatility. Each OSRAM entity is responsible for recording, assessing, monitoring, reporting and hedging its risks from forecast and pending commodity purchase transactions (commodity price risk exposure). The binding guideline developed by the Siemens Corporate Supply Chain Management department and applied by OSRAM provides the concept for the identification and determination of the commodity price risk exposure and commits the units to hedge it within a narrow band of 75% – 100% of the commodity price risk exposure in the product business for the current and the subsequent quarter. The aggregated commodity price risk exposure is hedged with external counterparties through derivative financial hedging instruments with Siemens Corporate Supply Chain Management department. OSRAM does not enter into derivative financial hedging instruments designated for hedge accounting purposes relating to commodity price risk. Using historical volatilities and correlations, a ten day holding period and a confidence level of 99.5%, the VaR which comprises the net position of commodity derivatives and the commodity purchase transactions with price risk, for commodity derivatives amounted to €0.7 million as of September 30, 2012 (September 30, 2011: €1.4 million and September 30, 2010: €1.1 million).
F-103 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Liquidity risk Liquidity risk results from OSRAM’s potential inability to meet its financial liabilities, in particular paying its suppliers. In addition to having implemented effective working capital and cash management, OSRAM has implemented liquidity forecasts. OSRAM is mainly financed by the Siemens Group through Siemens Treasury. OSRAM finances itself using the Siemens-wide cash pooling and cash management systems, in which excess liquid funds are also deposited (see Note 34 Related party disclosures). In addition, OSRAM had cash and other liquid funds of €31.2 million as of September 30, 2012 (September 30, 2011: €43.7 million, September 30, 2010: €18.2 million and October 1, 2009: €12.8 million). The following table reflects all contractually fixed pay-offs for settlement, repayments and interest resulting from recognized financial liabilities. It includes expected net cash outflows from derivative financial liabilities that are in place as per September 30, 2012. Such expected net cash outflows are determined based on each particular settlement date of an instrument. The amounts disclosed are undiscounted net cash outflows for the respective upcoming fiscal years, based on the earliest date on which OSRAM could be required to pay. Cash outflows for financial liabilities (including interest) without fixed amount or timing are based on the conditions existing at September 30, 2012. September 30, 2014 to 2018 and 2013 2017 thereafter €m Non-derivative financial liabilities Loans from banks ...... 46.1 0.6 — Payables to Siemens Group ...... 1,209.8 — — Obligations under finance leases to Siemens Group ...... 1.2 0.8 — Trade payables ...... 609.2 — — Other financial liabilities ...... 44.7 0.4 — Derivative financial liabilities ...... 8.2 — — The risk implied from the values shown in the table above, reflects the one-sided scenario of cash outflows only. Obligations under trade payables and other financial liabilities including finance leases mainly originate from the financing of assets used in on-going operations such as property, plant, equipment and investments in working capital—for example inventories and trade receivables. These assets are considered in OSRAM’s overall liquidity risk management. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, OSRAM participates in a comprehensive risk reporting established by Siemens, which covers its worldwide business.
Credit risk OSRAM is exposed to credit risk, in particular relating to its regular business activities. Credit risk is defined as an unexpected loss in cash and earnings if the customer is unable to pay its obligations in due time or if the value of property that serves as collateral declines. OSRAM may incur losses if the credit quality of its customers deteriorates or if they default on their payment obligations to OSRAM. The maximum financial loss for financial assets, excluding the effects of any collateral, is the book value. The effective monitoring and controlling of credit risk is a core competency of the risk management system of OSRAM. OSRAM entities are bound to the credit policy implemented by Siemens. Credit evaluations and ratings are performed for all customers with an exposure or requiring credit beyond a limit defined centrally by Siemens. Customer ratings and individual customer limits are based on generally accepted rating methodologies, with the input consisting of information obtained from external rating agencies, data service providers and OSRAM’s customer default experiences. Ratings and credit limits are carefully considered in determining the conditions under which direct or indirect financing will be offered to customers by OSRAM.
F-104 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Credit risk is recorded and monitored on an on-going basis applying different approaches dependent on the underlying product, partially supported by tools developed by Siemens. A central IT application processes data from the operating units together with rating and default information and calculates an estimate which may be used as a basis for individual bad debt provisions. In addition to this automated process, qualitative information is considered, in particular to incorporate the latest developments. Certain operating units of OSRAM had transferred their current trade receivables along with the inherent credit risk to the Siemens Credit Warehouse, but remained responsible for servicing activities such as collections and receivables management. As of September 30, 2011 and 2010, and October 1, 2009 receivables, net, due from Siemens Credit Warehouse resulting from the transfer of receivables amount to €0.0 million, €114.5 million and €109.6 million, respectively. The participation in Siemens Credit Warehouse was terminated in fiscal 2011 and the remaining receivables were transferred back to OSRAM. Since the termination OSRAM enters into credit insurance contracts covering the credit risk for the respective receivables. As of September 30, 2012 credit insurance contracts covered approximately 45.4% (September 30, 2011: 36.7%) of the outstanding trade accounts receivable—at nominal value. There were additional collaterals held amounting to €8.9 million as of September 30, 2012 (September 30, 2011: €10.8 million and September 30, 2010: €3.6 million). There were no significant concentrations of credit risk as of September 30, 2012, 2011 and 2010 or October 1, 2009. Concerning trade receivables and other receivables, as well as other loans or receivables included in line item Other financial assets that are neither impaired nor past due, there were no indications as of September 30, 2012, that defaults in payment obligations will occur. As of September 30, 2012, 2011 and 2010, there are no financial instruments that are past due but not impaired. For further information regarding the concept for the determination of allowances on receivables see Note 3 Managements estimates and judgments.
33. Share-based payment OSRAM employees and management participate in the share-based payment plans of Siemens AG, which include stock awards, stock options, the Share Matching Program and its underlying plans as well as the German Jubilee Share Program. OSRAM is part of the Siemens Group during the reporting periods. The terms of the share-based payment program as set by the managing board of Siemens AG have been implemented unchanged by the managing board of OSRAM. On leaving the Siemens Group, OSRAM will cease to participate in the share-based payment scheme. In this case, OSRAM will settle the share-based payment awards prior to maturity. At the Siemens Group level, these share-based payment plans are predominantly designed and accounted for as equity-settled plans, and to a limited extent as cash-settled plans (e.g. phantom stocks). In the Combined Financial Statements of OSRAM the classification of share-based payment plans has to be made in accordance with IFRS 2. OSRAM carries the contractual obligation against its employees to settle the share-based payment transactions at the end of the vesting period, Siemens AG is assigned by OSRAM to deliver the awards granted (i.e. shares of Siemens AG) to its employees on behalf of OSRAM Group. Consequently, OSRAM accounts for all share-based payment plans as cash settled plans. The difference between the cash settlement and the equity settlement is recognized as expense/income in the Combined Statements of Income of OSRAM. As the amount Siemens charged to OSRAM in relation to the participation in these share-based payment plans differs from the expenses incurred by OSRAM, the resulting differences are presented as deemed shareholder’s contributions/ withdrawals in OSRAM’s Combined Financial Statements, see Note 28 Equity. The carrying amount of the liability for the share-based payment programs amounts to €13.9 million as of September 30, 2012 (September 30, 2011: €14.3 million and September 30, 2010: €15.9 million and October 1, 2009: €11.8 million). This liability does not represent OSRAM’s obligation against employees in accordance with IFRS 2, but states the obligation resulting from the re-charge arrangements with Siemens AG. Total pre-tax expense for share-based payment recognized in net income amounts to €9.2 million for the year ended September 30, 2012 (September 30, 2011: €(1.7) million and September 30, 2010: €14.3 million). The income in fiscal 2011 results primarily from changes made to the German Jubilee Share Program for non-management employees (see German Jubilee Share Program).
F-105 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Stock awards OSRAM grants stock awards as a means for providing share-based compensation to members of the managing board of OSRAM and other eligible employees of OSRAM. Stock awards are subject to a restriction period of about four years and entitle the beneficiary to Siemens shares without payment of consideration following the restriction period. Stock awards granted in fiscal 2008 to 2011 were generally subject to a restriction period of three years. Stock awards forfeit if the beneficiary’s employment with OSRAM terminates prior to the expiration of the vesting period. During the vesting period, beneficiaries are not entitled to dividends. Stock awards may not be transferred, sold, pledged or otherwise encumbered. Each fiscal year, the Siemens AG decides whether or not to grant stock awards and the Siemens AG managing board decides annually after the end of each fiscal year how many stock awards to grant to members of the senior management and other eligible employees of the Siemens Group. After the end of each fiscal year, the Supervisory Board of OSRAM proposes the cash value of the stock awards, which the members of OSRAM managing board should receive. The final approval is given by the Siemens managing board. OSRAM decides in each fiscal year whether or not to grant Siemens stock awards, albeit that the decision is closely linked to the decision taken by Siemens. In fiscal 2012, the allocation of stock awards as a share-based payment has been increasingly tied to corporate performance criteria. The target attainment for the performance criteria ranges between 0% and 200%. Half of the annual target amount for stock awards is based on the average of earnings per share (EPS, basic) of the past three fiscal years. The target attainment determines the number of stock awards upon allocation. Settlement of these stock awards is in shares following the four-year restriction period. The other half of the annual target amount for stock awards is based on the share price performance of Siemens shares relative to the share price performance of five important Siemens competitors (ABB, General Electric, Philips, Rockwell, Schneider) during the four-year restriction period. The target attainment is determined during the four-year restriction period for stock awards and, accordingly, determines the number of Siemens shares ultimately transferred following the restriction period. If the target attainment is up to 100%, settlement is in Siemens shares. If the target attainment exceeds 100% (up to 200%) an additional cash payment corresponding to the outperformance results. In fiscal 2012, OSRAM granted 126,597 stock awards to OSRAM employees (2011: 58,188 and 2010: 58,601), of which 67,449 are dependent upon the attainment of the EPS target of the Siemens stock. The fair value of these stock awards amounts to €4.0 million and corresponds to the target amount reflecting the EPS target attainment. In fiscal 2012, 59,148 stock awards were granted to members of the managing board and other eligible employees contingent upon the attainment of a prospective performance-based target of the Siemens stock. The fair value of these stock awards amounting to €2.2 million, of which €2.1 million relate to Siemens shares, was calculated by applying a local volatility model. Inputs to that model include an expected weighted volatility of Siemens shares of 25.3% and a market price of €74.1 per Siemens share. Expected volatility was determined by reference to implied volatilities. The model applies a risk-free interest rate of up to 1.8% and an expected dividend yield of 3.9%. Compensation expense related to these stock awards is recognized over four years until they vest. The grant date fair values of the stock awards granted in fiscal 2012 were €57.7 and €61.7 per share respectively (fiscal 2011: €77.8 and fiscal 2010: €60.8). In fiscal 2012, the weighted average grant-date fair value of stock awards outstanding at the end of the period amounted to €64.1 per stock award (2011: €53.5 and 2010 €59.9).
F-106 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Details on stock award activity are summarized in the table below: September 30, 2012 2011 2010 Non-vested, beginning of period ...... 226,782 309,296 324,118 Granted ...... 126,597 58,188 58,601 Vested ...... (111,160) (134,214) (69,888) Forfeited/settled ...... (36,854) (6,488) (3,535) Non-vested, end of period ...... 205,365 226,782 309,296
The stock awards are accounted as cash settled share-based payment transactions according to IFRS 2 and the fair value of the stock awards granted is determined as fair value of the Siemens share less the present value of dividends expected during the four-year and three-year vesting period, respectively. The total fair value of OSRAM’s obligation relating to the stock awards outstanding as of September 30, 2012 amounts to €7.4 million (September 30, 2011: €10.3 million, September 30, 2010: €16.5 million and October 1, 2009: €11.9 million). As of September 30, 2012, the total fair value of the stock awards outstanding based on the reporting date fair value, amounts to €13.1 million (September 30, 2011: €14.5 million, September 30, 2010: €23.6 million and October 1, 2009: €19.9 million). In addition, agreement was reached in fiscal 2012, whereby members of OSRAM managing board have been granted stock awards dependent upon the attainment of company-specific performance targets. Part of the target amount for stock awards is based on the average of earnings per share (EPS, basic); the other part is based on the share price performance of Siemens shares relative to the share price performance of five important Siemens competitors. The compensation expense from stock awards is generally recognized over the five-year vesting period, which includes the four-year restriction period for stock awards. In fiscal 2012, the expense was recognized on the basis of a 100% target attainment. In addition, part of the variable compensation component (bonus) for members of the managing board is granted in the form of non-forfeitable awards (Bonus Awards). Cash compensation was paid in fiscal 2012 in respect of this program.
Share Matching Program and its underlying plans a) Share Matching Plan In fiscal 2012, 2011 and 2010, Siemens issued new tranches under the Share Matching Plan. Commencing with the tranche issued in fiscal 2010, senior managers of OSRAM may invest a specified percentage of their compensation into Siemens shares. Members of the managing board were able to invest a specified amount of their bonus payments in Siemens shares for the last time in fiscal 2012 and 2011, respectively. Within a predetermined period in the first quarter of each fiscal year, plan participants decide on their investment amount for which investment shares are purchased. The shares are purchased at market price at a predetermined date in the second quarter. Plan participants receive the right to one Siemens share without payment of consideration (matching share) for every three investment shares continuously held over a period of three years (vesting period) provided the plan participant has been continuously employed by OSRAM until the end of the vesting period. During the vesting period, matching shares are not entitled to dividends. The right to receive matching shares is forfeited if the underlying investment shares are transferred, sold, pledged or otherwise encumbered. Each fiscal year, OSRAM decides whether or not to issue a new tranche under the Share Matching Plan. b) Monthly Investment Plan In fiscal 2012, 2011 and 2010, Siemens issued new tranches under the Monthly Investment Plan that is a further component of the Share Matching Plan and which is available for employees—other than employees in senior management functions—of OSRAM. Plan participants may invest a specified percentage of their compensation in Siemens shares on a monthly basis over a period of twelve months. The shares are purchased at market price at a predetermined date once a month. The managing board of Siemens will decide annually,
F-107 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) whether shares acquired under the Monthly Investment Plan (investment shares) may be transferred to the Share Matching Plan the following year. If the managing board of Siemens decides that shares acquired under the Monthly Investment Plan are transferred to the Share Matching Plan, plan participants will receive the right to matching shares under the same conditions applying to the Share Matching Plan described above. Eligible employees may decide within a predetermined period in the first quarter of each fiscal year, whether they wish to participate in the Monthly Investment Plan and hence the Share Matching Plan of that fiscal year. The managing boards of Siemens and OSRAM respectively decide in each fiscal year whether or not to issue a new tranche under the Monthly Investment Plan. It was decided that shares acquired under the tranches in fiscal years 2011 and 2010 are transferred to the Share Matching Plan as of February 2012 and 2011, respectively. c) Base Share Program In fiscal 2012, 2011 and 2010, Siemens issued annual tranches under the Base Share Program. Commencing in fiscal 2010, employees of OSRAM can invest a fixed amount of their compensation into Siemens shares, sponsored by OSRAM with a tax beneficial allowance; in fiscal 2012 and 2011, members of the managing board of OSRAM, for the last time, could participate in the Base Share Program. The Siemens shares are bought at market price at a predetermined date in the second quarter and grant the right to receive matching shares under the same conditions applying to the Share Matching Plan described above. Each fiscal year, the managing board of Siemens decides whether or not to issue a new tranche under the Base Share Program. The fair value of the Base Share Program equals the amount of the tax beneficial allowance sponsored by OSRAM. In fiscal 2012, 2011 and 2010, OSRAM incurred pre-tax expenses of €1.4 million, €1.4 million and €1.0 million respectively, representing the tax beneficial allowance in respect of Siemens shares acquired. d) Resulting Matching Shares September 30, 2012 2011 2010 Non-vested, beginning of period ...... 70,699 53,297 38,333 Granted ...... 26,227 23,283 18,797 Vested ...... (31,752) — — Forfeited/settled ...... (6,190) (5,881) (3,833) Non-vested, end of period ...... 58,984 70,699 53,297
Fair value was determined as the market price of Siemens shares less the present value of expected dividends during the vesting period as matching shares do not carry dividend rights during the vesting period. Non-vesting conditions, i.e. the condition neither to transfer, sell, pledge nor otherwise encumber the underlying shares, were considered in determining the fair values. Depending on the grant dates, the fair values are €48.7 and €51.2 per matching share entitled in fiscal 2012; in fiscal 2011, the grant-date fair values are €58.2 and €71.1 per matching share entitled and in fiscal 2010, the grant-date fair value is €47.2 per matching share entitled. In fiscal 2012, the weighted average grant-date fair value of the resulting matching shares is €50.4 (2011: €66.1 and 2010: €47.2) per share, based on the number of instruments granted. Based on the grant-date fair value, the total fair value of the matching shares granted in fiscal 2012 was €1.3 million (2011: €1.5 million and 2010: €0.9 million). The total fair value of OSRAM’s obligation relating to outstanding matching shares as of September 30, 2012 amounts to €2.2 million (September 30, 2011: €2.8 million, September 30, 2010: €1.8 million and October 1, 2009 €0.6 million). As of September 30, 2012, the total fair value of the outstanding matching shares amounts to €4.2 million (September 30, 2011: €4.5 million, September 30, 2010: €4.0 million and October 1, 2009: €2.3 million).
F-108 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
2001 Siemens Stock Option Plan In December 2006, the authority to grant stock options expired. The option grants were subject to a two-year vesting period, after which they could be exercised for a period of up to three years. The exercise price was equal to 120% of the reference price. Based on the underlying vesting period, the last stock options were exercised in fiscal 2011; unexercised stock options expired in fiscal 2011. Accordingly, as of September 30, 2012 and 2011, there were no stock options outstanding. As of September 30, 2010, 46,605 options (October 1, 2009: 122,055) with a weighted average exercise price of €74.59 (October 1, 2009: €74.05) were outstanding. In fiscal 2011, 46,605 options were exercised (fiscal 2010: 43,030) and 0 expired (2010: 32,420).
German Jubilee Share Program Under the Jubilee Share Program introduced in fiscal 2009, eligible employees of German OSRAM companies are granted jubilee shares after having been continuously employed by the Company for 25 and 40 years (vesting period), respectively. Generally, settlement of jubilee grants is in shares of Siemens AG. Jubilee shares are measured at fair value considering biometrical factors. The fair value is determined as the market price of Siemens shares at grant date less the present value of dividends expected to be paid during the vesting period for which the employees are not entitled to. This agreement was terminated for employees, other employees in senior management functions, of the participating German OSRAM companies with effect from September 30, 2011. The jubilee grants for non- management employees were replaced by cash compensation and are accounted for in accordance with IAS 19. As a result of this amendment, the liability for the share-based compensation derecognized lead to a profit (before tax) of €6.7 million, which was offset by an expense (before tax) of €9.0 million for the provision required in respect of the cash-based compensation. The effect on the net income before tax in fiscal 2011 for this amendment was therefore an expense of €2.3 million. The weighted average fair value of each jubilee share granted to the management employees in fiscal 2012 for the 25th and the 40th anniversary is €37.4 (2011: €54.4 and 2010: €35.8) and €23.3 (2011: €45.6 and 2010: €27.1), respectively. The weighted average fair value of each jubilee share granted adjusted by biometrical factors (considering fluctuation) in fiscal 2012 for the 25th and the 40th anniversary is €15.6 (2011: €30.7 and 2010: €27.1) and €9.6 (2011: €24.0 and 2010: €17.6), respectively. In fiscal 2012, 10,560 (2011: 40,760 and 2010: 15,484) jubilee shares were granted; 1,680 (2011: 11,624 and 2010: 6,220) were transferred and 3,120 (2011: 12,700 and 2010: 16,092) expired, resulting in an outstanding balance of 33,360 Jubilee shares as of September 30, 2012 (September 30, 2011: 27,600, September 30, 2010: 381,244 and October 1, 2009: 388,072). Prior to the aforementioned amendment in respect of employees, other than management employees, the outstanding balance of jubilee shares at the end of fiscal 2011 was 397,680. Considering biometrical factors, 27,688 jubilee shares are expected to vest as of September 30, 3012 (September 30, 2011: 23,138, September 30, 2010: 268,455 and October 1, 269,977). Prior to the aforementioned amendment in respect of employees, other than senior managers, the number of jubilee shares expected to vest as of the end of fiscal 2011 was 262,323. Based on the fair value at the reporting date, the total fair value of the liability relating to the shares outstanding as of September 30, 2012 amounted to €1.2 million (September 30, 2011: €0.9 million, September 30, 2010: €9.8 million and October 1, 2009: €7.4 million). Prior to the aforementioned amendment in respect of employees, other than management employees, the fair value as of September 30, 2011 was €7.6 million.
Other share-based payment awards OSRAM maintains other share-based payment awards (e.g. phantom stocks). The grants of other share-based payment awards do not have a material impact on OSRAM’s Combined Financial Statements.
F-109 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 34. Related party disclosures These Combined Financial Statements include transactions between OSRAM Licht Group and the Siemens Group (Siemens AG and its direct and indirect subsidiaries, excluding OSRAM) and with associates and joint ventures of both the Siemens Group and OSRAM. The Siemens Group is a related party, as Siemens AG controls OSRAM.
Transactions with the Siemens Group Sales of goods and services and other income, as well as purchases of goods and services and other expense from transactions with the Siemens Group in fiscal 2012, 2011 and 2010 are presented in the following table: Sales of goods and services Purchases of goods and and other income services and other expense Year ended September 30, Year ended September 30, 2012 2011 2010 2012 2011 2010 €m Siemens Group ...... 23.5 72.7 12.2 100.5 184.9 112.3
Sales to and purchases from the Siemens Group Supply and delivery agreements exist between OSRAM and the Siemens Group. OSRAM is supplied by the Siemens Group and delivers to the Siemens Group goods and services on a case by case basis.
Other services Siemens provided OSRAM with central corporate services, such as tax and legal, IT, corporate communications, HR, accounting, financial services, treasury and export control. The services were provided by both the Siemens Industry sector and the Central Corporate department. In fiscal 2011 and 2010, OSRAM paid the Siemens Industry sector €18.3 million and €10.2 million, respectively, for services provided. The Siemens Central Corporate department charged OSRAM €30.9 million for services provided in fiscal 2011. OSRAM now performs, with the exception of the financial services and treasury functions, most of the central corporate services itself, with effect from the end of fiscal 2011.
Reimbursement of costs by Siemens As stated in Note 1 Basis of preparation, Siemens announced its plans to publicly list the OSRAM Business. In preparation of the separation from the Siemens Group and the planned IPO and spin-off, OSRAM incurred certain related costs which Siemens and OSRAM determined to be mainly incremental as compared to OSRAM’s on-going operations and so were reimbursed by Siemens in accordance with a cost reimbursement agreement. These expenses are primarily costs associated with patent infringement disputes, which escalated immediately after the announcement of the planned IPO and costs related to the preparation of the spin-off and IPO, as well as personnel related costs. OSRAM accounts for the reimbursement of those costs net of the respective expenses. In fiscal 2012, OSRAM recognized income from the cost reimbursement agreement of €7.9 million. In fiscal 2011, OSRAM recognized income related to the reimbursement agreement amounting to €42.4 million, thereof €31.3 million for legal costs related to the patent infringement suits (see Note 30 Legal proceedings).
Release of payables with Siemens In fiscal 2011, OSRAM recognized income in the line item Other operating income amounting to €7.3 million from the release of unsettled payables with Siemens (see Note 6 Other operating income). OSRAM could not settle these liabilities as a result of the restrictions on the transfer of funds.
F-110 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Share-based payment OSRAM’s employees participate in share-based payment awards implemented by Siemens AG. Siemens AG delivers the respective shares on behalf of OSRAM and is reimbursed by OSRAM (see Note 33 Share-based payment).
Insurances OSRAM is covered by the group insurance of the Siemens Group. Furthermore, there are additional contracts for individual insurance services between companies of OSRAM Licht Group and the Siemens Group, the costs for which are borne by OSRAM. As part of the separation process, the insurance coverage through the Siemens Group was substantially replaced by independent insurance coverage for OSRAM Licht Group effective from October 1, 2011. The remaining insurance coverage provided by the Siemens Group will be replaced by OSRAM insurance policies once the spin-off of OSRAM becomes effective.
License agreements As part of an agreement between Siemens AG, OSRAM and Philips, Philips and OSRAM agreed on a prolongation of certain patent cross license agreements. Further OSRAM uses software under corporate licenses purchased by the Siemens Group (for example licenses from SAP, Microsoft and Oracle). At the end of fiscal 2012, Siemens AG and OSRAM GmbH reached an agreement as to the cross-licensing of patents, registered designs and utility models, which will belong to the portfolio of the respective party and their group companies once the spin-off becomes effective. OSRAM’s receivables from and payables to Siemens Group are as follows: September 30, October, 1 2012 2011 2010 2009 €m Receivables from Siemens Group ...... 956.2 538.5 605.2 363.5 therein from Siemens Credit Warehouse ...... — — 114.5 109.6 from financing activities ...... 619.4 535.8 486.7 170.8 from other items ...... 336.8 2.7 4.0 83.1 Liabilities to Siemens Group ...... 1,209.5 1,498.0 859.5 667.7 therein from financing activities ...... 1,198.1 1,343.7 596.3 651.4 from other items ...... 11.4 154.3 263.2 16.3
Siemens Credit Warehouse OSRAM had previously participated in the factoring program called “Siemens Credit Warehouse”. OSRAM Group transferred its trade receivables to Siemens including all relevant collection risks, but was still responsible for the servicing, in particular the debt collection. This agreement was terminated in fiscal 2011.
Financing OSRAM is included in Siemens Group’s cash pooling and cash management. OSRAM invests excess short-term liquidity and is granted overdraft facilities for financing its operating activities. This participation will be terminated as of the completion of the stock exchange listing. In accordance with sec. 272 para. 2 no. 4 HGB, Siemens made a contribution to the capital reserves of OSRAM AG of €200.0 million in accordance with the agreement dated September 27, 2012. This contribution was made by waiving part of the Siemens Cash Management receivables due by OSRAM AG to Siemens AG (see Note 28 Equity).
F-111 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Furthermore, Siemens Group provides short-term loans. These loans amounted to €720.1 million as of September 30, 2012 (September 30, 2011: 685.4 million, September 30, 2010: €454.8 million and October 1, 2009: 500.4 million). The loans are denominated primarily in Euros or US dollars and are due within less than one year. The average interest rate on the outstanding euro denominated loans as of September 30, 2012 was 0.3% (September 30, 2011: 1.5%, September 30, 2010: 0.8%). The average interest rate on the outstanding US dollar denominated loans as of September 30, 2012 was 0.7% (September 30, 2011: 1.1%, September 30, 2010: 1.1%). Interest income and expenses on balances from financing activities are included in Interest income and Interest expense, respectively (see Note 9 Interest income, interest expense and other financial income (expense), net). All receivables from and payables to related parties are settled regularly.
Siteco loan As part of the Siteco acquisition in fiscal 2011, Siemens repaid a bank loan owed by Siteco (€125.6 million). The resulting loan to Siemens Treasury amounts to €0.0 million as of September 30, 2012 (September 30, 2011: €131.6 million).
Leasing OSRAM has entered into leasing transactions with Siemens Treasury. In fiscal 2012, interest expenses for finance leases amounted to €0.3 million (fiscal 2011: €0.3 million and fiscal 2010: €0.3 million). As of September 30, 2012, the outstanding minimum lease payments were €3.0 million (September 30, 2011: €4.0 million, September, 30 2010: €5.7 million and October 1, 2009: 6.6 million). The average weighted interest rate in fiscal 2012 was 5.9% (fiscal 2011: 6.5% and fiscal 2010: 7.1%). For further information see Note 18 Property, plant and equipment and Note 24 Debt. In addition, several operating lease agreements exist between OSRAM and the Siemens Group, in particular with respect to real estate.
Other items The other items include the respective receivables and payables in relation to the profit and loss transfer agreement between OSRAM GmbH and Siemens AG in fiscal 2011 and 2010, the domination agreement between OSRAM AG and SBI in fiscal 2012 and the tax charges from the Siemens Group entities to OSRAM Licht Group, in particular in the U.S. The loss assumed in fiscal 2012 amounted to €336.6 million. The profits transferred in fiscal 2011 and 2010 amounted to €143.8 million and €221.6 million, respectively. In the following, other material relationships with Siemens Group are described:
Purchases of OSRAM Group entities/investments In fiscal 2011, OSRAM acquired interests in OSRAM Combination Group entities (OSRAM Italy, OSRAM Spain and OSRAM Norway) from Siemens Group amounting to €136.2 million. Furthermore, OSRAM acquired 16.87% in Encelium Holdings Inc., U.S., amounting to €4.5 million, in fiscal 2011.
Hedging OSRAM Group hedging activities are performed on an arm’s length basis mainly via Siemens AG. The consideration is based on the normal market rates. The related receivables and payables are disclosed in the lines other short term receivables and payables.
Collaterals/global letter of support/guarantees Siemens Group has issued collaterals and credit letters in the favor of OSRAM Licht Group. The guarantees issued by Siemens Group amount to €322.2 million as of September 30, 2012 (September 30, 2011: €230.1 million, September 30, 2010: €266.7 million and October 1, 2009: €233.6 million). In fiscal 2012, this includes a guarantee of €70.0 million from the transitional provisions of the Supply Chain Finance Program.
F-112 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Participation in Supply Chain Finance Program of Siemens Together with some of its strategic suppliers OSRAM participated in the Supply Chain Finance Program of the Siemens Group in Germany and the U.S. Siemens AG assumed joint and several liabilities for OSRAM Licht Group’s liabilities to external suppliers. OSRAM Licht Group’s participation in Siemens’ Supply Chain Finance Program was replaced in June 2012 by OSRAM’s own independent Supply Chain Finance Program. Siemens AG currently assumes the liability for the obligations of OSRAM Licht Group by way of a guarantee. This program allows OSRAM to negotiate longer payment terms with its strategic suppliers.
Transactions with pension schemes and pension entities In December 2011, OSRAM GmbH received from Siemens AG a cash contribution of €499.5 million for the additional funding of the pension trusts. In some countries OSRAM employees participated in Siemens pension plans and trusts, primarily in the U.S. and Great Britain. As part of the new incorporation of the independent OSRAM Trust in the U.S., additional funds of €6.7 million (2011: 56.2 million) were transferred in fiscal 2012 from the Siemens trust. For additional information, see Note 25 Pension plans and similar commitments.
Transactions with associates and joint ventures OSRAM business activities include transactions with associates and joint ventures of both the Siemens Group and OSRAM, in particular in respect to the operating business. These are summarized below (see Note 19 Investments accounted for using the equity method for additional information): Sales of goods and services and Purchases of goods and services other income and other expense Year ended September 30, Year ended September 30, 2012 2011 2010 2012 2011 2010 €m Siemens Group’s associates ...... — — 0.8 — (0.1) — Siemens Group’s joint ventures ...... 0.8 0.7 0.9 1.0 0.1 — OSRAM Licht Group’s associates ...... 125.5 133.2 116.4 0.3 0.2 0.8 OSRAM Licht Group’s joint ventures ...... 10.6 24.9 11.2 14.1 9.0 14.7 136.9 158.8 129.3 15.4 9.2 15.5
OSRAM’s receivables from and liabilities to associates and joint ventures of the Siemens Group and OSRAM are as follows: Receivables Liabilities September 30, October 1, September 30, October 1, 2012 2011 2010 2009 2012 2011 2010 2009 €m Siemens Group’s associates ...... — 0.3 0.4 — — 0.0 — 0.7 Siemens Group’s joint ventures ...... 0.3 0.1 0.0 0.1 0.6 (0.1) (0.1) — OSRAM Licht Group’s associates ...... 0.0 31.9 26.6 11.3 0.0 1.9 2.7 2.7 OSRAM Licht Group’s joint ventures ...... 6.6 17.1 0.4 7.6 0.9 0.7 1.6 1.6 6.9 49.4 27.4 19.0 1.5 2.5 4.2 5.0
A loan granted in fiscal 2012 and long-term trade receivables formed part of the net investment in Valeo Sylvania and an impairment of this amount has been recorded (see Note 8 Gain (loss) from investments accounted for using the equity method, net). As of September 30, 2012, there were additional loans to associates and joint ventures amounting to €0.6 million. There were no loans to associates or joint ventures as of September 30, 2011 and 2010. Outstanding loans to associates and joint ventures as of October 1, 2009 amounted to €4.7 million.
F-113 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
OSRAM regularly reviews, in the normal course of business, loans and receivables associated with joint ventures and associates. In fiscal 2012, this review resulted in a net expense for valuation allowances of €14.1 million (2011: €0.0 million and 2010: €2.9 million). Valuation allowances as of September 30, 2012 amounted to €14.8 million (September 30, 2011: €0.7 million, September 30, 2010: €0.7 million and October 1, 2009: €3.6 million).
Transactions with related individuals OSRAM Licht Group has no parent company and is not a legal group for consolidated financial statement reporting purposes in accordance with IAS 27. The key management of OSRAM Licht Group is therefore defined as those persons, who are responsible for the worldwide operating business of OSRAM Licht Group, based on their function within OSRAM or the interests of Siemens AG. Prior to the appointment of the board of directors of OSRAM Licht AG on November 8, 2012, OSRAM Licht Group was managed by the managing board of OSRAM GmbH. The following individuals belong or belonged to the key management of OSRAM: Member of the key Fiscal 2012 management since / until Wolfgang Dehen Chief Executive Officer since April 2011 and member of the Managing Board of OSRAM AG Martin Goetzeler Chief Operating Officer since May 2005 and member of the Managing Board of OSRAM AG until March 2012 Dr. Klaus Patzak Chief Financial Officer since April 2011 and member of the Managing Board of OSRAM AG Member of the key Fiscal 2011 management since / until Wolfgang Dehen Chief Executive Officer since April 2011 and member of the Managing Board of OSRAM AG (previously OSRAM GmbH) Martin Goetzeler Chief Operating Officer since May 2005 and member of the Managing Board of OSRAM AG (previously OSRAM GmbH) Dr. Klaus Patzak Chief Financial Officer and member of the Managing Board of OSRAM AG (previously since April 2011 OSRAM GmbH) Thomas Schaffer Chief Financial Officer since April 2009 and member of the Managing Board of OSRAM GmbH until March 2011 Member of the key Fiscal 2010 management since / until Martin Goetzeler Managing Director (Head of OSRAM GmbH) since May 2005 and Chairman of the Management board of OSRAM GmbH Thomas Schaffer Chief Financial Officer since April 2009 and member of the Managing Board of OSRAM GmbH until March 2011 The remuneration of the members of the managing and supervisory boards is as follows: In fiscal 2012, the members of the managing board of OSRAM GmbH received cash compensation of €4.3 million (2011: €3.3 million and 2010: €2.1 million). The fair value of stock-based compensation amounted to €2.6 million (2011: €1.3 million and 2010: €0.5 million). In fiscal 2012, contributions under the BOA were granted to members of the managing board totaling to €1.5 million (2011: €0.7 million and 2010: €0.3 million). This includes a cash contribution of €0.5 million in respect of the termination of an employment contract. Additional compensation resulting from the termination of an employment contract, including compensation for
F-114 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) the non-competition clause agreed, totaled €2.8 million. Therefore, the compensation and benefits attributable to the managing board of OSRAM GmbH amounted to €11.2 million (2011: €5.3 million and 2010: €2.9 million). In fiscal 2012, the income and expense (pre-tax) related to share-based compensation and to the Share Matching Program amounted to €2.7 million (2011: €0.5 million and 2010: €0.8 million). The Supervisory Board of OSRAM GmbH consists of 12 members, thereof 6 employee representatives. In fiscal 2012, the remuneration of the Supervisory Board members amounted to €0.6 million (2011: €0.1 million and 2010: €0.1 million), whereby the shareholders’ representatives in the Supervisory Board waived their right to compensation for their activities as members of the Supervisory Board in fiscal 2012. The remuneration system for the members of the Supervisory Board of OSRAM GmbH was amended, with effect from October 1, 2011. As of fiscal 2012, the Chairman, Deputy Chairman and other members will receive basic annual remuneration of €80,000, €60,000 and €40,000 respectively. Activities in the Supervisory Board’s committees will be remunerated separately. Siemens maintains a directors and officers (“D&O”) insurance for the members of OSRAM’s managing board. The insurance policy covers the personal liability risk, in the event that a claim for pecuniary damages is made against a member of OSRAM managing board in the performance of his duties. The related costs are charged by Siemens to OSRAM. In fiscal 2012, 2011 and 2010, no other major transactions took place between OSRAM and members of the managing board of OSRAM GmbH or between OSRAM and members of the Supervisory Board of OSRAM GmbH.
35. Segment information OSRAM Licht Group is managed centrally by the members of the managing board of OSRAM GmbH, in the function as Chief Operating Decision Maker (“CODM”). They account for the operating activities of OSRAM Licht Group and the information set out below describes how they monitor each reportable segment. There were three Business Units in fiscal 2012, representing the reportable segments: General Lighting, Specialty Lighting and Opto Semiconductors.
Description of reportable segments General Lighting The Business Unit General Lighting offers an extensive product portfolio for general lighting applications for both consumers and professional users (e.g. in the hotel and restaurant industry, as well as in shops and offices). In addition, the product portfolio includes architectural and outdoor lighting. The product range covers traditional lamps, SSL products and systems, ballasts, SSL systems, light management systems, as well as maintenance and other lighting services. Prior to August 31, 2011, the Business Unit General Lighting was divided into Consumer Lighting and Professional Lighting. As a result of the market and customer orientation and the common basic technology, they were combined into the Business Unit, General Lighting as they operate in similar markets, share certain customers and apply same technologies for their product portfolio. The new unit was designed to bear full responsibility from the procurement, development and production through to market access. The Business Unit General Lighting was a reportable segment for the first time as of September 30, 2011, which resulted in the number of reportable segments decreasing from four to three.
Specialty Lighting The Business Unit Specialty Lighting develops and manufactures lamps and lighting systems for the automotive sector, studio, stage and TV, projection systems, as well as special lamp types for industrial and medical applications. In addition, lamps for the purification of liquids, surfaces and gases using ultraviolet light are produced.
F-115 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Opto Semiconductors The Business Unit Opto Semiconductors manufactures opto-electronic semiconductors. The products offered include LEDs, optical sensors, infrared LEDs and high-intensity visible and infrared laser diodes. They are applied in the automotive industry, as well as in communication and consumer products.
Reconciliation to Combined Financial Statements Reconciliation to Combined Financial Statements contains businesses, activities and items not directly related or allocated to OSRAM’s reportable segments.
Corporate items and pensions Corporate items include business activities and special topics, which are not allocated directly to a Business Unit, because the managing board does not consider them to be indicative of the Business Units’ performance. These include inter-alia activities in connection with specific pre-materials (e.g. the production of fluorescent materials), machine and tool making, as well as specific legal issues. Pensions include OSRAM’s pension related income (expense) not allocated to the Business Units. In fiscal 2012, Corporate items and pensions in the column EBITA include €(62.0) million (2011: €(10.6) million and 2010: €(5.2) million) related to corporate items, as well as €(2.9) million (2011: €(3.7) million and 2010: €(5.3) million) related to pensions. The decrease in EBITA of the corporate items in fiscal 2012 is a result of the additional costs associated with the separation of OSRAM, the planned spin-off and originally planned IPO as well as patent infringement lawsuits, as well as a license and brand dispute.
Eliminations, corporate treasury and other reconciling items Eliminations and other reconciling items comprise the consolidation of transactions between the Business Units, certain reconciliation and reclassification items, as well as the activities of the corporate treasury function.
Measurement—Segments The accounting policies for the Segment Information are generally the same as those used for OSRAM, which are described in Note 2 Summary of significant accounting policies. Corporate overheads and certain other items not directly attributable to segments are allocated to the segments on a reasonable basis.
EBITA of the business segments The managing board of OSRAM GmbH is responsible for assessing the performance of the Business Units. The CODM determined that the performance indicator should be earnings before financial results (gain (loss) from investments accounted for using the equity method, interest income, interest expense and other financial income (expense), net), income taxes, as well as amortization and impairment of goodwill and other intangible assets (“EBITA”). EBITA represents a performance measure focused on operating success. Other financial result, net not included in EBITA results from investments accounted for using the equity method, as well as any interest or similar income or expense from financing activities, since decision-making is made at the corporate level. Similarly, decision-making regarding essential pension matters is made at the corporate level. As a consequence, segment EBITA primarily includes amounts related to service costs of pension plans only. Curtailments are treated as a partial payback with regard to past service costs that affect segment EBITA. Furthermore, income taxes are excluded from EBITA since income tax is subject to legal structures, which typically do not correspond to the structure of the Business Units.
F-116 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Costs associated with the transformation process OSRAM is addressing the fundamental change in the lighting industry to transform the Company. In order to implement the necessary changes, OSRAM introduced the internal transformation program “OSRAM Push” in the first quarter of fiscal 2012, with the goal of ensuring sustained improved performance. One part of OSRAM Push is the worldwide restructuring project, “Future Industrial Footprint” (see Note 5 Personnel restructuring expenses), which is aimed at aligning production capacity for traditional lamps. Other parts of OSRAM Push should improve the processes and organizations, as well as the business’s performance oriented culture. The transformation costs of OSRAM Push have an effect on EBITA and relate primarily to the Business Unit General Lighting. The transformation costs amounting to, in total, €198.5 million comprise primarily of (a) the impairment loss on the production facilities for ceramic-based metal halide lamps (€36.7 million) and OLED production facilities (€21.5 million) (see Note 18 Property, plant and equipment); (b) the impairment loss (€16.1 million) and loss on disposal of fixed tangible assets (€11.0 million), as well as costs of personnel measures relating to the “Future Industrial Footprint” program (€52.5 million) and other personnel-related restructuring costs (€16.8 million) (see Note 5 Personnel restructuring expenses and Note 18 Property, plant and equipment); (c) the complexity reduction of our product portfolio and related discontinuing of certain products, which, in turn, resulted in a write-off of the net realizable values of inventories due to lower sales prices than expected (€23.1 million) (see Note 14 Inventories); and (d) other transformation expenses (€19.6 million). Other transformation costs include among others consultancy costs attributable to OSRAM Push.
Costs associated with the separation and proposed IPO and spin-off; Patent infringement disputes The net expense incurred in fiscal 2012 as a result of the separation and proposed IPO and spin-off amounted to €30.8 million (after deduction of reimbursements from Siemens). Included in this amount are expenses (net) in connection with the patent infringement disputes, which escalated after the announcement of the proposed IPO (see Note 30 Legal proceedings) and costs of €9.4 million incurred in setting OSRAM up as an independent company. In fiscal 2011, the costs incurred amounted to €3.6 million (after deducting amounts reimbursed by Siemens). For information on the costs reimbursed by Siemens, see Note 7 Other operating expense and Note 34 Related party disclosures.
Costs associated with legal and regulatory disputes OSRAM incurred additional costs of €50.6 million in fiscal 2012 arising from other significant legal proceedings (see Note 30 Legal proceedings). A reconciliation of EBITA disclosed in Segment Information to Income/loss before income taxes in the Combined Statements of Income is presented below.
Asset measurement principles The managing board determined Assets as a measure to assess capital intensity of the Business Units (Net Capital Employed). It is based on the Total Assets of the Combined Statements of Financial Position, primarily excluding intra-group financing receivables and tax related assets. The remaining assets are reduced by non-interest-bearing liabilities other than tax related liabilities (for example trade payables) and provisions. A reconciliation of assets disclosed in Segment Information to Total assets in the Combined Statements of Financial Position is presented below.
Free cash flow definition Segment Information discloses free cash flow and Additions to property, plant and equipment and intangible assets. Free cash flow of the Business Units constitutes net cash provided by (used in) operating activities less Additions to intangible assets and property, plant and equipment. It excludes financing interest and income tax related and certain other payments and proceeds.
F-117 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
Amortization and impairments Amortization and impairments presented in Segment Information includes amortization and impairments of goodwill and other intangible assets, net of reversals of impairments.
Depreciation and impairments Depreciation presented in Segment Information includes depreciation and impairments of property, plant and equipment, net of reversals of impairments.
Reconciliation to OSRAM’s Combined Financial Statements The following table reconciles EBITA as presented in the Segment information to Income/loss before income taxes as presented in OSRAM’s Combined Statements of Income: Year ended September 30, 2012 2011 2010 €m EBITA ...... 53.3 437.0 582.5 Amortization and impairment(1) ...... (313.1) (19.8) (18.0) Interest income ...... 80.1 53.3 48.4 Interest expense ...... (105.8) (97.6) (97.5) Other financial income (expense), net ...... (11.5) (2.7) (2.8) Gain (loss) from investments accounted for using the equity method, net...... (49.3) 5.5 (2.9) Income (loss) before income taxes ...... (346.3) 375.7 509.7
(1) Goodwill included. The following table reconciles total Net Capital Employed of the Business Units to Total Assets of OSRAM’s Combined Statements of Financial Position: September 30, October 1, 2012 2011 2010 2009 €m Total Segment Net Capital Employed ...... 2,167.0 2,780.7 2,159.6 2,022.4 Reconciliation to Combined Financial Statements Corporate Items and Pensions ...... (341.6) (634.5) (655.4) (612.6) Asset based adjustments Receivables from Siemens Group(1) ...... 956.2 536.8 490.7 253.9 Tax related assets including deferred taxes(2) ...... 433.3 331.0 379.9 374.2 Liabilities based adjustments Liabilities ...... 1,363.4 1,280.6 1,195.1 987.0 Pension plans and similar comittments ...... 489.8 833.7 880.8 800.0 OSRAM Total Assets ...... 5,068.1 5,128.3 4,450.7 3,824.9
(1) Receivables from Siemens Credit Warehouse are included in Net Capital Employed in fiscal year 2010. (2) thereof €3.2 million related to long-term income tax receivables in fiscal year 2012.
F-118 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
The following table includes Gain (loss) from investments accounted for using the equity method, net attributable to the Business Units: Year ended September 30, 2012 2011 2010 €m Segments General Lighting ...... (10.6) 4.7 (4.2) Specialty Lighting ...... (35.1) 1.0 0.8 Opto Semiconductors ...... — — — Reconciliation to Combined Financial Statements Corporate items and pensions ...... (3.6) (0.2) 0.5 Gain (loss) from investments accounted for using the equity method, net ...... (49.3) 5.5 (2.9)
36. Information about geographies Revenue by location of customer Revenue by location of company Year ended September 30, Year ended September 30, 2012 2011 2010 2012 2011 2010 €m EMEA ...... 2,232.8 2,099.5 1,910.1 2,367.8 2,212.0 2,008.2 APAC ...... 1,316.0 1,211.7 1,097.2 1,191.1 1,108.7 1,009.8 Americas ...... 1,851.0 1,719.8 1,672.4 1,840.9 1,710.4 1,661.6 OSRAM ...... 5,399.8 5,031.0 4,679.7 5,399.8 5,031.0 4,679.7 thereof Germany ...... 714.0 640.2 569.7 1,180.6 1,121.4 1,055.5 thereof foreign countries ...... 4,685.8 4,390.8 4,110.0 4,219.2 3,909.6 3,624.2 therein U.S...... 1,303.2 1,185.0 1,195.6 1,576.4 1,411.1 1,395.6 The Region “EMEA” consists of Europe, Russia, the Middle East and Africa. The Region “Americas” includes the United States, Canada, Mexico and South America. The Region “APAC” consists of Asia, Australia and the Pacific region. September 30, October 1, 2012 2011 2010 2009 €m EMEA ...... 830.6 1,138.5 848.6 870.9 APAC ...... 424.5 559.5 514.0 396.7 Americas ...... 224.8 234.5 241.3 310.6 OSRAM ...... 1,479.8 1,932.5 1,603.9 1,578.2 thereof Germany ...... 718.3 992.1 717.6 742.1 thereof foreign countries ...... 761.5 940.4 886.3 836.2 therein U.S...... 202.8 203.3 205.0 251.2 Non-current assets consist of property, plant and equipment, goodwill and other intangible assets.
F-119 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 37. Personnel costs Year ended September 30, 2012 2011 2010 €m Wages and salaries ...... (1,482.0) (1,307.9) (1,261.1) Statutory social welfare contributions and expenses for optional support ...... (199.5) (182.9) (144.8) Expenses relating to pension plans and employee benefits ...... (59.4) (48.2) (19.5) (1,740.9) (1,539.0) (1,425.4)
The expected return on plan assets and interest costs are included in pension related interest income/ expense. Fiscal 2011 includes personnel expenses of €21.6 million related to OSRAM’s proportion of a Siemens one-time special remuneration for non-senior management employees. The average number of employees in fiscal 2012 was 40,157 (2011: 40,497 and 2010: 39,743). Part-time employees are included on a proportionate basis. The employees were engaged in the following activities: Year ended September 30, 2012 2011 2010 Production ...... 30,312 31,549 31,549 Selling ...... 5,208 4,769 4,358 Administration ...... 1,916 1,690 1,621 Research and development ...... 2,721 2,489 2,215 40,157 40,497 39,743
38. Subsequent events Implementation of the legal steps required to achieve the target structure With effect from October 1, 2012, Siemens AG contributed 80.5% of its interest in OSRAM AG to OSRAM Beteiligungen GmbH. This formed part of the capital increase against the issue of new shares in OSRAM Beteiligungen GmbH and a payment of the readily available liquid funds to Siemens AG. During the Extraordinary General Meeting held on November 8, 2012, Siemens, as the sole shareholder of OSRAM Licht AG, resolved to contribute its 19.5% interest in OSRAM GmbH to OSRAM Licht AG, as part of a capital contribution against the issue of new shares in OSRAM Licht AG. The contribution-in-kind took place retrospectively with economic effect as of October 1, 2012.
Change of Company to OSRAM Licht AG In the Extraordinary General Meeting held on November 8, 2012, it was resolved to change the name of Kyros A AG to OSRAM Licht AG and to approve the company’s articles of association. The articles and name change become effective on the date of the entry in the Commercial Register, November 14, 2012.
Appointment of the board of directors of OSRAM Licht AG In the Extraordinary General Meeting held on November 8, 2012, Wolfgang Dehen and Dr. Klaus Patzak were appointed to the board of directors of OSRAM Licht AG.
Change of legal status of OSRAM AG During the Extraordinary General Meeting held on October 5, 2012, it was resolved to change the legal form of OSRAM AG into a limited liability company, OSRAM GmbH, and to adopt the Articles of Association. There was an addendum to the Articles of Association on October 22, 2012. The change in the legal form of
F-120 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
OSRAM AG into OSRAM GmbH, Munich became legally effective with the entry in the Commercial Register on October 25, 2012. The previous issued capital stock of OSRAM AG amounting to €562,940,000 was converted into the capital stock of OSRAM GmbH. 562,940,000 shares with a nominal value of €1.00 each were issued. The capital stock of OSRAM GmbH is held by both Siemens AG, which hold shares with a nominal value of €109,773,300, and OSRAM Beteiligungen GmbH, which holds shares with a nominal value of €453,166,700.
Capital increase In accordance with the agreement dated October 30 and 31, 2012, Siemens AG increased the capital reserves of OSRAM GmbH by €163.0 million in accordance with sec. 272 para. 2 no. 4 HGB. This increase was made by waiving part of the existing Siemens Cash Management receivables of Siemens AG payable by OSRAM.
Changes of the external reporting structure In order to better master the currently very different goals and business models and to create even more responsibility within the Business Units, management decided to split the Business Unit General Lighting (“GL”) into four new units; Lamps (“LP”), Light Engines & Controls (“LE”), Luminaires (“LUM”) and Solutions (“SOL”) with effect from October 1, 2012. Each of these units will operate as a global business throughout the value creation chain in the general lighting sector and will be managed as business units together with the Business Units OS and SP in the new fiscal year. In addition, the Service business will report to the managing board directly. As a result, OSRAM is evaluating reporting in the first quarter of fiscal 2013, as part of the segment information, on the new segments Lamps & Components (“LC”) and Luminaires & Solutions (“LS”), in addition to the existing segments OS and SP. The Segment LC will include the Business Units LP and LE. The Segment LS will include the Business Units LUM and SOL, as well as the service business.
Appointment of new members of the managing board and managing director On October 9, 2012 the supervisory board of the former OSRAM AG, now OSRAM GmbH, appointed Wolfgang Dehen and Dr. Klaus Patzak as members to the managing board of OSRAM GmbH with effect from the effective entry in the Commercial Register of the change in the legal form. Wolfgang Dehen was appointed at the same time as the Chairman of the managing board and the Personnel Director. The allocation of the other responsibilities was confirmed. During the same meeting, the Supervisory Board appointed Dr.-Ing. Peter Laier as the managing director of OSRAM GmbH with effect from February 1, 2013.
Agreement on the patent infringement dispute with LG OSRAM and LG reached a settlement agreement on patent infringements, which was signed on October 31, 2012. As part of this settlement, all existing mutual patent claims were dismissed and the licensing of the LED-patent portfolios was agreed. OSRAM expects income in fiscal 2013 resulting from this agreement (see Note 30 Legal Proceedings). There were no additional events of particular significance after the balance sheet date, September 30, 2012, which had a significant impact on the results of operations, financial position and net assets.
F-121 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) 39. List of subsidiaries, associated companies and joint ventures, and other investments Equity interest in % September 30, October 1, 2012 2011 2010 2009 OSRAM Licht AG, Munich / Germany OSRAM Beteiligungen GmbH, Munich / Germany OSRAM GmbH, Munich / Germany Subsidiaries of OSRAM GmbH, Munich / Germany Germany (Status as of September 30, 2012: 7 entities) Light Distribution Gesellschaft mbH, Herbrechtingen ...... (1) 0.00 0.00 0.00 100.00 OSRAM Opto Semiconductors GmbH, Regensburg ...... 100.00 100.00 100.00 100.00 Radium Lampenwerk Gesellschaft mbH, Wipperfürth ...... 100.00 100.00 100.00 100.00 RITOS GmbH, Mömbris ...... (2) 100.00 50.00 50.00 50.00 Siteco Auslandsholding GmbH, Traunreut ...... 100.00 100.00 0.00 0.00 Siteco Beleuchtungstechnik GmbH, Traunreut ...... 100.00 100.00 0.00 0.00 Siteco Lighting GmbH, Traunreut ...... 100.00 100.00 0.00 0.00 Traxon Technologies Europe GmbH, Paderborn ...... (3) 100.00 100.00 100.00 100.00 EMEA (excluding Germany) (Status as of September 30, 2012: 40 entities) Siteco Lighting Benelux BVBA, Eupen / Belgium ...... 100.00 100.00 0.00 0.00 OSRAM d.o.o., Mostar / Bosnia-Herzegovina ...... 100.00 100.00 100.00 100.00 OSRAM EOOD, Sofia / Bulgaria ...... 100.00 100.00 100.00 100.00 OSRAM A/S, Taastrup / Denmark ...... 100.00 100.00 100.00 100.00 OY OSRAM AB, Espoo / Finland ...... 100.00 100.00 100.00 100.00 OSRAM S.A.S.U., Molsheim / France ...... 100.00 100.00 100.00 100.00 OSRAM A.E., Athens / Greece ...... 100.00 100.00 100.00 100.00 OSRAM Ltd., Langley / Great Britan ...... 100.00 100.00 100.00 100.00 OSRAM UK Pension Scheme Limited, Langley / Great Britain . . 100.00 0.00 0.00 0.00 Siteco Ltd., Stockport / Great Britan ...... 100.00 100.00 0.00 0.00 Yekta Setareh Atllas Co. (P.J.S.), Teheran / Iran ...... (4) 100.00 100.00 98.00 49.00 OSRAM S.p.A. Società Riunite OSRAM-Edison-Clerici, Milan / Italy ...... 100.00 100.00 0.00 0.00 Siteco Lighting Systems S.r.I., Milan / Italy ...... 100.00 100.00 0.00 0.00 OSRAM d.o.o., Zagreb / Croatia ...... 100.00 100.00 100.00 100.00 OSRAM Benelux B.V., Capelle aan den IJssel / Netherlands .... 100.00 100.00 100.00 100.00 Traxon Technologies EU B.V., Barendrecht / Netherlands ...... (5) 0.00 0.00 100.00 100.00 OSRAM AS, Lysaker / Norway ...... (6) 100.00 100.00 56.00 56.00 Siteco Belysning AS, Oslo / Norway ...... 100.00 100.00 0.00 0.00 OSRAM GmbH, Vienna / Austria ...... (7) 0.00 0.00 100.00 100.00 Siteco Lighting Austria GmbH, Vienna / Austria ...... 100.00 100.00 0.00 0.00 Siteco Österreich GmbH, Vienna / Austria ...... 100.00 100.00 0.00 0.00 OSRAM Sp. z o.o., Warsaw / Poland ...... 100.00 100.00 100.00 100.00 Siteco Lighting Poland Sp. z o.o., Warsaw / Poland ...... 100.00 100.00 0.00 0.00 OSRAM Empresa de Aparelhagem Eléctrica Lda., Lisbon / Portugal ...... (8) 100.00 100.00 100.00 100.00 OSRAM Romania S.R.L., Voluntari / Romania ...... 100.00 100.00 100.00 100.00 OAO OSRAM, Smolensk / Russia ...... (9) 99.61 99.61 99.61 99.61 OOO OSRAM, Moscow / Russia ...... (10) 0.00 0.00 0.00 100.00
F-122 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) Equity interest in % September 30, October 1, Subsidiaries of OSRAM GmbH, Munich / Germany 2012 2011 2010 2009 OOO Siteco, Moscow / Russia ...... 100.00 100.00 0.00 0.00 OSRAM AB, Stockholm / Sweden ...... 100.00 100.00 100.00 100.00 OSRAM AG, Winterthur / Switzerland ...... 100.00 100.00 100.00 100.00 Siteco Schweiz AG, Bern / Switzerland ...... 100.00 100.00 0.00 0.00 OSRAM d.o.o., Belgrad / Republic of Serbia ...... 100.00 100.00 100.00 100.00 OSRAM a.s., Nové Zámky / Slovakia ...... 100.00 100.00 100.00 100.00 Siteco Sistemi d.o.o., Maribor / Slovenia ...... 100.00 100.00 0.00 0.00 OSRAM S.A., Madrid / Spain ...... 100.00 100.00 0.00 0.00 Siteco Lighting, S.L.U., Madrid / Spain ...... 100.00 100.00 0.00 0.00 OSRAM (Pty.) Ltd., Midrand / South Africa ...... 100.00 100.00 100.00 100.00 OSRAM Ceská republika s.r.o., Bruntál / Czech Republic ...... 100.00 100.00 100.00 100.00 Siteco Lighting, spol. s r.o., Prague / Czech Republic ...... 100.00 100.00 0.00 0.00 OSRAM Ampul Ticaret A.S., Istanbul / Turkey ...... (11) 100.00 100.00 100.00 100.00 Siteco Aydinlatma Teknigi Tic. Ve San. Ltd. Sti., Istanbul / Turkey ...... 100.00 100.00 0.00 0.00 OSRAM Kft., Budapest / Hungary ...... (7) 0.00 0.00 100.00 100.00 Enterprise with 100% foreign investment “OSRAM Ukraine”, Kiev / Ukraine ...... 100.00 100.00 100.00 100.00 OSRAM Middle East FZE, Dubai / United Arab Emirates ...... 100.00 100.00 100.00 100.00 Americas (Status as of September 30, 2012: 17 entities) OSRAM Argentina S.A.C.I., Buenos Aires / Argentina ...... (12) 100.00 100.00 100.00 100.00 OSRAM do Brasil Lampadas Elétricas Ltda., Osasco / Brazil .... (13) 100.00 100.00 98.98 98.98 OSRAM Chile Ltda., Santiago de Chile / Chile ...... (14) 100.00 100.00 100.00 100.00 OSRAM del Ecuador S.A., Guayaquil / Ecuador ...... (15) 100.00 100.00 100.00 100.00 ENCELIUM TECHNOLOGIES ULC, Vancouver / Canada ..... (16) 100.00 0.00 0.00 0.00 OSRAM Sylvania Ltd., Mississauga/ Canada ...... (16) 100.00 100.00 100.00 100.00 OSRAM de Colombia Iluminaciones S.A., Bogotá / Columbia . . . (17) 100.00 100.00 100.00 100.00 Industrias OSRAM de México S.A., Tultitlán / Mexico ...... (18) 100.00 100.00 100.00 100.00 OSRAM de México S.A. de C.V., Tultitlán / Mexico ...... (19) 100.00 100.00 100.00 100.00 OSRAM S.A. de C.V., Tultitlán / Mexico ...... (20) 100.00 100.00 100.00 100.00 Valeo Sylvania Illumincaion S. de RL de C.V., Queretaro / Mexico ...... (10) 0.00 0.00 0.00 99.99 Valeo Sylvania Services S. de RL de C.V., Queretaro / Mexico . . (10) 0.00 0.00 0.00 99.97 OSRAM de Perú S.A.C., Lima / Peru ...... (21) 100.00 100.00 100.00 100.00 OSRAM Opto Semiconductors, Inc., Wilmington / United States ...... (22) 100.00 100.00 100.00 100.00 OSRAM SYLVANIA INC., Danvers / United States ...... 100.00 100.00 100.00 100.00 OSRAM SYLVANIA Products Inc., Danvers / United States .... (23) 0.00 0.00 100.00 100.00 OSRAM Sylvania Puerto Rico Corp., Luquillo / United States . . . (24) 100.00 100.00 100.00 100.00 Sylvania Lighting Services Corp., Danvers / United States ...... 100.00 100.00 100.00 100.00 Transport & Distribution Inc., Danvers / United States ...... 100.00 100.00 100.00 100.00 Traxon Supply USA Inc., East Rutherford / United States ...... (25) 100.00 100.00 100.00 100.00 APAC (Status as of September 30, 2012: 22 entities) OSRAM Australia Pty. Ltd., Sydney / Australia ...... 100.00 100.00 100.00 100.00 Chung Tak Lighting Control Systems (Guangzhou) Ltd., Guangzhou / China ...... 58.50 58.50 58.50 58.50 Ningbo Zuoming Electronics Co. Ltd. Ningbo / China ...... (26) 0.00 0.00 100.00 100.00 OSRAM China Lighting Ltd., Foshan / China ...... 90.00 90.00 90.00 90.00 OSRAM Kunshan Display Optic Co. Ltd., Kunshan / China ..... 100.00 100.00 100.00 100.00
F-123 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) Equity interest in % September 30, October 1, Subsidiaries of OSRAM GmbH, Munich / Germany 2012 2011 2010 2009 Sunny World (Shaoxing) Green Lighting Co. Ltd., Shaoxing / China ...... (27) 100.00 100.00 100.00 100.00 OSRAM Asia Pacific Ltd., Hongkong / Hongkong ...... 100.00 100.00 100.00 100.00 OSRAM Holding Company Ltd., Hongkong / Hongkong ...... 100.00 100.00 100.00 100.00 OSRAM Hong Kong Ltd., Hongkong / Hongkong ...... (28) 100.00 100.00 80.00 80.00 OSRAM Lighting Control Systems Ltd., Hongkong / Hongkong ...... (29) 65.00 65.00 64.98 64.98 OSRAM Opto Semiconductors Asia Ltd., Hongkong / Hongkong ...... (30) 100.00 100.00 100.00 100.00 Traxon Technolgies Ltd., Hongkong / Hongkong ...... 100.00 51.00 51.00 51.00 OSRAM Automotive Lamps Private Limited, Bangalore / India ...... 100.00 100.00 0.00 0.00 OSRAM India Pvt. Ltd., Gurgaon / India ...... (31) 100.00 100.00 100.00 100.00 P.T. OSRAM Indonesia, Tangerang / Indonesia ...... (32) 100.00 100.00 100.00 100.00 OSRAM Ltd., Yokohama / Japan ...... 100.00 100.00 100.00 100.00 OSRAM-MELCO Ltd., Yokohama / Japan ...... (33) 0.00 51.00 51.00 51.00 OSRAM-MELCO Toshiba Lighting Ltd., Yokosuka / Japan ..... (34) 0.00 50.05 50.05 50.05 OSRAM (Malaysia) Sdn. Bhd., Kuala Lumpur / Malaysia ...... 100.00 100.00 100.00 100.00 Osram Opto Semiconductors (Malaysia) Sdn. Bhd., Penang / Malaysia ...... (35) 100.00 100.00 100.00 100.00 OSRAM Wafer Technologies Sdn. Bhd., Penang / Malaysia ..... (36) 0.00 0.00 0.00 100.00 Siteco Lighting Malaysia Sdn. Bhd., Puchong / Malaysia ...... (37) 100.00 100.00 0.00 0.00 OSRAM Philippines Ltd. Corp., Manila / Philippines ...... (38) 0.00 0.00 0.00 100.00 OSRAM Pte. Ltd., Singapur / Singapur ...... 100.00 100.00 100.00 100.00 OSRAM Korea Co. Ltd., Ansan-City / South Korea ...... 100.00 100.00 100.00 100.00 OSRAM Taiwan Company Ltd., Taipeh / Taiwan ...... 100.00 100.00 100.00 100.00 OSRAM Thailand Co. Ltd., Bangkok / Thailand ...... (39) 100.00 100.00 100.00 100.00
(1) Not consolidated due to immateriality. Sold in fiscal 2010. (2) In liquidation. Not consolidated due to immateriality. (3) Subsidiary of Traxon Technolgies Ltd., Hongkong / Hongkong, operated under the name of “Ecue Control GmbH, Paderborn” before June 1, 2011. (4) Formerly OSRAM Lamp (P.J.S.) Company, Teheran / Iran. The remaining shares of 2% were held by Siemens Sherkate Sahami (Khass), Teheran / Iran as of September 30, 2010 and 2009, respectively. (5) Subsidiary of Traxon Technolgies Ltd., Hongkong / Hongkong. Liquidated in fiscal 2011. (6) The remaining shares of 44% were held by Siemens Norway as of September 30, 2010 and October 1, 2009, respectively. (7) Merged with OSRAM a.s., Nové Zámky / Slovakia in fiscal 2011. (8) Thereof an indirect participation of 0.007017% by OSRAM AG, Winterthur / Switzerland. (9) 99.225228% held by OSRAM GmbH, Munich / Germany and the remaining shares of 0.388619% held by a trust. (10) Liquidated in fiscal 2010. (11) Thereof an indirect participation of 0.0016% held by OSRAM Opto Semiconductors GmbH, Regensburg / Germany and of 0.000133% each by OSRAM Benelux B.V., Capelle aan den Ijssel / Netherlands, OSRAM AG, Winterthur / Switzerland und OSRAM GmbH, Vienna / Austria—until end of fiscal 2010, and from beginning of fiscal 2011 by OSRAM a.s., Nové Zámky / Slovakia. (12) Thereof an indirect participation of 5% held by OSRAM Opto Semiconductors GmbH, Regensburg / Germany. (13) Thereof an indirect participation of 0.02% held by OSRAM AG, Winterthur / Switzerland as of June 30, 2011. (14) Thereof an indirect participation of 1% held by OSRAM AG, Winterthur / Switzerland. (15) Thereof an indirect participation of 0.000040% held by OSRAM Opto Semiconductors GmbH, Regensburg / Germany. (16) 100% Subsidiary of OSRAM SYLVANIA INC., Danvers / United States. (17) Thereof an indirect participation of 1.275% each held by OSRAM Opto Semiconductors GmbH, Regensburg / Germany, OSRAM Benelux B.V., Capelle aan den IJssel / Netherlands, OSRAM a.s., Nové Zámky / Slovakia and OSRAM AG, Winterthur / Switzerland. (18) Subsidiary of OSRAM S.A. de C.V., Tultitlán / Mexico, one share held by OSRAM de México S.A. de C.V., Tultitlán / Mexico.
F-124 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
(19) Subsidiary of OSRAM S.A. de C.V., Tultitlán / Mexico, one share held by Industrias OSRAM de México S.A., Tultitlán / Mexico. (20) The shareholding of OSRAM in OSRAM S.A. de C.V., Tultitlán / Mexico is 100% by the direct holding of OSRAM GmbH, Munich / Germany (81.14%) and OSRAM SYLVANIA Inc., Danvers / United States (18.86%). (21) Thereof an indirect participation of 2.324075% held by OSRAM del Ecuador S.A., Guayaquil / Ecuador. (22) Subsidiary of OSRAM Opto Semiconductors GmbH, Regensburg / Germany. (23) Dissolved in fiscal 2011. (24) The shareholding of OSRAM in OSRAM Sylvania Puerto Rico Corp., Luquillo / United States is 100% by the direct holding of OSRAM Benelux B.V., Capelle aan den Ijssel / Netherlands (90%) and OSRAM Sylvania, Inc., Danvers / United States (10%). (25) Subsidiary of Traxon Technolgies Ltd., Hongkong / Hongkong. (26) Subsidiary of OSRAM Hong Kong Ltd., Hongkong / Hongkong. Sold in fiscal 2011. (27) Subsidiary of OSRAM Hong Kong Ltd., Hongkong / Hongkong. (28) Change in the company’s name in fiscal 2011. Before operated under the name of Sunny World Ltd. Hongkong / Hongkong. (29) Shares of 0.02% were held by Siemens Ltd., Hongkong / Hongkong until June 2011. (30) Subsidiary of OSRAM Opto Semiconductors GmbH, Regensburg / Germany. (31) Thereof an indirect participation of < 0.000001% held by OSRAM AG, Winterthur / Switzerland. (32) Thereof an indirect participation of 0.603515% held by OSRAM AG, Winterthur / Switzerland. (33) Sold in fiscal 2012. (34) Subsidiary of OSRAM-MELCO Ltd., Yokohama / Japan. Sold in fiscal 2012. (35) Subsidiary of OSRAM Opto Semiconductors GmbH, Regensburg / Germany. (36) Subsidiary of OSRAM Opto Semiconductors GmbH, Regensburg / Germany. Dissolved in fiscal 2010. (37) Subsidiary of Siteco Auslandsholding GmbH, Traunreut / Germany. (38) Liquidated in fiscal 2010. (39) Thereof an indirect participation of 0.000097% each held by OSRAM Opto Semiconductors GmbH, Regensburg / Germany, Radium Lampenwerk Gesellschaft mbH, Wipperfürth / Germany, OSRAM S.A.S.U., Molsheim / France, OSRAM Benelux B.V., Capelle aan den Ijssel / Netherlands, OSRAM a.s., Nové Zámky / Slovakia und OSRAM AG, Winterthur / Switzerland.
F-125 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.) Equity interest in % September 30, October 1, Associated companies and joint ventures of OSRAM GmbH, Munich / Germany 2012 2011 2010 2009 Germany (Status as of September 30, 2012: 2 entities) Lightcycle Retourlogistik und Service GmbH, Munich ...... (40), (41) 47.00 47.00 47.00 47.00 Wohnen am Wedding KG THG Immobilien-Fondsgesellschaft mbH & Co., Berlin ...... (41) 25.52 25.52 25.52 25.52 EMEA (excluding Germany) (Status as of September 30, 2012: 7 entities) EMGO N.V., Lommel / Belgium ...... 50.00 50.00 50.00 50.00 Recylum Societe par Actions Simplifiée, Paris / France ...... (42) 25.00 25.00 25.00 25.00 Kempston (1987) Limited, Croydon, Surrey /Great Britain ...... (41), (43) 0.00 0.00 49.90 49.90 LAMP NOOR (P.J.S.) Co., Saveh / Iran ...... (41) 20.00 20.00 20.00 20.00 SIA Ekogaisma, Riga / Lativa ...... (41) 33.00 33.00 33.00 33.00 Kompetenzzentrum Licht GmbH Innsbruck, Innsbruck / Austria ...... (41) 33.33 33.33 33.33 33.33 EKOSIJ d.o.o., Ljubljana / Slovenia ...... (41) 25.00 25.00 25.00 25.00 EKOLAMP s.r.o., Prague / Czech Republic ...... (41), (44) 30.00 30.00 30.00 30.00 Americas (Status as of September 30, 2012: 2 entities) CVL Componentes de Vidro Ltda., Caçapava / Brazil ...... (45) 50.00 50.00 50.00 50.00 Valeo Sylvania LLC, Seymour / United States ...... (46) 50.00 50.00 50.00 50.00 APAC (Status as of September 30, 2012: 4 entities) Foshan Electrical and Lighting Co., Ltd., Foshan / China ...... (47), (48) 13.47 13.47 13.47 13.47 OSRAM (China) Fluorescent Materials Co., Ltd., Yi Xing City / China ...... (49) 50.10 50.10 50.10 0.00 Siteco Prosperity Lighting (Lang Fang) Co., Ltd., Lang Fang / China ...... (50) 50.00 50.00 0.00 0.00 OSRAM Prosperity Company Ltd., Hongkong / Hongkong ...... (51) 50.00 50.00 50.00 50.00 Mitsubishi Electric OSRAM Ltd., Yokohama / Japan ...... (33) 0.00 49.00 49.00 49.00 TLT OSRAM-Melco Lighting Ltd., Yokosuka / Japan ...... (41), (52) 0.00 49.50 49.50 49.50 Other investments of OSRAM GmbH, Munich / Germany Germany (Status as of September 30, 2012: 1 entity) GSB—Sonderabfall-Entsorgung Bayern GmbH, Baar-Ebenhausen ...... 0.07 0.07 0.07 0.07 EMEA (Status as of September 30, 2012: 4 entities) Anakiklosi Siskevon Simetochiki S.A., Piraeus / Greece ...... (53) 10.00 10.00 10.00 16.67 Elekro Eko S.A., Warsaw/ Poland ...... (54) 10.80 10.80 10.80 10.80 Design LED Products Ltd., Edinburgh / Scotland ...... 9.35 9.35 0.00 0.00 Voltimum S.A., Satigny / Switzerland ...... 13.71 13.71 13.71 13.71 Americas (Status as of September 30, 2012: 0 entities) Encelium Holdings Inc., Teaneck / United States ...... (55) 0.00 16.87 0.00 0.00 APAC (Status as of September 30, 2012: 0 entities) Ogasa Sanroku Kaihatsu KK, Kakegawa City / Japan ...... (56) 0.00 0.79 0.79 0.79
(40) Thereof an indirect participation of 2% held by Radium Lampenwerk Gesellschaft mbH, Wipperfürth / Germany. (41) Not accounted for using the equity method due to immateriality. (42) Not accounted for using the equity method due to immateriality. Thereof an indirect participation of 25% held by OSRAM S.A.S.U., Molsheim / France. (43) Indirect participation of 49.90% held by OSRAM Ltd., Langley / Great Britain. Liquidated in fiscal 2011. (44) Indirect participation of 30% held by OSRAM Ceska republika s.r.o., Bruntál / Czech Republic. (45) No operating business since fiscal 2010. (46) Consolidated in fiscal 2009. Accounted for using the equity method started in fiscal 2010.
F-126 OSRAM Licht Group NOTES TO THE COMBINED FINANCIAL STATEMENTS For the fiscal years ended September 30, 2012, 2011 and 2010
(The following English-language Combined Financial Statements are translations of the German-language Combined Financial Statements.)
(47) Indirect participation of 13.47% held by OSRAM Holding Company Ltd., Hongkong / Hongkong. (48) Significant influence due to composition of board of directors. (49) No control due to contractual arrangements or legal circumstances. (50) Shares held by Siteco Beleuchtungstechnik GmbH, Traunreut / Germany. (51) Shares held by OSRAM GmbH, Munich / Germany. (52) Indirect participation of 49.50% held by OSRAM-MELCO Ltd., Yokohama / Japan. Sold in fiscal 2012. (53) Indirect participation of 10%, and 16.67% as of October 1, 2009, respectively, held by OSRAM A.E., Athens / Greece. Additional participation of 10% as of September 30, 2012, 2011 and 2010, and 16.67% as of October 1, 2009, respectively, held by Siemens Regional Company. (54) Indirect participation of 10.8% held by OSRAM Sp. z o.o., Warsaw / Poland. (55) Dissolved in the course of acquisition of ENCELIUM TECHNOLOGIES (“ULC”), Vancouver / Canada. (56) Indirect participation of 0.79% held by OSRAM-MELCO Ltd., Yokohama / Japan. Sold in fiscal 2012.
Munich, November 15, 2012 signed signed Wolfgang Dehen Dr. Klaus Patzak Chief Executive Officer Chief Financial Officer
F-127 The following audit opinion (Bestätigungsvermerk) refers to the combined financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) of OSRAM Licht AG (until November 14, 2012: Kyros A AG) and the entities included for the fiscal years from October 1, 2011 to September 30, 2012, October 1, 2010 to September 30, 2011 and October 1, 2009 to September 30, 2010 presented in this prospectus on the preceding pages. The audit opinion (Bestätigungsvermerk) and the combined financial statements are both translations of the respective German- language documents.
AUDIT OPINION
To OSRAM Licht AG
Report on the Combined Financial Statements We have audited the accompanying combined financial statements of OSRAM Licht AG, Munich (until November 14, 2012: Kyros A AG), and the entities included (entirety of entities included in the combined financial statements), which comprise the combined statements of income (Kombinierte Gewinn- und Verlustrechnung), the combined statements of comprehensive income (Kombinierte Gesamtergebnisrechnung), the combined statements of financial position (Kombinierte Bilanz), the combined statements of cash flow (Kombinierte Kapitalflussrechnung), the combined statements of changes in equity (Kombinierte Eigenkapitalveränderungsrechnung) and the notes to the combined financial statements (Anhang zum Kombinierten Abschluss), for the fiscal years from October 1, 2011 to September 30, 2012, October 1, 2010 to September 30, 2011 and October 1, 2009 to September 30, 2010.
Management’s Responsibility for the Combined Financial Statements The management of OSRAM Licht AG is responsible for the preparation of these combined financial statements. This responsibility includes preparing these combined financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) to give a true and fair view of the net assets, financial position and results of operations of the entirety of entities included in the combined financial statements in accordance with these requirements. The company’s management is also responsible for the internal controls that management determines are necessary to enable the preparation of combined financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with Sec. 317 HGB [“Handelsgesetzbuch”: German Commercial Code] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW) as well as in supplementary compliance with International Standards on Auditing (ISA). Accordingly, we are required to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatements. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The selection of audit procedures depends on the auditor’s professional judgment. This includes the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In assessing those risks, the auditor considers the internal control system relevant to the entity’s preparation of the combined financial statements that give a true and fair view. The aim of this is to plan and perform audit procedures that are appropriate in the given circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control system of the entirety of entities included in the combined financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit Opinion Pursuant to Sec. 322 (3) Sentence 1 HGB, we state that our audit of the combined financial statements has not led to any reservations.
F-128 In our opinion, based on the findings of our audit, the combined financial statements comply in all material aspects with IFRS as adopted by the EU and give a true and fair view of the net assets and financial position of the entirety of entities included in the combined financial statements as at September 30, 2012, September 30, 2011 and September 30, 2010 as well as the results of operations of the entirety of entities included in the combined financial statements for the fiscal years then ended, in accordance with these requirements.
Munich, November 15, 2012
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft
signed signed Breitsameter Esche Wirtschaftsprüferin Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)
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F-130 Annual Financial Statements of OSRAM Licht AG (up to November 14, 2012, Kyros A AG), Munich, as of September 30, 2012
F-131 Kyros A AG, Munich STATEMENT OF INCOME for the abbreviated fiscal year from July 4, 2012 to September 30, 2012 EUR 1. General administrative expenses ...... (2,683,493.10) 2. Other operating income ...... 43.10 3. Results from ordinary activities ...... (2,683,450.00) 4. Net loss ...... (2,683,450.00) 5. Profit carried forward/loss carried forward ...... 0.00 6. Accumulated loss ...... (2,683,450.00)
F-132 Kyros A AG, Munich BALANCE SHEET as of September 30, 2012 EUR Assets A. Current assets I. Receivables and other assets Receivables from affiliated companies ...... 2,683,493.10 II. Cash in banks ...... 49,971.45 2,733,464.55 Liabilities A. Equity I. Common stock ...... 50,000.00 II. Additional paid-in capital ...... 2,683,450.00 III. Accumulated loss ...... (2,683,450.00) 50,000.00 B. Provisions Other provisions ...... 2,683,450.00 C. Liabilities Other liabilities ...... 14.55 2,733,464.55
F-133 NOTES TO THE FINANCIAL STATEMENTS of Kyros A AG, Munich, for the abbreviated fiscal year from July 4, 2012 to September 30, 2012
General The annual financial statements of the company have been prepared in EUR in accordance with the regulations of the German Commercial Code (Handelsgesetzbuch, “HGB”) applicable for small companies, especially § 242 et seq. HGB and § 264 et seq. HGB, as well as the additional requirements of the German Stock Corporation Act (Aktiengesetz, “AktG”). The simplification provisions for financial statements preparation for small companies have partially been applied. The company was established on June 1, 2012 and the articles of association were notarized on July 4, 2012. The company was registered in the commercial register on July 6, 2012.
Accounting policies The accounting policies set out below have been applied in the preparation of the annual financial statements. Receivables and other assets are recognized at their nominal value. Cash in banks is accounted for at the nominal value at the balance sheet date. Other provisions include all uncertain liabilities. Liabilities are measured at the settlement amount.
Information on the balance sheet The remaining term of the receivables is less than one year. In the abbreviated fiscal year 2012 the shareholder made a contribution amounting to EUR 2,683,450.00, which was included in the additional paid-in capital pursuant to § 272 (2) no. 4 HGB (andere Zuzahlung). The remaining term of liabilities and provisions is less than one year.
Information on the statement of income The statement of income is presented in the cost of sales format.
Other information Disclosure pursuant to §160 (1) no. 3 AktG The common stock of the corporation is divided into 50,000 no par value shares. The shares are registered shares.
Disclosure pursuant to § 160 (1) no. 8 AktG At the balance sheet date, Siemens AG, Berlin and Munich, holds an investment in the common stock of the corporation for which a notification pursuant to § 20 (1), (3) and (4) AktG was received. The content of the notification published under § 20 (6) AktG is as follows: Siemens Aktiengesellschaft with its registered offices in Berlin and Munich has notified us pursuant to § 20 (1), (3) and (4) AktG that it holds directly a majority investment in our company and that, at the same time, —even without consideration of shares pursuant to § 20 (2) AktG—it holds more than one fourth of the shares in our company. Munich, July 2012 The Managing Board
F-134 NOTES TO THE FINANCIAL STATEMENTS of Kyros A AG, Munich, for the abbreviated fiscal year from July 4, 2012 to September 30, 2012
Members of the Managing Board Wolfgang Seltmann, employee of the department Shareholder Controlling Region Germany (CF R 6 1) of the Corporate Unit Corporate Finance and Controlling of Siemens Aktiengesellschaft with its registered offices in Berlin and Munich (Chief Executive Officer).
Martin Rohbogner, employee of the department Shareholder Controlling Region Germany (CF R 6 1) of the Corporate Unit Corporate Finance and Controlling of Siemens Aktiengesellschaft with its registered offices in Berlin and Munich.
Members of the Supervisory Board Georg Bernwieser, head of the department Shareholder Controlling Region Germany (CF R 6 1) of the Corporate Unit Corporate Finance and Controlling of Siemens Aktiengesellschaft with its registered offices in Berlin and Munich (Chairman). Peter Kastenmeier, employee of the department Shareholder Controlling Region Germany (CF R 6 1) of the Corporate Unit Corporate Finance and Controlling of Siemens Aktiengesellschaft with its registered offices in Berlin and Munich (Deputy Chairman). Walter Richter, employee of the department Shareholder Controlling Region Germany (CF R 6 1) of the Corporate Unit Corporate Finance and Controlling of Siemens Aktiengesellschaft with its registered offices in Berlin and Munich.
Parent company Kyros A AG is a subsidiary of Siemens Aktiengesellschaft, Berlin and Munich, and is included in its consolidated financial statements. The consolidated financial statements and the consolidated management report (Konzernlagebericht) of Siemens Aktiengesellschaft for the fiscal year 2011/2012 are filed electronically with the operator of the electronic German Federal Gazette (Bundesanzeiger) and are published in the electronic German Federal Gazette after filing.
Final declaration of the dependent company report (Abhängigkeitsbericht) The declaration of the Managing Board pursuant to § 312 (3) AktG is as follows: We declare that, with regard to the transactions and measures set out in the dependent company report (Abhängigkeitsbericht), according to the circumstances known to us at the time the transactions were made or the measures were performed or omitted, Kyros A AG has received adequate consideration for each transaction and that Kyros A AG has not been disadvantaged by measures taken or omitted.
Munich, October 31, 2012
Kyros A AG The Managing Board
sgd. sgd. Seltmann Rohbogner
F-135 The following audit opinion (Bestätigungsvermerk) refers to the annual financial statements prepared on the basis of German generally accepted accounting principles of Kyros A AG (now OSRAM Licht AG) for the abbreviated fiscal year from July 4, 2012 to September 30, 2012 presented in this prospectus on the preceding pages. The audit opinon (Bestätigungsvermerk) and the annual financial statements are both translations of the respective German-language documents.
AUDIT OPINION
To Kyros A AG
We have audited the annual financial statements, comprising the balance sheet, the statement of income and the notes to the financial statements, together with the bookkeeping system, of Kyros A AG, Munich, for the abbreviated fiscal year from July 4, 2012 to September 30, 2012. The maintenance of the books and records and the preparation of the annual financial statements in accordance with German commercial law are the responsibility of the Company’s management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, based on our audit. We conducted our audit of the annual financial statements in accordance with Sec. 317 HGB [“Handelsgesetzbuch”: “German Commercial Code”] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with German principles of proper accounting 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 and the annual financial statements are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements. 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 annual financial statements 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.
Munich, October 31, 2012
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft
signed signed Räpple Bauer Wirtschaftsprüfer Wirtschaftsprüferin (German Public Auditor) (German Public Auditor)
F-136 Disclaimer This version of the annual financial statements of Kyros A AG, Munich, for the abbreviated fiscal year from July 4, 2012 to September 30, 2012, prepared for the convenience of the English-speaking readers, is a translation of the German original. For purposes of interpretation the German text shall be authoritative and final.
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F-138 Annual Financial Statements of OSRAM GmbH (formerly OSRAM AG) (prepared on accordance with German Commercial Code) as of September 30, 2012
F-139 INCOME STATEMENT for the fiscal year ended September 30, 2012 (in thousands of €) (The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) Notes FY 2012 FY 2011 1. Revenue ...... 1 1,878,789 1,851,482 2. Cost of goods sold and services rendered ...... (1,464,878) (1,378,254) 3. Gross profit ...... 413,911 473,228 4. Research and development expenses ...... 2 (150,905) (137,826) 5. Marketing and selling expenses ...... (231,244) (232,326) 6. General administrative expenses ...... 3 (86,364) (89,454) 7. Other operating income ...... 4 57,238 63,632 8. Other operating expenses ...... 4 (80,917) (52,645) 9. Operating profit (loss) ...... (78,281) 24,609 10. Income (loss) from investments, net ...... 5 (233,033) 151,779 11. Interest income ...... 6 15,818 157 12. Interest expense ...... 6 (5,661) (4,921) 13. Other financial result, net ...... 7 (26,264) (20,372) 14. Income (loss) from ordinary activities ...... (327,421) 151,252 15. Income taxes ...... 8 (9,148) (3,211) 16. Net income (loss) before loss/profit transfer ...... (336,569) 148,041 17. Income from loss absorption due to domination agreement(*) ...... 336,569 — 18. Expense from profit transfer(*) ...... — (143,753) 19. Net income ...... — 4,288 20. Allocation to statutory reserve ...... 18 — (4,288) 21. Unappropriated profit ...... — —
(*) exact amount of loss assumption €336,568,654.23 (fiscal year 2012)
F-140 BALANCE SHEET as of September 30, 2012 (in thousands of €) (The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) Notes 09/30/2012 09/30/2011 Assets A. Fixed assets ...... 12 I. Intangible assets Concessions, industrial and similar rights and assets, and ...... licenses to such rights and assets acquired for consideration ...... 41,254 42,769 II. Property, plant and equipment 1. Land, land ownership rights and buildings, including buildings on third party land ...... 38,090 38,885 2. Plant and machinery ...... 143,935 157,316 3. Other operational facilities and equipment ...... 25,682 26,723 4. Prepayments and assets under construction ...... 15,707 31,020 223,414 253,944 III. Investments 1. Shares in affiliated companies ...... 1,778,167 2,074,969 2. Participations ...... 5,606 11,581 3. Investment securities ...... 478,563 — 4. Other non-current loans ...... 106 109 2,262,442 2,086,659 Total fixed assets ...... 2,527,110 2,383,372 B. Current assets I. Inventories ...... 13 313,310 360,483 II. Receivables and other current assets ...... 14 1. Trade receivables ...... 79,556 68,412 2. Receivables from affiliated companies ...... 417,567 173,599 3. Other receivables and other current assets ...... 34,198 7,581 531,321 249,592 III. Securities ...... 15 — 4,532 IV. Cash and cash equivalents ...... 50 146 Total current assets ...... 844,681 614,753 C. Deferred expense ...... 20 25 D. Surplus of designated plan assets over liabilities ...... 17 1,150 1,332 3,372,961 2,999,482 Equity and liabilities A. Equity ...... 18 I. Capital stock ...... 562,940 562,940 (Conditional capital €84,441 thousand) ...... II. Additional paid-in capital ...... 1,460,352 760,918 III. Retained earnings ...... 250,214 250,214 2,273,506 1,574,072 B. Special account with reserve characteristics ...... 19 13,219 13,908
C. Provisions 1. Provisions for pensions and similar obligations ...... 20 435,144 423,563 2. Other provisions ...... 21 149,591 120,799 584,735 544,362 D. Liabilities ...... 22 1. Trade payables ...... 153,926 118,435 2. Payables to affiliated companies ...... 268,999 676,703 3. Other liabilities ...... 78,576 71,847 501,501 866,985 E. Deferred income ...... — 155 3,372,961 2,999,482
F-141 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Basis of preparation of Annual Financial Statements of OSRAM GmbH (formerly OSRAM AG) The Annual Financial Statements of OSRAM GmbH (hereafter also referred to as “OSRAM” and until and including October 24, 2012 also as “OSRAM AG”) have been prepared in accordance with the accounting provisions contained in the German Commercial Code (HGB) and with the requirements applicable to German stock corporations. The requirements of the German Accounting Law Modernization Act (BilMoG) were applied for the first time with effect from the beginning of fiscal 2010. Amounts are disclosed in thousands of Euro (€ thousand). The Annual Financial Statements include the Income Statement, the Balance Sheet and the Notes to the Financial Statements. In addition, a Management Report has been prepared. The prior year’s Annual Financial Statements for the year ended September 30, 2011 were prepared applying the exemptions contained in sec. 264 para. 3 HGB regarding the non-preparation of a management report and non-publication of the Annual Financial Statements. The change of the legal form of OSRAM AG into a limited liability company, OSRAM GmbH, was resolved during the Extraordinary General Meeting held on October 5, 2012 and came into being on October 25, 2012 when the change in legal form was entered into the Commercial Register (see also “Major events after the end of the reporting period”). At the prior year’s general shareholders’ meeting held on July 5, 2011, it was resolved unanimously to change the legal form of the company from a limited liability company (OSRAM GmbH) to a stock corporation (OSRAM AG) and to approve the Articles of Incorporation of the stock corporation. OSRAM AG came into being on July 19, 2011 when the change in legal form was entered into the Commercial Register. The founder company of OSRAM AG is its sole shareholder, Siemens Aktiengesellschaft, Berlin and Munich, Germany (hereafter also referred to as “Siemens AG”).
Major transactions and events during the fiscal year Termination of the Domination Agreement with Siemens Beteiligungen Inland GmbH Siemens Beteiligungen Inland GmbH, Munich (Germany) (hereafter “SBI”)—a wholly owned subsidiary of Siemens AG—and OSRAM AG concluded a domination agreement (“Beherrschungsvertrag”) on September 22 and 26, 2011 which came into effect on October 6, 2011 following entry in the Commercial Register. Under the terms of this agreement, the management of OSRAM AG was put under the control of SBI; SBI was required to assume the losses of OSRAM AG in accordance with the provisions of sec. 302 AktG (in the relevant applicable version). SBI and OSRAM AG mutually terminated the domination agreement on September 10 and 12, 2012 as of the end of the fiscal year 2012, that is with effect from the end of September 30, 2012.
Contribution by the parent company into the Additional Paid-in Capital Siemens AG made a contribution to the Additional Paid-in Capital in fiscal year 2012 of €699,434 thousand. Additional information is set out in section 18, »Equity«.
Major events after the end of the reporting period Siemens AG contributed 80.5% of its interest in OSRAM AG as a mixed contribution in kind to OSRAM Beteiligungen GmbH, Munich, Germany (hereafter OSRAM Beteiligungen GmbH) (until August 22, 2012 Blitz 12-464 GmbH) in accordance with the terms of the contribution and transfer agreement dated September 27, 2012, which took effect as of October 1, 2012. The contribution was made in connection with the capital increase against the issue of new shares in OSRAM Beteiligungen GmbH and a payment of the available cash to Siemens AG. OSRAM Beteiligungen GmbH is a wholly owned subsidiary of Siemens AG.
F-142 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
During the Extraordinary General Meeting held on October 5, 2012, it was resolved to change the legal form of OSRAM AG into a limited liability company, OSRAM GmbH, and to adopt the Articles of Incorporation. There was an addendum to the Articles of Incorporation on October 22, 2012. The change in the legal form of OSRAM AG into OSRAM GmbH, Munich became legally effective with the entry in the Commercial Register on October 25, 2012. The previous issued capital stock of OSRAM AG amounting to €562,940,000 was converted into the capital stock of OSRAM GmbH. 562,940,000 shares with a nominal value of €1.00 each were issued. The capital stock of OSRAM GmbH is held by both Siemens AG, which hold shares with a nominal value of €109,773,300, and OSRAM Beteiligungen GmbH, which holds shares with a nominal value of €453,166,700. On October 9, 2012 the supervisory board of the former OSRAM AG, now OSRAM GmbH, appointed Wolfgang Dehen and Dr. Klaus Patzak as members to the managing board of OSRAM GmbH with effect from the effective entry in the Commercial Register of the change in the legal form. Wolfgang Dehen was appointed at the same time as the Chairman of the managing board and the Personnel Director. The allocation of the other responsibilities was confirmed. During the same meeting, the supervisory board appointed Dr.-Ing. Peter Laier as the managing director of OSRAM GmbH with effect from February 1, 2013. In accordance with the agreement dated October 30 and 31, 2012, Siemens AG increased the additional paid-in capital of OSRAM GmbH by €163.0 million in accordance with sec. 272 para. 2 no. 4 HGB. This increase was made by waiving part of the existing Siemens Cash Management receivables of Siemens AG payable by OSRAM GmbH. With regards to the interest held in OSRAM GmbH, Siemens waived its existing receivable due from OSRAM GmbH arising from the Siemens Cash Management of €31,785 thousand, which represents 19.5% of the total equity contributed. Siemens AG transferred existing receivables from the Siemens Cash Management to OSRAM Beteiligungen GmbH totaling an amount of 80.5% of the total equity contributed that is €131,215 thousand. This transfer represents a contribution to additional paid-in capital of OSRAM Beteiligungen GmbH in accordance with sec. 272 para. 2 no. 4 HGB. OSRAM Beteiligungen GmbH in turn waived these assigned receivables due from OSRAM GmbH. This waiver also represents a contribution to additional paid-in capital of OSRAM GmbH in accordance sec. 272 para. 2 no. 4 HGB. In November 2012 Siemens Beteiligungen Inland GmbH fulfilled the requirement to assume the losses of OSRAM GmbH totaling €336,569 thousand. OSRAM and LG reached a settlement agreement on patent infringements, which was signed on October 31, 2012. As part of this settlement, all existing mutual patent claims were dismissed and the licensing of the LED- patent portfolios was agreed. OSRAM expects income in fiscal 2013 resulting from this agreement. In order to better master the currently very different goals and business models and to create even more responsibility within the Business Units, management decided to split the Business Unit General Lighting (“GL”) into four new units; Lamps (“LP”), Light Engines & Controls (“LE”), Luminaires (“LUM”) and Solutions (“SOL”) with effect from October 1, 2012. Each of these units will operate as a global business throughout the value creation chain in the general lighting sector and will be managed as business units together with the Business Unit Specialty Lighting (“SP”) in the new fiscal year.
Accounting policies Income Statement OSRAM GmbH prepares its Income Statement using the cost of sales format.
Revenue Revenue is recognized in accordance with the realization principle when the risks of ownership are transferred or when a service has been rendered. Revenue is recognized for product sales insofar as these are attributable to the ordinary operations of OSRAM GmbH. Revenue is reported net of sales deductions.
F-143 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Balance Sheet Fixed assets Intangible assets acquired for consideration are recognized as assets, measured at acquisition cost, and amortized systematically on a straight line basis over a maximum of five years or over the contractually agreed useful life, if longer. Items are amortized on a time-apportioned basis (pro rata temporis) in the year of acquisition. Impairment losses are recorded when necessary. The new accounting option available under BilMoG allowing internally generated intangible assets to be recognized in the Balance Sheet has not been applied. Research and development costs are accordingly recognized as an expense when incurred. Property, plant and equipment are measured at acquisition or production costs less accumulated scheduled depreciation and impairment losses. The composition of production cost is described in the accounting policy for inventories. As a general rule, property, plant and equipment are depreciated using the straight-line method. In specific cases (e.g. technical plant), the reducing balance method is applied, whereby a switch is made from the reducing balance to the straight-line method as soon as the latter results in a higher depreciation expense. Items are depreciated on a time-apportioned basis (pro rata temporis) in the year of acquisition. Impairment losses are recorded when the decline in value of an asset is considered to be of a lasting nature. When the reasons for impairment no longer exist, impairment losses previously recorded are reversed up to the level of historic acquisition or production costs less accumulated scheduled depreciation or amortization. Movable items of fixed assets that can be used separately, and which are depreciable, are recorded as an expense in the year of acquisition if their acquisition or manufacturing costs amount up to €150. Assets with acquisition or production costs of more than €150 up to €1,000 are aggregated by year and depreciated on a straight-line basis over a period of five years, with the full depreciation rate also applied in the year of acquisition. Useful lives of property, plant and equipment Factory and office buildings ...... 20to50years Plant and machinery ...... mostly 10 years Other operational facilities and equipment ...... 3to8years Items within the special account with reserve characteristics relate to reserves recognized in previous years in accordance with sec. 6b of the German Income Tax Act (EStG), tax-driven depreciation pursuant to sec. 14 of the Berlin Regional Development Act (BerlinFG) and sec. 7d EStG to the extent that such depreciation exceeds the scheduled depreciation expense in accordance with German accounting principles. Investments are measured at cost. Impairment losses on investments are recognized in the event that the loss in value is considered to be of a lasting nature. When the reasons for impairment no longer exist, impairment losses previously recorded are reversed in accordance with German accounting law, at a maximum, up to the level of historic acquisition costs. Assets, which are used to fund the pension obligations of OSRAM GmbH and its German subsidiaries and do not meet the requirements for the offsetting against the obligations in accordance with sec. 246 para. 2 HGB (cover assets or “Deckungsvermögen”) are disclosed under Investments as Investment securities.
Current assets Raw materials and supplies as well as goods for resale are measured at the lower of acquisition cost (moving average) or market. Work in progress and finished goods are measured at manufacturing cost which, in accordance with sec. 255 para. 2 HGB, comprise direct costs, an appropriate portion of production and material overheads and depreciation / amortization of fixed assets. General administration costs, expenses for social facilities, voluntary social costs and company pension scheme costs are not included. Similarly, borrowing costs are not recognized as a component of cost. Inventories of specific precious metals are measured at the lower of average acquisition cost or their fair value. Appropriate write-downs are recorded to cover inventory risks (technical risks, price risks, special storage risks and risks related to equipment loaned to external customers).
F-144 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Advance payments to suppliers are stated at their nominal amount. Receivables and other current assets are stated at their nominal amount or lower fair value. Allowances on receivables and other current assets are measured on the basis of the probability of loss and country risk. Securities, cash and cash equivalents are stated at cost or their lower market value at the end of the reporting period. Items denominated in a foreign currency are measured at the mid-spot rate prevailing at the reporting date. The balance sheet line item “Cash and cash equivalents” comprises checks, cash on hand and cash at bank with a remaining term of up to three months.
Deferred taxes A deferred tax liability is recognized to the extent that deferred tax liabilities exceed deferred tax assets on temporary differences between the accounting and tax bases of assets, liabilities and prepaid/deferred items and on relevant loss and interest carry-forwards and it can be assumed that there will be a corresponding tax expense in future years. In the event that the overall calculation indicates that there will be a reduction in tax expense in the future, OSRAM GmbH has the option under sec. 274 para. 1 HGB to recognize a deferred tax asset; this option is, however, not exercised. If deferred tax assets equal its corresponding deferred tax liabilities, these deferred tax items are reported as offset against each other. Loss and interest carry-forwards and tax credits are taken into account when it is probable that they can be offset against taxable income in the next five years. Differences between the accounting and tax bases of assets, liabilities and prepaid / deferred items of entities forming part of the OSRAM tax group for income tax purposes and of partnership entities taxed at the level of OSRAM GmbH are also taken into account to the extent that increases or decreases in future tax expense will arise as a result of the reversal of these temporary differences at the level of OSRAM GmbH (as head of the tax group for income tax purposes). Deferred tax assets and liabilities are measured on the basis of the currently valid corporation tax rate, including the solidarity surcharge, and the relevant average municipal trade tax multiplier (“Hebesatz”) for the OSRAM tax group. A tax rate of 30.08% was applied in the fiscal year to cover corporation tax, the solidarity surcharge and municipal trade tax.
Offset of assets/liabilities and income/expenses Assets designated as being held exclusively to settle specified pension commitments (deferred compensation) and liabilities for early retirement (“Altersteilzeit”) arrangements and which cannot be accessed by other creditors are referred to as plan assets, as defined in sec. 246 para. 2 HGB and have been measured by OSRAM GmbH at their fair value. Income and expenses relating to these designated assets are offset against the expense arising from reversing the discounting of the corresponding obligations and are reported within the line item Other financial result, net. Assets are presented net off the relevant obligations. A provision is recognized if the obligation exceeds the relevant designated assets. If designated assets exceed obligations, the surplus is reported as Surplus of designated plan assets over liabilities.
Pensions and similar obligations OSRAM GmbH measures its pension benefit obligations at the expected settlement amount on the basis of biometric probabilities using the actuarial projected-unit-credit method. Future salary and pension increases are taken into account for the purposes of calculating the present value of the defined benefit obligation, to the extent these rights are contractually granted to the employees and pensioners. Pension obligations have been discounted using the relevant market interest rate, as calculated and published by the Deutsche Bundesbank, for liabilities with a remaining term of 15 years. Biometric mortality probabilities are based on the tables (RT 2005 G) published by K. Heubeck. Provisions for pensions and similar commitments cover the benefit obligations from the pension schemes and the entitlements of the various employee groups to transitional pay. The Company’s provision includes obligations of the OSRAM Defined Contribution Pension Plan (BOA), the old pension scheme closed in 2004, transitional payments and deferred compensation. As part of the conversion program to deferred compensation, the rights to supplementary benefits have been replaced by a new deferred compensation program in 2002.
F-145 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Under the deferred compensation arrangements in place, certain employees acquire benefit entitlements from the Company. Under these arrangements, employee remuneration is converted into investment fund shares. The designated fund assets for deferred compensation fulfill the criteria stipulated in sec. 246 para. 2 HGB for offset against the corresponding obligation. Provisions for pensions and similar commitments in respect of the deferred compensation have been calculated by discounting the total entitlements of the employees. Information with respect to the offset of assets and liabilities and of income and expenses is provided in the section »Offset of assets / liabilities and income / expenses«.
Other provisions Other provisions are recognized to cover specific obligations for all identifiable risks relating to liabilities of uncertain timing and amount and for anticipated losses on onerous contracts, taking account of price and cost increases expected to arise in the future. Provisions with a remaining term of more than one year are discounted using a discount rate which corresponds to the average market interest rate for the past seven years, as calculated and published by the Deutsche Bundesbank, and appropriate for the remaining term of the obligations.
Liabilities Liabilities are stated at their expected settlement amount as of the balance sheet date.
Deferred expenses and deferred income The deferred expenses and deferred income are measured at their nominal value.
Foreign currency translation Investments, receivables and other current assets, securities, cash and cash equivalents, provisions, liabilities as well as contingent assets and liabilities denominated in a foreign currency are translated using the mid-spot rate on the balance sheet date. With respect to non-current assets and liabilities, the requirements of sec. 253 para. 1 sentence 1 and sec. 252 para. 1 no. 4 second half-sentence HGB are applied. Foreign currency items in the Balance Sheet which form part of a valuation unit used to hedge the currency risk are translated using the mid-spot rate prevailing on the transaction date. A description of the treatment of hedging contracts and valuation units is provided in the following section and in section 28, »Derivative financial instruments and valuation units«. Foreign currency items reported as fixed assets and inventories are translated using the mid-spot rate prevailing on the transaction date.
Derivative financial instruments and valuation units Derivative financial instruments are only employed by OSRAM GmbH for hedging purposes and—when the relevant conditions are met—are aggregated with the underlying hedged item into valuation units. The effectiveness of a valuation unit is documented both prospectively and retrospectively using appropriate methods. Valuation methods: The measurement of derivative financial instruments and the computation of the fair value of derivative financial instruments are dependent on the nature of the instrument and takes account of market values prevailing at the balance sheet date. The following principles are applied:
FX derivatives Commodity derivates Forward contracts Determined on basis Determined on basis of changes in forward of changes in forward FX rates commodity prices Options Estimated values determined on basis of an option pricing model or quoted stockmarket prices
F-146 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Accounting for valuation units: When a valuation unit is created, changes in fair values of or cash flows from the hedged item and hedging contract are compared and a provision is only recognized (and sec. 252 para. 1 no. 4 second half-sentence HGB applied) if there is a negative surplus from the unrealized losses, which is not matched by unrealized gains. Unrealized gains and losses, which are matched by equal and opposite fair value changes or by cash flows from the hedging instrument, offset each other completely. The underlying transactions are accounted for at the transaction or hedging rates. Changes in fair value of the hedging instrument are not recognized to the extent that the hedge is effective. Unrealized gains and losses are presented net within one line item in the Income Statement. Accounting treatment in other cases: In contrast, derivative financial instruments not allocated to a valuation unit are accounted for in accordance with the so-called “imparity principle” (“Imparitätsprinzip”), whereby a provision is recognized for negative fair values and positive fair values are not recognized.
Classification of items in the financial statements OSRAM GmbH aggregates individual items in the Income Statement and Balance Sheet if the individual item is not material for the purposes of ensuring that the Annual Financial Statements give a true and fair view of the Company’s financial position and if such an aggregation improves the clarity of the presentation. OSRAM GmbH has disclosed these items in the notes. The prior year’s figures have been adjusted accordingly, where required, to make them comparable with the figures for the current fiscal year.
Explanatory notes to the Income Statement 1 Analysis of revenue The following table shows revenue by line of business: Year ended September 30, by line of business 2012 2011 (in thousands of €) General Lighting (GL)...... 1,119,466 1,173,532 Specialty Lighting (SP) ...... 643,637 585,741 Technical Special Products (corporate items) ...... 115,686 92,209 Revenue ...... 1,878,789 1,851,482
Revenue is analyzed on the basis of Business Units, namely General Lighting, Specialty Lighting and Technical Special Products (corporate items), which cannot be allocated to a separate business unit. This analysis of revenue mirrors the way OSRAM GmbH operates its business.
General Lighting The Business Unit General Lighting (“GL”) generates revenue from the sale of lamps and lighting systems for use in households, public buildings, hospitals, industry, external applications and the office. The product range extends from traditional lamps and illuminants on the one hand to lamps, luminaries, lighting systems, lighting control systems and solutions, based on solid state lighting (SSL—lighting based on semiconductor technology) using light emitting diodes (LED) or organic light emitting diodes (OLED) as light sources on the other.
Specialty Lighting The Business Unit Specialty Lighting (“SP”) includes revenue generated with lamps and lighting systems for the automobile sector, studio, stage and TV, projections devices as well as lamps and lighting systems used in industrial and medical applications and for water purification (ultraviolet light).
F-147 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
The following table shows revenue by customer location: Year ended September 30, by region 2012 2011 (in thousands of €) EMEA ...... 1,396,210 1,434,275 Americas ...... 202,468 176,525 APAC ...... 280,111 240,682 Revenue ...... 1,878,789 1,851,482 thereof Germany ...... 406,931 414,861 In fiscal 2012 the regional structure was reorganized. The presentation of the prior year’s figures has been amended accordingly. Based on the new regional structure, the Region EMEA includes Europe, Russia, the Middle East and Africa. The Americas region covers North and South America and the APAC region comprises Asia, Australia and the Pacific region.
2 Research and development expenses The research and development (R&D) expenses of OSRAM GmbH increased in the fiscal year to €150,905 thousand (fiscal 2011: €137,826 thousand).
3 General administrative expenses Included for the first time in the general administrative expenses of €86,364 thousand (fiscal 2011: €89,454 thousand) are administrative expenses for corporate functions, which had previously been charged by Siemens AG for costs for corporate functions allocated and which totalled €25,877 thousand in the previous year. In addition, the amount for the prior fiscal year included an amount of €12,167 thousand in respect of services provided by the Siemens Industry Sector.
4 Other operating income and expenses Other operating income of €57,238 thousand (fiscal 2011: €63,632 thousand) represents primarily income from the settlement agreement on patent infringements and the release of related provisions. In addition, other operating income also includes profits from the translation of foreign currencies of €16,210 thousand (fiscal 2011: €18,860 thousand), income from the cost transfer agreement (“Kostenübernahmevereinbarung”) with Siemens AG of €6,330 thousand (fiscal 2011: €42,422 thousand) and income from the release of the Special account with reserve characteristics (“Sonderposten mit Rücklageanteil”) of €689 thousand (fiscal 2011: €901 thousand). In connection with the planned initial public offering (“IPO”) of OSRAM, OSRAM GmbH and Siemens AG entered into a cost transfer agreement (“Kostenübernahmevereinbarung”), under which specified costs relating to the planned IPO were assumed by Siemens AG. Other operating income in fiscal 2011 also includes gains on the disposal of fixed assets amounting to €818 thousand and investment grant income amounting to €516 thousand. Other operating expenses of €80,917 thousand (fiscal 2011: €52,645 thousand) result primarily from the legal advisory fees in connection with the patent infringements and other specific costs in connection with the planned IPO of OSRAM amounting to €52,090 thousand (fiscal 2011: €37,652 thousand). The expenses also include losses on the translation of foreign currencies of €22,957 thousand (fiscal 2011: €10,974 thousand). Siemens AG reimbursed some of the costs relating to the planned IPO of OSRAM amounting to €6,330 thousand (fiscal 2011: €42,422 thousand). In addition, other operating expenses include expenses for share-based payments to employees amounting to €1,202 thousand (fiscal 2011: €803 thousand) and losses on the disposal of fixed assets of €375 thousand (fiscal 2011: €191 thousand).
F-148 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 5 Income (loss) from investments, net Year ended September 30, 2012 2011 (in thousands of €) Income from investments ...... 97,725 56,693 thereof from affiliated companies ...... 97,140 56,142 Income from profit and loss transfer agreements with affiliated companies . . 19,729 106,674 Expense from loss absorption from affiliated companies ...... (1,002) — Expense related to letter of support in favor of affiliated companies and other participations ...... (29,744) — Income from divestments ...... 26,119 — Impairment losses recognized on participations ...... (350,488) (17,307) Reversals of impairment losses on participations ...... 4,628 5,719 (233,033) 151,779
Income from investments comprises mainly profit distributions by foreign subsidiaries. The six largest single amounts related to OSRAM China Lighting Ltd., Foshan, China (€42,903 thousand), OSRAM Korea Co. Ltd., Ansan-City, South Korea (€13,868 thousand), OSRAM S.A.S.U., Molsheim, France (€5,200 thousand), OSRAM a.s., Nove Zamky, Slovakia (€5,000 thousand), OSRAM AG, Winterthur, Switzerland (€4,979 thousand) and OSRAM Kunshan Display Optic Co. Ltd., Kunshan, China (€4,478 thousand). Income from profit and loss transfer agreements with affiliated companies of €19,729 thousand (fiscal 2011: €106,674 thousand) related solely to profits transferred by OSRAM Opto Semiconductors GmbH, Regensburg, Germany (fiscal 2011: €102,377 thousand). Total income from affiliated companies amounted to €116,869 thousand (fiscal 2011: €162,816 thousand). The expenses from loss absorption from affiliated companies of €1,002 thousand (fiscal 2011: income from profit transfer of €4,297 thousand) relate to the losses of Radium Lampenwerk GmbH, Wipperfürth, Germany. The expenses related to letter of support in favor of affiliated companies and other participations represent primarily letter of support in favor of OSRAM Asia Pacific Ltd., Hong Kong, Hong Kong of €19,594 thousand and to EMGO N.V., Lommel, Belgium of €8,750 thousand. In addition, Income (loss) from investments, net includes income from divestments of participations amounting to €26,119 thousand. This relates to the gains on the sale of Encelium Holdings Inc., Teaneck, USA, which was presented in the prior fiscal year under the position Securities reported within current assets, of €2,851 thousand and gains from the sale of OSRAM-MELCO Ltd., Yokohama, Japan for a profit of €23,268 thousand (see additional information in section 15, »Securities reported within current assets« and section 12, »Fixed Assets«). Following a valuation of all German and foreign investments (regarding the valuation of investments refer to section, »Accounting policies«) impairment losses were recorded for the following affiliated companies: • Siteco Lighting GmbH, Traunreut, Germany, amounting to €192,861 thousand; • OSRAM SYLVANIA INC., Danvers, USA, amounting to €87,885 thousand; • Traxon Technologies Ltd., Hong Kong, Hong Kong, amounting to €12,295 thousand; • Radium Lampenwerk GmbH, Wipperfürth, Germany, amounting to €11,056 thousand; • OSRAM S.p.A. Società Riunite OSRAM-Edison-Clerici, Milan, Italy, amounting to €9,084 thousand; • P.T. OSRAM Indonesia, Tangerang, Indonesia, amounting to €7,956 thousand; • OSRAM S.A., Madrid, Spain, amounting to €6,499 thousand; • Ritos GmbH, Mömbris, Germany (in liquidation), amounting to €5,196 thousand; • OSRAM India Pvt. Ltd., Gurgaon, India, amounting to €4,948 thousand;
F-149 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
• OSRAM Romania S.R.L., Voluntari, Rumania, amounting to €1,370 thousand; • OSRAM de Perú S.A.C., Lima, Peru, amounting to €897 thousand; • OSRAM de Colombia Illuminaciones S.A., Bogotá, Columbia, amounting to €629 thousand; and • OSRAM Empresa de Aparelhagem Eléctrica Lda., Lisbon, Portugal, amounting to €210 thousand. The impairment losses recorded for the aforementioned affiliated companies are, with the exception of Ritos GmbH, Mömbris, Germany, primarily attributable to a significant deterioration in business outlook compared to the prior fiscal year, while Ritos GmbH, Mömbris, Germany is in liquidation. In the prior fiscal year, significant impairment losses were recorded in respect of OSRAM India Pvt. Ltd., Gurgaon, India (€12,873 thousand), Yekta Setareh Atllas Co. (P.J.S.), Teheran, Iran (formerly OSRAM Lamp (P.J.S) Co., Teheran, Iran) (€1,026 thousand) and OSRAM d.o.o., Zagreb, Croatia (€658 thousand). CVL Componentes de Vidro Ltda., Caçapava, Brazil was in liquidation as of September 30, 2012. Whilst the equity was increased by €2,100 thousand, the value of the investment was reduced by €4,600 thousand, as a result of provisions made in respect of disputed billings for services rendered. In addition, the capital of EMGO N.V., Lommel, Belgium was increased by €2,000 thousand. As of September 30, 2012 the carrying amount of the investment in EMGO N.V., Lommel, Belgium was impaired by the amount of the capital increase due to the on-going restructuring and disposal efforts. An impairment loss of €2,736 thousand was recorded in fiscal 2012 in respect of the joint venture, OSRAM (China) Fluorescent Materials Co., Ltd., Yi Xing City, China (“OCFM”), as a result of the significant deterioration in its business outlook. All impairment losses mentioned above are presented within Impairment losses recognized on investments. In fiscal 2012, previously recorded impairment losses, amounting to €4,628 thousand, were reversed. Of this amount, €3,496 thousand related to OAO OSRAM, Smolensk, Russia and €1,132 thousand to OSRAM del Ecuador S.A., Guayaquil, Ecuador. In fiscal 2011, an impairment loss, amounting to €5,719 thousand, previously recorded on Componentes de Vidro Ltda., Caçapava, Brazil (in liquidation at September 30, 2011) was reversed.
6 Interest income, interest expense Interest income consisted of the following:
Year ended September 30, 2012 2011 (in thousands of €) Interest income ...... 15,818 157 thereof from affiliated companies ...... —99 thereof arising on non-current loans from third parties ...... 67 The increase of the interest income of €15,661 thousand to €15,818 thousand was primarily a result of the interest income of €15,800 thousand from fixed interest investment securities, which were used to fund the pension schemes for both employees of OSRAM GmbH and for employees of the German subsidiaries (see section 12, »Fixed Assets«). Interest expense consisted of the following: Year ended September 30, 2012 2011 (in thousands of €) Interest expense ...... (5,661) (4,921) thereof to affiliated companies ...... (5,661) (4,921) The interest component of the increase in the provisions for pensions and similar commitments has been disclosed under the line item Other financial result, net.
F-150 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 7 Other financial result, net Year ended September 30, 2012 2011 (in thousands of €) Interest component of change in pension provisions (excluding deferred compensation scheme)(1) ...... (26,139) (19,984) Financial result (net) relating to deferred compensation ...... 28 (17) Financial expenses (net) for other personnel-related provisions ...... (157) (372) Write-downs/write-ups of investments and securities ...... 4 1 (26,264) (20,372)
(1) Does not include items relating to obligations for the deferred compensation scheme directly related to designated plan assets. Financial expenses (net) relating to the conversion of deferred compensation are the net amount resulting from the unwinding of interest on deferred compensation pension liabilities after offset against the income and expenses from designated plan assets:
Year ended September 30, 2012 2011 (in thousands of €) Interest component of change in obligations relating to deferred compensation scheme(1) ...... (536) 295 Income (expenses) from designated plan assets offset against such obligations ...... 564 (312) Financial result (net) relating to deferred compensation scheme(1) ..... 28 (17)
(1) Includes only items relating to obligations directly related to designated plan assets.
Financial expenses (net) for other personnel-related provisions relate to:
Year ended September 30, 2012 2011 (in thousands of €) Expenses from unwinding interest on provision for service anniversary awards ...... (139) (142) Income (expenses) from designated plan assets offset against obligations for early retirement arrangements ...... (18) (230) Expenses for other personnel-related provisions (net) ...... (157) (372)
8 Income taxes The domination and profit and loss transfer agreement (“Beherrschungs- und Gewinnabführungsvertrag” (“BGAV”)) between OSRAM AG and Siemens AG was terminated with effect from the end of September 30, 2011. This also results in a termination of the tax group status between the companies. Income taxes do not include any amounts in respect of deferred taxes, since the option to recognize a deferred tax asset surplus has not been exercised in either fiscal 2012 or fiscal 2011. Income taxes of €9,148 thousand (fiscal 2011: €3,211 thousand) relate primarily to foreign withholding taxes of €9,141 thousand.
9 Other taxes Other taxes totaling €1,790 thousand (fiscal 2011: €1,690 thousand) are included in the relevant functional costs.
F-151 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 10 Impact of tax regulation on Net income The application of tax incentives in fiscal 2012 had a positive effect on the net loss before loss assumption of €689 thousand. The net income before profit transfer in fiscal 2011 increased by €901 thousand. This income results from the roll-forward of the special account with reserve characteristics in the Balance Sheet in accordance with the transitional regulations contained in BilMoG and is reported as Other operating income. See also section 19, »Special account with reserve characteristics«.
11 Income and expenses relating to prior periods The Income Statement of OSRAM GmbH includes prior year income of €20,020 thousand (fiscal 2011: €7,602 thousand), resulting from the reversal of provisions.
Explanatory notes to the Balance Sheet 12 Fixed assets OSRAM GmbH, Munich Analysis of Changes in Fixed Assets in fiscal 2012
Amortization, depreciation Acquisition and production cost Accumulated Reversals of and amortization Carrying Carrying impairments inpairment Reclassi- and amount amount in fiscal expenses in 10/1/2011 Additions fications Disposals 9/30/2012 depreciation 9/30/2012 9/30/2011 2012 fiscal 2012 (in thousands of €) I. Intangible assets 1. Concessions, industrial and similar rights and assets, andlicensestosuchrights and assets acquired for consideration...... 64,092 2,440 — — 66,532 25,278 41,254 42,769 (3,955) 64,092 2,440 — — 66,532 25,278 41,254 42,769 (3,955)
II. Property, plant and equipment 1. Land,landownershiprights and buildings, including buildings on third party land...... 125,901 177 34 — 126,112 88,022 38,090 38,885 (1,007) 2. Plantandmachinery ...... 1,098,506 11,357 25,063 6,614 1,128,312 984,377 143,935 157,316 (49,621) 3. Other operational facilities and equipment...... 186,495 6,698 3,217 6,002 190,408 164,726 25,682 26,723 (10,750) 4. Prepayments and assets under construction...... 31,020 13,345 (28,314) 344 15,707 — 15,707 31,020 — 1,441,922 31,577 — 12,960 1,460,539 1,237,125 223,414 253,944 (61,378) III. Investments 1. Shares in affiliated companies...... 2,150,058 60,002 750 21,296 2,189,514 411,347 1,778,167 2,074,969 4,628 (340,886) 2. Participations...... 49,624 4,378 (750) 1,089 52,163 46,557 5,606 11,581 (9,602) 3. Investmentsecurities...... — 485,165 — 6,602 478,563 — 478,563 — — 4. Othernon-currentloans..... 127 — — 8 119 13 106 109 4 2,199,809 549,545 — 28,995 2,720,359 457,917 2,262,442 2,086,659 4,632 (350,488) 3,705,823 583,562 — 41,955 4,247,430 1,720,320 2,527,110 2,383,372 4,632 (415,821)
F-152 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Property, plant and equipment In addition to scheduled depreciation, Amortization, depreciation and impairment expenses of Property, plant and equipment primarily results from impairment charges related to the ceramic-based metal halide lamps (“HCI”) due to the review of its future strategy. This review resulted in an impairment of €12,346 thousand recorded in fiscal 2012.
Investments Shares in affiliated companies Additions to shares in affiliated companies in fiscal 2012 related primarily to the acquisition of the remaining 49% of the shares in Traxon Technologies Ltd., Hong Kong, Hong Kong. As a result, OSRAM GmbH held 100% of Traxon (with subsidiaries in the Netherlands, USA and Germany) as of September 30, 2012. The total acquisition cost of the remaining 49% of the shares was €53,555 thousand and consisted of a fixed amount of €48,028 thousand, an earn-out amount of €5,439 thousand and incidental acquisition costs of €88 thousand. The variable earn-out amount was dependent upon the net sales of the Traxon Group. Traxon develops LED products based on SSL technology and provides lighting solutions for architecture, gastronomy, hotels and shops. This acquisition has strengthened the business of OSRAM GmbH in the fast growing market for commercial LED lighting systems. The additions to affiliated companies in fiscal 2012 also include the capital increase in OSRAM Romania S.R.L., Voluntari, Rumania of €2,000 thousand. In addition, the remaining 50% of the shares in Ritos GmbH, Mömbris, Germany were acquired, as a result of which Ritos GmbH, Mömbris, Germany was a wholly owned subsidiary of OSRAM GmbH as of September 30, 2012. The purchase price for the remaining 50% of the shares totaled €4,447 thousand (for additional information, see section 5, »Income (loss) from investments, net«). In fiscal 2012 the disposals of shares in affiliated companies relate primarily to the sale of 51% of the shares in the Japanese subsidiary OSRAM-MELCO Ltd., Yokohama, Japan (“OML”) amounting to €20,511 thousand. OML produces and distributes lamps, materials and electronic ballasts for the Japanese market and was part of the Business Unit GL. The sale was completed on September 30, 2012 and resulted in a profit on disposal (see section 5, »Income (loss) from investments, net«). See section 5, »Income (loss) from investments, net« for details of the impairment losses booked and reversed in respect to the shares in affiliated companies.
Participations The additions to the participations held relate primarily to the capital increases of €2,100 thousand in respect of CVL Componentes de Vidro Ltda., Caçapava, Brazil and €2,000 thousand in respect of EMGO N.V., Lommel, Belgium (see section 5, »Income (loss) from investments, net«). The disposal relates to the sale of the 49% interest in the Japanese Joint Venture, Mitsubishi Electric OSRAM Ltd., Yokohama, Japan (“MOL”) and amounted to €1,089 thousand. OSRAM GmbH’s investments are disclosed in section 33, »List of investments«.
Investment securities OSRAM GmbH signed a trust agreement (“Treuhandvereinbarung”) with the Deutsche Treuinvest Stiftung in fiscal 2012 for the protection of the pension entitlements of the employees of both OSRAM GmbH and its German subsidiaries. The trust agreement results in the pension rights of the employees being secured by assets in the event of insolvency. These assets do not meet the definition of plan assets and can therefore not be offset. They have therefore been disclosed as Investment securities under Investments with a value of €478,563 thousand (see also section 18, »Equity«).
Other non-current loans Loans to third parties of €15 thousand (September 30, 2011: €12 thousand) and loans to employees of €91 thousand (September 30, 2011: €97 thousand) have been disclosed under the line item Other non-current loans.
F-153 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 13 Inventories September 30, (in thousands of €) 2012 2011 Raw materials and supplies ...... 63,832 114,034 Work in progress ...... 59,260 43,850 Finished goods and goods for resale ...... 191,299 203,680 Advance payments to suppliers ...... 65 65 Advance payments from customers ...... (1,146) (1,146) Inventories ...... 313,310 360,483
In contrast to the previous year, there were increased levels of rare earths available on the procurement markets. This resulted in lower purchase prices. As a result of the high inventory levels from the previous fiscal year and the increased availability of rare earths on the procurement markets, the quantities purchased in fiscal 2012 were reduced accordingly. This resulted in a reduction in the levels of raw materials and supplies held. Write-downs on inventories as of September 30, 2012 amounted to €45,006 thousand (September 30, 2011: €39,012 thousand), of which €21,836 thousand (September 30, 2011: €20,874 thousand) related to technical risks, €15,499 thousand (September 30, 2011: €10,629 thousand) to price risks and €7,671 thousand (September 30, 2011: €7,509 thousand) to special storage risks. In addition to the on-going assessment of inventories, the provision for price risks in fiscal 2012 includes a provision of €8,640 thousand as a result of the product portfolio complexity reduction program in the Business Unit GL. As part of this program, discontinued products are being sold off at reduced prices and so stocks held were remeasured at the net realizable value.
14 Receivables and other current assets thereof with a thereof with a remaining term remaining term of more than of more than 9/30/2012 1 year 9/30/2011 1 year (in thousands of €) Trade receivables ...... 79,556 — 68,412 — Receivables from affiliated companies ...... 417,567 — 173,599 — thereof from shareholder ...... —— —— Other receivables and other current assets ...... 34,198 1,083 7,581 1,642 thereof from other long-term equity investees ...... 1,688 — 1,544 — thereof other receivables and other assets ...... 32,510 1,083 6,037 1,642 Receivable and other current assets ...... 531,321 1,083 249,592 1,642
OSRAM GmbH participates in the group-wide Siemens Cash Management system, in which OSRAM GmbH invests short-term cash surpluses and uses overdraft facilities to finance the business operations. In addition, the Siemens group provides short-term loans. Interest income is earned and interest expense is payable on these financing transactions and are disclosed under interest income and interest expense respectively (see section 6, »Interest income, interest expense«). Bonus related credit notes amounting to €25,523 thousand (September 30, 2011: €27,313 thousand) to be issued to customers are offset against trade receivables on the assets side of the Balance Sheet. The increase in the receivables from affiliated companies is a result of the receivable due to the loss assumption by SBI of €336,569 thousand (September 30, 2011: €0 thousand). This is partly offset by the reduced receivable from the domination and profit and loss transfer agreement with OSRAM Opto Semiconductors GmbH, Regensburg, Germany (see section 5, »Income (loss) from investments, net«). Other receivables and other current assets comprise primarily of tax receivables of €13,030 thousand, receivables from suppliers amounting to €1,125 thousand (September 30, 2011: €1,561 thousand), receivables from electrical waste recyclers amounting to €1,074 thousand (September 30, 2011: €1,615 thousand) and receivables due from employees amounting to €507 thousand (September 30, 2011: €236 thousand). In addition, this position includes receivables due from the settlement agreement on patent infringements.
F-154 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Amounts relating to other line items in the Balance Sheet: Receivables from affiliated companies include trade receivables totaling €0 thousand (September 30, 2011: €2,925 thousand).
15 Securities reported within current assets OSRAM GmbH did not hold any securities to be reported within current assets as of September 30, 2012. The securities reported under current assets in the prior fiscal year (€4,532 thousand) related to the 16.87% investment in Encelium Holdings Inc., Teaneck, USA, resulting in a gain from disposal on October 10, 2011 to OSRAM SYLVANIA INC., Danvers, USA (see section 5, »Income (loss) from investments, net«).
16 Deferred taxes The OSRAM tax group had a surplus of deferred tax assets over deferred tax liabilities as of September 30, 2012. The accounting option available to recognize the surplus of deferred tax assets over deferred tax liabilities as permitted by sec. 274 para. 1 sentence 2 HGB was not exercised by the head of the tax group, OSRAM GmbH. The deferred tax assets relate to intangible assets, inventories, provisions for pensions and tax losses carried forward. The deferred tax liabilities result from valuation differences between the accounting and tax balance sheets for land, land ownership rights and buildings and investments. The deferred tax assets and liabilities are measured based on the applicable corporation tax rate, including solidarity surcharge, and the average municipal trade tax rate of the OSRAM tax group. The tax rate for the valuation of the deferred taxes in the fiscal year was 30.08%, which takes account of corporation tax, including the solidarity surcharge, and municipal trade tax.
17 Surplus of designated plan assets over liabilities As of September 30, 2012 the obligation for early retirement arrangements, measured at the expected settlement amount, amounted to €21,103 thousand (September 30, 2011: €20,647 thousand). This obligation was offset by the designated plan assets, measured at their fair value, which amounted to €22,253 thousand (September 30, 2011: €21,979 thousand). The acquisition cost of the designated plan assets was €22,501 thousand (September 30, 2011: €22,209 thousand). September 30, 2012 2011 (in thousands of €) Expected settlement amount of obligations for early retirement arrangements .... 21,103 20,647 Fair value of designated plan assets ...... 22,253 21,979 Surplus of designated assets over obligations for early retirement arrangements . . 1,150 1,332 Acquisition cost of designated plan assets ...... 22,501 22,209 The offset of assets and liabilities gave rise to a surplus of designated plan assets over liabilities of €1,150 thousand (September 30, 2011: €1,332 thousand).
F-155 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 18 Equity Equity changed during fiscal 2012 as follows: Additional Common paid-in Retained Unappropriated Total stock capital earnings profit Equity (in thousands of €) 9/30/2010 ...... 562,940 62,824 245,926 — 871,690 Shareholder contribution OSRAM SYLVANIA Inc., Danvers, USA ..... 698,094 Allocation to statutory reserve ...... 4,288 9/30/2011 ...... 562,940 760,918 250,214 — 1,574,072 Shareholder additional contribution ...... 699,434 9/30/2012 ...... 562,940 1,460,352 250,214 — 2,273,506
Common stock In conjunction with the change in legal form during the previous fiscal year, the capital stock of the previous legal entity (OSRAM GmbH)—amounting to €562,940,000—became the issued capital stock of OSRAM AG on a one to one basis. The Company’s capital stock was divided into 225,176,000 registered shares, each representing a partial amount of €2.50 of the share capital. Siemens AG holds all the shares as of September 30, 2012.
Authorized and conditional capital OSRAM GmbH was a stock corporation (“Aktiengesellschaft”) with the registered name OSRAM AG as of September 30, 2012. At this time, the Company had Authorized capital of €281,470 thousand (September 30, 2011: €281,470 thousand). The managing board of OSRAM AG was authorized at the general shareholders’ meeting of OSRAM AG on August 23, 2011, with the approval of the supervisory board, to increase—in the period between August 23, 2011 and August 22, 2016—the Company’s capital stock, in one or more steps, by up to €281,470 thousand by the issuance of up to 112,588,000 new registered shares in return for contributions in cash and / or in kind (Authorized capital 2011). The managing board is also entitled, with the approval of the supervisory board, to exclude the subscription rights of existing shareholders, either partially or in full, not only in the case of capital increases relating to contributions in kind, but also in specified cases of contributions in cash. The conditions under which the managing board, with the approval of the supervisory board, can exclude existing shareholders in the event of a share capital increase are stipulated in sec. 4 para. 5 of the Articles of Incorporation of OSRAM AG. The managing board is also authorized on the basis of a resolution taken at the general shareholders’ meeting on August 23, 2011 with the approval of the supervisory board, to determine further details of the capital increases made out of Authorized capital 2011 and their execution, in particular the details of the rights attached to the shares and the conditions of their issue. No share capital increases have been made out of Authorized capital to date. As of September 30, 2012 the Conditional capital of OSRAM AG corresponds to a total nominal amount of €84,441 thousand (September 30, 2011: €84,441 thousand). The Company’s capital stock was conditionally increased by up to €84,441 thousand by the issuance of up to 33,776,400 registered shares (Conditional capital 2011) in order to be able to grant shares to holders or creditors of convertible / option bonds issued by the Company or a Group Company before August 22, 2016 on the basis of the authorization of the managing board by the general shareholders’ meeting on August 23, 2011. The new shares are to be issued at conversion / option prices determined on the basis of the authorization resolution described above. The managing board was authorized to stipulate any further details with regard to the execution of the Conditional capital. No conversion / option bonds have been issued to date.
F-156 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
The following table shows changes in Common stock, Authorized and Conditional capital: Common stock Authorized Capital Conditional Capital (exercisable) number of number of number of in € shares in € shares in € shares as of 9/30/2011 ...... 562,940,000 225,176,000 281,470,000 112,588,000 84,441,000 33,776,400 as of 9/30/2012 ...... 562,940,000 225,176,000 281,470,000 112,588,000 84,441,000 33,776,400
Treasury Stock The managing board was authorized at the general shareholders’ meeting of OSRAM AG on August 23, 2011 to acquire—in the period between August 23, 2011 and August 23, 2016—treasury stock amounting to up to 10% of OSRAM AG’s issued share capital at that date or, if lower, 10% of issued share capital at each relevant date on which the above-described authorization is exercised for any permissible purpose within the restrictions of the law. In this context, the managing board was also authorized at the above-mentioned general shareholders’ meeting to acquire the OSRAM AG shares using equity derivatives. The total amount of share acquisitions using such equity derivatives is limited to a maximum of 5% of issued common stock at the date on which the above-mentioned authorization is exercised. The authorizations referred to above may be exercised by OSRAM AG and its group companies, or by third parties engaged to do so by them on their behalf. OSRAM AG has not acquired any treasury stock to date. The aforementioned authorization of the managing board of OSRAM AG has been extinguished as a result of the recording of the change in the legal form of OSRAM AG into OSRAM GmbH in the Commercial Register on October 25, 2012.
Additional paid-in capital Additional paid-in capital comprises the following: Additional paid-in capital Additional paid-in capital Total pursuant to sec. 272 pursuant to sec. 272 additional para. 2 no. 1 to 3 HGB para. 2 no. 4 HGB paid-in capital (in thousands of €) 9/30/2010 ...... 52,006 10,818 62,824 Shareholder contribution OSRAM SYLVANIA Inc., Danvers, USA .... 698,094 698,094 9/30/2011 ...... 52,006 708,912 760,918 Shareholder additional contribution ...... 699,434 699,434 9/30/2012 ...... 52,006 1,408,346 1,460,352 The sole shareholder, Siemens AG, provided a capital contribution of €499,434 thousand in accordance with sec. 272 para. 2 no. 4 HGB on December 16, 2011. OSRAM AG committed itself to fund its pension plans to protect the pension rights of its employees and the employees of its German subsidiaries in the event of insolvency by an amount of €485,004 thousand. The remaining amount of €14,430 thousand was passed on to the relevant foreign subsidiaries to fund the pension plans of their employees. Furthermore, Siemens AG provided an additional capital contribution of €200,000 thousand in accordance with sec. 272 para. 2 no. 4 HGB on September 27, 2012. This contribution was made by waiving part of the Siemens Cash Management receivables due by OSRAM AG to Siemens AG as of August 31, 2012. The increase in the prior fiscal year resulted from the contribution of all of the shares in OSRAM SYLVANIA INC., Danvers, USA, to the Additional paid-in capital by the sole shareholder, Siemens AG, in accordance with sec. 272 para. 2 no. 4 HGB.
Retained earnings Retained earnings comprise the statutory reserve pursuant to sec. 150 AktG and other retained earnings. An amount of €4,288 thousand was transferred in fiscal 2011 to the statutory reserve pursuant to sec. 150 para. 2 AktG, as a result of which, the statutory reserve and Additional paid-in capital pursuant to
F-157 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) sec. 272 para. 2 nos. 1 to 3 HGB, combined, corresponded to 10% of the Company’s capital stock (€56,294 thousand) as of September 30, 2011. The other—unrestricted—retained earnings remain unchanged at €245,926 thousand, of which €12,390 thousand resulted from the first-time adoption of BilMoG on October 1, 2009. The major part of other retained earnings (€233,536 thousand) resulted from earnings generated in previous fiscal years.
Disclosures relating to non-distributable amounts Amounts restricted from distribution totaled €3,045 thousand (September 30, 2011: €786 thousand) and relate to assets as defined in sec. 246 para. 2 sentence 2 HGB. This compares to Retained earnings available for distribution of €245,926 thousand. As in the previous fiscal year, there are hence no restrictions on distributions. The loss for the year ended September 30, 2012 is to be settled by SBI in accordance with the domination agreement dated September 22 and 26, 2011. Net income for the year ended September 30, 2011 was transferred to the sole shareholder, Siemens AG, in accordance with the domination and profit and loss transfer agreement dated August 23 and September 6, 1993.
19 Special account with reserve characteristics In accordance with the transitional provisions stipulated by BilMoG, OSRAM GmbH continues to roll-forward the Special account with reserve characteristics reported in the Balance Sheet as of September 30, 2009. These items relate to special depreciation of fixed assets pursuant to sec. 6b German Income Tax Act (EStG), sec. 14 Berlin Development Act (FG) and sec. 7d EStG. The line item Special account with reserve characteristics decreased in fiscal 2012 from €13,908 thousand by €689 thousand (in fiscal 2011: €901 thousand) to €13,219 thousand.
20 Provisions for pensions and similar obligations OSRAM GmbH provides pension benefits in a number of different forms to its employees. In December 2011, OSRAM GmbH received additional paid-in capital of €499,434 thousand from Siemens AG to fund the pension plans with plan assets. Of this amount, €485,004 thousand relates to the German pension plans, which had not previously been funded using plan assets (see section 18, »Equity«). As a result, OSRAM GmbH had financed its pension commitments as of September 30, 2012 almost exclusively via external restricted pension plan trust assets. These pension plan trust assets also cover the pension commitments of other German subsidiaries. Therefore the assets do not meet the conditions for offsetting against the obligations and are disclosed under OSRAM GmbH’s Investments as Investment securities (see sections 12, »Fixed assets« and »Accounting policies«). Current employees who have joined the Company since April 30, 2003 on the basis of a permanent employment contract participate in the OSRAM Defined Contribution Pension Plan (BOA). In accordance with the terms of the plan, the Company sets up a virtual personal pension account for each participating employee and credits that account with the Company’s committed contributions. Entitlement rights under the BOA pension plan are not vested until an employee has been employed by OSRAM GmbH for a minimum of five years and he/she has reached the age of 30. The benefits payable under the BOA pension plan are dependent primarily on committed contributions made by the Company and the so-called “reference investment income” earned on those contributions, whereby the Company guarantees a minimum rate of return (guaranteed interest). Current employees who had a permanent employment contract with the Company prior to May 1, 2003 retain their legally binding defined benefit pension entitlements. Under this scheme, OSRAM GmbH makes pension payments that are dependent upon the salary grade, the age and years of service of the employee. In addition, the Company pays employees who joined the Company prior to October 1, 1985 so-called transition payments for a defined period of time after they retire, the level of which is based on the employee’s last salary. Certain employees of OSRAM GmbH are entitled to participate in the voluntary deferred compensation scheme (Deferred Compensation Company Pension Plan for OSRAM Group Employees). Under these arrangements, employees can convert future variable remuneration into supplementary company pension
F-158 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) entitlements, whereby each individual employee receives a pension entitlement equivalent in value to the remuneration amount deferred. Components of salary converted under the scheme are invested in investment funds which can only be used to cover the resulting benefit obligations and which cannot be accessed by other creditors. Due to the fact that the plan assets are kept separate and can only be used for specified purposes, the Company meets the requirements contained in sec. 246 para. 2 HGB. For this reason, designated fund assets with a fair value of €8,263 thousand as of September 30, 2012 (September 30, 2011: €7,559 thousand) and acquisition cost of €5,218 thousand (September 30, 2011: €6,773 thousand) have been offset against the corresponding obligations for deferred compensation. After offset, the Company reports a provision of €73 thousand (September 30, 2011: €319 thousand). The treatment of income and expenses relating to the deferred compensation scheme is described in section 7, »Other financial result, net«. The expected settlement amount of the pension provisions at the end of fiscal 2012 before offset of the pension plan trust assets totaled €443,407 thousand (September 30, 2011: €431,122 thousand). The actuarial measurement of the settlement amount is based, amongst other factors, on a discount rate of 5.08% (fiscal 2011: 5.13%) and on assumed future pension increases of 1.75% p.a. (fiscal 2011: 1.75%p.a.). As part of the introduction of the BOA, the effect of salary increases on the performance related pension entitlements has been largely eliminated.
21 Other provisions Other provisions totaling €149,591 thousand (September 30, 2011: €120,799 thousand) comprise mainly provisions for personnel-related expenses amounting to €88,085 thousand (September 30, 2011: €68,797 thousand), letter of support in favor of affiliated companies and other participations amounting to €29,744 thousand, warranty obligations amounting to €4,713 thousand (September 30, 2011: €6,589 thousand), pending losses on onerous contracts amounting to €1,248 thousand (September 30, 2011: €3,001 thousand) and other liabilities of uncertain amount and timing. In addition, provisions were recognized in the fiscal year for specified legal advisory costs relating to patent infringements (for further information see section 4, »Other operating income and expenses«). The provisions for pending losses on onerous contracts relate to purchase contracts for traditional incandescent lamps with subcontractors in France and Slovakia with regard to the total production of the relevant entities at an agreed transfer price to be paid by OSRAM GmbH. As a result of the ban on high-wattage and non-clear traditional incandescent lamps, the Company expects, as in the past, that it faces a pricing risk, with the consequence that it has recognized a provision of €1,248 thousand at the end of fiscal 2012 (September 30, 2011: €2,861 thousand) for pending losses on the purchase contracts.
22 Liabilities 9/30/2012 9/30/2011 (in thousands of €) Trade payables ...... 153,926 118,435 Payables to affiliated companies ...... 268,999 676,703 thereof payable to shareholder for financing purposes ...... 257,375 433,689 thereof payable to shareholder from Domination and Profit and Loss Transfer Agreement — 143,753 Other liabilities ...... 78,576 71,847 thereof from other long-term equity investees ...... — 835 thereof other liabilities ...... 78,576 71,012 Liabilities ...... 501,501 866,985
No collateral has been provided to secure liabilities. All liabilities disclosed are due within one year. The reduction in payables to affiliated companies is primarily due to the contribution made by Siemens AG waiving part of the Siemens Cash Management receivables due by OSRAM GmbH to Siemens AG amounting to €200,000 thousand (see section 18, »Equity«). On September 30, 2011, the payables to affiliated companies included the liabilities for the profit transfer to the shareholder, Siemens AG, amounting to €143,753 thousand.
F-159 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Other liabilities include primarily personnel related liabilities for wages and salaries. In addition, the line item includes tax liabilities of €1,537 thousand (September 30, 2011 €1,464 thousand) and social security-related liabilities totaling €24,976 thousand (September 30, 2011: €12,034 thousand). Amounts relating to other line items in the Balance Sheet: The balance sheet line item Payables to affiliated companies includes trade payables amounting to €0 thousand (September 30, 2011: €72 thousand). Payables to long-term equity investments include trade payables amounting to €0 thousand (September 30, 2011: €835 thousand).
Other disclosures 23 Cost of materials Year ended September 30, 2012 2011 (in thousands of €) Cost for raw materials and supplies and goods for resale ...... (1,054,240) (973,432) Cost for services ...... (249,481) (210,667) (1,303,721) (1,184,099)
24 Personnel expenses Year ended September 30, 2012 2011 (in thousands of €) Wages and salaries ...... (473,401) (424,512) Social security and other employee benefits ...... (66,255) (65,698) Pension expenses ...... (12,743) (13,683) (552,399) (503,893)
The increase in personnel expenses despite the decrease in headcount is due to changes in the structure of personnel and increases in remuneration in the fiscal year. Personnel expenses do not include the expense resulting from the unwinding of the interest on the pension and personnel-related provisions, which is included in »Other financial result, net«. During fiscal 2012 the workforce comprised an average total of 6,514 (fiscal 2011: 6,556) employees, whereby part-time employees are included on a proportionate basis. Employees worked in the following areas: Year ended September 30, 2012 2011 (number of employees) Production ...... 4,529 4,690 Research and development ...... 821 788 Selling ...... 789 780 Administration and general functions ...... 375 298 6,514 6,556
25 Share-based payments As a general rule, all employees and members of the managing board of OSRAM GmbH are entitled to participate in the share-based payment programs of Siemens AG. With effect from fiscal 2009, OSRAM GmbH obtains shares from Siemens and transfers those shares to eligible employees and members of the managing board electing to participate in the program.
F-160 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 26 Interests in Investment funds The following interests in German and similar foreign investment funds, as defined in sec. 1 and sec. 2 para. 9 Investmentgesetz (InvG), of more than 10% were held as of September 30, 2012: Diviation Distributions Possibility of from for fiscal year daily right of Omitted Book value Market value market value 2012 return impairment (in thousands of €) Mixed fund . . . 478,563 498,831 20,268 15,800 Yes No No interests of more than 10% were held in German or similar foreign investment funds, as defined in sec. 1 and sec. 2 para. 9 Investmentgesetz (InvG), as of September 30, 2011. As of September 30, 2012 there were investments in two mixed funds, which invest primarily either directly or indirectly in fixed interest securities and shares. Interests in investment funds are generally disclosed as Investment securities in Investments (see section 12, »Fixed assets«). An exception to this general rule are interests which are to be offset against the deferred compensation pension obligations and the reimbursement rights arising from the early retirement agreements (see sections 17, »Surplus of designated plan assets over liabilities« and »Accounting Policies«).
27 Commitments and contingencies Contingencies Prior to September 1, 2011 guarantees issued by OSRAM entities were managed by Siemens AG. Since that date, the management of guarantees, including those issued by specified OSRAM Group entities, is handled centrally at the level of OSRAM GmbH. Under these arrangements, guarantees are issued on behalf of OSRAM GmbH and its subsidiaries in conjunction with OSRAM GmbH’s credit lines. September 30, 2012 2011 (in thousands of €) Obligations in connection with guarantees ...... 168,952 76,772 thereof relating to financing of affiliated companies ...... 120,827 69,382 thereof relating to performance guarantees on behalf of affiliated companies ...... 28,949 6,198 thereof contingent liabilities arising from providing collateral for liabilities of affiliated companies ...... 10,508 966 The obligations in connection with guarantees amounting to €168,952 thousand (September 30, 2011: €76,772 thousand) include obligations resulting from guarantees and letter of support issued by OSRAM GmbH on behalf of affiliated companies totaling €160,284 thousand (September 30, 2011: €76,546 thousand). The increase in obligations resulting from guarantees and letter of support is primarily due to the credit guarantees on behalf of OSRAM SYLVANIA INC., Danvers, USA, OSRAM India Pvt. Ltd., Gurgaon, India and Sunny World (Shaoxing) Green Lighting Co., Ltd., Shaoxing, China. OSRAM GmbH only enters into a contingent liability exposure after careful consideration of the risks concerned and only in relation to its own activities or those of affiliated companies. Based on an ongoing evaluation of the arrangements entered into and taking into account all information known up to the date on which the Annual Financial Statements were issued for approval, OSRAM GmbH concludes that the relevant principal debtor can fulfill the underlying obligations concerned in all cases. For this reason OSRAM GmbH considers it unlikely that it will be called upon in conjunction with any of the contingent liability exposures described above.
Financial payment obligations under leasing and rental arrangements Expenses for lease and rental arrangements with third parties and with Siemens Financial Services GmbH, Munich, Germany (SFS), in which the economic ownership of the leased/rented asset is not attributable to OSRAM GmbH and the relevant items are not recognized as assets by OSRAM GmbH, totalled €11,619 thousand
F-161 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) in fiscal 2012 (fiscal 2011: €11,377 thousand). Of these amounts, €11,396 thousand (fiscal 2011: €6,127 thousand) related to operating leases pertaining mostly to real estate and moveable items of plant and equipment. Future obligations under such lease and rental arrangements (primarily operating leases) totalled €118,893 thousand as of September 30, 2012 (September 30, 2011: €9,924 thousand), of which €2,313 thousand (September 30, 2011 €5,249 thousand) was due to affiliated companies. The obligations under leasing and rental agreements help improve the liquidity of the Company. The increase in the fiscal year is primarily due to the move of the central corporate functions to newly rented buildings with long-term lease arrangements. The following table gives an overview of maturities of payments for lease and rental arrangements: (in thousands of €) 2013 ...... (10,913) 2014 ...... (13,523) 2015 ...... (11,987) 2016 ...... (11,375) 2017 ...... (11,887) after 2017 ...... (59,208) Financial payment obligations under leasing and rental arrangements ...... (118,893)
Other financial commitments OSRAM GmbH had purchasing commitments of €252,672 thousand as of September 30, 2012 (September 30, 2011 €281,489 thousand). The purchasing contracts are primarily entered into with suppliers to ensure the availability of sufficient raw materials required for the on-going production. In addition, there were contractual obligations for guarantees of up to €9,659 thousand provided in connection with the sale of OSRAM-MELCO Ltd., Yokohama, Japan. Management is of the view that the other financial commitments do not bare a significant risk in future fiscal years. The other financial commitments are in accordance with the normal course of business. OSRAM GmbH is involved in a number of legal and arbitration proceedings arising from the normal course of business. These relate to inter-alia claims of improper deliveries and services, product warranties, patent infringements and claims for damages. OSRAM GmbH can also be involved, in the normal course of business, in preliminary and administrative proceedings. Legal advisory costs are provided for and included under provisions for legal risks to the extent considered necessary. Although the outcome of such legal and arbitration proceedings cannot be predicted with certainty, OSRAM GmbH does not expect that any additional resulting obligations will have a significant effect on the assets, financial position or results of OSRAM GmbH.
28 Derivative financial instruments and valuation units Guidelines relating to the conclusion of derivative financial instruments In conjunction with its worldwide operating, investing and financing activities, OSRAM GmbH is exposed to various risks—in particular risks emanating from changes in exchange rates and fluctuations in commodity prices—which are limited or eliminated by entering into derivative financial instruments. The rules for the management of such risks are set out in guidelines that are valid throughout the Siemens Group. OSRAM GmbH is accordingly integrated into the risk management system of the Siemens Group. Under the rules set out in the guidelines, OSRAM GmbH and its operating units are not permitted to employ derivative financial instruments for speculative purposes. OSRAM GmbH hedges the risks arising on its net currency exposures from foreign currency assets and liabilities, pending contracts and future transactions. The principal financial instruments used are forward currency contracts. OSRAM GmbH also uses derivative financial instruments on a smaller scale to hedge commodity price risks relating to purchase contracts for metals (mainly copper, aluminum, tin, molybdenum, nickel and zinc, as well as some precious metals). Commodity hedging is applied by using commodity swaps.
F-162 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
OSRAM GmbH’s contracting partner for these derivative financial instruments is Siemens AG, which concludes back-to-back contracts with banks and brokers.
Carrying amounts and fair market values of derivative financial instruments All derivative financial instruments held by OSRAM GmbH are for hedging purposes only. The following table shows derivative financial instruments in place at the end of the reporting period: Nominal amount Fair market values September 30, September 30, 2012 2011 2012 2011 (in thousands of €) FX hedging contracts Forward currency contracts ...... 36,659 26,661 308 (1,337) Commodity hedging contracts Commodity—swaps ...... 1,877 7,160 (557) (1,298) The nominal amount corresponds to the contract values of individual derivative financial instruments, which—irrespective of the nature of the transaction (purchase or sale)—are reported without offsetting (gross nominal amounts). Derivative financial instruments that require to be recognized in the Balance Sheet in accordance with German commercial law are reported in the following line items with the carrying amounts as stated. Other provisions September 30, 2012 2011 (in thousands of €) Forward currency contracts ...... — — Commodity—swaps ...... 558 1,336
Foreign currency hedging A key aspect of managing foreign currency exposures is to determine and measure the net currency exposure for each currency resulting from the combination of foreign currency-denominated items in the Balance Sheet, pending contracts and forecast volumes of purchase and sale transactions for a planning period of six months. It is OSRAM GmbH’s general policy to hedge the net exposure per currency within a range of 75% to 100% using instruments with matching terms. OSRAM GmbH’s net currency exposure (before hedging) is aggregated together with offsetting forward currency contracts into a macro-valuation-unit. The hedged items and hedging contracts are measured in this context on the basis of the relevant underlying discounted cash flows. In conjunction with the conversion to BilMoG, pending contracts and forecasted transactions, which are not hedged individually, have been taken into account in the macro-valuation-unit since April 2010. September 30, 2012 2011 (in thousands of €) Currency exposure from balance sheet items ...... 21,811 5,616 thereof assets ...... 37,011 13,227 thereof liabilities ...... (15,200) (7,611) Currency exposure from pending and forecast transactions ...... 70,879 54,646 Net currency exposure (before hedging) ...... 92,690 60,262 Forward currency contracts(1) ...... (68,677) (42,213) thereof with external contractual parties ...... —— thereof with affiliated companies ...... (68,677) (42,213) Net currency exposure (after hedging) ...... 24,013 18,049
(1) including binding Stop Loss Limits on forward currency contracts
F-163 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
OSRAM GmbH’s foreign currency portfolio (including binding Stop Loss Limits on forward currency contracts) was 74% hedged (September 30, 2011: 70%). The period for which hedging instruments are in place at September 30, 2012 was six months, similar to that at the end of the previous fiscal year. In general, taking forecasting uncertainties and the strength of the US dollar into account, the degree of hedging coverage was aimed at the lower end of the target range.
Hedging of price risks in the commodity markets OSRAM GmbH hedges price risks on purchase contracts for metals (primarily copper and aluminum) using commodity hedges. Valuation units are not created for these commodity hedges since it is not possible for OSRAM GmbH to demonstrate the effectiveness of the hedging instruments concerned. As a result, a provision for anticipated losses on commodity hedges for copper and aluminum amounting to €558 thousand (September 30, 2011: €1,336 thousand) was recognized at the end of the reporting period.
29 Fees and services of external auditor The total fee charged by the external auditor, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, for the fiscal year under report is included in the corresponding note in the consolidated financial statements of Siemens AG.
30 Remuneration of managing board and supervisory board Remuneration of managing board for fiscal 2012 The managing board of OSRAM GmbH received total remuneration in fiscal 2012 of €11,197 thousand (fiscal 2011: €5,283 thousand). The remuneration of the managing board of OSRAM GmbH consists of cash remuneration (fixed and variable remuneration), variable share-based remuneration (Siemens Stock Awards, Share Matching Plan), contribution credits in conjunction with the OSRAM Defined Contribution Pension Plan (BOA) and other remuneration (including remuneration-in-kind, such as the use of company cars, contributions to insurance policy premiums as well as legal, tax advisory, accommodation, relocation costs and medical examination costs). The amount for fiscal 2012 also includes payments in respect of the termination of an employment contract. Former members of the managing board and their surviving dependents received total remuneration in fiscal 2012—as defined by sec. 285 no. 9b HGB—of €960 thousand (fiscal 2011: €861 thousand). Pension provisions reported in the Annual Financial Statements of OSRAM GmbH (see section 20) include pension provisions for former members of the managing board and their surviving dependents totaling €8,355 thousand (fiscal 2011: €8,737 thousand).
Remuneration of the supervisory board for fiscal 2012 Total remuneration for the supervisory board of OSRAM GmbH for fiscal 2012 amounted to €580 thousand (fiscal 2011: €96 thousand).
Modification of remuneration system for the supervisory board in fiscal year 2012 With effect from the fiscal year commencing October 1, 2011 the members of the supervisory board will receive a basic annual remuneration of €40 thousand; the supervisory board chairman a basic annual remuneration of €80 thousand and each deputy chairman one of €60 thousand. For activities in the supervisory board’s committees, the following amounts also apply: (a) the chairman of the audit committee receives €40 thousand, all other members €20 thousand each; (b) the chairman of the chairman’s committee receives €25 thousand, all other members €15 thousand each; and (c) the chairman of the compliance committee receives €20 thousand, all other members €10 thousand each; this remuneration is not granted if the relevant member of the supervisory board is entitled to receive remuneration as a result of activities for the audit committee pursuant to point (a).
F-164 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
In addition, the members of the supervisory board receive €1 thousand per meeting. In fiscal 2012 the representatives of the shareholders in the supervisory board waived their right to remuneration for their activities as members of the supervisory board.
31 Composition of the supervisory board and the managing board The supervisory board Prof. Dr.-Ing., Dipl.-Ing. Siegfried Russwurm —Chairman— Member of the managing board of Siemens AG Prof. Dr. Hermann Requardt Member of the managing board of Siemens AG Dr. Ralf Peter Thomas CFO for the Industry Sector of Siemens AG Dr. Roland Busch Member of the managing board of Siemens AG Joe Kaeser Member of the managing board of Siemens AG Peter Y. Solmssen Member of the managing board of Siemens AG Willi Sattler —Deputy Chairman— Works Council Representative at OSRAM GmbH, Augsburg plant, Chairman of the Full Works Council Gottfried Dolinski Works Council Representative at OSRAM GmbH, Berlin plant Member until June 30, 2012 Dieter Dollinger Works Council Representative at OSRAM GmbH, Augsburg plant Member until June 30, 2012 Alfred Haas Head of Consumer Lighting Europe at OSRAM GmbH and Head of Corporate Communications & Investor Relations, Department of Public Affairs, OSRAM GmbH Arno Hager First Representative and Treasurer of IG Metall, Berlin Michael Knuth Union Secretary, Press Spokesman for IG Metall Bavaria, Augsburg Werner Leyer Works Council Representative at OSRAM GmbH, Schwabmünchen plant Member from July 5, 2012 Andreas Felgendreher Works Council Representative at OSRAM GmbH, Berlin plant Member from July 5, 2012
F-165 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
The managing board Wolfgang Dehen Chairman of the managing board of OSRAM GmbH (Chief Executive Officer, CEO) Date of birth: February 9, 1954 Appointed (with effect from April 1, 2011 for OSRAM GmbH and with effect from July 6, 2011 for OSRAM AG) with effect from October 25, 2012 for OSRAM GmbH Dr. Klaus Patzak Managing director of OSRAM GmbH (Chief Financial Officer, CFO) Date of birth: May 8, 1965 Appointed (with effect from April 1, 2011 for OSRAM GmbH and with effect from July 6, 2011 for OSRAM AG) with effect from October 25, 2012 for OSRAM GmbH Martin Goetzeler Member of the managing board of OSRAM AG until March 31, 2012 Date of birth: May 11, 1962
32 Group affiliation and exempting consolidated financial statements of parent company In accordance with sec. 291 paras. 1 and 2 HGB, OSRAM GmbH is not required to prepare consolidated financial statements or a group management report of its own. The annual financial statements of OSRAM GmbH have been included in the consolidated financial statements of Siemens AG, Berlin and Munich. The consolidated financial statements and group management report prepared by the parent company, Siemens AG, Berlin and Munich in compliance with the requirements set out in sec. 291 para. 2 HGB is prepared in accordance with International Financial Reporting Standards (IFRS), as applicable in the European Union (EU), and with the supplementary commercial law requirements of sec. 315a para. 1 HGB and is filed and published in the German language, together with the external auditor’s report, in the Electronic Federal Gazette and in the municipal courts in Berlin-Charlottenburg and Munich. Accordingly Siemens AG prepares the consolidated financial statements for both the largest and smallest groups of companies.
F-166 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.) 33 List of investments List of investments of OSRAM GmbH pursuant to sec. 285 nos. 11 and 11a HGB Profit after tax(1) Equity(1) Equity interest Status as of September 30, 2012 in thousands of € in thousands of € in % Investments of OSRAM GmbH, Munich / Germany Germany (6 entities) OSRAM Opto Semiconductors GmbH, Regensburg ...... (5,478) 76,744 100 Radium Lampenwerk Gesellschaft mbH, Wipperfürth ...... (450) 12,067 100 Siteco Auslandsholding GmbH, Traunreut ...... 11,955 14,648 100 Siteco Beleuchtungstechnik GmbH, Traunreut ...... (47,853) 64,232 100 Siteco Lighting GmbH, Traunreut ...... (12,513) 139,826 100 Traxon Technologies Europe GmbH, Paderborn ...... (1,576) (1,699) 100 Europe (excluding Germany) (38 entities) EMGO N.V., Lommel / Belgium ...... 615(2) 6,518(2) 50(2) Siteco Lighting Benelux BVBA, Eupen / Belgium ...... (5) (107) 100 OSRAM d.o.o., Mostar / Bosnia-Herzegovina ...... (15) 46 100 OSRAM EOOD, Sofia / Bulgaria ...... 304 1,423 100 OSRAM A/S, Taastrup / Denmark ...... 273 1,241 100 OY OSRAM AB, Espoo / Finland ...... 992 2,457 100 OSRAM S.A.S.U., Molsheim / France ...... 5,740 55,124 100 OSRAM A.E., Athens / Greece ...... (819) 3,319 100 OSRAM Ltd., Langley / Great Britain ...... 3,732 15,846 100 OSRAM UK Pension Scheme Limited, Langley / Great Britain .... 0 0 100 Siteco Ltd., Stockport / Great Britain ...... (470) 2,610 100 OSRAM S.p.A. Società Riunite OSRAM-Edison-Clerici, Milan / Italy ...... (3,261) 73,789 100 Siteco Lighting Systems S.r.I., Milan / Italy ...... (542) 894 100 OSRAM d.o.o., Zagreb / Croatia ...... 308 1,649 100 OSRAM Benelux B.V., Capelle aan den IJssel / Netherlands ...... 3,129 16,054 100 OSRAM AS, Lysaker / Norway ...... 1,518 8,492 100 Siteco Belysning AS, Oslo / Norway ...... (243) 341 100 Siteco Lighting Austria GmbH, Vienna / Austria ...... 1,258 14,577 100 Siteco Österreich GmbH, Vienna / Austria ...... (1,636) 2,905 100 OSRAM Sp. z o.o., Warsaw / Poland ...... 249 4,771 100 Siteco Lighting Poland Sp. z o.o., Warsaw / Poland ...... (48) 672 100 OSRAM Empresa de Aparelhagem Eléctrica Lda., Lisbon / Portugal ...... 282 4,504 100 OSRAM Romania S.R.L., Voluntari / Romania ...... (62) 545 100 OAO OSRAM, Smolensk / Russia ...... 4,189 14,434 99 OOO Siteco, Moskau / Russia ...... (13) (85) 100 OSRAM AB, Stockholm / Sweden ...... 1,536 4,935 100 OSRAM AG, Winterthur / Switzerland ...... 976 521 100 Siteco Schweiz AG, Belp-Bern / Switzerland ...... (532) 1,876 100 OSRAM d.o.o., Belgrad / Republic of Serbia ...... 110 642 100 OSRAM a.s., Nové Zámky / Slovakia ...... 5,127 28,937 100 Siteco Sistemi d.o.o., Maribor / Slovenia ...... (848) 1,906 100 OSRAM S.A., Madrid / Spain ...... 1,768 11,366 100 Siteco Lighting, S.L.U., Madrid / Spain ...... 29 (1,260) 100 OSRAM Ceská republika s.r.o., Bruntál / Czech Republic ...... 3,779 27,598 100 Siteco Lighting, spol. s r.o., Prague / Czech Republic ...... (307) 54 100 OSRAM Ampul Ticaret A.S., Istanbul / Turkey ...... 2,768 15,024 100 Siteco Aydinlatma Teknigi Tic. Ve San. Ltd. Sti., Istanbul / Turkey ...... (1,913) 4,486 100 Enterprise with 100% foreign investment “Osram Ukraine”, Kiev / Ukraine ...... 256 2,017 100
F-167 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
Profit after tax(1) Equity(1) Equity interest Status as of September 30, 2012 in thousands of € in thousands of € in % Investments of OSRAM GmbH, Munich / Germany (continued) Americas (19 entities) OSRAM Argentina S.A.C.I., Buenos Aires / Argentina ...... 465 7,639 100 CVL Componentes de Vidro Ltda., Caçapava / Brazil ...... (2,810)(3) 12,860(3) 50(3) OSRAM do Brasil Lampadas Elétricas Ltda., Osasco / Brazil ..... (3,528) 46,504 100 OSRAM Chile Ltda., Santiago de Chile / Chile ...... 204 5,072 100 OSRAM del Ecuador S.A., Guayaquil / Ecuador ...... 67 2,104 100 OSRAM Sylvania Ltd., Mississauga / Canada ...... 4,742 41,024 100 ENCELIUM TECHNOLOGIES ULC, Vancouver / Canada ...... 161 0 100 OSRAM de Colombia Iluminaciones S.A., Bogotá / Columbia .... (295) 3,193 100 Industrias OSRAM de México S.A., Tultitlán / Mexico ...... 780 7,209 100 OSRAM de México S.A. de C.V., Tultitlán / Mexico ...... 350 21,000 100 OSRAM S.A. de C.V., Tultitlán / Mexico ...... 1,478 35,814 100 OSRAM de Perú S.A.C., Lima / Peru ...... (85) 1,597 100 OSRAM Opto Semiconductors, Inc., Wilmington / United States . . 3,043 28,028 100 OSRAM SYLVANIA INC., Danvers / United States ...... (19,329) 557,233 100 OSRAM Sylvania Puerto Rico Corp., Luquillo / United States ..... (103) 4,243 100 Sylvania Lighting Services Corp., Danvers / United States ...... (3,974) 12,023 100 Transport & Distribution Inc., Danvers / United States ...... 130 8,720 100 Traxon Supply USA Inc., East Rutherford / United States ...... (1,220) 809 100 Valeo Sylvania LLC, Seymour / United States ...... (2,381)(4) 29,500(4) 50(4) Asia (27 entities) Chung Tak Lighting Control Systems (Guangzhou) Ltd., Guangzhou / China ...... 5,212 18,518 59 Foshan Electrical and Lighting Co., Ltd., Foshan / China ...... 35,732(5) 341,915(5) 13(5) OSRAM (China) Fluorescent Materials Co., Ltd., Yi Xing City / China ...... (1,672)(5) 13,552(5) 50(5) OSRAM China Lighting Ltd., Foshan / China ...... 17,908 87,957 90 OSRAM Kunshan Display Optic Co. Ltd., Kunshan / China ...... 5,046 8,988 100 Siteco Prosperity Lighting (Lang Fang) Co., Ltd., Lang Fang /China ...... 202(5) 3,477(5) 50(5) Sunny World (Shaoxing) Green Lighting Co., Ltd., Shaoxing / China ...... 40 51,459 100 OSRAM Asia Pacific Ltd., Hong Kong / Hong Kong ...... (37,443) (28,833) 100 OSRAM Holding Company Ltd., Hong Kong / Hong Kong ...... 3,753 48,069 100 OSRAM Hong Kong Ltd., Hong Kong / Hong Kong ...... (478) 9,725 100 OSRAM Lighting Control Systems Ltd., Hong Kong / Hong Kong ...... 894 (79) 65 OSRAM Opto Semiconductors Asia Ltd., Hong Kong / Hong Kong ...... 5,689 29,387 100 OSRAM Prosperity Company Ltd., Hong Kong / Hong Kong ..... 1,151(6) 2,337(6) 50(6) Traxon Technologies Ltd., Hong Kong / Hong Kong ...... (18,418) 8,191 100 OSRAM Automotive Lamps Private Limited, Bangalore / India . . . (538) 1,199 100 OSRAM India Pvt. Ltd., Gurgaon / India ...... (371) 11,561 100 P.T. OSRAM Indonesia, Tangerang / Indonesia ...... (159) 5,267 100 Yekta Setareh Atllas Co. (P.J.S.), Teheran / Iran ...... 50 100 100 OSRAM Ltd., Yokohama / Japan ...... 1,176 3,796 100 OSRAM Korea Co. Ltd., Ansan-City / South Korea ...... 8,776 23,784 100 OSRAM (Malaysia) Sdn. Bhd., Kuala Lumpur / Malaysia ...... 136 3,036 100 Osram Opto Semiconductors (Malaysia) Sdn. Bhd., Penang / Malaysia ...... 14,424 98,280 100 Siteco Lighting Malaysia Sdn. Bhd., Puchong / Malaysia ...... (577) 1,582 100 OSRAM Pte. Ltd., Singapur / Singapur ...... 550 7,135 100 OSRAM Taiwan Company Ltd., Taipeh / Taiwan ...... 4,350 17,630 100 OSRAM Thailand Co. Ltd., Bangkok / Thailand ...... 1,441 3,606 100 OSRAM Middle East FZE, Dubai / United Arab Emirates ...... 3,585 11,211 100 Africa (1 entity) OSRAM (Pty.) Ltd., Midrand / South Africa ...... 666 6,621 100 Australia/New Zealand/Oceania (1 entity) OSRAM Australia Pty. Ltd., Sydney / Australia ...... 1,874 9,097 100
F-168 Annual Financial Statements of OSRAM GmbH, Notes NOTES TO THE FINANCIAL STATEMENTS for the Fiscal Year Ended September 30, 2012
(The following English-language Annual Financial Statements are translations of the German-language Annual Financial Statements.)
(1) Amounts based on annual financial statements (where applicable after profit/loss transfer), in the case of subsidiaries based on the consolidated IFRS financial statements. (2) Amounts for fiscal year from 1/1/2010 to 6/30/2011. (3) Amounts for short fiscal period from 1/1/2010 to 7/31/2010. (4) Amounts for fiscal year from 10/1/2009 to 9/30/2010. (5) Amounts for fiscal year from 1/1/2011 to 12/31/2011. (6) Amounts for fiscal year from 10/1/2010 to 9/30/2011.
Munich, November 15, 2012
The managing board
signed signed Wolfgang Dehen Dr. Klaus Patzak
F-169 The following audit opinion (Bestätigungsvermerk) refers to the annual financial statements and the management report prepared on the basis of German generally accepted accounting principles of OSRAM GmbH (until and including October 24, 2012: OSRAM AG) for the fiscal year from October 1, 2011 to September 30, 2012 as a whole and not solely to the financial statements presented in this prospectus on the preceding pages. The audit opinion (Bestätigungsvermerk) and the annual financial statements are both translations of the respective German-language documents.
AUDIT OPINION
We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial statements, together with the bookkeeping system, and the management report of OSRAM GmbH (until and including October 24, 2012: OSRAM AG), Munich, for the fiscal year from October 1, 2011 to September 30, 2012. The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law are the responsibility of the Company’s management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit. We conducted our audit of the annual financial statements in accordance with Sec. 317 HGB [“Handelsgesetzbuch”: “German Commercial Code”] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with German principles of proper accounting and in the 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 annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and 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 annual financial statements 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 management report is consistent with the annual financial statements and as a whole provides a suitable view of the Company’s position and suitably presents the opportunities and risks of future development.
Munich, 15 November 2012
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft
signed signed Breitsameter Esche Wirtschaftsprüferin Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)
F-170 RECENT DEVELOPMENTS AND OUTLOOK
In the first half of the Fiscal Year 2013, our revenue trend continued to reflect the muted economic climate. Revenue declined by €52.4 million, or 1.9%, dropping from €2,730.7 million in the first half of the Fiscal Year 2012 to €2,678.3 million in the first half of the Fiscal Year 2013. The decrease was significantly impacted by negative portfolio effects of 2.2% resulting from the disposal of our shares in the joint ventures with Mitsubishi and Toshiba in Japan. Excluding portfolio effects and foreign currency translation effects, revenue was stable on a level with the previous year. The fundamental structural trend toward SSL business continued. From a regional standpoint, the decline in the Americas region, and particularly in the U.S., had the greatest impact. At segment level, the revenue growth at Opto Semiconductors and Specialty Lighting could not offset the decreases in the segments Lamps & Components and Luminaires & Solutions. OSRAM Licht Group’s EBITA rose by €63.6 million, or 167.4%, increasing from €38.0 million in the first half of the Fiscal Year 2012 to €101.6 million in the first half of the Fiscal Year 2013. The corresponding EBITA margin (EBITA as a percentage of revenue) increased significantly from 1.4% in the first half of the Fiscal Year 2012 to 3.8% in the first half of the Fiscal Year 2013. This rise was primarily due to lower expenses in connection with the transformation process, the separation, the planned IPO and the Spin-off, respectively (including significant income related to the settlement of the Patent Infringement Suits), and with legal and regulatory matters compared with the first half of the Fiscal Year 2012. The EBITA contribution from forward integrated SSL products was negative in the first six months of both the Fiscal Year 2013 and 2012. Despite declining revenue, income before income taxes of €52.5 million was registered in the first half of the Fiscal Year 2013 compared with a loss of €145.3 million in the first half of the Fiscal Year 2012. The change resulted primarily from the increased EBITA, the fact that no impairment losses had to be recognized on goodwill, and the substantially lower impairment losses on investments accounted for using the equity method compared with the prior-year period. Based on the first six months and the course of business from April 1 to the date of this prospectus, we expect to see modest growth in revenue on a comparable basis (adjusted for foreign currency translation and portfolio effects) in the second half of the Fiscal Year 2013 compared with the Fiscal Year 2012 driven by new products and progress in reorganizing our sales force. We are therefore anticipating that, on a comparable basis, revenue in the Fiscal Year 2013 will reach the level seen in the Fiscal Year 2012, provided that the economy does not experience a further slowdown. EBITA in the whole Fiscal Year 2013 is expected to be impacted by higher transformation costs than in the Fiscal Year 2012. Based on the expected revenue growth in the second half of the current Fiscal Year and excluding the impact from transformation costs and costs in connection with the separation, the planned IPO and the Spin-off, respectively, as well as expenses in connection with substantial legal and regulatory matters, which qualify as a special earnings effect, we anticipate a low two-digit percentage improvement in our EBITA compared with the Fiscal Year 2012. Overall, we expect that the OSRAM Licht Group will record a significantly smaller loss in the current Fiscal Year compared to the previous Fiscal Year and will therefore approach breaking-even. Disregarding the cash outflow from the contribution to pension plan assets in the Fiscal Year 2012, free cash flow in the Fiscal Year 2013 will be well below the Fiscal Year 2012, but still positive, primarily due to the cash effect of transformation costs, but also as a result of increasing investments, such as those for the establishment of our new LED assembly facility in Wuxi, China. Our transformation program is targeting approximately €1 billion cumulated cost savings (gross) in total until and including the Fiscal Year 2015. This will be partly offset, however, by transformation costs estimated to be in the mid three-digit millions of euros in the Fiscal Years from 2012 to 2014, which will mostly be incurred in the Fiscal Years 2012 and 2013. The cost savings will further be reduced by other effects, especially the price decline, primarily for SSL products, wage increases and other effects of inflation. We believe that the restructuring component of the OSRAM Push Program will largely be completed in the Fiscal Year 2014. However, OSRAM estimates that the technology shift will continue beyond 2014 which will lead to additional restructurings in the traditional business.
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