Dialog | Annual report and accounts 2010
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Annual report and accounts 2010
Powering ahead...
Section 1: Overview
02 Dialog at a glance
03 Our markets
06 Chairman’s statement
07 Dialog Semiconductor shares in 2010
Section 2: Business review
12 Business review and strategy
13 Chief Executive’s review
15 Solutions, products technology and key customers
22 Financial review
26 Risks and their management
27 Corporate social responsibility
Section 3: Management and governance
29 Executive management
30 Board of Directors
31 Directors’ report
33 Corporate Governance
35 Directors’ remuneration report
38 Statement of Directors’ responsibilities
38 Responsibility statement
Section 4: Consolidated financial statements and notes
39 Independent Auditors’ report to the members
of Dialog Semiconductor Plc
40 Consolidated statement of financial position
41 Consolidated income statement
42 Statement of comprehensive income
43 Consolidated statement of cash flows
44 Consolidated statement of changes in
Shareholders’ equity
45 Notes to the consolidated financial statements
Section 5: Company financial statements and notes
86 Company statement of financial position
87 Company statement of changes in equity
88 Company statement of cash flows
89 Notes to the Company financial statements
Section 6: Additional information
90 Glossary
92 Advisers and corporate information
93 Group directory
Dialog Semiconductor creates energy-efficient, highly integrated, mixed-
signal circuits optimised for portable devices – including Smartphone and
Tablet PC, lighting and automotive applications. The Company provides
flexible and dynamic support, world-class innovation and the assurance
of dealing with an established business partner.
With its unique focus and expertise in system power management,
Dialog brings decades of experience to the rapid development of
integrated circuits for power management, audio, display processing
and motor control. Dialog’s processor companion chips are essential
for enhancing both the performance of hand-held products and the
consumers’ multimedia experience. With world-class manufacturing
partners, Dialog operates a fabless business model.
Dialog Semiconductor plc is headquartered near Stuttgart with a global
sales, R&D and marketing organisation. In 2010, it had US$296.6 million
in revenue and was again one of the fastest growing European public
semiconductor companies. At year end 2010, Dialog Semiconductor had
approximately 400 employees. The company is listed on the Frankfurt
(FWB: DLG) stock exchange and a member of the German TecDAX index.
Section 1 | Overview
Dialog at a glance
Highlights
Total revenue
(US$m)
+36%*
Gross margin
(%)
+1.4%*
Operating profit
(US$m)
+58%*
Net profit
(US$m)
+30%*
300
250
200
150
100
50
0
50
40
30
20
10
0
50
40
30
20
10
0
-10
-20
50
40
30
20
10
0
-10
-20
07
08
09
10
07
08
09
10
07
08
09
10
07
08
09
10
*Year-on-year growth 2009-2010
2010 Financial highlights – A record year
● 36% growth in revenue
● Full-year 2010 net profit of US$42.5 million
or 14.3% of sales completing three years
of successive profitability
● Annual gross margin of 46.3%
● Closing year cash balance of
US$158.2 million, increase
of US$35.1 million over 2009
● Emergence of the Tablet PC market as a
significant future market for Dialog’s power
management ICs, with leadership position
already established
● Dialog’s ultra low power audio codec ICs
now in production with designs wins at
Sony and Samsung Electronics
● Continued standard product (ASSP)
portfolio expansion with new ASSPs
released including:
– Power management companion device
● Dialog remains debt free as at
for Intel’s latest Atom E6xx series
31 December 2010
– Second generation configurable power
management PMIC
● Basic and Diluted 2010 Earnings per share
(EPS) of 70 cents and 66 cents respectively
– New low power Audio Codecs
– 2D-3D video conversion IC for Tablet PCs
2010 Operational highlights
● Continued Smartphone design win success
for power management, audio and display
technologies through engagement at
three of the top four global Smartphone
manufacturers
and Smartphones
● Renesas and NEC, leading application
processor providers, confirmed as the latest
members of Dialog’s Processor Partner
Program Initiative
LG and Sharp selects Dialog power
management technology for Android based
and 3G Smartphones
First Tablet PC products based on Dialog
technology appear
Acquisition of Diodes Zetex power
management assets
Q1
December 2010 – Dialog Semiconductor launched
the mixed signal DA8223, the world’s first real
time 2D to 3D video conversion chip for portable
devices including Smartphones and Tablet PCs.
The device allows users to view video 3D content
without the need for glasses.
2010 saw Dialog diversifying its
customer base with the addition
of key Asian and Japanese OEMs for
both power management and audio
technology for portable platforms.
Additionally, our IP portfolio was
enhanced through acquisition and
licensing agreements with key
industry partners.
02 Dialog Semiconductor Plc Annual report and accounts 2010
Section 1 | Overview
Our markets
Smartphone market
(million units)
Tablet PC market
(million units)
500
400
300
200
100
0
250
200
150
100
50
0
Infotainment market –
OEM and aftermarket
(million units)
75
60
45
30
15
0
10
11
12
13
11
12
13
14
15
10
11
12
13
14
Source: Arete Research/Dialog Marketing 2010
Source: Arete Research/Dialog Marketing 2010
Source: iSuppli/Dialog Marketing 2010
Again one step ahead with early
innovative solutions for the emerging
high-growth Tablet PC market
Dialog is a global designer, developer and supplier
of mixed signal integrated circuits with a focus
on the integration of power management,
and display processing functionalities for
high-volume portable devices like Smartphones,
MP3 players and Tablet PCs, in addition to
automotive and industrial applications.
Wireless
Our wireless power management, audio and
display semiconductor solutions are designed
to meet the needs of Smartphones, Tablet PCs,
ebooks, MP3 players and other portable devices.
With a focus on differentiated display
power-saving technologies, we offer innovative
solutions for OLED based displays, e-ink as well
as powering Qualcomm’s Mirasol™ displays.
and mirror control, automatic seat belt
tensioning, windscreen wiper control,
and control of engine cooling fans.
In the industrial market, Dialog provides
power electronics solutions for lighting such
as electronic ballasts for fluorescent or high-
intensity industrial lighting with the future
developments focused on energy-efficient
LED lighting solutions.
Dialog replaces discrete power management
components with high integrated single chips
solutions that provide improved reliability,
design simplicity as well as space saving,
power and cost advantages.
Dialog is a fabless semiconductor company
outsourcing the capital intensive production
of silicon wafers, packaging and testing of
integrated circuits to leading Asian suppliers.
Automotive and Industrial
Infotainment in cars is rapidly changing as
multimedia and wireless technology enter
the car environment. Dialog has partnered with
Intel to provide companion power management
and clock ICs for the Atom E6xx series of
processors to address these next generation
automotive infotainment systems.
Dialog Semiconductor’s motor control ICs
are custom-designed for a wide range of
automotive applications, including window
Focusing on our strengths
Dialog has longstanding expertise in developing
analogue and mixed signal products, with a
focus on power management integrated circuits.
The Company is currently leveraging its expertise
to add audio and display integrated circuits to
its product portfolio, and aims to offer the
industry’s highest level of power management
mixed signal integration, with rapid design
cycle and time to volume production.
Partnering with TSMC for
BCD process technology and
NXP for DSP and audio software
technology
Congatec announced as
first design win for miniature
industrial embedded PC
design using Dialog’s Intel
Atom companion power
management and clock IC
Sony and Samsung Electronics
announced as first customers
for Dialog’s ultra low power
audio technology
Launch of industry’s first
2D-3D video conversion IC
for Smartphones and Tablet
PCs – with no need for glasses
Q2
Q3
Q4
Dialog Semiconductor Plc Annual report and accounts 2010 03
Living connectivity
04 Dialog Semiconductor Plc Annual report and accounts 2010
Wirelessly connected devices have
become part of our daily lives. The
relentless pace of product development
has seen these amazing handheld gadgets
grow exponentially in processing
capability with ever brighter, finer
resolution displays and a dazzling array
of processor-hungry applications.
Dialog’s advanced power management ICs can
be found at the heart of some of the world’s
coolest personal portable devices ensuring
consumers can work, play and communicate
whenever and wherever life takes them
without compromising on battery life.
Our display driver technology is opening up
new and exciting ways for people to connect
with the world. Dialog’s SmartXtend PM OLED
drivers will enable manufacturers to produce
thinner, transparent and flexible displays that
are incredibly robust while providing higher
screen resolutions with sparkling clarity at low
power. While the emerging e-reader market
is benefiting from the latest generation of
bistable displays driven by Dialog’s highly
innovative e-ink and Mirasol driver ICs.
“ PM OLED displays will enable
manufacturers to produce
portable devices with exciting
new form factors with Dialog’s
driver technology at the heart
of their innovation.”
Andrew Austin
Vice President, Sales
Section 1 | Overview
Chairman’s statement
Our balance sheet is strong with year-end
cash at US$158 million. The stock price has
risen 122% this year and by 26 times over the
past two years. Share liquidity has continued
to improve significantly throughout the year
with an average 985,000 shares traded daily
compared to 510,000 shares in 2009.
The Company continues to focus on deeper
and broader relationships with existing
customers meaning more semiconductor
content sold into a broader range of customer
applications and at the same time bringing
new customers on board. We would expect
to see the results of this progress more clearly
manifest in the results for next year and beyond.
The acquisition of SiTel Semiconductor B.V.
is in keeping with this strategy, giving the
Company access to new customers and
enhancing our product offering through
new but complementary technology.
The Board has strengthened the management
team. This has been done with key hires of
Martin Powell, VP of Human Resources and
Andrew Austin as VP of Sales. The Board will
continue to look for the appointment of new
top talent to support the significant growth
of the Company and to ensure a management
team and structure of a Company with a
€1 billion plus market capitalisation.
The Board will continue to support the
management team and employees, who
have delivered these results in such uncertain
economic times, through share and bonus
schemes which will continue to incentivise
them to achieve first-class results and ensure
that they share fairly in the rewards generated
for shareholders (or not, if that be the case).
Indeed, the Company operates in a volatile
and uncertain market and the successes
of the recent past are no guarantee of future
performance. Despite this note of caution the
Board and management team are confident
about the future and thank you for your
continued support.
Greg Reyes
Chairman
2010 has been another
positive year for Dialog
Semiconductor Plc. We have
now achieved 13 quarters
of consecutive growth and
year-on-year revenue growth
of 36%.
06 Dialog Semiconductor Plc Annual report and accounts 2010
Section 1 | Overview
Dialog Semiconductor shares in 2010
2010 saw Dialog outperforming
the market with the share price
growing by more than 122%
in 2010 and share liquidity
increasing by 93%.
Dialog gains the confidence
of the market both in Europe
and the US with many new
long-term institutional
shareholders added.
Share price development
2010 saw a significant rise in the Dialog
share price. Starting the year at €7.63, it rose
steadily early in the year to reach €12.22 by
19 February before declining to €7.71 by
25 May. From 1 September it subsequently
started to recover closing the year at a yearly
high of €17.03.
The following graphs chart the cumulative
Shareholder return of the Company for the
past 12 months and for the past five years,
compared with selected technical benchmark
indices – Germany’s TecDAX index – which
Dialog itself entered in September 2009,
and the Philadelphia SE Semiconductor index
(“SOX”). As can be seen from the graph,
for 2010 Dialog outperformed the TecDAX
by 98.4%, the SOX by more than 86.3%.
Thus, in 2010, we were successful in achieving
one of our most important corporate
objectives; namely, to increase the value of the
Company for the benefit of the Shareholders.
2010 12-month Dialog Semiconductor share price performance (%)
310
280
250
220
190
160
130
100
70
0
1
J
0
1
F
0
1
M
0
1
A
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1
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1
D
DIALOG SEMICON. (XET)
TECDAX (XETRA) – PRICE INDEX
PHILADELPHIA SE SEMICONDUCTOR – PRICE INDEX
Dialog Semiconductor Plc Annual report and accounts 2010 07
Section 1 | Overview
Dialog Semiconductor shares in 2010 continued
Share fundamentals for the financial year 2010
Total number of shares outstanding and registered as of 31 December 2010
Weighted average number of shares during 2010 (basic)
Weighted average number of shares during 2010 (diluted)
Type
Par value (in £)
Bloomberg Symbol
Reuters Symbol
ISIN
Key figures for the financial year 2010 based on weighted average number of shares (basic)
Sales per share (in US$)
Operating profit per share (in US$)
Net profit per share (in US$)
Book value per share as of 31 December 2010 (in US$)
Accounting standards
Market data 2010
Exchange segment Germany
Designated sponsor
Market capitalisation as of 31 December 2010 (in millions of €)
Turnover of shares during 2010
2006-2010 Dialog Semiconductor share price performance (%)
65,068,930
60,313,415
64,840,680
Ordinary
0.1
DLG
DLGS.DE
GB0059822006
4.92
0.75
0.70
3.40
IAS/IFRS
Midcap, Prime All Share,
Prime Technology,
Technology All Share
Close Brothers Seydler
1,106
984,698 shares/day
700
600
500
400
300
200
100
0
6
0
7
0
8
0
9
0
0
1
DIALOG SEMICON. (XET)
TECDAX (XETRA) – PRICE INDEX
PHILADELPHIA SE SEMICONDUCTOR – PRICE INDEX
08 Dialog Semiconductor Plc Annual report and accounts 2010
TecDAX index
Dialog was granted entry to the TecDAX index
during 2009. The TecDAX tracks the 30 largest
and most actively traded companies from the
various technology sectors of the Prime Standard
segment, excluding those listed in the German
DAX index. It is amongst the most important
and leading stock indices in Germany and
membership is decided by a ranking, based on
a company’s free-float market capitalisation
and stock market trading volume.
Disclosure of interests
The provisions of the DTR require that any
person acquiring a direct or indirect interest
of 3% or more of a class of shares issued
by the Company – with voting rights at the
Company’s general meeting – must inform
the Company of its interest within two
working days. If the 3% interest is exceeded,
the Shareholder must inform the Company
of any increase or decrease of one percentage
point in its interest.
Freefloat
Dialog’s freefloat is 61,073,899 million shares
or 93.9% of the 65,068,930 outstanding
shares. The freefloat is calculated by excluding
the 3,995,031 shares held in the Dialog
Semiconductor Plc Employee Benefit Trust.
With respect to voting rights attached to
shares held by investment managers (on behalf
of clients), by scheme operators and ICVCs in
accordance with DTR 5.1.5, the first threshold
for disclosure is set at 5% with the next level
set at 10% and every percentage above 10%.
The freefloat includes the following shares held
on behalf of discretionary clients as per the
share register on 31 December 2010.
Citigroup Global Markets
Chase Nominees Ltd.
BNP Paribas Securities Services
State Street f. Benefit of Clients
Morgan Stanley Bank AG
CACEIS Bank
And 1,978,828 shares (3.0%) held by X-Fab
Semiconductor AG as per the share register
on 31 December 2010.
3,969,435
3,910,823
3,787,895
3,032,036
2,963,872
2,158,567
6.1%
6.0%
5.8%
4.7%
4.6%
3.3%
“ Dialog, in its first full year as
part of the German TecDAX
Index, outperformed the index
by 83%, attracting many new
institutional and retail investors
as shareholders.”
Trading in Dialog shares
Dialog shares are traded in Germany on the
XETRA and Frankfurt regulated official markets
and on all other German regional exchanges
on the open market.
Dividend policy
Dialog Semiconductor participates in industries
that are considered to be global growth
engines and provides its services and products
to major players in these industries. Dialog’s
Board of Directors is committed to reinvesting
all profits into laying the framework for future
growth and continues to believe that, in line
with the strategic changes under way, this
policy is by now in the best interests of all
its Shareholders.
Investor relations
Dialog Semiconductor understands the
importance of clear communication with
investors and analysts, particularly during
a period of great uncertainty and global
economic crisis. During 2010, the management
team continued its efforts to ensure that the
market was kept up to date with the effect
the changing macro environment was having
on its business, together with the important
and exciting changes under way at the
Company. Dialog Semiconductor’s shares are
now followed by eight independent financial
analysts representing both European and US
banking institutions. During 2010, we issued
trading updates and quarterly earning reports,
we held our annual analyst conference,
presented at several investor conferences
and international roadshows, and, in addition,
kept in regular contact with our investors
and analysts. Information provided, including
presentations, press releases and reports of
the Company, as well as the recommendations
of analysts covering the Company, can be
downloaded from the corporate Website:
www.dialog-semiconductor.com/
investor_relations_home.php
Dialog Semiconductor Plc Annual report and accounts 2010 09
Participating in 3D
10 Dialog Semiconductor Plc Annual report and accounts 2010
Advances in 3D technology and ground-
breaking movies such as Avatar has
seen the resurgence of 3D. In 2010 3D
began the migration from movie theatre
to home theatre with the advent of
3D TV. 2011 will see 3D break through
into personal portable devices fitted
with parallax barrier displays allowing
consumers to enjoy 3D games, pictures
and movies without glasses.
As the saying goes: “content is king”
and consumers investing in 3D Smartphones
and Tablet PCs will expect unlimited access
to 3D content regardless, even if it was
originally shot in 2D. This is where Dialog’s
experience in power management and
display technology comes to the fore.
Launching in 2011, Dialog introduces
DA8223, a real-time 2D to 3D video and
photo converter IC which produces vibrant
3D images without any loading on the host
processor and at unparalleled low power.
“ DA8223 will fundamentally
change the 3D landscape
by giving consumers
unconstrained access to 3D
content without 3D glasses.”
Mark Tyndall
Vice President, Business Development
& Corporate Strategy
Section 2 | Business review
Business review and strategy
ADDED new partners to our Processor
Partner Program Initiative
A key element of our success is to engage with
application processor vendors and develop power
management companion chips for their processors.
This allows us to become an integral part of their
promotional and application eco system and reach
a much broader customer base without the need
for additional sales and support investment. In 2010,
Dialog expanded relationships with application
processor vendors within the portable space,
including adding Renesas, NEC and one other
major undisclosed application processor vendor.
Our strategy was validated
in 2010 when we delivered
record financial and operational
results. We have again achieved
high growth – beyond the
industry and our peers – with
increased profitability and an
even stronger balance sheet.
Major achievements from Dialog
in the execution of its strategy
included the following:
DEEPENED our relationships with key
industry trendsetters and leaders
Dialog has relationships with a number of
high-volume customers, many of which are
considered trendsetters and key industry leaders in
their respective sectors. Dialog has in 2010 continued
to focus efforts on these customers to increase both
the custom semiconductor content sold into the
customers’ platform and broaden the number of
platforms addressed.
EXPANDED North America and
Asia operations with already increased
customer success demonstrated
Wdolore vardis mentat est veriddium
PERFECTION of the fabless model
nederadium telos et mar tvession
while maintaining close contact with
our manufacturing partners
Dialog opened a new office in Silicon Valley to
support its growing US customer base and application
processor partners. In Asia, it has expanded its sales,
marketing and application support to support the
continued ramp in the business in Korea, Japan and
China as new customers continue to be added for
both standard and custom products. Both these
regions represent exciting growth opportunities for
Dialog going forward for both custom and standard
product engagements.
Dialog remained focused on its existing business
model, which included fully outsourcing silicon wafer
production and test to Asian foundry manufacturing
plants and test houses, and supplying ASICs and
ASSPs using mainstream CMOS-based process
technologies. During 2010, a year of tight wafer
capacity, while growing our business to a level of
nearly 200 million chips, we were commended by
many of our customers for our operational excellence
and support.
12 Dialog Semiconductor Plc Annual report and accounts 2010
BROADENED our customer base
by leveraging our portfolio of
standard solutions
Dialog has increasingly adapted some of its solutions
to multiple customers and transitioned its portfolio to
offer more standard products. In 2010, new products
included a second generation of configurable Power
Management ICs, new audio codecs, companion device
for Intel’s latest series of Atom processor and a 2D-3D
video conversion IC. Samsung and Sony were added
as the first customers to use our audio technology on
portable platforms and we are engaging with a broad
base of new industrial customers through our
engagement with Intel.
Additionally, by investing in enhancing the corporate
identity and brand development activities, coupled with
the recent expansion of its sales and marketing force,
Dialog in 2010 has laid the foundations for marketing
its products to a much broader customer base.
Section 2 | Business review
Chief Executive’s review
Maintaining leadership –
2010 was a very successful
year for Dialog. We reported
record revenue and profitability
and executed our product
strategy to expand our market
share in power management
ICs at major global customers.
Diverse ideas through collaboration
across the engineering community
Dialog’s Board and executive team strived
to continue the success of recent years and
believe 2010 is testimony to the market
leadership position they now enjoy. Dialog once
again outperformed the semiconductor market
and continued to gain market share against its
peers. Dialog is well prepared and positioned
to take advantage of the market opportunities
unfolding for the growing market of personal
portable devices as mobile connectivity
becomes more prevalent in our society.
In 2010, we grew our revenue at an impressive
36%. This was our third successive year of
growth above 30%. More importantly, for
three years we have shown a track record of
quarterly year-over-year revenue growth –
a unique achievement in our industry. Our
profitability metrics also improved as our
operating expenses were tightly managed.
We continue to generate cash from our
business and manage our investments very
carefully. 2010 saw our cash balance increase
by US$35 million to US$158 million. This will
help to ensure we are sufficiently funded
to fuel both our organic and inorganic future
growth. In addition, we plan to continue our
strategy to acquire or license complementary
technology and intellectual property. An
example in 2010 was the acquisition of the
Power Management assets from Diodes Zetex
GmbH. As part of this transaction, a design
team was also transferred to Dialog. This
technology has already been successfully
developed and integrated in a new family
of power management ICs which we recently
demonstrated to our customers.
We have continued to execute on our strategy
to strengthen technology leadership and in
February 2011 we acquired SiTel Semiconductor
B.V., a leader in short-range wireless, digital
cordless and VOIP technology. As short-range
wireless technologies are becoming more
prevalent within our society in a broad range
of consumer, medical and internet connected
devices, this represents an exciting new
expansion area into new adjacent portable
markets for Dialog. We welcome this new team
to Dialog and look forward to their positive
contribution to our continued revenue growth,
strategic customer diversity and a broader
product portfolio.
Despite a challenging supply chain situation in
2010, Dialog was commended by many of its
major customers for its operational excellence
in supporting them with on-time deliveries.
For the benefit of our Shareholders, I am
extremely pleased that 2010 saw us increasing
our share price from €7.63 at the start of the
year to close the year at €17.03, an appreciation
of more than 120%. During 2010, the liquidity
in our shares increased to a daily average of just
under one million shares, increasing nearly two
times over that in 2009. Throughout the year
through many one-to-one meetings with
investors, and attendance at both European and
US conferences, we have focused our investment
relations efforts on maintaining our relations with
our existing Shareholders and attracting new
European and US institutional funds as long-term
Shareholders of Dialog. Analyst coverage in
Dialog has also improved with currently seven
sell side analysts covering our stock.
We have continued to successfully execute
our growth strategy this year, both extending
our product portfolio and extending our reach
into new customers and new growth markets.
Within the wireless segment, our design win
success momentum within portable devices has
continued in 2010, including major design wins
not only in Smartphones but also within Tablet
PCs, MP3 players and other portable devices.
We view the Tablet PC market, which has
emerged strongly in 2010, as an additive
and exciting market to Smartphones and one
which fits perfectly with our expanding
product portfolio.
Expansion of our portfolio to include more
standard products has also continued in 2010
with our launch of new standard product
families. These launches have included a new
Intel® Atom™ companion device for the
latest Atom E6xx series as well as a second
generation of configurable power management
ICs. We have also expanded the industry’s
lowest power audio codec suite of products
and developed an exciting industry-first
“2D-3D” video conversion IC for Tablet PCs
and Smartphones. These products map closely
with both the prevailing consumer and
manufacturer demands and provide us with a
platform for continued future revenue growth.
Our SmartXtend™ passive matrix OLED
Developments is now ready for industry
adoption in 2011 within the portable device
and cellphone markets. The characteristics of
transparency and flexible displays are proving
to be strong differentiators for early adopter
cellphone customers who we are engaging
with. I remain convinced that our low-energy
display systems products such as OLED and
2D-3D converter will be a future driver for
revenue for Dialog.
Dialog Semiconductor Plc Annual report and accounts 2010 13
Section 2 | Business review
Chief Executive’s review continued
management and audio ICs especially
within the Smartphone, Tablet PC and
portable media device market.
● Superior innovation and new standard
product releases across our business
segments, including deeper engagement
within our current and emerging customers
for high-volume custom products.
● Success in PM OLED where together with
our early cellphone adoptor customers
aim to bring PM OLED to volume production
and offer the market new innovative
display features.
● Continued diversification of our customer
and product base in both portable and
other industrial markets through both
organic development and inorganic
activities – including complementary
technology-based acquisitions.
To support our growing organisation and
business, during 2010 we added two new
members to our executive management team.
Andrew Austin joined as VP Sales having had
a successful career at Texas Instruments.
Additionally, Martin Powell joined as VP Human
Resources after holding senior executive HR
roles in the technology industry including
General Electric (GE) and DELL in his career.
facilities to allow our growth to continue.
This included moving our Edinburgh design
centre and Santa Clara office to new upgraded
locations as well as expansion at our Munich
design centre. We have also recently started
a major renovation programme at our
headquarter offices in Nabern-teck, which will
allow expanded and modernised work space
for the next few years to keep pace with
Company growth.
We concluded the year with prestigious
recognition by winning the Global
Semiconductors Association Outstanding
European Company Award for the second year
running, and remain one of the fastest growing
public semiconductor companies in our field.
I am fully aware that the success which we
have achieved in 2010 would not have been
possible without the unwavering support and
commitment of all our employees. For this
unparalleled commitment to the Company,
they have earned my sincere gratitude.
Furthermore, I would like to also thank our
customers, business partners and Shareholders
for their long-standing loyalty, trust and the
belief they place in us.
I view this outstanding performance in 2010 as
both an incentive and an obligation to continue
our ongoing success story and I am confident
in the future success of Dialog.
Having completed a major relocation for our
Swindon facility last year, we have invested
in major expansion and upgrade of our other
Dr Jalal Bagherli
Chief Executive Officer
electronics from Bradford University. Destined
for a career in the semiconductor industry,
Manoj joined Philips and from there he
progressed through the industry working for a
range of prestigious semiconductor companies
including Texas Instruments, ARM and Sony.
In March 2006 Manoj joined Dialog as Vice
President and General Manager for our Display
Systems business unit having previously worked
as VP Business Development at ZBD, a company
specialising in bistable LCD display technology.
During his distinguished career in the
semiconductor business, Manoj touched many
lives and made a great number of close friends
throughout the whole industry. Manoj is sorely
missed by all, however his passion for technology
lives on through us all at Dialog as we build on
the foundation born from his relentless hard
work and great dedication for the Display
Systems business as we strive to build a lasting
legacy that we can all be proud of.
Manoj Thanigasalam
It is with great sadness that we report the
passing of Manoj Thanigasalam, a member
of the Dialog executive management team.
Manoj died, aged 47, following complications
from heart surgery on 31 October 2010. He
leaves behind a wife and two young children.
Manoj was born on 7 November 1963 in
Sri Lanka. As a young boy he moved with
his family to the UK where his fascination
with gadgets and how things worked led
him to graduate with a degree in physics and
Capturing Dialog’s teamwork spirit
2010 also saw the recovery of our Automotive
and Industrial segment with revenues reaching
a record high. During the year, we were also
successful in adding a new Japanese motor
controller customer. The transition to increasing
use of energy-saving lighting, including LEDs,
is also providing an exciting opportunity for
Dialog to further build on its existing lighting
business for the future.
I was greatly saddened by the recent death
at the end of October of a member of our
management team, Manoj Thanigasalam.
He was a personal friend and colleague for
more than 20 years, having worked together
since the early days in our careers. Manoj is
greatly missed by the other members of the
executive team, along with many other
colleagues and friends that he had across the
Company and beyond. The Board of Directors,
the management team and everyone in our
Company would like to express to his family
our sincere condolences at their loss.
The consumer demand for mobile connectivity
through handheld devices is providing Dialog
with a tremendous market opportunity.
As a leader in power management integrated
technology, we’re now a highly-respected
partner worldwide when it comes to enhancing
the battery efficiency of portable devices. We
see long-term growth prospects opening up for
us in these fields as energy efficiency becomes
of ever-increasing importance to our society.
The positive business performance reaffirms
our determination to continue to execute
the strategy of Dialog where in 2011 we
aim to achieve:
● Continued profitable revenue growth
driven by market share gain with power
14 Dialog Semiconductor Plc Annual report and accounts 2010
Solutions, products technology and key customers
systems. Additionally automotive customers use
our products in comfort and safety sub-systems;
and in the industrial market our products are
used in highly integrated smart-power
management systems, such as intelligent
electronic ballasts for fluorescent lighting.
Design, development and production
We are justifiably recognised for the quality and
feature-rich functionality of our mixed signal
standard Integrated Circuits and custom
Application Specific Integrated Circuits solutions.
We nevertheless continually work to increase
our intellectual property and improve our
engineering skill base and technology portfolio.
During 2010, we invested US$56.5 million,
or nearly 19% of our revenue, in research and
development. Our ability to develop mixed
signal ASIC and Application Specific Standard
Product (“ASSP”) designs rapidly enables us to
respond to customers’ needs for new solutions
that increase performance, while at the same
time reducing cost. Our strategy of modifying
and reusing a wide set of specialised analog
building blocks speeds up the design process;
in addition, our use of industry standard design
tools increases the level of automation and
the quality of verification in our products.
Our commitment to continuously deepening
our expertise has resulted in increased levels
of integration and product innovation in all
business sectors.
Power Management and Audio ICs
Effective Power Management for ever-increasing
feature-rich portable devices such as Tablet PCs
presents increasingly new design challenges.
For example, the introduction of multiple
processor cores which need to be powered up
and down in a particular sequence or operate
in different sleep modes; increased peak
currents due to lower geometry technologies;
Lithium-ion type batteries needing to charge
faster, safer and from a wider variety of sources
such as USB ports; changing chemical
structures of batteries; in addition to displays
which are required to be brighter, bigger and
incorporate touch functionality with the use
of new organic substrate materials.
All these trends impact the Power Management
IC directly, and we constantly evolve our core
technology and intellectual property to extend
our market-leading status. With a long legacy
of delivering different Power Management
designs for world-leading mobile phone
manufacturers and portable consumer OEMs,
we optimise all aspects of the design including
electrical, thermal and mechanical (packaging)
considerations. These designs offer
unprecedented integration with multiple Power
Management and analogue functions on the
chip, including programmable high-performance
LDOs (low drop-out voltage regulators),
high-efficiency DC-DC voltage converters,
intelligent battery charging circuits, software
programmable LED drivers, sensor ADCs, USB
interfaces, and multichannel audio capabilities.
Dialog has combined its Power
Management technology
leadership and dedicated
customer support, delivering
fully optimised integrated
products and solutions.
Our solutions
Our solutions address two major markets:
portable electronic devices including Smartphones
and Tablet PCs, and automotive and industrial
electronics. The demand for an increased feature
set with improved displays in lithium-ion
powered portable devices, coupled with the
expectation of ever-increasing battery life,
is a major driver in the development of our
power-saving technology solutions.
Internet connectivity, video streaming and
high-quality audio on portable devices make
huge demands on battery energy management,
as well as on the technology which controls
the quality of images and displays. Our skill in
developing highly integrated silicon solutions
enables our customers to design products
which deliver excellent performance as well
as market-leading talk and standby times.
Video must now be transmitted throughout
the car, captured outside the car and monitored
with extremely low latency to be able to
react in real time to the changing external
environment. Hi-Fi quality is also demanded
of the audio system and of course better GPS
support. Our power management and clock
companion ICs for the Intel Atom processor
provide an optimum solution for next
generation multimedia powered infotainment
Superb attention to detail is key to a robust semiconductor design
Dialog Semiconductor Plc Annual report and accounts 2010 15
Section X | Xxxxxxxxx
Main heading
Whether it’s pounding the streets
blasting out your favourite power songs,
chilling on the beach to soft ambient
tunes or scaring yourself silly on the
last train home listening to the latest
Stephen King novel, portable audio
enriches our lives in so many ways.
The digital audio download market is
already a multibillion dollar industry
with more and more consumers listening
in via their mobile phones, MP3 players
and other portable mobile devices.
Dialog’s ultra low-power Audio CODEC ICs
are providing manufacturers and consumers
with professional quality audio without
compromising on battery life. Our fully
programmable audio filters ensure the best
possible audio tailored to each device at a
fraction of the power.
Dialog’s high-performance audio is always with
you powering the soundtrack of your life.
Samsung Electronics’ latest YP-Q3AB MP3
player offers extended playtime through
use of the Dialog DA7211 ultra low-power
Audio CODEC.
“ Dialog’s Class D audio amplifiers
deliver high-quality audio at a
fraction of the power consumed
by traditional class AB speaker
drivers forming a key part of
our total energy optimised
audio solutions.”
Udo Kratz
Vice President, General Manager,
Audio and Power Management
Business Unit
16 Dialog Semiconductor Plc Annual report and accounts 2010
Section X | Xxxxxxxxx
Main heading
On track with life
Dialog Semiconductor Plc Annual report and accounts 2010 17
Dialog Semiconductor Plc Annual report and accounts 2010 17
Section 2 | Business review
Solutions, products technology and key customers continued
Continuous innovation and
perfection of our Power
Management IP portfolio allows
our customers to typically save
30% of the power consumed
in their portable devices.
By capitalising on our experience in integrating
high- and low-voltage circuits on CMOS – the
most widely used semiconductor technology
– and combining it with our experience in
developing and integrating high-performance
CODECs and other analogue functions, we are
able to offer a selection of differentiated Power
Management and audio solutions. The
integration of more than 40 different functions
on a single chip delivers significant space,
power and cost savings to our customers.
In 2010, we launched a new class of Power
Management product – DA9057, our second
generation advanced system Power
Management integrated circuit (PMIC) that
offers designers greater flexibility in reducing
power consumption, size and cost in mobile
phones and other portable multimedia devices.
Conceived as a platform-PMIC, capable of
supporting all major families of application and
mobile graphics processors, DA9057 offers a
superior level of user configurability compared
to standard PMIC products.
Display drivers and related-system ICs
The demands from the market for the next
generation of portable displays to be “always
on”, thinner, with longer battery life with
higher visual and video performance even in
bright sunlight means the current technology
based on Liquid Crystals (LCD) is struggling.
To address these important market needs a
number of new display technologies such as
OLED, e-paper and MEMs have been launched.
Dialog has not only worked closely with the key
innovators of these display technologies but also
key users to develop and introduce a range of
truly innovative low power silicon driver solutions.
Achievement of near zero failure rates across hundreds of millions of devices requires
root cause and effect analysis
Breakthrough scientific discovery
requiring advanced high-
technology equipment
C W Tsai, Vice Chairman & President of SPIL was
presented with an outstanding performance
supplier of the year 2009 award by Jalal
Bagherli in recognition of their excellence
in supply with Dialog Semiconductor
In 2010, with Dialog providing the
semiconductor technology SmartXtend™
and with TDK providing the display module,
together we have completed the development
of a passive matrix OLED panel.
The technology uses a number of innovative
techniques, including a unique addressing
scheme, accurate dynamic current matching
and state-of-the-art Power Management to
outperform LCD displays. SmartXtend™ will
form the basis of a new family of PM-OLED
drivers which will be brought to production.
This technology has a very strong value
proposition in terms of power consumption,
performance and cost over competing
technologies. Additionally it provides unique
differentiating features like screen transparency
and flexible type displays.
Automotive and industrial system ICs
Dialog supplies ASICs to leading European
automotive suppliers who in turn deliver
Dialog-based products to many leading car
manufacturers. Our first customer in Japan
was also added during 2010.
These devices capitalise on Dialog’s expertise
and knowledge of technology, ranging from
Power Management systems and mixed signal
design, to high voltage circuits and embedded
microprocessors on a single integrated circuit
in an automotive-qualified CMOS process
(including flash memory).
Dialog provides ASICs for windscreen wiper
motors, electric window motors and active
restrainer seat belt systems. Its partnership
with leading automotive suppliers has resulted
18 Dialog Semiconductor Plc Annual report and accounts 2010
Innovative design through a deep
understanding of the fundamentals
in development of integrated circuits which can
be connected directly to a car battery without
external protection circuits.
For the industrial market, Dialog develops
innovative control ASICs both for conventional
light sources, such as fluorescent or high-
intensity discharge (“HID”) lamps, and for
emerging LEDs. These devices seek to deliver
optimal control and regulation of light sources,
while maximising their service life. Through
intelligent control, using advanced digital
signal processing, these devices help to
minimise energy consumption.
Manufacture, assembly and testing
We outsource our wafer production to selected
foundries, principally in Singapore and Taiwan,
which provide high-quality products and
have the ability to meet both our stringent
qualification requirements and tight deadlines.
In 2010, in addition to CMOS, we have
also started to use a BCD process which
enables higher voltage functionality to be
integrated efficiently into single chip Power
Management ICs.
The final assembly of our chips is outsourced
to a number of qualified subcontractors in
Asia. Our test programmes, based on our own
and individual customers’ specifications, are
developed by our test engineers in parallel
with the design process. All test development
is undertaken at our Nabern facility using the
same type of test equipment and handling
interfaces that are used in our offshore test
subcontractors in order to speed up the
volume ramp and production transfer process.
All production testing and warehousing of
final product is outsourced to our Asian test
subcontract partners enabling direct drop
shipments to our end customers. We have
also created a specialist offshore operations
and support centre in Taiwan. We have our
own manufacturing and technical engineers
close to foundries, and assembly and test
subcontractors in Asia. By being “on the spot”
to resolve any potential engineering issues
quickly, they can forestall potential delays
in production.
Quality and environment control
We have an uncompromising approach
to quality assurance in every area of our
operations and an uncompromising goal to
deliver “zero fail” products. Active employee
participation in error prevention approaches
has enabled us to win the approval of all our
major customers and to exceed their parts per
million (ppm) failure rate expectations.
The overall objective of our quality
management system is to provide all our
customers with the assurance that our products
and services not only fulfil their current
contractual requirements, but will also meet
their future needs. We are committed to
minimising our impact on the environment
by developing and promoting environmentally
compatible products, and operate in accordance
with the ISO 14001 international environmental
quality standard. We continuously promote
awareness and knowledge of environmental
issues throughout the organisation to ensure
that they become a natural part of the
decision-making process. As we demand the
same standards from our suppliers we only
form supply partnerships with those who are
accredited to the same international quality
standards. For more detailed information on
specific products, please see our Website:
www.dialog-semiconductor.com.
Principal customers
Many of Dialog’s principal customers are
leading portable device and automotive and
industrial equipment manufacturers that
purchase both ASICs and ASSPs solutions.
Customers with a significant contribution to
revenue include Apple, Bosch, RIM (Research
in Motion), SonyEricsson and TridonicAtco.
These top customers represented 88% of
revenue in 2010.
Given the rapidly evolving nature of the
technology used in Dialog’s target markets,
the Company strives to develop long-term
relationships with its major customers and
seeks to adopt a partnership approach
for both standard products and custom
solutions. Customers look to Dialog for its
technical expertise, while close working
relationships with customers provide Dialog
with an opportunity to develop and refine
market-leading products with recognised
industry leaders.
Dialog Semiconductor Plc Annual report and accounts 2010 19
Humans are a sociable bunch. We all like
to stay connected and socially aware
of what’s happening with those that
matter in our lives. Social networking
has become a killer application in mobile
devices allowing us to communicate
in an unprecedented number of ways
using a rich set of media tools, from text
to audio clips and pictures to video. It’s
the appeal of being always-connected,
wherever we are that makes portable
mobile products the ideal, socially
smart devices.
Social networking is driving the need for
faster wireless, providing communication of
greater amounts of user-generated multimedia,
created on more sophisticated applications
processors and presented on higher resolution,
brighter screens. All this is putting huge
energy demands on the battery.
Dialog is at the forefront of power
management technology ensuring every
micro-watt of power is used wisely,
minimising energy wastage while enabling
faster charging by reducing heat build-up.
“ Dialog is helping to deliver
enhanced multimedia through
highly optimised power
management ensuring our
customers can keep delivering
socially smart devices that meet
the demands of today’s consumer.”
Gary Duncan
Vice President, Engineering
Socially smart
Dialog Semiconductor Plc Annual report and accounts 2010 21
Dialog Semiconductor Plc Annual report and accounts 2010 21
Section 2 | Business review
Financial review
“ We continue to execute our growth strategy whilst
maintaining a sound and scalable financial platform.”
Jean-Michel Richard, CFO, Vice President Finance
The following tables detail the historical consolidated statements of the operations of Dialog for the years ended 31 December 2010 and 2009:
Revenues
Audio & Power Management
Display Systems
Automotive/Industrial
Reconciliation
Revenues
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Other operating income
Restructuring and related impairment charges
Operating profit
Interest income and other financial income
Interest expense and other financial expense
Foreign currency exchange gains and losses, net
Result before income taxes
Income tax benefit (expense)
Net profit
Results of operations
Segment reporting
Revenues in the Audio & Power Management
segment for the year ended 31 December
2010 were US$245.4 million compared to
US$176.6 million in 2009, an increase of
39.0%. The increase in this sector is primarily
driven by the success of our growing range of
highly integrated power management solutions
for portable devices including portable media
players, Smartphones and Tablet PCs.
The operating profit in the Audio & Power
Management segment (see note 23 to the
consolidated financial statements) increased to
US$59.1 million compared to US$47.0 million
in the same period 2009, an increase of 25.6%.
Revenues in the Display Systems segment
were US$1.9 million for the year ended
31 December 2010 (2009: US$6.0 million).
The decline in revenues between 2009 and
2010 is primarily due to the reduction in
customer-funded R&D activities which
contributed predominantly to the 2009
revenues. The operating loss in this segment
2010
Revenues
US$000
%
US$000
245,364
82.7
176,569
1,866
50,326
0.6
17.0
5,987
33,531
(959)
(0.3)
1,526
2009
Revenues
%
81.1
2.8
15.4
0.7
296,597
100.0
217,613
100.0
(19.0)
(42,621)
(19.6)
(55.1)
44.9
(6.5)
(5.8)
0.2
0.0
13.2
0.1
(0.1)
(159,334)
(53.7)
(119,886)
137,263
46.3
97,727
(17,391)
(17,471)
(56,465)
–
(595)
(5.9)
(5.9)
(14,183)
(12,584)
0.0
(0.2)
333
–
45,341
15.3
28,672
1,130
(120)
(2,088)
44,263
(1,784)
0.4
0.0
(0.8)
203
(212)
162
14.9
28,825
(0.6)
3,902
42,479
14.3
32,727
Change
%
39.0
(68.8)
50.1
(162.8)
36.3
32.9
40.5
22.6
38.8
32.5
(100.0)
–
58.1
456.7
(43.4)
0.1
(1,388.9)
13.3
1.7
15.0
53.6
(145.7)
29.8
(see note 23 to the consolidated financial
statements) for the year ended 31 December
2010 was US$11.2 million (2009:
US$12.4 million). These losses reflect our
investment in the emerging ultra low-power
display technologies such as PMOLED.
Revenues from our Automotive/Industrial
Applications segment were US$50.3 million
for the year ended 31 December 2010 (2009:
US$33.5 million) representing 17.0% of our
total revenues (2009: 15.4%). Operating profit
in the segment (see note 23 to the consolidated
financial statements) was US$7.0 million for
the year ended 31 December 2010 (2009:
US$3.6 million operating losses). The 50.1%
year-on-year revenue growth reflects the
recovery in the automotive business which
started in Q4 2009 and the fact that we also
benefited from sales of last time buy products
during 2010 for an amount of US$6.4 million.
These products were sold as a result of last
year’s notification of the phasing out of an
older manufacturing process from one of our
foundry partners.
Revenues FY 2010
(US$m)
296.6
217.6
2009
2010
Revenues
Total revenues for the year ended 31 December
2010 were US$296.6 million (2009:
US$217.6 million). This increase of 36.3%
results predominantly from higher sales
volumes in our Audio & Power Management
and Automotive and Industrial sectors as
described above.
22 Dialog Semiconductor Plc Annual report and accounts 2010
Section 2 | Business review
Cost of sales as % of revenue FY 2010
55.1
53.7
2009
2010
Cost of sales
Cost of sales consists of material costs, the
costs of outsourced production and assembly,
related personnel costs and applicable overhead
and depreciation of test and other equipment.
For the year ended 31 December 2010, cost of
sales increased by 32.9% to US$159.3 million
(2009: US$119.9 million) resulting from
increased revenues recorded during the year.
However, as a percentage of total revenues,
cost of sales in the same periods decreased
from 55.1% to 53.7%. This demonstrates
the gains made possible by our continuous
efforts to improve the Company’s product mix,
test time and yields. The underlying* (please
refer to page 24) cost of sales for 2010 were
US$158.9 million (53.6% of revenues)
compared to US$119.7 million (55.0% of
revenues) in 2009.
Gross profit
Gross profit for the year ended 31 December 2010
was US$137.3 million (2009: US$97.7 million).
Our gross profit increased from 44.9% of
revenues in 2009 to 46.3% of revenues for the
year ended 31 December 2010, driven by lower
cost of sales as a percentage of revenue and
the accelerated introduction of new products
as prescribed above.
Selling and marketing expenses
Selling and marketing expenses consist primarily
of salaries, sales commissions, travel expenses,
advertising and other marketing costs. In 2010,
selling and marketing expenses increased to
US$17.4 million (2009: US$14.2 million)
in line with increased production volume and
as a result of the Company’s investment in
creating value by increasing staff in strategic
marketing functions.
Although revenues increased year-on-year, selling
and marketing expenses decreased from 6.5%
of total revenues in 2009 to 5.9% of total
revenues in the year ended 31 December 2010.
Excluding the share-based compensation
impact, the underlying* selling and marketing
expenses for 2010 were US$15.8 million (5.3%
of revenues) compared to US$13.8 million or
6.3% in 2009.
General and administrative expenses
General and administrative expenses consist
primarily of personnel and support costs for
our finance, human resources and other
management departments. In 2010 general
and administrative expenses increased to
US$17.5 million (2009: US$12.6 million).
This predominantly reflects the increase in
share-based compensation expenses recorded
in 2010 in line with the Company share price
performance during the same period. For the
year ended 31 December 2010, general and
administrative expenses as a percentage
of revenues were 5.9% (2009: 5.8%).
The underlying* general and administrative
expenses were US$12.2 million or 4.1%
of revenues in 2010. This compares to
US$11.6 million (5.3% of revenues) in 2009.
Research and development expenses
Research and development expenses consist
principally of design and engineering-related
costs associated with the development of
new Application Specific Integrated Circuits
(“ASICs”) and Application Specific Standard
Products (“ASSPs”). Research and development
expenses (net of customer-funded projects)
increased to US$56.5 million in 2010 (2009:
US$42.6 million). The absolute US$ increase
in research and development expenses was
primarily due to an increased headcount of
our R&D personnel in support of our growth
strategy. As a percentage of total revenues
research and development expenses decreased
from 19.6% (2009) to 19.0% (2010), resulting
from a higher revenue base in the latter period.
Other operating income, restructuring
and related impairment charges
Restructuring and related impairment charges
of $0.6 million recorded in 2010 are related
to the closure of our Heidelberg (Germany)
Design Centre. Other operating income of
US$0.3 million in the year ended 31 December
2009 relates to the unexpected settlement
against receivables which had been written
down in 2006 as a result of the insolvency of
BenQ Mobile. For further information please
refer to note 26.
Operating profit FY 2010
(US$m)
45.3
28.7
2009
2010
Operating profit
We reported an operating profit of
US$45.3 million for the year ended 31 December
2010 (2009: US$28.7 million). The improvement
primarily resulted from increased revenues
and gross profits recognised in 2010. Excluding
the share-based compensation impact, the
underlying* operating profit achieved in 2010
was US$56.2 million or 18.9% of revenue
compared with the underlying* operating
profit of US$31.5 million or 14.5% in 2009.
Interest income and other financial income
For the year ended 31 December 2010, interest
income and other financial income from the
Company’s investments (primarily short term)
was US$1.1 million compared to US$0.2 million
in the previous year. The increase is primarily
the result of increased liquidity.
Interest expense and other financial expense
Interest expense and other financial expense
consist primarily of expenses from the Group’s
factoring arrangement. Interest and other
financial expenses in 2010 were US$0.1 million
(2009: US$0.2 million). The reduction is
primarily the result of reduced factoring
utilisation and lower interest rates.
Income taxes
For the year ended 31 December 2010 a net
income tax charge of US$1.8 million was
recorded (2009: US$3.9 million tax benefit).
The amount in 2009 consists of a current tax
expense of US$3.2 million and a deferred tax
benefit of US$7.1 million. Previously
unrecognised deferred tax assets were recognised
for the first time in Q4 2009. This resulted
in a contribution of US$7.5 million to the
Company’s 2009 net profit (for further
information please refer to note 4). The
amount in 2010 consists of a current tax
expense of $5.3 million and a deferred tax
benefit of $3.5 million.
Dialog Semiconductor Plc Annual report and accounts 2010 23
Section 2 | Business review
Financial review continued
Net profit FY 2010
(US$m)
42.5
32.7
2009
2010
Net profit
For the reasons described above, in 2010
net profit increased by US$9.8 million to
US$42.5 million or 14.3% of total revenues
(2009: US$32.7 million or 15.0% of total
revenues). For the year ended 31 December
2010, basic earnings per share were US$0.70
(2009: US$0.67) and diluted earnings per
share were US$0.66 (2009: US$0.60). The
underlying* earnings per share (diluted) were
82 cents for financial year 2010. This compares
to 65 cents for financial year 2009. Excluding
the effect of the cash settlement from BenQ
Mobile insolvency recorded in April 2009
(see above and note 26), net income for the
year ended 31 December 2009 would have
been US$30.4 million.
Revenues
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Other operating income
Restructuring expenses
Operating profit
Interest income and other financial income
Interest expense and other financial expense
Foreign currency exchange gains and losses, net
Result before income taxes
Income tax benefit (expense)
Net profit
Earnings per share (in US$)
Basic
Diluted
Liquidity and capital resources
Cash flows
Cash generated from operating activities
was US$52.0 million (2009: US$33.2 million).
The cash inflow in 2010 primarily resulted from
the operating income (before depreciation,
amortisation and other non-cash effective
expenses) a decrease in trade accounts
receivable and higher trade accounts payable.
This cash inflow was partly offset by an increase
in inventory balances and a reduction in tax
liabilities. The cash inflow in 2009 related
primarily to the operating income (before
depreciation, amortisation and other non-cash
effective expenses). This cash inflow was partly
offset by cash used to finance the increased
working capital.
Cash used for investing activities in 2010
was US$15.5 million (2009: cash used
US$12.3 million). Cash used for investing
activities in 2010 consisted primarily of the
purchase of tooling (masks), laboratory equipment,
probe cards, load boards and other advanced
test equipment for a total of US$9.8 million (2009:
US$5.9 million), the purchase of intangible assets
of US$5.9 million (2009: US$1.8 million) and
payments related to capitalised development
costs of US$2.8 million (2009: US$1.0 million).
Liquidity
At 31 December 2010 we had cash and
cash equivalents and restricted cash of
US$158.2 million (31 December 2009:
US$123.1 million). The working capital
(defined as current assets minus current
liabilities) was US$169.2 million (31 December
2009: US$134.4 million).
If necessary, we have available for use a
short-term credit facility of US$5.0 million
which bears interest at a rate of LIBOR + 90bp
per annum and a multi-currency revolving
credit line facility of £10 million at a rate of
LIBOR + 135bp. At 31 December 2010 we had
no amounts outstanding under these facilities.
In addition, we have a factoring agreement
which provides the Company with up to
US$25.0 million of readily-available cash.
Accordingly, we believe the funding available
from these and other sources will be sufficient
to satisfy our working capital requirements
in the near to medium term if needed.
Dialog Semiconductor’s underlying financial
performance for the year ended 31 December
2010 is summarised below:
2010
2009
IFRS Adjustment
Underlying*
IFRS
Adjustment
Underlying*
US$000
US$000
US$000
US$000
US$000
US$000
–
296,597
217,613
–
217,613
296,597
(159,334)
460
(158,874)
(119,886)
137,263
460
137,723
97,727
(17,391)
(17,471)
(56,465)
–
(595)
1,604
5,305
3,484
–
(15,787)
(14,183)
(12,166)
(12,584)
(52,981)
–
(42,621)
333
–
(595)
–
139
139
405
1,023
1,246
–
–
(119,747)
97,866
(13,778)
(11,561)
(41,375)
333
–
45,341
10,853
56,194
28,672
2,813
31,485
1,130
(120)
(2,088)
–
–
–
1,130
(120)
(2,088)
203
(212)
162
–
–
–
203
(212)
162
44,263
10,853
55,116
28,825
2,813
31,638
(1,784)
–
(1,784)
3,902
–
3,902
42,479
10,853
53,332
32,727
2,813
35,540
0.70
0.66
0.18
0.16
0.88
0.82
0.67
0.60
0.06
0.05
0.73
0.65
* Underlying results are based on IFRS, adjusted to exclude share-based compensation charges (FY 2010: US$10.9 million; FY 2009: US$2.8 million) including associated
social security costs (FY 2010: US$6.6 million; FY 2009: US$1.4 million). The term “underlying” is not defined in IFRS and therefore may not be comparable with similarly
titled measures reported by other companies. Underlying measures are not intended as a substitute for, or a superior measure to, IFRS measures.
24 Dialog Semiconductor Plc Annual report and accounts 2010
Section 2 | Business review
Statement of financial position
Assets
Cash and cash equivalents and restricted cash
All other current assets
Total current assets
Property, plant and equipment, net
Intangible assets
All other non-current assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities and Shareholders’ equity
Current liabilities
Non-current liabilities
Net Shareholders’ equity
Total liabilities and Shareholders’ equity
Balance sheet total was US$253.4 million
at 31 December 2010 (31 December 2009:
US$192.3 million). Cash and cash equivalents
and restricted cash increased by 28.5%
to US$158.2 million at 31 December 2010
(31 December 2009: US$123.1 million).
This increase is predominantly related to an
operating cash inflow as prescribed above.
Other current assets increased by 27.6%
to US$58.3 million (31 December 2009:
US$45.7 million), driven by higher inventory
balances and prepaid expenses.
In 2010, total non-current assets increased
by 57.1% to US$36.9 million. This increase
is primarily due to higher balances of property
plant and equipment and intangible assets
as capital expenditures and investments were
higher than depreciation and amortisation and
impairment charges. Also, in 2010, additional
net deferred tax assets in the amount of
US$3.3 million, principally relating to carried
forward losses, were recognised. This was the
result of the Group recording the third consecutive
year of positive net income. Therefore, based
on the expected positive net result for the near
future, the management concluded that it was
appropriate to recognise deferred tax assets
in an amount of US$10.8 million (2009:
US$7.5 million). The assessment was based
on the business plan for 2011 and beyond.
2010
US$000
2009
US$000
Change
US$000
Change
%
158,200
123,148
58,263
45,663
35,052
12,600
216,463
168,811
47,652
14,249
10,727
1,111
10,829
9,807
5,005
1,174
7,514
4,442
5,722
(63)
3,315
36,916
23,500
13,416
253,379
192,311
61,068
47,218
34,380
12,838
889
952
(63)
205,272
156,979
48,293
253,379
192,311
61,068
28.5
27.6
28.2
45.3
114.3
(5.4)
44.1
57.1
31.8
37.3
(6.6)
30.8
31.8
Non-current liabilities relate to provisions, capital
lease and hire purchase commitments and the
fair value of derivative financial instruments.
Shareholders’ equity increased to US$205.3 million
(US$157.0 million at 31 December 2009) which
is predominantly the result of our net profit
and the February 2010 capital increase (please
refer to note 18). The equity ratio (equity
over total assets) was 81.0% (81.6% at
31 December 2009).
Dialog Semiconductor Plc Annual report and accounts 2010 25
Section 2 | Business review
Risks and their management
The market
The market in which we compete is intensely
competitive and highly cyclical, and is
characterised by continuous development and
technological improvement. Our future success
depends on our ability to anticipate and respond
to new market trends, to implement new designs
rapidly to meet customers’ needs, and to keep
abreast of the technological changes. As a
result, we invest in research and development
to enable us to create innovative designs and
products on a cost-effective, timely basis.
Revenue and profitability
We returned to profitability in 2008 after
having not been profitable for the prior seven
financial years, and cannot guarantee that we
will remain profitable in the future. But we
constantly seek to improve profitability by
launching new products and acquiring new
customers. Since we continue to rely on a
relatively small number of customers for a
substantial proportion of our revenue, the loss
of one or more of these customers would be
likely to have a material effect. Our goal is to
spread this risk by acquiring more customers.
We are attempting to reduce the risk of our
revenues, profitability and growth being affected
by a slowdown in the wireless communications
market by winning customers in other sectors.
Third-party costs and supplier risk
During 2007, we outsourced our
manufacturing and testing to lower-cost
environments, where there is excellent capacity,
to overcome the potential problem of an
inability to access manufacturing capacity
which would result in increased costs and,
therefore, decreased revenue. The tightness
in the industry supply chain that we have
experienced during most of 2010 has impacted
our ability to extract price reductions from our
suppliers. Semiconductor supplies have been
on allocation for the greater part of 2010 and
we expect this to continue into 2011. Whilst
most of our large and strategic suppliers have
invested in increased capacities during 2010,
these will not have a material impact on the
overall supply before the second half of 2011.
In the meantime, manufacturing lead-time
remains well above those of 2009. We remain
confident that we will continue to meet our
revenue plans but ongoing industry capacity
constraints will continue to limit our ability
to take advantage of short upside demand.
If any of the Company’s suppliers were to
become insolvent, there could be a risk of
the Company’s production being interrupted.
For this reason, the Company tries to source
its components from at least two different
suppliers and from different sites. In addition,
the Company takes the precautions for supplier
insolvency with its risk management system in
which information on the creditworthiness of
suppliers is kept. This seeks to identify suppliers
at risk at an early stage.
Intellectual property
We seek to protect our intellectual property
from being copied or used by others
by appropriate use of patents, copyrights
and trademarks.
Interest rate risk
The Group earns interest from bank deposits
and uses money market deposits with highly
rated financial institutions. During the year, the
Group has held cash on deposit with a range
of maturities from one week to three months.
This can vary in view of changes in the
underlying currency’s interest rates and the
Group’s cash requirements. The Group has no
long-term debt and no amounts outstanding
under short-term credit facilities as at
31 December 2010 (2009: US$nil). The Group’s
policy is to manage its interest income using
a mix of fixed and variable interest rate debts.
In order to achieve this policy, the Group invests
in highly liquid funds having a matching
investment strategy. Once the operating
business has been financed, short-term
excess funds are invested with reputable
financial institutions.
Currency risk
The Company’s functional – and presentational
– currency is the US dollar, and the majority of
its revenue and expenses are in that currency.
There are, however, foreign exchange risks
associated with transactions, and recognised
assets and liabilities in other currencies,
primarily the euro and the pound sterling.
Transaction currency exposures arise from
sales or purchases in currencies other than
the US dollar. We use forward currency
contracts to eliminate our exposure associated
with the payment of salaries and wages in
other currencies. We maximise the effectiveness
of our hedge derivatives by matching the terms
and conditions of the hedge to those of the
underlying obligation. (See note 24 on page
80 for further information.)
Credit risk
The Company is exposed to credit risk from its
operating activities and certain of its financing
activities. We ensure that our exposure to bad
debt is minimised by monitoring all customers
who trade on credit terms, and receivable
balances. In August 2007, we entered into
a factoring agreement with a reputable
financial institution to finance our growth.
The maximum amount of cash that can be
received under this factoring agreement is
US$25 million (2009: US$30 million). Since the
financial institution assumes all risks associated
with the collection of receivables from selected
customers, the agreement significantly reduces
our risks associated with their collection.
We, in turn, had pledged US$3.0 million of
cash to the financial institution concerned.
The institution would draw down on these
only if a commercial action by Dialog were
to invalidate – partly or completely – the claim
on a receivable financed by the factoring
programme. In Q4 2010, the factoring bank
relinquished the pledge. Consequently, no
restricted cash is shown at 31 December 2010.
Liquidity risk
We monitor our liquidity on a quarterly basis
with the objective of avoiding interest on
short-term bank liabilities or overdrafts. Our
policy is to structure the maturity of our current
financial assets in the Group to meet 100%
of the respective maturities and liabilities.
An international equity offering was launched
in Q3 2009, with the subscription being
approximately three times oversubscribed.
Twelve million new ordinary shares were priced
at €3.65, representing a premium of 4% to
the price on the offer announcement date.
The shares were placed with a number of
Tier 1 institutional investors to raise gross
proceeds of €43.8 million (US$ 64.3 million).
Net proceeds (after deduction of offering
expenses of US$4.7 million) were US$59.7
million. The proceeds from the offering are
being used to increase our working capital
resources to fund future growth, to acquire
complementary technology and intellectual
property and expand our design and technical
support teams, particularly in the US and Asia.
26 Dialog Semiconductor Plc Annual report and accounts 2010
Section 2 | Business review
Corporate social responsibility
Dialog considers that the social challenges
of corporate responsibility should be based
on fair wages, healthy and safe working
conditions, respect for human rights, honest
relationships and commitment to community
development. With regard to these challenges,
Dialog is committed to the adoption of the
Electronics Industry Code of Conduct (EICC)
standard as the model for ensuring that
working conditions for internal and external
suppliers are safe and that all workers are
treated with respect and dignity. This
commitment is reflected in Dialog’s own
“Code of Conduct”, which addresses all the
key areas defined in the EICC standard along
with recognised standards such as International
Labour Organization Standards (ILO), Universal
Declaration of Human Rights (UDHR), Social
Accountability International (SAI) and the
Ethical Trading Initiative (ETI). In addition,
the Company complies with the worldwide
ISO 14001 Environmental Standard – and
expects its suppliers to do the same – in order
to ensure that all manufacturing processes
are environmentally compliant.
Human rights and code of conduct
Dialog’s philosophy is that all its suppliers
must demonstrate a commitment to upholding
workers’ human rights and to treating them
with dignity and respect. Standards such as
the UDHR, SAI and the ETI have been used
as a basis for these requirements. All labour
must be given voluntarily and workers must be
free to leave their employment on reasonable
notice. Child labour must not be used at any
stage of manufacturing. Working hours must
not exceed the maximum set by local laws and
wages must comply with all applicable laws.
Dialog and its suppliers must ensure that
workers are not threatened or subjected to
inhumane or harsh treatment, harassment
or any form of unlawful discrimination.
Open communication and direct engagement
between workers and management is
encouraged, even in those countries where
there is no meaningful legal protection.
In order to promote its philosophy several
new initiatives have been introduced to all of
Dialog’s manufacturing partners during 2010,
including a detailed code of conduct for them
to review and implement. Detailed self-audits
have been performed by all our suppliers in
order to verify the implementation of this code
of conduct and on-site audits and inspections
are performed regularly by Dialog to verify its
continuing maintenance.
Health and safety
Dialog considers a safe and healthy working
environment to be essential in the maintenance
of employees’ morale and in the production
of high-quality and innovative products. As a
result, we require our major suppliers also to
be committed to ensuring the creation of
healthy and safe working conditions. We
expect them to provide evidence of suitable
controls, safe working procedures, preventative
maintenance and general protective measures
in their working environments. When hazards
cannot be adequately controlled by these
means alone, suitable protective clothing
or equipment is supplied, and evacuation
procedures and facilities are in place at
Dialog’s and suppliers’ premises.
Connecting with employees
Dialog aims to attract and retain the best
people by ensuring that all employees receive
comprehensive on-the-job formal training,
coaching and mentoring. Clear and regular
communication is achieved through regular
Company-wide information sessions, led
by the CEO, and every effort is made to keep
employees fully aware of Company matters
that affect them. We encourage employee
feedback at all levels for new ideas to improve
business efficiency and performance.
In order to reinforce Dialog’s commitment
to Corporate Social Responsibility, corporate
contributions to charitable organisations are
made on an ongoing basis. As many of our
employees across all Dialog sites partake in
charitable events personally, Dialog provides
a comparable donation to that raised
by individual employees as a result of
these events.
This initiative gives Dialog the opportunity
to make a contribution to local communities,
communities where we do business and charities
which employees are passionate about.
Donations in 2010 included Children in Need
in the UK, a charity for children with mental
and physical handicap in Dettingen U-Teck,
Germany and to a leading charity dedicated
to beating cancer through research.
In addition, to foster and support our next
generation of engineers, Dialog through
the National Microelectronics Institute offer
engineering sponsorship in the UK and sponsor
engineering scholarships at the University
of Edinburgh.
Ethics
Dialog believes that continued success in
the semiconductor market can be achieved
only by adopting high standards of ethical
behaviour when dealing with customers,
suppliers and workers.
It is particularly important to protect Intellectual
Property (“IP”), which is the key to ensuring the
development of innovative solutions to complex
problems. Any transfer of technology or
know-how is always done in a manner that
protects IP rights; effective protection also
means that products can be discussed openly
with our business partners. The disclosure
of information which is related to business
activities, structure, our financial situation
and performance is always carried out in
accordance with applicable regulations and
prevailing industry practices. We expect the
highest standards of integrity from all Dialog
stakeholders; any malpractice is strictly
prohibited and may result in immediate
termination and legal action.
Neither we nor our suppliers offer or accept
inducements or any other means of obtaining
undue or improper advantage. We have a
“whistle-blower” policy in place to protect
employees’ confidentiality and encourage our
suppliers to do the same. Dialog’s management
system complies with the EICC code. It is
certified to the ISO 9001 international standard
as a formal implementation of the code and
is committed to implementing and facilitating
continuous improvements, and to mitigating
operations-related risks. To enable us to comply
with all applicable laws, regulations and
customer requirements, as required by the
code, we also ensure that all our major
supply-chain partners are accredited to at
least the same standard. To ensure that we
constantly improve our management systems
we regularly review and audit internal and
supply-chain management systems.
The environment and
environmental protection
The environmental agenda at Dialog
considers climate change environmental
protection aspects (air, land and water quality),
effective resource management (eco-efficiency)
and sustainability. Our commitment to the
environment is evidenced by our ISO 14001
certification. Since we firmly believe that
sustainable development can be secured only
if we safeguard our valuable resources, we
deal only with suppliers that have similar
Dialog Semiconductor Plc Annual report and accounts 2010 27
Section 2 | Business review
Corporate social responsibility continued
environmental goals and are also accredited
to the ISO 14001 standard. Within our supply
chain, we continually emphasise that
environmental issues should be an instinctive
part of any decision-making process, and that
suppliers should use environmentally friendly
technology to:
● Reduce and eliminate emissions of
ozone-depleting and other volatile organic
chemicals (VOC);
● Design and manufacture only
environmentally friendly products;
● Manage, reduce and dispose of hazardous
substances safely;
● Monitor and control waste water and solid
waste emissions;
● Reduce and eliminate all types of waste,
including water and energy;
● Reduce waste by maximising product
yields; and
● Ensure all environmental permits are
obtained, maintained and kept current.
As a fabless semiconductor company,
it is important to Dialog that all of its
manufacturing partners also follow their
requirement to respect the environment.
To this end every supplier is required to
complete a self-audit questionnaire to identify
and document compliance to Dialog’s
environmental requirements.
Also, evidence of compliance with requirements
is checked during regular supplier on-site audits.
As part of Dialog’s continuing Corporate Social Responsibility, Dialog sponsored a tree planting
programme for the students at Loyola School, Los Altos School District in California, USA. In 2010
Mark Tyndall, VP Business Development, presented Dialog’s donation to Kimberly Attell, Principal
at Loyola School. The aim of the programme is to build continued awareness with children of the
importance and protection of our environment.
28 Dialog Semiconductor Plc Annual report and accounts 2010
Section 3 | Management and governance
Executive management
1
6
2
7
3
8
4
9
1 Dr Jalal Bagherli
Chief Executive Officer
Jalal joined Dialog, as CEO, in September 2005.
He was previously Vice President and General
Manager of the Mobile Multimedia business unit for
Broadcom Corporation and the CEO of Alphamosaic.
He has extensive experience of the semiconductor
industry through his previous professional and
executive positions at Texas Instruments and Sony,
and a wealth of knowledge about the Far Eastern,
European and North American markets. He is a
non-executive Director of Lime Microsystems Ltd.
2 Andrew Austin
Vice President, Sales
Andrew joined Dialog in April 2009. He was previously
a Sales and Marketing consultant specialising in the
semiconductor and high performance sports industries.
He has extensive experience of the semiconductor
industry through his previous professional positions
at Texas Instruments and Raytheon Systems. Andrew
holds a degree in Electrical and Electronics from
Hertford University.
3 Mohamed Djadoudi
Vice President, Global Manufacturing Operations
and Quality
Mohamed joined Dialog in March 2007 and is
responsible for product engineering, test and
assembly development, data automation, software
support, offshore manufacturing operations and
quality. Mohamed has more than 25 years’ experience
in the field of semiconductor manufacturing
operations, starting initially with IBM in France and
the US. He was previously Senior Vice President and
Chief Technology Officer of the Unisem group, an
assembly and test subcontractor based in Malaysia
and China. He also held the position of Vice President
of Test Operations at ASAT based in Hong Kong
before becoming one of the original members
of the management buy-out team of ASAT UK
(Atlantis Technology UK), where he served as the
Technical Director. Mohamed holds an Electronic
and Electrotechnic degree from the Paris University
of Technology.
4 Gary Duncan
Vice President, Engineering
Gary, who joined the Company in 1987, is responsible
for the design and development of our semiconductor
products. Before joining Dialog, he held senior
engineering and management roles at Plessey
and ES2.
5 Jürgen Friedel
Vice President, General Manager Automotive
and Industrial Business Unit
Jürgen joined Dialog in 1999 and is responsible for the
Automotive and Industrial Business Unit. He previously
held senior management positions at SEL/ITT and
National Semiconductor, in Germany. Jürgen holds
a diploma in communications engineering from the
University for Applied Sciences, Esslingen.
6 Peter Hall
Vice President, Supply Operations and Facilities
Peter joined Dialog in 1987 and is responsible for supply
operations, procurement and facilities. He also reports
directly to the Audit Committee in his role as Internal
Audit Manager. His previous experience includes
management and engineering positions at STC
Semiconductors and MEM in Switzerland. Peter holds
a BSc in electrical and electronic engineering from
Newcastle University and an MSc in digital design
techniques from Herriot Watt University, Edinburgh,
and an MBA from the Open University, United Kingdom.
7 Udo Kratz
Vice President, General Manager Audio
and Power Management Business Unit
Udo joined Dialog in May 2006. He is responsible
for the Audio and Power Management Business Unit,
which makes products for the mobile phone and
portable consumer markets. His 20+ years’ experience
in the semiconductor industry was gained in general
management, senior marketing and engineering
at Robert Bosch GmbH, Sony Semiconductor and
Infineon Technologies. Udo holds an electronic
engineering degree from the University for Applied
Sciences, Mannheim.
5
10
8 Martin Powell
Vice President, Human Resources
Martin joined the Company in 2010 and is responsible
for developing and driving people strategies in support
of Dialog’s business goals and initiatives worldwide,
including fostering an environment where Dialog’s
teams can thrive. Prior to Dialog Martin has held a variety
of senior and executive HR roles with Medtronic Inc,
General Electric (GE) and the Dell Corporation, and
most recently was a member of the executive team
at C-MAC MicroTechnology, a private equity backed
leader in the high reliability electronics sector. During
his career Martin has been located in Asia, continental
Europe as well as the United Kingdom.
9 Jean-Michel Richard
CFO, Vice President Finance
Jean-Michel joined the Company in September 2006
to head up its finance department. He was previously
Finance Director for the Global Manufacturing and
Technology Division of ON Semiconductor, in Phoenix,
Arizona, and before that held senior finance and
treasury positions at ON and Motorola, in Europe
and the US. Jean-Michel holds a Masters in Economics
from the University of Geneva, Switzerland.
10 Mark Tyndall
Vice President, Business Development
and Corporate Strategy
Mark Tyndall joined Dialog Semiconductor as Vice
President of Business Development and Corporate
Strategy in September 2008. Prior to Dialog, Mark
was Vice President of Business Development and
Corporate Relations at MIPS Technologies. From
1999 to 2006, he held the position of Vice President
of Business Development at Infineon and has also
served as a Board Director of a number of start-up
companies, several of which were successfully
acquired. Earlier in his career, Mark held management
positions in marketing at Fujitsu Microelectronics and
in design at Philips Semiconductors.
Dialog Semiconductor Plc Annual report and accounts 2010 29
Section 3 | Management and governance
Board of Directors
1
5
2
6
3
7
4
8
1 Gregorio Reyes
Chairman
Gregorio joined the Board in December 2003.
His experience is primarily in data storage and
magnetic recording, semiconductors, and
telecommunications. He was President and CEO
of National Micronetics from 1981 to 1984, and
Chairman and CEO of American Semiconductor
Equipment Technologies from 1986 to 1990.
He co-founded Sunward Technologies in 1985
and was Chairman and CEO until 1994. He is
currently non-executive Chairman of LSI Logic and
a non-executive director of Seagate Technology.
2 Dr Jalal Bagherli
Chief Executive Officer
Jalal joined Dialog, as CEO, in September 2005.
He was previously Vice President & General Manager
of the Mobile Multimedia business unit for Broadcom
Corporation and the CEO of Alphamosaic. He has
extensive experience of the semiconductor industry,
through his previous professional and executive
positions at Texas Instruments and Sony, and a wealth
of knowledge about the Far Eastern, European and
North American markets. He is a non-executive
director of Lime Microsystems Ltd.
3 Chris Burke
Non-executive Director
Chris joined the Board in July 2006. Until the end of
2004, he was CTO at Vodafone UK Limited and was
previously CTO at Energis, after spending 15 years
in Research & Development at Northern Telecom.
He holds appointments at Connectivity Ltd (an Esprit,
and 3i Portfolio Company) and OneAccess. He invests
from his own fund and provides strategic advice to
a wide range of investors and technology companies,
including HP Communications & Media, Juniper
Networks and a variety of venture capital funds.
4 Aidan Hughes
Non-executive Director, Chair of Audit Committee
Aidan joined the Board in October 2004. He qualified
as a Chartered Accountant with Price Waterhouse in
the 1980s before taking senior accountant roles at
Lex Service Plc and Carlton Communications Plc.
He was Finance Director of the Sage Group plc from
1993 until 2000 and, from December 2001 to August
2004, was a director of Communisis Plc. He is a
director of, and investor in, a number of UK private
technology companies.
5 John McMonigall
Non-executive Director
John joined the Board in March 1998. He has been
a director at Apax Partners since 1990 and, between
1986 and 1990, held a variety of senior positions
at British Telecommunications plc and was also a
member of the management board. He is currently
on the board of several other public and private
companies, including Autonomy Plc.
6 Russ Shaw
Non-executive Director, Chair of Remuneration
and Nomination Committee
Russ joined the Board in July 2006. He is currently
the Vice President & General Manager for Skype
with responsibilities for its Mobile Division as well
as Europe, Middle East and Africa. Previously, he was
at Telefonica where he was the Global Director of
Innovation. Before joining Telefonica, he was the
Innovation Director at O2, which he joined as
Marketing Director in 2005. The strong brand and
product range he established resulted in significant
customer growth. His more-than 20 years’ senior
marketing and brand management experience in the
telecoms and financial services area has enabled him
to bring an excellent level of knowledge to Dialog.
7 Peter Tan
Non-executive Director
Peter joined the Board in July 2006. He has held senior
management roles across a wide range of technology
companies, including National Semiconductors Pte
Ltd, Molex Singapore Pte Ltd, Apple Computer Inc.
and Flextronics International Inc. He is presently
Managing Partner of JP Asia Capital Partners Pte Ltd,
and also sits on the board of Vacuumschmelze (VAC)
Luxembourg S.a.r.l., VariOptic SA, Innotek Limited
and SMRT Corporation Ltd. Besides his Board role,
Peter has an advisory function in the National
University of Singapore BTech Program and is a
member of the International Evaluation Panel for the
Singapore National Research Foundation. Peter holds
a Diploma in Management Studies from the University
of Chicago and an Executive MBA Degree from the
Golden Gate University, San Francisco.
8 Peter Weber
Non-executive Director
Peter joined Dialog on 1 February 2006. He brought
with him 35 years’ experience, gained at a broad
range of companies in the semiconductor sector,
including Texas Instruments, Intel, Siliconix, the Temic
Group and Netro Corporation. Since 1998 he has
been an investor and management consultant, and
is a director of a number of companies in Europe
and the US. Peter holds an MSEE degree in
communications engineering.
30 Dialog Semiconductor Plc Annual report and accounts 2010
Section 3 | Management and governance
Directors’ report
The Directors of Dialog Semiconductor Plc
(“Dialog” or “the Company”) present their
annual report and audited financial statements
for the year ended 31 December 2010.
These accounts have been prepared under
IFRS for UK reporting purposes and are
available on the Company’s Website:
www.dialog-semiconductor.com.
Principal activities and review
of the business
Dialog Semiconductor creates some of the
world’s most energy-efficient, highly integrated,
mixed-signal integrated circuits. These are
optimised for personal mobile, industrial
and automotive applications. The Company
provides flexible and dynamic support,
world-class innovation, and the assurance of
dealing with an established business partner.
Customers with a significant contribution to
revenue include Sony Ericsson, Apple, RIM,
Bosch and Tridonic Atco. With its focus and
expertise in system Power Management,
Dialog brings decades of experience to the
rapid development of integrated circuits for
power and motor control, audio and display
processing. Dialog’s processor companion
chips are essential for enhancing both the
performance of hand-held products and
the consumers’ multimedia experience.
Automotive applications include intelligent
motor control for comfort and safety systems.
With world-class manufacturing partners,
Dialog operates a fabless business model.
Dialog Semiconductor Plc is headquartered
near Stuttgart, Germany, with operations
in Austria, China, Germany, Japan, Korea,
Taiwan, the UK and the USA. At 31 December
2010 the Company employed 398 worldwide
and is listed on the Frankfurt (FWB: DLG)
stock exchange.
More information about the business is set
out in the Chairman’s statement, on page 6,
and in the Business review, on page 12.
Future developments
The Group’s stated objective is to be the
leading global supplier of lowest-power,
highest-quality mixed-signal components
and system level solutions to the wireless and
automotive markets. The Company is currently
leveraging its expertise to expand its stand-
alone audio product portfolio, capitalising on
the success of its newly introduced low-power
and high-quality Audio IC, and to add
innovative ultra low-power display technologies
such as PM-OLED.
We continue to execute our strategy successfully,
both to further strengthen our technology
leadership and to expand our addressable market.
Pursuant to this strategy, we have acquired SiTel
Semiconductor B.V., a leader in short-range
wireless, digital cordless and VoIP technology.
SiTel’s technology and platform represent a
complementary and exciting opportunity to
address these adjacent portable device markets,
both in order to develop new products as well as
to cross-sell Dialog’s existing Power Management
technology to SiTel’s customer base.
Research and development (R&D)
The Group believes that its future competitive
position will depend on its ability to respond
to the rapidly changing needs of its customers
by developing new designs in a timely and
cost-effective manner. To this end, the
Company’s management is committed to
investing in researching and developing new
products and customising existing products.
To date, R&D projects have been in response
to key customers’ requests to assist in the
development of new products, and for the
development of application-specific standard
products (ASSPs). The Company does not
expect any material change to this approach
in the foreseeable future.
Going concern
After reviewing the 2011 budget and
longer-term plans, the Directors are satisfied
that, at the time of approving the financial
statements, it is appropriate to adopt the
going-concern basis in preparing the financial
statements of the Company.
Dividends
The Directors do not recommend the payment
of a dividend (2009: nil). They are committed
to reinvesting all profits into the business and
believe that this policy is in the best interests
of its Shareholders.
Purchase of own shares
The Company operates an Employee Benefit
Trust which purchases shares in the Company for
the benefit of employees under the Company’s
share option scheme. Since the Company has
de facto control of the assets and liabilities of
the Trust, they are included in the Company
and Group balance sheets. At 31 December
2010, the Trust held 3,995,031 shares, which
represented 6.14% of the total called-up share
capital, at a nominal value of £399,503 (2009:
2,663,318 or 4.3% of total called-up share
capital, at a total value of £266,332).
Share capital
Details of the share capital are set out in note
18 to the consolidated financial statements.
Substantial shareholdings
Details of substantial shareholdings are on page
9 of this annual report.
Directors
The Directors, together with their biographies,
are listed on page 30 of this report.
Directors’ remuneration and interests
Directors’ remuneration and interests are
detailed in the Directors’ remuneration report
on pages 35 to 37 of this annual report.
No Director had a material interest during the
year ended 31 December 2010 in any contract
of significance with any Group company.
Directors’ third-party indemnity provisions
The Company has granted an indemnity to
its Directors against proceedings brought
against them by third parties, by reason of their
being Directors of the Company, to the extent
permitted by the Companies Act 2006.
Such indemnity remains in force as at the
date of approving the Directors’ report.
Election and re-election of Directors
In accordance with the Company’s Articles
of Association, one-third of the non-executive
Directors have to stand for re-election at the
Annual General Meeting. The next Annual
General Meeting will be held on 21 April
2011 at 9am.
Corporate Governance
The Company’s Corporate Governance
statement is set out on pages 33 and 34
of this report.
Supplier payment policy
It is the Group’s policy to pay creditors in
accordance with the terms and conditions
agreed with them, and in accordance with
contractual and other legal obligations.
Days payable outstanding for the Group
at 31 December 2010 was 65 days
(2009: 52 days).
Financial instruments
The Group’s financial risk management and
policies, and exposure to risks, are set out
on page 26.
Dialog Semiconductor Plc Annual report and accounts 2010 31
Section 3 | Management and governance
Directors’ report continued
Political and charitable contributions
The Group made no political contributions
during the period. We made charitable
contributions of US$16,875 to local
community projects (2009: US$6,542).
the position of the Company and the
undertakings included in the consolidation
taken as a whole, together with a description
of the principal risks and uncertainties that
they face.
Employee policies
It is our policy to support our people through
training, career development and opportunities
for promotion. We operate an open
management approach and consult with our
staff on matters which are of concern to them.
We share information with employees on the
performance of the Company which, together
with profit-related bonuses and stock option
awards, encourage staff involvement.
Disabled persons
Our policy provides for disabled persons,
whether registered or not, to be considered for
employment, training and career development
in accordance with their aptitudes and abilities.
Statement on disclosure of information
to auditors
The Directors who were members of the Board
at the time of approving the Directors’ report
are listed on page 30. Having made enquiries
of fellow Directors and of the Company’s
auditors, each of the Directors affirms that:
● to the best of their knowledge and belief,
there is no information relevant to the
preparation of their report of which the
Company’s auditors are unaware; and
● they have taken all reasonable steps to be
aware of relevant audit information and
to establish that the Company’s auditors
are aware of that information.
Responsibility statement under the
Disclosure and Transparency Rules
Each of the Directors listed on page 30 confirm
that to the best of their knowledge:
● the financial statements, prepared in
accordance with IFRS as adopted by the
European Union, give a true and fair view
of the assets, liabilities, financial position
and profit of the Company and the
undertakings included in the consolidation
taken as a whole; and
Annual General Meeting
The notice convening the Annual General
Meeting will be published separately and
posted on the Company’s Website.
The meeting will be held at Tower Bridge
House, St Katherine’s Way, London E1W 1AA
on 21 April 2011 at 9am.
Auditors
In accordance with Section 384 of the
Companies Act 2006, a resolution for the
reappointment of Ernst & Young LLP as
auditors of the Company is to be proposed
at the forthcoming Annual General Meeting.
Important events affecting the Company
and its subsidiary undertakings occurring
after year end
On 10 February 2011, Dialog Semiconductor
plc acquired 100% of the voting shares of
SiTel Semiconductor B.V. (“SiTel”), an unlisted
company headquartered and incorporated in
The Netherlands and a leader in short-range
wireless, digital cordless and VoIP technology.
In the year ended 31 December 2010, SiTel
generated unaudited revenues of approximately
US$116.9 million. Dialog has acquired SiTel in
order to expand its product portfolio with
short-range wireless and VoIP-based internet
connectivity products. This will allow Dialog to
develop new products for these new markets
as well as to cross-sell Dialog’s existing Power
Management technology to SiTel’s customer
base. The acquisition significantly expands
Dialog’s addressable market targeting
high-growth wireless personal portable devices.
Dialog acquired SiTel for an enterprise value
of US$86.5 million¹.
Given the timing of the transaction, it has not
been possible to provide all disclosures required
by IFRS3 (Revised) as the acquisition accounting
is still to be performed.
There are no other known events after the date
of the Statement of Financial Position that
require disclosure.
● the Directors’ report and the Group
operating and financial review include
a fair review of the development and
the performance of the business and
1) Net cash paid of US$84.5 million.
Dr Jalal Bagherli
Director
10 February 2011
32 Dialog Semiconductor Plc Annual report and accounts 2010
Section 3 | Management and governance
Corporate Governance
Governance standards
Dialog Semiconductor Plc is committed to
implementing high levels of governance.
Accordingly, Dialog (as a foreign company listed
on the German stock exchange) has established
and published its own Corporate Governance
principles corresponding in substance to the
provision of the “German Declaration on
Corporate Governance”.
Dialog’s Corporate Governance principles are
published on its Website (www.dialog-
semiconductor.com). The Website also contains
a full version of the Company’s Code of
Business Conduct and Ethics. This details
Dialog’s expectations regarding the ethical
standards that each Director, officer and
employee should follow while acting on the
Company’s behalf.
Corporate Governance information relating
to the past financial year is set out below.
Shareholders and the Annual General
Meeting (“AGM”)
The AGM, at which the annual financial
statements and audit reports are presented,
is the main forum for Shareholders to exercise
their voting rights. Directors appointed by the
Board during any given year are subject to
Shareholder approval at the AGM.
In addition, one-third of the Directors must
resign each year and may put themselves
forward for re-election. Changes to the
constitution of the Company are decided by
Shareholders’ resolution. Similarly, the AGM is
the forum at which Shareholders can authorise
the Directors to issue new shares.
Dialog does not have any shares in issue which
have multiple voting rights, preferential voting
rights or maximum voting rights.
Board of Directors
The Board is responsible for determining
Dialog’s business strategy and ensuring that
an executive is appointed to implement it.
It is also responsible for overseeing the financial
aspects of the business.
The Board, which met five times during the
year, currently consists of seven non-executive
Directors and one executive Director. The
compensation provided to each Director is
detailed in the Directors’ remuneration report
on pages 35 to 37. The executive Director’s
remuneration is largely performance related
and is connected to a set of goals and
Dialog’s profitability.
throughout the year. As a result, it publishes
quarterly financial reports, together with key
information on the AGM, on its Website.
Audit Committee, and Remuneration
and Nomination Committee
Dialog’s Audit Committee comprises the
following Directors: Aidan Hughes (Chairman),
John McMonigall and Peter Tan. The Committee
is responsible for monitoring financial statements
and reviewing the performance of the external
auditors. It also assesses the efficiency of the
audit process and (among other things) considers
compliance with accounting standards. The
Chief Executive Officer, Chief Financial Officer,
the Company Secretary and representatives
of the external auditors usually attend Audit
Committee meetings.
The Remuneration and Nomination Committee
is chaired by Russ Shaw who is assisted by Chris
Burke and Peter Weber. The responsibility of
the Committee, among other things, is to
determine, subject to Board approval, the salaries
and incentives of Dialog’s senior executives
and decide on the size and composition of
the Board. Corporate Governance is monitored
at Board level – a reflection of the importance
it is given by the Board.
During the year, the Audit, and Remuneration
and Nomination Committees met five times
to analyse issues under their jurisdiction,
usually on the day of, or the day before,
each Board meeting.
Transparency
Under UK Disclosure and Transparency Rules,
significant Shareholders are required to notify
Dialog of a shareholding of 3% or more or 5%
or more in the case of shares held by investment
managers (on behalf of clients), scheme
operators and ICVCs. Dialog then makes this
information public and notifies BaFin and the
Stock Exchange. Transactions in the Company’s
shares carried out by members of the
Board of Directors and their family members
are reported and published under s15a
of the German Securities Trading Act
(Wertpapierhandelsgesetz) and DTR3.
Takeovers directive
At 31 December 2010, the Company’s issued
share capital comprised a single class of shares
referred to as ordinary shares. Details of the
share capital can be found in note 18 to the
consolidated financial statements.
On a show of hands at a general meeting of
the Company every holder of shares present in
person and entitled to vote shall have one vote
and on a poll, every member present in person
or by proxy and entitled to vote shall have one
vote for every ordinary share held. The notice
of the general meeting specifies deadlines for
exercising voting rights either by proxy notice
or by presence in person or by proxy in relation
to resolutions to be passed at general meeting.
All proxy votes are counted and the numbers
for, against or withheld in relation to each
resolution are announced at the annual general
meeting and published on the Company’s
Website after the meeting.
There are no restrictions on the transfer of
ordinary shares in the Company other than:
● certain restrictions may from time to time
be imposed by laws and regulations (for
example, insider trading laws);
● employees of the Company are not allowed
to trade in shares or exercise options in
certain close periods (such close periods
normally start two weeks before the end
of each quarter and end 48 hours after
the release of the financial results).
On 4 February 2010, an offering of 3,500,000
previously unissued ordinary shares at 10 pence
each to its Employee Benefit Trust was made.
Details of changes in share capital can be
found in note 18 to the consolidated financial
statements. Besides that, the Company did
not purchase its own shares and the Company
holds no shares in treasury.
The Company operates a Code of Dealing
in its shares which is designed to prevent
insider trading and the abuse of price
sensitive information.
The Company is not aware of any agreements
between Shareholders that may result in
restrictions on the transfer of securities
and/or voting rights.
The Board appreciates the value of keeping
Shareholders informed of Dialog’s performance
Dialog has an Employee Benefit Trust which
holds Dialog shares for the benefit of employees,
Dialog Semiconductor Plc Annual report and accounts 2010 33
Declaration of conformity with regard to
the German Corporate Governance Code
Dialog Semiconductor Plc has established
and published its own Corporate Governance
principles corresponding in substance
to the provisions of the German “Corporate
Governance Code” as amended on 14 June
2007 thereby adopting in substance the
recommendations of the Government
Commission on the German Corporate
Governance Code. This declaration is
available on the internet at:
www.dialog-semiconductor.com.
Gregorio Reyes
Chairman
10 February 2011
Section 3 | Management and governance
Corporate Governance continued
including for the purpose of satisfying awards
made under the various employee share plans.
The trustee may vote the shares as it sees fit,
and if there is an offer for the shares the
trustee is not obliged to accept or reject the
offer but will have regard to the interests of
the employees, may consult them to obtain
their views on the offer and may otherwise
take the action with respect to the offer it
thinks fair.
There are no agreements between the Company
and its Directors or employees providing for
compensation for loss of office or employment
(whether through resignation, purported
redundancy or otherwise) that occur because
of a takeover bid. The agreements between the
Company and its Directors for compensation
for loss of office are given in the Directors’
remuneration report on pages 35 to 37.
The Company’s Articles of Association may only
be amended by a special resolution at a general
meeting of Shareholders.
Internal control
Dialog’s Board of Directors and Audit
Committee acknowledge that they are
responsible for the Company’s processes
of internal control and for reviewing its
effectiveness. Such processes are designed to
manage rather than eliminate the risk of failure
to achieve business objectives, and can only
provide reasonable and not absolute assurance
against material misstatement or loss.
The Company has an ongoing process for
identifying, evaluating and managing the
significant risks it faces. This process is reviewed
in accordance with the EU Transparency Directive.
The process was in place during 2010 and
up to the date of the approval of the 2010
annual report and financial statements.
The Company’s Board and Audit Committee
can confirm that necessary actions have been
taken to remedy any significant failings or
weaknesses identified from these process reviews.
Business conduct and ethics
Dialog seeks to comply with all laws and
regulations that have an impact on its business.
In addition, the Company expects its employees
and Directors to act with honesty, integrity and
fairness in the conduct of its business. Dialog’s
Code of Business Conduct and Ethics is
published on the Company’s Website.
Dialog is committed to taking account of interests
outside the Company, including those of
employees, business partners, the environment
and the local communities on which it has an
impact. The Board values, and has developed,
a culture of corporate social responsibility that
takes the above factors into consideration.
Audit and auditors
The consolidated financial statements have
been audited by Dialog’s auditors, Ernst and
Young (“E&Y”). E&Y were appointed in
October 2006 following a tender process.
The remuneration given to the auditors over
the past two financial years is detailed in
note 3 to the consolidated financial statements
on page 59 and note 30 to the Company
financial statements on page 89.
The Company’s audited financial statements
for the year ended 31 December 2009, and
the reports from the Directors and auditors
thereon, were presented to, and approved by,
the Shareholders at the AGM of the Company
held on 5 May 2010. E&Y, the Company’s
independent auditors, were reappointed until
the following AGM.
Given the acquisition of SiTel Semiconductor
B.V. (“SiTel”) on 10 February 2011, the Board
has requested that Kevin Harkin, the Senior
Statutory Auditor, extend his period of service
from five years to seven years (to end with
audit of the 31 December 2012 annual report).
The Board believes that this will give the
Group greater stability and more comfort over
audit quality over the next two years as SiTel
is integrated into the Group. After due
consideration, Kevin Harkin and Ernst & Young
LLP have accepted this request and have
advised that they will implement additional
review procedures in order to mitigate any
potential risk of familiarity impairing their
independence.
34 Dialog Semiconductor Plc Annual report and accounts 2010
Section 3 | Management and governance
Directors’ remuneration report
Policy on Directors’ remuneration
The Board is responsible for setting the
Company’s policy on Directors’ remuneration;
and the remuneration of each executive
Director, following recommendations from the
Remuneration and Nomination Committee.
Compensation of non-executive Directors
Non-executive Directors are paid quarterly for
their roles as Directors. Additional fees are paid
to the Chairman of the Company’s Board
committees, the Audit Committee, and the
Remuneration and Nomination Committee.
Our Directors and the Chairman are all
reimbursed for any reasonable travel expenses
incurred in connection with their attendance
at Board meetings or Board committees.
There is no contractually agreed termination
benefit for non-executive Directors.
Directors’ contracts
The service agreement with Dr Jalal Bagherli,
executive Director, dated 19 July 2005, is of
unlimited duration. The agreement may be
terminated by either party on six months’
notice, but increasing to 12 months on a
change of control of the Company.
Performance graph
Details are set out on pages 7 and 8 of this report.
Share options
Details are set out in note 20 to the
consolidated financial statements, on pages
71 to 73.
Directors’ share interests
Directors’ beneficial interests (as defined by the
Companies Act 2006) in 10 pence ordinary
shares of the Company are set out in note 20a,
on page 71, in the notes to the consolidated
financial statements.
The primary objectives of the Company’s policy
on executive Directors’ remuneration are, first,
that it should be structured so as to attract and
retain executives of a high calibre, with the
skills and experience necessary to develop the
Company successfully and, second, to reward
them in a way which encourages the creation
of value for the Company’s Shareholders.
The performance measurement of each executive
Director and the determination of his annual
remuneration package are undertaken by the
Remuneration and Nomination Committee.
No Director is involved in deciding his or her
own remuneration. The Remuneration and
Nomination Committee comprises non-
executive Directors and its role is, inter alia,
to apply the Board’s policy on remuneration.
The current members of the Committee
are Russ Shaw (Chairman), Chris Burke
and Peter Weber.
The Company has one executive Director,
Dr Jalal Bagherli, who was appointed on
12 September 2005. The executive Director’s
remuneration consists of three components:
1. Salary – reflects the executive’s experience,
responsibilities and market value;
2. Bonus – as part of his remuneration
Dr Bagherli receives bonuses based on
objectives set by the Remuneration and
Nomination Committee relative to the
performance of the Group, as an incentive
to Dr Bagherli to achieve relevant and
demanding targets; and
3. Share options – details are set out in note
20 to the consolidated financial statements.
Dialog Semiconductor Plc Annual report and accounts 2010 35
Section 3 | Management and governance
Directors’ remuneration report continued
Directors’ pension arrangements
The Company contributes 9% of the executive
Director’s basic salary to a defined contribution
pension scheme. There are no pension
arrangements for non-executive Directors.
Non-executive Directors’ terms
Non-executive Directors have formal letters of
appointment. All non-executive Directors are
initially appointed for up to three years by
the Board of Directors, subject to any earlier
requirements to stand for re-election as
required by the Articles of Association
(one-third of the Directors must stand for
re-election at each AGM). If a non-executive
Director is not invited to serve any additional
period or is not re-elected at the Company’s
AGM, their appointment is terminated with
immediate effect. The letters of appointment
do not contain any other notice provisions.
The compensation of the members of the
Board of Directors is as follows:
Name and position
Dr Jalal Bagherli
Base
salary
US$
Pensions
Bonus
contribution
US$
US$
Other
US$
2010
Total
US$
2009
Total
US$
Directors’ holdings
at 31 December 2010
Shares
Options
Executive Director and CEO
361,306
463,213
29,761
25,198
879,479
576,829
400,576
875,002
Chris Burke
Non-executive Director
Aidan Hughes
Non-executive Director and
Chairman of the Audit Committee
John McMonigall
Non-executive Director
Gregorio Reyes
Non-executive Chairman
Russ Shaw
66,809
79,627
66,809
94,770
Non-executive Director and Chairman
of the Remuneration and Nomination Committee
79,627
Peter Tan
Non-executive Director
Peter Weber
Non-executive Director
66,809
66,809
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66,809
39,136
15,593
23,757
–
–
–
–
–
–
79,627
46,963
25,000
44,168
66,809
39,136
100,000
8,550
94,770
46,963
70,000
23,340
79,627
46,963
19,891
65,210
66,809
39,136
40,000
66,809
39,136
52,000
–
–
882,566
463,213
29,761
25,198 1,400,739
883,891
723,060 1,040,027
Share options granted to the
executive Director
As of 31 December 2010, Jalal Bagherli,
executive Director, held 875,002 options over
ordinary shares which entitle him to acquire
the same amount of shares.
Exercise price
Date of grant
Expiry date
Vesting period
2009
Granted
Exercised
2010
31 December
31 December
Market price
of exercised
options1
€
Gain on
the exercise
of options
€
13.05.2009
12.05.2016
1-44 months
102,624
–
(26,912)
75,712
10.57
242,919.04
(266,430)
–
11.60
3,056,785.58
–
799,290
875,002
–
–
–
3,299,704.62
€1.52
£0.10
£0.10
21.02.2010
20.02.2015
Immediately
21.02.2010
20.02.2015
12 months
–
–
266,430
799,290
1) The market price is a weighted average price.
102,624
1,065,720
(293,342)
36 Dialog Semiconductor Plc Annual report and accounts 2010
Section 3 | Management and governance
Share options granted to the
non-executive Directors
Each non-executive Director was entitled to an
initial grant of 50,000 options vesting monthly
in 48 equal tranches. At each AGM (ending
with the 2009 AGM), non-executive Directors
received a further 20,000 options vesting over
12 months. Options may be exercised at the
market price prevailing at the date of grant.
The non-executive Directors are not subject
to performance criteria related to their
remuneration. The stock options granted to
non-executive Directors are not, therefore,
subject to the achievement of performance
targets. At the 2010 Annual General Meeting
the Shareholders voted against the continuance
of this share option plan. Consequently,
no share options were granted to the
non-executive Directors in 2010.
The share option grants to non-executive
Directors are as follows:
Exercise
price
Vesting
31 December
31 December
Director
€
Date of grant
Expiry date
period
2009 Forfeited
Granted
Exercised
2010
of exercised
options1
€
the exercise
of options
€
Market price
Gain on
Chris Burke
1.40 12.07.2006 11.07.2013 48 months
9,378
1.80 10.05.2007 09.05.2014 12 months
20,000
1.35 30.04.2008 29.04.2015 12 months
20,000
1.17 22.04.2009 21.04.2016 12 months
20,000
Aidan Hughes
1.27 19.06.2006 18.06.2013 48 months
50,000
1.80 10.05.2007 09.05.2014 12 months
20,000
1.35 30.04.2008 29.04.2015 12 months
20,000
1.17 22.04.2009 21.04.2016 12 months
20,000
John McMonigall 1.27 19.06.2006 18.06.2013 48 months
50,000
1.80 10.05.2007 09.05.2014 12 months
20,000
1.35 30.04.2008 29.04.2015 12 months
20,000
1.17 22.04.2009 21.04.2016 12 months
20,000
Gregorio Reyes
1.27 19.06.2006 18.06.2013 48 months
8,336
1.80 10.05.2007 09.05.2014 12 months
10,004
1.35 30.04.2008 29.04.2015 12 months
20,000
1.17 22.04.2009 21.04.2016 12 months
20,000
Russ Shaw
1.40 12.07.2006 11.07.2013 48 months
50,000
1.80 10.05.2007 09.05.2014 12 months
20,000
1.35 30.04.2008 29.04.2015 12 months
20,000
1.17 22.04.2009 21.04.2016 12 months
20,000
Peter Tan
1.40 12.07.2006 11.07.2013 48 months
50,000
1.17 22.04.2009 21.04.2016 12 months
20,000
Peter Weber
1.27 19.06.2006 18.06.2013 48 months
1.35 30.04.2008 29.04.2015 12 months
7,294
2,534
1.17 22.04.2009 21.04.2016 12 months
20,000
Total
557,546
1) The market price is a weighted average price.
Approved by the Board of Directors and signed on its behalf by:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Tim Anderson
Secretary
10 February 2011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,168)
5,210
11.98
43,160
(20,000)
(20,000)
–
–
–
–
–
–
(1,453)
18,547
11.98
15,707
(45,832)
4,168
11.60
472,657
(20,000)
–
11.60
195,906
–
–
20,000
20,000
–
–
–
–
(44,790)
5,210
11.60
461,588
(20,000)
(20,000)
(16,660)
(2,084)
(10,004)
(20,000)
–
–
3,340
6,252
–
–
11.60
195,906
11.60
204,906
11.60
173,685
12.00
22,361
12.00
102,041
11.13
195,593
(2,912)
17,088
10.56
27,344
(44,790)
5,210
11.60
456,258
–
–
–
20,000
20,000
20,000
–
–
–
–
–
–
(50,000)
(20,000)
(7,294)
(2,534)
(20,000)
–
–
–
–
–
9.04
8.81
10.07
10.07
381,680
152,720
64,187
22,096
10.17
179,692
(392,521) 165,025
3,367,488
Dialog Semiconductor Plc Annual report and accounts 2010 37
Section 3 | Management and governance
Statement of Directors’ responsibilities
The Directors are responsible for preparing the
IFRS report and accounts 2010 and the Group
and parent company financial statements in
accordance with the applicable law and
regulations. Company law requires the Directors
to prepare Group and parent company financial
statements for each financial year. Under the
law the Directors are required to prepare the
Group financial statements in accordance with
IFRS as adopted by the EU and have elected
to prepare the parent company financial
statements on the same basis.
The Group and parent company financial
statements are required by law and IFRS as
adopted by the EU to present fairly the financial
position of the Group and the parent company
and the performance for that period; the
Companies Act 2006 provides in relation to
such financial statements that references in the
relevant part of the Act to financial statements
giving a true and fair view are references to
their achieving a fair presentation.
In preparing each of the Group and parent
company financial statements, the Directors are
required to:
● select suitable accounting policies and then
apply them consistently;
They have a general responsibility for
taking such steps as are reasonably open to
them to safeguard the assets of the Group
and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing a
Directors’ report and Directors’ remuneration
report that comply with that law and
those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s Website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
● make judgements and estimates that are
reasonable and prudent;
● state whether they have been prepared
in accordance with IFRS as adopted by
the EU; and
● prepare the financial statements on the
going-concern basis unless it is inappropriate
to presume that the Group and the parent
company will continue in business.
The Directors are responsible for keeping
proper accounting records that disclose with
reasonable accuracy at any time the financial
position of the parent company and enable
them to ensure that its financial statements
comply with the Companies Act 2006.
Responsibility statement
To the best of our knowledge, and in
accordance with the applicable reporting
principles, the consolidated financial statements
give a true and fair view of the assets, liabilities,
financial position and profit and loss of the
Group, and the Group management report
includes a fair review of the development and
performance of the business and the position
of the Group, together with a description of
the principal opportunities and risks associated
with the expected development of the Group.
Dr Jalal Bagherli
Chief Executive Officer
Jean-Michel Richard
CFO, Vice President Finance
10 February 2011
38 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
Independent Auditors’ report to the members
of Dialog Semiconductor Plc
We have audited the financial statements of Dialog Semiconductor Plc for the year ended 31 December 2010 which comprise the Group and Parent
Company Statements of Financial Position, the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Cash Flow,
the Group and Parent Company Statements of Changes in Equity and the related notes 1 to 33. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards
the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 38, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
•
The financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2010 and of
the Group’s profit for the year then ended;
•
The Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
•
•
The parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied
in accordance with the provisions of the Companies Act 2006; and
The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
•
•
The information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the
financial statements; and
The information given in the Corporate Governance Statement set out on pages 33 to 34 and the web address (www.dialog-semiconductor.com)
with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
•
Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
The parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
•
Certain disclosures of Directors’ remuneration specified by law are not made; or
•
We have not received all the information and explanations we require for our audit; or
•
A Corporate Governance Statement has not been prepared by the Company.
Kevin Harkin (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Reading
10 February 2010
Dialog Semiconductor Plc Annual report and accounts 2010 39
Section 4 | Consolidated financial statements and notes
Consolidated statement of financial position
As at 31 December 2010
Assets
Cash and cash equivalents
Restricted cash
Trade accounts receivable and other receivables
Inventories
Income tax receivables
Other financial assets
Other current assets
Total current assets
Property, plant and equipment
Intangible assets
Deposits
Income tax receivables
Deferred tax assets
Total non-current assets
Total assets
Liabilities and Shareholders' equity
Trade and other payables
Other financial liabilities
Provisions
Income taxes payable
Other current liabilities
Total current liabilities
Provisions
Other non-current financial liabilities
Total non-current liabilities
Ordinary shares
Additional paid-in capital
Accumulated deficit
Other reserves
Employee stock purchase plan shares
Net Shareholders´ equity
Total liabilities and Shareholders´ equity
Notes
5
5, 24
6
7
4
8
9
10
11
4
4
13
14
15
16
15
17
At 31 December
2010
US$000
At 31 December
2009
US$000
158,200
120,148
–
12,556
40,733
60
836
4,078
3,000
17,486
26,193
69
–
1,915
216,463
168,811
14,249
10,727
741
370
10,829
36,916
9,807
5,005
804
370
7,514
23,500
253,379
192,311
28,413
845
877
1,208
15,875
47,218
428
461
889
12,380
202,416
(3,961)
(1,648)
(3,915)
17,304
679
1,784
3,305
11,308
34,380
252
700
952
11,825
283,733
(135,667)
(2,102)
(810)
18
205,272
156,979
253,379
192,311
These financial statements were approved by the Board of Directors on 10 February 2011 and were signed on its behalf by:
Dr Jalal Bagherli
Director
40 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
Consolidated income statement
For the year ended 31 December 2010
Revenue
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Other operating income
Restructuring expenses
Operating profit
Interest income
Interest expense
Foreign currency exchange gains (losses), net
Result before income taxes
Income tax benefit (expense)
Net profit
Earnings per share (in US$)
Basic
Diluted
Weighted average number of shares (in thousands)
Basic
Diluted
Notes
3, 23, 26
23
3, 26
3
3
3
4
2
2010
US$000
296,597
(159,334)
137,263
(17,391)
(17,471)
(56,465)
–
(595)
45,341
1,130
(120)
(2,088)
44,263
(1,784)
42,479
2009
US$000
217,613
(119,886)
97,727
(14,183)
(12,584)
(42,621)
333
–
28,672
203
(212)
162
28,825
3,902
32,727
2010
2009
0.70
0.66
0.67
0.60
60,313
64,841
48,868
54,464
Dialog Semiconductor Plc Annual report and accounts 2010 41
Section 4 | Consolidated financial statements and notes
Statement of comprehensive income
For the year ended 31 December 2010
Net profit
Exchange differences on translating foreign operations
Cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income for the year, net of tax
2010
US$000
42,479
188
441
(175)
454
2009
US$000
32,727
(113)
(179)
421
129
Total comprehensive income for the year
42,933
32,856
42 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
Consolidated statements of cash flows
For the year ended 31 December 2010
Cash flows from operating activities:
Net profit
Adjustments to reconcile net profit to net cash provided by operating activities:
Interest expense (income), net
Income tax expense (benefit)
Impairment of inventories
Depreciation of property, plant and equipment
Amortization of intangible assets
Losses on disposals of fixed assets and impairment of fixed and financial assets
Expense related to share-based payments
Changes in working capital:
Trade accounts receivable, other receivables and factoring
Inventories
Prepaid expenses
Trade accounts payable
Provisions
Other assets and liabilities
Cash generated from operations
Interest paid
Interest received
Income taxes paid
Cash flow from operating activities
Cash flows from investing activities:
Cash transferred from (to) restricted cash
Purchase of property, plant and equipment
Purchase of intangible assets
Payments for capitalized development costs
Deposits made
Cash flow used for investing activities
Cash flows from financing activities:
Cash flow from (used for) capital increase
Purchase of employee stock purchase plan shares
Sale of employee stock purchase plan shares
Cash flow from financing activities
Cash flow from operating, investing and financing activities
Net foreign exchange difference
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Notes
2010
US$000
2009
US$000
42,479
32,727
3
4
10
11
20
6
24
10
11
11
(1,010)
1,784
1,121
4,880
2,678
240
4,227
4,930
(15,661)
(1,475)
11,157
(665)
3,641
58,326
(3)
1,005
(7,378)
51,950
3,000
(9,768)
(5,883)
(2,823)
–
9
(3,902)
973
4,473
2,146
723
1,364
(10,013)
(7,228)
(337)
4,196
416
7,573
33,120
(109)
219
(46)
33,184
(3,000)
(5,925)
(1,828)
(972)
(530)
(15,474)
(12,255)
(36)
(2,844)
4,013
1,133
37,609
59,617
–
2,937
62,554
83,483
443
(250)
38,052
120,148
83,233
36,915
158,200
120,148
Dialog Semiconductor Plc Annual report and accounts 2010 43
Section 4 | Consolidated financial statements and notes
Consolidated statement of changes in Shareholders´ equity
For the year ended 31 December 2010
Ordinary Shares
US$000
Additional paid-in
capital
US$000
Accumulated
deficit
US$000
Other reserves
Currency
translation
adjustment
US$000
Cash flow hedges
000US$
Balance at 1 January 2009
9,328
223,005
(169,758)
(2,038)
Total comprehensive income (loss)
–
–
32,727
308
Capital increase public offering (gross
proceeds)
Transaction costs of capital increase -
public offering
Capital increase for employee share
option plan (gross proceeds)
Transaction costs of capital increase -
employee share option plan
Sale of employee stock purchase plan
shares
Equity settled transactions, net of tax
Changes in Equity total
Balance at 31 December 2009 /
1 January 2010
Total comprehensive income
Reduction of additional paid-in capital
Capital increase for employee share
option plan (gross proceeds)
Transaction costs of capital increase -
employee share option plan
Purchase of employee stock purchase
plan shares
Sale of employee stock purchase plan
shares
Equity settled transactions, net of tax
1,922
62,421
–
(4,685)
575
473
(41)
2,560
–
1,364
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
–
–
–
–
–
–
11,825
283,733
(135,667)
(1,730)
–
–
–
(85,000)
42,479
85,000
555
414
(36)
–
3,305
–
4,227
–
–
–
–
–
–
–
(193)
(179)
–
–
–
–
–
–
(372)
441
–
–
–
–
–
–
Employee stock
purchase plan
shares
US$000
(139)
–
–
–
(1,048)
–
377
–
Total
US$000
60,205
32,856
64,343
(4,685)
–
(41)
2,937
1,364
(810)
–
–
(969)
–
156,979
42,933
–
–
(36)
(2,844)
(2,844)
708
–
4,013
4,227
48,293
205,272
2,497
60,728
34,091
308
(179)
(671)
96,774
Changes in Equity total
555
(81,317)
131,706
13
Balance at 31 December 2010
12,380
202,416
(3,961)
(1,717)
441
69
(3,105)
(3,915)
For further details, please refer to note 18.
44 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
1. General
The consolidated financial statements of Dialog Semiconductor Plc (“Dialog or the Group”) for the year ended 31 December 2010 were authorised for
issue in accordance with a resolution of the Directors on 10 February 2011. Dialog Semiconductor Plc is a company incorporated in the UK, whose
shares are publicly traded. The principal activities of the Group are set out in the segment reporting (note 23).
Company name and registered office
Dialog Semiconductor Plc
Tower Bridge House
St Katharine’s Way
London E1W 1AA
United Kingdom
Basis of presentation
The consolidated financial statements are prepared on the historical cost basis except that derivative financial instruments are stated at their fair value.
The consolidated financial statements are presented in US dollars (“US$”) and all values are rounded to the nearest thousand (US$000) except when
otherwise stated.
Statement of compliance
The accompanying consolidated financial statements have been prepared on the basis of the recognition and measurement requirements of Interna-
tional Financial Reporting Standards (IFRS) and its interpretation as adopted by the EU. Based on these standards, management has applied the ac-
counting policies as provided in note 2.
2. Summary of significant accounting policies
Changes in accounting policies and disclosures
The accounting policies are consistent with those of the previous financial year except for the changes resulting from the adoption of the following
revised and new Standards and new IFRIC interpretations during the year:
IFRS 2 Share-based payment (amended)
The amended IFRS 2 Share-based Payment was issued in June 2009 and is effective for periods beginning on or after 1 January 2010. The amended
standard clarifies the accounting for group cash-settled share-based payment transactions in the financial statements of an individual subsidiary in a
group as well as the interaction of IFRS 2 and other standards. The amendments to IFRS 2 also incorporate guidance previously included in IFRIC 8
Scope of IFRS 2 and IFRIC 11 IFRS 2—Group and Treasury Share Transactions. As a result, the IASB has withdrawn IFRIC 8 and IFRIC 11. The amended
standard did not have an impact on the financial position or performance of Dialog.
IFRS 3 Business Combinations (revised) and IAS 27 Consolidated and Separate Financial Statements (amended)
The revised IFRS 3 and the amended IAS 27 were issued in January 2008 and are effective for annual periods beginning on or after 1 July 2009.
IFRS 3 (revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the
valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consid-
eration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period
that an acquisition occurs and future reported results.
IAS 27 (amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with equity
holders in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore,
the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3
(revised) and IAS 27 (amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010.
The change in accounting policy is applied prospectively and had no impact on earnings per share.
IAS 39 Financial Instruments: Recognition and Measurement
The amended IAS 39 Financial Instruments: Recognition and Measurement was issued in July 2008 and is effective for periods beginning on or after
1 July 2009. The amended standard clarifies how the existing principles underlying hedge accounting should be applied in two particular situations.
Dialog has concluded that the amendment will have no impact on the financial position or performance of Dialog, as Dialog has not entered into any
such hedges.
Dialog Semiconductor Plc Annual report and accounts 2010 45
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
Improvements to IFRSs – a collection of amendments to International Financial Reporting Standards (annual improvements project)
The IASB has also issued a collection of amendments to various IFRSs (“Improvements to IFRSs”) in May 2008 and April 2009. This includes amend-
ments to various existing IFRSs. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in
changes to accounting policies but did not have any impact on the financial position or performance of the Group.
Issued in May 2008
(cid:1)
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that when a subsidiary is classified as held for sale, all its assets and
liabilities are classified as held for sale, even though the entity retains a non-controlling interest after the sale transaction. The amendment is ap-
plied prospectively and has no impact on the financial position nor financial performance of Dialog.
Issued in April 2009
(cid:1)
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of non-current assets and
disposal groups classified as held for sale or discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs
only apply if specifically required for such non-current assets or discontinued operations. The amendment is applied prospectively and has no im-
pact on the financial position nor financial performance of Dialog.
(cid:1)
(cid:1)
(cid:1)
IFRS 8 Operating Segments: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in
measures that are used by the chief operating decision maker. As Dialog’s chief operating decision maker does only review segment inventories
and not assets and liabilities, Dialog has changed its presentation accordingly. For further information see Note 23.
IAS 7 Statement of Cash Flows: States that only expenditure that results in recognising an asset can be classified as a cash flow from investing
activities. The amendment is applied prospectively and has no impact on the cash flow statement of Dialog.
IAS 36 Impairment of Assets: The amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination,
is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. The amendment has no impact on Dialog.
All other amended, revised or new standards and interpretations did not result in changes to the accounting policies or did not have a material effect
on the financial statements:
Interpretation/ Standard
Title
IFRS 1
IFRS 1
IAS 39
IFRIC 17
IFRIC 18
Restructured version of IFRS 1 First-time-Adoption of International Reporting Standards
Limited exemptions
Financial Instruments and IFRIC 9 Reassessment of embedded derivatives
Distributions of non-cash assets to owners
Transfers of assets from customers
Effective date
1 July 2009
1 January 2010
30 June 2009
1 July 2009
1 July 2009
Recently issued accounting standards not yet adopted (Standards and Interpretations are endorsed by the EU except as noted otherwise)
IFRS 7 Financial Instruments: Disclosures (amended)
The amendment was issued in October 2010 and is effective for annual periods beginning on or after 1 July 2011. The amendments will allow users of
financial statements to improve their understanding of transfer transactions of financial assets (for example, securitisations), including understanding
the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a
disproportionate amount of transfer transactions are undertaken around the end of a reporting period. The revised standard has not yet been en-
dorsed by the EU.
IFRS 9 Financial Instruments
The new IFRS 9 was issued in November 2009 and is effective for periods beginning on or after 1 January 2013. The new standard for financial instru-
ments sets out provisions for the classification and measurement of financial assets. IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its
46 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
2. Summary of significant accounting policies continued
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 many different impairment methods in IAS 39. The revised standard has not yet been endorsed by the EU.
IFRS 9 Financial Instruments (additions)
The additions to IFRS 9 Financial Instruments were issued in October 2010 and are effective for periods beginning on or after 1 January 2013. The
additions outline the requirements on the accounting for financial liabilities. The new requirements address the problem of volatility in profit or loss
(P&L) arising from an issuer choosing to measure its own debt at fair value (often referred to as the ‘own credit’ problem). The IASB decided to main-
tain the existing amortised cost measurement for most liabilities, limiting change to that required to address the own credit problem. With the new
requirements, an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s
own credit risk in the other comprehensive income (OCI) section of the income statement, rather than within profit or loss. The revised standard has
not yet been endorsed by the EU.
The impact will be further analysed in the future and cannot be measured at the moment.
IAS 12 Income taxes
The amendments to IAS 12 Income Taxes were issued in December 2010 and are effective for annual periods beginning on or after 1 January 2012.
IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of
the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is meas-
ured using the fair value model in IAS 40 Investment Property. The amendment provides a practical solution to the problem by introducing a presump-
tion that recovery of the carrying amount will, normally be , be through sale. As a result of the amendments, SIC-21 Income Taxes—Recovery of Reval-
ued Non-Depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the
remaining guidance previously contained in SIC-21, which is accordingly withdrawn. The amended standard has not yet been endorsed by the EU.
The impact will be further analysed in the future and cannot be measured at the moment.
IAS 24 Related Party Disclosures (revised)
The revised IAS 24 was issued in November 2009 and is effective for periods beginning on or after 1 January 2011. The changes to IAS 24 simplify the
disclosure requirements for government-related entities and clarify the definition of a related party.
IAS 32 Financial Instruments: Presentation (amended)
The amended IAS 32 was issued in October 2009 and is effective for periods beginning on or after 1 February 2010. The amendment addresses the
accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. Previously
such rights issues were accounted for as derivative liabilities. However, the amendment requires that, provided certain conditions are met, such rights
issues are classified as equity regardless of the currency in which the exercise price is denominated.
Improvements to IFRSs – a collection of amendments to International Financial Reporting Standards (annual improvements project)
The IASB has also issued a collection of amendments to various IFRSs (“Improvements to IFRSs”) in May 2010. This includes amendments to various
existing IFRSs.
In addition, the following interpretations and amendments to interpretations have been issued:
Interpretation
Title
IFRIC 14
IFRIC 19
Amendment to IFRIC 14 Prepayments of a minimum funding requirement
Extinguishing financial liabilities with equity instruments
Effective date
1 January 2011
1 July 2010
The above listed interpretations and amendments to interpretations will not have an effect on the financial statements as they currently do not apply
to the Group.
The Group does not intend to make early application of the amended or revised Standards and Interpretation listed above.
The amended standards did not have an impact on the financial position or performance of Dialog.
Dialog Semiconductor Plc Annual report and accounts 2010 47
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
Principles of consolidation and investments in affiliated companies
As in 2009, the consolidated financial statements include Dialog Semiconductor Plc and its subsidiaries as at 31 December each year:
Name
Dialog Semiconductor GmbH
Dialog Semiconductor (UK) Limited
Dialog Semiconductor, Inc.
Dialog Semiconductor KK
Registered office
Kirchheim/Teck, Germany
Swindon, UK
Wilmington, Delaware, USA
Tokyo, Japan
Participation
100%
100%
100%
100%
Subsidiaries are fully consolidated from the date of acquisition, being the date on which Dialog obtains control, and continue to be consolidated until
the date such control ceases.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated
until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company,
using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and
dividends are eliminated in full.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction for changes incurred since 1
January 2010. However, no changes in ownership interest of a subsidiary incurred prior to 2010. If Dialog loses control over a subsidiary, it:
(cid:1) Derecognises the assets (including goodwill) and liabilities of the subsidiary
(cid:1) Derecognises the carrying amount of any non-controlling interest
(cid:1) Derecognises the cumulative translation differences, recorded in equity
(cid:1) Recognises the fair value of the consideration received
(cid:1) Recognises the fair value of any investment retained
(cid:1) Recognises any surplus or deficit in profit or loss
(cid:1) Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as
appropriate.
The above-mentioned requirements were applied on a prospective basis. The following difference, however, is carried forward from the previous basis
of consolidation. Upon loss of control, Dialog accounted for the investment retained at its proportionate share of net asset value at the date control
was lost. The carrying value of such investments at 1 January 2010 have not been restated.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the
Group measures the noncontrolling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded
derivatives in host contracts by the acquiree.
48 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
2. Summary of significant accounting policies continued
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-
measured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised
at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability
will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is
classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling
interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the sub-
sidiary acquired, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill ac-
quired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from
the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-
generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the
carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is meas-
ured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Foreign exchange
The functional currency for the Group entities is generally the currency in which they primarily generate and expend cash. Each entity in the Group
determines its own functional currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the US dollar are
included in the consolidation by translating the assets and liabilities into the presentation currency (US$) at the exchange rates applicable at the end of
the reporting period. Equity accounts are measured at historical rates. The statements of income and cash flows are translated at the average ex-
change rates during the year. The exchange differences arising on the translation are directly recognised in equity (other reserves).
Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabili-
ties denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are
taken to profit and loss with the exception of differences on monetary items that form part of a net investment in a foreign operation as well as differ-
ences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the
disposal of the net investment at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those
monetary items and borrowings are also dealt with in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency
are translated using the exchange rates as at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value is determined. Foreign currency transaction gains and losses are disclosed sepa-
rately in the income statement, at each reporting period. Key exchange rates against US dollars used in preparing the consolidated financial statements
were:
Currency
Great Britain
Japan
Euro
Exchange rate at
Annual average exchange rate
31 December 2010
US$1 =
0.64
81.29
0.75
31 December 2009
US$1 =
0.62
92,41
0,69
2010
US$1 =
0.65
87.69
0.76
2009
US$1 =
0.64
93.15
0.71
Financial instruments
A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another. Financial
assets include, in particular, cash and cash equivalents, trade receivables and other loans and receivables, held-to-maturity investments and derivative
and non-derivative financial assets accounted for at fair value through profit or loss, as well as investments available for sale.
Financial liabilities generally substantiate claims for repayment in cash or another financial asset. In particular, this includes trade payables, liabilities to
banks and derivative financial liabilities.
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the entity currently has a
legal right to set off the recognised amounts and intends to settle on a net basis.
Dialog Semiconductor Plc Annual report and accounts 2010 49
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
Financial assets
Financial assets within the scope of IAS 39 are classified as being at fair value through profit or loss, held-to-maturity investments, loans and receiv-
ables or available-for-sale financial assets, as appropriate. When financial assets are first recognised, they are measured at fair value, plus, in case of
investments not at fair value through profit or loss, directly attributable transaction costs.
The Group determines the classification of its financial assets on first recognition and, where allowed and appropriate, re-evaluates this designation at
each financial year end.
All regular purchases and sales of financial assets are recognised on the settlement date, which is the date that the Group receives the asset. Regular
purchases or sales are classified as purchases or sales of financial assets that require delivery of assets within the period generally established by regula-
tion or convention of the market place.
At each reporting date, the Group assesses whether a financial asset or group of financial assets is impaired.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair
value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near
term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge rela-
tionships as defined by IAS 39. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated
as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with
changes in fair value recognised in finance income or finance costs in the income statement.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks
are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss.
These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. Reassessment only occurs if
there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.
The Group has not entered into trading actions nor designated financial asset as financial asset through profit or loss in 2010 and 2009.
Financial assets held to maturity
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the
positive intention and ability to do so. After initial measurement, held-to-maturity investments are measured at amortised cost using the effective
interest method. The effective interest method takes into account any premium or discount on acquisition and includes transaction costs and fees that
are an integral part of the effective interest rate.
Gains and losses are recognised in profit or loss when the investments are de-recognised or impaired, as well as through the amortisation process. The
carrying amount of financial assets held-to-maturity are tested at each reporting date to determine whether there is objective, material evidence of
impairment as outlined in IAS 39.59. Any impairment losses caused by the fair value being lower than the carrying amount are recognised in profit or
loss. The Group does not use allowance accounts in order to record the impairment in the statement of financial position but credits the impairment
loss directly against the book value of the financial assets.
If in a subsequent period the fair value increases and this increase can be related objectively to events occurring after the impairment was recognised,
the impairment loss is reversed to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. The fair value
which is required for impairment testing corresponds to the present value of the estimated future cash flows discounted using the original effective
interest rate.
The Group has not entered into trading actions nor designated financial asset as financial asset held to maturity in 2010 and 2009.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market, such as trade
account receivables. Loans and receivables are recorded initially at fair value and do not bear interest. As of 31 December 2010 as well as 31 December
50 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
2. Summary of significant accounting policies continued
2009, loans and receivables of the Group comprise trade accounts receivables from customers, classified cash, cash equivalents (except for deposits
designated as hedging instruments) and restricted cash. After initial recognition, loans and receivables are subsequently carried at amortised cost using
the effective interest method, less any allowance for impairment, if necessary.
Gains and losses are recognised in the income statement when the loans and receivables are de-recognised or impaired. Interest income and expense
on the application of the effective interest method are also recognised in profit or loss.
The Group continuously reviews its allowance for doubtful accounts. Management considers the collectability of a trade account receivable to be
impaired when it is probable that the Group will be unable to collect all amounts due according to the sales terms, based on current information and
events regarding the customers’ ability to meet their obligations. The amount of the impairment loss on loans and receivables is measured as the
difference between the carrying amount of the asset and the present value of estimated future cash flows, discounted at the original effective interest
rate of the financial asset. The amount of the impairment loss is recognised in profit or loss.
If, in a subsequent reporting period, the amount of the impairment loss decreases, and the decrease can objectively be related to an event occurring
after the impairment was recognised, the previously recognised impairment loss is reversed and recognised in profit or loss.
When a trade receivable is considered to be impaired, any credit losses are included in the allowance for doubtful accounts through a charge to bad
debt expenses. Account balances are set off against the allowance after all means of collection have been exhausted and the potential for recovery is
considered remote. Recoveries of trade receivables previously written-off are recorded as other income when received. Reversals of impairment losses
are recognised in profit and loss. The Group does not have any off-balance sheet credit exposure related to its customers.
Receivables from work in process for customer specific development projects according to IAS 11 are recorded in the balance sheet line “trade account
receivables and other receivables” and are disclosed in the notes respectively.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as loans and
receivables, held-to-maturity investments or as financial assets at fair value through profit or loss.
After initial measurement available-for-sale financial assets are measured at fair value. Unrealised gains and losses, net of the related tax effect, on
available-for-sale financial assets are excluded from earnings and are reported as a component of other reserves until realised, or the investment is
determined as being impaired.
At each reporting date, the carrying amounts of available-for-sale assets are assessed to determine whether there is objective, significant evidence of
impairment as outlined in IAS 39.59. Any impairment losses on available-for-sale financial assets are charged to earnings. The Group does not use
allowance accounts in order to record the impairment in the statement of financial position but credits the impairment loss directly against the book
value of the financial assets. If this impairment relates to losses previously recognised in equity then the impairment loss is transferred from equity to
the income statement. Reversals of impairment losses in respect of equity instruments or investment funds that are classified as available-for-sale are
not recognised in profit or loss. Reversals of impairment losses on debt instruments are reversed through profit or loss if the increase in fair value of the
instrument can be objectively related to an event occurring after the impairment loss was recognised in profit or loss.
The fair value of available-for-sale financial assets actively traded in organised financial markets is determined by reference to quoted market bid prices
at the close of business on the reporting date.
For investments in which there is no active market, fair value is determined using valuation techniques, including recent arm’s length market transac-
tions; reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis; or other valuation
models. If the fair value of unquoted equity instruments cannot be measured with sufficient reliability, these instruments are measured at cost (less any
impairment losses, if applicable).
The Group has not entered into trading actions nor designated financial asset as available-for-sale financial asset in 2010 and 2009.
Dialog Semiconductor Plc Annual report and accounts 2010 51
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
Derecognition of financial assets
A financial asset is derecognised when:
(cid:1) the right to receive cash flows from the asset have expired;
(cid:1) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third
party under a “pass through agreement”; or
(cid:1) the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the
asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and
rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in it.
Financial liabilities
Financial liabilities primarily include trade accounts payable, liabilities due to banks, derivative financial liabilities and other liabilities.
Financial liabilities measured at amortised costs
After initial recognition at fair value, less directly attributable transaction costs, financial liabilities are subsequently measured at amortised cost using
the effective interest method.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include liabilities held for trading and financial liabilities designated upon initial recognition as at
fair value through profit or loss. Gains and losses on liabilities held for trading are recognised in profit or loss.
During the financial years 2010 and 2009 the Group did not classify any financial liabilities as financial liabilities at fair value through profit or loss.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Hedging instruments and hedge accounting
The Group uses derivative financial instruments, such as forward contracts, mainly for the purposes of hedging currency risks that arise from its operat-
ing activities. Beside the derivative financial instruments the Group designates certain deposits as hedging instruments in order to hedge foreign cur-
rency risks as well. Such derivative financial instruments and deposits are initially recognised at fair value on the date on which a derivative contract is
entered into or the cash deposit is designated as a hedging instrument and is subsequently remeasured at fair value on each subsequent reporting
date. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Any gains and losses arising from changes in the fair value on derivatives and the deposits during the year that do not qualify for hedge accounting are
taken directly to profit or loss.
The fair value of derivatives is equal to their positive or negative market value. The fair value of forward currency contracts is calculated by reference to
current forward exchange rates for contracts with similar maturity profiles. The fair value of the deposits is measured based on foreign currency market
rates at each reporting date.
If the requirements for hedge accounting set out in IAS 39 are met, the Group designates and documents the hedge relationship from the date a
derivative contract is entered into or the cash deposit is designated as a hedging instrument, either as a fair value hedge or a cash flow hedge.
The Group did not enter into fair value hedges in 2010 and 2009.
In a cash flow hedge, the variability of cash flows to be received or paid related to a recognised asset or liability, or a highly probable forecast transaction,
or a firm commitment (in case of currency risks) is hedged. To hedge a currency risk of an unrecognised firm commitment, the Group makes use of the
option to recognise this as a cash flow hedge. The documentation of the hedge relationship includes identification of the hedging instrument, the
52 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
2. Summary of significant accounting policies continued
hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the
exposure to changes in the hedged cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting
changes in cash flows, and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial re-
porting periods for which they were designated.
For cash flow hedges, fair value changes of the effective portion of the hedging instrument are recognised in other reserves, net of applicable taxes,
while any ineffective portion of the fair value changes are recognised immediately in profit or loss. Amounts taken to equity are transferred to the
income statement when the hedged transaction affects the income statement, such as when the forecast or committed expenses occur. If the forecast
transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss.
If the hedging instrument does not, or no longer, qualifies for hedge accounting because the qualifying criteria for hedge accounting are not, or are
no longer met, the derivative financial instruments are classified as held for trading and the deposits are classified as loans and receivables. Amounts
previously recognised in equity are transferred to profit or loss.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked,
amounts previously recognised in equity remain in equity until the forecast transaction or the firm commitment occurs.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturity dates of three months or less and are subject to an insignificant risk
of changes in value. The financial position cash and cash equivalents also include deposits designated as hedging instruments.
Inventories
Inventories include assets held for sale in the ordinary course of business (finished goods), in the process of production (work in process) or in the form
of materials to be consumed in the production process (raw materials). Inventories are valued at the lower of cost and net realisable value. Cost, which
includes direct materials, labour and overhead, plus indirect overhead, is determined using the first-in, first-out (FIFO) method. Net realisable value is
the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs to make the sale.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. These include the cost of replac-
ing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Depreciation is charged on a straight-line basis over
the estimated useful lives of the assets as follows:
Equipment
Test equipment
Leasehold improvements
Office and other equipment
Useful life
Three to eight years
Shorter of useful life or lease term
18 months to 13 years
The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.
Intangible assets
Purchased intangible assets with definite useful lives primarily consist of licences, software and patents, and are recorded at acquisition cost less accu-
mulated amortisation and accumulated impairment losses. Intangible assets are amortised on a straight-line basis over the estimated useful lives of
three to five years. For a particular software licence a useful life of ten years was estimated. Amortisation expenses are allocated to the cost of goods
sold, selling expenses, research and development expenses, or general administration expenses. The Group has no intangible assets with an indefinite
useful life.
Self-developed intangible assets are recorded on a cost basis. They are amortised on a straight-line basis over the estimated usefulness of 12-60
months. The costs of internally generated intangible assets comprise all directly attributable costs necessary to create, produce and prepare the asset to
be capable of operating in a manner intended by management, e.g. costs of materials and services used or consumed in generating the intangible
asset, costs of employee benefits or fees to register a legal right. Reference is also made to the accounting policy regarding research and development
costs in this section.
Dialog Semiconductor Plc Annual report and accounts 2010 53
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
Patents have been granted by the relevant government agency for a certain period, depending on the specific country, with the option of renewal at
the end of this period. In most cases the maximum lifetime of the patents is 20 years. They are amortised over the shorter period of expected future
benefit, which is principally ten years. Acquisition costs for patents are based on the cost of patent registration.
Impairment of non-monetary assets
In accordance with IAS 36, at each reporting date an assessment is made as to whether there is an indication that a non-monetary asset, such as
property, plant and equipment or purchased intangibles, may be impaired. If any such indication exists, an estimate is made of the asset’s recoverable
amount: the higher of an asset’s fair value, less cost to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are dis-
counted to their present value, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset. In determining the fair value less costs to sell, an appropriate valuation model is used. For assets, an assessment is made at each reporting
date as to whether any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, an
estimation of the recoverable amount is made. A previously recognised impairment loss is reversed only if there has been a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is
increased to its recoverable amount. That increased amount, however, cannot exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of whether the
fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Where the Group is lessee, finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, the present value of the minimum lease payments.
Lease payments are apportioned between the 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 reflected in profit and loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that Dialog 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.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates, and other sales taxes or duty. The
Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded
that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recog-
nised:
Sale of goods
Revenue from the sale of goods is derived from the sale of products, application specific integrated circuit (“ASIC”) and application specific standard
product (“ASSP”) to end customers. These products are manufactured and tested in accordance with customers’ technical specifications prior to delivery.
Revenue is recognised when title passes, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable,
and collection of the related receivable is probable. Revenues are recorded net of sales taxes and customer discounts, if any.
The Group has insurance for product claims and also records a provision for warranty costs as a charge in cost of sales, based on historical trends of
warranty costs incurred as a percentage of sales, which management has determined to be a reasonable estimate of the probable costs to be incurred
for warranty claims in a period.
Customer returns are permitted only for quality-related reasons within the applicable warranty period and any potential warranty claims are subject to
the Group’s determination that it is at fault for damages. Such claims must usually be submitted within a short period of the date of sale.
54 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
2. Summary of significant accounting policies continued
Research and development
Revenue from customer-specific research and development contracts involving the development of new customer-specific technology is recognised on
the percentage of completion basis when the outcome of the contract can be estimated reliably. A contract’s outcome can be estimated reliably when
total contract revenue can equally be estimated, it is probable that economic benefits associated with the contract will flow to the Group, and the
stage of contract completion can be measured reliably. When the Group is not able to meet those conditions, the policy is to recognise revenues only
to the extent the expenses incurred are eligible to be recovered. Completion is measured by reference to costs incurred to date as a percentage of
estimated total project costs. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the
dependable measurement of the progress made towards completing the particular project. Losses on projects in progress are recognised in the period
they become likely and can be estimated.
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied
with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the
costs that it is intended to compensate. Grants are deducted in reporting the related expense. The Group does not receive grants that relate to assets.
Cost of sales
Cost of sales consists of the costs of outsourced production, assembly and test, personnel costs and applicable overheads and depreciation of equip-
ment. Provisions for estimated product warranties are recorded in cost of sales at the time the related sale is recognised.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries, travel expenses, sales commissions, bad debt expenses and costs associated with advertising
and other marketing activities.
General and administrative expenses
General and administrative expenses consist primarily of personnel and support costs for finance, human resources, ERP system and other manage-
ment departments which are not attributable to development, production or sales functions.
Research and development costs
Costs identified as research costs are expensed as incurred, whereas development costs on an individual project are capitalised as an intangible asset
and amortised over the period of expected future benefit if the Group can demonstrate the following:
(cid:1) The technical feasibility of completing the intangible asset so that it will be available for use or sale;
(cid:1)
(cid:1)
Its intention to complete the intangible asset and use or sell it;
Its ability to use or sell the intangible asset;
(cid:1) How the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the existence of a
market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
(cid:1) The availability of adequate technical, financial and other resources to complete the development and use or sell the intangible asset; and
(cid:1)
Its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Interest income/expense
Interest income is recognised as interest accrues. Interest income includes interest income from investments in securities, cash and cash equivalents.
Income and expense resulting from the allocation of premiums and discounts is also included. Interest expense is generally expensed as incurred.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get
ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they
Dialog Semiconductor Plc Annual report and accounts 2010 55
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. The Group capitalises bor-
rowing costs for all eligible assets where construction was commenced on or after 1 January 2009.
Foreign currency exchange gains and losses
The foreign currency exchange gains and losses mainly result from foreign currency cash transactions and period end revaluation of foreign currency
denominated cash into US dollars. It is the Group’s view that these gains and losses are driven by the financing activities of the Group and are there-
fore shown as non-operating results.
Employee benefits – defined contribution plans
Contributions to defined contribution and state-funded pension plans are recognised in the income statement as incurred.
Income taxes
Current income taxes for current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are accounted for using the liability method and are recognised for the future tax consequences attributable to differ-
ences between the financial statement carrying amounts of assets and liabilities, and their respective tax bases, as well as on the carry-forward of
unused tax losses that can be utilised.
Deferred tax assets and liabilities are measured using tax rates that have been enacted, or substantially enacted, by the reporting date and which are
expected to apply to taxable income in the years, in which those temporary differences are expected to be recovered or settled. The effect of a change
in tax rates on deferred tax assets and liabilities is recognised in income in the period that includes the enactment date.
A deferred tax asset is recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differ-
ences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
reassessed at each reporting date and are recognised to the extent, that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered. Deferred tax assets being reduced in the past are presented in the notes gross less respective provisions. If in future periods it
becomes probable that taxable profits will be available against which the unused tax losses can be utilized, it is assumed that tax losses incurred first
will be utilized first and the respective provision will be reversed.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to
the underlying transaction either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists, to set off current tax assets against current tax liabilities
and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Sales tax
Revenues, expenses and assets are recognised net of the amount of sales tax, except:
(cid:1) Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recog-
nised as part of the cost of acquisition of the asset or as part of the expense item as applicable.
(cid:1) Receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of
financial position.
Share-based payments
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date, reflects the extent to which the vesting
period has expired and the best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a
period represents the movement in cumulative expense in the period.
56 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
2. Summary of significant accounting policies continued
Stock options
The Group has established an equity-settled share option scheme under which employees and Directors may be granted stock options to acquire
shares of Dialog.
The fair value of options granted is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at grant
date and spread over the service period during which the employees become unconditionally entitled to the options.
The fair value of the options granted is measured using the Black-Scholes option pricing model, taking into account the terms and conditions on which
the options were granted. Expectations of early exercise are accounted for within the average life of the options. The Group applies IFRS 2 to all op-
tions granted after 7 November 2002 that had not been vested as of 1 January 2005.
Executives’ Long Term Incentive Plan
The Group operates an equity settled Long-Term Incentive Plan (LTIP). Under this plan, key executives are eligible to share in a percentage of the value
created for Shareholders in excess of an annual return hurdle measured over a four year performance period.
Each participant in the LTIP is awarded a number of units which convert into Company shares according to the level of outperformance of the Com-
pany’s share price over the annual return hurdle. If this hurdle is not reached no units convert into Company shares.
The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at grant date,
using a Monte Carlo Model, taking into account the terms and conditions on which awards are granted and is spread over the service period during
which the key executives become unconditionally entitled to the awards.
Employee benefit trust – Treasury shares
The Group has established an employee benefit trust. The employee benefit trust is separately administrated and is funded by the Group, which con-
solidates the assets, liabilities, income and expenses in its own accounts. The shares held by the trust are recorded at cost and are shown under “Em-
ployee stock purchase plan shares” in the statement of changes in Shareholders’ equity.
Earnings per share
Basic earnings per share amounts are calculated by dividing net profit (loss) for the year attributable to ordinary equity holders of Dialog by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of Dialog by the weighted average
number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued if all the securities
or other contracts to issue ordinary shares were exercised.
The weighted average number of shares outstanding is as follows:
Basic number of shares
Effect of dilutive options outstanding
Dilutive number of shares
2010
000
60,313
4,528
64,841
2009
000
48,868
5,596
54,464
The number of anti-dilutive share options outstanding was 288,114 (2009: 650,800).
Significant accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of
assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of reve-
nues and expenses during the reporting period.
Dialog Semiconductor Plc Annual report and accounts 2010 57
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
2. Summary of significant accounting policies continued
The significant accounting estimates and assumptions are outlined below:
Impairment of non-financial assets
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. In case of such an indicator, an
impairment test is made. This requires the determination of the value in use and the fair value less costs to sell respectively of the assets. Estimating the
value in use requires management to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in
order to calculate the present value of those cash flows. The carrying amount of such assets at 31 December 2010 was US$65,709,000 (2009:
US$41,005,000).
Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses
can be utilised.
Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing of
future taxable profits, together with future tax planning strategies. At year end 2010, net deferred tax assets amounting to US$10,829,000 were
recognised (2009: US$7,514,000). Impaired deferred tax assets at 31 December 2010 were US$2,079,000 (2009: US$12,629,000).
Further information regarding the assessment of future taxable income is disclosed in note 4.
Share-based employee compensation awards
Stock options
Share-based payment transactions for stock options are measured by reference to the fair value at the date on which they are granted. The fair value
of share-based payments is determined using the Black-Scholes model, which involves making assumptions about interest rates, volatilities, market
conditions, dividend yield, expected life and fluctuation. Due to the nature of these assumptions, such estimates are subject to significant uncertainty.
In 2010, the expense related to stock options was US$2,823,000 (2009: US$851,000). For further information on stock options please refer to note
20a and 20c.
Executives’ Long Term Incentive Plan
The fair value of the awards is recognised as a compensation expense with a corresponding increase in equity. The fair value is measured at grant date,
using a Monte Carlo Model, based on standard inputs such as the Company’s share price, interest rate, volatility of the Company’s share price, divi-
dend yield and expected life. Due to the nature of these assumptions, such estimates are subject to significant uncertainty.
In 2010 an expense of US$1,404,000 was booked (2009: US$514,000). Further information regarding LTIP is provided in note 20b and 20c.
Customer-specific research and development
For the determination of revenue and costs for customer-specific research and development contracts, management judgement is required. It is, there-
fore, necessary to determine the stage of completion based on the progress made towards completing the particular project, as well as the contract
revenue and the contract costs. Besides an advance payment received from one customer, at 31 December 2010 no receivables or liabilities from
constructions contracts were outstanding (2009: US$nil).
Self-developed intangible assets
Development costs are capitalised in accordance with the accounting policy mentioned above, i.e. they are recorded on a cost basis. However, initial
capitalisation of costs is based on management’s judgement that technological and economical feasibility is confirmed, usually when a product devel-
opment project has reached a defined milestone according to an established project management model. In determining the probable future eco-
nomic benefits of the self-developed intangible asset, management makes assumptions regarding the expected future cash generation of the assets,
discount rates to be applied and the expected period of benefits. At 31 December 2010, the carrying amount of capitalised development costs was
US$3,235,000 (2009: US$1,305,000).
Actual results may differ from all of the above judgements and estimates.
58 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
3. Other disclosures to the income statement
a) Operating expenses and revenues
The operating result before income taxes is stated after charging:
Auditors' remuneration1)
for the audit
for other audit related services
for other services
Depreciation of property, plant and equipment
Amortization of intangible assets
thereof included in cost of sales
thereof included in selling and marketing expenses
thereof included in general and administrative expenses
thereof included in research and development expenses
Personnel costs
Wages and salaries
Social and security costs
Share-based payment
Pension costs from defined contribution plans2)
Included in revenues
Revenue from the sale of goods
Revenue from customer specific research and development contracts
Included in revenue from sale of goods income attributable to prior periods
from BenQ cash settlement (see note 26)
Included in cost of sales:
Costs in relation to customer specific research and development contracts
Amount of inventory recognized as expense
Impairment of inventories recognized as an expense
Included in other operating income
2010
US$000
2009
US$000
(226)
(86)
(238)
(301)
(142)
–
(4,880)
(4,473)
(1,395)
(75)
(156)
(1,052)
(43,634)
(10,259)
(4,227)
(3,000)
(61,125)
(1,306)
(50)
(85)
(705)
(36,771)
(4,811)
(1,364)
(2,568)
(45,515)
293,727
2,870
211,912
5,701
–
1,961
(2,870)
(140,733)
(1,121)
(5,701)
(98,947)
(973)
Income from recoveries on trade accounts receivable impaired in prior periods
106
349
[1] In addition to the auditor’s remuneration included in the operating result, in 2009 US$287,000 were paid to the auditors in relation to the capital increase. These costs were deducted from the equity
(see note 18 for further information)
[2] The pension costs from defined contribution plans include costs for the state funded pension plan in Germany of US$1,640,000 (2009: US$1,339,000).
Dialog Semiconductor Plc Annual report and accounts 2010 59
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
3. Other disclosures to the income statement continued
b) Directors’ remuneration
Aggregate remuneration in respect of qualifying services
Number of directors who received shares in respect of qualifying services
Number of directors who exercised share options
In respect of the highest paid director:
Aggregate remuneration
Of which pension contribution for the year
The highest paid director exercised 293,342 (2009: 115,859) share options during the year.
c) Interest income and interest expense
Interest income and expenses comprise the following items:
Interest income
Interest expense
Of which: from financial instruments relating to categories in accordance with IAS 39
Loans and receivables
Financial liabilities measured at amortized costs
2010
US$000
1,401
2010
No.
1
8
2009
US$000
884
2009
No.
8
6
2010
US$000
2009
US$000
879
30
577
28
2010
US$000
1,130
(120)
1,010
905
(105)
1,010
2009
US$000
203
(212)
(9)
94
(103)
(9)
d) Government grants
The Group receives government grants for research and development activities of its Edinburgh design centre. Under the condition that Dialog remains
located in Scotland and employs an agreed amount of employees in Scotland until 29 January 2011, the total grant that can be received is US$2.0
million (£1.3 million). In 2010 the Group received grants in the amount of US$557,000 (2009: US$879,000). In the profit and loss account the grants
received were deducted from research and development expenses. The total amount receivable under this grant has been received by Q4-2010, there-
fore no further payment will be made under this scheme.
e) Headcount
The average number of persons employed by the Group (including the Executive Director) during the year, analysed by category, was as follows:
Research and Development
Production
Sales and Marketing
Admin
IT
60 Dialog Semiconductor Plc Annual report and accounts 2010
2010
234
52
45
25
13
369
2009
191
46
39
24
10
310
Section 4 | Consolidated financial statements and notes
Income taxes
4.
Income (loss) before income taxes consists of the following:
Germany
Foreign
Income tax income (expense) is comprised of the following components:
Current taxes:
Germany
Foreign
Deferred taxes:
Germany
Foreign
Income tax benefit (expense)
Current taxes:
Current income tax charge
Adjustments in respect of current income tax of previous year
Deferred taxes:
Relating to origination and reversal of temporary differences
Relating to a reversal of a previous write-down of a deferred tax asset
Income tax benefit (expense)
2010
US$000
52,470
(8,207)
44,263
2010
US$000
(4,880)
(372)
3,036
432
(1,784)
2010
US$000
(5,252)
–
(7,082)
10,550
(1,784)
2009
US$000
31,490
(2,665)
28,825
2009
US$000
(3,069)
(122)
7,514
(421)
3,902
2009
US$000
(3,191)
–
(421)
7,514
3,902
Although Dialog is a UK company, its principal operations are located in Germany and its operating subsidiaries are all owned by its German subsidiary.
Accordingly, the following information is based on German corporate tax law.
The tax rate for its German subsidiary is 15%; considering the impact of the solidarity surcharge of 5.5%, the federal corporate tax rate amounts to
15.825%. Combining the federal corporate tax rate with the trade tax rate of 12.551%, the combined statutory tax rate of the German subsidiary is
28.376%.
Dialog Semiconductor Plc Annual report and accounts 2010 61
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
Income taxes continued
4.
A reconciliation of income taxes determined using the combined German income tax rate of 28.376% (2009: 28.376%), is as follows:
Expected income tax expense
Tax rate differential
Non-deductible portion of share based payments
Tax benefit from share based payments
Tax free income (non-deductible expenses)
Recognized deferred tax assets relating to a reversal of a previous write-down of a deferred tax asset
Benefit from previously unrecognized deferred tax assets that is used to reduce current tax expense
Additional losses for which no deferred tax asset is recognized
Adjustments recognized for tax of prior periods
Temporary differences arising from differences between functional currency and tax currency
Other
Actual income tax benefit (expense)
Deferred income tax assets and liabilities are summarised as follows:
Temporary differences
Deferred taxes in relation to tax credits
Net operating loss carryforwards
Total deferred tax assets
Impaired deferred tax assets1)
Recognized net deferred tax assets
2010
US$000
(12,560)
(69)
(1,216)
13,564
(746)
10,550
3,308
(14,482)
134
(276)
9
2009
US$000
(8,179)
2
(697)
873
(109)
7,514
5,793
(1,545)
(88)
342
(4)
(1,784)
3,902
At 31 December 2010
US$000
At 31 December 2009
US$000
(266)
1,156
12,018
12,908
2,079
2,701
1,250
16,193
20,143
12,629
10,829
7,514
[1] Impaired in FY 2005. In 2010 an impairment of US$10,550,000 was reversed
Tax loss carryforwards, temporary differences and net deferred tax assets are summarised as follows:
31 December 2010
31 December 2009
Tax loss
carryforwards
US$000
Temporary
Differences
US$000
106,825
33,419
4,317
33
(3,203)
46,975
–
661
Tax credits
US$000
–
4,280
–
–
Net deferred tax
assets
US$000
Tax loss
carryforwards
US$000
11,473
1,156
–
279
149,554
11,974
4,580
28
Temporary
Differences
US$000
8,476
11,160
–
222
Tax credits
US$000
–
4,465
–
–
Net deferred tax
assets
US$000
18,893
1,250
–
–
144,594
44,433
4,280
12,9082)
166,136
19,858
4,465
20,1432)
Germany
UK
US1)
Other
Total
[1] Including an amount of US$3,126,000 (2009: US$3,764,000) for state tax loss carryforwards
[2] The amount consists of US$10,829,000 (2009: US$7,514,000) recognized deferred tax assets and US$2,079,000 (2009: US$12,629,000) deferred tax assets (impaired in 2005)
The amount of deductible temporary differences and unsused tax loss carryforwards for which no deferred tax asset is recognized in the balance sheet
is US$155,434,000 (2009: US$163,979,000).
In assessing whether the deferred tax assets can be used, management considers the probability that some, or all, of the deferred tax assets will not be
realised. The utilisation of deferred tax assets depends upon generating taxable profit during the periods in which those temporary differences become
62 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
Income taxes continued
4.
deductible or tax-loss carryforwards can be utilised. Management considers the reversal of deferred tax liabilities, projected future taxable income,
benefits that could be realised from available tax planning strategies and other positive and negative factors in making this assessment.
The Group recorded the third consecutive year of positive net income in 2010. Therefore, based on the expected positive net result for the near future,
the management concluded to recognise deferred tax assets in an amount of US$10,829,000 (2009: US$7,514,000). The assessment was based on
the business plan for 2011 and beyond.
The utilization of further tax loss carryforwards and temporary differences is subject to the achievement of positive income in periods which are be-
yond the company’s current business plan and therefore this utilization is uncertain. Consequently no deferred tax assets were recognized for these
losses and temporary differences.
The state tax loss carryforwards in the US will expire between 2011 and 2024; other tax loss carryforwards have no expiration date.
Included in impaired deferred tax assets is an amount of US$1,156,000 (2009: US$1,250,000) (the decrease results from foreign currency adjustments
and the change of the corporation tax rate in the UK) in relation to tax credits in the UK. This asset may be recovered against future taxable profits
derived from certain overseas dividends for the company concerned.
The amount shown under “income tax receivables” in the statement of financial position includes a corporation tax refund claim of the Group’s Ger-
man subsidiary. The total amount the German subsidiary is entitled to receive amounts to EUR 414,000 to be paid out in ten equal amounts during
2008 to 2017. The amount shown within the non-current assets represents the discounted part of the claim that is due after 2011. The amount that
will be paid in 2011 is shown within the current assets.
5. Cash, cash equivalents and restricted cash
Cash at bank
Short-term deposits
Deposits designated as a hedging instrument
Cash & cash equivalents
Restricted Cash
Cash & cash equivalents and restricted cash
2010
US$000
80,398
70,172
7,630
2009
US$000
40,552
33,050
46,546
158,200
120,148
–
3,000
158,200
123,148
Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the
Group. Deposits designated as a hedging instrument are classified as cash flow hedges to cover firm commitments and forecast transactions in Euros
and Pound Sterling.
Funds classified as Restricted Cash served in 2009 as collateral for the Group’s factoring agreement. The institution would draw down on these only if
a commercial action by Dialog were to invalidate – partly or completely – the claim on a receivable financed by the factoring programme. In the fourth
quarter of 2010, the factoring bank relinquished the pledge, consequently, no restricted cash is shown at 31 December 2010.
Dialog Semiconductor Plc Annual report and accounts 2010 63
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
6. Trade accounts receivable and other receivables
Trade accounts receivables
Receivables from factoring agreement
2010
US$000
8,424
4,132
12,556
2009
US$000
15,365
2,121
17,486
Trade receivables are non-interest bearing and are generally on 30-60-day terms.
As described in note 24, in 2007 the Group entered into a selective factoring agreement. The amount shown as receivables from the factoring agree-
ment represents a 15% retainer kept by the factoring bank against sold receivables. The retainer is released only once the receivable is fully paid by the
customer, at the latest, 120 days after the receivable becomes due or if the insurance event occurs. The amounts are non-interest bearing and are
generally on 30-60-day terms.
The recorded trade accounts receivable for which an impairment has been recognised, was US$1,410,000 and US$1,406,000 at 31 December 2010
and 2009, respectively. The related allowance for doubtful accounts was US$1,410,000 and US$1,406,000 at 31 December 2010 and 2009, respec-
tively.
The allowance for doubtful accounts developed as follows:
Allowance for doubtful accounts at beginning of year
Additions charged to bad debt expense
Reductions credited to income
Effect of movements in foreign currency
2010
US$000
1,406
–
(106)
110
2009
US$000
1,656
163
(349)
(64)
Allowance for doubtful accounts at end of year
1,410
1,406
As at 31 December 2010 and 2009, the aging analysis of trade account receivables is as follows:
Receivables neither past due nor impaired
Receivables past due, not impaired individually
Less than 30 days
30 to 59 days
60 to 89 days
Total
2010
US$000
7,310
–
1,114
–
–
2009
US$000
13,924
–
1,440
–
1
8,424
15,365
64 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
Inventories
7.
Inventories are comprised of the following:
Raw materials
Work-in-process
Finished goods
8. Other financial assets
Other financial assets comprise:
Deposits for hedging contracts
Hedging instruments
At 31 December 2010
US$000
At 31 December 2009
US$000
8,298
7,238
25,197
40,733
4,260
5,528
16,405
26,193
At 31 December 2010
US$000
At 31 December 2009
US$000
395
441
836
–
–
–
The deposits for hedging contracts are an advance settlement for hedging instruments with a negative fair value. The deposits are interest bearing
with 1% below the current base rate and are offset with amounts due when the hedge is settled.
The amount shown under hedging instruments includes the fair value of derivative financial instruments used for cash flow hedges. The Group is
exposed to currency risks in the course of its operating activities. These risks are reduced by the use of forward currency exchange contracts.
The Group has clear guidelines as to the use of those derivatives, and compliance is constantly monitored. For further information on the Group’s
hedging policy please see note 24.
9. Other current assets
Other current assets comprise:
Prepaid expenses
Other tax receivables
Other
At 31 December 2010
US$000
At 31 December 2009
US$000
2,650
1,014
414
4,078
1,165
448
302
1,915
Dialog Semiconductor Plc Annual report and accounts 2010 65
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
10. Property, plant and equipment, net
A summary of activity for property, plant and equipment for the years ended 31 December 2010 and 2009 is as follows:
Test equipment
US$000
Leasehold
improvements
US$000
Office and other
equipment
US$000
Construction in
progress
US$000
Cost
Balance at 1 January 2009
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
Balance at 31 December 2009 / 1 January 2010
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
71,995
19
2,302
–
(127)
74,189
3
3,538
215
(13)
1,112
118
1,205
40
(781)
1,694
(11)
834
–
(30)
Balance at 31 December 2010
77,932
2,487
Depreciation and impairment losses
Balance at 1 January 2009
Effect of movements in foreign currency
Depreciation charge for the year
Disposals
Balance at 31 December 2009 / 1 January 2010
Effect of movements in foreign currency
Depreciation charge for the year
Disposals
(67,700)
(18)
(2,221)
126
(69,813)
(3)
(2,192)
11
(899)
(80)
(172)
759
(392)
(4)
(178)
3
20,091
253
2,915
–
(1,937)
21,322
(17)
5,009
156
(2,667)
23,777
(16,905)
(205)
(2,080)
1,648
(17,542)
7
(2,510)
2,456
Balance at 31 December 2010
(71,997)
(571)
(17,589)
Net book value
At 1 January 2009
At 31 December 2009 / 1 January 2010
At 31 December 2010
4,295
4,376
5,935
213
1,302
1,916
3,186
3,780
6,188
40
5
346
(40)
(2)
349
(1)
207
(371)
–
210
–
–
–
–
–
–
–
–
40
349
210
Total
US$000
93,238
395
6,768
–
(2,847)
97,554
(26)
9,588
–
(2,710)
104,406
(85,504)
(303)
(4,473)
2,533
(87,747)
–
(4,880)
2,470
(90,157)
7,734
9,807
14,249
66 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
10. Property, plant and equipment, net continued
Finance leases
The carrying value of property, plant and equipment held under finance leases at 31 December 2010 was US$956,000 (31 December 2009:
US$1,005,000). Additions during the year were US$299,000 (2009: US$940,000). As of the reporting date future minimum lease payments under
those finance lease contracts were US$880,000 (2009: US$1,107,000). The present value of the net minimum lease payments was US$794,000 (2009:
US$974,000).
Intangible assets
11.
A summary of activity for intangible assets for the years ended 31 December 2010 and 2009 is as follows:
Cost
Balance at 1 January 2009
Effect of movements in foreign currency
Additions
Disposals
Balance at 31 December 2009 / 1 January 2010
Effect of movements in foreign currency
Additions
Reclassifications
Disposals
Balance at 31 December 2010
Amortization and impairment losses
Balance at 1 January 2009
Effect of movements in foreign currency
Amortization charge for the year
Impairment charges
Disposals
Balance at 31 December 2009 / 1 January 2010
Effect of movements in foreign currency
Amortization charge for the year
Impairment charges
Disposals
Balance at 31 December 2010
Net book value
At 1 January 2009
At December 31, 2009 / 1 January 2010
At 31 December 2010
Purchased software,
licenses and other
US$000
Patents
US$000
Intangible assets from
internal development
US$000
Total
US$000
15,550
124
1,526
(937)
16,263
(6)
5,068
–
(176)
364
–
404
–
768
2
541
–
(2)
2,155
18,069
–
972
–
3,127
1
2,823
–
–
124
2,902
(937)
20,158
(3)
8,432
–
(178)
21,149
1,309
5,951
28,409
(12,532)
(102)
(1,149)
(343)
867
(13,259)
3
(1,676)
–
149
(13)
–
(59)
–
–
(72)
(2)
(109)
–
–
(884)
–
(938)
–
–
–
(13,429)
(102)
(2,146)
(343)
867
(1,822)
(15,153)
(1)
(893)
–
–
–
(2,678)
–
149
(14,783)
(183)
(2,716)
(17,682)
3,018
3,004
6,366
351
696
1,126
1,271
1,305
3,235
4,640
5,005
10,727
The impairment charges in 2009 relate to a licence that is no longer in use. In the income statement those impairment charges were recognised in the
line item “research and development expenses” and are allocated to the automotive and industrial segment.
A key element of the additions in 2010 was the purchase of power management technology through an asset transaction from Diodes Zetex GmbH.
As part of this transaction, Dialog has acquired specific Diodes intellectual property rights. The expected weighted average useful life of the acquired
intangible assets is four years.
Dialog Semiconductor Plc Annual report and accounts 2010 67
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
11. Intangible assets continued
Hire purchase
The carrying value of intangible assets held under hire purchase leases at 31 December 2010 was US$195,000 (31 December 2009: US$441,000).
Additions during the year were US$ nil (2009: US$244,000). As of the reporting date future minimum payments under those hire purchase contracts
were US$67,000 (2009: US$504,000). The present value of the net minimum payments was US$63,000 (2009: US$405,000).
Investments
12.
The Group holds a 7.62% interest in Digital Imaging Systems GmbH (DIS), a private entity incorporated in Germany that is not listed on a public stock
exchange. As the fair value cannot be reliably determined, the investment in DIS is accounted for at acquisition cost less accumulated impairment
charges. The total investment in DIS was US$2,662,000. In 2007, based on business and cash flow projections, the Group recognised a 100% impair-
ment loss. Accordingly the book value for DIS at 31 December 2010 and 2009 was nil.
13. Trade and other payables
Trade and other payables comprise:
Trade accounts payable
Other payables
Terms and conditions of the above other current liabilities:
(cid:1) trade payables are non-interest bearing and are normally settled on 30-60-day terms; and
(cid:1) other payables are non-interest bearing and have an term of less than three months.
14. Other financial liabilities
Other financial liabilities comprise:
Hire purchase agreements and finance lease obligations
Fair value of derivative financial instruments
At 31 December 2010
US$000
At 31 December 2009
US$000
24,984
3,429
28,413
15,074
2,230
17,304
At 31 December 2010
US$000
At 31 December 2009
US$000
396
449
845
679
–
679
The Group is exposed to currency risks in the course of its operating activities. These risks are reduced by the use of forward currency exchange con-
tracts.
68 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
15. Provisions
The Group issues various types of contractual product warranties under which it guarantees the performance of products delivered for a certain period
or term. The estimated provision is based on historical warranty data. The provision for dilapidation includes costs of dismantling and restoring the
offices of the Group to their original condition at end the end of the lease terms. The provision for rental obligations relates to an office that the
Group vacated in 2009 as it relocated to larger premises. The office was vacated before the end of the contractual lease term. As the likelihood of the
Group being able to sublet this office was low the Group has accounted for the rental obligations for the period the building is not used. The changes
in the provision are summarised as follows:
Balance at 1
January 2010
US$000
Currency change
US$000
Discount
000US$
Additions
US$000
Used
US$000
Released
US$000
At 31 December
2010
US$000
769
252
428
335
–
1,784
252
252
2,036
–
(8)
(17)
(24)
4
(45)
(14)
(14)
(59)
–
–
–
–
–
–
11
11
11
437
80
–
–
15
532
179
179
711
(85)
(205)
(375)
–
–
(684)
(9)
(36)
–
–
(665)
(729)
–
–
–
–
437
110
–
311
19
877
428
428
(665)
(729)
1,305
Obligations for product warranties
Dilapidation
Rental obligations
Pending legal claims
Other
Total current
Dilapidation
Total non-current
Total
16. Other current liabilities
Other current liabilities comprise:
Obligations for personnel and social expenses
Advances received in relation to customer specific research and development contracts
Other
At 31 December 2010
US$000
At 31 December 2009
US$000
12,400
742
2,733
15,875
7,836
939
2,533
11,308
Terms and conditions of the above other current liabilities:
(cid:1) obligations for personnel and social expenses have an average term of three months (2009: three months); and
(cid:1) other payables are non-interest bearing and are normally settled on 30 day terms.
17. Other non-current financial liabilities
Other non-current financial liabilities include hire purchase agreements and finance lease obligations.
18. Shareholders’ equity and other reserves
Capital increase
On 25 September 2009 the shareholders of the Company approved an offering of 12 million new ordinary shares of 10 pence each in the capital of
the Company (the “New Shares”) with new and existing institutional investors at a price of EUR 3.65 per share to raise gross proceeds of €43.8 million
(US$64.3 million); net proceeds (after deduction of offering expenses of US$4.7 million) were US$59.7 million. The trading of the New Shares com-
menced on the Regulated Market (Regulierter Markt) of the Frankfurt Stock Exchange on 30 September 2009.
On 20 October 2009, the Company completed an offering of 3,500,000 previously unissued ordinary shares at £0.10 per share to its employee benefit
trust (“Trust”) at a price of EUR 0,20 per share, to make such shares available for the exercise of stock option rights that had previously been granted
to employees.
Dialog Semiconductor Plc Annual report and accounts 2010 69
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
18. Shareholders’ equity and other reserves continued
On 4 February 2010, the Company completed an offering of 3,500,000 previously unissued ordinary shares at £0.10 per share to its employee benefit
trust (“Trust”) at a price of EUR 0,20 per share, to make such shares available for the exercise of stock option rights that had previously been granted
to employees.
Ordinary shares
At 31 December 2010, Dialog had authorised 104,311,860 (2009: 104,311,860) ordinary shares with a par value of £0.10 per share, of which
65,068,930 (2009: 61,568,930) shares were issued and outstanding.
At 1 January 2009
Issued on 25 September 2009
Issued on 20 October 2009
At 31 December 2009
Issued on 4 February 2010
At 31 December 2010
Amount of shares
46,068,930
12,000,000
3,500,000
US$000
9,328
1,922
575
61,568,930
11,825
3,500,000
555
65,068,930
12,380
Dialog’s stock was previously issued in the form of bearer shares. On 16 November 2009, all shares were converted to registered shares. All shares are
fully paid.
Additional paid-in capital
The account comprises additional paid-in capital in connection with the issue of shares.
Accumulated deficit
The accumulated deficit comprises losses and non-distributed earnings of consolidated Group companies. Because of the accumulated deficit, the
Group cannot pay a dividend and does not plan to pay dividends in the foreseeable future.
In order to reduce the Company’s accumulated deficit, on 5 May 2010 the board of Directors of Dialog Semiconductor Plc decided to reduce the
Company’s share premium account in an amount of US$85,000,000 effective 2 June 2010. The reduction of the share premium account was
registered with the UK Companies House on 2 June 2010. The amount was then netted with the accumulated deficit.
Other reserves
Currency translation reserve
The currency translation reserve is used to record exchange differences arising from the translation of the financial statements of subsidiaries whose
functional currency is not the US$. At 31 December 2010 and 2009, the currency translation reserve was US$-1,717,000 and US$-1,730,000 respec-
tively.
Cash flow hedge reserve
The cash flow hedge reserve is used to record the portion of the gain or loss on a hedging instrument that is determined to be a highly effective cash
flow hedge. At 31 December 2010 and 2009, the cash flow hedge reserve was US$69,000 and US$-372,000 respectively.
70 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
18. Shareholders’ equity and other reserves continued
The related tax effects allocated to each component of other reserves for the years ended 31 December 2010 and 2009 are as follows:
Currency translation adjustment
Hedges
Other comprehensive income (loss)
Pre-tax
US$000
188
441
629
2010
Tax effect
US$000
(175)
–
(175)
Net
US$000
13
441
454
Pre-tax
US$000
(113)
(179)
(292)
2009
Tax effect
US$000
421
–
421
Net
US$000
308
(179)
129
Employee stock purchase plan shares
The employee stock purchase plan shares contain the acquisition cost of the shares held by the employee benefit trust (the “Trust”). Please refer to
note 20. At 31 December 2010 and 31 December 2009, the Trust held 3,995,031 and 2,663,318 shares respectively. These shares are legally issued
and outstanding for accounting purposes and accordingly have been reported in the caption “employee stock purchase plan shares” as a reduction of
shareholders’ equity.
19. Pension scheme
The Group operates defined contribution pension schemes. The pension cost charge for the year represents contributions payable by the Group to the
funds and amounted to US$1,360,000 (2009: US$1,229,000). At 31 December 2010, contributions amounting to US$52,000 (2009: US$150,000)
were payable to the funds and are included in other current liabilities. Pension costs also include payments to the state funded pension plan in Ger-
many in the amount of US$1,640,000 (2009: US$1,339,000).
20. Share-based payments
a) Stock option plans
On 7 August 1998, the Group adopted a stock option plan (the “Plan”) under which employees, the executive management and the Executive Direc-
tors may be granted from time to time, at the discretion of the Board, stock options to acquire up to 3,840,990 shares of the Group’s authorised but
unissued ordinary shares. On 16 May 2002 the Shareholders of the Group approved a resolution increasing the maximum amount of unexercised stock
options which may be granted by the Group at any time, to 15% of Dialog’s issued share capital, from time to time on a diluted basis. At 31 Decem-
ber 2010, 11,482,752 shares could be issued.
Unless otherwise determined by the board, stock options granted to employees are granted with an exercise price not less than the quoted price at the
date of grant, and vest during the service period of the employee without any further vesting conditions. Stock options granted before 31 October
2006 have terms of ten years and vest over periods of one or five years from the grant date. On 19 June 2006 the Board amended the stock option
plan under which stock options now have a seven-year life and vest monthly over a period of one to 48 months. The new stock options may not be
exercised until they have been held for one calendar year from the grant date. The new rules were implemented on grants made on or after 31 Octo-
ber 2006. The stock option plan was extended by the Board in 2008 to expire 6 August 2018.
At the 2006 Annual General Meeting, Shareholders approved a stock option plan for Non-executive Directors. Each Non-executive Director is entitled
to an initial grant of 50,000 options vesting over four years and each year thereafter, soon after each Annual Shareholder Meeting, a further 20,000
options vesting over 12 months are granted. Options are exercisable at the market price prevailing at the date of grant. At the 2010 Annual General
Meeting the Shareholders voted against the continuance of this share option plan. Consequently, no share options were granted to the Non-executive
Directors in 2010.
On 22 April 2009 the Board of Directors of the Company decided to offer the employees an option replacement programme for options which had an
exercise price which was above the current market price (underwater options). Under this option replacement programme option holders were offered
to replace their underwater options against a reduced number of replacement options with an exercise price set at the market price of the Company´s
shares at the replacement date. The total value of the replacement options was equal to the total value of the underwater options. The options value
was derived from a Black-Scholes valuation model as at the date of conversion. 107 employees decided to replace in total 1,098,952 underwater
options for 534,192 replacement options.
The fair value of all grants in the two-year period ended 31 December 2010 was estimated using the Black-Scholes option pricing model. Expectations
of early exercise are considered in the determination of the expected life of the options. The Group does not have adequate historical development of
the share price, particularly as a result of material unusual effects in the stock market in recent years. Furthermore, implicit volatility cannot be
Dialog Semiconductor Plc Annual report and accounts 2010 71
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
20. Share-based payments continued
determined since none of the Group’s options are actively traded. The Group has therefore based its calculation of expected volatility on an average of
its own volatility and the historical development of other companies in its business segment.
In contrast to former reports, the management decided to present the information regarding stock based compensation in Euro as the options and
shares are denominated in Euro. Management is of the opinion that the presentation in Euro is providing better transparency. The 2009 comparatives
have been restated in Euro.
The following assumptions were used for stock option grants for the years ended 31 December 2010 and 2009:
Expected dividend yield
Expected volatility
Risk free interest rate
Expected life (in years)
Weighted average share price during the year (in €)
Weighted average share price for Option grants (in €)
Weighted average exercise price (in €)
Weighted-average fair value (in €)
2010
0%
2009
0%
41% - 49%
42% – 54%
2.3%
4.3%
2.0 - 6.0
2.0 – 6.0
10.87
9.06
9.06
3.39
4.71
3.76
3.76
1.49
b) Executives’ Long Term Incentive Plan (LTIP)
The Group also operates the Dialog Semiconductor Plc Long Term Incentive Plan (LTIP) which was approved by shareholders at the Annual General
Meeting in April 2008. Under the LTIP, key executives are eligible to share in a percentage of the value created for shareholders in excess of an annual
return hurdle measured over a four-year performance period (this was originally a three-year period, extended by one year at the Annual General
Meeting in April 2009). This value is delivered to a participant in the form of a series of nil-cost options which can be exercised within five years of the
date of grant. The first award under the LTIP was made on 8 May 2008.
In 2010 new options under LTIP were awarded to selected new and existing members of the executive management. These grants are shown under
“new grant” in the table below.
The fair value of the LTIP, where the number of nil-cost options granted to an individual is contingent upon the returns to Shareholders, was calculated
using a Monte Carlo simulation model. As a portion of each award is capable of vesting at three separate measurement dates each tranche has been
valued separately in accordance with IFRS2.
The fair values used in the calculations are as follows:
Existing Grant
New Grant
Inputs
Tranche 1
Tranche 2
Tranche 3
LTIP extension
Tranche 1
Tranche 2
Share price at grant date
Exercise price
Expected life (years)
Expected volatility
€1.40
£0.10
0.64
40%
€1.40
£0.10
1.64
40%
€1.40
£0.10
2.64
40%
€4,077
£0.10
2.35
42%
€10.51
£0.10
0.54
42%
€10.51
£0.10
1.54
42%
Risk-free-interest-rate
4.8202%
4.8202%
4.8202%
1.4900%
0.4820%
0.7040%
Expected volatility has been determined on the same basis as the input into the fair value calculation for share options granted during the year.
Measurement date 31 January 2009
The measurement share price at 31 January 2009 (average share price over the prior 30 days) was €0.63. As this price was below the return hurdle for
January 2009 of €1.62 (initial price of €1.44+12.5%), no share options were granted in 2009.
72 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
20. Share-based payments continued
Measurement date 31 January 2010
The measurement share price at 31 January 2010 (average share price over the prior 30 days) was €9.8942. As this price was above the return hurdle
for January 2010 of €1.82 (prior year return hurdle of €1.62+12.5%), 3,055,064 nil cost option grants were approved by the board on 4th February
2010, with 25% exercisable from 22 February 2010 and the remaining 75% exercisable for 4 years from 21 February 2011.
Measurement date 31 January 2011 (subsequent event)
The measurement share price at 31 January 2011 (average share price over the prior 30 days) was €17.6632. As this price was above the return hurdle
for January 2010 of €11.1310 (prior year measurement share price of €9.8942+12.5%), 1,575,327 nil cost option grants were approved by the board
on 18 February 2011, all exercisable for 5 years from 18 February 2011.
c) Development of plans
Stock option plan activity (including stock options granted under the LTIP) for the years ended 31 December 2010 and 2009 was as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Options replaced
Options returned
Outstanding at end of year
Options exercisable at year end
2010
2009
Weighted average
exercise price
€
2.27
2.49
1.13
1.80
–
–
–
2.88
1.89
Options
4,803,342
3,979,392
(2,364,603)
(319,938)
–
–
–
6,098,193
1,644,626
Options
5,796,510
1,244,901
(1,558,152)
(109,309)
(5,848)
534,192
(1,098,952)
4,803,342
1,877,812
Weighted average
exercise price
€
1.82
4.72
1.26
1.28
0.45
1.52
3.81
2.27
1.57
The weighted average share price at the date of exercise of options was €13.61 and €7.47 in the years ended 31 December 2010 and 2009 respectively.
Liabilities from share option exercises to employees were US$920,000 at 31 December 2010 (2009: US$614,000).
The following table summarises information on stock options outstanding (including stock options granted under the LTIP) at 31 December 2010:
Range of Exercise Prices
€0.11 - 2.99
€3.00 - 8.00
€8.00 - 13.00
€0.11 - 13.00
Options outstanding
Weighted average
Options exercisable
Number
outstanding at 31
December 2010
remaining
contractual life
(in years)
Weighted average
exercise price
€
Number exercisable
at 31 December 2010
Weighted average
exercise price
€
4,351,626
841,150
905,417
6,098,193
6.6
5.4
6.6
5.5
0.70
6.16
10.34
1,371,538
273,088
0
2.88
1,644,626
1.23
5.17
–
1.89
d) Employee benefit trust
The Group established an employee benefit trust (the “Trust”). The Trust purchases shares in the Group for the benefit of employees under the Group’s
share option scheme. At 31 December 2010 the Trust held 3,995,031 shares (2009: 2,663,318).
Dialog Semiconductor Plc Annual report and accounts 2010 73
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
21. Additional disclosures on financial instruments
Amount categorised in accordance with IAS 39:
Amounts recognized in the statement of financial position according to IAS 39
Category
in accordance
with IAS 39
Carrying
amount
31 December 2010
US$000
Amortized cost
US$000
Cost
US$000
Fair value
recognized
in equity
US$000
Fair value
recognized in
profit or loss
US$000
Fair value
31 December
2010
US$000
Assets
Cash at bank and Short-term
deposits
Restricted cash
Deposits designated as a
hedging instrument
Trade accounts receivable and
other receivables
Other non-derivative financial
assets
LaR
LaR
n/a
LaR
150,570
150,570
–
7,630
–
–
12,556
12,556
Deposits for hedging contracts
LaR
395
395
Derivative financial assets
Derivatives without hedging
relationship
Derivatives with hedging
relationship
Liabilities
Trade account payables
Other payables
Other financial liabilities
Derivative financial liabilities
Derivatives without hedging
relationship
Derivatives with hedging
relationship
n/a
n/a
FLAC
FLAC
FLAC
n/a
n/a
–
441
–
–
24,984
3,429
1,306
24,984
3,429
857
–
–
–
–
Of which aggregated by category in accordance
with IAS 39:
Loans and receivables (LaR)
163,521
163,521
Deposits designated as a hedging instrument
7,630
Held-to-maturity investments (HtM)
Available-for-sale financial assets (AfS)
Derivatives without hedging relationship
Derivatives with hedging relationship
–
–
–
441
–
–
–
–
–
Financial liabilities at amortized cost (FLAC)
(29,719)
(29,270)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,630
–
–
–
441
–
–
449
–
–
–
7,630
–
–
–
441
(449)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,570
–
7,630
12,556
395
–
441
24,984
3,429
1,306
–
–
163,521
7,630
–
–
–
441
(29,719)
74 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
21. Additional disclosures on financial instruments continued
Amounts recognized in the statement of financial position according to IAS 39
Category
in accordance
with IAS 39
Carrying
amount
31 December 2009
US$000
Amortized cost
US$000
Cost
US$000
Fair value
recognized
in equity
US$000
Fair value
recognized in
profit or loss
US$000
Fair value
31 December
2009
US$000
Assets
Cash at bank and Short-term
deposits
Restricted cash
Deposits designated as a
hedging instrument
Trade accounts receivable and
other receivables
Other non-derivative financial
assets
LaR
LaR
n/a
LaR
73,602
3,000
73,602
3,000
46,546
–
17,486
17,486
Deposits for hedging contracts
LaR
Derivative financial assets
Derivatives without hedging
relationship
Derivatives with hedging
relationship
Liabilities
Trade account payables
Other payables
Other financial liabilities
Derivative financial liabilities
Derivatives without hedging
relationship
Derivatives with hedging
relationship
n/a
n/a
FLAC
FLAC
FLAC
n/a
n/a
Of which aggregated by category in accordance
with IAS 39:
Loans and receivables (LaR)
Deposits designated as a hedging instrument
Held-to-maturity investments (HtM)
Available-for-sale financial assets (AfS)
Derivatives without hedging relationship
Derivatives with hedging relationship
–
–
–
292
–
–
15,074
2,230
1,379
15,074
2,230
1,379
–
–
–
–
94,088
46,546
–
–
–
–
94,380
–
–
–
–
–
Financial liabilities at amortized cost (FLAC)
(18,683)
(18,683)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46,546
–
–
–
–
–
–
–
–
–
–
46,546
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
73,602
3,000
46,546
17,486
292
–
–
15,074
2,230
1,379
–
–
94,380
46,546
–
–
–
–
(18,683)
The fair value of derivatives has been determined with reference to available market information (Level 2). The carrying amounts of the loans and
receivables and financial liabilities approximate their fair values due to short-term maturities.
Dialog Semiconductor Plc Annual report and accounts 2010 75
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
22. Commitments
Operating lease, software and service commitments
The Group leases all its office facilities and vehicles, and some of its office and test equipment, under operating leases. Future minimum lease pay-
ments under non-cancellable operating rental and lease agreements and payments for other commitments are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Thereafter
Total minimum payments
Operating leases and
software
commitments
Other commitments Operating leases and
software commitments
Other commitments
2010
US$000
5,724
4,388
3,453
2,750
2,052
11,934
30,301
2010
US$000
2,689
2,567
1,019
130
–
–
2009
US$000
4,543
2,287
1,337
853
574
–
6,405
9,594
2009
US$000
2,429
2,497
2,411
1,173
150
–
8,660
Total payments for operating leases and software commitments, charged as an expense in the income statement, amounted to US$5,313,000 and
US$4,689,000 for the years ended 31 December 2010 and 2009 respectively.
Finance lease, hire purchase and software commitments
The Group has finance leases and hire purchase contracts for test and IT equipment and has software contracts. The leases have terms of renewal but
no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. Future minimum payments under
finance leases and hire purchase and software contracts together with the present value of the net minimum payments are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Total minimum payments
Less amounts representing finance charges
Present value of minimum payments
Minimum payments
2010
US$000
445
397
105
–
947
(90)
857
2009
US$000
793
364
341
113
1,611
(232)
1,379
Capital commitments
The Group has contractual commitments for the acquisition of property, plant and equipment in 2010 of US$2,485,000 (2009: US$2,484,000) and for
the acquisition of intangible assets of US$3,110,000 (2009: US$614,000).
In addition the company has a contingent liability of US$500,000 in connection with the purchase of intangible assets. This liability is contingent to
certain milestones being met from which we expect to reach the first milestone in the fourth quarter of 2011.
23. Segmental reporting
Following the provisions of IFRS 8, reportable operating segments are identified based on the “management approach”. The management approach
requires external segment reporting based on the Group’s internal organisational and management structure and on internal financial reporting to the
chief operating decision maker, which considered the Group as being the Board of Management.
76 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
23. Segmental reporting continued
The Group reports on three operating segments, which are independently managed by bodies responsible for the respective segments depending on
the nature of products offered. The identification of Company components as business segments is based in particular on the existence of business
unit managers who report directly to the CEO of Dialog and who are responsible for the performance of the segment under their charge. Following
the change in IFRS 8.23, the Group does no longer report assets and liabilities as only inventories are reported to the chief operating decision maker.
Prior-year figures have been adjusted accordingly.
a) Operating segments
The Group’s operating segments are:
Audio and Power Management
This segment includes our power management and audio chips especially designed to meet the needs of the wireless systems markets.
Display Systems
The products in this segment include a range of advanced driver technologies for low power display applications – from PMOLEDs, to electronic paper
and MEMS displays.
Automotive and Industrial
In the automotive and industrial market our products address the safety, management and control of electronic systems in cars and for industrial
applications.
2010
2009
Audio & Power
Management
US$000
Display
Systems 3) 4)
US$000
Automotive/
Industrial
US$000
Reconciliation
US$000
Audio & Power
Management
US$000
Display Systems
3) 4)
US$000
Automotive/
Industrial
US$000
Total
US$000
Reconciliation
US$000
Total
US$000
245,364
40,711
1,866
5,121
50,326
8,510
(959)
296,597
176,569
2,123
56,465
24,289
5,987
8,312
33,531
9,513
1,526
217,613
507
42,621
59,078
(11,205)
6,987
(9,519)
45,341
47,048
(12,395)
(3,636)
(2,345)
28,672
4,878
1,227
1,453
–
7,558
3,535
1,490
1,594
–
6,619
Revenues 1)
R&D expenses
Operating profit
(loss) 2)
Depreciation/
amortization
Inventory
impairment and
fixed asset disposal
losses
Investments
11,629
2,926
856
36
469
3,465
At 31 Dec 2010
Inventories
33,659
500
6,574
[1] All revenues are from sales to external customers
[2] Certain overhead costs are predominantly allocated based on sales and headcount.
[3] Revenue is partially generated from funded research and development activity.
[4] The operating loss reflects the investment in the emerging display technology.
1,361
18,020
1,076
5,447
179
2,296
441
2,457
40,733
19,544
130
6,519
At 31 Dec 2009
–
–
1,696
10,200
26,193
–
–
Revenues in the reconciliation column include sales discounts on early payment of US$959,000 (2009: US$435,0000) and additionally in 2009 the
BenQ Cash settlement of US$1,961,000. R&D expenses in the reconciliation column predominantly include stock option expenses and expenses for
the Management Long Term Incentive Plan (LTIP) of US$2,123,000 (2009: US$505,000).
The operating losses recorded in the reconciliation column for the year ended 31 December 2010 of US$9,519,000 (2009: US$2,345,000) are primar-
ily resulting from stock option expenses, bonus payments for employees, expenses in relation to the Long Term Incentive Plan introduced in 2008, sales
discounts for early payments and the costs of the holding company. Additionally in 2009 the BenQ cash settlement in the amount of US$2.3 million
was included.
Investments comprise additions to property, plant and equipment, and intangible assets.
In 2010 and 2009 the Group had no inter-segment sales, income, expenses, receivables, payables or provisions.
Dialog Semiconductor Plc Annual report and accounts 2010 77
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
23. Segmental reporting continued
There are no differences between the measurements of the reportable segments profits and losses, assets and liabilities and the entities profit and
losses, assets and liabilities.
b) Geographic information – Revenues by shipment destination
Revenues
Hungary
United Kingdom
Other European countries
China
Other Asian countries
Other countries
Total revenues
Investments
Germany
Japan
United Kingdom
Other
Total investments
Assets
Germany
Japan
United Kingdom
Other
Total assets
2010
US$000
2009
US$000
38,171
518
24,328
182,300
26,472
24,808
296,597
15,122
147
2,615
136
18,020
17,444
434
20,600
145,986
23,047
10,102
217,613
7,809
350
2,022
19
10,200
At 31 December 2010
US$000
At 31 December 2009
US$000
245,828
185,656
1,455
5,503
593
854
5,577
224
253,379
192,311
Revenues are allocated to countries based on the location of the shipment destination. Segmental investments and assets are allocated based on the
geographic location of the asset.
24. Financial risk management objectives and policies
Vulnerability due to certain significant risk concentrations
The Group’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Group’s future operating results and
cause actual results to vary materially from historical results include, but are not limited to, the highly cyclical nature of both the semiconductor and
wireless communications industries, dependence on certain customers and the ability to obtain an adequate supply of sub-micron wafers.
The Group's products are generally utilised in the wireless and automotive industries. The Group generates a substantial portion of its revenue from
the wireless communications market, which accounted for 83% and 84% of its total revenue for the years ended 31 December 2010 and 2009,
respectively.
The Group’s revenue base is diversified by geographic region and by individual customer. Changes in foreign currency exchange rates influence the
Group’s results of operations. The Group’s sales, purchases of raw materials and manufacturing services are primarily denominated in US$. The Group
also has foreign currency exchange risks with respect to its net investments in foreign subsidiaries and branches in the United Kingdom, Japan, Taiwan,
Hong Kong, Korea and Singapore. Fluctuations in these currencies could have a significant impact on the Group’s reported results from operations.
78 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
24. Financial risk management objectives and policies continued
The Group depends on a relatively small number of customers for a substantial portion of its revenues, and the loss of one or more of these customers
may result in a significant decline in future revenue. During 2010, three customers individually accounted for more than 10% of the Group's revenues.
Total revenues from these three customers were US$222,550,000. Net receivables from these three customers were US$7,051,000 at 31 December
2010. The three customers are part of the Audio & Power Management Segment.
During 2009, two customers individually accounted for more than 10% of the Group's revenues. Total revenues from these two customers were
US$145,271,000 or 66.8%. Net receivables from these two customers were US$9,342,000 at 31 December 2009.
The Group is performing ongoing credit evaluations of its customers' financial condition.
Financial risk management objectives and policies
The Group’s principal financial instruments, other than derivatives, comprise cash, cash equivalents, restricted cash and short-term deposits. The main
purpose of these financial instruments is to raise finance for the Group’s operations. The Group has other financial instruments which mainly comprise
trade receivables and trade payables which arise directly from its operations.
The Group also entered into derivative transactions (forward currency contracts). The purpose is to manage the currency risks arising from the Group’s
operations.
It is, and has been throughout 2010 and 2009, the Group’s policy that no trading in derivatives shall be undertaken.
Exposure to currency, interest rate and credit risk arises in the normal course of the Group’s business. The Board of Directors reviews and agrees poli-
cies for managing each of these risks which are summarised below:
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices
comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. Financial instruments affected by market risk in-
clude loans and borrowings, deposits, available-for-sale investments, and derivative financial instruments.
Interest risk
The Group earns interest from deposits and uses money market deposits with highly rated financial institutions. During the year, the Group has held
cash on deposit with a range of maturities from one week to one month. This can vary in view of changes in the underlying currency’s interest rates
and the Group’s cash requirements.
The Group pays interest on amounts received in connection with the factoring agreement as prescribed below.
The Group has no long-term debt and no amounts outstanding under short-term credit facilities as at 31 December 2010 (2009: US$nil).
The Group’s policy is to manage its interest income using a mix of fixed and variable interest rate debts. In order to achieve this policy, the Group
invests in highly liquid funds having a matching investment strategy. Once the operating business has been financed, short-term excess funds are
invested in floating interest rate securities. Only short-term deposits bear fixed interest rates.
Dialog Semiconductor Plc Annual report and accounts 2010 79
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
24. Financial risk management objectives and policies continued
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s
profit before tax as well as the Group’s equity:
2010
2009
Increase/decrease in
basis points
Effect on profit
US$000
Effect on equity
US$000
65
(65)
17
(17)
881
(881)
137
(137)
881
(881)
137
(137)
Currency risk
The main functional currency within the Group and the presentation currency for the consolidated financial statements is the US$. Accordingly, foreign
exchange risks arise from transactions, and recognised assets and liabilities, the functional currency of which is not the US$. The currencies giving rise
to these exposure risks are primarily the Euro and Pound Sterling. The majority of the Group’s revenue and material expenses are denominated in US$.
The majority of other operating expenses are denominated in Euros and Pounds Sterling. The Group has transactional currency exposures. Such
exposure arises from the sales or purchases by an operating unit in currencies other than the unit’s functional currency. In 2010 and 2009 nearly all the
Group’s sales were denominated in US$.
The Group uses forward currency contracts as well as certain deposits (together referred to as the “hedging instruments”) to eliminate the currency
exposure of recurring expected payments, such as salaries, wages and office rents non-US$ denominated. The hedging instruments must be the same
currency as the hedged item.
It is the Group’s policy not to enter into forward contracts nor classify deposits as non-derivative hedging instruments until a firm commitment is in
place and to maximise hedge effectiveness by negotiating the terms of hedge instruments to match the terms of the hedged item.
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant,
of the Group’s profit before tax (resulting from changes in the fair value of monetary assets, excluding securities, and liabilities) and the Group’s equity
(resulting from changes in the fair value of deposits designated as cash flow hedges).
2010
Euro
Pound Sterling
Euro
Pound Sterling
2009
Euro
Pound Sterling
Euro
Pound Sterling
[1] Categories according to IAS 39
Loans and receivables (LaR) 1)
Financial liabilities at amortized cost (FLAC) 1)
Increase/decrease
against US$
Effect on profit
US$000
Effect on equity
US$000
Effect on profit
US$000
Effect on equity
US$000
7%
4%
(7%)
(4%)
7%
12%
(7%)
(12%)
514
4
(514)
(4)
2,000
1,175
(2,000)
(1,175)
913
4
(913)
(4)
2,052
1,200
(2,052)
(1,200)
(145)
(36)
145
36
(110)
(151)
110
50
(145)
(36)
145
36
(110)
(151)
110
151
A risk analysis for the Group’s securities was done separately, based on the inherent historic volatility of the specific securities, see below.
80 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
24. Financial risk management objectives and policies continued
Credit risk
The Group is exposed to credit risk from its operating activities and certain financing activities. The Group trades only with recognised, creditworthy
third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition,
receivable balances are monitored on an ongoing basis, with the result that the Group’s exposure to bad debts is not significant. The maximum expo-
sure is the carrying amount as disclosed in note 6. Regarding the risk concentration please see above, “vulnerability due to certain significant consid-
erations”.
In order to finance its growth, in August 2007 the Group entered into a factoring agreement with a reputable financial institution. The maximum
amount of cash that can be received under this agreement is US$25.0 million (2009: US$30 million). The agreement, which comprises receivables from
selective customers, significantly reduces the underlying credit risk because the financial institution assumes all credit risks associated with the collec-
tion of the receivables financed under the programme.
As part of the factoring agreement, the Group had pledged US$3.0 million of cash to the factoring institution in the second quarter of 2009. The
institution would draw down on these only if a commercial action by Dialog were to invalidate – partly or completely – the claim on a receivable fi-
nanced by the factoring program. In the fourth quarter 2010, the factoring bank relinquished the pledge. Consequently, no restricted cash is shown at
31 December 2010.
The Group’s exposure to credit risk arising from other financial assets of the Group, which comprise cash, cash equivalents and restricted, would arise
from default by a counterparty. The maximum exposure is equal to the carrying amount of the instruments.
Liquidity risk
The Group uses quarterly cash flow forecasts to monitor its liquidity risk. It takes financial investments and financial assets (e.g. trade accounts receiv-
ables and other financial assets) into consideration, as well as projected cash flows from operations. The Group’s objective is to minimise interest ex-
pense by avoiding the use of short-term bank liabilities or bank overdrafts within the Group.
At 31 December 2010, the Group had cash and cash equivalents of US$158,200,000 (2009: cash, cash equivalents and restricted cash of
US$123,148,000).
The Group’s policy is to structure its maturities of current financial assets within the Group to meet 100% of the respective maturities of the liabilities.
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2010, based on contractual undiscounted payments:
Financial year ended 2010
Trade accounts payable
Other payables
Other financial liabilities
Financial year ended 2009
Trade accounts payable
Other payables
Other financial liabilities
Less than 3 months
US$000
3 to 12 months
US$000
1 to 5 years
US$000
24,984
3,429
248
28,661
15,074
2,230
168
17,472
–
–
597
597
–
–
511
511
–
–
461
461
–
–
700
700
Total
US$000
24,984
3,429
1,306
29,719
15,074
2,230
1,379
18,683
At 31 December 2010, the Group had unused short-term credit lines of US$5 million (2009: US$14.2 million) and a multi-currency revolving credit line
facility of £10 million (2009: nil) There were no amounts outstanding under these credit lines at 31 December 2010 (2009: nil).
Dialog Semiconductor Plc Annual report and accounts 2010 81
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
24. Financial risk management objectives and policies continued
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and
strategies for growth. The company is considering its total equity as capital.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions. To maintain or adjust its capital
structure, the Group may generally issue new shares. No changes were made in the objectives, policies or processes during the years ending
31 December 2010 and 31 December 2009.
The Group monitors capital using an equity ratio (total equity divided by total assets). The equity ratio as of 31 December 2010 was 81.1% (2009:
81.6%). Capital includes net Shareholders’ equity. The Group’s policy is to finance business development and growth if at all possible with equity
rather than long-term liabilities. It is, therefore, also its policy to keep a strong equity ratio. This policy will be reconsidered as soon as sustainable
profits are earned in order to achieve leverage.
Hedging activities
At 31 December 2010, the Group held deposits (referred to as the “hedging instruments”) designated as hedges of firm commitments and forecast
transactions in Euros and Pounds Sterling.
The hedging instruments are being used to hedge the foreign currency risk of contractual cash flows, principally resulting from wages and salaries, and
rental payments with the aim of eliminating the currency risk by transforming these cash flows from Euros or Pounds Sterling into US dollars. The fair
values of the forward exchange contracts which equal the book values are as follows:
Fair values
Forward exchange contracts
Deposits
At 31 Dec 2010
Assets
US$000
Liabilities
US$000
At 31 Dec 2009
Assets
US$000
Liabilities
US$000
441
7,630
449
–
–
46,546
–
–
The critical terms of the deposits have been set to match the terms of the hedged cash flows.
The cash flow hedges of the expected future cash flows in each month from January 2010 to December 2010 and January 2009 to December 2009
respectively were assessed to be highly effective and, at 31 December 2010, a net unrealised gain of US$69,000 was included in equity in respect of
these cash flows (2009: loss of US$372,000). During the financial year 2010 a loss of US$2,390,000 (2009: profit of US$197,000) was recognised in
equity and a loss of US$2,831,000 (2009: profit of US$376,000) was removed from equity and recognised in profit and loss. The months of occur-
rence of the cash flows are the same as the month when the income statement is affected.
82 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
24. Financial risk management objectives and policies continued
The following tables show the contractual maturities of the payments for which deposits are used as hedging instruments, i.e., when the hedged item
will be recognised in profit or loss.
Hedging instruments for Euro commitments:
Maturity
2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
2009
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
Nominal amount €000
Forward rate
Nominal amount €000
Spot rate
Derivatives
Deposits
3,000
1,600
1,600
3,100
3,300
3,300
3,000
3,000
3,000
3,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.3443
1.3500
1.3497
1.3097
1.3106
1.3104
1.3300
1.3297
1.3293
1.3289
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,667
1,667
1,667
700
–
–
–
–
–
–
–
–
1,725
1,725
2,325
1,700
1,700
1,700
1,700
1,700
1,700
1,700
1,700
1,700
1.3409
1.3409
1.3409
1.2124
–
–
–
–
–
–
–
–
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
1.4750 - 1.4765
Dialog Semiconductor Plc Annual report and accounts 2010 83
Section 4 | Consolidated financial statements and notes
Notes to the consolidated financial statements
For the year ended 31 December 2010
24. Financial risk management objectives and policies continued
Hedging instruments for Pound Sterling commitments:
Maturity
2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
2009
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
Nominal amount £000
Forward rate
Nominal amount £000
Spot rate
Derivatives
Deposits
1,550
2,050
2,350
1,450
1,750
1,750
1,600
1,700
1,700
1,500
1,700
–
–
–
–
–
–
–
–
–
–
–
–
–
1.5435
1.5513
1.5606
1.5770
1.5769
1.5766
1.5775
1.5770
1.5764
1.5759
1.5754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
833
833
1,283
783
783
783
783
783
783
783
783
783
–
–
–
–
–
–
–
–
–
–
–
–
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
1.5807
84 Dialog Semiconductor Plc Annual report and accounts 2010
Section 4 | Consolidated financial statements and notes
25. Transactions with related parties
For the relationship between the parent company, Dialog Semiconductor Plc, and its subsidiaries please see note 2.
Related parties are comprised of seven (2009: eight) non-executive members of the Board of Directors and ten (2009: nine) members of the executive
management which are named in the management and governance section. These are the only related parties of the Group.
Compensation of key management personnel of the Group
For the composition of our key management please see management and governance beginning on page 29. Compensation of key management
personnel of the Group is as follows:
Short term employee benefits
Post-employment benefits1
Share based payments
[1]) The amounts include payments for defined contribution plans.
2010
US$000
4,319
165
1,439
5,923
2009
US$000
3,499
137
635
4,272
Compensation of Non-executive Directors
The compensation of Non-executive Directors was US$521,000 (2009: US$307,000). As at 31 December 2010 the amount of US$ 23,000 for Board
member fees was outstanding (2009: US$55,000). For further information please see the Directors’ remuneration report within the management and
governance section on pages 35 to 37.
Other related party transactions
In 2010 and 2009 there were no other transactions with related parties. None of the related parties has a major influence in one of the Group’s major
suppliers or customers.
26. BenQ settlement
In the second quarter 2009 the Company received an unexpected cash settlement of US$2.3 million. This cash settlement was against receivables
which had previously been written down and revenues that had not been recognised in 2006 as a result of the insolvency of BenQ Mobile. The
amount represents 35% of the original claim to BenQ Mobile. Of this amount US$2.0 million was classified as revenue and US$0.3 million was classi-
fied as other operating income. The amount shown as revenue represents prior period revenue. As one of the criteria for revenue recognition under
IFRS was not met, for this amount the related revenue was not accounted for in 2006. The amount shown under other operating income was previ-
ously recognised as revenue in the periods preceding the insolvency but the underlying receivables were written down against other operating ex-
penses.
27. Subsequent event
On 10 February 2011, Dialog Semiconductor plc acquired 100% of the voting shares of SiTel Semiconductor B.V. (‘SiTel’), an unlisted company head-
quartered and incorporated in the Netherlands and a leader in short-range wireless, digital cordless and VoIP technology. In the year ended 31 Decem-
ber 2010, SiTel generated unaudited revenues of approximately $116.9 million. Dialog has acquired SiTel in order to expand its product portfolio with
short range wireless and VoIP based internet connectivity products. This will allow Dialog to develop new products for these new markets as well as to
cross-sell Dialog’s existing Power Management technology to SiTel’s customer base. The acquisition significantly expands Dialog’s addressable market
targeting high growth wireless personal portable devices. Dialog acquired SiTel for an enterprise value of $86.5 million1.
Given the timing of the transaction, it has not been possible to provide all disclosures required by IFRS3 (Revised) as the acquisition accounting is still to
be performed.
There are no other known events after the date of the Statement of Financial Position that require disclosure.
1 Net cash paid of $84.5 million
Dialog Semiconductor Plc Annual report and accounts 2010 85
Section 5 | Company financial statements and notes
Company financial statements
On the following pages information regarding the holding company Dialog Semiconductor Plc is given
Company statement of financial position
For the year ended 31 December 2010
Assets
Cash and cash equivalents
Amounts owed by group undertakings
Prepaid expenses
Other current assets
Total current assets
Investments
Total non-current assets
Total assets
Trade and other payables
Other payables
Total current liabilities
Ordinary Shares
Share Premium
Retained deficit
Other reserves
Employee stock purchase plan shares
Total Shareholders´ equity
Total liabilities and Shareholders´ equity
Notes At 31 December 2010
US$000
At 31 December 2009
US$000
28
80,307
30,580
91
702
71,924
44,542
67
296
111,680
116,829
97,521
97,521
97,521
97,521
209,201
214,350
1,119
124
1,243
12,380
202,416
(2,992)
69
(3,915)
475
471
946
11,825
283,733
(80,972)
(372)
(810)
31
207,958
213,404
209,201
214,350
Profit for the financial year
As permitted by Section 408 of the Companies Act 2006, the parent company’s profit and loss account has not been included in these financial state-
ments. The parent company’s loss after taxation was US$7,030,000 (2009: profit of US$2,449,000 ).
These financial statements were approved by the Board of Directors on 10 February 2011 and were signed on its behalf by:
Dr Jalal Bagherli
Director
86 Dialog Semiconductor Plc Annual report and accounts 2010
Section 5 | Company financial statements and notes
Company statement of changes in equity
For the year ended 31 December 2010
Other reserves
Balance at 1 January 2009
Total comprehensive loss
Capital increase public offering (gross
proceeds)
Transaction costs of capital increase -
public offering
Capital increase for employee share
option plan (gross proceeds)
Transaction costs of capital increase -
employee share option plan
Sale of employee stock purchase plan
shares
Changes in Equity total
Balance at 31 December 2009 /
1 January 2010
Total comprehensive income (loss)
Reduction of additional paid-in capital
Capital increase for employee share
option plan (gross proceeds)
Transaction costs of capital increase -
employee share option plan
Purchase of employee stock purchase
plan shares
Sale of employee stock purchase plan
shares
Equity settled transactions, net of tax
Ordinary Shares
US$000
Additional paid-in
capital
US$000
Accumulated deficit
US$000
9,328
–
223,005
–
(78,523)
(2,449)
1,922
62,421
–
(4,685)
575
–
–
2,497
473
(41)
2,560
60,728
–
–
–
–
–
11,825
283,733
(80,972)
–
–
555
–
–
–
–
–
(85,000)
(7,030)
85,000
414
(36)
–
3,305
–
–
–
–
–
10
Changes in Equity total
555
(81,317)
77,980
Balance at 31 December 2010
12,380
202,416
(2.992)
Hedges
000US$
–
(372)
–
–
–
–
–
(372)
441
–
–
–
–
–
–
441
69
Employee stock
purchase plan shares
US$000
(139)
–
–
Total
US$000
153,671
(2,821)
64,343
(1,048)
(5,733)
–
–
377
(671)
1,048
(41)
2,937
59,733
(810)
213,404
–
–
(969)
(6,589)
–
–
–
(36)
(2,844)
(2,844)
708
–
4,013
10
(3,105)
(5,446)
(3,915)
207.958
(2,449)
(372)
Dialog Semiconductor Plc Annual report and accounts 2010 87
Section 5 | Company financial statements and notes
Company financial statements
Company statement of cash flows
For the year ended 31 December 2010
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Interest income, net
Expense related to share-based payments
Changes in working capital:
Trade accounts payable
Other assets and liabilities
Cash used for operations
Interest received
Cash flow used for operating activities
Cash flows from investing activities:
Loans made to other group companies
Cash flow from (used for) investing activities
Cash flows from financing activities:
Cash flow from (used for) capital increase
Purchase of employee stock purchase plan shares
Sale of employee stock purchase plan shares
Cash flow from financing activities
Net foreign exchange difference
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
88 Dialog Semiconductor Plc Annual report and accounts 2010
2010
US$000
2009
US$000
(7,030)
(2,449)
(1,567)
8
346
(402)
(8,645)
898
(7,747)
14,547
14,547
(36)
(2,844)
4,013
1,133
(713)
–
415
(122)
(2,869)
165
(2,704)
(9,184)
(9,184)
59,617
–
2,937
62,554
450
(372)
8,383
50,294
71,924
21,630
80,307
71,924
Section 5 | Company financial statements and notes
Notes to the Company financial statements
For the year ended 31 December 2010
Investments
28.
This represents the investment of the Company in Dialog Semiconductor GmbH. Investments in subsidiaries are stated at cost less any provision for
impairment in value.
The aggregate amount of capital and reserves and the results of this undertaking were as follows:
Capital and reserves
Profit for the year
[1] Based on preliminary unaudited results.
2010
US$000 1
70,583
48,455
2009
US$000
23,309
25,641
29. Deferred tax
The utilization of tax loss carryforwards and temporary differences of the holding company is subject to the achievement of positive income in periods
which are beyond the company’s current business plan and therefore this utilization is uncertain. Consequently no deferred tax assets were recognized
for these losses and temporary differences.
For further information on deferred taxes see note 4 to the consolidated financial statements as at 31 December 2010.
30. Auditors’ remuneration
Auditors' remuneration
for the audit
for other audit related services
for other services
in relation to capital increase
2010
US$000
2009
US$000
185
78
230
–
493
246
142
–
287
675
31. Share capital and share options
Details of the Company’s share capital and share options are set out in notes 18 and 20 to the consolidated financial statements as at 31 December 2010.
32. Headcount and costs
The Company does not have any employees.
33. Events after the reporting period
On 10 February 2011, Dialog Semiconductor plc acquired 100% of the voting shares of SiTel Semiconductor B.V. (‘SiTel’), an unlisted company head-
quartered and incorporated in the Netherlands and a leader in short-range wireless, digital cordless and VoIP technology. In the year ended 31 Decem-
ber 2010, SiTel generated unaudited revenues of approximately $116.9 million. Dialog has acquired SiTel in order to expand its product portfolio with
short range wireless and VoIP based internet connectivity products. This will allow Dialog to develop new products for these new markets as well as to
cross-sell Dialog’s existing Power Management technology to SiTel’s customer base. The acquisition significantly expands Dialog’s addressable market
targeting high growth wireless personal portable devices. Dialog acquired SiTel for an enterprise value of $86.5 million1.
Given the timing of the transaction, it has not been possible to provide all disclosures required by IFRS3 (Revised) as the acquisition accounting is still to
be performed.
There are no other known events after the date of the Statement of Financial Position that require disclosure.
1 Net cash paid of $84.5 million
Dialog Semiconductor Plc Annual report and accounts 2010 89
Section 6 | Additional information
Glossary
Technical glossary
Analog A type of signal in an electronic circuit
that takes on a continuous range of values
rather than only a few discrete values.
Imaging The capture and processing of
images via an image sensor for use by an
electronic device to send to a display for
viewing by a user.
ASIC Application Specific Integrated Circuit:
an integrated chip, custom designed for a
specific application.
ASSP Application Specific Standard Product:
a semiconductor device integrated circuit (IC)
dedicated to a specific application and sold
to more than one user.
Liquid Crystal Display (LCD) A display
technology found in many portable electronics
products, including personal organisers, cellular
handsets and notebook computers.
LDO Low Dropout voltage regulators are used
in battery operated systems, where the output
voltage is typically lower than the input voltage.
Smartphone A mobile phone offering
advanced capabilities, often with pc-like
functionality (PC-mobile handset convergence).
A Smartphone runs complete operating system
software providing a standardised interface
and platform for application developers.
Smart Mirror™ A technology patented
by Dialog Semiconductor which simplifies
circuit design and provides very low current
consumption in Power Management circuits.
SmartXtend™ A technology patented
by Dialog Semiconductor that extends the
life and reduces power consumption of
high-resolution, passive matrix OLED displays.
Subcontractor A business that signs a contract
to perform part or all of the obligations of
another’s contract.
Tablet PC A Tablet PC refers to a slate-
or tablet-shaped mobile computer device,
equipped with a touchscreen or stylus.
TAM Total addressable market TAM measures
the potential market for your product – and
your product only – assuming you could reach
100% of your customers.
USB Universal Serial Bus: a universal interface
standard to connect different electronics
devices.
LED Light Emitting Diode: a semiconductor
device that emits light when charged with
electricity, often used for LCD display backlights.
Mixed signal A combination of analogue
and digital signals being generated, controlled
or modified on the same chip.
MP3 (MPEG-1 Audio Layer-3): a standard
technology format for compression of sound
sequences into very small files, while preserving
the original level of sound quality.
OEM Original Equipment Manufacturer: a
company that builds products or components that
are used in products sold by another company.
OLED Organic Light Emitting Diode.
Passive Matrix OLED or PMOLED Passive
Matrix OLED a display type formed by creating
an array of OLED pixels which are driven by row
and column (x-y) co-ordinates.
Wafer A slice of silicon from a 4, 5, 6 or 8 inch
diameter silicon bar and used as the foundation
on which to build semiconductor products.
Power Management The management of
the power requirements of various subsystems,
important in hand-held and portable
electronics equipment.
PMIC Power Management IC.
Semiconductor A base material halfway
between a conductor and an insulator, which
can be physically altered by mixing in certain
atoms. Semiconductors form the basis for
present-day electronics.
Silicon A semi-metallic element used to
create a wafer, and the most common
semiconductor material – in about 95%
of all manufactured chips.
Audio CODEC The interface between
analogue signals (such as the human voice)
and the digital data processing inside a mobile
phone, determining voice quality.
CAD Computer Aided Design: usually refers to
a software tool used for designing electronics
hardware or software systems.
CDMA Code Division Multiple Access: an
alternative to GSM technology for mobile
wireless networks.
Chips Electronic integrated circuits.
CMOS Complimentary Metal Oxide
Semiconductor: the most popular class of
semiconductor manufacturing technology.
DC-DC A DC-to-DC converter accepts a
direct current input voltage and produces a
direct current output voltage. The output is
typically at a different voltage level than the
input, and often the component provides
power bus regulation.
Digital A type of signal used to transmit
information that has only discrete levels
of some parameter (usually voltage).
Fabless A company that designs and delivers
semiconductors by outsourcing the fabrication
(manufacturing) process.
Foundry A manufacturing plant where silicon
wafers are produced.
HiFi High-Fidelity: the reproduction of sound
with little or no distortion.
IC Integrated Circuit: an electronic device with
numerous components on a single chip.
90 Dialog Semiconductor Plc Annual report and accounts 2010
Section 6 | Additional information
Financial glossary
AGM Annual General Meeting.
CAGR Compound Annual Growth Rate:
a method of assessing the average growth
of a value over time.
Cash flow The primary purpose of a statement
of cash flow is to provide relevant information
about the cash receipts and cash payments
of an enterprise during a period. It helps to
assess the enterprise’s ability to generate
positive future net cash flows. A statement
of cash flows shall explain the change in cash
and cash equivalents during the period by
classifying cash receipts and payments
according to whether they stem from
operating, investing, or financing activities.
Cash flow from operating activities includes
all transactions and other events that are not
defined as investing or financing activities
in paragraphs. Operating activities generally
involve producing and delivering goods and
providing services. Cash flows from operating
activities are generally the cash effects of
transactions and other events that enter
into the determination of net income.
Comprehensive income The purpose of
reporting comprehensive income is to report a
measure of all changes in equity of an enterprise
that result from recognised transactions and
other economic events of the period other than
transactions with owners such as capital increases
or dividends. An example of items effecting
comprehensive income is foreign currency
translation adjustments resulting from the
process of translating an entity’s financial
statements in a foreign currency into the
reporting currency.
Corporate Governance is the system by
which business corporations are directed
and controlled. The Corporate Governance
structure specifies the distribution of rights
and responsibilities among different
participants in the corporation, such as the
Board, managers, shareholders and other
stakeholders, and spells out the rules and
procedures for making decisions on corporate
affairs. By doing this, it also provides the
structure through which the company’s
objectives are set, and the means of attaining
those objectives and monitoring performance.
Deferred taxes Deferred tax assets or liabilities
are temporary differences between the tax
basis of an asset or liability and its reported
amount in the financial statements that will
result in taxable or deductible amounts
in future years when the reported amount
of the asset or liability is recovered or settled,
respectively.
Derivative financial instruments A financial
instrument that derives its value from the
price or expected price of an underlying asset
(e.g. a security, currency or bond).
Dividends are payments made by a company
to its shareholders. When a company earns
a profit, that money can be put to two uses:
it can either be reinvested in the business
(called retained earnings), or it can be paid to
the shareholders of the company as a dividend.
DTR The United Kingdom Disclosure and
Transparency Rules implementing the provisions
of the Transparency Directive.
EURIBOR (Euro Interbank Offered Rate) is
the rate at which euro interbank term deposits
within the euro zone are offered by one prime
bank to another prime bank.
Freefloat the proportion of an issuer’s share
capital that is available for purchase in the
public equity markets by investors.
Gross margin equals the difference between
revenues and cost of sales as presented in the
statement of operations.
Impairment is the condition that exists when
the carrying amount of a long-lived asset exceeds
its fair value (the sum of the undiscounted cash
flows expected to result from the use and
eventual disposition of the asset).
IFRS (International Financial Reporting
Standards) accounting standards generally
to be used for financial years commencing on
or after 1 January 2005 by all publicly-listed
European Union companies in compliance
with the European Parliament and Council
Regulation adopted in July 2002.
Prime Standard The new segmentation of
the equity market of the German Stock
Exchange comprises a Prime Standard segment
in addition to the General Standard segment
that applies the statutory minimum requirements.
The Prime Standard segment addresses
companies that wish to target international
investors. These companies are required to meet
high international transparency criteria, over and
above those set out by the General Standard.
Restructuring charges Costs associated with
an exit or disposal activity, e.g. termination
benefits provided to employees that are
involuntarily terminated.
Securities Debt securities are instruments
representing a creditor relationship with an
enterprise and include government securities,
corporate bonds, commercial paper, and all
securitised debt instruments. Available-for-sale
securities are debt securities not classified as
held to maturity or trading securities.
Shareholders’ equity reflects the investment
of shareholders in a company. Shareholders’
equity comprises ordinary shares, additional
paid-in capital, retained earnings and
accumulated other comprehensive income.
Stock option plans include all agreements
by an entity to issue shares of stock or other
equity instruments to employees. Stock option
plans provide employees the opportunity
to receive stock resulting in an additional
compensation based on future share price
performance. The purpose of stock option
plans is to motivate employees to increase
shareholder value on a long-term basis.
Total assets include all current and non-current
assets. Total assets equal total liabilities and
shareholders’ equity.
Working capital is represented by the excess
of current assets over current liabilities and
identifies the relatively liquid portion of total
enterprise capital that constitutes a margin
or buffer for meeting obligations within the
ordinary operating cycle of the business.
Dialog Semiconductor Plc Annual report and accounts 2010 91
Section 6 | Additional information
Advisers and corporate information
Public relations
FD
Holborn Gate
26 Southampton Buildings
London EC4R 9HA
UK
FD GmbH
Park Tower
Bockenheimer Anlage 44
60322 Frankfurt am Main
Germany
Registered office
Dialog Semiconductor Plc
Tower Bridge House
St Katharine’s Way
London E1W 1AA
UK
Website: www.dialog-semiconductor.com
Registered number
3505161
Financial calendar
Annual General Meeting
Q1 2011 Results
Q2 2011 Results
Q3 2011 Results
Preliminary results for 2011
21 April 2011
4 May 2011
25 July 2011
25 October 2011
February 2012
Legal adviser
Reynolds Porter Chamberlain LLP
Tower Bridge House
St Katharine’s Way
London E1W 1AA
UK
Auditors
Ernst & Young LLP
Apax Plaza
Reading
Berkshire RG1 1YE
UK
Principal banker
Deutsche Bank AG
Global Banking
Am Hafenmarkt
D-73728 Esslingen
Germany
Designated sponsor
Close Brothers Seydler
Schillerstrasse 27-29
D-60313 Frankfurt
Germany
Shares
Information on the Company’s shares and on significant
shareholdings can be found on page 9.
92 Dialog Semiconductor Plc Annual report and accounts 2010
Section 6 | Additional information
Group directory
Germany
Dialog Semiconductor GmbH
Neue Strasse 95
D-73230 Kirchheim/Teck-Nabern
Germany
Phone: (+49) 7021 805-0
Fax: (+49) 7021 805-100
Email: dialog.nabern@diasemi.com
United Kingdom
Dialog Semiconductor (UK) Ltd
Delta 200
Delta Business Park
Welton Road
Swindon, Wiltshire
SN5 7XB, UK
Phone: (+44) 1793 757700
Fax: (+44) 1793 757800
Email: dialog.swindon@diasemi.com
North America
Dialog North America
2560 Mission College Boulevard
Santa Clara, California 95054
USA
Phone: (+1) 408 727 3200
Fax: (+1) 408 727 3205
Email: NA_sales_enquiries@diasemi.com
Japan
Dialog Semiconductor K.K.
Mita Kokusai Bldg 16F
1-4-28, Mita, Minato-ku
Tokyo, 108-0073
Japan
Phone: (+81) 3 3769 8123
Fax: (+81) 3 3769 8124
Email: dialog.tokyo@diasemi.com
Taiwan & Greater China
Dialog Semiconductor GmbH
Taiwan Branch
Chu-Nan 3rd Factory No. 118
Chung-Hua Road
Chu-Nan, Miao-Li 350
Taiwan R.O.C.
Phone: (+852) 9055 3888
Phone: (+886) 22542 1579
Email: dialog.taiwan@diasemi.com
Korea
Dialog Semiconductor (UK) Ltd
Korea Branch
#501, Dongsung B/D,
158-9, Samsung-Dong,
Kangnam-Ku, Seoul
Korea, 135-830
Phone: (+82) 2 569 2301
Fax: (+82) 2 569 2302
Email: dialog.korea@diasemi.com
Designed and produced by 85FOUR www.85FOUR.com
Sections 4 and 5 produced in-house with Fire.sys
Printed in England by Cousin, environmentally accredited printers, ISO 14001.
Dialog Semiconductor Plc Annual report and accounts 2010 93
Dialog Semiconductor Plc
Tower Bridge House
St Katherine’s Way
London E1W 1AA
UK
www.dialog-semiconductor.com
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