ANNUAL REPORT 2004 - ELMOS Semiconductor AG

MANAGEMENT BOARD ELMOS – THE COMPANY THE ELMOS SHARE CORPORATE GOVERNANCE
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The approach of the revised Statement 123 (R) corresponds in principle with the
approach described in the replaced Statement 123. But from now on the recording of
all share-based payments including share options at fair value is mandatory.
The company is expecting a significant influence on both the financial and profit situ-
ation of the fiscal year 2005 from the implementation. Regarding the amount of this
effect please compare the pro forma earnings under note 9.
Consolidation
The consolidated financial statements include all companies ELMOS holds a major-
ity interest in. All significant accounts and transactions between the consolidated
companies have been eliminated upon consolidation. Interests in companies of more
than 20 percent but not in excess of 50 percent are recorded, if substantial, using the
equity method.
In January 2003 the U.S. Financial Accounting Standards Board published Interpre-
tation No. 46, “Consolidation of Variable Interest Entities. An Interpretation of ARB
No. 51” (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin (ARB)
No. 51, “Consolidated Financial Statements”, with regard to those companies to be in-
cluded whose equity capital investor does not exercise control according to the con-
trol concept. It provides for the consolidation of those companies whose expected
losses and gains are taken over for the most part by the reporting group on the basis
of partnership or other contractual terms, or financial interests.
The application of this interpretation leads to the mandatory consolidation of the
following companies operating in the field of research and development:
DMOS GmbH, Dresden
The company concluded an agreement with DMOS GmbH, Dresden (DMOS) on re-
search and development services for particular projects effective November 1, 2002.
In addition to pre-financing in the form of underwritten loans for the acquisition of
property, plant and equipment this agreement provides for regular monthly install-
ments over the term of 36 months for the financing of business activity and the
compensation for the DMOS development services. The agreement also includes
specifications concerning services and procedures for the company’s acceptance of
development results. Since 2003 DMOS has predominantly provided services to the
company as so-called “primary beneficiary”.