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2011 included one-time M&A expenses in connection with the acquisition of Dialog B.V., totalling US$3.2 million. Excluding these one- time costs, general and administrative expenses in 2011 were US$21.2 million. Comparing the US$21.2 million with the amount in 2012 we saw an increase of US$12.3 million or 57.8% over 2011. 

US$3.1 million of this increase was due to movements in the share price affecting the National Insurance cost associated with share-based payment charge. During 2012, Dialog’s share price increased from €12.36 at 31 December 2011 to an average share price of €15.85 impacting the National Insurance associated with share options exercised in the year and new options granted during 2012 – please refer to note 21 to the consolidated financial statements. 

The remaining increase related to higher costs, mainly personal costs for support functions, reflecting the growth of the Company. Underlying 1)  general and administrative expenses in 2012 were US$29.2 million or 3.8% of revenue, compared to US$19.9 million or 3.8% in 2011. Whilst the percentage remained flat year-on-year, general and administrative expenses as a percentage of revenues continue to remain amongst best in class in our industry. 

## 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) were US$127.9 million for 2012 (2011: US$90.0 million), an increase of 42.0%. The increase was primarily due to an increased headcount of our R&D personnel and investments in advanced silicon and packaging technologies in support of our ongoing growth strategy. As a percentage of total revenue, research and development expenses decreased from 17.1% in 2011 to 16.5% in 2012. 

## Restructuring expenses 

In connection with the acquisition of SiTel in 2011, as explained in note 4 to the consolidated financial statements, the Company carried out some reorganisation, resulting in restructuring costs of US$1.5 million. 

## Operating profit 

We reported an operating profit of US$91.0 million for 2012. This compares to an operating profit of US$61.6 million in the previous year. 

This increase of 47.7% primarily resulted from a wider revenue base in 2012, underpinned by our Mobile Systems  segment. Underlying 1) operating profit in 2012 was US$107.5 million or 13.9% of revenue, compared to US$79.8 million or 15.1% of revenue in 2011. 

## Interest income and other financial income 

Interest income and other financial income from the Company’s investments (primarily short-term deposits and securities) was US$1.4 million for 2012, compared to US$0.4 million in 2011. The increase is associated with the placement of the proceeds of the convertible bond on interest-bearing accounts. For further information, please refer to note 18 to the consolidated financial statements. 

## Interest expense and other financial expense 

Interest expense and other financial expense consists primarily of expenses from capital leases, hire purchase agreements, the Group’s factoring arrangement and in 2012 also the interest expense in relation to the convertible bond. 2012 interest and other financial expenses were US$6.5 million (2011: US$0.2 million). The amount in 2012 mainly included two components relating to the convertible bond: US$1.4 million relating to a 1% coupon payable on a semi-annual basis to the bondholders and US$4.0 million, representing the interest expense in connection with the measurement of financial liability from the bond using the effective interest method. 

## Income tax expense 

For 2012, a net tax charge of US$23.6 million was recorded (2011: US$4.1 million), resulting in an effective tax rate of 27.4% (2011: 6.6%). The main reason for the increase of the effective tax rate was that in 2012, a lower amount of previously unrecognised deferred tax assets was recognised. The amount in 2012 was US$4.0 million compared to US$14.6 million in 2011. Excluding these tax benefits, the effective tax rate in 2012 would have been 32.1% compared to 30.4% in 2011. This increase relates to higher operational expenses in the UK, for which no tax benefit was recorded as a result of not recognising deferred tax assets in the UK. For further information, please refer to note 5 to the consolidated financial statements. 

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## Net profit 

For the reasons described above, net profit in 2012 reached US$62.5 million, compared to US$57.4 million in 2011, with basic earnings per share at US$0.97 (2011: US$0.91) and diluted earnings per share at US$0.93 (2011: US$0.86). Applying the 2012 effective tax rate of 27.4% to the 2011 diluted earnings per share would have reduced it by US$0.19 to US$0.67 – this better demonstrates the operational leverage that the Company achieved in 2012. 

