Notes to the Financial Information

 

(1) Basis of preparation and accounting policies

The financial information  prepared in accordance with the Group's IFRS accounting policies (consistent with those stated in the financial statements for the year ended 31 December 2013) comprises the consolidated balance sheets as at 30 June 2014 and 31 December 2013, consolidated income statements and consolidated statements of comprehensive income for the three months and six months ended 30 June 2014 and 2013, and consolidated cash flow statements and consolidated statements of changes in shareholders' equity for the six months ended 30 June 2014 and 2013, together with related notes.  This condensed set of consolidated interim financial information for the six months ended 30 June 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim Financial Reporting", as adopted by the European Union.  This financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2013, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

New standards, amendments and interpretations

There are no new or amended interpretations or standards effective for the financial year commencing 1 January 2014, that have had a material impact on the Group.

 

Critical accounting estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2013, with the exception of various judgements made regarding ARM's participation in a consortium to acquire certain patent rights, via a trust, in 2013, and changes in estimates that are required in determining the provision for income taxes, as these are accrued using the tax rate that would be applicable to expected annual profit.

 

Change of presentation of income statement

In accordance with the Group's accounting policies as disclosed in the 2013 Annual Report, the format of the income statement has been amended for the comparative six months to 30 June 2013 by separately identifying exceptional items, reclassifying them from general and administrative operating expenses.

 

 

(2) Going concern

After dividend payments of £50.7 million and share buy-backs of £12.1 million made in the first six months of 2014, the highly cash generative nature of the business enabled the Group to increase its cash, cash equivalents and short- and long-term deposits balance to £746.4 million (net of accrued interest of £5.8 million) at 30 June 2014 from £706.3 million at the start of the year (net of accrued interest of £7.2 million).

 

After reviewing the 2014 budget and longer-term plans, the directors are satisfied that it is appropriate to adopt the going concern basis in preparing this condensed set of consolidated interim financial information of the Group.

 

 

(3) Financial risk management

 

(3.1) Financial risk factors

The Group's operations expose it to a variety of financial risks that include currency risk, interest rate risk, securities price risk, credit risk and liquidity risk.  This condensed set of consolidated interim financial information does not include all financial risk management information and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2013.

 

There have been no changes to the risk management policy since the year ended 31 December 2013.

 

(3.2) Valuation hierarchy 

The Group classifies its financial instruments as follows: level 1 instruments are those valued using unadjusted quoted prices in active markets for identical instruments; level 2 instruments are those valued using techniques based significantly on observable market data; and level 3 instruments are those valued using information other than observable market data.

 

The Group has a team that performs the valuations of financial assets required for financial reporting purposes, including level 3 fair values. This team reports to the Chief Financial Officer and to the Audit Committee.

 

The fair value of accounts and other receivables, other current financial assets, cash and cash equivalents, short- and long-term deposits, and accounts and other payables approximate to their carrying amount.

 

As at 30 June 2014, the Group's financial instrument assets consisted of currency exchange contracts at fair value through the income statement (level 2) of £2.9 million (31 December 2013: £5.1 million) and available-for-sale financial assets (level 3) of £nil (current) and £15.6 million (non-current) (31 December 2013: £1.2 million (current) and £13.9 million (non-current)).

 

As at 30 June 2014, the Group's financial instrument liabilities consisted of embedded derivatives (level 2) of £8.7 million (31 December 2013: £7.0 million). The Group had no level 1 financial instruments as at 30 June 2014 (31 December 2013: £nil).

 

 

(3) Financial risk management (continued)

 

(3.2) Valuation hierarchy (continued)

There were no transfers between levels for the period. The Group's policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

 

Level 2 currency exchange contracts comprise forward exchange contracts and foreign currency options. The fair value of the forward exchange contracts is determined using forward exchange rates as quoted in an active market. The fair value of foreign currency options is based upon valuations performed by management and the respective banks holding the currency instruments.

 

Level 2 embedded derivatives are fair valued using forward exchange rates that are quoted in an active market.

 

Level 3 available-for-sale financial assets consist of unlisted equity investments and other current investments. The estimated fair value of the unlisted equity investments approximates to cost less any permanent diminution in value (based on management's estimate of forecast profitability and achievement of set objectives by the relevant entity), except where independent valuation information is obtained, e.g. through the occurrence of funding or other transactions in the relevant entity's equity instruments. Whilst it is conceivable that a key assumption in the Level 3 calculation could change, the directors believe that no reasonably foreseeable changes to key assumptions would result in a significant change in fair value.

 

There have been no changes in valuation techniques during the period ended 30 June 2014.

 

Available-for-sale financial assets (current and non-current)		Six months ended 30 June 2014	Year ended 31 December 2013
		£m	£m
Opening fair value		15.1	13.8
Additions		1.9	72.3
Disposals		(1.2)	(1.7)
Foreign exchange translation		(0.2)	(3.0)
Impairment recognised through income statement as an exceptional item		−	(59.5)
Impairment recognised through income statement within general and administrative expenses		−	(6.8)
Closing fair value		15.6	15.1

 

 

(4) Share-based payment costs

 

Included within the consolidated income statement for the six months ended 30 June 2014 are total share-based payment costs (including related payroll taxes and excluding those classified as restructuring costs in note 5 below) of £29.9 million (2013: £34.7 million), allocated £0.9 million (2013: £1.0 million) in cost of revenues, £19.6 million (2013: £20.9 million) in research and development expenses, £5.1 million (2013: £5.9 million) in sales and marketing expenses and £4.3 million (2013: £6.9 million) in general and administrative expenses. 
 

 

(5) Restructuring costs

Included within the consolidated income statement for the quarter ended 30 June 2014 is a restructuring charge of £8.4 million, following a review of the skills and capabilities of groups across the business during which approximately 130 people left the Group.  The restructuring charge includes total accelerated share-based payment costs (including related payroll taxes) of £3.4 million, which have been excluded from note 4 above.

 

 

(6) Dividends

		Six months ended 30 June 2014	Six months ended 30 June 2013
		£m	£m
Final dividend 2012 paid at 2.83 pence per share		−	39.5
Final dividend 2013 paid at 3.60 pence per share		50.7	−
		50.7	39.5

In respect of the year to 31 December 2014, the directors are declaring an interim dividend of 2.52 pence per share (an estimated cost of £36 million). This interim dividend will be paid on 3 October 2014 to shareholders who are on the register of members on 5 September 2014.

 

(7) Accrued and other liabilities

Included within accrued and other liabilities is £9.6 million (31 December 2013: £15.1 million) relating to the provision for payroll taxes on share awards, and £8.1 million (31 December 2013: £26.5 million) relating to employee bonus and sales commission provisions.

 

 

(8) Related party transactions/Investment in joint venture

During the six months ended 30 June 2013 the Group incurred subscription costs of £7.1 million from Linaro Limited, an associated company of the Group, representing the committed aggregate contributions to Linaro for the next two years (therefore £nil cost incurred  during the six months to 30 June 2014).  In respect of the subscription fees, the Group was invoiced £2.0 million during the six months to 30 June 2014 (2013: £2.2 million). As at 30 June 2014, £1.0 million (2013: £1.1 million) was owing to Linaro.

 

In addition, the Group provided consulting and other services to Linaro amounting to £0.6 million (2013: £0.9 million). All fees have been charged in accordance with the terms of the agreement.  As at 30 June 2014, £0.3 million (2013: £0.4 million) was owed to the Group.

 

In 2012 the Group invested £7.5 million ($12.0 million) in a joint venture, Trustonic Limited, representing a 40% shareholding. During Q2 2013 the Group invested a further £3.7 million (€4.4 million) into the joint venture, maintaining the 40% shareholding.

 

		Six months ended 30 June 2014	Year ended 31 December 2013
Investment in joint venture		£m	£m
Balance at start of period		6.5	6.8
Additional investment		−	3.7
Share of results for the period		(1.3)	(4.0)
Balance at end of the period		5.2	6.5

 

No other related party transactions have occurred in the six months to 30 June 2014.

 

 

(9) Acquisitions

On 27 May 2014, the Group purchased the share capital of Duolog Holdings Limited for £11.4 million (€13.9 million). This purchase has been accounted for as an acquisition.

 

Duolog is a company based in Dublin and Galway, Republic of Ireland, and also in Budapest, Hungary. Duolog is a leader in design configuration and integration technology for the semiconductor industry. The acquisition will expand ARM's position at the forefront of deploying complex system IP including debug and trace IP, and will help ARM partners design and deploy system IP and manage increasing SoC integration complexity. The agreement will extend ARM's market reach for ARM CoreLink™ Interconnect and Controllers and CoreSight™ debug and trace roadmaps across mobile, enterprise and IoT markets. Additionally ARM will extend the use of Duolog Socrates within its own sub-system design flow.

 

For these reasons, combined with the ability to hire the workforce of Duolog, including the founders and the management team, the Group paid a premium for the company giving rise to goodwill.  All intangible assets were recognised at their fair values, with the residual excess over net assets being recognised as goodwill. 

 

The following table summarises the consideration and provisional fair values of the assets acquired and liabilities assumed as at 27 May 2014. The allocation is provisional particularly in respect of intangible assets pending reports from external advisors.

	£m	€m
Cash and accounts receivable	0.3	0.3
Other receivables	1.0	1.3
Intangible assets	1.6	2.0
Accrued and other liabilities	(2.1)	(2.5)
Deferred tax liabilities	(0.2)	(0.3)
Net assets acquired	0.6	0.8
Goodwill	10.8	13.1
Consideration	11.4	13.9

 

The consideration was all paid in cash.  All transaction expenses incurred by the Group have been charged to the income statement.

 

 

(10) Financial contingencies

It is common industry practice for licensors of technology to offer to indemnify their licensees for loss suffered by the licensee in the event that the technology licensed is held to infringe the intellectual property of a third party. Consistent with such practice, the Group typically provides such indemnification to its licensees. The obligation for the Group to indemnify its licensees is subject to certain provisos and is usually contingent upon a third party bringing an action against the licensee alleging that the technology licensed by the Group to the licensee infringes such third party's intellectual property rights. The indemnification obligations typically survive any termination of the licence and will continue in perpetuity.

 

(10) Financial contingencies (continued)

The Group does not provide for any such indemnities unless it has received notification from the other party that they are likely to invoke the indemnity. A provision is made if both of the following conditions are met: (i) information available prior to the issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements; and (ii) the amount of the liability can be reasonably estimated. Any such provision is based upon the directors' estimate of the fair value of expected costs of any such claim.

 

At present, the Group is not a party in any legal proceedings in which the directors believe that it is probable that the resolution of such proceedings will result in a material liability for the Group.

 

As disclosed in the 2013 financial statements, the Group re-negotiated the terms upon which the Group would indemnify a specific licensee. During the second quarter of 2013 terms were executed and the Group incurred indemnification costs amounting to $18.0 million which were recognised in the 2013 financial statements. Further in relation to legal proceedings regarding the same patent portfolio, on 3 July 2013, for consideration of $45.4 million, ARM entered into a licence agreement with a third party covering patents being asserted against ARM technology in litigation between the patentee and a number of licensees of ARM technology. The licence was entered into in full and final settlement of any indemnity claims with respect to the asserted patents and will prevent any future assertion of the patents against ARM technology.  Total indemnification, settlement and licence costs of $63.4 million (£41.8 million) were expensed, as an exceptional item, in 2013. It was considered probable, as at 30 June 2013, that ARM would enter into this licence agreement in settlement of indemnity claims and therefore these costs were expensed in Q2 2013. No amounts have been recognised in the period ended 30 June 2014 in respect of this matter, as full and final settlement was reached in the year ended 31 December 2013.

 

 

(11) Segmental reporting

As part of the ongoing evolution of the business, the Group's divisional structure was re-organised on 1 January 2014. The provision of financial information to the CODM has not changed significantly in the first half of 2014 following the re-organisation. The Group's assessment of its reportable segments, based on the information provided to the CODM and applying the aggregation criteria in IFRS 8, is therefore unchanged from 2013.  The format and content of the reporting to the CODM is under review, and, therefore, the Group's reportable business segments may change for future reporting periods.

At 30 June 2014, the Group has three business segments:

 

Processor Division (PD), encompassing those resources that are centred on microprocessor cores, including specific functions such as graphics IP, system IP, embedded software and configurable digital signal processing IP.

Physical IP Division (PIPD), concerned with the building blocks necessary for translation of a circuit design into actual silicon.

System Design Division (SDD), focused on the tools and models used to create and debug software and system-on-chip (SoC) designs.

 

Whilst revenues are also reported into four main revenue streams (namely licensing, royalties, development systems and services), the costs, operating results and balance sheets are not analysed on this basis.  Further, the information provided to the CODM is based on normalised profit before tax and therefore this information is provided as well as the equivalent profit stated under IFRS.

 

Business segment information

Six months ended 30 June 2014	Processor Division £m	Physical IP Division £m	System Design Division £m	Unallocated £m	Group £m
Segmental income statement
Revenues (GBP)	313.7	42.3	17.7	−	373.7
Operating costs	(164.1)	(44.3)	(21.2)	(2.5)	(232.1)
Investment income, net	−	−	−	5.7	5.7
Share of results of joint venture	−	−	−	(1.3)	(1.3)
Profit/(loss) before tax	149.6	(2.0)	(3.5)	1.9	146.0
Tax	−	−	−	(28.3)	(28.3)
Profit/(loss) for the period	149.6	(2.0)	(3.5)	(26.4)	117.7
Reconciliation to normalised profit before tax
Share-based payment costs including payroll taxes	23.0	3.8	3.1	−	29.9
Intangible amortisation and acquisition-related charges	4.8	0.9	−	−	5.7
Restructuring charges	6.6	1.0	0.8	−	8.4
Share of results of joint venture	−	−	−	1.3	1.3
Normalised profit before tax for the period	184.0	3.7	0.4	3.2	191.3
Goodwill	158.1	348.9	13.7	−	520.7
Total assets	380.0	397.1	39.4	836.6	1,653.1
Revenues (USD)	$516.1	$69.4	$29.3	−	$614.8

 

 

(11) Segmental reporting (continued)

Seasonal operations

Due to the seasonal nature of the semiconductor industry lower product shipments are expected in the first quarter of the financial year, compared to the fourth quarter of the prior year.  In 2014 the industry experienced a decrease in product shipments of approx. 7% in the first quarter (6% decrease in Q1 2013).  ARM's revenue recognition policy is to recognise royalty revenues when it is probable that the economic benefits will flow to the Group and it can be reliably measured.  This is generally when the Group receives notification of customer product sales, which is typically received in the quarter following product shipment.

 

Six months ended 30 June 2013	Processor Division £m	Physical IP Division £m	System Design Division £m	Unallocated £m	Group £m
Segmental income statement
Revenues (GBP)	282.9	39.3	19.3	−	341.5
Operating costs	(202.2)	(45.5)	(21.7)	5.5	(263.9)
Investment income, net	−	−	−	6.8	6.8
Share of results of joint venture	−	−	−	(2.3)	(2.3)
Profit/(loss) before tax	80.7	(6.2)	(2.4)	10.0	82.1
Tax	−	−	−	(19.6)	(19.6)
Profit/(loss) for the period	80.7	(6.2)	(2.4)	(9.6)	62.5
Reconciliation to normalised profit before tax
Share-based payment costs including payroll taxes	24.4	6.4	3.9	−	34.7
Intangible amortisation and acquisition-related charges	4.1	1.2	−	−	5.3
Impairment of investments	2.7	−	−	−	2.7
IP indemnity and similar charges	41.8	−	−	−	41.8
Linaro-related charges and share of results of joint venture	7.1	−	−	2.3	9.4
Normalised profit before tax for the period	160.8	1.4	1.5	12.3	176.0

 

Goodwill	147.0	393.3	15.3	−	555.6
Total assets	376.3	427.0	33.6	786.5	1,623.4
Revenues (USD)	$437.2	$61.0	$30.0	−	$528.2

 

There are no inter-segment revenues.  The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.  Unallocated assets include cash and cash equivalents, short and long-term deposits, available-for-sale financial assets, loans and receivables, embedded derivatives, fair value of currency exchange contracts, current and deferred tax, and VAT. Unallocated operating costs consist of foreign exchange gains and losses.

 

(12) Non-GAAP measures

The following non-GAAP measures, including reconciliations to the IFRS measures, have been used in this earnings release. These measures have been presented as they allow a clearer comparison of operating results that exclude intangible amortisation and acquisition-related charges, share-based payment costs, share of results of joint venture, restructuring charges, impairment of available-for-sale financial assets, exceptional IP indemnity and similar charges, and Linaro-related charges.  Full reconciliations of Q2 2014, Q2 2013, H1 2014 and H1 2013, are shown in notes 12.8 to 12.11.  All figures in £'million unless otherwise stated.

 

Summary normalised figures	Q2 2014	Q2 2013	Q1 2014	H1 2014	H1 2013
Revenues	187.1	171.2	186.7	373.7	341.5
Revenues ($m)	309.6	264.3	305.2	614.8	528.2
ARM's effective exchange rate ($/£)	1.65	1.54	1.63	1.64	1.55
Gross margin	95.8%	94.3%	95.6%	95.7%	94.3%
Operating expenses	87.7	78.2	84.3	171.9	152.8
Profit from operations	91.5	83.2	94.1	185.6	169.2
Operating margin	48.9%	48.6%	50.4%	49.7%	49.5%
Profit before tax	94.2	86.6	97.1	191.3	176.0
Earnings per share (diluted)	5.43p	4.89p	5.60p	11.02	10.19p
Cash (net of accrued interest)	746.4	613.1	735.6	746.4	613.1
Normalised cash generation	86.7	96.3	40.1	126.7	155.1

 

 

 

 

				(12.1)	(12.2)
				30 June 2014	31 December 2013
Cash and cash equivalents				43.1	43.8
Short-term deposits				542.5	544.1
Long-term deposits Less: Interest accrued				166.6 (5.8)	125.6 (7.2)
Total net cash				746.4	706.3

 

 

 

 

	(12.3)	(12.4)	(12.5)	(12.6)	(12.7)
	Q2 2014	Q2 2013	Q1 2014	H1 2014	H1 2013
Cash at end of period (as above)	746.4	613.1	735.6	746.4	613.1
Less: cash at beginning of period	(735.6)	(562.4)	(706.3)	(706.3)	(520.2)
Add back: Cash outflow from investments and acquisitions (net of cash acquired)	10.6	0.5	1.9	12.5	3.9
Add back: Cash outflow from investment in joint venture	−	3.7	−	−	3.7
Add back: Cash outflow from acquisition-related charges	0.9	0.1	0.6	1.4	1.4
Add back: Cash outflow from restructuring charges	2.7	−	−	2.7	−
Add back: Cash outflow from payment of dividends	50.7	39.5	−	50.7	39.5
Add back: Cash outflow from purchase of own shares	12.1	−	−	12.1	−
Add back: Cash outflow from share-based payroll taxes	0.3	1.2	7.5	7.8	14.7
Add back: Cash outflow from payments related to Linaro	0.9	0.9	0.9	1.8	1.7
Less: Cash inflow from exercise of share options and awards	(2.3)	(0.3)	(0.1)	(2.4)	(2.7)
Normalised cash generation	86.7	96.3	40.1	126.7	155.1

 

(12.8) Normalised income statement for Q2 2014

 

 

	Normalised	Share-based payments	Normalised incl share-based payments		Intangible amortisa-tion and acquisition related charges	Restruc-turing charges	Share of results of joint venture		IFRS
	£m	£m	£m		£m	£m	£m		£m
Revenues	187.1	−	187.1		−	−	−		187.1
Cost of revenues	(7.9)	(0.5)	(8.4)		−	−	−		(8.4)
Gross profit	179.2	(0.5)	178.7		−	−	−		178.7
Research and development	(39.7)	(9.8)	(49.5)		(2.5)	−	−		(52.0)
Sales and marketing	(19.8)	(2.4)	(22.2)		(0.1)	−	−		(22.3)
General and administrative	(28.2)	(2.1)	(30.3)		(0.4)	(8.4)	−		(39.1)
Total operating expenses	(87.7)	(14.3)	(102.0)		(3.0)	(8.4)	−		(113.4)
Profit from operations	91.5	(14.8)	76.7		(3.0)	(8.4)	−		65.3
Investment income, net	2.7	−	2.7		−	−	−		2.7
Share of results of joint venture	−	−	−		−	−	−		−
Profit before tax	94.2	(14.8)	79.4		(3.0)	(8.4)	−		68.0
Tax	(17.2)	1.9	(15.3)		0.8	2.0	−		(12.5)
Profit for the period	77.0	(12.9)	64.1		(2.2)	(6.4)	−		55.5
Earnings per share (assuming dilution)
Shares outstanding (millions)	1,418.2		1,418.2						1,418.2
Earnings per share - pence	5.43		4.52						3.91
ADSs outstanding (millions)	472.7		472.7						472.7
Earnings per ADS - cents	27.83		23.19						20.06

 

(12.9) Normalised income statement for Q2 2013

 

 

 

	Normalised	Share-based payments	Normalised incl share-based payments		Intangible amortisa-tion and acquisition related charges	Impair-ment of invest-ments	Exception-al item - IP indemnity and similar charges	Linaro-related charges and share of results of joint venture		IFRS
	£m	£m	£m		£m	£m	£m	£m		£m
Revenues	171.2	−	171.2		−	−	−	−		171.2
Cost of revenues	(9.8)	(0.5)	(10.3)		−	−	−	−		(10.3)
Gross profit	161.4	(0.5)	160.9		−	−	−	−		160.9
Research and development	(37.2)	(10.3)	(47.5)		(2.5)	−	−	−		(50.0)
Sales and marketing	(17.8)	(2.6)	(20.4)		(0.1)	−	−	−		(20.5)
General and administrative	(23.2)	(2.8)	(26.0)		(0.1)	(2.7)	−	(7.1)		(35.9)
Total operating expenses before exceptional items	(78.2)	(15.7)	(93.9)		(2.7)	(2.7)	−	(7.1)		(106.4)
Exceptional items
IP indemnity and similar charges	−	−	−		−	−	(41.8)	−		(41.8)
Total operating expenses	(78.2)	(15.7)	(93.9)		(2.7)	(2.7)	(41.8)	(7.1)		(148.2)
Profit from operations	83.2	(16.2)	67.0		(2.7)	(2.7)	(41.8)	(7.1)		12.7
Investment income, net	3.4	−	3.4		−	−	−	−		3.4
Share of results of joint venture	−	−	−		−	−	−	(1.1)		(1.1)
Profit before tax	86.6	(16.2)	70.4		(2.7)	(2.7)	(41.8)	(8.2)		15.0
Tax	(17.7)	1.1	(16.6)		0.7	−	9.7	1.7		(4.5)
Profit for the period	68.9	(15.1)	53.8		(2.0)	(2.7)	(32.1)	(6.5)		10.5
Earnings per share (assuming dilution)
Shares outstanding (millions)	1,409.9		1,409.9							1,409.9
Earnings per share - pence	4.89		3.81							0.75
ADSs outstanding (millions)	470.0		470.0							470.0
Earnings per ADS - cents	22.23		17.35							3.41

(12.10) Normalised income statement for H1 2014

 

	Normalised	Share-based payments	Normalised incl share-based payments		Intangible amortisa-tion and acquisition related charges	Restruc-turing charges	Share of results of joint venture		IFRS
	£m	£m	£m		£m	£m	£m		£m
Revenues	373.7	−	373.7		−	−	−		373.7
Cost of revenues	(16.2)	(0.9)	(17.1)		−	−	−		(17.1)
Gross profit	357.5	(0.9)	356.6		−	−	−		356.6
Research and development	(79.5)	(19.6)	(99.1)		(5.0)	−	−		(104.1)
Sales and marketing	(40.2)	(5.1)	(45.3)		(0.1)	−	−		(45.4)
General and administrative	(52.2)	(4.3)	(56.5)		(0.6)	(8.4)	−		(65.5)
Total operating expenses	(171.9)	(29.0)	(200.9)		(5.7)	(8.4)	−		(215.0)
Profit from operations	185.6	(29.9)	155.7		(5.7)	(8.4)	−		141.6
Investment income, net	5.7	−	5.7		−	−	−		5.7
Share of results of joint venture	−	−	−		−	−	(1.3)		(1.3)
Profit before tax	191.3	(29.9)	161.4		(5.7)	(8.4)	(1.3)		146.0
Tax	(35.0)	3.2	(31.8)		1.5	2.0	−		(28.3)
Profit for the period	156.3	(26.7)	129.6		(4.2)	(6.4)	(1.3)		117.7
Earnings per share (assuming dilution)
Shares outstanding (millions)	1,418.1		1,418.1						1,418.1
Earnings per share - pence	11.02		9.14						8.30
ADSs outstanding (millions)	472.7		472.7						472.7
Earnings per ADS - cents	56.55		46.88						42.58

 

 

 

(12.11) Normalised income statement for H1 2013

 

 

	Normalised	Share-based payments	Normalised incl share-based payments		Intangible amortisa-tion and acquisition related charges	Impair-ment of invest-ments	Exceptional item - IP indemnity and similar charges	Linaro-related charges and share of results of joint venture		IFRS
	£m	£m	£m		£m	£m	£m	£m		£m
Revenues	341.5	−	341.5		−	−	−	−		341.5
Cost of revenues	(19.5)	(1.0)	(20.5)		−	−	−	−		(20.5)
Gross profit	322.0	(1.0)	321.0		−	−	−	−		321.0
Research and development	(73.7)	(20.9)	(94.6)		(4.6)	−	−	−		(99.2)
Sales and marketing	(36.1)	(5.9)	(42.0)		(0.2)	−	−	−		(42.2)
General and administrative	(43.0)	(6.9)	(49.9)		(0.5)	(2.7)	−	(7.1)		(60.2)
Total operating expenses before exceptional items	(152.8)	(33.7)	(186.5)		(5.3)	(2.7)	−	(7.1)		(201.6)
Exceptional item
IP indemnity and similar charges	−	−	−		−	−	(41.8)	−		(41.8)
Total operating expenses	(152.8)	(33.7)	(186.5)		(5.3)	(2.7)	(41.8)	(7.1)		(243.4)
Profit from operations	169.2	(34.7)	134.5		(5.3)	(2.7)	(41.8)	(7.1)		77.6
Investment income, net	6.8	−	6.8		−	−	−	−		6.8
Share of results of joint venture	−	−	−		−	−	−	(2.3)		(2.3)
Profit before tax	176.0	(34.7)	141.3		(5.3)	(2.7)	(41.8)	(9.4)		82.1
Tax	(32.5)	−	(32.5)		1.5	−	9.7	1.7		(19.6)
Profit for the period	143.5	(34.7)	108.8		(3.8)	(2.7)	(32.1)	(7.7)		62.5
Earnings per share (assuming dilution)
Shares outstanding (millions)	1,407.8		1,407.8							1,407.8
Earnings per share - pence	10.19		7.73							4.44
ADSs outstanding (millions)	469.3		469.3							469.3
Earnings per ADS - cents	46.37		35.15							20.18

 

Statement of directors' responsibilities

 

The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

The directors of ARM Holdings plc are listed in the ARM Holdings plc Annual Report for the year ended 31 December 2013.

 

By order of the Board

 

 

 

 

 

22 July 2014

Tim Score

Chief Financial Officer

 

Independent review report to ARM Holdings plc

 

Our conclusion

 

We have reviewed the condensed consolidated interim financial statements, defined below, in the half-yearly financial report of ARM Holdings plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

This conclusion is to be read in the context of what we say in the remainder of this report.

 

What we have reviewed

 

The condensed consolidated interim financial statements, which are prepared by ARM Holdings plc, comprise:

·      the IFRS consolidated balance sheet as at 30 June 2014;

·      the IFRS consolidated income statement and IFRS consolidated statement of comprehensive income for the period then ended;

·      the IFRS consolidated cash flow statement for the period then ended;

·      the IFRS consolidated statement of changes in shareholders' equity for the period then ended; and

·      the explanatory notes to the financial information.

As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

The condensed consolidated interim financial statements included in the half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

What a review of condensed consolidated financial statements involves

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

 

Responsibilities for the condensed consolidated interim financial statements and the review

Our responsibilities and those of the directors

 

The half-yearly financial report, including the condensed consolidated interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Independent review report to ARM Holdings plc

 

Our responsibilities and those of the directors (continued)

 

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

 

PricewaterhouseCoopers LLP
Chartered Accountants
22 July 2014
London

 

Notes:

 

(a)   The maintenance and integrity of the ARM Holdings plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

 

(b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

Notes

 

The results shown for Q2 2014, Q1 2014, Q2 2013, H1 2014, and H1 2013 are unaudited. The results shown for FY 2013 are audited. The consolidated financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts of the Company in respect of the financial year ended 31 December 2013 were approved by the Board of directors on 05 March 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain an emphasis of matter paragraph nor any statement under Section 498 of the Companies Act 2006.

 

The results for ARM for Q2 2014 and previous quarters as shown reflect the accounting policies as stated in Note 1 to the financial statements in the Annual Report and Accounts filed with Companies House in the UK for the fiscal year ended 31 December 2013 and in the Annual Report on Form 20-F for the fiscal year ended 31 December 2013.

 

This document contains forward-looking statements as defined in section 102 of the Private Securities Litigation Reform Act of 1995. These statements are subject to risk factors associated with the semiconductor and intellectual property businesses. When used in this document, the words "anticipates", "may", "can", "believes", "expects", "projects", "intends", "likely", similar expressions and any other statements that are not historical facts, in each case as they relate to ARM, its management or its businesses and financial performance and condition are intended to identify those assertions as forward-looking statements. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of variables, many of which are beyond our control. These variables could cause actual results or trends to differ materially and include, but are not limited to: failure to realize the benefits of our recent acquisitions, unforeseen liabilities arising from our recent acquisitions, price fluctuations, actual demand, the availability of software and operating systems compatible with our intellectual property, the continued demand for products including ARM's intellectual property, delays in the design process or delays in a customer's project that uses ARM's technology, the success of our semiconductor partners, loss of market and industry competition, exchange and currency fluctuations, any future strategic investments or acquisitions, rapid technological change, regulatory developments, ARM's ability to negotiate, structure, monitor and enforce agreements for the determination and payment of royalties, actual or potential litigation, changes in tax laws, interest rates and access to capital markets, political, economic and financial market conditions in various countries and regions and capital expenditure requirements.

 

More information about potential factors that could affect ARM's business and financial results is included in ARM's Annual Report on Form 20-F for the fiscal year ended 31 December 2013 including (without limitation) under the captions, "Risk Factors"(on pages 4 to 12) which is on file with the Securities and Exchange Commission (the "SEC") and available at the SEC's website at www.sec.gov.

 

About ARM

 

ARM designs the technology that lies at the heart of advanced digital products, from wireless, networking and consumer entertainment solutions to imaging, automotive, security and storage devices. ARM's comprehensive product offering includes microprocessors, graphics processors, video engines, enabling software, cell libraries, embedded memories, high-speed connectivity products, peripherals and development tools. Combined with comprehensive design services, training, support and maintenance, and the company's broad Partner community, they provide a total system solution that offers a fast, reliable path to market for leading electronics companies. More information on ARM is available at http://www.arm.com.

 

ARM is a registered trademark of ARM Limited. Cortex is a trademark of ARM Limited. All other brands or product names are the property of their respective holders. "ARM" is used to represent ARM Holdings plc; its operating company ARM Limited; and the regional subsidiaries: ARM Inc.; ARM KK; ARM Korea Ltd.; ARM Taiwan Limited; ARM France SAS; ARM Consulting (Shanghai) Co. Ltd.; ARM Belgium Services BVBA; ARM Germany GmbH; ARM Embedded Technologies Pvt. Ltd.; ARM Norway AS; ARM Sweden AB; ARM Finland Oy; Geomerics Ltd; Duolog Technologies Ltd; and, Duolog Technologies Kft.