ARM Holdings PLC ARM 3rd Quarter Results
ARM Holdings PLC (ARM) - 3rd Quarter Results
RNS Number : 2654P
ARM Holdings PLC
23 October 2012
ARM HOLDINGS PLC REPORTS RESULTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED
30 SEPTEMBER 2012
A conference call discussing these results will be audiocast today at 09:30
BST at www.arm.com/ir
CAMBRIDGE, UK, 23 October 2012 -ARM Holdings plc announces its unaudited
financial results for the third quarter and nine months ended 30 September
2012.
Q3 2012 - Financial Normalised* IFRS
Summary
Q3 2012 Q3 2011 % Change Q3 2012 Q3 2011
Revenue ($m) 227.9 192.3 18% 227.9 192.3
Revenue (£m) 144.6 120.2 20% 144.6 120.2
Operating margin 44.6% 44.6% 35.8% 34.0%
Profit before tax (£m) 68.1 55.7 22% 55.3 43.0
Earnings per share (pence) 3.71 3.05 22% 2.96 2.29
Net cash generation** 88.0 43.7
Effective revenue fx rate 1.58 1.60
($/£)
YTD 2012 - Financial Summary IFRS
Normalised*
YTD 2012 YTD 2011 % Change YTD 2012 YTD 2011
Revenue ($m) 650.3 568.0 14% 650.3 568.0
Revenue (£m) 412.7 354.0 17% 412.7 354.0
Operating margin 45.2% 43.9% 36.7% 28.8%
Profit before tax (£m) 196.6 160.7 22% 161.6 107.3
Earnings per share (pence) 10.63 8.75 21% 8.48 5.79
Net cash generation** 193.3 152.3
Effective revenue fx rate 1.58 1.60
($/£)
Progress on key growth drivers in Q3
· Growth in adoption of ARM^® processor technology
o 29 processor licenses signed for a broad range of applications, including
deeply embedded products such as chips for hearing aids and automotive braking
systems, and consumer electronics such as smartphones, TVs and tablets
o Momentum in high-end computing and networking applications continued, with
the signing of one ARMv8 architecture license, one ARMv8 processor license and
one Cortex-A15 processor license
· Growth in shipments of chips based on ARM processor technology
o 2.2 billion chips shipped, split equally between mobile and non-mobile
segments
o Processor royalty revenue grew 27% year-on-year, driven by strong growth in
Cortex-A and Mali-based chips
· Growth in outsourcing of new technology
o 5 Mali™ graphics processor licenses signed, including three with new
customers for Mali technology
o 4 physical IP Processor Optimisation Packs licensed, enhancing ARM's royalty
opportunity per chip
Warren East, Chief Executive Officer, said:
"ARM has delivered another quarter of strong revenue and earnings growth. As
we move into an ever more connected world of mobile computing, cloud-based
networks and the Internet-of-Things, ARM is seeing increased demand for its
high performance and low power technology. This demand is helping to drive
ARM's licensing revenues and this quarter we saw market leaders license ARM's
advanced processor technology for next generation super smartphones, tablets,
and mobile and embedded computing applications.
ARM's royalty revenues outpaced the industry with continued market share gains
in key end markets including digital TVs and microcontrollers. The increasing
penetration of Cortex-A class technology and adoption of Mali graphics in
consumer electronics also helped increase ARM's overall royalty revenue per
chip. This strong growth in licensing and royalty revenue allows ARM to keep
investing for the future and deliver increased profits and cash generation."
Outlook
ARM enters the final quarter of 2012 with record order backlog and a robust
opportunity pipeline. This combination points to another strong quarter for
licensing revenue in Q4. ARM's Q4 royalty revenue is generated from third
quarter chip shipments. Data from our customers suggests a moderate sequential
increase in ARM's royalty revenue in Q4. We therefore expect group dollar
revenues for the fourth quarter to be in-line with current market
expectations.
Q3 2012 - Revenue Analysis Revenue ($m)*** Revenue (£m)
Q3 2012 Q3 2011 % Change Q3 2012 Q3 2011 % Change
PD
Licensing 69.7 59.7 17% 44.3 37.8 17%
Royalties 106.8 84.2 27% 67.8 52.1 30%
Total PD 176.5 143.9 23% 112.1 89.9 25%
PIPD
Licensing 13.7 12.9 6% 8.6 8.2 5%
Royalties^1 14.3 12.6 13% 9.1 7.8 17%
Total PIPD 28.0 25.5 9% 17.7 16.0 11%
Development Systems 12.1 12.5 -3% 7.6 7.8 -2%
Services 11.3 10.4 9% 7.2 6.5 11%
Total Revenue 227.9 192.3 18% 144.6 120.2 20%
^1 Includes catch-up PIPD royalties of $0.4m (£0.3m) in Q3 2012 and $1.7m
(£1.1m) in Q3 2011.
YTD 2012 - Revenue Revenue ($m)*** Revenue (£m)
Analysis
YTD 2012 YTD 2011 % Change YTD 2012 YTD 2011 % Change
PD
Licensing 201.9 169.0 19% 128.0 106.4 20%
Royalties 295.9 256.5 15% 188.2 158.5 19%
Total PD 497.8 425.5 17% 316.2 264.9 19%
PIPD
Licensing 36.8 37.8 -3% 23.3 23.9 -3%
Royalties^1 41.2 34.4 20% 26.0 21.1 23%
Total PIPD 78.0 72.2 8% 49.3 45.0 10%
Development Systems 41.0 39.8 3% 26.0 24.8 5%
Services 33.5 30.5 10% 21.2 19.3 10%
Total Revenue 650.3 568.0 14% 412.7 354.0 17%
^1 Includes catch-up PIPD royalties of $4.0m (£2.5m) in YTD 2012 and $2.3m
(£1.4m) in YTD 2011.
* Normalised figures are based on IFRS, adjusted for acquisition-related
charges, share-based payment costs, profit or loss on disposal and
impairment of available-for-sale investments and Linaro™-related charges.
For reconciliation of IFRS measures to normalised non-IFRS measures
detailed in this document, see notes 5.13 to 5.16.
** Net cash generation is defined as movement on cash, cash equivalents,
short-term and long-term deposits and borrowings, adding back dividend
payments, investment and acquisition consideration, restructuring
payments, other acquisition-related payments, share-based payroll taxes
and Linaro-related payments, and deducting inflows from share option
exercises and investment disposal proceeds - see notes 5.8 to 5.12.
*** Dollar revenues are based on the group's actual dollar invoicing, where
applicable, and using the rate of exchange applicable on the date of the
transaction for invoicing in currencies other than dollars. Over 95% of
invoicing is in dollars.
CONTACTS:
Sarah West/Aideen Lee Ian
Thornton/Jonathan Lawton
Brunswick
ARM Holdings plc
+44 (0)207 404 5959
+44 (0)1628 427800
Financial review
(IFRS unless otherwise stated)
Total revenues
Total dollar revenues in Q3 2012 were $227.9 million, up 18% versus Q3 2011.
Q3 sterling revenues of £144.6 million were up 20% year-on-year.
Year-to-date dollar revenues amounted to $650.3 million, up 14% on 2011.
License revenues
Total dollar license revenues in Q3 2012 increased by 15% year-on-year to
$83.4 million, representing 37% of group revenues. License revenues comprised
$69.7 million from PD and $13.7 million from PIPD.
Group order backlog at the end of Q3 2012 was up 6% sequentially and is now at
its highest ever level. Prospects for order backlog in Q4 2012 look promising,
given the strength of the licensing opportunity pipeline.
Royalty revenues
Royalties are recognised one quarter in arrears with royalties in Q3 2012
generated from semiconductor unit shipments in Q2 2012. Total dollar royalty
revenues in Q3 2012 increased year-on-year by 25% to $121.1 million,
representing 53% of group revenues. This compares with industry revenues^1
increasing by about 4% in the shipment period (i.e. Q2 2012 compared to Q2
2011), demonstrating ARM's continuing market share gains over the last 12
months.
Royalty revenues comprised $106.8 million from PD and $14.3 million from PIPD.
Development Systems and Service revenues
Sales of development systems in Q3 2012 were $12.1 million, a decrease of 3%
year-on-year and representing 5% of group revenues. Through 2012 ARM is
continuing to transition the Development Systems business to focus on
microcontroller tools and premium toolkits for multi-core systems. The
transition remains on track and we expect Development Systems to achieve its
stated target of being broadly flat year-on-year.
Service revenues in Q3 2012 were $11.3 million, an increase of 9% year-on-year
and representing 5% of group revenues.
Gross margins
Gross margins in Q3 2012, excluding the share-based payments charge of £0.5
million (see below), were 94.6% compared to 95.1% in Q2 2012 and 94.9% in Q3
2011.
Operating expenses and operating margin
Normalised income statements for Q3 and YTD 2012 and Q3 and YTD 2011 are
included in notes 5.13 to 5.16 below which reconcile IFRS to the normalised
non-IFRS measures referred to in this earnings release.
Normalised operating expenses (excluding acquisition-related, share-based
payment and restructuring charges) were £72.3 million in Q3 2012 compared to
£66.0 million in Q2 2012 and £60.5 million in Q3 2011. Operating expenses in
Q3 2012 were impacted by a net charge of approximately £2 million due to the
impact of a weaker dollar on the accounting of derivative instruments
(compared to a net credit of approximately £2 million in Q2 2012). The
underlying year-on-year increase in operating expenses in the third quarter is
primarily due to the increased investment in our research and development
teams over the last 12 months.
Normalised operating expenses in Q4 2012 (assuming effective exchange rates
similar to current levels) are expected to be in the range £71-73 million.
Normalised operating margin was 44.6% in Q3 2012, compared to 46.4% in Q2 2012
and 44.6% in Q3 2011.
Normalised research and development expenses were £32.2 million in Q3 2012,
representing 22% of revenues, compared to £32.8 million in Q2 2012 and £29.8
million in Q3 2011. Normalised sales and marketing expenses were £15.6 million
in Q3 2012, being 11% of revenues, compared to £15.0 million in Q2 2012 and
£15.5 million in Q3 2011. Normalised general and administrative expenses were
£24.5 million in Q3 2012, representing 17% of revenues, compared to £18.2
million in Q2 2012 and £15.2 million in Q3 2011.
Total IFRS operating expenses in Q3 2012 were £84.6 million (Q3 2011: £72.4
million) including share-based payment costs and related payroll taxes of
£10.6 million (Q3 2011: £10.9 million), and amortisation of intangible assets
and other acquisition-related charges of £1.7 million (Q3 2011: £1.0
million).
Total share-based payment costs and related payroll tax charges of £11.1
million in Q3 2012 were included within cost of revenues (£0.5 million),
research and development (£6.1 million), sales and marketing (£1.8 million)
and general and administrative (£2.7 million).
Earnings and taxation
Profit before tax was £55.3 million in Q3 2012 compared to £43.0 million in Q3
2011. After adjusting for acquisition-related and share-based payment costs,
and disposal and impairment of investments, normalised profit before tax in Q3
2012 was £68.1 million compared to £55.7 million in Q3 2011. The Group's
effective normalised tax rate was 23.9% in Q3 2012 (IFRS: 25.3%) compared to
24.8% (IFRS: 27.0%) in Q3 2011. The Group's effective normalised tax rate for
the full year 2012 is estimated to be approximately 25%.
In Q3 2012, fully diluted earnings per share were 2.96 pence (14.35 cents per
ADS^2) compared to earnings per share of 2.29 pence (10.68 cents per ADS) in
Q3 2011. Normalised fully diluted earnings per share in Q3 2012 were 3.71
pence (17.96 cents per ADS) compared to 3.05 pence (14.24 cents per ADS) in Q3
2011.
Balance sheet
Intangible assets at 30 September 2012 were £535.2 million, comprising
goodwill of £522.6 million and other intangible assets of £12.6 million,
compared to £537.6 million and £14.0 million respectively at 30 June 2012.
ARM regularly evaluates strategic opportunities and, in pursuance of one such
opportunity, had conditionally committed £104.5 million as of 30 September
2012. This amount, which is classified as Other Debtors, represents the entire
investment being contemplated and in the event a transaction is not completed,
the amount will be returned to ARM. To avoid early termination of term
deposits, £99.1 million of the amount was financed through a short term bank
facility.
Total accounts receivable were £98.3 million at 30 September 2012, compared to
£106.7 million at 30 June 2012.
Days sales outstanding (DSOs) were 47 at 30 September 2012 compared to 43 at
30 June 2012.
Cash flow
Normalised free cash flow in Q3 2012 was £88.0 million. Net cash at 30
September 2012 was £477.9 million compared to £495.9 million at 30 June 2012.
Operating review
Processor licensing
A total of 29 processor licenses were signed in Q3 2012.
Seven of the licenses signed were for ARM's Cortex™-A series processors. This
included a further licensee for ARM's big.LITTLE technology, taking the total
number of companies with access to the technology to 14. ARM's Cortex-A class
technology is increasingly being used beyond mobile and mobile computing
applications, and this quarter we saw Cortex-A licenses for gaming, digital
TVs, home entertainment systems, servers and GPS navigation systems.
Two licenses were signed with major semiconductor companies for enterprise
networking applications. This included one ARMv8 architecture license and one
v8 processor license. ARM is seeing increasing demand for the use of its
technology in high-end networking applications. The rapid growth in mobile
computing devices and the subsequent increase in data traffic is placing
unprecedented demand on networking infrastructure. As the cost increases to
maintain this infrastructure so the network operators are looking at ways to
reduce their energy consumption. ARM's scalable high performance, low power
technology is ideally suited to these applications.
Demand for ARM's range of processors for the embedded market remained strong
with a further 13 licenses for its Cortex-M class technology being signed in
Q3, taking the total number of licenses signed to over 160. These processors
were licensed for a broad range of end applications from automotive braking
systems to storage and industrial control systems.
ARM also signed 5 licenses for its Mali graphics processors. Three of the five
licenses were with companies taking their first Mali license from ARM.
Q3 2012 and Cumulative Processor Licensing Analysis
Existing New Quarter Cumulative Total*
Licensees Total
Licensees
ARM7™ 171
ARM9™ 2 2 273
ARM11™ 79
Cortex-A 4 3 7 117
Cortex-R 1 1 28
Cortex-M 8 5 13 162
Mali 5** 5 68
Other 1 1 22
Total 19 10 29 920
* Adjusted for licenses that are no longer expected to generate royalties
** Includes three existing ARM customers taking their first Mali license
Processor Design Wins and Ecosystem Development
Many leading technology companies have announced details of their ARM-based
product developments in recent months. These included:
· Microsoft providing more details on upcoming WindowsRT devices, with
confirmed product announcements from Asus, Dell, Lenovo, Samsung and
Microsoft;
· Fujitsu, MediaTek, Nufront, Rockchip and Samsung all announcing their
commitment to the latest range of graphics processors (GPU) available from
ARM. The Mali-T600 range of products is aimed at super-smartphone and mobile
computing applications and can support general purpose (GP) computing. So
called GP GPU computing improves energy efficiency and enables applications
such as computational photography, multi-perspective views and real-time photo
editing on mobile devices;
· Several ARM partners announcing new elements of their microcontroller
(MCU) strategies:
o Atmel released a new family of Cortex-M4-based MCUs for ultra low power
applications;
o Freescale announced range of ARM-based Cortex-M0+ MCUs designed to help
migrate consumer and industrial applications currently using legacy 8- and
16-bit architectures to ARM MCUs;
o Silicon Labs announced a new family of ultra low power Cortex-M3 products
aimed at smart metering, medical devices and other power-sensitive
Internet-of-Things applications.
Many more partner announcements can be found on the ARM website at
www.arm.com/news.
Processor royalties
Royalties are recognised one quarter in arrears with royalties in Q3 generated
from semiconductor unit shipments in Q2. PD dollar royalty revenues in Q3
2012 increased 27% year-on-year. This compares with industry revenues
increasing by about 4%^3 in the relevant shipment period (i.e. Q2 2012
compared to Q2 2011). Q3 revenue came from the sales of about 2.2 billion
ARM-based chips, up 16% year-on-year.
ARM's average royalty revenue per chip increased to 4.9 cents, compared to 4.4
cents one year ago, driven primarily by the growth in Cortex-A class
processor shipments (more than doubling year-on-year) and in the number of
chips containing Mali graphics (more than fourfold year-on-year). ARM
typically receives a higher royalty percentage for chips incorporating
Cortex-A class processors and an additional royalty if these chips also
contain a Mali graphics processor.
Cortex-A class processors now account for 9% of ARM's total processor
shipments, up from 5% one year ago. As well as carrying a higher royalty
percentage, Cortex-A class processors are usually found in higher value chips.
As a result, Cortex-A class chips comprise 9% of unit shipments and 35% of
royalty value.
ARM's mobile shipments were up 6% year-on-year and grew faster than the
handset market, which was down slightly over the same period^4. ARM also
continued to gain share in non-mobile end-markets. Non-mobile processor
shipments now represent 50% of all ARM-based shipments. Shipments of ARM
technology-based digital TVs and set-top-boxes were particularly strong, more
than doubling year-on-year, compared to a flat market^5 . ARM-based
microcontrollers also continue to ship strongly, increasing 35% year-on-year,
compared to less than 20% growth for the overall microcontroller market^6.
Q3 2012 Processor Unit Shipment Analysis
Processor Family Unit Shipments Market Unit Shipments
ARM7 37% Mobile 50%
ARM9 20% Enterprise 18%
ARM11 9% Home 5%
Cortex-A 9% Embedded 27%
Cortex-R 3%
Cortex-M 22%
PIPD licensing
During the quarter ARM signed a multi-year agreement with GLOBALFOUNDRIES to
jointly deliver optimised ARM-based system-on-chip designs on both
GLOBALFOUNDRIES' 20nm process and 14nm FinFET process. These royalty bearing
platforms will enable ARM's partners to realise state-of-the-art ARM-based
processors with improved performance and power efficiency for next generation
mobile and mobile computing applications. ARM also signed a platform license
with a leading foundry at 110nm bringing the total number of platform licenses
signed to date to 96.
Q3 2012 and Cumulative PIPD Licensing Analysis
Process Total Platform Royalty Bearing
Node analysis Foundry
(nm) (nm) Platforms at
Each Node *
New Royalty-Bearing 14nm 1 16/14 2
Foundry Platform 20nm 1 22/20 4
Licenses 32/28 8
110nm 1
45/40 6
65 11
Total for Cumulative 90 8
Quarter Total 130 20
Processor Optimisation 4 36 180 to 250 37
Packs Total 96
* Adjusted for licenses that are no longer expected to generate royalties
ARM continues to see strong demand for physical IP optimised for use with
processors (POPs). POPs enable the licensee to more readily achieve a
high-performance, low-power processor implementation through specially
optimised physical IP technology. For every chip implemented using a POP, ARM
receives a royalty both for the processor in the chip and for the physical
IP. During the quarter ARM signed four licenses for POPs bringing the total
number of POPs licensed to 36.
PIPD royalties
Royalties are recognised one quarter in arrears with royalties in Q3 generated
from semiconductor unit shipments in Q2. Underlying PIPD royalties in Q3 2012
were $13.9 million, up 28% year-on-year.
People
At 30 September 2012, ARM had 2,368 full-time employees, a net increase of 252
since the start of the year, being mainly engineers joining ARM's processor
R&D teams. At the end of Q3, the group had 977 employees based in the UK, 580
in the US, 296 in Continental Europe, 344 in India and 171 in the Asia Pacific
region.
Principal risks and uncertainties
The principal risks and opportunities faced by the Group are included within
the "Risks and risk management" section of the 2011 Annual Report and Accounts
filed with Companies House in the UK. Details of other risks and uncertainties
faced by the Group are noted within the Annual Report on Form 20-F for the
year ended 31 December 2011 which is on file with the Securities and Exchange
Commission (the "SEC") and is available on the SEC's website at www.sec.gov.
There have been no changes to these risks that would materially impact the
group in the foreseeable future. These include but are not limited to: ARM's
quarterly results may fluctuate significantly and be unpredictable which could
adversely affect the market price of ARM ordinary shares; general economic
conditions may reduce ARM's revenues and harm its business; ARM may have to
protect its intellectual property or defend ARM's technology against claims
that we have infringed others' proprietary rights; an infringement claim
against ARM's technology may result in a significant damages award which would
adversely impact ARM's operating results; companies within the semiconductor
industry may consolidate reducing the number of customers that ARM may sell
its technology to; for ARM to enter new markets or develop new technology may
require significant investment and may not result in profitable operations;
and ARM competes in the intensely competitive semiconductor market.
ARM Holdings plc
Consolidated balance sheet - IFRS
30 September 31 December
2012 2011
Unaudited Audited
£m £m
Assets
Current assets:
Cash and cash equivalents 104.9 26.8
Short-term deposits 337.4 319.1
Fair value of currency exchange contracts 1.8 -
Embedded derivatives - 1.2
Accounts receivable 98.3 119.6
Prepaid expenses and other assets 33.6 30.7
Other debtors (see note 4) 104.5 -
Current tax assets 8.4 6.2
Inventories: finished goods 2.1 2.5
Total current assets 691.0 506.1
Non-current assets:
Available-for-sale financial assets 15.2 27.3
Long-term deposits 141.8 83.1
Loans and receivables 2.1 2.0
Prepaid expenses and other assets 2.5 2.3
Property, plant and equipment 32.1 18.1
Goodwill 522.6 542.5
Other intangible assets 12.6 12.5
Deferred tax assets 60.5 105.9
Total non-current assets 789.4 793.7
Total assets 1,480.4 1,299.8
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 4.4 8.7
Fair value of currency exchange contracts - 1.5
Embedded derivatives 2.8 -
Accrued and other liabilities (see note 3) 62.8 84.9
Current tax liabilities 6.0 26.7
Obligations under finance leases 1.5 -
Borrowings (see note 4) 99.1 -
Deferred revenue 116.0 102.2
Total current liabilities 292.6 224.0
Non-current liabilities:
Obligations under finance leases 2.4 -
Deferred revenue 20.3 14.6
Total non-current liabilities 22.7 14.6
Total liabilities 315.3 238.6
Net assets 1,165.1 1,061.2
Capital and reserves attributable to equity holders
of the Company
Share capital 0.7 0.7
Share premium account 11.4 6.6
Capital reserve 354.3 351.6
Share option reserve 61.4 61.4
Retained earnings 659.0 539.7
Revaluation reserve 0.3 0.3
Cumulative translation adjustment 78.0 100.9
Total equity 1,165.1 1,061.2
ARM Holdings plc
Consolidated income statement - IFRS
Quarter ended Quarter ended Nine months Nine months
ended ended
30 September 30 September 30 September 30 September
2012 2011 2012 2011
Unaudited Unaudited Unaudited Unaudited
£m £m £m £m
Revenues 144.6 120.2 412.7 354.0
Cost of revenues (8.3) (6.9) (23.3) (21.1)
Gross profit 136.3 113.3 389.4 332.9
Research (39.6) (37.4) (120.0) (122.4)
and development
Sales (17.6) (18.0) (51.7) (52.4)
and marketing
General (27.4) (17.0) (66.3) (56.2)
and administrative
Total operating (84.6) (72.4) (238.0) (231.0)
expenses, net
Profit from operations 51.7 40.9 151.4 101.9
Investment income, net 3.6 2.1 10.2 5.4
Profit before tax 55.3 43.0 161.6 107.3
Tax (14.0) (11.6) (43.3) (27.7)
Profit for the period 41.3 31.4 118.3 79.6
Earnings per share
Basic and diluted 41.3 31.4 118.3 79.6
earnings
Number of shares
(millions)
Basic weighted average 1,378.1 1,348.1 1,373.4 1,343.1
number of shares
Effect of dilutive 17.8 27.9 20.2 31.1
securities: Share
options and awards
Diluted weighted average 1,395.9 1,376.0 1,393.6 1,374.2
number of shares
Basic EPS (pence) 3.0 2.3 8.6 5.9
Diluted EPS (pence) 3.0 2.3 8.5 5.8
Diluted earnings per ADS 14.3 10.7 41.1 27.1
(cents)
All activities relate to continuing operations.
All of the profit for the period is attributable to the equity shareholders of
the parent.
ARM Holdings plc
Consolidated statement of comprehensive income - IFRS
Quarter Quarter Nine months Nine months
ended ended ended ended
30 September 30 September 30 September 30 September
2012 2011 2012 2011
Unaudited Unaudited Unaudited Unaudited
£m £m £m £m
Profit for the period 41.3 31.4 118.3 79.6
Other comprehensive
income:
Unrealised holding
loss on
available-for-sale (1.0) - - -
investments (net of
tax of £nil)
Currency translation (16.7) 13.6 (22.9) 0.6
adjustment
Other comprehensive (17.7) 13.6 (22.9) 0.6
income /(loss) for the
period
Total comprehensive 23.6 45.0 95.4 80.2
income for the period
ARM Holdings plc
Consolidated statement of changes in shareholders' equity - IFRS
Share Share Reval- Cumulative
Share premium Capital option Retained -uation translation
capital account reserve reserve earnings reserve adjustment Total
£m £m £m £m £m £m £m £m
At 1 January 0.7 − 351.6 61.4 381.4 − 99.8 894.9
2011
(audited)
Profit for − − − − 79.6 − − 79.6
the period
Other
comprehensive
income:
Currency − − − − − − 0.6 0.6
translation
adjustment
Total − − − − 79.6 − 0.6 80.2
comprehensive
income for
the nine
month period
Shares issued − 5.8 − − − − − 5.8
on exercise
of share
options and
awards
Dividends − − − − (23.4) − − (23.4)
Credit in − − − − 29.7 − − 29.7
respect of
employee
share schemes
Movement on − − − − 38.2 − − 38.2
tax arising
on share
options and
awards
Proceeds from − − − − 1.9 − − 1.9
sale of own
shares
− 5.8 − − 46.4 − − 52.2
At 30 0.7 5.8 351.6 61.4 507.4 − 100.4 1,027.3
September
2011
(unaudited)
At 1 January 0.7 6.6 351.6 61.4 539.7 0.3 100.9 1,061.2
2012
(audited)
Profit for − − − − 118.3 − − 118.3
the period
Other
comprehensive
income:
Currency − − − − − − (22.9) (22.9)
translation
adjustment
Total − − − − 118.3 − (22.9) 95.4
comprehensive
income/(loss)
for nine
month period
Shares issued − 4.8 − − − − − 4.8
on exercise
of share
options and
awards
Dividends − − − − (28.8) − − (28.8)
Credit in − − − − 26.5 − − 26.5
respect of
employee
share schemes
Movement on − − − − 3.3 − − 3.3
tax arising
on share
options and
awards
Refund of − − 2.7 − − − − 2.7
costs related
to share
issue
− 4.8 2.7 − 1.0 − − 8.5
At 30 0.7 11.4 354.3 61.4 659.0 0.3 78.0 1,165.1
September
2012
(unaudited)
Notes to the Financial Information
(1) Basis of preparation
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 2011 with the exception of finance leases as
described below) comprises the consolidated balance sheets at 30 September
2012 and 31 December 2011, consolidated income statements and consolidated
statements of comprehensive income for the three months and nine months ended
30 September 2012 and 2011, and consolidated statements of changes in
shareholders' equity for the nine months ended 30 September 2012 and 2011,
together with related notes. This condensed set of consolidated interim
financial information for the nine months ended 30 September 2012 has been
prepared in accordance with the Disclosure and Transparency Rules of the
Financial Services Authority. This financial information should be read in
conjunction with the annual financial statements for the year ended 31
December 2011, which have been prepared in accordance with IFRSs as adopted by
the European Union.
Finance leases
Leases of property, plant and equipment, where the Group has substantially all
the risks and rewards of ownership, are classified as finance leases. Finance
leases are capitalised at the lease's commencement at the lower of the fair
value of the leased property and the present value of the minimum lease
payments.
Each lease payment is allocated between the liability and finance charges. The
corresponding rental obligations, net of finance charges, are included in
liabilities. The interest element of the finance cost is charged to the income
statement over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period. The
property, plant and equipment acquired under finance leases is depreciated
over the shorter of the useful life of the asset and the lease term.
(2) Share-based payment costs and acquisition-related expenses
Included within the consolidated income statement for the quarter ended 30
September 2012 are total share-based payment costs (including related
payroll taxes) of £11.1 million (2011: £11.7 million), allocated £0.5
million (2011: £0.8 million) in cost of revenues, £6.1 million (2011: £7.0
million) in research and development expenses, £1.8 million (2011: £2.3
million) in sales and marketing expenses and £2.7 million (2011: £1.6
million) in general and administrative expenses.
Included within the consolidated income statement for the nine months ended
30 September 2012 are total share-based payment costs (including related
payroll taxes) of £29.2 million (2011: £43.6 million), allocated £1.4
million (2011: £2.5 million) in cost of revenues, £17.6 million (2011: £26.3
million) in research and development expenses, £5.1 million (2011: £8.6
million) in sales and marketing expenses and £5.1 million (2011: £6.2
million) in general and administrative expenses.
Included within operating expenses for the quarter ended 30 September 2012 are
total acquisition-related charges of £1.0 million (including retention bonuses
on acquisitions amounting to £0.7 million) (2011: £0.3 million), allocated
£0.7 million (2011: £nil) in research and development expenses, £0.1 million
(2011: £0.1 million) in sales and marketing expenses and £0.2 million (2011:
£0.2 million) in general and administrative expenses.
Included within operating expenses for the nine months ended 30 September 2012
are total acquisition-related charges of £4.3 million (including retention
bonuses on acquisitions amounting to £3.5 million) (2011: £0.8 million),
allocated £3.5 million (2011: £nil) in research and development expenses, £0.3
million (2011: £0.3 million) in sales and marketing expenses and £0.5 million
(2011: £0.5 million) in general and administrative expenses.
(3) Accrued and other liabilities
Included within accrued and other liabilities at 30 September 2012 are £11.4
million (31 December 2011: £22.6 million) relating to the provision for
payroll taxes on share awards, and £12.2 million (31 December 2011: £23.7
million) relating to employee bonus and sales commission provisions.
(4) Other debtors and borrowings
ARM regularly evaluates strategic opportunities and, in pursuance of one such
opportunity, had conditionally committed £104.5 million as of 30 September
2012. This amount, which is classified as Other Debtors, represents the entire
investment being contemplated and in the event a transaction is not completed,
the amount will be returned to ARM. To avoid early termination of term
deposits, £99.1 million of the amount was financed through a short term bank
facility.
(5) 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
acquisition-related charges, share-based payment costs, profit or loss on
disposal and impairment of available-for-sale investments, and Linaro-related
charges. Full reconciliations of Q3 2012, Q3 2011, 9M 2012 and 9M 2011, are
shown in notes 5.13 to 5.16. All figures in £millions unless otherwise
stated.
Summary normalised figures Q3 2012 Q3 2011 Q2 2012 9M 2012 9M 2011
Revenues 144.6 120.2 135.5 412.7 354.0
Revenues ($m) 227.9 192.3 213.0 650.3 568.0
Gross margin 94.6% 94.9% 95.1% 94.7% 94.7%
Operating expenses 72.3 60.5 66.0 204.4 180.1
Profit from operations 64.5 53.6 62.9 186.4 155.3
Operating margin 44.6% 44.6% 46.4% 45.2% 43.9%
Profit before tax 68.1 55.7 66.5 196.6 160.7
Earnings per share (diluted) 3.71p 3.05p 3.58p 10.63p 8.75p
Net cash 477.9 397.2 495.9 477.9 397.2
Cash generation 88.0 43.7 46.9 193.3 152.3
(5.1) (5.2) (5.3) (5.4) (5.5)
Q3 2012 Q3 2011 Q2 2012 9M 2012 9M 2011
Revenues (£m) 144.6 120.2 135.5 412.7 354.0
ARM's effective exchange rate ($/£) 1.58 1.60 1.57 1.58 1.60
Revenues ($m) 227.9 192.3 213.0 650.3 568.0
(5.6) (5.7)
30 September 31
2012 December
2011
Cash and cash equivalents 104.9 26.8
Short-term deposits 337.4 319.1
Long-term deposits 141.8 83.1
Less: Interest accrued (7.1) (5.0)
Less: Borrowings (99.1) -
Total net cash 477.9 424.0
(5.8) (5.9) (5.10) (5.11) (5.12)
Q3 2012 Q3 2011 Q2 2012 9M 2012 9M 2011
Normalised cash at end of period (as 477.9 397.2 495.9 477.9 397.2
above)
Less: Normalised cash at beginning of (495.9) (353.8) (469.2) (424.0) (290.1)
period
Add back: Cash outflow from
conditional investment (see note 4)
104.5 - - 104.5 -
Add back: Cash (inflow)/outflow from
investments and acquisitions (net of
cash acquired) 0.1 2.2 (10.0) (9.0) 11.5
Add back: Cash outflow from 2.7 0.4 0.3 3.3 3.2
acquisition costs
Add back: Cash outflow from payment of - - 28.8 28.8 23.4
dividends
Add back: Cash outflow from 0.3 0.2 0.4 14.0 12.2
share-based payroll taxes
Add back: Cash outflow from payments 0.9 0.8 0.8 2.6 2.6
related to Linaro
Less: Cash inflow from exercise of (2.5) (3.3) (0.1) (4.8) (7.7)
share options
Normalised cash generation 88.0 43.7 46.9 193.3 152.3
(5.13) Normalised income statement for Q3 2012
Normalised
incl
share-based Intangible Acquisition
payments amortisa-tion -related
Share-based charges
payments
Normalised IFRS
£m £m £m £m £m £m
Revenues 144.6 - 144.6 - - 144.6
Cost of (7.8) (0.5) (8.3) - - (8.3)
revenues
Gross profit 136.8 (0.5) 136.3 - - 136.3
Research (32.2) (6.1) (38.3) (0.6) (0.7) (39.6)
and
development
Sales and (15.6) (1.8) (17.4) (0.1) (0.1) (17.6)
marketing
General and (24.5) (2.7) (27.2) - (0.2) (27.4)
administrative
Total (72.3) (10.6) (82.9) (0.7) (1.0) (84.6)
operating
expenses
Profit from 64.5 (11.1) 53.4 (0.7) (1.0) 51.7
operations
Investment 3.6 - 3.6 - - 3.6
income, net
Profit before 68.1 (11.1) 57.0 (0.7) (1.0) 55.3
tax
Tax (16.3) 1.8 (14.5) 0.2 0.3 (14.0)
Profit for the 51.8 (9.3) 42.5 (0.5) (0.7) 41.3
period
Earnings per
share
(assuming
dilution)
Shares 1,395.9 1,395.9 1,395.9
outstanding
(millions)
Earnings per 3.71 3.05 2.96
share - pence
ADSs 465.3 465.3 465.3
outstanding
(millions)
Earnings per 17.96 14.75 14.35
ADS - cents
(5.14) Normalised income statement for Q3 2011
Normalised
incl
Share-based share-based Intangible Acquisition
payments payments amortisa-tion -related
charges
Normalised IFRS
£m £m £m £m £m £m
Revenues 120.2 - 120.2 - - 120.2
Cost of (6.1) (0.8) (6.9) - - (6.9)
revenues
Gross profit 114.1 (0.8) 113.3 - - 113.3
Research (29.8) (7.0) (36.8) (0.6) - (37.4)
and
development
Sales and (15.5) (2.3) (17.8) (0.1) (0.1) (18.0)
marketing
General and (15.2) (1.6) (16.8) - (0.2) (17.0)
administrative
Total (60.5) (10.9) (71.4) (0.7) (0.3) (72.4)
operating
expenses
Profit from 53.6 (11.7) 41.9 (0.7) (0.3) 40.9
operations
Investment 2.1 - 2.1 - - 2.1
income, net
Profit before 55.7 (11.7) 44.0 (0.7) (0.3) 43.0
tax
Tax (13.8) 2.0 (11.8) 0.1 0.1 (11.6)
Profit for the 41.9 (9.7) 32.2 (0.6) (0.2) 31.4
period
Earnings per
share
(assuming
dilution)
Shares 1,376.0 1,376.0 1,376.0
outstanding
(millions)
Earnings per 3.05 2.35 2.29
share - pence
ADSs 458.7 458.7 458.7
outstanding
(millions)
Earnings per 14.24 10.97 10.68
ADS - cents
(5.15) Normalised income statement for 9M 2012
Normalised
incl
Share-based share-based Intangible Acquisition-related Profit on
payments payments amortisa-tion charges sale of
investment,
net of
Normalised impairment IFRS
£m £m £m £m £m £m £m
Revenues 412.7 - 412.7 - - - 412.7
Cost of (21.9) (1.4) (23.3) - - - (23.3)
revenues
Gross profit 390.8 (1.4) 389.4 - - - 389.4
Research (97.2) (17.6) (114.8) (1.7) (3.5) - (120.0)
and
development
Sales and (45.9) (5.1) (51.0) (0.4) (0.3) - (51.7)
marketing
General and (61.3) (5.1) (66.4) - (0.5) 0.6 (66.3)
administrative
Total (204.4) (27.8) (232.2) (2.1) (4.3) 0.6 (238.0)
operating
expenses
Profit from 186.4 (29.2) 157.2 (2.1) (4.3) 0.6 151.4
operations
Investment 10.2 - 10.2 - - 10.2
income, net
Profit before 196.6 (29.2) 167.4 (2.1) (4.3) 0.6 161.6
tax
Tax (48.4) 2.8 (45.6) 0.7 1.4 0.2 (43.3)
Profit for the 148.2 (26.4) 121.8 (1.4) (2.9) 0.8 118.3
period
Earnings per
share
(assuming
dilution)
Shares 1,393.6 1,393.6 1,393.6
outstanding
(millions)
Earnings per 10.63 8.74 8.48
share - pence
ADSs 464.5 464.5 464.5
outstanding
(millions)
Earnings per 51.51 42.32 41.10
ADS - cents
(5.16) Normalised income statement for 9M 2011
Normalised
incl
Share-based share-based Intangible Acquisition Linaro
payments payments amortisa-tion -related -related
charges charges
Normalised IFRS
£m £m £m £m £m £m £m
Revenues 354.0 - 354.0 - - - 354.0
Cost of (18.6) (2.5) (21.1) - - - (21.1)
revenues
Gross profit 335.4 (2.5) 332.9 - - - 332.9
Research (87.4) (26.3) (113.7) (1.8) - (6.9) (122.4)
and
development
Sales and (43.2) (8.6) (51.8) (0.3) (0.3) - (52.4)
marketing
General and (49.5) (6.2) (55.7) - (0.5) - (56.2)
administrative
Total (180.1) (41.1) (221.2) (2.1) (0.8) (6.9) (231.0)
operating
expenses
Profit from 155.3 (43.6) 111.7 (2.1) (0.8) (6.9) 101.9
operations
Investment 5.4 - 5.4 - - - 5.4
income, net
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