26th Apr 2007 07:02
ARM Holdings PLC26 April 2007 ARM HOLDINGS PLC REPORTS RESULTS FOR THE FIRST QUARTER ENDED 31 MARCH 2007 Conference calls discussing these results will be audiocast today at 08:30 BSTand 13:00 BST at www.arm.com/ir CAMBRIDGE, UK, 26 April 2007-ARM Holdings plc ((LSE: ARM); (Nasdaq: ARMHY))announces its unaudited financial results for the quarter ended 31 March 2007 Highlights (US GAAP unless otherwise stated) • Q1 dollar revenues up 14% year-on-year • Processor Division (PD) licensing revenue up 25% • Physical IP Division (PIPD) licensing revenue up 23% • PD underlying royalty revenue up 16% to $45m on 724m shipments • Normalised operating margin increases to 30.3% (Q4 2006: 29.0%) despite strong currency headwind • Capital structure update announced - plan to move to net cash balance of approximately £50m by year end (from £127m at end of Q1) • Propose to step-up dividend in 2007 to 2p per share (from 1p per share in 2006) • Share buyback program to be accelerated - more than £100m to be spent on buybacks in FY 2007 Commenting on the results, Warren East, Chief Executive Officer, said: "We are pleased that our Q1 results represent another quarter of robustoperational execution and strong cash flow generation against a backdrop ofsome softness in the semiconductor industry. In addition, today's announcementof our intention to double the dividend in 2007 and to accelerate the sharebuyback program reflects our confidence in the long-term growth, earnings andcash generation potential of the business." Q1 2007 - Revenue Analysis________________________________________________________________________________ Revenue ($M)*** Revenue (£M) _________________________________________________________________ Q1 2007 Q1 2006 % Change Q1 2007 Q1 2006 % Change________________________________________________________________________________PD Licensing 37.4 30.0 +25% 19.4 17.3 +12% Royalties 45.0 40.91 +10% 23.0 23.21 -1%Total PD 82.4 70.9 +16% 42.4 40.5 +5%PIPD Licensing 16.9 13.7 +23% 8.7 7.9 +10% Royalties 8.42 8.42 0% 4.32 4.92 -12%Total PIPD 25.3 22.1 +14% 13.0 12.8 +2%Development Systems 13.5 13.9 -3% 6.9 7.9 -13%Services 8.0 6.0 +33% 4.2 3.4 +24%Total Revenue 129.2 112.9 +14% 66.5 64.6 +3%________________________________________________________________________________ 1 Includes catch-up royalties in Q1 2006 of $2.0m (£1.1m) 2 Includes catch-up royalties in Q1 2007 of $1.5m (£0.8m) and in Q1 2006 of $0.6m (£0.4m). Q1 2007 - Financial Summary ________________________________________________________________________________ Normalised* US GAAP ________________________________________________________________ £M Q1 2007 Q1 2006 % Change Q1 2007 Q1 2006________________________________________________________________________________ Revenue 66.5(1) 64.6 +3% 66.5 64.6Income before income tax 21.6 24.7 -13% 12.7 16.1Operating margin 30.3% 35.6% 16.9% 22.3%Earnings per share (pence) 1.14 1.27 -10% 0.70 0.84 _______________Net cash generation** 15.6 17.3Effective fx rate ($/£) 1.94 1.75_________________________________________________________ (1) Equivalent to £74.0m at Q1 2006 effective $/£ rate Current trading and prospects We are encouraged to have started 2007 by reporting a 14% increase in our Q1dollar revenues compared to last year. We enter the second quarter with a strong order backlog and a healthy licensingsales opportunity pipeline across the business. With our reported royaltyrevenues in Q2 being based on foundry utilisation and product shipments made inthe first calendar quarter, when some softness in the wider semiconductorindustry persisted, we expect total group dollar revenues in Q2 to be at similarlevels to Q1. Based on our broad product portfolio for licensing and the increasing usage ofARM(R) technology across a wide range of end markets, we are well-placed tobenefit from the generally-anticipated improvement in industry conditions laterin the year and therefore we remain confident of achieving dollar revenues inthe second half broadly in line with expectations. CONTACTS: Tom Buchanan/Fiona Laffan Tim Score/Bruce BeckloffBrunswick ARM Holdings plc+44 (0)207 404 5959 +44 (0)1628 427800 * Normalised figures are based on US GAAP, adjusted for acquisition-relatedcharges and share-based remuneration charges. For reconciliation of GAAPmeasures to normalised non-GAAP measures detailed in this document, see notes6.1 to 6.21. ** Before dividends and share buybacks, net cash flows from share optionexercises and acquisition consideration - see notes 6.12 to 6.15. *** Dollar revenues are based on the group's actual dollar invoicing, whereapplicable, and using the rate of exchange applicable on the date of thetransaction for invoicing in currencies other than dollars. Approximately 95% ofinvoicing is in dollars. **** Each American Depositary Share (ADS) represents three shares. Financial review (US GAAP unless otherwise stated) Total revenues Total dollar revenues in Q1 2007 were $129.2 million, up 14% versus Q1 2006.Sterling revenues of £66.5 million were up 3% year-on-year after an 11%weakening of the dollar against sterling ($1.94 in Q1 2007 compared to $1.75 inQ1 2006). At the Q1 2006 effective rate, Q1 2007 sterling revenues would havebeen £74.0 million. License revenues Total dollar license revenues in Q1 2007 grew by 24% to $54.3 million,representing 42% of group revenues, compared to $43.7 million in Q1 2006.License revenues comprised $37.4 million from PD and $16.9 million from PIPD. Royalty revenues Total dollar royalty revenues in Q1 2007 grew by 8% to $53.4 million,representing 41% of group revenues, compared to $49.3 million in Q1 2006.Royalty revenues comprised $45.0 million from PD and $8.4 million from PIPD.Against the backdrop of an overall semiconductor industry inventory correction,underlying PD royalties grew 5% sequentially and 16% compared to Q1 2006. TotalPIPD royalties of $8.4 million included $1.5 million of catch-up royalties. Development Systems and Service revenues Sales of development systems in Q1 2007 were $13.5 million, representing 11% ofgroup revenues, compared to $13.9 million in Q1 2006. Service revenues in Q12007 were $8.0 million, representing 6% of group revenues, compared to $6.0million in Q1 2006. Gross margins Gross margins in Q1 2007, excluding the FAS123(R) charge of £0.2 million (seebelow), were 89.5% compared to 89.0% in Q4 2006 and 89.0% in Q1 2006. Operating expenses and operating margin Total operating expenses in Q1 2007 were £48.0 million (£42.8 million in Q12006) including amortisation of intangible assets and other acquisition-relatedcharges of £5.1 million (Q1 2006: £4.6 million) and £3.7 million (Q1 2006: £3.8million) in relation to the fair value of share-based remuneration in accordancewith FAS123(R) - "Share-Based Payment". The total FAS123(R) charge of £3.9million in Q1 2007 is included within cost of revenues (£0.2 million), researchand development (£2.3 million), sales and marketing (£0.8 million) and generaland administrative (£0.6 million). Normalised income statements for Q1 2007 andQ1 2006 are included in notes 6.20 and 6.21 below which reconcile US GAAP to thenormalised non-GAAP measures referred to in this earnings release. Operating expenses (excluding acquisition-related and share-based remunerationcharges) in Q1 2007 were £39.3 million compared to £40.8 million in Q4 2006 and£34.5 million in Q1 2006. The sequential decline in operating expenses arisesbecause the impact of pay increases effective from the start of the year and theinclusion of the operating expenses of businesses acquired post Q1 2006 weremore than offset by a favourable net foreign exchange impact and the absence inQ1 2007 of certain one-off costs that were identified in the Q4 earningsrelease. Further, following a year of significant investment in headcount in2006, headcount remained broadly flat in Q1 (see People below). Normalised research and development expenses were £16.6 million in Q1 2007,representing 25% of revenues, compared to £18.2 million in Q4 2006 and £15.1million in Q1 2006. Normalised sales and marketing costs in Q1 2007 were £11.1million, being 17% of revenues, compared to £11.4 million in Q4 2006 and £9.4million in Q1 2006. Normalised general and administrative expenses in Q1 2007were £11.6 million, representing 17% of revenues, compared to £11.2 million inQ4 2006 and £10.0 million in Q1 2006. Normalised operating margin in Q1 2007 was 30.3% (6.1) compared to 29.0% (6.2)in Q4 2006 and 35.6% (6.3) in Q1 2006. Operating margins in Q1 2007 were lowerthan Q1 2006 due to the 11% weakening of the US dollar against sterling and theeffect of the investment in headcount made in 2006. At constant currencies,applying the Q1 2006 effective rate of $1.75/£1, the operating margin for Q12007 would have been approximately 34%. Earnings and taxation Income before income tax in Q1 2007 was £12.7 million compared to £16.1 millionin Q1 2006. After adjusting for acquisition-related and share-based remunerationcharges, normalised income before income tax in Q1 2007 was £21.6 million (6.5)compared to £24.7 million (6.7) in Q1 2006. The group's effective tax rate underUS GAAP in Q1 2007 was 25% reflecting the availability of research anddevelopment tax credits and taking into account the benefits arising from thestructuring of the Artisan(R) acquisition. In Q1 2007, fully diluted earnings per share prepared under US GAAP were 0.7pence (4.1 cents per ADS****) compared to earnings per share of 0.8 pence (4.4cents per ADS****) in Q1 2006. Normalised fully diluted earnings per share in Q12007 were 1.14 pence (6.16) per share (6.7 cents per ADS****) compared to 1.27pence (6.18) (6.6 cents per ADS****) in Q1 2006. Balance sheet Intangible assets at 31 March 2007 were £399.6 million, comprising goodwill of£348.4 million and other intangible assets of £51.2 million, compared to £349.2million and £56.0 million respectively at 31 December 2006. Total accounts receivable were £67.0 million at 31 March 2007, comprising £39.1million of trade receivables and £27.9 million of amounts recoverable oncontracts, compared to £69.6 million at 31 December 2006, comprising £45.8million of trade receivables and £23.8 million of amounts recoverable oncontracts. Days sales outstanding (DSOs) were 41 at 31 March 2007 compared to 43at 31 December 2006 and 45 at 31 March 2006. Cash flow, share buyback program and capital structure update Net cash at 31 March 2007 was £126.8(6.9) million compared to £128.5(6.10)million at 31 December 2006. Free cash flow in Q1 2007 was £15.6 million beforea total cash outlay of £20.2 million on the share buyback program in Q1. Since introducing dividend payments in 2004 and commencing the Company's sharebuyback program in July 2005, £31.8 million has been paid to shareholders by wayof dividend and £112.9 million has been spent on buying back 92.9 millionshares, being 6.7% of the issued share capital. This has contributed to a netreduction in the fully diluted shares in issue from 1,431 million in Q4 2005to 1,378 million in Q1 2007. As part of the Board's regular review of the Company's capital structure andcash distributions to shareholders, the directors have determined that, givenARM's cash generative business model, a net cash balance of approximately £50million is currently sufficient to enable the Company to continue to invest inthe business as opportunities arise whilst delivering the benefits of a moreefficient capital structure. It is planned that the net cash balance of £126.8 million at 31 March 2007 willbe reduced to approximately £50 million by the end of 2007 via both a step-up inthe annual dividend paid to shareholders and an acceleration of the Company'songoing share buyback program. Given the Company's market leadership positionand the visibility of strong cash flows as the benefits of the licensing androyalty business model bear fruit, it is expected that a step-up in the fullyear 2007 dividend will be proposed to 2p per share, a 100% increase on thecombined interim and final 2006 dividend of 1p per share. Thereafter, it isexpected that dividends will grow broadly in line with earnings from this newbase. The rate at which the Company buys back its own shares (an average of £22.4million per quarter over the last four quarters) as part of its ongoing sharebuyback program will be also be accelerated in the last three quarters of2007. It is anticipated that the share buyback program will resume following theannouncement of these results. In addition, in order to ensure capital structure flexibility going forward, theBoard has proposed a capital reorganisation to shareholders, for approval atthe Company's Annual General Meeting on 15 May 2007, which will make certainreserves, which are currently undistributable, available for distribution toshareholders in order to fund dividends and the ongoing share buyback program infuture years. Operating review Backlog Group order backlog at the end of Q1 2007 was marginally up compared to the endof Q4 2006 and approximately 20% up on the level at the end of Q1 2006.Following a strong licensing quarter for newer PD and PIPD technology in Q42006, the majority of licences signed in Q1 2007 were for more maturetechnology. The order backlog was positively impacted in Q1 by the renewal of asubscription license with one of our partners for a further term. PD licensing In Q1 2007, in addition to the renewal of the subscription license, ARM signed11 traditional licenses, three of which were signed for ARM7TM family processors(including two licences signed with top 20 semiconductor companies), and sixwhich were signed for ARM9TM family processors, demonstrating the very longdesign-in life of ARM's technology. We saw continued demand for our CortexTMfamily of products with the signing of our ninth Cortex-R4 processor licensewhich brings the total number of Cortex licenses signed to 24. The salespipeline includes a number of further Cortex licensing opportunities which weexpect to close in coming quarters. Q1 2007 PD Licensing Analysis - 474 cumulative processor licenses ________________________________________________________________________________ Multi-use Term Per-use _______________________________________________________ U D N U D N U D N Total________________________________________________________________________________ ARM7 2 1 3 ARM9 1 1 2 1 1 6 ARM11 1 1 Cortex-R4 1 1________________________________________________________________________________ Total 11 U:Upgrade D:Derivative N: New PD royalties PD unit shipments continued to grow in Q4 2006 (our partners report royaltiesone quarter in arrears) despite an overall sluggish industry backdrop. Reportedprocessor unit shipments were 724 million, up 3% sequentially and up 27%compared to Q1 2006. ARM7 family shipments, comprising 63% of total shipments,were up 11% sequentially. ARM11TM family shipments grew 76% sequentially and nowmake up just over 1% of total shipments. The ARM9 family accounted for 36% oftotal shipments for the quarter. Overall, the average royalty ARM received perprocessor increased marginally to 6.2 cents (Q4 2006: 6.1 cents) with the impactof the increasing penetration of higher value chips outweighing, in thisparticular quarter, continued strong unit growth in lower-priced chips. The proportion of total shipments accounted for by the mobile segment remainedat 66%, with unit growth of 3% sequentially and 33% over Q1 2006. Beyond mobile,the embedded segment continued to grow strongly, up 24% sequentially and 65%over Q1 2006, driven primarily by a growing proportion of general-purposemicrocontrollers being based on ARM technology, partly accounting for thesignificant growth in ARM7 family shipments. PIPD licensing ARM signed 13 physical IP licenses in Q1 2007, including the first license forsilicon on insulator ('SOI') physical IP arising from the acquisition of SOISICin October 2006. For the more traditional physical IP licenses, much like in PD, the licensessigned were for more mature physical IP technology. We are encouraged by thecontinued demand for these products as further platform licenses were signed atboth the 130nm and the 180nm nodes. Q1 PIPD Licensing Analysis - 300 cumulative physical IP licenses ________________________________________________________________________________ Process Node Total (nm)________________________________________________________________________________ Platform Licenses ClassicTM 180 1 MetroTM 130 1 AdvantageTM 65 2________________________________________________________________________________ Standard Cell Libraries Classic Metro 90 1 Advantage 90 1________________________________________________________________________________ Memory Compilers Classic 250/130 2 Metro Advantage 90 2________________________________________________________________________________ Velocity PHYs 90/65 2________________________________________________________________________________ SOI Licenses 180 1________________________________________________________________________________ Total 13________________________________________________________________________________ PIPD royalties PIPD royalties in Q1 2007 were $8.4 million, down from $9.6 million in Q4 2006and the same level as in Q1 2006. As highlighted in our earnings release lastquarter, the world's semiconductor foundries saw significant declines in theutilisation rate (an indication of the volume of wafers generated by asemiconductor foundry) in Q4 2006. As the majority of PIPD royalties aregenerated by semiconductor foundries and our royalties are a function of thevolume of wafers produced, the sequential decline in PIPD royalties generatedfrom wafers shipped in Q4 2006 (our partners report royalties one quarter inarrears) was consistent with our expectations. Reported utilisation rates at thesemiconductor foundries showed sequential declines again in Q1 2007, althoughindustry commentary indicates foundry utilisation rates are starting to pick upin Q2 2007. Appointment of independent non-executive director As announced in Q1 2007, Young K. Sohn joined the board as an independentnon-executive director on 2 April 2007. He has extensive experience in thesemiconductor industry both in Silicon Valley and in Asia. He is a director ofCymer, Inc. and M-Stream Technology Limited and an advisor to Panorama Capital,a Silicon Valley-based venture capital firm. Previously, he was President of thesemiconductor products group at Agilent Technologies, Inc. and President, CEOand Chairman of Oak Technology, Inc. Prior to that he was President of thehard-drive business of Quantum Corporation and, before that, Directorof Marketing at Intel Corporation. People Following a year of significant investment in new employees in 2006, 2007 isexpected to be a year of consolidation and enhanced productivity. At 31 March2007, ARM had 1,667 full-time employees, a net increase of eight since the endof 2006. At the end of Q1, the group had 677 employees based in the UK, 566 inthe US, 163 in Continental Europe, 199 in India and 62 in the Asia Pacificregion. Legal matters ARM is currently involved in ongoing litigation proceedings with NazomiCommunications, Inc. and Technology Properties Limited, Inc. Details are set outin the 2006 Annual Report on Form 20-F filed with the Securities and ExchangeCommission on 11 April 2007. Based on independent legal advice, ARM does notexpect any significant liability to arise in respect of these proceedings. ARM Holdings plc First Quarter Results - US GAAP Quarter Quarter ended ended 31 March 31 March 2007 2006 Unaudited Unaudited __________________________ £'000 £'000RevenuesProduct revenues 62,300 61,232Service revenues 4,192 3,402 __________________________ Total revenues 66,492 64,634 __________________________ Cost of revenuesProduct costs (5,638) (5,815)Service costs (1,590) (1,552) __________________________ Total cost of revenues (7,228) (7,367) __________________________ __________________________ Gross profit 59,264 57,267 __________________________ Research and development (18,997) (17,456)Sales and marketing (11,906) (10,191)General and administrative (12,462) (10,609)Amortization of intangibles purchased through business combination (4,655) (4,587) __________________________ Total operating expenses (48,020) (42,843) __________________________ Income from operations 11,244 14,424Interest 1,457 1,673 __________________________ Income before income tax 12,701 16,097Provision for income taxes (3,124) (4,137) __________________________ Net income 9,577 11,960 __________________________ Earnings per share (assuming dilution)Shares outstanding ('000) 1,377,589 1,420,175Earnings per share - pence 0.7 0.8 Earnings per ADS (assuming dilution)ADSs outstanding ('000) 459,196 473,392Earnings per ADS - cents 4.1 4.4 ARM Holdings plc Consolidated balance sheet - US GAAP 31 March 31 December 2007 2006 Unaudited Audited __________________________ £'000 £'000AssetsCurrent assets:Cash and cash equivalents 92,595 90,743Short-term investments 19,069 18,600Marketable securities 15,117 19,151Accounts receivable, net of allowance of£2,412,000 in 2007 and £2,556,000 in 2006 66,967 69,552Inventory: finished goods 2,557 1,933Income taxes receivable 5,761 5,761Prepaid expenses and other assets 14,362 12,668 __________________________ Total current assets 216,428 218,408 Deferred income taxes 12,203 9,872Prepaid expenses and other assets 1,241 1,328Property and equipment, net 12,860 13,970Goodwill 348,404 349,243Other intangible assets 51,201 56,027Investments 3,522 3,855 __________________________ Total assets 645,859 652,703 __________________________ Liabilities and shareholders' equityAccounts payable 2,971 1,826Income taxes payable 9,898 5,572Personnel taxes 1,657 1,408Accrued liabilities 24,485 33,021Deferred revenue 31,632 31,485 __________________________ Total current liabilities 70,643 73,312 Deferred income taxes 3,554 4,744 __________________________ Total liabilities 74,197 78,056 __________________________ Shareholders' equityOrdinary shares 700 695Additional paid-in capital 457,057 446,005Treasury stock, at cost (78,404) (58,245)Retained earnings 205,148 197,874Accumulated other comprehensive income:Unrealized holding gain on available-for-salesecurities, net of tax asset of £330,000 (2006: £231,000) 164 394Cumulative translation adjustment (13,003) (12,076) __________________________ Total shareholders' equity 571,662 574,647 __________________________ Total liabilities and shareholders' equity 645,859 652,703 __________________________ Notes to the Financial Information (1) Basis of preparation US GAAP The financial information prepared in accordance with the Company's US GAAPaccounting policies comprises the consolidated balance sheets as of 31 March2007 and 31 December 2006 and related income statements for the periods thenended, together with related notes. In preparing this financial informationmanagement has used the principal accounting policies as set out in theCompany's annual financial statements and Form 20-F for the year ended 31December 2006, except in relation to changes in respect of accounting forprovisions for sabbatical leave following the adoption of EITF 06-2 on 1 January2007. (2) Share-based compensation charges and acquisition-related expenses Included within the US GAAP income statement for the quarter ended 31 March 2007are share-based compensation charges of £3.9 million: £0.2 million in cost ofrevenues, £2.3 million in research and development costs, £0.8 million in salesand marketing costs and £0.6 million in general and administrative costs. (3) Accounts receivable Included within accounts receivable at 31 March 2007 are £27.9 million (31December 2006: £23.8 million) of amounts recoverable on contracts. (4) Consolidated statement of changes in shareholders' equity (US GAAP) Additional Unrealized Cumulative Share paid-in Treasury Retained holding translation capital capital stock earnings gain adjustment Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2007 695 446,005 (58,245) 197,874 394 (12,076) 574,647Shares issued on exercise of options 5 5,504 - - - - 5,509Net income - - - 9,577 - - 9,577Cumulative effect as a result of adopting EITF 06-2, net of tax* - - - (2,303) - - (2,303)Tax effect of option exercises - 368 - - - - 368Amortization of deferred compensation - 3,784 - - - - 3,784Conversion of liability award to equity award - 1,396 - - - - 1,396Purchase of own shares - - (20,159) - - - (20,159)Other comprehensive income:Unrealized holding losses on available-for-sale securities - - - - (230) - (230)Currency translation adjustment - - - - - (927) (927)____________________________________________________________________________________________________________ At 31 March 2007 700 457,057 (78,404) 205,148 164 (13,003) 571,662____________________________________________________________________________________________________________ * In accordance with EITF 06-2, the cumulative provision for employee sabbaticalleave as at 1 January 2007 is credited directly to retained earnings (5) Consolidated statement of comprehensive income (US GAAP) Q1 2007 FY 2006 Net income 9,577 45,163Realized gain on available-for-sale security, net of tax - (2,375) Unrealized holding losses on available-for-sale security, net of tax (230) (1,090)Currency translation adjustment (927) (68,128)________________________________________________________________________________ Total comprehensive income / (loss) 8,420 (26,430)________________________________________________________________________________ (6) Non-GAAP measures The following non-GAAP measures, including reconciliations to the US GAAPmeasures, have been used in this earnings release. These measures have beenpresented as they allow a clearer comparison of operating results that excludeone-off non-recurring charges, acquisition-related charges and profit ondisposal of available-for-sale investments. All figures in £'000 unlessotherwise stated. (6.1) (6.2) (6.3) (6.4) Q1 2007 Q4 2006 Q1 2006 FY 2006 Income from operations (US GAAP) 11,244 7,770 14,424 45,020Acquisition-related charge - amortization of intangibles 4,655 4,700 4,587 19,018Acquisition-related charge - other payments 397 1,057 - 1,057Stock-based compensation and related payroll taxes 3,872 6,177 3,988 18,292________________________________________________________________________________ Normalised income from operations 20,168 19,704 22,999 83,387________________________________________________________________________________ As % of revenue 30.3% 29.0% 35.6% 31.7% (6.5) (6.6) (6.7) (6.8) Q1 2007 Q4 2006 Q1 2006 FY 2006 Income before income tax (US GAAP) 12,701 9,351 16,097 57,048Acquisition-related charge - amortization of intangibles 4,655 4,700 4,587 19,018Acquisition-related charge - other payments 397 1,057 - 1,057Stock-based compensation and related payroll taxes 3,872 6,177 3,988 18,292Profit on sale of available-for-sale investment - - - (5,270)________________________________________________________________________________ Normalised income before income tax 21,625 21,285 24,672 90,145________________________________________________________________________________ (6.9) (6.10) (6.11) 31 31 30 March December September 2007 2006 2006 Cash and cash equivalents 92,595 90,743 103,472Short-term investments 19,069 18,600 26,427Short-term marketable securities 15,117 19,151 17,520________________________________________________________________________________ Normalised cash 126,781 128,494 147,419________________________________________________________________________________ (6.12) (6.13) (6.14) (6.15) Q1 2007 Q4 2006 Q1 2006 FY 2006 Normalised cash at end of period (as above) 126,781 128,494 182,282 128,494Less: Normalised cash at beginning of period (128,494) (147,419) (160,902) (160,902)Add back: Cash outflow from acquisitions (net of cash acquired) 2,618 3,305 - 17,270Add back: Cash outflow from payment of dividends - 5,449 - 12,367Add back: Cash outflow from purchase of own shares 20,159 25,840 6,957 76,519Less: Cash inflow from exercise of share options (5,509) (2,349) (11,007) (17,860)Less: Cash inflow from sale of available-for-sale investments - - - (5,567)________________________________________________________________________________ Normalised cash generation 15,555 13,320 17,330 50,321________________________________________________________________________________ (6.16) (6.17) (6.18) (6.19) Q1 2007 Q4 2006 Q1 2006 FY 2006 Net income (US GAAP) 9,577 12,063 11,960 45,163Acquisition-related charge - amortization of intangibles 4,655 4,700 4,587 19,018 Acquisition-related charge - other payments 397 1,057 - 1,057 Stock-based compensation and related payroll taxes 3,872 6,177 3,988 21,788 Profit on sale of available-for-sale investment - - - (5,270) Estimated tax impact of above charges (2,849) (3,477) (2,464) (10,336)________________________________________________________________________________ Normalised net income 15,652 20,520 18,071 71,420________________________________________________________________________________ Dilutive shares ('000) 1,377,589 1,380,581 1,420,175 1,404,751 Normalised diluted EPS 1.14p 1.49p 1.27p 5.08p (6.20) Normalised income statement for Q1 2007 Other Stock-based Intangible acquisition Normalised compensation amortisation related charges US GAAP £'000 £'000 £'000 £'000 £'000 ________ ________________________________________ _________ Revenues Product revenues 62,300 - - - 62,300 Service revenues 4,192 - - - 4,192 ________ ________________________________________ _________ Total revenues 66,492 - - - 66,492 ________ ________________________________________ _________ Cost of revenues Product costs (5,638) - - - (5,638) Service costs (1,358) (232) - - (1,590) ________ ________________________________________ _________ Total cost ofrevenues (6,996) (232) - - (7,228) ________ ________________________________________ _________ Gross profit 59,496 (232) - - 59,264 ________ ________________________________________ _________ Research and development (16,589) (2,246) - (162) (18,997) Sales and marketing (11,132) (774) - - (11,906) General and administ- rative (11,607) (620) - (235) (12,462) Amortization of intangibles purchased through business combination - - (4,655) - (4,655) ________ ________________________________________ _________Total operating expenses (39,328) (3,640) (4,655) (397) (48,020) ________ ________________________________________ _________ Income from operations 20,168 (3,872) (4,655) (397) 11,244Interest 1,457 - - - 1,457 ________ ________________________________________ _________ Income before income tax 21,625 (3,872) (4,655) (397) 12,701Provision for income taxes (5,973) 937 1,796 116 (3,124) ________ ________________________________________ _________ Net income 15,652 (2,935) (2,859) (281) 9,577 ________ ________________________________________ _________ Earnings per share (assuming dilution)Shares outstanding ('000) 1,377,589 1,377,589Earnings per share - pence 1.14 0.70 Earnings per ADS (assuming dilution)ADSs outstanding ('000) 459,196 459,196Earnings per ADS - cents 6.69 4.09 (6.21) Normalised income statement for Q1 2006 Stock-based Intangible Normalised compensation amortisation US GAAP __________ __________________________ _________ £'000 £'000 £'000 £'000Revenues Product revenues 61,232 - - 61,232 Service revenues 3,402 - - 3,402 __________ __________________________ _________ Total revenues 64,634 - - 64,634 __________ __________________________ _________ Cost of revenues Product costs (5,815) - - (5,815) Service costs (1,313) (239) - (1,552) __________ __________________________ _________ Total cost of revenues (7,128) (239) - (7,367) __________ __________________________ _________ __________ __________________________ _________ Gross profit 57,506 (239) - 57,267 __________ __________________________ _________ Research and development (15,143) (2,313) - (17,456) Sales and marketing (9,393) (798) - (10,191) General and administrative (9,971) (638) - (10,609) Amortization of intangibles purchased through business combination - - (4,587) (4,587) __________ __________________________ _________ Total operating expenses (34,507) (3,749) (4,587) (42,843) __________ __________________________ _________ Income from operations 22,999 (3,988) (4,587) 14,424Interest 1,673 - - 1,673 __________ __________________________ _________ Income before income tax 24,672 (3,988) (4,587) 16,097Provision for income taxes (6,601) 643 1,821 (4,137) __________ __________________________ _________ Net income 18,071 (3,345) (2,766) 11,960 __________ __________________________ _________ Earnings per share (assuming dilution)Shares outstanding ('000) 1,420,175 1,420,175Earnings per share - pence 1.27 0.84 Earnings per ADS (assuming dilution)ADSs outstanding ('000) 473,392 473,392Earnings per ADS - cents 6.62 4.38 Note The results shown for Q1 2007, Q4 2006, and Q1 2006 are unaudited. The resultsshown for FY 2006 are audited. The financial information contained in thisannouncement does not constitute statutory accounts within the meaning ofSection 240(3) of the Companies Act 1985. Statutory accounts of the Company inrespect of the financial year ended 31 December 2006, upon which the Company'sauditors have given a report which was unqualified and did not contain astatement under Section 237(2) or Section 237(3) of that Act, have beendelivered to the Registrar of Companies. Except for changes in accounting policy on the adoption of new accountingstandards, as disclosed, the results for ARM for Q1 2007 and previous quartersas shown reflect the accounting policies as stated in Note 1 to the US GAAPfinancial statements in the Annual Report and Accounts filed with CompaniesHouse in the UK for the fiscal year ended 31 December 2006 and in the Annual Report on Form 20-F for the fiscal year ended 31 December 2006. This document contains forward-looking statements as defined in section 102 ofthe Private Securities Litigation Reform Act of 1995. These statements aresubject to risk factors associated with the semiconductor and intellectualproperty businesses. When used in this document, the words "anticipates", "may","can", "believes", "expects", "projects", "intends", "likely", similarexpressions and any other statements that are not historical facts, in each caseas they relate to ARM, its management or its businesses and financialperformance and condition are intended to identify those assertions asforward-looking statements. It is believed that the expectations reflected inthese statements are reasonable, but they may be affected by a number ofvariables, many of which are beyond our control. These variables could causeactual results or trends to differ materially and include, but are not limitedto: failure to realise the benefits of our recent acquisitions, unforeseenliabilities arising from our recent acquisitions, price fluctuations, actualdemand, the availability of software and operating systems compatible with ourintellectual property, the continued demand for products including ARM'sintellectual property, delays in the design process or delays in a customer'sproject that uses ARM's technology, the success of our semiconductor partners,loss of market and industry competition, exchange and currency fluctuations, anyfuture strategic investments or acquisitions, rapid technological change,regulatory developments, ARM's ability to negotiate, structure, monitor andenforce agreements for the determination and payment of royalties, actual orpotential litigation, changes in tax laws, interest rates and access to capitalmarkets, political, economic and financial market conditions in variouscountries and regions and capital expenditure requirements. More information about potential factors that could affect ARM's business andfinancial results is included in ARM's Annual Report on Form 20-F for the fiscalyear ended 31 December 2006 including (without limitation) under the captions,"Risk Factors" and "Management's Discussion and Analysis of Financial Conditionand Results of Operations," which is on file with the Securities and ExchangeCommission (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 mobile, home and enterprise solutions to embedded and emergingapplications. ARM's comprehensive product offering includes 16/32-bit RISCmicroprocessors, data engines, graphics processors, digital libraries, embeddedmemories, peripherals, software and development tools, as well as analogfunctions and high-speed connectivity products. Combined with the company'sbroad Partner community, they provide a total system solution that offers afast, reliable path to market for leading electronics companies. Moreinformation on ARM is available at http://www.arm.com. ARM is a registered trademarks of ARM Limited. ARM7, ARM9, ARM11, Cortex,Advantage, Classic and Metro are trademarks of ARM Limited. Artisan Componentsand Artisan are registered trademarks of ARM, Inc., a wholly owned subsidiary ofARM. All other brands or product names are the property of their respectiveholders. ARM refers to ARM Holdings plc (LSE: ARM and Nasdaq: ARMHY) togetherwith its subsidiaries including ARM Limited, ARM Inc., Axys Design AutomationInc., ARM Germany GmbH, ARM KK, ARM Korea Ltd, ARM Taiwan Ltd, ARM France SAS,Soisic SA, ARM Consulting (Shanghai) Co. Ltd., ARM Belgium NV., ARM EmbeddedTechnologies Pvt. Ltd., Keil Elektronik GmbH, and ARM Norway AS. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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