19th Apr 2006 07:01
ARM Holdings PLC19 April 2006 ARM HOLDINGS PLC - RESULTS FOR THE QUARTER ENDED 31 MARCH 2006 CAMBRIDGE, UK, 19 April 2006-ARM Holdings plc ((LSE: ARM); (Nasdaq: ARMHY))announces its unaudited financial results for the first quarter ended 31 March2006 with total sterling revenues up 17% and normalised EPS up 34% compared toQ1 2005. Financial Highlights - Q1 2006 • Total revenues £64.6m (Q1 2005: £55.0m) up 17% • Record normalised operating margin 35.6% (Q1 2005: 32.4%) • Normalised income before tax £24.7m (Q1 2005: £18.9m) up 31% • Normalised EPS 1.27p (Q1 2005: 0.95p) up 34% • £7m returned to shareholders via rolling share buyback program Operating Highlights - Q1 2006 • Long-term technology agreement signed with TSMC for physical IP at leading-edge process nodes • Record 572 million ARM Powered(R) products shipped, up 47% on comparable period last year • Unit growth in non-mobile segments at 68% continues to outpace growth in mobile at 37% • Record underlying PIPD royalties of £4.5 million • 15 processor and 9 physical IP licenses signed in the quarter • Order backlog flat sequentially at quarter end • Order backlog today higher than at start of year following early Q2 licensing activity • Development Systems revenues up 38% Commenting on the first quarter, Warren East, Chief Executive Officer, said: "We have seen encouraging activity in both licensing and royalties this quarter.Interest in our new Cortex family of processors continues to grow with a furtherlicense signed in Q1 and a number of licensing discussions in progress. Ourfirst license agreement for the most advanced (45nm) process technology hasfurther strengthened our position as a leading provider of physical IP. Wecontinued to extend our market penetration across the span of digital productswith royalty units increasing 47% compared to the same period last year. Q1'sresult further underpins our confidence that ARM will achieve another strongperformance in 2006 in line with current market expectations." Tim Score, Chief Financial Officer, added: "Year-on-year growth in revenue and earnings per share of 17% and 34%respectively has again yielded strong cash generation in the quarter. Withroyalty revenues continuing to grow as a proportion of total revenues, operatingmargin and cash flow are expected to increase, leaving us well-placed both toinvest in the innovative technology that drives future growth in licensingrevenue and to continue the return of cash to shareholders through sharebuybacks and dividends." Q1 2006 - Financial Summary Normalised* US GAAP-------------------- ------------------------------- --------------------£M Q1 2006 Q1 2005 % Change Q1 2006 Q1 2005-------------------- --------- --------- --------- --------- ---------Revenue 64.6 55.0 +17% 64.6 55.0Income before income tax 24.7 18.9 +31% 16.1 12.5Operating margin 35.6% 32.4% 22.3% 20.9%Earnings per share (pence) 1.27 0.95 +34% 0.84 0.64 --------- ---------Net cash generation** 17.3 3.8 +356%-------------------- --------- --------- --------- Q1 2006 - Revenue Summary Revenue (£M) Revenue ($M)***---------------- --------------------------------- ---------------------------- Q1 2006 Q1 2005 % Change Q1 2006 Q1 2005 % Change---------------- --------- ----------- ---------- -------- --------- ---------LicensingPD 17.3 16.3 +6% 30.0 30.0 0%PIPD 7.9 8.4 -6% 13.7 16.2 -15%Total Licensing 25.2 24.7 +2% 43.7 46.2 -5%RoyaltiesPD 23.2(1) 16.8(1) +38% 40.9 31.6 +29%PIPD 4.9(1) 4.1(1) +19% 8.4 7.8 +8%Total Royalties 28.1 20.9 +35% 49.3 39.4 +25%DevelopmentSystems 7.9 5.8 +38% 13.9 11.0 +27%Services 3.4 3.6 -7% 6.0 6.6 -9%Total Revenue 64.6 55.0 +17% 112.9 103.2 +9% (1)Includes catch-up royalties in Q1 2006 of £1.1m in PD (Q1 2005: nil) and£0.4m in PIPD (Q1 2005: £0.4m). Current trading and prospects During Q1, we have continued to see strong interest across the range of productsin our technology portfolio, including the new processor and physical IPtechnology that ARM is bringing to market. As well as signing a strategicallyimportant long-term technology license for 65nm and 45nm processes with TSMC, wealso signed a significant number of license agreements for a wide range ofprocessor cores. With a healthy sales pipeline for licensing across thebusiness, ongoing momentum in royalties and continued growth in developmentsystems sales, we remain confident in achieving another strong performance in2006 in line with current market 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 before acquisition-related charges and othershare-based remuneration charges. For reconciliation of GAAP measures tonormalised non-GAAP measures detailed in this document, see notes 5.1 to 5.18. ** Before dividends, net cash inflow from share option exercises and sharebuybacks and acquisition consideration - see notes 5.11 to 5.14. *** 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) First quarter ended 31 March 2006 Total revenues Total revenues for the first quarter of 2006 amounted to £64.6 million, up 17%versus the same period in 2005. In US dollar terms***, first quarter revenueswere $112.9 million with an effective US dollar to sterling exchange rate in Q12006 of $1.75 compared to $1.88 in Q1 2005. License revenues Total license revenues in the first quarter were £25.2 million, representing 39%of group revenues, compared to £24.7 million in Q1 2005. License revenuescomprised £17.3 million from the Processor Division ("PD") and £7.9 million fromthe Physical IP Division ("PIPD"). Royalty revenues Total royalty revenues in Q1 2006 were £28.1 million, representing 44% of totalgroup revenues, compared to £20.9 million in Q1 2005, an increase of 35%.Royalty revenues comprised £23.2 million from PD and £4.9 million from PIPD.Within the total of £23.2 million for PD royalties, there was approximately £1.1million of catch-up royalties, giving underlying royalties of £22.1 million(approximately $39 million). Total PIPD royalties of £4.9 million included £0.4million of catch-up royalties. Development Systems and Service revenues Sales of development systems in Q1 2006 were £7.9 million, representing 12% oftotal group revenue, compared to £5.8 million in Q1 2005, an uplift of 38%.Service revenues in Q1 2006 were £3.4 million, representing 5% of total grouprevenues, compared to £3.6 million in Q1 2005. Gross margins Gross margins for the first quarter, excluding the FAS123(R) charge of £0.2million (see below), were 89.0% compared to 88.5% in Q1 2005. The positiveimpact on gross margin arising from the higher proportion of total revenues madeup by royalties (44% in Q1 2006 compared to 38% in Q1 2005) is partially offsetby the higher proportion of revenues represented by development systems and bythe higher proportion of total PIPD costs charged to cost of revenues in Q12006. Operating expenses and operating margin Total operating expenses in Q1 2006 are £42.8 million compared to £37.2 millionin Q1 2005. Total operating expenses of £42.8 million in Q1 2006 includeamortisation of intangible assets of £4.6 million (Q1 2005: £4.0 million) and£3.8 million in relation to the fair value of share-based remuneration inaccordance with FAS123(R) - "Share-Based Payment". As FAS123(R) is effective forthe first time in Q1 2006 and as ARM is applying the standard on the "modifiedprospective" basis, there is no directly equivalent charge in Q1 2005. Totaloperating expenses of £37.2 million in Q1 2005 did, however, include a deferredstock-based compensation charge of £2.4 million. The total FAS123(R) charge of £4.0 million in Q1 2006 is included within cost ofrevenues (£0.2 million), research and development (£2.3 million), sales andmarketing (£0.8 million) and general and administrative (£0.7 million). Thecommentary on operating expenses below excludes amortisation and share-basedremuneration charges. Operating expenses in Q1 2006 were £34.5 million compared to £35.0 million in Q42005 and £30.8 million in Q1 2005. The sequential reduction is partly due to anet gain arising from foreign exchange impacts in Q1 2006 compared to a net lossin Q4 2005. Research and development expenses were £15.1 million in Q1 2006, representing23% of revenues, compared to £14.7 million or 27% of revenues in Q1 2005. Salesand marketing costs in Q1 2006 were £9.4 million, being 15% of revenues,compared to £8.3 million or 15% of revenues in Q1 2005. General andadministrative expenses in Q1 2006 were £10.0 million, representing 15% ofrevenues, compared to £7.8 million or 14% of revenues in Q1 2005. Record normalised operating margin was achieved in Q1 2006 at 35.6%(5.1)compared to 32.4%(5.3) in Q1 2005. Interest receivable Interest receivable increased to £1.7 million in Q1 2006 compared to £1.0million in Q1 2005, due to higher average cash balances. Earnings and taxation Income before income tax in Q1 2006 was £16.1 million compared to £12.5 millionin Q1 2005. Normalised income before income tax in Q1 2006 was £24.7 million(5.5) compared to £18.9 million(5.7) in Q1 2005. The group's effective tax rateunder US GAAP in Q1 2006 was 25.7% reflecting the availability of research anddevelopment tax credits and taking into account the benefits arising from thestructuring of the Artisan acquisition. First quarter fully diluted earnings per share prepared under US GAAP were 0.8pence (4.4 cents per ADS****) compared to earnings per share of 0.6 pence (3.6cents per ADS****) in Q1 2005. Normalised earnings per fully diluted share in Q12006 were 1.27 pence(5.15) per share (6.6 cents per ADS****) compared to 0.95pence(5.17) (5.4 cents per ADS****) in Q1 2005. Balance sheet and cash flow Intangible assets at 31 March 2006 were £448.6 million, comprising goodwill of£381.7 million and other intangible assets of £66.9 million, compared to £385.6million and £72.3 million respectively at 31 December 2005. Goodwill is nolonger amortised under US GAAP, but is subject to review for impairment on atleast an annual basis. The intangible assets from acquisition are beingamortised through the profit and loss account over a weighted average period offive years. Accounts receivable increased to £61.0 million at 31 March 2006 from £55.5million at 31 December 2005. The allowance against receivables was £2.5 millionat 31 March 2006 compared to £2.2 million at 31 December 2005. Deferred revenueswere £25.2 million at 31 March 2006 compared to £20.4 million at 31 December2005. After net cash generation of £17.3 million(5.11) in Q1 2006, total cash, cashequivalents, short-term investments and marketable securities amounted to £182.3million(5.9) at 31 March 2006. Share buyback program In Q1 2006, the Company purchased 5,150,000 shares at a total cost of £7.0million. It is anticipated that the buyback program will resume after theannouncement of these results. Operating review Backlog At the end of Q1 2006, group order backlog was flat sequentially with the PIPDportion of the backlog up again on the record level reported at the end of lastquarter. Due to licensing activity early in Q2, including an additional licensebeing signed for the Cortex-A8 product, group order backlog is now higher thanat the beginning of the year. Whilst a small proportion of the revenue from theCortex-A8 processor license will be recognisable in Q2, the majority will berecognised in future quarters. PD licensing 15 licenses for microprocessors were signed in Q1 2006 bringing the totalcumulative number of licenses signed to 413. The mix of licenses signed in thequarter demonstrated a healthy demand for our technologies across the portfolioof processor cores, from the ARM7(TM) family to our latest technology, the Cortex family. Of the 15 licenses, five new partners took one license each: one per-use license for the ARM7TDMI(R) processor, two per-use licenses for the ARM946E-S(TM) processor and two licenses for the ARM926EJ-S(TM) processor. The remaining 10 licenses were signed with 8 of our existing partners,comprising four upgrade licenses and six derivative licenses. The four upgradelicenses comprised one per-use license for the ARM922T(TM) , one term license for the ARM968E-S(TM) processor, one license for the ARM1176JZ(F)-S(TM) processor, and one term license for our latest Cortex technology, code named "Serval-E". The six derivative licenses consisted of one per-use license for the ARM7TDMI processor, one license for the ARM7TDMI-S(TM) processor, two term licenses for the ARM926EJ-S processor, one license for the ARM11(TM) MPCore(TM) processor and one license for the ARM1176JZ(F)-S processor. During the quarter, two significant announcements were made by ARM partnersintroducing new lines of products based on our Cortex family of processors.Firstly, at 3GSM, Texas Instruments introduced their OMAP(TM) 3 line ofapplication processors that incorporate the Cortex-A8 processor (TexasInstruments New OMAP(TM) 3 Architecture Will Spark Development of a New Class ofMobile Phone, 14 Feb 2006). This represents the first announced product to usethe Cortex-A8 processor. It is expected to sample before the end of the yearwith volume production commencing in 2007. Secondly, Luminary Micro'sannouncement of their Stellaris(TM) family of 32-bit microcontrollers (LuminaryMicro Announces 32-bit Microcontrollers for $1 - First to Launch Products Basedon the ARM Cortex-M3 Processor, 27 Mar 2006), represents the first product to beannounced using the Cortex-M3 processor. Products within the Stellaris familyare available today and address the needs of low cost embedded applicationsmigrating to 32-bit technology. PD royalties ARM partners shipped 572 million units in Q4 2005 (we report royalties onequarter in arrears), up 47% on the comparable period last year. Of those unitshipments, 35% related to units based on ARM9(TM) family technology and 2% related to products based on the SecurCore(TM) family of processors. Shipments of ARM926 processor-based product accounted for 9% of total shipments. By the end of Q4 2005 more than 2 million ARM11-based products had been shipped, representing the newest ARM technology to ship in any meaningful volume. Shipments of ARM11 family-based products are expected to increase gradually throughout 2006. One new partner commenced shipping ARM technology-based products in Q4 2005 bringing the total number of shippers to 69. The mobile and non-mobile segments accounted for 63% and 37% of total shipmentsrespectively in Q1 2006, compared to 67% and 33% in Q1 2005. Non-mobile growthof 68% versus the same period in 2005 continues to outpace the growth of mobileshipments due primarily to increased shipments of applications such as hard diskdrives, home networking devices, printers, smartcards and microcontrollers. Theaverage royalty rate ("ARR") of 7.2 cents was marginally down on the 7.3 centsreported in Q4 2005 due to strong growth in certain lower cost productcategories including low cost mobile handsets and Bluetooth products as well assmartcards and microcontrollers. PIPD licensing In Q1, ARM signed a further nine licenses for Physical IP bringing the totalnumber of licenses to 219. Of the nine licenses, three were for platformlicenses to two foundries consisting of a 130nm Classic Platform and a long-termtechnology agreement for physical IP on the leading edge 65nm and 45nm processeswith Taiwan Semiconductor Manufacturing Company (TSMC). This represents asignificant milestone, being the first announcement of a foundry planning tooffer ARM Physical IP for the 45nm processor node. It also serves to enhance thelong term commercial relationship between ARM and TSMC. This brings the totalnumber of physical IP platforms licensed to foundries and IDMs to 70. The remaining six licenses were end-user licenses consisting of one 250nmClassic memory compiler, one 180nm Metro(TM) cell library, two 130nm Metro(TM) cell libraries and two 90nm Velocity high speed PHYs. This brings the total number of end-user licensees for these technologies to 149. PIPD royalties Record underlying royalties of £4.5 million (approximately $7.8 million) were up22% sequentially (Q4 2005: £3.7m). This further sequential growth in underlyingroyalty revenues results both from the strengthening trend in wafer pricing andcapacity in Q4 2005 and the growing number of designs being manufactured by ourfoundry partners. Development Systems In Q1 2006, we introduced the first synergistic product combining the technologyacquired with Keil in Q4 2005 with our existing tools technology. The ARMRealView(R) Microcontroller Development Kit (RVMDK) was launched to facilitatethe migration of microcontroller development from 8-bit to ARM technology-based32-bit microcontrollers. In the quarter, there were approximately 10,000downloads of the free trial version of the product, giving us confidence thatincremental sales will accrue in future quarters. Further, at the end of Q1, we introduced the next generation of ourmarket-leading tools technology, the ARM RealView Development Suite version 3.0for end-to-end pre-silicon development. Version 3.0 incorporates manyenhancements which we expect to serve as a catalyst for both existing ARMcustomers to upgrade their ARM development tools and for new customers to engagewith ARM. We have also seen increasing traction for our Electronic System Level("ESL") design tools illustrated by the announcement in Q1 that Renesas hasadopted ARM ESL tools for system-on-chip ("SoC") development. People At 31 March 2006 we had 1,371 full time employees compared to 1,324 at the endof 2005. Of the net increase in headcount of 47 in Q1, 20 occurred in ourBangalore Design Centre. At 31 March 2006, the group had 588 employees based inthe UK, 499 in the US, 101 in Continental Europe, 136 in India and 47 in theAsia Pacific Region. Legal matters In May 2002, Nazomi Communications, Inc. ("Nazomi") filed suit against ARMalleging willful infringement of Nazomi's US Patent No. 6,332,215. ARM answeredNazomi's complaint in July 2002 denying infringement. ARM moved for summaryjudgment and a ruling that the technology does not infringe Nazomi's patent. TheUnited States District Court for the Northern District of California grantedARM's motion, and Nazomi appealed the District Court's ruling. On 7 September2004, the Court of Appeals for the Federal Circuit heard the appeal and issuedits decision on 11 April 2005. Because, in the opinion of the Court of Appealsfor the Federal Circuit, the District Court did not construe the disputed claimterm in sufficient detail for appellate review, the Court of Appeals for theFederal Circuit remanded the dispute back to the District Court for furtheranalysis. A supplementary "Markman" hearing was held on 11 October 2005 and weare presently awaiting the ruling of the District Court. Based on legal advicereceived to date, ARM has no cause to believe that the effect of the originalruling by the District Court will not be upheld. ARM Holdings plc First Quarter Results - US GAAP Quarter Quarter Quarter ended ended ended 31 March 31 March 31 March 2006 2005 2006 (1) Unaudited Unaudited Unaudited -------- -------- --------- £'000 £'000 $'000RevenuesProduct revenues 61,232 51,372 106,213Service revenues 3,402 3,645 5,901 -------- -------- ---------Total revenues 64,634 55,017 112,114 -------- -------- --------- Cost of revenuesProduct costs (5,815) (4,913) (10,087)Service costs (1,552) (1,410) (2,692) -------- -------- ---------Total cost of revenues (7,367) (6,323) (12,779) -------- -------- --------- -------- -------- ---------Gross profit 57,267 48,694 99,335 -------- -------- --------- Research and development (17,456) (14,723) (30,279)Sales and marketing (10,191) (8,284) (17,677)General and administrative (10,609) (7,837) (18,402)Deferred stock-based compensation - (2,360) -Amortisation of intangibles purchased through business combination (4,587) (3,967) (7,957) -------- -------- ---------Total operating expenses (42,843) (37,171) (74,315) -------- -------- --------- Income from operations 14,424 11,523 25,020Interest, net 1,673 1,009 2,902 -------- -------- ---------Income before income tax 16,097 12,532 27,922Provision for income taxes (4,137) (3,453) (7,176) -------- -------- ---------Net income 11,960 9,079 20,746 -------- -------- --------- Net income 11,960 9,079 20,746Other comprehensive income:Foreign currency adjustments (5,895) 8,744 (10,225)Unrealised holding loss onavailable-for-sale securities, net of taxof £301,000 (2005: £692,000) (680) (1,614) (1,180) -------- -------- ---------Total comprehensive income 5,385 16,209 9,341 -------- -------- --------- Earnings per share (assuming dilution)Shares outstanding ('000) 1,420,175 1,424,612Earnings per share - pence 0.8 0.6Earnings per ADS (assuming dilution)ADSs outstanding ('000) 473,392 474,871Earnings per ADS - cents 4.4 3.6 (1) US dollar amounts have been translated from sterling at the 31 March2006 closing rate of $1.7346=£1 (see note 1) ARM Holdings plc Consolidated balance sheet - US GAAP 31 March 31 March 31 March 2006 2005 2006 (1) Unaudited Unaudited Unaudited -------- -------- --------- £'000 £'000 $'000AssetsCurrent assets:Cash and cash equivalents 143,431 128,077 248,795Short-term investments 34,625 23,990 60,061Marketable securities 4,226 8,835 7,330Accounts receivable, net of allowance of£2,461,000 (2005: £2,173,000) (see note 3) 61,026 55,518 105,856Inventory: finished goods 1,844 1,490 3,199Prepaid expenses and other assets 12,313 12,567 21,358 --------- --------- ---------Total current assets 257,465 230,477 446,599 Deferred income taxes 3,556 4,422 6,168Prepaid expenses and other assets 1,587 1,674 2,753Property and equipment, net 12,987 12,803 22,527Goodwill 381,669 385,572 662,043Other intangible assets 66,920 72,345 116,080Investments 7,798 8,800 13,526 --------- --------- ---------Total assets 731,982 716,093 1,269,696 --------- --------- --------- Liabilities and shareholders' equityAccounts payable 4,343 2,221 7,533Income taxes payable 12,960 10,826 22,481Personnel taxes 1,277 1,329 2,215Accrued liabilities 21,614 25,024 37,492Deferred revenue 25,225 20,354 43,755Dividends payable 6,918 - 12,000 --------- --------- ---------Total current liabilities 72,337 59,754 125,476 Deferred income taxes 4,090 7,289 7,094 --------- --------- ---------Total liabilities 76,427 67,043 132,570 --------- --------- --------- Shareholders' equityOrdinary shares 693 693 1,202Additional paid-in capital 444,084 425,252 770,308Deferred compensation (19,248) (4,404) (33,387)Treasury stock, at cost (2,005) (16,315) (3,478)Retained earnings 178,695 183,913 309,964Accumulated other comprehensive income:Unrealised holding gain onavailable-for-sale securities,net of tax of £795,000(2005: £1,096,000) 3,179 3,859 5,514Cumulative translation adjustment 50,157 56,052 87,003 --------- --------- ---------Total shareholders' equity 655,555 649,050 1,137,126 --------- --------- ---------Total liabilities and shareholders'equity 731,982 716,093 1,269,696 --------- --------- --------- (1) US dollar amounts have been translated from sterling at the 31 March 2006 closing rate of $1.7346=£1 (see note 1) Notes to the Financial Statements (1) Basis of preparation - reporting currency The Group prepares and reports its financial statements in UK sterling. Purelyfor the convenience of the reader, the US GAAP income statement and balancesheet have been translated from sterling at the closing rate on 31 March 2006 of$1.7346=£1. Such translations should not be construed as representations thatthe sterling amounts represent, or have been or could be so converted into USdollars at that or at any other rate. (2) Share-based compensation charges Included within the income statement shown above are share-based compensationcharges of £4.0 million: £0.2 million in cost of revenues, £2.3 million inresearch and development costs, £0.8 million in sales and marketing costs and£0.7 million in general and administrative costs. (3) Accounts receivable Included within accounts receivable at 31 March 2006 are £22.5 million (2005:£20.5 million) of amounts recoverable on contracts. (4) Consolidated statement of changes in shareholders' equity (US GAAP) Share Additional Deferred Treasury Retained Unrealised Cumulative Total capital paid-in compensation stock earnings holding translation capital gain adjustment £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000At 1 January2006 693 425,252 (4,404) (16,315) 183,913 3,859 56,052 649,050Net income - - - - 11,960 - - 11,960Dividends - - - - (6,918) - - (6,918)Unrealisedholding lossesonavailable-for-salesecurities - - - - - (680) - (680)Deferredcompensationarising onshare schemes - 18,832 (18,832) - - - - -Amortisationof deferredcompensation - - 3,988 - - - - 3,988Issuance ofshares - - - 21,267 (10,260) - - 11,007Purchase ofown shares - - - (6,957) - - - (6,957)Currencytranslationadjustment - - - - - - (5,895) (5,895)----------- ------- -------- --------- ------- ------- -------- -------- -------At 31 March2006 693 444,084 (19,248) (2,005) 178,695 3,179 50,157 655,555----------- ------- -------- --------- ------- ------- -------- -------- ------- (5) 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 excludeshare-based compensation charges and acquisition-related charges. All figures in£'000 unless otherwise stated. (5.1) (5.2) (5.3) (5.4) Q1 2006 Q4 2005 Q1 2005 FY 2005Income from operations 14,424 14,094 11,523 47,917Acquisition-related charge -amortisation of intangibles 4,587 4,809 3,967 17,726Acquisition-related charge - deferredstock-based compensation - 479 2,066 5,496Other stock-based compensation andrelated payroll taxes 3,988 2,628 294 4,873--------------------------- ------- ------- ------- -------Pro forma income from operations 22,999 22,010 17,850 76,012--------------------------- ------- ------- ------- -------As % of revenue 35.6% 35.0% 32.4% 32.7% (5.5) (5.6) (5.7) (5.8) Q1 2006 Q4 2005 Q1 2005 FY 2005Income before income tax 16,097 15,778 12,532 53,234Acquisition-related charge -amortisation of intangibles 4,587 4,809 3,967 17,726Acquisition-related charge - deferredstock-based compensation - 479 2,066 5,496Other stock-based compensation andrelated payroll taxes 3,988 2,628 294 4,873--------------------------- ------- ------- ------- -------Pro forma income before income tax 24,672 23,694 18,859 81,329--------------------------- ------- ------- ------- ------- (5.9) (5.10) 31 March 2006 31 December 2005Cash and cash equivalents 143,431 128,077Short-term investments 34,625 23,990Short-term marketable securities 4,226 8,835--------------------------- ------- --------Pro forma cash 182,282 160,902--------------------------- ------- -------- (5.11) (5.12) (5.13) (5.14) Q1 2006 Q4 2005 Q1 2005 FY 2005Pro forma cash at end ofperiod (as above) 182,282 160,902 141,785 160,902Less: Pro forma cash atbeginning of period (as above) (160,902) (164,737) (142,817) (142,817)Add back: Cash outflow fromacquisitions (net of cashacquired) - 4,264 14,260 20,304Add back: Cash outflow frompayment of dividends - 4,677 - 10,436Add back: Cash outflow frompurchase of own shares 6,957 10,773 - 16,211Less: Cash inflow fromexercise of share options (11,007) (1,033) (9,425) (13,083)--------------------------- ------- ------- ------- -------Pro forma cash generation 17,330 14,846 3,803 51,953--------------------------- ------- ------- ------- ------- (5.15) (5.16) (5.17) (5.18) Q1 2006 Q4 2005 Q1 2005 FY 2005Net income 11,960 12,977 9,079 41,880Acquisition-related charge -amortisation of intangibles 4,587 4,809 3,967 17,726Acquisition-related charge -deferred stock-basedcompensation - 479 2,066 5,496Other stock-basedcompensation 3,988 2,628 294 4,873and related payroll taxesEstimated tax impact ofabove charges (2,464) (3,346) (1,831) (8,912)--------------------------- ------- ------- ------- -------Pro forma net income 18,071 17,547 13,575 61,063--------------------------- ------- ------- ------- -------Dilutive shares ('000) 1,420,175 1,431,084 1,424,612 1,427,013Pro forma diluted EPS 1.27p 1.23p 0.95p 4.28p Note The results shown for Q1 2006, Q4 2005, and Q1 2005 are unaudited. The resultsshown for FY 2005 are audited. The financial information contained in thisannouncement does not constitute statutory accounts within the meaning ofSection240 (3) of the Companies Act 1985. Statutory accounts of the Company inrespect of the financial year ended 31 December 2005, 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, are available onARM's website at www.arm.com and are in the process of being filed with theRegistrar of Companies. The results for ARM for Q1 2006 and previous quarters as shown reflect theaccounting policies as stated in Note 1 to the US GAAP financial statements inthe Statutory accounts of the company for the fiscal year ended 31 December 2005and in the Annual Report on Form 20-F for the fiscal year ended 31 December2004. 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 2004 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 wireless, networking and consumer entertainment solutions to imaging,automotive, security and storage devices. ARM's comprehensive product offeringincludes 16/32-bit RISC microprocessors, data engines, 3D processors, digitallibraries, embedded memories, peripherals, software and development tools, aswell as analog functions and high-speed connectivity products. Combined with thecompany's broad Partner community, they provide a total system solution thatoffers a fast, reliable path to market for leading electronics companies. Moreinformation on ARM is available at http://www.arm.com/ ARM, ARM Powered, RealView, SecurCore, TrustZone, Keil and ARM7TDMI areregistered trademarks of ARM Limited. ARM7, ARM7TDMI-S, ARM9, ARM922T,ARM926E-S,, ARM946E-S, ARM11, ARM1176JZ-S, Cortex and MPCore are trademarks ofARM Limited. Artisan Components and Artisan are registered trademarks of ARMPhysical IP, Inc., a wholly owned subsidiary of ARM. All other brands or productnames are the property of their respective holders. ARM refers to ARM Holdingsplc (LSE: ARM and Nasdaq: ARMHY) together with its subsidiaries including ARMLimited, ARM Inc., ARM Physical IP Inc., Axys Design Automation Inc., Axys GmbH,ARM KK, ARM Korea Ltd, ARM Taiwan Ltd, ARM France SAS, ARM Consulting (Shanghai)Co. Ltd., ARM Belgium NV., ARM Embedded Technologies Pvt. Ltd. and KeilElektronik GmbH. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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