25th Oct 2007 07:01
ARM Holdings PLC25 October 2007 ARM HOLDINGS PLC REPORTS RESULTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED 30 SEPTEMBER 2007 A conference call with the company will be audiocast today at 08:30 atwww.arm.com/ir. CAMBRIDGE, UK, 25 October 2007-ARM Holdings plc ((LSE: ARM); (Nasdaq: ARMHY))announces its unaudited financial results for the third quarter and nine monthsended 30 September 2007 Highlights (US GAAP unless otherwise stated) • YTD dollar revenues at $384.0m, up 9% on 2006 o Q3 dollar revenues at $125.6m, up 4% on Q3 2006 • Strong licensing traction across ARM(R) processor technology portfolio o PD license revenue up 24% YTD o Seven CortexTM family licenses signed in Q3 (including three for the next-generation Cortex processor) o 500th processor license signed in Q3 • Continued focus on leading-edge physical IP technology development for long-term value creation o Physical IP license revenue $3.8m lower than Q3 2006 at $12.7m o Underlying physical IP royalties up 15% sequentially o First 45nm SOI physical IP license signed early in Q4 • Continuing cost discipline o Normalised Q3 operating expenses lower for third consecutive quarter at £36.5m (US GAAP £45.5m) o Normalised Q3 gross and operating margins at 89.8% and 31.8% (US GAAP 16.9%) respectively o FY 2007 normalised operating expenses expected to be less than 2% higher than FY 2006 • Normalised Q3 EPS up 15% on Q3 2006 at constant currency• Record quarterly cash flow generation of £21.1m o £33m share buyback in Q3 o Expected to accelerate further in Q4 in line with year-end net cash target of £50m o Net cash balance of £99.3m at end Q3 Outlook • Positive outlook for Q4 and beyond due to strong pipeline and demand for new technology• Anticipate Q4 revenues will see a meaningful uplift on Q3 o Healthy and improving licensing pipeline o Improving industry environment underpinning royalties o Seasonal strength in royalties and Development Systems o Higher backlog conversion to revenue in the Physical IP Division • Reiterating confidence in achieving FY earnings in line with expectations Commenting on the results, Warren East, Chief Executive Officer, said: "Against a backdrop of gradually improving industry conditions, we are pleasedto report revenue growth in the first nine months at approximately twice therate of the industry as a whole. Increasing market penetration of ARM technologyinto consumer electronic products combined with continuing cost discipline andstrong cash flow generation have boosted the operating margin and enabled us toaccelerate the share buyback programme. With strong interest in our latest processor technology, good progress in thedevelopment of our leading-edge physical IP and in expectation of a meaningfuluplift in Q4 revenues compared to Q3, we look forward to the end of 2007 and thestart of 2008 with confidence." Q3 2007 - Revenue Analysis________________________________________________________________________________ Revenue ($M)*** Revenue (£M) _______________________________________________________ Q3 2007 Q3 2006 % Change Q3 2007 Q3 2006 % Change________________________________________________________________________________ Processor Division (PD) Licensing 42.4 35.0 +21% 21.5 19.0 +13% Royalties 42.6 40.3 +6% 21.1 21.4 -1% Total PD 85.0 75.3 +13% 42.6 40.4 +5%Physical IP Division (PIPD) Licensing 12.7 16.5 -23% 6.2 8.9 -30% Royalties 8.0(1) 9.1(1) -12% 4.0(1) 4.8(1) -17% Total PIPD 20.7 25.6 -19% 10.2 13.7 -26%DevelopmentSystems 12.3 12.1 +2% 6.1 6.5 -6%Services 7.6 7.7 -1% 3.9 4.2 -7% Total Revenue 125.6 120.7 +4% 62.8 64.8 -3%________________________________________________________________________________ (1) Includes catch-up royalties in Q3 2007 of $0.3m (£0.1m) and in Q3 2006 of $0.7m (£0.4m). YTD 2007 - Revenue Analysis________________________________________________________________________________ Revenue ($M)*** Revenue (£M) _____________________________________________________________ YTD 2007 YTD 2006 % Change YTD 2007 YTD 2006 % Change________________________________________________________________________________ PD Licensing 125.1 100.9 +24% 64.1 56.2 +14% Royalties 127.7 121.3 +5% 64.3 66.4 -3% Total PD 252.8 222.2 +14% 128.4 122.6 +5% PIPD Licensing 43.6 46.0 -5% 21.9 25.5 -14% Royalties 23.6(1) 25.4(1) -7% 11.9(1) 14.0(1) -15% Total PIPD 67.2 71.4 -6% 33.8 39.5 -14% Development Systems 40.0 39.0 +3% 20.2 21.5 -6% Services 24.0 20.7 +16% 12.4 11.6 +7% Total Revenue 384.0 353.3 +9% 194.8 195.2________________________________________________________________________________ (1) Includes catch-up royalties in YTD 2007 of $2.4m (£1.2m) and in YTD 2006 of $2.4m (£1.4m). Q3 2007 - Financial Summary________________________________________________________________________________ US GAAP Normalised* US GAAP Reported ___________________________________________ £M Q3 2007 Q3 2006 Q3 2007 Q3 2006________________________________________________________________________________ Revenue 62.8(1) 64.8 62.8 64.8Income before income tax 21.3 21.2 12.0 12.6Operating margin 31.8% 30.1% 16.9% 16.9%Earnings per share (pence) 1.12 1.12 0.63 0.67Net cash generation** 21.1 17.9Effective fx rate ($/£) 2.00 1.86________________________________________________________________________________ (1) Equivalent to £67.5m at Q3 2006 effective $/£ rate YTD 2007 - Financial Summary________________________________________________________________________________ US GAAP Normalised* US GAAP Reported _____________________________________________ £M YTD 2007 YTD 2006 YTD 2007 YTD 2006________________________________________________________________________________ Revenue 194.8(1) 195.2 194.8 195.2Income before income tax 65.4 68.9 36.7 47.7Operating margin 31.3% 32.6% 16.6% 19.1%Earnings per share (pence) 3.43 3.61 1.97 2.52Net cash generation** 46.6 37.0Effective fx rate ($/£) 1.97 1.81________________________________________________________________________________ (1) Equivalent to £212.2 m at YTD 2006 effective $/£ rate Current trading and prospects We anticipate Q4 revenues will see a meaningful uplift on Q3, based primarily ona healthy and improving licensing pipeline, backlog conversion to revenue andmomentum in royalties, driven by an improving industry environment, seasonalityand further market penetration of ARM technology into consumer electronicsproducts. Early licensing activity and royalty reports received to date in Q4 areencouraging. As a result, given continuing careful management of costs andassuming the dollar/sterling exchange rate remains broadly at $2/£1, we remainconfident of achieving full-year earnings in line with expectations. CONTACTS: Fiona Laffan/Pavla Shaw 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-related,share-based remuneration and restructuring charges. For reconciliation of GAAPmeasures to normalised non-GAAP measures detailed in this document, see notes6.1 to 6.27. ** Before dividends and share buybacks, net cash flows from share optionexercises and acquisition consideration - see notes 6.14 to 6.18. *** 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 Q3 2007 were $125.6 million, up 4% on Q3 2006. Sterlingrevenues of £62.8 million were down 3% due to a significant weakening of thedollar against sterling ($2.00 in Q3 2007 compared to $1.86 in Q3 2006). At theQ3 2006 effective rate, Q3 2007 sterling revenues would have been £67.5 million. Year-to-date dollar revenues in 2007 amounted to $384.0 million, up 9% on 2006. License revenues Total dollar license revenues in Q3 2007 grew by 7% to $55.1 million,representing 44% of group revenues, compared to $51.5 million in Q3 2006.License revenues comprised $42.4 million from PD and $12.7 million from PIPD. Year-to-date dollar license revenues amounted to $168.7 million, up 15% on 2006. Royalty revenues Total dollar royalty revenues in Q3 2007 were up 2% at $50.6 million,representing 40% of group revenues, compared to $49.4 million in Q3 2006.Royalties were up 7% sequentially, reflecting the gradual unwinding of theinventory correction in the industry and generally higher foundry utilisationlevels. Royalty revenues comprised $42.6 million from PD and $8.0 million fromPIPD (including $0.3 million of "catch-up" royalties). Underlying royalties of$7.7 million for PIPD were up 15% sequentially, consistent with higher foundryutilisation levels. Year-to-date dollar royalty revenues amounted to $151.3 million, up 3% on 2006. Development Systems and Service revenues Sales of development systems in Q3 2007 were up 2% to $12.3 million,representing 10% of group revenues, compared to $12.1 million in Q3 2006.Consistent with previous years, development system revenues decreasedsequentially in the third quarter due to seasonality and are expected to benefitfrom the normal seasonal pick-up in Q4. Service revenues in Q3 2007 were down 1% year-on-year at $7.6 million,representing 6% of group revenues, compared to $7.7 million in Q3 2006. Year-to-date development systems revenues were $40.0 million, up 3% on 2006.Service revenues were up by 16% to $24.0 million. Gross margins Gross margins in Q3 2007, excluding stock-based compensation charges of £0.3million (see below), were 89.8% compared to 87.7% in Q3 2006. Year-to-date gross margins, excluding stock-based compensation charges of £0.8million, were 89.7% compared to 88.6% in 2006. Operating expenses and operating margin Total operating expenses in Q3 2007 were £45.5 million (Q3 2006: £45.7 million)including amortisation of intangible assets and other acquisition-relatedcharges of £4.8 million (Q3 2006: £4.6 million) and £4.1 million (Q3 2006: £3.7million) in relation to stock-based compensation charges. The total stock-basedcompensation charges of £4.4 million in Q3 2007 are included within cost ofrevenues (£0.3 million), research and development (£2.5 million), sales andmarketing (£0.9 million) and general and administrative (£0.7 million).Normalised Q3 and year-to-date income statements for 2007 and 2006 are includedin notes 6.24 to 6.27 below which reconcile US GAAP to the normalised non-GAAPmeasures referred to in this earnings release. Operating expenses (excluding acquisition-related, stock-based compensation andrestructuring charges) in Q3 2007 were £36.5 million compared to £37.8 millionin Q2 2007 and £37.4 million in Q3 2006. This represents the third consecutivequarter of sequential reduction in operating expenses, as the current year costimpact of the increased headcount through 2006 is more than offset by thebenefits of re-balancing the group's resources between higher and lower costareas (see People section below) and general rigorous management of operatingexpenses. Normalised research and development expenses were £14.8 million in Q3 2007,representing 24% of revenues, compared to £15.5 million in Q2 2007 and £15.5million in Q3 2006. Normalised sales and marketing costs in Q3 2007 were £10.3million, representing 16% of revenues, compared to £10.5 million in Q2 2007 and£10.0 million in Q3 2006. Normalised general and administrative expenses in Q32007 were £11.4 million, representing 18% of revenues, compared to £11.9 millionin Q2 2007 and £11.9 million in Q3 2006. Normalised operating margin in Q3 2007 was 31.8% (6.1) compared to 32.0% (6.2)in Q2 2007 and 30.1% (6.3) in Q3 2006. Operating margins in Q3 2007 were higherthan Q3 2006 despite an 8% weakening of the US dollar against sterling. Atconstant currencies, using the Q3 2006 effective rate of $1.86/£1, the operatingmargin for Q3 2007 would have been approximately 34%. Total operating expenses for the first nine months of 2007 were £141.5 million,including acquisition-related, stock-based compensation and restructuringcharges of £14.7 million, £12.3 million and £0.9 million respectively. Excludingthese charges, operating expenses for the first nine months were £113.6 million,compared to £109.3 million in 2006, an increase of 4%. Full-year operatingexpenses in 2007 are expected to be less than 2% higher than the £150.1 millionreported in 2006. Operating expenses in 2008 are expected to increase by a moretypical 5-10% year-on-year. Normalised operating margin in the first nine months of 2007 was 31.3% (6.4)compared to 32.6% (6.5) in 2006. Earnings and taxation Income before income tax in Q3 2007 was £12.0 million compared to £12.6 millionin Q3 2006. After adjusting for acquisition-related, stock-based compensationand restructuring charges, normalised income before income tax in Q3 2007 was£21.3 million (6.6) compared to £21.2 million (6.8) in Q3 2006. The group'seffective tax rate under US GAAP for the full-year 2007 is expected to be in therange 26-27%, reflecting the availability of research and development taxcredits and taking into account the benefits arising from the structuring of theArtisan(R) acquisition. In Q3 2007, fully diluted earnings per share prepared under US GAAP were 0.63pence (3.8 cents per ADS****) compared to earnings per share of 0.67 pence (3.8cents per ADS****) in Q3 2006. Normalised fully diluted earnings per share in Q32007 were 1.12 pence (6.19) per share (6.8 cents per ADS****) compared to 1.12pence (6.21) (6.3 cents per ADS****) in Q3 2006. Balance sheet Intangible assets at 30 September 2007 were £379.1 million, comprising goodwillof £336.0 million and other intangible assets of £43.1 million, compared to£341.0 million and £48.1 million respectively at 30 June 2007. Total accounts receivable were £65.0 million at 30 September 2007, comprising£37.6 million of trade receivables and £27.4 million of amounts recoverable oncontracts, compared to £75.0 million at 30 June 2007, comprising £44.2 millionof trade receivables and £30.8 million of amounts recoverable on contracts. Dayssales outstanding (DSOs) were 39 at 30 September 2007 compared to 51 at 30 June2007. Cash flow, share buyback programme and interim dividend Net cash at 30 September 2007 was £99.3 (6.11) million compared to £108.9 (6.12)million at 30 June 2007. Normalised cash generation in Q3 2007 was £21.1 million(6.14). During the quarter, £33.3 million of cash was returned to shareholders, anincrease of 30% on Q2 2007, through the purchase of 23 million own shares. It isanticipated that the buyback programme will resume after the announcement ofthese results and will be accelerated further in Q4 2007, consistent withachieving the previously- reported year-end target net cash balance of £50million. Operating review Backlog Having achieved record bookings for the seasonally slower third quarter, grouporder backlog at the end of Q3 was slightly lower than at the end of Q2. Thelicensing pipeline as we enter Q4 comprises a healthy mix of ARM's newest andmore mature technologies. PD Licensing - Equipping the Leading Semiconductor Companies with ARM ProcessorIP ARM signed 17 processor licenses in Q3, including its 500th license in total.The quarter was characterised by strong take-up of our latest technology withseven additional Cortex family licenses and the fourth license for the MaliTMgraphics processor being signed. Seven new companies licensed ARM processortechnology for the first time. ARM announced its next-generation processor, the Cortex-A9, at the ARM DeveloperConference in October. Customer interest in this market-leading technology issignificant, illustrated by NEC Electronics, NVIDIA, ST Microelectronics andTexas Instruments having already signed licenses as early lead partners for theproduct. The Cortex-A9 processor incorporates numerous efficiency improvementsover previous processors with its new multiprocessing capability enablingsignificantly enhanced processing and power utilisation performance. Q3 2007 and Cumulative PD Licensing Analysis ________________________________________________________________________________ Multi-use Term Per-use Cumulative ___________________________________________ U D N U D N U D N Total Total________________________________________________________________________________ ARM7 151ARM9 3 3 6 233ARM11 1 1 58Cortex-M3 1 1 2 11Cortex-R4 1 1 10Cortex-A8 1 1 9Cortex-A9 1 2 3 4Mali 1 1 4Other 1 1 2 28________________________________________________________________________________ Total 17 508________________________________________________________________________________ U: Upgrade D: Derivative N: New PD Royalties - Broadening the Usage of ARM Processor IP PD unit shipments in Q2 (our partners report royalties one quarter in arrears)increased 7% sequentially and 12% versus Q3 2006 to 694 million units. ARM9TMfamily shipments increased to 43% of total units, including 20% relating toARM926EJ-STM processor shipments. ARM11TM family shipments now comprise justunder 2% of total shipments. ARM royalties for Q3 were consistent with the results seen by our partners inQ2, reflecting the early stages of the unwinding of the semiconductor inventorycorrection which began in Q3 2006. The proportion of shipments into the mobileand non-mobile segments remained broadly consistent with shipments in Q1 at 67%and 33% respectively. We continue to see strength in our embedded segment,rising to 12% of shipments in the quarter, in part due to the continuedsignificant growth in MCU shipments. The ARM partnership shipped more than 2.5times the number of ARM technology-based MCUs in Q2 2007 compared to Q2 2006. In Q4, we expect royalty revenues to benefit from the improving semiconductorcycle, the usual seasonal uptick ahead of the holiday season, an increase in thenumber of ARM cores per handset as shipments of smartphones continue to gathermomentum and the continued rapid growth of ARM technology-based MCU shipments. PIPD Licensing - Extending the IP Outsourcing Model to ARM Physical IP PIPD license revenue in Q3 2007 was lower at $12.7 million compared to $14.0million in Q2 2007 and $16.5 million in Q3 2006. As in Q2 2007, conversion oforder backlog into revenue was lower than expected in Q3 as a higher proportionof the physical IP engineering effort continued to be deployed on thedevelopment of customer-driven, leading-edge technology. The conversion ofbacklog to revenue is expected to be higher in Q4 following completion ofspecific customer requirements in Q3. ARM signed two licenses in Q3 for earlier generation physical IP technology (oneat 65nm and one at 130nm process nodes) with top 20 integrated devicemanufacturing companies ('IDMs'). These licenses are significant for tworeasons. Firstly, they are indicative of growing demand for ARM physical IP byindustry-leading IDMs, beyond the traditional PIPD foundry customer base.Secondly, they represent continued demand for ARM physical IP across thetechnology nodes, complementing our customers' in-house physical IP designactivities. We have also seen a growing demand for our silicon on insulator ('SOI') physicalIP products. In Q3, we signed our second license for SOI physical IP at the180nm process node and early in Q4 we signed our first 45nm SOI physical IPlicense, marking the first 45nm SOI physical IP to be provided by an independentprovider of physical IP. PIPD Royalties - Broadening the Usage of ARM Physical IP Underlying PIPD royalties were strong in Q3 2007, increasing 15% sequentially.As foundry utilisation and foundry revenues have continued to improve in Q3, wewould expect to see sequential improvement in the underlying royalties reportedfor PIPD in Q4 2007. People At 30 September 2007, ARM had 1,735 full-time employees, a net increase of 76since the start of the year. Year-to-date headcount has increased by 100 inIndia and China and decreased by 24 in ROW, illustrating the ongoing regionalre-balancing of ARM's resources. At the end of Q3, the group had 658 employeesbased in the UK, 531 in the US, 188 in Continental Europe, 289 in India and 69in the Asia Pacific region. Legal matters ARM is involved in ongoing litigation proceedings with Nazomi Communications,Inc. and Technology Properties Limited, Inc. In both cases, a district court hasfound in favour of ARM and both cases are now pending before the Court ofAppeals for the Federal Circuit. Details are set out in the 2006 Annual Reporton Form 20-F filed with the Securities and Exchange Commission on 11 April 2007.Based on independent legal advice, ARM does not expect any significant liabilityto arise in respect of these proceedings. ARM Holdings plc Third Quarter and Nine Months Results - US GAAP Quarter Quarter Nine months Nine months ended ended ended ended 30 September 30 September 30 September 30 September 2007 2006 2007 2006 Unaudited Unaudited Unaudited Unaudited ______________________________________________________ £'000 £'000 £'000 £'000RevenuesProduct revenues 58,914 60,598 182,429 183,612Service revenues 3,879 4,248 12,388 11,598 ______________________________________________________ Total revenues 62,793 64,846 194,817 195,210 ______________________________________________________ Cost of revenuesProduct costs (5,004) (6,614) (16,063) (18,223)Service costs (1,639) (1,613) (4,865) (4,775) ______________________________________________________ Total cost of revenues (6,643) (8,227) (20,928) (22,998) ______________________________________________________ ______________________________________________________ Gross profit 56,150 56,619 173,889 172,212 ______________________________________________________ Research and development (17,534) (17,729) (54,991) (52,630)Sales and marketing (11,271) (10,760) (34,607) (31,560)General and administrative (12,086) (12,536) (37,207) (36,454)Restructuring costs (85) - (899) -Amortization of intangiblespurchased through business combination (4,562) (4,645) (13,829) (14,318) ______________________________________________________ Total operating expenses (45,538) (45,670) (141,533) (134,962) ______________________________________________________ Income from operations 10,612 10,949 32,356 37,250Interest 1,378 1,685 4,355 5,177Profit on disposal ofavailable-for-salesecurity - - - 5,270 ______________________________________________________ Income before income tax 11,990 12,634 36,711 47,697Provision for income taxes (3,431) (3,243) (9,728) (12,150) ______________________________________________________ Net income 8,559 9,391 26,983 35,547 ______________________________________________________ Earnings per share(assuming dilution) Shares outstanding ('000) 1,362,614 1,395,642 1,372,841 1,410,123Earnings per share - pence 0.6 0.7 2.0 2.5 Earnings per ADS(assuming dilution) ADSs outstanding ('000) 454,205 465,214 457,614 470,041Earnings per ADS - cents 3.8 3.8 12.0 14.1 ARM Holdings plcConsolidated balance sheet - US GAAP 30 September 31 December 2007 2006 Unaudited Audited ___________________________ £'000 £'000AssetsCurrent assets:Cash and cash equivalents 90,291 90,743Short-term investments 232 18,600Marketable securities 8,761 19,151Accounts receivable, net of allowance of£1,807,000 in 2007 and £2,556,000 in 2006 65,016 69,552Inventory: finished goods 2,277 1,933Income taxes receivable 5,810 5,761Prepaid expenses and other assets 16,902 12,668 ___________________________ Total current assets 189,289 218,408 Deferred income taxes 12,420 9,872Prepaid expenses and other assets 1,068 1,328Property and equipment, net 11,692 13,970Goodwill 336,051 349,243Other intangible assets 43,094 56,027Investments 5,302 3,855 ___________________________ Total assets 598,916 652,703 ___________________________ Liabilities and shareholders' equityAccounts payable 1,661 1,826Income taxes payable 12,275 5,572Personnel taxes 2,788 1,408Accrued liabilities 22,781 33,021Deferred revenue 31,077 31,485Dividends payable 10,534 - ___________________________ Total current liabilities 81,116 73,312 Deferred income taxes 2,830 4,744 ___________________________ Total liabilities 83,946 78,056 ___________________________ Shareholders' equity Ordinary shares 672 695Additional paid-in capital 362,559 446,005Treasury stock, at cost (45,954) (58,245)Retained earnings 227,540 197,874Accumulated other comprehensive income:Unrealized holding gain on available-for-salesecurities, net of tax asset of £539,000 (2006:£231,000) (451) 394Cumulative translation adjustment (29,396) (12,076) ___________________________ Total shareholders' equity 514,970 574,647 ___________________________ Total liabilities and shareholders' equity 598,916 652,703 ___________________________ 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 30 September2007 and 31 December 2006 and income statements for the periods ended 30September 2007 and 30 September 2006, together with related notes. In preparingthis financial information management has used the principal accounting policiesas set out in the Company's annual financial statements and Form 20-F for theyear ended 31 December 2006, except in relation to accounting for sabbaticalleave following the adoption of EITF 06-2 on 1 January 2007, whereby the relatedcosts are now accrued over the requisite service period. (2) Share-based compensation charges and acquisition-related expenses Included within the US GAAP income statement for the quarter ended 30 September2007 are share-based compensation charges of £4.4 million: £0.3 million in costof revenues, £2.5 million in research and development costs, £0.9 million insales and marketing costs and £0.7 million in general and administrative costs. (3) Accounts receivable Included within accounts receivable at 30 September 2007 are £27.4 million (30June 2007: £30.8 million; 31 December 2006: £23.8 million) of amountsrecoverable 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 - - - 26,983 - - 26,983Dividends - - - (18,547) - - (18,547)Cumulative effect as aresult of adopting EITF06-2, net of tax* - - - (2,278) - - (2,278)Tax effect of optionexercises - 1,068 - - - - 1,068Amortization of deferred compensation - 11,707 - - - - 11,707Conversion of liabilityaward to equity award - 1,396 - - - - 1,396Issuance of shares fromtreasury - - 25,245 (13,602) - - 11,643Purchase of own shares - - (78,993) - - - (78,993)Cancellation of shares (28) - 66,039 (66,011) - - -Cancellation of share premium account - (103,121) - 103,121 - - -Other comprehensive income: Unrealized holding losses onavailable-for-sale securities (net of tax benefit of £308,000) - - - - (845) - (845)Currency translation adjustment - - - - - (17,320) (17,320)______________________________________________________________________________________________________________________ At 30 September 2007 672 362,559 (45,954) 227,540 (451) (29,396) 514,970______________________________________________________________________________________________________________________ * In accordance with EITF 06-2, the cumulative provision for employee sabbaticalleave as at 1 January 2007 is charged directly to retained earnings (5) Consolidated statement of comprehensive income (US GAAP) Q3 2007 Q2 2007 Q3 2006 9M 2007 9M 2006 £'000 £'000 £'000 £'000 £'000_______________________________________________________________________________ Net income 8,559 8,847 9,391 26,983 35,547Realized gain onavailable-for-salesecurity, net of tax - - - - (2,375)Unrealized holding losseson available-for-salesecurity, net of tax (470) (145) 346 (845) (934)Currency translationadjustment (5,870) (10,523) (5,049) (17,320) (42,838)_______________________________________________________________________________ Total comprehensiveincome / (loss) 2,219 (1,821) 4,688 8,818 (10,600)_______________________________________________________________________________ (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 excludeacquisition-related charges, stock-based compensation and restructuring chargesand profit on disposal of available-for-sale investments. All figures in £'000unless otherwise stated. (6.1) (6.2) (6.3) (6.4) (6.5) Q3 2007 Q2 2007 Q3 2006 9M 2007 9M 2006______________________________________________________________________________Income from operations (US GAAP) 10,612 10,500 10,949 32,356 37,250Restructuring costs 85 814 - 899 -Acquisition-related charge -amortization of intangibles 4,562 4,612 4,645 13,829 14,318Acquisition-related charge -other payments 272 209 - 878 -Stock-based compensation andrelated payroll taxes 4,432 4,807 3,904 13,111 12,115______________________________________________________________________________Normalised income fromoperations 19,963 20,942 19,498 61,073 63,683______________________________________________________________________________ As % of revenue 31.8% 32.0% 30.1% 31.3% 32.6% (6.6) (6.7) (6.8) (6.9) (6.10) Q3 2007 Q2 2007 Q3 2006 9M 2007 9M 2006______________________________________________________________________________ Income before income tax (USGAAP) 11,990 12,020 12,634 36,711 47,697Restructuring costs 85 814 - 899 -Acquisition-related charge -amortization of intangibles 4,562 4,612 4,645 13,829 14,318Acquisition-related charge -other payments 272 209 - 878 -Stock-based compensation andrelated payroll taxes 4,432 4,807 3,904 13,111 12,115Profit on sale ofavailable-for-sale investment - - - - (5,270)______________________________________________________________________________ Normalised income beforeincome tax 21,341 22,462 21,183 65,428 68,860______________________________________________________________________________ (6.11) (6.12) (6.13) 30 September 30 June 31 December 2007 2007 2006_______________________________________________________________________________ Cash and cash equivalents 90,291 92,924 90,743Short-term investments 232 5,273 18,600Short-term marketable securities 8,761 10,741 19,151_______________________________________________________________________________ Normalised cash 99,284 108,938 128,494_______________________________________________________________________________ (6.14) (6.15) (6.16) (6.17) (6.18) Q3 2007 Q2 2007 Q3 2006 9M 2007 9M 2006 Normalised cash at end of period (as above) 99,284 108,938 147,419 99,284 147,419Less: Normalised cash at beginning of period (108,938) (126,781) (148,806) (128,494) (160,902)Add back: Cash outflow fromacquisitions (net of cash acquired) 2,607 689 16 5,914 13,965Add back: Cash outflow frompayment of dividends - 8,013 - 8,013 6,918Add back: Cash outflow frompurchase of own shares 33,257 25,577 21,593 78,993 50,679Less: Cash inflow from exercise of share options (5,157) (6,486) (2,352) (17,152) (15,511)Less: Cash inflow from sale ofavailable-for-sale investments - - - - (5,567)________________________________________________________________________________ Normalised cash generation 21,053 9,950 17,870 46,558 37,001________________________________________________________________________________ (6.19) (6.20) (6.21) (6.22) (6.23) Q3 2007 Q2 2007 Q3 2006 9M 2007 9M 2006________________________________________________________________________________ Net income (US GAAP) 8,559 8,847 9,391 26,983 35,547Restructuring costs 85 814 - 899 -Acquisition-related charge -amortization of intangibles 4,562 4,612 4,645 13,829 14,318Acquisition-related charge - other payments 272 209 - 878 -Stock-based compensation andrelated payroll taxes 4,432 4,807 3,904 13,111 12,115Profit on sale of available-for-sale investment - - - - (5,270)Estimated tax impact of abovecharges (2,687) (3,058) (2,375) (8,595) (5,810)________________________________________________________________________________ Normalised net income 15,223 16,231 15,565 47,105 50,900________________________________________________________________________________ Dilutive shares ('000) 1,362,614 1,374,410 1,395,642 1,372,841 1,410,123Normalised diluted EPS 1.12p 1.18p 1.12p 3.43p 3.61p (6.24) Normalised income statement for Q3 2007 Other acquisition Stock-based Intangible related Restructuring Normalised compensation amortization charges charges US GAAP ______________________________________________________________________________________ £'000 £'000 £'000 £'000 £'000 £'000Revenues Product revenues 58,914 - - - - 58,914 Service revenues 3,879 - - - - 3,879 ______________________________________________________________________________________ Total revenues 62,793 - - - - 62,793 ______________________________________________________________________________________ Cost of revenues Product costs (5,004) - - - - (5,004) Service costs (1,373) (266) - - - (1,639) ______________________________________________________________________________________ Total cost of revenues (6,377) (266) - - - (6,643) ______________________________________________________________________________________ ______________________________________________________________________________________ Gross profit 56,416 (266) - - - 56,150 ______________________________________________________________________________________ Research and development (14,764) (2,572) - (198) - (17,534) Sales and marketing (10,319) (886) - (66) - (11,271) General and administrative(11,370) (708) - (8) - (12,086) Restructuring costs - - - - (85) (85) Amortization of intangibles purchased through business combination - - (4,562) - - (4,562) ______________________________________________________________________________________ Total operating expenses (36,453) (4,166) (4,562) (272) (85) (45,538) ______________________________________________________________________________________ Income from operations 19,963 (4,432) (4,562) (272) (85) 10,612Interest 1,378 - - - - 1,378 ______________________________________________________________________________________ Income before income tax 21,341 (4,432) (4,562) (272) (85) 11,990Provision for income taxes (6,118) 794 1,759 100 34 (3,431) ______________________________________________________________________________________ Net income 15,223 (3,638) (2,803) (172) (51) 8,559 ______________________________________________________________________________________ Earnings per share (assuming dilution) Shares outstanding ('000) 1,362,614 1,362,614Earnings per share - pence 1.12 0.63 Earnings per ADS (assumingdilution) ADSs outstanding ('000) 454,205 454,205Earnings per ADS - cents 6.83 3.84 (6.25) Normalised income statement for Q3 2006 Stock-based Intangible Normalised compensation amortization US GAAP______________________________________________________________________________ £'000 £'000 £'000 £'000Revenues Product revenues 60,598 - - 60,598 Service revenues 4,248 - - 4,248 ______________________________________________________ Total revenues 64,846 - - 64,846 ______________________________________________________ Cost of revenues Product costs (6,614) - - (6,614) Service costs (1,379) (234) - (1,613) ______________________________________________________ Total cost of revenues (7,993) (234) - (8,227) ______________________________________________________ Gross profit 56,853 (234) - 56,619 ______________________________________________________ Research and development (15,464) (2,265) - (17,729) Sales and marketing (9,979) (781) - (10,760) General and administrative (11,912) (624) - (12,536) Amortization of intangibles purchased through business combination - - (4,645) (4,645) ______________________________________________________ Total operating expenses (37,355) (3,670) (4,645) (45,670) ______________________________________________________ Income from operations 19,498 (3,904) (4,645) 10,949Interest 1,685 - - 1,685 ______________________________________________________ Income before income tax 21,183 (3,904) (4,645) 12,634Provision for income taxes (5,618) 588 1,787 (3,243) ______________________________________________________ Net income 15,565 (3,316) (2,858) 9,391 ______________________________________________________ Earnings per share(assuming dilution) Shares outstanding ('000) 1,395,642 1,395,642Earnings per share - pence 1.12 0.67 Earnings per ADS (assuming dilution)ADSs outstanding ('000) 465,214 465,214Earnings per ADS - cents 6.25 3.77 (6.26) Normalised income statement for 9M 2007 Other acquisition Stock-based Intangible related Restructuring Normalised compensation amortization charges charges US GAAP _______________________________________________________________________________________ £'000 £'000 £'000 £'000 £'000 £'000Revenues Product revenues 182,429 - - - - 182,429 Service revenues 12,388 - - - - 12,388 _______________________________________________________________________________________ Total revenues 194,817 - - - - 194,817 _______________________________________________________________________________________ Cost of revenues Product costs (16,063) - - - - (16,063) Service costs (4,082) (783) - - - (4,865) _______________________________________________________________________________________ Total cost of revenues (20,145) (783) - - - (20,928) _______________________________________________________________________________________ _______________________________________________________________________________________ Gross profit 174,672 (783) - - - 173,889 _______________________________________________________________________________________ Research and development (46,822) (7,614) - (555) - (54,991) Sales and marketing (31,923) (2,618) - (66) - (34,607) General and administrative(34,854) (2,096) - (257) - (37,207) Restructuring costs - - - - (899) (899) Amortization of intangibles purchased through business combination - - (13,829) - - (13,829) _______________________________________________________________________________________ Total operating expenses (113,599) (12,328) (13,829) (878) (899) (141,533) _______________________________________________________________________________________ Income from operations 61,073 (13,111) (13,829) (878) (899) 32,356Interest 4,355 - - - - 4,355 _______________________________________________________________________________________Income before income tax 65,428 (13,111) (13,829) (878) (899) 36,711Provision for income taxes (18,323) 2,619 5,333 283 360 (9,728) _______________________________________________________________________________________ Net income 47,105 (10,492) (8,496) (595) (539) 26,983 _______________________________________________________________________________________ Earnings per share (assuming dilution)Shares outstanding ('000) 1,372,841 1,372,841Earnings per share - pence 3.43 1.97 Earnings per ADS (assuming dilution)ADSs outstanding ('000) 457,614 457,614Earnings per ADS - cents 20.97 12.01 (6.27) Normalised income statement for 9M 2006 Stock-based Intangible Investment Normalised compensation amortization disposal US GAAP ______________________________________________________________ £'000 £'000 £'000 £'000 £'000Revenues Product revenues 183,612 - - - 183,612 Service revenues 11,598 - - - 11,598 ______________________________________________________________ Total revenues 195,210 - - - 195,210 ______________________________________________________________ Cost of revenues Product costs (18,223) - - - (18,223) Service costs (4,048) (727) - - (4,775) ______________________________________________________________ Total cost of revenues (22,271) (727) - - (22,998) ______________________________________________________________ Gross profit 172,939 (727) - - 172,212 ______________________________________________________________ Research and development (45,603) (7,027) - - (52,630) Sales and marketing (29,137) (2,423) - - (31,560) General and administrative (34,516) (1,938) - - (36,454) Amortization of intangibles purchased through business combination - - (14,318) - (14,318) ______________________________________________________________Total operatingexpenses (109,256) (11,388) (14,318) - (134,962) ______________________________________________________________ Income from operations 63,683 (12,115) (14,318) - 37,250 Interest 5,177 - - - 5,177Profit on disposal ofavailable-for-sale investment - - - 5,270 5,270 ______________________________________________________________Income beforeincome tax 68,860 (12,115) (14,318) 5,270 47,697 Provision forincome taxes (17,960) 1,876 5,397 (1,463) (12,150) ______________________________________________________________ Net income 50,900 (10,239) (8,921) 3,807 35,547 ______________________________________________________________ Earnings per share (assuming dilution) Shares outstanding('000) 1,410,123 1,410,123Earnings pershare - pence 3.61 2.52 Earnings per ADS (assuming dilution) ADSs outstanding ('000) 470,041 470,041Earnings per ADS - cents 20.23 14.13 Note The results shown for Q3 2007, Q3 2006, YTD 2007 and YTD 2006 are unaudited. Theresults shown for FY 2006 are audited. The financial information contained inthis announcement 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 Q3 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 AnnualReport 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 trademark of ARM Limited. ARM9, ARM926EJ-S, ARM11, Cortexand Mali are trademarks of ARM Limited. Artisan Components and Artisan areregistered trademarks of ARM, Inc., a wholly owned subsidiary of ARM. All otherbrands or product names are the property of their respective holders. ARM refersto ARM Holdings plc (LSE: ARM and Nasdaq: ARMHY) together with its subsidiariesincluding ARM Limited, ARM Inc., ARM Germany GmbH, ARM KK, ARM Korea Ltd, ARMTaiwan Ltd, ARM France SAS, ARM Consulting (Shanghai) Co. Ltd., ARM Belgium NV.,ARM Embedded Technologies 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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