Q2 and H1 2011 Results

A presentation of the results will be webcast today at 09:30 BST at www.arm.com/ir

CAMBRIDGE, UK, 26 July 2011-ARM Holdings plc announces its unaudited financial results for the second quarter and half year ended 30 June 2011.

Progress on key growth drivers in Q2

·; Growth in adoption of ARM® processor technology

o 29 processor licenses signed across a broad range of target markets

o 9 Cortex™-A series licenses signed, including a further 2 licenses for Cortex-A15 for use in server infrastructure, and mobile computing applications

o 12 Cortex-M series processor licenses signed as the momentum behind ARM processor-based microcontrollers continues

·; Growth in mobile applications

o 1.1 billion ARM processor-based chips shipped into mobile phones and tablets

·; Growth beyond mobile into consumer electronics and embedded products

o 0.8 billion ARM processor-based chips shipped into a broad range of consumer and embedded digital devices

·; Growth in outsourcing of new technology

o Physical IP: 4 Processor Optimisation Pack licenses signed for Cortex-A series processors

o Mali™ Graphics: 5 Mali licenses signed, including two next generation Mali graphic processors

"In the first half of 2011, we have seen strong license revenues driven by an increase in design activity around ARM technology across a broad range of end applications. Major semiconductor vendors and consumer electronics companies are making long-term commitments to using ARM technology in their future product developments, underpinning growth in ARM's long-term royalty revenues.

As the addressable market for ARM technology grows, we continue to invest in the development of innovative technology, whilst simultaneously increasing revenues, profits and cash." 

ARM enters the second half of 2011 with a healthy order backlog and a robust opportunity pipeline, which are expected to deliver strong performance in license revenues. Relevant data for the second quarter, being the shipment period for ARM's Q3 royalties, points to a small sequential increase in industry-wide revenues. Q4 royalties are harder to predict as continuing macroeconomic uncertainties may impact consumer confidence.

Given ARM's relative mix of license and royalty revenues, we expect overall Group dollar revenues in the second half of 2011 to be in line with current market expectations. 

1 Includes catch-up PD royalties of $nil in Q2 2011 and $9.0m (£6.2m) in Q2 2010.

2 Includes catch-up PIPD royalties of $nil in Q2 2011 and $0.2m (£0.1m) in Q2 2010.

1 Includes catch-up PD royalties of $nil in H1 2011 and $9.0m (£6.2m) in H1 2010.

2 Includes catch-up PIPD royalties of $0.6m (£0.4m) in H1 2011 and $0.7m (£0.5m) in H1 2010.

Sarah West/Daniel Thole Tim Score/Ian Thornton

Brunswick ARM Holdings plc

+44 (0)207 404 5959 +44 (0)1223 400796

(IFRS unless otherwise stated)

Total revenues

Total dollar revenues in Q2 2011 were $190.2 million, up 27% on Q2 2010. Q2 sterling revenues were £117.8 million, up 18% year-on-year. Excluding the catch-up royalty payment of $9.0 million in Q2 2010, total dollar revenues were up 35% year-on-year in Q2 2011. 

Half-year dollar revenues in 2011 amounted to $375.7 million, up 28% on H1 2010.

License revenues and backlog

Total dollar license revenues in Q2 2011 increased by 50% year-on-year to $70.4 million, representing 37% of Group revenues. License revenues comprised $58.1 million from PD and $12.3 million from PIPD. Group order backlog at the end of Q2 2011 was flat sequentially. Group order backlog for ARM is at historically high levels and based on the revenue recognition profile of the deals signed during the first half of 2011and the mix of potential deals in the opportunity pipeline, prospects for backlog in the second half of 2011 look promising.

Royalty revenues

Royalties are recognised one quarter in arrears with royalties in Q2 2011 generated from semiconductor unit shipments in Q1 2011. Total dollar royalty revenues in Q2 2011 increased by 16% year-on-year to $95.4 million, representing 50% of Group revenues. Royalty revenues in Q2 2011 comprised $84.4 million from PD and $11.0 million from PIPD. 

Development Systems and Service revenues

Sales of development systems in Q2 2011 increased 4% year-on-year to $13.9 million, representing 7% of Group revenues. Due to normal seasonality, Q3 revenue for development systems may be down sequentially.

Service revenues in Q2 2011 were up 37% to $10.5 million, representing 6% of Group revenues.

Gross margins

Gross margins in Q2 2011, excluding share-based payment costs of £0.9 million (see below), were 94.8% compared to 94.4% in Q1 2011 and 94.9% in Q2 2010.

Operating expenses and operating margin

Normalised income statements for Q2 2011 and Q2 2010 are included in notes 10.13 and 10.14 respectively below which reconcile IFRS to the normalised non-IFRS measures referred to in this earnings release.

Normalised operating expenses (excluding acquisition-related, share-based payments, Linaro-related and restructuring charges) were £59.4 million in Q2 2011 compared to £60.3 million in Q1 2011 and £52.1 million in Q2 2010. Most of the increase in underlying normalised operating expenses between Q2 2010 and Q2 2011 was due to increased investment in the development and deployment of next generation technology, with £2 million of the difference, accounted for in general and administrative expenses, relating to the net impact of accounting for derivative instruments. Normalised operating expenses in Q3 2011 (assuming effective exchange rates similar to current levels) are expected to be in the range £60-£62 million as ARM continues to increase investment in research and development programs.

Normalised operating margin was 44.5% in Q2 2011, compared to 42.5% in Q1 2011 and 42.7% in Q2 2010.

Normalised research and development expenses were £28.9 million in Q2 2011, representing 25% of revenues, compared to £28.9 million in Q1 2011 and £26.4 million in Q2 2010. Normalised sales and marketing expenses were £13.7 million in Q2 2011, being 12% of revenues, compared to £14.0 million in Q1 2011 and £12.8 million in Q2 2010. Normalised general and administrative expenses were £16.8 million in Q2 2011, representing 14% of revenues, compared to £17.6 million in Q1 2011 and £12.9 million in Q2 2010.

Total IFRS operating expenses in Q2 2011 were £78.9 million (Q2 2010: £65.3 million) including share-based payment costs and related payroll taxes of £11.6 million (Q2 2010: £8.8 million), amortisation of intangible assets and other acquisition-related charges of £1.1 million (Q2 2010: £3.1 million) and Linaro-related charges of £6.9 million, representing ARM's committed aggregate contributions to Linaro for the next two years.

Total share-based payment costs and related payroll tax charges of £12.4 million in Q2 2011 were included within cost of revenues (£0.9 million), research and development (£7.4 million), sales and marketing (£2.4 million) and general and administrative (£1.7 million).

Earnings and taxation

Profit before tax was £33.8 million in Q2 2011 compared to £29.6 million in Q2 2010. After adjusting for acquisition-related charges, share-based payment costs, Linaro-related charges and restructuring charges, normalised profit before tax was £54.2 million in Q2 2011 compared to £43.5 million in Q2 2010. The Group's effective normalised tax rate was 24.4% (IFRS 21.3%) in Q2 2011 compared to 27.4% (IFRS 26.1%) in Q2 2010. The Group's effective normalised tax rate for the full year 2011 is estimated to be approximately 26%.

In Q2 2011, fully diluted earnings per share were 1.93 pence (9.31 cents per ADS) compared to earnings per share of 1.62 pence (7.29 cents per ADS) in Q2 2010. Normalised fully diluted earnings per share in Q2 2011 were 2.98 pence per share (14.34 cents per ADS) compared to 2.34 pence (10.51 cents per ADS) in Q2 2010. 

Intangible assets at 30 June 2011 were £535.4 million, comprising goodwill of £523.0 million and other intangible assets of £12.4 million, compared to £520.5 million and £11.2 million respectively at 31 March 2011.

Total accounts receivable were £78.3 million at 30 June 2011, comprising £68.6 million of trade receivables and £9.7 million of amounts recoverable on contracts, compared to £75.2 million at 31 March 2011, comprising £68.5 million of trade receivables and £6.7 million of amounts recoverable on contracts.

Days sales outstanding (DSOs) were 43 at 30 June 2011 compared to 41 at 31 March 2011. 

Total cash (see note 10.6) was £353.8 million at 30 June 2011 compared to £344.3 million at 31 March 2011. Normalised free cash flow in Q2 2011 was £45.7 million. 

In respect of the year to 31 December 2011, the directors are declaring an interim dividend of 1.39 pence per share, an increase of 20% over the 2010 interim dividend of 1.16 pence per share. This interim dividend will be paid, out of the UK GAAP distributable reserves of ARM Holdings plc, on 5 October 2011 to shareholders on the register on 9 September 2011.

Processor licensing

A total of 29 processor licenses were signed in Q2 2011.

 ARM has continued to see semiconductor companies adopting ARM technology for the first time; nine of the 29 licenses signed in Q2 2011 were with companies taking their first ever ARM license. These licenses were for use in a broad range of end applications, including digital TVs, microcontrollers and Near Field Communication (NFC) chips. In addition, leading semiconductor vendors renewed their commitment to ARM's technology roadmap by relicensing and upgrading their ARM technology.

Of the 29 licenses signed, nine were for ARM's advanced Cortex-A series processors, including two new licensees for Cortex-A15 processor and two for ARM's next generation Cortex-A series 'Kingfisher' processor; a product aimed at entry level smartphones and feature phones. The Cortex-A15 processor has now been licensed to 10 partners and will enable the next generation of scalable computing from super-smartphones and mobile computers to servers and networking infrastructure applications.

Non-mobile devices continue to be a major driver for processor licensing with 20 of the licenses signed in Q2 2011 being used in applications beyond mobile, including consumer electronics and enterprise products. In addition, ARM has continued its penetration into the microcontroller market, with twelve of the 20 licenses signed for Cortex-M series processors, taking the total number of Cortex-M series processor licenses to date to more than one hundred.

Five of the licenses were for ARM's advanced Mali graphics processors for use in mobile and consumer electronics, including two for the next generation of Mali graphics processors.

Q2 2011 and Cumulative Processor Licensing Analysis

* Adjusted for licenses that are no longer expected to generate royalties

Processor Design Wins and Ecosystem Development

Over the last few months many leading technology companies have announced their commitment to develop products around the ARM processor portfolio. These included:

·; Microsoft demonstrated their on-going development of "Windows 8" for ARM processor-based low-power system-on-chips from NVIDIA, TI and Qualcomm. In addition, they demonstrated their next generation of Internet Explorer, IE10, running on ARM processor-based chips.

·; Google announced that Chrome OS will soon be available for ARM processor-based chips, to enable lower power and smaller form-factor computing devices.

·; At Computex, in Taiwan, many leading ODMs and OEMs demonstrated mobile computing applications based on chips containing high-performance dual-core ARM Cortex-A9 processors, including Acer, Asus, Compal and ViewSonic.

·; Panasonic released a new Cortex-A series processor-based system-on-chip design for the next generation of smart digital TVs. Panasonic's UniPhier chip will enable faster loading of Internet content and smart TV applications, as well as reduce device power consumption.

·; Important graphics companies continued to demonstrate their software on Mali-400 GPUs, including Unity, a leading game engine developer which supports over 2000 games and is optimising its top gaming titles to run on Mali GPUs in high definition 3D, and Mentor Graphics, who are optimising their embedded user interface product, Inflexion, to run faster on Mali.

Many more partner announcements can be found on the ARM website at www.arm.com/news.

Processor royalties

Royalties are recognised one quarter in arrears with royalties in Q2 generated from semiconductor unit shipments in Q1. In Q2 2011, underlying PD royalty revenues increased more than 30% year-on-year. This compares with industry revenues increasing by around 10%[1] in the corresponding shipment period (i.e. Q1 2011 compared to Q1 2010), demonstrating ARM's market share gains over the last 12 months. 

Q2 revenue came from the sales of about 1.9 billion ARM technology-based chips, the highest ever shipped in a quarter. 

ARM continued to gain share in non-mobile end-markets compared with one year ago. Shipments of ARM technology-based microcontrollers grew over 100% year on year, compared to less than 10% growth for the overall microcontroller market[2]. Part of this growth was due to an increase in sales of Cortex-M series processor-based chips, which now represent 13% of units shipped, up from 4% in Q2 2010.

The Cortex processor family now represents 19% of units shipped up from 17% in the prior quarter. This sequential increase is primarily due to shipments of Cortex-M series processors in microcontrollers and smartcards, and an increase in Cortex-A series processor shipments driven by high-end smartphones adopting smarter applications processors. Cortex-A series processors now represent 4% of all shipments, up from 1% in Q2 2010.

Q2 2011 Processor Unit Shipment Analysis

The average royalty per chip decreased sequentially from 4.8 cents to 4.5 cents as the strong growth in high-volume low-cost chips, such as microcontrollers, smartcards and wireless connectivity chips outweighed the growth in Cortex-A processor-based chips, which typically command higher average royalty percentages and are normally associated with higher value chips.

The increasing penetration of smartphones continues to benefit ARM. In Q2 2011, ARM's customers reported about a 300% year-on year increase in Cortex-A processor-based wireless chips sales, driven by a near doubling of the smartphone market[3] and an increasing proportion of these shipments being super-smartphones. For the quarter, ARM achieved an average of 2.5 ARM technology-based chips per mobile handset, the same as the prior quarter, and up from 2.4 a year ago. 

PIPD licensing

ARM continues to see strong demand for physical IP optimised for use with processors, especially the Cortex-A series processor. These processor optimisation packs (POPs) enable the licensee to more readily achieve a high-performance, low-power processor implementation through specially optimised physical IP technology. For every chip implemented using a POP, ARM receives a royalty both for the processor in the chip and for the physical IP. During the quarter ARM signed four licenses for POPs bringing the total number of POP licenses to 17.

In addition, ARM also signed two new royalty bearing platforms at 22nm and 250nm.

Q2 2011 and Cumulative PIPD Licensing Analysis

ARM's physical IP is used by fabless semiconductor companies to implement their chip designs. During the quarter, ARM continued to see strong demand from these companies to use physical IP at advanced nodes, with a further semiconductor partner choosing to use ARM's advanced physical IP at 28nm. As our partners transition from older process technology to more advanced nodes so this progression helps to drive ARM's future royalty revenue.

PIPD royalties

Physical IP royalties are generated mainly from chips manufactured in foundries such as TSMC, UMC and GLOBAL FOUNDRIES. Royalties are recognised one quarter in arrears with royalties in Q2 generated from semiconductor unit shipments in Q1. 

Underlying PIPD royalties in Q2 2011 were $11.0 million, up 12% year on year. ARM continues to benefit from our customers' high-volume production moving to more advanced nodes at 45nm and below at multiple leading foundries. 

People

At 30 June 2011, ARM had 1,986 full-time employees, a net increase of 97 since the start of the year. At the end of June, the Group had 812 employees based in the UK, 533 in the US, 227 in Continental Europe, 289 in India and 125 in the Asia Pacific region.

Principal risks and uncertainties

The principal risks and opportunities faced by the Group are included within the "Risks and risk management" section of the 2010 Annual Report and Accounts filed with Companies House in the UK. Details of other risks and uncertainties faced by the Group are noted within the Annual Report on Form 20-F for the year ended 31 December 2010 which is on file with the Securities and Exchange Commission (the "SEC") and is available on the SEC's website at www.sec.gov. There have been no changes to these risks that would materially impact the Group in the foreseeable future. These include but are not limited to: ARM's quarterly results may fluctuate significantly and be unpredictable which could adversely affect the market price of ARM ordinary shares; general economic conditions may reduce ARM's revenues and harm its business; ARM may have to protect its intellectual property or defend itself against claims that we have infringed others' proprietary rights; an infringement claim or a significant damages award would adversely impact ARM's operating results; companies within the semiconductor industry may consolidate reducing the number of customers that ARM may sell its technology to; for ARM to enter new markets or develop new technology may require significant investment and may not result in profitable operations; and ARM competes in the intensely competitive semiconductor market.

ARM Holdings plc

Consolidated balance sheet - IFRS

ARM Holdings plc

Consolidated income statement - IFRS

All activities relate to continuing operations. 

All of the profit for the period is attributable to the equity shareholders of the parent.

ARM Holdings plc

Consolidated statement of comprehensive income - IFRS

ARM Holdings plc

Consolidated cash flow statement - IFRS

ARM Holdings plc

Consolidated statement of changes in shareholders' equity - IFRS

 * Employee share option and award scheme: options exercised during the period to 30 June 2011 resulted in 2,436,598 shares being issued with exercise proceeds of £2,491,000.

Notes to the Financial Information

(1) Basis of preparation

The financial information prepared in accordance with the Group's IFRS accounting policies comprises the consolidated balance sheets as of 30 June 2011 and 31 December 2010, consolidated income statements and consolidated statements of comprehensive income for the three months and six months ended 30 June 2011 and 2010, and consolidated cash flow statements and consolidated statements of changes in shareholders' equity for the six months ended 30 June 2011 and 2010, together with related notes. This condensed set of consolidated interim financial information for the six months ended 30 June 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting", as adopted by the European Union. This financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with IFRSs as adopted by the European Union.

The following new standards and amendments to standards are mandatory for the first time in 2011:

·; Annual improvements 2010: This set of amendments includes changes to six standards and one IFRIC. These are minor amendments and have not had a significant impact on the Group.

The following new standards, amendments to standards, or interpretations are effective in 2011 but not relevant to the Group:

·; IAS 24 (revised) "Related party disclosures". This removes the requirement for government-related entities to disclose details of all transactions with the government and it clarifies and simplifies the definition of a related party. This is not relevant to the Group.

·; Amendment to IAS 32, "Rights Issues". This addresses the accounting for rights issues which are denominated in a currency other than the functional currency of the issuer. This is not currently relevant to the Group.

·; Amendment to IFRIC 14, "Prepayments of a minimum funding requirement" This relates to companies that are required to make minimum funding contributions to a defined benefit pension plan. The Group does not have any such schemes and therefore this is not relevant.

·; IFRIC 19, "Extinguishing financial liabilities with equity instruments" This clarifies the accounting when an entity re-negotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. This is not currently relevant to the Group.

(2) Going concern

After dividend payments of £23.4 million made in the first six months of 2011, the highly cash generative nature of the business enabled the Group to increase its cash, cash equivalents, short- and long-term deposits balance to £353.8 million (net of accrued interest of £2.8 million) at 30 June 2011 from £290.1 million at the start of the year (net of accrued interest of £1.7 million).

After reviewing the 2011 budget and longer-term plans, the directors are satisfied that it is appropriate to adopt the going concern basis in preparing this condensed set of consolidated interim financial information of the Group.

(3) Financial risk management

(3.1) Financial risk factors

The Group's operations expose it to a variety of financial risks that include currency risk, interest rate risk, securities price risk, credit risk and liquidity risk. This condensed set of consolidated interim financial information does not include all financial risk management information and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2010.

(3.2) Fair value estimation

The table below shows the financial instruments carried at fair value by valuation method:

(3.2) Fair value estimation (continued)

*Level 1 valued using unadjusted quoted prices in active markets for identical instruments. Level 2 valued using techniques based significantly on observable market data. Level 3 valued using information other than observable market data.

(4) Share-based payment costs and acquisition-related expenses

Included within the consolidated income statement for the quarter ended 30 June 2011 are total share-based payment costs (including related payroll taxes) of £12.4 million (2010: £9.5 million), allocated £0.9 million (2010: £0.7 million) in cost of revenues, £7.4 million (2010: £5.7 million) in research and development expenses, £2.4 million (2010: £1.8 million) in sales and marketing expenses and £1.7 million (2010: £1.3 million) in general and administrative expenses.

Included within the consolidated income statement for the six months ended 30 June 2011 are total share-based payment costs (including related payroll taxes) of £31.9 million (2010: £18.2 million), allocated £1.7 million (2010: £1.1 million) in cost of revenues, £19.3 million (2010: £11.0 million) in research and development expenses, £6.4 million (2010: £3.5 million) in sales and marketing expenses and £4.5 million (2010: £2.6 million) in general and administrative expenses.

Also included within operating expenses for the quarter ended 30 June 2011 is amortisation of intangibles acquired on business combinations of £0.6 million (2010: £3.0 million), allocated £0.5 million (2010: £1.0 million) in research and development expenses and £0.1 million (2010: £2.0 million) in sales and marketing expenses.

(5) Dividends

In respect of the year to 31 December 2011, the directors are declaring an interim dividend of 1.39 pence per share (an estimated cost of £18.7m). This interim dividend will be paid on 5 October 2011 to shareholders who are on the register of members on 9 September 2011.

(6) Accounts receivable, accrued and other liabilities, and taxation

Included within accounts receivable at 30 June 2011 are £9.7 million (31 December 2010: £8.7 million) of amounts recoverable on contracts. Included within accrued and other liabilities at 30 June 2011 are £18.1 million (31 December 2010: £17.7 million) relating to the provision for payroll taxes on share awards, and £9.3 million (31 December 2010: £22.7 million) relating to employee bonus and sales commission provisions.

Total current tax assets and liabilities as at 30 June 2011 amounted to an overall net asset of £11.5 million (31 December 2010: net liability of £16.6 million). Share option and award tax benefits from exercises in Q1 2011 accounted for the majority of the movement. These benefits will be utilised against taxable profits during the remainder of the year.

The March 2011 Budget included changes to the main rates of tax for UK companies. The main rate of corporation tax decreased from 28% to 26% from 1 April 2011. The Budget also announced the reduction in the main rate of corporation tax from 26% to 25% from 1 April 2012. This was substantively enacted on 5 July 2011. These changes have not had a material impact on the deferred tax balances as at 30 June 2011.

(7) Related party transactions

During the six months ended 30 June 2011 the Group incurred subscription costs of £6.9 million from Linaro Limited, an associated company of the Group, representing ARM's committed aggregate contributions to Linaro for the next two years. Linaro-related charges amounted to £1.2 million in the six months ended 30 June 2010.

(8) Segmental reporting

At 30 June 2011, the Group is organised on a worldwide basis into three main business segments:

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

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

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

This is based upon the Group's internal organisation and management structure and is the primary way in which the Chief Operating Decision Maker is provided with financial information. Whilst revenues are also reported into four main revenue streams (namely licensing, royalties, development systems and services), the costs, operating results and balance sheets are only analysed into these three divisions.

The following analysis is of revenues (in both GBP and USD), operating costs, investment income, profit/(loss) before tax, tax, profit/(loss) for the period, amortisation of intangible assets and other acquisition related charges, share-based payment costs including payroll taxes, Linaro-related charges, goodwill and total assets for each segment and the Group in total.

(8) Segmental reporting (continued)

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

(9) Acquisitions

On 15 June 2011, the Group purchased the entire share capital of Obsidian Software Inc. for $5.6 million in cash. This purchase has been accounted for as an acquisition.

Obsidian, a company based in Austin Texas, is a market leader in verification and validation products and services used in the design of increasingly complex processors. The company's RAVEN software has been used by many of the world's leading semiconductor companies. As system-on-chip (SoC) and processors grow in complexity there is an increasing need to develop more sophisticated verification strategies. This acquisition augments ARM's drive in matching its verification strategies with the rate of change in its high performance, complex SoC IP components. For these reasons, combined with the ability to hire the entire workforce of Obsidian including the founders and management team, the Group paid a premium for the company giving rise to goodwill. All intangible assets were recognised at their fair values, with the residual excess over net assets being recognised as goodwill.

All of the goodwill recognised is expected to be deductible for income tax purposes. At 30 June 2011, the accounting for the acquisition has been determined on a provisional basis because the fair values assigned to the acquiree's identifiable assets and liabilities have not been finally determined (due to the short period of time between acquisition date and the 30 June 2011). Any adjustments to these provisional values as a result of completing work of the fair values will be recognised as if they had occurred at the acquisition date.

The following table summarises the consideration and provisional fair values of the assets acquired and liabilities assumed as at 15 June 2011.

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

From the date of acquisition to 30 June 2011, the acquisition contributed under $0.1 million in revenue and incurred a loss of under $0.1 million. If Obsidian had been consolidated from 1 January 2011, the consolidated income statement would have included $1.0m of revenue and $nil impact on profit.

 (10) Non-GAAP measures

The following non-GAAP measures, including reconciliations to the IFRS measures, have been used in this earnings release. These measures have been presented as they allow a clearer comparison of operating results that exclude acquisition-related charges, share-based payment costs, restructuring charges, profit on disposal and impairment of available-for-sale investments, and Linaro-related charges. Full reconciliations of Q2 2011, Q2 2010, H1 2011 and H1 2010, are shown in notes 10.13 to 10.16. All figures in £'000 unless otherwise stated.

(10.13) Normalised income statement for Q2 2011