annual report and accounts 2004
arm holdings plc annual report and accounts 2004 2 arm at a glance
4 chairman’s statement
6 chief executive officer’s review of operations
8 review of operationsat home
10 review of operationsat work
12 review of operationson the move
14 operating and financial review
18 directors and advisers
20 corporate governanceuk gaap
23 corporate social responsibilityuk gaap
25 directors’ reportuk gaap
27 remuneration reportuk gaap
34 statement of directors’ responsibilities
35 independent auditors’ report to the members of arm holdings plcuk gaap
36 consolidated profit and loss accountuk gaap
statement of group total recognised gains and lossesuk gaap
37 consolidated balance sheetuk gaap
38 company balance sheetuk gaap
39 consolidated cash flow statementuk gaap
40 notes to the financial statementsuk gaap
64 selected consolidated financial dataus gaap
65 operating and financial review and prospectsus gaap
70 consolidated statements of income and comprehensive incomeus gaap
71 consolidated balance sheetsus gaap
72 consolidated statements of cash flowsus gaap
73 consolidated statements of changes in shareholders’ equityus gaap
74 notes to the financial statementsus gaap
91 report of independent registered public accounting firmus gaap
92 group directory
contents arm annual report and accounts 2004 1
the arm
®
architecture lies at the heart of advanced digital products 
it enables leading electronics companies to develop reliable total systems
solutions for a wide range of applications which are used at home 
at work and on the move 
during 2004 we increased our ability to meet our partners’ needs when 
we acquired artisan a designer of physical intellectual property ip 
and axys which provides electronic system level design tools these
acquisitions combined with our continuing investment in rd and our
geographic expansion in india and china are fuelling our drive towards
becoming the architecture for the digital world
™
 total revenues of £1529 million in 2004 compared with £1281 million in 2003
our partners shipped 1272 million units based on arm technology in 2004 an increase of 63
continuing high level of rd expenditure results in introduction of further innovative products
licensing of products in arm1 1™ family continues to gather momentum
technology portfolio broadened into physical ip with the acquisition of artisan components inc and into
electronic system level design tools with the acquisition of axys design automation inc
£1428 million of cash short and longterm investments and marketable securities at 31 december 2004 
increased annual dividend demonstrates confidence in future cash flows
arm at a glance
2 arm annual report and accounts 2004
total revenues £m
2004
2003
2002
2001
2000
1529
1281
1509
1463
1007
0 50 100 150
royalty revenues £m
2004
2003
2002
2001
2000
596
443
268
279
256
0 10 20 30 40 50 60
research and development expenditure £m
0 10 20 30 40 50
2004
2003
2002
2001
2000
501
481
487
389
275
net cash balance at year end £m
2004
2003
2002
2001
2000
1428
1598
1303
1045
753
0 30 60 90 120 150 revenue analysis  royalty units  licence revenues by product 
geographic revenue by market destination 
licensing 39
royalties 39
development systems 13
support maintenance and training 8
consulting 1
arm7
tm
family 9
arm9
tm 
family 23
arm10
tm
and architecture 33
arm11family 17
noncore licensing 18
automotive 1
consumer entertainment 8
imaging 6
microcontrollers 1
networking 8
secure 2
storage 6
wireless 68
arm annual report and accounts 2004 3
united states 51
austin texas
carlsbad california
cary north carolina
franklin california
irvine california
northborough massachusetts
novi michigan
salem new hampshire
san diego california
sunnyvale california
asia pacific 34
bangalore india
beijing pr china
seoul south korea
shanghai pr china
shinyokohama japan
taipei taiwan
europe 15
aachen germany
blackburn uk
cambridge uk
kfar saba israel
leuven belgium
maidenhead uk
montigny le bretonneux france
munich germany
paris france
sheffield uk
sophia antipolis france chairman’s statement
results and dividend
the increasingly widespread adoption of arm technology in consumer
electronic devices was illustrated in 2004 by the 63 increase in the
reported total shipments of arm powered® products to 1272 million
units up from the reported 782 million units in 2003 the strong cash
generation resulting from this robust operational performance together
with our confidence in the company’s longterm prospects enabled us
to continue to make significant investments in research and development
and to acquire axys a provider of electronic system level esl design
tools in august 2004 and artisan which designs physical ip
components in december 2004
the combination of arm microprocessor ip with the physical ip provided
by artisan accelerates arm’s momentum towards becoming the
architecture for the digital world it is encouraging that we were able 
to complete such a strategically important acquisition at the same time
as achieving a strong financial performance in the underlying business
with a yearonyear dollar revenue increase of more than 30 operating
margins well ahead and yearend order backlog at record levels 
the board decided at the end of 2003 to initiate the payment of an
annual dividend we see a return of cash to shareholders through a
dividend as part of a package of measures to make the best use of the
business’s cash resources as indicated last year it is the board’s intention
to increase the dividend over time taking into account the opportunity
for continued investment in the business and the company’s underlying
operational performance with this in mind the board is recommending
a final dividend of 042 pence per share bringing the total for the year
to 07 pence per share an increase of 17 over the dividend paid in
respect of 2003
the market
after strong yearonyear growth for the semiconductor industry in
2004 current expectations for 2005 are that there will be little or no
growth over 2004 despite this flatter trading environment we expect
2005 to be a year of growth in dollar revenues for the company
underpinned by a high order backlog strong momentum in royalty
revenues and a healthy sales pipeline for our broad technology
portfolio
new products including our optimode™ embedded signal processing
technology and our nextgeneration microprocessor codenamed “tiger” 
are expected to underpin licensing revenue in 2005
geographic expansion
arm’s business is increasingly global in 2004 the geographic source of
our revenues illustrated the global reach of the semiconductor industry
as well as our role at its heart 51 of fullyear revenues emanated
from north america 34 from asia pacific and 15 from europe
during 2004 we established a sales office in bangalore india and our
operations there have been enhanced by the addition of artisan’s
established design facility in bangalore this will be expanded
significantly during 2005 we also opened a second office in china
currently most of the chips which are used in china are bought from
our partners and are designed around our ip  but we are establishing
local relationships as the country’s hightechnology industry matures
and its companies begin to develop their own ip  
people
i thank all employees for the contribution made to the excellent results
achieved in 2004 i also thank the management and employees of arm
and artisan who worked tirelessly to make the acquisition happen and
are continuing to do so as we embrace the opportunities that rapid and
full integration of the businesses will bring
4 arm annual report and accounts 2004 2004 was a year of strong operational 
performance which concluded with completion  
of our acquisition of artisan
it is much to their credit that this was achieved concurrently with
delivering a strong operational performance in the increasingly
demanding market in which we operate we were delighted to
welcome 26 new employees to arm with the acquisition of axys 
and 347 new employees with the acquisition of artisan
board changes
there have been a number of board changes during 2004 and 2005
which reflect the board’s commitment to maintain an appropriate
balance of skills and experience lawrence tesler retired from the board
at the 2004 annual general meeting having served two threeyear
terms as a nonexecutive director jeremy scudamore who is ceo of
avecia group formerly the speciality chemicals business of zeneca 
was appointed as a nonexecutive director in april and has brought 
a broad range of skills to the board that extend beyond the
semiconductor industry
with the acquisition of artisan in december 2004 we were delighted to
welcome mark templeton and lucio lanza to the board mark had been
ceo of artisan since he cofounded the business in 1991 he has joined
the board as an executive director and general manager of arm
physical ip group lucio had been a director of artisan since 1996 
and was chairman from 1997 he has considerable knowledge and
experience in the field of electronic design automation and of the
semiconductor industry he has joined the board as a nonexecutive
director and a member of the nomination committee
simon segars and philip rowley joined the board in january 2005
simon joined arm’s engineering team in 1991 and has worked on
many arm cpu products he was appointed executive vice president
engineering in january 2002 and became executive vice president
worldwide sales in january 2004 philip rowley is president and ceo 
of aol europe and has a strong financial background he is a qualified
chartered accountant and has previously been group finance director 
of kingfisher plc and executive vice president and chief financial officer
of emi music worldwide he joined the board as a nonexecutive
director and as a member of the audit committee these appointments
recognise the valuable contribution that simon is already making to the
direction of the business and philip’s broad industry experience which
will further strengthen the nonexecutive team
i am delighted that we have been able to recruit such high calibre
individuals with such a breadth of skills and experience to the board
these appointments bring the number of directors to 14 and there are
no current plans to make further appointments
current trading and prospects
the former arm and artisan standalone businesses both enter 2005
with healthy order backlogs and sales pipelines which underpin
licensing revenues this year in addition both companies continue to
enjoy good growth in royalty revenues based on the increasing
adoption of arm and artisan technology by semiconductor and oem
original equipment manufacturer companies in recent years
combined with the healthy order backlog and sales pipeline this gives
us confidence that dollar revenues in both underlying businesses are
capable of growing by at least 20 in 2005
sir robin saxby chairman
arm annual report and accounts 2004 5 chief executive officer’s review of operations
a 32 yearonyear growth in dollar revenues 
in 2004 and the positive trend in our order backlog 
indicate that the arm standalone business is in
robust shape we look forward to 2005 with confidence 
as we start to realise the benefits arising from the acquisition
of artisan at the end of the year
the year was one of growth and achievement for arm both
operationally and strategically following a year of consolidation 
in 2003 we increased licensing activity and revenues made two
acquisitions and expanded into new markets as 2004 ended the
business community was understandably cautious about external
factors such as the weak dollar and the global economic climate 
but our achievements during the year demonstrate that we are 
strongly positioned to continue to flourish in 2005
acquisition of artisan components inc
we completed the acquisition of artisan on 23 december 2004 
the combined company’s product portfolios and sales channel now
provide one of the broadest offerings of systemonchip soc ip to our
expanded customer base we expect the amalgamation of the arm and
artisan businesses to increase revenue save costs by consolidating
selected corporate functions deliver an attractive margin structure and
generate strong cash flow
the combined company will seek to leverage artisan’s expertise in
physical ip design – the essential building blocks of integrated circuits –
with arm’s expertise in designing microprocessors as a result we will
be able to develop highlyoptimised components for use in and with
our microprocessors creating the potential to produce substantial
benefits for end users such as reduced power consumption and
increased processor speed
the integration of the businesses is proceeding as planned the former
artisan business now forms our physical ip group and one worldwide
sales force is responsible for selling the full range of products arm’s
office in los gatos california closed in february 2005 and employees
relocated to artisan’s sunnyvale facility our new us headquarters
shipments and licensing activity
the electronics industry in general had a good year with growth 
across all our key markets the sales of arm powered products 
provide a powerful indicator of our success shipments in a single 
year exceeded the one billion mark for the first time total shipments
increased 63 from 782 million in 2003 to 13 billion most new
generation 3g mobile phones will be arm powered and the increasing
adoption of the technology has accelerated shipments in this market
there were also significant increases in shipments of arm powered
digital cameras storage devices such as hard disk drives automotive
products and consumer electronics
licensing activity was also strong 65 licences 31 multiuse licences
and 34 peruse licences were signed in 2004 compared with 51 in
2003 of the 65 licences 15 were for arm11 products 31 for arm9
products 15 for arm7 products three for nextgeneration arm
processors and one architecture licence fifteen companies became 
new arm partners bringing the total to 140 two of our new partners
took multiuse licences and 13 took peruse licences total licensing
revenues in 2004 were £594 million – 39 of total revenues –
compared with £508 million or 40 in 2003 
licensing activity demonstrated the breadth of our technology offer as
well as the longevity of our products for example our partners have
been licensing products in the arm7 family for more than 11 years 
and we expect the licensing of arm7 family products to continue 
for some time
the industry’s commitment to arm11 technology and to complementary
arm technologies such as trustzone™ security software and jazelle 
java acceleration technology was emphasised by the 15 new arm11
licences signed in 2004 making a total of 25 to date as arm11
family products move into the mainstream licensing phase it is
encouraging that licensing of the next generation of arm technology
began in 2004 we signed three partners for our “tiger” product other
new technologies planned for delivery in 2005 are now available for
licensing and we will release details of them during 2005
the strong licensing performance increased the order backlog in 
the fourth quarter of the year with the result that it was approximately
30 higher at the end of 2004 than at the end of 2003 revenues
from licensing of products other than microprocessors comprised 18
of the total in 2004 compared with 17 in 2003
product development new technology and partnerships
the announcement in october 2004 of our new cortex™ family of
microprocessors received an enthusiastic welcome from partners cortex
products will enable them to benefit from the incorporation of new
features into microprocessors at various performance points the first
member of the family the arm cortexm3 processor is targeted at
extremely costsensitive embedded applications such as microcontrollers
automotive body systems and white goods 
a further significant technology was announced in may 2004 at the
embedded processor forum in san jose california commonly known 
as a “data engine” the arm optimode solution enables flexible low
cost devices to be designed and developed at performance levels which
6 arm annual report and accounts 2004 cannot be achieved by conventional design by the end of 2004 we
had welcomed the first four licencees of optimode technology which
can be used for any application that requires computationally intensive
data and signal processing including video wireless lan audio imaging
and consumer entertainment comprising a configurable data engine
signal processor together with related ip and tools it will be used in
systems alongside existing arm technologies including the electronic
system level esl design tools from axys
the acquisition of axys a provider of fast accurate integrated
processor and system modelling and simulation solutions brings esl
expertise to our realview® design tools portfolio the esl products
reduce overall system costs by enabling designs to be modelled early 
in the development cycle speeding timetomarket and minimising
design errors
in july we established an embedded software group to capitalise on
opportunities to generate revenues from software this team will build
on the foundation of the existing jazelle
®
java acceleration technology
intelligent energy manager iem technology trustzone security
software and swerve codeveloped with superscape group plc
technology it will bring more focus to the development of enabling
software technology to support growth in microprocessor and physical
ip licensing development systems and data engines revenues
in october we held the first arm developers’ conference in santa clara
this epitomised the arm connected community it brought together
more than 2000 delegates and 100 exhibitors from across the world
the attendees all had a common interest – a desire to play a role in 
the development of solutions based on arm ip  the event was an
unqualified success and we are already organising the 2005 conference 
revenue and margins
healthy licensing activity and significant growth in shipments of arm
powered products had a positive impact in sterling revenue rose by
19 compared with 2003 in dollar terms the growth was even more
impressive at 32 effective cost control resulted in our operating profit
margin increasing gradually towards our target of around 30 on the
basis of our performance over the past 12 months we are looking
forward with optimism 
people
in the summer of 2004 we accelerated recruitment and by the end of
the year had 1171 fulltime employees including 347 who joined the
company as part of the artisan acquisition up from 740 in december
2003 the decision to increase headcount was underpinned by our
confidence in our potential for growth we recruited in most areas 
of the business but in particular boosted the development systems
team and expanded technical sales and marketing at the year end 
the company had 546 employees in the uk 454 in the us 79 in
continental europe 51 in india and 41 in the asia pacific region
the future
our investments in important developing markets combined with 
the acquisitions of axys and artisan are evidence of our belief that the
future offers great opportunities for the development of our business
together they will facilitate the design of highlyoptimised cost
effective systems which incorporate hardware and software resulting
in faster time to revenue for our partners their customers and of
course for us
the two acquisitions we made in 2004 have set us ahead of the
competition add to this the momentum from the royalties earned and
licences signed in 2004 our everexpanding partner network and the
exciting new applications currently being developed to run on our
processors and our reasons for optimism are clear 
warren east chief executive officer
arm annual report and accounts 2004 7 8 arm annual report and accounts 2004
arm ip makes 
life easier by being at the heart 
of countless products used at home 
from plasma tvs to washing machines and 
from gaming consoles to refrigerators
review of operationsat home
take a look back over the past five years and ask “how has technology
improved” it was not that long ago that all but the most expensive 
tvs were large boxes that took up an entire corner of a room gaming
machines were slow and mobile phones had monochrome screens 
and limited battery life 
naturally we only know the shortcomings of past technology in
retrospect at the time not even wellinformed consumers knew what
future technology would deliver arm on the other hand had a pretty
good idea 
this is because arm has been a part of the technology innovation for 
20 years our technology can be found at the heart of countless products
at home at work and on the move our ip is playing a central role in
the quest for ever faster less power hungry more secure increasingly
portable and more compact digital products
plasmascreen tvs for example are rapidly replacing traditional models
as well as being more stylish space efficient and offering highquality
audiovisual entertainment they are increasingly affordable similarly
gaming machines offer vastly enhanced performance and capabilities
vivid sound highdefinition graphics and dynamic gameplay the
gaming experience – on consoles and on handheld devices – is a huge
improvement over previous models
the latest generation of mobile phones has redefined the boundaries 
of wireless communications 3g technology which is becoming widely
adopted around the world offers video phone and music download in
the palm of the hand
we have played a significant role along with our partners in the
development of these and other technologybased products although
consumers are unaware of what lies inside the products they use the
world’s leading semiconductor manufacturers have licensed our ip and it
is their products – the small yet increasingly powerful microprocessors
– which have enabled greater innovation by the manufacturers of digital
devices this has enabled these companies to create products that
appeal to an increasing group of consumers whereas technology
products used to be confined to specific niches microprocessors – 
and therefore arm – are now everywhere
this is reflected in the royalties that we earn every time an arm
powered product is shipped in 2004 shipments exceeded the one
billion mark per year and as microprocessors are used in a wider range
of consumer products including white goods such as washing machines
and refrigerators the number and type of arm powered products will
continue to increase arm annual report and accounts 2004 9
manufacturers of digital products are driven by the need to stay ahead
of the competition and to respond quickly to consumer demand as 
a result microprocessors must be faster more versatile smaller and
more energy efficient development times for new products shorten
every year consistently meeting and exceeding such demands is our
speciality and our success is derived from the unique relationships 
we share with our multitude of partners
this is illustrated by the arm connected community which now embraces
more than 200 partners from across the technology spectrum bringing
together many types of technology companies including semiconductor
manufacturers development tools suppliers and operating system os
vendors we provide the foundation for some of the industry’s most
exciting developments
technology is constantly changing but arm continues to be devoted 
to its partnership business model through interaction the sharing 
of information and ideas and close collaboration companies across 
the globe are working with arm and one another to create the next
generation of technologybased products for use at home
arm ip is at the heart of many 
of the digital products used in
everyday life our technology 
enables innovative new developments
in home entertainment and
communications and can be found in
everything from featurerich mobile
phones to nextgeneration plasma
screen tvs stereo systems and
gaming consoles – even concept
products such as an arm powered
dvd coffee maker
our technology is not only present in
products used for entertainment it can 
be found in many household items that 
we take for granted such as washing
machines refrigerators and home security
systems arm ip is central to the
microprocessors that power these 
and similar items 10 arm annual report and accounts 2004
review of operationsat work
arm ip makes life more efficient enabling its
partners to create more functional products by 
increasing performance and decreasing power 
consumption
microprocessors have been ubiquitous in the workplace for more than
two decades virtually everyone now uses microprocessor technology 
on a daily basis it is not surprising therefore that just as our ip powers
countless technology products at home we have a considerable and
increasing presence in the world of work
many arm powered products are used at home and at work personal
digital assistants pdas for example have become a regular feature 
of many people’s lives and offer a wealth of instantly accessible
information like so many other technology products each generation
of pdas is smaller more powerful and offers greater battery life than 
its predecessor and we continue to play a significant role in the
ongoing revolution
mobile devices offer even greater functionality some contain multiple
arm microprocessors one for processing information for example 
and another for networking functions in addition the latest handheld
computers are also wireless devices the adoption of industry standards
such as bluetooth and wlan has helped narrow the gap between the
capabilities of mobile and wireless and wireline technologies
one reason for our success in this and all markets is our focus on
enabling our partners to develop increasingly innovative applications
based on our architecture although we are committed to introducing
new ip  our reputation is built on much more than the capabilities of 
our designs arm development systems provides a comprehensive
range of solutions to help developers make the most of arm ip  these
complement our processors and include software and hardware tools
which are designed to speed timetomarket while also reducing the
risk and cost of development 
in addition we have partnerships with a wide range of providers 
of complementary solutions from suppliers of embedded os and
development environments to specialists in electronic design automation
eda to application software providers our partnerships with the
leaders in these fields give our silicon partners considerable advantages
in the quest for evermore innovative products
by combining our ip with thirdparty software our silicon partners
design microprocessors which push the boundaries of performance 
and power efficiency the net result for users is greater functionality
improved efficiency and faster communications the contemporary
office communicates like never before flexibility and mobility are key
factors many products including printers are now wireless devices 
at the same time they combine scanning and photocopying functions arm annual report and accounts 2004 11
the convergence of mobile
communication and pda computing
technologies which is being driven
by our partners’ arm powered
solutions is making information
instantly accessible to everyone
whether in the home or at work
and produce highquality output in a fraction of the time of previous
generations – and at less cost 
again arm ip is at the heart of the networking and storage markets
arm powered products include the servers modems and firewalls that
ensure high performance reliable and secure connections within and
between offices around the world
our microproccessors are ideally suited to the storage market to enable
oems to pack increasingly large amounts of media into smaller devices
whether it is a hard disk drive a memory card or a personal storage
device that plugs into a universal serial bus usb port performance
and affordability are vital considerations
with the recent advancements in
wireless technology arm ip is able
to play a vital role in bringing freedom
and convenience to the workplace
our technology powers a range of
products that can communicate to
each other without wires and that
increase the scope of where and 
how we do business – from handheld
computers and smart phones to fax
machines and printers
arm is also at the heart of the
technology that supports and connects
people in the traditional workplace
environment our ip can be found in
the it servers and modems that are
used everyday and that we rely on to
ensure highperformance and efficiency
arm powered products are also found in other work environments
from mobile bar code readers to electronic test and measurement
equipment and to factory and warehouse automation systems the
arm architecture is gaining support across an increasingly diverse range
of applications
each new product that incorporates arm ip strengthens our connection
with the continuing technology revolution that touches everyone’s 
lives at home and at work wherever you live and whatever you do 
it is likely that you will use an arm powered product at some point 
in your day  12 arm annual report and accounts 2004
review of operationson the move
arm ip makes life more fun for 
consumers by enabling our partners 
to shape tomorrow’s world today 
now we can take photographs 
with our mobile phones 
and talk to our friends 
through our tvs
not long ago pocketsized video cameras video phones and biometric
identification systems existed only in futuristic movies now these
products are commonplace and often arm powered and they confirm
that the future of everyday technology is more exciting than ever
when travelling between work and home enjoying leisure time or
simply buying groceries arm powered products play an increasing 
role in everyday life
the automotive market is a prime example by 2007 it is estimated
that the average midrange car will contain up to 70 microprocessors
the latest arm powered products in this market include advanced anti
lock braking systems and gps navigation that provides a 3d view of the
road ahead our ip has also been used by the creators of a solar
powered car 
arm powered products also protect your money in the past bank 
and credit cards for example stored data on a magnetic strip the 
new generation of smartcards takes security to a new level with 
highlysecure microprocessors which greatly reduce the incidence of
fraud our architecture is also in electronic pointofsale epos
terminals pinpads and atms 
security is an increasingly important issue for many people – but so is
having fun our technology is used as much in portable audiovisual
products as it is in the security market 
some of the world’s most advanced digital cameras for example are
arm powered from affordable models for amateur photographers to
those used by professionals more and more digital cameras incorporate
our architecture our ip makes it possible to hold a video conference
through the family tv it also makes it possible to produce digital video
cameras the size of a pack of playing cards
for decades magnetic tape was a chosen medium for portable sound
and vision a standard audio tape stored 90 minutes of music now
personal audio players give music lovers on the move immediate
access to thousands of songs and hours of enjoyment the storage
capacity of personal audio players is an important buying criterion but
so is size and battery life on all counts arm powered products have
set the standard only a few years ago it would have been impossible
to store more than 2500 songs on any device but now products which
do just that are available and many including the market leaders are
based on the arm architecture arm annual report and accounts 2004 13
some arm powered products combine digital music and still pictures 
in one device indeed convergence is an irresistible trend in the
technology industry in the same way that technology has crossed 
the divide between home and work it has also occupied the space 
in between 
technology is now so well established that traditional boundaries
between products’ functions and where they are used are becoming
blurred as a result the world’s microprocessor manufacturers and 
the oems that design the technology products we use every day are
demanding more these companies need complete solutions which
encompass microprocessor ip  physical ip  development tools software
and a host of complementary thirdparty products for this reason 
arm is uniquely positioned for the future 
take a look forward over the next five years and ask “how much will
technology change” nobody has the definitive answer but you can be
sure arm has a good idea we will continue to be at the heart of
advanced digital devices – at home at work and on the move
the arm architecture is used in many
of the most advanced digital cameras
and camera phones our ip is at the
forefront of this field enabling the
development of everfaster and more
compact devices
our solutions are not only a part of 
the visual technology revolution but
also the audio with many market
leading personal audio players now
being arm powered we also play 
a central role in the technology that
enables innovative new products such
as cardiovascular monitor watches
not only is arm technology at the
heart of your car it also plays a role 
in protecting your money credit and
debit cards atms and pinpads now
use microprocessors many of which
are arm powered to store data and 
to prevent fraud 
our ip is playing an increasingly large
role in the automotive world especially
in terms of safety an average car 
may contain up to 70 microprocessors
powering devices from satellite
navigation to antilock braking systems in 2004 revenue growth and careful cost control combined 
to yield strong cash generation from arm’s business 
we were also particularly encouraged by the sustained improvement
in licensing revenues demonstrating that arm continues to develop 
a broad range of new technologies which bring real benefit to the 
arm connected community and end customers
operating and financial review
the business its objectives and strategy
arm designs reduced instruction set computing risc microprocessors
and related technology and software and sells development systems 
to enhance the performance costeffectiveness and powerefficiency 
of highvolume embedded applications the group licences and sells 
its technology and products to leading international electronics
companies which in turn manufacture market and sell microprocessors
applicationspecific integrated circuits asics and applicationspecific
standard processors assps based on the arm architecture to systems
companies to incorporate into a wide variety of end products by
creating a network of partners and working with them to best utilise
the group’s technology arm’s objective is to become the embedded
microprocessor architecture for the digital world establishing the arm
processor for use in many consumer electronic devices including
mobile handsets mp3 players digital televisions harddisk drives
digital cameras and many automotive applications the group intends
to grow its revenues and profits by offering an increasingly broad range 
of ip solutions to its partners thereby helping them and their customers
to accelerate the time to it takes to get attractive consumer electronic
products to market
arm made good progress towards achieving its objectives in 2004 
as well as reporting strong growth in revenues profits and cash flows
the group made two acquisitions which significantly broaden both the
technology portfolio offered by the group and the existing and potential
customer base
performance
revenues
total revenues for the year ended 31 december 2004 amounted to
£1529 million an increase of 19 over total revenues of £1281 million
in the year ended 31 december 2003 the actual average dollar
exchange rate in 2004 was 183 with an effective average exchange
rate for arm of 178 compared with 164 in 2003 this had the effect
of reducing total reported revenues by approximately £132 million
licensing revenues in 2004 were £594 million being 39 of total
revenues compared with £508 million or 40 of total revenues in 
the year to 31 december 2003 royalty revenues in 2004 were 
£596 million representing 39 of total revenues in the year to 
31 december 2004 compared with £443 million or 34 of total
revenues in the year to 31 december 2003 sales of development
systems products in 2004 were £197 million being 13 of total
revenues compared with £179 million or 14 of total revenues in
2003 service revenues which include consulting services and revenues
from support maintenance and training were £142 million in 2004
representing 9 of total revenues compared with £151 million or 
12 of total revenues in 2003
royalty revenues and unit shipments
royalty revenues grew strongly in 2004 they were £596 million on
1272 million units shipped compared with £443 million on 782 million
units shipped in 2003 dollar royalty revenues earned in 2004 were
1071 million up 50 on 2003 compared with the increase in year
onyear unit shipments of 63 over the past three years average
royalty rates per unit were 84 cents in 2004 91 cents in 2003 and 
83 cents in 2002 indicating that whilst average royalty rates may
move up or down in the short term they tend to remain stable 
over a longer period
in 2004 the proportion of total unit shipments accounted for by 
the wireless segment was 68 the 32 relating to the aggregate
shipments in all sectors other than wireless represents more than 
400 million units in 2004 demonstrating the increasing penetration 
of arm technology in the full range of digital products in 2004 unit
shipments grew strongly across all segments with particularly strong
growth in the microcontroller storage and consumer segments
gross margin
gross margin for the year to 31 december 2004 was 923 compared
with 914 in 2003
operating expenses
total operating expenses in the year to 31 december 2004 were 
£1059 million compared with £986 million in 2003 operating
expenses in 2004 include total nonrecurring and acquisitionrelated
charges of £66 million being £21 million related to the amortisation
of goodwill arising on acquisitions and £45 million in respect of a
technology licence agreement excluding nonrecurring and acquisition
related charges total operating expenses in 2004 were £993 million 
research and development expenses were £501 million in 2004
representing 33 of revenues this compares with £481 million or 
38 of revenues in 2003 sales and marketing costs in 2004 were
£239 million or 16 of revenues compared with £230 million or
18 of revenues in 2003 general and administration expenses in 2004
were £318 million including a nonrecurring charge of £45 million in
respect of a technology licensing agreement and £21 million of
goodwill amortisation excluding these nonrecurring and acquisition
related charges general and administration expenses in 2004 were
14 arm annual report and accounts 2004 £252 million or 17 of revenues compared to £198 million or 
15 of revenues before a nonrecurring charge of £64 million and
goodwill amortisation of £13 million in 2003
operating margin
the operating margin in 2004 was 230 compared with 144 in 2003
the operating margin in 2004 excluding nonrecurring and acquisition
related charges of £66 million was 274 compared to 204 before
nonrecurring and acquisitionrelated charges of £77 million in 2003
earnings and taxation
profit before tax in 2004 was £422 million compared with £232 million
in 2003 profit before tax in 2004 excluding nonrecurring and acquisition
related charges of £66 million was £488 million or 32 of revenues
compared with £309 million before nonrecurring and acquisition
related charges of £77 million or 24 of revenues in 2003
the group’s taxation rate in 2004 is 241 reduced from 343 in
2003 the reduction is due primarily to the lower level of disallowable
items and increased availability of research and development tax credits
in the uk in 2004 compared with 2003 
fully diluted earnings per share in 2004 were 31 pence compared 
with 15 pence in 2003 earnings per fully diluted share in 2004 
before nonrecurring and acquisitionrelated charges of £66 million
were 36 pence compared with 22 pence before nonrecurring and
acquisitionrelated charges of £77 million in 2003
the acquisition of artisan components inc was completed on 
23 december 2004 the 2004 profit and loss account does not include
any material trading results in respect of artisan however the balance
sheet at 31 december 2004 does reflect the acquisition of artisan 
balance sheet and cash flow
intangible assets at 31 december 2004 were £4624 million compared
with £75 million at 31 december 2003 comprising goodwill of 
£4594 million and other intangible assets of £30 million 
goodwill arising on the acquisitions of artisan and axys amounted 
to £4518 million and £81 million respectively
trade debtors at 31 december 2004 were £285 million including 
£81 million relating to artisan compared with £173 million at 
31 december 2003 the allowance against receivables was £15 million
at 31 december 2004 deferred revenues were £223 million at 
31 december 2004 including £82 million relating to artisan compared
with £111 million at the end of 2003
resources available
the consolidated cash shortterm investments and longterm
marketable securities balance was £1428 million at 31 december 
2004 compared with £1598 million at 31 december 2003 in 2004
£1223 million was paid as the cash element of the consideration 
for the acquisition of artisan £39 million of fees and expenses were
paid in respect of the acquisition of artisan prior to 31 december 
2004 and net cash shortterm investments and longterm marketable
securities amounting to £826 million were acquired on completion 
of the artisan transaction a further £14 million of fees and expenses
related to the artisan transaction are expected to be paid subsequent 
to 31 december 2004
interest receivable
interest receivable was £69 million for the year to 31 december 2004
compared with £48 million in 2003 reflecting the benefit of higher
average cash balances and higher interest rates in 2004
returns to shareholders
dividend 
the directors recommend payment of a final dividend in respect of
2004 of 042 pence per share which taken together with the interim
dividend of 028 pence per share paid in october 2004 gives a total
arm annual report and accounts 2004 15 16 arm annual report and accounts 2004
dividend in respect of 2004 of 07 pence per share an increase of 17
over the total dividend of 06 pence per share paid in 2003 subject to
shareholder approval the final dividend will be paid on 6 may 2005 
to shareholders on the register on 1 april 2005
capital structure
the authorised share capital of the company is 2200000000 ordinary
shares of 005 pence each 2003 1580000000 the increase was
approved by shareholders at an extraordinary general meeting held 
on 23 december 2004 to enable the company to issue arm shares to
artisan stockholders as part of the acquisition and to provide a sufficient
level of authorised but unissued capital the issued share capital at 
31 december 2004 was 1350786975 ordinary shares of 005 pence
each 2003 1023345650 
treasury policies and objectives and liquidity
the group has established treasury policies aimed both at mitigating
the impact of foreign exchange fluctuations on reported profits and
cash flows and at ensuring appropriate returns are earned on the
group’s cash resources
with more than 90 of group revenues earned in dollars and
approximately 45 of group costs being incurred in dollars the group
has a significant exposure to movements in the exchange rate between
the us dollar and sterling this exposure is partially mitigated by an
ongoing hedging programme involving forward contracts and low risk
option contracts where appropriate
principal risks and uncertainties
in line with the guidance for the preparation of an operating and
financial review certain risk factors faced by the company are identified
below a more detailed description is included in the company’s annual
report on form 20f and in the listing particulars dated 19 november
2004 details of the company’s internal control and risk management
procedures are included in the corporate governance report on page 20
arm’s quarterly results may fluctuate significantly and be unpredictable
which could adversely affect the market price of arm ordinary shares
arm has experienced and may in the future experience significant
quarterly fluctuations in its results of operations quarterly results may
fluctuate because of a variety of factors including
l the timing of entering into agreements with new licencees
l the mixture of license fees royalties revenues from the sale 
of development systems and fees from services
l the introduction of new technology by arm arm’s licensees 
or arm’s competition
l the timing of orders from and shipments to systems companies 
of arm corebased microprocessors from arm’s semiconductor
partners
l sudden technological or other changes in the microprocessor
industry and
l new litigation or developments in current litigation
in future periods arm’s operating results may not meet the expectations
of public market analysts or investors in such an event the market
price of arm ordinary shares could be materially adversely affected
operating and financial reviewcontinued
selected financial datauk gaap
2004 2003 2002 2001 2000
£000 £000 £000 £000 £000
turnover 152897 128070 150922 146274 100730
cost of sales 11799 11022 13185 17289 11647
gross profit 141098 117048 137737 128985 89083
total operating expenses 105877 98609 96608 83203 57927
group operating profit 35221 18439 41129 45782 31156
share of loss of associated undertaking – – – – 85
total operating profit 35221 18439 41129 45782 31071
net gain on disposals of trade investments – –– 314–
gain on part disposal of associated undertaking – ––– 512
interest receivable net 6944 4801 4373 4470 3912
profit on ordinary activities before taxation 42165 23240 45502 50566 35495
tax on profit on ordinary activities 10153 7977 13031 15874 6007
profit on ordinary activities after taxation 32012 15263 32471 34692 29488
equity minority interest – 105 232 303 192
profit attributable to shareholders 32012 15158 32239 34389 29296
dividends 8542 6106 – – –
retained profit for the financial year 23470 9052 32239 34389 29296
capital expenditure 5036 3605 15616 17349 11842
research and development expenditure 50133 48131 48674 38920 27518
cash short and longterm investments 142817 159786 130304 104467 75266
shareholders’ funds 618528 180435 172140 135723 98804
employees at end of year number 1171 740 721 722 619 arm annual report and accounts 2004 17
arm may not realise the anticipated benefits of the acquisition 
of artisan
the acquisition involves the integration of two companies that have
previously operated independently there can be no assurance
however regarding when or the extent to which the combined
company will be able to realise the benefits anticipated to result from
the acquisition including increased revenues cost savings or benefits
the combined company must integrate numerous systems including
those involving management information purchasing accounting and
finance sales billing employee benefits payroll and regulatory
compliance arm and artisan have a number of information systems
that are dissimilar which will have to be integrated or in some cases
replaced difficulties associated with integrating arm and artisan 
which would be exacerbated because they are headquartered in
different countries could have a material adverse effect on the combined
company and the value of arm adss or arm ordinary shares
general economic conditions may reduce arm’s revenues 
and harm arm’s business
arm is subject to risks arising from adverse changes in global economic
conditions technology purchases and investments may be delayed 
or reduced due to economic uncertainties in arm’s key markets 
the impact of this on arm is difficult to predict but if businesses defer
licensing arm’s technology require less services or development tools
or if consumers defer purchases of new products which incorporate
arm’s technology for example the slower than expected migration to
3g mobile phone technology arm’s revenue could decline a decline
in revenue would have an adverse effect on arm’s results of operations
and could have an adverse effect on arm’s financial condition
arm operates in the intensely competitive semiconductor market
the semiconductor market is characterised by price erosion rapid
technological change short product life cycles cyclical market patterns
and heightened foreign and domestic competition arm believes that
its future quarterly operating results will continue to be subject to a
wide variety of risk factors including those set out above
other risks include dependence on semiconductor partners and systems
companies availability of development tools systems software and
operating systems compatible with the arm architecture dependence 
on a small number of customers and products dependence on senior
management personnel and on hiring and retaining qualified engineers
litigation and threats of litigation and protection of arm ip 
tim score chief financial officer sir robin saxby warren east tim score tudor brown mike inglis mike muller mark templeton
directors and advisers
sir robin saxby age 58
chairman
sir robin saxby was involved in founding arm
and joined the company fulltime in february
1991 as president and chief executive officer
becoming chairman in october 2001 prior to
arm he was with es2 motorola semiconductors 
and henderson security systems limited he has
also served as chairman of the open
microprocessor initiative advisory group which
advised on collaborative rd activity within
europe he holds a beng in electronics and 
is a chartered engineer hon fiee and freng 
he has received an honorary doctorate from 
the university of liverpool where he is a 
visiting professor has honorary doctorates from
loughborough university and the university of
essex and has received the faraday medal of 
the iee institute of electrical engineers he 
was knighted in the 2002 new year’s honours
list he currently serves as deputy president of
the iee where he is also a trustee he is a non
executive director of glotel plc
warren east age 43
chief executive officer
warren east joined arm in 1994 he set up arm’s
consulting business and was vice president
business operations from february 1998 in
october 2000 he was appointed to the board as
chief operating officer and in october 2001 was
appointed chief executive officer before joining
arm he was with texas instruments he is a
chartered engineer
tim score age 44
chief financial officer 
tim score joined arm as chief financial officer
and director in march 2002 before joining arm
he was finance director of rebus group limited
he was previously group finance director of
william baird plc group controller at lucasvarity
plc and group financial controller at btr plc 
he is a nonexecutive director of national 
express group plc
tudor brown age 46
chief operating officer
tudor brown was one of the founders of arm
before joining the company he was principal
engineer at acorn computers where he worked 
on the arm rd programme at arm he was
engineering director and chief technical officer
from 1993 in october 2000 he was appointed
executive vice president global development and
in october 2001 he was appointed to the board
as chief operating officer
mike inglis age 45
executive vice president marketing
mike inglis joined arm as executive vice
president marketing in june 2002 and 
was appointed to the board in august that year
before joining arm he led the uk communications
and high technology team at at kearney
management consultants and held a number 
of senior operational and strategic marketing
positions at motorola he previously worked in
marketing design and consultancy with texas
instruments fairchild camera and instruments
and bis macintosh he gained his initial industrial
experience with gec telecommunications he is a
nonexecutive director of superscape group plc
he is a chartered engineer and an mcim
mike muller age 46
chief technology officer
mike muller was one of the founders of arm
before joining the company he was responsible
for hardware strategy and the development 
of portable products at acorn computers 
he was previously at orbis computers at arm he
was vice president marketing from 1992 to 1996
and executive vice president business development
until october 2000 when he was appointed chief
technology officer in october 2001 he was
appointed to the board
mark templeton age 45
general manager physical ip
mark templeton joined arm as general manager
physical ip in december 2004 as a result of
arm’s acquisition of artisan he cofounded
artisan in 1991 and was president and chief
executive officer for 13 years he has been
instrumental in driving growth in the ip market
through a combination of technical and business
innovations his vision of developing an open
community of resources for ic designers –
including foundries eda vendors design service
companies and ip providers – has proven to be 
a significant contribution to the ic design and
manufacturing industries before cofounding
artisan he held executive positions with silicon
compiler systems and mentor graphics 
simon segars age 37
executive vice president worldwide sales
simon segars joined the arm board in january
2005 he was appointed executive vice president
worldwide sales in january 2004 he was
previously evp of engineering he joined arm in
early 1991 and has worked on most of the arm
cpu products since then he led the development
of the arm7 and arm9 thumb
®
families he
holds a number of patents in the field of
embedded cpu architectures
18 arm annual report and accounts 2004 simon segars peter cawdron doug dunn lucio l lanza philip rowley john scarisbrick jeremy scudamore
peter cawdron age 61 
senior independent nonexecutive director
peter cawdron joined the arm board in march
1998 from 1983 to 1997 he worked for grand
metropolitan plc where he served as group
strategy development director he was previously
chief financial officer and a director of d’arcy
macmanus  masius worldwide inc and before
that a member of the corporate finance team at
sg warburg  co ltd he qualified as a chartered
accountant at peat marwick mitchell  co in
1966 he is chairman of capital radio plc and is 
a nonexecutive director of the following uk
listed companies compass group plc the capita
group plc christian salvesen plc arla foods uk
plc punch taverns plc and johnston press plc
doug dunn age 60
independent nonexecutive director
doug dunn joined the arm board in december
1998 he was previously president and chief
executive officer of asm lithography holding nv
until his retirement in december 2004 
before joining asml he was chairman and 
chief executive officer of the consumer electronics
division of royal philips electronics nv and a
member of the board he was previously
managing director of the plessey and gec
semiconductor divisions and held several
engineering and management positions at
motorola he was awarded an obe in 1992 
he is a nonexecutive director of 
st microelectronics nv sendo holdings plc 
and soitec sa
lucio l lanza age 60
independent nonexecutive director
lucio l lanza joined arm as a nonexecutive
director in december 2004 following arm’s
acquisition of artisan he was previously a director
of artisan from 1996 and became chairman in
1997 he is currently managing director of lanza
techventures an early stage venture capital and
investment firm which he founded in january
2001 in 1990 he joined us venture partners 
a venture capital firm as a venture partner and
was a general partner from 1990 to 1995 he 
was an independent consultant to companies in
the semiconductor communications and computer
aided design industries including cadence design
systems inc and from 1986 to 1989 was chief
executive officer of eda systems inc he is also 
on the board of directors of pdf solutions inc 
a provider of technologies to improve
semiconductormanufacturing yields he holds 
a doctorate in electronic engineering from
politecnico of milano 
philip rowley age 52
independent nonexecutive director
philip rowley joined the arm board in january
2005 he is president and ceo of aol europe 
the interactive services web brands internet
technologies and ecommerce provider he is a
qualified chartered accountant and was group
finance director of kingfisher plc from 1998 
to 2001 prior to that his roles included executive
vice president and chief financial officer of emi
music worldwide 
john scarisbrick age 52
independent nonexecutive director
john scarisbrick joined the arm board in august
2001 he had previously worked for 25 years 
at texas instruments ti in a variety of roles
including as senior vice president responsible 
for tis 5 billion asp chip business president of 
ti europe and leading the team that created 
tis dsp business in houston texas before joining
ti he worked in electronics systems design roles
at rank radio international and marconi space
and defence systems in the uk he is chairman
of cambridge positioning systems ltd and is a
nonexecutive director of csr plc soim intrinsity
and ubinetics
jeremy scudamore age 57
independent nonexecutive director
jeremy scudamore joined the arm board in 
april 2004 he is chief executive officer of avecia
group formerly the specialty chemicals business
of zeneca and previously held senior management
positions both in the uk and overseas with
zeneca and ici he is a board member of the
chemical industries association and englands
north west science council and is also a member
of the dtis innovation and growth team for the
chemical industry
arm annual report and accounts 2004 19
arm holdings plc 
secretary and registered office
patricia alsop
110 fulbourn road
cambridge cb1 9nj
united kingdom
registered number 2548782
auditors
pricewaterhousecoopers llp
abacus house
castle park
cambridge cb3 0an
united kingdom
stockbrokers
morgan stanley  co international
limited
25 cabot square
canary wharf
london e14 4qa
united kingdom
hoare govett limited
250 bishopsgate
london ec2m 4aa
united kingdom
registrars
lloyds tsb registrars
the causeway
worthing
west sussex bn99 6da
united kingdom
tel 44 0870 600 3984
despositary
the bank of new york
101 barclays street
new york
new york 10286
united states of america
legal advisers
uk law
linklaters
one silk street
london ec2y 8hq
united kingdom
us law
davis polk  wardwell
99 gresham street
london ec2v 7ng
united kingdom compliance with the combined code
the group complies and complied throughout 2004 with the new 2003
combined code appended to the listing rules of the financial services
authority with the exception only that the board does not comprise 
a majority of independent nonexecutive directors the board has
considered the overall balance between executive and nonexecutive
directors and believes that the number of executive directors is fully
justified by the contribution made by each of them to increase the 
size of the board further following the appointments made in late
december 2004 and early january 2005 to meet this particular provision
is not considered appropriate
composition and operation of the board
the board currently comprises seven executive directors six independent
nonexecutive directors and the chairman the executive directors are
the chief executive officer the chief operating officer the chief
financial officer the chief technology officer the executive vice
president marketing the general manager physical ip division and the
executive vice president worldwide sales all of whom play significant
roles in the daytoday management of the business the six non
executive directors are independent in character and judgement and
there are no relationships or circumstances which are likely to affect the
judgement of any of them the nonexecutive directors provide a blend
of experience and considerable knowledge to the board’s deliberations
peter cawdron who is the senior independent director and the
financial expert has extensive knowledge of uk public group issues and
a strong financial background doug dunn and jeremy scudamore both
have experience of running large companies in allied industries lucio
lanza and john scarisbrick both have a broad understanding of the
group’s technology and the practices of major usbased technology
companies philip rowley has a strong financial background and
knowledge of internet technologies and ecommerce
the board had six scheduled meetings during 2004 which were all
attended by all the directors with the exception of the january 
meeting when doug dunn was absent and the july november and
december meetings when jeremy scudamore was unable to attend
the remuneration committee met on two occasions with all members
present with the exception of jeremy scudamore for the december
meeting there is a procedure in place for additional meetings on 
any pertinent issues to be organised as necessary during the year 
in addition the chairman held two meetings with the nonexecutive
directors without the executives present and the nonexecutive
directors met on one occasion without the chairman being present 
to appraise the chairmans performance 
the board is responsible for setting the company’s strategic aims and
ensuring that the necessary financial and human resources are in place
for it to meet its objectives the board has a formal schedule of matters
specifically reserved for its decision which includes the approval of
major business matters policies operating and capital expenditure
budgets and ensuring high standards of corporate governance are
maintained the board is also responsible for sanctioning unusual
commercial arrangements such as atypical licence agreements and
investments 
before each meeting the board is furnished with information in a form
and of a quality appropriate for it to discharge its duties concerning the
state of the business and its performance the ultimate responsibility 
20 arm annual report and accounts 2004
corporate governanceuk gaap
for reviewing and approving the annual report and accounts and the
quarterly reports and for ensuring that they present a balanced
assessment of the group’s position lies with the board the board
delegates daytoday responsibility for managing the group to the
executive committee and has a number of other committees details 
of which are set out below
during the year the board undertook a formal evaluation of its own
performance processes committees composition skills and director
induction facilitated by external consultants it is intended that this
evaluation will be reviewed and updated by the board each year the
group has a commitment to training and all directors are encouraged 
to attend suitable training courses a full formal induction programme 
is arranged for all new directors tailored to their specific requirements
the aim of which is to introduce them to key executives across the
business and to enhance their knowledge and understanding of the
group and its activities 
major shareholders are encouraged to meet and talk to the chairman
the senior independent director and other nonexecutive directors at
any time the chairman and the senior independent director both had
dialogue with major shareholders during the year
the board has adopted guidelines for individual directors to obtain
independent professional advice at the groups expense in appropriate
circumstances and all members of the board have access to the advice
of the company secretary 
executive committee
the executive committee is responsible for implementing the strategy
set by the board among other things this committee is responsible for
approval of standard licence agreements ensuring that the group’s
budget and forecasts are properly prepared that targets are met and
generally managing and developing the business within the overall
budget variations from the budget and changes in strategy require
approval from the main board of the group the executive committee
which meets monthly comprises the executive directors excluding 
the chairman and the directors of arm limited and meetings are
attended by the company secretary and other senior operational
personnel as appropriate
audit committee 
the audit committee has written terms of reference which were
updated during the year to reflect the requirements of the combined
code and nasdaq the committee has responsibility for among other
things monitoring the integrity of the financial statements of the
company and any formal announcements relating to the company’s
financial performance and for reviewing any significant financial
reporting judgements contained in them reviewing the company’s
internal controls and risk management systems making
recommendations to the board in relation to the appointment
remuneration and resignation or dismissal of the group’s external
auditors reviewing and monitoring the external auditors’ independence
and objectivity and the effectiveness of the audit process developing
and implementing policy on the engagement of the external auditors 
to supply nonaudit services and considering compliance with legal
requirements accounting standards the listing rules of the financial
services authority and the requirements of the securities and exchange
commission 
  the committee also keeps under review the value for money of the
audit and the nature extent and costeffectiveness of the nonaudit
services provided by the auditors the committee has discussed 
with the external auditors their independence and has received and
reviewed written disclosures from the external auditors as required by
the auditing standards board’s statement of auditing standard no 610
“communication of matters to those charged with governance” as well
as those required by the us independence standards board’s standard
no 1 “independence discussions with audit committees” to avoid 
the possibility of the auditors’ objectivity and independence being
compromised the group’s tax consulting work is carried out by the
auditors only in cases where they are best suited to perform the work
for example tax compliance and advisory work relating to the audit and
in connection with the acquisition of artisan components inc in other
cases the group has engaged another independent firm of accountants
to perform tax consulting work the group does not normally award
general consulting work to the auditors from time to time however
the group will engage the auditors to perform work on matters relating
to human resources and royalty audits the group may also seek
professional advice from another firm of independent consultants 
or its legal advisers 
the current audit committee comprises peter cawdron chairman
doug dunn john scarisbrick jeremy scudamore and philip rowley 
who joined the committee on his appointment as a director on 
4 january 2005 peter cawdron is the financial expert as defined in 
the sarbanes oxley act 2002 and philip rowley is also qualified to 
fulfill this role the committee met on four occasions during 2004 once
before the release of the preliminary announcement of the 2003 results
to review the results and audit findings once to review the halfyear
interim results once in connection with the artisan acquisition and once
before the year end to discuss the scope and planning of the audit of
the 2004 results all members were present at each meeting with the
exception of doug dunn for the january meeting and jeremy
scudamore for the july and november meetings the external auditors
chief executive officer chief financial officer and the company
secretary attend all meetings in order to ensure that all the information
required by the audit committee for it to operate effectively is available
the representatives of the group’s external auditors meet with the
audit committee at least once a year without any executive directors
being present
remuneration committee
a description of the composition responsibility and operation of the
remuneration committee is set out in the remuneration report on 
page 27
nomination committee
the nomination committee leads the process for board appointments
and makes recommendations to the board in relation to new
appointments of executive and nonexecutive directors and on board
composition and balance it is chaired by sir robin saxby and the other
members are peter cawdron doug dunn john scarisbrick and lucio
lanza who joined the committee on his appointment as a director on
23 december 2004 the nomination committee met on two occasions
with all members present with the exception of doug dunn for the
january meeting the committee considers the roles and capabilities
required for each new appointment based on an evaluation of the
skills and experience of the existing directors in relation to the
appointments of jeremy scudamore and philip rowley the services 
of external search consultancies were used
internal controlrisk management 
the board of directors has overall responsibility for ensuring that the
group maintains an adequate system of internal control and risk
management and for reviewing its effectiveness the board has
reviewed the system of internal control including internal financial
controls such systems are designed to manage rather than eliminate
the risks inherent in a fastmoving hightechnology business and can
therefore provide only reasonable and not absolute assurance against
material misstatement or loss
the company appointed a risk review committee in 2003 consisting of
the chief technology officer the chief financial officer the financial
controller and the company secretary the committee receives and
reviews quarterly reports from business unit managers and corporate
functions and its findings are considered and challenged by the
executive committee the committee is responsible for identifying 
and evaluating risks which may impact on the group’s strategic and
business objectives and for monitoring the progress of actions designed
to mitigate such risks the risk review committee reports formally to the
executive committee once a year and in turn the executive committee
reports to the board once a year 
the company appointed a disclosure committee in 2003 in compliance
with the sarbanes oxley act 2002 the committee which comprises the
chief executive officer the chief financial officer the financial controller
the general counsel and the company secretary is responsible for
ensuring that disclosures made by the company to its shareholders and
the investment community are accurate complete and fairly present
the company’s financial condition in all material respects
in addition there is a series of interconnected meetings that span the
group from the weekly management meeting chaired by the chief
executive officer and the weekly business review meeting chaired by
the vice president operations the purpose of which is to monitor and
control all main business activities sales forecasts and other matters
requiring approval that have arisen within the week to the board
meetings of the group each month an operations meeting chaired 
by the chief operating officer and attended by managers representing
different functions across the group is held to review key performance
indicators such as revenues orders booked costs product and project
delivery dates and levels of defects found in products in development
once a quarter the annual operational plans for the different disciplines
within the group are reviewed at the operations meeting the outputs
of the weekly business review meeting and the monthly operations
meeting are reviewed by the executive committee which in turn
raises relevant issues with the board of the group these processes for
identifying evaluating and managing the significant business operational
financial compliance and other risks facing the group have been in
place for the year under review and up to the date of approval of the
annual report and financial statements they accord with the guidance
on internal control issued in september 1999 by the internal control
working party of the institute of chartered accountants in england 
and wales
arm annual report and accounts 2004 21 as required by the combined code the audit committee has considered
whether it would be appropriate for the group to have its own financial
internal audit function and has concluded that taking account of its
relatively small number of employees and a high degree of centralisation
in the way the business is run this is not appropriate at present the
committee has confirmed this view to the board the group does
however have an operational internal audit function that audits the
group’s business and productproject management processes these
processes are documented maintained and continuously improved 
for effectiveness and efficiency in addition they are audited externally
by independent auditors for compliance with iso 90012000
corporate social and ethical policies
while the group is accountable to its shareholders it also endeavours 
to take into account the interests of all its stakeholders including its
employees customers and suppliers and the local communities and
environments in which it operates the chief financial officer takes
responsibility for matters relating to corporate social and ethical policies
and these matters are considered at board level a corporate social
responsibility report is on pages 23 to 24 of this report and also on 
the group’s website wwwarmcom
the board codified various existing policies into a code of business
conduct and ethics which was adopted in 2004 and is available on the
groups website
as a company whose primary business is the licensing of ip  employees
are highly valued and their rights and dignity are respected the group
strives for equal opportunities for all its employees and does not tolerate
any harassment of or discrimination against its staff in 2003 arm was
named employer of the year in the uk national business awards the
group also endeavours to be honest and fair in its relationships with its
customers and suppliers and to be a good corporate citizen respecting
the laws of the countries in which it operates
environmental policies
the group’s premises are composed entirely of offices since it has 
no manufacturing activities staff make use of computeraided design
tools to generate ip  this involves neither hazardous substances nor
complex waste emissions with the exception of development systems
products the majority of “products” sold by the group comprise
microprocessor core designs that are delivered electronically to customers
the group recognises the increasing importance of environmental issues
and these are discussed at board level where the chief financial officer
takes responsibility for them a number of initiatives in this area have
continued in 2004 the group’s environmental policy is published 
on its website an environmental action plan is implemented through
various initiatives these include monitoring resource consumption and
waste creation so that targets set for improvement are realistic and
meaningful ensuring existing controls continue to operate satisfactorily
and working with suppliers to improve environmental management
along the supply chain
energy usage and resource consumption data is published in the
group’s corporate social responsibility report on its website
health and safety
although arm operates in an industry and in environments which 
are considered low risk from a health and safety perspective the safety
of employees contractors and visitors is a priority in all arm workplaces
worldwide continual improvement in safety management systems 
is achieved through detailed risk assessments to identify and eliminate
potential hazards and occupational health assessments for employees
the uk offices are covered by a health and safety committee fire
wardens and first aiders each year the goodcorporation verification
ensures that the criteria in its charter are met the uk offices are also
audited by the british safety council and the company achieved three
stars in the 2004 audit other offices have similar cover dependent on
local needs practices and customs 
relationships with shareholders
the board makes considerable efforts to establish and maintain good
relationships with institutional shareholders the group has a regular
dialogue with institutional shareholders throughout the year other than
during close periods the board also encourages communication with
private investors and part of the group’s website is dedicated to
providing accurate and timely information for all investors including
comprehensive information about the business its partners and products
including all press releases at present around 20 analysts write
research reports on the group the group publishes telephone numbers
on its website enabling shareholders to listen to earnings presentations
and audio conference calls with analysts members of the board
including some of the nonexecutive directors attend the annual
analysts’ day and develop an understanding of the views of major
shareholders through any direct contact that may be initiated by
shareholders or through analysts and brokers briefings and feedback
from the groups financial pr advisers who obtain feedback from
analysts and brokers following investor roadshows during 2004 the
chairman had meetings with major shareholders to discuss governance
and strategy particularly in relation to the acquisition of artisan
components inc and communicated the views of such shareholders 
to the board all shareholders may register to receive the group’s press
releases via the internet
the board actively encourages participation at the annual general
meeting scheduled for 25 april 2005 which is the principal forum 
for dialogue with private shareholders a presentation will be made
outlining recent developments in the business and an open question
andanswer session will follow to enable shareholders to ask questions
about the business in general
by order of the board
patricia alsop company secretary
22 arm annual report and accounts 2004
corporate governanceuk gaapcontinued arm considers itself to be a good corporate citizen the group strives 
to reduce the impact it makes on the environment and to increase 
its connections with the communities in which it operates we 
also work hard to connect and considerable efforts are made to
communicate effectively with the group’s shareholders partners
suppliers and employees
the group is a corporate member of the institute of business ethics
ibe and was one of the first members of the goodcorporation which
was founded in 2001 to help organisations to develop manage and
monitor their corporate responsibilities based on principles set out by
the ibe the goodcorporation charter enables companies to measure
how effective they are in achieving these responsibilities arm’s
commitment to the charter includes being verified against a 62point
charter standard each year covering the fair treatment and protection of
its employees customers suppliers shareholders the community and
the environment this independent verification process is repeated each
year and during 2004 the group successfully retained its membership
in addition arm is listed on the ftse4good index is a member of
business in the community and takes part in its business in the
environment index and corporate responsibility index each year
the environment 
the group’s business focuses on designing ip which enables devices 
to use less power and as a result to be more environmentally friendly
its activities do not produce harmful waste or emissions and the ethical
investment research service eiris grades arm as an environmentally
“low impact” business nevertheless environmental performance is
monitored to enable targets to be set for reducing paper usage and
increasing the amount recycled and controlling water consumption 
a document output study has been established to examine paper
consumption within the group and to consider how an extension of its
electronic document management systems might reduce the need for
paper documents the group can also demonstrate an increase in paper
and packaging recycling and an improvement in the facilities in place to
promote recycling of more materials energy usage is monitored closely
to understand how it is used which aids the setting of new targets
renewable energy sources are also being investigated there are
recycling bins for aluminium cans in the majority of the group’s offices
and air conditioning systems run on less environmentally damaging
refrigerants the supply of company cars is discouraged and in a group
of approximately 1200 people there are less than 30 company cars
there is a sustainable transport team within the business looking at
ways in which impact on the environment can be reduced initiatives
introduced so far include encouraging employees to cycle to work
through the provision of improved facilities at the group’s offices or to
share car journeys or use public transport business travel is measured
and ways in which travel can be reduced while still maintaining our
very effective partnership network are under constant review particularly
through the provision of video conferencing equipment the group will
work closely with the british safety council in 2005 to establish ways 
to formalise our environmental objectives and performance
connecting with local communities 
the group aims to be a good corporate citizen of the communities in
which it operates and supports local initiatives and fundraising in the
uk the focus has been on educational projects – particularly for pupils
who are interested in mathematics science it and business subjects
this support is sometimes financial sometimes in the form of providing
employees’ time and skills arm also connects with the local business
community and is a founding member of the learning collaboration
tlc within the cambridge business community in the uk the tlc
enables member companies to pool resources to collaborate to 
learn improving the quality availability and value of training and
related services 
supporting education arm’s support for education stretches from
funding an information technology centre at a uk junior school 
to working on specific projects with students at the judge institute
cambridge university’s business school the group has helped four
schools near its cambridge uk offices and one near its maidenhead 
uk office to achieve specialist school status the group supports the
engineering education scheme young engineers and contributes to 
the funding to train the uk team for the international maths olympics
arm’s university programme engages universities worldwide designing
course material providing technical seminars donating equipment and
software and offering assistance directly to students arm has worked
with a number of engineering schools internationally including seoul
national university carnegiemellon us southeast university china
and the national institute of technology karnataka india in addition
the group has relationships with a number of uk universities the
chairman for example is a visiting professor at liverpool and the group
has worked with loughborough to design a degree course which is
based on the arm architecture
supporting good causes arm encourages employees to support their
local communities some are school governors some help children
improve their reading skills others support charities employees at the
group’s austin texas office have for example helped with blood drives
and have also collected food and toys for underprivileged families 
the group “doubles the efforts” of employees who raise money for
approved charities by matching the funds they raise with the exception
of political donations or other nonapproved causes charities for
cancer research to benefit needy children to support sufferers of
multiple sclerosis mental illness and parkinson’s disease have been
some of the beneficiaries of this scheme in 2004 a payroll giving
scheme was introduced for employees in the uk to enable them 
to take advantage of uk tax incentives on charitable giving
the princes trust in 2004 arm became a sponsor of the prince’s trust
technology leadership group and has participated in events targeted 
at widening the knowledge and understanding of technology and
contributed expertise to the technology networking events a team 
of five employees from arm successfully completed the prince’s trust
sahara challenge raising £12500 for the trust
connecting with employees
arm’s aim is to attract and retain the best people available by being 
a good and ethical employer the skills knowledge and motivation 
of employees are crucial to arm’s success the group promotes and
supports individuals and teams through onthejob and formal training
coaching and mentoring every effort is made to keep employees well
informed about the company and matters that affect them this is done
through both formal and informal communications methods across all
offices worldwide the group also carries out a regular comprehensive
global opinion survey to monitor employee views and to provide
arm annual report and accounts 2004 23
corporate social responsibilityuk gaap valuable input on how the company operates the employee assistance
programme helps staff and their families with issues such as care for
children or elderly relatives legal and health advice and stress or 
other counselling 
equal opportunities the group needs highlyqualified staff and does 
not see age colour disability ethnic origin gender political or other
opinion religion or sexual orientation as a barrier to employment 
if any member of staff becomes disabled their needs and abilities are
assessed with a view to them continuing in their current role if this is
impossible every effort is made to offer them alternative employment
benefits employees receive benefits including private medical
healthcare health travel and life insurance pensions401k plan
sabbaticals flexible working stock options and a save as you earn
share scheme the group supports family friendly initiatives and offers
child care vouchers for uk tax payers flexible working arrangements
are available for all employees regardless of whether they have
children understanding and acceptance of national and cultural
diversity is encouraged by giving employees the opportunity to work 
in offices other than in their home country
accessibility
the group endeavours to provide access to all whether through building
design to allow easy disabled access or through improving access to our
website for those with visual impairments
health and safety
the safety of employees contractors and visitors is a priority arm
measures and analyses all accidents and “near misses” there has been
only one riddor reportable accident in the company’s history and by
monitoring patterns or trends potential problems can be identified and
avoided the group is verified by goodcorporation each year to ensure
that its health and safety requirements are met and in addition its uk
offices are audited by the british safety council in the uk there is a
health and safety committee and each office has fire wardens and first
aiders overseas offices have the health and safety cover required by
local legislation health and safety is high on the agenda and there has
been an increase in the amount of communication with employees on
occupational health issues and other health and safety issues through
different mediums such as intranet pages and companywide magazine
articles during 2004 further health and safety training has been
provided to line managers to assist in the development of a safety
culture within the organisation
24 arm annual report and accounts 2004
corporate social responsibilityuk gaapcontinued the directors present their annual report and audited financial
statements for the year ended 31 december 2004
principal activities and review of business
the principal activities of the group and its subsidiaries are the licensing
marketing research and development of riscbased microprocessors
and systems the nature of the global semiconductor industry is such
that most of its business is conducted overseas and to serve its
customers better the group has sales offices around the world these
include five offices in the us and offices in shanghai and beijing pr
china tokyo japan seoul south korea taipei taiwan kfar saba israel
paris france munich germany and bangalore india design offices are
based in cambridge maidenhead sheffield and blackburn uk sophia
antipolis france leuven belgium aachen germany austin texas and
sunnyvale california in the us and bangalore india more information
about the business is set out in the chairman’s statement on pages 4 
to 5 the chief executive officer’s review on pages 6 to 13 and the
operating and financial review on pages 14 to 17
future developments 
the group’s stated objective is to establish a new global risc
architecture standard for the embedded microprocessor market the
directors believe that to achieve this goal it is important to expand the
number and range of potential customers for its technology the group
intends to enter into licence agreements with new customers and to
increase the range of new technology supplied to existing customers
relationships will continue to be established with thirdparty tools and
software vendors to ensure that their products will operate with the
arm architecture as a result of its position as an emerging standard in
its industry the group is presented with many opportunities to acquire
complementary technology or resources it continues to review these
opportunities and in august 2004 the group acquired axys design
automation inc which provides integrated processor and system
modelling and simulation solutions in december 2004 the group
acquired artisan components inc now known as arm physical ip  inc
which provides physical ip components for the design and manufacture
of integrated circuits
going concern
after making enquiries the directors have a reasonable expectation 
that the group and company have adequate resources to continue 
in operational existence for the foreseeable future for this reason 
they have adopted the going concern basis in preparing the financial
statements
dividends
the directors recommend a final dividend in respect of the year to
31 december 2004 of 042 pence per share which subject to approval
at the annual general meeting on 25 april 2005 will be paid on 6 may
2005 to shareholders on the register at 1 april 2005 this final dividend
combined with the interim dividend of 028 pence per share paid
during the year makes a total of 07 pence per share for the year
2003 06 pence
research and development rd
rd is of major importance and as part of its research activities the
group collaborates closely with universities worldwide key areas of
product development for 2005 include the development of further low
power high performance engines for both data and control applications
such as the optimode technology and arm cores based on symmetric
multiprocessor and superscalar technology in addition improved security
is being developed through the trustzone and securjc™ technologies
the group incurred rd costs of £501 million in 2004 compared with
£481 million in 2003 which have been charged to the profit and loss
account 
donations
during the year the group made donations for charitable purposes 
of £33327 2003 £42486 the total amounts given for each such
purpose were
local cambridge charities £7919
promotion of education £11979
wider understanding of science maths 
and information technology £9180
medical research £3478
relief of poverty £771
the group does not make any political donations arm employees are
encouraged to offer their time and expertise to help charities and other
groups in need the group operates a gift matching system for
employee fundraising
impact of international financial reporting standards ifrs
during the year the group continued to consider the impact that
implementing ifrs in 2005 will have on its financial statements and
reporting functions the project is ongoing and is well progressed 
and the group continually monitors the new announcements being made
by the iasb the group has performed analyses of the impact of the
current standards and has accordingly begun to maintain its internal
financial reporting in 2005 in accordance with ifrs the key areas 
which will affect the financial statements and accounting policies are
derivatives and financial instruments revenue recognition intangibles
sharebased payments acquisition accounting and accounting for rd
costs the first results to be announced in accordance with ifrs will be
the group’s interim statement for the six months to 30 june 2005
directors in the year
the following served as directors of the company during the year
ended 31 december 2004
sir robin saxby kbe chairman
warren east chief executive officer 
tim score chief financial officer 
tudor brown chief operating officer
mike muller chief technology officer
mike inglis executive vice president marketing 
mark templeton general manager physical ip division 
appointed 23 december 2004
peter cawdron independent nonexecutive senior independent 
director financial expert
doug dunn obe independent nonexecutive 
lucio lanza nonexecutive appointed 23 december 2004
john scarisbrick independent nonexecutive 
jeremy scudamore independent nonexecutive 
appointed 26 april 2004 
lawrence tesler independent nonexecutive resigned 26 april 2004 
arm annual report and accounts 2004 25
directors’ reportuk gaap 26 arm annual report and accounts 2004
election and reelection of directors
jeremy scudamore philip rowley and simon segars were each
appointed to the board since the annual general meeting in 2004 
in accordance with article 83 of the groups articles of association 
they are standing for election at the annual general meeting 
in accordance with the article 79 of the groups articles of association
sir robin saxby mike muller tudor brown doug dunn john scarisbrick
and tim score will retire by rotation at the company’s annual general
meeting agm and will seek reelection at that meeting see pages
18 to 19 for the directors’ biographies
directors’ shareholdings in the company
the interests of the directors in the company’s ordinary shares of 
005 pence all of which were beneficially held are disclosed in the
remuneration report on page 27
substantial shareholdings
the directors are aware of the following substantial interests in the
issued share capital of the company as at 16 february 2005
percentage of issued
ordinary share capital
capital group companies 102
fidelity investments 53
legal and general investment management 37
janus capital corporation 36
american century investments 33
threadneedle asset management 31
save for the above the company has not been notified as at 
16 february 2005 of any material interest of 3 or more or any 
nonmaterial interest exceeding 10 of the issued share capital 
of the company
disabled persons
the group has a strong demand for highly qualified staff and as such
disability is not seen to be an inhibitor to employment or career
development in the event of any staff becoming disabled while with
the group their needs and abilities would be assessed and the group
would where possible seek to offer alternative employment to them 
if they were no longer able to continue in their current role 
employee involvement
as the group is an ip enterprise it is vital that all levels of staff are
consulted and involved in its decisionmaking processes to this end
internal conferences and communications meetings are held regularly
which involve employees from all parts of the group in discussions 
on future strategy and developments furthermore employee share
ownership is encouraged and all staff are able to participate in one of
the group’s schemes to encourage share ownership the group has an
informal and delegated organisational structure it does not presently
operate any collective agreements with any trade unions
policy on payment of creditors
the group’s policy is to pay suppliers before the end of the month
following receipt of the invoice unless terms have been specifically
agreed in advance this policy and any specific terms agreed with
suppliers are made known to the appropriate staff and to suppliers 
on request trade creditors of the group at 31 december 2004 were
equivalent to 26 days’ purchases for the group 2003 23 days’ and 
nil days for the company in both years 
annual general meeting agm
the agm will be held at the group’s offices in cambridge uk on 
25 april 2005 at 2pm a presentation will be made at this meeting
outlining recent developments in the business the group will convey
the results of proxy votes cast at the agm shareholders are invited to
submit written questions in advance of the meeting questions should
be sent to the secretary arm holdings plc 110 fulbourn road
cambridge cb1 9nj
a resolution to reappoint pricewaterhousecoopers llp as auditors to the
group will be proposed at the agm
a separate notice of agm and proxy card will be sent to all shareholders
by order of the board
patricia alsop company secretary
directors’ reportuk gaapcontinued remuneration committee
the remuneration committee has responsibility for determining and agreeing with the board within agreed terms of reference the group’s policy
for the remuneration of the executive directors and the individual remuneration packages for the executive directors including basic salary and
annual bonuses the level and terms of grants of options and awards and the terms of any performance conditions to apply to the exercise of such
options and awards pension rights and any compensation payments where the remuneration committee considers it appropriate the committee
will make recommendations in relation to the remuneration of senior management the committee also liaises with the board in relation to the
preparation of the board’s annual report to shareholders on the group’s policy on the remuneration of executive directors and in particular the
directors’ remuneration report as required by the companies act 1985 as amended the combined code and the listing rules of the financial
services authority 
the committee is chaired by doug dunn and peter cawdron john scarisbrick and jeremy scudamore are members the committee met three
times during 2004 and all meetings were attended by all the committee members with the exception of the july and december meetings when
jeremy scudamore was unable to attend given their diverse experience the four independent nonexecutive directors are able to offer a balanced
view with respect to remuneration issues for the group the committee has access to professional advice from external advisers generally
appointed by bill parsons the executive vice president human resources in the furtherance of its duties and makes use of such advice during
2004 linklaters watson wyatt deloitte  touche and the executive vice president human resources have provided advice or services to the
committee linklaters provided legal services and watson wyatt provided pension advice to the group during this period the chairman the chief
executive officer and the executive vice president human resources normally attend for part of the remuneration committee meetings no
director is involved in deciding his own remuneration
remuneration policy
the remuneration committee in its deliberations on the remuneration policy for the group’s directors seeks to give full consideration to the principles
set out in the combined code the committee also monitors developments in accounting for equitybased remuneration on an ongoing basis
the group operates a remuneration policy for executive directors designed to ensure that it attracts and retains the management skills necessary
for it to remain a leader in its field this policy seeks to provide rewards and incentives for the remuneration of executive directors that reflect their
performance and align with the objectives of the group and comprise a mix of performancerelated and nonperformancerelated remuneration
the committee believes that a director’s total remuneration should seek to recognise his worth in the external market and to this end operates 
a policy of paying base salaries which are in line with the market median as part of a total remuneration package which is upper quartile the
committee believes that this is justified recognising that more than 50 of total remuneration is performancerelated the committee obtains
information about the external market from various surveys including the watson wyatt high technology and executive reward surveys and the
deloitte  touche executive directors remuneration survey
the nature of the group’s development has meant that there has been a good deal of focus on the attainment of shortterm objectives with a high
level of variable remuneration currently variable remuneration consists of three elements annual cash bonus discretionary share options and
conditional awards under the long term incentive plan all these incentives are performancerelated and as a result more than half of each
executive director’s remuneration is targeted to be performance linked following a review of the group’s variable remuneration structure the
remuneration committee concluded that in order to align better the interests of executive directors with those of shareholders and to ensure 
that these key individuals are appropriately incentivised to remain with the group a higher proportion of executive directors’ remuneration should
focus on longerterm objectives as a result in 2003 a shareholding guideline was introduced under which executive directors and certain senior
managers are required to build up a holding of shares in the company over a period of five years the shareholdings may be built up of shares
received under the company’s discretionary share option schemes andor the long term incentive plan and in the case of executive directors 
the required holding is equivalent in value to 100 of basic salary
incentive arrangements
the remuneration committee aims to ensure that individuals are fairly rewarded for their contribution to the success of the group there is a strong
bonus element to executive directors’ remuneration with a bonus of up to 50 of basic pay being available through the executive bonus plan 
if all targets are met payment of bonus is subject to the achievement of revenue and profit targets set by the remuneration committee which 
are directly related to the group’s financial results and ensure that the groups shortterm financial goals are met full bonuses are payable to
executive directors in respect of performance during 2004
for the 2005 operation of the bonus plan the targets set by the remuneration committee are for growth in dollar revenues between an agreed
range with the proviso that no bonus will be payable unless earnings per share exceed a defined target if these targets are achieved bonuses 
will be payable on a linear basis between the minimum and the maximum of the agreed range any over achievement of the stretching revenue
target will result in the percentage outperformance being applied to the bonus for example if the revenue target is exceeded by 10 the bonus
will increase by 5 annual bonuses can be doubled under the deferred bonus plan if payment is deferred for three years although there are no
outstanding elections to do so details of the deferred bonus plan are set out on page 33
arm annual report and accounts 2004 27
remuneration reportuk gaap 28 arm annual report and accounts 2004
the group operates a number of share option plans and employees generally receive a number of share options according to their grade and
performance typically share options are allocated to employees on an annual basis discretionary options under the approved unapproved and
incentive stock option schemes are always issued at market value while options issued under the savingsrelated share option scheme and the
savingsrelated share option plan are issued at a 15 discount to market value in line with practice among the group’s peers in the technology
sector there are generally no performance conditions attached to the issue or exercise of discretionary options except for those issued to executive
directors where performance conditions based on real eps apply to drive longterm profitability share options issued to executive directors prior 
to their appointment to the board of the group do not have performance conditions attached to them however discretionary options issued to
executive directors after their appointment to the board of the group will have performance conditions attached to them executive directors do
not currently receive options under the approved scheme and incentive stock option scheme under the unapproved scheme share options with 
a value of up to five times base salary may be issued on the executive director joining the group in addition discretionary options with a value 
of up to two times base salary may be issued each year these discretionary options will vest after seven years but may vest after three years
from grant if the performance conditions are satisfied 
for options granted before january 2003 the performance condition is that the group must achieve average real eps growth of at least 331 
ie 331 greater than the percentage increase if any in the retail prices index over a performance period of three years from the start of the
financial year in which the options were granted the “performance period” 
for options granted in 2003 under the performance condition 50 of the shares under option will vest after three years if the group achieves
average real eps growth of 93 over the performance period if average real eps growth of at least 331 is achieved over the performance
period 100 of the shares under option will vest after three years where the average real eps growth over the performance period is between
93 and 331 the number of shares which vest after three years increases on a straightline basis 
for options granted in 2004 and 2005 under the performance condition 50 of the shares under option will vest after three years if the group
achieves average real eps growth of 125 over the performance period if average real eps growth of at least 331 is achieved over the
performance period 100 of the shares under option will vest after three years where the average real eps growth over the performance period
is between 125 and 331 the number of shares which vest after three years increases on a straightline basis
the performance conditions applicable to the long term incentive plan are described in more detail below and are based on total shareholder
return tsr rather than eps providing the link to performance against an appropriate peer group
these performance conditions were selected having regard to the position of the group within its sector and the nature of the companies against
which it competes to attract and retain highcalibre employees the committee believes that the performance conditions represent the correct
balance between being motivational and challenging
pensions
the group does not operate its own pension scheme but makes payments into a group personal pension plan which is a money purchase scheme
for the ukbased directors the rate of group contribution is 10 of the executive’s basic salary 25 in the case of the chairman subject to the
inland revenue salary capping limits for mark templeton who is based in the us the rate of group contribution is 6 of his basic salary
service agreements
executive directors have “rolling” service contracts that may be terminated by either party on one year’s notice the service contracts also
terminate when executive directors reach age 65 with the exception of the chairman these agreements provide for each of the directors to
provide services to the group on a fulltime basis the agreements contain restrictive covenants for periods of three to six months following
termination of employment relating to noncompetition nonsolicitation of the group’s customers nondealing with customers and nonsolicitation
of the group’s suppliers and employees in addition each service agreement contains an express obligation of confidentiality in respect of the
group’s trade secrets and confidential information and provides for the group to own any intellectual property rights created by the directors in 
the course of their employment
remuneration reportuk gaapcontinued arm annual report and accounts 2004 29
the dates of the service contracts of each person who served as an executive director during the financial year are as follows
director date
sir robin saxby 31 january 1996
warren east 29 january 2001
tim score 1 march 2002
tudor brown 3 april 1996
mike muller 31 january 1996
mike inglis 17 july 2002
mark templeton 18 november 2004
where notice is served to terminate the appointment whether by the group or the executive director the group in its absolute discretion shall be
entitled to terminate the appointment by paying to the executive director his salary in lieu of any required period of notice
nonexecutive directors
during 2004 the chairmen of the audit and remuneration committees each received a total fee of £29000 per annum and the other non
executive directors each received a total fee of £27000 per annum these fees were arrived at by reference to fees paid by other companies 
of similar size and complexity and reflected the amount of time nonexecutive directors were expected to devote to the group’s activities during
the year which is around 10 to 15 working days a year the remuneration of the nonexecutive directors is set by the board and their term of
appointment is three years nonexecutive directors do not have service contracts are not eligible to participate in bonus or share incentive
arrangements and their service does not qualify for pension purposes or other benefits no element of their fees is performancerelated the
options held by lucio lanza were granted during his service with artisan and were rolled over into options over arm shares under the terms 
of the acquisition
performance graphs
a performance graph showing the company’s total shareholder return tsr together with the tsr for the ftse global technology index of 
50 companies from 31 december 1999 is shown below the tsr has been calculated in accordance with the directors’ remuneration report
regulations 2002 the tsr for the company’s shares was 87 over this period compared with 67 for the ftse global technology index 
for the same period
arm share price performance against the ftse global technology index £ sterling
the directors consider the ftse global technology index to be an appropriate choice as the index contains companies from the us asia and europe
and therefore reflects the global environment in which the group operates in addition the index includes many companies that are currently the
group’s customers as well as companies which use arm technology in their end products 
0
20
40
60
arm share price 
80
100
120
140
31 december 2004 31 december 2003 31 december 2002 31 december 2001 31 december 2000 31 december 1999         
ftse global technology index 30 arm annual report and accounts 2004
directors’ shareholdings in the company
the directors’ beneficial interests in the company’s ordinary shares of 005 pence which excludes interests under its share option schemes are set
out below 
31 december 31 december
2004 2003
director number number
sir robin saxby 21363060 22363060
warren east 174920 174920
tim score 10000 10000
tudor brown 1496460 1496460
mike muller 1891860 1891860
mike inglis 10000 10000
doug dunn 48000 48000
peter cawdron 98000 98000
john scarisbrick 10800 10800
jeremy scudamore 55000 –
mark templeton 10535552 –
lucio lanza 1277291 –
in addition to the interests disclosed above all the executive directors together with all the employees of the group are potential beneficiaries 
of both the arm holdings plc employee share ownership plan and the arm holdings plc qualifying employee share ownership trust they are
therefore treated as interested in all the shares held by these trusts being 5000000 ordinary shares and 713034 ordinary shares respectively 
at 31 december 2004 and 5000000 and 721080 shares respectively at 31 december 2003 there have been no changes in directors’ interests 
in the company’s shares to the date of approval of the remuneration report
auditable information
the following information has been audited by the company’s auditors pricewaterhousecoopers llp  as required by schedule 7a to the companies
act 1985
interests in share options
details of discretionary options beneficially held by directors are set out below
as at as at
1 january 31 december exercise earliest
2004 granted exercised 2004 price date of expiry
director number number number number £ exercise date
sir robin saxby 140000 – – 140000 1224 110302 100306 
25000 – – 25000 6155 220501 210507 †
165000 – – 165000
warren east 131520 – – 131520 1224 110302 100306 
8480 – – 8480 1224 110302 100309
3187 – – 3187 6155 220503 210510
20962 – – 20962 6155 220501 210507 †
62909 – – 62909 3815 220504 220508 
100000 – – 100000 2465 190405 190409 
914285 – – 914285 04375 300106 300110 
– 400000 – 400000 125 300107 300111 
1241343 400000 – 1641343
tim score 206896 – – 206896 2465 190405 190409 
777142 –– 777142 04375 300106 300110 
– 320000 – 320000 125 300107 300111 
984038 320000 – 1304038
remuneration reportuk gaapcontinued arm annual report and accounts 2004 31
as at as at
1 january 31 december exercise earliest
2004 granted exercised 2004 price date of expiry
director number number number number £ exercise date
tudor brown 140000 – – 140000 1224 110302 100306 
3736 – – 3736 6155 220503 210510 
21264 – – 21264 6155 220501 210507 †
2091 – – 2091 335 140504 130511 
22909 – – 22909 335 140502 130508 †
50000 – – 50000 2465 190405 190409 
731428 – – 731428 04375 300106 300110 
– 320000 – 320000 125 300107 300111 
971428 320000 – 1291428
mike muller 140000 – – 140000 1224 110302 100306 
3736 – – 3736 6155 220503 210510 
17615 – – 17615 6155 220501 210507 †
2091 – – 2091 335 140504 130511 
22909 – – 22909 335 140502 130508 †
50000 – – 50000 2465 190405 190409 
731428 – – 731428 04375 300106 300110 
– 288000 – 288000 125 300107 300111 
967779 288000 – 1255779
mike inglis 223515 – – 223515 21475 270503 260509 †
731428 – – 731428 04375 300106 300110 
– 288000 – 288000 125 300107 300111 
954943 288000 – 1242943
mark templeton – 449561 – 449561 039 180401 170410
– 1078947 – 1078947 025 051102 041111
– 449561 – 449561 047 150804 221013
– 170832 – 170832 070 231204 190814
– 2148901 – 2148901
lucio lanza – 89912 – 89912 057 170300 160210
– 7498 – 7498 022 160501 150411
– 26236 – 26236 044 070302 060212
– 588134 – 588134 050 090503 080413
– 577615 – 577615 066 110404 100314
– 411421 – 411421 055 110404 080414
– 1700816 – 1700816
 denotes share options issued under the group’s approved share option scheme
 denotes share options issued under the group’s unapproved share option scheme
 denotes share options issued under the group’s unapproved share option scheme with performance conditions attached
† denotes share options issued under the group’s unapproved share option scheme which are exercisable as follows
25 maximum from first anniversary 50 maximum from second anniversary 75 maximum from third anniversary 100 maximum on fourth anniversary
no options lapsed in the year
details of the performance conditions and implications on the vesting of options is noted in the remuneration policy section above
on 4 february 2005 discretionary share options were granted to the following executive directors warren east 592417 tim score 473934 
tudor brown 436019 mark templeton 498774 mike muller 398104 mike inglis 379147 and simon segars 341232 the exercise price is 
1055 pence and all are subject to performance conditions  32 arm annual report and accounts 2004
these options vest after seven years but may vest after three years if the following performance condition is satisfied where the group achieves
an average eps growth of at least 125 greater than the percentage increase if any in the rpi over a performance period of three years from
the start of the financial year in which options are granted then 50 of the shares under option will vest three years from grant for an average
eps growth of at least 331 greater than the percentage increase if any in the rpi over the performance period 100 of the shares under
option will vest after three years from grant where the average eps growth is between 125 and 331 greater than the percentage increase 
if any in the rpi over the performance period vesting increases on a straightline basis
details of options held by directors under the group’s save as you earn option schemes are set out below
as at as at
1 january 31 december exercise
2004 granted lapsed 2004 price earliest date expiry
director number number number number £ of exercise date
sir robin saxby 15771 – – 15771 05865 010806 311206
warren east 15771 – – 15771 05865 010806 311206
tim score 27152 – – 27152 05865 010808 311208
tudor brown 3157 – 3157 – 30685 010704 311204
mike inglis 15771 – – 15771 05865 010806 311206
long term incentive plan
a long term incentive plan was approved by shareholders at the 2003 annual general meeting the 2004 conditional awards were made on
3 november 2004 conditional share awards held by directors are as follows 
as at as at
performance market price at 1 january conditional 31 december
period ending date of award 2004 award 2004 vesting
director 31 december award date £ number number number date
warren east 2005 25 july 2003 0805 248447 – 248447 january 2006
2006 3 november 2004 1005 – 248756 248756 january 2007
248447 248756 497203
tim score 2005 25 july 2003 0805 211180 – 211180 january 2006
2006 3 november 2004 1005 – 199005 199005 january 2007
211180 199005 410185
tudor brown 2005 25 july 2003 0805 198758 – 198758 january 2006
2006 3 november 2004 1005 – 199005 199005 january 2007
198758 199005 397763
mike muller 2005 25 july 2003 0805 198758 – 198758 january 2006
2006 3 november 2004 1005 – 179104 179104 january 2007
198758 179104 377862
mike inglis 2005 25 july 2003 0805 198758 – 198758 january 2006
2006 3 november 2004 1005 – 179104 179104 january 2007
198758 179104 377862
conditional awards will vest to the extent that the performance criteria are satisfied over a threeyear performance period from 1 january of the
year of award and no retesting thereafter is possible the performance conditions are based on the company’s tsr when measured against that
of two comparator groups each testing half of the shares comprised in the award the first index comprises uk companies across all sectors ftse
250 and the second comprises predominantly us companies within the hi tech sector ftse global technology index for each comparator group
the number of shares that may vest may be up to a maximum of 200 of the shares if the company’s tsr ranks in the upper decile 50 will
vest in the event of median performance and between median and upper decile performance vesting will increase on a straightline basis no
shares will be received for belowmedian performance in addition no shares will vest unless the committee is satisfied that there has been a
sustained improvement in the underlying financial performance of the company 
except as described above there have been no changes in directors’ interests under the group’s share option schemes since the end of the 2004
financial year up to the date of approval of the remuneration report
remuneration reportuk gaapcontinued arm annual report and accounts 2004 33
the company’s register of directors’ interests contains full details of directors’ shareholdings and options to subscribe
share prices
the market value of the shares of the company as at 31 december 2004 was 1105 pence the closing midprice ranged from 79 pence to 
14475 pence during the year
deferred bonus plan
the deferred bonus plan was introduced in 2001 and enables directors to double their annual bonus if payment is deferred for three years and 
to receive 6 interest per annum on the deferred element warren east elected to participate in the plan in 2001 and deferred £12680 being
onethird of his bonus for three years at 31 december 2004 the bonus payable to him was £25360 representing an increase of 100 plus
interest this is included within his emoluments disclosed below there are no other outstanding arrangements under this plan 
directors’ emoluments
the emoluments of the executive directors of the group in respect of services to the group were paid through its whollyowned subsidiary 
arm limited with the exception of mark templeton who was paid through artisan components inc whilst the nonexecutive directors were 
paid through arm holdings plc with the exception of lucio lanza who was paid through artisan components inc and were as follows
pension
basic bonus pension total subtotal contributions total 
fees salary benefits payments subtotal contributions 2004 2003 2003 2003
director £££ £££ £ £ ££
executive
sir robin saxby – 125000 11821 62500 199321 25313 224634 211710 24638 236348
warren east – 250000 11821 139686 401507 10125 411632 211710 9855 221565
tim score – 200000 11841 100000 311841 10125 321966 180728 9855 190583
tudor brown – 200000 11821 100000 311821 10125 321946 171710 9855 181565
mike muller – 180000 11821 90000 281821 10125 291946 171710 9855 181565
mike inglis – 180000 11821 90000 281821 10125 291946 171710 9855 181565
mark templeton – 1700 112 – 1812 – 1812 – – –
total –113670071058582186178994475938 1865882 1119278 73913 1193191
nonexecutive
peter cawdron 29000 – – – 29000 – 29000 24000 – 24000
doug dunn 29000 – – – 29000 – 29000 24000 – 24000
john scarisbrick 27000 – – – 27000 – 27000 24000 – 24000
jeremy scudamore 18517 – – – 18517 – 18517 –– –
lawrence tesler 9000 – – – 9000 – 9000 24000 – 24000
lucio lanza – – – – – – – –– –
total 112517 – – –112517 – 112517 96000 – 96000
total 112517 1136700 71058 582186 1902461 75938 1978399 1215278 73913 1289191
 for jeremy scudamore fees are shown from the date of his appointment on 26 april 2004 for mark templeton and lucio lanza from 23 december 2004 for lawrence tesler fees are shown up to his
date of resignation on 26 april 2004
 all the executive directors receive family healthcare and annual travel insurance as part of their benefits in kind in addition tim score has the use of a company car and robin saxby warren east tudor
brown mike muller and mike inglis receive a car and petrol allowance
 the bonus for warren east includes £14686 that is payable to him under the deferred bonus plan described above
mike inglis is a nonexecutive director of superscape group plc the group holds 12 of the issued share capital of superscape group plc and 
more details about this investment are included in note 13 on pages 49 to 50 in this capacity mike inglis received remuneration totalling £15000
up to 31 december 2004 and was awarded options over 20000 shares in superscape group plc at an option price of 33 pence on 7 january 2004 
the shares will vest in thirds over the next three years providing that performance targets are met 
all the executive directors are accruing benefits under a money purchase pension scheme as a result of their services to the group contributions
for which were all paid during the year 34 arm annual report and accounts 2004
company law requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs 
of the group and the company and of the profit or loss of the group for that period in preparing those financial statements the directors are
required to
l select suitable accounting policies and apply them consistently
l make judgements and estimates that are reasonable and prudent
l state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial
statements and
l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue 
in business
the directors confirm that they have complied with the above requirements in preparing the financial statements
the directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position 
of the group and company and for ensuring that the financial statements comply with the companies act 1985 they are also responsible for
safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities
the directors are responsible for the maintenance and integrity of the group’s website information published on the internet is accessible in many
countries with different legal requirements legislation in the uk governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions
statement of directors’ responsibilities arm annual report and accounts 2004 35
we have audited the financial statements on pages 36 to 63 which have been prepared under the historical cost convention and the accounting
policies set out on pages 40 to 42 we have also audited the disclosures required by part 3 of schedule 7a to the companies act 1985 contained
in the directors’ remuneration report “the auditable part”
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable united kingdom law 
and accounting standards are set out in the statement of directors’ responsibilities the directors are also responsible for preparing the directors’
remuneration report
our responsibility is to audit the financial statements and the auditable part of the directors’ remuneration report in accordance with relevant legal
and regulatory requirements and united kingdom auditing standards issued by the auditing practices board this report including the opinion 
has been prepared for and only for the company’s members as a body in accordance with section 235 of the companies act 1985 and for no
other purpose we do not in giving this opinion accept or assume responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing
we report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the
auditable part of the directors’ remuneration report have been properly prepared in accordance with the companies act 1985 we also report 
to you if in our opinion the directors’ report is not consistent with the financial statements if the group has not kept proper accounting records 
if we have not received all the information and explanations we require for our audit or if information specified by law regarding directors’
remuneration and transactions is not disclosed
we read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements the other information comprises only arm at a glance the chairman’s
statement the chief executive officer’s review of operations the operating and financial review directors and advisers corporate governance
corporate social responsibility the directors’ report and the unaudited part of the remuneration report
we review whether the corporate governance statement reflects the company’s compliance with the nine provisions of the 2003 frc combined
code specified for our review by the listing rules of the financial services authority and we report if it does not we are not required to consider
whether the board’s statements on internal control cover all risks and controls or to form an opinion on the effectiveness of the group’s or company’s
corporate governance procedures or its risk and control procedures 
basis of audit opinion
we conducted our audit in accordance with auditing standards issued by the auditing practices board an audit includes examination on a test
basis of evidence relevant to the amounts and disclosures in the financial statements and the auditable part of the directors’ remuneration report
it also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements
and of whether the accounting policies are appropriate to the group’s circumstances consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide 
us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part of the directors’ remuneration report
are free from material misstatement whether caused by fraud or other irregularity or error in forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements
opinion
in our opinion
l the financial statements give a true and fair view of the state of affairs of the group and the company at 31 december 2004 and of the profit
and cash flows of the group for the year then ended
l the financial statements have been properly prepared in accordance with the companies act 1985 and
l those parts of the directors’ remuneration report required by part 3 of schedule 7a to the companies act 1985 have been properly prepared in
accordance with the companies act 1985
pricewaterhousecoopers llp chartered accountants and registered auditors
cambridge
4 march 2005
independent auditors’ report to the members of arm holdings plcuk gaap 2004 2003
notes £000 £000
turnover 2 152897 128070
cost of sales 3 11799 11022
gross profit 3 141098 117048
operating expenses
research and development 3 50133 48131
sales and marketing 3 23899 23007
administrative expenses 3 31845 27471
total operating expenses 105877 98609
operating profit 2 35221 18439
interest receivable and similar income 6944 4801
profit on ordinary activities before taxation 2 6 42165 23240
tax on profit on ordinary activities 7 10153 7977
profit on ordinary activities after taxation 32012 15263
equity minority interest – 105
profit for the financial year 8 32012 15158
dividends paid and proposed 9 8542 6106
retained profit for the financial year 21 23470 9052
earnings per 005 pence ordinary share
basic 10 31p 15p
diluted 10 31p 15p
all activities relate to continuing activities the acquisition of artisan components inc was completed on 23 december 2004 and since trading results
between 23 december 2004 and 31 december 2004 are not material no separate disclosure on the face of the profit and loss account has been made 
in august 2004 the group acquired axys design automation inc the postacquisition results of axys are not material and so have not been seperately
disclosed on the face of the profit and loss account
statement of group total recognised gains and lossesuk gaap
2004 2003
notes £000 £000
profit for the financial year 32012 15158
foreign exchange difference on consolidation 21 22 410 1425
total recognised gains for the year and since last annual report 31602 13733
36 arm annual report and accounts 2004
consolidated profit and loss accountuk gaap
for the year ended 31 december 2004
  2004 2003
notes £000 £000
fixed assets
intangible assets 11 462408 7547
tangible assets 12 14117 16583
investments 13 18 10751 4759
487276 28889
current assets
stocks 14 897 931
debtors including £6385000 2003 £nil longterm deferred tax asset 15 71627 29829
shortterm investments 18 59186 129663
cash at bank and in hand 18 78193 30123
209903 190546
creditors amounts falling due within one year 16 76892 38937
net current assets 133011 151609
total assets less current liabilities 620287 180498
creditors amounts falling due after one year 17 1732 –
provisions for liabilities and charges 19 27 63
net assets 2 618528 180435
capital and reserves
calledup share capital 20 675 512
share premium account 21 82447 81137
merger reserve 21 351579 –
foreign exchange reserve 21 2498 2088
other reserve 21 61474 –
profit and loss account 21 124851 100874
equity shareholders’ funds 22 618528 180435
the financial statements on pages 36 to 63 were approved by the board of directors on 4 march 2005 and were signed on its behalf by
sir robin saxby director
arm annual report and accounts 2004 37
consolidated balance sheetuk gaap
as at 31 december 2004 2004 2003
notes £000 £000
fixed assets
investments 13 195043 –
current assets
debtors 15 82 44637
shortterm investments 13391 50223
cash at bank and in hand 4226 50
17699 94910
creditors amounts falling due within one year 16 52536 6400
net current liabilitiesassets 34837 88510
total assets less current liabilities 160206 88510
net assets 160206 88510
capital and reserves
calledup share capital 20 675 512
share premium account 21 82447 81137
other reserve 21 61474 –
profit and loss account 21 15610 6861
equity shareholders’ funds 160206 88510
the financial statements on pages 36 to 63 were approved by the board of directors on 4 march 2005 and were signed on its behalf by
sir robin saxby director
38 arm annual report and accounts 2004
company balance sheetuk gaap
as at 31 december 2004 2004 2003
notes £000 £000
net cash inflow from operating activities 24 50753 43740
returns on investments and servicing of finance
interest received 7233 4930
net cash inflow from returns on investments and servicing of finance 7233 4930
taxation
withholding tax paid 4295 2940
uk corporation tax paid 6252 6161
overseas tax paid 1054 824
tax paid 11601 9925
capital expenditure and financial investment
purchase of fixed asset investments 50 1152
purchase of tangible fixed assets 5330 3311
sale of tangible fixed assets 23 34
purchase of intangible fixed assets 65 655
net cash outflow for capital expenditure and financial investment 5422 5084
acquisitions
purchase of subsidiary undertakings 23 133065 3413
net cash acquired with subsidiary undertakings 44748 23
net cash outflow for acquisitions 27 88317 3390
equity dividends paid 8975 –
net cash outflowinflow before management of liquid resources and financing 56329 30271
management of liquid resources
decreaseincrease in shortterm investments 26 102965 3650
financing
issue of shares 20 1311 255
proceeds received by quest on allocation of own shares held 2 263
net cash inflow from financing 1313 518
increase in cash 26 47949 27139
details of the group’s net funds are shown in note 26
arm annual report and accounts 2004 39
consolidated cash flow statementuk gaap
for the year ended 31 december 2004 1 principal accounting policies
the financial statements have been prepared in accordance with the companies act 1985 and applicable accounting standards in the uk a summary 
of the more important accounting policies which have been consistently applied and reviewed by the board of directors in accordance with financial
reporting standard frs 18 “accounting policies” is set out below
basis of accounting the financial statements are prepared in accordance with the historical cost convention
basis of consolidation the consolidated profit and loss account and balance sheet include the financial statements of the company and its subsidiary
undertakings made up to 31 december 2004 intragroup transactions and profits are eliminated fully on consolidation the results of subsidiaries acquired 
in the year are included in the consolidated profit and loss account from the date they are acquired on acquisition all of the subsidiaries’ assets and
liabilities that exist at the date of acquisition are recorded at their fair values reflecting their condition at that date
goodwill and intangible assets purchased goodwill being the difference between the fair value of consideration and the fair value of net assets acquired
is capitalised and amortised on a straightline basis over an estimate of the time that the group is expected to benefit from it goodwill amortisation periods
are determined on a casebycase basis see note 11 provision is made against the carrying value of goodwill where an impairment in value is deemed 
to have occurred in determining the fair value of consideration the fair value of equity is the market value of the equity at the date of completion the fair
value of share options assumed is calculated using the black scholes valuation model and the fair value of contingent consideration is based upon whether
the directors believe any performance conditions will be met and thus whether any further consideration will become payable
licences and patents purchased for the use of technology are capitalised and amortised over the period in which the group is expected to benefit from
them these periods range from three to five years
where a technology agreement confers both retrospective and prospective rights each element is valued based on a discounted cash flow analysis the
retrospective element is charged to the profit and loss account immediately whilst the prospective element is capitalised
trade investments trade investments are initially recorded at cost there is a regular review of the carrying value of investments with reference to
relevant financial information and industry conditions impairment charges are recorded if there is evidence of impairment in value to reduce the carrying
value of the investments to the market value of the shares held if circumstances change such that the market value of the investment exceeds the carrying
value the impairment charged is reversed
investments in subsidiaries investments in subsidiaries are initially recorded at cost where an acquisition satisfies the provisions of sections 131 to 134 
of the companies act 1985 for merger relief the investment is stated at the nominal value of shares issued plus the fair value of any other consideration
short and longterm investments bank deposits which are not repayable on demand are treated as shortterm investments in accordance with frs 1
“cash flow statements” movements in such investments are included under “management of liquid resources” in the group’s cash flow statement money
market instruments are included within shortterm investments at the lower of cost and net realisable value deposits and marketable securities with
maturity more than one year from the balance sheet date are shown as longterm marketable securities within fixed asset investments and are shown 
at cost less any provision for impairment
pension scheme arrangements the group contributes to defined contribution plans covering substantially all employees in europe and the united states
and to government pension schemes for employees in japan south korea taiwan pr china and israel the group contributes to these plans based upon
various fixed percentages of employee compensation and such contributions are expensed as incurred
tangible fixed assets the cost of tangible fixed assets is their purchase cost together with any incidental costs of acquisition
depreciation is calculated so as to writeoff the cost of tangible fixed assets less their estimated residual values on a straightline basis over the expected
useful economic lives of the assets concerned tangible fixed assets are carried at cost and are depreciated from the date that they come into use costs
that are directly attributable to the development of new business application software and which are incurred during the prior period to the date that the
software is placed into operational use are capitalised external and internal costs are capitalised to the extent they enhance the future economic benefits 
of the business the principal useful economic lives used for this purpose are
freehold buildings 25 years
leasehold improvements five years or term of lease whichever is shorter
computers and software three to five years
fixtures and fittings five to ten years
motor vehicles four years
provision is made against the carrying value of tangible fixed assets where an impairment in value is deemed to have occurred
operating leases costs in respect of operating leases are charged to the profit and loss account on a straightline basis over the lease term even if payments
are not made on such a basis
stocks stocks are stated at the lower of cost and net realisable value in general cost is determined on a firstinfirstout basis and includes transport and
handling costs where necessary provision is made for obsolete slowmoving and defective stocks
40 arm annual report and accounts 2004
notes to the financial statementsuk gaap
  1 principal accounting policies continued
turnover the group follows the principles of frs 5 application note g in determining appropriate revenue recognition policies in principle therefore
revenue is recognised to the extent that the group has obtained the right to consideration through its performance 
turnover excluding vat comprises the value of sales of licences royalties arising from the resulting sale of licensees’ armbased products revenues from
support maintenance and training and consulting contracts and the sale of boards and software toolkits revenue from standard licence products which are
not modified to meet the specific requirements of each customer is recognised when the product is delivered and accepted by the customer
many licence agreements are for products which are designed to meet the specific requirements of each customer revenue from the sale of such licences
is recognised on a percentagetocompletion basis over the period from signing of the licence to customer acceptance under the percentagetocompletion
method provisions for estimated losses on uncompleted contracts are recognised in the period in which the likelihood of such losses is determined the
percentagetocompletion is measured by monitoring progress using records of actual time incurred to date in the project compared with the total estimated
project requirement which approximates to the extent of performance 
where invoicing milestones on licence arrangements are such that the proportion of work performed calculated on the cost basis described above 
is greater than the proportion of the total contract value which has been invoiced the group evaluates whether it has obtained through its performance 
to date the right to the uninvoiced consideration and therefore whether revenue should be recognised in particular it considers
l whether there is sufficient certainty that the invoice will be raised in the expected timeframe particularly where the invoicing milestone is in some way
dependent on customer activity
l whether it has sufficient evidence that the customer considers that the group’s contractual obligations have been or will be fulfilled
l whether there is sufficient certainty that only those costs budgeted to be incurred will indeed be incurred before the customer will accept that a future
invoice may be raised and
l the extent to which previous experience with similar product groups and similar customers support the conclusions reached
where the group considers that there is insufficient evidence that it has the right to consideration taking into account these criteria revenue is not
recognised until there is sufficient evidence that the group has obtained the right to consideration for its performance under such arrangements if the
amount of revenue recognised exceeds the amounts invoiced to customers the excess amount is recorded as amounts recoverable on contracts 
within debtors
where agreements involve multiple elements the entire fee from such arrangements has been allocated to each of the individual elements based on each
element’s fair value vendorspecific objective evidence vsoe of fair value is determined by reference to licence agreements with other customers where
elements are sold separately
agreements including rights to unspecified products are accounted for using subscription accounting revenue from the arrangement being recognised over
the term of the arrangement or an estimate of the economic life of the products offered beginning with the delivery of the first product
certain products have been codeveloped by the group and a collaborative partner with both parties retaining the right to sell licences to the product 
in those cases where the group makes sales of these products the total value of the licence is recorded as turnover and the amount payable to the
collaborative partner is recorded as cost of sales where the collaborative partner makes sales of these products the group records as turnover the
commission it is due when informed by the collaborative partner that a sale has been made and cash has been collected
in addition to the licence fees contracts generally contain an agreement to provide postcontract support support maintenance and training pcs which
consists of an identified customer contact at the group and telephonic or email support fees for postcontract support which take place after customer
acceptance are specified in the contract revenue related to pcs is recognised based on vsoe which is determined with reference to contractual renewal
rates or if none are specified by reference to the rates actually charged on renewal pcs arrangements for the same level of support and for the same 
or similar technologies revenue for pcs is recognised on a straightline basis over the period for which support and maintenance is contractually agreed 
by the group with the licensee
the excess of licence fees and pcs invoiced over revenue recognised is recorded as deferred income
sales of software including development systems which are not specifically designed for a given licence such as offtheshelf software are recognised
upon delivery at that time the group has no further obligations except that where necessary the costs associated with providing postcontract support
have been accrued services such as training that the group provides which are not essential to the functionality of the ip are separately stated and priced
in the contract and therefore accounted for separately revenue is recognised as services are performed and collectability is probable
royalty revenues are earned on sales by the group’s customers of products containing arm technology revenues are recognised when arm receives
notification from the customer of product sales or receives payment of any fixed royalties normally quarterly in arrears
revenue from consulting is recognised when the service has been provided and all obligations to the customer under the consulting agreement have been
fulfilled for larger consulting projects containing several project milestones revenue is recognised on a percentagetocompletion basis as milestones are
achieved consulting costs are recognised when incurred
arm annual report and accounts 2004 41 1 principal accounting policies continued
as disclosed above in accordance with frs 18 “accounting policies” the group makes significant estimates in applying its revenue recognition policies 
in particular as discussed in detail above estimates are made in relation to the use of the percentagetocompletion accounting method which requires
that the extent of progress toward completion of contracts may be anticipated with reasonable certainty the use of the percentagetocompletion method 
is itself based on the assumption that at the outset of licence agreements customer acceptance is not uncertain in addition when allocating revenue 
to various elements of multielement arrangements it is assumed that the fair value of each element is reflected by its price when sold separately the
complexity of the estimation process and issues related to the assumptions risks and uncertainties inherent with the application of the revenue recognition
policies affect the amounts reported in the financial statements if different assumptions were used it is possible that different amounts would be reported
in the financial statements
deferred taxation provision is made for deferred taxation using full provision accounting when an event has taken place by the balance sheet date which
gives rise to an increased or reduced tax liability in the future in accordance with frs 19 “deferred taxation” deferred tax assets are recognised to the
extent that they are regarded as recoverable deferred tax assets and liabilities are not discounted
foreign currency the assets and liabilities of subsidiaries denominated in foreign currencies are translated into sterling at rates of exchange ruling at the
balance sheet date profit and loss accounts of overseas subsidiary undertakings are translated at the monthly exchange rates during the year differences 
on exchange arising from the retranslation of the opening net investment in subsidiary companies are taken to reserves and reported in the statement of
group total recognised gains and losses
other transactions denominated in foreign currencies have been translated into sterling at actual rates of exchange ruling at the date of the transaction
monetary assets and liabilities denominated in foreign currencies have been translated at rates ruling at the balance sheet date exchange differences have
been included in operating profit
financial instruments the group attempts to reduce its foreign currency exposure by entering into forward contracts to sell us dollars and buy sterling 
the group accounts for these instruments by revaluing the financial instruments and the associated trade debtors and cash at the yearend rate the
resulting gain or loss is credited or charged to the profit and loss account for the year
research and development all research and development expenditure is written off in the year in which it is incurred
share schemes the group’s employee share ownership plan esop and qualifying employee share ownership trust quest are separately administered
trusts which are funded by loans the esop and loans and gifts the quest from the group and the assets of which comprise shares in the company 
in accordance with uitf 38 “accounting for esop trusts” the company recognises the assets and liabilities of the esop and the quest in its own accounts
and shares held by the trusts are recorded at cost as a deduction in arriving at shareholders’ funds until such time as the shares vest unconditionally to
employees see note 21
in accordance with the requirements of uitf 17 “employee share schemes” a charge is made in the profit and loss account representing the fair value at
the date of grant of shares awarded under the group’s long term incentive plan as the award is conditional on certain performance conditions being met
this is reflected in the number of shares on which the charge is calculated a similar charge arises on the difference between the market value of arms
shares and the exercise price of certain options issued as part of the consideration for a business acquisition the charge is credited back to reserves
the company operates a save as you earn scheme together with a similar scheme for us employees that allows the grant of share options at a discount 
to the market price at the date of grant the company has made use of the exemption under uitf 17 not to recognise any compensation charge in respect
of these options
employer’s national insurance and similar taxes arise on the exercise of certain share options in accordance with uitf 25 “national insurance contributions
on share option gains” a provision is made calculated using the market price of the company’s shares at the balance sheet date prorated over the vesting
period of the options
grants grants in respect of specific research and development projects are credited to the profit and loss account to match the projects’ related expenditure
provision for doubtful debts provision is made for doubtful debts following reviews of individual customer circumstances by management
42 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 2 segmental analysis
the directors are of the opinion that the group had only one class of business during 2004 following the acquisition of artisan components inc the
directors are considering whether the business is going to be reorganised and whether different reportable segments will be formed the group’s
operations by geographic area are as follows
turnover by destination
2004 2003
£000 £000
europe 23837 23118
united states 77457 65402
asia pacific 51603 39550
152897 128070
turnover by origin
2004 2003
total intersegment external total intersegment external
sales sales sales sales sales sales
£000 £000 £000 £000 £000 £000
europe 152915 10941 141974 127297 8412 118885
united states 24861 18477 6384 22702 17809 4893
asia pacific 7564 3025 4539 7995 3703 4292
185340 32443 152897 157994 29924 128070
profit before taxation by origin
2004 2003
operating profit operating profit
profit interest before tax profit interest  before tax
£000 £000 £000 £000 £000   £000
europe 32262 6802 39064 14621 4591 19212
united states 720 63 783 1373 9 1382
asia pacific 2239 79 2318 2445 201 2646
35221 6944 42165 18439 4801 23240
net assets
2004 2003
£000 £000
europe 62224 169305
united states 552748 7267
asia pacific 3556 3863
618528 180435
the above analyses of turnover profit before taxation and net assets in 2004 include contributions from the group’s acquisitions of axys design automation
inc and artisan components inc as follows 
axys turnover by origin – united states £596000 turnover by destination – asia pacific £238000 europe £43000 united states £315000 no indication
can be given of the profit before tax or net assets of axys since acquisition as the business and assets were integrated into existing group operations shortly
after purchase
artisan turnover by origin – united states £195000 turnover by destination – asia pacific £195000 loss before tax by origin – united states £256000 
net assetsliabilities – united states £95621000 asia pacific £135000 europe £64000
the following table shows the split of net assets of the group between those of the legacy arm business and those of artisan the physical ip division
2004 2004 2003 2003
including excluding including excluding
goodwill goodwill goodwill goodwill
£000 £000 £000 £000
legacy arm cores 73034 64392 180435 178344
physical ip 545494 94723 ––
618528 159115 180435 178344
arm annual report and accounts 2004 43 3 cost of sales gross profit and operating expenses
in relation to the acquired entity artisan components inc the total figures for continuing operations in 2004 include the following amounts cost of sales
£nil gross profit £195000 research and development £202000 sales and marketing £177000 administrative expenses £126000 in relation to the
acquired entity axys design automation inc no indication can be given of the impact on operating costs as the business and assets were integrated into
those of the group shortly after purchase and it is now not possible to separately identify those costs
4 directors’ emoluments
the aggregate emoluments of the directors of the group are set out below 
2004 2003
£ £
aggregate emoluments in respect of qualifying services 1902461 1215278
aggregate gains made on exercise of share options – 330000
1902461 1545278
aggregate group pension contributions to money purchase schemes 75938 73913
1978399 1619191
the emoluments of the highestpaid director of the group are set out below 
2004 2003
£ £
emoluments in respect of qualifying services 401507 211710
gains made on exercise of share options – 330000
401507 541710
group pension contributions to money purchase schemes 10125 24638
411632 566348
detailed disclosures of directors’ emoluments are shown on page 33 details of directors’ interests in share options are shown on pages 30 to 32 which
form part of these financial statements
5 employee information 
the average monthly number of persons including executive directors employed by the group during the year was
2004 2003
number number
by activity
research and development 464 430
administration 106 96
sales and marketing 204 204
774 730
2004 2003
£000 £000
staff costs for the above persons
wages and salaries 42506 35747
social security costs 4077 3584
other pension costs 2067 1848
48650 41179
due to a change in pension scheme arrangements within arm belgium nv effected postacquisition in 2003 the pension provision in existence 
at acquisition was released to the profit and loss account in 2003 and the credit of £1069000 is not included in the above numbers
of the total pension costs above £12000 2003 £47000 remained unpaid at the year end
44 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 6 profit on ordinary activities before taxation
profit on ordinary activities before taxation is stated after chargingcrediting
2004 2003
£000 £000
depreciation charge for the year
tangible owned fixed assets 9927 12908
amortisation of goodwill 2103 1299
amortisation of other intangible assets 2621 3342
writebackimpairment of fixed asset investments 392 622
lossprofit on disposal of fixed assets 20 6
auditors’ remuneration
audit services
– statutory audit company £5000 2003 £5000 314 166
– auditrelated regulatory reporting 95 51
further assurance services
– royalty audits 14 72
– other advisory work 6 13
tax compliance and advisory work 76 87
hire of plant and machinery – operating leases 8769 4433
leased buildings – operating leases 3858 3736
fees to other major firms of accountants for nonaudit services amounted to £509000 2003 £260000
included above are fees paid to the group’s auditors in respect of nonaudit services in the uk of £46000 2003 £64000
fees paid to the auditors disclosed above exclude £15 million paid in respect of services received in connection with the acquisition of artisan components
inc in relation to due diligence services taxation services in conjunction with their role as reporting accountants and services in conjunction with filings
with the sec these balances are partly capitalised within goodwill and partly offset against the share premium account
7 tax on profit on ordinary activities
2004 2003
£000 £000
current
uk corporation tax at 30 2003 30 10638 8162
overseas corporation tax 1142 1009
underover provision in respect of prior years 
uk corporation tax 496 72
overseas corporation tax – 18
11284 9225
deferred
uk deferred tax – origination and reversal of timing differences 1171 1622
overseas deferred tax – origination and reversal of timing differences 40 374
subtotal 1131 1248
10153 7977
under legislation introduced with effect from 1 april 2002 the tax charge is affected by the availability of uk research and development tax credits the tax
impact is a reduction in the tax charge for the year of £1647000 2003 £958000
arm annual report and accounts 2004 45 7 tax on profit on ordinary activities continued
the current tax charge for the year is different to the standard rate of corporation tax in the uk the differences are explained below
2004 2003
£000 £000
profit on ordinary activities before taxation 42165 23240
taxation charge at uk corporation tax rate of 30 12650 6972
effects of
underover provision in respect of prior years 496 54
accelerated capital allowances and other timing differences 795 1638
permanent differences 1435 1202
higher average tax rates in overseas countries 124 8
losses utilised during the year 354 633
current tax charge for the year 11284 9225
the analysis of the deferred tax asset movement for the group is as follows
deferred deferred
tax asset tax asset
2004 2003
£000 £000
at 1 january 3585 1697
asset relating to losses acquired with subsidiary undertaking see note 23 16156 640
credited to the profit and loss account 1131 1248
foreign exchange 40 –
at 31 december 20832 3585
the analysis of deferred tax assets for the group is as follows
amount recognised amount not recognised
2004 2003 2004 2003
£000 £000 £000 £000
tax effect of timing differences because of 
excess of tax allowances over depreciation 5668 2844 – –
losses carried forward 13571 395 254 420
other 1593 346 – 83
20832 3585 254 503
included within the amount recognised for losses carried forward is an amount of £6385000 2003 £nil that is expected to be charged to the profit and
loss account after more than one year
no provision is made for taxation liabilities which would arise on the distribution of profits retained by overseas subsidiaries because there is no intention 
in the foreseeable future that such profits will be remitted 
no deferred tax asset has been recognised for the amounts unprovided because of the uncertainty of utilising these losses in the future
the company has no potential liability for deferred taxation
8 profit for the financial year
as permitted by section 230 of the companies act 1985 the parent company’s profit and loss account has not been included in these financial statements
the parent company’s profit after taxation including dividends receivable and before dividends payable was £17279000 2003 £10546000
46 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 9 dividends paid and proposed
2004 2003
£000 £000
interim paid of 028 pence 2003 nil per ordinary share 2869 –
final proposed of 042 pence 2003 06 pence per ordinary share 5673 6106
8542 6106
the esop trust has waived its right to receive dividends of over 001 pence per share and the quest has waived its right to receive any dividends as such
dividends will not be payable on the 5713034 shares currently held within these trusts
10  earnings per share
basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares 
in issue during the year excluding those held in the esop and the quest which are treated as cancelled
for diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
shares the company had two categories of dilutive potential ordinary shares during the year being those share options granted to employees and directors
where the exercise price is less than the average market price of the company’s ordinary shares during the year and the contingently issuable shares under
the group’s long term incentive plan ltip for 2004 no shares that have been allocated for awards under the ltip have been included in the diluted eps
calculation as the performance criteria cannot be measured until the conclusion of the performance period
reconciliations of the earnings and weighted average number of shares used in the calculations are set out below
2004 2003
number per share number per share
earnings of shares amount earnings of shares amount
£000 thousands pence £000 thousands pence
basic eps
profit available to ordinary shareholders 32012 1026890 31p 15158 1016484 15p
effect of dilutive securities
options – 22179 – 16797
diluted eps
adjusted earnings 32012 1049069 31p 15158 1033281 15p
11  intangible fixed assets
patents and
licences goodwill total
group £000 £000 £000
cost
at 1 january 2004 12900 8124 21024
additions see note 23 160 459863 460023
exchange differences – 473 473
at 31 december 2004 13060 467514 480574
aggregate amortisation
at 1 january 2004 7444 6033 13477
charge for the year 2621 2103 4724
exchange differences – 35 35
at 31 december 2004 10065 8101 18166
net book value
at 31 december 2004 2995 459413 462408
at 31 december 2003 5456 2091 7547
the group has patents and licences which are being amortised over three to five years goodwill arising on previous years’ acquisitions is being written off
over three years in the cases of allant software corporation and noral micrologics limited and five years in the cases of arm korea limited and arm
belgium nv goodwill arising on the current year’s acquisitions of axys design automation inc and arm physical ip inc formerly known as artisan
components inc is being written off over five and ten years respectively
the company does not own any intangible fixed assets
arm annual report and accounts 2004 47 12  tangible fixed assets
fixtures
fittings
freehold leasehold computers and motor
buildings improvements and software vehicles total
group £000 £000 £000 £000 £000
cost
at 1 january 2004 190 20345 44274 3202 68011
acquired with subsidiary undertakings see note 23 – 332 1587 640 2559
additions – 1397 3473 166 5036
disposals – 551 1130 737 2418
exchange differences – 118 126 56 300
at 31 december 2004 190 21405 48078 3215 72888
aggregate depreciation
at 1 january 2004 42 12515 36661 2210 51428
charge for the year 8 4109 5439 371 9927
disposals – 532 1125 718 2375
exchange differences – 72 94 43 209
at 31 december 2004 50 16020 40881 1820 58771
net book value
at 31 december 2004 140 5385 7197 1395 14117
at 31 december 2003 148 7830 7613 992 16583
the company does not own any tangible fixed assets
13  fixed asset investments
listed longterm other
investments marketable securities investments total
group £000 £000 £000 £000
cost
at 1 january 2004 2652 – 4168 6820
acquired with subsidiary undertakings see note 23 – 5438 – 5438
additions – – 162 162
transfer 688 – 688 –
at 31 december 2004 3340 5438 3642 12420
amounts written off
at 1 january 2004 – – 2061 2061
reversal of impairment – – 392 392
at 31 december 2004 – – 1669 1669
net book value
at 31 december 2004 3340 5438 1973 10751
at 31 december 2003 2652 – 2107 4759
listed investments the group owns a 12 holding in superscape group plc the cost and market value of which as at 31 december 2004 were £2652000
and £8795000 respectively 2003 £2652000 and £4139000 respectively the investment was made in order to broaden the scope of the group’s
collaboration with superscape group plc in the area of 3d technology for wireless devices in addition the group owns a less than 1 holding in csr plc 
a company that develops bluetooth solutions that listed during the year and was owned prior to that listing the cost and market value of this investment as
at 31 december 2004 were £688000 2003 £688000 and £1467000 respectively there was no readily available market value for csr plc at 31 december
2003 as the company was an unlisted private company at that time on flotation the impairment provision previously booked against this investment was
released as the flotation price exceeded original cost to the group and the previous carrying value of the investment therefore the total market value of
listed investments held at 31 december 2004 was £10262000 2003 £4139000
longterm marketable securities this includes all money market deposits and investments including us government notes and bonds corporate notes
and bonds and commercial paper with maturity dates exceeding one year from the balance sheet date 
48 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 13  fixed asset investments continued
other investments included in other investments are the group’s 32 holding in the share capital of coware inc a company which develops systemon
chip software for a wide range of applications the group also has a 024 investment in the share capital of palmchip corporation a private fabless chip
company based in california and a 17 investment in the share capital of pixim inc also a private fabless chip company based in california during 2004
the group acquired a less than 1 holding in zeevo inc a us company providing systemonchip solutions for bluetooth and other wireless communication
applications through conversion of trade receivables into equity and a 24 holding in reciva limited an internet radio company based in the uk
provisions have been made against other investments to reflect any impairment in value all these investments are held by arm limited
company
the cost and net book value of interests in group undertakings held by the company was £195043000 at 31 december 2004 and £2 at 31 december 
2003 the company has taken advantage of merger relief and not recorded the premium on the issue of shares for the acquisition of artisan components inc
now known as arm physical ip inc and thus has also not recorded the premium within the value of the investment in the company balance sheet
investments
in subsidiary
undertakings
£000
cost and net book value
at 1 january 2004 –
additions 195043
at 31 december 2004 195043
interests in group undertakings details of subsidiary undertakings are as follows
proportion of
nominal value
country of description of issued
name of undertaking registration of shares held shares held
arm limited england and wales ordinary £1 shares 100
arm physical ip inc us common 0001 shares 100
arm quest trustees limited england and wales ordinary £1 shares 100
the principal activity of arm limited is the marketing research and development of riscbased microprocessors the principal activity of arm physical ip inc
formerly known as artisan components inc is the marketing research and development of physical intellectual property components for systemonchip
integrated circuits arm quest trustees limited is the trustee company of the company’s quest
the group holds the following investments in subsidiaries all held by arm limited unless otherwise stated
proportion of
nominal value
country of of issued
name of undertaking registration principal activity shares held
arm inc us marketing and development 100
of riscbased processors
axys design automation inc us development of integrated processor 100 
modelling solutions
axys gmbh germany development of integrated processor 100 
modelling solutions
arm kk japan marketing of riscbased processors 100
arm korea limited south korea marketing of riscbased processors 100
arm taiwan limited taiwan marketing of riscbased processors 999
arm consulting shanghai co ltd pr china marketing of riscbased processors 100
arm embedded solutions pvt ltd india marketing of riscbased processors 100
micrologic solutions limited england and wales dormant 100
advanced risc machines limited england and wales dormant 100
allant software corporation us dormant 100
arm france sas france development of riscbased processors 100
arm belgium nv belgium development of data engine processors 100
artisan components international limited republic of ireland holding company 100 
artisan components san diego operations inc us development and support of physical ip 100 
artisan components international delaware llc us holding company 100†
artisan components software pvt ltd india development and support of physical ip 100†
artisan components asia pacific pte ltd singapore marketing of physical ip 100†
 held by arm inc
 held by axys design automation inc
 held by arm physical ip inc
† held by artisan components international limited
arm annual report and accounts 2004 49 13  fixed asset investments continued
nominees of the company hold 100 of the ordinary share capital of arm employee benefit trustee ltd a company which acts as trustee to the 
group’s esop 
14 stocks
2004 2003
group £000 £000
finished goods 897 931
there is no material difference between the balance sheet value of stock and its replacement cost
the company had no stocks at 31 december 2004 and 2003
15  debtors
group company
2004 2003 2004 2003
£000 £000 £000 £000
trade debtors 28451 17320 – –
amounts recoverable on contracts 5896 – – –
amounts owed by group undertakings – – – 44430
other debtors 4487 1580 – –
deferred tax see note 7 20832 3585 – –
prepayments and accrued income 11961 7344 82 207
71627 29829 82 44637
all amounts above fall due within one year except that included within deferred tax is £6385000 2003 £nil falling due after more than one year and
within prepayments and accrued income is £484000 2003 £1036000 falling due after more than one year
16  creditors amounts falling due within one year
group company
2004 2003 2004 2003
£000 £000 £000 £000
trade creditors 4110 2691 – –
amounts owed to group undertakings – – 38486 –
corporation tax 6345 3140 802 240
other taxation and social security 1123 1047 – –
other creditors 1969 390 – –
accruals and deferred income 57672 25563 7575 54
dividends payable 5673 6106 5673 6106
76892 38937 52536 6400
17  creditors amounts falling due after one year
group company
2004 2003 2004 2003
£000 £000 £000 £000
accruals and deferred income 1732 – – –
1732 – – –
50 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 18  financial instruments
use of financial instruments – general the group has three primary objectives in its use of financial instruments namely the management of foreign
exchange risk the maximisation of returns on funds held on deposit and the use of strategic trade investments in companies in order to further establish
the arm architecture these are managed respectively through the use of hedging strategies primarily forward contracts money market instruments and
an ongoing process of assessing potential trade investments and current holdings 
to meet these objectives the group has used the policies described below which have been applied throughout the current year on 23 december 2004 the
group acquired artisan components inc a company based in the us who held significant us dollar cash and debtor balances most of the policies detailed
below except where noted applied for the legacy arm business prior to the acquisition and reference to yearend amounts will include artisan balances
the harmonisation of the legacy businesses’ treasury policies is ongoing
management of foreign exchange risk the group’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates principally in
respect of the us dollar reflecting the fact that most of its revenues and cash receipts are denominated in us dollars while the majority of its costs are
settled in sterling the proportion of us dollar denominated costs for the group going forward after the acquisition of artisan increases from approximately
25 to approximately 45 the group seeks to use forward contracts to manage the us dollarsterling risk as appropriate by monitoring the timing 
and value of anticipated us dollar receipts which tend to arise from lowvolume highvalue licence deals and royalty receipts in comparison with its
requirement to settle certain expenses in us dollars the group reviews the resulting exposure on a regular basis and hedges this exposure using forward
contracts for the sale of us dollars as appropriate such contracts are entered into with the objective of matching their maturity with projected us dollar
cash receipts as the timing of large cash receipts cannot be predicted with certainty the group enters into forward contracts which allow exercise between
two dates typically between three and four months from the invoice date in those cases where customers settle debts before the expiry of the foreign
exchange contract the group evaluates whether money market rates available for us dollar investments exceed those for sterling investments it then seeks
to maximise its returns by remitting us dollars against forward contracts at the beginning or end of the exercise period depending on the prevailing money
market rates for us dollars and sterling at the time 
at 31 december 2004 the group had outstanding forward contracts to sell 50000000 2003 44000000 the group had 56205000 
2003 28591000 of trade debtors denominated in us dollars at that date and us dollar cash balances and shortterm investments of 176464000
2003 26340000 thus 79 2003 20 of the group’s us dollar current assets were not hedged by matching forward contracts at the year end 
this has increased in the year due to the acquisition of artisan which holds significant debtor and cash balances in us dollars
in addition certain customers remit royalties and licence fees in other currencies primarily the euro the group is also required to settle certain expenses 
in euros primarily in its french belgian and german subsidiaries and as the net amounts involved are not considered significant the group does not take
out euro forward contracts
the group where required invests profits in the subsidiary in which they were earned the group does not hedge any foreign net asset investment using
foreign currency loans as there is currently no requirement for external borrowings
the group considers the use of other financial instruments such as currency options but did not enter into any agreements during the year
maximisation of return on funds held on deposit the group’s earnings may be affected by changes in interest rates available on bank deposits it aims 
to maximise returns from funds held on deposit and uses money market deposits with major financial institutions to do so recent maturities during the
year have been up to six months in length although postacquisition of artisan there are some deposits with maturities of up to two years but this varies
since close consideration is given to the uk and us money market yield curves before contracts are closed 
trade investments investment activity is intended to create longterm strategic alliances with development companies some of which may be unlisted 
at the time of the investment decision as there can be no guarantee that there will be a future market for these securities or that the value of such
investments will rise the directors evaluate each investment opportunity on its merits before committing arm’s funds the directors review holdings in such
companies on a regular basis to determine whether continued investment is in the best interests of the group funds for such ventures are strictly limited 
in order that the financial effect of any potential decline in the value of investments would not be substantial in the context of the group’s financial results 
the group holds investments in two listed companies a 12 holding in superscape group plc and a less than 1 holding in csr plc the group holds
investments in five private companies pixim inc coware inc palmchip corporation zeevo inc and reciva limited which all develop products based 
on arm technology
external borrowings at 31 december 2004 the group owed 33 million £1732000 2003 £nil extending beyond one year but less than two years
from the balance sheet date being the final payment of a technology license agreement signed in the year no interest is payable under this arrangement
the group had no undrawn committed borrowing facilities at 31 december 2004 2003 £nil or during the financial year 
numerical disclosures numerical disclosures are set out in the tables below shortterm debtors and creditors have been excluded from all the following
disclosures other than currency risk disclosures these balances are as of 31 december in each year and the 2004 amounts may not be reflective of the
typical profile of the group throughout the year due to the significant impact of artisan balances on the figures at the year end
arm annual report and accounts 2004 51 18  financial instruments continued
interest rate risk of financial assets
group 2004 2003
cash at longterm cash at
bank and shortterm marketable bank and shortterm
in hand investments securities total in hand investments total
currency £000 £000 £000 £000 £000 £000 £000
sterling 15125 26698 – 41823 9063 129421 138484
us dollars 59421 32488 5438 97347 15663 – 15663
european currencies other than sterling 2610 – – 2610 1915 – 1915
other currencies 1037 – – 1037 3482 242 3724
at 31 december 78193 59186 5438 142817 30123 129663 159786
floating rate 78193 – – 78193 30123 – 30123
fixed rate – 59186 5438 64624 – 129663 129663
at 31 december 78193 59186 5438 142817 30123 129663 159786
the fixedrate cash and shortterm investments in sterling and us dollars were placed with banks for between one week and one year and earn interest 
of between 100 and 488 2003 098 and 400 longterm marketable securities were placed for up to two years and earn interest of between
170 and 221 floating rate cash earns interest based on relevant national libid equivalents
financial liabilities provisions for national insurance and similar taxes of £27000 2003 £63000 are financial liabilities in sterling on which no interest 
is paid maturity depends on when certain share options are exercised
fair values of financial instruments
cash and shortterm investments the carrying amount approximates to fair value because of the short maturity of those instruments
longterm investments there is a readily available market for these investments they are carried at cost unless the market value falls below cost in which
case an impairment charge is made at 31 december 2004 the fair value approximates to carrying value
foreign currency forward contracts the fair value of foreign currency forward contracts is estimated using the settlement rates the fair value of forward
contracts is estimated at £1674000 at 31 december 2004 2003 £2015000 the decrease is due to the number and relative exchange rates of contracts
outstanding compared to 2003
investments in unlisted companies those companies in which arm has invested are earlystage development enterprises which are generating value 
for shareholders through research and development activities and most do not currently report profits the directors do not consider it possible to estimate
with precision the fair value of the group’s investments in unlisted companies carrying value at 31 december 2004 £1973000 as they are by definition
not traded on an organised market and are unique in their activities however based on recent fundraising transactions by these companies and where
possible following review of relevant financial information prepared by the companies the directors are of the opinion that the fair value of these
investments approximates to carrying value
investments in listed companies the fair value of listed investments is determined with reference to prices quoted on the london stock exchange 
at 31 december 2004 on this basis the fair value of the group’s listed investments were £10262000 at 31 december 2004 2003 £4139000
longterm accruals the carrying amount of £1732000 approximates to fair value as the effect of discounting to present value is not considered material
provisions the carrying amount of £27000 approximates to fair value as this is the amount which would be payable if the liability had crystallized at the
balance sheet date
52 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 18  financial instruments continued
currency exposure the table below shows the extent to which group companies have monetary assets and liabilities in currencies other than their local
currency net of forward contracts foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account of the
individual companies and the group
european other
us dollars currencies currencies total
2004 £000 £000 £000 £000
functional currency of group operation
sterling 711 1602 – 891
other currencies 1446 – – 1446
total 735 1602 – 2337
2003
functional currency of group operation
sterling 5489 1743 23 3723
other currencies 377 – – 377
total 5112 1743 23 3346
hedges the group’s hedging policy is to hedge currency risk using forward foreign currency contracts for foreign currency debtors and cash details 
of unrecognised and deferred gains and losses are shown below
unrecognised deferred
total net total net
gain loss gainloss gain loss gainloss
£000 £000 £000 £000 £000 £000
gains and losses on hedges at 
1 january 2004 – – – 2015 – 2015
arising in previous years included 
in 2004 income – – – 2015 – 2015
gains and losses not included 
in 2004 income – –––––
arising in 2004 – – – 1674 – 1674
gains and losses on hedges at 31 december 2004 – – – 1674 – 1674
of which
gains and losses expected to be included
in 2005 income – – – 1674 – 1674
gains deferred at 31 december 2004 will be matched by losses of the same amount on the underlying items being hedged
financial instruments held for trading purposes the group does not trade in financial instruments
19  provisions for liabilities and charges
the movements in the group’s provisions are as follows
share option share option
tax tax
2004 2003
£000 £000
at 1 january 63 16
chargedcredited to the profit and loss account 36 47
at 31 december 27 63
share option tax the share option tax provision relates to employer’s national insurance and similar taxes on certain share options provided in accordance
with uitf 25 the provision fluctuates with movements in share price and the exercise of the share options 
arm annual report and accounts 2004 53 20 calledup share capital
2004 2003
company £000 £000
authorised
2200000000 ordinary shares of 005 pence each 2003 1580000000 1100 790
allotted calledup and fully paid
1350786975 ordinary shares of 005 pence each 2003 1023345650 675 512
on 23 december 2004 a resolution was passed to increase the authorised share capital of the company by £310000 by the creation of 620000000
ordinary shares of 005 pence each
3041914 ordinary shares of 005 pence each were issued in the year for cash consideration of £1311000 as a result of the exercise of employee share
options at various times during the year
324399411 ordinary shares of 005 pence each were issued in the year as part of the consideration for the acquisition of artisan components inc the fair
value of these shares at issue was £354835000 for further information see note 23
share options the company had the following options outstanding over ordinary shares of 005 pence at 31 december 2004
weighted average
range of exercise prices exercise price latest date
year of grant number of options £ £ of exercise
executive scheme 1996 120000 002 002 14 july 2006
1997 420000 0026 0026 4 march 2007
1998 386000 01125 – 05275 01935 15 october 2008
1999 2507297 1224 – 426 13285 15 november 2009
2000 403746 6136 – 7738 65008 21 may 2010
2001 671662 284 – 375 33872 5 november 2011
2002 918980 2465 2465 18 april 2012
2003 3512198 04375 04375 29 january 2013
2004 1146349 10575 – 125 12494 22 july 2014
10086232 13437
unapproved scheme 1998 35000 03875 03875 7 june 2005
1999 4356700 1224 – 426 12779 15 november 2006
2000 2455308 6136 – 7738 62196 12 october 2007
2001 3243073 284 – 443 34703 5 november 2008
2002 3858445 0425 – 3145 2352 7 november 2009
2003 14537615 04375 – 11475 04463 4 november 2010
2004 9023580 09475 – 125 12351 21 october 2011
37509721 1568
unapproved performance 2001 62909 3815 3815 22 may 2008
scheme 2002 630411 21475 – 2465 23524 27 may 2009
2003 3885711 04375 04375 30 january 2010
2004 1792308 125 125 30 january 2011
6371339 08889
us iso scheme 1998 16567 01125 – 05275 03895 15 october 2005
2000 850250 6136 – 7738 62943 12 october 2005
2001 1189650 284 – 443 34109 5 november 2006
2002 1433639 0425 – 3145 23256 7 november 2007
2003 5085970 04375 – 11475 04409 4 november 2008
2004 3113289 09475 – 125 12125 21 october 2009
11689365 16055
french scheme 2000 58750 633 633 12 october 2007
2001 155000 335 – 443 34765 5 november 2008
2002 168125 0425 – 3145 23404 15 october 2009
2003 700550 04375 – 11475 04408 4 november 2010
2004 401508 09475 – 125 1242 21 october 2011
1483933 1423
belgian scheme 2003 243200 11475 11475 4 november 2010
2004 372825 125 125 29 january 2011
616025 12095
54 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 20 calledup share capital continued
weighted
average
number of range of exercise latest date of
year of grant options exercise prices price of exercise
1993 plan 1997 121381 006 – 014 01341 27 may 2007
1998 1106511 015 – 049 02075 17 december 2008
1999 1449053 016 – 044 02447 5 december 2009
2000 9212841 020 – 058 03151 28 december 2010
2001 14900314 024 – 046 02535 30 december 2011
2002 6191574 027 – 060 04048 30 december 2012
2003 2987708 048 – 050 04964 27 february 2013
35969382 03133
1997 plan 1999 167721 019 019 29 july 2009
2000 11436 019 019 23 february 2010
179157 019
2000 plan 2001 8659031 022 – 028 02309 27 september 2011
2002 910571 024 – 027 02594 29 august 2012
9569602 02336
2003 plan 2003 14191917 047 – 072 05029 22 october 2013
2004 21568990 055 – 107 06936 15 december 2014
35760907 06179
director plan 2000 512859 039 – 057 04216 17 april 2010
2001 157381 022 – 030 02724 15 april 2011
2002 157363 044 044 6 february 2012
2003 2511860 045 – 050 04839 8 april 2013
2004 1082705 055 055 10 march 2014
4422168 04838
executive plan 1998 1098135 006 006 19 november 2008
1999 228916 019 019 29 july 2009
1327051 00824
nd00 plan 2000 484187 019 019 19 october 2010
2001 353701 037 037 13 august 2011
2002 327989 037 037 21 august 2012
2003 2020671 051 051 18 february 2013
3186548 04314
saye 2000 597 565 565 31 december 2005
2001 16495 3069 3069 31 december 2006
2002 76225 182537 182537 31 december 2007
2003 5259264 05865 05865 31 december 2008
2004 495804 09435 09435 31 december 2009
5848385 06347
total 164019815
under the uk inland revenue executive approved share option plan the “executive scheme” the company may grant options to directors and employees
meeting certain eligibility requirements options under the executive scheme are exercisable between three and ten years after their issue after which time
the options expire
under the company’s unapproved scheme the “unapproved scheme” for which it has not sought approval from the uk inland revenue options are
exercisable one to seven years after their issue after which time the options expire the company also operates the us iso scheme which is substantially
the same as the unapproved scheme the main difference being that the options are exercisable one to five years after their issue under both of these
schemes options are exercisable as follows 25 maximum on first anniversary 50 maximum on second anniversary 75 maximum on third anniversary
100 maximum on fourth anniversary various options to directors under the unapproved scheme have certain performance criteria attached which if met
are exercisable after three years otherwise they will become exercisable after seven years
there are further schemes for our french and belgian employees the “french scheme” and the “belgian scheme” in the french scheme options are
exercisable between four and seven years after their issue whilst in the belgian scheme options are exercisable from 1 january following the third
anniversary after their issue up to seven years from issue
arm annual report and accounts 2004 55 20 calledup share capital continued
upon the acquisition of artisan in 2004 the company assumed the share schemes of artisan existing at acquisition the schemes remained substantially 
the same as prior to the acquisition other than the options became options to purchase shares in arm holdings plc instead of artisan components inc 
the number and value of options were amended in line with the conversion ratio as detailed in the merger agreement the schemes assumed were the
1993 plan the 1997 plan the 2000 plan the 2003 plan the director plan the executive plan and the nd00 plan
under each plan there are multiple vesting templates and vesting periods the majority of the options were already vested upon acquisition and the most
common template was 25 vesting after one year and then 625 vesting each quarter thereafter until 100 vest after four years some options vest on
a monthly basis and some vest over five years all options lapse ten years from the date of grant 
the group also operates savingsrelated share option schemes for all employees and executive directors of the group saye the number of options
granted is related to the value of savings made by the employee the period of savings is either three or five years except under the us scheme where 
the period is two years the option price is normally 85 of the market share price at grant and the right to exercise normally only arises for a sixmonth
period once the savings have been completed except for the us scheme where the right to exercise only arises for a threemonth period
under the group’s long term incentive plan a further 5003724 shares could be awarded to the extent that the performance criteria are satisfied over 
a threeyear period as detailed in the remuneration report these shares will be awarded from shares already issued within the esop and quest
21  share premium account and reserves
share foreign
premium merger exchange other profit and
account reserve reserve reserve loss account
group £000 £000 £000 £000 £000
at 1 january 2004 81137 – 2088 – 100874
foreign exchange difference on consolidation – – 410 – –
premium on exercise of share options 1310 – – – –
premium on shares issued for acquisition – 354673 – – –
costs related to share issue – 3094 – – –
credit in respect of share options granted on acquisition – – – 61474 –
shares allocated to satisfy exercises under saye schemes – – – – 12
credit in respect of employee share awards – – – – 495
retained profit for the financial year – – – – 23470
at 31 december 2004 82447 351579 2498 61474 124851
in accordance with section 131 of the companies act 1985 the premium on the shares issued in part consideration for the acquisition of artisan
components inc has been credited to the merger reserve the total share consideration of £354835000 comprised £162000 nominal value of 005 pence
ordinary shares and £354673000 premium on those shares 
the foreign exchange reserve represents exchange differences arising on consolidation of foreign subsidiary undertakings
the other reserve represents the fair value of share options granted to employees of artisan components inc as part consideration for the acquisition a
total of 904 million options with an exercise price of between 6 pence and 107 pence were granted with fair values of between 61 pence and 104 pence
valued using the black scholes valuation model
own shares held offset in the profit and loss reserve is an amount of £7485000 representing the cost of own shares held this balance consists of own
shares held by the group’s esop and quest
own shares held include £1438000 2003 £1438000 being the cost of 5000000 2003 5000000 shares in the company held by the group’s esop 
the trust was set up in 1998 and purchased shares at the time of the company’s flotation using funds provided by the company conditional awards 
under the group’s ltip have been granted over these shares at 31 december 2004 but no awards have been made since the trust was created as at 
31 december 2004 and 2003 the trust held 5000000 shares nominal value £2500 with a market value of £5525000 at 31 december 2004 2003
£6425000 all costs relating to the scheme are dealt with in the profit and loss account as they accrue and the trust has waived the right to receive
dividends of over and above 001 pence per share on all shares held 
56 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 21  share premium account and reserves continued
own shares held also include £6047000 2003 £6131000 being the cost of 713034 shares nominal value £357 2003 721080 shares nominal value
£361 held by the group’s quest which was established by the company during 1999 to acquire new shares in the company for the benefit of employees
and directors of the group during the year 8046 shares 2003 1075674 were allocated to satisfy employees’ and directors’ exercises under the
company’s save as you earn scheme the market value of the shares at 31 december 2004 was £788000 2003 £927000 the trust has waived the right
to receive dividends on the shares held by the quest and all costs relating to the scheme are dealt with in the profit and loss account as they accrue
share 
premium other profit and
account reserve loss account
company £000 £000 £000
at 1 january 2004 81137 – 6861
premium on exercise of share options 1310 – –
credit in respect of share options granted on acquisition – 61474 –
shares allocated to satisfy exercises under saye schemes – – 12
retained profit for the financial year – – 8737
at 31 december 2004 82447 61474 15610
the company has taken advantage of merger relief and not recorded the premium on the issue of shares for the acquisition of artisan components inc
now known as arm physical ip inc
22 reconciliation of movements in group shareholders’ funds
2004 2003
£000 £000
profit attributable to shareholders 32012 15158
equity dividends 8542 6106
23470 9052
other recognised gains and losses relating to the year 410 1425
credit in respect of employee share awards 495 150
new share capital issued 163 1
shares allocated from quest to satisfy exercises under saye schemes 12 263
fair value of share options granted on acquisition 61474 –
premium on issue of new shares net of issue costs 352889 254
net addition to shareholders’ funds 438093 8295
opening shareholders’ funds 180435 172140
closing shareholders’ funds 618528 180435
arm annual report and accounts 2004 57 23 acquisition of subsidiary undertakings
on 16 august 2004 the group acquired 100 of the issued share capital of axys design automation inc a us company for total consideration of £8568000
furthermore on 23 december 2004 the group acquired 100 of the issued share capital of artisan components inc a us company for total consideration
of £546622000 the following table sets out the provisional book values of the identifiable assets and liabilities acquired and their fair value to the group
artisan axys
artisan fair value fair value
book value adjustments to group to group
£000 £000 £000 £000
tangible fixed assets 2509 – 2509 50
intangible fixed assets 18804 18804 – –
debtors 15078 – 15078 270
other debtors 3672 – 3672 74
deferred tax asset 15446 – 15446 710
cash short and longterm investments 82567 – 82567 107
total assets 138076 18804 119272 1211
creditors
trade and other creditors 3674 – 3674 17
accruals and deferred revenue 20736 – 20736 729
deferred tax liability 736 736 – –
total liabilities 25146 736 24410 746
net assets 112930 18068 94862 465
goodwill 451760 8103
total consideration 546622 8568
satisfied by
cash consideration 122315 6433
shares issued 354835 –
options granted 61474 –
contingent cash consideration – 1665
expenses net of £3094000 of share issue costs taken to the merger reserve 7998 470
total consideration 546622 8568
the contingent consideration will be determined using various stepped criteria based on axys revenue bookings to new customers in the first year postacquisition the amount varies from nil to a maximum
of 3 million
the book value of the assets and liabilities have been taken from the management accounts of each company at the date of acquisition at actual exchange
rates on that date adjustments were made to the artisan intangible assets and related deferred tax liabilities to adjust its balance sheet to uk gaap 
the fair value of options granted on the acquisition of artisan were calculated using the black scholes valuation model with volatility of between 80 and
94 an average riskfree interest rate of 45 an estimated life of between zero and six years and a dividend yield of 07
there were no fair value adjustments for axys as the fair value of assets and liabilities were deemed to equate to book value
58 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 23 acquisition of subsidiary undertakings continued
artisans profit after tax for the year ended 30 september 2004 was £107 million measured under us gaap and for the period from 1 october 2004 
until acquisition was a loss of £61 million measured under us gaap the summarised profit and loss account for the period from 1 october 2004 until
acquisition on 23 december 2004 is as follows
£000
turnover 7654
operating expenses 16672
operating loss 9018
interest receivable and similar income 328
loss on ordinary activities before taxation 8690
tax on loss on ordinary activities 2567
loss for the period 6123
 operating expenses above include £88 million of nonrecurring acquisition and restructuring costs
axys profit after tax for the year ended 31 december 2003 was £13000 and for the period from 1 january 2004 to acquisition was a loss after taxation 
of £874000
neither acquisition made a material contribution to postacquisition cash flows
the acquisitions have been accounted for using acquisition accounting
24 reconciliation of operating profit to net cash inflow from operating activities
2004 2003
£000 £000
operating profit 35221 18439
depreciation on tangible fixed assets 9927 12908
lossprofit on disposal of tangible fixed assets 20 6
amortisation of goodwill 2103 1299
amortisation of other intangible assets 2621 3342
amounts written backwritten off unlisted investments 392 622
decrease in stocks 34 584
increasedecrease in trade debtors 1679 3458
trade debtors converted to unlisted investments 112 –
increasedecrease in prepayments and accrued income 3659 2689
increasedecrease in trade creditors 1176 2468
increase in other taxation and social security 76 223
increasedecrease in accruals deferred income and other creditors 4958 2453
movement in provisions for liabilities and charges 36 47
ltip compensation charge 495 150
net cash inflow from operating activities 50753 43740
25 reconciliation of net cash flow to movement in net funds
2004 2003
£000 £000
increase in cash for the year 47949 27139
cash inflowoutflow from salepurchase of shortterm investments 102965 3650
change in net funds from cash flows 55016 30789
short and longterm investments acquired with subsidiary 37926 –
noncash items
translation difference 121 1307
movement in net funds in the year 16969 29482
net funds at start of the year 159786 130304
net funds at end of the year 142817 159786
arm annual report and accounts 2004 59 26 analysis of net funds
cash at bank shortterm longterm
and in hand investments investments total
£000 £000 £000 £000
at 1 january 2004 30123 129663 – 159786
cash flow 3201 102965 – 99764
acquired with subsidiary undertakings see note 23 44748 32488 5438 82674
translation differences 121 – – 121
at 31 december 2004 78193 59186 5438 142817
27 cash flow from acquisitions
2004 2003
£000 £000
acquisitions
purchase of shares 128748 3335
acquisition expenses 4317 78
cash at bank and in hand 44748 23
net cash outflow from acquisitions 88317 3390
a further £72 million of acquisition expenses is expected to be paid in 2005 and is accrued at the balance sheet date
28 major noncash transactions
during the year the group acquired artisan components inc and part of the consideration paid was in the form of arm holdings plc equity being issued to
the former shareholders of artisan the fair value of the equity issued was £354835000 further consideration in the form of approximately 904 million
options to purchase shares in arm holdings plc were granted with a fair value of £61474000 see note 23
29 capital commitments
2004 2003
group £000 £000
capital expenditure that has been contracted for but has not been provided for in the financial statements 1179 1365
the company had no capital commitments at 31 december 2004 and 2003
30 financial commitments and contingencies
at 31 december 2004 the group had annual commitments under noncancellable operating leases as follows
2004 2003
land and land and
buildings other buildings other
£000 £000 £000 £000
expiring within one year 385 1295 285 89
expiring between two and five years inclusive 2450 226 1057 1333
expiring in over five years 2114 – 2114 –
4949 1521 3456 1422
at 31 december 2004 and 2003 the company had no annual commitments under noncancellable operating leases
in may 2002 nazomi communications inc filed suit against arm alleging wilful infringement of nazomi’s us patent no 6332215 arm answered
nazomi’s complaint in july 2002 denying infringement arm moved for summary judgement and a ruling that the accused technology does not infringe 
in september 2003 the united states district court of northern california granted arm’s motion holding that the accused technology does not infringe
nazomis patent nazomi appealed the district court’s ruling on 7 september 2004 the court of appeals for the federal circuit heard the appeal and the
decision of the court is expected in the first half of 2005 based on legal advice received to date arm has no cause to believe that the effect of the original
ruling by the district court will not be upheld
60 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 31 related party transactions
the company has taken advantage of the exemption from disclosure available to parent companies under frs 8 “related party disclosures” where
transactions and balances between group entities have been eliminated on consolidation
during the year the group paid royalty fees of £411000 2003 £nil and made crosslicence payments of £14000 2003 £453000 to superscape group
plc a company in which mike inglis is a nonexecutive director amounts owed to superscape at 31 december 2004 were £nil 2003 £392000
during the year the group received license fees of £209000 2003 £157000 and support and maintenance income of £37000 2003 £nil from csr plc
a company in which john scarisbrick is a nonexecutive director amounts owed by csr at 31 december 2004 were £nil 2003 £183799
there were no other related party transactions during 2004 or 2003 which require disclosure
32 summary of significant differences between united kingdom generally accepted accounting principles uk gaap followed by the group 
and united states generally accepted accounting principles us gaap
the financial information set out in this report has been prepared under uk gaap which differs in certain significant respects from us gaap  the principal
differences between the group’s accounting policies under uk gaap and those that would have been followed had the financial information been prepared
under us gaap are set out below
goodwill under uk gaap  goodwill is amortised on a straightline basis over an estimate of the time that the group is expected to benefit from it this was
also the group’s accounting policy under us gaap prior to 1 january 2002 on which date following the provisions of sfas 142 “goodwill and other
intangible assets” the carrying value of goodwill was frozen and became subject to annual impairment reviews no writeoffs of goodwill have arisen as a
result of the group’s initial or annual impairment reviews
amortisation of intangibles under uk gaap  intangible assets purchased as part of a business combination are included within the goodwill balance unless
the asset can be identified and sold separately without disposing of the business as a whole under us gaap  such intangible assets may meet the criteria
set out in sfas 142 “goodwill and other intangible assets“ for categorisation as intangible assets other than goodwill and are amortised over their useful
economic lives a deferred tax liability arises on the intangible assets and is credited to the profit and loss account proportionately to the amortisation on
the related intangible assets under us gaap  payments made to purchase intangible assets that are still in development are charged directly to the profit
and loss account thus differences arise in the amounts of goodwill recognised the associated amortisation charge and the associated deferred tax liability
and income statement credit
valuation of consideration on business combination under both us and uk gaap  the fair value of consideration in a business combination includes the
fair value of both equity issued and any share options granted as part of that combination which are then used in the goodwill calculation under uk gaap 
any equity issued is valued at the fair value as of the date of completion whilst under us gaap  the equity is valued at the date the terms of the
combination were agreed to and announced for options under us gaap  the fair value is based upon the total number of options granted both vested and
unvested whilst under uk gaap the fair value only includes those that have vested together with a prorata value for partially vested options furthermore
where there is contingent consideration for an acquisition under uk gaap this is recognised as part of the purchase consideration if the contingent
conditions are expected to be satisfied whilst under us gaap it is only recognised if the conditions have actually been met
deferred stockbased compensation under us gaap  the intrinsic value of unvested stock options issued by an acquirer as part of a business combination
in exchange for unvested share options of the acquiree is recorded as a debit balance within shareholders’ funds this amount is charged to the profit and
loss account over the vesting period of the share options in accordance with fin 28 under uk gaap  no such adjustment to shareholders’ funds is made on
acquisition although the same charge as under us gaap is subsequently made to the profit and loss account it is written back through reserves
fair values of assets and liabilities acquired the conventions under which the fair value of assets acquired and liabilities assumed in a purchase business
combination is determined differ between uk and us gaap  eg in relation to the valuation of deferred revenue and related costs 
marketable securities under us gaap  investments in availableforsale securities are marked to market where the market value is readily determinable
and gains and losses net of deferred taxation are recorded in other comprehensive income where an impairment is considered to be other than
temporary the security is written down through the profit and loss account to a new cost basis represented by the fair value of the security on the date the
impairment was determined under uk gaap  the group’s accounting policy is to carry such investments at cost less any provisions for impairment
long term incentive plan ltip under uk gaap  the fair value of the shares awarded under the ltip is charged to compensation cost over the period in respect
of which performance conditions apply to the extent the award is adjusted by virtue of performance conditions being met or not the compensation cost is
adjusted in line with this under us gaap  the group follows variable plan accounting for these grants measuring compensation expense as the difference
between the exercise price and the fair market value of the shares at each period end over the vesting period of the options increases in fair market value
of the shares result in a charge and decreases in fair market value of the shares result in a credit subject to the cumulative amount previously expensed 
arm annual report and accounts 2004 61 32 summary of significant differences between united kingdom generally accepted accounting principles uk gaap followed by the group 
and united states generally accepted accounting principles us gaap continued
save as you earn saye plans under uk gaap  the group has taken advantage of the exemption provided by uitf 17 “employee share schemes” not 
to recognise any compensation charge in respect of options granted under saye plans under us gaap  the group follows the requirements of eitf 0023
which does not permit such an exemption in respect of plans where the savings period is in excess of 27 months as is the case with the group’s inland
revenue approved uk saye plans eitf 0023 applies only to new offers made since 24 january 2002 the compensation charge made under us gaap is
calculated as the difference between the market price of the shares at the date of grant and the exercise price of the option and is recorded on a straight
line basis over the savings period in addition certain options attract a charge under variable plan accounting under us gaap 
employer taxes on share options under uk gaap  employer’s taxes that are payable on the exercise of share options are provided for over the vesting
period of the options under us gaap such taxes are accounted for when the options are exercised
tax on uk and us share options in the us the group is entitled to a tax deduction for the amount treated as compensation under us tax rules for certain
employee share options which have been exercised during the year similarly in the uk the group is entitled to a tax deduction for the profit made by
employees on certain options that have been exercised during the year in both cases the amount is equivalent to the difference between the option
exercise price and the fair market value of the shares at the date of exercise under uk gaap the tax benefit arising from this deduction is included in the
tax charge in the profit and loss account whilst under us gaap  the tax benefit is recorded as an increase in shareholders’ funds
embedded derivatives under us gaap  where the group enters into sales contracts denominated in a currency that is neither the functional currency of the
group nor the functional currency of the customer and where there are uninvoiced amounts on such contracts such derivatives are carried at fair value the
resulting gain or loss is recognised in the income statement embedded derivatives are not revalued to fair value under uk gaap 
cash and cash equivalents under uk gaap  cash does not include shortterm deposits and investments which cannot be withdrawn without notice and
without incurring a penalty such items are shown as shortterm investments under us gaap  deposits with a maturity of less than three months at
inception which are convertible into known amounts of cash are included as cash and cash equivalents deposits with a maturity at inception of between
three months and one year are shown as shortterm investments
consolidated statement of cash flows the consolidated statement of cash flows prepared under uk gaap presents substantially the same information as
that required under us gaap  
under uk gaap cash flows are presented separately for operating activities returns on investments and servicing of finance taxation capital expenditure
and financial investments acquisitions and disposals management of liquid resources and financing activities us gaap  however requires only three
categories of cash flow activity to be reported operating investing and financing cash flows from taxation and returns on investments and servicing of
finance shown under uk gaap are included as operating activities under us gaap 
dividends payable under uk gaap  dividends declared after the period end are recorded in the period to which they relate under us gaap  they are
recorded in the period in which they are declared
a reconciliation of uk gaap profit to us gaap net income
2004 2003
£000 £000
profit for the financial year as reported under uk gaap 32012 15158
adjustments for
employer’s taxes on share options 36 47
compensation charge in respect of saye schemes 341 310
compensation charge in respect of ltip 124 91
writeback of goodwill amortisation 2103 1299
amortisation of intangibles 576 42
writeoff of inprocess research and development 3612 –
deferred tax on intangibles 190 –
embedded derivatives 732 1141
tax on uk and us employee share options 515 966
impairment of marketable security 392 938
net income as reported under us gaap 27977 13016
62 arm annual report and accounts 2004
notes to the financial statementsuk gaapcontinued 32 summary of significant differences between united kingdom generally accepted accounting principles uk gaap followed by the group 
and united states generally accepted accounting principles us gaap continued
b reconciliation of shareholders’ equity from uk to us gaap
2004 2003
£000 £000
shareholders’ funds as reported under uk gaap 618528 180435
adjustments for 
employer’s taxes on share options 27 63
cumulative difference on amortisation of goodwill 4816 2713
cumulative difference on amortisation of intangibles 618 42
cumulative writeoff of inprocess research and development 3762 150
deferred tax on intangibles 190 –
embedded derivatives 2823 2091
valuation of equity consideration on acquisition 82435 –
valuation of option consideration on acquisition 17476 –
deferred compensation on acquisition 9579 –
unrealised gain on marketable security 4845 1041
dividends payable 5673 6106
foreign exchange on revaluation of intangibles 11 –
shareholders’ equity as reported under us gaap 552327 188075
c reconciliation of goodwill from uk to us gaap
2004 2003
£000 £000
goodwill as reported under uk gaap 459413 2091
adjustments for 
cumulative difference on amortisation of goodwill 4816 2713
cumulative writeoff of inprocess research and development 3762 150
valuation of equity consideration on acquisition 82435 –
valuation of option consideration on acquisition 17476 –
deferred compensation on acquisition 9579 –
separately identifiable intangible assets net of deferred tax 43504 302
contingent consideration 1665 –
fair value of deferred revenue and costs 499 –
foreign exchange on revaluation of goodwill 155 –
goodwill as reported under us gaap 340416 4352
d reconciliation of uk gaap cash to us gaap cash and cash equivalents
2004 2003
£000 £000
cash as reported under uk gaap 78193 30123
adjustment for shortterm investments treated as cash equivalents under us gaap 32368 100599
cash and cash equivalents as reported under us gaap 110561 130722
e reconciliation of uk gaap shortterm investments to us gaap shortterm investments 
and shortterm marketable securities
2004 2003
£000 £000
shortterm investments as reported under uk gaap 59186 129663
adjustment for shortterm investments treated as cash equivalents under us gaap 32368 100599
shortterm investments and shortterm marketable securities as reported under us gaap 26818 29064
arm annual report and accounts 2004 63 the following selected financial data should be read in conjunction with and is qualified in its entirety by reference to the financial statements of arm
holdings plc “the company” expressed in sterling set forth on pages 70 to 90 of this report
selected consolidated financial data – us gaap
2000 2001 2002 2003 2004
£000 £000 £000 £000 £000
revenues 100730 146274 150922 128070 152897
cost of revenues 11647 17289 13185 11022 11799
operating expenses 57846 82848 96456 99785 109587
income from operations 31237 46137 41281 17263 31511
interest net 3912 4470 4373 4801 6944
share of loss of equity affiliate 85 – – – –
gain on partial disposal of shares in equity affiliate 512 – – – –
minority interest 192 303 232 105 –
income before income tax 35384 50304 45422 21959 38455
provision for income taxes 6007 16302 13785 8943 10478
net income 29377 34002 31637 13016 27977
diluted earnings per common share 29p 33p 31p 13p 27p
research and development as a percentage of revenues 262 253 313 376 328
capital expenditure £11842 £17349 £15616 £3605 £5036
cash cash equivalents shortterm investments
and marketable securities £75266 £104467 £130304 £159786 £142817
shareholders’ equity £100972 £135845 £172470 £188075 £552327
total assets £127343 £175814 £205744 £222997 £637937
employees at year end number 619 722 721 740 1171
64 arm annual report and accounts 2004
selected consolidated financial dataus gaap
  the following discussion should be read in conjunction with the consolidated financial statements and notes thereto the matters addressed in this operating
and financial review and prospects with the exception of the historical information presented contain forwardlooking statements involving risks and
uncertainties
overview arm designs highperformance lowcost powerefficient reduced instruction set computing risc microprocessors and related technology and
software and licenses this ip to semiconductor companies which in turn manufacture market and sell microprocessors applicationspecific integrated
circuits asics and applicationspecific standard products assps based on the arm architecture to systems companies arm also licenses and sells
development systems directly to systems companies and provides consulting and support services to its licensees systems companies and other system
designers arm has developed an innovative intellectualproperty centred and marketdriven business model in which it neither manufactures nor sells the
products incorporating arm technology but concentrates on the research and development design and support of the arm architecture and supporting
development tools and software
market conditions after strong yearonyear growth for the semiconductor industry in 2004 current expectations for 2005 are that there will be little or no
growth over 2004 despite this likely flatter trading environment we expect 2005 to be a year of growth in dollar revenues for the company
both the former arm and artisan standalone businesses enter 2005 with healthy order backlogs and sales pipelines which will underpin licensing revenues
in 2005 in addition both companies continue to enjoy good momentum in royalty revenues based on the increasing adoption of arm and artisan
technology by semiconductor and oem companies in recent years the healthy order backlog and sales pipeline and strong momentum in royalty revenues
gives confidence that dollar revenues in both underlying businesses are capable of growing in 2005
the company remains exposed to any further weakening in the us dollar against sterling given that more than 90 of total company revenues are earned
in us dollars following the acquisition of artisan approximately 45 of the company’s cost base will be incurred in us dollars compared to approximately
25 for arm prior to the acquisition of artisan
the company has been profitable and robustly cash generative before investing activities with net cash inflows from operating activities of £465 million
giving rise to a yearend cash cash equivalents shortterm investments and marketable securities balance of £1428 million
the table below sets forth for the periods indicated the percentage of total revenues represented by certain items reflected in the company’s consolidated
statements of income
year ended 31 december
2002 2003 2004
 
revenues
product revenues 881 882 907
service revenues 119 118 93
total revenues 1000 1000 1000
cost of revenues
product costs 43 48 44
service costs 44 38 33
total cost of revenues 87 86 77
gross profit 913 914 923
operating expenses
research and development 313 376 328
sales and marketing 164 179 157
general and administrative 149 224 204
inprocess research and development –– 24
amortization of intangibles purchased through business combination – – 04
restructuring costs 13 – –
total operating expenses 639 779 717
income from operations 274 135 206
interest net 29 37 45
minority interest 02 01 –
income before income tax 301 171 251
provision for income taxes 91 70 68
net income 210 101 183
total revenues total revenues were £1529 million in 2004 an increase of 19 from £1281 million in 2003 which was a 15 decrease from £1509
million in 2002 revenues expressed in dollars using applicable exchange rates for invoicing in currencies other than dollars were 2724 million in 2004
an increase of 32 over the 2065 million in 2003 the actual average dollar exchange rate in 2004 was 183 compared with the effective average rate
for arm of 178 compared with 164 in 2003 this had the effect of reducing total reported revenues by approximately £132 million
arm annual report and accounts 2004 65
operating and financial review and prospectsus gaap product revenues product revenues consist of license fees sales of development systems and royalties product revenues for 2002 2003 and 2004 were
£1329 million £1130 million and £1387 million representing 88 88 and 91 of total revenues respectively
license revenues decreased from £830 million in 2002 to £508 million in 2003 and then increased to £594 million in 2004 representing approximately
55 40 and 39 of total revenues in 2002 2003 and 2004 respectively 
licensing activity in 2004 demonstrated both the breadth of arms technology offer as well as the longevity of the products our partners have now been
licensing products in the arm7 family for more than 11 years including an incremental 15 arm7 licenses in 2004 and accounting for 9 of licensing revenues
in 2004 compared with 18 in 2003 and 15 in 2002 there have been 31 new licenses for arm9 products in 2004 revenues from the arm9 family have
declined though accounting for 43 of licensing revenues in 2002 31 in 2003 and 23 in 2004 although these proportions for arm7 and arm9 have
fallen in 2004 we expect to see the licensing of both families of products for some time demonstrating the relevance of having leadingedge technology 
at all performance points in the embedded microprocessor space there are a growing number of cores available to license from the company including four
products in the arm11 family offering many new security and power management features and optimode™ the embedded signal processing technology
discussed below the company has also signed initial partners for the next generation of arm technologies currently known as tiger and servale 
65 new licenses were signed in 2004 compared to 51 in 2003 comprising 31 multiuse licenses and 34 peruse licenses 15 of these licenses were for
arm11 products bringing the total number of arm11 licenses signed to date to 25 arm11 accounted for 17 of licensing revenue in 2004 compared 
to 10 in 2003 and 5 in 2002 15 companies became new arm partners during 2004 bringing the total number to 140 at the end of 2004 this total
number of semiconductor partners was net of those companies that have signed licenses with arm in the past but have since been acquired by other
companies or who no longer have access to arm technology for other reasons
a significant proportion of licensing was to existing partners taking licenses to new core families not previously licensed or derivatives of cores already
licensed the sale of noncore licenses covering items such as platforms peripherals embedded trace modules models and subsystems increased in
2004 to £105 million from £89 million in 2003 and down from £126 million in 2002 representing approximately 18 of license revenues in 2004 
18 in 2003 and 15 in 2002
an embedded software group within arm was established in 2004 in order to capitalize on opportunities to generate revenue from software this group is
intended to drive growth in embedded software revenue build on the strong foundation of the existing java intelligent energy manager trustzone and swerve
product families and bring more focus to the development of enabling software technology to support further growth of licensing development systems
and data engines revenues an example of the initiatives being undertaken by this unit is the announcement in 2004 of the development by arm and trusted
logic the embedded systems security experts of a new trustzone technology optimized software solution to increase security for the mobile industry arm
expects the new software to increase electronic transaction security on arm powered® mobile phones settop boxes and other consumer devices
following the acquisition of adelante technologies nv now arm belgium nv in july 2003 arm formally announced the launch of its optimode embedded
signal processing technology at the embedded processor forum in may 2004 arm has introduced this technology to address the processing requirements 
of very data intensive consumer applications which are often outstripping the capabilities of generalpurpose digital signal processors the optimode product
which comprises a configurable data engine signal processor together with related intellectual property and tools will be deployed in systems alongside
existing arm microprocessor cores and other arm technology including the axys electronic system level design tools acquired in august 2004
revenues from the sale of development systems decreased from £231 million in 2002 to £179 million in 2003 but increased to £197 million in 2004
representing approximately 15 14 and 13 of total revenues in 2002 2003 and 2004 respectively the majority of arm’s sales of development systems
are in us dollars and the us dollar value of sales of development systems in 2003 was approximately 16 lower than in 2002 but was 24 higher in 2004
compared to 2003 sales of development systems continued to be affected by increased competition in the debug tools marketplace the new management
team and increased resources assigned to assist the development of the development systems business have continued to yield improvements in results
through 2004 and this is expected to continue into 2005
in august 2004 arm added electronic system level esl expertise to its realview® design tools portfolio with the announcement of the acquisition of axys
design automation inc a provider of fast accurate integrated processor and system modelling and simulation solutions axys’ esl products reduce overall
system costs by allowing designs to be modelled early in the development cycle decreasing timetomarket and minimizing design errors
royalties are either set as a percentage of the licensee’s net sales price per chip or less frequently as a fixed amount and are recognized when the company
receives notification from the customer of product sales in effect this means that it is normally in the quarter following the shipments that data is received
and so royalty data for a year reflects actual shipments made from the beginning of october of the previous year to the end of september of the current
year royalties increased from £268 million in 2002 to £443 million in 2003 and increased further to £596 million in 2004 representing 18 34 and
39 of total revenues in 2002 2003 and 2004 respectively volume shipments increased from 456 million units in 2002 to 782 million units in 2003 mainly
due to increased production of a wide range of electronic devices including wireless handsets secure products and automotive products unit shipments 
in 2004 were 1272 million with the increase in volumes coming from all market segments especially consumer entertainment and storage products 
the company has become less reliant on the wireless sector with more than 400 million nonwireless units being shipped in the year the company expects
the trend of increasing proportions of unit shipments into the nonwireless markets to continue into 2005 the company expects royalty revenues to grow
year on year although they may be subject to significant fluctuations from quarter to quarter the total number of partners shipping arm technologybased
product at the end of 2004 was 60 after taking into account corporate activity within the arm partnership
service revenues service revenues consist of design consulting services and revenues from support maintenance and training service revenues decreased
from £180 million in 2002 to £151 million in 2003 to £142 million in 2004 representing 12 12 and 9 of total revenues in 2002 2003 and 2004
respectively consulting revenues decreased from £44 million in 2002 to £24 million in 2003 and £21 million in 2004 as engineering resource was
directed away from consulting projects to research and development activities revenues from support maintenance and training decreased from £136
million in 2002 to £127 million in 2003 and £121 million in 2004 actual us dollar revenues increased by 3 from 2003 to 2004 but this has been offset
by the weakening of the dollar against sterling in 2004 
66 arm annual report and accounts 2004
operating and financial review and prospects us gaapcontinued geographic analysis operating in a global environment the geographic destinations of the company’s revenues fluctuate from period to period depending
upon the country of origin of its customers the pattern of revenues in 2004 was 51 of revenues coming from the us 21 from japan 13 from asia
pacific excluding japan and 15 from europe in 2003 revenues from the us represented 51 japan 19 asia pacific excluding japan 12 and europe
18 in 2002 revenues from the us represented 44 japan 25 asia pacific excluding japan 13 and europe 18 
product costs product costs are limited to variable costs of production such as the costs of manufacture of development systems amortization of our third
party technology licenses and crosslicense payments to collaborative partners product costs were £65 million in 2002 £62 million in 2003 and £67 million
in 2004 representing 4 5 and 4 of total revenues in 2002 2003 and 2004 respectively approximately twothirds of total product cost of sales were
made up of development systems costs in 2004 with the balance comprising additional costs related to the costs of thirdparty licenses and crosslicense
payments to collaborative partners this is comparable to the level in both 2002 and 2003 with the balance being costs associated with thirdparty licenses
product gross margin in 2004 was 95 compared to 95 in 2003 and 95 in 2002 the company does not currently expect a significant increase in
product costs in 2005 although this would be subject to significant fluctuations if management were obliged to port further operating systems to run on the
arm architecture
service costs service costs include the costs of support and maintenance services to licensees of arm technology as well as the costs directly attributable to
consulting work performed for third parties cost of services decreased from approximately £67 million in 2002 to £49 million in 2003 and was £51 million
in 2004 the gross margins earned on service revenues were approximately 63 in 2002 68 in 2003 and 64 in 2004 in 2003 and 2004 the company
elected to allocate more engineering resource to research and development activities thus enabling the company to develop more innovative products and
technologies during the year
research and development costs research and development costs increased from £473 million in 2002 to £481 million in 2003 and £501 million in
2004 representing 31 38 and 33 of total revenues in 2002 2003 and 2004 respectively continued investment in research and development remains
an essential part of the company’s strategy since the development of new products to license is key to its ongoing success 
total engineering headcount increased from 420 at the end of 2002 to 442 at the end of 2003 and was 739 at the end of 2004 the increase in 2003 was
predominantly due to the acquisition of arm belgium nv whilst the increase in 2004 was due to the acquisitions of both artisan and axys as well as some
growth within the existing business
sales and marketing sales and marketing expenditure decreased from £247 million in 2002 to £230 million in 2003 and was £239 million in 2004
representing 16 of total revenues in 2002 18 in 2003 and 16 in 2004 headcount in this area decreased from 208 at 31 december 2002 to 203 
at 31 december 2003 and was 282 at the end of 2004 most of the growth in 2004 has come from acquisitions but there has also been organic growth
with new offices opening in bangalore india and beijing pr china the total number of sales offices is currently 19 and this enables improved contact with
the company’s geographically diverse customer base 
general and administrative general and administrative headcount at 31 december 2004 was 150 up from 95 at the end of 2003 and 93 at the end 
of 2002 again the majority of the increase in 2004 has come from acquisitions general and administrative costs were £225 million in 2002 and increased
to £287 million in 2003 and £313 million in 2004 representing 15 22 and 20 of total revenues respectively costs in 2003 included £16 million of
impairments made to investments 2002 £08 million 2004 £nil legal costs fluctuated from £25 million in 2002 to £91 million in 2003 and £51 million
in 2004 largely as a result of annual variations in the amount of legal expenses relating to patent protection cases and other similar costs the primary
reason for the increase in legal costs from 2002 to 2003 was the provision in 2003 for settlement of the herodion arbitration which was paid early in 2004
£45 million of the costs in 2004 related to a technology license agreement signed in the year expense in relation to provisions for doubtful debts was 
£14 million in 2002 a release of £01 million in 2003 and a further release of £01 million in 2004 unrealized future foreign exchange losses on certain
committed but not yet invoiced future revenue streams of £07 million 2003 £11 million 2002 £10 million were recorded in accordance with sfas 133
there was a gain on foreign exchange of £05 million in 2002 a gain of £09 million in 2003 and a loss of £15 million in 2004 see “foreign currency
fluctuations” below
inprocess research and development during 2004 the company purchased axys design automation inc and artisan components inc now arm physical
ip inc those intangible assets that were still in development known as inprocess research and development were charged directly to the income
statement amounting to £04 million and £32 million for axys and artisan respectively
amortization of goodwill and intangible assets various licenses to use thirdparty technology have been signed over the past several years with their
values being capitalized and amortized over the useful economic period that the company is expected to gain benefit from them generally between three
and five years in addition to the three licenses purchased in 2000 2001 and 2002 two licenses were purchased in 2003 totalling £07 million and a
further license purchased in 2004 for £02 million amortization of these licenses amounted to £05 million in 2004 2003 £12 million 2002 £11 million
following the outofcourt settlement of the company’s litigation against picoturbo inc in december 2001 picoturbo assigned its intellectual property rights
to the company for a payment of £75 million this is being amortized over four years and £15 million was charged to the income statement in 2002 £20
million in 2003 and £20 million in 2004
the company also purchased a patent for £07 million in 2002 which is being amortized over five years the amortization charge was £01 million in 2002
2003 and 2004
during 2003 the company purchased adelante technologies nv now arm belgium nv included with the assets purchased were £03 million of
intangible assets comprising developed technology and customer relationships which are being amortized over five years and two years respectively 
the amortization charge for the assets during 2004 was £01 million 2003 less than £01 million
arm annual report and accounts 2004 67 intangible assets acquired and capitalized as part of the axys and artisan business combinations totalled £19 million and £701 million respectively and are
being amortised over five years and between one and six years respectively see note 6 for further details the total charge during 2004 was £01 million
and £03 million for axys and artisan respectively
the adoption of sfas 142 “goodwill and other intangible assets” in 2002 did not result in any impairment of the company’s goodwill or intangible assets
during the year the company entered into a technology license agreement under which arm will pay 133 million £69 million in four equal semi
annual installments over two years the first installment was paid during the year and the remainder is included with creditors the agreement confers both
retrospective and prospective rights each of which has been valued based on a discounted cash flow analysis and the arrangement consideration has 
been allocated to each element based on the relative fair values the retrospective amount amounting to £45 million has been charged to administrative
expenses in the income statement in the year and the prospective element amounting to £24 million has been accounted for as a prepayment at 
31 december 2004
interest interest receivable increased from £44 million in 2002 to £48 million in 2003 and further to £69 million in 2004 the growth in interest in the
periods was due to higher average cash balances and increasing interest rates the company invested cash balances over periods of up to six months during
2004 although some marketable securities acquired with artisan have maturities of greater than one year from the balance sheet date
income before income tax income before income tax was £454 million in 2002 £220 million in 2003 and £385 million in 2004 representing 30 17
and 25 of total revenues respectively the drop in margins in 2003 was due to lower revenues and higher legal costs including oneoff settlement costs
not being entirely offset by reduced other operating expenses the increased margin in 2004 was achieved notwithstanding nonrecurring and acquisition
related charges of £87 million during the year comprising £45 million of a nonrecurring technology license charge £36 million of inprocess research and
development writeoff and £06 million of business combination intangible amortization due to higher revenue and continued cost control 
tax charge the company’s effective tax rates were 303 in 2002 407 in 2003 and 272 in 2004 the effective tax rate increased in 2003 due to 
the impact of certain cash and noncash accounting charges not being deductible for tax purposes but fell in 2004 with additional costs being allowable for
research and development tax credits additional benefits arising from employee share option exercises and lower nondeductible noncash accounting
charges in 2004
net income net income was £316 million in 2002 £130 million in 2003 and £280 million in 2004 the changes in net income are as a result of the
combined movements in revenues and costs as discussed above
liquidity and capital resources the company’s operating activities generated net cash of £395 million £387 million and £465 million in 2002 2003 and
2004 respectively movements of working capital detailed below are per the cash flow and thus exclude balances acquired through business combinations
except where noted
accounts receivable fell by £29 million in 2002 a further £45 million in 2003 but increased by £14 million in 2004 this is partly due to the overall
revenues earned in the periods towards the end of the respective years and also improved credit control throughout the periods prepaid expenses
increased by £53 million in 2002 fell by £28 million in 2003 and increased again by £34 million in 2004 the company entered into several leases for
design automation tools during 2002 which resulted in the large increase in prepaid expenses but fell in 2003 as a result of the lease payments being for
shorter prepaid periods than in previous years this has been similar in 2004 and the increase was due to a technology license agreement signed in the
year giving rise to a prepayment as noted above
accounts payable increased by £24 million in 2002 reduced by £25 million in 2003 and increased again in 2004 by £12 million as a result of the timing 
of receipt of supplier invoices in 2004 and a general increase in the companys cost base accrued liabilities reduced by £11 million in 2002 increased by
£70 million in 2003 and increased by a further £28 million in 2004 the significant increase in 2003 was primarily as a result of the provision for the herodion
legal settlement of £64 million which was paid early in 2004 and increased in 2004 as a result of provisions for staff costs and for a technology license
agreement signed in the year 
at 31 december 2004 the company recorded approximately £214 million in deferred revenues which represented cash or receivables scheduled to be
recognized as revenues in varying amounts after 31 december 2004 at 31 december 2003 and 31 december 2002 the company recorded approximately
£111 million and £144 million respectively in deferred revenues deferred revenues are an element of customer backlog and represent amounts invoiced
to customers not yet recognized as revenues in the income statement as such this balance fluctuates due to the maturity profile of arms products and
invoicing milestones within contracts the significant increase in 2004 is predominantly due to the acquisition of artisan
the company believes that given its current level of business it has sufficient working capital for the foreseeable future
cash flow from operations has been used to fund the working capital requirements of the company as well as capital expenditure capital expenditure in
2004 was £50 million compared with £36 million in 2003 and £156 million in 2002 capital expenditure in 2003 was much lower than in 2002 as a result
of the increased leasing of design automation tools and the much lower level of recruitment which required computers to be purchased for new staff
capital expenditure increased in 2004 with increases in both levels of staff and as a result of the development of a new it system in 2002 £82 million
was spent on computer equipment and software and £74 million on leasehold improvements and fixtures and fittings in 2003 £18 million was spent on
computer equipment and software and £18 million on leasehold improvements and fixtures and fittings in 2004 £35 million was spent on computer
equipment and software and £15 million on leasehold improvements and fixtures and fittings
in 2003 the company acquired the 15 minority interest in arm korea limited for cash consideration of £30 million bringing its holding to 100 the
company also acquired the entire share capital of adelante technologies nv now arm belgium nv for a total consideration of £04 million
68 arm annual report and accounts 2004
operating and financial review and prospectsus gaapcontinued in 2004 the company acquired the entire share capital of both axys design automation inc and artisan components inc for total consideration of 
£69 million and £4817 million respectively with cash consideration comprising £69 million and £1223 million respectively a further 3 million 
£16 million may become payable for axys subject to the achievement of various postacquisition financial milestones cash acquired with these businesses
amounted to £827 million the company envisages making further strategic investments in the future in situations where the company can broaden its
product portfolio where it can obtain skilled engineering resources and where the potential for furthering arm corebased design wins is improved significantly
in 2002 the company made one investment in an availableforsale security namely superscape group plc for consideration of £15 million in 2003 the
company invested a further £12 million in superscape group plc as part of a further funding round thus maintaining its 12 holding in 2004 the company
invested a total of £02 million in two small unlisted companies zeevo inc and reciva limited giving a minority holding of less than 3 in each company
cash cash equivalents shortterm investments and marketable securities balances at 31 december 2004 were £1428 million compared to 
£1598 million at 31 december 2003 accounts receivable net of allowances for doubtful debts were £173 million at 31 december 2003 and £343 million
at 31 december 2004 the significant increase in 2004 is due to the inclusion of the artisan accounts receivable at the balance sheet date
foreign currency fluctuations the company’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates principally the us dollar
rate reflecting the fact that most of the company’s revenues and cash receipts are denominated in us dollars while a high proportion of its costs are 
in sterling 
the company reduces this us dollarsterling exposure where possible by currency hedging due to the high value and timing of receipts on individual
licenses and the requirement to settle certain expenses in us dollars the company reviews its foreign exchange exposure on a transactionbytransaction
basis it then hedges this exposure using forward contracts for the sale of us dollars which are negotiated with major uk clearing banks the average size 
of each forward contract was 72 million in 2002 46 million in 2003 and 51 million in 2004 the company does not currently use any other financial
instruments or derivatives although the company is reviewing the use of other financial instruments such as currency options the fair values of the
financial instruments outstanding at 31 december 2002 2003 and 2004 are disclosed in note 14 to the financial statements the settlement period of the
forward contracts outstanding at 31 december 2004 was between 11 january 2005 and 29 march 2005
quantitative and qualitative information on market risk during the preceding fiscal year the company was exposed to foreign currency exchange risk
inherent in its sales commitments anticipated sales anticipated purchases and assets and liabilities denominated in currencies other than sterling arm
transacts business in approximately eight foreign currencies worldwide of which the most significant to the companys operations were the us dollar the
euro the korean won and the japanese yen in 2004 for most currencies the company is a net receiver of foreign currencies and therefore benefits from 
a weaker sterling and is adversely affected by a stronger sterling relative to those foreign currencies the company has performed a sensitivity analysis at
31 december 2004 2003 and 2002 using a modelling technique that measures the changes in the fair values arising from a hypothetical 10 adverse
movement in the levels of foreign currency exchange rates relative to sterling with all other variables held constant the analysis covers all of the companys
foreign currency contracts offset by the underlying exposures the foreign currency exchange rates used were based on market rates in effect at 31 december
2004 2003 and 2002 the sensitivity analysis indicated that a hypothetical 10 adverse movement in foreign currency exchange rates would result in a
loss in the fair values of arms foreign exchange derivative financial instruments net of exposures of £86 million at 31 december 2004 2003 £07 million
2002 £02 million the increase in 2004 is due to the large dollar cash balances within artisan at the year end
risk factors the company operates in the intensely competitive semiconductor industry which is characterized by price erosion rapid technological change
short product life cycles cyclical market patterns and heightened foreign and domestic competition the company believes that its future operating results
will continue to be subject to quarterly variations based upon a wide variety of factors these include the timing of entering into agreements with new
licensees the mixture of license fees royalties and fees from services the introduction of new technology by the company the timing of orders from and
shipments to systems companies of arm corebased microprocessors from the company’s semiconductor partners and sudden technological change in the
microprocessor industry 
other risks include the reliance on semiconductor partners dependence upon systems companies patent protection attraction and retention of employees
management of growth competition and vulnerability to general economic conditions risk factors are more fully discussed in the company’s annual report
on form 20f
arm annual report and accounts 2004 69 2002 2003 2004 2004
£000 £000 £000 000
revenues
product revenues 132911 112958 138732 266365
service revenues 18011 15112 14165 27197
total revenues 150922 128070 152897 293562
cost of revenues
product costs 6464 6171 6735 12931
service costs 6721 4851 5064 9723
total cost of revenues 13185 11022 11799 22654
gross profit 137737 117048 141098 270908
operating expenses
research and development 47299 48131 50133 96255
sales and marketing 24711 22960 23935 45955
general and administrative 22486 28652 31331 60156
inprocess research and development – – 3612 6935
amortization of intangibles purchased through business combination – 42 576 1106
restructuring costs 1960 – – –
total operating expenses 96456 99785 109587 210407
income from operations 41281 17263 31511 60501
interest net 4373 4801 6944 13333
minority interest 232 105 – –
income before income tax 45422 21959 38455 73834
provision for income taxes 13785 8943 10478 20118
net income 31637 13016 27977 53716
net income 31637 13016 27977 53716
other comprehensive income
foreign currency adjustments 807 1425 421 808
unrealised holding gain on availableforsale securities net of tax
of £1631000 2003 £446000 2002 £nil – 1979 4196 8056
total comprehensive income 30830 13570 31752 60964
basic earnings per common share 31p 13p 27p
diluted earnings per common share 31p 13p 27p
us dollar amounts have been translated from sterling at the 31 december 2004 closing rate of £1  192 and are unaudited see footnote 1
all activities relate to continuing operations
the accompanying notes are an integral part of the financial statements
70 arm annual report and accounts 2004
consolidated statements of income and comprehensive incomeus gaap 2003 2004 2004
£000 £000 000
assets
current assets
cash and cash equivalents 130722 110561 212277
shortterm investments 29064 5307 10190
marketable securities – 21511 41301
accounts receivable net of allowances for doubtful debts of £1451000 2003 £1115000 17320 34347 65946
inventory finished goods 931 897 1722
prepaid expenses and other assets 8924 16001 30722
total current assets 186961 188624 362158
longterm marketable securities – 5438 10441
deferred income taxes 3139 2529 4855
property and equipment net 16583 14117 27105
goodwill 4352 340416 653599
other intangible assets 5716 74578 143190
investments 6246 12235 23491
total assets 222997 637937 1224839
liabilities and shareholders’ equity
current liabilities
accounts payable 2691 4110 7891
income taxes payable 3140 6345 12182
personnel taxes 1047 1123 2156
accrued liabilities see footnote 10 16912 38600 74112
deferred revenue 11132 21355 41002
total current liabilities 34922 71533 137343
accrued liabilities – 1732 3326
deferred income taxes – 12345 23702
total liabilities 34922 85610 164371
contingencies and commitments see footnote 12
shareholders’ equity
ordinary shares £00005 par value 2200000000 authorized 
2003 1580000000 1350786975 issued 2003 1023345650 512 675 1296
additional paidin capital 63321 414133 795135
deferred compensation 2499 12083 23199
treasury stock at cost 5713034 ordinary shares 2003 5721080 7569 7485 14371
retained earnings 134419 153421 294568
accumulated other comprehensive income
unrealized holding gain on availableforsale securities net of tax of £2077000 2003 £446000 1979 6175 11856
cumulative translation adjustment 2088 2509 4817
total shareholders’ equity 188075 552327 1060468
total liabilities and shareholders’ equity 222997 637937 1224839
us dollar amounts have been translated from sterling at the 31 december 2004 closing rate of £1  192 and are unaudited see footnote 1
the accompanying notes are an integral part of the financial statements
arm annual report and accounts 2004 71
consolidated balance sheetsus gaap 2002 2003 2004 2004
£000 £000 £000 000
cash flows from operating activities
net income 31637 13016 27977 53716
adjustments to reconcile net income to net cash provided by operating activities
depreciation and amortization of tangible and intangible assets 15240 16292 13124 25198
writeoff of inprocess research and development – – 3612 6935
stock option compensation 56 551 960 1843
deferred income taxes 858 1248 1281 2460
tax effect of disqualifying dispositions 754 966 515 989
provision for doubtful accounts 1393 1078 321 616
accounts receivable converted to trade investments – – 112 215
amount written off investments 826 1560 ––
other 218 99 20 38
changes in operating assets and liabilities
accounts receivable 2900 4536 1358 2607
inventory 934 584 34 65
prepaid expenses and other current assets 5339 2806 3370 6470
accounts payable 2369 2468 1176 2258
income taxes payable 2676 688 357 685
deferred revenue 5005 3397 3013 5785
accrued liabilities and other creditors 1105 6991 2771 5320
personnel taxes 40 223 76 146
net cash provided by operating activities 39516 38745 46479 89240
cash flows from investing activities
purchase of equipment 8670 1574 3933 7552
purchase of leasehold improvements 6946 1737 1397 2682
sale of equipment 35 34 23 44
purchase of patent and licenses 855 655 65 125
purchase of investments 1500 1152 50 96
purchasematurity of shortterm investments – 29064 24677 47380
purchase of subsidiaries and businesses net of cash acquired – 3390 77899 149566
net cash used in investing activities 17936 37538 58644 112597
cash flows from financing activities
cash received on issue of shares on exercise of share options 4763 255 1311 2517
proceeds received on issuance of shares 222 263 24
expenses of issuing share capital – – 360 691
payment of dividends –– 8975 17232
net cash provided byused in financing activities 4985 518 8022 15402
effect of foreign exchange on cash and cash equivalents 728 1307 26 50
net increasedecrease in cash and cash equivalents 25837 418 20161 38709
cash and cash equivalents at beginning of the period 104467 130304 130722 250986
cash and cash equivalents at end of the period 130304 130722 110561 212277
supplemental disclosure of cash flow information
cash paid for income taxes 16758 9925 11601
cash received on interest 4187 4930 7233
us dollar amounts have been translated from sterling at the 31 december 2004 closing rate of £1  192 and are unaudited see footnote 1 
in addition shares have been issued as part consideration for a business combination and further details are shown in footnote 6
the accompanying notes are an integral part of the financial statements
72 arm annual report and accounts 2004
consolidated statements of cash flowsus gaap additional unrealized cumulative
ordinary shares paidin deferred treasury retained holding translation
amount capital compensation stock earnings gain adjustment total
number £000 £000 £000 £000 £000 £000 £000 £000
balances
31 december 2001 1014767176 507 65362 – 19934 89766 – 144 135845
shares issued on
exercise of options 6990824 4 4759 4763
net income 31637 31637
tax effect of
disqualifying dispositions 754 754
deferred compensation
arising on saye plan 369 369 –
amortization of
deferred compensation 56 56
currency translation
adjustment 807 807
issuance of shares 1678 1900 222
balances
31 december 2002 1021758000 511 69566 313 18034 121403 – 663 172470
shares issued on
exercise of options 1587650 1 254 255
net income 13016 13016
unrealized holding gains
on availableforsale
securities 1979 1979
tax effect of
disqualfying dispositions 966 966
deferred compensation
arising on share schemes 2737 2737 –
amortization of
deferred compensation 551 551
currency translation
adjustment 1425 1425
issuance of shares 10202 10465 263
balances
31 december 2003 1023345650 512 63321 2499 7569 134419 1979 2088 188075
shares issued on
exercise of options 3041914 1 1310 1311
shares issued on
acquisition 324399411 162 272238 272400
share issue costs 3094 3094
issuance of options 
in relation to acquisition 
of artisan 78950 9579 69371
net income 27977 27977
dividends 8975 8975
unrealized holding gains
on availableforsale
securities 4196 4196
tax effect of
disqualfying dispositions 515 515
deferred compensation
arising on share schemes 965 965 –
amortization of
deferred compensation 960 960
currency translation
adjustment 421 421
issuance of shares 72 84 12
balances
31 december 2004 1350786975 675 414133 12083 7485 153421 6175 2509 552327
the amount of shareholders’ equity available for distribution to shareholders is the amount of profits determined under uk gaap in the statutory accounts of the parent company at 31 december 2004 such
distributable profits amounted to £15610000 after taking into account the proposed final dividend of £5673000 for 2004
the accompanying notes are an integral part of the financial statements
arm annual report and accounts 2004 73
consolidated statements of changes in shareholders’ equityus gaap 1 the company and a summary of its significant accounting policies
the business of the company arm holdings plc and its subsidiary companies “arm” or “the company” design reduced instruction set computing risc
microprocessors and related technology and software and sell development systems to enhance the performance costeffectiveness and powerefficiency
of highvolume embedded applications the company licenses and sells its technology and products to leading international electronics companies which in
turn manufacture market and sell microprocessors applicationspecific integrated circuits asics and applicationspecific standard processors assps based
on the company’s architecture to systems companies for incorporation into a wide variety of end products by creating a network of partners and working
with them to best utilize the company’s technology the company is establishing its architecture as a risc processor for use in many highvolume embedded
microprocessor applications including digital cellular phones modems and automotive functions and for potential use in many growing markets including
smart cards and digital video the company also licenses and sells development systems direct to systems companies and provides consulting and support
services to its licensees systems companies and other systems designers the company’s principal geographic markets are europe the us and asia pacific
incorporation and history arm is a public limited company incorporated under the laws of england and wales the company was formed on 16 october
1990 as a joint venture between apple computer uk limited and acorn computers limited and operated under the name advanced risc machines
holdings limited until 10 march 1998 when its name was changed to arm holdings plc its initial public offering was on 17 april 1998
the company’s whollyowned undertakings include arm limited incorporated in the uk arm inc incorporated in the us arm physical ip inc formerly
artisan components inc incorporated in the us and acquired and renamed during 2004 axys design automation inc incorporated in the us and acquired
during 2004 arm kk incorporated in japan arm korea limited incorporated in south korea arm france sas incorporated in france arm belgium nv
incorporated in belgium arm taiwan limited incorporated in taiwan arm consulting shanghai co limited incorporated in pr china and arm embedded
solutions pvt ltd incorporated in india
basis of preparation the accompanying consolidated financial statements have been prepared under the historical cost convention and in accordance with
accounting principles generally accepted in the united states us gaap
the company maintains its accounting records and prepares its financial statements in uk sterling purely for the convenience of the reader the 31 december
2004 consolidated financial statements have been translated from sterling at the closing rate per the financial times on 31 december 2004 of £100  192
such translations should not be construed as representations that the sterling amounts represent or have been or could be so converted into us dollars at
that rate or at any other rate
use of estimates the preparation of financial statements in conformity with us gaap requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes actual results could differ from these estimates significant estimates in the
financial statements include but are not limited to revenue recognition accounting for investments allowance for doubtful debts impairment of longlived
assets goodwill and purchased intangible assets and contingencies and legal settlements
principles of consolidation the consolidated financial statements incorporate the financial statements of the company and all its subsidiaries intragroup
transactions including sales profits receivables and payables have been eliminated on consolidation the results of subsidiaries acquired in the year are
included in the income statement from the date they are acquired on acquisition all of the subsidiaries’ assets and liabilities that exist at the date of
acquisition are recorded at their fair values reflecting their condition at that date
investments publicly traded investments are classed as availableforsale in accordance with statement of financial accounting standards sfas no115
“accounting for certain investments in debt and securities” and are carried at fair value unrealized holding gains or losses on such securities are included
net of related taxes in other comprehensive income otherthantemporary impairment losses and realized gains and losses of such securities are reported
in earnings equity securities that are not publicly traded are recorded at cost less permanent diminution in value at 31 december 2004 and 2003 the
estimated fair value of these investments approximated their recorded basis based on estimates determined by management 
during 2002 the company made a 12 investment in superscape group plc a company listed on the london stock exchange the company made 
an additional investment in superscape group plc during 2003 maintaining its percentage shareholding in 2004 the company made a less than 1
investment in zeevo inc and a less than 3 investment in reciva limited
intangible assets purchased patents and licenses to use technology are capitalized and amortized on a straightline basis over a prudent estimate of the
time that the company is expected to benefit from them 
although an independent valuation is made of any intangible assets purchased as part of a business combination management is primarily responsible for
determining the fair value of intangible assets such assets are capitalized and amortized over a period of one to six years being a prudent estimate of the
time that the company is expected to benefit from them with the exception of inprocess research and development which is written off immediately 
where a technology confers both retrospective and prospective rights each element is valued based on a discounted cash flow analysis the retrospective
element is charged to the income statement immediately whilst the prospective element is capitalized
goodwill goodwill represents the excess of the fair value of the consideration paid on acquisition of a business over the fair value of the assets including
any intangible assets identified and liabilities acquired 
prior to 2002 purchased goodwill was capitalized and amortized on a straightline basis over a prudent estimate of the time that the company was expected
to benefit from it upon adoption of sfas 142 on 1 january 2002 the company ceased amortizing goodwill the value of goodwill carried forward at the
end of 2001 has been frozen at £2274000 and goodwill will be tested for impairment at least annually the company performs its annual impairment 
74 arm annual report and accounts 2004
notes to the financial statementsus gaap 1 the company and a summary of its significant accounting policies continued
review at the reporting unit level for 2004 all the assets and liabilities of the company were assigned to one reporting unit an annual impairment review
in 2004 determined by way of a comparison of the company’s market capitalization to shareholders’ equity and cash flow forecasts that there was no
indication of impairment with respect to goodwill
impairment charges the company reviews longlived assets identifiable intangibles and related goodwill for impairment annually or more frequently 
if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable if the sum of the expected future cash 
flows undiscounted and without interest charges of the longlived assets is less than the carrying amount of such assets an impairment loss would 
be recognized and the assets are written down to their estimated fair value
revenue recognition revenue consists of license fees received under the terms of license agreements with customers to enable them to use the company’s
intellectual property ip which is customized to each customer’s manufacturing process the company receives royalties on sales by the company’s customers
of products containing arm technology it also supplies offtheshelf software tools boughtin boards and toolkits training and consultancy services 
the company primarily earns revenues from licensing its ip to leading electronics companies which in turn manufacture market and sell microprocessors
asics and assps based on the company’s architecture to systems companies for incorporation into a wide variety of end products the company’s ip consists
of software and related documentation which enables a customer to design and manufacture microprocessors and related technology and software most
licenses are designed to meet the specific requirements of each customer and are generally not time limited in their application in general the time
between the signing of a license and final customer acceptance is between six and 15 months upgrades or modifications to the licensed ip are not
provided following customer acceptance the company has no further obligations under the license agreement
in accordance with sop 811 “accounting for performance of constructiontype and certain production type contracts” when license agreements include
deliverables that require “significant production modification or customization” contract accounting is applied revenues from license fees are recognized
based on the percentagetocompletion method over the period from signing of the license to customer acceptance and the completion of all outstanding
obligations the amount of revenue recognized is based on the total license fees under the license agreement and the percentagetocompletion achieved
the percentagetocompletion is measured by monitoring progress using records of actual time incurred to date in the project compared with the total
estimated project requirement revenues are recognized only when collectability is probable if the amount of revenue recognized exceeds the amounts
billed to customers the excess amount is recorded as unbilled accounts receivable estimates of total project requirements are based on prior experience of
customization delivery and acceptance of the same or similar technology and are reviewed and updated regularly by management under the percentage
tocompletion method provisions for estimated losses on uncompleted contracts are recognized in the period in which the likelihood of such losses is
determined
agreements that include rights to unspecified products as opposed to unspecified upgrades and enhancements are accounted for using subscription
accounting revenue from the arrangement being recognized over the term of the arrangement or an estimate of the economic life of the products offered 
if no term is specified beginning with the delivery of the first product 
in accordance with sop 972 “software revenue recognition” where agreements involve multiple elements that do not require “significant production
modification or customization” the company recognizes license revenue when a signed contract or other persuasive evidence of an arrangement exists the
product has been shipped or electronically delivered the license fee is fixed and determinable and collection of the resulting receivable is probable where
agreements include multiple elements the revenue recognition criteria for each element are typically met within the same reporting period ie on delivery
of the elements if an element is undelivered at a period end the company determines whether it has sufficient vendor specific objective evidence vsoe
of fair value in order to make an allocation amongst the elements with the exception of postcontract support pcs the company does not currently
believe that it has sufficient vsoe to make such allocations accordingly no revenue is recognized on arrangements where deliverables other than pcs
remain outstanding
pcs consists of an identified customer contact at the company and telephone or email support including certain bug fixes pcs is generally priced
separately from the initial licensing fee revenue allocated to pcs is determined based on vsoe vsoe is determined with reference to contractual renewal
rates or if none are specified by reference to the rate actually charged on renewal for the same level of support and for the same or similar technologies 
for pcs arrangements pcs revenue is recognized on a straightline basis over the period for which support and maintenance is contractually agreed by the
company with the licensee
certain products have been codeveloped by the company and a collaborative partner with both parties retaining the right to sell licenses to the product 
in those cases where the company makes sales of these products and considers itself to be the principal under eitf 9919 “reporting revenue gross as 
a principal versus net as an agent” the total value of the license is recorded as revenue and the amount payable to the collaborative partner is recorded 
as cost of sales where the collaborative partner makes sales of these products the company records as revenue the commission it is due when informed
by the collaborative partner that a sale has been made and cash has been collected
sales of boards and toolkits are recognized upon delivery where necessary and in the circumstances permitted by sop 972 the costs associated with
providing postcontract support have been accrued while some arrangements with distributors provide very limited rights of return the company’s history 
is that actual returns are negligible and accordingly no provisions are deemed necessary
services such as consulting and training which are not essential to the functionality of the ip  are accounted for separately based on vsoe revenue is
recognized as services are performed and collectability is probable the excess of fees invoiced over revenue recognized in respect of such fees is recorded
as a deferred revenue liability
arm annual report and accounts 2004 75 1 the company and a summary of its significant accounting policies continued
royalty revenues are earned on sales by the company’s customers of products containing arm technology revenues are recognized when arm receives
notification from the customer of product sales or receives payment of any fixed royalties normally quarterly in arrears
revenues from consulting projects which are typically of a short duration are recognized when the service has been provided and all obligations to the
customer under the consulting agreement have been fulfilled for longerterm and more complex consulting projects typically containing several project
milestones where significant modification to arm corebased ip is required revenues are recognized on a percentagetocompletion basis as milestones 
are achieved this method approximates to percentage to completion based on labor inputs
where the company enters into a license arrangement in exchange for a license to the customer’s technology in the absence of evidence of fair value 
of the arrangement the transaction is recorded at carryover basis
research and development all ongoing research and development expenditure is expensed in the period in which it is incurred costs include salaries
relevant eda tools costs and other directly related expenditure as well as a proportion of central facilities costs
grants grants in respect of specific research and development projects are receivable from the european commission a european organization which funds
certain research and development activities on application to it for the purposes of furthering research and development activities within the european
union the company retains significant rights to ip developed under projects which are funded under these arrangements grants received are intended to
cover 50 of expected project costs grant income is recognized over the period of the project in line with the costs incurred unconditional undertakings
have been received from the european commission to provide the funding and there is no obligation to refund any amounts already received amounts
receivable under these arrangements in the year ended 31 december 2004 were £338000 2003 £226000 2002 £199000 and were netted against
related research and development costs
pension costs the company contributes to defined contribution plans substantially covering all employees in europe and the us and to government pension
schemes for employees in japan south korea taiwan pr china and israel the company contributes to these plans based upon various fixed percentages of
employee compensation and such contributions are expensed as incurred the amount of contributions expensed by the company for the years ended 
31 december 2002 2003 and 2004 were £1894000 £1848000 and £2067000 respectively
cash and cash equivalents the company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents
shortterm investments and marketable securities the company considers all highly liquid investments with original maturity dates of greater than three
months but less than one year to be shortterm investments any investments with a maturity date of greater than one year are classified as longterm at
31 december 2004 and 2003 all of the company’s investments were classified as availableforsale and were recorded on the balance sheets at fair value
unrealized gains and losses on these investments are recorded in comprehensive income the company recognizes an impairment charge when the decline
in fair value of its investments below cost is judged to be otherthantemporary
allowance for doubtful debts allowance is made for doubtful debts following reviews of individual customer circumstances by management 
inventory inventory is stated at the lower of cost and net realizable value in general cost is determined on a firstinfirstout basis and includes transport
and handling costs where necessary provision is made for obsolete slowmoving and defective inventory
property and equipment the cost of property and equipment is their purchase cost together with any incidental costs of acquisition costs that are directly
attributable to the development of new business application software and which are incurred during the period prior to the date that the software is placed
into operational use are capitalized external costs and internal costs are capitalized to the extent they enhance the future economic benefit of the business
depreciation is calculated so as to writeoff the cost of property and equipment less their estimated residual values on a straightline basis over the
expected useful economic lives of the assets concerned the principal economic lives used for this purpose are
freehold buildings 25 years
leasehold improvements five years or term of lease whichever is shorter
computers and software three to five years
fixtures and fittings five to ten years
motor vehicles four years
provision is made against the carrying value of property and equipment where an impairment in value is deemed to have occurred
operating leases costs in respect of operating leases are charged on a straightline basis over the lease term even if the payments are not made on such a basis
currency translation the functional currency for the company’s operations is the local currency in which each operation operates
the assets and liabilities of subsidiaries denominated in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date
statements of income of overseas subsidiaries are translated at the monthly exchange rates during the year translation differences are taken to the
cumulative translation adjustment
76 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued 1 the company and a summary of its significant accounting policies continued
the company utilizes forward exchange contracts to manage the exchange risk on actual transactions related to accounts receivable denominated in a
currency other than the functional currency of the business the company’s forward exchange contracts do not subject the company to risk from exchange
rate movements because the gains and losses on such contracts offset losses and gains respectively on the transactions being hedged because the
company does not meet the criteria for hedge accounting the forward contracts and the related accounts receivable are recorded at fair value at each
period end all recognized gains and losses resulting from the settlement of the contracts are recorded within general and administrative costs in the
income statement the company does not enter into foreign exchange contracts for the purpose of hedging anticipated transactions
other transactions denominated in foreign currencies have been translated into sterling at actual rates of exchange ruling at the date of transaction
monetary assets and liabilities denominated in foreign currencies have been translated at rates ruling at the balance sheet date exchange differences have
been included in general and administrative costs
from time to time the company enters into sales contracts denominated in a currency typically us dollars that is neither the functional currency of the
company nor the functional currency of the customer in accordance with sfas 133 “accounting for derivative instruments and hedging activities” where
there are uninvoiced amounts on such contracts the company carries such derivatives at fair value the resulting gain or loss is recognized in the income
statement under general and administrative costs for the year ended 31 december 2004 the loss on exchange was £732000 2003 £1141000 2002
£950000
income taxes income taxes are computed using the liability method under this method deferred income tax assets and liabilities are determined based on
temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be
in effect when the differences are expected to reverse valuation allowances are established against deferred tax assets where it is more likely than not that
some portion or all of the asset will not be realized
earnings per share basic earnings per common share is computed based on the weighted average number of ordinary shares diluted earnings per
common share is computed by including potential common shares where the effect of their inclusion would be dilutive the diluted share base for the year
ended 31 december 2004 excludes incremental shares of approximately 38143000 2003 18948000 2002 19608000 related to employee stock
options these shares are excluded due to their antidilutive effect as a result of the exercise price of these shares being higher than the market price the
ordinary equivalent shares for share options were determined using the treasury stock method
accounting for stockbased compensation the company has elected to use the intrinsic valuebased method to account for all its employee stockbased
compensation plans under the recognition and measurement principles of apb opinion no 25 “accounting for stock issued to employees” and related
interpretations stockbased employee compensation cost in respect of certain saye options see below of £341000 2003 £310000 and in respect of the
ltip of £619000 2003 £241000 is reflected in net income no compensation cost is recorded in respect of the other stock option plans as all options
granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant apart from certain options
issued to executive directors there are no performance conditions attached to the exercise of options for executive directors discretionary share options 
of up to two times base salary may be issued each year that will vest after seven years if however the company achieves defined levels of eps growth
above the rate of inflation over a period of three years then the options are exercisable after three years
the following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of fasb
statement no 123 “accounting for stockbased compensation” to stockbased employee compensation
year ended 31 december
2002 2003 2004
£000 £000 £000
net income
as reported 31637 13016 27977
deduct total stockbased compensation expense determined under fair
valuebased method for all awards net of related tax effects 11165 15794 12546
add back total stockbased compensation expense determined under 
the intrinsic valuebased method 56 551 960
pro forma net incomeloss 20528 2227 16391
basic earningsloss per common share pence
as reported 31p 13p 27p
pro forma 20p 02p 16p
diluted earningsloss per common share pence
as reported 31p 13p 27p
pro forma 20p 02p 16p
the fair value of options granted was estimated on the date of grant using the blackscholes option pricing model with the following assumptions used for
grants in 2004 2003 and 2002 riskfree interest rate of between 40 and 45 2003 between 32 and 49 2002 51 expected life of between
one and five years between 44 and 96 2003 between 60 and 127 2002 80 volatility and dividend yield of between 05 and 07 2003
and 2002 nil the grant date fair value of options granted during 2004 ranged from £030 to £088 2003 £021 to £055 2002 £026 to £195
arm annual report and accounts 2004 77 1 the company and a summary of its significant accounting policies continued
the company operates save as you earn saye schemes in the uk and an employee share purchase plan espp in the us options under these schemes
are granted at a 15 discount to market price of the underlying shares on the date of grant the uk saye schemes are approved by the inland revenue
which stipulates that the savings period must be at least 36 months during 2002 the emerging issues task force eitf reached a consensus contained
within eitf 0023 that savings plans which have a savings period in excess of 27 months should be treated as compensatory in accordance with eitf 0023
which applies to new offers after 24 january 2002 the company has recognized a compensation charge in respect of the uk saye plans offered since that
date the compensation charge is calculated as the difference between the market price of the shares at the date of grant and the exercise price of the
option and is recorded on a straightline basis over the savings period the compensation charge recorded in 2004 is £341000 2003 £310000 2002
£56000 the deferred compensation at 31 december 2004 was £599000 2003 £1081000 2002 £313000 
in addition the eitf reached a consensus that an employer’s offer to enter into a new saye contract at a lower price than an existing contract causes
variable accounting for all existing awards subject to the offer variable accounting commences for all existing awards when the offer is made and for 
those awards that are retained by employees because the offer is declined variable accounting continues until the awards are exercised are forfeited 
or expire unexercised new awards are accounted for as variable to the extent that previous higher priced options are canceled the compensation charge
recorded in 2004 as a result of these provisions is £115000 2003 £109000 2002 £nil and is included within the charge disclosed above the number of
options to which variable accounting applies is approximately 908000 2003 950000 2002 980000
the company has an ltip on which it is also required to recognize a compensation charge under the eitf calculated as the difference between the exercise
price and the fair market value of the shares at the period end over the vesting period of the options during 2004 a charge of £619000 2003 £241000
was incurred and deferred compensation at 31 december 2004 was £1905000 2003 £1418000
as part of the consideration for artisan the company granted approximately 904 million options over shares in arm holdings plc to employees of artisan
with substantially the same terms of those enjoyed when they were options over artisan shares as a result a significant proportion of the options 
were already vested at acquisition the intrinsic value of the unvested options was recorded as a reduction in shareholders funds and a reduction in
goodwill this amount is then charged to the profit and loss account over the vesting period of the options the total value deferred at 31 december 2004
was £9579000
employee share ownership plans treasury stock represents the cost of shares in the company held by the employee benefit trust esop and the quest 
the esop was set up on 16 april 1998 to facilitate the recruitment retention and motivation of employees under the group’s long term incentive plan
5003724 shares could be awarded from shares already issued within the esop and quest the market value of unearned shares at 31 december 2004 
was £5525000 
all costs relating to the schemes are recognized in the income statement as they accrue and the esop has waived the right to receive dividends of over and
above 001 pence per share on all shares held for the purpose of earnings per share calculations the shares are treated as canceled until such time as they
vest unconditionally
treasury stock held also includes £6047000 relating to 713034 shares held by the company’s quest which was established by the company during 1999
the company established the quest to acquire new shares in the company for the benefit of employees and directors of the company no shares were
purchased in 2004 2003 or 2002
the shares rank pari passu in all respects with the existing ordinary shares they will be allocated to employees and directors to satisfy their options granted
under the company’s saye schemes or utilized to meet awards under the company’s ltip 
during 2004 8046 shares 2003 1075674 were allocated from the quest following the exercise of share options granted under the company’s saye
schemes under the terms of the trust deed dividends have been waived on the shares held by the quest and all costs relating to the scheme are dealt
with in the income statement as they accrue
employer’s taxes on share options employer’s national insurance in the uk and equivalent taxes in other jurisdictions are payable on the exercise of
certain share options issued to employees in certain tax jurisdictions in accordance with eitf 0016 no provision has been made for the employer’s taxes on
these share options these amounts will be recognized in the consolidated income statement when payable
recently issued accounting standards in march 2004 the emerging issues task force “eitf” reached a consensus on recognition and measurement
guidance previously discussed under eitf issue no 0301 “the meaning of otherthantemporary impairment and its application to certain investments”
“eitf 0301” the consensus clarified the meaning of otherthantemporary impairment and its application to debt and equity investments accounted for
under sfas no 115 “accounting for certain investments in debt and equity securities” and other investments accounted for under the cost method the
recognition and measurement guidance for which the consensus was reached in march 2004 is to be applied to otherthantemporary impairment evaluations in
reporting periods beginning after 15 june 2004 in september 2004 the fasb issued a final fasb staff position that delays the effective date for the
measurement and recognition guidance for all investments within the scope of eitf 0301 the consensus reached in march 2004 also provided for certain
disclosure requirements associated with cost method investments that were effective for fiscal years ending after 15 june 2004 the company is evaluating
the effect of adopting this recognition and measurement guidance
78 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued 1 the company and a summary of its significant accounting policies continued
in april 2004 the eitf issued statement no 0306 “participating securities and the twoclass method under fasb statement no 128 earnings per share”
“eitf 0306” eitf 0306 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other
than common stock that contractually entitle the holder to participate in dividends and earnings of the company when and if it declares dividends on its
common stock the issue also provides further guidance in applying the twoclass method of calculating earnings per share clarifying what constitutes a
participating security and how to apply the twoclass method of computing earnings per share once it is determined that a security is participating including
how to allocate undistributed earnings to such a security eitf 0306 became effective during the quarter ended 30 june 2004 the adoption of which did not
have an impact on the calculation of earnings per share of the company
in july 2004 the eitf issued a draft abstract for eitf issue no 0408 “the effect of contingently convertible debt on diluted earnings per share” “eitf 0408”
eitf 0408 reflects the task force’s tentative conclusion that contingently convertible debt should be included in diluted earnings per share computations
regardless of whether the market price trigger has been met if adopted the consensus reached by the task force in this issue will be effective for reporting
periods ending after 15 december 2004 prior period earnings per share amounts presented for comparative purposes would be required to be restated to
conform to this consensus and the company would be required to include the shares issuable upon the conversion of debt in the diluted earnings per share
computation for all periods during which such debt is outstanding the company will evaluate the effect of adopting the recognition and measurement
guidance when the final consensus is reached
in december 2004 the fasb issued fas 123r a revision to fas 123 “accounting for stockbased compensation” the standard’s effective date will apply
to awards that are granted modified or settled in cash in interim or annual periods beginning after 15 june 2005 this standard eliminates the ability 
to account for sharebased compensation using the intrinsic valuebased method under apb opinion no 25 “accounting for stock issued to employees” 
it requires the company to calculate equitybased compensation expense for stock options and employee stock purchase plan rights granted to employees
based on the fair value of the equity instrument at the time of grant currently the company discloses the pro forma net incomeloss and related pro
forma incomeloss per share information in accordance with fas 123 and fas 148 “accounting for stockbased compensation coststransition and
disclosure” the company will continue to evaluate the impact that this standard will have on its financial position and results of operations
companies act 1985 these financial statements do not comprise statutory accounts within the meaning of section 240 of the companies act 1985 of great
britain the “companies act” the company’s statutory accounts which are its primary financial statements are prepared in accordance with accounting
principles generally accepted in the united kingdom uk gaap in compliance with the companies act and are presented in pounds sterling statutory
accounts upon which the auditors gave unqualified reports under section 235 of the companies act and which did not contain statements under sub
sections 2372 and 3 of the companies act for the years ended 31 december 2002 and 2003 have been and those for the year ended 31 december
2004 will be delivered to the registrar of companies for england and wales dividends are required to be declared in sterling out of profits available for that
purpose as determined in accordance with uk gaap and the companies act
2 related party transactions
during the year the company paid royalties of £411000 2003 £nil 2002 £nil and made crosslicense payments of £14000 2003 £453000 2002 £nil
to superscape group plc a company in which mike inglis an executive director of arm is a nonexecutive director £nil 2003 £392000 was owed 
to superscape at 31 december 2004 also during 2004 the company received license fees of £209000 2003 £157000 2002 £nil and support and
maintenance income of £37000 2003 £nil 2002 £nil from csr plc a company in which john scarisbrick a nonexecutive director of arm became 
a nonexecutive director during the year £nil was owed by csr at 31 december 2004 2003 £183799
3 income taxes
income before income tax is analyzed as follows
year ended 31 december
2002 2003 2004
£000 £000 £000
united kingdom 40646 16356 34569
foreign 4776 5603 3886
45422 21959 38455
arm annual report and accounts 2004 79 3 income taxes continued
the provision for income taxes consisted of
year ended 31 december
2002 2003 2004
£000 £000 £000
current
united kingdom 12852 8434 10619
foreign 1791 1447 1490
total current 14643 9881 12109
deferred
united kingdom 500 1622 1171
foreign 358 684 460
total deferred 858 938 1631
total provision for income taxes 13785 8943 10478
included in the payable for income taxes is a current tax benefit of £826000 2003 £656000 2002 £814000 and a deferred tax credit of £311000
2003 charge of £310000 2002 credit of £60000 in relation to employee stock options such benefits are reflected as additional paidin capital
also included in the provision for income taxes is a release of deferred tax liability in relation to acquired intangibles of £188000 2003 £nil 2002 £nil
total income tax expense differs from the amounts computed by applying the uk statutory income tax rate of 30 for 2004 2003 and 2002 to income
before income tax as a result of the following
year ended 31 december
2002 2003 2004
£000 £000 £000
uk statutory rate 30 2003 30 2002 30 13627 6588 11537
permanent differences – other 186 1803 177
differences in statutory rates of foreign countries 115 92 231
other net 143 460 1467
13785 8943 10478
permanent differences comprise permanent adjustments and the uk research and development tax credit
other net comprises prior year adjustments timing differences and deferred tax adjustments
significant components of the deferred tax assetsliabilities are as follows
at 31 december
2002 2003 2004
£000 £000 £000
fixed asset temporary differences 1193 2844 5669
temporary difference on availableforsale securities – 446 2077
nondeductible accruals and reserves 519 429 1592
amounts relating to intangible assets arising on acquisition – – 28571
losses carried forward 544 815 13825
total deferred tax assetsliabilities 2256 3642 9562
valuation allowance 559 503 254
net deferred tax assetsliabilities 1697 3139 9816
disclosed on the balance sheet within
at 31 december
2002 2003 2004
£000 £000 £000
assets 1697 3139 2529
liabilities –– 12345
net deferred tax assetsliabilities 1697 3139 9816
included in the amounts relating to intangible assets arising on acquisition is £22150000 relating to liabilities that are expected to accrue after more than
one year
80 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued 3 income taxes continued
uk income taxes have not been provided at 31 december 2004 on unremitted earnings of approximately £5670000 2003 £6891000 2002 £10142000
of subsidiaries located outside the uk as such earnings are considered to be permanently invested if these earnings were to be remitted without offsetting 
tax credits in the uk withholding taxes would be approximately £1122000 2003 £347000 2002 £518000 the valuation allowance relates to net
operating loss carryforwards of certain subsidiaries where management believes it is more likely than not such amounts will not be realized none of the
loss carryforwards expires before 2018 the future use of the net operating losses carried forward in arm inc may be restricted in the event of a purchase 
by a third party whereby the level of losses to be utilized on an annual basis would be limited to 4 of the market value of arm inc at the date of the
transaction there is no such restriction on the losses carried forward in arm belgium nv
4 earnings per share
year ended 31 december 2002
income shares per share
£ number amount
net income 31637000
basic eps
income available to common stockholders 31637000 1012295401 31p
effect of dilutive securities
stock options 8465051
diluted eps 
income available to common stockholders plus assumed conversion 31637000 1020760452 31p
year ended 31 december 2003
income shares per share
£ number amount
net income 13016000
basic eps
income available to common stockholders 13016000 1016484029 13p
effect of dilutive securities
stock options 16823410
diluted eps 
income available to common stockholders plus assumed conversion 13016000 1033307439 13p
year ended 31 december 2004
income shares per share
£ number amount
net income 27977000
basic eps
income available to common stockholders 27977000 1026889882 27p
effect of dilutive securities
stock options 22878223
diluted eps 
income available to common stockholders plus assumed conversion 27977000 1049768105 27p
arm annual report and accounts 2004 81 5 business risks and credit concentration
the company operates in the intensely competitive semiconductor industry which has been characterized by price erosion rapid technological change short
product life cycles cyclical market patterns and heightened foreign and domestic competition significant technological changes in the industry could affect
operating results
financial instruments that potentially subject the company to concentrations of credit risk comprise principally cash cash equivalents shortterm investments
and marketable securities and accounts receivable the company generally does not require collateral on accounts receivable as many of the company’s
customers are large wellestablished companies the company has not experienced any significant losses related to individual customers or groups of
customers in any particular industry or geographic area
the company markets and sells to a relatively small number of customers with individually large value transactions for further information see footnote 
13 at 31 december 2002 2003 and 2004 no customers accounted for more than 10 of accounts receivable 
as of 31 december 2002 and 2003 the company’s cash cash equivalents and shortterm investments were deposited with major clearing banks and
building societies in the uk and us in the form of money market deposits for varying periods of up to six months at 31 december 2004 the companys
cash cash equivalents shortterm investments and marketable securities were deposited with major clearing banks and building societies in the uk and us
in the form of money market deposits and corporate bonds for varying periods of up to two years
6 acquisitions
axys design automation inc 
on 16 august 2004 the company purchased the entire share capital of axys design automation inc a us company for a total consideration of 125 million
£69 million comprising 116 million cash consideration and 09 million of related acquisition expenses the purchase price was allocated to the tangible
and intangible assets acquired and liabilities assumed on the basis of their estimated fair values on the acquisition date a further 3 million is potentially
payable subject to the achievement of various postacquisition financial milestones and will be accrued when payable axys is a provider of fast accurate
integrated processor and system modeling and simulation solutions and adds electronic system level expertise to arms design tools portfolio
the operating results for axys have been included in these financial statements for the period from 16 august 2004 to 31 december 2004 the acquisition
was accounted for under sfas 141
the following table sets out the fair values of the assets acquired and liabilities assumed at the date of acquisition
fair value
£000
assets
cash and cash equivalents 107
accounts receivable net 270
other debtors 74
deferred tax asset 710
property and equipment net 50
total assets acquired 1211
liabilities
accounts payable and other creditors 17
accrued liabilities and deferred revenue 729
total liabilities assumed 746
net assets acquired 465
82 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued 6 acquisitions continued
the intangible assets recognized apart from goodwill represented contractual or other legal rights of axys and those intangible assets of axys that could 
be clearly identified these intangibles were identified and valued through interviews and analysis of data provided by axys concerning development
projects their stage of development the time and resources needed to complete them and if applicable their expected income generating ability there
were no other contractual or other legal rights of axys clearly identifiable by management other than those identified below the allocation of the purchase
price to the tangible and identifiable intangible assets acquired and liabilities assumed was as follows
useful estimated life years £000
fair value of net assets acquired 465
intangible assets acquired
developed technology 5 1379
customer relationships 5 425
trademarks 596
inprocess research and development writtenoff on acquisition 383
deferred tax liability 760
goodwill 4914
purchase price 6902
the company’s profit after tax for the year ended 31 december 2003 was £002 million and for the period from 1 january 2004 until acquisition was a loss of
£09 million
artisan components inc 
on 23 december 2004 the company acquired the entire share capital of artisan components inc a leading provider of physical ip components for the design
and manufacture of complex systemonchip soc integrated circuits the acquisition enables the combined company to deliver one of the industrys
broadest portfolios of soc intellectual property to their extensive combined customer base with highly complementary sales channels combining arms
channel to more than 140 silicon manufacturers with artisans channel to more than 2000 companies it better positions the combined company to benefit
from growth opportunities across multiple industries as system design complexity increases and strengthens the links between the key aspects of soc
development enabling the combined company to deliver solutions that are further optimized for power and performance 
the operating results for artisan have been included in these financial statements for the period from 23 december 2004 to 31 december 2004 the
acquisition was accounted for under sfas 141
the total consideration paid was 9269 million £4817 million comprising cash of 2354 million £1223 million 324399411 ordinary shares in the
company with a fair value of 5242 million £2724 million approximately 904 million share options issued to existing artisan employees with fair value 
of 1519 million £790 million and related direct acquisition fees of 154 million £80 million including legal valuation and accounting fees the purchase
price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their estimated fair values on the acquisition date
the shares issued on acquisition were valued in accordance with emerging issues task force issue no 9912 eitf 9912 determination of the measurement
date for the market price of acquirer securities issued in a purchase business combination in accordance with eitf 9912 the company established the first
date on which the number of the company shares and the amount of other consideration became fixed as of 23 august 2004 accordingly the company
valued the transaction using the average closing price of the companys ordinary shares two days before and after 23 august 2004 or 1616 per share the
assumed options to acquire ordinary shares were valued using the blackscholes valuation model with volatility of between 80 and 94 an average risk
free interest rate of 45 an estimated life of between zero and six years and dividend yield of 07 
arm annual report and accounts 2004 83 6 acquisitions continued
the following table sets out the fair values of the assets acquired and liabilities assumed at the date of acquisition
fair value
£000
assets
cash cash equivalents and marketable securities 82567
accounts receivable net 15078
prepaid expenses and other assets 3225
deferred tax asset 15446
property and equipment net 2509
total assets acquired 118825
liabilities
accounts payable and other creditors 3674
accrued and other liabilities 13245
deferred revenue 6545
total liabilities assumed 23464
net assets acquired 95361
the intangible assets recognized apart from goodwill represented contractual or other legal rights of artisan and those intangible assets of artisan 
that could be clearly identified these intangibles were identified and valued through interviews and analysis of data provided by artisan concerning
development projects their stage of development the time and resources needed to complete them and if applicable their expected income generating
ability there were no other contractual or other legal rights of artisan clearly identifiable by management other than those identified below the allocation
of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed was as follows
useful estimated life years £000
fair value of net assets acquired 95361
intangible assets acquired
developed technology 4 – 5 18177
patentscore technology 5 – 7 11719
existing agreements and customer relationships 3 – 8 36354
trademarkstradenames 4 – 5 2500
order backlog 0 – 1 1354
inprocess research and development writtenoff on acquisition 3229
deferred stockbased compensation 9579
deferred tax liability 28042
goodwill 331432
purchase price 481663
developed technology developed technology of £182 million and patents and core technology of £117 million included intellectual property components
for use in soc integrated circuits and consisted of the following embedded memory standard cell inputoutput components and analog and mixedsignal
products in addition developed technology included a combination of processes patents patent applications core modular architecture and trade secrets
that are the buildings blocks of the technology at the date of acquisition the developed technology was complete and had reached technological feasibility
any costs incurred in the future will relate to the ongoing maintenance of the developed technology and will be expensed as incurred to estimate the fair
value of the developed technology an income approach was used with a discount rate of 14 for existing technology and 16 for patents and core
technology which included an analysis of future cash flows and the risks associated with achieving such cash flows all developed technologies are being
amortized over the estimated useful lives of four to five years
existing agreements and customer relationships and order backlog the customer base of £364 million and order backlog of £14 million represented
the fair value of existing customer relationships and contracts royalty arrangements and support and maintenance agreements to estimate the fair value 
of the customer base and order backlog a cost approach replacement value was used the customer base and order backlog are being amortized over
their estimated useful lives of three to six years for customer base and one year for order backlog
trademarks and tradenames the fair value assigned to trademarks and tradenames including the company name artisan was estimated using the
income approach which discounts the present value of attributable cash flows at a discount rate of 16 
84 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued 6 acquisitions continued
inprocess research and development development projects that had reached technological feasibility were classified as developed technology and the
value assigned to developed technology was capitalized expensed inprocess research and development of £32 million reflected certain research projects
that had not yet reached technological feasibility and commercial viability or had no alternative future use at the time of the acquisition the fair value
assigned to inprocess research and development was estimated based on the percentage of completion of each project using the income approach which
discounts to present value the cash flows attributable to the technology once it has reached technological feasibility using a discount rate of 19 inprocess
research and development has been writtenoff immediately to the income statement 
goodwill of £3314 million represented the excess of the purchase price over the fair value of the net tangible and intangible assets acquired as stated 
the acquisition enables the combined company to deliver one of the industrys broadest portfolios of soc intellectual property to their extensive combined
customer base and it better positions the combined company to benefit from growth opportunities across multiple industries as system design complexity
increases these combined with the ability to hire the entire artisan work force were significant contributing factors to the establishment of the purchase
price resulting in the recognition of a significant amount of goodwill in accordance with sfas 142 the company is not amortizing goodwill relating to the
acquisition it is being carried at cost and the company will test it for impairment annually and whenever events indicate that an impairment may have occurred
the unaudited pro forma results of the company for the current year had the acquisition occurred on 1 january 2004 and for the prior year had the acquisition
occurred on 1 january 2003 would have been
2003 2004
unaudited unaudited
£000 £000
revenues 173277 197852
income from operations 3730 15973
net income 1650 16365
diluted earnings per ordinary share 01p 12p
net income has been reduced in these pro forma results in relation to reduced interest income as a result of the cash portion of the acquisition consideration
amortization of intangibles acquired and amortization of deferred compensation
7 investments and marketable securities
in 2002 the company invested £1500000 in superscape group plc an availableforsale investment a further £1152000 was invested in superscape
group plc during 2003 as part of a further funding round in 2000 the company invested £688000 in cambridge silicon radio holdings limited an unlisted
investment in february 2004 the company now csr plc became a listed investment the aggregate fair value of listed investments at 31 december 2004
was £10262000 2003 £4139000 in 2004 the company invested £112000 in zeevo inc and £50000 in reciva limited both unlisted companies
impairments during 2004 against unlisted investments held at the year end amounted to £nil 2003 £622000 2002 £826000 and against listed
investments held at the year end amounted to £nil 2003 £938000
at 31 december 2004 the company had £21511000 2003 £nil and £5438000 2003 £nil of short and longterm marketable securities respectively
these represent both the fair market value and the amortized cost of the securities
8 property and equipment
at 31 december
2003 2004
£000 £000
owned buildings 190 190
leasehold improvements 20345 21405
computers 11168 12291
software 33106 35787
fixtures fittings and motor vehicles 3202 3215
68011 72888
less accumulated depreciation 51428 58771
property and equipment net 16583 14117
depreciation charged to income for the years ended 31 december 2002 2003 and 2004 was £12463000 £12908000 and £9927000 respectively
arm annual report and accounts 2004 85 9 intangible assets
existing
agreements and
developed customer core order
goodwill patents licenses technology relationships technology trademarks backlog total
£000 £000 £000 £000 £000 £000 £000 £000 £000
cost
at 1 january 2004 7672 8196 4704 167 135 – – – 20874
additions axys 4914 – – 1379 425 – 96 – 6814
additions artisan 331432 – – 18177 36354 11719 2500 1354 401536
other additions – – 160 – – – – – 160
exchange differences 282 – – 79 25 – 6 – 392
at 31 december 2004 343736 8196 4864 19644 36889 11719 2590 1354 428992
aggregate amortization
at 1 january 2004 3320 3740 3704 14 28 – – – 10806
charge for the year – 2137 484 234 240 51 21 30 3197
exchange differences – – – 4 1 – – – 5
at 31 december 2004 3320 5877 4188 244 267 51 21 30 13998
net book value
at 31 december 2004 340416 2319 676 19400 36622 11668 2569 1324 414994
at 31 december 2003 4352 4456 1000 153 107 – – – 10068
until the adoption of sfas 142 on 1 january 2002 see footnote 1 goodwill was being amortized on a straightline basis over periods of up to three years
determined in each case by reference to employee turnover rates in the industry and the individual technology acquired with the acquisitions in accordance
with sfas 142 goodwill is no longer amortized and is tested for impairment at least annually
licenses to use technology are being amortized over periods of three to five years the amortization periods for licenses have been determined according to
their estimated useful economic life
patents are being amortized over four to five years developed technology the main ip of the company existent at acquisition and generating revenue over
four to five years existing agreements and customer relationships over two to six years core technology over five years trademarks over four years and
order backlog over one year being the periods over which the company is expected to derive benefit from them
the estimated amortization expense of intangible assets in each of the next five years is set forth below
£000
2005 18388
2006 14681
2007 14454
2008 13668
2009 8205
10  accrued liabilities
included within accrued liabilities at 31 december 2004 are £143 million 2003 £nil of acquisitionrelated expenses £nil 2003 £64 million relating to
the herodion settlement provision £44 million 2003 £nil provision for staff costs and £28 million 2003 £21 million representing the fair value of
embedded derivatives
86 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued 11  shareholders’ equity
share options the board is authorized to issue options to acquire ordinary shares in the company up to a maximum of 10 of the issued ordinary share
capital in any fiveyear period options issued prior to the listing of the company are excluded from this calculation as are those options assumed on the
acquisition of artisan
under the uk inland revenue executive approved share option plan the “executive scheme” the company may grant options to directors and employees
meeting certain eligibility requirements options under the executive scheme are exercisable between three and ten years after their issue after which time
the options expire
under the company’s unapproved scheme the “unapproved scheme” for which it has not sought approval from the uk inland revenue options are
exercisable one to seven years after their issue after which time the options expire the company also operates the us iso sheme which is substantially
the same as the unapproved scheme the main difference being that the options are exercisable one to five years after their issue under both of these
schemes options are exercisable as follows 25 maximum on first anniversary 50 maximum on second anniversary 75 maximum on third anniversary
100 maximum on fourth anniversary various options to directors under the unapproved scheme have certain performance criteria attached which if met
are exercisable after three years otherwise they will become exercisable after seven years
there are two further schemes for our french and belgian employees the “french scheme” and the “belgian scheme” in the french scheme options are
exercisable between four and seven years after their issue whilst in the belgian scheme options are exercisable from 1 january following the third
anniversary after their issue up to seven years from issue
upon the acquisition of artisan in 2004 the company assumed the share schemes of artisan existing at acquisition the schemes remained substantially 
the same as prior to the acquisition other than the options became options to purchase shares in arm holdings plc instead of artisan components inc 
the number and value of options were amended in line with the conversion ratio as detailed in the merger agreement the schemes assumed were the
1993 plan the 1997 plan the 2000 plan the 2003 plan the director plan the executive plan and the nd00 plan
under each plan there are multiple vesting templates and vesting periods the majority of the options were already vested upon acquisition and the most
common template was 25 vesting after one year and then 625 vesting each quarter thereafter until 100 vest after four years some options vest on 
a monthly basis and some vest over five years all options lapse ten years from the date of grant  
in 1998 the company set up two savingsrelated share option schemes for all employees and executive directors of the company the number of options
granted is related to the value of savings made by the employee the period of savings is three or five years except for employees of arm inc where the
period is two years the option price is currently set at 85 of the market share price prior to the grant and the right to exercise normally only arises for 
a sixmonth period once the savings have been completed except for arm inc where the right to exercise normally only arises for a threemonth period
once the savings have been completed the company set up further savingsrelated option schemes in each year up to and including 2004 for all
employees and executive directors of the company which have the same characteristics as those schemes set up in 1998
outstanding options
weighted average
shares exercise price
number £
balances 31 december 2001 35450548 2199
granted in year 10081501 2290
lapsed in year 3269030 1965
exercised in year 7211670 0691
balances 31 december 2002 35051349 2557
granted in year 37537323 0468 
lapsed in year 4434268 2566
exercised in year 2663324 0194
balances 31 december 2003 65491080 1455
granted in year 16934076 1226
assumed on acquisition of artisan 90414815 0434
lapsed in year 5770196 1914
exercised in year 3049960 0431
balances 31 december 2004 164019815 0870
the weighted average grantdate fair value of options granted during 2004 was £074 2003 £028 2002 £143
the weighted average exercise price of options exercisable at 31 december 2004 was £100 31 december 2003 £245 31 december 2002 £171
arm annual report and accounts 2004 87 88 arm annual report and accounts 2004
notes to the financial statementsus gaap notes to the financial statementsus gaapcontinued
11  shareholders’ equity continued
the following options over ordinary shares were in existence at 31 december 2004
options outstanding options exercisable
number weighted average weighted average number weighted average
exercise price outstanding remaining life years exercise price £ outstanding exercise price £
002  030 38594706 611 024 32431262 024
035  045 34851183 541 043 8493287 042
046  060 31888046 743 052 10605230 050
061  1224 27572570 742 086 7494872 116
125  7738 31113310 467 251 10600077 419
total 164019815 617 087 69624728 100
under the company’s long term incentive plan a further 5003724 2003 2572646 2002 nil shares could be awarded to the extent that performance
criteria are satisfied over a threeyear period these shares will be awarded from shares already issued within the quest and esop 
12  commitments and contingencies
the company leases its office facilities and certain equipment under noncancelable operating lease agreements which expire at various dates through 2018
future minimum lease commitments at 31 december 2004 are as follows
operating leases
years ending 31 december £000
2005 6183
2006 4711
2007 4030
2008 3435
2009 2388
thereafter 13492
total minimum lease payments 34239
rental expense under operating leases totalled £5199000 £8169000 and £12627000 for the years ended 31 december 2002 2003 and 2004 respectively
in may 2002 nazomi communications inc filed suit against arm alleging wilful infringement of nazomi’s us patent no 6332215 arm answered
nazomi’s complaint in july 2002 denying infringement arm moved for summary judgement and a ruling that the accused technology does not infringe 
in september 2003 the united states district court of northern california granted arm’s motion holding that the accused technology does not infringe
nazomis patent nazomi appealed the district court’s ruling on 7 september 2004 the court of appeals for the federal circuit heard the appeal and the
decision of the court is expected in the first half of 2005 based on legal advice received to date arm has no cause to believe that the effect of the original
ruling by the district court will not be upheld
guarantees it is common industry practice for licensors of technology to offer to indemnify their licensees for loss suffered by the licensee in the event that
the technology licensed is held to infringe the intellectual property of a third party consistent with such practice the company provides such indemnification
to its licensees but subject in all cases to a limitation of liability the obligation for the company to indemnify its licensees is subject to certain provisos and
is usually contingent upon a third party bringing an action against the licensee alleging that the technology licensed by the company to the licensee infringes
such third partys intellectual property rights the indemnification obligations typically survive any termination of the license and will continue in perpetuity
the company does not provide for any such guarantees unless it has received notification from the other party that they are likely to invoke the guarantee
the provision is made if both of the following conditions are met i information available prior to the issuance of the financial statements indicates that 
it is probable that a liability had been incurred at the date of the financial statements and ii the amount of the liability can be reasonably estimated 
any such provision is based upon the directors’ estimate of the expected costs of any such claim 12  commitments and contingencies continued
the total provision for such guarantees was £05 million on 31 december 2004 and a table showing the movement of the provision during the year 
is as follows
provided in utilized in 
at 1 january the year on released the year through at 31 december
2004 new claims in the year cash payments 2004
£000 £000 £000 £000 £000
indemnification provision 1700 1130 780 1530 520
the fair value of the guarantees approximates to book value due to the expected shortterm nature of the provision
at 31 december 2004 arm had provided in aggregate £13 million 2003 £25 million in relation to the above legal matters being the expected future
costs to be incurred in addition the company had provided £64 million at 31 december 2003 2004 £nil in relation to the herodion settlement
at 31 december 2004 the company had outstanding purchase commitments of £1179000 2003 £1365000 
13  geographic and segment information
the directors are of the opinion that the company had only one class of business during 2004 following the acquisition of artisan components inc the
directors are considering whether the business is going to be reorganised how it will be monitored internally and whether different reportable segments
will be formed
because the acquisition of artisan was completed so close to the year end the company’s consolidated income statement does not include any material
trading results in respect of artisan the physical ip group in 2004 total assets of £637937000 at 31 december 2004 are split arm cores £133144000
and physical ip £504793000
the following analysis is of revenues by geographic segment and origin and longlived assets excluding intangible assets and longterm deferred taxes 
by companies in each territory
year ended 31 december
2002 2003 2004
£000 £000 £000
revenues by market destination
europe 26731 23118 23837
us 67086 65402 77457
japan 38295 24135 32754
asia pacific excluding japan 18810 15415 18849
total revenues 150922 128070 152897
the company’s exports from the uk were £135713000 £115072000 and £138078000 for the years ended 31 december 2002 2003 and 2004
respectively
year ended 31 december
2002 2003 2004
£000 £000 £000
revenues by origin
europe 137747 118885 141974
us 7288 4893 6384
asia pacific 5887 4292 4539
total revenues 150922 128070 152897
at 31 december
2003 2004
£000 £000
longlived assets
europe 21116 22730
us 1533 3495
asia pacific 180 127
total longlived assets 22829 26352
in 2004 2003 and 2002 no single customer accounted for more than 10 of total revenues 
arm annual report and accounts 2004 89 14  fair values of financial instruments
the following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value 
cash and cash equivalents shortterm investments and accounts receivable the carrying amount approximates fair value because of the short maturity
of those instruments 
marketable securities the carrying amount approximates fair value because these instruments are markedtomarket 
foreign currency forward contracts the fair value of foreign currency forward contracts is estimated using the settlement rates prevailing at the period end
the estimated fair values of the company’s financial instruments are as follows
at 31 december
2003 2004
carrying fair carrying fair
amount value amount value
£000 £000 £000 £000
cash and cash equivalents 130722 130722 110561 110561
shortterm investments 29064 29064 5307 5307
marketable securities –– 26949 26949
accounts receivable 17320 17320 34347 34347
foreign currency contracts 2015 2015 1674 1674
embedded derivatives 2091 2091 2823 2823
15  post balance sheet events
at the 2005 annual general meeting of the company on 25 april 2005 a final dividend of 042 pence per share total cost £5673000 will be proposed 
in respect of the 2004 financial year and if approved will be paid on 6 may 2005 to shareholders on the register at 1 april 2005
90 arm annual report and accounts 2004
notes to the financial statementsus gaapcontinued to the board of directors and shareholders of arm holdings plc in our opinion the accompanying consolidated balance sheets and the related
consolidated statements of income changes in shareholders’ equity and of cash flow present fairly in all material respects the financial position of 
arm holdings plc and its subsidiaries at 31 december 2004 and 2003 and the results of their operations and their cash flows for the years ended 
31 december 2004 2003 and 2002 in conformity with accounting principles generally accepted in the united states of america these financial statements
are the responsibility of the company’s management our responsibility is to express an opinion on these financial statements based on our audits we
conducted our audit of these statements in accordance with the standards of the public company accounting oversight board united states which require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement an audit
includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used
and significant estimates made by management and evaluating the overall financial statement presentation we believe that our audits provide a
reasonable basis for our opinion expressed above
pricewaterhousecoopers llp chartered accountants
cambridge england
4 march 2005
arm annual report and accounts 2004 91
report of independent registered public accounting firmus gaap 92 arm annual report and accounts 2004
group directory
arm holdings plc
110 fulbourn road
cambridge cb1 9nj
united kingdom
tel 44 0 1223 400400
fax 44 0 1223 400410
arm limited
liberty house
moorbridge road
maidenhead
berkshire sl6 8lt
united kingdom
tel 44 0 1628 427700
fax 44 0 1628 427701
sheffield science park
new spring house
231 glossop road
sheffield s10 2gw
united kingdom
tel 44 0 114 282 8000
fax 44 0 114 282 8001
blackburn design centre
belthorn house
walker road
blackburn bb1 2qe
united kingdom
tel 44 0 1254 893900
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44425 kfar saba
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141 caspian court
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1250 capital of texas
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austin tx 78746
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carlsbad ca 92008
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125 edinburgh drive south
suite 210 macgregor park
cary nc 275116487
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5 east street
franklin ma 02038
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irvine ca 92618
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northborough ma 01532
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39555 orchard hill place
suite 600
novi mi 48375
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264b north broadway
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salem nh 03079
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5580 morehouse drive
san diego ca 92121
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dainiueno building 8f
3718 shinyokohama
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kanagawa 2220033
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room 1115
hyundai building
94 soonaedong
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sungnam 
kyunggido 463020
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8f no 50
lane 10
kee hu road
nei hu
taipei 114
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shanghai co ltd
room 809 building b
far east international plaza
no 317 xianxia road
shanghai 200051
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room 905 silver tech tower
no 38 hai dian avenue
hai dian district
beijing 100080
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arm embedded solutions 
pvt limited
adarsh opus 3rd floor
1 campbell road austin town
bangalore 560047
india
tel 91 80 5138 4000
fax 91 80 5112 7403 designed and produced by 85four
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further information available at
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the architecture for the digital world
™
arm holdings plc annual report and accounts 2004


Summary:
 chairman’s statement
results and dividend
the increasingly widespread adoption of arm technology in consumer
electronic devices was illustrated in 2004 by the 63 increase in the
reported total shipments of arm powered® products to 1272 million
units up from the reported 782 million units in 2003 the strong cash
generation resulting from this robust operational performance together
with our confidence in the company’s longterm prospects enabled us
to continue to make significant investments in research and development
and to acquire axys a provider of electronic system level esl design
tools in august 2004 and artisan which designs physical ip
components in december 2004
the combination of arm microprocessor ip with the physical ip provided
by artisan accelerates arm’s momentum towards becoming the
architecture for the digital world it is encouraging that we were able 
to complete such a strategically important acquisition at the same time
as achieving a strong financial performance in the underlying business
with a yearonyear dollar revenue increase of more than 30 operating
margins well ahead and yearend order backlog at record levels 
the board decided at the end of 2003 to initiate the payment of an
annual dividend we see a return of cash to shareholders through a
dividend as part of a package of measures to make the best use of the
business’s cash resources as indicated last year it is the board’s intention
to increase the dividend over time taking into account the opportunity
for continued investment in the business and the company’s underlying
operational performance with this in mind the board is recommending
a final dividend of 042 pence per share bringing the total for the year
to 07 pence per share an increase of 17 over the dividend paid in
respect of 2003
the market
after strong yearonyear growth for the semiconductor industry in
2004 current expectations for 2005 are that there will be little or no
growth over 2004 despite this flatter trading environment we expect
2005 to be a year of growth in dollar revenues for the company
underpinned by a high order backlog strong momentum in royalty
revenues and a healthy sales pipeline for our broad technology
portfolio
new products including our optimode™ embedded signal processing
technology and our nextgeneration microprocessor codenamed “tiger” 
are expected to underpin licensing revenue in 2005
geographic expansion
arm’s business is increasingly global in 2004 the geographic source of
our revenues illustrated the global reach of the semiconductor industry
as well as our role at its heart 51 of fullyear revenues emanated
from north america 34 from asia pacific and 15 from europe
during 2004 we established a sales office in bangalore india and our
operations there have been enhanced by the addition of artisan’s
established design facility in bangalore this will be expanded
significantly during 2005 we also opened a second office in china
currently most of the chips which are used in china are bought from
our partners and are designed around our ip  but we are establishing
local relationships as the country’s hightechnology industry matures
and its companies begin to develop their own ip  
people
i thank all employees for the contribution made to the excellent results
achieved in 2004 i also thank the management and employees of arm
and artisan who worked tirelessly to make the acquisition happen and
are continuing to do so as we embrace the opportunities that rapid and
full integration of the businesses will bring
4 arm annual report and accounts 2004 2004 was a year of strong operational 
performance which concluded with completion  
of our acquisition of artisan
it is much to their credit that this was achieved concurrently with
delivering a strong operational performance in the increasingly
demanding market in which we operate we were delighted to
welcome 26 new employees to arm with the acquisition of axys 
and 347 new employees with the acquisition of artisan
board changes
there have been a number of board changes during 2004 and 2005
which reflect the board’s commitment to maintain an appropriate
balance of skills and experience lawrence tesler retired from the board
at the 2004 annual general meeting having served two threeyear
terms as a nonexecutive director jeremy scudamore who is ceo of
avecia group formerly the speciality chemicals business of zeneca 
was appointed as a nonexecutive director in april and has brought 
a broad range of skills to the board that extend beyond the
semiconductor industry
with the acquisition of artisan in december 2004 we were delighted to
welcome mark templeton and lucio lanza to the board mark had been
ceo of artisan since he cofounded the business in 1991 he has joined
the board as an executive director and general manager of arm
physical ip group lucio had been a director of artisan since 1996 
and was chairman from 1997 he has considerable knowledge and
experience in the field of electronic design automation and of the
semiconductor industry he has joined the board as a nonexecutive
director and a member of the nomination committee
simon segars and philip rowley joined the board in january 2005
simon joined arm’s engineering team in 1991 and has worked on
many arm cpu products he was appointed executive vice president
engineering in january 2002 and became executive vice president
worldwide sales in january 2004 philip rowley is president and ceo 
of aol europe and has a strong financial background he is a qualified
chartered accountant and has previously been group finance director 
of kingfisher plc and executive vice president and chief financial officer
of emi music worldwide he joined the board as a nonexecutive
director and as a member of the audit committee these appointments
recognise the valuable contribution that simon is already making to the
direction of the business and philip’s broad industry experience which
will further strengthen the nonexecutive team
i am delighted that we have been able to recruit such high calibre
individuals with such a breadth of skills and experience to the board
these appointments bring the number of directors to 14 and there are
no current plans to make further appointments
current trading and prospects
the former arm and artisan standalone businesses both enter 2005
with healthy order backlogs and sales pipelines which underpin
licensing revenues this year in addition both companies continue to
enjoy good growth in royalty revenues based on the increasing
adoption of arm and artisan technology by semiconductor and oem
original equipment manufacturer companies in recent years
combined with the healthy order backlog and sales pipeline this gives
us confidence that dollar revenues in both underlying businesses are
capable of growing by at least 20 in 2005
sir robin saxby chairman
arm annual report and accounts 2004 5