annual report and accounts 2005
arm holdings plc annual report and accounts 2005 contents
2 arm at a glance
4 chairman’s statement
6 chief executive officer’s review of operations
10 operating and financial reviewifrs
16 directors and advisers
18 corporate governanceuk reporting
21 corporate social responsibilityuk reporting
23 directors’ reportuk reporting
25 remuneration reportuk reporting
34 statement of directors’ responsibilities
35 independent auditors’ report to the shareholders of arm holdings plcifrs
36 consolidated income statementifrs
37 consolidated balance sheetifrs
38 consolidated cash flow statementifrs
39 consolidated statement of changes in shareholders’ equityifrs
40 notes to the ifrs financial statements
78 selected consolidated financial dataus gaap
79 operating and financial review and prospectsus gaap
84 consolidated statements of income and comprehensive incomeus gaap
85 consolidated balance sheetsus gaap
86 consolidated statements of cash flowsus gaap
87 consolidated statements of changes in shareholders’ equityus gaap
88 notes to the financial statementsus gaap
107 report of independent registered public accounting firmus gaap
108 company balance sheetuk gaap
109 notes to the financial statementsuk gaap
115 independent auditors’ report to the shareholders of arm holdings plcuk gaap
116 group directory
  arm annual report and accounts 2005 1
arm designs the technology that lies at the heart of
advanced digital products from mobile home and
enterprise solutions to embedded and emerging
applications
arm’s comprehensive product offer includes 1632bit 
risc microprocessors data engines 3d processors digital
libraries embedded memories peripherals software and
development tools as well as analogue functions and 
highspeed connectivity products
combined with the company’s broad partner community
this provides a total system solution that offers a fast
reliable path to market for leading electronics companies arm at a glance
2 arm annual report and accounts 2005
total revenues of £2324 million in 2005 compared with £1529 million in 2004
our partners shipped a total of 1662 million units in 2005 based on arm
®
technology an increase of 
31 on 2004
rd expenditure was maintained at a high level giving rise to introduction of further innovative products
seven synergistic deals signed in 2005 demonstrating early benefits from the artisan acquisition
71 processor licences and 62 physical ip licences signed in 2005 bringing cumulative totals to 398 and 
210 respectively
development systems technology portfolio broadened into microcontrollers with the acquisition of keil
in october 2005
cash shortterm investments and marketable securities of £1609 million at 31 december 2005
return of cash to shareholders increased by initiation of share buyback programme and growth in dividend
total revenues £m
2005
2004
2003
2002
2001
2324
1529
1281
1509
1463
0 50 100 150 200 250
royalty revenues £m
2005
2004
2003
2002
2001
878
596
443
268
279
0 20 40 60 80 100
research and development expenditure us gaap £m
0 10 20 30 40 50 60
2005
2004
2003
2002
2001
601
501
481
487
389
net cash balance at year end £m
2005
2004
2003
2002
2001
1609
1428
1598
1303
1045
0 50 100 150 200 150 arm annual report and accounts 2005 3
revenue analysis  processor division royalty units  licence revenues by product 
geographic revenue by market destination 
licensing 45
royalties 38
development systems 11
services 6
architecturenextgeneration 20
arm7
tm
family 8
arm9
tm
family 14
arm11
tm
family 14
noncore licensing 11
physical ip licensing 33
embedded 6
enterprise 20
home 9
mobile 65
united states 43
austin texas
boston massachusetts
cary north carolina
detroit michigan
irvine california
plano texas
salem new hampshire
san diego california
sunnyvale california
walnut creek california
asia pacific 43
bangalore india
beijing pr china
seoul south korea
shanghai pr china
shinyokohama japan
singapore
taipei taiwan
europe 14
aachen germany
blackburn uk
cambridge uk
grasbrunn germany
kfar saba israel
leuven belgium
maidenhead uk
munich germany
paris france
sheffield uk
sophia antipolis france chairman’s statement
4 arm annual report and accounts 2005
results and dividend
the increasingly widespread adoption of arm technology in consumer
electronic devices was illustrated in 2005 by the 31 increase in the
reported total shipments of arm powered
®
products to 17 billion units
up from 13 billion units in 2004 the strong cash generation resulting
from this robust operational performance together with our confidence
in the company’s longterm prospects enabled us to increase
investments in research and development by 20 and to acquire keil
a microcontroller tools business in october 2005
the combination of arm microprocessor ip with the physical ip
acquired through the acquisition of artisan in december 2004 has
accelerated arm’s momentum towards becoming the architecture for
the digital world arm’s strong financial performance continued with
revenue growth at twice the rate of the semiconductor industry 
yearonyear dollar revenue growth of 14 and operating margins 
up to 33
the board decided at the end of 2003 to initiate the payment of an
annual dividend 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 05 pence per share bringing the total for the year to 
084 pence per share an increase of 20 over the dividend paid in
respect of 2004
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 the board also initiated a share buyback programme in july
2005 and purchased a total of 139 million shares at a total cost of
£162 million in the period up to the end of 2005 the buyback
programme is ongoing
the market
2005 was expected to be a year of flat growth for the semiconductor
industry although the year ended with growth of approximately 7 
in face of a slow first half and an improving second half of 2005 arm’s
revenue growth of 14 was at a rate double that of the industry 
looking to 2006 the industry has started the year with a general
feeling that the growth seen in 2005 would continue at a similar 
level in 2006 with the possibility of some further improvement 
in the light of this industry backdrop arm is well positioned to outgrow
the semiconductor industry once again in 2006 our confidence in 
the growth of our business is underpinned by a healthy technology
portfolio of both processor and physical ip  consisting of both new and
mature products the prospect of more synergistic deals for the 
physical ip division and continued acceleration of penetration of arm ip
into royaltygenerating designs in both the mobile and nonmobile
market segments
geographic expansion
in 2005 arm continued to strengthen its position as a global entity
across all regions in the year 43 of revenue emanated from  arm annual report and accounts 2005 5
north america 43 from asia pacific and 14 from europe arm
received its first royalties from chinabased chip designers and ended
the year with four chinese design teams shipping arm technology
based designs arm also signed the first processor licence with a design
team in india and expects continued success in that country in 2006
not only did arm continue to expand its commercial presence around
the globe in 2005 but the engineering diversity within the company
also expanded during the year we now have 11 design centres
located in cambridge maidenhead sheffield and blackburn england
sunnyvale california and austin texas in the usa bangalore india
sophia antipolis france leuven belgium and aachen and munich
germany during 2005 arm doubled the capacity of its design team 
in india to more than 100 people and expects to increase it to at least
150 people by the end of 2006
people
on behalf of the board i thank all employees worldwide for the
contribution they have made to the excellent results achieved in 
2005 in the increasingly demanding market in which we operate 
at 31 december 2005 we had 1324 fulltime employees compared
with 1171 at the end of 2004 of these 576 are based in the uk 
486 in the us 101 in continental europe 116 in india and 45 in the
asia pacific region
board changes
simon segars and philip rowley joined the board in january 2005
which brought the number of directors to 14 peter cawdron has been
a member of the board since 1998 and had planned to step down at
the 2005 agm he has however kindly agreed to stand for reelection
this year for a further period of up to one year which will provide
valuable continuity following the appointment of four new directors
since december 2004 lucio lanza who joined the board following the
acquisition of artisan in december 2004 and has considerable
experience of us reporting requirements joined the audit committee
with effect from february 2006
current trading and prospects
during 2005 we integrated artisan into arm and began to accelerate
new product development in physical ip  we also brought three 
new processor designs to market completed the acquisition of 
a microcontroller tools company and invested further in product
development as a result we enter 2006 well placed to build 
on our market leadership position
a broad technology portfolio for licensing increasing royalty
momentum growth in development systems sales and the prospect of
more synergistic revenues arising from the combination of processor ip
and physical ip underpin our confidence in our ability to achieve
another strong performance in 2006
sir robin saxby chairman
2005 was another successful year for arm we entered 2006 
well placed to build on our market leadership position  chief executive officer’s review of operations
6 arm annual report and accounts 2005
technology is now influencing lifestyle rather than simply reflecting 
it the blackberry device for example has fundamentally changed 
the worklife balance for large numbers of professionals worldwide 
the merging of mainstream media with our everyday lives is made
possible by easy access to the internet any time and anywhere and 
in turn makes that access critical we expect our household appliances
to have an increasing number of features our cars to be safe and
reliable our cameras to react automatically to prevailing light
conditions and our mobile telephones to incorporate myriad 
features a silent revolution in the way ordinary people interact 
with technology is underway
this is a revolution which arm has foreseen and indeed has
pioneered in recent years we have transformed our business
organically and by acquisition from one which was primarily focused
on the development of microprocessor intellectual property ip to one
which is now capable of delivering a total solution – from beginning 
to end of the design process – to our customers our 2004 acquisitions
of californiabased companies artisan components which designs
physical ip  and axys which provides electronic systemlevel esl
design tools were augmented in october this year by the acquisition
of keil based in munich germany and in plano texas keil is a 
leading provider of 816bit software development tools for the
microcontroller market bringing it into the arm fold enables our 
silicon partners’ customers to develop intelligent and lowcost 
32bit microcontrollerbased products more easily
our strategic priorities
it is our ambition for all digital products to be powered by arm
technology – and we are well on the way to becoming the architecture
for the digital world in the future digital products will contain
increasing amounts of our technology including processor and physical
ip  other systems ip and embedded software in addition we will
continue to provide the software development tools that enable
designers to build innovative arm powered products in 2005 our
partners shipped 17 billion of these up 31 on 2004 and in may
2005 we announced that we expect total shipments to increase to
approximately 45 billion by 2010
we use the analogy of a human body to describe how arm technology
brings digital products to life our processor ip is the brain controlling
and driving the system our data engine ip forms the specialist organs
such as the lungs fabric ip makes up the nervous system which
enables the brain to communicate with the other parts of the body
and our physical ip – the libraries and memories – are the cells from
which the entire body is made our tools are the parents and teachers
which shape the body and develop its thoughts and our software ip
are the thoughts that go through the brain and provide the intelligence
and character of the product 
a year of execution and delivery
in 2005 we made significant progress in executing on our strategic
priorities at the beginning of the year we set ourselves an objective
to take arm into the next phase of its growth looking back we have
done just that we have positioned our enlarged group to capitalise on
our industry is one which changes constantly 
but in the past year the shift has been particularly
noticeable  arm annual report and accounts 2005 7
the huge potential benefits which accrue from the combination of arm
and artisan we have delivered a number of new products which
underpin the proliferation of our ip and we have delivered meaningful
earnings growth for our shareholders
building on the combination of arm and artisan
we completed the acquisition of artisan components in december
2004 one year on we have successfully integrated artisan now our
physical ip division pipd into the group the pipd management team
is a blend of senior executives from arm and artisan the unified arm
sales team is a combination of the former arm and artisan sales
teams based on an account management structure it uses technical
specialists from across the group
during the year we began to see good progress in effecting the
strategic plan for the acquisition this was first to outsource physical
ip to traditional arm partners second to create optimised products
from the combination of physical ip and processor ip and third to use
the artisan sales channel to create broader access to processor ip 
we plan to build on the success artisan achieved in selling its physical
ip to small fabless semiconductor companies which account for
approximately 10 of the world’s semiconductor industry revenue by
expanding the customer base to include large fabless semiconductor
companies and integrated device manufactures idms these not only
account for the other 90 but represent arm’s traditional customer
base we made progress on this and exceeded our expectations by
completing seven deals – encouraging early indications of our partners’
willingness to outsource the development of physical ip when it makes
economic sense to do so and when we have the right products as the
cost and complexity of developing physical ip increases we anticipate
that an increasing number of our partners will realise the commercial
and technical wisdom of outsourcing it from us 
during the year we also developed our first optimised products
through the combination of physical ip and processor ip  developing
processor and physical ip concurrently has enabled us to create faster
smaller and more powerefficient processors in october at the second
annual arm developers’ conference in california we introduced 
the cortex™a8 processor at the same time we introduced the
advantage™ ce libraries which increase the processor’s performance
and efficiency our partners will be able to license optimised physical
ip to maximise the cortexa8 processor’s performance while at the
same time minimising size and power consumption a number of
other optimised products including the introduction of an
implementation of the arm1176jzfs™ processor were delivered
through collaborative technology design advanced physical ip  and
process technology delivery will provide 40 more performance
without increasing size or power consumption
delivering new technologies 
at the beginning of 2005 we had a strong portfolio of products for
licensing during the year we increased licence revenues in the
processor division pd by 19 – building on 27 growth in 2004 – and
signed 71 new licences including 12 for arm11 family products which
are now increasingly being licensed for use outside the mobile sector chief executive officer’s review of operationscontinued
8 arm annual report and accounts 2005
during the year pipd had sold 20 platform licences to its foundry and
idm partners and a further 42 enduser licences to idms and fabless
semiconductor companies at the year end the cumulative total for
pipd licensing reached 67 platform licences and 143 enduser licences
the year was an outstanding one for the development of the new
products that will drive future revenue growth the cortexa8 processor
is the industry’s fastest embedded processor and our first complete
processing solution to comprise a wide range of arm technology to
reduce timetomarket its performance and power consumption
characteristics make it ideal for consumer products which run multi
channel video audio and gaming applications we expect it to
revolutionise consumer and lowpower mobile devices and to enable
even more innovative product features to be delivered to end users to
provide higher levels of functionality and entertainment the cortexa8
processor’s attributes were recognised by the winning of four high
profile industry awards electronic products magazine’s “product of the
year” portable design magazine’s “editor’s choice” electronic design
magazine’s “best of embedded 2005” and microprocessor report’s
“analysts’ choice award for the best processorip core of 2005” in
october we announced that there were already five lead licensees for
the product including freescale matsushita samsung and texas
instruments we expect the cortexa8 processor to be available for
general licensing by mid2006
we continued the development of our other products in the cortex
family including the cortexm3 processor which was available for
general release by early 2006 we licensed it to four lead licensees in 
2005 and had made initial deliveries to them by the middle of the year 
test silicon for the cortexm3 processor is revealing higher performance
and smaller size characteristics than we initially visualised and creates
a significant opportunity for licensing growth in 2006 the latest addition
to the cortex family code named “servale” was licensed to two lead
partners and is expected to be available for general licensing during 2006
we also made significant advances in technology in pipd with the
acceleration of the development of leadingedge products this will
ensure that we have the ability to support large idms and fabless
companies which as a result of rapid increases in the cost and
complexity of physical ip arising from the continuing advances in silicon
process technology are increasingly looking to us to provide thirdparty
physical ip  to this end we have successfully developed 90nm and
more recently 65nm physical ip products enabling us to sell leading
edge physical ip to a number of major foundries including chartered
semiconductor and ibm 
arm ip in digital products 
when we updated our estimate of future shipments of arm powered
products we also rationalised our applicationoriented approach to
target markets in line with the changing nature of the electronic
industry we now focus on solutions for the mobile home enterprise
embedded and emerging applications markets
by the final quarter of the year our partners had shipped a record 
499 million units – the equivalent of approximately 55 million each
day the mobile market continued to grow strongly we shipped more  arm annual report and accounts 2005 9
than 1 billion units into mobile for the first time and also increased
penetration by attaining an average of 14 arm processors per
handset the first shipments of arm11 familybased phones were
made in japan from the foma n902i with multiple versions now
shipping we expect this strong growth in mobile up 23 from 2004
to continue in 2006 driven by shipments of ultralowcost handsets
ulch in emerging markets and by the increased popularity of smarter
phones
we also achieved significant growth 46 over 2004 in nonmobile
markets our partners shipped 600 million units in 2005 –
approximately the same number as was achieved for mobile
shipments in 2003 this was over a broad base of applications
particularly hard disk drives games consoles smartcards printers dvd
players flash memory products digital still cameras wifi chipsets and
automotive products
we continued to make strategic investments to speed our growth in
nonmobile areas the microcontroller sector promises particular
potential and we expect this to reach approximately 1 billion units by
2010 our acquisition of keil maximises the opportunity for success in
the microcontroller market we are aiming to provide an easy transition
for developers from their older 8 and 16bit technologies to new arm
32bit microcontrollers we believe we can accelerate this by providing
a consistent development system platform for building applications 
we introduced our first combined development product the realview
®
microcontroller development kit in january 2006
looking ahead
our extensive portfolio of technology for licensing increasing
momentum in royalties the growth in sales of development systems
and the prospect of more revenues arising from the combination of
processor ip and physical ip  gives us confidence for another strong
performance in 2006 we enter the year in an excellent position to
continue to build on our market leadership
warren east chief executive officer operating and financial reviewifrs
10 arm annual report and accounts 2005
notwithstanding the 20 increase in rd expenditure to drive
expected strong revenue growth an increase in earnings per share of
more than 20 has enabled us to return more cash to shareholders
through a progressive dividend policy and the ongoing share buyback
programme that we introduced during the year
the business its objectives and strategy
arms comprehensive product offer includes 1632bit risc
microprocessors data engines 3d processors digital libraries
embedded memories peripherals software and development tools 
as well as analogue functions and highspeed connectivity products
the group licenses this technology to semiconductor companies which
in turn manufacture market and sell microprocessors and related
products arm has developed an innovative intellectual property
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
together with our broad partner community we provide a total 
system solution that offers a fast reliable path to market for leading
electronics companies
in 2005 as well as growing profitability the company was robustly
cash generative before investing activities with net cash inflows
from operating activities of £417 million giving rise to a yearend
cash cash equivalents shortterm investments and marketable
securities balance of £1609 million
performance
revenues
total revenues for the year ended 31 december 2005 amounted 
to £2324 million total revenues comprised £1823 million from 
the processor division an increase of 19 over total revenues 
of £1527 million in the year ended 31 december 2004 and 
£501 million for pipd 2004 £02 million 
the actual average dollar exchange rate in 2005 was 180 compared
with 178 in 2004 for arm standalone this had the effect of
decreasing total reported revenues by approximately £28 million
total licensing revenues in 2005 were £1042 million being 45 
of total revenues compared with £594 million or 39 of total revenues
in the year to 31 december 2004 total licensing revenues in 2005
comprised £694 million from the processor division compared with
£594 million in 2004 and £348 million from pipd 2004 £nil 
royalty revenues in 2005 were £878 million representing 38 
of total revenues compared with £596 million or 39 of total
revenues in the year to 31 december 2004 royalty revenues in 
2005 comprised £725 million from the processor division compared
with £596 million in 2004 and £153 million from pipd 2004 
£02 million 
sales of development systems in 2005 were £257 million being 
11 of total revenues compared with £197 million or 13 of total
revenues in 2004 service revenues which include consulting services
and revenues from support maintenance and training were 
£147 million in 2005 representing 6 of total revenues compared
with £142 million or 9 of total revenues in 2004
in 2005 arm increased revenues at twice the rate 
of the semiconductor industry achieved operating
margins healthily in excess of 30 and saw volumes 
of arm powered products grow by more than 30 
yearonyear to 17 billion units
 operating margin after add back of sharebased compensation charges and intangible
amortisation charges arm annual report and accounts 2005 11
royalty revenues and unit shipments
total royalty revenues for 2005 were £878 million comprising 
£725 million from the processor division and £153 million from pipd
royalties from the processor division came from record unit shipments 
of 1662 million compared with £596 million and 1272 million units
in 2004 dollar royalty revenues earned in the processor division were
1311 million up 22 on 2004 compared with the increase in year
onyear unit shipments of 31 the average royalty rate in 2005 was
79 cents the average royalty rate in a given period is based on a
number of variables including the average selling prices of the chips
being shipped the applicable royalty rate payable to arm and the mix
of unit shipments by arm product family
in 2005 the proportion of total unit shipments accounted for by the
mobile segment was 65 unit shipments in the mobile segment
grew by 23 yearonyear with unit shipments in the nonmobile
segments growing by 46 growth in the nonmobile segments was
achieved across a broad range of product applications including hard
disk drives games consoles smart cards printers dvd players flash
memory products digital still cameras wifi chipsets and automotive
products
there were 68 partners shipping arm technologybased products at
the end of 2005 19 companies were paying royalties for physical ip
products at the end of the year royalties within pipd demonstrated
market share growth against a backdrop of lower yearonyear revenue
for the foundries as a whole
gross margin
gross margins for the year to 31 december 2005 were 89 compared
with 92 for the arm standalone business in 2004 cost of sales in 2005
included compensation charges in respect of sharebased payments of
£13 million 2004 £04 million the reduction reflects the higher
margin achieved in the processor division offset by the lower margins
achieved in the physical ip division
operating expenses
the comparability of costs between 2004 and 2005 is affected by 
the acquisitions of artisan components inc on 23 december 2004 
and axys design automation inc on 16 august 2004 on acquisition
significant values of intangible assets other than goodwill were
recognised and these amounts are amortised over the expected useful
lives of the assets acquired with the cost recorded against research
and development sales and marketing or general and administrative
expenses as appropriate to aid comparability these costs have been
separately identified as “acquisitionrelated charges” in the narrative
below in addition the issuance of arm share options to the
employees of artisan on its acquisition gives rise to significant non
cash sharebased compensation charges these together with the
share option compensation costs arising on options granted to existing
arm employees are separately identified in the narrative below
total operating expenses in the year to 31 december 2005 were
£1707 million compared with £1123 million in 2004 average headcount
increased from 774 in 2004 to 1234 in 2005 operating expenses in
2005 included total acquisitionrelated charges of £179 million 2004
£05 million and compensation charges in respect of sharebased
payments and related payroll taxes of £202 million 2004 £75 million operating and financial reviewifrscontinued
12 arm annual report and accounts 2005
excluding acquisitionrelated charges and compensation charges in respect
of sharebased payments and related payroll taxes total operating
expenses in 2005 were £1326 million in 2005 compared with 
£998 million in 2004 after excluding a further £45 million in respect
of a nonrecurring charge for a technology licence agreement 
research and development rd expenses at £803 million in 2005
represented 35 of revenues this compares with £547 million 36
of revenues in 2004 average headcount in this area increased from
464 in 2004 to 783 in 2005 rd expenses included total acquisition
related charges of £81 million 2004 £03 million and compensation
charges in respect of sharebased payments and related payroll taxes of
£123 million 2004 £43 million excluding acquisitionrelated charges
and compensation charges in respect of sharebased payments and
related payroll taxes rd expenses in 2005 were £599 million and 
£501 million in 2004 representing 26 and 33 of revenues respectively  
sales and marketing costs in 2005 were £474 million or 20 of
revenues compared with £255 million or 17 of revenues in 2004
average headcount in this area increased from 204 in 2004 to 286 
in 2005 sales and marketing costs in 2005 include total acquisition
related charges of £91 million 2004 £02 million and compensation
charges in respect of sharebased payments and related payroll taxes
of £43 million 2004 £15 million excluding acquisitionrelated
charges and compensation charges in respect of sharebased payments
and related payroll taxes sales and marketing costs in 2005 were
£340 million and £238 million in 2004 representing 15 and 16 
of revenues respectively 
general and administration expenses in 2005 were £430 million or
19 of revenues compared with £321 million or 21 of revenues 
in 2004 average headcount in this area increased from 106 in 2004 
to 165 in 2005 general and administration expenses in 2005 included
total acquisitionrelated charges of £07 million 2004 £nil and
compensation charges in respect of sharebased payments and related
payroll taxes of £36 million 2004 £17 million excluding acquisition
related charges and compensation charges in respect of sharebased
payments and related payroll taxes general and administration
expenses in 2005 were £387 million compared with £259 million in
2004 after excluding a further £45 million in respect of a nonrecurring
charge for a technology licence agreement representing 17 of
revenues in both years 
operating margin
the operating margin in 2005 was 151 compared with 185 
in 2004 the operating margin in 2005 excluding acquisitionrelated
charges of £179 million and compensation charges in respect 
of sharebased payments and related payroll taxes of £215 million
was 321 compared with 270 before acquisitionrelated charges
of £05 million compensation charges in respect of sharebased
payments of £79 million and £45 million in respect of a non
recurring charge for a technology licence agreement in 2004 
earnings and taxation
profit before tax in 2005 was £405 million compared with 
£353 million in 2004 profit before tax in 2005 excluding acquisition
related charges of £179 million and compensation charges in respect
of sharebased payments and related payroll taxes of £215 million 
selected financial dataifrs
2005 2004 2003 2002 2001
£000 £000 £000 £000 £000
turnover 232439 152897 128070 150922 146274 
cost of sales 26610 12240 11022 13185 17289
gross profit 205829 140657 117048 137737 128985 
total operating expenses 170672 112328 98609 96608 83203
group operating profit 35157 28329 18439 41129 45782
net gain on disposals of trade investments – ––– 314
interest receivable net 5317 6944 4801 4373 4470
profit before tax 40474 35273 23240 45502 50566
tax 10827 9398 7977 13031 15874
profit after tax 29647 25875 15263 32471 34692
equity minority interest – – 105 232 303
profit for the year 29647 25875 15158 32239 34389
dividends paid 10436 8975 – – –
capital expenditure 6064 5036 3605 15616 17349
research and development expenditure 80273 54674 48131 48674 38920
cash short and longterm investments 160902 142817 159786 130304 104467
shareholders’ equity 746847 642538 180435 172140 135723
employees at end of year number 1324 1171 740 721 722
 figures for the years 2003 2002 and 2001 are shown under uk gaap and are not directly comparable with 2005 and 2004 prepared under ifrs
 figures for 2004 have been restated from uk gaap to ifrs arm annual report and accounts 2005 13
was £799 million or 344 of revenues this compares with 
£482 million before acquisitionrelated charges of £05 million
compensation charges in respect of sharebased payments of 
£79 million and £45 million in respect of a nonrecurring charge 
for a technology licence agreement or 315 of revenues in 2004
the group’s effective taxation rate in 2005 was 268 compared with
266 in 2004 in 2005 there was an increase compared with 2004 
in the level of disallowable items but this was offset by tax benefits
arising from the structuring of the artisan acquisition and increased
rd tax credits and deferred tax adjustments
fully diluted earnings per share in 2005 were 21 pence compared 
with 25 pence in 2004 earnings per fully diluted share in 2005 before
acquisitionrelated charges of £179 million compensation charges 
in respect of sharebased payments and related payroll taxes of 
£215 million and related estimated tax adjustments thereon of 
£91 million were 42 pence compared with 35 pence before acquisition
related charges of £05 million compensation charges in respect 
of sharebased payments of £79 million £45 million in respect 
of a nonrecurring charge for a technology licence agreement and
related estimated tax adjustments thereon of £21 million in 2004
balance sheet and cash flow
goodwill at 31 december 2005 was £4744 million compared with
£4192 million at 31 december 2004 the increase in goodwill 
in 2005 is due primarily to foreign exchange movements given 
the strengthening of the us dollar against sterling from 192 at 
31 december 2004 to 172 at the end of 2005 goodwill arising 
on the keil acquisitions amounted to £58 million goodwill is not
amortised under ifrs but is subject to impairment review on at least
an annual basis a regular review of the carrying value of the assets
arising on the acquisition of artisan was performed as at 31 december
2005 and it was concluded that no impairment charge was required 
other intangible assets at 31 december 2005 were £797 million
compared with £840 million at 31 december 2004 the movement 
in other intangible assets in 2005 reflects the amortisation in the year
of the intangible assets arising on the acquisitions of artisan and axys
of £175 million and an additional £87 million arising on the keil
acquisitions in october 2005 the other intangible assets will be
amortised through the profit and loss account over a weighted average
period of five years 
accounts receivable at 31 december 2005 were £555 million 
compared with £343 million at 31 december 2004 the allowance
against receivables was £22 million at 31 december 2005 compared
with £15 million at 31 december 2004 deferred revenues were 
£204 million at 31 december 2005 compared with £214 million 
at the end of 2004
resources available
the consolidated cash cash equivalents shortterm investments 
and marketable securities balance was £1609 million at 31 december
2005 compared with £1428 million at 31 december 2004 operating and financial reviewifrscontinued
14 arm annual report and accounts 2005
interest receivable
interest receivable was £53 million for the year to 31 december 2005
compared with £69 million in 2004 
returns to shareholders
dividend 
the directors recommend payment of a final dividend in respect of
2005 of 05 pence per share which taken together with the interim
dividend of 034 pence per share paid in october 2005 gives a total
dividend in respect of 2005 of 084 pence per share an increase of
20 over 07 pence per share in 2004 subject to shareholder
approval the final dividend will be paid on 5 may 2006 to
shareholders on the register on 31 march 2006
total dividends actually paid in 2005 amounted to £104 million 
2004 £90 million
share buyback programme
during 2005 the group initiated a share buyback programme to
supplement dividends in returning surplus funds to shareholders
during 2005 the company bought back over 139 million shares at 
a total cost of £162 million this programme is ongoing and further
repurchases are expected to be made in 2006 and beyond
capital structure
the authorised share capital of the company is 2200000000 ordinary
shares of 005 pence each 2004 2200000000 the issued share
capital at 31 december 2005 was 1386102680 ordinary shares of
005 pence each 2004 1350786975  
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 approximately 95 of group revenues earned in us dollars and
approximately 45 of group costs being incurred in us 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
lowrisk 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 group are identified
below a more detailed description is included in the groups annual
report on form 20f details of the groups internal control and risk
management procedures are included in the corporate governance
report on pages 18 to 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 such factors include 
— the timing of entering into agreements with new licensees
— the mixture of licence fees royalties revenues from the sale 
of development systems and fees from services
— the introduction of new technology by us our licensees or our
competition
— the timing of orders from and shipments to systems companies 
of arm technologybased microprocessors from our semiconductor
partners
— sudden technological or other changes in the microprocessor
industry and
— new litigation or developments in current litigation arm annual report and accounts 2005 15
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 our shares could be materially adversely affected 
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 because of economic uncertainties in many of 
our key markets many industries may delay or reduce technology
purchases and investments the impact of this on arm is difficult to
predict but if businesses defer licensing our technology require less
services or development tools or if consumers defer purchases of 
new products which incorporate arm’s technology revenue could
decline a decline in revenue would have an adverse effect on the
results of operations and could have an adverse effect on arm’s
financial condition 
arm competes in the intensely competitive semiconductor market
the semiconductor market is intensely competitive and characterised
by rapid technological change arm cannot give assurance that it will
have the financial resources technical expertise or marketing or
support capabilities to compete successfully in the future 
competition is based on a variety of factors including price
performance product quality software availability marketing and
distribution capability customer support name recognition and
financial strength further given arm’s reliance on our semiconductor
partners its competitive position is dependent on their competitive
position in addition arm’s semiconductor partners do not license
arm’s architecture exclusively and several of them also design
develop manufacture and market microprocessors based on their 
own architectures or on other nonarm architectures 
arm may not develop or operate systems which comply fully with
the requirements of the sarbanesoxley act
preparations for attestation under section 404 of the sarbanesoxley
act as at 31 december 2006 are relatively welladvanced there can
be no guarantee however that the detailed testing of internal controls
required as part of the attestation process will not identify significant
control deficiencies or material weaknesses that impact on the
auditors’ opinion on internal controls over financial reporting andor
require disclosure on form 20f
other risks include arms inability to manage the significant changes 
in the number of its employees and the size of its operations in the
united states dependence on semiconductor partners and systems
companies availability of development tools systems software and
operating systems compatible with arm’s architecture dependence on
a small number of customers and products arm’s inability to develop
new products on a timely basis unanticipated costs due to products
that could have technical difficulties or undetected design errors the
arm architecture not being continued to be accepted by the market
risks associated with any strategic investments or acquisitions
dependence on senior management personnel and on hiring and
retaining qualified engineers exposure from international operations
litigation and threats of litigation and protection of arm’s intellectual
property unavailability of debt financing or additional equity funding to
satisfy future capital needs adverse affects resulting from changes in
stock option accounting rules adversely impacting arm’s reported
operating results and its competitiveness in the marketplace 
tim score chief financial officer directors and advisers
16 arm annual report and accounts 2005
sir robin saxby warren east tim score tudor brown mike inglis mike muller mark templeton
sir robin saxby age 59
chairman
sir robin saxby was involved in founding arm and
joined the company full time 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 and will
become president of the iee in october 2006 
he is a nonexecutive director of glotel plc
warren east age 44
chief executive officer
warren east joined arm in 1994 to set up arm’s
consulting business he 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 fiee and 
a companion of the chartered management institute
he is a nonexecutive director of reciva limited
tim score age 45
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 47
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 he is a nonexecutive director 
of ant software limited
mike inglis age 46
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 a mcim
mike muller age 47
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
simon segars age 38
executive vice president worldwide sales
simon segars joined the 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 he is a
nonexecutive director of plastic logic limited
peter cawdron age 62 
senior independent nonexecutive director
peter cawdron joined the board in march 1998 
he has agreed to remain on the board for a further
period of up to a year and will step down before the
2007 agm 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’arcymacmanus 
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 deputy
chairman of gcap media plc and is a nonexecutive
director of the following uk listed companies compass
group plc the capita group plc punch taverns plc
johnston press plc and prostrakan group plc
doug dunn age 61
independent nonexecutive director
doug dunn joined the 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 non
executive director of st microelectronics nv 
soitec sa and lg philips lcd co ltd arm annual report and accounts 2005 17
simon segars peter cawdron doug dunn lucio lanza philip rowley john scarisbrick jeremy scudamore
lucio lanza age 61
independent nonexecutive director
lucio 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
becoming 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 computeraided
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 semiconductor manufacturing
yields he holds a doctorate in electronic engineering
from politecnico of milano 
philip rowley age 53
independent nonexecutive director
philip rowley joined the 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 53
independent nonexecutive director
john scarisbrick joined the 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 ti’s 5 billion asp chip
business president of ti europe and leader of the team
that created ti’s 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 chief executive
officer of csr plc chairman of cambridge positioning
systems ltd and a nonexecutive director of 
sonim technologies inc and intrinsity inc
jeremy scudamore age 58
independent nonexecutive director
jeremy scudamore joined the board in april 2004 
he was chief executive officer of avecia group
formerly the specialty chemicals business of 
zeneca until april 2006 and previously held senior
management positions both in the uk and overseas
with zeneca and ici he has been a board member
of the chemical industries association and is
chairman of englands north west science council
he was also a member of the dtis innovation 
and growth team for the chemical industry and
chairman of the innovation team
mark templeton age 46
nonexecutive director
mark templeton joined arm as general manager
physical ip division in december 2004 as a result 
of arm’s acquisition of artisan he relinquished his
executive role in october 2005 and remains on the
board as a nonexecutive director 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 
arm holdings plc 
secretary and 
registered office
patricia alsop
110 fulbourn road
cambridge cb1 9nj
united kingdom
registered number
2548782
auditors
pricewaterhousecoopers
llp
1 embankment place
london wc2n 6rh
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
depositary
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 2005 with the combined
code 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 to meet this particular provision is not considered appropriate
composition and operation of the board
the board currently comprises six executive directors six independent
nonexecutive directors one other nonexecutive director 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 and the executive vice
president worldwide sales all of whom play significant roles in the
daytoday management of the business six of the nonexecutive
directors are regarded by the board to be independent in character 
and judgement based on both participation and performance at board
and committee meetings there are no relationships or circumstances
which are likely to affect the judgement of any of them mark
templeton relinquished his executive role in october 2005 and remains
on the board as a nonexecutive director 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 us
based technology companies the share options held by lucio lanza
were granted prior to the group’s acquisition of artisan and no further
options have been or will be granted to him since he joined the arm
board philip rowley has a strong financial background and knowledge
of internet technologies and ecommerce
the board had seven scheduled meetings during 2005 each of which
was attended by all the directors with the following exceptions
january – mike muller and john scarisbrick
may and november – peter cawdron
july – tudor brown
december – mike inglis and simon segars
there is a procedure in place for additional meetings or conference calls
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 
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
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 
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 2005 the formal board evaluation undertaken during 2004 with
the assistance of external consultants was reviewed and updated with
assistance from the company secretary this review covered board
performance processes committees composition skills and director
induction the overall conclusion was that the board works well and its
committees operate properly and efficiently various recommendations
resulted from the evaluation which will be reviewed and acted upon 
by the board in 2006 as appropriate it is intended that there will be 
a further review and update by the board each year with probable
involvement of external consultants every three years the group has 
a commitment to training and all directors are encouraged to attend
suitable training courses during 2005 the executive directors attended
antitrust and sexual harassment 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 
the main channel of communication with shareholders continues to 
be through the ceo the cfo and the vp investor relations although 
the chairman the senior independent director and other nonexecutive
directors remain willing to engage in dialogue with major shareholders
at any time
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
approved 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 are
published on the corporate website at wwwarmcom 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
18 arm annual report and accounts 2005
corporate governanceuk reporting
  arm annual report and accounts 2005 19
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 practices board’s international standard on auditing isa
uk and ireland 260 “communication of audit matters with 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 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 philip rowley who joined the
committee on his appointment as a director on 4 january 2005 and
lucio lanza who joined the committee on 16 february 2006 peter
cawdron is the financial expert as defined in the sarbanes oxley act 2002
and philip rowley is also qualified to fulfil this role the committee met on
two occasions during 2005 with all members present with the exception
of john scarisbrick for the january meeting the external auditors chief
executive officer chief financial officer and the company secretary attend
all meetings in order to ensure that the information required by the
audit committee for it to operate effectively is available 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
25 the terms of reference of the remuneration committee are
published on the group’s website wwwarmcom
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 the nomination committee met on two occasions with all
members present with the exception of peter cawdron for the
november 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
appointment of new directors including philip rowley in january 2005
the services of external search consultancies are generally used the
terms of reference of the nomination committee are published on the
group’s website wwwarmcom
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 which has been in place for the year under review and up to
the date of approval of the annual report such systems are designed to
manage rather than eliminate the risks inherent in a fastmoving high
technology business and can therefore provide only reasonable and
not absolute assurance against material misstatement or loss
the company’s risk review committee consists 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 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 in addition during 2005 the company set up a compliance
committee consisting of the general counsel the chief operating
officer the chief financial officer the evp worldwide sales the evp
human resources the director of quality the director of it and the
company secretary the committee oversees compliance throughout 
the business with all appropriate international regulations trading
requirements and standards including oversight of financial
employment environmental and security processes and policies
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 the vp investor relations 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 chief operating officer 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 there are customer satisfaction and
process review meetings attended by managers representing different
functions across the group 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 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 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
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 21 to 22 of this report and also on the
group’s website wwwarmcom the company’s code of business
conduct and ethics is available on the groups website wwwarmcom
the group also operates a whistleblowing policy which provides for
employees to have access to senior management to raise concerns in
strict confidence about any unethical business practices
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 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 supply chains 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 around the world have similar
cover dependent on local needs practices and customs and operate 
to a global health and safety policy standard 
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 a new role of vp investor relations was
created in july 2005 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 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 2006 which is the principal forum for
dialogue with private shareholders a presentation will be made outlining
recent developments in the business and an open questionandanswer
session will follow to enable shareholders to ask questions about the
business in general
by order of the board
patricia alsop company secretary
20 arm annual report and accounts 2005
corporate governanceuk reportingcontinued 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 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 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 2005 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 example reducing paper
usage and increasing the amount recycled and controlling carbon
emissions through energy use 
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 nonozonedepleting refrigerants
the supply of company cars is discouraged and in a group of over 1300
people there are less than 30 company cars there is a sustainable
transport team within the business looking at ways in which the 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 and ways in which it can be
reduced are measured while still maintaining arm’s very effective
partnership network particularly through the provision of video
conferencing equipment the group will continue to work closely with
the british safety council in 2006 to establish ways to formalise our
environmental objectives and performance as well as implementing
recommendations made through working with the carbon trust
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 and sometimes in the form of
providing employees’ time and skills arm has established relationships
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 financial sponsorship 
of scienceitrelated education initiatives donations of redundant
computer equipment to schools and education charities working on
extracurricular engineering projects with school and college students in
the cambridge area and working on specific projects with students at
the judge institute cambridge university’s business school 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 university 
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 conservation
to support sufferers of heart disease and those with autism or terminal
illness have been some of the beneficiaries of this scheme in 2005
arm matched donations made by employees to the leading national
charities supporting those affected by the asian tsunami 
in 2005 arm continued as 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
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
arm annual report and accounts 2005 21
corporate social responsibilityuk reporting 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
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 medicalhealthcare
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 a child care
voucher scheme 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 where appropriate
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” as part of its
continuous improvement in this area despite the lowrisk nature of its
operations arm aims to provide a safe secure and sustainable working
environment to all employees and stakeholders 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 media
including the intranet during 2005 health and safety training has been
provided to line managers to assist in the development of a safety
culture within the organisation
22 arm annual report and accounts 2005
corporate social responsibilityuk reportingcontinued the directors present their annual report and audited financial
statements for the year ended 31 december 2005
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 six offices in the us and offices in shanghai and
beijing pr china shinyokohama 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 and munich 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 9 and the operating and
financial review on pages 10 to 15
future developments 
the group’s stated objective is to establish a global standard for risc
architecture and physical ip 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 october 2005 the group acquired
keil elektronik gmbh and keil software inc independent providers 
of software development tools for the microcontroller market 
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 2005 of 05 pence per share which subject to approval 
at the annual general meeting on 25 april 2006 will be paid on 
5 may 2006 to shareholders on the register at 31 march 2006 this 
final dividend combined with the interim dividend of 034 pence 
per share paid during the year makes a total of 084 pence per share
for the year 2004 07 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 2006 include the development of further low
power highperformance engines for both data and control applications
such as the optimode technology and arm cores based on symmetric
multiprocessor and superscalar technology the group is investing in
future physical ip development including the advantage and metro
physical ip libraries to ensure technology leadership in this market in
addition the group will develop highly integrated software solutions
with the processor ip such as the trustzone and intelligent energy
management iem technologies
the group incurred rd expenses of £803 million in 2005
representing 35 of revenues compared with £547 million in 2004
all rd expenses have been charged to the income statement 
donations
during the year the group made donations for charitable purposes 
of £65795 2004 £33327 the total amounts given for each such
purpose were
local cambridge charities £2814
promotion of education £21199
wider understanding of science 
maths and information technology £19100
medical research £2100
relief of poverty £9488
other £11094
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
directors in the year
the following served as directors of the company during the year
ended 31 december 2005
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
simon segars executive vice president worldwide sales 
appointed 4 january 2005 
mark templeton executive director until 18 october 2005 then 
nonexecutive director
peter cawdron independent nonexecutive senior independent 
director financial expert
doug dunn obe independent nonexecutive director 
lucio lanza independent nonexecutive director
philip rowley independent nonexecutive director and financial expert
appointed 4 january 2005
john scarisbrick independent nonexecutive director 
jeremy scudamore independent nonexecutive director 
election and reelection of directors
in accordance with article 79 of the groups articles of association 
mike inglis and peter cawdron will retire by rotation at the company’s
annual general meeting agm and will seek reelection at that
meeting peter cawdron has served on the board since 1998 and 
has agreed to remain as a director for a further period of up to one
year to provide valuable continuity following the appointment of four
new directors since december 2004 see pages 16 to 17 for the
directors’ biographies
arm annual report and accounts 2005 23
directors’ reportuk reporting 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 28
substantial shareholdings
the directors are aware of the following substantial interests in the
issued share capital of the company as at 24 february 2006
percentage of issued
ordinary share capital
fidelity investments 147
capital group companies 102
janus capital corporation 39
legal and general investment management 36
american century investments 35
save for the above the company has not been notified as at 
24 february 2006 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 highlyqualified 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 2005 were
equivalent to 11 days’ purchases for the group 2004 26 days’ and nil
days for the company in both years 
annual general meeting agm
the agm will be held at the grange city hotel 814 cooper’s row
london ec3n 2bq uk on 25 april 2006 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 details of other resolutions to be
proposed at the meeting are set out in the circular which will be sent to
all shareholders together with the notice of agm and proxy card
by order of the board
patricia alsop company secretary
24 arm annual report and accounts 2005
directors’ reportuk reportingcontinued 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
rights 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 five times
during 2005 and all meetings were attended by all the committee members with the exception of the january meeting when john scarisbrick 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 the executive
vice president human resources in the furtherance of its duties and makes use of such advice during 2005 kpmg linklaters watson wyatt
deloitte  touche and the executive vice president human resources have provided advice or services to the committee kpmg provided advice
on the new executive compensation framework linklaters provided legal services and watson wyatt provided pension advice to the group during
this period the chairman chief executive officer and executive vice president human resources normally attend for part of the remuneration
committee meetings no director is involved in deciding his own remuneration
during 2005 the committee undertook an extensive review of the pay and incentive structures for senior executives and has proposed some key
changes for executive directors which are outlined below and are described in more detail in a circular which was sent to shareholders in march
2006 and is available on the corporate website at wwwarmcom the key changes proposed are
l new deferred annual bonus plan the maximum bonus opportunity is to be increased from 100 under the current deferred bonus plan 
to 125 of base salary with compulsory deferral into shares of 50 of the bonus earned and an opportunity to earn an equity match of up 
to 21 measured against an eps performance condition
l long term incentive plan it is proposed that the comparator group for the tsr performance measure be changed from the ftse 250 to the 
ftse 350 to better reflect the company’s position within the index and
l employee equity plan it is proposed to cease granting options to all employees including executive directors other than in exceptional
circumstances and introduce an allemployee share plan
details of the new proposals were sent to larger shareholders and other interested parties in october 2005 and a period of consultation has
followed the committee believes that these proposals reflect good governance bring the remuneration structure closer in line with uk market
norms increase alignment between remuneration and financial performance and strengthen the retention aspect of the deferred bonus the 
move away from options to shares for all employees will reduce dilution and the move from three plans to two for executive directors 
simplifies arrangements
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 and framework for executive directors designed to ensure that it attracts and retains the highquality
management skills necessary to achieve a high level of corporate performance in line with the best interests of shareholders 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 these 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 potential 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 in 2005 variable remuneration consisted of three elements annual cash bonus discretionary share options and
conditional awards under the long term incentive plan as described above subject to approval at the 2006 agm this will reduce to two elements
in future both of which are performancerelated and as a result more than half of each executive director’s remuneration is targeted to be
performance linked in 2003 a shareholding guideline was introduced under which executive directors and certain senior managers are required to
arm annual report and accounts 2005 25
remuneration reportuk reporting 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 andor the new deferred annual bonus plan and in the case of executive
directors the required holding is 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 and for 2005 a bonus of up to 50 of basic pay could have been earned through the executive
bonus plan if all targets were met plus an accelerator for performance in excess of targets and the ability to increase the bonus to 100 by
deferring the entire bonus for three years 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 group’s shortterm financial goals are met small bonuses
are payable to executive directors in respect of performance during 2005 as shown in the table on page 33
proposed new deferred annual bonus plan
subject to approval at the 2006 agm the new deferred annual bonus plan will operate for 2006 under which 50 of any bonus earned will be
paid in cash and 50 will be deferred into shares on a compulsory basis voluntary deferral will no longer be possible due to these changes and
the fact that no further grants of options will be made except in exceptional circumstances the maximum bonus opportunity will increase to 125
of base salary including a personal performance multiplier which flexes the payment by 075 to 125 which is in line with current market bonus
levels the bonus earned will continue to be subject to a revenue target with an eps underpin but the calibration will be changed under the 2005
bonus arrangement no bonus was payable at less than 90 of the revenue target and maximum bonus would have been paid at 100 of the
revenue target with a 1 increase in bonus for every 2 above the revenue target under the new deferred annual bonus plan no bonus is paid
at less than 90 of the revenue target and maximum bonus will now be paid at revenues above the target in 2006 maximum bonus will be paid
at 104 of target revenues the upper limit of the performance range will not exceed 110 of the target revenue at the end of the threeyear
deferral period the deferred shares will be matched subject to achievement of an eps performance condition at eps growth equal to the increase
in the consumer prices index “cpi” plus 4 per annum the deferred shares will be matched on a 031 basis rising to 21 when eps growth 
is in excess of cpi plus 12 per annum while the deferral can only be forfeited for gross misconduct the match is subject to forfeiture for 
“bad leavers”
proposed new employee equity plan
subject to approval at the 2006 agm the new employee equity plan will operate for 2006 in place of the existing employee share option
schemes the introduction of this plan reflects the shift in market practice away from options and towards free shares however to enable the
group to respond to any future changes in market conditions it is proposed that this plan provides the flexibility to grant either shares or options
with a “currency conversion” between the two to ensure that awards are of a similar value to employees and a similar cost to the company under
this plan it is intended that free shares or options will be granted to employees on an annual basis up to a limit set for each grade and equivalent
to grant values under the existing executive share option scheme in the three major employing countries and other countries as may be
appropriate the new employee equity plan may involve the use of government approved plans to deliver awards in a tax efficient manner 
existing option schemes
it is intended that the grant of options under the existing share option schemes will cease once the new deferred annual bonus plan and the new
employee equity plan are approved by shareholders in relation to existing grants of options 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 under the existing
schemes except for those issued to executive directors where performance conditions based on real eps growth apply 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 have performance conditions attached to them
executive directors have not received options under the approved scheme and the 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 
performance conditions applicable to these options vary depending on the year of grant and details of these conditions are shown in the auditable
information below
the performance conditions applicable to the long term incentive plan are described in more detail below and are based on total shareholder
return “tsr” providing the link to performance against an appropriate peer group
26 arm annual report and accounts 2005
remuneration reportuk reportingcontinued 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 high calibre 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 uk based 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 from april 2006 when the salary capping limits cease to apply contributions will be calculated on full basic
pay for mark templeton who is based in the us the rate of group contribution was 6 of his basic salary up to october 2005 when his status
changed from executive to nonexecutive director
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
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 inglis 17 july 2002
mike muller 31 january 1996
simon segars 4 january 2005
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 2005 the chairmen of the audit and remuneration committees each received a total fee of £33000 per annum and the other nonexecutive
directors each received a total fee of £30000 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 between 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 share options held by lucio lanza
were granted prior to the group’s acquisition of artisan and share options held by mark templeton were granted prior to his change of status from
executive to nonexecutive director in october 2005
arm annual report and accounts 2005 27 performance graphs
a performance graph showing the company’s tsr together with the tsr for the ftse allworld technology index of 249 companies from 
31 december 2000 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 76 over this period compared with 42 for the ftse allworld technology index for the same period
arm total return performance from 31 december 2000 to 31 december 2005 £ sterling
the directors consider the ftse allworld 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 
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 
date of approval 31 december 31 december
of this report 2005 2004
director number number number
sir robin saxby 19563060 21363060 21363060
warren east 286709 204920 174920
tim score 127250 30000 10000
tudor brown 1755636 1546460 1496460
mike inglis 114000 10000 10000
mike muller 1911860 1911860 1891860
simon segars 172735 42000 22000
peter cawdron 98000 98000 98000
doug dunn 48000 48000 48000
lucio lanza 1277291 1277291 1277291
philip rowley 24102 24102 –
john scarisbrick 10800 10800 10800
jeremy scudamore 100000 100000 55000
mark templeton 10535552 10535552 10535552
in addition to the interests disclosed above all the executive directors together with all the employees of the group are potential beneficiaries 
of the arm holdings plc employee share ownership plan they are therefore treated as interested in all the shares held by this trust being
5000000 ordinary shares at 31 december 2005 and 31 december 2004 the shares that vested under the long term incentive plan on 1 february
2006 were transferred from the trust reducing the number that the executive directors are treated as being interested in to 1201438 ordinary
shares the executive directors also have interests in dividend shares that could be awarded under the long term incentive plan the amount of
which will depend on the extent to which the performance criteria are satisfied and the dividends declared during the performance period
28 arm annual report and accounts 2005
remuneration reportuk reportingcontinued
0
20
40
60
arm share price 
80
100
120
140
31 december 2005 31 december 2004 31 december 2003 31 december 2002 31 december 2001 31 december 2000         
ftse global technology index 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
2005 granted 2005 price date of expiry
director 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 010206 300110
400000 – 400000 125 300107 300111
– 592417 592417 1055 040208 040212
1641343 592417 2233760
tim score 206896 – 206896 2465 190405 190409
777142 – 777142 04375 010206 300110
320000 – 320000 125 300107 300111
– 473934 473934 1055 040208 040212
1304038 473934 1777972
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 140504 130508†
50000 – 50000 2465 190405 190409
731428 – 731428 04375 010206 300110
320000 – 320000 125 300107 300111
– 436019 436019 1055 040208 040212
1291428 436019 1727447
mike inglis 223515 – 223515 21475 270503 260509†
731428 – 731428 04375 010206 300110
288000 – 288000 125 300107 300111
– 379147 379147 1055 040208 040212
1242943 379147 1622090
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 140504 130508†
50000 – 50000 2465 190405 190409
731428 – 731428 04375 010206 300110
288000 – 288000 125 300107 300111
– 398104 398104 1055 040208 040212
1255779 398104 1653883
arm annual report and accounts 2005 29 interests in share options continued
as at as at
1 january 31 december exercise earliest
2005 granted 2005 price date of expiry
director number number number £ exercise date
simon segars 5920 – 5920 1224 110302 100309
134080 – 134080 1224 110302 100306
6155 – 6155 6155 220503 210510
6792 – 6792 335 140504 130511
33208 – 33208 335 140502 130508†
40000 – 40000 2465 190403 180409†
425142 – 425142 04375 300104 290110†
224000 – 224000 125 300105 290111†
– 341232 341232 1055 040208 040212
875297 341232 1216529
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
mark templeton 449561 – 449561 039 180401 170410
1078947 – 1078947 025 051102 041111
449561 – 449561 047 150804 221013
170832 – 170832 070 231204 190814
– 498774 498774 1055 040208 040212
2148901 498774 2647675
 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
for options granted before january 2003 the performance condition is that the group must achieve average real eps growth of at least 331 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 as described in more detail below these
options vested on 1 february 2006
for options granted in 2004 2005 and 2006 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 options granted on 30 january 2003 at an exercise price of £04375 were satisfied and the following
options vested on 1 february 2006 warren east 914285 tim score 777142 tudor brown 731428 mike inglis 731428 and mike muller 731428 
30 arm annual report and accounts 2005
remuneration reportuk reportingcontinued no director exercised any options during the year details of options exercised by directors since the balance sheet date are as follows
exercise market price at gains on
price date of exercise exercise
director number £ £ £
sir robin saxby 140000 1224 1375 21140
warren east 131520 1224 13675 18873
tudor brown 140000 1224 13628 19432
mike inglis 438856 04375 136 404845
mike muller 140000 1224 13628 19432
731478 04375 13628 676837
simon segars 140000 1224 136125 19215
100000 04375 136125 92375
on 1 february 2006 discretionary share options were granted to the following executive directors warren east 573585 tim score 483019 tudor
brown 392453 mike inglis 339623 mike muller 339623 and simon segars 316981 the exercise price is 1325 pence and all are subject to
performance conditions as follows
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 cpi 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 cpi 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 cpi 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 31
1 january december exercise
2005 granted lapsed 2005 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
mike inglis 15771 – – 15771 05865 010806 311206
options issued under this scheme are issued at a 15 discount to market value
long term incentive plan
a long term incentive plan was approved by shareholders at the 2003 annual general meeting conditional share awards held by directors are 
as follows 
market price as at as at
performance at date of 1 january conditional 31 december
period ending award 2005 award lapsed 2005 vesting
director 31 december award date £ number number number number date
warren east 2005 25 july 2003 0805 248447 – – 248447 january 2006
2006 3 november 2004 1005 248756 – – 248756 january 2007
2007 20 july 2005 1165 – 268240 – 268240 january 2008
497203 268240 – 765443
tim score 2005 25 july 2003 0805 211180 – – 211180 january 2006
2006 3 november 2004 1005 199005 – – 199005 january 2007
2007 20 july 2005 1165 – 214592 – 214592 january 2008
410185 214592 – 624777
tudor brown 2005 25 july 2003 0805 198758 – – 198758 january 2006
2006 3 november 2004 1005 199005 – – 199005 january 2007
2007 20 july 2005 1165 – 197425 – 197425 january 2008
397763 197425 – 595188
arm annual report and accounts 2005 31 32 arm annual report and accounts 2005
remuneration reportuk reportingcontinued
long term incentive plan continued
market price as at as at
performance at date of 1 january conditional 31 december
period ending award 2005 award lapsed 2005 vesting
director 31 december award date £ number number number number date
mike inglis 2005 25 july 2003 0805 198758 – – 198758 january 2006
2006 3 november 2004 1005 179104 – – 179104 january 2007
2007 20 july 2005 1165 – 171674 – 171674 january 2008
377862 171674 – 549536
mike muller 2005 25 july 2003 0805 198758 – – 198758 january 2006
20063 november 2004 1005 179104 – – 179104 january 2007
2007 20 july 2005 1165 – 180258 – 180258 january 2008
377862 180258 – 558120
simon segars 2005 25 july 2003 0805 124224 – – 124224 january 2006
2006 3 november 2004 1005 149254 – – 149254 january 2007
2007 20 july 2005 1165 – 154506 – 154506 january 2008
273478 154506 – 427984
mark templeton 2007 20 july 2005 1165 – 162794 162794 – january 2008
 the performance period for the 2003 ltip grant ended on 31 december 2005 and as such the actual number of awards vesting is disclosed below
 mark templeton was conditionally awarded 162794 shares as part of the 2005 ltip grant but these lapsed on his change in status from an executive to a nonexecutive director in october 2005 thus none
were held at 31 december 2005
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 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 additional shares may vest to cover dividends paid 
by the company during the performance period 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 for 2006 awards
it is intended that the first comparator group be changed from the ftse 250 to the ftse 350 to reflect the companys position within the index
the performance conditions applicable to the conditional awards granted on 25 july 2003 were satisfied to the extent of 1759 plus dividend
shares which vested on 1 february 2006 as follows
market 
conditional vested dividend total value at 
award award shares award vesting
director number number number number £
warren east 248447 437018 6771 443789 605550
tim score 211180 371466 5755 377221 514718
tudor brown 198758 349616 5416 355032 484441
mike inglis 198758 349616 5416 355032 484441
mike muller 198758 349616 5416 355032 484441
simon segars 124224 218510 3385 221895 302776
total 1180125 2075842 32159 2108001 2876367
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 2005 was 121 pence the closing midprice ranged from 9425 pence to 12775
pence during the year
deferred bonus plan
the existing deferred bonus plan was introduced in 2001 and enabled directors to double their annual bonus if payment is deferred for three years
and to receive 6 interest per annum on the deferred element there are no outstanding arrangements under this plan and subject to approval of
the new annual deferred bonus plan at the 2006 agm there will be no further operation of this plan arm annual report and accounts 2005 33
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 whilst the nonexecutive directors were paid through arm holdings plc with the exception of lucio lanza and mark templeton who were
paid through arm physical ip inc and were as follows
pension
basic bonus pension total subtotal contributions total 
fees salary benefits payments subtotal contributions 2005 2004 2004 2004
director £ £ £ £ £ £ £ ££ £
executive
sir robin saxby – 140000 11751 3024 154775 26175 180950 199321 25313 224634
warren east – 312500 11751 6749 331000 10470 341470 401507 10125 411632
tim score – 250000 11771 5400 267171 10470 277641 311841 10125 321966
tudor brown – 230000 11751 4968 246719 10470 257189 311821 10125 321946
mike inglis – 200000 11751 4320 216071 10470 226541 281821 10125 291946
mike muller – 210000 11751 4536 226287 10470 236757 281821 10125 291946
simon segars – 213345 11751 3888 228984 10470 239454 –– –
total –15558458227732885167100788995 1760002 1788132 75938 1864070
nonexecutive
peter cawdron 33000 – – – 33000 – 33000 29000 – 29000
doug dunn 33000 – – – 33000 – 33000 29000 – 29000
lucio lanza 30000 – – – 30000 – 30000 –– –
philip rowley 30000 – – – 30000 – 30000 –– –
john scarisbrick 30000 – – – 30000 – 30000 27000 – 27000
jeremy scudamore 30000 – – – 30000 – 30000 18517 – 18517
mark templeton 6250 166292 8068 – 180610 8708 189318 1812 – 1812
lawrence tesler – – – – – – – 9000 – 9000
total 1922501662928068 –3666108708 375318 114329 – 114329
total 192250 1722137 90345 32885 2037617 97703 2135320 1902461 75938 1978399
 for jeremy scudamore 2004 fees are shown from the date of his appointment on 26 april 2004 for mark templeton and lucio lanza from 23 december 2004 mark templeton changed from being an
executive director to being a nonexecutive director on 18 october 2005 for lawrence tesler 2004 fees are shown up to his date of resignation on 26 april 2004 remuneration for simon segars and philip
rowley is shown from the date of their appointments on 4 january 2005
 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 inglis mike muller and simon segars receive a car and petrol allowance
 simon segars’ salary includes £33345 of disturbance allowance and cost of living payments as he relocated to the us for part of the year
it is the company’s policy to allow executive directors to hold nonexecutive positions at other companies and receive remuneration for their
service details of executive’s roles within other companies and their remuneration are as follows
mike inglis is a nonexecutive director of superscape group plc the group holds 82 of the issued share capital of superscape group plc and more
details about this investment are included in note 14 on page 54 in this capacity mike inglis received remuneration totalling £15000 for the year
to 31 december 2005 2004 £15000 and holds options over 20000 shares in superscape group plc at an option price of 33 pence which were
granted on 7 january 2004 the shares will vest in thirds over a threeyear period provided that performance targets are met tim score became a
nonexecutive director of national express group plc in february 2005 in this capacity he received remuneration totalling £34000 for the year to
31 december 2005 tudor brown is a nonexecutive director of ant software limited in this capacity he received remuneration totalling £20000
for the year to 31 december 2005 simon segars is a nonexecutive director of plastic logic limited in this capacity he received remuneration
totalling £10000 for the year to 31 december 2005 warren east was appointed a nonexecutive director of reciva limited in 2006
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
doug dunn obe chairman of the remuneration committee 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
34 arm annual report and accounts 2005
statement of directors’ responsibilities we have audited the group financial statements of arm holdings plc for the year ended 31 december 2005 which comprise the consolidated
income statement the consolidated balance sheet the consolidated cash flow statement the consolidated statement of change in shareholders’
equity and the related notes these group financial statements have been prepared under the accounting policies set out therein
we have reported separately on the parent company financial statements of arm holdings plc for the year ended and on the information in the
directors’ remuneration report that is described as having been audited
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and the group financial statements in accordance with applicable law and
international financial reporting standards ifrss as adopted by the european union are set out in the statement of directors’ responsibilities
our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and international
standards on auditing uk and ireland 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 group financial statements give a true and fair view and whether the group financial statements
have been properly prepared in accordance with the companies act 1985 and article 4 of the ias regulation we also report to you if in our
opinion the directors’ report is not consistent with the group financial statements 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 other transactions is not disclosed
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 form an opinion on the effectiveness of the group’s
corporate governance procedures or its risk and control procedures
we read other information contained in the annual report and consider whether it is consistent with the audited group 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 the corporate governance statement the corporate social responsibility statement the directors’ report
the unauditable part of the remuneration report and the statement of directors’ responsibilities we consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies with the group financial statements our responsibilities do not extend
to any other information
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices board an audit
includes examination on a test basis of evidence relevant to the amounts and disclosures in the group financial statements it also includes an
assessment of the significant estimates and judgments made by the directors in the preparation of the group 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 group financial statements 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
group financial statements
opinion
in our opinion
l the group financial statements give a true and fair view in accordance with ifrss as adopted by the european union of the state of the
group’s affairs as at 31 december 2005 and of its profit and cash flows for the year then ended and 
l the group financial statements have been properly prepared in accordance with the companies act 1985 and article 4 of the ias regulation
pricewaterhousecoopers llp
chartered accountants and registered auditors
london
6 march 2006
arm annual report and accounts 2005 35
independent auditors’ report to the shareholders of arm holdings plcifrs 2005 2004
note £000 £000
revenues
product revenues 217711 138732
service revenues 14728 14165
total revenues 2 232439 152897
cost of revenues
product costs 19265 6735
service costs 7345 5505
total cost of revenues 26610 12240
gross profit 205829 140657
operating expenses
research and development 80273 54674
sales and marketing 47389 25546
general and administrative 43010 32108
total operating expenses 170672 112328
profit from operations 2 35157 28329
investment income 5317 6944
profit before tax 6 40474 35273
tax 7 10827 9398
profit for the year 29647 25875
earnings per share
basic and diluted earnings 29647 25875
number of shares ‘000
basic weighted average number of shares 1369335 1026890
effect of dilutitive securities
share options 55027 22179
diluted weighted average number of shares 1424362 1049069
basic eps 9 22p 25p
diluted eps 9 21p 25p
all activities relate to continuing operations all of the profit for the year is attributable to the equity holders of the parent the company has opted to
present its own accounts under uk gaap  the accompanying notes are an integral part of the financial statements
details of dividends paid and proposed are in notes 8 and 31 of the financial statements respectively
36 arm annual report and accounts 2005
consolidated income statementifrs
for the year ended 31 december 2005
  2005 2004
note £000 £000
assets
current assets
cash and cash equivalents 10 128077 110561
financial assets shortterm investments 14 23990 5307
shortterm marketable securities 14 8835 21511
fair value of currency exchange contracts 14 – 1674
accounts receivable 11 55518 34347
prepaid expenses and other assets 12 12567 13843
inventories finished goods 13 1490 897
total current assets 230477 188140
noncurrent assets
financial assets longterm marketable securities 14 – 5438
availableforsale investments 14 8800 12235
prepaid expenses and other assets 12 1674 484
property plant and equipment 15 8990 9096
goodwill 16 474430 419174
other intangible assets 17 79743 84037
deferred tax assets 7 13633 2396
total noncurrent assets 587270 532860
total assets 817747 721000
liabilities and shareholders’ equity
current liabilities
accounts payable 2221 4110
current tax liabilities 10826 7081
accrued and other liabilities 18 26598 42049
financial liabilities fair value of currency exchange contracts 19 1708 –
deferred revenue 20354 21355
total current liabilities 61707 74595
net current assets 168770 113545
noncurrent liabilities
deferred tax liabilities 7 9193 2135
other noncurrent liabilities 20 – 1732
total liabilities 70900 78462
net assets 746847 642538
shareholders’ equity
share capital 22 693 675
share premium account 447091 434026
share option reserve 61474 61474
retained earnings 166656 140291
revaluation reserve 2921 5237
cumulative translation adjustment 68012 835
total equity 746847 642538
the accompanying notes are an integral part of the financial statements the financial statements on pages 36 to 77 were approved by the board of
directors on 6 march 2006 and were signed on its behalf by
sir robin saxby director
arm annual report and accounts 2005 37
consolidated balance sheetifrs
as at 31 december 2005 2005 2004
£000 £000
operating activities
profit from operations 35157 28329
depreciation and amortisation of tangible and intangible assets 28608 13059
loss on disposal of property plant and equipment 16 20
impairment of availableforsale investments 337 –
compensation charge in respect of sharebased payments 20863 7855
provision for doubtful debts 722 321
provision for obsolescence of inventory 22 –
accounts receivable converted to availableforsale investments – 112
changes in working capital
accounts receivable 21247 2425
inventories 519 34
prepaid expenses and other assets 61 1985
fair value of currency exchange contracts 3382 341
accounts payable 1931 1176
deferred revenue 2043 3013
accrued and other liabilities 7199 2811
cash generated by operations before tax 56107 51795
income taxes paid 14447 11601
net cash from operating activities 41660 40194
investing activities
interest received 5444 7233
purchases of property plant and equipment 5492 2723
proceeds on disposal of property plant and equipment 37 23
purchases of other intangible assets 572 2672
purchases of availableforsale investments 274 50
proceeds on disposal of availableforsale investments 96 –
purchasematurity of shortterm investments 599 24677
purchase of subsidiaries net of cash acquired 20304 77899
net cash used in investing activities 21664 51411
financing activities
issue of shares 13921 1313
expenses of issuing share capital – 360
purchase of own shares 16211 –
dividends paid to shareholders 10436 8975
net cash used in financing activities 12726 8022
net increasedecrease in cash and cash equivalents 7270 19239
cash and cash equivalents at beginning of the year 110561 129774
effects of foreign exchange rates used 10246 26
cash and cash equivalents at end of the year 128077 110561
the accompanying notes are an integral part of the financial statements
38 arm annual report and accounts 2005
consolidated cash flow statementifrs
for the year ended 31 december 2005 share share cumulative
share premium option retained revaluation translation
capital account reserve earnings reserve adjustment total
note £000 £000 £000 £000 £000 £000 £000
balances
at 1 january 2004 22 512 81137 – 105642 1041 – 188332
shares issued on exercise of options 22 1 1310 – – – – 1311
shares issued on acquisition 22 162 – – – – – 162
premium arising on shares issued 
on acquisition – 354673 – – – – 354673
expenses of issuing equity shares – 3094 – – – – 3094
issuance of options in relation to acquisition 
of artisan components inc – – 61474 – – – 61474
profit for the year – – 25875 – – 25875
dividends – – – 8975 – – 8975
credit in respect of employee share schemes – – – 5498 – – 5498
movement on deferred tax arising on 
outstanding share options – – – 12251 – – 12251
unrealised holding gains on availableforsale
investments net of deferred tax
of £1631000 – – – – 3804 – 3804
credit in respect of investment write–back – – – – 392 – 392
currency translation adjustment – – – – – 835 835
balances
at 31 december 2004 22 675 434026 61474 140291 5237 835 642538
shares issued on exercise of options 22 18 13065 – – – – 13083
profit for the year – – – 29647 – – 29647
dividends – – – 10436 – – 10436
credit in respect of employee share schemes – – – 20863 – – 20863
movement on deferred tax arising on 
outstanding share options – – – 4408 – – 4408 
tax benefits on exercise of options issued
as part consideration for a business
combination – – – 6072 – – 6072
purchase of own shares – – – 16211 – – 16211
proceeds from sale of own shares – – – 838 – – 838
unrealised holding losses on availableforsale
investments net of deferred tax of £981000 – – – – 2316 – 2316
currency translation adjustment – – – – – 67177 67177
balances
at 31 december 2005 693 447091 61474 166656 2921 68012 746847
 own shares held offset within retained earnings is an amount of £16315000 2004 £7485000 representing the cost of own shares held these
shares are expected to be used in part for the benefit of the group’s employees and directors to satisfy share option and conditional share awards in
future periods own shares held include £1438000 2004 £1438000 being the cost of 5000000 2004 5000000 shares in the company held by
the group’s esop  own shares held also include £nil 2004 £6047000 being the cost of nil 2004 713034 shares in the company held by the
group’s quest own shares also include £14877000 2004 £nil being the cost of treasury stock refer to note 23 for further details on the movement
of these balances in 2005
 revaluation reserve the group includes on its balance sheet publiclytraded investments which are classified as availableforsale these are carried at
market value unrealised holding gains or losses on such securities are included net of related taxes within the revaluation reserve the amounts within
this reserve are undistributable 
arm annual report and accounts 2005 39
consolidated statement of changes in shareholders’ equityifrs
for the year ended 31 december 2005 1 the group and a summary of its significant accounting policies
the business of the group arm holdings plc and its subsidiary companies “arm” or “the group” design reduced instruction set computing risc
microprocessors physical ip and related technology and software and sell development systems to enhance the performance costeffectiveness and power
efficiency 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 asic and applicationspecific standard processors assp
based on the group’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 utilise the group’s technology the group 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 group 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 group’s principal geographic markets are europe the us and asia pacific
incorporation and history arm is a public limited company incorporated and domiciled 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
group 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 axys design automation inc incorporated in the us keil software inc incorporated in the us acquired during 2005 
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 germany gmbh incorporated in germany renamed during 2005 keil elektronik gmbh incorporated in germany acquired during 
2005 arm embedded technologies pvt limited incorporated in india renamed during 2005 arm physical ip asia pacific pte limited incorporated 
in singapore renamed during 2005 arm taiwan limited incorporated in taiwan and arm consulting shangai co limited incorporated in pr china
basis of preparation these financial statements have been prepared in accordance with international financial reporting standards ifrs as adopted by
the eu international accounting standards ias and ifric interpretations and with those parts of the companies act 1985 applicable to companies reporting
under ifrs 
the financial statements have been prepared under the historical cost convention as modified by the revaluation of availableforsale investments and
derivative instruments 
use of estimates the preparation of financial statements in accordance with generally accepted accounting principles requires the directors 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 provisions 
for income taxes allowance for doubtful debts impairment of noncurrent 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 all subsidiaries use uniform accounting policies for
like transactions and other events and similar circumstances 
business combinations 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
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 goodwill is not amortised but is measured at cost less impairment losses in determining the fair
value of consideration the fair value of equity issued is the market value of 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 be payable 
as permitted by ifrs 1 goodwill arising on acquisitions before 1 january 2004 date of transition to ifrs has been frozen at the uk gaap amounts subject
to being tested for impairment at that date goodwill is tested for impairment at least annually the group performs its annual impairment review at the
cashgenerating unit level at the date of transition and at the annual tests in 2004 and 2005 impairment tests showed there was no impairment with
respect to goodwill
availableforsale investments publiclytraded investments are classified as available for sale and are carried at market value unrealised holding gains or
losses on such securities are included net of related taxes directly in equity via a revaluation reserve impairment losses and realised gains and losses of
such securities are reported in earnings equity securities that are not publicly traded are recorded at fair value at 31 december 2005 and 2004 the
estimated fair value of these investments approximated to cost less any permanent diminution in value based on estimates determined by the directors
the group has applied the provisions of ias 32 “financial instruments disclosure and presentation” and ias 39 “financial instruments recognition and
measurement” from the date of transition to ifrs and has therefore not taken advantage of the optional exemption available under ifrs 1 under which the
group could have elected to apply these standards only from 1 january 2005  
research and development expenditure all ongoing research expenditure is expensed in the period in which it is incurred where a product is technically
feasible production and sale are intended a market exists and sufficient resources are available to complete the project development costs are capitalised
and amortised on a straightline basis over the estimated useful life of the respective product the group believes its current process for developing products
is essentially completed concurrently with the establishment of technological feasibility which is evidenced by a working model accordingly development
costs incurred after the establishment of technological feasibility have not been significant and therefore no costs have been capitalised to date
40 arm annual report and accounts 2005
notes to the ifrs financial statements
  1 the group and a summary of its significant accounting policies continued
where no internallygenerated intangible asset can be recognised development expenditure is recognised as an expense in the period in which 
it is incurred
impairment charges the group considers at each reporting date whether there is any indication that noncurrent assets are impaired if there is such an
indication the group carries out an impairment test by measuring the assets’ recoverable amount which is the higher of the assets’ fair value less costs to
sell and their value in use if the recoverable amount is less than the carrying amount an impairment loss is recognised and the assets are written down to
their recoverable amount in addition as discussed under goodwill above goodwill is tested for impairment at least annually 
revenue recognition the group follows the principles of ias 18 “revenue recognition” in determining appropriate revenue recognition policies 
in principle therefore revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into 
the group
revenue 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 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 risks and
rewards of ownership of the product are transferred to 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 percentageofcompletion basis over the period from signing of the licence to customer acceptance under the percentageofcompletion
method provisions for estimated losses on uncompleted contracts are recognised in the period in which the likelihood of such losses is determined the
percentage of completion 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 receipts fall due significantly outside the period over which the customisation 
is expected to be performed or significantly outside its normal payment terms for standard licence arrangements the group evaluates whether it 
is probable that economic benefits associated with these milestones will flow to the group and therefore whether these receipts should initially 
be included in the arrangement consideration in particular it considers
– 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 
– whether it has sufficient evidence that the customer considers that the group’s contractual obligations have been or will be fulfilled
– 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
– 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 is probable that the economic benefits associated with such future milestones will flow
to the group taking into account these criteria such milestones are excluded from the arrangement consideration until there is sufficient evidence that 
it is probable that the economic benefits associated with the transaction will flow into the group the group does not discount future invoicing milestones
as the effect of so doing would be immaterial 
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 several components the entire fee from such arrangements has been allocated to each of the individual components based on
each component’s fair value vendorspecific objective evidence vsoe of fair value is determined by reference to licence agreements with other customers
where components are sold separately 
agreements including rights to unspecified products are accounted for using subscription accounting revenue from the arrangement being recognised on 
a straightline basis 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 and is exposed to the significant risks and benefits associated with the transaction the total
value of the licence 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 group 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
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 pcs 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 company with the licensee 
arm annual report and accounts 2005 41 1 the group and a summary of its significant accounting policies continued
the excess of licence fees and postcontract support invoiced over revenue recognised is recorded as deferred revenue
sales of software including development systems which are not specifically designed for a given licence such as offtheshelf software are recognised
upon delivery when the significant risks and rewards of ownership have been transferred to the customer 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 it is probable that the economic benefits associated with the transaction will flow into the group
royalty revenues are earned on sales by the company’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 percentage of completion basis as milestones are
achieved consulting costs are recognised when incurred
as disclosed above in accordance with ias 8 “accounting policies changes in accounting estimates and errors” 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 percentageofcompletion
accounting method which requires that the extent of progress toward completion of contracts may be anticipated with reasonable certainty the use of the
percentageofcompletion method is itself based on the assumption that at the outset of licence agreements customer acceptance is not uncertain the group
also makes assessments based on prior experience of the extent to which future milestone receipts represent a probable future economic benefit to the
group in addition when allocating revenue to various components of arrangements involving several components 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
government grants grants in respect of specific research and development projects are credited to research and development costs within the income
statement to match the projects’ related expenditure
retirement benefit costs the group 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 israel and india the group contributes to these plans based upon various fixed
percentages of employee compensation and such contributions are expensed as incurred
cash and cash equivalents the group considers all highlyliquid investments with original maturity dates of three months or less to be cash equivalents
shortterm investments and marketable securities the group considers all highlyliquid investments with original maturity dates of greater than three
months but less than one year to be either shortterm investments or shortterm marketable securities any investments with a maturity date of greater
than one year from the balance sheet date are classified as long term 
allowance for doubtful debts trade receivables are first assessed individually for impairment or collectively where the receivables are not individually
significant where there is no objective evidence of impairment for an individual receivable it is included in a group of receivables with similar credit risk
characteristics and these are collectively assessed for impairment movements in the provision for doubtful debts are recorded in the income statement
inventory inventory is stated at the lower of cost and net realisable value in general cost is determined on a firstin firstout basis and includes transport
and handling costs where necessary provision is made for obsolete slowmoving and defective inventory
property plant and equipment the cost of property and equipment is their purchase cost together with any incidental costs of acquisition external costs
and internal costs are capitalised to the extent they enhance the future economic benefit of the asset
depreciation is calculated so as to write off the cost of property plant and equipment less their estimated residual values which are adjusted if
appropriate at each balance sheet date 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 three to five years
fixtures and fittings five to ten years
motor vehicles four years
provision is made against the carrying value of property plant and equipment where an impairment in value is deemed to have occurred asset lives and
residual values are reviewed on an annual basis
acquired intangible assets computer software purchased patents and licences to use technology are capitalised at cost and amortised on a straightline
basis over a prudent estimate of the time that the group is expected to benefit from them which is typically three to five years 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 capitalised external costs and internal costs are capitalised to the extent they enhance the future economic benefit of the asset
42 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 1 the group and a summary of its significant accounting policies continued
although an independent valuation is made of any intangible assets purchased as part of a business combination the directors are primarily responsible 
for determining the fair value of intangible assets developed technology existing agreements and customer relationships core technology trademarks and
tradenames and order backlog are capitalised and amortised over a period of one to six years being a prudent estimate of the time that the group is
expected to benefit from them
inprocess research and development projects purchased as part of a business combination may meet the criteria set out in ifrs 3 “business combinations”
for recognition as intangible assets other than goodwill the directors track the status of inprocess research and development intangible assets such that
their amortisation commences when the assets are brought into use this typically means a writeoff period of one to five years
amortisation is calculated so as to write off the cost of intangible assets less their estimated residual values which are adjusted if appropriate at each
balance sheet date on a straightline basis over the expected useful economic lives of the assets concerned the principal economic lives used for this
purpose are
computer software three to five years
patents and licences three to five years
inprocess research and development one to five years
developed technology one to five years
existing agreements and customer relationships two to six years
core technology five years
trademarks and tradenames four to five years
order backlog one year
provision is made against the carrying value of acquired intangible assets 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 payments are not made on such a basis
currency translation the functional currency of each group entity is the currency of the primary economic environment in which each entity operates 
the consolidated financial statements are presented in sterling which is the presentation currency of the group
transactions denominated in foreign currencies have been translated into the functional currency of each group entity 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
such exchange differences have been included in general and administrative costs  
the assets and liabilities of subsidiaries denominated in foreign subsidiaries are translated into sterling at rates of exchange ruling at the balance sheet date
income statements of overseas subsidiaries are translated at the average monthly exchange rates during the period translation differences are taken
directly to equity via the cumulative translation adjustment on disposal of a subsidiary such amounts are recycled to the income statement 
goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated 
at the closing rate 
as permitted by ifrs 1 the balance on the cumulative translation adjustment on retranslation of subsidiaries’ net assets has been set to zero at the date of
transition to ifrs
derivative financial instruments the group utilises currency 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 group’s currency exchange contracts do not subject the group
to risk from exchange rate movements because the gains and losses on such contracts offset losses and gains respectively on the transactions being
hedged the currency exchange contracts and related accounts receivable are recorded at fair value at each period end fair value is estimated using the
settlement rates prevailing at the period end all recognised gains and losses resulting from the settlement of the contracts are recorded within general and
administrative costs in the income statement the group does not enter into foreign exchange contracts for the purpose of hedging anticipated transactions 
embedded derivatives from time to time the group enters into sales contracts denominated in a currency typically us dollars that is neither the
functional currency of the group nor the functional currency of the customer where there are uninvoiced amounts on such contracts the group carries 
such derivatives at fair value the resulting gain or loss is recognised in the income statement under general and administrative costs 
income taxes income taxes are computed using the liability method under this method deferred 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 rates and laws that will be 
in effect when the differences are expected to reverse the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss 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 realised 
deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference
is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future deferred tax assets and liabilities
arising in the same tax jurisdiction are offset 
arm annual report and accounts 2005 43 1 the group and a summary of its significant accounting policies continued
in the uk and the us the group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under
each jurisdiction’s tax rules as explained under “sharebased payments” below a compensation expense is recorded in the group’s income statement 
over the period from the grant date to the vesting date of the relevant options as there is a temporary difference between the accounting and tax bases 
a deferred tax asset is recorded the deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the
future based on the group’s share price at the balance sheet date with the cumulative amount of the compensation expense recorded in the income
statement if the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate the excess 
is recorded directly in equity against retained earnings 
as explained under “sharebased payments” below no compensation charge is recorded in respect of options granted before 7 november 2002 or in
respect of those options which have been exercised or have lapsed before 1 january 2005 nevertheless tax deductions have arisen and will continue 
to arise on these options the tax effects arising in relation to these options are recorded directly in equity against retained earnings  
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 period excluding treasury stock and those shares held in the esop and the quest which are treated as cancelled for
diluted earnings per share the weighted number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares the
diluted share base for the year ended 31 december 2005 excludes incremental shares of approximately 39614000 2004 38143000 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
sharebased payments the group issues equitysettled sharebased payments to certain employees in accordance with ifrs 2 “sharebased payments”
equitysettled sharebased payments are measured at fair value at the date of grant fair value is measured by use of the blackscholes pricing model the
fair value determined at the grant date of the equitysettled sharebased payments is expensed on a straightline basis over the vesting period based on
the group’s estimate of the number of shares that will eventually vest 
the group 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 saving period must be at least 36 months the group has recognised a compensation charge in respect of the uk saye plans and us
espps the charges for these are calculated as detailed above 
the group also has an ltip on which it is also required to recognise a compensation charge under ifrs 2 calculated as detailed above  
the group has applied the exemption available and has applied the provisions of ifrs 2 only to those options granted after 7 november 2002 and which
were outstanding at 31 december 2004 
the sharebased payments charge is allocated to cost of sales research and development expenses sales and marketing expenses and general and
administrative on the basis of headcount
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 in accordance with ifrs 2 this is treated as a cashsettled transaction a provision is made calculated using the fair value of the
group’s shares at the balance sheet date prorated over the vesting period of the options  
employee share ownership plans the company’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 company and the assets of which comprise
shares in the company 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 conditionally to employees 
investment income investment income relates to interest income which is accrued on a time basis by reference to the principal outstanding and at the
effective interest rate applicable
equity instruments equity instruments issued by the group are recorded at the proceeds received net of direct issue costs
dividends payable distributions to equity holders are not recognised in the income statement under ifrs but are disclosed as a component of the
movement in shareholders’ equity a liability is recorded for a dividend when the dividend is approved by the company’s shareholders
provisions provisions for restructuring costs and legal claims are recognised when the group has a present legal or constructive obligation as a result 
of past events it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated 
segmental reporting the primary reporting format is based on business segments comprising the processor division and the physical ip division the
secondary reporting format is based on geographical segments these being europe the us and asia pacific the primary reporting format requires
segmentation of the group’s revenue and result before investment income and tax segment expenses are expenses that are directly attributable to a
segment together with the relevant portion of other expenses that can reasonably be attached to the segment investment income and tax are not
segmented
44 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 1 the group and a summary of its significant accounting policies continued
forthcoming accounting standards at the date of approval of these financial statements the following standards and interpretations which have 
not been applied in these financial statements were in issue but not yet effective an amendment to ias 21 in respect of an entitys investment in foreign
operations an amendment to ias 1 requiring new disclosures about entities’ management of their capital resources amendments to ias 39 and ifrs 4
which clarify whether financial guarantees fall within the scope of ias 39 or ifrs 4 and stipulate the measurement method to be applied to such
guarantees an amendment to ias 39 restricting the use of the option to designate a financial asset or financial liability as “at fair value through profit or
loss” an amendment to ias 39 to permit hedge accounting for certain forecast intragroup transactions and a new accounting standard ifrs 7 “financial
instruments disclosures” this standard replaces ias 30 and the disclosure requirements in ias 32 and locates in one place all disclosures relating to
financial instruments the new requirements incorporate many of ias 32’s disclosures as well as additional qualitative and quantitative disclosures on the
risks arising from financial instruments
the directors acknowledge the adoption of these standards and interpretations in the future periods will have no material impact on the financial
statements when they come into effect for periods after 1 january 2006
2 segmental reporting
at 31 december 2005 and 2004 the group is organised on a worldwide basis into two business segments
– processor division
– physical ip division
there are no sales between the business segments unallocated costs represent corporate expenses segment assets include property plant and equipment
intangible assets goodwill inventories receivables and operating cash and exclude deferred tax assets segment liabilities comprise operating liabilities and
exclude current and deferred tax capital expenditure comprises additions to property plant and equipment and other intangible assets including additions
resulting from acquisitions through business combinations 
primary reporting format – business segments
processor physical ip
year ended division division unallocated group
31 december 2005 £000 £000 £000 £000
revenue 182280 50159 – 232439
segment result before investment income and tax 44390 9233 – 35157
investment income – – 5317 5317
profit before tax 40474
tax – – 10827 10827
profit for the year 29647
segment assets 271873 532241 – 804114
unallocated assets
– deferred tax assets – – 13633 13633
total assets 817747
segment liabilities 36159 14722 – 50881
unallocated liabilities
– current tax liabilities – – 10826 10826
– deferred tax liabilities – – 9193 9193
total liabilities 70900
other segment items
capital expenditure including acquisitions 14224 1584 – 15808
depreciation 4824 1075 – 5899
amortisation of other intangible assets 5329 17380 – 22709
impairment of trade receivables 495 227 – 722
other noncash expenses 343 10 – 353
 comprises impairment of unlisted investments and loss on disposal of fixed assets
included within the processor division’s result before investment income and tax in 2005 is £16498000 in respect of sharebased payments and related
payroll taxes and £883000 in respect of acquisitionrelated charges included within the physical ip division’s result before investment income and taxes in
2005 is £5007000 in respect of sharebased payments and related payroll taxes and £17056000 in respect of acquisitionrelated charges
arm annual report and accounts 2005 45 2 segmental reporting continued
processor physical ip
year ended division division unallocated group
31 december 2004 £000 £000 £000 £000
revenue 152702 195 – 152897
segment result before investment income and tax 28982 653 – 28329
interest income – – 6944 6944
profit before tax 35273
tax – – 9398 9398
profit for the year 25875
segment assets 233158 485446 – 718604
unallocated assets
– deferred tax assets – – 2396 2396
total assets 721000
segment liabilities 46128 23118 – 69246
unallocated liabilities
– current tax liabilities – – 7081 7081
– deferred tax liabilities – – 2135 2135
total liabilities 78462
other segment items
capital expenditure including acquisitions 7525 76889 – 84414
depreciation 5516 16 – 5532
amortisation of other intangible assets 7179 348 – 7527
reversal of impairment of trade receivables 321 – – 321
other noncash expenses 34 – – 34
 comprises reversal of impairment of listed investment amortisation of government grants and loss on disposal of fixed assets
secondary format – geographical segments
the group manages its business segments on a global basis the operations are based in three main geographical areas the uk is the home country of the
parent the main operations in the principal territories are as follows
– europe
– united states
– asia pacific
revenue by destination segment assets capital expenditure
2005 2004 2005 2004 2005 2004
£000 £000 £000 £000 £000 £000
europe 32971 23837 159692 112323 6594 4554
united states 99727 77457 637117 600841 8660 79254
asia pacific 99741 51603 7305 5440 554 606
232439 152897 804114 718604 15808 84414
unallocated assets 13633 2396
817747 721000
analysis of revenue by origin
2005 2004
£000 £000
europe 170505 141974
united states 59183 6384
asia pacific 2751 4539
232439 152897
46 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 2 segmental reporting continued
analysis of revenue by revenue stream
2005 2004
£000 £000
licensing 104223 59366
royalties 87849 59647
services 14728 14165
development systems 25639 19719
232439 152897
3 recognised income and expense
2005 2004
£000 £000
profit for the year 29647 25875
foreign exchange difference on consolidation 67177 835
lossgain on revaluation of availableforsale investments net of gain on deferred tax of £981000
2004 loss of £1631000 2316 3804
amount written back to availableforsale investments – 392
total recognised income for the year 94508 30906
all activities relate to continuing operations all of the total recognised gain for the year is attributable to the equity holders of the parent
4 key management compensation and directors’ emoluments
key management compensation
the directors are of the opinion that the key management of the group comprises the executive and nonexecutive directors of arm holdings plc together
with the board of directors of arm limited these persons have authority and responsibility for planning directing and controlling the activities of the entity
directly or indirectly at 31 december 2005 key management comprised 17 people 2004 15
the aggregate amounts of key management compensation are set out below
2005 2004
£ £
salaries and shortterm employee benefits 2420373 2515424
sharebased payments 2973424 1642393
group pension contributions to money purchase schemes 124231 106313
5518028 4264130
directors’ emoluments
the aggregate emoluments of the directors of the group are set out below 
2005 2004
£ £
aggregate emoluments in respect of qualifying services 2037617 1902461
aggregate group pension contributions to money purchase schemes 97703 75938
2135320 1978399
detailed disclosures of directors’ emoluments are shown on page 33 details of directors’ interests in share options are shown on pages 29 and 30 which
form part of the financial statements
arm annual report and accounts 2005 47 5 employee information 
the average monthly number of persons including executive directors employed by the group during the year was
2005 2004
number number
by segment
processors 874 774
physical ip 360 –
1234 774
 this division has been part of the group since the acquisition of artisan components inc on 23 december 2004 no average headcount is included therefore in 2004 
2005 2004
number number
by activity
research and development 783 464
administration 165 106
sales and marketing 286 204
1234 774
2005 2004
£000 £000
staff costs for the above persons
wages and salaries 65745 42011
sharebased payments note 25 20863 7855
social security costs 6683 4077
other pension costs 3371 2067
96662 56010
of the total pension costs above £91000 2004 £12000 remained unpaid at the year end
6 profit before tax
the following items have been chargedcredited to the income statement in arriving at profit before tax
2005 2004
£000 £000
staff costs including sharebased payments note 5 96662 56010
cost of inventories recognised as an expense included in cost of sales 4050 3100
depreciation of property plant and equipment
– owned assets 5899 5532
amortisation of other intangible assets 
– cost of sales 123 583
– research and development 10052 2177
– sales and marketing 9977 350
– general and administrative 2557 4417
impairmentwriteback of availableforsale investments 337 392
loss on disposal of fixed assets 16 20
other operating lease rentals payable
– plant and machinery 10687 8769
– property 5122 3858
repairs and maintenance expenditure on property plant and equipment 878 390
trade receivables impairmentrelease of impairment provision 722 321
amortisation of government grants – 338
48 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 6 profit before tax continued
services provided by the groups auditor
during the year the group including its overseas subsidiaries obtained the following services from the groups auditor at costs detailed below
2005 2004
£000 £000
audit services
– statutory audit 453 314
– auditrelated regulatory reporting 97 95
further assurance services
– royalty audits 22 14
– other advisory work 50 6
tax compliance and advisory work 1152 76
1774 505
included in the group audit fees and expenses paid to the group’s auditor is £5000 2004 £5000 paid in respect of the parent company
also included above are fees paid to the group’s auditor in respect of nonaudit services in the uk of £818000 2004 £46000
fees to other major firms of accountants for nonaudit services amounted to £658000 2004 £509000
fees paid to the auditors in 2004 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 in conjunction with their role as reporting accountants and services in conjunction with filings with the
sec these balances were partly capitalised within goodwill and partly offset against the share premium account
7 tax
analysis of charge in the year
2005 2004
£000 £000
current tax 16578 11594
deferred tax 5751 2196
taxation 10827 9398
analysis of tax on items charged to equity
£000 £000
deferred tax creditcharge on availableforsale investments 981 1631
deferred tax creditcharge on outstanding share options 4408 9882
deferred tax credit on tax benefits on exercise of options issued as part consideration for a business combination 6072 –
the tax for the year is lower 2004 lower than the standard rate of corporation tax in the uk 30 the differences are explained below
2005 2004
£000 £000
profit before tax 40474 35273
profit before tax multiplied by rate of corporation tax in the uk of 30 2004 30 12142 10582
effects of
adjustments to tax in respect of prior years 138 496
adjustments in respect of foreign tax rates 45 231
permanent differences 201 1474
overseas tax 1444 19
amortisation of other intangible assets 7105 222
timing differences in respect of sharebased payments 4551 1518
other timing differences 97 760
total taxation 10827 9398
arm annual report and accounts 2005 49 7 tax continued
deferred tax
deferred tax is calculated in full on temporary differences under the liability method using the tax rate relevant to each tax jurisdiction
the movement on the deferred tax account is shown below
2005 2004
£000 £000
at 1 january 261 5980
acquisition of subsidiary undertakings 3336 16577
profit and loss creditcharge 5751 2196
availableforsale investments 981 1631
adjustment in respect of sharebased payments 4408 9882
adjustment in respect of share option benefits 6072 –
exchange differences 881 411
at 31 december 4440 261
deferred tax assets have been partially recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets because 
it is not probable that the unrecognised portion of these assets will be recovered the amount of deferred tax assets unrecognised at 31 december 2005 
was £366000 2004 £254000
no deferred tax is recognised on the unremitted earnings of overseas subsidiaries as the earnings are continually reinvested by the group no tax 
is expected to be payable on them in the foreseeable future if the earnings were remitted tax of £2379000 would be payable 
the movements in deferred tax assets and liabilities prior to offsetting of balances within the same tax jurisdiction as permitted by ias 12 during the year
are shown below deferred tax assets and liabilities are only offset where there is a legally enforcable right of offset and there is an intention to settle the
balances net
deferred tax assets
temporary
amountsdifferencetemporary amounts
relating on available differences non relating to
to sharebased forsale relating to tax deductible share option
payments investments fixed assets losses reserves benefits total
£000 £000 £000 £000 £000 £000 £000
at 1 january 2005 13274 2077 5669 12212 1592 – 30670
profit and loss chargecredit 1708 – 667 1601 100 – 660
availableforsale investments – 981 – – – – 981
movement on deferred tax arising on outstanding
share options 4408 – – – – – 4408
tax benefits on exercise of options issued as part
consideration for a business combination – – – – – 6072 6072
exchange differences – – 212 1377 170 574 2333
at 31 december 2005 prior to offsetting 10574 1096 5214 11988 1662 6646 34988
offsetting of deferred tax liabilities 21355
at 31 december 2005 after offsetting 13633
50 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 7 tax continued
deferred tax liabilities
amounts relating to
intangible assets
arising on
acquisition other total
£000 £000 £000
at 1 january 2005 30409 – 30409
amount acquired with subsidiary undertakings 3336 – 3336
movement in respect of amortisation of intangible assets 7168 – 7168
profit and loss charge – 757 757
exchange differences 3214 – 3214
at 31 december 2005 prior to offsetting 29791 757 30548
offsetting of deferred tax liabilities 21355
at 31 december 2005 after offsetting 9193
the deferred tax liability due after more than one year prior to offsetting is £22128000 2004 £23784000 million
8 dividends
2005 2004
£000 £000
final 2003 paid at 06 pence per share – 6118
interim 2004 paid at 028 pence per share – 2857
final 2004 paid at 042 pence per share 5759 –
interim 2005 paid at 034 pence per share 4677 –
in addition the directors are proposing a final dividend in respect of the financial year ending 31 december 2005 of 05 pence per share which will absorb
an estimated £6842000 of shareholders funds it will be paid on 5 may 2006 to shareholders who are on the register of members on 31 march 2006
9 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  the quest and treasury stock 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 those being 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 company’s long term incentive plan ltip for 2005 and 2004 no shares that were allocated for awards under the ltip were included in the diluted
eps calculation as the performance criteria could not be measured until the conclusion of the performance period
reconciliations of the earnings and weighted average number of shares used in the calculations are shown on the face of the income statement
arm annual report and accounts 2005 51 10  cash and cash equivalents
2005 2004
£000 £000
cash at bank and in hand 36264 78193
bank deposits with a maturity date of less than three months 91813 32368
128077 110561
the effective interest rate on shortterm deposits was 45 2004 39 and these deposits have an average maturity of 53 days 2004 47 days 
11  accounts receivable
2005 2004
£000 £000
amounts falling due within one year
accounts receivable 37191 29902
less provision for impairment of receivables 2173 1451
accounts receivable net 35018 28451
amounts recoverable on contracts 20500 5896
55518 34347
12  prepaid expenses and other assets
2005 2004
£000 £000
amounts falling due within one year
other receivables 2259 2813
prepayments and accrued income 10308 11030
12567 13843
within noncurrent assets is an amount of £1674000 2004 £484000 relating to prepayments falling due after more than one year
13  inventories
2005 2004
£000 £000
finished goods 1512 897
less provision for obsolescence of inventories 22 –
1490 897
14  financial assets
financial assets include the following 
current financial assets noncurrent financial assets
2005 2004 2005 2004
£000 £000 £000 £000
shortterm investments – uk 23990 5307 – –
listed securities
– equity securities – uk – – 6995 10262
unlisted securities
– equity securities – uk – – 50 50
– equity securities – us – – 1481 1923
– marketable securities – us 8835 21511 – 5438
convertible loan notes – us – – 274 –
32825 26818 8800 17673
also included in current financial assets in 2004 is £1674000 2005 nil in respect of the fair value of currency exchange contracts
52 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 14  financial assets continued
current financial assets
shortterm
shortterm marketable
investments securities total
£000 £000 £000
at 1 january 2005 5307 21511 26818
cash invested in shortterm investments and marketable securities 44010 – 44010
maturity of shortterm investments and marketable securities 25327 12646 37973
revaluation deficit – 30 30
at 31 december 2005 23990 8835 32825
at 1 january 2004 29064 – 29064
acquired with subsidiary undertaking – 21511 21511
cash invested in shortterm investments and marketable securities 98161 – 98161
maturity of shortterm investments and marketable securities 121918 – 121918
at 31 december 2004 5307 21511 26818
refer to note 1 for definitions of shortterm investments and shortterm marketable securities 
noncurrent financial assets
longterm availableforsale investments
marketable securities listed other total
£000 £000 £000 £000
at 1 january 2005 5438 10262 3642 19342
additions  – 274 274
disposals 5438 – 112 5550
revaluation deficit – 3267 – 3267
at 31 december 2005 – 6995 3804 10799
aggregate impairment
at 1 january 2005 – – 1669 1669
impairment charges – – 337 337
disposals – – 7 7
at 31 december 2005 – – 1999 1999
net book value
at 31 december 2005 – 6995 1805 8800
at 31 december 2004 5438 10262 1973 17673
at 1 january 2004 – 4139 4168 8307
acquired with subsidiary undertakings 5438 – – 5438
additions – – 162 162
transfers – 688 688 –
revaluation surplus – 5435 – 5435
at 31 december 2004 5438 10262 3642 19342
amounts written off
at 1 january 2004 – – 2061 2061
reversal of impairment charges made prior to 1 january 2004 – – 392 392
at 31 december 2004 – – 1669 1669
net book value at 31 december 2004 5438 10262 1973 17673
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 an original maturity date of more than one year
arm annual report and accounts 2005 53 14  financial assets continued
listed investments the group owns an 82 holding in superscape group plc the cost and market value of which as at 31 december 2005 were
£2652000 and £3474000 respectively 2004 £2652000 and £8795000 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 the cost and market value of this investment as at 31 december 2005 were £688000 and
£3521000 respectively 2004 £688000 and £1467000 respectively therefore the total market value of listed investments held at 31 december 2005
was £6995000 2004 £10262000
other investments included in other investments are the group’s 35 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 less than 1 investment in the share capital of palmchip corporation a private fabless
chip company based in california a 12 investment in the share capital of pixim inc also a private fabless chip company based in california and a 15
holding in reciva limited an internet radio company based in the uk during 2005 the group made an investment via convertible loan notes in luminary
micro inc a private fabless semiconductor company based in austin which develops pioneering armarchitecturebased microcontroller products during
2005 the group divested its less than 1 holding in zeevo inc
provisions have been made against other investments to reflect any impairment in value
interests in group undertakings details of principal subsidiary undertakings are shown below not all subsidiaries are included as the list would be 
excessive in length 
proportion of
of issued
nominal value
country of issued shares held
name of undertaking registration principal activity 
arm limited england and wales marketing research and development 100
of riscbased microprocessors
arm inc us marketing and development 100
of riscbased microprocessors
arm physical ip inc us marketing research and development 100
of physical ip components
axys design automation inc us development of integrated processor 100
modelling solutions
keil software inc acquired in 2005 us marketing research and development 100
of microcontroller tools
arm kk japan marketing of riscbased microprocessors 100
arm korea limited south korea marketing of riscbased microprocessors 100
arm france sas france development of riscbased microprocessors 100
arm belgium nv belgium development of data engine microprocessors 100
arm germany gmbh renamed in 2005 germany marketing of riscbased microprocessors and 100
development  integrated processor
modelling solutions
keil elektronik gmbh acquired in 2005 germany marketing research and development 100
of microcontroller tools
arm embedded technologies pvt ltd india marketing research and development of 100
renamed in 2005 riscbased microprocessors and physical ip
arm physical ip asia pacific pte limited singapore marketing of physical ip 100
renamed in 2005
arm taiwan limited taiwan marketing of riscbased microprocessors 999
arm consulting shanghai co ltd pr china marketing of riscbased microprocessors 100
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 
54 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 15  property plant and equipment
fixtures fittings
freehold leasehold computer and motor
buildings improvements equipment vehicles total
£000 £000 £000 £000 £000
cost
at 1 january 2005 190 21405 12282 3215 37092
acquisitions ––11–11
transfers – 1488 1488 – –
additions – 108 4453 931 5492
disposals – 66 720 165 951
exchange differences – 99 430 195 724
at 31 december 2005 190 20058 17944 4176 42368
aggregate depreciation
at 1 january 2005 50 16020 10106 1820 27996
transfer – 1004 1004 – –
charge for the year 7 2845 2374 673 5899
disposals – 43 722 133 898
exchange differences – 50 231 100 381
at 31 december 2005 57 17868 12993 2460 33378
net book value
at 31 december 2005 133 2190 4951 1716 8990
at 31 december 2004 140 5385 2176 1395 9096
cost
at 1 january 2004 190 20345 11168 3202 34905
acquisitions –3328836401855
additions – 1397 1160 166 2723
disposals – 551 847 737 2135
exchange differences – 118 82 56 256
at 31 december 2004 190 21405 12282 3215 37092
aggregate depreciation
at 1 january 2004 42 12515 9962 2210 24729
charge for the year 8 4109 1044 371 5532
disposals – 532 842 718 2092
exchange differences – 72 58 43 173
at 31 december 2004 50 16020 10106 1820 27996
net book value
at 31 december 2004 140 5385 2176 1395 9096
arm annual report and accounts 2005 55 16  goodwill 
total
£000
cost 
at 1 january 2004 2091
additions axys 6733
additions artisan 409467
exchange differences 883
at 31 december 2004 419174
additions ksi 2324
additions keg 3483
exchange differences 49449
at 31 december 2005 474430
net book value
at 31 december 2005 474430
at 31 december 2004 419174
during the fourth quarter of 2005 the group tested its balance of goodwill for impairment in accordance with ias 36 “impairment of assets” 
no impairment charge was required as a result of this annual impairment test 
the carrying amounts of goodwill by cash generating unit cgu are summarised in the following schedule on a segment level 
processors physical ip group
£000 £000 £000
goodwill relating to artisan 114840 344519 459359
goodwill relating to other acquisitions 15071 – 15071
129911 344519 474430
the recoverable amount for each cgu has been measured based on a value in use calculation 
processor division pd
the processor division encompasses the whole of the business excluding physical ip 
the key assumptions in the value in use calculations were
period over which the directors have projected cash flows a tenyear forecast period is used with an assumed terminal growth rate after 2015 of 3
per annum it is considered appropriate to use a tenyear forecast period to properly reflect the period over which the benefits of the acquisition of artisan to
the processor division are expected to accrue it is expected that it will take between four and seven years before the majority of arm’s larger
semiconductor partners are licensing physical ip from the group with royalties being generated from these licences a further two to four years later 
ie a total period of six to 11 years
forecast revenue growth revenue is forecast to grow by an amount consistent with the groups fiveyear plan as well as analysts’ expectations these
have proved to be reliable guides in the past and the directors believe that these estimates are appropriate
revenue attributable to the benefits afforded by owning the pipd unit the directors believe that revenue will accrue to the processor division as 
a result of the ownership of the physical ip division for the following reasons
– the development of faster and more powerefficient microprocessors as a result of collaboration between pd and pipd engineering teams this is
expected to generate more pd licensing deals at higher prices
– the potential for pd to win more microprocessor licensing business as a result of arm being able to offer both processor and physical ip inhouse and 
– the improvement in pd operating margins as a result of being able to transfer a number of engineering tasks to the bangalore design centre acquired
with artisan
operating margins operating margins have been assumed to remain consistent with current operating margins over the period of the calculation 
discount rate future cash flows are discounted in line with arm’s estimated weighted average cost of capital of approximately 95 pretax
the directors are confident that the amount of goodwill allocated to the processor division is appropriate and that the assumptions used in estimating 
its fair value are appropriate whilst it is conceivable that a key assumption in the calculation could change the directors believe that no reasonably
foreseeable changes to key assumptions would result in an impairment of goodwill such is the margin by which the estimated fair value exceeds the
carrying value
56 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 16  goodwill continued
physical ip division pipd
the key assumptions in the value in use calculations were
period over which the directors have projected cash flows a tenyear forecast period is used with an assumed terminal growth rate after 2015 of 3
per annum it is considered appropriate to use a tenyear forecast period to properly reflect the period over which the benefits of the acquisition of artisan
are expected to accrue it is expected that it will take between four and seven years before the majority of arm’s larger semiconductor partners are licensing
physical ip from the group with royalties being generated from these licences a further two to four years later ie a total period of six to 11 years
forecast revenue growth revenue is forecast to grow by approximately 20 in the first five years falling to 6 by 2015 to reflect the uncertainty of
forecasting revenues in the years further in the future in assessing the appropriate valuation of pipd in 2004 the directors assumed revenue growth of
approximately 20 per annum was achievable in the pipd standalone business based on process geometry shrinks bringing more licensing opportunities
across a broader range of foundries and based on the significant increase in the usage of artisan ip in 2003 and 2004 which is yet to generate royalties
confidence in achieving revenue growth of 20 is underpinned by the expected increasing contribution from synergistic revenues in addition to the growth
potential in the standalone business in 2005 licence revenues still grew by 21 likeforlike royalty revenue growth was only 1 but was materially
impacted by industry macro factors and changes to internal processes 
operating margins operating margins are assumed to increase from 32 in 2006 with growth up to margins in the mid40s by 2010 in 2005 pipd
operating margin was 30 this is expected to increase in future years as royalty growth gathers pace at effectively 100 margins costs are expected to
grow broadly in line with licence revenue growth
this timescale is consistent with arm’s experience in developing the processor licensing and royalty model arm has signed approximately 370 processor
licences over the last 15 years with less than half of these yielding royalties thus far as royalty revenues are a function of cumulative licensing royalty
growth gathers momentum as the licensing base grows – arm processor royalties have increased from 38 million in 2002 to 131 million in 2005
discount rate future cash flows are discounted in line with estimated weighted average cost of capital for the physical ip business of approximately 10
pretax
the directors are confident that the amount of goodwill allocated to the physical ip division is appropriate and that the assumptions used in estimating its
fair value are appropriate whilst it is conceivable that a key assumption in the calculation could change the directors believe that no reasonably foreseeable
changes to key assumptions would result in an impairment of goodwill such is the margin by which the estimated fair value exceeds the carrying value
17  other intangible assets
existing
inprocess agreements
computer patents  research and developed  customer core trademarks and order
software licenses development technology relationships technology tradenames backlog total
£000 £000 £000 £000 £000 £000 £000 £000 £000
cost
at 1 january 2005 35796 13060 3903 18540 37692 12031 2694 1667 125383
additions ksi – – – – 482 – 1175 – 1657
additions keg – – – 2744 4290 – – – 7034
other additions 572 1042 – – – – – – 1614
exchange differences 162 – 462 2193 4477 1424 356 197 9271
at 31 december 2005 36530 14102 4365 23477 46941 13455 4225 1864 144959
aggregate amortisation
at 1 january 2005 30775 10065 28 192 176 53 21 36 41346
charge for the year 1851 2919 633 4924 7369 2543 747 1723 22709
exchange differences 91 – 33 304 431 153 44 105 1161
at 31 december 2005 32717 12984 694 5420 7976 2749 812 1864 65216
net book value
at 31 december 2005 3813 1118 3671 18057 38965 10706 3413 – 79743
at 31 december 2004 5021 2995 3875 18348 37516 11978 2673 1631 84037
arm annual report and accounts 2005 57 17  other intangible assets continued
existing
inprocess agreements
computer patents  research and developed  customer core trademarks and order
software licenses development technology relationships technology tradenames backlog total
£000 £000 £000 £000 £000 £000 £000 £000 £000
cost
at 1 january 2004 33106 12900 – – – – – – 46006
additions axys 7 – 383 1379 425 – 96 – 2290
additions artisan 697 – 3542 17240 37292 12031 2604 1667 75073
other additions 2313 160 – – – – – – 2473
disposals 283 – – – – – – – 283
exchange differences 44 – 22 79 25 – 6 – 176
at 31 december 2004 35796 13060 3903 18540 37692 12031 2694 1667 125383
aggregate amortisation
at 1 january 2004 26699 7444 – – – – – – 34143
charge for the year 4395 2621 28 196 177 53 21 36 7527
disposals 283 – – – – – – – 283
exchange differences 36 – – 4 1 – – – 41
at 31 december 2004 30775 10065 28 192 176 53 21 36 41346
net book value
at 31 december 2004 5021 2995 3875 18348 37516 11978 2673 1631 84037
included in computer software at 31 december 2004 are £643000 of assets under the course of construction these represent internallygenerated
intangible assets which had a net book value of £547000 at 31 december 2005 2004 £643000 all other intangible assets are acquired intangible assets
refer to note 24 for the methods and significant assumptions applied in estimating the fair value of other intangible assets acquired as part of business
combinations
18  accrued and other liabilities
2005 2004
£000 £000
accruals and deferred income 20861 38957
other taxation and social security 1359 1123
other payables 4378 1969
26598 42049
19  financial liabilities
2005 2004
£000 £000
fair value of currency exchange contracts 1708 –
refer to note 21 for further details on this item
20  other noncurrent liabilities
2005 2004
£000 £000
accruals and deferred income – 1732
58 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 21  financial instruments
financial risk factors
the groups operations expose it to a variety of financial risks that include foreign exchange risk interest rate risk credit risk liquidity risk and price risk 
the group has no derivative financial instruments to manage interest rate fluctuations in place at the year end since it has no loan financing and as such 
no hedge accounting is applied
given the size of the group the directors have not delegated the responsibility of monitoring financial risk management to a subcommittee of the board
the policies set by the board of directors are implemented by the groups finance department the department has a policy and procedures manual that
sets out specific guidelines to manage foreign exchange risk interest rate risk credit risk liquidity risk and price risk and circumstances where it would be
appropriate to use financial instruments to manage these
currency 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 a significant proportion of its costs are settled in sterling the
proportion of us dollar denominated costs for the group going forward after the acquisition of artisan increased from approximately 25 to approximately
45 the group seeks to use forward contracts and currency options 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 and
currency options 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 2005 the group had outstanding forward contracts to sell 36000000 2004 50000000 and potential exercisable currency options 
of 76000000 2004 nil the group had 59987000 2004 56205000 of accounts receivable denominated in us dollars at that date and us dollar
cash cash equivalents shortterm investments and marketable securities balances of 121427000 2004 176464000 thus 38 2004 79 of the
group’s us dollar current assets were not hedged by matching forward contracts and currency options at the year end the group does not qualify for hedge
accounting and all movements in the fair value of derivative foreign exchange instruments are recorded in the income statement offsetting the foreign
exchange movements on the accounts receivable cash and cash equivalents being hedged
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
interest rate risk at 31 december 2005 the group has £160902000 2004 £142817000 of interestbearing assets at 31 december 2005 
77 2004 45 of interestbearing assets were at fixed rates floating rate cash earns interest based on relevant national libid equivalent 
the proportion of funds held in fixed rather than floatingrate deposits is determined in accordance with the “liquidity risk” policy below
price risk the group is exposed to equity securities price risk on availableforsale investments as there can be no guarantee that there will be a future
market for securities which are generally unlisted at the time of the investment 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 of the value of investments will not be substantial in the context of the group’s financial results
credit risk the group has no significant concentrations of credit risk the group has implemented policies that require appropriate credit checks on potential
customers before sales commence financial instrument counterparties are subject to preapproval by the board of directors and such approval is limited to
financial institutions with an aaa rating the amount of exposure to any individual counterparty is subject to a limit which is reassessed annually by the
board 
liquidity risk the group’s policy is to maintain balances of cash cash equivalents shortterm investments and shortterm marketable securities such that
highly liquid resources at all times exceeds the projected cash outflows of the business
arm annual report and accounts 2005 59 21  financial instruments continued
use of financial instuments
external borrowings at 31 december 2005 the group owed £nil 2004 33 million or £1732000 extending beyond one year from the balance 
sheet date being the final payment of a technology licence agreement signed in 2004 the group had no undrawn committed borrowing facilities 
at 31 december 2005 2004 nil or during the financial year
numerical disclosures numerical disclosures are set out in the tables below these balances are as of 31 december in each year
assets liabilities
2005 2004 2005 2004
£000 £000 £000 £000
at 31 december
shortterm investments 23990 5307 – –
shortterm marketable securities 8835 21511 – –
fair value of currency exchange contracts – 1674 1708 –
longterm marketable securities – 5438 – –
availableforsale investments 8800 12235 – –
embedded derivatives included in accrued and other liabilities – – 722 2823
41625 46165 2430 2823
shortterm investments the carrying amount approximates to fair value because of the short maturity of these instruments being greater than three
months but less than one year
shortterm marketable securities there is a readily available market for these investments unrealised gains and losses on these investments are
recognised directly as equity via the revaluation reserve the group recognises an impairment charge when the decline in fair value below cost is judged to
be other than temporary at 31 december 2005 the fair value is £30000 less than cost with a corresponding amount being charged to equity as the decline
is judged to be temporary 
fair value of currency exchange contracts the fair value of foreign currency forward contracts is estimated using the settlement rates the estimation of
the fair value of the liability in respect of forward contracts is £1708000 at 31 december 2005 2004 asset of £1674000 the decrease is due to the
value and relative exchange rates of contracts outstanding compared to 2004 the resulting gain or loss on the movement of the fair value of currency
exchange contracts is recognised in the income statement under general and administrative costs as shown below
2005 2004
£000 £000
loss in income statement 3382 341
longterm marketable securities there is a readily available market for these investments unrealised gains and losses on these investments are
recognised directly in equity via the revaluation reserve the group recognises an impairment charge when the decline in fair value below cost is judged to
be other than temporary at 31 december 2005 the fair value approximates to carrying value 
availableforsale investments 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 2005
£1805000 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
availableforsale investments 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 2005 on this basis the fair value of the group’s listed investments was £6995000 at 31 december 2005
2004 £10262000
embedded derivatives in accordance with ias 39 financial instruments recognition and measurement the group has reviewed all contracts for
embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard from time to time
the group enters into sales contracts denominated in a currency typically us dollars that is neither the functional currency of the group nor the functional
currency of the customer where there are uninvoiced amounts on such contracts the group carries such derivatives at fair value the resulting gain or loss
is recognised in the income statement under general and administrative costs as shown below
2005 2004
£000 £000
gainloss in income statement 2101 732
60 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 21  financial instruments continued
hedge of net investment in foreign entity
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
fair value of other financial assets and liabilities
2005 2004
book fair book fair
value value value value
£000 £000 £000 £000
primary financial instruments held or issued to finance 
the groups operations
trade and other payables excluding embedded derivatives 
of £722000 2004 £2823000 28097 28097 45068 45068
trade and other receivables 69759 69759 48674 48674
cash and cash equivalents 128077 128077 110561 110561
169739 169739 114167 114167
trade and other payables the carrying amount approximates to fair value as this is the amount which would be payable if the liability had crystallised at
the balance sheet date included within this category in 2004 is an amount of £1732000 which is classified as noncurrent this approximates to fair value
and matures in 2006
trade and other receivables the carrying amount approximates to fair value as this is the amount which would be receivable if the asset had crystallised
at the balance sheet date
cash and cashequivalents the carrying amount approximates to fair value because of the short maturity of those instruments being no greater than three months
shortterm investments the carrying amount approximates to fair value because of the short maturity of those instruments being greater than three
months but less than one year
financial instruments held for trading purposes 
the group does not trade in financial instruments
22  calledup share capital
2005 2004
£000 £000
authorised
2200000000 ordinary shares of 005 pence each 2004 2200000000 1100 1100
1100 1100
2005 2004
number of shares 2005 number of shares 2004
000 £000 000 £000
issued and fully paid
at 1 january 1350787 675 1023346 512
allotted under share option shemes 35316 18 3042 1
allotted on acquisition of artisan components inc – – 324399 162
at 31 december 1386103 693 1350787 675
arm annual report and accounts 2005 61 23  own shares held
treasury stock esop quest total
£000 £000 £000 £000
at 1 january 2005 – 1438 6047 7485
purchase of own shares 16211 – – 16211
issuance of shares 1334 – 6047 7381
at 31 december 2005 14877 1438 – 16315
during the year £16211000 of shares 139 million shares were repurchased these shares have a nominal value of 005 pence and represent 1 
of calledup share capital at 31 december 2005
24  acquisitions
on 27 october 2005 the group purchased the entire share capital of keil elektronik gmbh keg a leading provider of software development tools for the
microcontroller market mcu and incorporated in germany for total consideration of £74 million on the same day the group purchased the entire share
capital of keil software inc ksi also a leading provider of software development tools for the mcu market and incorporated in the us for total
consideration of £35 million these purchases have been accounted for as acquisitions
the group has identified the mcu market as a critical growth area for the group’s future business and with this acquisition the group will be able to accelerate
progress in that market by offering a more complete solution as the mcu applications shift from 816bit to 32bit solutions the combination of the arm
®
cortex™m3 processor which was specifically designed for microcontroller applications the realview
®
highperformance compiler and keil’s complementary 
mcu tools for arm will enable new generations of arm mcu solutions for the reasons given above the group paid a premium on both the keil acquisitions
giving rise to goodwill
from the date of acquisition to 31 december 2005 the acquisitions contributed £09 million to revenue and £06 million to both profit before interest and profit
before tax the acquisition did not make a material contribution to the group’s postacquisition net operating cash flows tax paid or capital expenditure
all intangible assets were recognised at their respective fair values the residual excess over the net assets acquired is recognised as goodwill in the
financial statements 
the accounting for the keil acquisitions has been determined on a provisional basis at 31 december 2005 because the fair values assigned to the acquiree’s
identifiable assets and liabilities have been determined only provisionally any adjustments to these provisional values as a result of completing work on the
fair values of assets and liabilities acquired will be recognised within 12 months of the acquisition date and will be recognised as if they had occurred as at
the date of acquisition
keg acquisition
carrying values provisional
preacquisition fair value
£000 £000
cash and cash equivalents 2911 2911
receivables 488 488
inventories 60 60
property plant and equipment 12 12
other intangible assets – 7034
payables 2341 2303
deferred revenue 108 –
tax
– current 1570 1570
– deferred – 2673
net liabilitiesassets acquired 548 3959
goodwill 3483
consideration 7442
consideration satisfied by
cash consideration paid 4397
retentions 1477
contingent cash consideration 1305
expenses 263
7442
 retentions represent consideration held back to cover probable future liabilities
 the contingent consideration will be determined based on keg’s future revenue in the first two years postacquisition 
62 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 24  acquisitions continued
the outflow of cash and cash equivalents on the acquisition of keg is calculated as follows
£000
cash consideration paid 4397
expenses paid 263
cash acquired 2911
net cash outflow 1749
the intangible assets acquired as part of the acquisition of keg can be analysed as follows
£000
developed technology 2744
customer relationships 4290
total 7034
the methods and significant assumptions involved in valuing these identifiable intangible assets are described below
developed technology technology of £27 million related to software development tools for the microcontroller market consisting of 816 and 32bit
technology at the date of acquisition the technology was complete and had reached technological feasibility any costs incurred in the future will relate to
the ongoing maintenance of the technology and will be expensed as incurred to estimate the fair value of technology the relief from royalty method
within an income approach was used with a posttax discount rate of 11 with a specific surcharge of 5 for both the 8 and 16bit technology and 34
for the 32bit techology
to derive the royalty cash flows the revenues from each identified technology were used all technologies are being amortised over an estimated useful
life of one to five years
customer relationships the customer base of £43 million represented the fair value of existing customer relationships and contracts these have been
divided into different customer groups direct company customers and dealers to estimate the fair value of the customer base the multiperiod excess
earnings method has been applied with the valuation based on the planned free cash flows resulting from existing customer relationships as of the
valuation date direct company customers and dealers are being amortised over their estimated useful lives of two and three years respectively 
keg made a profit after tax for the year ended 31 december 2004 of £10 million and for the period from 1 january 2005 until acquisition a profit after tax
of £10 million the results of the group would not have been significantly different had the acquisition of keg occurred on 1 january 2005
ksi acquisition
carrying values provisional
preacquisition fair value
£000 £000
cash and cash equivalents 32 32
receivables 174 174
inventories 36 36
other intangible assets – 1657
payables 57 81
deferred revenue 74 –
tax
– deferred tax liabilities – 663
net assets acquired 111 1155
goodwill 2324
consideration 3479
consideration satisfied by
cash consideration paid 2415
retentions 373
contingent cash consideration 559
expenses 132
3479
 retentions represent consideration held back to cover probable future liabilities
 the contingent consideration will be determined based on ksi’s future revenue in the first two years postacquisition 
arm annual report and accounts 2005 63 24  acquisitions continued
the outflow of cash and cash equivalents on the acquisition of ksi is calculated as follows
£000
cash consideration paid 2415
expenses paid 132
cash acquired 32
net cash outflow 2515
the intangible assets acquired as part of the acquisition of ksi can be analysed as follows
£000
customer relationships 482
tradenames 1175
total 1657
the methods and significant assumptions involved in valuing these identifiable intangible assets are described below
tradenames tradenames of £12 million represented the trade names and internet domain names legally held by keil software inc to estimate the fair
value of these tradenames the relief from royalty method within an income approach was applied with a posttax discount rate of 145 to derive the
royalty cash flows the revenues from keil software inc and keil elektronik gmbh were used all tradenames are being amortised over an estimated useful
life of five years  
customer relationships the customer base of £05 million represented the fair value of existing customer relationships and contracts these have been
divided into different customer groups direct customers and distributors to estimate the fair value of the customer base the multiperiod excess earnings
method has been applied with the valuation based on the planned free cash flows resulting from existing customer relationships as of the valuation date
direct company customers and distributors are being amortised over their estimated useful lives of two and three years respectively 
ksi made a loss after tax for the year ended 31 december 2004 of £95000 and for the period from 1 january 2005 until acquisition a loss after tax of
£40000 the results of the group would not have been significantly different had the acquisition of ksi occured on 1 january 2005
artisan components inc acquisition
on 23 december 2004 the group 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 for total consideration of £5466 million this purchase was accounted for as an
acquisition 
from the date of acquisition to 31 december 2004 artisan contributed £195000 to revenue decreased profit before interest by £653000 and decreased
profit before tax by £599000 the acquisition did not make a material contribution to the group’s postacquisition net operating cash flows tax paid or
capital expenditure
all intangible assets were recognised at their respective fair values the residual excess over the net assets acquired is recognised as goodwill in the
financial statements 
carrying values final
preacquisition fair value
£000 £000
cash cash equivalents and marketable securities 82567 82567
receivables 15078 15078
other receivables 3672 2874
property plant and equipment 1812 1812
other intangible assets 19501 75073
payables 17129 17304
deferred revenue 7281 6545
tax
– current tax liabilities 736 736
– deferred tax asset 15446 14086
– deferred tax liability – 29750
net assets acquired 112930 137155
goodwill 409467
consideration 546622
64 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 24  acquisitions continued
carrying values final
preacquisition fair value
£000 £000
consideration satisfied by
cash consideration paid 122315
share issued 354835
options granted 61474
expenses 7998
546622
the outflow of cash and cash equivalents in 2004 on the acquisition of artisan components inc was calculated as follows
£000
cash consideration paid 122315
expenses paid 3847
cash and cash equivalents acquired 82567
net cash outflow 43595
in 2005 a further £14350000 was paid in relation to artisan acquisition expenses 
the intangible assets acquired as part of the acquisition of artisan components inc can be analysed as follows
£000
computer software 697
inprocess research and development 3542
developed technology 17240
core technology 12031
existing agreements and customer relationships 37292
order backlog 1667
trademarks 2604
total 75073
the methods and significant assumptions involved in valuing these identifiable intangible assets are described below
inprocess research and development inprocess research and development of £35 million reflected certain research projects that had not yet reached
technological feasibility and commercial viability the fair value assigned to inprocess research and development was estimated using the income approach which
discounts to present value the cash flows attributable to the technology once it has reached technological feasibility using a posttax discount rate of 18
developed technology and core technology developed technology of £172 million and patents and core technology of £120 million included intellectual
property components for use in soc integrated circuits and consisted of the following embedded memory standard cell inputoutput components and
analogue 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 posttax discount rate of 13 for existing
technology and 15 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 amortised over the estimated useful lives of four to five years
existing agreements and customer relationships and order backlog the customer base of £373 million and order backlog of £17 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 amortised over their
estimated useful lives of three to six years for customer base and one year for order backlog
trademarks the fair value assigned to trademarks including the company name artisan was estimated to be £26 million this was calculated using the
income approach which discounts the present value of attributable cash flows at a posttax discount rate of 15 
the results of the operation in 2004 as if the above acquisition had been made at the beginning of the period are as follows
£000
revenue 197852
profit 15449
the pro forma consolidated results of operations include adjustments to give effect to amortisation of acquired intangible assets other than goodwill reduced
investment income as a result of the cash portion of the acquisition consideration amortisation of deferred compensation and the related income tax effects this
information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the period presented
or the future results of the combined operations 
arm annual report and accounts 2005 65 24  acquisitions continued
axys design automation inc acquisition
on 16 august 2004 the group purchased the entire share capital of axys design automation inc a us company for total consideration of £86 million this
purchase was accounted for as an acquisition 
from the date of acquisition to 31 december 2004 the acquisition contributed £596000 million to revenue no indication can be given of the profit before
interest profit before tax and contributions to the group’s net operating cash flows for the period from the date of acquisition to 31 december 2004 as the
business and assets were integrated into existing group operations shortly after purchase 
all intangible assets were recognised at their respective fair values the residual excess over the net assets acquired is recognised as goodwill in the
financial statements 
carrying values final
preacquisition fair value
£000 £000
cash and cash equivalents 107 107
receivables 270 270
other receivables 74 74
property plant and equipment 43 43
other intangible assets 7 2290
payables 81 81
deferred revenue 665 665
taxation
– deferred tax asset 710 710
– deferred tax liability – 913
net assets acquired 465 1835
goodwill 6733
consideration 8568
consideration satisfied by
cash consideration paid 6433
contingent cash consideration 1665
expenses 470
8568
the outflow of cash and cash equivalents in 2004 on the acquisitions of axys design automation incwas calculated as follows
£000
cash consideration paid 6433
expenses paid 470
cash and cash equivalents acquired 107
net cash outflow 6796
in 2005 £1690000 was paid by the group in respect of the contingent consideration connected with the axys acquisition
the intangible assets acquired as part of the acquisition of axys design automation inc can be analysed as follows
£000
computer software 7
inprocess research and development 383
developed technology 1379
existing agreements and customer relationships 425
trademarks 96
total 2290
these intangibles were 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 incomegenerating ability 
the pro forma revenue of the operation if the above acquisition had been made at the beginning of the period is £667000 after fair value adjustments
have been made this information is not necessarily indicative of the revenue that would have occurred had the purchase been made at the beginning of
the period presented or the future revenues of the combined operations
no indication can be given of the pro forma profit or loss as if the acquisition had been made at the beginning of the period as the business and assets
were integrated into existing group operations shortly after purchase
66 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 25  sharebased payments
the group has several share option schemes in current operation whereby options over shares in the company can be granted to employees and directors
the different schemes are described below but all options are granted with a fixed exercise price equal to the market price of the shares under option at
the date of grant except for those options within the saye schemes which are issued at a 15 discount  
under the uk inland revenue executive approved share option plan the executive scheme the company may grant options to 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
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 company also offers 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 and arm physical ip
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 and arm physical ip inc where the right to exercise normally
only arises for a threemonth period once the savings have been completed 
the fair value of options granted was estimated on the date of grant using the blackscholes option pricing model the following assumptions for each grant
during 2005 and 2004 were as follows
grant date 4 feb 2005 4 feb 2005 4 feb 2005 4 feb 2005 4 feb 2005
scheme performance approved unapproved iso french
share price at grant date £1055 £1055 £1055 £1055 £1055
exercise price £1055 £1055 £1055 £1055 £1055
number of employees 6 175 500 435 29
shares under option 3119627 840249 9794828 8540500 423772
vesting period years 3 3 1 – 4 1 – 4 4
expected volatility 50 50 50 50 50
expected life years 4 4 2 – 5 1 – 4 5
risk free rate 40 40 40 40 40
dividend yield 07 07 07 07 07
fair value per option £043 £043 £031 – £048 £022 – £043 £048
grant date 4 feb 2005 27 apr 2005 27 apr 2005 27 apr 2005 26 jul 2005
scheme belgian unapproved iso belgian unapproved
share price at grant date £1055 £1005 £1005 £1005 £1185
exercise price £1055 £1005 £1005 £1005 £1185
number of employees 29 37 10 1 67
shares under option 347650 199000 130000 5000 590000
vesting period years 39 1 – 4 1 – 4 37 1 – 4
expected volatility 50 50 50 50 50
expected life years 4 2 – 5 1 – 4 4 2 – 5
risk free rate 40 40 40 40 40
dividend yield 07 07 07 07 07
fair value per option £043 £030 – £046 £021 – £041 £041 £035 – £054
arm annual report and accounts 2005 67 25  sharebased payments continued
grant date 26 jul 2005 26 jul 2005 26 jul 2005 31 oct 2005 31 oct 2005
scheme iso french belgian unapproved iso
share price at grant date £1185 £1185 £1185 £10425 £10425
exercise price £1185 £1185 £1185 £10425 £10425
number of employees 28 2 1 82 22
shares under option 504760 18250 2500 831636 228250
vesting period years 1 – 4 4 34 1 – 4 1 – 4
expected volatility 50 50 50 40 40
expected life years 1 – 4 5 4 2 – 5 1 – 4
risk free rate 40 40 40 40 40
dividend yield 07 07 07 07 07
fair value per option £025 – £049 £054 £049 £026 – £040 £018 – £036
grant date 31 oct 2005 31 oct 2005 20 jun 2005
scheme french belgian saye
share price at grant date £10425 £10425 £107
exercise price £10425 £10425 £09095
number of employees 4 1 272
shares under option 14000 2500 1535108
vesting period years 4 32 2 – 5
expected volatility 40 40 50
expected life years 5 4 2 – 5
risk free rate 40 40 40
dividend yield 07 07 07
fair value per option £040 £036 £038 – £054
grant date 30 jan 2004 30 jan 2004 30 jan 2004 30 jan 2004 30 jan 2004
scheme performance approved unapproved iso french
share price at grant date £125 £125 £125 £125 £125
exercise price £125 £125 £125 £125 £125
number of employees 6 174 418 133 26
shares under option 1792308 1202845 8906434 2701414 420008
vesting period years 3 3 1 – 4 1 – 4 4
expected volatility 92 92 8096 8096 87
expected life years 4 4 2 – 5 1 – 4 5
risk free rate 40 40 40 40 40
dividend yield 05 05 05 05 05
fair value per option £082 £082 £055 – £088 £040 – £082 £085
grant date 30 jan 2004 10 may 2004 10 may 2004 23 jul 2004 23 jul 2004
scheme belgian unapproved iso unapproved iso
share price at grant date £125 £1135 £1135 £10575 £10575
exercise price £125 £1135 £1135 £10575 £10575
number of employees 26 13 6 25 6
shares under option 372825 99000 49500 161500 70000
vesting period years 39 1 – 4 1 – 4 1 – 4 1 – 4
expected volatility 92 4495 8095 8693 8093
expected life years 4 2 – 5 1 – 4 2 – 5 1 – 4
risk free rate 40 45 45 45 45
dividend yield 05 05 05 07 07
fair value per option £082 £031 – £078 £037 – £072 £053 – £071 £034 – £066
grant date 23 jul 2004 25 jul 2004 22 oct 2004 22 oct 2004 21 jun 2004
scheme french approved unapproved iso saye
share price at grant date £10575 £10575 £09475 £09475 £111
exercise price £10575 £10575 £09475 £09475 £09435
number of employees 2 1 44 19 105
shares under option 6500 3375 316500 323750 518798
vesting period years 4 3 1 – 4 1 – 4 2 – 5
expected volatility 86 87 5587 5587 8794
expected life years 5 4 2 – 5 1 – 4 2 – 5
risk free rate 45 45 45 45 45
dividend yield 07 07 07 07 05
fair value per option £071 £066 £031 – £064 £030 – £059 £065 – £083
68 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 25  sharebased payments continued
the expected volatility was based upon historical volatility over the corresponding period for the life of each option the expected life is the expected period
to exercise
a reconciliation of option movements over the year to 31 december 2005 is shown below
2005 2004
weighted average weighted average
number exercise price number exercise price
outstanding at 1 january 164019815 £0870 65491080 £1455
granted 27127630 £1051 16934076 £1226
assumed on acquisition of artisan –– 90414815 £0434
lapsed 11027172 £1110 5770196 £1914
exercised 37096283 £0374 3049960 £0432
outstanding at 31 december 143023990 £1014 164019815 £0870
exercisable at 31 december 64431089 £122 69624728 £100
the following options over ordinary shares were in existence at 31 december 2005
2005 2004
weighted weighted weighted weighted
average average average average
exercise remaining exercise remaining
number price life in years number price life in years
exercise price £ outstanding £ expected contractual oustanding £ expected contractual
002 – 040 22988380 026 097 531 43620742 026 099 613
0405 – 050 33861103 045 136 523 46475717 045 195 641
051 – 09475 26183870 068 256 649 34419737 065 285 788
1005 – 1224 31257471 109 223 480 8390309 119 163 358
125 – 7738 28733166 250 246 377 31113310 251 338 467
total 143023990 101 193 509 164019815 0870 214 617
26  major noncash transactions
the directors consider there to be no major noncash transactions in 2005 in 2004 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 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
27  capital and other financial commitments
2005 2004
£000 £000
contracts placed for future capital expenditure not provided in the financial statements 1371 1179
28  operating lease commitments – minimum lease payments
at 31 december 2005 the group had commitments under noncancellable operating leases as follows
2005 2004
land and land and
buildings other total buildings other total
£000 £000 £000 £000 £000 £000
commitments under noncancellable 
operating leases expiring
within one year 4787 1569 6356 4885 1298 6183
later than one year and less than five years 12588 110 12698 14067 497 14564
after five years 11378 – 11378 13492 – 13492
28753 1679 30432 32444 1795 34239
arm annual report and accounts 2005 69 29  financial contingencies
in may 2002 nazomi communications inc nazomi 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 judgment and a ruling that the technology does not infringe
nazomi’s patent the united states district court for the northern district of california granted arm’s motion and nazomi appealed the district court’s ruling
on 7 september 2004 the court of appeals for the federal circuit heard the appeal and issued its decision on 11 april 2005 because in the opinion of the
court of appeals for the federal circuit the district court did not construe the disputed claim term in sufficient detail for appellate review the court of
appeals for the federal circuit remanded the dispute back to the district court for further analysis a supplementary “markman” hearing was held on 
11 october 2005 and we are presently awaiting the ruling of the district court 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 party’s intellectual property rights the indemnification obligations typically survive any termination of the licence 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
30  related party transactions
during the year the group paid royalty fees of £33000 2004 £411000 and made crosslicence payments of £26000 2004 £14000 to superscape
group plc a company in which mike inglis an executive director of the group is a nonexecutive director amounts owed to superscape at 31 december
2005 and 2004 were £nil 
during the year the group received licence fees of £321000 2004 £209000 support and maintenance income of £37000 2004 £37000 and
evaluation tools fees of £17000 2004 £nil from csr plc a company in which john scarisbrick a nonexecutive director of arm holdings plc is an
executive director amounts owed to csr at 31 december 2005 and 2004 were £nil 
there were no other related party transactions during 2005 or 2004 which require disclosure 
key management compensation is disclosed in note 4
31  postbalance sheet events
after the year end the directors declared payment of a final dividend in respect of 2005 of 05 pence per share subject to shareholder approval the final
dividend will be paid on 5 may 2006 to shareholders on the register on 31 march 2006 the final dividend has not been recognised as a distribution during
the year ended 31 december 2005 
70 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 32  explanation of transition to ifrs
the groups financial statements for the year ending 31 december 2005 are the first annual financial statements that comply with ifrs the last financial
statements under uk gaap were for the year ended 31 december 2004 and the date of transition was therefore 1 january 2004 presented below are the
reconciliation of profit for the year ended 2004 and the reconciliations of equity at 1 january 2004 date of transition to ifrs and at 31 december 2004
date of last uk gaap financial statements as required by ifrs 1 for explanations of the nature and effect of the changes in accounting policies 
as a consequence of the transition to ifrs refer to note 33
i reconciliations of uk gaap profit and loss account to ifrs income statement
year ended 31 december 2004
end of last period presented under uk gaap
effect of
uk transition to
gaap ifrs ifrs
notes £000 £000 £000
total revenues 152897 – 152897
total cost of revenues j 11799 441 12240
gross profit 141098 441 140657
operating expenses
research and development bj 50133 4541 54674
sales and marketing bj 23899 1647 25546
general and administrative abejl 31845 263 32108
total operating expenses 105877 6451 112328
profit from operations 35221 6892 28329
investment income 6944 – 6944
profit before tax 42165 6892 35273
tax bj 10153 755 9398
profit after tax 32012 6137 25875
dividend f 8542 8542 –
profit for period 23470 2405 25875
ii  reconciliation of uk gaap profit to ifrs profit
year ended
31 december
2004
notes £000
profit for period as reported under uk gaap 23470
adjustments for
amortisation of recognised intangibles on axys acquisition b 167
amortisation of recognised intangibles on artisan acquisition b 344
deferred tax on intangibles bg 204
goodwill not amortised after date of transition a 2103
dividends taken directly to equity f 8542
embedded derivatives measured at fair value e 732
deduct ifrs compensation charge in respect of all sharebased payments j 7855
add uk gaap compensation charge in respect of ltip j 495
deferred tax on sharebased payments j 551
impairment of availableforsale investment l 392
profit for period as reported under ifrs 25875
arm annual report and accounts 2005 71 32  explanation of transition to ifrs continued
iii reconciliations of equity at 1 january 2004 and 31 december 2004 from uk gaap to ifrs
as at 1 january 2004 as at 31 december 2004
effect of effect of
uk transition to uk transition to
gaap ifrs ifrs gaap ifrs ifrs
notes £000 £000 £000 £000 £000 £000
assets
current assets
cash and cash equivalents mno 30123 99651 129774 78193 32368 110561
financial assets shortterm investments mno 129663 100599 29064 59186 53879 5307
shortterm marketable securities mno – – – – 21511 21511
fair value of currency exchange contracts m – 2015 2015 – 1674 1674
accounts receivable m 17320 1067 16253 34347 – 34347
prepaid expenses and other assets km 8924 1036 7888 16448 2605 13843
inventories finished goods 931 – 931 897 – 897
deferred tax assets gj 3585 3585 – 20832 20832 –
total current assets 190546 4621 185925 209903 21763 188140
noncurrent assets
financial assets longterm marketable securities – – – 5438 – 5438
availableforsale investments d 4759 1487 6246 5313 6922 12235
prepaid expenses and other assets k – 1036 1036 – 484 484
property plant and equipment c 16583 6408 10175 14117 5021 9096
goodwill a 2091 – 2091 459413 40239 419174
other intangible assets bc 5456 6408 11864 2995 81042 84037
deferred tax assets gj – 5980 5980 – 2396 2396
total noncurrent assets 28889 8503 37392 487276 45584 532860
total assets 219435 3882 223317 697179 23821 721000
liabilities and shareholders’ equity
current liabilities
accounts payable 2691 – 2691 4110 – 4110
current tax liabilities a 3140 – 3140 6345 736 7081
accrued and other liabilities ah 15868 2154 18022 38463 3586 42049
deferred revenue k 11132 – 11132 22301 946 21355
dividends to shareholders f 6106 6106 – 5673 5673 –
total current liabilities 38937 3952 34985 76892 2297 74595
net current assets 151609 669 150940 133011 19466 113545
noncurrent liabilities
deferred tax liabilities g – – – – 2135 2135
provisions h 63 63 – 27 27 –
other noncurrent liabilities – – – 1732 – 1732
total liabilities 39000 4015 34985 78651 189 78462
net assets 180435 7897 188332 618528 24010 642538
shareholders’ equity
share capital 512 – 512 675 – 675
share premium account 81137 – 81137 434026 – 434026
share option reserve – – – 61474 – 61474
retained earnings abefjl 100874 4768 105642 124851 15440 140291
revaluation reserve dl – 1041 1041 – 5237 5237
cumulative translation adjustment bi 2088 2088 – 2498 3333 835
total equity 180435 7897 188332 618528 24010 642538
72 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued 32  explanation of transition to ifrs continued
iv reconciliation of equity from uk gaap to ifrs
1 january 31 december
2004 2004
notes £000 £000
total equity as reported under uk gaap 180435 618528
adjustments for
amortisation of recognised intangibles on axys acquisition b – 167
amortisation of recognised intangibles on artisan acquisition b – 344
deferred tax on intangibles g – 204
goodwill not amortised after date of transition a – 2103
dividends not recognised as liability until declared f 6106 5673
availableforsale investments measured at fair value d 1487 6922
deferred tax on availableforsale investments g 446 2077
deferred tax on sharebased payments gj 2841 13274
embedded derivatives measured at fair value e 2091 2823
foreign exchange on valuation of intangible assets b – 1245
total equity as reported under ifrs 188332 642538
v reconciliation of goodwill from uk gaap to ifrs
1 january 31 december
2004 2004
notes £000 £000
goodwill as reported under uk gaap 2091 459413
adjustments for
amendments to provisional fair values a – 2831
cumulative difference on amortisation of goodwill a – 2103
separately identifiable intangible assets net of deferred tax b – 45996
fair value of deferred revenue and costs k – 499
foreign exchange on valuation of intangible assets b – 1322
goodwill as reported under ifrs 2091 419174
33  explanation of material adjustments to equity at 31 december 2004 and 1 january 2004 and to profit for the year ended 31 december 2004 
the transition to ifrs resulted in the following changes in accounting policies
a goodwill goodwill is not amortised under ifrs but is measured at cost less impairment losses under uk gaap  goodwill was amortised on a straightline
basis over an estimate of the time the group was to benefit from it the change does not affect equity at 1 january 2004 because as permitted by ifrs 1
goodwill arising on acquisitions before 1 january 2004 date of transition to ifrs has been frozen at the uk gaap amounts subject to being tested for
impairment at that date the results of which assessment indicated no such impairment 
the 2004 annual report included a provisional assessment of the fair values of assets and liabilities acquired on acquisition of artisan components inc on 
23 december 2004 where these provisional values have been amended as estimates have been refined in 2005 adjustments to fair values have been
recorded as prior year adjustments to goodwill for ifrs purposes this would not have been the case under uk gaap 
b other intangible assets under ifrs intangible assets purchased as part of a business combination may meet the criteria set out in ifrs 3 for
categorisation as intangible assets other than goodwill and are amortised over their useful economic lives 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 in august and december 2004 the group acquired 100 of the issued share capital of axys design automation inc and artisan
components inc respectively both of these business combinations have been accounted for under ifrs 3 the group has taken advantage of the exemption
under ifrs 1 not to apply ifrs retrospectively to business combinations occurring before 1 january 2004 the date of transition to ifrs thus at 31 december
2004 £76659000 of intangible assets recognisable under ifrs 3 but subsumed within goodwill under uk gaap  have been reclassified as intangible assets
amortisation expense in respect of these intangible assets has decreased profit for the year ended 31 december 2004 by £511000 
under ifrs the difference between the book value of the intangible assets for accounting purposes and the tax value of these assets gives rise to 
a temporary difference a deferred tax liability of £30409000 at 31 december 2004 has therefore been recorded the deferred tax liability is released 
to the income statement in proportion to the amortisation of the related intangibles the impact is to increase the profit for the year ended 31 december
2004 by £204000 
as intangible assets and goodwill arising on overseas acquisitions are treated as foreign currency assets of the acquired entities under ifrs but not under
the group’s uk gaap accounting policies related foreign exchange movements have been recorded in reserves 
arm annual report and accounts 2005 73 74 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued
33  explanation of material adjustments to equity at 31 december 2004 and 1 january 2004 and to profit for the year ended 31 december 2004
continued
c computer software under ifrs computer software is classified within intangible assets under uk gaap  computer software was classified as a tangible
fixed asset this change in accounting policy has resulted in a reclassification between plant property and equipment and intangibles at 31 december 2004
and 1 january 2004
d publicly traded investments under ifrs publicly traded investments are classified as availableforsale and are carried at fair value unrealised holding
gains or losses on such securities are included net of related taxes directly in equity via a revaluation reserve impairment losses and realised gains and
losses of such securities are reported in earnings under uk gaap  these investments were carried at cost less any impairment charges 
e embedded derivatives under ifrs 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 were not revalued to fair value under uk gaap  
f dividends payable under ifrs dividends to shareholders declared after the period end but before the financial statements are authorised for issue are
not recognised as a liability at the balance sheet date a liability for a final dividend is recognised when the dividend is approved by shareholders a liability 
for a dividend is recognised when paid furthermore under ifrs dividends are not shown in the income statement but are recorded directly in reserves via
retained earnings under uk gaap  dividends declared after the period end are recorded in the profit and loss account in the period to which they relate 
g deferred tax assets and liabilities as required by ias 1 “presentation of financial statements” deferred tax assets and liabilities have been classified as
noncurrent assets and liabilities respectively under uk gaap  these were included within current assets and liabilities respectively additionally as required
by ias 12 “income taxes” deferred tax liabilities and assets have been offset where they arise in the same tax jurisdiction under uk gaap  there was no
such right of offset the transition to ifrs has impacted the group’s deferred tax assets and liabilities as follows
1 january 31 december
2004 2004
notes £000 £000
deferred tax assets as reported under uk gaap 3585 20832
adjustment for
deferred tax on sharebased payments j 2841 13274
deferred tax arising on availableforsale investments measured at fair value d 446 2077
adjustment to provisional fair value of deferred tax in respect of artisan acquisition – 1359
nettingoff of deferred tax assets and liabilities arising in same tax jurisdiction g – 28274
deferred tax assets as reported under ifrs 5980 2396
deferred tax liabilities as reported under uk gaap – –
adjustments for
deferred tax liability arising on recognition of intangibles on axys acquisition b – 795
deferred tax liability arising on recognition of intangibles on artisan acquisition b – 29614
nettingoff of deferred tax assets and liabilities arising in same tax jurisdiction g – 28274
deferred tax liabilities as reported under ifrs – 2135
h employer’s taxes on share options under ifrs employer’s taxes that are payable on the exercise of share options are calculated using the fair value of
the company’s shares at the balance sheet date prorated over the vesting period of the options under uk gaap  this calculation uses the market value of
the company’s shares at the balance sheet date additionally under uk gaap  employer’s taxes that are payable on the exercise of share options are
included within provisions for liabilities and charges under ifrs these are included within accrued and other liabilities
i other reserves as permitted by ifrs 1 the cumulative translation adjustment has been reset to zero as at 1 january 2004 this has had no effect on net
equity but has decreased retained earnings by £2088000 as at december 2004 and 1 january 2004 with matching offsetting adjustments to the cumulative
translation adjustment 
j sharebased payments the company issues equitysettled sharebased payments to certain employees in accordance with ifrs 2 equitysettled share
based payments are measured at fair value at the date of grant in respect of options granted after 7 november 2002 and which were outstanding at 
31 december 2004 the fair value determined at the grant date of the equitysettled sharebased payments is expensed on a straightline basis over the
vesting period based on the group’s estimate of the shares that will eventually vest under uk gaap  the charge recorded represented the difference
between the share price at the date of grant and the exercise price of the option in addition the group took advantage of an exemption under which no
charge was made in respect of saye options thus under uk gaap  a charge was made only in respect of the ltip with no other sharebased payments
charges being recognised
as a consequence of accounting for sharebased payments a temporary difference between the accounting and tax bases arises and a deferred tax asset 
is recorded the deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future based on the
group’s share price at the balance sheet date with the cumulative amount of the compensation expense recorded in the income statement if the amount
of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate the excess is recorded directly in
equity against retained earnings arm annual report and accounts 2005 75
33  explanation of material adjustments to equity at 31 december 2004 and 1 january 2004 and to profit for the year ended 31 december 2004
continued
k prepayments and deferred revenue the conventions under which the fair value of assets acquired and liabilities assumed in a business combination 
is determined differ between ifrs and uk gaap  this has given rise to a difference in the fair value of prepayments and deferred revenue purchased as part
of the artisan acquisition in addition under uk gaap prepayments fully due after more than one year were included within current assets under ifrs
prepayments falling due after more than one year are disclosed within noncurrent assets
l reversal of impairments in 2004 a previous impairment of an availableforsale investment was reversed under uk gaap  this was taken as a credit to
the income statement however under ifrs this was taken directly to equity via the revaluation reserve 
m financial assets fair value of currency exchange contracts under ias 32 financial assets are required to be disclosed separately on the face of the
balance sheet under uk gaap  these were disclosed within prepaid expenses and other assets at 31 december 2004 and within cash and cash equivalents
and trade receivables at 1 january 2004 
n cash under ias 7 “cash flow statements” 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 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 
o changes to the cash flow statement the consolidated statement of cash flows prepared under ifrs presents substantially the same information as that
required under uk gaap 
under ifrs only three categories of cash flow activity are required to be reported operating investing and financing cash flows from returns on
investments and servicing of finance and cash flows from taxation shown under uk gaap are included as operating activities and investing activities
respectively under ifrs there are no other material differences between the cash flow statement presented under ifrs and the cash flow statement
presented under uk gaap  
34  summary of significant differences between us gaap and ifrs
goodwill under both ifrs and us gaap  goodwill is not subject to amortisation but is tested at least annually for impairment as permitted by ifrs 1 the
group’s goodwill under ifrs has been frozen at the amount recorded under uk gaap as at 1 january 2004 under us gaap  following the provisions of sfas
142 “goodwill and other intangible assets” the carrying value of goodwill was frozen at the amount recorded under previous us gaap as at 1 january
2002 under both previous us gaap and uk gaap  goodwill was amortised over its useful economic life thus while ongoing accounting policies in respect
of goodwill are similar under us gaap and ifrs the difference in the dates of transition means that different amounts of goodwill are recorded
under us gaap  certain costs to be incurred on restructuring on business combination are treated as a fair value adjustment in the balance sheet acquired
under ifrs these costs are expensed postacquisition additionally under us gaap  tax benefits arising from the exercise of options issued as part of the
consideration for a business combination become a deduction to goodwill only to the extent that those benefits do not exceed the fair value of the
consideration relating to those options at the appropriate tax rate any excess tax benefits are a deduction to equity under ifrs the full tax benefit 
is a deduction to equity
the 2004 annual report included a provisional assessment of the fair values of assets and liabilities arising on the acquisition of artisan components inc 
on 23 december 2004 where these provisional values have been amended as estimates have been refined in 2005 adjustments to fair values have been
recorded as prior year adjustments to goodwill for ifrs purposes under us gaap  these are recorded as amendments to goodwill in the current period
recognition and amortisation of intangibles the group has taken advantage of the exemption under ifrs 1 not to apply ifrs retrospectively to business
combinations occurring before 1 january 2004 this means that for business combinations occurring before this date the previously reported uk gaap
treatment has continued to be followed under previous uk gaap  intangible assets were recognised separately from goodwill only where they could be sold
separately without disposing of a business of the entity this separability criterion does not apply under either ifrs or us gaap  thus a number of intangible
assets which are required to be recognised separately from goodwill under both ifrs 3 and sfas 142 were subsumed within goodwill under uk gaap 
under both us gaap and ifrs such intangible assets are amortised over their useful economic lives except in relation to inprocess research and
development see below there is no difference in accounting policy for intangible assets recognised as a result of business combinations entered into after
1 january 2004 
inprocess research and development under ifrs inprocess research and development projects purchased as part of a business combination may meet
the criteria set out in ias 38 “intangible assets” for recognition as intangible assets other than goodwill and are amortised over their useful economic lives
commencing when the asset is brought into use under us gaap  inprocess research and development is immediately writtenoff to the income statement
this accounting policy difference gives rise to an associated difference in deferred taxation
valuation of consideration on business combination under both ifrs and us 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 under ifrs 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 ifrs 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
ifrs 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 76 arm annual report and accounts 2005
notes to the ifrs financial statementscontinued
34  summary of significant differences between us gaap and ifrs continued
deferred 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 ifrs no such adjustment to shareholders’ funds is made on acquisition 
compensation charge in respect of sharebased payments the group issues equitysettled sharebased payments to certain employees in accordance
with ifrs 2 equitysettled sharebased payments are measured at fair value at the date of grant using the blackscholes pricing model the fair value
determined at the grant date of the equitysettled sharebased payments is expensed on a straightline basis over the vesting period based on the group’s
estimate of the number of shares that will eventually vest under us gaap  the group accounts for share option compensation expense under apb 25 and
thus no compensation expense is recorded where the exercise price of the option is equal to the share price on the date of grant
under us gaap  the group recognises a compensation charge in respect of the uk saye plans 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 in addition certain options attract a charge under variable plan accounting under us gaap  under ifrs this charge is calculated in the same manner
as other sharebased payments as detailed above
under us gaap  the group follows variable plan accounting for the ltip 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 share awards 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 under ifrs this
charge is calculated in the same manner as other sharebased payments as detailed above
deferred tax on uk and us share options in the us and the uk the group is entitled to a tax deduction for the amount treated as employee
compensation under us and uk tax rules on exercise of certain employee share options the compensation is equivalent to the difference between the
option exercise price and the fair market value of the shares at the date of exercise
under ifrs deferred tax assets are recognised and are calculated by comparing the estimated amount of tax deduction to be obtained in the future based
on the company’s share price at the balance sheet date with the cumulative amount of the compensation expense recorded in the income statement if
the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory tax rate the excess is recorded
directly in equity against the profit and loss reserve in accordance with the transitional provisions of ifrs 2 no compensation charge is recorded in respect
of options granted before 7 november 2002 or in respect of those options which have been exercised or have lapsed before 31 december 2004 nevertheless
tax deductions have arisen and will continue to arise on these options the tax effects arising in relation to these options are recorded directly in equity
against retained earnings
under us gaap  deferred tax assets are recognised by multiplying the compensation expense recorded by the prevailing tax rate in the relevant tax
jurisdiction where on exercise of the relevant option the tax benefit obtained exceeds the deferred tax asset in relation to the relevant options the 
excess is recorded in additional paidin capital where the tax benefit is less than the deferred tax asset the writedown of the deferred tax asset is
recorded against additional paidin capital to the extent of previous excess tax benefits recorded in this account with any remainder recorded in 
the income statement
employer taxes on share options under ifrs 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
a reconciliation of ifrs profit to us gaap net income
2005 2004
£000 £000
profit for the financial year as reported under ifrs 29647 25875
adjustments for
amortisation of intangibles 548 65
writeoff of inprocess research and development 335 3612
deduct us gaap compensation charge in respect of ltip 3814 619
deduct us gaap compensation charge in respect of saye schemes 417 341
deduct us gaap deferred stockbased compensation re acquisition 5496 –
add ifrs compensation charge in respect of all sharebased payments 20863 7855
employer’s taxes on share options 3 36
utilisation of restructuring provision 1368 –
foreign exchange on contingent consideration 40 –
tax on uk and us share options 370 515
tax difference on amortisation of intangibles 248 14
tax difference on sharebased payments 91 551
net income as reported under us gaap 41880 27977 arm annual report and accounts 2005 77
34  summary of significant differences between us gaap and ifrs continued
b reconciliation of shareholders’ equity from ifrs to us gaap
2005 2004
£000 £000
shareholders’ funds as reported under ifrs 746847 642538
adjustments for 
employer’s taxes on share options 30 27
utilisation of restructuring provision 1368 –
cumulative difference on amortisation of goodwill 2713 2713
cumulative difference on amortisation of intangibles 441 107
cumulative writeoff of inprocess research and development 4097 3762
cumulative difference on deferred tax 263 14
valuation of equity consideration on acquisition 82435 82435
valuation of option consideration on acquisition 17476 17476
deferred compensation on acquisition 9579 9579
deferred tax on sharebased payments 8775 13274
portion of tax benefit arising on exercise of options issued on acquisition
taken to goodwill under us gaap 4844 –
foreign exchange on valuation of intangible assets and deferred tax 9872 1256
foreign exchange on valuation of contingent consideration 40 –
shareholders’ equity as reported under us gaap 649050 552327
c reconciliation of goodwill from ifrs to us gaap
2005 2004
£000 £000
goodwill as reported under ifrs 474430 419174
adjustments for 
amendments to provisional fair values 1235 2831
cumulative difference on amortisation of goodwill 2713 2713
cumulative writeoff of inprocess research and development 150 150
amendment following revised intangible valuation on acquisition net of deferred tax – 500
separately identifiable intangible assets 302 302
deferred tax on capitalised inprocess research and development 1570 1318
portion of tax benefit arising on exercise of options issued on acquisition
taken to goodwill under us gaap 4248 –
valuation of equity consideration on acquisition 82435 82435
valuation of option consideration on acquisition 17476 17476
deferred compensation on acquisition 9579 9579 
contingent consideration 1864 1665 
foreign exchange on revaluation of goodwill 10134 1167
goodwill as reported under us gaap 385572 340416 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 84 to 106 of this report
selected consolidated financial data – us gaap
2001 2002 2003 2004 2005
£000 £000 £000 £000 £000
revenues 146274 150922 128070 152897 232439
cost of revenues 17289 13185 11022 11799 25358
operating expenses 82848 96456 99785 109587 159164
income from operations 46137 41281 17263 31511 47917
interest net 4470 4373 4801 6944 5317
minority interest 303 232 105 – –
income before income tax 50304 45422 21959 38455 53234
provision for income taxes 16302 13785 8943 10478 11354
net income 34002 31637 13016 27977 41880
diluted earnings per common share 33p 31p 13p 27p 29p
research and development as a percentage of revenues 253 313 376 328 258
capital expenditure £17349 £15616 £3605 £5036 £6064
cash cash equivalents shortterm investments
and marketable securities £104467 £130304 £159786 £142817 £160902
shareholders’ equity £135845 £172470 £188075 £552327 £649050
total assets £175814 £205744 £222997 £637937 £716093
employees at year end number 722 721 740 1171 1324
78 arm annual report and accounts 2005
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 the technology that lies at the heart of advanced digital products from wireless networking and consumer entertainment solutions
to imaging automotive security and storage devices arm’s comprehensive product offering includes 1632bit risc microprocessors data engines 3d
processors digital libraries embedded memories peripherals software and development tools as well as analog functions and highspeed connectivity
products the company licenses this technology to semiconductor companies which in turn manufacture market and sell microprocessors and related
products arm has developed an innovative intellectualpropertycentered 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 combined with the company’s broad partner community they provide a total system solution that offers a fast reliable
path to market for leading electronics companies
market conditions 2005 was another challenging year for the semiconductor industry though there were signs of gradual improvement in the second half
arm has performed well despite these conditions with our revenue growth doubling the overall growth in the industry both our royalty revenues and units
have increased significantly compared with previous years and quarteronquarter throughout 2005 overall licensing backlog remains healthy with backlog
relating to physical ip products at a record level at the end of the year 2006 is looking to have a more favourable backdrop though as always the company
is susceptible to the timing of new licenses through the year that said all indications are for a year of growth in dollar revenues in all areas of the business
as well as growing profitability the company has been robustly cash generative before investing activities with net cash inflows from operating activities
of £472 million giving rise to a yearend cash cash equivalents shortterm investments and marketable securities balance of £1609 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
2003 2004 2005
  
revenues
product revenues 882 907 937
service revenues 118 93 63
total revenues 1000 1000 1000
cost of revenues
product costs 48 44 83
service costs 38 33 26
total cost of revenues 86 77 109
gross profit 914 923 891
operating expenses
research and development 376 328 258
sales and marketing 179 157 147
general and administrative 220 199 162
amortization of deferred stockbased compensation 04 06 42
inprocess research and development – 23 01
amortization of intangibles purchased through business combination – 04 75
total operating expenses 779 717 685
income from operations 135 206 206
interest net 37 45 23
minority interest 01 – –
income before income tax 171 251 229
provision for income taxes 70 68 49
net income 101 183 180
total revenues total revenues were £2324 million in 2005 an increase of 52 from £1529 million in 2004 which was a 19 increase from £1281 million
in 2003 dollar revenues were 4187 million in 2005 an increase of 54 from 2724 million in 2004 which was an increase of 32 over the 2065
million in 2003 the actual average dollar exchange rate in 2005 was 180 compared with 178 in 2004 this had the effect of reducing total reported
revenues by approximately £28 million the figures for 2004 and 2003 do not include revenues for the artisan business acquired in december 2004 if
these were included dollar revenues increased by 18 in 2005 from the pro forma 3555 million in 2004 of the combined arm and artisan businesses
product revenues product revenues consist of license fees sales of development systems and royalties product revenues for 2003 2004 and 2005 were
£1130 million £1387 million and £2177 million representing 88 91 and 94 of total revenues respectively
license revenues increased from £508 million in 2003 to £594 million in 2004 and increased further to £1042 million in 2005 representing approximately
40 39 and 45 of total revenues in 2003 2004 and 2005 respectively 
arm annual report and accounts 2005 79
operating and financial review and prospectsus gaap having grown license revenues by 27 and 19 in 2004 and 2005 respectively arm enters 2006 well placed to maintain momentum in processor licensing
the portfolio of licensable products comprises a rich mix of wellproven arm technology such as the arm7 and arm9 families of products products introduced
in recent years which are still in the early stages of their licensing life cycle such as the arm11 family of products and the first three cortex family products
which have already been licensed by lead partners and which will be available for general licensing in 2006
71 new licenses were signed in 2005 compared to 65 in 2004 and 51 in 2003 arm11 accounted for 21 of license revenues in 2005 compared to 17 in
2004 and 10 in 2003 32 companies became new arm partners in 2005 bringing the total number of semiconductor partners to 172 at the end of 2005
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
in october 2005 we formally launched the cortexa8 processor the industry’s fastest embedded processor to date and the first complete processing solution
comprising a broad portfolio of arm technology to reduce timetomarket the awardwinning cortexa8 processor is expected to revolutionize consumer and
lowpower mobile devices enabling the delivery of higher levels of entertainment and innovation to end users its performance and power utilization
characteristics make it ideal for demanding consumer products running multichannel video audio and gaming applications the exceptional speed and power
efficiency of the cortexa8 processor is enabled by new arm artisan libraries supporting technologies such as intelligent energy manager iem additionally
the new processor features arm trustzone technology for secure transactions the arm trustzone software application program interface api is gaining
wide industry endorsement and quickly becoming a standard foundation for the implementation of security functions such as digital rights management
device protection and payment
the cortexm3 processor has been licensed to four lead partners to date initial product deliveries were successfully made to the lead partners in q4 2005
and the product is now available for mainstream licensing test silicon for the cortexm3 processor has been received and is exhibiting higher performance
and smaller size characteristics than initially expected the cortexm3 processor is specifically designed to meet the requirement for high system
performance in microcontrollers and other very costsensitive embedded applications such as automotive products and white goods the microcontroller
market has traditionally been serviced by 8 and 16bit devices but it has seen a substantial increase in performance requirements as users demand greater
flexibility based in software and as cost pressures drive the consolidation of applications on to a single device the cortexm3 processor with multiple
technologies to reduce memory use whilst delivering industryleading power and performance provides an ideal platform both to accelerate the migration
of thousands of applications from legacy components to 32bit microcontrollers and for use in such products as ultra lowcost mobile handsets
the third cortex family product available for mainstream licensing in 2006 currently codenamed “servale” has been licensed by two lead partners to date
arm’s servale nextgeneration processor for deeplyembedded applications is expected to be available for mainstream licensing in the first half of 2006
license revenues from noncore products covering items such as platforms peripherals embedded trace modules embedded software data engines
models and subsystems increased in 2005 to £111 million from £105 million in 2004 and £89 million in 2003 representing approximately 16 of license
revenues in 2005 18 in 2004 and 18 in 2003
2005 saw the first synergistic benefits from the combination of arm and artisan both in terms of revenue and technology collaboration with a total of seven
synergistic revenue deals signed in 2005 synergistic deals include both instances of physical ip being licensed to arm partners and instances of contracts
being won against the competition due to both processor and physical ip being available from arm arm’s physical ip division pipd reported license
revenues of £348 million in 2005 representing approximately 33 of total license revenues
in the first half of 2005 arm introduced the first innovative business model to result from the combination of arm and artisan with the announcement 
on 11 april 2005 of the launch of the arm designstart programme a potentially significant broadening of the reach of arm’s existing foundry programme
which allows developers access to the arm7tdmi processor for the tsmc umc smic and chartered semiconductor process technologies at no initial charge
by leveraging the webbased distribution channel developed by artisan developers are able to gain early access to arm technology to complete the design
process all the way through to chiplevel verification once the design is finished and ready for fabrication a singleuse design license can be purchased
from arm to receive a full set of deliverables enabling tape out and manufacture at any of the supported foundries
as well as the cortexa8 processor we are already developing other products which benefit from the integration of processor and physical ip  in january
2006 we unveiled a groundbreaking high performance implementation of the arm1176jzfs processor enhanced with the arm artisan advantage cell
library and memories which achieves a frequency of more than 750 mhz in a highperformance 90nm foundry process while occupying less than 24 mm
2
of silicon area this represents a significant performance increase through a combination of collaborative design advanced physical ip and process
technology the optimized implementation delivers an industryleading performance for existing applications and operating systems without the need for
expensive software redesign or recompilation further the ongoing collaboration between pipd and arm’s fabric ip business unit yielded fruit in the fourth
quarter of 2005 with the first 130nm test chip with combined ddr and primecell peripherals being received back from the fab and working first time
revenues from the sale of development systems increased from £179 million in 2003 to £197 million in 2004 to £257 million in 2005 representing
approximately 14 13 and 11 of total revenues in 2003 2004 and 2005 respectively this growth has been generated by working with customers on
longer term relationships for the supply of realview® developer tools for software development continued momentum behind the realview create tools
for electronic system level design tools “esl” customers and a buoyant market place for tools to support the broad portfolio of arm microprocessors
development systems has entered into more multiyear contracts for larger product volumes which improves the visibility of business going forward and
builds a good customer base from which to drive new innovation
following the acquisition of axys in august 2004 arm has further strengthened its development systems business with the acquisition of two microcontroller
tools suppliers in october 2005 namely keil elektronik gmbh and keil software inc these acquisitions enable arm to benefit even further from the accelerating
growth in the 32bit microcontroller market and provides the company access to a welldeveloped channel through which to sell microcontroller toolkits in
order to address the much larger customer base associated with this market
80 arm annual report and accounts 2005
operating and financial review and prospectsus gaapcontinued 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 £443 million in 2003 to £596 million in 2004 and increased further to £878 million in 2005 representing 34 39
and 38 of total revenues in 2003 2004 and 2005 respectively the 2005 revenues are split £725 million from the processor division royalties and £153
million from the physical ip division volume shipments increased from 782 million units in 2003 to 1272 million in 2004 with the increase in volumes
coming from all market segments especially consumer entertainment and storage products total unit shipments in 2005 of 1662 million were 31 up on
2004 unit shipments in the mobile segment grew by 23 yearonyear and in the nonmobile segments by 46 growth in the nonmobile segments was
achieved across a broad range of product applications including hard disk drives games consoles smart cards printers dvd players flash memory products
digital still cameras wifi chipsets and automotive products
the company expects royalty revenues to grow yearonyear 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 2005 was 68 after taking into account corporate activity within the arm partnership
19 companies are paying royalties for physical ip products at the end of the year royalties within pipd have demonstrated market share growth against the
backdrop of a difficult year for the foundries
service revenues service revenues consist of design consulting services and revenues from support maintenance and training service revenues decreased
from £151 million in 2003 to £142 million in 2004 but grew to £147 million in 2005 representing 12 9 and 6 of total revenues in 2003 2004 and
2005 respectively the decrease in 2004 was primarily due to foreign exchange as the majority of revenues for the business are in us dollars and service
revenues for 2003 2004 and 2005 grew from 245 million to 251 million to 265 million respectively 
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 2005 was 43 of revenues coming from the us 18 from japan 25 from asia
pacific excluding japan and 14 from europe in 2004 revenues from the us represented 51 japan 21 asia pacific excluding japan 13 and europe
15 in 2003 revenues from the us represented 51 japan 19 asia pacific excluding japan 12 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 crosslicense payments to collaborative partners and time of engineers on pipd projects product costs were £62 million in 2003
£67 million in 2004 and £193 million in 2005 representing 5 4 and 8 of total revenues in 2003 2004 and 2005 respectively the large increase in
product costs in 2005 is as a result of the pipd direct costs of revenue namely the associated engineering time spent on revenueprojects approximately
twothirds of total product cost of sales were made up of development systems costs in both 2004 and 2003 with the balance comprising additional costs
related to the costs of thirdparty licenses and crosslicense payments to collaborative partners in 2005 the proportion of development systems costs fell 
to approximately a quarter pipd direct costs approximately twothirds and the balance thirdparty licenses and crosslicense payments product gross margin
in 2005 was 91 compared to 95 in 2004 and 95 in 2003 in 2005 product gross margin in the company excluding pipd was 96 and for pipd was
75 the company does not currently expect a significant increase in product costs in 2006
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 increased from £49 million in 2003 to £51 million in 2004 and £61 million in 2005 the gross
margins earned on service revenues were approximately 68 in 2003 64 in 2004 and 59 in 2005 whilst services revenues have remained relatively flat
in 2004 and 2005 costs have increased as the business invests more into the engineering departments a proportion of which is allocated to services costs
research and development costs research and development costs increased from £481 million in 2003 to £501 million in 2004 to £601 million in 2005
representing 38 33 and 26 of total revenues in 2003 2004 and 2005 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 442 at the end of 2003 to 739 at the end of 2004 the increase in 2004 was due to the acquisitions of both
artisan and axys as well as some growth within the existing business engineering headcount at the end of 2005 was 846 with the increases coming from
organic growth predominantly in india but in all locations around the world as well as from the keil acquisitions
sales and marketing sales and marketing expenditure increased from £230 million in 2003 to £239 million in 2004 and was £341 million in 2005
representing 18 of total revenues in 2003 16 in 2004 and 15 in 2005 headcount in this area increased from 203 at 31 december 2003 to 282 at the
end of 2004 and was 297 at the end of 2005 most of the growth in 2004 came from the acquisitions but there was also growth with new offices opening
in bangalore india and beijing pr china the total number of offices with sales people is currently 22 and this enables improved contact with the
company’s geographically diverse customer base 
general and administrative general and administrative headcount at 31 december 2005 was 181 up from 150 at the end of 2004 and 95 at the end 
of 2003 again the majority of the increase in 2004 came from the acquisitions whilst the increase in 2005 has come partly from acquisitions but also
organic growth to strengthen the infrastructure of the company as it continually expands general and administrative costs were £281 million in 2003
£304 million in 2004 and £376 million in 2005 representing 22 20 and 16 of total revenues respectively costs in 2005 include £03 million of
impairments made to investments 2003 £16 million 2004 £nil litigation costs were £91 million in 2003 £51 million in 2004 and £04 million in 2005
fluctuations arising largely as a result of annual variations in the amount of legal expenses relating to patent protection cases and other similar costs legal
costs in 2003 were particularly high due to the provision 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 were £05 million in 2005 a release
of £01 million in 2004 and a further release of £01 million in 2003 unrealized future foreign exchange gains on certain committed but not yet invoiced
future revenue streams of £21 million 2004 losses of £07 million 2003 losses of £11 million were recorded in accordance with sfas 133 there was a
gain on foreign exchange of £09 million in 2003 but losses of £15 million and £23 million in 2004 and 2005 respectively see “foreign currency
fluctuations” below
arm annual report and accounts 2005 81 amortization of deferred stockbased compensation deferred stockbased compensation arises on the companys saye and ltip schemes see accounting
for stockbased compensation in note 1 to the financial statements below and the amortization of charges deferred on new options granted as part of the
acquisition of artisan the compensation cost in relation to the saye options amounted to £417000 in 2005 2004 £341000 2003 £310000 in relation to
the ltip scheme of £3814000 2004 £619000 2003 £241000 and in respect of the artisan assumed options of £5496000 2004 £nil 2003 £nil
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 a further £03 million of artisan inprocess research and
development was charged to the income statement in 2005 as the final valuation of intangibles was completed all acquired inprocess research and
development from the axys and artisan acquisitions are progressing as expected with some still incomplete as at 31 december 2005
amortization of intangible assets various licenses to use third party 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
licenses totaling £47 million were purchased during 2001 to 2004 with amortization of these licenses amounting to £05 million in 2005 2004 £05 million
2003 £12 million a further license for £10 million was purchased in 2005 and is being amortized over five years with £03 million being charged in 2005
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 
and £20 million in 2003 2004 and 2005 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 2003 2004 and 2005
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 2005 and 2004 was £01 million in each year 2003 less than £01 million during 2004 the company purchased axys design
automation inc and artisan components inc now arm physical ip inc intangibles acquired and capitalized as part of these business combinations totaled
£19 million and £709 million respectively and are being amortized 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 and during 2005 was £04 million and 
£165 million 
during 2005 the company purchased keil elektronik gmbh and keil software inc intangibles acquired and capitalized consisted of developed technology
customer relationships and tradenames and totaled £87 million these are being amortized between two and five years and the amortization during 2005
totaled £04 million
interest interest receivable increased from £48 million in 2003 to £69 million in 2004 but fell to £53 million in 2005 the growth in interest in 2003 and
2004 was due to higher average cash balances and increasing interest rates but fell in 2005 as a result of the cash outflow at the end of 2004 for the
acquisition of artisan the company invested cash balances over periods of up to one year during 2005 although most were for periods less than six months
income before income tax income before income tax was £220 million in 2003 £385 million in 2004 and £532 million in 2005 representing 17 25
and 23 of total revenues respectively the increased margin in 2004 was due to higher revenue and continued cost control and would have been higher
without nonrecurring and acquisitionrelated charges of £97 million during the year comprising £45 million of a nonrecurring technology license charge
£36 million of inprocess research and development writeoff £06 million of business combination intangible amortization and £10 million of deferred
stockbased compensation similarly the primary reason for the fall in margin in 2005 was due to acquisitionrelated charges inprocess research and
development of £03 million and £174 million of business combination intangible amortization and deferred stockbased compensation of £104 million
tax charge the company’s effective tax rates were 407 in 2003 272 in 2004 and 213 in 2005 the effective tax rate fell in 2004 with additional
costs being allowable for research and development tax credits additional deferred tax credits arising from employee share options and some of the non
cash accounting charges being claimed in 2004 it fell further in 2005 primarily as a result of benefits arising from the structuring of the artisan acquisition
liquidity and capital resources the company’s operating activities provided net cash of £387 million £465 million and £472 million in 2003 2004 and
2005 respectively 
accounts receivable fell by £45 million in 2003 but increased by £14 million in 2004 and £212 million in 2005 this is partly due to the overall increasing
revenues earned in the periods leading up to the end of the respective years and also partly due to foreign exchange translation of the underlying dollar
balances prepaid expenses fell by £28 million in 2003 increased by £34 million in 2004 and fell by £14 million in 2005 the company entered into
several leases for design automation tools during 2002 which resulted in an initial 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 under which amounts representing prepaid royalties will be released over the next several years the fall in 2005 reflected
this amortization
accounts payable reduced by £25 million in 2003 increased in 2004 by £12 million but were £19 million lower in 2005 this is purely related to the timing
of receipt of supplier invoices in the respective years accrued liabilities increased by £70 million in 2003 increased by a further £28 million in 2004 but fell
by £56 million in 2005 the significant increase in 2003 was primarily as a result of the accrual 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 further payments on a technology license agreement signed in the
year these have fallen in 2005 as some payments on the technology license agreement have been made in addition accrued employee compensation was
lower in 2005 than in 2004
82 arm annual report and accounts 2005
operating and financial review and prospectsus gaapcontinued at 31 december 2005 the company recorded approximately £204 million in deferred revenues which represented cash or receivables scheduled to be
recognized as revenues in varying amounts after 31 december 2005 at 31 december 2004 and 31 december 2003 the company recorded approximately
£214 million and £111 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 though was 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
2005 was £61 million compared with £50 million in 2004 and £36 million in 2003 capital expenditure increased in 2004 with increases in both levels 
of staff and a new it system being designed and implemented during the year this continued into 2005 as staff levels increased and general operational
assets were replaced
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 renamed arm belgium nv for total consideration of £04 million
in 2004 the company acquired the entire share capitals of 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 cash acquired with these businesses
amounted to £827 million
in 2005 the company made final payments relating to acquisition costs for artisan of £144 million as well as £17 million of contingent consideration from
the axys acquisition as a result of performance conditions being achieved a further £43 million net of cash acquired was paid for the acquisitions of keil
elektronik gmbh and keil software inc 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 2003 the company invested a further £12 million in superscape group plc as part of a further funding round thus maintaining its 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 both
companies in 2005 £03 million was invested via convertible loan notes in luminary micro inc a small unlisted company
during 2005 the company initiated a share buyback program to supplement dividends in returning surplus funds to shareholders during 2005 the company
bought back over 139 million shares at a total cost of £162 million dividends totalling £104 million were also paid to shareholders during the year 2004
£90 million share option exercises during the year gave rise to £139 million cash inflow to the company compared to £13 million in 2004
cash cash equivalents short and longterm investment and marketable securities balances at 31 december 2005 were £1609 million compared to 
£1428 million at 31 december 2004 and £1598 million at 31 december 2003
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 risk 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 46 million in 2003 51 million in 2004 and 43 million in 2005 the company also uses currency options as a further translation instrument
for limited proportions of its dollar exposure the fair values of the financial instruments outstanding at 31 december 2003 2004 and 2005 are disclosed 
in note 15 to the financial statements the settlement period of the forward contracts outstanding at 31 december 2005 is between 12 january 2006 and
29 march 2006 the settlement period of the option contracts outstanding at 31 december 2005 is between 10 january 2006 and 27 december 2006
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 and
the japanese yen for 2005 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 2005 2004
and 2003 using a modeling 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 2005 2004 and 2003
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 £39 million at 31 december 2005 2004 £86 million 2003 £07 million
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 2005 83 2003 2004 2005 2005
£000 £000 £000 000
revenues
product revenues 112958 138732 217711 373766
service revenues 15112 14165 14728 25285
total revenues 128070 152897 232439 399051
cost of revenues
product costs 6171 6735 19265 33074
service costs 4851 5064 6093 10460
total cost of revenues 11022 11799 25358 43534
gross profit 117048 141098 207081 355517
operating expenses
research and development 48131 50133 60051 103096
sales and marketing 22960 23935 34102 58546
general and administrative 28101 30371 37558 64480
amortization of deferred stockbased compensation 551 960 9727 16699
inprocess research and development – 3612 335 575
amortization of intangibles purchased through business combination 42 576 17391 29857
total operating expenses 99785 109587 159164 273253
income from operations 17263 31511 47917 82264
interest net 4801 6944 5317 9128
minority interest 105 – – –
income before income tax 21959 38455 53234 91392
provision for income taxes 8943 10478 11354 19492
net income 13016 27977 41880 71900
net income 13016 27977 41880 71900
other comprehensive income
foreign currency adjustments 1425 421 58561 100537
unrealized holding gainloss on availableforsale securities
net of tax benefit of £981000 
2004 tax charge of £1631000 2003 tax charge of £446000 1979 4196 2316 3976
total comprehensive income 13570 31752 98125 168461
basic earnings per common share 13p 27p 31p
diluted earnings per common share 13p 27p 29p
 us dollar amounts have been translated from sterling at the 31 december 2005 closing rate of £1  17168 and are unaudited see footnote 1
all activities relate to continuing operations
the accompanying notes are an integral part of the financial statements
84 arm annual report and accounts 2005
consolidated statements of income and comprehensive incomeus gaap
for the years ended 31 december 2004 2005 2005
£000 £000 000
assets
current assets
cash and cash equivalents 110561 128077 219883
shortterm investments 5307 23990 41186
marketable securities 21511 8835 15168
accounts receivable net of allowances for doubtful debts
of £2173000 2004 £1451000 see footnote 10 34347 55518 95313
inventory finished goods 897 1490 2558
prepaid expenses and other assets 16001 12567 21575
total current assets 188624 230477 395683
longterm marketable securities 5438 ––
deferred income taxes 2529 4422 7591
prepaid expenses and other assets – 1674 2874
property and equipment net 14117 12803 21980
goodwill 340416 385572 661950
other intangible assets 74578 72345 124202
investments 12235 8800 15108
total assets 637937 716093 1229388
liabilities and shareholders’ equity
current liabilities
accounts payable 4110 2221 3813
income taxes payable 6345 10826 18586
personnel taxes 1123 1329 2282
accrued liabilities see footnote 11 38600 25024 42961
deferred revenue 21355 20354 34944
total current liabilities 71533 59754 102586
accrued liabilities 1732 ––
deferred income taxes 12345 7289 12513
total liabilities 85610 67043 115099
contingencies and commitments see footnote 13
shareholders’ equity
ordinary shares £00005 par value 2200000000 authorized
2004 2200000000 1386102680 issued 2004 1350786975 675 693 1190
additional paidin capital 414133 425252 730073
deferred compensation 12083 4404 7561
treasury stock at cost 17751107 ordinary shares 2004 5713034 7485 16315 28010
retained earnings 153421 183913 315742
accumulated other comprehensive income
unrealized holding gain on availableforsale securities net of tax
of £1096000 2004 £2077000 6175 3859 6625
cumulative translation adjustment 2509 56052 96230
total shareholders’ equity 552327 649050 1114289
total liabilities and shareholders’ equity 637937 716093 1229388
 us dollar amounts have been translated from sterling at the 31 december 2005 closing rate of £1  17168 and are unaudited see footnote 1
the accompanying notes are an integral part of the financial statements
arm annual report and accounts 2005 85
consolidated balance sheetsus gaap
at 31 december 2003 2004 2005 2005
£000 £000 £000 000
cash flows from operating activities
net income 13016 27977 41880 71900
adjustments to reconcile net income to net cash 
provided by operating activities
depreciation and amortization of tangible and intangible assets 16292 13124 28060 48173
writeoff of inprocess research and development – 3612 335 575
stock option compensation 551 960 9727 16699
deferred income taxes 1248 1281 ––
provision for doubtful accounts 1078 321 722 1240
provision for slowmoving inventories – – 22 38
accounts receivable converted to trade investments – 112 ––
amount written off investments 1560 – 337 579
other 99 20 16 27
changes in operating assets and liabilities
accounts receivable 4536 1358 21247 36477
inventory 584 34 519 891
prepaid expenses and other current assets 2806 3370 1446 2482
accounts payable 2468 1176 1931 3315
income taxes payable 278 158 3093 5310
deferred revenue 3397 3013 2043 3507
accrued liabilities and other creditors 6991 2771 5569 9561
personnel taxes 223 76 963 1653
net cash provided by operating activities 38745 46479 47180 80999
cash flows from investing activities
purchase of equipment 1574 3933 5956 10279
purchase of leasehold improvements 1737 1397 108 132
sale of equipment 34 23 37 63
purchase of patent and licenses 655 65 ––
purchase of investments 1152 50 274 470
sale of investments –– 96 165
purchasematurity of shortterm investments 29064 24677 569 977
purchase of subsidiaries and businesses net of cash acquired 3390 77899 20304 34858
net cash used in investing activities 37538 58644 27078 46488
cash flows from financing activities
cash received on issue of shares on exercise of share options 255 1311 13083 22461
proceeds received on issuance of shares 263 2 838 1439
expenses of issuing share capital – 360 ––
purchase of own shares – – 16211 27831
payment of dividends – 8975 10436 17917
net cash provided byused in financing activities 518 8022 12726 21848
effect of foreign exchange on cash and cash equivalents 1307 26 10140 17408
net increasedecrease in cash and cash equivalents 418 20161 17516 30071
cash and cash equivalents at beginning of the period 130304 130722 110561 189811
cash and cash equivalents at end of the period 130722 110561 128077 219882
supplemental disclosure of cash flow information
cash paid for income taxes 9925 11601 14447
cash received on interest 4930 7233 5444
 us dollar amounts have been translated from sterling at the 31 december 2005 closing rate of £1  17168 and are unaudited see footnote 1 
the accompanying notes are an integral part of the financial statements
86 arm annual report and accounts 2005
consolidated statements of cash flowsus gaap
for the years ended 31 december arm annual report and accounts 2005 87
consolidated statements of changes in shareholders’ equityus 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 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 disqualifying 
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 issued 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 disqualifying 
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
shares issued on exercise 
of options 35315705 18 13065 – – – – – 13083
net income – – – – 41880 – – 41880
dividends – – – – 10436 – – 10436
unrealized holding losses
on availableforsale securities – – – – – 2316 – 2316
tax effect of disqualifying
dispositions – 370 – – – – – 370
deferred compensation
arising on share schemes – 3290 3290 – – – – –
tax benefits on exercise 
of options issued as part 
consideration for a business
combination – 1227 – – – – – 1227
amortization of deferred
compensation – – 9727 – – – – 9727
reversal of unearned
compensation – 1242 1242 – – – – –
issuance of shares from
treasury – 5591 – 7381 952 – – 838
purchase of own shares – – – 16211 – – – 16211
currency translation
adjustment – – – – – – 58561 58561
balances 31 december 2005 1386102680 693 425252 4404 16315 183913 3859 56052 649050
 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 2005 such
distributable profits amounted to £15382000
the accompanying notes are an integral part of the financial statements 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 physical ip 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
group 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 axys design automation inc incorporated in the us keil software inc incorporated in the us acquired during 2005 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 germany gmbh incorporated in germany renamed during 2005 keil elektronik gmbh incorporated in germany acquired during 2005
arm embedded technologies pvt limited incorporated in india renamed during 2005 arm physical ip asia pacific pte limited incorporated in singapore
renamed during 2005 arm taiwan limited incorporated in taiwan and arm consulting shanghai co limited incorporated in pr china all entities are
100 owned
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 2005 consolidated financial statements have been translated from sterling at the closing rate on 31 december 2005 of £100  17168 
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
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 available for sale in accordance with statement of financial accounting standards sfas no115
“accounting for certain investments in debt and equity 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 2005 and 2004
the estimated fair value of these investments approximated their recorded basis based on estimates determined by management 
during 2002 and 2003 the company made investments in superscape group plc a company listed on the london stock exchange the approximate holding
at 31 december 2005 is 8 in 2004 the company made a less than 1 investment in zeevo inc and a less than 3 investment in reciva limited in
2005 the company made an investment by way of convertible loan notes in luminary micro inc
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 
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 is 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 this goodwill together with goodwill arising on acquisitions since 2002 will be tested for impairment at least
annually an annual impairment review in 2005 determined that there was no indication of impairment with respect to goodwill the estimates of future
cash flows involve considerable management judgement and are based on assumptions about expected future operating performance the actual cash
flows could differ from managements estimates due to changes in business conditions operating performance and economic conditions 
88 arm annual report and accounts 2005
notes to the financial statementsus gaap 1 the company and a summary of its significant accounting policies continued
in accordance with sfas 131 disclosures about segments of an enterprise and related information the company has identified its operating segments
based on the information used by the chief operating decision maker in monitoring the business for the purposes of assessing the carrying value of
goodwill for impairment goodwill has been allocated to reporting units based on the nature and extent of discrete information available to management
the company believes that for arm each operating segment consists of a single reporting unit goodwill has been allocated to the two reporting units on
the “with and without” basis in accordance with sfas 142
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 would be 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 may be 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 validation of the customer’s armcompliant product is between six and 15 months upgrades or modifications to the licensed
ip are not provided following validation of the customer’s armcompliant product 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 percentageofcompletion method over the period from signing of the license to validation of the customer’s armcompliant product and the
completion of all outstanding obligations the amount of revenue recognized is based on the total license fees under the license agreement or that portion
of the total license fees which is determined to be fixed or determinable in arrangements involving extended payment terms and the percentageof
completion achieved those amounts that are not deemed fixed or determinable at the outset of the arrangement are recognized as the payments become
due where an arrangement is for multiple elements each requiring significant production modification or customization the company evaluates whether
the bifurcation criteria of sop 811 are met and if so the total arrangement fee is allocated accordingly the percentageofcompletion 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 estimates of total project requirements are based on prior experience of customization delivery and
validation of the same or similar technology and are reviewed and updated regularly by management under the percentageofcompletion 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 or determinable and collection of the resulting receivable is probable where
arrangements include multiple elements the revenue recognition criteria for each element are typically met within the same accounting 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 and certain recharacterization services
undertaken by the company’s physical ip division the company does not currently believe it has sufficient vsoe to make such allocations accordingly no
revenue is recognized on arrangements where deliverables other than pcs and those recharacterization services that are deemed to provide vsoe of their
fair value remain outstanding
license fees are considered fixed or determinable if they are not dependent on customers completing specific milestones and they are not subject to extended
payment terms ie the payment terms do not extend over a substantial period when compared to the payment terms in similar license arrangements and
when compared with the licensed products’ life cycles if all the fees in an arrangement are deemed to be fixed or determinable the company recognizes
revenue when all other revenue recognition criteria have been met the excess of revenue recognized in respect of such fees over fees invoiced is recorded
as an accrued revenue asset where an arrangement includes fees that are not deemed fixed or determinable revenue from the arrangement is recognized
as the payments become due and the excess of fees invoiced over revenue recognized in respect of such fees is recorded as a deferred revenue liability
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
arm annual report and accounts 2005 89 1 the company and a summary of its significant accounting policies continued
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 while some arrangements with distributors provide very limited rights of return the companys
history is that actual returns are negligible and accordingly no provisions are deemed necessary
services such as consulting and training are typically sold in standalone arrangements where they are sold in conjunction with other deliverables and they
are not considered essential to the functionality of those other deliverables they are accounted for separately based on vsoe if vsoe has been established
revenue for these services is recognized as the services are performed and collectability is probable if vsoe for the services does not exist or the services
are deemed to be essential to the functionality of the other deliverables in the arrangement the entire arrangement fee is recognized as the services are
performed the excess of fees invoiced over revenue recognized in respect of such fees is recorded as a deferred revenue liability
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 longer term and more complex consulting projects typically containing several project
milestones where significant modification to arm corebased ip is required revenues are recognized on a percentageofcompletion basis as milestones 
are achieved this method approximates to percentageofcompletion based on labor inputs
royalty revenues are earned on sales by the company’s customers of products containing arm technology revenues are recognized when the company
receives notification from the customer of product sales or receives payment of any fixed royalties notification is typically received in the quarter following
shipment of product by the customer
where the company enters into more than one agreement with the same customer in the same short time frame an assessment is made to establish
whether the group of agreements is so closely related that they effectively form a single multipleelement arrangement the factors considered in making
this assessment include but are not limited to
– whether the different elements are closely interrelated or interdependent in terms of design technology or function
– whether the fee for one or more of the agreements is subject to a refund or forfeiture or other concession if one of the other contracts is not completed
satisfactorily
– whether one or more elements in one agreement are essential to the functionality of an element in another agreement
– whether payment terms under one agreement coincide with performance criteria of another agreement and
– whether the negotiations are conducted jointly with two or more parties to do what in essence is a single project
where the company enters into a license arrangement in exchange for a license to the customers 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 of
engineers and associated staff relevant eda tools costs and other directly related expenditure such as contractors as well as a proportion of central facilities
costs the facilities costs for each office are allocated according to the proportion of employees in engineering functions within these offices
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 2005 were £nil 2004 £338000 2003 £226000 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 2003 2004 and 2005 were £1848000 £2067000 and £3371000 respectively
loss contingencies the company accrues an estimated loss contingency when it is probable that an asset has been impaired or a liability has been incurred
and the amount of the loss can be reasonably estimated 
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 either shortterm investments when invested on deposit with major clearing banks or shortterm marketable
securities when custodied with major financial institutions any investments with a maturity date of greater than one year are classified as longterm
marketable securities
90 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued arm annual report and accounts 2005 91
1 the company and a summary of its significant accounting policies continued
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 write off 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
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
the company utilizes forward exchange contracts and currency options 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 and option 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 fair value of derivative instruments are disclosed within either prepaid expenses and other assets or accrued liabilities on
the balance sheet and within net cash provided by operating activities in the cash flow 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 unpaid 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 2005 the gain on exchange is £2101000 2004 loss £732000 2003
loss £1141000
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 2005 excludes incremental shares of approximately 39614000 2004 38143000 2003 18948000 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 £417000 2004 £341000 2003 £310000 in
respect of the ltip of £3814000 2004 £619000 2003 £241000 and in respect of stock options issued as part of a business combination of £5496000
2004 £nil 2003 £nil is reflected in net income approximately £32 million of the charge for the ltip in 2005 was due to an increase in the number of
awards that were expected to vest predominantly from the 2003 scheme due to an improvement in the company’s total shareholder return compared to the company and a summary of its significant accounting policies continued
the comparator groups in the year 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
2003 2004 2005
£000 £000 £000
net income
as reported 13016 27977 41880
deduct total stockbased compensation expense determined under fair
valuebased method for all awards net of related tax effects 15794 12546 20120
add back total stockbased compensation expense determined under 
the intrinsic valuebased method net of related tax effects 551 960 7928
pro forma net lossincome 2227 16391 29688
basic earningsloss per common share pence
as reported 13p 27p 31p
pro forma 02p 16p 22p
diluted earningsloss per common share pence
as reported 13p 27p 29p
pro forma 02p 16p 21p
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 2005 2004 and 2003 riskfree interest rate of 40 2004 between 40 and 45 2003 between 32 and 49 expected life of between
one and five years between 40 and 50 2004 between 44 and 96 2003 between 60 and 127 volatility and dividend yield of 07 2004
between 05 and 07 2003 nil the grant date fair value of options granted during 2005 ranged from £021 to £054 2004 £030 to £088 2003
£021 to £055
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 2005 is £417000 2004 £341000 2003
£310000 the deferred compensation at 31 december 2005 was £329000 2004 £599000 2003 £1081000 
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
2005 as a result of these provisions is £206000 2004 £115000 2003 £109000 the number of options to which variable accounting applies is
approximately 867000 2004 908000 2003 950000
the company has an ltip on which it is also required to recognize a compensation charge 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 share awards during 2005 a charge of £3814000 2004 £619000 2003
£241000 was incurred and deferred compensation at 31 december 2005 was £1233000 2004 £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 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 during 2005 a charge of £5496000 was incurred and
deferred compensation at 31 december 2005 was £2842000 2004 £9579000
treasury stock treasury stock represents the cost of shares in the company held by the company the employee benefit trust esop and the quest
during 2005 to supplement the payment of dividends to shareholders the company began a rolling share buyback programme under the shareholder
authority conferred at the 2005 annual general meeting the quantum and frequency of share repurchases is not predetermined and will take into account
prevailing market conditions the shorttomediumterm cash needs of the business and the level of employee sharebased remuneration going forward 
92 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued arm annual report and accounts 2005 93
1 the company and a summary of its significant accounting policies continued
in 2005 a total of 13868000 shares were repurchased in the market at a cost of £16211000 at 31 december 2005 there were 12751107 shares in the
company still held from these purchases with a market value of £15429000
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
7760881 shares could be awarded from shares already issued within the esop and treasury stock held by the company the market value of unearned
shares at 31 december 2005 was £6050000
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
the company also has a quest which was established to acquire new shares in the company for the benefit of employees and directors of the company
no shares were purchased in 2005 2004 or 2003 during 2005 713034 shares 2004 8046 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 following the allocations in 2005 the quest held no
further shares in the company and is in the process of being woundup
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 are recognized in the consolidated income statement when payable
recently issued accounting standards in december 2004 the financial accounting standards board fasb issued sfas no 123 revised 2004 sfas no
123r “sharebased payment” sfas no 123r will require the company to expense sharebased payments including employee stock options based on
their fair value 
sfas no 123r permits public companies to adopt its requirements using one of two methods the first adoption method is a “modified prospective”
method in which compensation cost is recognized beginning with the effective date i based on the requirements of sfas no 123r for all sharebased
payments granted after the effective date and ii based on the requirements of sfas no 123 for all awards granted to employees prior to the effective
date of sfas no 123r that remain unvested on the effective date the second adoption method is a “modified retrospective” method which includes the
requirements of the modified prospective method described above but also permits entities to restate based on the amounts previously recognized under
sfas no 123 for purposes of pro forma disclosures either i all prior periods presented or ii prior interim periods in the year of adoption 
arm is required to adopt sfas no 123r effective as of 1 january 2006 and plans to utilize the modified prospective method of adoption as permitted by
sfas no 123 the company currently accounts for sharebased payments to employees under apb no 25 using the intrinsic value method and as such
generally recognizes no compensation cost for employee stock options except the ltip and saye schemes accordingly the adoption of sfas no 123r’s fair
value method will have a significant impact on the company’s results of operations although it will have no impact on the company’s overall financial
position the impact of adoption of sfas no 123r cannot be predicted at this time because it will depend on levels of sharebased payments granted in the
future however had the company adopted sfas no 123r in prior years the impact of that adoption would have approximated the impact of sfas no 123
as described in the disclosure of pro forma net earnings and pro forma earnings per share sfas no 123r also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as currently presented this
requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption and upon adoption in 2006 the company
will restate its prior consolidated statements of cash flows to reflect this classification 
in december 2004 the fasb issued statement no 153 fas 153 “exchanges of nonmonetary assets” – an amendment of apb opinion no 29 “accounting 
for nonmonetary transactions” apb 29 fas 153 is based on the principle that nonmonetary asset exchanges should be recorded and measured at the
fair value of the assets exchanged with certain exceptions this standard requires exchanges of productive assets to be accounted for at fair value rather
than at carryover basis unless i neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or ii
the transactions lack commercial substance as defined in addition the fasb decided to retain the guidance in apb 29 for assessing whether the fair value 
of a nonmonetary asset is determinable within reasonable limits the new standard is the result of the convergence project between the fasb and the
international accounting standards board iasb we will adopt this standard for nonmonetary asset exchanges beginning in 2006 the adoption of fas 153
is not expected to have a significant impact on our consolidated financial statements
in march 2005 the fasb issued fin 47 “accounting for conditional asset retirement obligations” fin 47 which clarifies that the term “conditional asset
retirement obligation” as used in fasb statement no 143 “accounting for asset retirement obligations” sfas no 143 refers to a legal obligation to
perform an asset retirement activity in which the timing andor method of settlement are conditional on a future event that may or may not be within the
control of the entity fin 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated fin 47 was effective as of 31 december 2005 and has had no impact on the consolidated results
in may 2005 the fasb issued fasb statement no 154 “accounting changes and error corrections” a replacement of apb opinion no 20 and fasb statement
no 3 sfas no 154 previously apb no 20 “accounting changes” and sfas no 3 “reporting accounting changes in interim financial statements” required
the inclusion of the cumulative effect of changes in accounting principle in net income of the period of the change sfas no 154 requires companies to
recognize a change in accounting principle including a change required by a new accounting pronouncement when the pronouncement does not include
specific transition provisions retrospectively to prior periods’ financial statements arm will assess the impact of a retrospective application of a change 
in accounting principle in accordance with sfas no 154 when such a change arises after the effective date of 1 january 2006  94 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued
1 the company and a summary of its significant accounting policies continued
in november 2005 fasb finalized fsp fas 1151 “the meaning of otherthantemporary impairment and its application to certain investments” the fsp
provides guidance on the recognition of impairments deemed otherthantemporary fsp 1151 is effective for otherthantemporary impairment analysis
conducted in periods beginning after 15 december 2005 we believe that our current policy on otherthantemporary impairments complies with fsp 1151
accordingly the adoption of this standard will not have a material effect on the consolidated financial statements
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 international
financing reporting standards ifrs for consolidated accounts and accounting principles generally accepted in the united kingdom uk gaap for arm
holdings plc companyonly accounts they are prepared 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 subsections 2372
and 3 of the companies act for the years ended 31 december 2003 and 2004 have been and those for the year ended 31 december 2005 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 £33000 2004 £411000 2003 £nil and made crosslicense payments of £26000 2004 £14000 2003
£453000 to superscape group plc a company in which mike inglis is a nonexecutive director £nil 2004 £nil was owed to superscape at 31 december
2005 also during 2005 the company received license fees of £321000 2004 £209000 2003 £157000 and support and maintenance income of
£37000 2004 £37000 2003 £nil from csr plc a company in which john scarisbrick is an executive director £nil was owed by csr at 31 december 2005
2004 £nil
3 income taxes
income before income tax is analyzed as follows
year ended 31 december
2003 2004 2005
£000 £000 £000
united kingdom 16356 34569 47930
foreign 5603 3886 5304
21959 38455 53234
the provision for income taxes consisted of
year ended 31 december
2003 2004 2005
£000 £000 £000
current
united kingdom 8434 10619 15519
foreign 1447 1490 1430
total current 9881 12109 16949
deferred
united kingdom 1622 1171 1241
foreign 684 460 4354
total deferred 938 1631 5595
total provision for income taxes 8943 10478 11354
included in income tax payable is a current tax benefit of £370000 2004 £826000 2003 £656000 and a deferred tax credit of £6072000 2004 credit
of £311000 2003 charge of £310000 in relation to employee stock options such benefits are reflected as additional paidin capital
also included in the provision for income taxes is utilization of the deferred tax liability in relation to acquired intangibles of £6921000 2004 £188000
2003 £nil 3 income taxes continued
total income tax expense differs from the amounts computed by applying the uk statutory income tax rate of 30 for 2005 2004 and 2003 to income
before income tax as a result of the following
year ended 31 december
2003 2004 2005
£000 £000 £000
uk statutory rate 30 2004 30 2003 30 6588 11537 15970
permanent differences – other 1803 177 2527
amortization of intangibles – 188 1730
differences in statutory rates of foreign countries 92 231 45
other net 460 1279 314
8943 10478 11354
 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
2003 2004 2005
£000 £000 £000
fixed asset temporary differences 2844 5669 5214
temporary difference on availableforsale securities 446 2077 1096
nondeductible accruals and reserves 429 1592 1662
amounts relating to intangible assets arising on acquisition – 28571 28323
losses carried forward 815 13825 20042
total deferred tax assetsliabilities 3642 9562 2501
valuation allowance 503 254 366
net deferred tax assetsliabilities 3139 9816 2867
disclosed on the balance sheet within
year ended 31 december
2003 2004 2005
£000 £000 £000
assets 3139 2529 4422
liabilities – 12345 7289
net deferred tax assets  liabilities 3139 9816 2867
included in the amounts relating to intangible assets on acquisition is £20925000 2004 £22150000 relating to liabilities that are expected to accrue
after more than one year
uk income taxes have not been provided at 31 december 2005 on unremitted earnings of approximately £14958000 2004 £5670000 2003
£6891000 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 £2379000 2004 £1122000 2003 £347000 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
as at 31 december 2005 the company had federal net operating losses of £26808000 and a deferred tax asset thereon of £9115000 these losses begin
to expire in 2023
the company also had state net operating losses of £16816000 and a deferred tax asset of £808000 which begin to expire in 2013
in addition to the net operating losses the company also had unutilized federal rd tax credits of £4105000 which will begin to expire in 2012 and
unutilized state rd tax credits of £4388000 which have no expiration date
arm annual report and accounts 2005 95 96 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued
4 earnings per share
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
year ended 31 december 2005
income shares per share
£ number amount
net income 41880000
basic eps
income available to common stockholders 41880000 1369335202 31p
effect of dilutive securities
stock options 57701294
diluted eps 
income available to common stockholders plus assumed conversion 41880000 1427036496 29p
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 short and longterm
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 2003 2004 and 2005 no customers accounted for more than 10 of accounts receivable 
at 31 december 2004 and 2005 the companys cash cash equivalents short and longterm 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 up 
to two years
6 acquisitions
keil elektronik gmbh and keil software inc
on 27 october 2005 the company purchased the entire share capital of keil elektronik gmbh keg a company incorporated in germany for total
consideration of 109 million £61 million comprising 104 million cash consideration and 05 million of related acquisition expenses on the same day
the company purchased the entire share capital of keil software inc ksi a us company for total consideration of 52 million £29 million comprising
50 million cash consideration and 02 million of related acquisition expenses arm annual report and accounts 2005 97
6 acquisitions continued
the company has identified the mcu market as a critical growth area for the company’s future business and with this acquisition the company will be able
to accelerate progress in that market by offering a more complete solution as the mcu applications shift from 816bit to 32bit solutions the combination 
of the arm® cortex™m3 processor which was specifically designed for microcontroller applications the realview® highperformance compiler and keil’s
complementary mcu tools for arm will enable new generations of arm mcu solutions
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 23 million for keg and 10 million for ksi is potentially payable on the achievement of various postacquisition financial
milestones and will be accrued when payable keil is a leading independent provider of software development tools for the microcontoller mcu market
the operating results for keil have been included in these financial statements for the period from 27 october 2005 to 31 december 2005 the acquisition
was accounted for under sfas 141
the following table sets out the provisonal fair values of the assets acquired and liabilities assumed at the date of acquisition
keg ksi
fair value to company £000 £000
assets
cash and cash equivalents 2911 32
accounts receivable net 477 169
inventories 60 36
other debtors 11 5
property and equipment net 12 –
total assets acquired 3471 242
liabilities
accounts payable and other creditors 1593 19
accrued liabilities and deferred revenue 2280 62
total liabilities assumed 3873 81
net liabilities assumedassets acquired 402 161
the intangible assets recognized apart from goodwill represented contractual or other legal rights of keil and those intangible assets of keil that could be
clearly identified these intangibles were identified and valued through interviews and analysis of data provided by keil 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 keil clearly identifiable by management other than those identified below the provisional allocation of the
purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed was as follows
keg ksi
useful estimated life years £000 £000
fair value of net liabilitiesassets acquired 402 161
intangible assets acquired
customer relationships 23 4290 482
developed technology 15 2744 –
trade names 5 – 1175
deferred tax liability 2673 663
goodwill 2178 1764
purchase price 6137 2919
keg made a profit after tax for the year ended 31 december 2004 of £10 million and for the period from 1 january 2005 until acquisition a profit after tax
of £10 million ksi made a loss after tax for the year ended 31 december 2004 of £95000 and for the period from 1 january 2005 until acquisition a loss
after tax of £40000 the results of the company would not have been significantly different had the acquisition of keg and ksi occurred on 1 january 2005
axys design automation inc 
on 16 august 2004 the company purchased the entire share capital of axys design automation inc a us company for 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 was potentially
payable on the achievement of various postacquisition financial milestones these were achieved during 2005 and were accrued and paid during the year
axys is a provider of fast accurate integrated processor and system modeling and simulation solutions and adds electronic system level expertise to arm’s
design tools portfolio
the acquisition was accounted for under sfas 141 the operating results for axys have been included in these financial statements for the period 16 august
2004 to 31 december 2004 in the 2004 comparatives and for the entire year in 2005 98 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued
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 to company
£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
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 incomegenerating 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 
as at 31 december 2004 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 383
deferred tax liability 760
goodwill 4914
purchase price 6902
axys’ 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
as noted above a further 3 million consideration was paid during 2005 following the achievement of various postacquisition financial milestones as a
result total consideration and resultant goodwill increased by £1690000 during the year as reflected in note 9
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 industry’s
broadest portfolios of soc intellectual property to their extensive combined customer base with highly complementary sales channels combining arm’s
channel to more than 170 silicon manufacturers with artisan’s 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 acquisition was accounted for under sfas 141 the operating results for artisan have been included in these financial statements for the period 
23 december 2004 to 31 december 2004 in the 2004 comparatives and for the entire year in 2005
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 these provisional fair values were subsequently amended during 2005 as noted below
the shares issued in the acquisition were valued in accordance with emerging issues take 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 company’s ordinary shares two days before and after 23 august  arm annual report and accounts 2005 99
6 acquisitions continued
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 riskfree interest rate of 45 an estimated life of between zero and six years and dividend yield of 07
the following table sets out the provisional fair values of the assets acquired and liabilities assumed at the date of acquisition as reported in the 2004
annual report
fair value to company
£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 incomegenerating
ability there were no other contractual or other legal rights of artisan clearly identifiable by management other than those identified below the provisional
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 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 
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  6 acquisitions continued
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 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 sets 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 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
during 2005 the provisional fair values were adjusted resulting in an increase in the net assets acquired of 29 million £15 million with a corresponding
decrease to goodwill the principal adjustments were an increase to the deferred tax asset representing deductions arising on exercise of options issued in a
business combination in accordance with eitf0023 of £48 million an increase in intangible assets acquired including inprocess research and development
but net of deferred tax of £08 million a reduction in deferred tax assets relating to carried forward losses of £14 million and additional provisions for
unaccrued costs of £27 million see note 9 for subsequent revisions to acquired intangible assets on finalization of the purchase price allocation
7 investments and marketable securities
listed unlisted total
investments investments investments
£000 £000 £000
cost
at 1 january 2005 3340 3733 7073
additions – 274 274
disposal – 112 112
at 31 december 2005 3340 3895 7235
aggregate movements in fair value
at 1 january 2005 6922 1760 5162
unrealized holding losses 3267 – 3267
impairment charge – 337 337
disposal –77
at 31 december 2005 3655 2090 1565
carrying value
at 31 december 2005 6995 1805 8800
at 31 december 2004 10262 1973 12235
listed investments comprise investments of £2252000 and £688000 in superscape group plc and csr plc respectively with aggregate fair values at 
31 december 2005 of £6995000 2004 £10262000 2003 £4139000  
in 2004 the company invested £112000 in zeevo inc and £50000 in reciva limited both unlisted companies in 2005 the company invested £274000 
in luminary micro inc an unlisted company
impairments during 2005 against unlisted investments held at the year end amounted to £337000 2004 £nil 2003 £622000 and against listed
investments held at the year end amounted to £nil 2004 £nil 2003 £938000
at 31 december 2005 the company had £8835000 2004 £21511000 2003 £nil and £nil 2004 £5438000 2003 £nil of short and longterm
marketable securities respectively these represent both the fair market value and amortized cost of these securities
100 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued 8 property and equipment
31 december
2004 2005
£000 £000
owned buildings 190 190
leasehold improvements 21405 20058
computers 12291 17944
software 35787 36530
fixtures fittings and motor vehicles 3215 4176
72888 78898
less accumulated depreciation 58771 66095
property and equipment net 14117 12803
depreciation charged to income for the years ended 31 december 2003 2004 and 2005 was £12908000 £9927000 and £7750000 respectively
the net book value of software at 31 december 2005 was £3813000 2004 £5021000 with depreciation charged in 2005 on software of £1851000
2004 £4395000 2003 £6429000
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 2005 343736 8196 4864 19644 36889 11719 2590 1354 428992
additions keg 2178 – – 2744 4290 – – – 9212
additions ksi 1764 – – – 482 – 1175 – 3421
additions axys 1690 – – – – – – – 1690
other additions – – 1042 – – – – – 1042
revisions artisan 1542 – – 1004 1004 335 111 335 761
exchange differences 41066 – – 2260 4411 1401 349 175 49662
at 31 december 2005 388892 8196 5906 23644 47076 13455 4225 1864 493258
aggregate amortization
at 1 january 2005 3320 5877 4188 244 267 51 21 30 13998
charge for the year – 2137 782 4949 7414 2545 748 1735 20310
exchange differences – – – 308 430 153 43 99 1033
at 31 december 2005 3320 8014 4970 5501 8111 2749 812 1864 35341
net book value
at 31 december 2005 385572 182 936 18143 38965 10706 3413 – 457917
at 31 december 2004 340416 2319 676 19400 36622 11668 2569 1324 414994
amortization charged to income for the years ended 31 december 2003 2004 and 2005 was £3384000 £3197000 and £20310000 respectively
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
the split of goodwill by segment is shown in note 14 additions in the year relating to keg ksi and axys have all been allocated to the processor division
the foreign exchange difference arises as goodwill on artisan axys and ksi is denominated in us dollars and thus is subject to revaluation at the periodend
rates changes in the carrying amount for the year are as follows
processor division physical ip division total
£000 £000 £000
balance at 1 january 2005 108414 232002 340416
additions keg 2178 – 2178
additions ksi 1764 – 1764
additions axys 1690 – 1690
revisions artisan 956 2231 3187
exchange differences 13285 29426 42711
balance at 31 december 2005 126375 259197 385572
arm annual report and accounts 2005 101 9 intangible assets continued
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
five years and customer relationships relationships with customers which were generating revenue at acquisition over two years 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
2006 18634
2007 18519
2008 17077
2009 10216
2010 6780
10  accounts receivable
included within accounts receivable at 31 december 2005 are £205 million 2004 £59 million of amounts recoverable on contracts
11  accrued liabilities
included within accrued liabilities at 31 december 2005 are £nil million 2004 £143 million of acquisitionrelated expenses £07 million 
2004 £44 million for staff costs and £07 million 2004 £28 million representing the fair value of embedded derivatives
12  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
under the uk inland revenue executive approved share option plan the “executive scheme” the company may grant options to 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 exerciseable after three years otherwise they will become exerciseable 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
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 and arm
physical ip 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 and arm physical ip 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 2005 for all employees and executive directors of the company which have the same characteristics as those schemes set up 
in 1998
102 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued 12  shareholders’ equity continued
outstanding options
weighted average
shares exercise price
number £
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
granted in year 27127630 1051
lapsed in year 11027172 1110
exercised in year 37096283 0374
balances 31 december 2005 143023990 1014
the weighted average grantdate fair value of options granted during 2005 was £047 2004 £074 2003 £028
the weighted average exercise price of options exercisable at 31 december 2005 was £122 2004 £100 2003 £245
the following options over ordinary shares were in existence at 31 december
options outstanding options exercisable
2005 number weighted average weighted average number weighted average
exercise price £ outstanding remaining life years exercise price £ outstanding exercise price £
0026 – 040 22988380 531 026 21711264 026
0405 – 050 33861103 523 045 12148585 046
051 – 09475 26183870 649 068 7966134 066
1005 – 1224 31257471 480 109 6372494 122
125 – 7738 28733166 377 250 16232612 337
total 143023990 509 101 64431089 122
2004
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 7760881 2004 5003724 2003 2572646 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 esop and other treasury
shares
arm annual report and accounts 2005 103 13  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 2005 are as follows
operating leases
years ending 31 december £000
2006 6356
2007 4300
2008 3610
2009 2542
2010 2246
thereafter 11378
total minimum lease payments 30432
rental expense under operating leases totaled £8169000 £12627000 and £15809000 for the years ended 31 december 2003 2004 and 2005 respectively
in may 2002 nazomi communications inc “nazomi” filed suit against arm alleging willful infringement of nazomi’s us patent no 6332215 arm
answered nazomi’s complaint in july 2002 denying infringement arm moved for summary judgment and a ruling that the technology does not infringe
nazomi’s patent the united states district court for the northern district of california granted arm’s motion and nazomi appealed the district court’s ruling
on 7 september 2004 the court of appeals for the federal circuit heard the appeal and issued its decision on 11 april 2005 because in the opinion of 
the court of appeals for the federal circuit the district court did not construe the disputed claim term in sufficient detail for appellate review the court 
of appeals for the federal circuit remanded the dispute back to the district court for further analysis a supplementary “markman” hearing was held on 
11 october 2005 and we are presently awaiting the ruling of the district court 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
the total provision for such guarantees was £nil million on 31 december 2005 2004 £05 million and a table showing the movement of the provision
during the year is as follows
utilized in the
at 1 january provided in the year released in year through at 31 december
2005 on new claims the year cash payments 2005
£000 £000 £000 £000 £000
indemnification provision 520 – 520 – –
at 31 december 2005 arm had provided in aggregate £08 million 2004 £13 million in relation to legal matters being the expected future costs to be
incurred 
at 31 december 2005 the company had outstanding purchase commitments of £1371000 2004 £1179000
104 arm annual report and accounts 2005
notes to the financial statementsus gaapcontinued 14  geographic and segment information
the directors are of the opinion that the company had only one class of business during 2004 and before but that following the acquisition of artisan
components inc in december 2004 the company now has two reportable business segments namely the processor division and the physical ip division
although the chief operating decision maker and the rest of the board are provided with analyses of revenues by the different revenue streams licensing
royalties development systems and services costs operating results and balance sheet items are only analyzed into two divisions namely processors and
physical ip  as such these are currently the only two reportable segments the physical ip division consists of the business stream previously undertaken by
artisan and the revenues from the physical ip division are derived from the sale of legacy artisan products and services the processor division’s revenues
comprise legacy arm products and services including those from development systems products including those of axys during the year the company
acquired keil elektronik gmbh and keil software inc and both have been included within the processor division
the following analysis is of revenues operating costs interest income income before income tax depreciation and amortization capital expenditure total
assets and liabilities net assets and goodwill of each segment and of the company in total
2003 2004 2005
processors total processors physical ip total processors physical ip total
£000 £000 £000 £000 £000 £000 £000 £000
revenues 128070 128070 152702 195 152897 182280 50159 232439
operating costs 110807 110807 117316 4070 121386 126219 58303 184522
interest income 4801 4801 6891 53 6944 2778 2539 5317
incomeloss before income tax 21959 21959 42277 3822 38455 58839 5605 53234
depreciation and amortization 16292 16292 13150 3586 16736 10251 18144 28395
capital expenditure 3605 3605 5036 – 5036 4480 1584 6064
total assets 222997 222997 232811 405126 637937 273889 442204 716093
total liabilities 34922 34922 47743 37867 85610 44356 22687 67043
net assets 188075 188075 185068 367259 552327 229533 419517 649050
goodwill 4352 4352 108414 232002 340416 126375 259197 385572
there are no intersegment revenues the results of each segment have been prepared using consistent accounting policies with those of the company as a whole
the following analysis is of revenues by geographic segment and origin and longlived assets excluding deferred tax assets by group companies in each territory
year ended 31 december
2003 2004 2005
£000 £000 £000
revenues by market destination
europe 23118 23837 32971
us 65402 77457 99727
japan 24135 32754 42270
asia pacific excluding japan 15415 18849 57471
total revenues 128070 152897 232439
the company’s exports from the uk were £115072000 £138078000 and £172592000 for the years ended 31 december 2003 2004 and 2005
respectively
year ended 31 december
2003 2004 2005
£000 £000 £000
revenues by origin
europe 118885 141974 170505
us 4893 6384 59183
asia pacific 4292 4539 2751
total revenues 128070 152897 232439
at 31 december
2004 2005
£000 £000
longlived assets excluding deferred tax assets
europe 22730 17550
us 3495 3268
asia pacific 127 785
total longlived assets 26352 21603
in 2005 2004 and 2003 no single customer accounted for more than 10 of total revenues 
arm annual report and accounts 2005 105 15  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
longterm 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 and embedded derivatives 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
2004 2005
carrying fair carrying fair
amount value amount value
£000 £000 £000 £000
cash and cash equivalents 110561 110561 128077 128077
shortterm investments 5307 5307 23990 23990
marketable securities 26949 26949 8835 8835
accounts receivable 34347 34347 55518 55518
foreign currency contracts 1674 1674 1708 1708
embedded derivatives 2823 2823 722 722
16  valuation and qualifying accounts
charged acquired with
balance at credited to subsidiary foreign balance at
1 january income statement undertaking exchange 31 december
£000 £000 £000 £000 £000
2005 – allowance for doubtful debts 1451 547 27 148 2173
2004 – allowance for doubtful debts 1115 321 657 – 1451
2003 – allowance for doubtful debts 2193 1078 – – 1115
17  post balance sheet events
at the 2006 annual general meeting of the company a final dividend of 05 pence per share total cost £6842000 will be proposed in respect of the 2005
financial year and if approved will be paid on 5 may 2006 to shareholders on the register at 31 march 2006
106 arm annual report and accounts 2005
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 2005 and 2004 and the results of their operations and their cash flows for the years ended 31 december
2005 2004 and 2003 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
london england
6 march 2006
arm annual report and accounts 2005 107
report of independent registered public accounting firmus gaap 108 arm annual report and accounts 2005
company balance sheetuk gaap
as at 31 december 2005
2004
2005 restated
notes £000 £000
fixed assets
investments 4 495053 206772
current assets
debtors 5 9 82
shortterm investments – 13391
cash at bank and in hand 613 4226
622 17699
creditors amounts falling due within one year 6 22604 46863
net current liabilities 21982 29164
total assets less current liabilities 473071 177608
net assets 473071 177608
capital and reserves
calledup share capital 7 693 675
share premium account 8 95512 82447
option reserve 8 61474 61474
other reserve 8 267418 –
profit and loss account 8 47974 33012
equity shareholders’ funds 9 473071 177608
the financial statements on pages 108 to 114 were approved by the board of directors on 6 march 2006 and were signed on its behalf by
sir robin saxby director 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 together with an explanation of where changes have been made to previous policies on the
adoption of new accounting standards in the year
basis of accounting the financial statements are prepared in accordance with the historical cost convention
changes in accounting standards the company has adopted frs 20 “sharebased payments” frs 21 “events after the balance sheet date” frs 22
“earnings per share” frs 23 “the effects of changes in foreign exchange rates” frs 25 “financial instruments disclosure and presentation” frs 26
“financial instruments measurement” and frs 28 “corresponding amounts” in these financial statements the adoption of each of these standards
represents a change in accounting policy and the comparative figures have been restated accordingly details of the effect of the prioryear adjustments 
are given in note 8
investments in subsidiaries investments in subsidiaries are initially recorded at cost where an acquisition satisfied 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
shortterm investments bank deposits which are not repayable on demand are treated as shortterm investments
cash flow statement the company has taken advantage of the exemption in frs 1 revised 1996 “cash flow statements” which provides that where 
a company is a member of a group and a consolidated cash flow statement is published the company does not have to prepare a cash flow statement
foreign currency 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
taxation current tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the
balance sheet date
financial instruments the company does not have any financial instruments
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
the company issues equitysettled sharebased payments including an ltip  to certain employees of subsidiary undertakings in accordance with frs 20
equitysettled sharebased payments are measured at fair value at the date of grant fair value is measured by use of the blackscholes pricing model the
fair value determined at the grant date of the equitysettled sharebased payments is expensed on a straightline basis over the vesting period based on
the company’s estimate of the number of shares that will eventually vest
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 saving period must be at least 36 months the company has recognised a compensation charge in respect of the uk saye plans
and us espps the charges for these are calculated as detailed above
the company has taken advantage of the exemption available and has applied the provisions of frs 20 only to those options granted after 7 november
2002 and which were outstanding at 31 december 2004 the company does not have any employees and as such all sharebased compensation has been
recharged to subsidiary undertakings by way of capital contributions to those subsidiaries
treasury shares the company has a share buyback programme under which the company purchases its own shares and holds them as treasury shares
these shares will be used to satisfy employee share option exercises in accordance with uitf 38 the company recognises these shares at cost as a
deduction in arriving at shareholders’ funds
2 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 £19908000 2004 £17279000 apart from
seven directors who have contracts of service with arm limited the company has no employees all emoluments of these directors are paid by arm limited
and are disclosed in the remuneration report within these financial statements
arm annual report and accounts 2005 109
notes to the financial statementsuk gaap 110 arm annual report and accounts 2005
notes to the financial statementsuk gaapcontinued
3 dividends paid and proposed
2004
2005 restated
£000 £000
final paid of 042 pence in respect of 2004 year 2004 06 pence in respect of 2003 per ordinary share 5673 6106
interim paid of 034 pence 2004 028 pence per ordinary share 4763 2869
10436 8975
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 5000000 shares currently held within esop  the quest had no shares remaining at the balance sheet date also 12751107
shares were held as treasury stock by arm holdings plc and the company has waived its right to dividends on these shares
the directors have recommended the payment of a final dividend of 05 pence per share in respect of 2005 bringing the total dividend payable in respect of 2005
including the interim of 034 pence per share to 084 pence per share this will be paid to shareholders after approval by the shareholders at the 2006 agm
4 fixed asset investments
the cost and net book value of interests in group undertakings held by the company was £491179000 at 31 december 2005 and £202898000 at 
31 december 2004 the company took advantage of merger relief in 2004 and did not record the premium on the issue of shares for the acquisition 
of artisan components inc now arm physical ip inc and thus did not record the premium within the value of the investment in the company balance
sheet at that time
investments
in subsidiary
undertakings
£000
cost and net book value
at 1 january 2005 as previously stated 195043
prioryear adjustment arising on adoption of frs 20 see note 8 11729
at 1 january 2005 as restated 206772
additions 640395
capital contributions arising from frs 20 charges 20863
disposals 372977
at 31 december 2005 495053
during the year the arm holdings plc group underwent an internal group restructuring resulting in the following movements within the company investments
– the sale of arm physical ip inc to project salt 2 llc for total consideration of £462461000 which included a £177934000 investment in project salt
2 llc via a shareforshare swap and intragroup debt of £284527000 this transaction resulted in an unrealised profit on sale of £267418000 which
has been credited to other reserves and
– the sale of the company’s investment in project salt 2 llc and the intragroup debt noted above for consideration comprising an investment in project
salt uk limited of £462461000
sharebased compensation settled in shares in the company is treated as a deemed capital contribution increasing the company’s investments in these
undertakings
interests in group undertakings details of subsidiary undertakings are as follows
proportion of
nominal value
of issued
country of description shares held
name of undertaking registration of shares held 
arm limited england and wales ordinary £1 shares less than 001
project salt uk limited england and wales ordinary 1 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 remaining shares in arm limited are held
by project salt uk limited the principal activity of project salt uk limited is as an intermediate holding company arm quest trustees limited is the trustee
company of the company’s quest
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  arm annual report and accounts 2005 111
5 debtors
2005 2004
£000 £000
prepayments and accrued income 9 82
6 creditors amounts falling due within one year
2004
2005 restated
£000 £000
amounts owed to group undertakings 22234 38486
corporation tax 47 802
accruals and deferred income 323 7575
22604 46863
7 calledup share capital
2005 2004
company £000 £000
authorised
2200000000 ordinary shares of 005 pence each 2004 2200000000 1100 1100
allotted calledup and fully paid
1386102680 ordinary shares of 005 pence each 2004 1350786975 693 675
35315705 ordinary shares of 005 pence each were issued in the year for cash consideration of £13083000 as a result of the exercise of employee share
options at various times during the year
share options the company had the following options outstanding over ordinary shares of 005 pence at 31 december 2005
range of weighted average
number of exercise prices exercise price latest date
year of grant options £ £ of exercise
executive scheme 1997 260000 0026 0026 4 march 2007
1998 331000 01125 – 05275 01882 15 october 2008
1999 2350837 1224 – 426 13183 15 november 2009
2000 387847 6136 – 7738 65150 21 may 2010
2001 636540 284 – 375 33887 5 november 2011
2002 864471 2465 2465 18 april 2012
2003 3160248 04375 04375 29 january 2013
2004 1065900 10575 – 125 12494 22 july 2014
2005 768792 1055 1055 3 february 2015
9825635 13748
unapproved scheme 1999 3988420 1224 – 426 12730 15 november 2006
2000 2302319 6136 – 7738 62226 12 october 2007
2001 3080945 284 – 443 34720 5 november 2008
2002 3635579 0425 – 3145 23754 7 november 2009
2003 12250486 04375 – 11475 04479 4 november 2010
2004 8656249 09475 – 125 12354 21 october 2011
2005 11123017 10425 – 1185 10601 30 october 2012
45037015 14812
unapproved performance scheme 2001 62909 3815 3815 22 may 2008
2002 630411 21475 – 2465 23524 27 may 2009
2003 3885711 04375 04375 30 january 2010
2004 1616000 125 125 30 january 2011
2005 3119627 1055 1055 4 february 2012
9314658 09377 112 arm annual report and accounts 2005
notes to the financial statementsuk gaapcontinued
7 calledup share capital continued
range of weighted average
number of exercise prices exercise price latest date
year of grant options £ £ of exercise
us iso scheme 2000 716818 6136 – 7738 61741 12 october 2007
2001 957400 284 – 443 33894 5 november 2006
2002 1196702 0425 – 3145 23234 7 november 2007
2003 3101510 04375 – 11475 04422 4 november 2008
2004 2603125 09475 – 125 12087 21 october 2009
2005 8033760 10425 – 1185 10618 30 october 2010
16609315 14148
french scheme 2000 56250 633 633 12 october 2007
2001 138000 335 – 443 34819 5 november 2008
2002 154000 0425 – 3145 23488 15 october 2009
2003 623900 04375 – 11475 04412 4 november 2010
2004 376004 09475 – 125 12414 21 october 2011
2005 455136 10425 – 1185 10598 30 october 2012
1803290 13435
belgian scheme 2003 230600 11475 11475 4 november 2010
2004 353700 125 125 29 january 2011
2005 344450 10425 – 1185 10551 30 october 2012
928750 11523
1993 plan 1997 121381 006 – 014 01341 27 may 2007
1998 413737 015 – 049 02647 17 december 2008
1999 1352947 016 – 044 02394 5 december 2009
2000 2628391 020 – 058 03387 28 december 2010
2001 7177879 024 – 046 02570 30 december 2011
2002 5839383 027 – 060 04043 30 december 2012
2003 2370004 048 – 050 04976 27 february 2013
19903722 03379
1997 plan 1999 34328 019 019 29 july 2009
2000 11436 019 019 23 february 2010
45764 019
2000 plan 2001 6395301 022 – 028 02246 27 september 2011
2002 733221 024 – 027 02581 29 august 2012
7128522 02281
2003 plan 2003 8872005 047 – 072 05182 22 october 2013
2004 14359689 055 – 107 07194 15 december 2014
23231694 06426
director plan 2000 89912 057 057 16 february 2010
2001 7498 022 022 15 april 2011
2002 26236 044 044 6 february 2012
2003 588134 050 050 8 april 2013
2004 411421 055 055 10 march 2014
1123201 05206
nd00 plan 2000 253080 019 019 19 october 2010
2001 148318 037 037 13 august 2011
2002 191361 037 037 21 august 2012
2003 1211168 051 051 18 february 2013
1803927 04387
saye 2001 12693 3069 3069 31 december 2006
2002 61749 182537 182537 31 december 2007
2003 4251989 05865 05865 31 december 2008
2004 406958 09435 09435 31 december 2009
2005 1535108 09095 09095 31 december 2010
6268497 07063
total 143023990
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 arm annual report and accounts 2005 113
7 calledup share capital continued
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
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” 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 7760881 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 treasury stock
8 share premium account and reserves
share
premium option other profit and
account reserve reserve loss account
£000 £000 £000 £000
at 1 january 2005 as previously stated 82447 61474 – 15610
prioryear adjustment arising on adoption of frs 20 – – – 11729
prioryear adjustment arising on adoption of frs 21 – – – 5673
at 1 january 2005 as restated 82447 61474 – 33012
premium on exercise of share options 13065 – – –
unrealised profit on intragroup sale – – 267418 –
purchase of treasury shares – – – 16211
proceeds on issue of treasury shares on exercise of share options – – – 838
credit in respect of frs 20 employee share scheme charges – – – 20863
retained profit for the financial year – – – 9472
at 31 december 2005 95512 61474 267418 47974
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 arm physical ip inc the option reserve represents the fair value of options granted on the acquisition of artisan components inc in 2004 the other
reserve represents the unrealised profit on the intragroup sale of investments
the company has adopted frs 20 and frs 21 during the year resulting in the following prioryear adjustments
– increase in investments in subsidiary undertakings and increase in the profit and loss reserve of £11729000 reflecting the cumulative share option
compensation charge up to 2004 recharged on to subsidiary undertakings by way of a capital contribution and
– the final dividend proposed for 2004 of 042 pence per share that was previously shown within the profit and loss account for 2004 has now been
reclassified and shown within the profit and loss account for 2005 prior to the adoption of frs 21 dividends were recorded in the year to which they
related even if they were declared after the period end
the currentyear impact of adopting frs 20 is an increase in investments in subsidiary undertakings and in the profit and loss reserve of £20863000 
the currentyear impact of adopting frs 21 is to reduce creditors for proposed dividends and increase the profit and loss reserve by £6842000 8 share premium account and reserves continued
during 2005 to supplement the payment of dividends to shareholders the company began a rolling share buyback programme under the shareholder
authority conferred at the 2005 annual general meeting the quantum and frequency of share repurchases is not predetermined and will take into account
prevailing market conditions the short to mediumterm cash needs of the business and the level of employee sharebased remuneration going forward in
2005 a total of 13868000 shares with nominal value of £6934 were repurchased from the market at a cost of £16211000 at 31 december 2005
there were 12751107 shares in the company still held from these purchases with a market value of £15429000
offset within the profit and loss account is an amount of £16315000 2004 £7485000 representing the cost of own shares held with the esop  quest
and treasury shares this comprises £1438000 2004 £1438000 being the cost of 5000000  2004 5000000 shares held within the esop  £nil 2004
£6047000 being the cost of nil 2004 713034 shares within the quest and £14877000 2004 £nil being the cost of 12751107 2004 nil shares
held as treasury shares
9 reconciliation of movements in shareholders’ funds
2004
2005 restated
£000 £000
profit attributable to shareholders 19908 17279
equity dividends 10436 8975
9472 8304
new share capital issued 13083 1473
unrealised profit on intragroup sale 267418 –
purchase of treasury shares 16211 –
proceeds on issue of treasury shares on exercise of share options 838 12
fair value of share options granted on acquisition – 61474
credit in respect of frs 20 employee share scheme charges recorded as capital contributions 20863 7855
net addition to shareholders’ funds 295463 79118
opening shareholders’ funds as previously stated 160206 88510
prioryear adjustments 17402 9980
opening shareholders’ funds as restated 177608 98490
closing shareholders’ funds 473071 177608
10  capital commitments
the company had no capital commitments at 31 december 2005 and 2004
11  financial commitments and contingencies
at 31 december 2005 and 2004 the company had no annual commitments under noncancellable operating leases
12 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
114 arm annual report and accounts 2005
notes to the financial statementsuk gaapcontinued arm annual report and accounts 2005 115
independent auditors’ report to the shareholders of arm holdings plcuk gaap
we have audited the parent company financial statements of arm holdings plc for the year ended 31 december 2005 which comprise the balance sheet
and the related notes these parent company financial statements have been prepared under the accounting policies set out therein we have also audited
the information in the directors’ remuneration report that is described as having been audited
we have reported separately on the group financial statements of arm holdings plc for the year ended 31 december 2005
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report the directors’ remuneration report and the parent company financial statements in accordance
with applicable law and united kingdom accounting standards united kingdom generally accepted accounting practice are set out in the statement of
directors’ responsibilities
our responsibility is to audit the parent company financial statements and the part of the directors’ remuneration report to be audited in accordance with
relevant legal and regulatory requirements and international standards on auditing uk and ireland 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 parent company financial statements give a true and fair view and whether the parent company financial
statements and the part of the directors’ remuneration report to be audited 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 parent company financial statements if the company 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 other transactions is not disclosed
we read other information contained in the annual report and consider whether it is consistent with the audited parent company 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 advisors the corporate governance statement the corporate social responsibility statement the directors’ report the unauditable part
of the remuneration report and the statement of directors’ responsibilities we consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the parent company financial statements our responsibilities do not extend to any other information
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices board an audit includes
examination on a test basis of evidence relevant to the amounts and disclosures in the parent company financial statements and the part of the directors’
remuneration report to be audited it also includes an assessment of the significant estimates and judgments made by the directors in the preparation of
the parent company financial statements and of whether the accounting policies are appropriate to the company’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 parent company financial statements and the part of the directors’ remuneration report to be
audited 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 parent company financial statements and the part of the directors’ remuneration report to be audited
opinion
in our opinion
l the parent company financial statements give a true and fair view in accordance with united kingdom generally accepted accounting practice of the
state of the company’s affairs as at 31 december 2005 and
l the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance
with the companies act 1985
pricewaterhousecoopers llp
chartered accountants and registered auditors
london
6 march 2006 116 arm annual report and accounts 2005
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
as of 20 march 2006
rockingham court
rockingham street
sheffield s1 4eb
united kingdom
blackburn design centre
belthorn house
walker road
blackburn bb1 2qe
united kingdom
tel 44 0 1254 893900
fax 44 0 1254 893901
arm france
12 avenue des prés
montigny le bretonneux
78059 saint quentin en
yvelines cedex
france
tel 33 1 30 79 05 10
fax 33 1 30 79 05 11
les cardoulines b2
route des doline
sophia antipolis
06560 valbonne
france
tel 33 4 92 96 88 60
fax 33 4 92 96 88 79
arm belgium
geldenaaksebaan 329 
1st fl
3001 leuvenheverlee
belgium
tel 32 16 391 411
fax 32 16 406 076
arm germany
lehrerwirthstrasse 4
d81829 munich
germany
tel 49 89 928 6150
fax 49 89 928 61519
keil elektronik gmbh
bretonischer ring 15
d85630 grasbrunn
germany
tel 49 89 456 0400
fax 49 89 468 162
kaiser strasse 100
tpc 111c
d52134 herzogenrath
germany
tel 49 24 079 0860
fax 49 24 079 08611
arm israel
23 hataaas st
44425 kfar saba
israel
tel 972 9 7678040
extension 201
fax 972 9 7677020
arm physical ip inc and
arm inc
141 caspian court
sunnyvale ca 940891013
united states
tel 1 408 734 5600
fax 1 408 734 5050
1250 capital of texas
highway
building 3 suite 560
austin tx 78746
united states
tel 1 512 327 9249
fax 1 512 314 1078
2121 n california boulevard
suite 290
walnut creek ca 94596
united states
tel 1 925 974 3606
fax 1 925 944 9612
125 edinburgh drive south
suite 210 macgregor park
cary nc 275116487
united states
tel 1 919 465 3660
fax 1 919 465 3667
5 east street
franklin ma 02038
united states
tel 1 508 520 1905
fax 1 508 520 1907
1 jenner drive suite 260 
irvine ca 92618
united states
tel 1 949 341 1900
fax 1 949 341 1901
crystal glen center
39555 orchard hill place
suite 600
novi mi 48375
united states
tel 1 248 374 5055
fax 1 248 374 5056
264b north broadway
suite 204a
salem nh 03079
united states
tel 1 603 896 6322
fax 1 603 896 6324
5580 morehouse drive
san diego ca 92121
united states
tel 1 858 455 7570
fax 1 858 457 5578
1501 10th street
suite 110
plano tx 75074
usa
tel 1 972 312 1107
fax 1 972 312 1159
arm kk
dainiueno building 8f
3718 shinyokohama
kohokuku yokohamashi
kanagawa 2220033
japan
tel 81 45 477 5260
fax 81 45 477 5261
arm korea limited
room 1115
hyundai building
94 soonaedong
boondangku
sungnam 
kyunggido 463020
korea
tel 82 31 712 8234
fax 82 31 713 8225
arm taiwan limited
8f no 50
lane 10
kee hu road
nei hu
taipei 114
taiwan
tel 886 2 2627 1681
fax 886 2 2627 1682
arm consulting 
shanghai co ltd
room 809 building b
far east international plaza
no 317 xianxia road
shanghai 200051
pr china
tel 86 21 62351296
fax 86 21 62351207
room 905 silver tech tower
no 38 hai dian avenue
hai dian district
beijing 100080
pr china
tel 86 10 82603570
fax 86 10 82603573
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
arm physical ip asia pacific 
pte ltd
700 lorong 1 toa payoh
3007 trellis towers
singapore 319773
tel 65 6728 0950
fax 65 6728 7901 designed and produced by 85four
directors’ photographs by chris moyse
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further information available at
wwwarmcom
the architecture for the digital world
™
arm holdings plc annual report and accounts 2005


Summary:
 chief executive officer’s review of operations
6 arm annual report and accounts 2005
technology is now influencing lifestyle rather than simply reflecting 
it the blackberry device for example has fundamentally changed 
the worklife balance for large numbers of professionals worldwide 
the merging of mainstream media with our everyday lives is made
possible by easy access to the internet any time and anywhere and 
in turn makes that access critical we expect our household appliances
to have an increasing number of features our cars to be safe and
reliable our cameras to react automatically to prevailing light
conditions and our mobile telephones to incorporate myriad 
features a silent revolution in the way ordinary people interact 
with technology is underway
this is a revolution which arm has foreseen and indeed has
pioneered in recent years we have transformed our business
organically and by acquisition from one which was primarily focused
on the development of microprocessor intellectual property ip to one
which is now capable of delivering a total solution – from beginning 
to end of the design process – to our customers our 2004 acquisitions
of californiabased companies artisan components which designs
physical ip  and axys which provides electronic systemlevel esl
design tools were augmented in october this year by the acquisition
of keil based in munich germany and in plano texas keil is a 
leading provider of 816bit software development tools for the
microcontroller market bringing it into the arm fold enables our 
silicon partners’ customers to develop intelligent and lowcost 
32bit microcontrollerbased products more easily
our strategic priorities
it is our ambition for all digital products to be powered by arm
technology – and we are well on the way to becoming the architecture
for the digital world in the future digital products will contain
increasing amounts of our technology including processor and physical
ip  other systems ip and embedded software in addition we will
continue to provide the software development tools that enable
designers to build innovative arm powered products in 2005 our
partners shipped 17 billion of these up 31 on 2004 and in may
2005 we announced that we expect total shipments to increase to
approximately 45 billion by 2010
we use the analogy of a human body to describe how arm technology
brings digital products to life our processor ip is the brain controlling
and driving the system our data engine ip forms the specialist organs
such as the lungs fabric ip makes up the nervous system which
enables the brain to communicate with the other parts of the body
and our physical ip – the libraries and memories – are the cells from
which the entire body is made our tools are the parents and teachers
which shape the body and develop its thoughts and our software ip
are the thoughts that go through the brain and provide the intelligence
and character of the product 
a year of execution and delivery
in 2005 we made significant progress in executing on our strategic
priorities at the beginning of the year we set ourselves an objective
to take arm into the next phase of its growth looking back we have
done just that we have positioned our enlarged group to capitalise on
our industry is one which changes constantly 
but in the past year the shift has been particularly
noticeable  arm annual report and accounts 2005 7
the huge potential benefits which accrue from the combination of arm
and artisan we have delivered a number of new products which
underpin the proliferation of our ip and we have delivered meaningful
earnings growth for our shareholders
building on the combination of arm and artisan
we completed the acquisition of artisan components in december
2004 one year on we have successfully integrated artisan now our
physical ip division pipd into the group the pipd management team
is a blend of senior executives from arm and artisan the unified arm
sales team is a combination of the former arm and artisan sales
teams based on an account management structure it uses technical
specialists from across the group
during the year we began to see good progress in effecting the
strategic plan for the acquisition this was first to outsource physical
ip to traditional arm partners second to create optimised products
from the combination of physical ip and processor ip and third to use
the artisan sales channel to create broader access to processor ip 
we plan to build on the success artisan achieved in selling its physical
ip to small fabless semiconductor companies which account for
approximately 10 of the world’s semiconductor industry revenue by
expanding the customer base to include large fabless semiconductor
companies and integrated device manufactures idms these not only
account for the other 90 but represent arm’s traditional customer
base we made progress on this and exceeded our expectations by
completing seven deals – encouraging early indications of our partners’
willingness to outsource the development of physical ip when it makes
economic sense to do so and when we have the right products as the
cost and complexity of developing physical ip increases we anticipate
that an increasing number of our partners will realise the commercial
and technical wisdom of outsourcing it from us 
during the year we also developed our first optimised products
through the combination of physical ip and processor ip  developing
processor and physical ip concurrently has enabled us to create faster
smaller and more powerefficient processors in october at the second
annual arm developers’ conference in california we introduced 
the cortex™a8 processor at the same time we introduced the
advantage™ ce libraries which increase the processor’s performance
and efficiency our partners will be able to license optimised physical
ip to maximise the cortexa8 processor’s performance while at the
same time minimising size and power consumption a number of
other optimised products including the introduction of an
implementation of the arm1176jzfs™ processor were delivered
through collaborative technology design advanced physical ip  and
process technology delivery will provide 40 more performance
without increasing size or power consumption
delivering new technologies 
at the beginning of 2005 we had a strong portfolio of products for
licensing during the year we increased licence revenues in the
processor division pd by 19 – building on 27 growth in 2004 – and
signed 71 new licences including 12 for arm11 family products which
are now increasingly being licensed for use outside the mobile sector chief executive officer’s review of operationscontinued
8 arm annual report and accounts 2005
during the year pipd had sold 20 platform licences to its foundry and
idm partners and a further 42 enduser licences to idms and fabless
semiconductor companies at the year end the cumulative total for
pipd licensing reached 67 platform licences and 143 enduser licences
the year was an outstanding one for the development of the new
products that will drive future revenue growth the cortexa8 processor
is the industry’s fastest embedded processor and our first complete
processing solution to comprise a wide range of arm technology to
reduce timetomarket its performance and power consumption
characteristics make it ideal for consumer products which run multi
channel video audio and gaming applications we expect it to
revolutionise consumer and lowpower mobile devices and to enable
even more innovative product features to be delivered to end users to
provide higher levels of functionality and entertainment the cortexa8
processor’s attributes were recognised by the winning of four high
profile industry awards electronic products magazine’s “product of the
year” portable design magazine’s “editor’s choice” electronic design
magazine’s “best of embedded 2005” and microprocessor report’s
“analysts’ choice award for the best processorip core of 2005” in
october we announced that there were already five lead licensees for
the product including freescale matsushita samsung and texas
instruments we expect the cortexa8 processor to be available for
general licensing by mid2006
we continued the development of our other products in the cortex
family including the cortexm3 processor which was available for
general release by early 2006 we licensed it to four lead licensees in 
2005 and had made initial deliveries to them by the middle of the year 
test silicon for the cortexm3 processor is revealing higher performance
and smaller size characteristics than we initially visualised and creates
a significant opportunity for licensing growth in 2006 the latest addition
to the cortex family code named “servale” was licensed to two lead
partners and is expected to be available for general licensing during 2006
we also made significant advances in technology in pipd with the
acceleration of the development of leadingedge products this will
ensure that we have the ability to support large idms and fabless
companies which as a result of rapid increases in the cost and
complexity of physical ip arising from the continuing advances in silicon
process technology are increasingly looking to us to provide thirdparty
physical ip  to this end we have successfully developed 90nm and
more recently 65nm physical ip products enabling us to sell leading
edge physical ip to a number of major foundries including chartered
semiconductor and ibm 
arm ip in digital products 
when we updated our estimate of future shipments of arm powered
products we also rationalised our applicationoriented approach to
target markets in line with the changing nature of the electronic
industry we now focus on solutions for the mobile home enterprise
embedded and emerging applications markets
by the final quarter of the year our partners had shipped a record 
499 million units – the equivalent of approximately 55 million each
day the mobile market continued to grow strongly we shipped more  arm annual report and accounts 2005 9
than 1 billion units into mobile for the first time and also increased
penetration by attaining an average of 14 arm processors per
handset the first shipments of arm11 familybased phones were
made in japan from the foma n902i with multiple versions now
shipping we expect this strong growth in mobile up 23 from 2004
to continue in 2006 driven by shipments of ultralowcost handsets
ulch in emerging markets and by the increased popularity of smarter
phones
we also achieved significant growth 46 over 2004 in nonmobile
markets our partners shipped 600 million units in 2005 –
approximately the same number as was achieved for mobile
shipments in 2003 this was over a broad base of applications
particularly hard disk drives games consoles smartcards printers dvd
players flash memory products digital still cameras wifi chipsets and
automotive products
we continued to make strategic investments to speed our growth in
nonmobile areas the microcontroller sector promises particular
potential and we expect this to reach approximately 1 billion units by
2010 our acquisition of keil maximises the opportunity for success in
the microcontroller market we are aiming to provide an easy transition
for developers from their older 8 and 16bit technologies to new arm
32bit microcontrollers we believe we can accelerate this by providing
a consistent development system platform for building applications 
we introduced our first combined development product the realview
®
microcontroller development kit in january 2006
looking ahead
our extensive portfolio of technology for licensing increasing
momentum in royalties the growth in sales of development systems
and the prospect of more revenues arising from the combination of
processor ip and physical ip  gives us confidence for another strong
performance in 2006 we enter the year in an excellent position to
continue to build on our market leadership
warren east chief executive officer operating and financial reviewifrs
10 arm annual report and accounts 2005
notwithstanding the 20 increase in rd expenditure to drive
expected strong revenue growth an increase in earnings per share of
more than 20 has enabled us to return more cash to shareholders
through a progressive dividend policy and the ongoing share buyback
programme that we introduced during the year
the business its objectives and strategy
arms comprehensive product offer includes 1632bit risc
microprocessors data engines 3d processors digital libraries
embedded memories peripherals software and development tools 
as well as analogue functions and highspeed connectivity products
the group licenses this technology to semiconductor companies which
in turn manufacture market and sell microprocessors and related
products arm has developed an innovative intellectual property
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
together with our broad partner community we provide a total 
system solution that offers a fast reliable path to market for leading
electronics companies
in 2005 as well as growing profitability the company was robustly
cash generative before investing activities with net cash inflows
from operating activities of £417 million giving rise to a yearend
cash cash equivalents shortterm investments and marketable
securities balance of £1609 million
performance
revenues
total revenues for the year ended 31 december 2005 amounted 
to £2324 million total revenues comprised £1823 million from 
the processor division an increase of 19 over total revenues 
of £1527 million in the year ended 31 december 2004 and 
£501 million for pipd 2004 £02 million 
the actual average dollar exchange rate in 2005 was 180 compared
with 178 in 2004 for arm standalone this had the effect of
decreasing total reported revenues by approximately £28 million
total licensing revenues in 2005 were £1042 million being 45 
of total revenues compared with £594 million or 39 of total revenues
in the year to 31 december 2004 total licensing revenues in 2005
comprised £694 million from the processor division compared with
£594 million in 2004 and £348 million from pipd 2004 £nil 
royalty revenues in 2005 were £878 million representing 38 
of total revenues compared with £596 million or 39 of total
revenues in the year to 31 december 2004 royalty revenues in 
2005 comprised £725 million from the processor division compared
with £596 million in 2004 and £153 million from pipd 2004 
£02 million 
sales of development systems in 2005 were £257 million being 
11 of total revenues compared with £197 million or 13 of total
revenues in 2004 service revenues which include consulting services
and revenues from support maintenance and training were 
£147 million in 2005 representing 6 of total revenues compared
with £142 million or 9 of total revenues in 2004
in 2005 arm increased revenues at twice the rate 
of the semiconductor industry achieved operating
margins healthily in excess of 30 and saw volumes 
of arm powered products grow by more than 30 
yearonyear to 17 billion units
 operating margin after add back of sharebased compensation charges and intangible
amortisation charges arm annual report and accounts 2005 11
royalty revenues and unit shipments
total royalty revenues for 2005 were £878 million comprising 
£725 million from the processor division and £153 million from pipd
royalties from the processor division came from record unit shipments 
of 1662 million compared with £596 million and 1272 million units
in 2004 dollar royalty revenues earned in the processor division were
1311 million up 22 on 2004 compared with the increase in year
onyear unit shipments of 31 the average royalty rate in 2005 was
79 cents the average royalty rate in a given period is based on a
number of variables including the average selling prices of the chips
being shipped the applicable royalty rate payable to arm and the mix
of unit shipments by arm product family
in 2005 the proportion of total unit shipments accounted for by the
mobile segment was 65 unit shipments in the mobile segment
grew by 23 yearonyear with unit shipments in the nonmobile
segments growing by 46 growth in the nonmobile segments was
achieved across a broad range of product applications including hard
disk drives games consoles smart cards printers dvd players flash
memory products digital still cameras wifi chipsets and automotive
products
there were 68 partners shipping arm technologybased products at
the end of 2005 19 companies were paying royalties for physical ip
products at the end of the year royalties within pipd demonstrated
market share growth against a backdrop of lower yearonyear revenue
for the foundries as a whole
gross margin
gross margins for the year to 31 december 2005 were 89 compared
with 92 for the arm standalone business in 2004 cost of sales in 2005
included compensation charges in respect of sharebased payments of
£13 million 2004 £04 million the reduction reflects the higher
margin achieved in the processor division offset by the lower margins
achieved in the physical ip division
operating expenses
the comparability of costs between 2004 and 2005 is affected by 
the acquisitions of artisan components inc on 23 december 2004 
and axys design automation inc on 16 august 2004 on acquisition
significant values of intangible assets other than goodwill were
recognised and these amounts are amortised over the expected useful
lives of the assets acquired with the cost recorded against research
and development sales and marketing or general and administrative
expenses as appropriate to aid comparability these costs have been
separately identified as “acquisitionrelated charges” in the narrative
below in addition the issuance of arm share options to the
employees of artisan on its acquisition gives rise to significant non
cash sharebased compensation charges these together with the
share option compensation costs arising on options granted to existing
arm employees are separately identified in the narrative below
total operating expenses in the year to 31 december 2005 were
£1707 million compared with £1123 million in 2004 average headcount
increased from 774 in 2004 to 1234 in 2005 operating expenses in
2005 included total acquisitionrelated charges of £179 million 2004
£05 million and compensation charges in respect of sharebased
payments and related payroll taxes of £202 million 2004 £75 million operating and financial reviewifrscontinued
12 arm annual report and accounts 2005
excluding acquisitionrelated charges and compensation charges in respect
of sharebased payments and related payroll taxes total operating
expenses in 2005 were £1326 million in 2005 compared with 
£998 million in 2004 after excluding a further £45 million in respect
of a nonrecurring charge for a technology licence agreement 
research and development rd expenses at £803 million in 2005
represented 35 of revenues this compares with £547 million 36
of revenues in 2004 average headcount in this area increased from
464 in 2004 to 783 in 2005 rd expenses included total acquisition
related charges of £81 million 2004 £03 million and compensation
charges in respect of sharebased payments and related payroll taxes of
£123 million 2004 £43 million excluding acquisitionrelated charges
and compensation charges in respect of sharebased payments and
related payroll taxes rd expenses in 2005 were £599 million and 
£501 million in 2004 representing 26 and 33 of revenues respectively  
sales and marketing costs in 2005 were £474 million or 20 of
revenues compared with £255 million or 17 of revenues in 2004
average headcount in this area increased from 204 in 2004 to 286 
in 2005 sales and marketing costs in 2005 include total acquisition
related charges of £91 million 2004 £02 million and compensation
charges in respect of sharebased payments and related payroll taxes
of £43 million 2004 £15 million excluding acquisitionrelated
charges and compensation charges in respect of sharebased payments
and related payroll taxes sales and marketing costs in 2005 were
£340 million and £238 million in 2004 representing 15 and 16 
of revenues respectively 
general and administration expenses in 2005 were £430 million or
19 of revenues compared with £321 million or 21 of revenues 
in 2004 average headcount in this area increased from 106 in 2004 
to 165 in 2005 general and administration expenses in 2005 included
total acquisitionrelated charges of £07 million 2004 £nil and
compensation charges in respect of sharebased payments and related
payroll taxes of £36 million 2004 £17 million excluding acquisition
related charges and compensation charges in respect of sharebased
payments and related payroll taxes general and administration
expenses in 2005 were £387 million compared with £259 million in
2004 after excluding a further £45 million in respect of a nonrecurring
charge for a technology licence agreement representing 17 of
revenues in both years 
operating margin
the operating margin in 2005 was 151 compared with 185 
in 2004 the operating margin in 2005 excluding acquisitionrelated
charges of £179 million and compensation charges in respect 
of sharebased payments and related payroll taxes of £215 million
was 321 compared with 270 before acquisitionrelated charges
of £05 million compensation charges in respect of sharebased
payments of £79 million and £45 million in respect of a non
recurring charge for a technology licence agreement in 2004 
earnings and taxation
profit before tax in 2005 was £405 million compared with 
£353 million in 2004 profit before tax in 2005 excluding acquisition
related charges of £179 million and compensation charges in respect
of sharebased payments and related payroll taxes of £215 million 
selected financial dataifrs
2005 2004 2003 2002 2001
£000 £000 £000 £000 £000
turnover 232439 152897 128070 150922 146274 
cost of sales 26610 12240 11022 13185 17289
gross profit 205829 140657 117048 137737 128985 
total operating expenses 170672 112328 98609 96608 83203
group operating profit 35157 28329 18439 41129 45782
net gain on disposals of trade investments – ––– 314
interest receivable net 5317 6944 4801 4373 4470
profit before tax 40474 35273 23240 45502 50566
tax 10827 9398 7977 13031 15874
profit after tax 29647 25875 15263 32471 34692
equity minority interest – – 105 232 303
profit for the year 29647 25875 15158 32239 34389
dividends paid 10436 8975 – – –
capital expenditure 6064 5036 3605 15616 17349
research and development expenditure 80273 54674 48131 48674 38920
cash short and longterm investments 160902 142817 159786 130304 104467
shareholders’ equity 746847 642538 180435 172140 135723
employees at end of year number 1324 1171 740 721 722
 figures for the years 2003 2002 and 2001 are shown under uk gaap and are not directly comparable with 2005 and 2004 prepared under ifrs
 figures for 2004 have been restated from uk gaap to ifrs arm annual report and accounts 2005 13
was £799 million or 344 of revenues this compares with 
£482 million before acquisitionrelated charges of £05 million
compensation charges in respect of sharebased payments of 
£79 million and £45 million in respect of a nonrecurring charge 
for a technology licence agreement or 315 of revenues in 2004
the group’s effective taxation rate in 2005 was 268 compared with
266 in 2004 in 2005 there was an increase compared with 2004 
in the level of disallowable items but this was offset by tax benefits
arising from the structuring of the artisan acquisition and increased
rd tax credits and deferred tax adjustments
fully diluted earnings per share in 2005 were 21 pence compared 
with 25 pence in 2004 earnings per fully diluted share in 2005 before
acquisitionrelated charges of £179 million compensation charges 
in respect of sharebased payments and related payroll taxes of 
£215 million and related estimated tax adjustments thereon of 
£91 million were 42 pence compared with 35 pence before acquisition
related charges of £05 million compensation charges in respect 
of sharebased payments of £79 million £45 million in respect 
of a nonrecurring charge for a technology licence agreement and
related estimated tax adjustments thereon of £21 million in 2004
balance sheet and cash flow
goodwill at 31 december 2005 was £4744 million compared with
£4192 million at 31 december 2004 the increase in goodwill 
in 2005 is due primarily to foreign exchange movements given 
the strengthening of the us dollar against sterling from 192 at 
31 december 2004 to 172 at the end of 2005 goodwill arising 
on the keil acquisitions amounted to £58 million goodwill is not
amortised under ifrs but is subject to impairment review on at least
an annual basis a regular review of the carrying value of the assets
arising on the acquisition of artisan was performed as at 31 december
2005 and it was concluded that no impairment charge was required 
other intangible assets at 31 december 2005 were £797 million
compared with £840 million at 31 december 2004 the movement 
in other intangible assets in 2005 reflects the amortisation in the year
of the intangible assets arising on the acquisitions of artisan and axys
of £175 million and an additional £87 million arising on the keil
acquisitions in october 2005 the other intangible assets will be
amortised through the profit and loss account over a weighted average
period of five years 
accounts receivable at 31 december 2005 were £555 million 
compared with £343 million at 31 december 2004 the allowance
against receivables was £22 million at 31 december 2005 compared
with £15 million at 31 december 2004 deferred revenues were 
£204 million at 31 december 2005 compared with £214 million 
at the end of 2004
resources available
the consolidated cash cash equivalents shortterm investments 
and marketable securities balance was £1609 million at 31 december
2005 compared with £1428 million at 31 december 2004 operating and financial reviewifrscontinued
14 arm annual report and accounts 2005
interest receivable
interest receivable was £53 million for the year to 31 december 2005
compared with £69 million in 2004 
returns to shareholders
dividend 
the directors recommend payment of a final dividend in respect of
2005 of 05 pence per share which taken together with the interim
dividend of 034 pence per share paid in october 2005 gives a total
dividend in respect of 2005 of 084 pence per share an increase of
20 over 07 pence per share in 2004 subject to shareholder
approval the final dividend will be paid on 5 may 2006 to
shareholders on the register on 31 march 2006
total dividends actually paid in 2005 amounted to £104 million 
2004 £90 million
share buyback programme
during 2005 the group initiated a share buyback programme to
supplement dividends in returning surplus funds to shareholders
during 2005 the company bought back over 139 million shares at 
a total cost of £162 million this programme is ongoing and further
repurchases are expected to be made in 2006 and beyond
capital structure
the authorised share capital of the company is 2200000000 ordinary
shares of 005 pence each 2004 2200000000 the issued share
capital at 31 december 2005 was 1386102680 ordinary shares of
005 pence each 2004 1350786975  
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 approximately 95 of group revenues earned in us dollars and
approximately 45 of group costs being incurred in us 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
lowrisk 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 group are identified
below a more detailed description is included in the groups annual
report on form 20f details of the groups internal control and risk
management procedures are included in the corporate governance
report on pages 18 to 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 such factors include 
— the timing of entering into agreements with new licensees
— the mixture of licence fees royalties revenues from the sale 
of development systems and fees from services
— the introduction of new technology by us our licensees or our
competition
— the timing of orders from and shipments to systems companies 
of arm technologybased microprocessors from our semiconductor
partners
— sudden technological or other changes in the microprocessor
industry and
— new litigation or developments in current litigation arm annual report and accounts 2005 15
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 our shares could be materially adversely affected 
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 because of economic uncertainties in many of 
our key markets many industries may delay or reduce technology
purchases and investments the impact of this on arm is difficult to
predict but if businesses defer licensing our technology require less
services or development tools or if consumers defer purchases of 
new products which incorporate arm’s technology revenue could
decline a decline in revenue would have an adverse effect on the
results of operations and could have an adverse effect on arm’s
financial condition 
arm competes in the intensely competitive semiconductor market
the semiconductor market is intensely competitive and characterised
by rapid technological change arm cannot give assurance that it will
have the financial resources technical expertise or marketing or
support capabilities to compete successfully in the future 
competition is based on a variety of factors including price
performance product quality software availability marketing and
distribution capability customer support name recognition and
financial strength further given arm’s reliance on our semiconductor
partners its competitive position is dependent on their competitive
position in addition arm’s semiconductor partners do not license
arm’s architecture exclusively and several of them also design
develop manufacture and market microprocessors based on their 
own architectures or on other nonarm architectures 
arm may not develop or operate systems which comply fully with
the requirements of the sarbanesoxley act
preparations for attestation under section 404 of the sarbanesoxley
act as at 31 december 2006 are relatively welladvanced there can
be no guarantee however that the detailed testing of internal controls
required as part of the attestation process will not identify significant
control deficiencies or material weaknesses that impact on the
auditors’ opinion on internal controls over financial reporting andor
require disclosure on form 20f
other risks include arms inability to manage the significant changes 
in the number of its employees and the size of its operations in the
united states dependence on semiconductor partners and systems
companies availability of development tools systems software and
operating systems compatible with arm’s architecture dependence on
a small number of customers and products arm’s inability to develop
new products on a timely basis unanticipated costs due to products
that could have technical difficulties or undetected design errors the
arm architecture not being continued to be accepted by the market
risks associated with any strategic investments or acquisitions
dependence on senior management personnel and on hiring and
retaining qualified engineers exposure from international operations
litigation and threats of litigation and protection of arm’s intellectual
property unavailability of debt financing or additional equity funding to
satisfy future capital needs adverse affects resulting from changes in
stock option accounting rules adversely impacting arm’s reported
operating results and its competitiveness in the marketplace 
tim score chief financial officer