annual report and accounts 2002 arm holdings plc annual report and accounts 2002 2 arm at a glance
4 chairman’s statement
6 chief executive officer’s review
8review of operations
8forging relationships
10 enabling solutions
12 pioneering technologies
14 directors and advisers
16 financial review
18 corporate governanceuk gaap
21 directors’ reportuk gaap
23 remuneration reportuk gaap
30 statement of directors’ responsibilities
31 independent auditors’ report to the members of arm holdings plcuk gaap
32 consolidated profit and loss accountuk gaap
statement of group total recognised gains and lossesuk gaap
33 consolidated balance sheetuk gaap
34 company balance sheetuk gaap
35 consolidated cash flow statementuk gaap
36 notes to the financial statementsuk gaap
56 selected consolidated financial dataus gaap
57 operating and financial review and prospectsus gaap
61 consolidated statements of income and comprehensive incomeus gaap
62 consolidated balance sheetsus gaap
63 consolidated statements of cash flowsus gaap
64 consolidated statements of changes in shareholders’ equityus gaap
65 notes to the financial statementsus gaap
79 report of independent accountantsus gaap
80 group directory
contents arm annual report and accounts 2002  1
arm licenses innovative powerefficient risc microprocessor
cores peripheral solutions and systemonchip designs to the
world’s major electronics companies these are used in a
wide range of applications including those in the automotive
consumer entertainment digital imaging mass storage
networking security and wireless industries
as the world’s leading provider of 1632bit embedded risc
microprocessor solutions arm’s presence in the industry now
encompasses more than 75 of the market our architecture
is set to become the technology of choice for digital products
worldwide as old 8bit applications migrate to 1632bit
if you use a mobile telephone a personal organiser watch
digital tv or access the internet you are likely to be using 
a product which has our technology at its core
cover lava flowing into the pacific ocean hawaii the power of lava is usually hidden from view 
at the heart of a volcano the power of arm ip is at the heart of its partners’ products revenue analysis  royalty units  licence revenues by product 
arm at a glance
2 arm annual report and accounts 2002
revenues £m
licensing 55
royalties 18
development systems 15
support maintenance and training 9
consulting 3
arm7
tm
family 15
arm9
tm
family 43
arm10
tm
arm11architecture 23
noncore licensing 19
automotive 2
consumer 8
imaging 3
networking 10
secure 4
storage 2
wireless 71
2002
2001
2000
1999
1998
1509
1463
1007
621
423
0  50 100 150 200
•
total revenues up by 3 7 at constant exchange rates in 2002 to £1509 million
•
our partners shipped a total of 456 million chips in 2002 based on arm technology
•
the first core from the arm11™ family of products was successfully delivered to lead partners in december 
royalty revenues £m
2002
2001
2000
1999
1998
268
279
256
111 
36
0  5 10 15 20 25 30 arm annual report and accounts 2002  3
geographic revenue by market destination 
united states 44
austin texas
novi michigan
carlsbad california
los gatos california
northborough massachusetts
walnut creek california
europe 18
blackburn uk
cambridge uk
maidenhead uk
sheffield uk
montigny le bretonneux france
sophia antipolis france
munich germany
kfar saba israel
asia pacific 38
seoul south korea
taipei taiwan
shinyokohama japan
shanghai pr china
•
arm remains strongly profitable and cashgenerative despite lower revenues in the second 
half of the year
•
the global reach of arms business extended further with the opening of our office in china
net cash balance at year end £m
2002
2001
2000
1999
1998
1303
1045
753
518
396
0  30 60 90 120 150
income before tax us gaap £m
2002
2001
2000
1999
1998
454
503
354
180 
94
0  10 20 30 40 50 60 chairman’s statement
4 arm annual report and accounts 2002
results
we finished the year with total revenues up 3 
to £1509 million and licensing revenues up 8 
to £830 million profit before tax was down slightly 
to £475 million from £506 million in 2001 before
restructuring costs of £20 million in 2002 improved
management of our working capital contributed to 
an increase in our cash and shortterm investments 
to £1303 million from £1045 million at the end of 
the previous year
the market
the challenging economic environment and downturn 
in the semiconductor industry persisted throughout 2002
while we showed a healthy growth in the first half of
the year the industry slowdown caught up with us in
the second half as a number of our partners deferred
placing licensing orders from quarter to quarter and 
as a result licensing activity slowed down 
this led us to revise our short to mediumterm revenue
expectations in the fourth quarter and to adjust our cost
base accordingly arm continues however to report
strong profits and to generate cash and we have
persevered with our policy of investing in the company’s
future by maintaining a high level of expenditure on
research and development
geographic expansion
in july 2002 we opened an office in shanghai in the
people’s republic of china arm consulting shanghai
co ltd will help to create a comprehensive value chain
for the country’s electronics industry by supporting
existing and prospective partners and by becoming
involved in initiatives such as technology transfer and
university programmes
people
in the fourth quarter in response to the declining
market we took the painful but necessary decision 
to reduce our total workforce by approximately 12 
at the end of the year we employed 721 people taking
us back to the number we employed at the end of 2001
the reductions which were made across all levels and
business areas will save approximately £5 million a year
in employment costs 
in march 2002 chief financial officer jonathan brooks
retired from the company and we were pleased to
welcome tim score as his replacement in august 2002
pete magowan vice president of business development
left us to enter the venture capital industry and mike
inglis was appointed to the arm holdings plc board as
executive vice president marketing i would like to
thank both jonathan and pete for their significant
contributions to the company’s development
we strengthened the operational board of the company
by appointing colm mackernan as general counsel and
by promoting simon segars executive vice president
engineering and jerry ardizzone executive vice
president worldwide sales to the executive team
we appreciate the hard work and creativity of all our
people and thank them for their contribution
legal action
in may 2002 nazomi communications inc filed a
lawsuit before the federal district court for northern
california claiming that our jazelle
®
technology for 
java acceleration infringes a us patent owned by
nazomi we are confident that our products do not
infringe the patent cited in the law suit or any other
nazomi patent
arm’s competitive position in the intellectual property ip
licensing business improved during 2002 despite tough
trading conditions although the shortterm trading outlook is
flattish our longterm objective to become the architecture 
for the digital world remains on track arm annual report and accounts 2002  5
we believe that this action is more straightforward than
the litigation with picoturbo inc which was concluded 
in december 2001 and expect the cost and management
time to be significantly less we believe that the matter
could be concluded quickly
we are now protecting our ip even more vigorously 
we filed twice as many patent applications in 2002 as in
the previous year and now have more than 230 patent
families which cover the scope of our activities these
comprise 738 patents on file around the world 245 of
which have matured into issued patents
current trading and prospects 
the strategic nature of our relationships with our
partners enables us to be optimistic about our prospects
but in the current climate the timing of the completion
of licensing deals is difficult to predict in addition our
reported revenues are exposed to any further weakening
of the us dollar as a result we expect our quarterly
revenues to be fairly flat during 2003
we have however received positive feedback from our
partners on our new arm1136js™ and arm1136jfs™
processors during the year we will introduce other 
new cores platform products and development systems
products which should further stimulate demand
over the longer term we believe that the industry
downturn will serve only to strengthen our market
position the accelerating pace behind the arm
architecture is illustrated by the expansion of the
thirdparty community of companies that have chosen
to work closely with us the quality and flexibility 
of our architecture combined with our focus on high
performance at low cost and on good power efficiency
not only differentiates us from our competitors but 
also makes us the preferred partner for many of the
world’s leading semiconductor manufacturers
sir robin saxby chairman 2002 was a challenging year for our industry and for arm 
the strength of our partnership business model and the
passion and commitment of our employees however enabled
us to finish 2002 a significantly stronger company than at the
end of the previous year
6 arm annual report and accounts 2002
chief executive officer’s review
partnerships 
our partnerships continue to be a key ingredient in our
commercial success during 2002 we signed 33 new
partners and 70 new licences 46 multiuse licences and
24 peruse licences of the 33 new partners signed
during the year 23 took peruse licences through our
foundry programme at the end of 2002 we had 108
semiconductor partners compared with 77 at the end 
of 2001 
in the fourth quarter of the year usbased company
flextronics one of the world’s largest providers of
electronics manufacturing services became the first
licensee in our new approved licensing programme 
this enables flextronics to sublicense arm products 
as part of a wider design services offering
significant opportunities exist to license our technology
to new partners and to license new technology to our
existing partners for example in the fourth quarter 
we announced that lsi logic qualcomm and texas
instruments were among the first five licensees 
of the arm1136js processor the first core from 
the arm11 microarchitecture based on the armv6
architecture in addition to licensing products on a per
use basis we also license noncentral processing units
cpus which include hardware platforms application
software models and peripherals to new and existing
partners
the revenue from the licensing of noncpu technology
increased during the year to £126 million compared
with £119 million in the previous year the primexsys
tm
platform which we launched in 2001 and which
enables licensees to improve the timetomarket of their
application solutions had been licensed to four partners
by the end of 2002 during the year we also announced
the availability of the primexsys dual core platform
which is primarily for use in networking applications
in 2002 the proportion of licence revenues earned from
existing partners increased to 89 from 80 in 2001
and as our partner base grows and the number of
available products extends our ability to sign upgrade
and derivative licences will increase
the foundry programme
our foundry programme which we introduced in 2000
continued to expand under this programme we make
our technology available to small “fabless” companies
companies which do not have the facility to fabricate
silicon by licensing it on a peruse basis the fabless
companies then have their chips manufactured by 
one of our foundry partners during the year four 
more foundries joined the programme making a 
total of seven 
our first peruse licensee began shipping arm powered
®
devices in the first quarter of 2002 by the end of the
year the number of peruse licensees shipping product
had increased to six four of our 19 cores which are
available for multiuse licensing have been introduced
into the foundry programme
when we established the programme we envisaged
that some peruse licensees would upgrade to multiuse
licences and to date four have done so
the programme’s lower upfront licence fees but 
higher perunit royalties have attracted a large number
of partners and have therefore increased the number 
of licences sold without having an adverse impact on
the pricing of our multiuse licences
royalties and unit shipments
during 2002 our semiconductor partners shipped a total
of 456 million arm corebased devices earning total
royalty revenues of £268 million royalty revenues are
affected by many factors including the number of arm partners shipping and the mix of corebased chips being
sold the newer cores tend to generate higher perunit
payments of all the arm corebased chips sold 93
have been based on arm7 technology but as royalties
are earned on more recent arm9 arm10 and arm11
corebased chips we expect the average royalty per
chip to increase in the longer term chips sold by per
use licensees will have a positive impact on the average
royalty rate reflecting the different business model
deployed in the foundry programme
royalties are now being earned from products being
shipped in all target end markets – automotive
consumer entertainment imaging mass storage
microcontrollers networking secure and wireless 
the wireless market in which we include personal
organisers continued to be the largest contributor to
royalty revenues accounting for approximately 64
11 of total revenues 
development systems
after a very strong start to the year sales of
development systems slowed and ended the year at
£231 million marginally down on the £233 million
reported in 2001 encouragingly however sales of the
realview
®
development solution which is an important
indicator of the level of arm technologybased
development activity were up year on year the
realview development solution provides a complete
software development solution for creating applications
based on our architecture
we expect our recentlyintroduced realview tools to
have a positive effect on sales in 2003 revenues from
the sales of development system products illustrate the
global reach of the arm
®
architecture 40 are sold in
east asia 31 in europe and 29 in the us 30 of
these were sold through our network of distributors
product development
research and development continues to be high on our
agenda arm was built on innovation and the new and
exciting products we develop will be the key to our
future success our objective is to deliver competitive
advantage to our partners in all the end markets they
target in 2002 our investment in research and
development increased by 25 to £487 million 
and represented 32 of sales
in the fourth quarter of 2002 we made the first
deliveries of the arm1136js core which is designed 
to meet the lowpower needs of batterypowered and
highdensity embedded applications and is ideal for
innovative applications in networking wireless
automotive and consumer entertainment
i congratulate the engineers who worked on the
development of the arm1136jfs core which was
recently voted ip processor of 2002 by the analysts 
of microprocessor report
during the year we launched the arm11 primexsys
platform for wireless applications and the primexsys
dual core platform for networking applications these
platforms provide system developers with all the
hardware software and verification ip necessary 
to design a system on chip soc we also announced 
a technology collaboration aimed at prolonging the
battery life of mobile devices with national
semiconductor
our technology has been licensed to many of the world’s
leading semiconductor companies and many of our
partners have demonstrated their confidence in it by
increasing the number of products they license from 
us around twothirds of the top 150 semiconductor
companies have not yet however licensed our
technology these opportunities that exist combined
with the flexibility of our licensing models and the arm
total solution offering combine to give us confidence 
in the future
warren east chief executive officer
arm annual report and accounts 2002  7 8 arm annual report and accounts 2002
review of operations
forging
relationships
the partnerships we have formed with major
semiconductor companies such as philips texas
instruments ti and toshiba have served us well and
continue to do so ti for example was one of the first
licensees of the arm1136js product while toshiba and
philips were two of more than 25 partners to sign up to
provide support and technical contributions towards the
development of the next generation of amba™ 30
technology an established industry methodology for
systemonchip soc module assembly 
our overriding culture of meeting the market’s
constantly evolving needs has led us to develop 
a number of different styles of partnership these range
from our original business model under which we
license our microprocessor cores to our foundry
programme which was developed to enable smaller
fabless companies to benefit from our expertise
whereas our larger partners license our technology 
on a multiuse basis the smaller and typically one
product companies license our ip on a peruse basis
they produce silicon through one of our seven foundry
partners wafer fabricators which hold licences to
manufacture using our cores this enables these smaller
companies to mitigate risk and to bring their arm
powered products to market quickly
more recently a newer type of partner has emerged
to participate in the arm approved licensing
programme this programme enables partners 
to sublicense arm core technology and thereby 
to provide their customers with endtoend services 
the benefits to these customers principally original
equipment manufacturers oems of dealing with one
party for ip  design and manufacturing are lower costs
and improved timetomarket our first partner in this
new programme is usbased flextronics semiconductor
our subscription licence model which we developed 
for some of our larger partners enables them to pay 
an annual fee and to use our ip during that period 
this saves time and legal costs because partners are
able to access our technology on demand under a single
legal agreement it also helps us to promote the use of
our ip in these companies because it gives development
groups which are planning new designs quick and easy
access to our technology
our arm technology access programme atap
extended and formalised our relationship with design
service companies which by specialising in designing
soc implementations enable product development
teams to focus on differentiation and adding value 
we verify that each centre is able to meet the needs 
of the growing number of our partners which choose 
to outsource all or part of their design or manufacturing
activities 
we introduced a further initiative our approved training
centre atc programme to extend and formalise existing
relationships this increases the number of organisations
which are authorised to provide arm training we give
their teaching staff intensive training and monitor 
them regularly to ensure that they continue to meet 
our standards
arm’s many types of partners include an entire
community of organisations which align their products
and services around the arm architecture these include
leading operating systems and real time operating
systems rtos providers eda companies application
software providers and tools developers each
contributes to our network of partners by enabling 
a wide range of technology solutions that support the
development of arm powered products this makes our
architecture one of the most widely supported 32bit
risc microprocessor solutions available today
as the market evolves we will continue to create
innovative business models to enable us to take
advantage of new opportunities as well as to provide
access to our technology for an entirely new generation
of companies
we have a “can do” culture and have always been
prepared to find ways to deliver what our partners need 
above right iceberg alley off newfoundland canada icebergs are usually found in groups in which they
stay and migrate arm’s relationships with its partners are similarly stable and long lasting arm’s partnership culture has had a major 
role to play in the company’s success and in recent years new and different
partnership models have been introduced to enable more companies to join 
the arm community
arm annual report and accounts 2002  9 arm provides the tools and the methodologies
including compilers debuggers and development boards to enable developers
to design and debug their hardware and software and to deliver complete
solutions
10 arm annual report and accounts 2002 review of operationscontinued
enabling
solutions
our silicon partners develop complex chips which will
power the next generation of systems products our
primexsys platform solutions help them to get their
products to market more quickly by speeding up the
process in 2002 we introduced our arm11 primexsys
platform at the same time as the first of our new
arm11 cpu cores the primexsys platform which
standardises key functions enables our partners to focus
on creating differentiated products
our realview family of development tools has been
developed to support what are described as multicore
designs in which our partners may be integrating one or
several arm cores together with a digital signal processor
dsp core from another source because silicon processes
now have much finer geometry more transistors can be
put on a single chip which makes the soc very complex
realview tools simplify the process of debugging and
developing the software for multicore design
our realview tools provide designers with the best
solution for creating and analysing systems based on our
technology they are designed and used by the same
engineers who created our architecture we test them 
to the highest level of pre and postsilicon evaluation
and development as a result the arm realview
development solution provides the broadest possible
range of support for future arm architectures and
derivatives arm realview tools are fully integrated 
and provide a complete solution to any design or soc
integration they give the developer a higher level 
of confidence in getting the product right first time and
therefore speed the timetomarket 
amba technology is a further example of an arm
methodology which enables product designers to
achieve a total solution it is an open standard which 
is available from our website through a simple licence
agreement and is free it is widely supported by our
partners and is equally widely accepted as a standard 
for onchip interconnect
in december we announced the next generation of 
the amba specification more than 25 industryleading
companies are collaborating with us on the development
of the amba 30 methodology given the strength of
commitment to this programme the technology will
benefit from the most comprehensive industrywide
support possible for a communication methodology
in november 2002 we formed an innovative
strategic alliance with usbased national
semiconductor we are combining our intelligent 
energy manager™ with national semiconductor’s
powerwise™ technology to increase the battery life 
of mobile telephones initially by 25–75 but
eventually by as much as 400 
by adjusting performance and power consumption in
real time we can save energy and meet endusers
expectations at a time when mobile or cell phones 
are increasingly using powerhungry applications such
as colour video clips and gaming this is an important
progression
we achieved a similarly innovative agreement with
synopsys inc the leading design company for complex
integrated circuits to give them access to our ip  we
collaborated with them on developing a methodology
which enables them to build an arm core very quickly
working together in this way has enabled our silicon
partners to get their products to market more quickly
and thereby to gain competitive advantage
arm annual report and accounts 2002  11
above left terraced paddy fields near klung kung bali an ability to achieve maximum production from
limited capacity equally describes arm’s drive to enable complete solutions  12 arm annual report and accounts 2002
review of operationscontinued
pioneering
technologies
at arm we always remember that users of arm
powered devices will continue to expect new products
to have an increasing level of functionality we see our
job as delivering the best combination of processing
performance and lowpower usage from arm cores to
facilitate that we have steadily expanded and improved
our architecture over the years and during 2002
introduced a number of new products which significantly
extend our architecture’s performance
in april we announced the arm11 microarchitecture
and in october announced the first implementations 
of our arm1136js and our arm1136jfs cores 
these are highly flexible and deliver new levels of
performance functionality and flexibility they provide
the technology for innovative soc design for a wide
range of applications which touch our everyday lives
from handheld portable communicators such as pdas
and internet appliances to digital tvs laser printers 
and automotive and industrial control systems
the arm1136jfs core was recently selected as the
winner of the 2002 microprocessor report analysts’
choice award in the embedded ip category
we announced our arm11 primexsys platform at 
the same time as the arm11 family of cores this
platform provides system developers with all the
hardware software and verification ip they need to
design soc solutions it includes outofthebox support
for real time operating systems rtos and open
operating systems such as symbianos and windowsce
the platform increases design productivity and saves
time and cost for developers 
we extended the primexsys family when we introduced
our dual core platform for networking applications 
this enables the performance of devices such as
modems routers and switches to be improved without
a concomitant increase in heat and power and also
enables developers to integrate their own ip while
retaining the flexibility to meet rapidlychanging market
demands
we made the first deliveries of the arm11
microprocessor cores family in the fourth quarter of the
year the arm11 cores were developed together with
our primexsys platform to create a fully compatible and
extendable system the cores feature our innovative
highperformance lowpower instruction set architecture
which facilitates the building of the next generation of
highvolume products ranging from mobile phones
pdas and games consoles to wireless networking
solutions and automotive powertrain control systems
our objective is to provide the best and most
innovative technology we offer the widest range of
cores and peripheral ip in the market because our focus
is on meeting all our partners’ needs our integrated
products give our partners flexibility and choice 
and have led to us becoming the industry leaders 
in enabling solutions there is a real benefit to our 
partners if they standardise on the arm architecture
they can streamline their processes by training their
engineers to use one architecture and to work with 
one set of tools 
we have licensed our technology to many of the world’s
leading semiconductor companies their confidence 
in it is evidenced by the increasing number of
arm powered products in production today
above right sahara desert ouargia algeria innovative means are needed to make deserts bloom
arm’s innovations create new ways of solving problems arm has always focused on technical
innovation and within that on delivering high performance at low power 
and low cost we continue to increase performance and reduce power
arm annual report and accounts 2002  13 sir robin saxby age 56
chairman
robin saxby served as chairman president
and chief executive officer between joining
the company full time in february 1991 
and october 2001 when he was appointed
executive chairman before joining arm 
he worked for european silicon structures 
sa es2 where he was vice president of
northern europe managing director of es2
limited and president of its us affiliate us2
between 1984 and 1986 he was chief
executive officer of henderson security
systems limited and before that spent 
11 years with motorola semiconductors 
he has also served as chairman of the 
open microprocessor initiative advisory
group a european union panel set up to
advise on collaborative rd activity in
europe in 2000 robin was awarded an
honorary doctorate deng from liverpool
university he was also appointed a visiting
professor to his old department of electronics
at the university in july 2001 he was
awarded an honorary doctorate dtech from
loughborough university he was knighted 
in the 2002 new year’s honours list he is 
a nonexecutive director of glotel plc
warren east age 41
chief executive officer
warren east joined arm in 1994 he set 
up arm’s consulting business and served 
as 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 for 11 years
and latterly managed ti’s fpga marketing 
in europe
tim score age 42
chief financial officer 
tim score joined the company as chief
financial officer and director in march 2002
before joining arm he worked as finance
director of rebus group limited a private
equityfunded software and it services
company between 1997 and 1999 he was
group finance director of william baird plc
which he joined from lucasvarity plc where
he was group controller between 1996 and
1997 between 1991 and 1995 he worked
for btr plc where he was group financial
controller from 1992
tudor brown age 44
chief operating officer
tudor brown has been with arm since its
inception he was previously with acorn
computers where he was principal engineer
working exclusively on the arm rd
programme from 1984 he served as
engineering director and chief technical
officer from 1993 until october 2000 when
he was appointed executive vice president
global development in october 2001 he
was appointed to the board as chief
operating officer 
mike inglis age 43
executive vice president marketing
mike inglis joined arm as executive vice
president marketing in june 2002 and 
was appointed to the board in august 2002
he brings with him over 18 years’
experience in the semiconductor industry
from 1999 to 2002 mike led the uk
communications and high technology team
at at kearney management consultants
before this he held a number of senior
operational and strategic marketing positions
at motorola before joining motorola mike
worked as a marketing and design manager
at texas instruments in its european asic
pal and fpga group 
michael muller age 44
chief technology officer
michael muller has been with arm since 
its inception he was previously with acorn
computers where he was responsible for
hardware strategy and the development 
of portable products he has been involved
with arm technology developments from
their beginning in 1982 as a member of
acorn’s advanced rd team before joining
acorn he worked for orbis computers where
he specialised in networked distributed
computing and highspeed local area
networks at arm he served as vice
president marketing from 1992 to 1996 
and as executive vice president business
development from 1996 in october 2000
he was appointed chief technology officer
and in october 2001 was appointed to 
the board
peter cawdron age 59 
independent nonexecutive director
peter cawdron was appointed to the board
of the company in march 1998 from 1983
to 1998 he worked for grand metropolitan
plc where he served as director of planning
and from 1987 as group strategy
development director from 1977 to 1983
he was chief financial officer and director 
of d’arcymacmanus  masius worldwide
inc before that he spent seven years at 
sg warburg  co ltd as a member of the
corporate finance department and as senior
general manager from 1976 from 1961 to
1970 he worked at peat marwick mitchell 
 co where he qualified as a chartered
accountant in 1966 he serves as chairman
of capital radio plc and as a nonexecutive
director of a number of companies listed in
the uk including compass group plc the
capita group plc christian salvesen plc
express dairies plc and johnston press plc
directors and advisers
14  arm annual report and accounts 2002 secretary and registered office
tim score
110 fulbourn road
cambridge cb1 9nj
united kingdom
registered number
2548782
stockbrokers
hoare govett limited
250 bishopsgate
london ec2m 4aa
united kingdom
morgan stanley  co international limited
25 cabot square
canary wharf
london e14 4qa 
united kingdom
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
auditors
pricewaterhousecoopers llp
abacus house
castle park
cambridge cb3 0an
united kingdom
registrars
lloyds tsb registrars
the causeway
worthing
west sussex bn99 6da
united kingdom
tel 44 870 600 3984
depositary
the bank of new york
101 barclays street
new york
new york 10286
united states of america
arm annual report and accounts 2002  15
michael muller peter cawdron doug dunn lawrence tesler john scarisbrick
sir robin saxby warren east tim score tudor brown mike inglis
doug dunn age 58
independent nonexecutive director
doug dunn was appointed to the board in
december 1998 he is currently president 
and chief executive officer of asm lithography
holding nv from 1993 to 1998 he worked
for royal philips electronics nv initially as
chairman and chief executive officer of the
semiconductor division and a member of the
philips group management committee in
1996 he was appointed chairman and chief
executive officer of the consumer electronics
division and a member of the philips board
from 1980 to 1993 he was managing director
of the plessey and gec semiconductor divisions
before that he worked for motorola in several
engineering and management functions he
was awarded an obe in 1992 for services to
the electronics industry he is also a non
executive director of st microelectroncis nv
and sendo holdings plc
lawrence tesler age 57 
independent nonexecutive director
lawrence tesler is vice president of
engineering for amazoncom holdings inc
the online retailer from 1980 to 1997 he
worked for apple computer inc where he
served as vice president and chief scientist
between 1963 and 1980 he was on the
staff of the xerox palo alto research center
president of a software consulting firm and
a research associate at stanford university
he was a member of the arm board from 
its foundation until august 1997 and
rejoined the board as a nonexecutive
director in march 1998
john scarisbrick age 50
independent nonexecutive director
john scarisbrick was appointed to the arm
board in august 2001 before that he served
25 years at texas instruments in france texas
and england where he was most recently
responsible for its 5 billion asp business
which included dsp  wireless asic sparc
and broadband businesses worldwide he
was previously president of texas instruments
europe and had led the team that created
ti’s dsp business in houston texas before
joining ti he worked in design roles at rank
radio international and marconi space and
defence systems he is a venture partner at
vortex partners llp in dallas texas and serves
on the technical advisory board of viventures
a parisbased venture investor he is also a
director of sonim the leading developer of
253g voice instant messaging applications
he was appointed chairman of cambridge
positioning systems ltd in october 2002 16 arm annual report and accounts 2002
results
total revenues for the year ended 31 december 2002
were up 3 at £1509 million against £1463 million 
in the year ended 31 december 2001 the effective 
us dollartosterling rate at 150 to the pound in 
2002 against 145 the previous year had the effect 
of reducing total reported revenues by approximately 
£58 million
product revenues which include licence fees royalties
and the sale of development systems products were
£1329 million and represented 88 of the year’s 
total revenues compared with £1280 million and 87
in 2001 royalty revenues at £268 million compared
with £279 million in the previous year there are now
37 multiuse and six singleuse licensees shipping silicon
chips based on our architecture licensing revenues
increased by 8 to £830 million in 2002 compared
with £768 million in 2001 sales of development
systems products however decreased slightly from
£233 million in 2001 to £231 million in 2002
service revenues which include consulting services 
and revenues from support maintenance and training
were also slightly down in 2002 at £180 million 12
of total revenues compared with £183 million 13 
of revenues in 2001 consulting revenues declined to
£44 million from £74 million in the previous year 
as resources were reallocated from consulting projects 
to research and development activities revenues from
support maintenance and training increased by 24 
to £136 million from £109 million in 2001
gross margin
gross margin for 2002 improved to 91 against 88 
for the previous 12 months as a result of the reallocation
of resources from consulting projects to research 
and development activities and decreased sales of
development systems resulting in lower cost of 
goods sold
operating expenses
in line with our strategy of continuous innovationour
investment in research and development increased in 2002
to £487 million 32 of revenues from £389 million
27 of revenues in the previous year sales and
marketing costs also increased to £245 million 16 
of revenues from £214 million 15 of revenues 
in 2001 as a result of a reduction in legal costs
administrative expenses reduced to £215 million 
14 of revenues from £228 million 16 of revenues
in 2001
restructuring costs of £20 million were incurred in the
year as a result of a reduction in the total workforce by
approximately 12 to 721 at year end giving rise to
projected annual savings in employee costs of
approximately £5 million
operating margin
operating margin decreased to 27 in 2002 from 31
in 2001 as a result of the reduced revenues reported in
the second half of 2002
interest
the benefit of higher cash balances was offset by 
lower interest rates in 2002 resulting in interest for the
12 months of £44 million compared with £45 million
in the previous year 
earnings and taxation
profit before taxation was £455 million 301 of
revenues compared with £506 million 346 of
revenues in the previous year the group’s taxation rate
decreased to 29 in 2002 from 31 in 2001 partly as
a result of research and development tax credits which
have been available in the uk since april 2002
fully diluted earnings for the year were 32 pence 
a share compared with 34 pence for the previous year
arm continues to be profitable and cash generative despite
the prolonged downturn in the semiconductor industry 
which resulted in a slowdown in licensing activity during the
second half of 2002 we will continue to exercise stringent
management of our cost base during 2003 to enable us to
mitigate the impact of lower revenues on profitability
financial review selected financial datauk gaap
2002 2001 2000 1999 1998
£000 £000 £000 £000 £000
turnover 150922 146274 100730 62120 42268
cost of sales 13185 17289 11647 9803 8316
gross profit 137737 128985 89083 52317 33952
total operating expenses 96608 83203 57927 35794 25638
group operating profit 41129 45782 31156 16523 8314
share of loss of associated undertaking – – 85 – 71
total operating profit 41129 45782 31071 16523 8243
net gain on disposals of trade investments – 314 – – –
gain on part disposal of associated undertaking – – 512 – –
interest receivable net 4373 4470 3912 2266 1911
profit on ordinary activities before taxation 45502 50566 35495 18789 10154
tax on profit on ordinary activities 13031 15874 6007 261 3371
profit on ordinary activities after taxation 32471 34692 29488 18528 6783
equity minority interest 232 303 192 64 8
profit attributable to shareholders 32239 34389 29296 18464 6775
dividends – ––– 4000
retained profit for the financial year 32239 34389 29296 18464 2775
capital expenditure 15616 17349 11842 5900 6402
cash and shortterm investments 130304 104467 75266 51804 39591
shareholders’ funds 174306 138111 102150 69510 49718
employees at end of year number 721 722 619 443 354
 the prior years’ figures have been restated solely as a result of the adoption of financial reporting standard frs 19 “deferred taxation” see note 18
arm annual report and accounts 2002  17
balance sheet and cash flow
net cash inflow of £521 million was generated in the
12 months to 31 december 2002 capital expenditure
was £156 million and cash and shortterm investments
increased by £258 million to £1303 million from
£1045 million at the end of 2001
trade debtors decreased to £205 million from 
£248 million at the end of 2001 the provision for
doubtful debts increased to £22 million from 
£08 million in 2001 which was a reflection of the
number of smaller partners which were generated by
the success of our foundry programme deferred income
was £144 million at the end of december compared
with £194 million at the end of december 2001
the board of directors reviews the structure of the
balance sheet and of free cash generation regularly with
particular reference to the potential uses of the group’s
cash resources in the light of the current challenging
trading conditions and the prospects of the company 
in the longer term the board believes it is appropriate
to retain enough cash to give the company the flexibility
to continue to invest in product development in the
event of the industry downturn being sustained it does
not therefore recommend payment of a final dividend
for the 12 months ended 31 december 2002
tim score chief financial officer compliance with the combined code
the group complies and complied throughout 2002 with the combined code appended to the listing rules of the financial services authority 
composition and operation of the board
the board comprises six executive directors and four independent nonexecutive directors the executive directors are the chairman chief
executive officer chief operating officer chief financial officer chief technology officer and executive vice president of marketing the four
independent nonexecutive directors provide a blend of experience to enable them to bring strong independent judgement and considerable
knowledge and experience to the board’s deliberations peter cawdron has extensive knowledge of uk public group issues doug dunn has
experience of running large companies in the semiconductor and electronics industry lawrence tesler and john scarisbrick both have a broad
understanding of the group’s technology and the practices of major usbased technology companies
the board has six regularly scheduled meetings a year with additional meetings on any pertinent issues organised as necessary during the year
the board is responsible for the development of business and commercial strategy monitoring progress the approval of major business matters
policies operating and capital expenditure budgets ensuring high standards of corporate governance are maintained final approval of senior
executive remuneration and succession planning for top management 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
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 the daytoday responsibility of managing the group to its executive committee and has a
number of subcommittees details of which are set out below
executive committee
the executive committee is responsible for the implementation of the strategy set by the board among other things this committee is responsible
for approval of standard licence agreements ensuring the group’s budget and forecasts are properly prepared ensuring 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 the directors of arm
limited and other senior operational personnel as appropriate 
audit committee 
the audit committee has responsibility for among other things keeping under review the scope and results of the external audit the review of 
the annual report and accounts and halfyear interim report the involvement of the external auditors in those processes considering compliance
with legal requirements accounting standards the listing rules of the financial services authority and the requirements of the securities and
exchange commission and for advising the board on the requirement to maintain an effective system of internal controls the current audit
committee comprises peter cawdron chairman doug dunn and john scarisbrick 
in addition to considering and making recommendations to the board in respect of the appointment remuneration and resignation or dismissal of
the group’s auditors the committee also keeps under review the independence and objectivity of the group’s external auditors value for money of
the audit and the nature extent and costeffectiveness of the nonaudit services provided by the auditors the committee has discussed with the
external auditors their independence and has received and reviewed written disclosures from the external auditors as required by the auditing
standards board’s statement of auditing standard no 610 “communication of matters to those charged with governance” as well as those
required by the us independence standards board’s standard no 1 “independence discussions with audit committees” in order to avoid the
possibility that the auditors’ objectivity and independence could be compromised the group’s tax consulting work is only carried out by the
auditors in cases where they are best suited to perform the work for example tax compliance and advisory work relating to the audit in most
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 however from time to time the group will engage the auditors to perform advisory work on matters
relating to human resources and royalty audits in these circumstances the group will also seek professional advice from another firm of
independent consultants or the group’s legal advisers 
the committee meets three times a year once to review the halfyear interim results once before the year end to discuss the annual accounts and
the approach to the audit and once before the release of the preliminary announcement of the annual results to review the previous year’s results
and audit findings the external auditors chief executive officer and chief financial officer attend all meetings in order to ensure that all of the
information required by the audit committee is available for it to operate effectively the representatives of the group’s 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 23
corporate governanceuk gaap
18 arm annual report and accounts 2002 nominations committee
the nominations committee has responsibility for proposing to the board any new appointments of both executive and nonexecutive directors 
and makes recommendations to the board on board composition and balance it is chaired by the chairman and is attended by the four
independent nonexecutive directors peter cawdron doug dunn john scarisbrick and lawrence tesler the committee meets as required
internal control 
the board of directors has overall responsibility for ensuring that the group maintains an adequate system of risk management and internal 
control and for reviewing its effectiveness such systems are designed to manage rather than eliminate the risks inherent in a fastmoving 
hightechnology business and can therefore only provide reasonable and not absolute assurance against material misstatement or loss
at the beginning of 2002 a risk review team was set up comprising members from different disciplines across the group it includes members
from the board and the executive committee as well as business unit managers and functional managers the team meets four times a year and
reports to the board once a year the team is responsible for identifying and evaluating risks which may impact the group’s strategic and business
objectives and monitoring progress of actions designed to mitigate the risks in addition there is a series of interconnected meetings that span the
group from a detailed weekly meeting chaired by the chief operating officer to the main board meetings of the group each week a business
review meeting is held 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 each month an operations meeting chaired by the chief operating officer and attended by managers
representing different functions across the group is held to review key performance indicators such as revenues orders booked costs product
and project delivery dates and levels of defects found in products in development once a quarter the annual operational plans for the different
disciplines across the group are reviewed at the operations meeting the outputs of the weekly business review meeting and the monthly
operations meeting are reviewed by the executive committee which in turn raises relevant issues with the main board of the group these
processes for identifying evaluating and managing the significant business operational financial compliance and other risks facing the group 
have been in place for the year under review and up to the date of approval of the annual report and financial statements they accord with the
guidance on internal control issued in september 1999 by the internal control working party of the institute of chartered accountants in england
and wales given the group’s relatively small size of a little over 700 employees and the high degree of centralisation in the way the business 
is run the board does not consider that it would be practicable to have its own financial internal audit function for the present it does however
have an operational internal audit function that audits the group’s business and productproject management processes which are documented
maintained and continuously improved for both effectiveness and efficiency in addition these processes 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 more comprehensive
corporate social responsibility report is available on the group’s website in 2003 there are plans for the group’s website to include a section
dedicated to corporate social ethical and environmental issues the group joined the institute of business ethics in 2000 and following a 
process of independent verification the group received confirmation of its admittance to the good corporation network in august 2001 this
qualification assures that the group has been independently verified against a 21point charter covering the fair treatment and protection of its
employees customers suppliers shareholders the community and the environment each year the group must pass an annual assessment
conducted by an independent verifier that looks at the existence and effectiveness of management practices covered by the 21point charter
during 2002 the group successfully retained its membership of the good corporation network as a company whose primary business 
is the licensing of intellectual property 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 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 the group’s staff makes use of computeraided
design tools to generate intellectual property this involves neither hazardous substances nor complex waste emissions the ethical investment
research service eiris grades the group as a “low impact” business in environmental terms 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
however the group does recognise the increasing importance of environmental issues and these are discussed at board level where the chief
financial officer takes responsibility for these issues a number of initiatives in this area were started during 2001 and have continued in 2002 
the group’s environmental policy is published on the group’s website an environmental action plan is being implemented through various
initiatives these include improving our understanding of resource consumption and waste creation so that targets can be set for improvement
ensuring existing controls continue to operate satisfactorily and working with our suppliers to enhance environmental management along the
supply chain
arm annual report and accounts 2002  19 the group has continued to compile baseline data on energy use including estimates for both international business travel and transport to 
and from work the data for 2002 is published in the group’s corporate social responsibility report on the group’s website the group does not
encourage the provision of company cars which number fewer than 20 in total additionally the provision of cycle sheds showers and changing
facilities at the group’s uk offices facilitates greener commuting and the extensive provision of conference telephone and video conferencing
equipment offers an alternative to international travel where appropriate a document output study has been established to examine paper
consumption within the group and to consider how an extension of the group’s electronic document management systems might reduce the 
need for paper documents in 2002 the group decided not to send traditional christmas cards to its customers suppliers and business associates
instead the group has sent christmas cards via electronic mail and has made donations to several charities the group has a rolling programme 
of environmental improvements to its offices which include the introduction of an aluminium can recycling scheme in the group’s offices in
cambridge in 2002 the use of less environmentallydamaging refrigerants in the air conditioning systems and the avoidance of ozonedepleting
fire suppressants in the computer centre
relationships with shareholders
the board makes considerable efforts to establish 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 throughout 
the year and part of the group’s website is dedicated to providing investor relations information 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 all shareholders may register to receive the group’s press releases via the internet and internet links to recordings
of earnings presentations and audio conference calls are available at the appropriate time on the group’s website the board actively encourages
participation at the annual general meeting scheduled for 15 april 2003 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
tim score company secretary
corporate governanceuk gaapcontinued
20 arm annual report and accounts 2002 the directors present their annual report and audited financial statements for the year ended 31 december 2002
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 pr china tokyo japan seoul south korea
taipei taiwan tel aviv israel paris france and munich germany design offices are based in cambridge uk maidenhead uk sheffield uk
blackburn uk sophia antipolis france and austin texas in the us a review of business is set out in the chairman’s statement on pages 4 and 5
the chief executive officer’s review on pages 6 and 7 the review of operations on pages 8 to 13 and the financial review on pages 16 and 17
future developments
the group’s stated objective is to establish a new global risc architecture standard for the embedded microprocessor market the directors believe
that to achieve this goal it is important to expand the number and range of potential customers for its technology to this end the group intends to
sign further licence agreements with new customers and to establish relationships with more thirdparty tools and software vendors to ensure that
their products will operate on the arm architecture the group also plans to develop new technology to license to existing customers as a result 
of its position as an emerging standard in its industry the group is presented with opportunities from time to time to acquire complementary
technology or resources 
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
with the exception of the dividend paid at the time of its initial public offering in april 1998 the group has never paid nor declared any dividends
on its shares in line with a number of its peer companies in the high technology sector in the us although the policy will be kept under review
the directors envisage making use of the group’s cash resources to make strategic investments in the future in situations where the group can
broaden its product portfolio and the potential for furthering arm corebased design wins is improved significantly no interim dividend was
declared during the year and the directors do not recommend the payment of any final dividend for the year
research and development
research and development is of major importance and while the group does not undertake any pure research it does collaborate closely with
universities worldwide key areas of product development for 2003 include the development of additional versions of the arm11 core and
platform first implementations of arm’s intelligent energy management technology additions to the primexsys range of system ip platforms
research into future microprocessor architectures multiprocessing solutions and enhanced application software and development tool products
the group incurred research and development costs of £487 million in 2002 compared with £389 million in 2001 which have been charged 
to the profit and loss account 
donations
the group made charitable donations of £27939 2001 £71027 during the year priorities are given to organisations that are local to the group’s
offices promote education and support the wider understanding of science mathematics and information technology the group does not make
any political donations
directors in the year
the following served as directors of the group during the year ended 31 december 2002
sir robin saxby kbe chairman
warren east chief executive officer 
jonathan brooks chief financial officer resigned 28 march 2002
tim score chief financial officer appointed 1 march 2002
tudor brown chief operating officer
peter magowan executive vice president business development resigned 16 august 2002
michael muller chief technology officer
mike inglis executive vice president marketing appointed 14 august 2002
peter cawdron independent nonexecutive
doug dunn obe independent nonexecutive
john scarisbrick independent nonexecutive 
lawrence tesler independent nonexecutive
during 2002 doug dunn was the senior independent nonexecutive director
directors’ reportuk gaap
arm annual report and accounts 2002  21 election of directors
in accordance with the group’s articles of association peter cawdron will retire by rotation at the group’s annual general meeting and will seek 
reelection at that meeting see page 14 for his biography in accordance with provision a62 of the combined code which requires the election 
of directors by shareholders at the first opportunity after their appointment mike inglis who was appointed during the year will submit himself 
for election at the group’s annual general meeting see page 14 for his biography
directors’ shareholdings in the group
the interests of the directors in the group’s ordinary shares of 005 pence all of which were beneficially held are disclosed in the report 
of the board on remuneration on page 26
substantial shareholdings
the directors are aware of the following substantial interests in the issued share capital of the group as at 17 february 2003 percentage of issued
ordinary share capital
capital group companies 160
morgan stanley securities 63
legal and general investment management 37
fidelity investment management 36
deutsche asset management 32
save for the above the group has not been notified as at 17 february 2003 of any material interest of 3 or more or any nonmaterial interest
exceeding 10 of the issued share capital of the group
disabled persons
the group has a strong demand for highly qualified staff and as such disability is not seen to be an inhibitor to employment or career
development within the group 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 intellectual property enterprise it is vital that all levels of staff are consulted and involved in the decisionmaking processes 
of the group to this end internal conferences and meetings are held regularly which involve employees from all parts of the group in discussions
on future strategy and developments an arm consultation forum was set up in the group’s uk offices which consists of over 400 employees
during 2002 to provide a forum for employees and management to consult and communicate on issues and ideas 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 a very
informal and delegated organisational structure it does not presently operate any collective agreements with any trades unions
policy on payment of creditors
the group’s policy is to pay suppliers within 30 days of the date of 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 the average number
of creditor days for the year ended 31 december 2002 was 19 days for the group 2001 11 days and nil days for the company in both years 
annual general meeting
the annual general meeting will be held at the group’s offices in cambridge uk on 15 april 2003 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 annual general meeting
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
following the conversion of our auditors pricewaterhousecoopers to a limited liability partnership llp from 1 january 2003
pricewaterhousecoopers resigned on 24 january 2003 and the directors appointed its successor pricewaterhousecoopers llp  as auditors to fill the
casual vacancy a resolution to reappoint pricewaterhousecoopers llp as auditors to the group will be proposed at the annual general meeting
notice of the annual general meeting is set out in the circular to shareholders accompanying this annual report
by order of the board
tim score company secretary
directors’ reportuk gaapcontinued
22 arm annual report and accounts 2002 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 grant 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 also 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 uk listing authority 
it is chaired by doug dunn peter cawdron john scarisbrick and lawrence tesler are also members of this committee which meets at least 
twice a year 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 outside advisers generally appointed by the executive
vice president human resources in the furtherance of its duties and makes use of this during 2002 linklaters watson wyatt pricewaterhousecoopers
and the executive vice president human resources have provided advice or services to the committee pricewaterhousecoopers also provided
services as the group’s auditors linklaters provided other legal services to the group watson wyatt did not provide any other services to the group
during this period the chairman chief executive officer and executive vice president human resources will normally attend these meetings no
director is involved in deciding his or her own remuneration
remuneration policy
the remuneration committee in its deliberations on the remuneration policy for the group’s directors seeks to give full consideration to the
combined code including the provisions set out in schedule a to that code the committee also monitors developments in the accounting for 
equitybased remuneration on an ongoing basis
the group operates a remuneration policy for executive directors designed to ensure that it attracts and retains the management skills necessary
for it to remain a leader in its field this policy seeks to provide rewards and incentives for the remuneration of executive directors that reflect their
performance and align with the objectives of the group and comprise a mix of performancerelated and nonperformancerelated remuneration
the committee believes that a director’s total remuneration should seek to recognise his or her worth in the external market 
the nature of the group’s development has meant that there has been a good deal of focus on the attainment of shortterm objectives with 
a high level of variable remuneration currently variable remuneration consists of two fundamental elements annual cash bonus and discretionary
share options both of these incentives are performancerelated and as a result more than half of each executive director’s remuneration is
targeted to be performance linked following a review of the group’s variable remuneration structure the remuneration committee concluded that
in order to align better the interests of executive directors with those of shareholders and to ensure that these key individuals are appropriately
incentivised to remain with the group a higher proportion of executive directors’ remuneration should focus on longerterm objectives as a result
a new policy has been adopted the remuneration committee intends to introduce a shareholding guideline in accordance with that set out in the
notice of annual general meeting
at the heart of the new policy is a proposal to introduce a longterm incentive plan providing for the annual grant of “performance shares” – 
a right to receive shares subject to the group’s performance the group has consulted with its major shareholders and appropriate institutional
bodies such as the association of british insurers regarding the proposed longterm incentive plan which is being put to shareholders for approval
at this year’s annual general meeting
it is also proposed to establish subject to shareholder approval at the annual general meeting an inland revenue approved share incentive plan 
as a new element of the group’s “all employee” share incentive arrangements details of the proposed share incentive plan and the longterm
incentive plan are set out in the circular to shareholders accompanying this annual report
remuneration reportuk gaap
arm annual report and accounts 2002  23 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 executives’ remuneration of up to 50 of basic pay the group operates an annual cash bonus scheme bonuses are
principally tied to the achievement of the group’s financial results with 50 bonus being awarded if all targets are met there are three main
targets namely sales profit growth and forward orders generated for future periods representing bonus opportunities of 15 20 and 15 of
base salary respectively a range of possible outcomes for sales profit and forward orders generated for future periods is agreed at the beginning
of each financial year if the group’s results exceed the minimum levels of each of the agreed targets bonuses will be payable on a linear basis
between the minimum and the maximum of the agreed range no bonuses are payable in respect of 2002 whilst bonuses of 32 were paid to
executive directors for 2001
a deferred bonus scheme was introduced for executive directors in 2001 this enables executive directors to defer up to 100 of their annual
bonus for a period of up to three years during which time the amount of bonus deferred is increased by 33 per annum it is intended to
discontinue this scheme existing deferrals will however be unaffected
the group operates a number of share option plans and employees excluding executive directors can generally receive a number of share options
according to their grade past performance and length of service in the group typically share options are allocated to employees on an annual
basis discretionary options under the approved unapproved and incentive stock option schemes are always issued at market value while
options issued under the save as you earn and employee stock purchase plans are issued at a 15 discount to market value in line with practice
among the group’s peers in the technology sector there are currently no performance conditions attached to the issue or exercise of discretionary
options except for those issued to executive directors share options issued to executive directors prior to their appointment to the board of the
group do not have performance conditions attached to them however discretionary options issued to executive directors after their appointment
to the board of the group will have performance conditions attached to them the executive directors do not currently receive options under the
approved scheme and incentive stock option scheme under the unapproved scheme share options with a value of up to five times base salary
may be issued on the executive director joining the group in addition discretionary options with a value of up to two times base salary may be
issued each year these discretionary options will vest after seven years but may vest after three years from grant if the performance condition is
satisfied for options granted before january 2003 the performance condition is that the group must achieve an average real eps growth of at least
331 ie 331 greater than the percentage increase if any in the retail price index over a performance period of three years commencing
from the start of the financial year in which the options are granted the “performance period” the remuneration committee as part of its review
of the group’s variable remuneration structure reviewed the performance condition for discretionary options to ensure that it remained an effective
tool for attracting motivating and retaining executives and was in keeping with the guidelines of the association of british insurers as a result of
this review it was decided to change the performance condition from a “cliffedge” to a “slidingscale” target for new option grants from january
2003 under the performance condition 50 of the shares under option will vest after three years if the group achieves an average real eps
growth of 93 over the performance period if an 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 although the performance targets are amongst the most
demanding of those set by companies included in the ftse 350 index the remuneration committee considers this to be appropriate as the 
group is operating in the technology market which is still expected to grow significantly in the long term
pensions
the group does not operate its own pension scheme but makes payments into a “money purchase scheme” operated by thirdparty pension
providers 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
remuneration reportuk gaapcontinued
24 arm annual report and accounts 2002 service agreements
executive directors have ”rolling” service contracts that are terminable by either party on one year’s notice the service contracts also terminate
when executive directors reach age 65 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 a 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
michael muller 31 january 1996
mike inglis 17 july 2002
jonathan brooks 2 february 1996
peter magowan 29 january 2001
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 2002 each nonexecutive director received a total fee of £24000 per annum this fee was arrived at by reference to fees paid by other
companies of similar size and complexity and reflected the amount of time nonexecutive directors were expected to devote to the group’s
activities during the year which is around 10 to 15 working days a year the group believes that peter cawdron an independent nonexecutive
director who currently holds more than five directorships is able to devote the agreed amount of time to the group’s activities the remuneration
of the nonexecutive directors is set by the board of the group and their term of appointment is three years nonexecutive directors do not have
service contracts nonexecutive directors 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
performance graphs
a performance graph showing the group’s total shareholder return tsr together with the tsr for the ftse global technology index of 50
companies from 17 april 1998 the date when the group’s shares first commenced trading on the london stock exchange and nasdaq is shown
below the tsr is being calculated in accordance with the directors’ remuneration report regulations 2002 the tsr for the group’s shares was
67 over this period compared with 30 for the ftse global technology index for the same period
tsr on £100 of arm shares vs ftse global technology index £ sterling
the directors consider the ftse global technology index to be an appropriate choice as the index contains companies from the us asia and europe
which 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 utilise arm technology in their end products 
arm annual report and accounts 2002  25
0
500
1000
arm share price since flotation
1500
2000
2500
3000
3500
4000
31 december 2002 31 december 2001 31 december 2000 31 december 1999 31 december 1998 17 april 1998
ftse global technology index directors’ shareholdings in the group
the directors’ beneficial interests in the group’s ordinary shares of 005 pence which excludes interests under the group’s share option schemes
are set out below 
31 december 31 december
2002 2001
director number number
r saxby 25632860 26132860
w east 174920 154920
t score 10000 –
t brown 1496460 1496460
m muller 1891860 1891860
m inglis 10000 –
d dunn 48000 48000
p cawdron 98000 98000
j scarisbrick 10800 10800
l tesler 111000 90000
comparative figures for t score’s and m inglis’ shareholdings are as at their date of appointment to the board
in addition to the interests disclosed above all of the executive directors together with all of the employees of the group are potential
beneficiaries of both the arm holdings plc employee share ownership trust and the arm holdings plc qualifying employee share ownership trust
they are therefore treated as interested in all the shares held by these trusts being 5000000 ordinary shares and 1796754 ordinary shares
respectively at 31 december 2002 and 5000000 and 2017599 shares respectively at 31 december 2001 there have been no changes in
directors’ interests in the group’s shares to the date of approval of the remuneration report
remuneration reportuk gaapcontinued
26 arm annual report and accounts 2002 options over shares in the group
details of discretionary options beneficially held by directors are set out below
as at as at
1 january 31 december exercise
2002 granted exercised lapsed 2002 price earliest date expiry
director number number number number number £of exercise date
r saxby 600000 – – – 600000 002 150799 140703

140000 – – – 140000 1224 110302 100306

25000 – – – 25000 6155 220501 210507
†
765000 – – – 765000
w 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 210508

100000 – – 100000 2465 190405 180409

227058 100000 – – 327058
t score†† – 206896 – – 206896 2465 190405 180409
t 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 180409

190000 50000 – – 240000
m 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 180409

186351 50000 – – 236351
m inglis
††
223515 – – 223515 21475 270503 260509
†
j brooks 140000 – – 140000 – 1224 11302 100306

4874 – – 4874 – 6155 22503 210510

20126 – – 20126 – 6155 22501 210507
†
165000 – – 165000 –
p magowan 138040 – 138040 – – 1224 110302 100306

1960 – 1960 – – 1224 110302 100309

4484 – – 4484 – 6155 220503 210510

13881 – – 13881 – 6155 220501 210507
†
62909 – – 62909 – 3815 220504 210508

50000 – 50000 – 2465 190405 180409

221274 50000 140000 131274 –
 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
†† denotes number of share options held by t score and m inglis on their date of appointment
arm annual report and accounts 2002  27 remuneration reportuk gaapcontinued
28 arm annual report and accounts 2002
share options with performance conditions attached normally vest after seven years if however the group achieves an average eps growth 
of at least 331 greater than the percentage increase if any in the retail price index over a period of three years commencing from the start 
of the financial year in which the options are granted then the options will be exercisable after three years from grant eps is defined as the
group’s fully diluted earnings per ordinary share the method of calculating eps will be adjusted if necessary so that the calculation of the 
eps for each relevant financial period of the group is broadly comparable with that for any other financial period of the group taken for 
the purposes of the performance condition
on 30 january 2003 discretionary share options were granted to the following executive directors warren east 914285 tim score 777142 
tudor brown 731428 michael muller 731428 and mike inglis 731428 the exercise price is 4375 pence 
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 93 greater than the percentage increase if any in the retail prices index over a performance period of three
years commencing 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 retail prices index over the
performance period 100 of the shares under option will vest after three years from grant where the average eps growth is between 93 and
331 greater than the percentage increase if any in the retail prices index over the performance period vesting increases on a straightline basis
details of options held by directors under the group’s save as you earn option schemes are set out below
as at as at
1 january 31 december exercise
2002 granted exercised lapsed 2002 price earliest date expiry
director number number number number number £of exercise date
r saxby 3157 – – – 3157 30685 010704 311204
w east 3157 – – – 3157 30685 010704 311204
t brown 3157 – – – 3157 30685 010704 311204
m inglis 3626 – – – 3626 18254 010707 311207
p magowan 3157 – – 3157 – 30685 010704 311204
 denotes number of share options held by m inglis on the date of appointment as director
the gains made by peter magowan on the exercise of share options were £58240 2001 £1988400 the share price on the date of exercise
was £164
except as described above there have been no changes in directors’ interests under the group’s share option schemes since the end of the 2002
financial year up to the date of approval of the remuneration report
the group’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 group as at 31 december 2002 was 48 pence the closing midprice ranged from 405 pence to 
38575 pence during the year
deferred bonus scheme
warren east elected to participate in the deferred bonus scheme in 2001 and deferred £12680 being onethird of his bonus for three years
provided warren east remains with the group until 31 december 2004 the bonus payable on that date will be £25360 representing an increase 
of 100 plus 6 interest per annum on the deferred amount arm annual report and accounts 2002  29
directors’ emoluments
the emoluments of the directors of the group in respect of services to the group were paid through its whollyowned subsidiary arm limited and
were as follows
basic bonus pension total total 
fees salary benefits payments subtotal contributions 2002 2001
director ££££££ £ £
executive
r saxby – 200000 11559 – 211559 24188 235747 370095
w east – 180000 11606 – 191606 9675 201281 179022
j brooks – 33410 2446 – 35856 2923 38779 227751
t brown – 145000 11606 – 156606 9675 166281 61648
p magowan – 87208 7297 – 94505 6043 100548 179022
m muller – 145000 11606 – 156606 9675 166281 56131
t score – 141667 10602 – 152269 7290 159559 –
m inglis – 60645 4404 – 65049 3684 68733 –
j urquhart –––––– – 139419
total –992930 71126 –1064056 73153 1137209 1213088
nonexecutive
p cawdron 24000 – – – 24000 – 24000 22000
d dunn 24000 – – – 24000 – 24000 22000
j scarisbrick 24000 – – – 24000 – 24000 7333
l tesler 24000 – – – 24000 – 24000 22000
total 96000 – – – 96000 – 96000 73333
total 96000 992930 71126 – 1160056 73153 1233209 1286421
for t score and m inglis salaries shown are from date of appointment for j brooks and p magowan salaries shown are up to their date of resignation from the board for j urquhart the comparative 
figure shows the salary up to the date of his resignation from the board on 12 october 2001
 all the executive directors receive family bupa and annual travel insurance as part of their benefits in kind in addition t score has the use of a company car and r saxby w east t brown m muller 
and m inglis receive a car allowance
jamie urquhart a former director of the group who resigned from the board on 12 october 2001 but remained an employee of the grouptook part
in a groupwide redundancy programme and received redundancy payments amounting to £69675 on leaving the group during 2002
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 period which 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 the period in preparing these financial statements the directors are
required to
•
select suitable accounting policies and apply them consistently
•
make judgements and estimates that are reasonable and prudent
•
state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the
financial statements and
•
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business
the directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position 
of the group 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 hence for taking reasonable steps for the prevention and detection of fraud and other irregularities
the directors are responsible for the maintenance and integrity of the group’s website information published on the internet is accessible in many
countries with different legal requirements legislation in the uk governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions
statement of directors’ responsibilities
30 arm annual report and accounts 2002 independent auditors’ report to the members of arm holdings plcuk gaap
arm annual report and accounts 2002  31
we have audited the financial statements on pages 32 to 55 which have been prepared under the historical cost convention and the accounting
policies set out on pages 36 to 38 we have also audited the disclosures required by part 3 of schedule 7a to the companies act 1985 on pages
27 to 29 contained in the directors’ remuneration report “the auditable part”
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report the directors’ remuneration report and the financial statements in accordance with
applicable united kingdom law and accounting standards are set out in the statement of directors’ responsibilities 
our responsibility is to audit the financial statements and the auditable part of the directors’ remuneration report in accordance with relevant legal
and regulatory requirements and united kingdom auditing standards issued by the auditing practices board this report including the opinion 
has been prepared for and only for the group’s members as a body in accordance with section 235 of the companies act 1985 and for no other
purpose we do not in giving this opinion accept or assume responsibility for any other purpose or to any other person to whom this report 
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing
we report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the
auditable part of the directors’ remuneration report have been properly prepared in accordance with the companies act 1985 we also report to
you if in our opinion the directors’ report is not consistent with the financial statements if the group has not kept proper accounting records 
if we have not received all the information and explanations we require for our audit or if information specified by law regarding directors’
remuneration and transactions is not disclosed
we read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements the other information comprises only arm at a glance the chairman’s
statement the chief executive officer’s review of operations directors and advisers financial review corporate governance the directors’ report
and the unaudited part of the remuneration report
we review whether the corporate governance statement reflects the company’s compliance with the seven provisions of the combined code
specified for our review by the listing rules of the financial services authority and we report if it does not we are not required to consider
whether the board’s statements on internal control cover all risks and controls or to form an opinion on the effectiveness of the group’s 
or company’s corporate governance procedures or its risk and control procedures 
basis of audit opinion
we conducted our audit in accordance with auditing standards issued by the auditing practices board an audit includes examination on a test
basis of evidence relevant to the amounts and disclosures in the financial statements and the auditable part of the directors’ remuneration report
it also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements
and of whether the accounting policies are appropriate to the group’s circumstances consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide 
us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part of the directors’ remuneration report
are free from material misstatement whether caused by fraud or other irregularity or error in forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements
opinion
in our opinion
•
the financial statements give a true and fair view of the state of affairs of the group and the company at 31 december 2002 and of the profit
and cash flows of the group for the year then ended
•
the financial statements have been properly prepared in accordance with the companies act 1985 and
•
those parts of the directors’ remuneration report required by part 3 of schedule 7a to the companies act 1985 have been properly prepared 
in accordance with the companies act 1985
pricewaterhousecoopers llp chartered accountants and registered auditors
cambridge
28 february 2003 2002 2002 2001
notes £000 £000 £000
turnover 2 150922 146274
cost of sales 13185 17289
gross profit 137737 128985
operating expenses
research and development 48674 38920
exceptional research and development 5 1327 –
50001
sales and marketing 24516 21448
exceptional sales and marketing 5 320 –
24836
administrative expenses 21458 22835
exceptional administrative expenses 5 313 –
21771
total operating expenses 96608 83203
operating profit 41129 45782
net gain on disposal of fixed asset trade investments – 314
interest receivable and similar income 4373 4470
profit on ordinary activities before taxation 2 5 45502 50566
tax on profit on ordinary activities 6 13031 15874
profit on ordinary activities after taxation 32471 34692
equity minority interest 20 232 303
retained profit for the financial year 18 32239 34389
earnings per 005 pence ordinary share 8
basic 32p 34p
diluted 32p 34p
 the prior year’s figures have been restated solely as a result of the adoption of financial reporting standard frs 19 “deferred taxation” see note 18
all activities relate to continuing operations
consolidated profit and loss accountuk gaap
for the year ended 31 december 2002
32 arm annual report and accounts 2002
statement of group total recognised gains and lossesuk gaap
2002 2001
notes £000 £000
profit for the financial year 32239 34389
foreign exchange difference on consolidation 18 19 807 14
total recognised gains for the year 31432 34403
prior year adjustment 18 584
total gains recognised since last annual report 32016
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18 2002 2001
notes £000 £000
fixed assets
intangible assets 9 9153 12427
tangible assets 10 25721 22668
investments 11 6395 5943
41269 41038
current assets
stocks 12 1515 581
debtors 13 33558 32204
shortterm investments 15 126013 94376
cash at bank and in hand 15 4291 10091
165377 137252
creditors amounts falling due within one year 14 31483 39360
net current assets 133894 97892
total assets less current liabilities 175163 138930
provisions for liabilities and charges 16 16 210
net assets 2 175147 138720
capital and reserves
calledup share capital 17 511 507
share premium account 18 80883 76124
other reserves 18 663 144
profit and loss account 18 93575 61336
equity shareholders’ funds 19 174306 138111
minority interest – equity 20 841 609
capital employed 175147 138720
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18
the financial statements on pages 32 to 55 were approved by the board of directors on 28 february 2003 and were signed on its behalf by
sir robin saxby director
consolidated balance sheetuk gaap
as at 31 december 2002
arm annual report and accounts 2002  33 2002 2001
notes £000 £000
fixed assets
investments 11 2166 2388
current assets
debtors 13 35340 35708
shortterm investments 48381 42324
cash at bank and in hand 50 18
83771 78050
creditors amounts falling due within one year 14 219 255
net current assets 83552 77795
total assets less current liabilities 85718 80183
net assets 85718 80183
capital and reserves
calledup share capital 17 511 507
share premium account 18 80883 76124
profit and loss account 18 4324 3552
equity shareholders’ funds 85718 80183
the financial statements on pages 32 to 55 were approved by the board of directors on 28 february 2003 and were signed on its behalf by
sir robin saxby director
company balance sheetuk gaap
as at 31 december 2002
34 arm annual report and accounts 2002 2002 2001
notes £000 £000
net cash inflow from operating activities 21 52087 57001
returns on investments and servicing of finance
interest received 4187 4604
net cash inflow from returns on investments and servicing of finance 4187 4604
taxation
withholding tax paid 5011 2149
uk corporation tax paid 10592 7129
overseas tax paid 1155 365
tax paid 16758 9643
capital expenditure and financial investment
purchase of fixed asset investments 1500 –
sale of fixed asset investments – 1936
purchase of tangible fixed assets 15616 17349
sale of tangible fixed assets 35 71
purchase of intangible fixed assets 855 8568
proceeds received by quest on allocation of own shares held 222 958
net cash outflow for capital expenditure and financial investment 17714 22952
acquisitions and disposals
purchase of assets and trade 24 – 1351
net cash outflow from acquisitions and disposals – 1351
net cash inflow before management of liquid resources and financing 21802 27659
management of liquid resources
purchase of shortterm investments 23 31637 24893
financing
issue of shares 4763 1558
net cash inflow from financing 4763 1558
decreaseincrease in cash 23 5072 4324
details of the group’s net funds are shown in note 23
consolidated cash flow statementuk gaap
for the year ended 31 december 2002
arm annual report and accounts 2002  35 1  principal accounting policies
the financial statements have been prepared in accordance with applicable accounting standards in the uk a summary of the more important accounting
policies which have been 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
basis of consolidation the consolidated profit and loss account and balance sheet include the financial statements of the company and its subsidiary
undertakings made up to 31 december 2002 intragroup transactions and profits are eliminated fully on consolidation
changes in accounting policies the group has adopted frs 19 “deferred taxation” in these financial statements the adoption of this standard represents
a change in accounting policy and the comparative figures have been restated accordingly see note 18
goodwill and intangible assets purchased goodwill being the difference between the fair value of consideration and the fair value of net assets acquired
is capitalised and amortised on a straightline basis over an estimate of the time that the group is expected to benefit from it goodwill amortisation periods
are determined on a casebycase basis see note 9 provision is made against the carrying value of goodwill where an impairment in value is deemed 
to have occurred 
licences and patents purchased for the use of technology are capitalised and amortised over the period in which the group is expected to benefit from
them these periods range from three to five years
trade investments trade investments are included at cost there is a regular review of the carrying value of investments with reference to relevant
financial information and industry conditions impairment charges are recorded if there is evidence of impairment in value
shortterm investments bank deposits which are not repayable on demand are treated as shortterm investments in accordance with frs 1 “cash flow
statements” movements in such investments are included under “management of liquid resources” in the group’s cash flow statement
pension scheme arrangements the group contributes to defined contribution plans covering substantially all employees in europe and the us and to
government pension schemes for employees in japan south korea taiwan pr china and israel the group contributes to these plans based upon various
fixed percentages of employee compensation and such contributions are expensed as incurred
tangible fixed assets the cost of tangible fixed assets is their purchase cost together with any incidental costs of acquisition
depreciation is calculated so as to write off the cost of tangible fixed assets less their estimated residual values on a straightline basis over the 
expected useful economic lives of the assets concerned tangible fixed assets are carried at cost and are depreciated from the date that they come 
into use the principal useful economic lives used for this purpose are
freehold buildings 25 years
leasehold improvements five years or term of lease whichever is shorter
computers and software three years
fixtures and fittings five to ten years
motor vehicles four years
provision is made against the carrying value of tangible fixed assets where an impairment in value is deemed to have occurred
operating leases costs in respect of operating leases are charged on a straightline basis over the lease term
stocks stocks are stated at the lower of cost and net realisable value in general cost is determined on a firstinfirstout basis and includes transport 
and handling costs where necessary provision is made for obsolete slowmoving and defective stocks
turnover turnover excluding vat comprises the value of sales of licences royalties arising from the resulting sale of licensed products revenues from
support maintenance and training and consulting contracts and the sale of boards and software toolkits
each licence is designed to meet the specific requirements of each customer delivery generally occurs within a short time period after signing licence 
fees are invoiced according to an agreed set of milestone payments typically the first milestone is on signing of the contract the second is on delivery 
of the customised technology and the third is related to acceptance of the technology by the licensee
revenue from the sale of licences is recognised on a percentagetocompletion basis over the period from signing of the licence to customer acceptance
under the percentagetocompletion method provisions for estimated losses on uncompleted contracts are recognised in the period in which the likelihood
of such losses is determined the percentage to 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 corresponds to the costs of earned revenues revenue from peruse licences is recognised when
the product is accepted by the customer 
where agreements involve multiple elements the entire fee from such arrangements has been allocated to each of the individual elements based on 
each element’s fair value vendorspecific objective evidence of fair value is determined by reference to licence agreements with other customers where
elements are sold separately 
notes to the financial statementsuk gaap
36 arm annual report and accounts 2002 1  principal accounting policies continued
agreements including rights to unspecified products are accounted for using subscription accounting revenue from the arrangement being recognised over
the term of the arrangement or an estimate of the economic life of the products offered beginning with the delivery of the first product
in addition to the licence fees contracts generally contain an agreement to provide post contract support support maintenance and training which consists
of an identified customer contact at the group and telephonic or email support fees for post contract support which take place after customer acceptance
are specified in the contract the fees are determined based on the group’s price list as if sold separately the price list is established and regularly reviewed
by management revenue for post contract support is recognised on a straightline basis over the period for which support and maintenance is contractually
agreed by the group with the licensee
sales of software including development systems which are not specifically designed for a given licence such as offtheshelf software are recognised
upon delivery at that time the group has no further obligations except that where necessary the costs associated with providing post contract support
have been accrued services such as training that the group provides which are not essential to the functionality of the ip are separately stated and priced
in the contract and therefore accounted for separately revenue is recognised as services are performed and collectability is probable
the excess of licence fees invoiced over revenue recognised in respect of such fees is recorded as deferred income
royalty revenues are earned on sales by the group’s customers of products containing arm technology revenues are recognised when arm receives
notification from the customer of product sales or receives payment of any fixed royalties normally quarterly in arrears
revenue from consulting is recognised when the service has been provided and all obligations to the customer under the consulting agreement have been
fulfilled for larger consulting projects containing several project milestones revenue is recognised on a percentagetocompletion basis as milestones are
achieved consulting costs are recognised when incurred
as disclosed above in accordance with frs 18 “accounting policies” the group makes significant estimates in applying its revenue recognition policies in
particular as discussed in detail above estimates are made in relation to the use of the percentagetocompletion accounting method which requires that
the extent of progress toward completion of contracts may be anticipated with reasonable certainty the use of the percentagetocompletion method is
itself based on the assumption that at the outset of licence agreements customer acceptance is not uncertain in addition when allocating revenue to
various elements of multielement arrangements it is assumed that the fair value of each element is reflected by its price when sold separately the
complexity of the estimation process and issues related to the assumptions risks and uncertainties inherent with the application of the revenue recognition
policies affect the amounts reported in the financial statements if different assumptions were used it is possible that different amounts would be reported
in the financial statements
deferred taxation provision is made for deferred taxation using full provision accounting when an event has taken place by the balance sheet date which
gives rise to an increased or reduced tax liability in the future in accordance with frs 19 “deferred taxation” deferred tax assets and liabilities are not
discounted
foreign currency the assets and liabilities of subsidiaries denominated in foreign currencies are translated into sterling at rates of exchange ruling at the
end of the financial year profit and loss accounts of overseas subsidiary undertakings are translated at the average exchange rate for the year differences
on exchange arising from the retranslation of the opening net investment in subsidiary companies are taken to reserves and reported in the statement of
group total recognised gains and losses
other transactions denominated in foreign currencies have been translated into sterling at actual rates of exchange ruling at the date of the transaction
monetary assets and liabilities denominated in foreign currencies have been translated at rates ruling at the balance sheet date exchange differences have
been included in operating profit
financial instruments the group attempts to reduce its foreign currency exposure by entering into forward contracts to sell us dollars and buy sterling 
the group accounts for these instruments by revaluing the financial instruments and the associated trade debtors and cash at the yearend rate the
resulting gain or loss is credited or charged to the profit and loss account for the year
research and development all research and development expenditure is written off in the year in which it is incurred
share schemes the group’s employee share ownership plan esop and qualifying employee share ownership trust quest are separately administered
trusts which are funded by loans the esop and loans and gifts the quest from the group and the assets of which comprise shares in the company
shares in the company held by the esop are shown at the lower of cost and market value shares in the quest are shown at their estimated recoverable
amount being the option price of the shares payable by employees the amounts contributed to the quest in excess of the option price are charged against
reserves
the company operates a save as you earn scheme together with a similar scheme for us employees that allows the grant of share options at a discount 
to the market price at the date of grant the company has made use of the exemption under urgent issues task force uitf abstract 17 not to recognise
any compensation charge in respect of these options
employer’s national insurance and similar taxes arise on the exercise of certain share options in accordance with uitf abstract 25 a provision is made
calculated using the market price of the company’s shares at the balance sheet date prorated over the vesting period of the options
arm annual report and accounts 2002  37 1  principal accounting policies continued
grants grants in respect of specific research and development projects are credited to the profit and loss account to match the projects’ related expenditure
provision for doubtful debts provision is made for doubtful debts following reviews of individual customer circumstances by management
2  segmental analysis
the directors are of the opinion that the group has only one class of business the group’s operations by geographic area are as follows
turnover by destination
2002 2001
£000 £000
europe 26731 27103
us 67086 72271
asia pacific 57105 46900
150922 146274
turnover by origin
2002 2001
total intersegment external total intersegment external
sales sales sales sales sales sales
£000 £000 £000 £000 £000 £000
europe 148578 10831 137747 142614 11478 131136
us 29041 21753 7288 27949 19518 8431
asia pacific 9415 3528 5887 9579 2872 6707
187034 36112 150922 180142 33868 146274
profit before taxation by origin
2002
operating profit 2001
pre exceptional exceptional profit before profit before
item item interest tax tax
£000 £000 £000 £000 £000
europe 38324 1509 4162 40977 46502
us 1970 412 15 1573 957
asia pacific 2795 39 196 2952 3107
43089 1960 4373 45502 50566
net assets
2002 2001
£000 £000
europe 162038 128833
us 6787 5363
asia pacific 6322 4524
175147 138720
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18
notes to the financial statementsuk gaapcontinued
38 arm annual report and accounts 2002 3 directors’ emoluments
the aggregate emoluments of the directors of the group are set out below 
2002 2001
£ £
aggregate emoluments in respect of qualifying services 1160056 1222948
aggregate gains made on exercise of share options 58240 7386530
1218296 8609478
aggregate group pension contributions to money purchase schemes 73153 63473
1291449 8672951
the emoluments of the highestpaid director of the group are set out below 
2002 2001
£ £
emoluments in respect of qualifying services 211559 218301
gains made on exercise of share options – 5097177
211559 5315478
group pension contributions to money purchase schemes 24188 9450
235747 5324928
detailed disclosures of directors’ emoluments are shown on page 29 details of directors’ interests in share options are shown on pages 27 and 28
4  employee information 
the average monthly number of persons including executive directors employed by the group during the year was
2002 2001
number number
by activity
research and development 437 409
administration 100 87
sales and marketing 212 182
749 678
2002 2001
£000 £000
staff costs for the above persons
wages and salaries 37732 37360
social security costs 3463 2989
other pension costs 1894 1591
43089 41940
in addition to the above payments totalling £1886000 were made to employees in respect of redundancy
of the total pension costs above £nil 2001 £nil remained unpaid at the year end
arm annual report and accounts 2002  39 5  profit on ordinary activities before taxation
profit on ordinary activities before taxation is stated after charging
2002 2001
£000 £000
depreciation charge for the year
tangible owned fixed assets 12463 9327
amortisation of goodwill 1352 1979
amortisation of other intangible assets 2777 1091
profitloss on disposal of fixed assets 14 187
auditors’ remuneration
audit services company £5000 2001 £5000 152 146
nonaudit services 95 183
hire of plant and machinery – operating leases 1736 163
leased buildings – operating leases 3463 2938
in 2002 nonaudit fees were £95000 2001 £183000 and related to tax compliance and advisory work £37000 2001 £63000 interim reviews 
secrelated work and accounting advice £47000 2001 £36000 royalty audits £4000 2001 £50000 and other advisory work £7000 2001 £34000 
fees to other major firms of accountants for nonaudit services amounted to £114000 2001 £207000
exceptional items relate to the cost of payments made for redundancy for 98 employees and for related outplacement services these were all paid during
the year
6  tax on profit on ordinary activities
2002 2001
£000 £000
current
uk corporation tax at 30 2001 30 12846 14616
overseas corporation tax 1106 1013
underover provision in respect of prior years
uk corporation tax 5 114
overseas corporation tax 68 –
13889 15515
deferred
uk deferred tax – origination and reversal of timing differences 500 268
overseas deferred tax – origination and reversal of timing differences 358 91
subtotal 858 359
13031 15874
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” with the result that the deferred tax charge for 2001 has increased by £268000 see note 18
the taxation charge for 2002 was reduced by £754000 2001 £537000 in relation to tax losses generated by overseas subsidiaries
under legislation introduced with effect from 1 april 2002 the tax charge is affected by the availability of uk research and development tax credits the tax
impact is a reduction in the tax charge for the year of £781000 2001 £nil
notes to the financial statementsuk gaapcontinued
40 arm annual report and accounts 2002 6  tax on profit on ordinary activities continued
the current tax charge for the year is higher than the standard rate of corporation tax in the uk the differences are explained below
2002 2001
£000 £000
profit on ordinary activities before taxation 45502 50566
taxation charge at uk corporation tax rate of 30 13651 15170
effects of
over provision in respect of prior years 63 114
accelerated capital allowances and other timing differences 692 226
permanent differences 267 1143
higher average tax rates in overseas countries 8 17
losses utilised during the year 650 441
current tax charge for the year 13889 15515
the analysis of the deferred tax asset movement for the group is as follows
deferred deferred
tax asset tax asset
2002 2001
£000 £000
at 1 january 839 1198
creditedcharged to the profit and loss account 858 359
at 31 december 1697 839
 the prior year’s figures have been restated purely as a result of the adoption of frs 19 “deferred taxation” see note 18
the analysis of deferred tax assets for the group is as follows
amount recognised amount not recognised
2002 2001 2002 2001
£000 £000 £000 £000
tax effect of timing differences because of 
excess of tax allowances over depreciation 1193 584 – –
losses carried forward – – 544 1397
other 504 255 15 60
1697 839 559 1457
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18
no provision is made for taxation liabilities which would arise on the distribution of profits retained by overseas subsidiaries because there is no intention 
in the foreseeable future that such profits will be remitted 
no deferred tax asset has been recognised for the amounts unprovided because of the uncertainty of utilising these losses in the future
the company has no potential liability for deferred taxation
7  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 £772000 2001 £972000
arm annual report and accounts 2002  41 8  earnings per share
basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares 
in issue during the year excluding those held in the esop and the quest which are treated as cancelled
for diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
shares the company had one category of dilutive potential ordinary shares during the year being those share options granted to employees and directors
where the exercise price is less than the average market price of the company’s ordinary shares during the year 
reconciliations of the earnings and weighted average number of shares used in the calculations are set out below
2002 2001
number per share number per share
earnings of shares amount earnings of shares amount
£000 thousands pence £000 thousands pence
basic eps
profit available to ordinary shareholders 32239 1012295 32p 34389 999742 34p
effect of dilutive securities
options –8465 – 24891
diluted eps
adjusted earnings 32239 1020760 32p 34389 1024633 34p
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” with the result that the earnings for 2001 have decreased by £268000 and the basic eps for 2001
has decreased by 01 pence
9  intangible fixed assets
patents and 
licences goodwill total
group £000 £000 £000
cost
at 1 january 2002 11390 5744 17134
additions 855 – 855
at 31 december 2002 12245 5744 17989
aggregate amortisation
at 1 january 2002 1325 3382 4707
charge for the year 2777 1352 4129
at 31 december 2002 4102 4734 8836
net book value
at 31 december 2002 8143 1010 9153
at 31 december 2001 10065 2362 12427
the group has patents and licences which are being amortised over three to five years
goodwill arising on previous years’ acquisitions is being written off over two years in the case of arm france sas and three years in the case of allant
software corporation and noral micrologics limited
the company does not own any intangible fixed assets
notes to the financial statementsuk gaapcontinued
42 arm annual report and accounts 2002 10  tangible fixed assets
fixtures
fittings
freehold assets under leasehold computers and motor
buildings construction improvements and software vehicles total
group £000 £000 £000 £000 £000 £000
cost
at 1 january 2002 190 75 11863 34343 2819 49290
exchange differences – – 94 263 79 436
additions – – 6946 8186 484 15616
transfer – 75 75 – – –
disposals – – 27 360 123 510
at 31 december 2002 190 – 18763 41906 3101 63960
aggregate depreciation
at 1 january 2002 23 – 4480 20531 1588 26622
exchange differences – – 64 240 53 357
charge for year 10 – 3683 8367 403 12463
disposals – – 23 354 112 489
at 31 december 2002 33 – 8076 28304 1826 38239
net book value
at 31 december 2002 157 – 10687 13602 1275 25721
at 31 december 2001 167 75 7383 13812 1231 22668
the company does not own any tangible fixed assets
11  fixed asset investments
listed other investment
investments investments in own shares total
group £000 £000 £000 £000
cost 
at 1 january 2002 – 4168 2388 6556
additions 1500 – – 1500
shares allocated to satisfy exercises under saye scheme – – 222 222
at 31 december 2002 1500 4168 2166 7834
amounts written off
at 1 january 2002 – 613 – 613
amounts written off during the year – 826 – 826
at 31 december 2002 – 1439 – 1439
net book value
at 31 december 2002 1500 2729 2166 6395
at 31 december 2001 –3555 2388 5943
listed investments during the year the group invested in superscape plc a company listed on the london stock exchange taking an 1199 stake in the
company the cost and market value of this investment as at 31 december 2002 was £1500000 the investment was made in order to broaden the scope
of the group’s collaboration with superscape plc in the area of 3d technology for wireless devices
other investments included in other investments are the group’s less than 1 holding in the share capital of cambridge silicon radio limited an
intellectual property company which develops bluetooth solutions and an investment originally representing 35 in the share capital of coware inc 
a company which develops systemonchip software for a wide range of applications the group also has a 024 investment in the share capital of
palmchip corporation a private fabless chip company based in california and a 17 investment in the share capital of pixim inc also a private fabless
chip company based in california 
provisions have been made against other investments to reflect any permanent diminution in value all these investments are held by arm limited
investment in own shares investment in own shares includes £1438000 being the cost of 5000000 shares in the company held by the group’s 
esop which are disclosed as a fixed asset investment in accordance with uitf abstract 13 “accounting for esop trusts” the trust was set up in 1998 
and purchased shares at the time of the company’s flotation using funds provided by the company no options had been granted over these shares at 
31 december 2002 and no awards have been made since the trust was created as at 31 december 2002 and 2001 the trust held 5000000 shares
nominal value £2500 with a market value of £2400000 at 31 december 2002 2001 £17950000 all costs relating to the scheme are dealt 
with in the profit and loss account as they accrue and the trust has waived the right to receive dividends of over and above 001 pence per share 
on all shares held 
arm annual report and accounts 2002  43 11  fixed asset investments continued
investment in own shares held also includes £728000 relating to 1796754 shares held by the group’s quest which was established by the company
during 1999 to acquire new shares in the company for the benefit of employees and directors of the group during the year 220846 2001 3925400
shares were allocated to satisfy employees’ and directors’ exercises under the company’s save as you earn scheme the shares held by the quest are
valued at the lower of the amounts receivable from employees on exercise of their options and the midmarket price at 31 december 2002 the market
value of the shares at 31 december 2002 was £862442 2001 £7243180
the trust has waived the right to receive dividends on the shares held by the quest and all costs relating to the scheme are dealt with in the profit and loss
account as they accrue
investment investment
in group in own
undertakings shares total
company £000 £000 £000
cost and net book value
at 1 january 2002 –2388 2388
shares allocated to satisfy exercises under saye scheme – 222 222
at 31 december 2002 –2166 2166
investment in own shares comprises the shares held by the company’s esop and by the company’s quest as described above
interests in group undertakings details of subsidiary undertakings are as follows
proportion of
nominal value
country of description of issued
name of undertaking registration of shares held shares held
arm limited england and wales ordinary £1 shares 100
arm 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 arm quest trustees limited is the trustee
company of the company’s quest
the group holds the following investments in subsidiaries via its subsidiary company arm limited
proportion of
nominal value
of issued
name of undertaking country of registration principal activity shares held
arm inc usa marketing and development 100
of riscbased processors
arm kk japan marketing of riscbased processors 100
arm korea limited south korea marketing of riscbased processors 85
arm taiwan limited taiwan marketing of riscbased processors 999
arm consulting shanghai co ltd p  r china marketing of riscbased processors 100
micrologic solutions limited england and wales dormant 100
advanced risc machines limited england and wales dormant 100
allant software corporation usa dormant 100
arm france sas france development of riscbased processors 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 
12  stocks
2002 2001
group £000 £000
finished goods 1515 581
the company had no stocks at 31 december 2002 and 2001
notes to the financial statementsuk gaapcontinued
44 arm annual report and accounts 2002 13  debtors
group company
2002 2001 2002 2001
£000 £000 £000 £000
amounts falling due within one year
trade debtors 20516 24809 – –
amounts owed by group undertakings – – 35091 35609
corporation tax – 550 – –
other debtors 1802 1308 – –
deferred tax see note 6 1697 839 – –
prepayments and accrued income 9543 4698 249 99
33558 32204 35340 35708
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” with the result that the deferred tax debtor for 2001 has increased by £584000
14  creditors amounts falling due within one year
group company
2002 2001 2002 2001
£000 £000 £000 £000
trade creditors 4730 2361 – –
corporation tax 3828 7054 190 232
other taxation and social security 824 784 – –
other creditors 1027 1189 – –
accruals and deferred income 21074 27972 29 23
31483 39360 219 255
15  financial instruments
use of financial instruments – general the group has three primary objectives in its use of financial instruments namely the management of foreign
exchange risk the maximisation of returns on funds held on deposit and the use of strategic trade investments in companies in order to further establish
the arm architecture these are managed respectively through the use of hedging strategies primarily forward contracts money market instruments 
and an ongoing process of assessing potential trade investments and current holdings 
to meet these objectives the group has used the policies described below which have been applied throughout the current year
management of foreign exchange risk the group’s earnings and liquidity are affected by fluctuations in foreign currency exchange rates principally 
in respect of the us dollar reflecting the fact that most of the group’s revenues and cash receipts are denominated in us dollars while the majority of its
costs are settled in sterling the group seeks to use forward contracts to manage the us dollarsterling risk as appropriate by monitoring the timing and
value of anticipated us dollar receipts which tend to arise from lowvolume highvalue licence deals in comparison with its requirement to settle certain
expenses in us dollars the group reviews the resulting exposure on a regular basis and hedges this exposure using forward contracts for the sale of us
dollars as appropriate such contracts are entered into with the objective of matching their maturity with projected us dollar cash receipts as the timing 
of large cash receipts cannot be predicted with certainty the group enters into forward contracts which allow exercise between two dates typically
between three and four months from the invoice date in those cases where customers settle debts before the expiry of the foreign exchange contract 
the group evaluates whether money market rates available for us dollar investments exceed those for sterling investments it then seeks to maximise its
returns by remitting us dollars against forward contracts at the beginning or end of the exercise period depending on the prevailing money market rates 
for us dollars and sterling at the time 
at 31 december 2002 the group had outstanding forward contracts to sell 54000000 2001 42800000 the group had 33293000 
2001 34631000 of trade debtors denominated in us dollars at that date and us dollar cash balances of 28645000 2001 22720000 thus 13
2001 24 of the group’s us dollar current assets were not hedged by matching forward contracts at the year end a proportion considered appropriate 
in the light of the anticipated us dollar requirements to settle liabilities particularly in respect of overseas operations
in addition certain customers remit royalties and licence fees in other currencies primarily the euro as the amounts involved are not considered significant
the group does not take out euro forward contracts
the group where required invests profits in the subsidiary in which they were earned the group does not hedge any foreign net asset investment using
foreign currency loans as there is currently no requirement for external borrowings
arm annual report and accounts 2002  45 15  financial instruments continued
maximisation of return on funds held on deposit the group’s earnings may be affected by changes in interest rates available on bank deposits the
group aims to maximise returns from funds held on deposit and uses money market deposits with major financial institutions to do so recent maturities
have been up to three months in length but this varies since close consideration is given to the uk and us money market yield curves before contracts 
are closed 
trade investments investment activity is intended to create longterm strategic alliances with development companies some of which may be unlisted 
at the time of the investment decision as there can be no guarantee that there will be a future market for these securities or that the value of such
investments will rise the directors evaluate each investment opportunity on its merits before committing arm’s funds the directors review holdings in 
such companies on a regular basis to determine whether continued investment is in the best interests of the group funds for such ventures are strictly
limited in order that the financial effect of any potential decline in the value of investments would not be substantial in the context of the group’s 
financial results during 2002 the group invested in superscape plc a company listed on the london stock exchange
the company holds investments in four private companies pixim inc coware inc palmchip corporation and cambridge silicon radio limited all of which
develop products based on arm technology
external borrowings the group had no longterm debt at 31 december 2002 2001 £nil or during the financial year
numerical disclosures numerical disclosures are set out in the tables below shortterm debtors and creditors have been excluded from all the following
disclosures other than currency risk disclosures
interest rate risk of financial assets
group 2002 2001
cash at cash at
bank and shortterm bank and shortterm
in hand investments total in hand investments total
currency £000 £000 £000 £000 £000 £000
sterling 89 102821 102910 425 85855 86280
us dollars 2452 17113 19565 5590 6904 12494
european currencies other than sterling 610 2473 3083 280 1617 1897
other currencies 1140 3606 4746 3796 – 3796
at 31 december 4291 126013 130304 10091 94376 104467
floating rate 4291 – 4291 10091 – 10091
fixed rate – 126013 126013 – 94376 94376
at 31 december 4291 126013 130304 10091 94376 104467
the fixed rate cash and shortterm investments in sterling and us dollars were placed with banks for between one week and three months and earn
interest of between 12 and 4625 2001 165 and 61 floating rate cash earns interest based on relevant national libid equivalents
financial liabilities provisions for national insurance and similar taxes of £16000 2001 £210000 are financial liabilities in sterling on which no interest 
is paid maturity depends on when certain share options are exercised
fair values of financial instruments
cash and shortterm investments the carrying amount approximates to fair value because of the short maturity of those instruments
foreign currency forward contracts the fair value of foreign currency forward contracts is estimated using the settlement rates the fair value of forward
contracts is estimated at £1061000 at 31 december 2002 2001 £355000 the increase is due to changes in the sterlingus dollar exchange rate in 2002
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 2002 £2729000 as they are by definition not
traded on an organised market and are unique in their activities nevertheless based on impairment reviews carried out on a regular basis the directors
are of the opinion that the fair value of these investments approximates to carrying value
investments in listed companies the fair value of listed investments is determined with reference to prices quoted on the london stock exchange at
31 december 2002 on this basis the fair value of the group’s listed investment was equal to its carrying value at 31 december 2002 2001 no listed
investments
provisions the carrying amount of £16000 approximates to fair value as this is the amount which would be payable if the liability had crystallised at the
balance sheet date
notes to the financial statementsuk gaapcontinued
46 arm annual report and accounts 2002 15  financial instruments continued
currency exposure the table below shows the extent to which group companies have monetary assets and liabilities in currencies other than their local
currency net of forward contracts foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account of 
the individual companies and the group
european other
us dollars currencies currencies total
2002 £000 £000 £000 £000
functional currency of group operation
sterling 729 1755 145 881
other currencies 966 – – 966
total 237 1755 145 1847
2001
functional currency of group operation
sterling 10522 2108 47 12677
other currencies 60 – – 60
total 10582 2108 47 12737
hedges the group’s hedging policy is to hedge currency risk using forward foreign currency contracts for foreign currency debtors and cash details of
unrecognised and deferred gains and losses are shown below
unrecognised deferred
gain loss total net gainloss gain loss total net gainloss
£000 £000 £000 £000 £000 £000
gains and losses on hedges at 1 january 2002 – – – 355 – 355
arising in previous years included in 2002 income – – – 355 – 355
gains and losses not included in 2002 income ––––––
arising in 2002 – – – 1061 – 1061
gains and losses on hedges at 31 december 2002 ––– 1061 – 1061
of which
gains and losses expected to be included in 2003 income – – – 1061 – 1061
gains deferred at 31 december 2002 will be matched by losses of the same amount on the underlying items being hedged
financial instruments held for trading purposes the group does not trade in financial instruments
16  provisions for liabilities and charges
the movement in the group’s provision is as follows
2002 2001
£000 £000
at 1 january 210 219
credited to the profit and loss account 194 9
at 31 december 16 210
the provision relates to employer’s national insurance and similar taxes on certain share options provided in accordance with uitf abstract 25 
the provision fluctuates with movements in share price and the exercise of the share options
arm annual report and accounts 2002  47 17  calledup share capital
2002 2001
company £000 £000
authorised
1580000000 ordinary shares of 005 pence each 2001 1580000000 790 790
allotted calledup and fully paid
1021758000 ordinary shares of 005 pence each 2001 1014767176 511 507
6990824 ordinary shares of 005 pence each were issued in the year for cash consideration of £4762594 the issue of these shares occurred on the
exercise of share options at various times during the year
share options the company had the following ordinary share options outstanding at 31 december 2002
period of option
ordinary shares exercise price
of 005 pence each per share
date of issue number £ earliest date latest date
15 july 1996 320000 002 15 july 1999 14 july 2006
15 july 1996 600000 002 15 july 1999 14 july 2003
5 march 1997 725500 0026 5 march 2000 4 march 2007
30 april 1997 8000 0026 30 april 2000 29 april 2004
29 may 1997 80000 00425 29 may 2000 28 may 2004
25 june 1997 70000 00625 25 june 2000 24 june 2004
1 october 1997 150000 00625 1 october 2000 30 september 2004
24 december 1997 230000 00625 24 december 2000 23 december 2004
7 march 1998 660000 01125 7 march 2001 6 march 2008
7 march 1998 55036 01125 7 march 1999 6 march 2003
17 april 1998 179400 02445 1 june 2003 30 november 2003
8 june 1998 134309 03875 8 june 1999 7 june 2003
8 june 1998 115000 03875 8 june 2001 7 june 2005
17 august 1998 125000 05275 17 august 2001 16 august 2008
17 august 1998 54322 05275 17 august 1999 16 august 2003
16 october 1998 51000 0405 16 october 2001 15 october 2008
16 october 1998 34550 0405 16 october 1999 15 october 2003
11 march 1999 2909507 1224 11 march 2002 10 march 2009
11 march 1999 1489869 1224 11 march 2000 10 march 2004
11 march 1999 4986040 1224 11 march 2002 10 march 2006
4 may 1999 158259 1338 4 may 2002 3 may 2009
4 may 1999 42740 1338 4 may 2002 3 may 2006
4 may 1999 41254 1338 4 may 2000 3 may 2004
10 june 1999 11240 1099 1 july 2004 31 december 2004
10 august 1999 75490 1765 10 august 2002 9 august 2009
10 august 1999 40002 1765 10 august 2000 9 august 2004
10 august 1999 26010 1765 10 august 2002 9 august 2006
12 november 1999 91570 426 16 november 2002 15 november 2009
12 november 1999 76680 426 16 november 2002 15 november 2006
1 february 2000 121250 7738 1 february 2003 31 january 2010
1 february 2000 52500 7738 1 february 2001 31 january 2005
1 february 2000 70000 7738 1 february 2003 31 january 2007
18 april 2000 80465 6136 18 april 2003 17 april 2010
18 april 2000 10000 6136 18 april 2001 17 april 2005
18 april 2000 36035 6136 18 april 2003 17 april 2007
25 april 2000 50000 627 25 april 2001 24 april 2005
19 may 2000 26481 565 1 july 2003 31 december 2003
19 may 2000 4896 565 1 july 2005 31 december 2005
22 may 2000 346763 6155 22 may 2003 21 may 2010
22 may 2000 794000 6155 22 may 2001 21 may 2005
22 may 2000 2689555 6155 22 may 2001 21 may 2007
7 august 2000 24250 670 7 august 2001 6 august 2005
7 august 2000 162500 670 7 august 2001 6 august 2007
13 october 2000 145750 633 13 october 2001 12 october 2005
13 october 2000 252500 633 13 october 2001 12 october 2007
15 february 2001 83000 443 15 february 2002 14 february 2006
15 february 2001 436500 443 15 february 2002 14 february 2008
14 may 2001 590521 335 14 may 2004 13 may 2011
14 may 2001 1305900 335 14 may 2002 13 may 2006
14 may 2001 3760529 335 14 may 2002 13 may 2008
notes to the financial statementsuk gaapcontinued
48 arm annual report and accounts 2002 17  calledup share capital continued
period of option
ordinary shares exercise price
of 005 pence each per share
date of issue number £ earliest date latest date
19 may 2001 203480 3069 1 july 2004 31 december 2004
19 may 2001 28366 3069 1 july 2006 31 december 2006
19 may 2001 22349 3069 1 july 2003 30 september 2003
22 may 2001 62909 3815 22 may 2004 21 may 2008
†
1 august 2001 58813 284 1 august 2004 31 july 2011
1 august 2001 28000 284 1 august 2002 31 july 2006
1 august 2001 20822 284 1 august 2002 31 july 2008
6 november 2001 139000 375 6 november 2004 5 november 2011
6 november 2001 44750 375 6 november 2002 5 november 2006
6 november 2001 51000 375 6 november 2002 5 november 2008
5 march 2002 62500 3145 5 march 2003 4 march 2007
5 march 2002 176250 3145 5 march 2003 4 march 2009
19 april 2002 1072098 2465 19 april 2005 18 april 2012
19 april 2002 4294629 2465 19 april 2003 18 april 2009
19 april 2002 406896 2465 19 april 2005 18 april 2009
†
19 april 2002 1500675 2465 19 april 2003 18 april 2007
20 june 2002 905064 182537 1 july 2005 31 december 2005
20 june 2002 242922 182537 1 july 2007 31 december 2007
20 june 2002 189140 182537 1 july 2004 30 september 2004
27 may 2002 223515 21475 27 may 2003 26 may 2009
15 august 2002 128500 1505 15 august 2003 14 august 2007
15 august 2002 378250 1505 15 august 2003 14 august 2009
16 october 2002 68750 0425 16 october 2003 15 october 2007
16 october 2002 120000 0425 16 october 2003 15 october 2009
8 november 2002 3500 05725 8 november 2003 7 november 2007
8 november 2002 35000 05725 8 november 2003 7 november 2009
total 35051349
 these relate to options granted under the company’s savingsrelated share option 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
†
these options will vest after seven years unless certain criteria are met in which case they will vest between three and seven years
arm annual report and accounts 2002  49 18  share premium account and reserves
share 
premium other profit and
account reserves loss account
group £000 £000 £000
at 1 january 2002 76124 144 60752
prior year adjustment –– 584
at 1 january 2002 as restated 76124 144 61336
foreign exchange difference on consolidation – 807 –
premium on exercise of share options 4759 – –
retained profit for the year –– 32239
at 31 december 2002 80883 663 93575
other reserves represent exchange differences arising on consolidation of foreign subsidiary undertakings
prior year adjustment the group has adopted frs 19 “deferred taxation” during the year by means of a prior year adjustment the current year effect of 
this is to decrease the tax charge by £500000 the effect for 2001 is to increase the tax charge by £268000 and to increase shareholders’ funds and the
deferred tax debtor at 31 december 2001 by £584000
share 
premium profit and
account loss account
company £000 £000
at 1 january 2002 76124 3552
premium on exercise of share options 4759 –
retained profit for the year – 772
at 31 december 2002 80883 4324
the adoption of frs 19 “deferred taxation” has had no impact on the results of the company
19  reconciliation of movements in shareholders’ funds
2002 2001
group £000 £000

profit attributable to shareholders 32239 34389
other recognised gains and losses relating to the year 807 14
new share capital issued 4 7
share premium on issue of new shares 4759 1551
net addition to shareholders’ funds 36195 35961
opening shareholders’ funds as previously reported 137527 101298
prior year adjustment see note 18 584 852
opening shareholders’ funds as restated 138111 102150
closing shareholders’ funds 174306 138111
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18
20  minority interests
2002 2001
£000 £000
at 1 january 609 306
profit and loss account 232 303
equity minority interests at 31 december 841 609
notes to the financial statementsuk gaapcontinued
50 arm annual report and accounts 2002 21  reconciliation of operating profit to net cash inflow from continuing operating activities
2002 2001
£000 £000
operating profit 41129 45782
depreciation on tangible fixed assets 12463 9327
profitloss on sale of tangible fixed assets 14 187
amortisation of goodwill 1352 1979
amortisation of other intangible assets 2777 1091
amounts written off unlisted investments 826 272
increase in stocks 934 196
decreaseincrease in trade debtors 4293 5896
trade debtors converted to unlisted investments – 1361
increase in prepayments and accrued income 4960 2037
increase in trade creditors 2369 312
increase in other taxation and social security 40 194
decreaseincrease in accruals deferred income and other creditors 7060 7338
movement in provisions for liabilities and charges 194 9
net cash inflow from operating activities 52087 57001
22  reconciliation of net cash flow to movement in net funds
2002 2001
£000 £000
decreaseincrease in cash for the year 5072 4324
cash outflow from purchase of shortterm investments 31637 24893
change in net funds from cash flows 26565 29217
noncash items
translation difference 728 16
movement in net funds in the year 25837 29201
net funds at start of the year 104467 75266
net funds at end of the year 130304 104467
23  analysis of net funds
cash at bank shortterm
and in hand investments total
£000 £000 £000
at 1 january 2002 10091 94376 104467
cash flow 5072 31637 26565
translation differences 728 – 728
at 31 december 2002 4291 126013 130304
24  cash flow from acquisitions
2002 2001
£000 £000
acquisitions
purchase of assets and trade – 1200
acquisition expenses – 151
net cash outflow from acquisitions – 1351
arm annual report and accounts 2002  51 25  capital commitments
2002 2001
group £000 £000
capital expenditure that has been contracted for but has not been provided for in the financial statements 1714 488
the company had no capital commitments at 31 december 2002 and 2001
26  financial commitments and contingencies
at 31 december 2002 the group had annual commitments under noncancellable operating leases as follows
2002 2001
land and land and
buildings other buildings other
£000 £000 £000 £000
expiring within one year 321 8 369 –
expiring between two and five years inclusive 894 1778 957 57
expiring in over five years 2110 – 2110 –
3325 1786 3436 57
at 31 december 2002 and 2001 the company had no annual commitments under noncancellable operating leases
the group has an obligation if certain criteria are met to make a 3000000 investment representing a minority holding in a fabless semiconductor
company that is set up to create and sell arm corebased microprocessor cores to be licensed from arm
in 2002 a lawsuit was filed against the group claiming that the group’s jazelle technology for java™ acceleration infringes a us patent the group is
confident that its products do not infringe the patent cited in the lawsuit or any other patents is defending the action vigorously and believes that the
matter could be concluded quickly
27  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
there were no related party transactions during 2002 or 2001 which require disclosure
notes to the financial statementsuk gaapcontinued
52 arm annual report and accounts 2002 28 summary of significant differences between united kingdom generally accepted accounting principles us gaap followed by the group 
and united states generally accepted accounting principles us gaap
the financial information set out in this report has been prepared under uk gaap which differs in certain significant respects from us gaap  the principal
differences between the group’s accounting policies under uk gaap and those that would have been followed had the financial information been prepared
under us gaap are set out below
goodwill under uk gaap  goodwill is amortised on a straightline basis over an estimate of the time that the group is expected to benefit from it this 
was also the group’s accounting policy under us gaap prior to 1 january 2002 on which date following the provisions of sfas 142 “goodwill and other
intangible assets” the carrying value of goodwill was frozen and became subject to annual impairment reviews the transitional impairment review carried
out on adoption of sfas 142 did not give any indication of impairment
acquisitions under us gaap  payments to purchase intangible assets that are still in development are charged directly to the profit and loss account 
such payments are included within goodwill under uk gaap  giving rise to a difference in goodwill recognised and the associated amortisation charge
marketable securities under us gaap  investments in availableforsale securities are marked to market where the market value is readily determinable
and gains and losses net of deferred taxation are recorded in other comprehensive income under uk gaap  the group’s accounting policy is to carry such
investments at cost less any provisions for diminution in value
investment in own sharestreasury stock under uk gaap  the shares held by the group in the esop and the quest are included as “investment in own
shares” within fixed asset investments investment in own shares is held at the lower of cost and amounts receivable on exercise of options where
applicable and market value under us gaap  these shares are treated as treasury stock and are included within shareholders’ equity at original cost
save as you earn saye plans under uk gaap  the group has taken advantage of the exemption provided by uitf 17 “employee share schemes” not 
to recognise any compensation charge in respect of options granted under saye plans under us gaap  the group follows the requirements of eitf 0023
which does not permit such an exemption in respect of plans where the savings period is in excess of 27 months as is the case with the group’s inland
revenue approved uk saye plans eitf 0023 applies only to new offers made since 24 january 2002 the compensation charge made under us gaap 
is calculated as the difference between the market price of the shares at the date of grant and the exercise price of the option and is recorded on a 
straightline basis over the savings period
employee share options under uk gaap  employer’s taxes that are payable on the exercise of share options are provided for over the vesting period 
of the options under us gaap such taxes are accounted for when the options are exercised
tax on us share options in the us the group is entitled to a tax deduction for the amount treated as compensation under us tax rules for certain
employee share options which have been exercised by us employees during the year this amount is equivalent to the difference between the option
exercise price and the fair market value of the shares at the date of exercise under uk gaap the tax benefit arising from this deduction is included in 
the tax charge in the profit and loss account under us gaap  the tax benefit is recorded as an increase in shareholders’ funds
embedded derivatives under us gaap  where the group enters into sales contracts denominated in a currency that is neither the functional currency 
of the group nor the functional currency of the customer and where there are uninvoiced amounts on such contracts such derivatives are carried at fair
value the resulting gain or loss is recognised in the income statement embedded derivatives are not revalued to fair value under uk gaap 
consolidated profit and loss account under uk gaap  gains and losses on disposal of fixed asset trade investments are shown after operating profit 
under us gaap  gains and losses are reported in income from operations under uk gaap  profit before tax is stated before minority interests under us
gaap  income before income tax is stated after minority interests
consolidated statement of cash flows the consolidated statement of cash flows prepared under uk gaap presents substantially the same information as
that required under us gaap  these presentations differ however with regard to classification of items within the statements and as regards the definition
of the cash and cash equivalents
under uk gaap  cash does not include shortterm deposits and investments which cannot be withdrawn without notice and without incurring a penalty 
such items are shown as shortterm investments under us gaap  deposits with a maturity of less than three months at inception which are convertible into
known amounts of cash are included as cash and cash equivalents under uk gaap cash flows are presented separately for operating activities returns on
investments and servicing of finance taxation capital expenditure and financial investments acquisitions and disposals management of liquid resources
and financing activities us gaap  however requires only three categories of cash flow activity to be reported operating investing and financing cash flows
from taxation and returns on investments and servicing of finance shown under uk gaap are included as operating activities under us gaap 
arm annual report and accounts 2002  53 28 summary of significant differences between united kingdom generally accepted accounting principles uk gaap followed by the group 
and united states generally accepted accounting principles us gaap continued
a reconciliation of uk gaap operating profit to us gaap income from operations
2002 2001
£000 £000
group operating profit as reported under uk gaap 41129 45782
adjustments for
movement in provision for employer’s taxes on share options 194 9
compensation charge in respect of saye options 56 –
net gains on disposals of trade investments – 314
difference on amortisation of goodwill 1352 50
marktomarket of embedded derivatives 950 –
income from operations as reported under us gaap 41281 46137
b reconciliation of uk gaap profit before tax to us gaap income before income tax
2002 2001
£000 £000
profit before tax as reported under uk gaap 45502 50566
adjustments for
movement in provision for employer’s taxes on share options 194 9
compensation charge in respect of saye options 56 –
difference on amortisation of goodwill 1352 50
marktomarket of embedded derivatives 950 –
minority interest 232 303
income before income tax as reported under us gaap 45422 50304
c reconciliation of uk gaap retained profit to us gaap net income
2002 2001
£000 £000
retained profit as reported under uk gaap 32239 34389
adjustments for
movement in provision for employer’s taxes on share options 194 9
compensation charge in respect of saye options 56 –
difference on amortisation of goodwill 1352 50
marktomarket of embedded derivatives 950 –
tax deduction for us employee share options 754 428
net income as reported under us gaap 31637 34002
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18
d reconciliation of shareholders’ equity from uk to us gaap
2002 2001
£000 £000
shareholders’ funds as reported under uk gaap 174306 138111
adjustments for 
investment in own sharestreasury stock 18034 19934
contribution to quest net of proceeds from allocation of shares 15868 17546
provision for employer’s taxes on share options 16 210
writeoff of inprocess research and development 150 150
cumulative difference on amortisation of goodwill 1414 62
fair value of embedded derivatives 950 –
shareholders’ equity as reported under us gaap 172470 135845
 the prior year’s figures have been restated solely as a result of the adoption of frs 19 “deferred taxation” see note 18
notes to the financial statementsuk gaapcontinued
54 arm annual report and accounts 2002 28 summary of significant differences between united kingdom generally accepted accounting principles uk gaap followed by the group 
and united states generally accepted accounting principles us gaap continued
e reconciliation of uk gaap cash to us gaap cash and cash equivalents
2002 2001
£000 £000
cash as reported under uk gaap 4291 10091
adjustment for shortterm investments treated as cash equivalents under us gaap 126013 94376
cash and cash equivalents as reported under us gaap 130304 104467
arm annual report and accounts 2002  55 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 expressed in sterling set forth on pages 61 to 78 of this report
selected consolidated financial data – us gaap
1998 1999 2000 2001 2002
£000 £000 £000 £000 £000
revenues 42268 62120 100730 146274 150922
cost of revenues 8316 9803 11647 17289 13185
operating expenses 26361 36530 57846 82848 96456
income from operations 7591 15787 31237 46137 41281
interest net 1911 2266 3912 4470 4373
share of loss of equity affiliate 71 – 85 – –
gain on partial disposal of shares in equity affiliate – – 512 – –
minority interest 8 64 192 303 232
income before income tax 9423 17989 35384 50304 45422
provision for income taxes 3371 1757 6007 16302 13785
net income 6052 16232 29377 34002 31637
diluted earnings per common share 04p 16p 29p 33p 31p
ipo dividend per common share 05p – – – –
research and development as a percentage of revenues 301 276 262 253 313
capital expenditure £6402 £5900 £11842 £17349 £15616
cash and cash equivalents £39591 £51804 £75266 £104467 £130304
shareholders’ equity £48280 £67113 £100972 £135845 £172470
total assets £60580 £83288 £127343 £175814 £205744
employees at year end number 354 443 619 722 721
selected consolidated financial dataus gaap
56 arm annual report and accounts 2002 operating and financial review and prospectsus gaap
arm annual report and accounts 2002  57
the following discussion should be read in conjunction with the consolidated financial statements and notes thereto the matters addressed in this 
operating and financial review and prospects with the exception of the historical information presented contain forwardlooking statements involving 
risks and uncertainties
overview arm designs highperformance lowcost powerefficient reduced instruction set computing risc microprocessors and related technology 
and software and licenses this ip to semiconductor companies which in turn manufacture market and sell microprocessors applicationspecific integrated
circuits asics and applicationspecific standard products assps based on the arm architecture to systems companies arm also licenses and sells
development systems directly to systems companies and provides consulting and support services to its licensees systems companies and other system
designers arm has developed an innovative intellectual propertycentred and marketdriven business model in which it neither manufactures nor sells 
the products incorporating arm technology but concentrates on the research and development design and support of the arm architecture and supporting
development tools and software
market conditions the challenging economic environment and severe downturn in the semiconductor industry persisted throughout 2002 in this context
arm reported robust results in the first half of the year however when the industry upturn foreseen by many commentators in the second half of 2002
did not materialize we experienced some deferment of licensing decisions by our partners and a consequent slowdown in licensing activity the slowdown
continues to persist
this slowdown in licensing activity caused us to realign our expectations for short to mediumterm revenue growth and we took the decision to adjust our
cost base to be commensurate with our revised expectations despite the unhelpful market background we continue to invest in the future arm technology
roadmap by maintaining a high level of research and development expenditure and are therefore particularly pleased that even with a slowdown in
licensing activity in the second half we remain strongly profitable and cash generative indeed in the second half alone the total net cash inflow from
operating activities was £308 million giving rise to a year end cash balance of over £130 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 december 31
2000 2001 2002
 
revenues
product revenues 839 875 881
service revenues 161 125 119
total revenues 1000 1000 1000
cost of revenues
product costs 46 56 43
service costs 70 62 44
total cost of revenues 116 118 87
gross profit 884 882 913
operating expenses
research and development 262 253 313
sales and marketing 177 147 164
general and administrative 122 154 149
amortization of goodwill 13 13 –
restructuring costs –– 13
total operating expenses 574 567 639
income from operations 310 315 274
interest net 39 31 29
share of loss of equity affiliate 01 – –
gain on partial disposal of equity affiliate 05 – –
minority interest 02 02 02
income before income tax 351 344 301
provision for income taxes 60 111 91
net income 291 233 210
total revenues total revenues were £1509 million in 2002 an increase of 3 from £1463 million in 2001 which was a 45 increase from 
£1007 million in 2000
product revenues product revenues consist of license fees sales of development systems and royalties product revenues for 2000 2001 and 2002 were
£846 million £1280 million and £1330 million representing 84 87 and 88 of total revenues respectively
license revenues increased from £454 million in 2000 to £768 million in 2001 and to £830 million in 2002 representing approximately 45 52 and
55 of total revenues in 2000 2001 and 2002 respectively the importance of the arm7 family declined further in 2002 accounting for 36 of revenues 
in 2000 20 in 2001 and 15 in 2002 this continuing decline reflected the growing range of products available to license from the company including  operating and financial review and prospectsus gaapcontinued
58 arm annual report and accounts 2002
a broadening number of arm9 and arm10 core family products the first core in the arm11 family of products and architectural licenses which give
licensees more rights to modify the technology peripheral technology models subsystems and application software revenues from the arm9 family 
have become increasingly important accounting for 31 of revenues in 2000 44 in 2001 and 43 in 2002 33 new licensees were signed in 2002
bringing the total number of semiconductor partners to 108 of the 33 new licensees 23 were “peruse” licensees who joined the foundry programme
introduced in 2000 to enable small fabless chip companies to gain access to the company’s technology at a lower price point existing semiconductor
partners licensed further cores in 2002 with 37 separate products licensed by 25 different partners during the year of these 21 were for products from
microprocessor core families not previously licensed and 16 were for further cores within families already licensed sales of licenses to the existing
customer base of semiconductor partners has become a more important part of the business accounting for approximately 89 of total license fees 
in 2002 this compares to approximately 80 in 2001 and 66 in 2000 
the sale of noncore licenses covering items such as platforms peripherals embedded trace modules models and subsystems increased in 2002 
to £126 million from £119 million in 2001 and £78 million in 2000 representing approximately 15 of license revenues in 2002 15 in 2001 and 
17 in 2000
revenues from the sale of development systems increased from £136 million in 2000 to £233 million in 2001 falling slightly to £231 million in 2002
representing approximately 14 16 and 15 of total revenues in 2000 2001 and 2002 respectively the majority of arm’s sales of development
systems are in us dollars and the us dollar value of sales of development systems in 2002 was approximately 3 higher than in 2001 the effect of the
strong pound against the us dollar was to reduce the sterling value of sales sales of development systems were also affected by increased competition 
in the debug tools marketplace which saw the volume of sales of arm’s debug solutions increasing but the value of sales decreasing as prices were
cut to remain competitive
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 £256 million in 2000 to £279 million in 2001 and decreased to £268 million in 2002 representing 25 19 and
18 of total revenues in 2000 2001 and 2002 respectively volume shipments increased from 367 million units in 2000 to 420 million units in 2001
mainly due to an increase in the sale of products such as printers digital cameras smart cards disk drives and networking products unit shipments in 2002
were 456 million with the increase in volumes coming from increased production of a wide range of electronic devices including wireless handsets secure
products and automotive products the company expects royalty revenues to grow year on year although they may be subject to significant fluctuations
from quarter to quarter the proportion of unit shipments into the nonwireless markets has increased in 2002 and the company expects this trend to
continue into 2003
service revenues service revenues consist of design consulting services and revenues from support maintenance and training service revenues increased
from £162 million in 2000 to £183 million in 2001 and decreased to £180 million in 2002 representing 16 13 and 12 of total revenues in 2000
2001 and 2002 respectively consulting revenues decreased from £82 million in 2000 to £74 million in 2001 and £44 million in 2002 as engineering
resource was directed away from consulting projects to research and development activities revenues from support maintenance and training increased
from £80 million in 2000 to £109 million in 2001 and £135 million in 2002 
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 2002 was 44 of revenues coming from the us 25 from japan 13 from asia
pacific excluding japan and 18 from europe in 2001 revenues from the us represented 49 japan 23 asia pacific excluding japan 9 and europe
19 in 2000 55 of revenues came from the us 18 from japan 7 from asia pacific excluding japan and 20 from europe
product costs product costs are limited to variable costs of production such as the costs of manufacture of development systems and costs incurred in
making thirdparty operating systems compatible with the arm architecture product costs were £46 million in 2000 £82 million in 2001 and £65 million
in 2002 representing 5 6 and 4 of total revenues in 2000 2001 and 2002 respectively approximately twothirds of total product cost of sales were
made up of development systems costs in 2002 with the balance comprising additional costs related to the costs of thirdparty operating systems this
compares to approximately fourfifths of total product cost of sales being made up of development systems costs in 2000 and 2001 with the balance being
costs associated with thirdparty operating systems product gross margin in 2002 increased slightly to 95 compared to 94 in 2001 and 95 in 2000
the company does not currently expect a significant increase in product costs in 2003 although this would be subject to significant fluctuations if
management were obliged to port further operating systems to run on the arm architecture
service costs service costs include the costs of support and maintenance services to licensees of arm technology as well as the costs directly attributable 
to consulting work performed for third parties cost of services increased from approximately £71 million in 2000 to £91 million in 2001 and fell to 
£67 million in 2002 the gross margins earned on service revenues were approximately 56 in 2000 50 in 2001 and 63 in 2002 the gross margin
increased in 2002 due to a shift in engineering resource from lowmargin consulting projects to more profitable ipgenerating activities
research and development costs research and development costs increased from £264 million in 2000 to £369 million in 2001 and £473 million in
2002 representing 26 25 and 31 of total revenues in 2000 2001 and 2002 respectively continued investment in research and development remains
an essential part of the company’s strategy since its development of new products to license is key to its success current projects include the development
of additional versions of the arm11 core and platform first implementations of arm’s intelligent energy management technology additions to the
primexsys range of system ip platforms research into future microprocessor architectures multiprocessing solutions and enhanced application software 
and development systems products
total engineering headcount increased from 376 at the end of 2000 to 429 at the end of 2001 and was 420 at the end of 2002 in addition there were
approximately 15 contractors in 2000 18 in 2001 and 18 in 2002  arm annual report and accounts 2002  59
sales and marketing sales and marketing expenditure increased from £178 million in 2000 to £215 million in 2001 and £247 million in 2002
representing 18 of total revenues in 2000 15 in 2001 and 16 in 2002 headcount in this area increased from 162 at december 31 2000 to 198 at
december 31 2001 and 208 at december 31 2002 the total number of offices with sales people is currently 14 and this enables improved contact with
the company’s geographically diverse customer base in 2001 a further sales office was opened in the us and in 2002 a sales office was opened in
shanghai pr china
general and administrative general and administrative headcount increased from 81 at december 31 2000 to 95 at december 31 2001 and was 
93 at december 31 2002 general and administrative costs rose from £123 million in 2000 to £225 million in 2001 and were £225 million in 2002
representing 12 15 and 15 of total revenues respectively in 2001 legal costs increased to £55 million largely attributable to the company’s 
nowresolved litigation against picoturbo inc human resources costs grew by £2 million with greater emphasis on employee training and establishment
costs rose by £1 million with improved office accommodation in 2002 nazomi communications inc filed a lawsuit against arm before the federal district
court for northern california claiming that arm’s jazelle technology for java acceleration infringes a us patent owned by nazomi arm is confident that its
products do not infringe the patent cited in the lawsuit or any other nazomi patents total legal costs were £41 million in 2002 expense in relation to
provisions for doubtful debts was £14 million in 2002 compared to £07 million in 2001 and a release of provision of £02 million in 2000 reflecting more
difficult trading conditions for many of our smaller customers unrealized future foreign exchange losses on certain committed but not yet invoiced future
revenue streams of £09 million 2001 £nil 2000 £nil were recorded in accordance with sfas 133 there was a gain on foreign exchange of £01 million 
in 2000 an exchange loss of £02 million in 2001 and an exchange gain of £05 million in 2002 see “foreign currency fluctuations” below
restructuring costs during 2002 the company incurred restructuring costs of £20 million comprising mainly severance payments all of which were paid
during the fourth quarter following a reduction in total headcount of 98 people representing 12 of the company’s workforce it is anticipated that this
reduction in the workforce will reduce employee costs by approximately £5 million per annum 
amortization of goodwill and intangible assets the company purchased the assets of infinite designs limited in march 2000 euromips systems sas 
in june 2000 and allant software corporation in september 2000 in 2001 the company purchased the assets of noral micrologics limited a tenperson
company with expertise in debugging software for a consideration of £14 million amortization of goodwill of £19 million was charged to the income
statement in 2001 and £13 million was charged in 2000 inprocess research and development costs of £02 million relating to the acquisition of allant
software corporation were written off in 2000 there was no charge for goodwill in 2002 following the company’s adoption of sfas 142 “goodwill and
other intangible assets”
during 2000 a license connected with the rights to use a certain debugging technology for use in the company’s development systems products was
purchased for £28 million this is being amortized over a period of three years with £09 million 2001 £09 million 2000 £02 million amortized 
during 2002 the company also purchased a new license for £11 million in 2001 to enable the company to produce and license java technologyrelated
products this is being amortized over a period of five years with £02 million amortized during 2001 and £02 million amortized during 2002 a further
license was purchased in 2002 for £02 million this is being amortized over three years
following the conclusion 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 five years and £15 million was charged to the income statement in 2002
the company also purchased a patent for £07 million in 2002 which is being amortized over five years the amortization charge for 2002 was £01 million
the adoption of sfas 142 “goodwill and other intangible assets” has not resulted in any impairment of the company’s goodwill or intangible assets
interest interest grew from £39 million in 2000 to £45 million in 2001 and was £43 million in 2002 the growth in interest earned between 2000 and
2001 was lower than the growth in cash balances and interest earned fell slightly between 2001 and 2002 reflecting the drop in market interest rates
during 2001 and 2002 the company invested cash balances over periods of up to three months during 2002
income before income tax income before income tax grew from £354 million in 2000 to £503 million in 2001 and was £454 million in 2002 representing
35 34 and 30 of total revenues respectively the slight drop in margins between 2000 and 2001 was partly due to lower returns on cash deposits
the drop in margins in 2002 was a result of lower than anticipated revenues in the second half of the year
tax charge the company’s effective tax rates were 17 in 2000 32 in 2001 and 30 in 2002 the principal reason for the lower tax rate in 2000 
was the establishment of a qualifying employee share ownership trust quest a trust set up to acquire new shares in the company for the benefit of
employees and directors of the company the contribution by the company to the quest for the purchase of shares by the quest is a taxdeductible expense
under existing uk tax legislation the company made two contributions to the quest in march 2000 and november 2000 when the quest purchased
1483440 shares and 559559 shares respectively the company did not make further contributions to the quest in 2001 or 2002 and so the tax rate
returned to normal levels full details with respect to the quest are disclosed in footnote 1 of the financial statements
liquidity and capital resources the company’s operating activities provided net cash of £427 million £520 million and £395 million in 2000 2001 and
2002 respectively in 2000 the significant items impacting on cash generated from operations were the increase in accounts receivable of £47 million and
the increase in deferred revenue of £51 million in 2001 accounts receivable increased a further £66 million while deferred revenues grew by £67 million 
and in 2002 accounts receivable decreased by £29 million and deferred revenues fell by £50 million in 2002 prepaid expenses increased by £53 million
compared to an increase of £14 million and £10 million in 2001 and 2000 respectively the company entered into several leases for design automation
tools during 2002 which resulted in the large increase in prepaid expenses the company believes that given its current level of business it has sufficient
working capital for the foreseeable future at december 31 2002 the company recorded approximately £144 million in deferred revenues which represented cash or receivables scheduled to 
be recognized as revenues in varying amounts after december 31 2002 at december 31 2001 and december 31 2000 the company recorded
approximately £194 million and £127 million respectively in deferred revenues
cash flow from operations has been used to fund the working capital requirements of the company as well as capital expenditure capital expenditure 
in 2002 was £156 million compared to £173 million in 2001 and £118 million in 2000 the increasing expenditures between 2000 and 2001 were due 
to the need to invest in new design automation tools for a rapidly expanding workforce and the costs of establishing and improving the company’s design
centers in the uk france and the us in 2002 capital expenditure decreased as a result of the company leasing some of the design automation tools that
would have previously been purchased in 2000 £47 million was spent on improvements to offices further investment was made in design tools in the uk
and the us with £66 million being spent on computers and software in 2001 £40 million was spent on office improvements with £134 million spent on
computer equipment and software in 2002 £156 million was spent on computer equipment software leasehold improvements and fixtures and fittings 
during 2000 the company purchased the entire share capital of euromips systems sas now arm france sas and allant software corporation and the
trade and assets of infinite designs limited the aggregate sum paid for these three acquisitions amounted to £34 million
in 2001 the company purchased part of the business of noral micrologics limited for £14 million in cash
the company envisages making 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
during 1996 the company made two investments in small startup companies namely sirius communications nv and palmchip corporation “palmchip”
these investments amounted to £02 million in aggregate in 1997 the company made a further investment in palmchip and converted its existing loan 
to give the company a 45 shareholding during 2000 the company disposed of part of its share in palmchip for £05 million with the result that it was 
no longer treated as an equity affiliate the company’s share of the loss of palmchip up to the disposal date was £01 million
during 2000 the company made the following investments in availableforsale securities £13 million in parthus technologies plc £07 million in
cambridge silicon radio limited and £21 million in coware inc in 2001 the company made the following investments in availableforsale securities 
£03 million in linkup systems inc and £10 million in pixim inc in addition in 2001 the company sold its investment in parthus for a profit of 
£01 million and its investment in sirius communications nv for a profit of £05 million it recognized a loss on its investment in linkup systems of 
£03 million at the end of 2001 when linkup’s entire business was purchased by a third party in 2002 the company made one investment in an 
availableforsale security namely superscape plc for a consideration of £15 million
cash balances at december 31 2002 were £1303 million compared to £1045 million at december 31 2001 at december 31 2001 accounts receivable
net of allowances for doubtful debts were £248 million and £205 million at december 31 2002 which represented 17 and 14 of revenues respectively
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 35 million in 2000 30 million in 2001 and 72 million in 2002 the company does not currently use any other financial
instruments or derivatives although the company is reviewing the use of other financial instruments such as currency options the fair values of the
financial instruments outstanding at december 31 2000 2001 and 2002 are disclosed in footnote 12 to the financial statements the settlement period 
of the forward contracts outstanding at december 31 2002 is between january 17 and march 24 2003
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 for 2002
operating and financial review and prospectsus gaapcontinued
60 arm annual report and accounts 2002 2000 2001 2002 2002
£000 £000 £000 000
revenues
product revenues 84562 127976 132911 213987
service revenues 16168 18298 18011 28998
total revenues 100730 146274 150922 242985
cost of revenues
product costs 4566 8209 6464 10407
service costs 7081 9080 6721 10821
total cost of revenues 11647 17289 13185 21228
gross profit 89083 128985 137737 221757
operating expenses
research and development 26359 36941 47299 76151
sales and marketing 17841 21457 24711 39785
general and administrative 12349 22521 22486 36202
restructuring costs –– 1960 3156
amortization of goodwill 1297 1929 ––
total operating expenses 57846 82848 96456 155294
income from operations 31237 46137 41281 66463
interest net 3912 4470 4373 7040
share of loss of equity affiliate 85 – ––
gain on partial disposal of equity affiliate 512 – ––
minority interest 192 303 232 374
income before income tax 35384 50304 45422 73129
provision for income taxes 6007 16302 13785 22194
net income 29377 34002 31637 50935
net income 29377 34002 31637 50935
other comprehensive income
foreign currency adjustments net of tax 75 14 807 1299
unrealised holding gainloss on availableforsale securities net of tax 2087 2087 ––
total comprehensive income 31539 31929 30830 49636
basic earnings per common share 30p 34p 31p
diluted earnings per common share 29p 33p 31p
 us dollar amounts have been translated from sterling at the december 31 2002 closing rate of £100  1610 and are unaudited see note 1
all activities relate to continuing operations
the accompanying notes are an integral part of the financial statements
arm annual report and accounts 2002  61
consolidated statements of income and comprehensive incomeus gaap 2001 2002 2002
£000 £000 000
assets
current assets
cash and cash equivalents 104467 130304 209789
accounts receivable net of allowances for doubtful debts of £2193000 2001 £800000 24809 20516 33031
inventory finished goods 581 1515 2439
prepaid expenses and other assets 6006 11345 18266
income taxes receivable 550 ––
total current assets 136413 163680 263525
deferred income taxes 839 1697 2732
property and equipment net 22668 25721 41411
intangible assets 12339 10417 16771
investments 3555 4229 6809
total assets 175814 205744 331248
liabilities and shareholders’ equity
current liabilities
accounts payable 2361 4730 7615
income taxes payable 7054 3828 6163
personnel taxes 784 824 1327
accrued liabilities 9741 8636 13904
deferred revenue 19420 14415 23208
commitments and contingencies note 10 – ––
total liabilities 39360 32433 52217
minority interest 609 841 1354
39969 33274 53571
shareholders’ equity
ordinary shares £00005 par value 1580000000 authorized 2001 1580000000
1021758000 issued 2001 1014767176 507 511 823
additional paidin capital 65362 69566 112001
deferred compensation – 313 504
treasury stock at cost 6796754 ordinary shares 2001 7017599 19934 18034 29035
retained earnings 89766 121403 195459
other comprehensive income
cumulative translation adjustment 144 663 1067
total shareholders’ equity 135845 172470 277677
total liabilities and shareholders’ equity 175814 205744 331248
 us dollar amounts have been translated from sterling at the december 31 2002 closing rate of £100  1610 and are unaudited see note 1
the accompanying notes are an integral part of the financial statements
62 arm annual report and accounts 2002
consolidated balance sheetsus gaap 2000 2001 2002 2002
£000 £000 £000 000
cash flows from operating activities
net income 29377 34002 31637 50936
adjustments to reconcile net income to net cash provided by operating activities
depreciation and amortization of tangible and intangible assets 7777 12347 15240 24536
writeoff of inprocess research and development 150 – ––
stock option compensation – – 56 90
share of loss of equity affiliates 85 – ––
deferred income taxes 560 359 858 1381
tax effect of disqualifying dispositions – 428 754 1214
gain on partial disposal of equity affiliate 512 – ––
provision for doubtful accounts 248 673 1393 2243
accounts receivable converted to trade investments – 1361 ––
amount written off investments – 613 826 1330
other 262 164 218 351
changes in operating assets and liabilities
accounts receivable 4747 6569 2900 4669
inventory 184 196 934 1504
prepaid expenses and other current assets 996 1354 5339 8596
accounts payable 957 312 2369 3814
income taxes payable 2519 5322 2676 4308
deferred revenue 5149 6743 5005 8058
accrued liabilities and other creditors 2513 613 1105 1779
personnel taxes 77 194 40 64
net cash provided by operating activities 42739 51962 39516 63621
cash flows from investing activities
receipt from partial disposal of equity affiliate 517 – ––
purchase of equipment 7182 13377 8670 13959
purchase of leasehold improvements 4660 3972 6946 11183
sale of equipment 59 71 35 56
purchase of patent and licenses 2822 8568 855 1376
purchase of investments 4088 – 1500 2415
sale of investments –1936 ––
purchase of subsidiaries and businesses net of cash acquired 3414 1351 ––
net cash used in investing activities 21590 25261 17936 28877
cash flows from financing activities
cash received on issue of shares on exercise of share options 2320 1558 4763 7668
proceeds received on issuance of shares – 958 222 357
net cash provided by financing activities 2320 2516 4985 8025
effect of foreign exchange on cash and cash equivalents 7 16 728 1172
net increase in cash and cash equivalents 23462 29201 25837 41597
cash and cash equivalents at beginning of the period 51804 75266 104467 168192
cash and cash equivalents at end of the period 75266 104467 130304 209789
supplemental disclosure of cash flow information
cash paid for income taxes 2928 9643 16758
cash received on interest 3775 4604 4187
 us dollar amounts have been translated from sterling at the december 31 2002 closing rate of £100  1610 and are unaudited see note 1 
the accompanying notes are an integral part of the financial statements
arm annual report and accounts 2002  63
consolidated statements of cash flowsus gaap 64 arm annual report and accounts 2002
ordinary shares additional cumulative unrealized
paidin translation treasury holding deferred retained
amount capital adjustment stock gain compensation earnings total
number £000 £000 £000 £000 £000 £000 £000 £000
balances january 1
2000 959854025 480 56999 55 16808 – – 26387 67113
issue of ordinary shares 2042999 1 18735 18736
shares issued on 
exercise of options 38338347 19 2301 2320
net income 29377 29377
unrealized holding
gains on available
forsale securities 2087 2087
currency translation
adjustment 75 75
investment in treasury
stock 18736 18736
balances december 31
2000 1000235371 500 78035 130 35544 2087 – 55764 100972
shares issued on 
exercise of options 14531805 7 1551 1558
net income 34002 34002
realization of holding
loss on available
forsale securities 2087 2087
tax effect of
disqualifying dispositions 428 428
currency translation
adjustment 14 14
issuance of shares 14652 15610 958
balances december 31
2001 1014767176 507 65362 144 19934 – – 89766 135845
shares issued on 
exercise of options 6990824 4 4759 4763
net income 31637 31637
tax effect of 
disqualifying dispositions 754 754
deferred compensation 
arising on saye plan 369 369 –
amortization of 
deferred compensation 56 56
currency translation
adjustment 807 807
issuance of shares 1678 1900 222
balances december 31
2002 1021758000 511 69566 663 18034 – 313 121403 172470
 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 december 31 2002
such distributable profits amounted to £4324000
 the number of shares and the dividend per share have been adjusted where applicable to reflect the fiveforone share subdivision which took place in april 2000
the accompanying notes are an integral part of the financial statements
consolidated statements of changes in shareholders’ equityus gaap arm annual report and accounts 2002  65
1  the company and a summary of its significant accounting policies
the business of the company arm holdings plc and its subsidiary companies “arm” or “the company” design reduced instruction set computing risc
microprocessors and related technology and software and sell development systems to enhance the performance costeffectiveness and powerefficiency
of highvolume embedded applications the company licenses and sells its technology and products to leading international electronics companies which in
turn manufacture market and sell microprocessors applicationspecific integrated circuits asics and applicationspecific standard processors assps based
on the company’s architecture to systems companies for incorporation into a wide variety of end products by creating a network of partners and working
with them to best utilize the company’s technology the company is establishing its architecture as a risc processor for use in many highvolume embedded
microprocessor applications including digital cellular phones modems and automotive functions and for potential use in many growing markets including
smart cards and digital video the company also licenses and sells development systems direct to systems companies and provides consulting and support
services to its licensees systems companies and other systems designers the company’s principal geographic markets are europe the us and asia pacific
incorporation and history arm is a public limited company incorporated under the laws of england and wales the company was formed on october 16
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 march 10 1998 when its name was changed to arm holdings plc its initial public offering was on april 17 1998
group undertakings include arm limited incorporated in the uk arm inc incorporated in the us arm kk incorporated in japan arm korea limited
incorporated in south korea arm france sas incorporated in france allant software corporation incorporated in the us advanced risc machines
limited incorporated in the uk micrologic solutions limited incorporated in the uk arm taiwan limited incorporated in taiwan and arm consulting
shanghai co limited incorporated in pr china
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 british sterling purely for the convenience of the reader the
december 31 2002 consolidated financial statements have been translated from sterling at the closing rate on december 31 2002 of £100  1610
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
equity affiliates companies in which the company owns between 20 and 50 of the voting stock are treated as equity affiliates during 2000 the
company made a partial disposal of its holding in palmchip corporation with the result that the remaining holding is below 20 and is therefore treated 
as an availableforsale security the consolidated statements of income include the group’s share of net income of equity affiliates up to the date of the
partial disposal the remaining investment is included in the consolidated balance sheet at the value of the group’s share of net assets at the date of
disposal the group had no equity affiliates at december 31 2001 or at december 31 2002
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 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 in shareholders’ equity 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 december 31 2002 and 2001 the estimated fair value 
of these investments approximated their recorded basis based on estimates determined by management 
the company invested in two unlisted companies during 2000 one of which was a 35 investment in the share capital of coware inc a company which
develops systemonchip software for a wide range of applications and the other was a less than 1 investment in the share capital of cambridge silicon
radio limited an intellectual property company which develops bluetooth™ solutions two further trade investments were made in 2001 one of which was
a 17 investment in pixim inc and the other was a 13 investment in linkup systems inc both of these are fabless chip companies based in california
equity shares in both companies were received in settlement of accounts receivable 
the company sold its 3 stake in sirius communications nv during 2001
the company made an investment in parthus technologies plc during 2000 this company although unlisted at the time of investment subsequently
floated on the london stock exchange and was included in the 2000 consolidated balance sheet at market value at the balance sheet date this investment
was disposed of in its entirety in 2001
during 2002 the company made an 1199 investment in superscape plc a company listed on the london stock exchange 
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 
an independent valuation is made of any inprocess research and development on acquisition and the amount written off immediately one such project
was acquired during the year to december 31 2000 and was independently valued at £150000 
notes to the financial statementsus gaap 66 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued
1  the company and a summary of its significant accounting policies continued
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 january 1 2002 the company ceased amortizing goodwill the value of goodwill carried forward at the
end of 2001 has been frozen at £2274000 and goodwill will be tested for impairment at least annually the company has completed the transitional
impairment review upon adoption of sfas 142 january 1 2002 and determined that there is no indication of impairment with respect to goodwill
impairment charges the company reviews longlived assets to be held and used for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable if the sum of the expected future cash flows undiscounted and without interest charges 
of the longlived assets is less than the carrying amount of such assets an impairment loss would be recognized and the assets are written down to their
estimated fair value
revenue recognition revenue consists of license fees received under the terms of license agreements with customers to enable them to use the company’s
intellectual property ip which is customized to each customer’s manufacturing process the company receives royalties on sales by the company’s customers
of products containing arm technology it also supplies offtheshelf software tools boughtin boards and toolkits training and consultancy services 
the company primarily earns revenues from licensing its ip to leading electronics companies which in turn manufacture market and sell microprocessors
asics and assps based on the company’s architecture to systems companies for incorporation into a wide variety of end products the company’s ip
consists of software and related documentation which enables a customer to design and manufacture microprocessors and related technology and software
most licenses are designed to meet the specific requirements of each customer and are generally not time limited in their application in general the time
between the signing of a license and final customer acceptance is between six and 15 months upgrades or modifications to the licensed ip are not
provided following customer acceptance the company has no further obligations under the license agreement revenue from peruse licenses is
recognized when the product is accepted by the customer
in accordance with sop 811 “accounting for performance of constructiontype and certain production type contracts” when license agreements include
deliverables that require “significant production modification or customization” contract accounting is applied revenues from license fees are recognized
based on the percentagetocompletion method over the period from signing of the license to customer acceptance and the completion of all outstanding
obligations the amount of revenue recognized is based on the total license fees under the license agreement and the percentage to completion achieved
the percentage to completion 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 requirement are based on prior
experience of customization delivery and acceptance of the same or similar technology and are reviewed and updated regularly by management 
under the percentagetocompletion 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 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 entire fee from such arrangements has been allocated to each of the individual elements based on each element’s
relative fair value revenue for each element is then recognized when the revenue recognition criteria for that element is met
in addition to the license fees contracts generally contain an agreement to provide post contract support support and maintenance pcs which consists 
of an identified customer contact at the company and telephone or email support revenue related to pcs is recognized based on vendorspecific objective
evidence vsoe determined based on the price of pcs when sold separately revenue for pcs is recognized on a straightline basis over the period for
which support and maintenance is contractually agreed by the company with the licensee
sales of boards and toolkits are recognized upon delivery where necessary and in the circumstances permitted by sop 972 the costs associated with
providing post contract support have been accrued
services such as consulting and training which are not essential to the functionality of the ip  are accounted for separately based on vsoe revenue 
is recognized as services are performed and collectability is probable
the excess of fees invoiced over revenue recognized in respect of such fees is recorded as a deferred revenue liability
royalty revenues are earned on sales by the company’s customers of products containing arm technology revenues are recognized when arm receives
notification from the customer of product sales or receives payment of any fixed royalties normally quarterly in arrears
revenue from consulting projects which are typically of a short duration is recognized when the service has been provided and all obligations to the
customer under the consulting agreement have been fulfilled for longerterm and more complex consulting projects typically containing several project
milestones where significant modification to arm corebased ip is required revenue is recognized on a percentagetocompletion basis as milestones are
achieved this method approximates to percentage to completion based on labor inputs
restructuring costs restructuring costs include the cost of redundancy payments to 98 employees and the cost of outplacement services arm annual report and accounts 2002  67
1  the company and a summary of its significant accounting policies continued
research and development all ongoing research and development expenditure is expensed in the period in which it is incurred
advertising costs all advertising costs are expensed in the period in which they are incurred
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 december 31 2002 were £199000 2001 £268000 2000 £186000 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
december 31 2000 2001 and 2002 were £1160000 £1591000 and £1894000 respectively
cash equivalents the company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents
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
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 years
fixtures and fittings five to ten years
motor vehicles four years
provision is made against the carrying value of tangible fixed assets where an impairment in value is deemed to have occurred
operating leases costs in respect of operating leases are charged on a straightline basis over the lease term
currency translation the functional currency for the company’s operations is the local currency in which it 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 average exchange rate for the period translation differences are taken to the cumulative
translation adjustment
the company utilizes forward exchange contracts to manage the exchange risk on actual transactions related to accounts receivable denominated in a
currency other than the functional currency of the business the company’s forward exchange contracts do not subject the company to risk from exchange
rate movements because the gains and losses on such contracts offset losses and gains respectively on the transactions being hedged because the
company does not meet the criteria for hedge accounting the forward contracts and the related accounts receivable are recorded at fair value at each
period end all recognized gains and losses resulting from the settlement of the contracts are recorded within general and administrative costs in the
income statement the company does not enter into foreign exchange contracts for the purpose of hedging anticipated transactions
other transactions denominated in foreign currencies have been translated into sterling at actual rates of exchange ruling at the date of transaction
monetary assets and liabilities denominated in foreign currencies have been translated at rates ruling at the balance sheet date exchange differences 
have been included in general and administrative costs
from time to time the company enters into sales contracts denominated in a currency typically us dollars that is neither the functional currency of the
company nor the functional currency of the customer in accordance with sfas 133 “accounting for derivative instruments and hedging activities” where
there are uninvoiced amounts on such contracts the company carries such derivatives at fair value the resulting gain or loss is recognized in the income
statement under general and administrative costs for the year ended december 31 2002 the loss on exchange is £950000 2001 £nil 2000 £nil
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 68 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued
1  the company and a summary of its significant accounting policies continued
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 december 31 2002 excludes incremental shares of approximately 19608000 2001 6258000 2000 274000 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 £56000 is reflected in net income
no compensation cost is recorded in respect of the other stock option plans as all options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of grant apart from options issued to certain 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 fully diluted eps growth of 331 above the rate of inflation over a period of three
years then all 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 december 31
2000 2001 2002
£000 £000 £000
net income
as reported 29377 34002 31637
deduct total stockbased compensation expense determined under fair value based method for all
awards net of related tax effects 8265 11610 11165
add back total stockbased compensation expense determined under the intrinsic valuebased method – – 56
pro forma net income 21112 22392 20528
basic earnings per common share pence
as reported 30p 34p 31p
pro forma 22p 22p 20p
diluted earnings per common share pence
as reported 29p 33p 31p
pro forma 21p 22p 20p
the fair value of options granted was estimated on the date of grant using the blackscholes option pricing model with the following weightedaverage
assumptions used for grants in 2002 2001 and 2000 riskfree interest rate of 51 2001 51 2000 60 expected life of four years 80 2001 79
2000 74 volatility and no dividends
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 the year 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 january 24 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 2002 is £56000 the deferred compensation at
december 31 2002 was £313000
in addition the eitf reached a consensus that an employer’s offer to enter into a new saye contract at a lower price than an existing contract causes
variable accounting for all existing awards subject to the offer variable accounting commences for all existing awards when the offer is made and for those
awards that are retained by employees because the offer is declined variable accounting continues until the awards are exercised are forfeited or expire
unexercised new awards are accounted for as variable to the extent that previous higher priced options are canceled the compensation charge recorded in
2002 as a result of these provisions is £nil the number of options to which variable accounting applies is approximately 980000
employee share ownership plans treasury stock represents the cost of shares in the company held by the employee benefit trust esop and the quest
the esop was set up on april 16 1998 to facilitate the recruitment retention and motivation of employees no options had been granted over these shares
and no shares had been allocated at december 31 2002 the market value of unearned shares at december 31 2002 was approximately £240000 
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 arm annual report and accounts 2002  69
1  the company and a summary of its significant accounting policies continued
treasury stock held also includes £728000 relating to 1796754 shares held by the company’s quest which was established by the company during 1999 
the company established the quest to acquire new shares in the company for the benefit of employees and directors of the company no shares were
purchased in 2002 or 2001 in 2000 2042999 shares were purchased as detailed below
on march 13 2000 and november 7 2000 the company provided £14445000 and £4291000 respectively of which £14018000 and £3769000
respectively being £17787000 in total was by way of a gift and £427000 and £522000 respectively being £949000 in total was by way of a loan 
on the same dates the quest subscribed at market value for 1483440 and 559559 respectively of the company’s 005 pence ordinary shares 
the shares rank pari passu in all respects with the existing ordinary shares they will be allocated to employees and directors to satisfy their options granted
under the company’s saye schemes
the cost of all the shares has been treated as treasury stock the excess of the subscription price over the nominal value which amounts to £718082 has
been taken to additional paidin capital for the purpose of earnings per share calculations the shares are treated as canceled until such time as they vest
unconditionally
during 2002 220846 shares 2001 3925400 were allocated from the quest following the exercise of share options granted under the company’s 
saye schemes
under the terms of the trust deed dividends have been waived on the shares held by the quest and all costs relating to the scheme are dealt with 
in the income statement as they accrue
employer’s taxes on share options employer’s national insurance in the uk and equivalent taxes in other jurisdictions are payable on the exercise of
certain share options issued to employees in certain tax jurisdictions in accordance with eitf 0016 no provision has been made for the employer’s taxes 
on these share options these amounts will be recognized in the consolidated income statement when payable
recently issued accounting standards in june 2002 the fasb issued sfas no 146 sfas 146 “accounting for costs associated with exit or disposal
activities” sfas 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies eitf 943 “liability
recognition for certain employee termination benefits and other costs to exit an activity including certain costs incurred in a restructuring” sfas 146
requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred under eitf 943 a liability for 
an exit cost was recognized at the date of the commitment to an exit plan sfas 146 states that a commitment to a plan by itself does not create an
obligation that meets the definition of a liability therefore sfas 146 eliminates the definition and requirement for recognition of exit costs in eitf 943 
it also established that fair value is the objective for initial measurement of the liability sfas 146 is to be applied prospectively to exit or disposal 
activities initiated after december 31 2002 management does not expect the adoption of sfas 146 to have a material effect on its consolidated 
financial statements
in november 2002 the fasb issued fasb interpretation no 45 fin 45 “guarantor’s accounting and disclosure requirements for guarantees including
indirect guarantees of indebtedness of others” fin 45 requires the guarantor to recognize at the inception of a guarantee a liability for the fair value 
of the obligation undertaken in issuing the guarantee it also elaborates on the disclosure to be made by a guarantor in its financial statements about its
obligation under certain guarantees that it has issued and to be made in regard of product warranties the initial recognition and movement provisions of
this interpretation are applicable on a prospective basis to guarantees issued or modified after december 31 2002 while the provisions of the disclosure
requirements are effective for financial statements of interim or annual periods ending after december 15 2002 management does not expect the
adoption of fin 45 to have a material effect on its consolidated financial statements
in november 2002 the eitf reached a consensus on issue 0021 “accounting for revenue arrangements with multiple deliverables” this issue addresses
certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenuegenerating activities specifically the issue
addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement
consideration should be measured and allocated to the separate units of accounting in the arrangement the provisions of this issue are effective for
revenue arrangements entered into in fiscal periods beginning after june 15 2003 with early application permitted management is currently evaluating 
the impact that adoption of this issue will have on its consolidated financial statements
in january 2003 the fasb issued fasb interpretation no 46 fin 46 “consolidation of variable interest entities” fin 46 clarifies the application of
accounting research bulletin no 51 “consolidated financial statements” to certain entities in which equity investors do not have the characteristics 
of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial
support from other parties fin 46 applies immediately to variable interest entities created after january 31 2003 and to variable interest entities in which
an enterprise obtains an interest after that date it applies in the first fiscal year or interim period beginning after june 15 2003 to variable interest entities
in which an enterprise holds a variable interest that it acquired before february 1 2003 fin 46 applies to public enterprises as of the beginning of the
applicable interim or annual period management does not expect the adoption of fin 46 to have a material effect on its 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 accounting
principles generally accepted in the united kingdom uk gaap in compliance with the companies act and are presented in pounds sterling statutory
accounts upon which the auditors gave unqualified reports under section 235 of the companies act and which did not contain statements under sub
sections 2372 and 3 of the companies act for the years ended december 31 2000 and 2001 have been and those for the year ended december 31
2002 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 70 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued
2  related party transactions
until the partial disposal of palmchip corporation in 2000 the directors regarded palmchip as a related party by virtue of its being an associated undertaking
in 2000 prior to the partial disposal palmchip repaid a loan of £248000 previously made to it by arm limited
3  income taxes
income before income tax is analyzed as follows
year ended december 31
2000 2001 2002
£000 £000 £000
united kingdom 32568 46394 40646
foreign 2816 3910 4776
35384 50304 45422
the provision for income taxes consisted of
year ended december 31
2000 2001 2002
£000 £000 £000
current
united kingdom 4968 14502 12852
foreign 479 1441 1791
total current 5447 15943 14643
deferred
united kingdom 72 268 500
foreign 488 91 358
total deferred 560 359 858
total provision for income taxes 6007 16302 13785
included in the provision for income taxes is a current tax charge of £754000 2001 £428000 2000 £nil and a deferred tax credit of £60000 
2001 charge of £146000 2000 charge of £617000 in relation to employee stock options such benefits are reflected as additional paidin capital
the taxation charge in 2000 was reduced by £5331000 following a payment of £17787000 to the quest detailed in footnote 1 there were no payments
to the quest in 2001 or 2002
total income tax expense differs from the amounts computed by applying the uk statutory income tax rate of 30 for 2002 2001 and 2000 to income
before income tax as a result of the following
year ended december 31
2000 2001 2002
£000 £000 £000
uk statutory rate 30 2001 30 2000 30 10615 15091 13627
permanent differences arising on payment to quest 5331 – –
permanent differences – other 690 1150 186
differences in statutory rates of foreign countries 53 99 115
other net 20 38 143
6007 16302 13785
 permanent differences comprise permanent adjustments nondeductible stock option compensation and the uk research and development tax credit arm annual report and accounts 2002  71
3  income taxes continued
significant components of the deferred tax assets are as follows
year ended december 31
2000 2001 2002
£000 £000 £000
fixed asset temporary differences 852 584 1193
temporary difference on availableforsale securities 458 – –
nondeductible accruals and reserves 346 255 519
losses carried forward 1710 1397 544
total deferred tax assets 2450 2236 2256
valuation allowance 1710 1397 559
net deferred tax assets 740 839 1697
uk income taxes have not been provided at december 31 2002 on unremitted earnings of approximately £10142000 2001 £7401000 2000
£4641000 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 £518000 2001 £385000 2000 £232000
the valuation allowance relates to net operating loss carryforwards of certain subsidiaries where management believe it is more likely than not such
amounts will not be realized none of the loss carryforwards expires before 2018
4  earnings per share
year ended december 31 2000
income shares per share
£ number amount
net income 29377000
basic eps
income available to common stockholders 29377000 970947067 30p
effect of dilutive securities
stock options 57329109
diluted eps 
income available to common stockholders plus assumed conversion 29377000 1028276176 29p
year ended december 31 2001
income shares per share
£ number amount
net income 34002000
basic eps
income available to common stockholders 34002000 999741581 34p
effect of dilutive securities
stock options 24891393
diluted eps 
income available to common stockholders plus assumed conversion 34002000 1024632974 33p
year ended december 31 2002
income shares per share
£ number amount
net income 31637000
basic eps
income available to common stockholders 31637000 1012295401 31p
effect of dilutive securities
stock options 8465051
diluted eps 
income available to common stockholders plus assumed conversion 31637000 1020760452 31p 72 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued
4  earnings per share continued
the following table summarizes the company’s reported results along with the adjusted amounts as if the company had adopted sfas 142 and
discontinued goodwill amortization as of january 1 2000
year ended december 31
2000 2001 2002
£000 £000 £000
reported net income 29377 34002 31637
add back goodwill amortized 1297 1929 –
adjusted net income 30674 35931 31637
basic earnings per share
reported net income 30p 34p 31p
goodwill amortization 01p 02p –
adjusted basic earnings per share 31p 36p 31p
diluted earnings per share
reported net income 29p 33p 31p
goodwill amortization 01p 02p –
adjusted diluted earnings per share 30p 35p 31p
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 and cash equivalents 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 11 
at december 31 2001 and 2002 no customers accounted for more than 10 of accounts receivable at december 31 2000 one customer accounted for
104 of accounts receivable 
as of december 31 2000 2001 and 2002 the company’s cash and cash equivalents were deposited with major clearing banks in the uk in the form 
of money market deposits for varying periods of up to three months arm annual report and accounts 2002  73
6  investments
on february 1 2001 the company purchased part of the business and assets of noral micrologics limited for cash consideration of £1351000 the
purchase consideration has all been treated as goodwill as the book and fair value of the assets acquired was negligible
on june 21 2000 all of the issued share capital of euromips systems sas now arm france sas was purchased for cash consideration of £864000 and 
on september 18 2000 all of the issued share capital of allant software corporation was purchased for cash consideration of £2193000 
further to the cash consideration for the cost of the acquisitions the acquisition agreements provide for cash bonuses and payments for postacquisition 
predefined services provided by employees these are being treated as payroll costs of the periods to which the services relate
following a detailed review of the acquired companies’ balance sheets and their accounting policies it was considered that no fair value adjustments were
necessary
following an independent valuation of the inprocess research and development acquired with allant software corporation £150000 was written off
through the income statement to research and development
the combinations have been accounted for using the purchase method
unaudited pro forma results of the company and the acquired businesses have not been presented as the acquired businesses are immaterial to the
company’s results
in 2002 the company invested £1500000 in superscape plc an availableforsale investment in 2001 the company disposed of two availableforsale
investments realizing a gain of £655000
in march 2000 the company disposed of part of its shareholding in palmchip corporation reducing its holding from 454 to 49 the company
recognized a £512000 profit on the sale of these shares
impairments during 2002 against unlisted investments held at the year end amounted to £826000 2001 £613000
7  property and equipment
december 31
2001 2002
£000 £000
owned buildings 190 190
construction in progress – leasehold improvements 75 –
leasehold improvements 11863 18763
computers 9973 10811
software 24370 31095
fixtures fittings and motor vehicles 2819 3101
49290 63960
less accumulated depreciation 26622 38239
property and equipment net 22668 25721
depreciation charged to income for the years ended december 31 2000 2001 and 2002 was £6246000 £9327000 and £12463000 respectively 74 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued
8  intangible assets
goodwill patents licenses total goodwill patents licenses total
2001 2001 2001 2001 2002 2002 2002 2002
£000 £000 £000 £000 £000 £000 £000 £000
at cost 5594 7513 3877 16984 5594 8196 4049 17839
less accumulated amortization 3320 – 1325 4645 3320 1595 2507 7422
net 2274 7513 2552 12339 2274 6601 1542 10417
goodwill being the difference between the fair value of the consideration and the fair value of the assets and liabilities assumed arose on purchase of the
following subsidiaries and businesses
– micrologic solutions limited purchased in october 1999
– euromips systems sas purchased in june 2000 for cash consideration of £764000 and associated costs of £100000 goodwill of £779000 arose
– allant software corporation purchased in september 2000 for cash consideration of £2124000 and associated costs of £69000 goodwill of £1962000
arose on the acquisition £150000 of inprocess research and development was written off immediately
– infinite designs limited purchased in march 2000 for cash consideration of £375000 goodwill arose of £375000 on this acquisition and
– noral micrologics limited purchased in february 2001 for cash consideration of £1351000 goodwill of £1351000 arose on this acquisition
until the adoption of sfas 142 on january 1 2002 see footnote 1 goodwill was being amortized on a straightline basis over periods of up to three years
determined in each case by reference to employee turnover rates in the industry and the individual technology acquired with the acquisitions in accordance
with sfas 142 goodwill is no longer amortized and is tested for impairment at least annually
licenses to use technology are being amortized over periods of three to five years the amortization periods for licenses have been determined according 
to their estimated useful economic life
patents are being amortized over five years being the period over which the company will derive benefit from them
the estimated amortization expense of intangible assets in each of the next five years is set forth below
£000
2003 2617
2004 1881
2005 1862
2006 1738
2007 45 arm annual report and accounts 2002  75
9  shareholders’ equity
share capital there was a share split in april 2000 shareholders received five shares with a nominal value of 005 pence per share for every one share
held with a nominal value of 025 pence 
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 approved incentive share option plan the “approved scheme” the company may grant options to directors and employees
meeting certain eligibility requirements options under the approved scheme are exercisable between three and ten years after their issue after which time
the options expire
under the company’s executive scheme the “executive 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 share option plan which is substantially the
same as the executive 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
in 1998 the company set up two savingsrelated share option schemes for all employees and executive directors of the company the number of options
granted is related to the value of savings made by the employee the period of savings is three or five years except for employees of arm inc where the
period is two years the option price is currently set at 85 of the market share price prior to the grant and the right to exercise normally only arises for a
sixmonth period once the savings have been completed except for arm inc where the right to exercise normally only arises for a threemonth period
once the savings have been completed the company set up two further savings related option schemes in each of 2000 2001 and 2002 for all employees
and executive directors of the company which have the same characteristics as those schemes set up in 1998
option activity is summarized as follows
outstanding options
weighted 
average 
shares exercise price 
number £
balances december 31 1999 80814215 0318
granted in year 5867630 6171
lapsed in year 1341025 1884
exercised in year 38338347 0060
balances december 31 2000 47002473 1214
granted in year 8189032 3398
lapsed in year 1283752 3433
exercised in year 18457205 0136
balances december 31 2001 35450548 2199
granted in year 10081501 2290
lapsed in year 3269030 1965
exercised in year 7211670 0691
balances december 31 2002 35051349 2557
the weighted average grantdate fair value of options granted during 2002 was £234 for executive options and £183 for sharesave options 
the weighted average exercise price of options exercisable at december 31 2002 was £171 december 31 2001 £103 76 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued
9  shareholders’ equity continued
the following options over ordinary shares were in existence at december 31 2002
ordinary exercise price exercisable at
shares per share remaining exercise december 31
number £ contractual life period 2002
320000 002 35 years 1999 – 2006 320000
600000 002 05 years 1999 – 2003 600000
725500 0026 42 years 2000 – 2007 725500
8000 0026 13 years 2000 – 2004 8000
80000 00425 14 years 2000 – 2004 80000
70000 00625 15 years 2000 – 2004 70000
150000 00625 18 years 2000 – 2004 150000
230000 00625 20 years 2000 – 2004 230000
660000 01125 52 years 2001 – 2008 660000
55036 01125 02 years 1999 – 2003 55036
134309 03875 04 years 1999 – 2003 134309
115000 03875 24 years 2001 – 2005 115000
125000 05275 56 years 2001 – 2008 125000
54322 05275 06 years 1999 – 2003 54322
51000 0405 58 years 2001 – 2008 51000
34550 0405 08 years 1999 – 2003 34550
2909507 1224 62 years 2002 – 2009 2909507
1489869 1224 12 years 2000 – 2004 763619
4986040 1224 32 years 2002 – 2006 4986040
158259 1338 63 years 2002 – 2009 158259
41254 1338 13 years 2000 – 2004 27504
42740 1338 33 years 2002 – 2006 42740
75490 1765 66 years 2002 – 2009 75490
40002 1765 16 years 2000 – 2004 27502
26010 1765 36 years 2002 – 2006 26010
91570 426 69 years 2002 – 2009 91570
76680 426 39 years 2002 – 2006 76680
121250 7738 – 2003 – 2010 –
52500 7738 21 years 2001 – 2005 26250
70000 7738 – 2003 – 2007 –
80465 6136 – 2003 – 2010 –
10000 6136 23 years 2001 – 2005 5000
36035 6136 – 2003 – 2007 –
50000 627 23 years 2001 – 2005 25000
346763 6155 – 2003 – 2010 –
794000 6155 24 years 2001 – 2005 397000
2689555 6155 44 years 2001 – 2007 672388
24250 670 26 years 2001 – 2005 12125
162500 670 46 years 2001 – 2007 81250
145750 633 28 years 2001 – 2005 72875
252500 633 48 years 2001 – 2007 126250
83000 443 31 years 2002 – 2006 20750
436500 443 51 years 2002 – 2008 218250
590521 335 – 2004 – 2011 –
1305900 335 34 years 2002 – 2006 326475
3760529 335 54 years 2002 – 2008 940132
62909
†
3815 – 2008 – 2008 –
58813 284 – 2004 – 2011 –
28000 284 36 years 2002 – 2006 7000
20822 284 56 years 2002 – 2008 5205
139000 375 – 2004 – 2011 –
44750 375 38 years 2002 – 2006 11187
51000 375 58 years 2002 – 2008 12750
62500 3145 – 2003 – 2007 –
176250 3145 – 2003 – 2009 –
1072098 2465 – 2005 – 2012 –
4294627 2465 – 2003 – 2009 –
406896
†
2465 – 2005 – 2009 –
1500675 2465 – 2003 – 2007 –
223515 21475 – 2003 – 2009 –
128500 1505 – 2003 – 2007 – 9  shareholders’ equity continued
ordinary exercise price exercisable at
shares per share remaining exercise december 31
number £ contractual life period 2002
378250 1505 – 2003 – 2009 –
68750 0425 – 2003 – 2007 –
120000 0425 – 2003 – 2009 –
3500 05725 – 2003 – 2007 –
35000 05725 – 2003 – 2009 –
179400 02445 – 2003 – 2003 –
11240 1099 – 2004 – 2004 –
26481 565 – 2003 – 2003 –
4896 565 – 2005 – 2005 –
203480 3069 – 2004 – 2004 –
28366 3069 – 2006 – 2006 –
22349 3069 – 2003 – 2003 –
905064 182537 – 2005 – 2005 –
242922 182537 – 2007 – 2007 –
189140 182537 – 2004 – 2004 –
35051349 15557525
 these relate to options granted under the company’s savingsrelated share option 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
† these options will vest after seven years unless certain criteria are met in which case they will vest between three and seven years
at december 31 2002 the company had three share option plans and seven savingsrelated share option schemes the company applies apb opinion 
no 25 and related interpretations in accounting for its plans 
10  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 december 31 2002 are as follows
operating leases
years ending december 31 £000
2003 5149
2004 4791
2005 3054
2006 2250
2007 2110
thereafter 17682
total minimum lease payments 35036
rental expense under operating leases totaled £2746000 £3101000 and £5199000 for the years ended december 31 2000 2001 and 2002 respectively
the company has an obligation if certain criteria are met to make a 3000000 investment representing a minority holding in a fabless semiconductor
company set up to create and sell arm corebased microprocessor cores to be licensed from arm
in 2002 a lawsuit was filed against the company claiming that the company’s jazelle technology for java acceleration infringes a us patent the company 
is confident that its products do not infringe the patent cited in the lawsuit or any other patents is defending the action vigorously and believes that the
matter could be concluded quickly
arm annual report and accounts 2002  77 11  geographic and segment information
the company operates in and is managed as a single product segment
the following analysis is of revenues by geographic segment and origin and longlived assets by group companies in each territory
year ended december 31
2000 2001 2002
£000 £000 £000
revenues by market destination
europe 20616 27103 26731
us 55233 72271 67087
japan 18007 33548 38294
asia pacific excluding japan 6874 13352 18810
total revenues 100730 146274 150922
the company’s exports from the united kingdom were £87096000 £128303000 and £135713000 for the years ended december 31 2000 2001 and
2002 respectively
year ended december 31
2000 2001 2002
£000 £000 £000
revenues by origin
europe 90248 131136 137747
us 5608 8431 7288
asia pacific 4874 6707 5887
total revenues 100730 146274 150922
longlived assets including deferred income taxes
europe 23588 35626 38044
us 4023 3608 3751
asia pacific 77 167 269
total longlived assets 27688 39401 42064
in 2002 and 2001 no single customer accounted for more than 10 of total revenues in 2000 one us customer accounted for 15 of total revenues
12  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 and accounts receivable the carrying amount approximates fair value because of the short maturity of those instruments
foreign currency forward contracts the fair value of foreign currency forward contracts is estimated using the settlement rates prevailing at the period end
the estimated fair values of the company’s financial instruments are as follows
year ended december 31
2000 2001 2002
carrying fair carrying fair carrying fair
amount value amount value amount value
£000 £000 £000 £000 £000 £000
cash and cash equivalents 75266 75266 104467 104467 130304 130304
accounts receivable 18913 18913 24809 24809 20516 20516
foreign currency contracts 551 551 355 355 1061 1061
embedded derivatives –––– 950 950
78 arm annual report and accounts 2002
notes to the financial statementsus gaapcontinued arm annual report and accounts 2002  79
report of independent accountantsus gaap
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 december 31 2002 and 2001 and the results of their operations and their cash flows for the years ended
december 31 2002 2001 and 2000 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 auditing standards generally accepted in the united states of america which require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement an audit
includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used
and significant estimates made by management and evaluating the overall financial statement presentation we believe that our audits provide a
reasonable basis for our opinion expressed above
pricewaterhousecoopers llp chartered accountants
cambridge england
28 february 2003 80 arm annual report and accounts 2002
group directory
arm ltd
liberty house
moorbridge road
maidenhead
berkshire sl6 8lt
united kingdom
tel 44 0 1628 427700
fax 44 0 1628 427701
sheffield science park
new spring house
231 glossop road
sheffield s10 2gw
united kingdom
tel 44 0 114 282 8000
fax 44 0 114 282 8001
blackburn design centre
belthorn house
walker road
blackburn bb1 2qe
united kingdom
tel 44 0 1254 893900
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 germany
rennweg 33
85435 erding
germany
tel 49 8122 89209 0
fax 49 8122 89209 49
arm israel
23 hataaas st
44425 kfar saba
israel
tel 972 9 7678040
extension 201
fax 972 9 7677020
arm inc
1250 capital of texas
highway
building 3 suite 560
austin tx 78746
united states
tel 1 512 327 9249
fax 1 512 314 1078
1902 wright place
suite 200
carlsbad ca 92008
united states
tel 1 760 918 5536
fax 1 760 918 5539
750 university avenue
suite 150
los gatos ca 95032
united states
tel 1 408 579 2200
fax 1 408 579 1205
300 w main street
suite 215
northborough ma 01532
united states
tel 1 508 351 1670
fax 1 508 351 1667
walnut creek design center
1981 n broadway
suite 245
walnut creek ca 94596
united states
tel 1 925 944 9690
fax 1 925 944 9612
crystal glen center
39555 orchard hill place
suite 600
novi mi 48375
united states
tel 1 248 374 5055
fax 1 248 374 5056
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
south 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 1112–1113
building b
far east international plaza
no 317 xianxia road
shanghai 200051
pr china
tel 86 21 62351296
fax 86 21 62351207
arm holdings plc
110 fulbourn road
cambridge cb1 9nj
united kingdom
tel 44 0 1223 400400
fax 44 0 1223 400410 designed and produced by cfd 
directors’ photography by bob wheeler 
printed in england by st ives westerham press
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fibre from sawmill residues forest thinnings and sustainable forests 
in austria and from pulp which is totally chlorinefree tcf and
elemental chlorinefree ecf it is recyclable and biodegradable arm holdings plc
110 fulbourn road
cambridge cb1 9nj
united kingdom
telephone 44 0 1223 400400
facsimile 44 0 1223 400410
further information available at
wwwarmcom
the architecture for the digital world
tm
arm holdings plc annual report and accounts 2002


Summary:
 revenue analysis  royalty units  licence revenues by product 
arm at a glance
2 arm annual report and accounts 2002
revenues £m
licensing 55
royalties 18
development systems 15
support maintenance and training 9
consulting 3
arm7
tm
family 15
arm9
tm
family 43
arm10
tm
arm11architecture 23
noncore licensing 19
automotive 2
consumer 8
imaging 3
networking 10
secure 4
storage 2
wireless 71
2002
2001
2000
1999
1998
1509
1463
1007
621
423
0  50 100 150 200
•
total revenues up by 3 7 at constant exchange rates in 2002 to £1509 million
•
our partners shipped a total of 456 million chips in 2002 based on arm technology
•
the first core from the arm11™ family of products was successfully delivered to lead partners in december 
royalty revenues £m
2002
2001
2000
1999
1998
268
279
256
111 
36
0  5 10 15 20 25 30 arm annual report and accounts 2002  3
geographic revenue by market destination 
united states 44
austin texas
novi michigan
carlsbad california
los gatos california
northborough massachusetts
walnut creek california
europe 18
blackburn uk
cambridge uk
maidenhead uk
sheffield uk
montigny le bretonneux france
sophia antipolis france
munich germany
kfar saba israel
asia pacific 38
seoul south korea
taipei taiwan
shinyokohama japan
shanghai pr china
•
arm remains strongly profitable and cashgenerative despite lower revenues in the second 
half of the year
•
the global reach of arms business extended further with the opening of our office in china
net cash balance at year end £m
2002
2001
2000
1999
1998
1303
1045
753
518
396
0  30 60 90 120 150
income before tax us gaap £m
2002
2001
2000
1999
1998
454
503
354
180 
94
0  10 20 30 40 50 60